VA Closing Costs, Seller Concessions and Non-Allowable Fees

The Department of Veterans Affairs controls exactly what costs can be passed on to the Veteran at closing. They balance this by allowing the lender to charge a flat 1% fee to cover their overhead.

Which costs are mine to cover?

As a Veteran, you're permitted to pay reasonable and customary third-party fees associated with securing a mortgage. These "Allowable Fees" include:

• The VA Appraisal and Compliance Inspections.
• Credit Report fees.
• Title Examination and Title Insurance.
• Recording fees and state transfer taxes.
• Prorated property taxes, hazard insurance, and HOA dues.
• Discount points (if you choose to buy down your interest rate).

How does the 1 percent cap work?

The lender is allowed to charge a flat origination fee of up to 1% of the loan amount. This 1% fee is intended to cover the lender's operational costs (paying their underwriters, processors, and staff). Nothing on the non-allowable list below can be charged to you, with or without that 1% fee. Not every lender takes the full 1%, which is why it's one of the first numbers to compare across VA mortgage lenders in Florida.

The veteran can't be charged any of the following fees, whether or not the lender takes the 1% origination fee. If these fees appear on the final closing disclosure, they must be paid by the seller, the real estate agent, or absorbed by the lender.

What can a veteran never be charged?

• Lender Overhead: Underwriting fees, processing fees, document preparation fees, or application fees.
• Closing/Escrow Fees: Settlement fees or escrow fees charged by the title company or attorney (unless specifically permitted by local state variances).
• Notary Fees: Any fee to notarize the closing documents.
• Tax Service Fees: Fees charged to monitor property tax payments.
• Attorney Fees: You can't be charged for the lender's attorney to review the file.

Termite inspections: the VA used to bar veterans from paying for a termite (WDI) inspection. That changed, and a veteran can now pay for a required inspection if the seller won't.

This is the rule that trips up the most VA contracts. Some agents turn down VA offers because they think the seller is capped at 4% in total. The seller isn't.

What is the difference between costs and concessions?

The VA separates "Normal Closing Costs" and "Concessions."

• Normal Closing Costs (No Limit): The seller can pay 100% of the Veteran's normal closing costs (title, appraisal, state taxes, origination fee and market-normal discount points). The VA sets no limit on this amount. It doesn't matter if these costs equal 2% or 8% of the purchase price.
• Seller Concessions (4% Limit): Concessions are anything of value the seller adds beyond standard loan costs. They're capped at 4% of the home's reasonable value, which is the appraised value on the VA Notice of Value, not the contract price.

What counts toward the 4 percent?

If the seller decides to max out the 4% concession limit, those funds can cover:

• Paying the Veteran's VA Funding Fee.
• Paying off the Veteran's personal credit card balances or auto loans at closing to help them qualify for the mortgage.
• Pre-paying the Veteran's property taxes or homeowner's insurance.
• Providing gifts, such as a television or microwave, included in the contract.

Put together: a seller could pay 3% of the price toward your normal closing costs and another 4% of the appraised value in concessions, for example to pay off a credit card. That's 7% in total, and it's within VA rules.

The cap is 4% of the home's reasonable value, which is the appraised value on the VA Notice of Value. If the home appraises below the contract price, the cap shrinks with it. Here's how it plays out on a $400,000 home that appraises at $400,000, for a first-time VA buyer putting nothing down:

Florida homeowners insurance makes the prepaid line bigger here than in most states, which is exactly why it pays to know which bucket each dollar sits in before you write the offer.

VA is the only one of the three that splits closing costs and concessions into separate buckets. FHA and conventional put everything the seller pays under one cap.

More on the other two in our seller concessions guide.

Veterans who receive VA compensation for a service-connected disability don't pay the funding fee at all, and neither do a few other groups, such as Purple Heart recipients on active duty. With no funding fee to cover, the whole 4% is free for prepaid taxes and insurance, paying off a debt, or a seller-paid rate buydown. Check whether you qualify on our funding fee exemptions page.

Yes, but less. A veteran who receives VA compensation for a service-connected disability doesn't pay the funding fee, which is often the biggest single cost on a VA loan. The rest still applies: title, appraisal, recording fees, and prepaid taxes and insurance.

The seller can pay those too. Normal closing costs have no VA limit, and the prepaids fit inside the 4% concession cap. Written into the contract the right way, a disabled veteran can close with little or no cash out of pocket.