Veterans Affairs (VA) Loan Closing Costs, Non-Allowable Fees & Seller Concessions (4% Rule) Explained

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When you’re buying a home with a Veterans Affairs (VA) loan, it’s easy to wonder what closing costs look like, who pays for what, and how much you should expect upfront. You may have heard terms like non-allowable fees or the 4% seller concessions rule but aren’t quite sure what they actually mean for your budget. 

This is why it’s helpful to learn about the VA loan program’s rules around closing costs and other fees. These rules limit which fees eligible veterans, active-duty service members, or surviving spouses can be charged, outline what sellers are allowed to cover, and help ensure you walk into your home purchase with clarity.  

In this article, we’ll break down the different types of VA closing costs, explain which fees borrowers can and cannot pay based on VA guidelines, and show how seller concessions work, including how the 4% cap is calculated.  

By the end, you’ll have a clear understanding of how VA closing costs work, so you can make informed decisions and focus on what really matters in your home search.

Understanding VA Loan Closing Costs

Before diving into the lists of allowable and non-allowable fees, it helps to understand why the VA structures VA loan closing costs the way it does. According to the VA, the VA home loan program is considered a veteran’s benefit, and the fee limitations are designed to protect that value. The VA sets rules around which charges the borrower can pay and requires lenders to follow those limits strictly. 

These protections don’t remove closing costs entirely, but they do shape how those costs are shared between the borrower, the lender, and the seller. For example, the VA allows borrowers to pay certain third-party fees, like the appraisal or title insurance, but restricts the lender from charging its own separate fees for many internal administrative tasks. Those costs must be covered within the lender’s flat 1% fee, which we’ll explain later. 

It’s also important to note that the VA does not cap overall VA loan closing costs. Instead, it categorizes what borrowers may and may not pay, defines which charges can be covered by other parties, and outlines how seller concessions should be treated.

What VA Buyers Can Pay (Allowable Fees)

The VA allows borrowers to pay certain closing costs, as long as the amounts are reasonable and customary for the area. The allowable fees are listed below: 

• VA appraisal and certain inspections: 

Borrowers may pay for the VA appraisal and VA compliance inspections when required. However, if a lender or seller requests an additional appraisal for their own purposes, the borrower cannot be charged for it. 

• Credit report fee: 

A borrower may pay for the credit report or automated underwriting evaluation fee when applicable. 

• Title examination and title insurance: 

VA buyers can pay for title search services and title insurance policies associated with the loan. 

• Recording fees and related taxes: 

Borrowers may pay local recording charges and taxes associated with recording the deed or mortgage. 

• Hazard and flood insurance: 

Required homeowners’ insurance, including flood coverage when applicable, may be paid by the borrower. 

• Flood zone determination: 

Borrowers may pay the cost of determining whether the home is in a flood zone when this service is performed by a qualified third party. 

• Prepaid items: 

Borrowers can pay their prorated portion of property taxes, insurance, and the initial escrow deposits. 

• Survey fees: 

If a survey is required, whether by the lender or the borrower, the borrower may pay for it.  

• MERS fee: 

Borrowers may pay the one-time Mortgage Electronic Registration Systems (MERS) fee, which is used for tracking loan servicing rights. 

• Locally approved fees: 

Certain regional or jurisdiction-specific fees may also be charged, but only if the VA has expressly approved them for that locality. 

The VA also requires that when these services come from a third party, the borrower may only be charged what the third party actually billed. Further, if a fee has already been paid by someone else (for example, a valid existing appraisal), the borrower cannot be charged again for it.

The Lender’s 1% Flat Fee

Beyond the itemized fees, lenders may charge a flat fee up to 1% of the loan amount. This fee is intended to cover the lender’s internal costs, such as document preparation, processing, underwriting tasks, loan closing coordination, and general overhead. These internal services cannot be billed to the borrower as separate line items.

What VA Buyers Cannot Pay (Non-Allowable Fees)

Just as the VA outlines which fees a borrower may pay, it also clearly defines which charges cannot be passed on to eligible veterans. These restrictions are listed below: 

Lender Fees That Must Be Covered by the 1% Flat Charge

As mentioned above, many of the costs associated with originating and processing a loan must be absorbed by the lender through the 1% flat fee. They cannot be billed to the borrower as individual line items. The items that cannot be individually charged to VA loan borrowers includes a broad range of administrative or overhead expenses, such as: 

• Loan underwriting and processing 

• Document preparation 

• Lender-required inspections (outside of certain construction scenarios) 

• Settlement or closing coordination fees 

• Notary charges 

• Postage, mailing, and other office-related overhead 

• Interest rate lock-in fees 

• Escrow-related or trustee fees 

• Loan application or processing fees 

• Fees for preparing required disclosure documents

Broker-Related Fees

Borrowers cannot be charged any real estate brokerage commissions or buyer-broker fees in connection with obtaining a VA loan. While veterans may choose to work with a buyer’s agent, the VA does not allow the borrower to pay a fee or commission for that representation.

Attorney’s Fees (When Charged by the Lender)

A lender cannot charge the borrower for attorney’s fees for services that support the lender’s side of the transaction. The only exception is when the fee relates specifically to title work, which the VA categorizes as an allowable itemized charge. Veterans may hire their own attorney, but any fee for that service must be clearly unrelated to the lender’s costs. 

Prepayment Penalties

If the seller must pay a penalty to close out an existing lien, that penalty cannot be passed on to the borrower as part of the VA transaction. VA buyers cannot be charged these costs. 

Certain Builder or HUD/FHA Inspection Fees

In newly constructed homes that were built under HUD supervision, any required inspections or re-inspections must be covered by the builder, not the VA buyer. This includes inspections tied to escrow agreements for incomplete work.

Understanding the VA Seller Concessions Rule (4% Cap)

While sellers are allowed to help with certain buyer costs, the VA places clear limits on what counts as a concession and how much the seller can contribute beyond standard closing costs. 

What Counts as a Seller Concession

A seller concession is anything the seller adds to the transaction that benefits the buyer but is not something the seller is customarily expected to pay.  

Common examples of seller concessions include: 

• Covering the buyer’s VA funding fee 

• Prepaying the buyer’s property taxes or homeowner’s insurance 

• Paying for interest rate buydowns beyond the market norm 

• Providing escrowed funds for temporary interest rate buydowns 

• Paying off the buyer’s judgments or credit balances 

• Offering gifts or incentives (like appliances or allowances not tied to required repairs)

What Does Not Count as a Seller Concession 

The following do not count toward the 4% cap: 

• Normal buyer closing costs 

• Discount points that reflect the current market rate 

• Fees sellers commonly cover in a typical real estate transaction for the area 

In other words, if the market normally expects sellers to contribute toward certain closing costs or discount points, those items stay outside the 4% concession calculation. 

How the 4% Cap Works

The VA caps total seller concessions at 4% of the home’s reasonable value, as established by the VA appraisal. Anything beyond that is considered excessive and isn’t allowed on a VA-guaranteed loan. 

To be clear: 

• The cap does not limit seller-paid closing costs. 

• The cap only applies to seller concessions, as defined above.

Final Thoughts 

The VA’s guidelines around VA loan closing costs, allowable fees, non-allowable charges, and seller concessions are designed to keep costs fair, prevent unnecessary expenses, and help eligible buyers use their VA loan with confidence. Knowing what to expect at closing, which fees are negotiable, and how seller contributions work allows you to make informed decisions and structure a clean, compliant offer.  

With the right information at your side and a knowledgeable team to guide you, you can approach closing with greater confidence and focus on what matters most: settling into a home that truly feels like yours.