When you go to purchase a home with a VA guaranteed mortgage, you’ll typically encounter fees like closing costs and other expenses. How those get paid is often a matter of negotiation between you and the seller. But there are also fees the VA does not allow the buyer to pay.
Did you know the lender or seller can't charge the borrower for attorney's fees? If the buyer chooses to pay for his or her own attorney, that's the buyer's call, but the buyer can't be charged for the bank's legal representation.
The VA also prohibits a real estate agent from charging the buyer a commission. You'll also find VA mortgage rules that close any loopholes that might allow an agent to charge fees appearing to be commissions even if not defined as such. Other costs that the VA prohibits buyers from paying include:
- Notary public fees
- Recording fees (if $17 or more)
- Buyer broker expenses
- Transaction coordinator costs
- Cost of termite inspection (except in nine states)
It is legal for a house hunter to contact and use a "buyer broker" to find a suitable property, but buyers cannot pay brokerage fees and commissions. The VA adds that property availability and purchase price information is widely available. Forbidding a VA mortgage applicant from paying a commission or fee to a buyer broker doesn't impair the buyer's ability to find a suitable property.
A veteran who buys a property with a VA mortgage can't pay penalty costs associated with existing liens on the sale property. Even though those costs may not technically be "fees", they are still not the buyer's responsibility.
Who Pays Closing Costs?
Negotiation between VA loan homebuyers and sellers dictates who pays how much of the closing costs. There is no VA maximum concerning how much sellers can cover in terms of loan-related closing costs, so buyers can ask home sellers to pay for everything.
In addition, sellers can pay up to 4 percent of the loan amount in concessions. These concessions can go toward paying costs like prepaid property taxes and homeowners insurance and more. Sellers are not legally required to pay for any closing costs, but it’s not uncommon for VA buyers to need at least some assistance on this front. Whether that comes from the seller, the lender or someone else is a case-by-case situation.
Closing Costs Plan of Action
Borrowers get an idea of closing costs expenses once they complete a full loan application. Within three business days of receiving the application, a VA lender will return a Loan Estimate to the borrower. The Loan Estimate is non-obligatory and does not commit the borrower to that lender or loan amount.
Using the Loan Estimate as a launching point, borrowers should talk with their VA loan specialist and real estate agent about the best closing cost approach. Some VA loan users have the capital to pay some closing costs, while others prefer to find sellers who are willing to pay more upfront to sell their property.