Jacob McCrackin
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One of the biggest advantages of using a VA loan is the built-in cost protections it gives you
as a veteran. Unlike conventional loans, the VA actually restricts which fees you’re allowed
to pay at closing — and that rule alone can save you thousands of dollars.
But here’s the problem: a lot of veterans don’t know these rules exist. They show up to
closing, see a list of fees, and just pay them — sometimes including charges they never
should have been on the hook for in the first place.
This post breaks it all down. What you can pay, what you can’t, what sellers are expected to
cover, and how to make sure no one takes advantage of your benefit.
When you buy a home with a VA loan, closing costs work a little differently than they do
with a conventional loan. The VA sets specific guidelines about which fees are “allowable”
— meaning you as the veteran buyer are permitted to pay them — and which are “nonallowable,” meaning they cannot be charged to you at all.
This doesn’t mean your closing is free. There will still be costs involved. But the VA’s rules
put a ceiling on what lenders and other parties can pass your way, and that matters.
The total closing costs on a VA loan typically range from 1% to 3% of the loan amount,
which is generally lower than what conventional buyers pay. The exact number depends on
your lender, the property, your loan amount, and how you negotiate with the seller.
These are costs the VA permits you to cover as the buyer:
VA Funding Fee This is the one fee almost every VA borrower pays. It’s a one-time fee paid
to the Department of Veterans Affairs and it helps keep the VA loan program running
without requiring taxpayer funding. The amount varies based on your down payment and
whether it’s your first time using the benefit — typically ranging from 1.25% to 3.3% of the
loan amount.
The good news: if you have a service-connected disability rating, you may be exempt from
the funding fee entirely. More on that here.
Loan Origination Fee Lenders can charge an origination fee, but the VA caps it at 1% of the
loan amount. This single fee is meant to cover all of the lender’s processing costs. If a
lender tries to charge you more than 1% in origination fees, that’s a red flag.
Credit Report Fee Your lender will pull your credit as part of the application process, and
you’re allowed to pay this fee. It’s typically minor — usually under $50.
VA Appraisal Fee A VA appraisal is required for every VA purchase loan, and you’re allowed
to pay for it. In Colorado, VA appraisal fees are set by the VA regional office and generally
run around $800.
Title Insurance and Title Search Title-related fees are allowable and are a standard part of
any real estate transaction. These protect you and the lender from any ownership disputes
tied to the property.
Recording Fees These are government fees charged to officially record the deed and
mortgage with the county. Standard, allowable, and typically minimal.
Hazard Insurance / Homeowners Insurance You’ll need a homeowners insurance policy
in place at closing, and you’re allowed to pay for it. Your lender will collect the first year’s
premium and set up an escrow account.
Property Taxes (Prepaid) Depending on where you are in the tax year, you may need to
prepay a portion of property taxes at closing. This is allowable.
Discount Points (Optional) If you want to buy down your interest rate, you can pay
discount points. This is optional and entirely your choice.
This is where VA loans stand apart from every other loan type. The VA explicitly prohibits
lenders from charging veterans certain fees. If any of these show up on your Loan Estimate
or Closing Disclosure, push back — or work with your agent to get them covered by the
seller.
Attorney Fees (for the lender) If the lender requires their own attorney to review the
transaction, they cannot pass that cost to you.
Loan Closing or Settlement Fees Lenders cannot charge a separate fee for closing or
settling the loan beyond what’s already covered by the 1% origination cap.
Document Preparation Fees Fees for preparing loan documents are non-allowable. This is
considered part of doing business for the lender.
Underwriting Fees The cost of underwriting your loan is on the lender. It cannot be passed
to you.
Mortgage Broker Fees If a broker is involved, they cannot charge you directly for their
services.
Rate Lock Fees Locking in your interest rate is part of the loan process — the lender cannot
charge you a separate fee for it.
Notary Fees Some lenders try to sneak in notary fees. Not allowable under VA guidelines.
Real Estate Agent Commission (for the seller’s agent) This one is worth noting given
recent changes in how buyer agent commissions are handled. As a VA buyer, you are now
permitted to pay your buyer’s agent commission directly — a rule the VA updated in 2024 to
keep veterans from being shut out of markets. But you should never be charged the seller’s
agent commission.
When a fee is non-allowable, someone still has to pay it — it just can’t be you. Here’s how it
typically works:
The Lender Absorbs It Many lenders will simply cover non-allowable fees as part of doing
business with VA borrowers. If your lender isn’t willing to do this, it may be worth shopping
around.
The Seller Pays Them You can negotiate for the seller to cover non-allowable fees as part
of your purchase contract. Sellers are allowed to contribute up to 4% of the loan amount
toward a veteran buyer’s concessions, which can include non-allowable fees, the VA
funding fee, and even prepaid costs like taxes and insurance.
This is one of the most powerful negotiation tools in a VA transaction — and one of the
reasons working with an agent who knows VA loans matters so much.
Review Your Loan Estimate Early When you apply for a loan, your lender is required to give
you a Loan Estimate within 3 business days. Go through it carefully. Look for any fees that
fall under the non-allowable category and ask your lender directly about anything that
doesn’t look right.
Compare Your Loan Estimate to Your Closing Disclosure A few days before closing,
you’ll receive a Closing Disclosure showing the final numbers. Compare it line by line to
your Loan Estimate. If fees have changed significantly or new ones have appeared, ask for
an explanation before you sign anything.
Work With a VA-Savvy Agent Your real estate agent plays a direct role in how closing costs
shake out. An agent who knows VA loans can negotiate seller concessions strategically,
flag non-allowable fees before they become a problem, and make sure you’re not leaving
money on the table.
The VA loan benefit is one of the most valuable financial tools available to veterans — and
the closing cost protections built into it are a big part of why. You shouldn’t be paying fees
the VA says are off-limits, and you shouldn’t be heading into closing without knowing the
difference.
If you’re preparing to buy in Colorado Springs and want to make sure your VA loan is
working as hard as it should, I’m here to help. I’ve been through this process myself as a
veteran, and I’ll make sure nothing slips through the cracks.