The VA protects borrowers by barring certain charges — the so-called non-allowables. Knowing which costs you can pay, which someone else must absorb, and where the lines sit turns a confusing Loan Estimate into a clear picture.
Why the VA restricts fees
The VA caps and restricts certain charges to keep borrower costs from inflating. The most important restriction is the 1% cap on the lender's flat origination charge, measured against the loan amount. Within that cap the lender may charge an origination fee, but it cannot exceed 1%.
Separately, the VA publishes a list of fees it considers non-allowable for the borrower to pay. When such a fee exists in a transaction, someone other than the borrower must cover it — the lender within the origination cap, the seller, or a lender credit.
What the veteran can pay
The VA appraisal fee, credit report, title insurance and title search, recording fees, transfer taxes where applicable, discount points, the funding fee, prepaid interest, and the initial escrow deposit for taxes and insurance are all permissible borrower-paid costs.
These are the line items that make up the bulk of a normal VA closing. They appear on page two of the Loan Estimate under sections A through F, and they are the costs most often covered by seller-paid closing-cost credits.
Interactive calculator
VA funding fee calculator
The fee is charged once, on the loan amount after any down payment. Exempt borrowers pay nothing.
0.0% down. 5% drops the fee to 1.5%, 10% to 1.25%.
Exemption generally applies with service-connected disability compensation, eligible surviving spouses, and active-duty Purple Heart recipients.
Estimates only, not a quote, and not total cash to close. Title, escrow, appraisal, prepaid taxes and insurance, recording, and other third-party costs are separate. Exemption and fee tier are confirmed in underwriting.
See My Numbers with a Loan OfficerThe non-allowables the veteran cannot pay
Fees the VA generally will not let the borrower pay include attorney fees charged for the lender's benefit, document preparation fees charged by the lender, escrow or settlement fees in excess of customary charges, mortgage broker fees charged to the buyer, real estate commissions, and prepayment penalties.
The practical effect: when one of these charges appears, it must be absorbed by the lender within the 1% origination cap, paid by the seller, or offset by a lender credit. It cannot be charged to the veteran on the settlement statement.
Reading the Loan Estimate line by line
Section A is origination charges — the place to confirm the 1% cap and look for discount points. Section B is services the borrower cannot shop for, such as the VA appraisal and credit report. Section C is services the borrower can shop for, typically title.
Sections E and F are prepaid and escrow items — your own money collected early, not fees. Section G is the initial escrow deposit. The sum of these, less any credits, is your cash to close. When two Loan Estimates differ by thousands at the same rate, the difference almost always lives in sections A and C.
Who absorbs the non-allowables
In practice, non-allowable fees are built into the lender's pricing or absorbed by the seller. A lender charging the full 1% origination may fold document preparation into that charge rather than billing it separately. A seller paying closing costs may cover an attorney fee the borrower cannot pay.
This is why comparing two VA Loan Estimates on rate alone is misleading. One lender may show a lower rate with higher section A charges; another may price the same rate with a credit that lowers cash to close. The total of sections A through C, minus credits, is the real comparison.
Bringing cash to close down
The most effective levers are seller-paid closing-cost credits, the funding fee financed into the loan rather than paid in cash, and exemption status confirmed before disclosures. A veteran who is exempt from the funding fee and receives seller-paid closing costs can close a VA purchase with remarkably little cash.
Confirm the non-allowable treatment on your estimate early. A charge that appears on the borrower side in error can be corrected before it affects cash to close — but only if someone reads the estimate carefully.
Ready to apply what you just read?
Start an application or run your own numbers in the VA calculators.
Jonathan Mullins
Mortgage Loan Officer · Army Veteran
Jonathan Mullins is an Army Veteran and Mortgage Loan Officer at Military Mortgage, specializing in VA home loans for Veterans, active-duty service members, and military families. He writes this learning center to make VA loan rules, entitlement, and the home-buying process easier to understand.
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