VA loans have a closing cost advantage built in

With a VA loan, you are not required to pay closing costs — the seller or lender must cover them instead. This is one of the biggest financial benefits of the VA loan program. Federal law prohibits lenders from charging you certain closing costs, and the seller is required by law to pay others on your behalf.

The specific rule is this: you cannot be charged for lender fees, appraisal fees, credit report fees, title search fees, or recording fees. The seller must pay real estate agent commissions, transfer taxes, and title insurance. Some costs — like homeowners insurance and property taxes — are your responsibility because they are not closing costs; they are ongoing expenses of homeownership.

This protection applies to all VA loans, whether you are buying your first home or your fifth. It does not matter what the local real estate market looks like or how competitive the sale is. The rules stay the same.

Key Takeaways

  • Federal law prohibits lenders from charging you appraisal fees, credit report fees, title search fees, recording fees, or most lender fees on a VA loan.
  • The seller must pay real estate agent commissions, transfer taxes, and title insurance as part of the sale.
  • You are responsible for homeowners insurance, property taxes, and any HOA fees, which are not closing costs.
  • If a lender or seller tries to charge you prohibited closing costs, you can report them to the VA or your state's banking regulator.
  • Some costs like inspections and surveys may be negotiable between you and the seller, depending on your purchase agreement.

What closing costs are prohibited for VA borrowers

The VA maintains a list of fees that lenders cannot charge you. These include origination fees, processing fees, underwriting fees, appraisal fees, credit report fees, flood information fees, title search fees, title examination fees, recording fees, and document preparation fees. If you see any of these on your loan estimate, ask the lender to remove them.

Some lenders will try to disguise prohibited fees under different names — for example, calling an origination fee a "loan processing fee" or an appraisal fee a "property evaluation fee." The name does not matter. If the fee is for a service that the VA prohibits, it should not appear on your bill.

The lender can charge you for things that are not on the prohibited list, such as homeowners insurance, property taxes, HOA fees, and inspections. However, these are often negotiable. You can ask the seller to cover the cost of an inspection or survey as part of the purchase agreement, and many sellers will agree to this in a competitive market.

What the seller must pay

The seller is required by law to pay the real estate agent commissions (usually 5 to 6 percent of the sale price, split between the buyer's and seller's agents), transfer taxes, and title insurance. These are not optional — they are part of the cost of selling a home, and the VA loan rules do not change that.

The seller may also be required to pay for repairs if the VA appraisal uncovers safety or structural issues. If the appraiser finds that the roof is failing, the plumbing is unsafe, or the foundation is cracked, the seller must fix these problems before the sale closes. This is a VA requirement, not a negotiation.

In some states, the seller also pays the title insurance premium. In others, the buyer traditionally pays it, but with a VA loan, the seller must cover it. Check with your real estate agent or title company about your state's custom.

Costs you will pay as the buyer

Even though the VA protects you from closing costs, you will still pay some expenses at closing. These are not closing costs in the legal sense — they are prepaid expenses and escrow deposits that are part of buying a home.

You will pay homeowners insurance premiums (usually one year upfront), property taxes (prorated for the months you own the home in the first year), HOA fees if applicable, and any inspections or surveys you order. You will also pay the VA funding fee, which is a one-time charge that goes to the VA to offset the cost of the loan program. The funding fee is typically 2 to 3 percent of the loan amount for first-time users, though it varies based on your military service and down payment.

You may also pay for a home inspection, pest inspection, or survey if you choose to order these. These are optional services that protect you, not required closing costs. Many buyers negotiate with the seller to cover the cost of an inspection as part of the purchase agreement.

How the VA funding fee works

The VA funding fee is not a closing cost in the traditional sense, but it is a charge you will see at closing. This fee goes directly to the Department of Veterans Affairs and helps fund the loan program for future veterans. It is a one-time charge that you pay only once per loan.

The funding fee is typically 2.3 percent of the loan amount for first-time VA borrowers with no down payment. If you put down 5 to 10 percent, the fee drops to 1.63 percent. If you put down 10 percent or more, it drops to 1.25 percent. If you are a surviving spouse or have a service-connected disability rated by the VA, you may be exempt from the funding fee entirely.

You can pay the funding fee upfront at closing, or you can roll it into your loan amount. Most borrowers roll it into the loan because it spreads the cost over 15 or 30 years instead of paying it all at once. Ask your lender which option makes sense for your situation.

What to do if a lender or seller tries to charge you prohibited costs

If a lender includes prohibited closing costs on your loan estimate, contact them when ready and ask for a written explanation. Most lenders know the rules and will remove the fees without argument. If they refuse, you can file a complaint with the VA's loan administration office or your state's banking regulator.

If the seller tries to pass closing costs to you that they are required to pay, your real estate agent should push back. This is a violation of VA rules, and your agent has a duty to protect your interests. If the seller insists, you can report the violation to the VA or walk away from the deal.

Keep a copy of your loan estimate and your closing disclosure. These documents show exactly what you are paying and who is paying what. If something looks wrong, ask your lender or title company to explain it before you sign.

Frequently Asked Questions

Can I negotiate closing costs with the seller on a VA loan?

You cannot negotiate the costs the seller is required to pay by law, such as real estate commissions and title insurance. However, you can negotiate optional costs like inspections, surveys, and repairs. Many sellers will agree to cover the cost of a home inspection or pay for repairs found during the appraisal, especially in a buyer's market.

What if I want to pay closing costs out of pocket instead of having the seller pay them?

You can choose to pay closing costs yourself, but there is no financial reason to do so. The seller is required to pay them, so letting them do so saves you money. The only exception is if you want to make your offer more attractive by offering to cover costs the seller would normally pay, but this is a negotiating tactic, not a requirement.

Does the VA funding fee count as a closing cost?

The VA funding fee is not a prohibited closing cost, so you are responsible for it. However, it is a one-time charge that goes to the VA, not to the lender or seller. You can pay it upfront or roll it into your loan amount. Most borrowers roll it into the loan to keep cash available at closing.

What happens if the seller will not pay the closing costs required by law?

If the seller refuses to pay costs they are required to pay, your real estate agent should escalate the issue. If the seller still refuses, you can report the violation to the VA or your state's real estate commission. In most cases, the seller's agent will pressure them to comply because violating VA rules can result in penalties.

Are there any closing costs I cannot avoid as a VA borrower?

Yes. You will pay homeowners insurance, property taxes, HOA fees (if applicable), and the VA funding fee. You may also pay for inspections or surveys if you choose to order them. These are not prohibited closing costs, so they are your responsibility. However, you can negotiate with the seller to cover some of these as part of the purchase agreement.