On a VA-guaranteed home loan, VA non-allowable fees are the closing costs a veteran is legally prohibited from paying. Federal regulation 38 CFR 36.4313 uses a whitelist: unless a charge is “expressly permitted,” it cannot be passed to the borrower.1eCFR. 38 CFR 36.4313 – Charges and Fees Anything outside that approved list falls to the seller, the lender, or another party in the transaction.
Why the List of Prohibited Fees Is Open-Ended
The VA does not publish an exhaustive blacklist. It publishes the short list of fees a lender may charge, and everything else is off-limits by default. That structure matters because a lender cannot invent a new line item, give it a plausible name, and charge it to the veteran. If the fee is not named in the regulation as allowable, it is non-allowable, even if no VA document has ever mentioned it.1eCFR. 38 CFR 36.4313 – Charges and Fees
Lenders certify to the Secretary of Veterans Affairs at closing that they have not imposed any excess charges. Without that certification, the loan cannot receive a VA guaranty, which is the protection lenders rely on against borrower default. The certification requirement is the enforcement mechanism behind the whole scheme.1eCFR. 38 CFR 36.4313 – Charges and Fees
Fees You Cannot Be Charged on a VA Loan
Several categories come up consistently in VA guidance as prohibited. The underlying logic helps: if the charge covers the lender’s business operations, the veteran doesn’t pay. If it’s a genuine third-party service the veteran actually receives, it’s more likely allowable.
- Lender attorney fees. When the lender hires a lawyer to review documents or manage the closing, that cost cannot go to the veteran. A title examination performed by an attorney is a separate service and is allowable, as is a lawyer the veteran independently retains for their own representation.2Department of Veterans Affairs. Circular 26-10-01 – Impact of New RESPA Rule on Fees and Charges for VA Loans
- Prepayment penalties from a prior loan. On a refinance, any penalty the old lender charges for early payoff cannot appear as a closing cost on the new VA loan. On a purchase, any prepayment penalty tied to the seller’s existing lien cannot be charged to the veteran.3Department of Veterans Affairs. VA Loan Origination Reference Guide
- Document preparation fees. When the lender charges the 1% origination fee, document preparation must be absorbed into it and cannot appear as a separate line item.2Department of Veterans Affairs. Circular 26-10-01 – Impact of New RESPA Rule on Fees and Charges for VA Loans
- Mortgage brokerage fees. No charge may be made against the veteran for obtaining the VA guaranty or insurance on the loan.4eCFR. 38 CFR 36.4313 – Charges and Fees
- Processing, underwriting, application, postage, and courier charges. Internal lender overhead of this kind is non-allowable when the lender collects the 1% origination fee.
If any of these show up as separate charges on your Loan Estimate or Closing Disclosure alongside an origination fee, that is the pattern to question.
How the 1% Origination Cap Works
The regulation permits a flat origination fee of up to 1% of the loan amount. On a $350,000 mortgage, that ceiling is $3,500. The 1% is meant to cover all of the lender’s internal costs of processing and originating the loan.1eCFR. 38 CFR 36.4313 – Charges and Fees
Here is the part that turns ordinary charges into non-allowable ones. When the lender charges the 1% flat fee, that fee replaces “all other charges relating to costs of origination not expressly specified and allowed” in the approved schedule.1eCFR. 38 CFR 36.4313 – Charges and Fees Document preparation, loan processing, underwriting, and other internal administrative work must be folded into that 1%. Charging the origination fee and then adding separate line items for these services violates the rule.
A lender that chooses not to charge the flat 1% fee can instead itemize individual services, but the total of those itemized charges still cannot exceed 1% of the loan amount.2Department of Veterans Affairs. Circular 26-10-01 – Impact of New RESPA Rule on Fees and Charges for VA Loans Either way, the veteran’s exposure to lender overhead is capped at 1%. That is the number to check your closing paperwork against.
Who Pays the Non-Allowable Fees Instead
Because the veteran cannot pay these charges, they shift somewhere else. In practice, that is the seller, the lender, or an adjustment through the buyer’s agent agreement.
Seller Credits
The most common route is for the seller to cover non-allowable costs through the purchase agreement. Seller-paid closing costs of this kind — items like title fees, appraisal costs, and recording fees — are not capped by the VA, provided the amounts are reasonable.5Veterans Affairs. VA Funding Fee and Loan Closing Costs
Lender Credits
A lender can offer credits that offset costs the veteran cannot pay. The trade-off is a slightly higher interest rate. You pay less upfront and more over time through higher monthly payments, and the transaction stays compliant without any seller contribution.5Veterans Affairs. VA Funding Fee and Loan Closing Costs
Buyer-Broker Adjustments
Since August 2024, veterans sign written agreements with their buyer’s agent that specify compensation, and veterans may pay reasonable and customary amounts for buyer-broker services. If a seller offers compensation to the buyer’s agent that exceeds the amount the veteran negotiated, the difference can be redirected as a seller concession to help cover the buyer’s closing costs.6VA News. What Real Estate Industry Changes Mean for VA Home Loan Borrowers
The 4% Concession Cap Is a Different Rule
People routinely mix up non-allowable fees with the 4% seller concession cap. They are separate rules and the confusion has real consequences at the negotiating table.
The VA limits seller concessions to 4% of the property’s reasonable value as determined by the VA appraisal. But “concessions” in VA terms does not mean all seller-paid costs. Concessions are benefits the buyer receives beyond normal closing costs, such as the seller paying the veteran’s VA funding fee, prepaying property taxes or insurance, paying off the buyer’s consumer debts to help them qualify, gifting appliances at no charge, or funding an interest rate buydown beyond what’s customary.
Standard seller-paid closing costs — title insurance, the appraisal, recording fees, lender origination charges — do not count toward the 4%.5Veterans Affairs. VA Funding Fee and Loan Closing Costs That means a seller’s total contribution to a VA transaction can exceed 4% of the home’s value. The cap only applies to the concession category. Non-allowable fees paid by the seller are just closing costs, not concessions.
What to Do If a Non-Allowable Fee Appears on Your Closing Disclosure
Lenders make mistakes and some push boundaries. When a non-allowable fee turns up, the VA requires the lender to fix it. Caught before or at closing, the lender removes the fee or credits it back. Discovered after closing, the lender must refund the veteran directly. If the overcharged amount was financed into the loan balance, the lender must apply a principal reduction and keep documented proof that the correction was made.7Veterans Benefits Administration. Circular 26-24-19
Every itemized fee must be supported by an invoice. If the lender cannot produce documentation for a charge, that charge gets refunded regardless of whether it would otherwise be allowable.7Veterans Benefits Administration. Circular 26-24-19 Lenders that repeatedly violate the rules face removal from the VA lending program, fines, and government-wide debarment.1eCFR. 38 CFR 36.4313 – Charges and Fees
If you suspect you were charged a non-allowable fee, contact your VA Regional Loan Center. The VA reviews loan files during audits and has the authority to compel corrections long after the closing date has passed.