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Allowable and Non-Allowable Fees for VA Borrowers

The process of buying a home can be confusing and stressful time, particularly if the buyer is taking out a mortgage for the purchase. The confusion and stress can be even worse when the buyer is using a so-called VA loan. Guaranteed by the government, VA loans come with special rules and can also only be used to buy homes which have been pre-approved by the Veterans Administration. One of the unique aspects of a VA loan is that the type of fees charged to the buyer is limited, and fees that are routinely used in negotiations in traditional home loans are not allowed to be paid by the buyer. Some of these non-allowable fees include costs for termite or pest inspections, attorney fees benefiting the seller, mortgage broker fees, real estate agent commissions and prepayment fees. These fees are paid by the seller in most cases, but borrowers will sometimes agree to pay them in order to reach a deal with seller.

The Veterans Administration does allow borrowers to pay for a number of fees associated with home sales, including the origination fee. This fee, typically 1 percent of the amount of the amount borrowed, is charged by the lender to cover costs associated with extending the loan. These costs include document preparation fees, processing fees, faxing, mailing and application costs and other charges the lender incurs in order to process the loan. The VA also allows borrowers to pay appraisal fees, recording fees, credit report charges, flood determination fees and others. Housing professionals often use the acronym ACTORS to help borrowers remember which fees a VA borrower is allowed to pay. The acronym stands for Appraisal, Credit Report, Title Insurance, Origination Fee, Recording Fee and Survey. Charges that don't fit into the acronym are not allowed to be paid by the buyer.

While the VA prohibits borrowers from paying certain fees, there are several ways to get around these restrictions. The seller can assume the non-allowable costs, as a condition of the contract, while the buyer agrees to pay that much more for the home, as long as he's qualified. If a buyer offers $185,000 for a home, for example, and there's $1,200 in non-allowable fees, the seller can agree to pay those charges but submit a counter-offer asking for $186,200. Another option is for either the buyer's or seller's agent to cover the costs by agreeing to lower their commission, though some states prohibit this method. The best way to deal with non-allowables, and how to get them paid, is to make sure your lender is knowledgeable on all aspects of VA loans.

June 26, 2014

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