The VA limits what sellers can charge you, but you may still owe some costs

On a VA loan, the seller typically pays most closing costs — this is one of the program's core benefits. The VA sets a cap on what you can be charged: sellers can pay up to 4 percent of the sale price toward your closing costs, and lenders cannot charge you certain fees at all. However, you may still owe some costs out of pocket, and the exact split depends on your loan terms, your state, and what the seller agrees to.

The key difference between VA loans and conventional loans is that VA loans come with legal limits on lender fees. A conventional lender can charge you origination fees, underwriting fees, and processing fees with few restrictions. A VA lender cannot charge most of these — they can charge only an origination fee capped at 1 percent of the loan amount. That cap alone saves most borrowers hundreds or thousands of dollars.

Understanding who pays what helps you budget for closing day and spot fees that should not be there. Some costs are always your responsibility; others the seller should cover; and a few can go either way depending on your purchase agreement.

Key Takeaways

  • Sellers can pay up to 4 percent of the sale price toward your closing costs on a VA loan, and this is standard practice in most markets.
  • Your VA lender cannot charge origination fees above 1 percent of the loan amount, and cannot charge underwriting, processing, or document preparation fees at all.
  • You are always responsible for the VA funding fee (unless you are exempt), property taxes, homeowners insurance, and HOA fees if applicable.
  • Costs the seller typically covers include title insurance, recording fees, transfer taxes, and real estate agent commissions.
  • Your purchase agreement spells out who pays each cost, so review it carefully before closing and ask your lender to explain any fee you do not recognize.

Costs you always pay as the borrower

Certain costs are your responsibility no matter what. The VA funding fee is the most significant one. This is a one-time fee paid to the VA to offset the cost of the loan program to taxpayers. It ranges from 1.25 percent to 3.6 percent of the loan amount, depending on whether you are a first-time VA borrower, whether you have a service-connected disability, and the size of your down payment. You can roll this fee into your loan balance, meaning you do not pay it upfront, but you will pay interest on it over the life of the loan.

You also pay property taxes and homeowners insurance. These are not closing costs in the traditional sense — they are ongoing expenses — but your lender will collect them at closing as part of your escrow account setup. Your lender will estimate one year of property taxes and three to six months of insurance and hold that money to pay these bills on your behalf.

If the property is in a homeowners association, you pay HOA fees the same way. Your lender collects an estimate at closing and adds it to your monthly mortgage payment. Some lenders also charge a credit report fee, which typically ranges from $25 to $75. This is a legitimate cost, though some lenders build it into their origination fee instead of charging it separately.

Costs the seller typically covers

The seller's side of the closing costs usually includes title insurance, which protects the lender (and you) against claims that someone else owns the property or has a lien against it. Title insurance is a one-time premium, typically 0.5 to 1 percent of the sale price, and it is standard for the seller to pay this on a VA loan. The seller also usually pays recording fees — the cost to file the deed and mortgage with the county — and transfer taxes if your state or county charges them.

Real estate agent commissions are another seller cost. The listing agent and buyer's agent split a commission, usually 5 to 6 percent of the sale price, and this comes out of the seller's proceeds. This is not a closing cost you see on your closing disclosure, but it affects how much the seller can afford to contribute toward your costs.

Some sellers also pay for a home inspection, appraisal, or survey, though these are less common. Your purchase agreement will specify who pays for these if they are ordered. On a VA loan, the appraisal is ordered by the lender to make sure the property is worth the sale price, and the seller typically pays for it, though some lenders charge the borrower.

Costs you may split or negotiate

A few closing costs can go either way, depending on what you and the seller agree to in your purchase agreement. Homeowners insurance is sometimes split — the seller may pay for the first year's premium as part of their closing cost contribution, or you may pay it yourself. This is negotiable and should be spelled out in your offer.

Pest inspections and radon tests fall into this category too. If the home inspection reveals a problem, the purchase agreement usually says who pays to fix it or who pays for a follow-up inspection. On a VA loan, the lender will require certain repairs if the appraisal flags safety or structural issues, and the seller is typically responsible for making those repairs before closing.

Some lenders charge a VA loan origination fee (up to 1 percent), and some do not. This is a lender choice, not a VA rule. Shop around, because some lenders waive it entirely to compete for your business. If a lender charges it, the seller can agree to pay it as part of their 4 percent contribution, or you can negotiate to have it waived.

How the 4 percent seller contribution works

The VA allows sellers to pay up to 4 percent of the sale price toward your closing costs. This is a ceiling, not a requirement — a seller can pay less, and in a buyer's market they might. But in most markets, sellers expect to pay this amount on a VA loan because it is standard practice and helps them compete for your offer.

Here is how it works in practice: if you are buying a $300,000 home, the seller can contribute up to $12,000 toward your closing costs. Your lender will estimate all your costs — title insurance, recording fees, appraisal, origination fee if charged, and so on — and explore the seller's contribution to reduce what you owe at closing. If your total closing costs are $8,000, the seller pays all of it. If they are $15,000, the seller pays $12,000 and you pay $3,000.

Any seller contribution that exceeds your actual closing costs can be used to buy down your interest rate or to cover your VA funding fee. This is called a concession, and it is one of the most valuable parts of a VA loan. A lower interest rate saves you thousands over the life of the loan, so if the seller's 4 percent contribution is larger than your closing costs, ask your lender to use the extra money to reduce your rate.

Fees that should never appear on your closing disclosure

The VA prohibits lenders from charging certain fees on a VA loan. If you see any of these on your closing disclosure, contact your lender when ready and ask why it is there.

Underwriting fees, processing fees, and document preparation fees are banned. These are all wrapped into the origination fee (capped at 1 percent). If your lender lists them separately, they are double-charging you. process fees are also prohibited. Some lenders charge this on conventional loans, but not on VA loans. Appraisal fees cannot be charged to you — the lender pays for the appraisal, though the seller typically reimburses them at closing.

Lenders also cannot charge VA funding fee collection fees, loan tie-in fees, or loan modification fees. If you see a line item you do not recognize, ask your lender what it is and whether it is allowed on a VA loan. Your lender is required to give you a closing disclosure at least three business days before closing, so you have time to review it and ask questions.

What to do if closing costs seem too high

If your lender's estimate shows closing costs that seem out of line, compare it to estimates from other VA lenders. Closing costs vary by lender and by location, but they should not vary wildly. A lender charging $2,000 in origination fees on a $300,000 loan is charging more than the 1 percent cap allows — that is a red flag.

Ask your lender to itemize every fee and explain what it covers. Some fees have legitimate names you may not recognize — for example, a "loan origination fee" and a "loan discount fee" are different things, and both are allowed. But if you cannot get a clear explanation, or if the total seems high compared to other quotes, shop around. The difference between lenders can be $1,000 or more on the same loan.

Also review your purchase agreement before you sign it. Make sure it specifies that the seller will pay closing costs up to 4 percent of the sale price, or whatever amount you negotiated. If the agreement is silent on this, the seller has no obligation to pay anything, and you will owe all costs at closing.

Frequently Asked Questions

Can the seller refuse to pay any closing costs on a VA loan?

Yes. The 4 percent cap is a limit on what sellers can pay, not a requirement that they pay it. However, most sellers expect to pay this amount on a VA loan because it is standard in the market and helps them attract buyers. If a seller refuses to pay closing costs, you can walk away or negotiate a lower sale price to offset your costs.

What is the VA funding fee and can I avoid it?

The VA funding fee is a one-time charge to the VA, ranging from 1.25 to 3.6 percent of the loan amount. You can avoid it only if you have a service-connected disability rated by the VA or if you are a surviving spouse of a veteran who died in service. Otherwise, you owe it, though you can roll it into your loan balance and pay it over time.

Can I pay closing costs out of pocket instead of having the seller pay them?

Yes. Some borrowers prefer to pay closing costs themselves to close faster or to avoid negotiating with the seller. This is your choice. However, you lose the benefit of the seller's 4 percent contribution, which could have been used to lower your interest rate or cover your funding fee.

What happens if the seller's 4 percent contribution is more than my closing costs?

The extra money can be used to buy down your interest rate, to pay your VA funding fee, or to cover your property taxes and insurance at closing. Your lender will show you these options on your closing disclosure. Using it to lower your interest rate usually saves the most money over the life of the loan.

Do I have to use the same lender my real estate agent recommends?

No. Your real estate agent may recommend a lender, but you can shop around and use any VA lender you choose. Get estimates from at least two or three lenders before deciding. The difference in closing costs and interest rates can save you thousands of dollars.