VA Mortgages: Allowable Closing Costs and Non-Allowable Closing Costs
VA Mortgages in Pennsylvania and the rest of the country have certain limits on what types of closing costs can be charged to the Veteran and what fees can not be charged to the Veteran. The VA imposes these closing cost guidelines in the interest of protecting the Veteran and assuring that the Veteran receives a mortgage with customary and reasonable closing costs.
It is important for all parties involved in the transaction (Buyers, Sellers, Realtors, Settlement Agents) to be aware of what closing costs can and can not be charged to the Veteran. Knowing this information prior to writing up a sales contract helps all the parties coordinate the payment of some standard closing costs in a way that will be compliant with VA guidelines.
The Veteran may not pay for any fee that is considered a Non-Allowable VA Closing Cost, however, these non-allowable costs may be paid by the Seller or Lender.
Below is a summation of Allowable VA Mortgage Closing Costs and Non-Allowable VA Mortgage Closing Costs…
VA Non-Allowable Closing Costs
Any “made up” fees
Any repairs required by the appraiser to be made to the home prior to closing (purchases)
Document Preparation Fees
Fees for Amortizations Schedules
Fees for Truth in Lending Statements
Interest Rate Lock In Fees
Mortgage Broker Fees
Real Estate Commissions
Tax Service Fees
VA Allowable Closing Costs
VA Funding Fee : This is charged by the VA to maintain the VA home loan program. This amount varies according to the eligibility status of the Veteran, the percentage of the down payment or equity and any previous use of the VA Entitlement. The amount required for Funding Fee can be found here
Origination Fee : to cover any lender charges and services, this fee can not exceed 1%
Discount Points : the veteran can choose to buy down the interest rate on the loan using Discount Points
Recording Fee : to record the mortgage and deed with the local county
Prepaid Items : amount needed for escrow and any prorated amount of property taxes or assessments due at closing between buyer and seller
Flood Insurance : if needed
Title Examination/Title Insurance : to insure the title of the property is free of any previous liens
Local Fees : These are fees specific to the local government where the property is located. Pennsylvania has a 1% state transfer tax. In addition, there is also a local transfer tax that can vary by local municipality. Typically the local transfer tax is also 1% but this can also be vary, so make sure to check on this. Philadelphia, Pittsburgh and some other of the larger cities tend to have higher local transfer taxes. This tax is based on the sales price of the transaction and is usually split evenly between buyer and seller.