If you’re a veteran exploring the housing market, you’ve likely heard a lot about the advantages of a VA loan—especially the zero down payment and no private mortgage insurance (PMI) features.
Yet there’s one detail that often catches people by surprise: the 4% rule on a VA loan.
Don’t worry—this rule is simpler than it sounds. Below, you’ll learn exactly what the 4% rule is, why it exists, and how it protects you from paying too much at closing.
- The 4% rule on a VA loan limits certain lender fees to a maximum of 4% of your total loan amount.
- It shields veterans from excessive closing costs like origination and processing fees.
- Costs like the VA appraisal, title insurance, and prepaid taxes do not count toward this cap.
- By understanding and applying the rule, veteran homebuyers can keep their expenses under control and take full advantage of the VA loan benefit.
What Exactly Is the 4% Rule on a VA Loan?
It’s a cap that prevents your lender from charging more than 4% of your loan amount in specific fees.
When you use your VA loan benefits, the Department of Veterans Affairs sets certain guidelines to protect you from unfair costs. One of these guidelines is the 4% rule, which basically says: any fees your lender charges for things like origination, processing, or underwriting can’t add up to more than 4% of your loan amount.
Example: If your loan amount is $250,000, the lender-specific fees can’t exceed $10,000 in total.
It’s designed to stop surprises at the closing table. So, if you’re shopping for a home in a place like Seguin or anywhere else, you won’t have to worry about a big stack of hidden fees that destroy your budget.
Why the 4% Rule Exists for Veterans
To make sure military service members and veterans aren’t overcharged on closing costs.
Over the years, the VA has recognized that zero down payment isn’t much help if lenders tack on huge fees. The 4% rule blocks lenders from sneaking in inflated charges—like a high application fee or extra processing fees—so you can keep more of your hard-earned money.
Real-Life Vet Story:
Mike, a retired Marine, was nearly hit with $12,000 in lender fees on a $300,000 VA loan. Thanks to the 4% rule, those charges were capped at $12,000, and he negotiated to bring them down even further.
What Fees Fall Under the 4% Rule?
Only certain “lender-charged” costs count toward the 4% cap.
Not every closing cost is subject to the 4% rule. Fees that do count usually come from your lender’s side of the transaction, such as:
- Origination Fee: Covers setup and typically runs around 1% of your loan amount.
- Processing Fee: Payment for handling paperwork.
- Underwriting Fee: Covers the lender’s risk evaluation.
- Application Fee: For reviewing your initial application.
- Document Preparation Fee: For drafting final loan documents.
Fees that do not count include:
- VA Appraisal: Generally $500–$700
- Title Insurance: Often $1,000–$2,000
- Prepaid Taxes and Insurance
It’s critical to know which fees are capped so you can spot any overcharges in your closing documents.
How the 4% Rule Applies to Your VA Loan
Add up the lender-specific fees and make sure they don’t go beyond 4% of your total loan amount.
For a $200,000 VA loan, the most your lender can charge in certain fees is $8,000. Even if the lender fee breakdown comes in below that, keep an eye out for anything unusual. You will still have other closing costs, such as the VA appraisal and title work, which aren’t part of the 4% rule.
Example:
- Loan Amount: $200,000
- 4% Cap: $8,000 in lender fees
- Actual Lender Fees: $2,000 (origination) + $1,500 (processing and underwriting) = $3,500
- Outside the 4% Rule: $600 appraisal + $1,200 title fees
Your total fees are way under the 4% limit—exactly what you want!
VA Loan Fees Inside vs. Outside the 4% Rule
| Fee Type | Inside 4% Rule | Typical Cost | Outside 4% Rule | Typical Cost |
|---|---|---|---|---|
| Origination | Yes | $1,000–$3,000 | No | N/A |
| Processing | Yes | $300–$500 | No | N/A |
| Appraisal | No | N/A | Yes | $500–$700 |
| Title Insurance | No | N/A | Yes | $1,000–$2,000 |
| Prepaid Taxes/Insurance | No | N/A | Yes | $1,000–$3,000 |
Focus on the “Inside 4% Rule” column to know which lender fees shouldn’t exceed 4% of your loan amount.
Steps to Ensure the 4% Rule Works for You
Pay close attention at every stage—Loan Estimate, lender comparison, and Closing Disclosure—to confirm your fees are fair.
Get Your Loan Estimate
After submitting your application, you’ll receive a Loan Estimate within three business days. Look at the “Loan Costs” section. If your total lender fees exceed 4% of your loan amount, ask why.
Spot the Capped Fees
Highlight anything labeled “origination,” “processing,” or “underwriting.” These count toward the cap.
Fun fact: Lisa, an Army veteran, saw a $5,000 origination fee on a $200,000 loan—over the 4% cap—and successfully negotiated it down.
Compare Lenders
Don’t settle on the first VA lender you find. Gather quotes from at least three lenders. Fill out our short form and we will match you with VA lenders who are the best fit for your situation. You could save $1,000–$2,000 or more.
Review the Closing Disclosure
A few days before you close, you’ll receive this final document showing every fee. Double-check that the total capped fees aren’t above 4% of your loan. If something looks off, speak up.
Ask Questions
If any fee confuses you, ask whether it’s under the 4% rule or exempt. Reputable lenders won’t dodge your questions; if they do, consider finding another VA-approved lender.
4% Rule Examples by Loan Size
| Loan Amount | 4% Cap | Sample Fees (Under Cap) | Outside Cap Costs |
|---|
| $200,000 | $8,000 | $2,000 orig. + $1,500 proc. | $600 app. + $1,200 title |
| $300,000 | $12,000 | $3,000 orig. + $2,000 under. | $700 app. + $1,800 title |
| $400,000 | $16,000 | $4,000 orig. + $3,000 proc. | $800 app. + $2,500 title |
These examples show typical loan amounts and fee splits to ensure you stay below 4%.
Exceptions to the 4% Rule
While the rule is firm most of the time, a few specific situations allow higher fees.
- Energy-Efficient Improvements: If you’re rolling in costs for things like solar panels or insulation, those extra costs can sometimes exceed 4%.
- Construction Loans: A one-time close construction loan might include additional fees.
- Seller Credits: When a seller contributes toward your closing costs, it might look like the 4% is exceeded—but seller credits don’t count toward your lender’s cap.
Example:
Tom, a Navy veteran, added a solar package to his $250,000 VA loan. His fees were $11,000—above 4%. Because they were tied to energy improvements, the VA made an exception.
How the 4% Rule Saves You Money
It prevents lenders from piling on extra costs, keeping your closing expenses more affordable.
Without the 4% rule, some lenders might charge 5%–6% of your loan amount—an extra $3,000–$6,000 on a $300,000 loan. By sticking to 4% or below, you keep your finances in check. Combine that with no PMI (often saving $100–$200 a month) and zero down, and your VA loan can cost a lot less than a conventional mortgage.
Tips to Maximize the 4% Rule Advantage
Be proactive in your lender search and fee negotiations.
- Negotiate Fees: It’s not unusual to push origination fees down to 1%.
- Shop Around: Get multiple estimates. Even a small difference can save you hundreds—or thousands—over the life of your loan.
- Check Exemptions: If you have a service-connected disability, you could be exempt from the VA funding fee.
- Double-Check Your Paperwork: Compare your Loan Estimate to your Closing Disclosure. If fees jump, speak up and ask why.
Real-Life Win: A fellow veteran saved $2,000 on a $250,000 loan just by insisting on lower origination fees and comparing two lenders.
FAQs About the 4% Rule on a VA Loan
What does the 4% rule cover on a VA loan?
It caps the total lender-charged fees (like origination, processing, and underwriting) at 4% of your loan amount. Costs for appraisal, title insurance, and prepaid taxes/insurance do not count.
How much can lenders charge under the 4% rule?
They can charge up to 4% of your loan. On a $300,000 loan, that’s $12,000. However, many lenders come in well under that—often around $3,000–$6,000 total.
Does the 4% rule include the VA funding fee?
No. The VA funding fee is separate (usually 2.15%–3.3% for first-time borrowers) and goes directly to the VA, not your lender.
Can I negotiate fees under the 4% rule?
Absolutely. Even if your fees are under 4%, you can still negotiate. Getting multiple quotes is a great way to save $1,000–$2,000 or more.
What if my lender exceeds the 4% rule?
Point it out immediately. VA guidelines are strict, and lenders must adhere to them. If the lender won’t adjust fees, you can switch to a different VA-approved lender.
Are there exceptions to the 4% rule?
Yes. Loans for energy-efficient improvements, construction, or loans where the seller covers many fees may exceed 4%. Always confirm with your lender if you think you might qualify for an exception.
How do I check if fees fit the 4% rule?
Add up all the lender-specific fees (origination, processing, underwriting, etc.) in your Loan Estimate or Closing Disclosure. If it’s more than 4% of your loan amount, ask for a detailed explanation.
Does the 4% rule apply to VA refinances?
Yes. Whether you’re doing an Interest Rate Reduction Refinance Loan (IRRRL) or a cash-out refinance, the same 4% cap applies to lender-charged fees.
Pro Tip: According to the VA, over 1.4 million VA home loans were guaranteed in 2023 alone, showing just how popular and powerful this benefit can be. Make the most of your VA loan by staying informed, comparing options, and knowing your rights under the 4% rule.
Final Thoughts
The 4% rule on a VA loan is one of the many safeguards designed to make homeownership simpler and more affordable for veterans.
By limiting certain lender fees, it keeps your closing costs within reason—so you can focus on securing a comfortable home for yourself and your family.
Keep an eye on your Loan Estimate, compare offers, and never hesitate to ask questions.
Your VA loan benefit is there to serve you—make sure you use it to its fullest advantage
