2026 VA Closing-Cost Changes

Several VA policy updates took effect between late 2024 and early 2026 that affect which fees Veterans can be charged and how those charges must be documented.

The VA 1% Lender-Fee Bucket

The VA fee structure separates charges into three layers. Understanding the layers prevents the most common Loan Estimate mistakes. [Ch. 8 Topics 2–3 · 38 CFR 36.4313(d)]

The 1% rule works as a bucket, not a banned-fee list. If the lender charges a flat origination fee below 1%, otherwise-unallowable overhead charges may occupy the unused portion, but the aggregate of origination plus those charges cannot exceed 1% of the loan amount on a standard VA purchase loan. On a $400,000 purchase loan where the Veteran finances the 2.15% funding fee ($8,600), the 1% flat charge is computed on $408,600, not $400,000. [Ch. 8 Topic 2.d · 38 CFR 36.4313(d)(5)]

On construction, alteration, improvement, or repair loans, the lender may charge an additional flat charge of up to 1% or 2% depending on whether the lender supervises construction progress and makes advances exceeding 50% of the loan. [Ch. 8 Topic 2.e]

Worked example: A lender charges $800 origination on a $100,000 loan (0.8%). The unused portion is $200. The lender may charge up to $200 in otherwise-unallowable fees (for example, a $150 processing charge and a $50 document preparation fee). Origination ($800) + overhead ($200) = $1,000, which equals 1% of the loan. Any amount above that triggers a compliance issue. [Ch. 8 Topic 3.a · 38 CFR 36.4313(d)(5)]

VA Allowable Itemized Fees

These are the fees VA regulations designate as separately chargeable to the Veteran, outside the 1% lender-fee bucket, in reasonable and customary amounts. Each must be supported by an invoice reflecting the actual third-party cost, with the exceptions noted below. [Ch. 8 Topic 2.c · Circular 26-24-19]

Invoice exemptions: An invoice is not required for fees inside the lender’s 1% flat charge, fees in the “Seller-Paid” or “Paid by Others” columns on the Closing Disclosure, the VA funding fee, and state deviations that list a specific dollar cap. For all other itemized charges, the Veteran cannot be charged more than the actual amount charged by the third party. [Circular 26-24-19 §3.a–b]

Closing Costs by Line Item

This table collects common VA closing-cost line items, how the VA treats them, who can pay them, and whether they fall under the 4% seller-concession rule (based on the VA reasonable value shown on the NOV, not the loan amount). [Ch. 8 Topics 2–5 · 38 CFR 36.4313]

Seller Credits vs. the 4% Concession Cap

VA rules separate seller help into two buckets. Standard closing costs (appraisal, title, origination, recording) have no VA-imposed percentage cap. Seller concessions for nonstandard extras are capped at 4% of the VA reasonable value shown on the NOV. Normal discount points are excluded from both buckets. [Ch. 8 Topic 5.b–d]

Concession room remaining = 4% × VA reasonable value (NOV) − concessions used. On a $400,000 NOV, the cap is $16,000 in concessions. If the seller pays the funding fee ($8,600 at 2.15%) and $4,000 in prepaid extras, that leaves $3,400 in concession room.

If the purchase contract says the seller will “pay closing costs and funding fee,” confirm with the lender how each item will be classified on the Closing Disclosure. The funding fee counts as a concession (inside the 4% cap), while standard closing costs do not. Misclassification can leave the buyer short on cash at the table. [Ch. 8 Topic 5.d]

Cash to Close Is Not Closing Costs

Cash to close is the total amount the buyer needs at the closing table. It includes closing costs, but also prepaids, escrow, and credits that are separate from the fees themselves. The closing cost calculator can estimate a specific scenario, but here is how the equation works:

The most common “this number looks wrong” moment on the Closing Disclosure comes from earnest money. It appears on the CD as a credit, reducing cash to close, but Veterans who expected to see it separately sometimes think the number is higher than it should be.

Purchase vs. Refinance Treatment

On a VA purchase or construction loan, only the VA funding fee may be financed into the loan amount. All other fees and charges must be paid out of pocket or covered by credits. On an IRRRL, the allowable itemized fees, the funding fee, and the 1% flat charge may all be included in the loan, with a cap of two discount points in the loan amount. On a cash-out refinance, fees may be paid from cash proceeds, but only the funding fee increases the loan amount. [Ch. 8 Topic 7]

How To Reduce Cash to Close

Veterans can reduce cash to close significantly, but it requires deliberate structure, not wishful thinking. The goal is a closing plan that survives underwriting, appraisal timing, and final disclosure rules.

“No closing cost” offers are usually lender credits paid for by a higher rate. That can be a smart move for cash-tight buyers or short-term holds, but only if the payment is durable. The costs are not eliminated; they are shifted from upfront cash to long-term interest.

What Cash-to-Close Mistakes Delay VA Closings

Common causes of last-minute closing delays include funds that cannot be documented, money that cannot be moved in time, and final numbers that changed without a cash buffer.

Before the Closing Disclosure arrives, know exactly which account will fund closing, what the bank’s wire rules are, and what documents the lender needs to source the funds. This prevents the most avoidable closing-week scramble.

Loan Estimate vs. Closing Disclosure

Federal law requires the borrower to receive the Closing Disclosure (CD) at least three business days before closing. The CD shows final loan terms, monthly payment, and every fee. When a fee changes from the Loan Estimate to the CD, the tolerance category determines whether the increase is allowed. [12 CFR 1026.19(e)(3)]

If a tolerance is exceeded without a valid changed circumstance, the lender must cure the overcharge by refunding the excess within 60 days of consummation. [12 CFR 1026.19(f)(2)(v)]

Three triggers require a new 3-business-day Closing Disclosure waiting period: an APR that becomes inaccurate beyond the regulatory threshold, a change in the loan product (for example, fixed to ARM), or the addition of a prepayment penalty. Other corrected CDs may be delivered at or before consummation without restarting the clock. [12 CFR 1026.19(f)(2)(A)–(C)]

VA Appraisal Fees

The VA appraisal fee is a third-party cost set by the VA fee schedule by state and county, effective May 1, 2026. The fee is not a guess. It is a published allowable amount. Texas single-family default: $775. Reinspection is $150 for a physical visit. [VA Fee Schedule, May 1, 2026]

If the appraisal comes back “subject to” repairs, two additional costs apply: the repair itself (negotiation-dependent) and the reinspection fee. Repairs plus reinspection can break a tight closing schedule if not planned for in the contract timeline.

VA Funding Fee Exemptions

The following categories of borrowers are exempt from paying the VA funding fee: [Ch. 8 Topic 8.b · va.gov]

If exempt status cannot be verified before closing, the funding fee must be paid. VA will refund it if the Veteran is later determined to be eligible retroactively. For any refund issued on or after July 1, 2019, VA pays the refund directly to the Veteran, regardless of the loan balance. [Ch. 8 Topic 8.e · va.gov Loan Fee page]

State Fee Deviations

The VA authorizes state and local fee variances, charges that would otherwise be unallowable, for specific jurisdictions. The current list (February 17, 2026) covers 22 states plus Puerto Rico. Seven national variances apply everywhere. [State Deviations PDF, Feb 17, 2026 · Circular 26-24-19 §3.b]

Texas fee deviations: Texas has the most deviations on the list. As of the February 17, 2026 update: Documentation Preparation Fee Paid to Attorney (all transactions, no longer refi-only), VHAP Participation Fee (1% of loan), VHAP Housing Quality Standards Fee ($75, no invoice), Texas Guaranty Assessment Recoupment ($4.50, no invoice), Escrow Fee on refinance loans, Title Policy Guaranty Fee, Tax Certificates, Elevation Certificate for flood insurance, Tax Deletion Fee. [State Deviations PDF, Feb 17, 2026]

National variances (all states): Pest inspection (where required by the NOV); intangible taxes (at the amount required by law); title insurance endorsements; assumption locality variance (Circular 26-24-5); buyer-broker charges (Circular 26-24-14, temporary); sales tax on third-party services (invoice required); MERS fee (up to $24.95). [State Deviations §1–7]

When the Loan Does Not Close

If a VA loan does not close for any reason, including the borrower going to another lender, the lender must refund the one percent flat fee if it has already been collected. Out-of-pocket expenses for itemized fees already incurred, such as the appraisal and credit report, are not refunded. [Ch. 8 Topic 6]

When a Fee Cannot Be Supported

Lenders must support every itemized charge to the Veteran with an invoice or other document that identifies the transaction and verifies the fee. The lender may not charge more than the actual amount charged for the service and may not charge for services already paid for by another party. If the lender cannot support a charge with an invoice, a refund must be provided to the Veteran. [Circular 26-24-19 §3.a]

Duplicate Fees

The borrower may not pay a duplicate fee for services that have already been paid for by another party. If an appraisal was completed and paid for by a prior purchaser and the lender uses the same Notice of Value before its expiration, the lender may not charge the second purchaser an appraisal fee. The same applies to a survey or flood zone determination if the lender elects to use an existing one. [Ch. 8 Topic 2.c]

Fee Treatment by Loan Type

How fees can be financed depends on the loan type. [Ch. 8 Topic 7]

VA Loans vs. FHA and Conventional

The VA’s 1% origination cap, non-allowable fee rules, zero down payment, and zero monthly mortgage insurance can cost less than FHA or conventional alternatives, even with the funding fee. For a detailed side-by-side comparison of rates, fees, down payment, and mortgage insurance, see the dedicated guides:

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