origination cap, allowed costs, and invoice rules
The VA 1% Rule, Allowed Closing Costs Explained
The VA handbook, borrower fees
The VA funding fee and closing costs
Invoice requirements for itemized fees
Buyer broker variance
The VA 1% rule limits what a lender can charge you for lender overhead on a VA loan. The key is how the lender structures the charge, either a flat one percent fee or itemized lender fees. If the lender uses the flat fee, many extra admin line items become non allowable for you to pay.
The origination fee cap, flat or itemized
- One percent maximum: The VA allows a lender flat charge up to 1% of the loan amount for lender overhead and administrative work.
- Flat fee option: If the lender charges the full flat 1%, that fee is meant to cover lender overhead as a bundle.
- Itemized option: If the lender does not use the flat fee, they may itemize certain lender fees, but the total still must stay within one percent.
- Where to check: Compare the Loan Estimate and Closing Disclosure lender sections and add up lender charged admin fees.
Non allowable fees when the flat fee is used
- Processing and underwriting: Loan processing, underwriting, and similar lender labor should not be charged separately if the flat fee is charged.
- Document prep and admin extras: Document preparation, postage, courier, photographs, and similar overhead style charges are typically non allowable as separate items.
- Escrow and notary limitations: Settlement style fees can be restricted as Veteran paid items under The VA rules, with limited state specific exceptions.
- Lender ordered services: Any appraisal or inspection ordered for the lender’s benefit, separate from the official The VA appraisal, should not become a Veteran paid add on.
Allowed costs outside the one percent cap
- The VA funding fee: The funding fee is separate from the 1% rule and can often be financed into the loan if you are not exempt.
- The VA appraisal fee: The required The VA appraisal is a separate fee and does not count toward the lender 1% cap.
- Third party services: Title, recording, credit report, and similar third party charges sit outside the 1% percent rule.
- Discount points and buydowns: Points are optional pricing choices to reduce rate and they do not count toward the 1% lender overhead limit.
2026 updates that change what you may see
- Buyer broker variance: The VA issued a temporary variance allowing Veterans to pay certain buyer broker charges when they are reasonable, customary, and documented, for eligible contracts.
- Invoice and receipt rules: The VA requires invoices for certain itemized fees so lenders cannot hide markups inside vague line items.
- Flat fee still matters: Invoice requirements generally target itemized fees, and they do not replace the 1% cap concept.
- Practical takeaway: If your closing costs look messy, ask whether the lender is using a flat 1% fee or itemized fees with invoices.
FAQs
What does the VA 1% rule limit in simple terms?
Are title, appraisal, and discount points included in the 1% cap?
How can I tell if my lender is breaking the 1% rule?
In 2026, the VA loan one percent rule is still one of the strongest consumer protections in mortgage lending. It keeps lender overhead charges from getting stacked into a pile of small admin fees that inflate cash to close. The win is not memorizing fee names. The win is knowing where the cap applies, where it does not, and how to audit a Loan Estimate before you sign.
From the lender desk, most fee surprises are preventable. They happen when a borrower never totals Section A charges, never asks whether a fee is inside the one percent cap, or waits until the Closing Disclosure to push back. Use the checklist below and you will know, early, whether a quote is clean or padded.
What Is the VA Loan One Percent Rule?
The VA one percent rule caps lender origination charges at one percent of your VA loan amount. It is the guardrail that stops processing, underwriting, and document fees from being charged twice. Lenders can charge a flat one percent or itemize allowed lender charges, but the total lender origination bucket cannot exceed the cap. Your job is verifying it on the Loan Estimate before you sign.
- It applies only to lender controlled origination and admin charges, not to title, appraisal, recording, or escrow deposits, which are third party or prepaid items and vary by county.
- If a lender charges the full flat one percent, you should not see separate underwriting, processing, or document preparation fees elsewhere, because that is double dipping inside the same cap.
- If a lender itemizes instead, the total of those lender charges must stay at or under one percent, and every line should be reasonable and customary for your market.
- Find the loan amount on the Loan Estimate, multiply it by 0.01, and write that number down as your maximum lender origination total for Section A charges.
- Add every lender line that looks like internal overhead, origination, underwriting, processing, admin, doc prep, and compare the sum to your cap number to confirm compliance.
- If the lender is over the cap or stacking duplicates, ask for a revised Loan Estimate that reclassifies or removes fees before you lock or sign disclosures.
More VA Closing Costs Resources
- VA Closing Costs Guide See typical VA fees, who pays them, and saving strategies.
- VA Funding Fee: Rates and Rules Rates by service category, first use vs. subsequent, exemptions explained.
- Finance the VA Funding Fee or Pay at Closing? Pros and cons of financing the fee versus paying cash upfront.
- VA Loan Closing Disclosure Explained Understand each line item, timing, and how to spot errors.
- VA Loan Fees: Current Costs Current lender fees, third-party charges, and common ranges to expect.
- VA Closing Day Checklist Step-by-step tasks to prepare documents, funds, insurance, and utilities.
- VA Closing Costs Timeline When estimates arrive, what's due when, and milestones from start.
- No-Closing-Cost VA Loans How lenders offset fees, rate tradeoffs, and when this option fits.
What Fees Are Outside the One Percent Cap?
The one percent rule does not cover the VA funding fee, discount points, or third party charges like appraisal and title. Those costs sit in separate buckets on your Loan Estimate and vary by county and vendor. The VA funding fee is set by program rules and can often be financed, while points are optional prepaid interest. Title, recording, and escrows often drive cash to close.
- The VA funding fee is a program fee that can be paid in cash or financed into the loan, and exemption status must be verified before closing to avoid overcharges and refund delays.
- Discount points are optional prepaid interest used to reduce the rate, and they are evaluated by break even time, not by the one percent rule, because points are not lender overhead.
- Third party charges like title, recording, appraisal, credit report, and surveys are outside the cap, but the VA still expects them to be reasonable and customary and supported by invoices when itemized.
- Prepaid items, such as homeowners insurance, property taxes, and per diem interest, are not junk fees, but they can be the largest cash to close line items on a zero down purchase.
- Ask your lender for a cash to close worksheet that includes prepaids and escrows, because those numbers move with tax cycles and insurance quotes more than lender fees.
- Decide whether financing the VA funding fee protects your reserves, then compare payment impact to your emergency fund plan, since financing increases balance but reduces cash needed at signing.
- Shop title and homeowners insurance where allowed, because vendor pricing drives large swings, and lock those quotes early so the Loan Estimate does not understate your final payment.
| Fee Type | Inside the One Percent Cap | Typical Negotiation Lever |
|---|---|---|
| Lender origination and admin charges | Yes | Shop lenders and require removal of duplicate internal fees |
| Discount points | No | Choose points only when the break even matches your hold period |
| The VA funding fee | No | Finance it for cash flow or verify exemption status early |
| Title, recording, and settlement services | No | Compare title quotes and negotiate seller credits where allowed |
| Appraisal and credit reporting services | No | Budget early and avoid properties that trigger repeat inspections |
| Prepaids and escrow setup | No | Price insurance early and plan cash to close with buffer |
The VA funding fee and closing cost rules
Should You Choose a Flat One Percent Fee or Itemized Origination?
Choose the structure that produces the lowest lender cost without duplicate admin lines and fits your rate strategy. A flat one percent can be clean and predictable, but it is not always the cheapest. Itemized fees can be lower, yet you must watch stacked charges that creep toward the cap. When you compare lenders, hold loan amount, points, and credits constant so you are comparing execution, not marketing.
- Flat one percent works best when the lender truly uses one origination line and no add ons, since it simplifies compliance review and prevents last minute reclassifications during Closing Disclosure.
- Itemized fees can be cheaper when the lender is charging well under one percent, but you must confirm each line is allowable and avoid death by many small admin charges.
- Points and lender credits can hide true cost, so a low origination fee paired with heavy points is not a bargain unless you will hold the loan long enough to break even.
- Request Loan Estimates from at least two lenders with the same loan amount and the same points assumption, because changing points changes the rate and makes fee comparisons meaningless.
- If a lender uses the flat one percent, require that underwriting, processing, and document fees are not listed elsewhere, and ask for a revised estimate if they appear.
- Choose based on total cost over your hold period, not just upfront cash, since a slightly higher rate with a lender credit can preserve reserves without violating the cap.
How Do You Audit a Loan Estimate for Junk Fees?
Audit Section A lender charges against the one percent cap and verify points, credits, and third party fees are classified correctly. Most fee problems are visible on the first Loan Estimate if you know where to look. Do the math before you lock, because the Closing Disclosure is too late for friendly fixes. This section walks through a fast lender desk audit that catches padding early.
- Start with the lender origination bucket and add every internal fee line, because lenders sometimes split charges into multiple labels and the total, not the label, determines one percent compliance.
- Check the discount points line separately and confirm you chose it intentionally, because points are optional and can make a quote look cheaper on origination while increasing total cost over time.
- Verify lender credits and seller credits are mapped correctly, because misclassified credits can break concession limits, force a redisclosure, and delay closing when you are already inside the final timeline.
- Compute your cap number, loan amount times one percent, then compare it to the total of Section A lender fees, excluding third party fees, to confirm you are inside the rule.
- If the lender uses a flat one percent, scan the rest of the estimate for duplicate underwriting, processing, admin, courier, or document fees and require a corrected estimate if you see them.
- Ask for the same audit on the Closing Disclosure draft, because late changes happen, and you want confirmation that lender fees did not increase or get relabeled after you locked.
How to compare Loan Estimates and lender fees
Do Itemized Fees Require Invoices?
Yes, the VA requires invoice support for most itemized fees charged to a Veteran, but it does not apply to the lender one percent fee. The rule is designed to stop markups on third party services and to make audits faster. If a fee cannot be supported, the lender must refund the overcharge. Keep invoices with your closing file in case questions arise later.
- Invoices or equivalent proof must show the actual charge for services like title, recording, surveys, and state specific fees, and lenders cannot charge you more than the amount invoiced.
- The invoice requirement is aimed at itemized fees and local deviations, not at the lender one percent fee, and it does not apply to fees listed as seller paid or paid by others.
- If the lender cannot produce an invoice, the VA expects a refund to the Veteran and retention of proof in the loan file, which makes documentation discipline part of your cost control.
- When you see an unusual third party charge, ask the lender or title company for the supporting invoice immediately, because you want the fee corrected before the Closing Disclosure is final.
- Confirm the invoice amount matches the disclosure line item and that the fee is not marked up, then keep a copy in your closing folder for future audits or servicing questions.
- If an overcharge is discovered after closing, request a refund and written proof of the correction, since corrected fees should be documented and retained in the loan file under the VA guidance.
VBA Circular 26-24-19 invoice requirements for itemized fees
Can Veterans Pay Buyer Broker Fees?
In some markets the VA has authorized a variance that allows Veterans to pay certain buyer broker charges on purchase transactions. Those charges cannot be included in the loan amount and must be treated as part of your cash to close plan. Lenders upload the representation agreement with the appraisal request package and retain it in the loan file. Seller payment remains allowed and is not treated as a concession.
- Buyer broker charges you pay must be reasonable and customary, they cannot be financed into the VA loan, and underwriters must count them when determining whether you have enough liquid assets to close.
- The variance is tied to how compensation is handled in the local market, so the same contract language can be acceptable in one area and disallowed in another, depending on listing broker practices.
- The lender should keep the buyer broker representation agreement in the file and include it with the appraisal request package, because that documentation supports disclosure and audit requirements.
- Before you write the offer, ask your lender whether buyer broker charges are permitted in your market under the current variance and how they want it disclosed on the Closing Disclosure.
- Sign a clear representation agreement that states the amount or method of compensation, then budget that amount as cash to close since it cannot be rolled into the loan amount.
- If the seller agrees to pay the buyer broker charge, confirm it is documented in the contract package and disclosed correctly, because the VA does not treat seller payment of that charge as a concession.
VBA Circular 26-24-14 temporary variance for buyer broker charges
How Can You Lower VA Loan Fees Without Sacrificing Approval?
You lower VA loan fees by shopping lender pricing, using seller credits where allowed, and avoiding points unless the break even works for your hold period. The one percent cap is a ceiling, not a requirement, so some lenders charge less or use credits instead of fees. Protect reserves and keep the contract price realistic for appraisal. This section shows moves that cut cash to close without adding conditions.
- Shop two to three lenders with identical assumptions and compare Section A totals plus credits, because the lender who advertises low fees can offset it with points or higher rate pricing.
- Use seller credits strategically to cover normal closing costs and preserve reserves, but keep the price within comparable sales so the appraisal supports the credit plan and does not create a value gap.
- Consider a lender credit instead of paying fees in cash when reserves are tight, but verify the payment increase fits your budget and the break even timeline matches your expected time in the home.
- Ask for a low cost option and a low rate option from the same lender, then compare total cost over three, five, and seven years so you choose based on reality, not marketing.
- Negotiate credits in the purchase contract early and tell the lender how they will be used, because late credit changes cause redisclosures and can delay closing inside the final week.
- Keep your profile stable through underwriting, no new debt, no job changes, and no messy deposits, because pricing and approval can worsen when a file triggers a reunderwrite.
The Bottom Line
The VA loan one percent rule is your protection against stacked lender junk fees, but only if you audit it early. Start by totaling Section A lender charges and confirming they are at or under one percent of the loan amount.
Then separate everything outside the cap, the VA funding fee, discount points, title, appraisal, and prepaids, because those costs drive real cash to close. If you see a flat one percent fee plus extra underwriting or processing charges, push back and require a revised estimate before you lock.
If fees are itemized, request invoices for third party charges and keep copies with your closing file. Shop two to three lenders using identical assumptions and choose the offer that protects reserves after closing, not the one with the prettiest fee label.
Frequently Asked Questions
Does the one percent rule apply to discount points?
No. Discount points are prepaid interest used to lower the rate and are not treated as lender overhead under the one percent cap. Points still affect total cost, so you should run break even based on your expected time in the home.
Can a lender charge underwriting and processing fees on top of a flat one percent fee?
That is usually a red flag. A flat one percent origination charge is intended to cover internal admin work. If extra underwriting or processing lines appear, ask for a revised estimate that removes or reclassifies duplicates before you proceed.
Is the one percent cap based on the loan amount or the purchase price?
It is based on the loan amount, not the purchase price. To estimate the maximum lender origination charges, multiply the loan amount by one percent. Then compare that number to the total lender charges in Section A on the Loan Estimate.
Are title and appraisal fees included in the one percent cap?
No. Title, appraisal, recording, and most settlement services are third party charges and sit outside the lender one percent cap. They can still be significant, so budget early and shop vendors where your state allows it.
Can the seller pay my origination fee under the one percent rule?
Often yes, if it is structured correctly in the contract as seller paid costs or credits. The seller is not required to pay it, and the home still must appraise at value for the credit plan to hold.
How do I calculate the maximum origination fee on a VA loan?
Take your loan amount and multiply by 0.01 to get the maximum lender origination total under the one percent rule. Then add the lender charges in Section A and confirm the sum stays at or below that cap number.
What should I do if my Closing Disclosure shows new lender fees?
Stop and ask for an explanation before signing. Lender fees should not jump without a valid reason. If the change pushes lender charges above the one percent cap or adds duplicate admin lines, require a corrected disclosure.
Are buyer broker fees allowed on VA purchases in 2026?
In some markets, the VA has authorized a variance allowing certain buyer broker charges to be paid by a Veteran, but they cannot be financed and must be counted in cash to close. Confirm current rules with your lender.
Do I need invoices for itemized third party fees?
Often yes. The VA expects invoice support for most itemized fees charged to a Veteran, such as title or recording related costs, to prevent markups. The invoice rule does not apply to fees included in the lender one percent cap.
How can I lower cash to close without paying points?
Use seller credits where the contract supports it and consider a lender credit in exchange for a slightly higher rate. The right plan preserves reserves and keeps the price realistic for appraisal so you do not create a value gap.
