The “1% rule” limits a VA lender’s origination fee to no more than one percent of the total loan amount. That flat fee is meant to cover the lender’s overhead and certain non‑allowable charges. Separate, legitimate third‑party closing costs, prepaid items, discount points, and the VA funding fee fall outside the 1% cap and follow their own rules.
Quick Facts
- The 1% cap applies to the lender’s origination fee; it does not cap third‑party charges like appraisal or title insurance.
- If the lender takes the full 1% flat fee, they cannot add separate “overhead” line items considered non‑allowable for Veterans.
- Seller credits can pay many buyer closing costs; separate “seller concessions” have a 4% cap and exclude normal closing costs.
- VA does not set interest rates; lenders price them, and they change frequently with market conditions and borrower profile.
- Construction and repair loans have special allowances that can raise the flat‑fee ceiling under defined conditions.
Mini FAQ
What VA closing costs can a seller pay?
Sellers can cover customary buyer closing costs such as appraisal, title services, recording, and certain prepaid items through credits. “Seller concessions” are separate incentives subject to a 4% cap and include things like funding fee payment or debt payoffs.
Give me examples of fees included in the 1% origination cap.
Typical items the 1% is meant to cover include lender processing and underwriting overhead, loan application or document‑prep charges, escrow and notary fees, commitment or rate‑lock fees, brokerage or finder fees, and other administrative costs otherwise disallowed to the Veteran.
What are some current VA loan interest rates?
There isn’t one “VA rate.” Private lenders set and change rates daily based on markets and risk. Compare multiple quotes and review official Loan Estimates for the day’s pricing and APR; avoid relying on generic, nonbinding advertisements.
Key Takeaways
- The 1% rule caps lender origination; it doesn’t cap third‑party or prepaid charges.
- Charging the 1% flat fee bars separate “overhead” line items considered non‑allowable.
- Seller credits can cover closing costs; “concessions” face a distinct four‑percent limit.
- Discount points, buydowns, and lender credits sit outside the 1% origination cap.
- Construction or repair loans permit additional flat fees under specific supervision conditions.
- Audit Loan Estimate and Closing Disclosure to ensure fees align with VA’s rule set.
What is the VA loan 1% rule and how does it work?
The 1% rule limits a lender’s origination fee to one percent of the VA loan amount. When a lender charges the full 1% flat fee, they cannot also assess separate “overhead” or duplicative charges. Other legitimate, itemized closing costs remain outside the cap and may be paid by the borrower, the seller, or through negotiated credits depending on VA rules and your contract specifics.
- The cap aims to prevent double‑charging for lender overhead by exchanging a single flat fee for a comprehensive bundle of administrative services, ensuring veterans aren’t nickel‑and‑dimed during closing.
- When the flat 1% fee is used, charges labeled processing, underwriting, document prep, or similar operational items should not appear separately on the Closing Disclosure because they’re covered by the flat fee.
- VA permits reasonable third‑party charges—like appraisal, title, and recording—outside the cap, but lenders must still present costs clearly on standardized disclosures so borrowers can verify compliance before signing.
- Confirm whether your lender charges the flat 1% fee or itemizes overhead. If flat, verify that duplicative overhead charges do not appear elsewhere; if itemized, ensure the combined overhead does not exceed one percent.
- Review your Loan Estimate and Closing Disclosure line by line. Compare lender‑imposed charges against VA rules, and request immediate corrections when any origination‑related total exceeds one percent.
- Document any concerns in writing and escalate promptly to a manager or compliance desk. If unresolved, consult your real estate agent, settlement agent, or VA Regional Loan Center for guidance.
VA’s Lenders Handbook explains the one percent flat charge and its purpose; the Federal Register summarizes the protective “allowable charges” framework codified at 38 C.F.R. § 36.4313. VA Lenders Handbook, Chapter 8; Federal Register summary.
Which fees are included in the 1% origination cap?
Fees that reflect a lender’s internal costs—processing, underwriting, document preparation, admin review, and similar overhead—belong inside the 1% cap when the flat fee is charged. VA guidance also restricts charging borrowers for certain items as “itemized” if they are really lender overhead. Third‑party services (like appraisal and title) are treated separately, outside the origination cap.
- If the lender applies a flat 1% origination fee, they generally cannot also bill separate processing, underwriting, admin, or similar operational fees because the flat charge is intended to cover those internal costs.
- Unallowable “itemized” overhead can’t be disguised under new labels. If a fee describes lender labor rather than an outside service, it usually belongs inside the origination cap or must be removed entirely.
- True third‑party charges—appraisal, credit report, title insurance, and recording—are independent of the cap and are permitted when reasonable, customary, and properly disclosed for your transaction and location.
- Ask your lender to identify each fee as either lender overhead or third‑party. Overhead belongs inside the 1% cap when the flat fee is charged; third‑party charges must be reasonable and customary.
- Scrutinize your Closing Disclosure for duplicates: any separate processing, underwriting, or doc‑prep line items should be challenged if the flat 1% is already charged.
- Request written confirmation of any corrections and a revised disclosure. Keep those records alongside your final closing package for future reference and potential audits.
| Fee Type (Examples) | Treatment Under 1% Cap |
|---|---|
| Processing / Underwriting / Administrative review | Inside the 1% when the flat origination fee is charged; should not be separately itemized. |
| Document preparation / Lender courier or delivery | Inside the 1% when the flat fee is used; separate lines are typically not allowed. |
| Brokerage or trustee charges | Generally considered lender overhead and treated within the 1% flat fee when applicable. |
| Third‑party appraisal, credit report, title services | Outside the 1% cap as itemized, reasonable, customary third‑party charges. |
VA details “allowable itemized fees” and clarifies that lender overhead cannot be passed through as additional itemized charges when the one percent fee is used. See VA Circular 26‑24‑19 and VA Circular 26‑10‑01.
What VA closing costs can a seller pay?
Sellers may pay typical buyer closing costs and separate “seller concessions.” The VA caps seller concessions at four percent of the home’s reasonable value but excludes normal discount points and buyer’s standard closing costs from that 4% calculation. The purchase contract should spell out which party pays which items to ensure VA compliance.
- Seller concessions can include paying the VA funding fee, prepaid taxes and insurance, or other agreed amounts benefiting the buyer; however, concessions over four percent are considered excessive and are not permitted.
- Ordinary closing costs—title services, recording, credit report, and similar items—may be paid by the seller without counting toward the four percent concession cap, provided they are standard buyer costs in the market.
- Discount points are negotiable. VA allows veteran and seller to negotiate who pays points; “normal” points are not counted toward the concession limit, but they must still be reasonable for the market and loan terms.
- Negotiate seller‑paid items up front in your purchase agreement. Distinguish between ordinary closing costs and concessions so the 4% limit is tracked correctly.
- Coordinate with your lender and settlement agent to categorize seller credits on the Closing Disclosure in the appropriate columns for accurate VA review.
- Verify that concessions do not exceed four percent of value and that any discount points paid by the seller are treated according to VA guidance and market norms.
| Cost Category | Seller May Pay? | Counts Toward 4% Concessions? |
|---|---|---|
| Standard buyer closing costs (title, recording, credit report) | Yes | No |
| VA funding fee | Yes | Yes (as a concession) |
| Prepaid taxes and homeowners insurance | Yes | Yes (as a concession) |
| Discount points (negotiated) | Yes | Generally No, when considered “normal” discount points |
VA explains the 4% concession cap and exclusions in its Lenders Handbook; Chapter 3 notes that the veteran and seller may negotiate discount points. Lenders Handbook, Ch. 8 (seller concessions); Lenders Handbook, Ch. 3 (interest rate and points).
What doesn’t the 1% rule cover (and what you still might pay)?
The 1% cap applies only to lender origination overhead. You may still pay legitimate third‑party expenses and other VA‑specific costs, such as the VA funding fee (unless exempt), appraisal, title insurance, recording, and optional discount points to reduce your rate. These are separate from the origination cap and must be reasonable and customary for your transaction.
- The VA funding fee is a one‑time program charge set by law and updated by VA; its exact percentage depends on your service use, down payment, and exemption status, and may be paid by you or a third party.
- VA‑assigned appraisal costs and any required inspections are outside the origination cap; fee schedules and timelines vary by region and property type, and should be confirmed when you order the appraisal.
- Title insurance premiums, settlement services, and recording fees are third‑party costs. These are typically itemized separately and can be paid by you, the seller, or via negotiated credits depending on the contract.
- Ask your lender to separate lender overhead (within the cap) from third‑party costs (outside the cap) on both the Loan Estimate and Closing Disclosure.
- Verify your VA funding fee status early—exempt borrowers should not be charged—then confirm the amount and who pays it so it appears correctly on closing forms.
- Check your state or regional appraisal fee schedule and confirm title premiums with your settlement agent to ensure estimates reflect local norms and VA timing requirements.
See VA’s appraisal fee schedules and itemized‑fee guidance, and note VA’s periodic funding‑fee updates via circulars. VA appraisal fee schedules; VA Circular 26‑24‑19 (allowable itemized fees); VA circulars index (funding‑fee updates).
How do I check today’s VA loan interest rates the right way?
VA does not prescribe a single interest rate; each lender sets its own pricing. The best method is to solicit standardized Loan Estimates for the same loan type, rate‑lock period, and closing timeline from several VA‑approved lenders, then compare total costs and APR side‑by‑side to select the best overall offer for your situation.
- Rates vary by lender, credit profile, loan purpose, points paid, and lock period; a slightly lower rate with higher points could cost more overall if you plan to sell or refinance sooner.
- Request at least three Loan Estimates on the same day for the same product and lock term. Use the APR, total cash to close, and section-by-section fee breakdown to compare apples to apples.
- Shopping within a defined window typically treats multiple mortgage inquiries as a single credit check, enabling comparison without undue credit score impact when you move quickly and consistently.
- Decide your target product (fixed or ARM), anticipated lock period, and whether you’ll pay points. Keep these constants identical across all quotes to ensure a fair comparison.
- Collect Loan Estimates from multiple VA lenders and log key metrics (rate, points, APR, lender credits, cash to close). Ask lenders to reissue if any inputs or dates differ materially.
- Negotiate using the best competing offer. Ask your preferred lender to match total cost, not just the rate, and confirm any changes in a revised Loan Estimate before locking.
VA states that interest rates are negotiated between the borrower and lender; the CFPB recommends requesting and comparing multiple Loan Estimates, noting that clustered inquiries within a window count as a single inquiry. VA Lenders Handbook, Ch. 3; CFPB: Request & review multiple Loan Estimates; CFPB: Compare & negotiate offers.
How do I keep my Closing Disclosure within VA rules?
Use the Closing Disclosure as your final compliance check. Ensure the lender’s origination charges do not exceed one percent when the flat fee is used, and that seller‑paid amounts and lender credits are placed in the correct columns. Any excess origination amounts must be cured by the lender or seller—not you.
- Line‑by‑line, confirm that processing, underwriting, and similar lender overhead are not itemized if a 1% origination fee appears elsewhere, and that third‑party charges look reasonable for your property and region.
- Ensure seller credits and lender credits are categorized correctly; misclassification can obscure whether the origination cap is truly met and whether concessions exceed allowed limits.
- Request a corrected disclosure immediately if anything violates VA rules or your contract. Keep written proof of corrections and final numbers for your records and any future questions.
- Compare the Loan Estimate to the Closing Disclosure and flag changes in lender fees. Ask for a written explanation of any differences and how they align with VA’s allowable‑fees rule.
- Verify concessions and credits reflect the contract and remain within VA thresholds. If the totals are off, ask the settlement agent to rebalance using lender/seller cures—not borrower funds.
- Escalate unresolved issues to the lender’s compliance team and, if needed, request guidance from the VA Regional Loan Center before closing documents are signed.
VA provides TRID‑CD placement guidance and ties compliance back to 38 C.F.R. § 36.4313 on allowable charges. VA Circular 26‑17‑11 (TRID‑CD instructions); eCFR Part 36 (allowable charges reference).
Frequently Asked Questions
What does the VA 1% rule limit in simple terms?
The VA 1% rule caps a lender’s origination fee at one percent of the loan amount. When the flat 1% is charged, lenders cannot add separate overhead fees like processing or underwriting. Third-party costs remain itemized outside this cap.
Which fees are counted inside the 1% origination cap?
Fees reflecting lender overhead – processing, underwriting, document preparation, and similar administrative tasks – belong inside the 1% cap when a flat fee is charged. If those items appear separately, they should be removed or netted out to comply.
What fees are outside the 1% cap and still payable?
Third-party expenses are separate from the 1% cap: appraisal, credit report, title insurance, settlement services, and recording fees. You may also see prepaid taxes and insurance, optional discount points, and the VA funding fee unless exempt from payment.
Can a seller pay my VA closing costs and concessions?
Yes. Sellers can pay typical buyer closing costs and separate concessions. Concessions are limited by VA rules and generally capped relative to the home’s value. Standard buyer costs paid by the seller typically do not count toward the concessions limit.
Do seller-paid discount points count toward the concessions cap?
Generally, normal discount points negotiated between buyer and seller are treated separately from the concessions cap. They must still be reasonable for the market and loan terms, and should be itemized correctly on the Closing Disclosure for accurate compliance tracking.
Who fixes it if the lender exceeds the 1% cap?
If a lender exceeds the 1% cap, the excess must be cured by the lender or the seller, not the veteran. Corrections appear as lender or seller credits on the Closing Disclosure so totals remain compliant with VA rules.
Are appraisal and title charges limited by the 1% rule?
No. Appraisal, title services, settlement, and recording charges are third-party costs. They are not restricted by the 1% cap and are listed separately. However, they must be reasonable, customary in your market, and clearly disclosed before closing.
Can a lender itemize overhead instead of charging a flat 1%?
A lender may itemize overhead instead of a flat 1%. In that case, the combined total of those overhead items still cannot exceed one percent of the loan amount. Third-party charges remain separate and must be reasonable and customary.
How should I verify my Closing Disclosure meets VA fee rules?
Compare your Loan Estimate and Closing Disclosure line by line. Confirm no duplicate overhead appears if a 1% fee is charged. Ensure seller credits are categorized properly, concessions stay within limits, and any cures show as lender or seller credits.
How do I compare current VA loan interest rates effectively?
Request standardized Loan Estimates from several VA-approved lenders for the same product, points, lock period, and timeline. Compare rate, APR, total cash to close, and credits. Use the strongest offer to negotiate overall cost, not just the rate.
Levi Rodgers is the Founder of VA Loan Network, a leading resource for Veteran homebuyer education. A Retired Green Beret and Broker-Owner of LRG Realty in San Antonio, Levi leverages his military discipline and real-world real estate expertise to provide Veterans with expert loan advice, guidance, and trusted financial leadership.
