The VA Loan Origination Fee Cap is a consumer protection rule established by the U.S. Department of Veterans Affairs (VA) to limit the amount lenders can charge veterans for processing a VA home loan. Charged as an origination fee, this cost pays for the lender’s administrative and underwriting work related to preparing the loan. The cap restricts this fee to a maximum of 1% of the loan amount, preventing excessive charges and helping keep homeownership costs manageable for veterans, active-duty service members, and eligible surviving spouses.

How the 1% Cap Works

Lenders can charge up to 1% of the total loan as their origination fee. For example, on a $350,000 VA loan, the maximum fee a lender can collect is $3,500. This cap is a maximum limit, not a required fee—lenders may charge less to remain competitive. It’s wise for borrowers to compare Loan Estimates from multiple lenders to find the best terms.

What the Cap Covers

The origination fee includes lender-related costs such as application fees, loan processing, underwriting, document preparation, and lender overhead. However, it does not include third-party fees like VA appraisal fees, credit report fees, title insurance, recording fees, or discount points. These allowable third-party charges are separate and can be added on top of the 1% origination fee.

Clarifying Origination Fee vs. VA Funding Fee

It’s important to distinguish the origination fee from the VA Funding Fee. The origination fee is paid to the lender for loan processing and is capped at 1%. The VA Funding Fee, set by the VA, is a separate fee paid to support the VA loan program’s sustainability and is based on factors like service type and loan usage. Some veterans, especially those with VA disability compensation, may be exempt from this funding fee.

Who Benefits

This fee cap applies to all eligible borrowers using VA-backed loans, including veterans, active-duty service members, members of the National Guard and Reserves, and eligible surviving spouses. It applies to purchase loans and refinances, such as the VA Interest Rate Reduction Refinance Loan (IRRRL).

Tips for Navigating VA Loan Fees

  • Obtain Loan Estimates from multiple lenders for clear comparisons
  • Ask your lender to clarify any unclear fees
  • Remember that the 1% fee is a ceiling; you can negotiate lower fees with lenders
  • Verify your status regarding exemption from the VA Funding Fee to potentially save more

Additional Resources

For deeper understanding of VA loans and related fees, see the VA Loan glossary. Also, visit the U.S. Department of Veterans Affairs official site for up-to-date program details.

References

This fee cap is a critical feature of the VA loan program, ensuring veterans retain more of their money when financing homeownership.