VA Lender’s Handbook Chapter 8 Summary

 

Borrower Fees and Charges

VA Lenders Handbook Chapter 8

In this article, we’ll summarize the information presented in Chapter 8 of the VA lender’s Handbook so you can decide whether you want to read all of our articles on Chapter 8 or the chapter itself. Chapter 8 talks about the fees and charges that borrowers are allowed and not allowed to be charged when closing on a VA loan. We’ll cover the fees and charges a borrower can pay, the fees and charges a borrower cannot pay, and some other good information related to closing costs.

 

Fees and Charges a Borrower is Allowed to Pay

The veteran is allowed to be charged for the VA funding fee, an itemized list of charges that the VA makes standard for all VA loans across the nation, and a flat 1% origination fee from the lender in lieu of the itemized charges lenders would normally charge at closing. The VA does not specify the amount the borrower can be charged for each item on the list they provide, but they do require that the amounts “…are reasonable and customary.” The things on the itemized list include things that cost money to do and have done. For example, the appraisal is able to be charged to the borrower, as well as the cost of obtaining the credit report, mailing fees, flood zone determination, and a survey. Fees charged by the title company are also on the list of allowable charges.

 

Fees and Charges a Borrower is Not Allowed to Pay

The lender’s 1% origination fee is intended to cover the things that the lender chooses to utilize and incurs as a necessary cost of doing business. If the lender requests additional appraisals, photographs, attorney’s services (other than for title work), or a tax service, they are not allowed to charge the borrower specifically for those things. Also, things like postage, stationery, notary fees, escrow fees and charges, interest rate lock-in fees, and many other fees (see the Handbook for the full list) are not chargeable. In addition, the lender may not charge brokerage fees, prepayment penalties, or HUD/FHA inspection fees when the house is being built. The builder or sponsor must cover those fees. The borrower is not allowed to be charged for any fees that would normally fall on the shoulders of the seller, either.

 

More Information on Closing Costs

Borrower Fees and ChargesSeller concessions are interesting on a VA loan. The VA stipulates that “excessive” seller concessions are prohibited, but they do not include payment of the buyer’s closing costs as a seller concession, nor do they include the payment of discount points that are appropriate to the market. The things that the VA considers seller concessions cannot exceed 4% of the reasonable value of the property as determined in the VA appraisal. Also, if the borrower has paid some fees and charges but the loan does not close, those do not get refunded, with the exception of the 1% origination fee that the lender charges. If you have paid that but don’t close on the loan, the lender must refund it to you.

 

Depending on the loan, you’re getting (new purchase, cash-out refinance, streamline refinance) your options for rolling closing costs into the loan amount are different. No matter what, the loan amount can include the VA funding fee. On a new purchase, the Funding Fee is the only closing cost that can be added to the loan amount. On a cash-out refinance, the borrower can use cash proceeds from the loan to pay closing costs, which is essentially the same thing as rolling them into the loan. This can be done for all of closing costs. On a streamline refinance, any and all closing costs can be rolled into the loan amount with one exception: only two discount points can be rolled in. More than two can be purchased, but only two can be rolled into the loan amount.

 

Chapter 8 also includes a great deal of information on the VA funding fee. Generally speaking, if you are receiving disability payments or are eligible to receive them, you should be exempt from the Funding Fee. Surviving spouses are also exempt. The Funding Fee is most expensive if you are not making a down payment and are doing either a new purchase or cash-out refinance loan. You can lower the Funding Fee by either making a down payment or using a streamline to refinance your home instead of a cash-out.

 

Fees and Charges if Loan Never Closes, and Fees that Can Be Included in the Loan Amount

Deciphering the VA Lender’s Handbook Chapter 8 Part 4

 

We’re going to cover two topics in this post that the VA Lender’s Handbook covers in Chapter 8. First we’re going to talk about what happens to fees and charges if the loan never closes, and then we’re going to talk about what fees and charges the VA allows to be added to the loan amount (financed as part of the loan). First, any out-of-pocket expenses that the borrower incurs such as the appraisal and credit report will not get refunded if the loan doesn’t close. However, if the lender has already collected their 1% origination fee, and the loan doesn’t close, the lender is required to refund the fee to the borrower. It does not matter why the loan didn’t close, even if the borrower jumped ship and went with another lender, the original lender must still refund the origination fee if it has been charged.

 

Fees that Can Be Included in the Loan AmountThere is a lot of confusion as to whether the VA funding fee can be rolled into the loan amount, and whether other closing costs or fees and charges can be as well. As for the VA funding fee itself, the VA Lender’s Handbook offers unequivocal clarification as follows: “For all types of VA loans, the loan amount may include the VA funding fee.” So, no matter what kind of VA loan you are getting, you will be able to roll the cost of the funding fee into the loan. However, the Handbook is equally clear on other fees and charges, clearly stating that, aside from the VA funding fee, no fees and charges can be included in the loan amount for new purchase loans and construction loans. For refinancing loans, each type of refinancing loan has its own stipulations for what things can be added to the loan amount.

 

For cash-out refinances (which, for the purposes of this information, include any type of refinancing other than a streamline refinance), only the VA funding fee, and the amount borrowed for an Energy Efficiency Mortgage (ask a VA loan officer or check out the EEM article from Chapter 7 of this series if you don’t know what this is), can be actually added to increase the loan amount. However, the set of allowable fees and charges, including discount points, can be paid from the cash proceeds of the loan. If you’re wondering how this is functionally different from just rolling the costs into the loan amount…(shrug) it really isn’t; it’s mostly just semantics, since your loan amount increases based on the amount of cash you’re taking out, but you can take cash out for any purpose acceptable to the lender, and once the cash is out it’s yours to do with as you will, so feel free to use it to pay closing costs.

 

VA Streamline refinances are different beasts, altogether. The official name for VA streamlines is Interest Rate Reduction Refinance Loan or IRRRL for short. The IRRRL is awesome because, as a streamline, its purpose is to provide a way for VA borrowers to refinance as quickly, easily, and cheaply as possible. As part of that, the VA allows for borrowers to get an IRRRL with literally no money down for closing costs, funding fee, or anything else. Any of the allowable fees and charges discussed in earlier articles on this chapter can be rolled into the loan amount, including the funding fee and the lender’s flat origination fee. This also includes up to two discount points. Any points above two cannot be rolled into the loan amount.

 

On loans that are refinancing a construction loan, an installment land sales contract, or a loan assumed by the veteran at an interest rate higher than that for the proposed refinancing loan, the loan amount can include the allowable fees and charges (closing costs) and reasonable discount points. However, there is a limitation on the maximum loan amount as follows, straight from the Lender’s Handbook:

 

The maximum loan amount will be the lesser of theCheck your VA Qualifications

 

• the sum of the outstanding balance of the loan being refinanced plus allowable

fees and charges (other than the funding fee) plus discount points, or

• VA reasonable value of the property, plus

• VA funding fee, plus

• the cost of any energy efficiency improvements.

Fees and Charges the Veteran-Borrower Can Pay

 

Deciphering the VA Lender’s Handbook Chapter 8 Part 1

What can I pay at Closing?

The VA has strict rules for what lenders are allowed to charge borrowers for. These charges are what will appear as part of closing costs. This article is mainly a list of fees and charges that the borrower is allowed to pay as part of closing costs, with a little bit of information that is good for borrowers to know. There are two types of charges that the lender is able to charge the borrower: a standard set of itemized charges that have to do with the application and underwriting process, and the origination charge. For origination, the lender can charge a flat Origination fee of up to 1% of the loan amount. Below is a table listing and describing the acceptable fees under the first set, taken directly from the VA Lender’s Handbook:

Charge Description
Appraisal and Compliance Inspections
  • The veteran can pay the fee of a VA appraiser and VA compliance inspectors.
  • The veteran can also pay for a second appraisal if he or she is requesting reconsideration of value.
  • The veteran cannot pay for an appraisal requested by the lender or seller for reconsideration of value.
  • The veteran cannot pay for appraisals requested by parties other than the veteran or lender.
Recording Fees The veteran can pay for recording fees and recording taxes or other charges incident to recordation.
Credit Report The veteran can pay for the credit report obtained by the lender.
For Automated Underwriting cases, the veteran may pay the evaluation fee of $50 in lieu of the charge for a credit report.
For “Refer” cases, the veteran may also pay the charge for a merged credit report if required.
Prepaid Items The veteran can pay that portion of taxes, assessments, and similar items for the current year chargeable to the borrower and the initial deposit for the tax and insurance account.
Hazard Insurance The veteran can pay the required hazard insurance premium. This includes flood insurance if required.
Flood Zone Determination The veteran can pay the actual amount charged for a determination of whether a property is in a special flood hazard area if made by a third party who guarantees the accuracy of the determination.
The veteran can pay a charge for a life-of-the-loan flood determination service purchased at the time of loan origination.
A fee may not be charged for a flood zone determination made by the lender or a VA appraiser.
Survey The veteran can pay a charge for a survey if required by the lender or veteran. Any charge for a survey in connection with a condominium loan must have the prior approval of VA.
Title Examination and Title Insurance The veteran may pay a fee for title examination and title insurance if any.
If the lender decides that an environmental protection lien endorsement to a title policy is needed, the cost of the endorsement may be charged to the veteran.
Special Mailing Fees for Refinancing Loans For refinancing loans only, the veteran can pay charges for Federal Express, Express Mail, or a similar service when the saved per diem interest cost to the veteran will exceed the cost of the special handling.
VA Funding Fee Unless exempt, each veteran must pay a funding fee to VA.
Mortgage Electronic Registration System (MERS) Fee The veteran may pay a fee for MERS. MERS is a one-time fee for the purpose of electronically tracking the ownership of the beneficial interest in a loan and its servicing rights.
Other Fees Authorized by VA Additional fees attributable to local variances may be charged to the veteran only if specifically authorized by VA. The lender may submit a written request to the Regional Loan Center for approval if the fee is normally paid by the borrower in a particular jurisdiction and considered reasonable and customary in the jurisdiction.

 

It’s important to note that whenever a charge relates to services performed by a third party (such as a credit report), the lender is only allowed to charge the borrower exactly the same amount that they were charged by the third party. No additional fees for ‘handling’ or otherwise can be added onto those charges. Also, the lender is not allowed to charge you for a service that was paid for by a different party. For example, if a previous prospective buyer of the home paid for an appraisal but didn’t buy the home, and you want to use the same NOV because it has not expired yet, the lender cannot charge you for the appraisal.

 

As for the 1% origination charge, here are things that it covers (so you shouldn’t see these itemized on your closing costs):Cutting your Fees

  • lender’s appraisals
  • lender’s inspections, except in construction loan cases
  • loan closing or settlement fees
  • document preparation fees
  • preparing loan papers or conveyancing fees
  • attorney’s services other than for title work
  • photographs
  • interest rate lock-in fees
  • postage and other mailing charges, stationery, telephone calls, and other overhead
  • amortization schedules, pass books, and membership or entrance fees
  • escrow fees or charges
  • notary fees
  • commitment fees or marketing fees of any secondary purchaser of the mortgage and preparation and recording of an assignment of the mortgage to such purchaser
  • trustee’s fees or charges
  • loan application or processing fees
  • fees for preparation of truth-in-lending disclosure statement
  • fees charged by loan brokers, finders or other third parties whether affiliated with the lender or not, and
  • tax service fees.

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