Borrower Fees and Charges
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
Seller 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.