Deciphering the VA Lender’s Handbook Chapter 8 Part 1
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:
|Appraisal and Compliance Inspections||
|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):
- 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
- 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.