New Rules for VA Closing Cost Fees
The Department of Veterans Affairs has many safeguards to protect VA loan applicants from predatory lending, from being enticed to apply for a more expensive loan than the borrower can realistically afford, and now from signing a VA loan contract without knowing their closing costs.
Effective on all loans taken on or after October 1, 2010, loan officers must now provide an itemized list of title charges, plus “seller, lender, mortgage broker, or real estate agent/broker credits” according to VA Circular 26-10-9.
The Real Estate Procedures Act (RESPA for short) allows itemization of such details on paperwork called the HUD-1 Settlement Statement, but according to the VA, “, if a party other than the borrower contributes to multiple borrower expenses, the credits will be shown on the first page of the HUD-1 Settlement Statement as a lump sum.” When such a lump sum is listed, the VA requires itemization to show who paid what charges. The itemization is also there to protect borrowers from paying fees the VA does not allow the borrower to pay.
As part of the new itemization requirements, the VA also requires a description of the charges with regard to title services and lender’s title insurance. This too is designed to protect the borrower from paying fees not allowed by the VA. The VA specifically points out, “Under existing regulations, veterans are not allowed to pay attorney fees, settlement fees or closing fees when a one percent origination fee is charged.”
Itemization of fees and charges is an effective way to track what the lender has paid and what the borrower has been asked to pay. If an issue of non-compliance arises, the VA will have the right documentation to take appropriate action to bring the lender into compliance with VA regulations. It’s also a way for VA loan borrowers to know what fees they paid and which fees the lender covered.