VA requirements

VA Loans: Property Tax and Insurance Requirements

January 28, 2019

VA Loans: Property Tax and Insurance Requirements

111-logoWhen buying a home with a VA-insured loan, borrowers learn that the Department of Veterans Affairs has a set of requirements which include “sufficient hazard insurance” and payment of all property tax. The VA loan program, like FHA loans, views non-payment of property taxes to be a violation of the loan agreement.

But VA loan rules do not require a lender to establish an escrow account for the taxes and insurance on properties bought with VA mortgage loans.

A lender who claims VA rules force them to require escrow accounts is not being honest, but the lender does have the right to make escrow accounts for taxes and insurance a mandatory part of doing business with that particular lender.

According to the VA’s official site, the rules are clear:

“VA does require that lenders ensure that the property is covered by sufficient hazard insurance at all times and that property taxes are paid. Most lenders decide to use escrow accounts to do this, but they are not required by VA and VA has no standards governing them.”

That last line is important to note. The VA has no regulations covering escrow accounts, which are governed by the Real Estate Settlement Procedures Act, or RESPA, and administered by HUD.

Borrowers should pay close attention to the details covering an escrow account they may be required to use as part of their VA loan. According to RESPA guidelines, escrow account information is listed on the required Good Faith Estimate, which will tell the borrower whether there is an escrow account required or not. Borrowers will be informed about the escrow requirements and any amount which may be due into that account as part of the loan requirements.

There is a clause in the Good Faith Estimate which reminds borrowers that the amount deposited in escrow may not necessarily be enough to cover property taxes and insurance. It instructs the borrower to ask the lender about this issue. Just because you have money deposited in escrow doesn’t mean it will cover all of that year’s property taxes and may require additional action (and/or funds) from the borrower — especially in years where property taxes have been increased.

Don’t assume your escrow account will cover those costs until you’ve discussed the mechanics of your escrow account with the lender – know what the procedure is for dealing with possible shortages or related issues, and how they affect your requirements for escrow deposits.

4 Comments
  1. Sam Arieff

    Hello, I found the above info helpful. I have a similar question. I have never used a VA loan but I'm going to for my next property in FL. In shopping insurance, one agent said that the VA requires insurance not for replacement value, but for the entire loan amount. In my case that's a 60k difference that I have to insure. I've not heard of this nor have other insurance agents. But this agent was recommended by a banker I trust. Is there any truth to this? Do you know where I can look up the source document? Thanks. Sam

    • Joe Wallace

      I would contact the Department of Veterans Affairs directly about this situation for advice and further information. Call them at 1-800 827-1000.

  2. Jerry Conway

    I'm going to closing in the next 48 hours. My broker says the lender requires a "replacement cost estimator." The loan will be for $245,000; current hazard coverage is $200,000; appraised value $295,000. Broker is insisting I need additional hazard coverage. According to the appraisal, "Cost approach to value" reads in part: Site Value $100,000 Dwelling $146,215 Pool $ 50,000 Garage $ 22,450 Total Estimate of Cost-New $228,665 The question is, do I indeed need further hazard coverage?

    • Joe Wallace

      Contact the VA Regional Loan Center with jurisdiction in your area for assistance with this matter--find yours at http://www.benefits.va.gov/homeloans/contact_rlc_info.asp or call 1-800 827-1000 for more information.

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