## Chapter 8. Borrower Fees and Charges and the VA Funding Fee

#### Overview

+------------+---------------------------------------------------------+
| #          | > This chapter contains the following topics.           |
| #### In th |                                                         |
| is Chapter |                                                         |
+------------+---------------------------------------------------------+

  ------- --------------------------------------------------------- ------
  Topic   Topic Name                                                See
                                                                    Page

  1       VA Policy on Fees and Charges Paid by the                 8-2
          Veteran-Borrower                                          

  2       Fees and Charges the Veteran-Borrower Can Pay             8-3

  3       Fees and Charges the Veteran-Borrower Cannot Pay          8-9

  4       Other Parties Fees and Charges for the Veteran-Borrower   8-11

  5       Seller Concessions                                        8-12

  6       What Happens to Fees and Charges If the Loan Never Closes 8-14

  7       Fees and Charges That Can be Included In the Loan Amount  8-15

  8       The VA Funding Fee                                        8-17
  ------- --------------------------------------------------------- ------

#### Number range chapter1. VA Policy on Fees and Charges Paid by the Veteran-Borrower

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The VA home loan program involves a veteran's         |
|  a. Policy | > benefit. VA policy has evolved around the objective   |
|            | > of helping the veteran to use his or her home loan    |
|            | > benefit. Therefore, VA regulations limit the fees     |
|            | > that the veteran can pay to obtain a loan.            |
|            | >                                                       |
|            | > Lenders must **strictly** adhere to the limitations   |
|            | > on borrower-paid fees and charges when making VA      |
|            | > loans.                                                |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b    | > In order to defray the cost of administering the VA   |
| . The VA F | > home loan program, each veteran must pay a funding    |
| unding Fee | > fee to VA at loan closing.                            |
|            | >                                                       |
|            | > Congress may periodically change the funding fee      |
|            | > rates to reflect changes in the cost of administering |
|            | > the program, or to assist a certain class of          |
|            | > veterans.                                             |
+------------+---------------------------------------------------------+

#### 2. Fees and Charges the Veteran-Borrower Can Pay

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | -   Subsection c has been changed to add Mortgage       |
|            |     Electronic Registration System (MERS) Fee to list   |
|            |     of itemized fees and charges.                       |
|            |                                                         |
|            | -   Subsection d has been changed to remove a section   |
|            |     break that cut the list of charges into two lists.  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > VA regulations at [38 CFR                             |
| ## a. VA R | > 36.4312](http://ww                                    |
| egulations | w.warms.vba.va.gov/regs/38cfr/bookh/part36/36_4300.doc) |
|            | > provide the list of fees and charges that the veteran |
|            | > can pay.                                              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b    | > The veteran can pay a maximum of:                     |
| . Overview |                                                         |
|            | -   reasonable and customary amounts for any or all of  |
|            |     the "Itemized Fees and Charges" designated by VA,   |
|            |     plus                                                |
|            |                                                         |
|            | -   a 1 percent flat charge by the lender, plus         |
|            |                                                         |
|            | -   reasonable discount points.                         |
|            |                                                         |
|            |     > ***Note***: Some special provisions apply to      |
|            |     > construction, alteration, improvement and repair  |
|            |     > loans.                                            |
|            |                                                         |
|            |     > ***Reference***: See section 2, subsection e,     |
|            |     > "Construction Loans."                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c.   | > The veteran may pay any or all of the following       |
|  Itemized  | > itemized fees and charges in amounts that are         |
| Fees and C | > reasonable and customary.                             |
| harges {#c |                                                         |
| .-itemized |                                                         |
| -fees-and- |                                                         |
| charges .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| Charge     | Description                                             |
+------------+---------------------------------------------------------+
| Appraisal  | -   The veteran can pay the fee of a VA appraiser and   |
| and        |     VA compliance inspectors.                           |
| Compliance |                                                         |
| I          | ```{=html}                                              |
| nspections | <!-- -->                                                |
|            | ```                                                     |
|            | -   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.        |
+------------+---------------------------------------------------------+

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2\. Fees and Charges the Veteran-Borrower Can Pay, Continued

  -----------------------------------------------------------------------
  c\. Itemized Fees and Charges (continued)

  -----------------------------------------------------------------------

+------------+---------------------------------------------------------+
| Charge     | Description                                             |
+------------+---------------------------------------------------------+
| Recording  | The veteran can pay for recording fees and recording    |
| Fees       | taxes or other charges incident to recordation.         |
+------------+---------------------------------------------------------+
| Credit     | The veteran can pay for the credit report obtained by   |
| Report     | 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    | The veteran can pay that portion of taxes, assessments, |
| Items      | and similar items for the current year chargeable to    |
|            | the borrower and the initial deposit for the tax and    |
|            | insurance account.                                      |
+------------+---------------------------------------------------------+
| Hazard     | The veteran can pay the required hazard insurance       |
| Insurance  | premium. This includes flood insurance, if required.    |
+------------+---------------------------------------------------------+
| Flood Zone | The veteran can pay the actual amount charged for a     |
| Dete       | determination of whether a property is in a special     |
| rmina-tion | 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.  |
+------------+---------------------------------------------------------+

Continued on next page

2\. Fees and Charges the Veteran-Borrower Can Pay, Continued

  -----------------------------------------------------------------------
  c\. Itemized Fees and Charges (continued)

  -----------------------------------------------------------------------

+------------+---------------------------------------------------------+
| Charge     | Description                                             |
+------------+---------------------------------------------------------+
| Title      | The veteran may pay a fee for title examination and     |
| E          | title insurance, if any.                                |
| xamination |                                                         |
| and Title  | > If the lender decides that an environmental           |
| Insurance  | > protection lien endorsement to a title policy is      |
|            | > needed, the cost of the endorsement may be charged to |
|            | > the veteran.                                          |
+------------+---------------------------------------------------------+
| Special    | For refinancing loans only, the veteran can pay charges |
| Mailing    | for Federal Express, Express Mail, or a similar service |
| Fees for   | when the saved per diem interest cost to the veteran    |
| R          | will exceed the cost of the special handling.           |
| efinancing |                                                         |
| Loans      |                                                         |
+------------+---------------------------------------------------------+
| VA Funding | Unless exempt from the fee, each veteran must pay a     |
| Fee        | funding fee to VA.                                      |
+------------+---------------------------------------------------------+
| Mortgage   | The veteran may pay a fee for MERS. MERS is a one-time  |
| Electronic | fee for the purpose of electronically tracking the      |
| Re         | ownership of the beneficial interest in a loan and its  |
| gistration | servicing rights.                                       |
| System     |                                                         |
| (MERS) Fee |                                                         |
+------------+---------------------------------------------------------+
| Other Fees | Additional fees attributable to local variances may be  |
| Authorized | charged to the veteran **only** if specifically         |
| by VA      | authorized by VA. The lender may submit a written       |
|            | request to the RLC for approval if the fee is normally  |
|            | paid by the borrower in a particular jurisdiction and   |
|            | considered reasonable and customary in the              |
|            | jurisdiction.                                           |
+------------+---------------------------------------------------------+

+-----------------------------------------------------------------------+
| > Whenever the charge relates to services performed by a third party, |
| > the amount paid by the borrower must be limited to the actual       |
| > charge of that third party.                                         |
|                                                                       |
| ***Example***: If the lender obtains a credit report at a cost of     |
| \$30, the lender may only charge the borrower \$30 for the credit     |
| report. The lender may **not** charge \$35, even if it believes that  |
| a \$5 handling charge is fair.                                        |
+-----------------------------------------------------------------------+

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2\. Fees and Charges the Veteran-Borrower Can Pay, Continued

+------------+---------------------------------------------------------+
| c\.        | > In addition, the borrower may **not** pay a duplicate |
| Itemized   | > fee for services that have already been paid for by   |
| Fees and   | > another party.                                        |
| Charges    |                                                         |
| (          | > ***Examples***:                                       |
| continued) |                                                         |
|            | -   An appraisal is completed on a property and paid    |
|            |     for by a prospective purchaser, but the sale is     |
|            |     never completed. A second purchaser applies for a   |
|            |     loan before the validity period of the Notice of    |
|            |     Value (NOV) expires. The lender uses the same NOV.  |
|            |     The lender may **not** charge the second purchaser  |
|            |     an appraisal fee if no second appraisal is ordered. |
|            |                                                         |
|            | -   A survey or flood zone determination, if the lender |
|            |     elects to use an existing survey or flood           |
|            |     determination.                                      |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### d.   | > In addition to the "itemized fees and charges," the   |
| Lender's 1 | > lender may charge the veteran a flat charge not to    |
|  Percent F | > exceed 1 percent of the loan amount.                  |
| lat Charge |                                                         |
|            | -   Calculate the 1 percent on the principal amount     |
|            |     after adding the funding fee to the loan, if the    |
|            |     funding fee is paid from loan proceeds (except      |
|            |     IRRRLs).                                            |
|            |                                                         |
|            | -   ***Note***: For IRRRLs, use [VA Form                |
|            |                                                         |
|            | 26-8923](http://www.vba.va.gov/pubs/forms/26-8923.pdf), |
|            |     IRRRL Worksheet for the Calculation.                |
|            |                                                         |
|            |     The lender's flat charge is intended to cover all   |
|            |     of the lender's costs and services which are        |
|            |     **not** reimbursable as "itemized fees and          |
|            |     charges."                                           |
+------------+---------------------------------------------------------+

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2\. Fees and Charges the Veteran-Borrower Can Pay, Continued

+------------+---------------------------------------------------------+
| d\.        | > The following list provides examples of items that    |
| Lender's 1 | > cannot be charged to the veteran as "itemized fees    |
| Percent    | > and charges." Instead, the lender must cover any cost |
| Flat       | > of these items out of its flat fee.                   |
| Charge     |                                                         |
| (          | -   lender's appraisals                                 |
| continued) |                                                         |
|            | -   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 assignment of 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                                            |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   tax service fees.                                   |
+------------+---------------------------------------------------------+

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2\. Fees and Charges the Veteran-Borrower Can Pay, Continued

+------------+---------------------------------------------------------+
| ####       | > The lender can charge an additional flat charge on    |
| # e. Const | > construction, alteration, improvement, or repair      |
| ruction Lo | > loans.                                                |
| ans {#e.-c |                                                         |
| onstructio | -   If the lender supervises the progress of            |
| n-loans .u |     construction and/or makes advances to a veteran in  |
| nnumbered} |     excess of 50 percent of the loan during             |
|            |     construction, alteration, improvement, or repair    |
|            |                                                         |
|            | -   Then the lender may charge the veteran up to 2      |
|            |     percent of the loan amount in addition to the       |
|            |     lender's 1 percent flat charge.                     |
|            |                                                         |
|            |     ***Example***: Total charges to the veteran in      |
|            |     these cases would be, at a maximum, itemized fees   |
|            |     and charges plus a 3 percent flat charge plus       |
|            |     discount points.                                    |
|            |                                                         |
|            | -   If the lender does not supervise the progress of    |
|            |     construction or make advances to a veteran in       |
|            |     excess of 50 percent of the loan during             |
|            |     construction, alteration, improvement, or repair    |
|            |                                                         |
|            | -   Then the lender may charge the veteran up to 1      |
|            |     percent of the loan amount in addition to the       |
|            |     lender's 1 percent flat charge.                     |
|            |                                                         |
|            |     ***Example***: Total charges to the veteran in      |
|            |     these cases would be, at a maximum, itemized fees   |
|            |     and charges plus a 2 percent flat charge plus       |
|            |     discount points.                                    |
|            |                                                         |
|            |     > This provision also applies to supplemental       |
|            |     > loans.                                            |
+------------+---------------------------------------------------------+

#### 3. Fees and Charges the Veteran-Borrower Cannot Pay {#fees-and-charges-the-veteran-borrower-cannot-pay .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date |                                                         |
|            | -   This section has been changed to create subsection  |
|            |     lettering.                                          |
|            |                                                         |
|            | -   Subsection a has been changed to reference          |
|            |     "section" instead of "topic."                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > The lender's maximum allowable flat charge of 1       |
| #### a. Le | > percent of the loan amount (or greater percentage in  |
| nder's Use | > the case of construction loans) is intended to cover  |
|  of 1 Perc | > **all** of the lender's costs and services which are  |
| ent Flat C | > not reimbursable as "itemized fees and charges." The  |
| harge {#a. | > lender may pay third parties for services or do as it |
| -lenders-u | > wishes with the funds from the flat charge, as long   |
| se-of-1-pe | > as the lender complies with the Real Estate           |
| rcent-flat | > Settlement Procedures Act (RESPA).                    |
| -charge .u |                                                         |
| nnumbered} | > Section 2, subsections c and d of this chapter        |
|            | > provide some examples of items that **cannot** be     |
|            | > charged to the veteran as "itemized fees and          |
|            | > charges."                                             |
|            | >                                                       |
|            | > This section provides more examples of items that     |
|            | > cannot be paid by the veteran, but can be paid out of |
|            | > the lender's flat charge or by some party other than  |
|            | > the veteran.                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b    | > The lender may **not** charge the borrower for        |
| . Attorney | > attorney's fees. Reasonable fees for title            |
| 's Fees {# | > examination work and title insurance can be paid,     |
| b.-attorne | > however, by the borrower. They are allowable itemized |
| ys-fees .u | > fees and charges.                                     |
| nnumbered} |                                                         |
|            | > VA does not intend to prevent the veteran from        |
|            | > seeking independent legal representation. Therefore,  |
|            | > the veteran can independently retain an attorney and  |
|            | > pay a fee for legal services in connection with the   |
|            | > purchase of a home. Closing documents should clearly  |
|            | > indicate that the attorney's fee is **not** being     |
|            | > charged by the lender, but is being paid by the       |
|            | > veteran as part of an independent arrangement with an |
|            | > attorney.                                             |
+------------+---------------------------------------------------------+

Continued on next page

3\. Fees and Charges the Veteran-Borrower Cannot Pay, Continued

+------------+---------------------------------------------------------+
| #####      | > Fees or commissions charged by a real estate agent or |
| c. Brokera | > broker in connection with a VA loan may **not** be    |
| ge Fees {# | > charged to or paid by the veteran-purchaser.          |
| c.-brokera |                                                         |
| ge-fees .u | > While use of "buyer" brokers is not precluded,        |
| nnumbered} | > veteran-purchasers may **not**, under any             |
|            | > circumstances, be charged a brokerage fee or          |
|            | > commission in connection with the services of such    |
|            | > individuals. Since information on property available  |
|            | > for purchase and financing options is widely          |
|            | > available to the public from a variety of sources, VA |
|            | > does not believe that preventing the veteran from     |
|            | > paying buyer-broker fees will harm the veteran.       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### d.   | > A veteran obtaining a VA refinancing loan cannot use  |
|  Prepaymen | > loan proceeds to pay penalty costs for prepayment of  |
| t Penaltie | > an existing lien.                                     |
| s {#d.-pre |                                                         |
| payment-pe | > A veteran purchasing a property with a VA loan cannot |
| nalties .u | > pay penalty costs required to discharge any existing  |
| nnumbered} | > liens on the seller's property.                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### e.   | > In proposed construction cases in which the dwelling  |
| HUD/FHA In | > was constructed under HUD supervision, the cost of    |
| spection F | > any inspections or re-inspections must be borne by    |
| ees for bu | > the builder or sponsor and are **not** chargeable to  |
| ilders {#e | > the veteran-purchaser. This includes:                 |
| .-hudfha-i |                                                         |
| nspection- | -   re-inspections by VA or HUD of onsite or offsite    |
| fees-for-b |     work for which an escrow agreement was established, |
| uilders .u |     and                                                 |
| nnumbered} |                                                         |
|            | -   any additional re-inspections deemed necessary by   |
|            |     VA to assure conformity with VA regulations.        |
+------------+---------------------------------------------------------+

#### 4. Other Parties Fees and Charges for the Veteran-Borrower {#other-parties-fees-and-charges-for-the-veteran-borrower .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > The seller, lender, or any other party may pay fees   |
| ### a. Pol | > and charges, including discount points, on behalf of  |
| icy {#a.-p | > the borrower.                                         |
| olicy-1 .u |                                                         |
| nnumbered} | > VA regulations limit charges "made against or paid    |
|            | > by" the borrower. They do not limit the payment of    |
|            | > fees and charges by other parties.                    |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Excessive seller concessions are prohibited.          |
| b. Excepti |                                                         |
| on {#b.-ex | > ***Reference***: See section 5 of this chapter.       |
| ception .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

#### 5. Seller Concessions {#seller-concessions .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > For purposes of this topic, a seller concession is    |
|  Definitio | > anything of value added to the transaction by the     |
| n {#a.-def | > builder or seller for which the buyer pays nothing    |
| inition .u | > additional and which the seller is **not**            |
| nnumbered} | > customarily expected or required to pay or provide.   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Seller concessions include, but are not limited to,   |
| # b. Selle | > the following:                                        |
| r Concessi |                                                         |
| ons {#b.-s | -   payment of the buyer's VA funding fee               |
| eller-conc |                                                         |
| essions .u | -   prepayment of the buyer's property taxes and        |
| nnumbered} |     insurance                                           |
|            |                                                         |
|            | -   gifts such as a television set or microwave oven    |
|            |                                                         |
|            | -   payment of extra points to provide permanent        |
|            |     interest rate buydowns                              |
|            |                                                         |
|            | -   provision of escrowed funds to provide temporary    |
|            |     interest rate buydowns, and                         |
|            |                                                         |
|            | -   payoff of credit balances or judgments on behalf of |
|            |     the buyer.                                          |
|            |                                                         |
|            |     > Seller concessions do **not** include             |
|            |                                                         |
|            | -   payment of the buyer's closing costs, or            |
|            |                                                         |
|            | -   payment of points as appropriate to the market.     |
|            |                                                         |
|            | -   ***Example***: If the market dictates an interest   |
|            |     rate of 7½ percent with two discount points, the    |
|            |     seller's payment of the two points would **not** be |
|            |     a seller concession. If the seller paid five        |
|            |     points, three of these points would be considered a |
|            |     seller concession.                                  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c. T | > In some localities, builders or sellers offer         |
| he Problem | > concessions as a competitive tool. In extreme cases,  |
|            | > the concessions may entice unwary and unqualified     |
|            | > veterans into home mortgages they cannot afford. The  |
|            | > concessions may disguise the veteran's inability to   |
|            | > qualify for the loan.                                 |
+------------+---------------------------------------------------------+

Continued on next page

5\. Seller Concessions, Continued

+------------+---------------------------------------------------------+
| ##### d.   | > Any seller concession or combination of concessions   |
|  The 4 Per | > which exceeds 4 percent of the established reasonable |
| cent Limit | > value of the property is considered excessive, and    |
|            | > unacceptable for VA-guaranteed loans.                 |
|            | >                                                       |
|            | > Do **not** include normal discount points and payment |
|            | > of the buyer's closing costs in total concessions for |
|            | > determining whether concessions exceed the 4 percent  |
|            | > limit.                                                |
+------------+---------------------------------------------------------+

#### 6. What Happens to Fees and Charges If the Loan Never Closes

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > The borrower's out-of-pocket expenses for itemized    |
| # a. Itemi | > fees and charges already incurred, such as the        |
| zed Fees a | > appraisal and credit report, do **not** get refunded. |
| nd Charges |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > If the lender has already collected the 1 percent     |
| #### b. Th | > flat fee from the borrower, the lender **must**       |
| e 1 Percen | > refund the fee. This applies to a loan that does not  |
| t Flat Fee | > close for any reason, including the borrower going to |
|            | > another lender.                                       |
+------------+---------------------------------------------------------+

#### 7. Fees and Charges That Can be Included In the Loan Amount

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering and references.                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > For all types of VA loans, the loan amount may        |
| #### a. Al | > include the VA funding fee.                           |
| l VA Loans | >                                                       |
|            | > No other fees and charges or discount points may be   |
|            | > included in the loan amount for regular purchase or   |
|            | > construction loans.                                   |
|            | >                                                       |
|            | > Only refinancing loans may include other allowable    |
|            | > fees and charges and discount points in the loan      |
|            | > amount.                                               |
|            | >                                                       |
|            | > ***Note***: Maximum loan amounts are discussed in     |
|            | > [section 3 of chapter                                 |
|            | > 3.](http://                                           |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch03.doc) |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b    | > For "cash-out" refinancing loans, allowable fees and  |
| . "Cash-ou | > charges and discount points (as discussed in section  |
| t" Refinan | > 2 of this chapter) may be paid from cash proceeds of  |
| cing Loans | > the loan, as long as total loan proceeds do **not**   |
|            | > exceed 90 percent of the reasonable value of the      |
|            | > property.                                             |
|            | >                                                       |
|            | > Only the VA funding fee (and the cost of any energy   |
|            | > efficiency improvements) can be added to the 90       |
|            | > percent limit to increase the loan amount.            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The following fees and charges may be included in an  |
|  c. IRRRLs | > Interest Rate Reduction Refinancing Loan (IRRRL):     |
|            |                                                         |
|            | -   Any allowable fees and charges discussed in section |
|            |     2 of this chapter. This includes closing costs from |
|            |     the "Itemized Fees and Charges" list, the funding   |
|            |     fee, and the lender's flat charge.                  |
|            |                                                         |
|            | -   However, there is **one** limitation unique to      |
|            |     IRRRLs: While the borrower may pay any reasonable   |
|            |     amount of discount points in cash, no more than two |
|            |     discount points can be included in the loan amount. |
+------------+---------------------------------------------------------+

Continued on next page

7\. Fees and Charges That Can be Included In the Loan Amount, Continued

+------------+---------------------------------------------------------+
| ####       | > The following information applies to any loan to      |
| # d. Other | > refinance:                                            |
|  Refinanci |                                                         |
| ng Loans { | -   a construction loan                                 |
| #d.-other- |                                                         |
| refinancin | -   an installment land sales contract, or              |
| g-loans .u |                                                         |
| nnumbered} | -   a loan assumed by the veteran at an interest rate   |
|            |     higher than that for the proposed refinancing loan. |
|            |                                                         |
|            |     > The loan amount may include                       |
|            |                                                         |
|            | -   any allowable fees and charges discussed in section |
|            |     2 of this chapter, and                              |
|            |                                                         |
|            | -   reasonable discount points.                         |
|            |                                                         |
|            |     > **However,** maximum loan limits may not allow    |
|            |     > inclusion of the full amount of these items.      |
|            |                                                         |
|            |     > The maximum loan amount will be the lesser of 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                                |
|            |                                                         |
|            | -   cost of any energy efficiency improvements.         |
+------------+---------------------------------------------------------+

#### 8. The VA Funding Fee {#the-va-funding-fee .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | -   Subsection b has been changed to add servicemembers |
|            |     who have received a VA pre-rating decision prior to |
|            |     discharge.                                          |
|            |                                                         |
|            | -   Subsection c has been changed to remove the         |
|            |     reference to the veteran's award letter. This       |
|            |     document is no longer accepted as proof of funding  |
|            |     fee exemption.                                      |
|            |                                                         |
|            | -   Subsections d and h have been changed to add notes  |
|            |     for clarification purposes.                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > The lender must:                                      |
| #### a. Th |                                                         |
| e Lender's | -   verify the status of any veteran who may be exempt  |
|  Role {#a. |     from paying the funding fee                         |
| -the-lende |                                                         |
| rs-role .u | -   determine the amount of funding fee owed by any     |
| nnumbered} |     non-exempt borrower                                 |
|            |                                                         |
|            | -   collect the appropriate fee from all non-exempt     |
|            |     borrowers at loan closing                           |
|            |                                                         |
|            | -   electronically remit the funds to VA in a timely    |
|            |     manner through the Funding Fee Payment System       |
|            |     ([FFPS](https://www.pay.gov/va/UserLogin.jsp))      |
|            |                                                         |
|            | -   print proof of payment of the funding fee, and      |
|            |                                                         |
|            | -   submit proof that the funding fee has been paid or  |
|            |     that the veteran is exempt from paying the funding  |
|            |     fee to VA with the closed loan package.             |
|            |                                                         |
|            |     > ***Note***: The funding fee may be paid from loan |
|            |     > proceeds or cash from borrower.                   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > The following persons are exempt from paying the      |
| #### b. Wh | > funding fee:                                          |
| o is Exemp |                                                         |
| t from Pay | -   Veterans receiving VA compensation for              |
| ing the Fu |     service-connected disabilities.                     |
| nding Fee? |                                                         |
|  {#b.-who- | -   Veterans who would be entitled to receive           |
| is-exempt- |     compensation for service-connected disabilities if  |
| from-payin |     they did not receive retirement pay.                |
| g-the-fund |                                                         |
| ing-fee .u | -   Veterans who are **rated by VA as eligible** to     |
| nnumbered} |     receive compensation as a result of pre-discharge   |
|            |     disability examination and rating.                  |
|            |                                                         |
|            | -   Surviving spouses of veterans who died in service   |
|            |     or from service-connected disabilities (whether or  |
|            |     not such surviving spouses are veterans with their  |
|            |     own entitlement and whether or not they are using   |
|            |     their own entitlement on the loan).                 |
+------------+---------------------------------------------------------+

Continued on next page

8\. The VA Funding Fee, Continued

+------------+---------------------------------------------------------+
| ##         | > The lender must verify exempt status by obtaining one |
| ### c. How | > of the following:                                     |
|  to Verify |                                                         |
|  Exempt St | -   a properly completed and signed [VA Form            |
| atus {#c.- |                                                         |
| how-to-ver | 26-8937](http://www.vba.va.gov/pubs/forms/26-8937.pdf), |
| ify-exempt |     Verification of VA Benefits, indicating the         |
| -status .u |     borrower's exempt status                            |
| nnumbered} |                                                         |
|            | -   for a veteran who elected service retirement pay    |
|            |     instead of VA compensation, a copy of the original  |
|            |     VA notification of disability rating and            |
|            |     documentation of the veteran's service retirement   |
|            |     income, or                                          |
|            |                                                         |
|            | -   indications on the Certificate of Eligibility that  |
|            |     the borrower is entitled as an unmarried surviving  |
|            |     spouse.                                             |
|            |                                                         |
|            |     > Consult VA if the borrower's status is unclear    |
|            |     > after reviewing the appropriate documents, or if  |
|            |     > conflicting information is found.                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Submit a copy of the documentation used to verify     |
| # d. Loan  | > exempt status with the closing package.               |
| Submission |                                                         |
| s Involvin | > ***Exception***: The lender does **not** have to      |
| g Exempt B | > submit the documentation if:                          |
| orrowers { |                                                         |
| #d.-loan-s | -   the borrower is an eligible surviving spouse, or    |
| ubmissions |                                                         |
| -involving | -   the documentation had been previously provided to   |
| -exempt-bo |     VA with the loan application as verification of the |
| rrowers .u |     veteran's income.                                   |
| nnumbered} |                                                         |
|            | > ***Note***: A lender who believes that a service      |
|            | > member may be exempt from payment of the funding fee  |
|            | > based on a pre-discharge exam should contact the VA   |
|            | > Regional Loan Center (RLC) of jurisdiction for        |
|            | > assistance confirming the exempt status.              |
+------------+---------------------------------------------------------+

Continued on next page

8\. The VA Funding Fee, Continued

+------------+---------------------------------------------------------+
| ##         | > If the veteran's exempt status cannot be verified     |
| ### e. If  | > prior to loan closing, the funding fee **must** be    |
| Exempt Sta | > remitted as if the borrower was **not** exempt.       |
| tus Cannot |                                                         |
|  be Determ | > Indicate in the closing package that the veteran      |
| ined {#e.- | > claims exempt status. VA will determine the           |
| if-exempt- | > borrower's status and refund the funding fee if       |
| status-can | > appropriate.                                          |
| not-be-det |                                                         |
| ermined .u | > ***Reference***: Refer to the heading "Refunding      |
| nnumbered} | > Overpayments to the Veteran" in this section.         |
|            |                                                         |
|            | > If the veteran has a pending disability compensation  |
|            | > claim at the time of loan closing, the funding fee    |
|            | > must be remitted as if the borrower was **not**       |
|            | > exempt.                                               |
|            |                                                         |
|            | > Advise the veteran to contact the VA RLC to request a |
|            | > refund if it is later determined that the veteran is  |
|            | > entitled to compensation retroactively to a date      |
|            | > prior to loan closing.                                |
|            |                                                         |
|            | > ***Reference***: Refer to the heading "Refunding      |
|            | > Overpayments to the Veteran" in this section.         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > For all loans except IRRRLs, apply the appropriate    |
| ### f. How | > percentage (from the funding fee tables) to the loan  |
|  to Calcul | > amount.                                               |
| ate the Fu |                                                         |
| nding Fee  | > If the funding fee is to be paid from loan proceeds,  |
| {#f.-how-t | > apply the percentage to the loan amount without the   |
| o-calculat | > funding fee amount added to it.                       |
| e-the-fund |                                                         |
| ing-fee .u | > For IRRRLs, calculate the funding fee by completing   |
| nnumbered} | > [VA Form                                              |
|            | >                                                       |
|            | 26-8923](http://www.vba.va.gov/pubs/forms/26-8923.pdf), |
|            | > Interest Rate Reduction Refinancing Loan Worksheet.   |
|            |                                                         |
|            | > ***Reference***: For joint loans, see "Calculation of |
|            | > the Funding Fee" in [section 1 of chapter             |
|            | > 7](http://w                                           |
|            | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch07.doc). |
+------------+---------------------------------------------------------+

Continued on next page

8\. The VA Funding Fee, Continued

+------------+---------------------------------------------------------+
| ####       | > The lender must find the appropriate percentage in    |
| # g. How t | > the tables using the following parameters:            |
| o Use the  |                                                         |
| Funding Fe | -   Is the veteran eligible for VA loan benefits        |
| e Tables { |     through service in the regular military or the      |
| #g.-how-to |     Reserves/National Guard? Examine the Certificate of |
| -use-the-f |     Eligibility (COE). For Reserves/National Guard, the |
| unding-fee |     COE bears the notation, "RESERVES/NATIONAL GUARD -  |
| -tables .u |     INCREASED FUNDING FEE," and is buff-colored rather  |
| nnumbered} |     than green.                                         |
|            |                                                         |
|            | -   Is the veteran a subsequent user of VA home loan    |
|            |     benefits or obtaining his or her first VA loan?     |
|            |     Examine the COE. An entitlement code of "5"         |
|            |     indicates subsequent use, as does a loan number     |
|            |     entered in the "Loan Number" column.                |
|            |                                                         |
|            | -   What type of loan is the veteran obtaining? The     |
|            |     funding fee varies depending upon whether the loan  |
|            |     is a purchase or construction loan, an IRRRL, or a  |
|            |     cash-out refinancing loan.                          |
|            |                                                         |
|            | -   Is the veteran making a downpayment of at least 5   |
|            |     or 10 percent?                                      |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   Calculate what percentage of the sales price of the |
|            |     property the veteran is remitting as a downpayment. |
|            |                                                         |
|            | -   The down payment may come from the veteran's own    |
|            |     resources or borrowed funds. **Except**, if the     |
|            |     purchase price exceeds the reasonable value of the  |
|            |     property, the difference between the purchase price |
|            |     and the reasonable value must be paid by the        |
|            |     veteran in cash without borrowing.                  |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   For construction loans only, equity in the secured  |
|            |     property counts as a downpayment for calculating    |
|            |     the funding fee.                                    |
+------------+---------------------------------------------------------+

Continued on next page

8\. The VA Funding Fee, Continued

+------------+---------------------------------------------------------+
| ####       | > Purchase And Construction Loans                       |
| # h. Fundi |                                                         |
| ng Fee Tab | > ***Note***: The funding fee for ALL subsequent use    |
| les {#h.-f | > loans closed on or after October 1, 2006, and before  |
| unding-fee | > October 1, 2007, is 3.35 percent. This applies to all |
| -tables .u | > purchase loans where no downpayment of 5 percent or   |
| nnumbered} | > more is made as well as cash-out refinances where the |
|            | > fee would have been 3.3 percent. Effective October 1, |
|            | > 2007, the subsequent use fee reverts back to 3.3      |
|            | > percent.                                              |
+------------+---------------------------------------------------------+

+---------------+------------------------+------------+---------------+
| Type of       | Down Payment           | Percentage | Percentage    |
| Veteran       |                        | for First  | for           |
|               |                        | Time Use   | Subsequent    |
|               |                        |            | Use           |
+---------------+------------------------+------------+---------------+
| Regular       | None                   | 2.15%      | 3.3% \*       |
| Military      |                        |            |               |
|               | 5% or more (up to 10%) | 1.50%      | 1.50%         |
|               |                        |            |               |
|               | 10% or more            | 1.25%      | 1.25%         |
+---------------+------------------------+------------+---------------+
| Reserves/     | None                   | 2.4%       | 3.3% \*       |
|               |                        |            |               |
| National      | 5% or more (up to 10%) | 1.75%      | 1.75%         |
| Guard         |                        |            |               |
|               | 10% or more            | 1.5%       | 1.5%          |
+---------------+------------------------+------------+---------------+

+-----------------------------------------------------------------------+
| > Cash-Out Refinancing Loans                                          |
+-----------------------------------------------------------------------+

  --------------------------- ----------------------- --------------------
  Type of Veteran             Percentage for First    Percentage for
                              Time Use                Subsequent Use

  Regular Military            2.15%                   3.3% \*

  Reserves/National Guard     2.4%                    3.3% \*
  --------------------------- ----------------------- --------------------

+-----------------------------------------------------------------------+
| > \*The higher subsequent use fee does not apply to these types of    |
| > loans if the veteran's only prior use of entitlement was for a      |
| > manufactured home loan.                                             |
+-----------------------------------------------------------------------+

  ------------------------------- ---------------------------------------
  Type of Loan                    Percentage for Either Type of Veteran
                                  Whether First Time or Subsequent Use

  Interest Rate Reduction         .50%
  Refinancing Loans               

  Manufactured Home Loans (NOT    1.00%
  permanently affixed)            

  Loan Assumptions                .50%
  ------------------------------- ---------------------------------------

Continued on next page

8\. The VA Funding Fee, Continued

+------------+---------------------------------------------------------+
| ####       | > Lenders must remit the VA funding fee via the         |
| # i. How a | > [FFPS](https://www.pay.gov/va/UserLogin.jsp) within   |
| nd When to | > 15 calendar days of loan closing.                     |
|  Remit the |                                                         |
|  Funding F | Lenders paying the fee more than 15 days after loan     |
| ee to VA { | closing will automatically be assessed a 4 percent late |
| #i.-how-an | fee. Fees paid more than 30 days late will              |
| d-when-to- | automatically be assessed an interest charge in         |
| remit-the- | addition to the late fee.                               |
| funding-fe |                                                         |
| e-to-va .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > A refund is appropriate if:                           |
| ### j. Ref |                                                         |
| unding Ove | -   an exempt veteran paid a funding fee, or            |
| rpayments  |                                                         |
| to the Vet | -   a miscalculation of the fee caused an overpayment.  |
| eran {#j.- |                                                         |
| refunding- |     > Using the VA                                      |
| overpaymen |     > [FFPS](https://www.pay.gov/va/UserLogin.jsp),     |
| ts-to-the- |     > lenders can make appropriate corrections that may |
| veteran .u |     > result in refunds being due.                      |
| nnumbered} |                                                         |
|            |     > If the veteran was overcharged, the following     |
|            |     > applies:                                          |
|            |                                                         |
|            | -   A veteran who paid cash for the funding fee         |
|            |     receives a cash refund for the amount of the        |
|            |     overpayment.                                        |
|            |                                                         |
|            | -   In the case of a veteran who paid the funding fee   |
|            |     out of loan proceeds, the lender must apply the     |
|            |     overpayment against the loan balance. Submit        |
|            |     evidence to VA that the refund was applied to the   |
|            |     loan's principal balance.                           |
+------------+---------------------------------------------------------+