VA home loans involve a set of fees and expenses. Borrowers are responsible for a variety of these expenses as described in the VA Lender’s Handbook. Chapter Eight, “Borrower Fees and Charges and the VA Funding Fee” describes things the borrower is responsible for paying such as flood zone determination, appraisals, and the lender’s flat fee.
It also describes a list of things that must not be charged to the borrower, such as legal representation fees for the lender or charges already covered by the lender’s flat fee.
In short, the borrower has a regulated, fairly predictable list of fees and expenses to anticipate, budget for, and eventually pay. But what happens to all of these payments–many of which could be required prior to closing the deal on a house–if the deal never actually closes? What if the borrower decides not to go through with the deal?
The Department of Veterans Affairs has a set of rules covering this situation, and borrowers should understand what those rules are; doing so avoids conflict, confusion, and can help a VA loan applicant make informed decisions about closing or cancelling a deal.
It would be easy to assume that your appraisal fees are refundable if the loan does not close, for example. Why should the borrower lose the appraisal fee when they aren’t purchasing the property? But the fact is, an appraisal fee is a payment for services rendered. If the service has been rendered, it doesn’t matter whether the borrower decides to purchase or not–the appraisal occurred, the money is due.
It’s the same for all service-based expenses related to a VA home loan. If the service was given, payment is due and is not refundable. According to the VA Lender’s Handbook, when a borrower decides not to close a VA loan, “The borrower’s out-of-pocket expenses for itemized fees and charges already incurred, such as the appraisal and credit report, do not get refunded.”
That said, the rules are different for the lender’s flat fee. According to the VA, “If the lender has already collected the one percent flat fee from the borrower, the lender must refund the fee.” The reasons the borrower chooses to walk away from the deal don’t affect the refund of the flat fee–including situations where the borrower has decided to use another bank for a VA home loan. The current lender cannot penalize the borrower for switching lenders by refusing to refund the flat fee.
Do you have questions about VA home loans? Ask us in the comments section.
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