VA Issues Policy Reminder re Lender’s Payment or Credit of Veteran’s Costs in Home Loans

The VA recently issued Circular 26-18-4 to clarify policy guidance regarding the use of credits or interest rates to pay borrower costs in VA loans.  Pursuant to VA regulations, lenders may charge and a Veteran may pay a flat charge not to exceed one percent of the loan amount.  This is provided that the flat charge is in lieu of all other charges related to the costs of origination not expressly specified and allowed in the regulations.

Effective immediately, not only are temporary buydown charges not allowable in addition to the one percent fee, but the lender may not pay them either (though a seller may).  Additionally, the Circular prohibits lenders from funding temporary buydown accounts and escrow accounts in order to subsidize payments through an above market interest rate, or a combination of discount points and above market interest rate.  The VA views that type of account as a cash advance on principal, which is prohibited.

The Circular is available here.