On January 20, 2016, the Department of Veterans Affairs released Circular 26-16-03, Exhibit A, found here. FAQ #9 on Exhibit A asked, “Are pre-paid expenses, such as real estate taxes and home owners’ insurance counted in total closing costs for the 36-month recoupment period?” The answer given was:
“No, only those expenses the veteran incurs as a cost of the IRRRL must be included in the recoupment period. VA does not believe it is necessary to include in the recoupment period the costs of items the borrower would have paid anyway under the loan being refinanced. The purpose of the recoupment calculation is to demonstrate the difference in out-of-pocket or financed expenses between the original loan and the new IRRRL. Consequently, if expenses like homeowners’ insurance premiums, taxes, special assessments, and homeowners’ association fees were, or would have been, payable under the original loan, they are excluded from the recoupment calculation.”
Due to this clarification, we are modifying the calculation for our field 41122 “Months Recovering Cost of Refi” to exclude these items as indicated by the VA, as well as replacing our field for the Veteran’s total closing costs on the document as applicable.
This change will be effective on February 18, 2016. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.
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