Lenders received a reminder from Veterans Benefits Administration officials Friday to ensure the fees they charge to veterans using VA-backed loans are permitted under the program.

On top of its funding fee, VA allows lenders to charge certain fees as part of the loan process; those fees can come in the form of interest rate adjustments. However, it does not allow those fees to be used in connection with a cash advance, which Friday’s circular alleges is taking place.

“A charge made to a Veteran in exchange for paying, crediting, funding, advancing, or otherwise establishing methods to advance funds to a Veteran on or after the VA loan closing (other than for advancing allowable charges) is prohibited,” per the circular.

The document also makes it clear that lenders cannot establish escrow accounts or any other accounts designed to “subsidize payments through an above market interest rate, or a combination of discount points and above market interest rate.” Lenders that are doing so are providing what amounts to a cash advance on VA-back loans, per the document, which is against VA regulations.

That doesn’t mean escrow accounts involving other parts of the loan process can’t be established.

Mortgages that involve cash advances and/or certain lender fees charged to veterans may be against VA regulations. (Stock/Getty Images)
Mortgages that involve cash advances and/or certain lender fees charged to veterans may be against VA regulations. (Stock/Getty Images)

The circular does not specify which lenders have engaged in the above practices.

If any of the above rings alarm bells attached to your VA loan shopping process, contact a VA Regional Loan Center for specific guidance.