RESPA and VA Loan

[Ally H.]

Hi fellow BPers! We have some questions for those who are familiar with the VA loan for active duty military.

We went through a mortgage broker and locked in our interest rate and lender's credit last month with a Rate Lock Agreement. We chose a 30-year fixed with no down payment and the VA funding fee's rolled into the mortgage. The lender's credit was also confirmed with the GFE and HUD estimates; it was supposed to be enough to cover all of our closing costs, as well as have some left over for principal reduction.

We just received the finalized HUD, and there is a big change in the amount of credit that we are actually receiving (a decrease of a couple thousand dollars).

Are there different RESPA rules that apply to loans? Is it legal for the lender's credit (line 802 on HUD) to be decreased? Our understanding was that lines 801, 802, 803, and 1203 could not increase. We have heard that VA loans have a maximum allowable for credit but have not been able to find where this is explicitly stated.

In our research, we found the following on HUD's website (http://portal.hud.gov/hudportal/documents/huddoc?id=resparulefaqs422010.pdf):

"4) Q: The regulation states that while the borrower‘s interest rate is locked, the credit or charge for the interest rate chosen and the adjusted origination charge may not increase from the amount shown on the GFE. On a "no-cost" loan that covers third-party costs where the rate has been locked, the GFE should show a credit for the interest rate chosen, in an amount sufficient to cover the estimated loan originator and third party fees. If the actual third party fees at closing are lower than stated on the GFE, may the loan originator reduce the amount of the credit to match what is needed to pay the actual third party and loan originator fees?

A: No, the amount of the credit may not be reduced. The loan originator may choose to:

1) have the amount of the credit remain the same as stated on the GFE to cover additional closing costs previously not anticipated to be included in the ?no-cost? loan; 2) apply a principal reduction to the principal balance; 3) reduce the interest rate and the credit accordingly; or 4) have the credit remain the same, resulting in cash to the borrower." 

Thank you!