So, if borrower prepaid 6 months interest and payoff happens in less than 6 months borrower gets money back.2.

But I just got disclosure docs, rate is real, and lender pay all closing costs (other than prepaids, taxes etc). 

Or do I have to apply any prepaid rents before they become deliquent? 

$3,000-5,000 should cover closing costs and prepaid items (taxes, insurance, escrows, inspections) at that sales price2) Is putting 5% down wise or unwise?

I would appreciate your advice about  the correct numbers to use when estimating closing costs while running the numbers for our next purchase.This is an example of the closing costs for a rental that we purchased for $105,000.Loan Charges:  Origination & prepaid  interest:  $1,000Title Charges & Escrow/Settelment:  $1,600Impound Charges:  Tax & Insurance:  $1,500Total:  $4,100Which of the charges should be entered into the closing cost field?  

Is there also a release of collateral document in the event we prepaid the loan early to the borrower ?

Bryan Chambers will accept your pre-paid Loan Application fee in all 50 states... but you'll never get a loan.

In regards to taxes and insurance those are prepaid and put into escrow up front.Typically you pay insurance for the full year upfront

My lawyer is paid for through a pre paid legal plan through work and hence I do not have any such costs either.

You are supposed to live in the property for at least a year but that does not sound like an issue for you.The 2% funding fee is essentially prepaid PMI, make sure you factor it into your numbers.VA Loans can be a royal PITA but are an extremely good deal if the numbers work.