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The Great Debate — Is This a Finance Charge?

If only there was a simple answer! Unfortunately, this seemingly simple question can be endlessly debated due to the complexity of Regulation Z.

§1026.4(a) states that a finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type that would be payable in a comparable cash transaction.

There are some charges that are always excluded from the finance charge calculation. These include:

  • Application fees charged to all applicants for credit, whether or not credit is extended. In short, charged to all and never refundable.
  • Late fees, over-the-limit fees, delinquency fees, and default fees.
  • Fees for overdrawing an account unless the payment of such items and imposition of the charge were previously agreed upon in writing. (Does not apply to credit offered in connection with a prepaid account as defined in §1026.61.)
  • Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis.
  • Seller’s points.
  • Interest forfeited due to an interest reduction required by law on a time deposit used as security for an extension of credit.
  • Taxes and fees for perfecting, releasing, or satisfying a security interest.
  • The premium for insurance in lieu of perfecting a security interest.
    • Example: The fee to perfect a security interest is $5.00 and the fee for releasing a security interest is $3.00. The Bank charges $10.00 for non-filing insurance (meaning the Bank will not perfect the lien on the security interest). Only $8.00 of the $10.00 is excludable.
  • Taxes on security instruments

Simple – right? If only it were that simple.

If we ask the consumer auto loan staff whether appraisals and credit report fees are finance charges, the answer would be “yes.” If you ask the same question to a mortgage loan processor, their answer would be “no.” Surprisingly, they would both be correct. Why? – because Regulation Z provides for certain exemptions from finance charges when the transaction is secured by real property or in a residential mortgage transaction if the fees are bona fide and reasonable. These exempted fees include:

  • Fees for title examination, abstract of title, title insurance, property survey and similar purposes
  • Fees for preparing loan-related documents, such as deeds and mortgages (Document Preparation fees).
  • Notary Fees.
  • Credit report fees.
  • Property appraisal, inspection, and valuation fees, if performed prior to closing, including fees related to pest-infestation (pest inspections) or flood hazard determinations. Note that only the flood determination is excluded; however, the life of loan coverage is a finance charge. If the Bank does not break out life of loan from the flood determination fee, the flood determination fee is included as a finance charge.
  • Amounts paid into escrow if the amounts would not otherwise be included in the finance charge.

I am guessing your next question will be – “What’s considered bona fide and reasonable?” Unfortunately, Regulation Z does not define “bona fide and reasonable.” There is no absolute answer, but I believe you will know an unreasonable charge when you see it. For example, if document preparation fee by title companies averages $150-$350, and you see an invoice for a $1,500 document preparation fee, that amount is not going to appear reasonable. (These subjective parts of the Regulations give compliance folks headaches).

We have all heard the saying, “when in doubt count it as a finance charge.” While over-disclosing finance charges is less of a risk than under-disclosing finance charges, the truth is, we need to disclose them accurately. Tossing everything into the finance charge calculation will be a clear indication to regulators that we lack training on how to identify finance charges.

Since mortgage transactions are complex and contain several fees with different naming conventions, TCA has put together a list of common fees to assist in determining whether they are to be considered a finance charge in a real estate transaction or not.


203K Consultant FeeX  
203K Inspection FeesX  
203K PermitsX  
203K Supplemental Document FeeX  
203K Title Update FeeX  
203K Supplemental Origination FeeX  
Abstract or Title Fee X 
Accommodation FeeX  
Administration FeeX  
Amortization ScheduleX  
Application FeeX  
Application Fee (charged to all persons, not refundable) XFee retained regardless of whether loan is granted.
Appraisal Fee X 
Appraisal Retype X 
Appraisal Review*X*If payable to the Bank, include in the finance charge.
Assignment FeeX  
Assumption FeeX  
Attorney Fee (Seller) X 
Attorney Fee for Closing/SettlementX Considered a settlement fee.
Attorney Fee for Document Preparation XExcluded under Document Preparation
Attorney Fee for Document ReviewX  
Attorney Fee retained by Borrower for personal review XNot required by lender or title company.
Automated Underwriting FeesX  
Broker FeesX  
Building Permits X 
Buydown/Subsidy FeeX  
Cancelation FeeX  
City or County Deed/Mortgage Tax Stamps X 
Closing Coordination FeeX  
Closing FeeX  
Commitment FeeX  
Compliance AuditX  
Condo Certification (Required by Lender)X  
Condo Questionnaire (Required by Lender)X  
Construction Disbursement FeesX  
Construction Draw FeesX  
Construction Draw InspectionsX Inspection performed after consummation
Construction Escrow FeesX  
Consultant FeeX  
Conversion FeeX  
Copy FeeX  
Courier FeeX  
Credit Alert (CAIVRS)X  
Credit Life Insurance (If Required by Lender)X  
Credit Report Fee X 
Customer Identification Program (CIP) US Patriot SearchX  
Discount FeeX  
Document Fees for email, processing, handling, maintenance)X  
Document Preparation Fee X *If bona fide and reasonable, although this can vary if selling on the secondary market and should be verified with your investor
Document ReviewX  
Documentation FeeX  
Download FeeX  
Electronic DeliveryX  
Engineers Report (if NOT required by Lender) X 
Engineers Report (if required by LenderX  
Escrow Fees to LenderX This is the fee to collect the escrow. It does not include the amount collected for escrow.
Escrow Fees to Title CompanyX This is the fee to collect the escrow. It does not include the amount collected for escrow.
Escrow Fees for RepairsX This is the fee to collect the escrow. It does not include the amount collected for escrow.
Escrow Waiver FeeX  
Express Mail / Overnight FeesX  
FHA Upfront MIPX  
Final Inspection Fee XIf inspection is performed prior to closing.
Final Inspection Fee – Post closingX  
Flood Certification/Flood Determination Only X 
Flood Determination and Life of Loan (Combined Fee)X  
Flood Determination Life of Loan OnlyX  
Fulfillment FeeX  
Funding FeeX  
Handling FeesX  
HOA Certification X 
HOA Certification – (Required by Lender)X  
HOA Dues X 
HOA Transfer Fee X 
Home Inspection X 
Home Inspection (Required by Lender)X  
Home Warranty X 
Home Warranty (Required by Lender)X  
Homeownership Counseling FeeX  
HUD Review FeeX  
Inspection Fees required by Lender (Prior to Closing)X  
Inspection Fees required by Lender (Post Closing) X 
Insurance – Homeowner’s/Hazard X 
Insurance – Flood X 
Intangible Tax X 
Lender’s Inspection FeeX  If completed post consummation. If completed prior to closing the loan, the inspection fees are not a finance charge.
Loan Delivery FeeX  
Lock Extension FeeX  
Lock In FeesX  
Mobile Notary FeesX  
Mobile Signing FeeX  
Modification FeesX  
Mortgage InsuranceX  
Notary Fees X 
Origination ChargesX  
Payoff FeesX  
Per Diem Interest (Prepaid Interest)X  
Plan Review FeeX  
PointsX Paid by borrower. Seller points are not a finance charge.
Post-Closing FeeX  
Prepaid InterestX  
Private Mortgage InsuranceX Up front/initial premium or any escrow cushion; month-to-month calculated would not be a finance charge
Processing FeeX  
Rate Lock or Extension FeeX  
Rebate FeeX  
Recertification Fee to Appraiser X 
Recording Fee/Filing Fee Paid to Government Entity X 
Recording Fee/Filing Fee paid to other than Gov’t EntityX  
Refinance FeeX  
Release FeeX  
Revenue Stamps X 
Review FeeX  
State of Ownership and Location Application (SOL) X 
State Tax Stamps X 
Subordination FeeX  
Supplement DiscountX  
Supplemental OriginationX  
Survey X 
Tax Certificate X 
Tax Deletion (To Title Company) X 
Tax Report Fee (if same as Tax Service Fee)X  
Tax Search Fee XPart of title and initial Examination
Tax Service FeeX Post-Closing Tax Monitoring
Tax Transcripts (4506-T)X  
Title – Abstract Fee X 
Title – Attorney FeeX Does not include attorney representing Borrower at closing (see Attorney Fees above)
Title – Binder Fee X 
Title – Bring Down Fee XSame as title update
Title – Closing Agent Recording FeeX  
Title – Closing FeeX  
Title – Closing Protection LetterX  
Title – Courier FeeX  
Title – Document Preparation Fee X 
Title – Electronic Documentation/E-Doc FeeX  
Title – Electronic RecordingX  
Title – Endorsements X 
Title – Examination Fee X 
Title – GAP Check Fee XPart of title exam
Title – Guaranty FeeX  
Title – Lender’s Title Insurance X 
Title – Memorandum of Title – or Title Opinion XPart of title search and exam.
Title – Owner’s Title Insurance X 
Title – Processing FeeX  
Title – Recording FeeX Payable to title company to facilitate recording.
Title – Search X 
Title – Settlement FeeX  
Title – Tax Record Fee XNot a finance charge if part of title search/exam process
Title – Title Exam Fee X 
Title – Update Fee X 
Transfer Tax Fee X 
Underwriting FeesX  
USDA Guarantee FeeX  
USDA Technology FeeX  
VA Funding FeeX  
Verification of EmploymentX  
Warranty Deed Preparation Fee XSame as Document Preparation Fee
Wire FeeX  
NOTE: While this is a fairly comprehensive list of finance charges, it is not exhaustive. If you happen upon a charge that is not listed, first, determine what the fee is for and determine if it meets the exceptions within Regulation Z. If you are unable to determine whether it is a finance charge, it is recommended that you include it in the finance charge calculation.

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