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Tax fees are definitely among the expenses of doing business as a lender and a borrower may also require some tax assistance in the course of providing documentation to the lender about previous or current year income taxes.

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FHA Loan Articles

News and Updates for Homeowners

FHA Loans and Tax Service Fees

February 19, 2016 - There are many common questions about the allowable fees and expenses associated with FHA new purchase home loans or forward mortgages. One such question--can an FHA loan applicant be charged a tax service fee as part of closing costs or other loan-related fees and expenses?

Tax fees are definitely among the expenses of doing business as a lender and a borrower may also require some tax assistance in the course of providing documentation to the lender about previous or current year income taxes. For self-employed borrowers, tax data can be crucial when it comes to loan approval, but other borrowers may also need tax forms and other details related to income.

So can a borrower be charged by the lender for tax services?

The answer to this question is found in HUD 4000.1, in the portion of the rule book titled Part III “Servicing And Loss Mitigation”. There you will find a list of prohibited fees and expenses that cannot be charged to the borrower. That list includes, but is not limited to, the following:

“The Mortgagee must not charge the Borrower for the following services:
  • Costs of telephone calls, telegrams, personal visits with the Borrower, certified mail, or other activities that are normally considered a part of a prudent Mortgagees servicing activity;
  • Mortgagees use of an independent contractor such as a tax service to furnish tax data and information necessary to pay property taxes or make the payments on behalf of the Mortgagee
  • Preparing and providing evidence of Payoff, Reconveyance, or termination of the Mortgage;
  • Providing information essential to the Payoff
  • Recording the Payoff of the Mortgage in states where recordation is the responsibility of the Mortgagee; or
  • Fees for services performed by attorneys or trustees who are salaried members of the Mortgagees staff.
According to HUD 4000.1. tax service fees are not permitted to be passed on to the borrower. The prohibited fees list you see here basically insures that the financial institution does not charge the borrower for the normal costs of being open for business as a lender. Those expenses are considered to be normal operating costs and not the FHA loan applicant’s responsibility.

These protections for the borrower are built into the FHA loan process in the same way that other fees and expenses are controlled by FHA loan rules--such as the cap on fees such as appraisal fees or flood zone determination which limits the borrower’s costs to the actual amount charged for services rendered.