IBA Compliance Connection

Your go to source for compliance!

Is a final inspection fee included in the APR calculation? Our understanding is that if the final inspection is completed after closing, the fee should be included in the APR calculation. For example, we made a loan to fund an improvement, and we performed a final inspection after the closing to confirm that the value with the improvement was consistent with our “as improved” appraisal.

—

by

Yes, a fee for an inspection that is conducted after the loan closing should be included in the finance charge and annual percentage rate (APR) calculation.

Regulation Z excludes from the finance charge calculation “fees for inspections . . . if the service is performed prior to closing” for real estate and residential mortgage transactions. As explained in the Official Interpretations, this exclusion is intended to cover only “charges imposed solely in connection with the initial decision to grant credit.” Inspections and other services performed after a loan closing are not part of the initial decision to grant credit, and they should be included in the finance charge calculation.

For resources related to our guidance, please see:

  • FDIC Compliance Manual, Truth in Lending Act, page 10 (“The APR is a function of: The amount financed . . . . The finance charge . . . . [and] The payment schedule . . . .”)

  • Regulation Z, 12 CFR 1026.4(c)(7) (“The following charges are not finance charges: . . . (7) The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount: . . . (iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest-infestation or flood-hazard determinations. . . .”)

  • Regulation Z, Official Interpretations, Paragraph 4(c)(7), Comment 3 (“Charges assessed during the loan term. Real estate or residential mortgage transaction charges excluded under § 1026.4(c)(7) are those charges imposed solely in connection with the initial decision to grant credit. This would include, for example, a fee to search for tax liens on the property or to determine if flood insurance is required. The exclusion does not apply to fees for services to be performed periodically during the loan term, regardless of when the fee is collected. . . . .”)