Are Inspection Fees Finance Charges

Answer by David Dickinson: The Staff Commentary to the Truth in Lending Act [Commentary to Section 226.4(c)(7) #3] states "real estate or residential mortgage transaction charges excluded under Section 226.4(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. For example a fee for one or more determinations during the loan term of the current tax lien status or flood insurance requirements is a finance charge, regardless of whether the fee is imposed at closing, or when the service is performed. If a creditor is uncertain about what portion of a fee to be paid at consummation or loan closing is related to the initial decision to grant credit, the entire fee may be treated as a finance charge."

So the key to determining whether this fee is a finance charge is finding out when the inspection fee is earned. If the inspection(s) are completed before the loan is made, then it is not a finance charge. If the inspection(s) are conducted after the loan is made, then the fee is a finance charge - similar to life of loan flood monitoring fees.