TILA and Reg Z on a VA loan: APR with the funding fee, rescission and ARM caps

Every VA-guaranteed loan is consumer credit under Reg Z, so veterans get the full TILA toolkit — APR, periodic statements, payoff statements, rescission on refinances — and the financed funding fee is what makes the VA APR read higher than the note rate.

A VA loan is a closed-end, dwelling-secured consumer loan, which puts it squarely inside Regulation Z. Nothing about the federal guaranty exempts the lender from TILA; what changes is how a few specific provisions interact with VA’s own rules.

Why the APR looks wrong on a VA Loan Estimate

The funding fee is a prepaid finance charge. On a first-use purchase with nothing down it equals 2.15% of the loan, and because it is almost always financed, the APR can sit 0.3 to 0.4 points above the note rate even when the lender charges no points. Veterans comparing a VA quote with a conventional quote should compare APR to APR at the same rate lock date and remember that a fee-exempt borrower (disability compensation, Purple Heart, DIC) sees a much smaller gap. If your COE shows the exemption and the APR still carries the fee, the disclosure is wrong — ask for a corrected Loan Estimate before you lock.

Rescission: which VA transactions get the three days

Purchase loans carry no right of rescission. An IRRRL or a VA cash-out refinance of your principal residence does, if the new creditor is different from the current one: you have three business days after signing to cancel, and the lender may not disburse until the period ends. A refinance with the same creditor triggers rescission only on the new money advanced above the existing balance. For a deployed service member signing through a power of attorney, the clock runs from the date the attorney-in-fact receives the notice — confirm who signs the acknowledgment and when.

ARM disclosures and VA’s built-in caps

VA allows one-year and hybrid ARMs with statutory caps that are generally tighter than conventional ARMs: annual adjustments limited to 1 percentage point and a lifetime cap of 5 points, with a 2-point initial adjustment on some longer hybrids. Reg Z requires the interest-rate adjustment notices (at least 60 days before a payment changes, and an initial notice 210 to 240 days before the first adjustment) regardless of the VA caps. Because a hybrid VA ARM can later be refinanced into a fixed rate through an IRRRL, keep every adjustment notice — the recoupment math on that refinance depends on the rate you are actually paying.

Advertising: the “VA-approved” problem

Reg Z’s advertising rules prohibit claims that a lender or product is endorsed or sponsored by the federal government. Mailers printed with eagles, “Department of Veterans Affairs” lettering or “your VA benefits are about to expire” are a recurring enforcement target. A lender may be VA-approved to originate; it is never VA-endorsed. Ads that quote a rate must state the APR, and an “as low as” rate must disclose the points and the term that produce it.

Servicing provisions that matter in uniform

Periodic statements must reach you monthly even while deployed, so set up electronic delivery before you leave. Payoff statements must be provided within seven business days of a written request — useful when a PCS sale closes on a tight timeline. Reg Z also requires prompt crediting of payments received, which matters if your allotment posts on an unusual date. See the general rules on the TILA / Reg Z page and our ARM vs fixed-rate guide.

What to check

• Compare APR to APR: the financed funding fee inflates a VA APR; a fee-exempt borrower should see that gap almost vanish.
• Expect three business days of rescission on an IRRRL or cash-out with a new lender — none on a purchase.
• A VA hybrid ARM still requires Reg Z adjustment notices despite its 1-point annual and 5-point lifetime caps.
• Treat any mailer implying VA endorsement as a red flag; verify the lender on NMLS and call VA directly.
• Set up electronic periodic statements before deployment so you never miss a rate or escrow change.

Frequently asked questions

Is the VA funding fee included in the APR?

Yes. It is a prepaid finance charge under Reg Z, so it raises the APR above the note rate whether you pay it in cash or finance it. That is why a VA quote can show a higher APR than a conventional quote at the same note rate. Veterans exempt from the fee should confirm the lender removed it before comparing offers.

Can I cancel a VA refinance after signing?

On a refinance of your primary residence with a different lender, yes — you have three business days after signing and receiving the rescission notice. Purchase loans and the portion of a same-lender refinance that only replaces the existing balance are not rescindable. Cancellation must be in writing within the window.

The rule in full: Truth in Lending Act (TILA) and Regulation Z. The borrower profile: Veterans and service members. Related guides: Conventional vs FHA vs VA vs USDA: the four loan types compared · Closing costs explained: what is negotiable, what is not · Closing costs explained: what is negotiable, what is not · ARM vs fixed-rate mortgage: when an adjustable rate makes sense.

Other federal rules for veterans and service members

RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · HPA / PMI · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA · LO compensation

TILA / Reg Z for other borrowers

First-time buyers · Conventional borrowers · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home · Refinancing