Home / loans direct lenders only / Chapter 6
Chapter 6 - loans direct lenders only
Chapter 6. Refinancing Loans
Overview
|In this Chapter |This chapter contains the following topics. |
|Topic |Topic Name |See Page |
|1 |Interest Rate Reduction Refinancing Loans (IRRRLs) | 6-2 |
|2 |IRRRL Made to Refinance a Delinquent Loan |6-13 |
|3 |Cash-Out Refinancing Loans |6-17 |
|4 |Quick Reference Table for IRRRLs Versus Cash-Out Refinancing Loans |6-19 |
|5 |Other Refinancing Loans |6-21 |
1. Interest Rate Reduction Refinancing Loans (IRRRLs)
|Change Date |April 10, 2009, Change 11 |
| |This section has been changed to update hyperlinks and to make minor grammatical edits. |
|a. What is an IRRRL? |An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest |
| |rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan. |
| | |
| |Generally, no appraisal, credit information or underwriting is required on an IRRRL, and any lender may close an |
| |IRRRL automatically. |
| | |
| |Note: Exceptions and specific requirements are explained in the remainder of this section. |
|b. Interest Rate Decrease|An IRRRL (which can be a fixed rate, hybrid Adjustable Rate Mortgage (ARM) or traditional ARM) must bear a lower |
|Requirement |interest rate than the loan it is refinancing unless the loan it is refinancing is an ARM. |
|c. Payment Decrease/ |The principal and interest payment on an IRRRL must be less than the principal and interest payment on the loan |
|Increase Requirements |being refinanced unless one of the following exceptions applies: |
| | |
| |the IRRRL is refinancing an ARM, |
| |term of the IRRRL is shorter than the term of the loan being refinanced, or |
| |energy efficiency improvements are included in the IRRRL. |
| | |
| |A significant increase in the veteran’s monthly payment may occur with any of these three exceptions, especially |
| |if combined with one or more of the following: |
| | |
| |financing of closing costs, |
| |financing of up to two discount points, |
| |financing of the funding fee, and/or |
| |higher interest rate when an ARM is being refinanced. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|c. Payment Decrease/ |If the monthly payment (PITI) increases by 20 percent or more, the lender must: |
|Increase Requirements | |
|(continued) |determine that the veteran qualifies for the new payment from an underwriting standpoint; such as, determine |
| |whether the borrower can support the proposed shelter expense and other recurring monthly obligations in light of |
| |income established as stable and reliable, and |
| |include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment |
| |by 20 percent or more. |
|d. Veteran’s Statement and|For all IRRRLs, the veteran must sign a statement acknowledging the effect of the refinancing loan on the |
|Lender’s Certification |veteran’s loan payments and interest rate. |
| | |
| |The statement must show the interest rate and monthly payments for the new loan versus that for the old loan. The|
| |statement must also indicate how long it would take to recoup ALL closing costs (both those included in the loan |
| |and those paid outside of closing). |
| | |
| |If the monthly payment (PITI) increases by 20 percent or more, the lender must include a certification that the |
| |veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more. |
| | |
| |Example: |
| | |
| |Vet’s monthly payment decreases by $50.00. |
| |Vet pays $5,000 in closing costs (includes all costs – closing costs, funding fee, discounts, etc). |
| |Recoup closing costs in 100 months - $5,000 divided by $50. |
| | |
| |Note: This would not be required in those limited cases where the payment is not decreasing (reduced term of |
| |loan, etc.). |
| | |
| |The veteran’s statement may be combined with the lender’s certification and should be on the lender’s own |
| |letterhead. For a sample please go to: http://www.homeloans.va.gov/docs/VA_Rate_Reduction_Cert.pdf. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|e. What Closing Costs can|The following fees and charges may be included in an IRRRL: |
|be Included in the Loan? | |
| |the VA funding fee, and |
| |any allowable fees and charges discussed in section 2 of chapter 8; such as, all allowable closing costs, |
| |including the lender’s flat charge. |
| | |
| |However, There Is One Limitation |
| |While the borrower may pay any reasonable amount of discount points in cash, only up to two discount points can be|
| |included in the loan amount. |
| | |
| |Although VA does not require an appraisal or credit underwriting on IRRRLs, any customary and reasonable credit |
| |report or appraisal expense incurred by a lender to satisfy its lending requirements may be charged to the |
| |borrower and included in the loan. |
| | |
| |The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing |
| |costs, as long as the requirements for lower interest rate and payments (or one of the exceptions to those |
| |requirements) are met. |
| | |
| |For IRRRLs to refinance loans 30 days or more past due (which must be submitted for prior approval), the following|
| |can be included in the new loan: |
| | |
| |late payments and late charges on the old loan, and |
| |reasonable costs if legal action to terminate the old loan has commenced. |
|f. When Can the Borrower |An IRRRL cannot be used to take equity out of the property or pay off debts, other than the VA loan being |
|Receive Cash at Closing? |refinanced. Loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or|
| |closing the IRRRL. Therefore, the general rule is that the borrower cannot receive cash proceeds from the loan. |
| |If necessary, the refinancing loan amount must be rounded down to avoid payments of cash to the veteran. |
| | |
| |The one exception is reimbursement of the veteran for the cost of energy efficiency improvements up to $6,000 |
| |completed within the 90 days immediately preceding the date of loan closing. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|f. When Can the Borrower |Note: Use of loan proceeds for energy efficiency improvements not involving cash reimbursement of the veteran is |
|Receive Cash at Closing? |also an option. See section 3 of chapter 7. |
|(continued) | |
| |In a limited number of situations, the borrower may receive cash at closing. Some examples of situations in which|
| |VA does not object to the borrower receiving cash are: |
| | |
| |computational errors, |
| |changes in final pay-off figures, |
| |up-front fees paid for the appraisal and/or credit report that are later added into the loan, and |
| |refund of the escrow balance on the old loan. This often occurs when a party other than the present holder |
| |originates the loan. |
| | |
| |VA does not set a “ceiling” or a specific dollar limitation on cash refunds resulting from adjustments at closing.|
| |However, if a situation involves a borrower receiving more than $500, consult VA as to its acceptability. Lenders|
| |and VA personnel should exercise common sense when assessing such situations and draw from basic program |
| |information to know the difference between an equity withdrawal and cash from unforeseen circumstances. |
|g. Maximum Loan |Always use VA Form 26-8923, IRRRL Worksheet, to calculate the maximum loan amount. The maximum loan amount is the|
| |existing VA loan balances plus the following: |
| | |
| |including any late payments* and late charges, plus |
| |allowable fees and charges (includes up to two discount points), plus |
| |the cost of any energy efficiency improvements, and |
| |the VA funding fee. |
| | |
| |*Any IRRRL that includes delinquent payments in the loan amount must be submitted for prior approval, even when a |
| |lender has automatic authority. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|g. Maximum Loan |Note: There is no maximum dollar amount for VA loans. Since an IRRRL rolls the above items into the new loan, |
|(continued) |and VA guarantees at least 25 percent of the loan amount (without regard to the veteran’s entitlement), the new |
| |loan amount may be more than the limits established by the secondary market. It is the lender’s responsibility to|
| |ensure it has a marketable loan. |
|h. Amount of Guaranty and|No additional charge is made to the veteran’s entitlement for an IRRRL; such as, the amount of the veteran’s |
|Entitlement Use |previously used and available entitlement remains the same before and after obtaining the IRRRL. |
| | |
| |The new IRRRL loan amount may be equal to, greater than, or less than, the original amount of the loan being |
| |refinanced. This may impact the amount of guaranty on the new loan, but not the veteran’s use of entitlement. |
| | |
| |Example Of New Loan Amount More Than Old Loan |
| |The existing VA loan was originally made for $110,000 with a guaranty of $27,500, or 25 percent. The new IRRRL is|
| |for $112,000. The guaranty on the new loan is $28,000 or 25 percent, but the veteran’s entitlement use remains at|
| |$27,500. |
| | |
| |Example Of New Loan Amount Less Than Old Loan |
| |The existing VA loan was originally made for $42,000 with a guaranty of $25,000, or almost 60 percent (the |
| |percentage applicable under former law). The new IRRRL is for $40,000. The guaranty on the new loan is $20,000 |
| |or 50 percent, but the veteran’s entitlement use remains at $25,000. |
|Amount |How to calculate the amount of guaranty on an IRRRL |
|IRRRLs up to |First, calculate the lesser of: |
|$45,000 | |
| |50 percent of the IRRRL loan amount, or |
| |the amount of guaranty used on the VA loan being refinanced. |
| | |
| |The amount of guaranty is the greater of: |
| | |
| |the above result, or |
| |25 percent of the IRRRL loan amount. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|h. Amount of Guaranty and Entitlement Use (continued) |
|Amount |How to calculate the amount of guaranty on an IRRRL |
|IRRRLsof |First, calculate the lesser of: |
|$45,001 to | |
|$56,250 |$22,500, or |
| |the amount of guaranty used on the VA loan being refinanced. |
| | |
| |The amount of guaranty is the greater of: |
| | |
| |the above result, or |
| |25 percent of the IRRRL loan amount. |
|IRRRLsof |First, calculate the lesser of: |
|$56,251 to | |
|$144,000 |40 percent of the IRRRL loan amount, or |
| |the amount of guaranty used on the VA loan being refinanced. |
| | |
| |The amount of guaranty is the greater of: |
| | |
| |the above result, or |
| |25 percent of the IRRRL loan amount. |
|IRRRLs greater |Guaranty on these is always 25 percent of the IRRRL loan amount. |
|than $144,000 | |
|i. Maximum Loan Term |The maximum loan term is the original term of the VA loan being refinanced plus 10 years, but not to exceed 30 |
| |years and 32 days. For example, if the old loan was made with a 15-year term, the term of the new loan cannot |
| |exceed 25 years. |
|j. Title/Lien |The IRRRL must replace the existing VA loan as the first lien on the same property. Any second lien-holder would |
|Requirements |have to agree to a subordinate to the first lien holder. |
| | |
| |The borrower cannot pay off liens other than the existing VA loan from IRRRL proceeds. |
| |The veteran (or surviving co-obligor spouse) must still own the property. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|k. Who Can an IRRRL be |Generally, the party(ies) obligated on the original loan must be the same on the new loan (and the veteran must |
|Made to? |still own the property). |
| | |
| |The lender should contact VA regarding a proposed IRRRL involving a change in obligors unless the acceptability of|
| |the IRRRL is clear. Sample cases are provided in the table in this subsection. |
| | |
| |Examples: |
| | |
| |In Case 7, the divorced spouse is keeping the home and wishes to refinance. The spouse cannot get an IRRRL unless|
| |the veteran agrees to be obligated on the new loan and commit his or her entitlement to the new loan. A person |
| |without entitlement cannot get an IRRRL or any other type of VA loan. |
| | |
| |In Cases 8 through 10, the applicants cannot obtain an IRRRL because they do not include the veteran or a person |
| |who was the veteran’s spouse at the time the original loan was made, and who was obligated on the loan along with |
| |the veteran. |
| | |
| |In the case of the unmarried veteran obtaining the original loan (Case 8): |
| | |
| |the marriage and death of the veteran occurred after the loan was made, and |
| |the deceased veteran’s spouse is not obligated on the original loan. Thus, an IRRRL is not possible. |
| | |
| |In the case of the veteran and spouse obligated on the original loan (Case 9): |
| | |
| |the divorce, remarriage, then death of the veteran occurred after the loan was made and, |
| |the deceased veteran’s new spouse is not obligated on the original loan. Thus, an IRRRL is not possible. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|k. Who Can an IRRRL be |In the case of the veteran/nonveteran joint loan (Case 10): |
|Made to? (continued) | |
| |the veteran “sold out” to the nonveteran co-obligor after the loan was made and, |
| |the veteran no longer has any ownership interest in the property. |
| |Thus, an IRRRL is not possible. |
|Parties Obligated on Old VA Loan |Parties to be Obligated on new IRRRL |Is IRRRL Possible?|
|1 |Unmarried veteran |Veteran and new spouse |Yes |
|2 |Veteran and spouse |Divorced veteran alone |Yes |
|3 |Veteran and spouse |Veteran and different spouse |Yes |
|4 |Veteran alone |Different veteran who has substituted entitlement|Yes |
|5 |Veteran and spouse |Spouse alone (veteran died) |Yes |
|6 |Veteran and nonveteran joint loan |Veteran alone |Yes |
| |obligors | | |
|7 |Veteran and spouse |Divorced spouse alone |No |
|8 |Unmarried veteran |Spouse alone (veteran died) |No |
|9 |Veteran and spouse |Different spouse alone (veteran died) |No |
|10 |Veteran and nonveteran joint loan |Nonveteran alone |No |
| |obligors | | |
|l. Underwriting of IRRRLs|Although VA does not require any credit/income documentation or |
|When Obligors Have |re-underwriting of IRRRLs when there has been a change in obligors, lenders may want to consider the following: |
|Changed | |
| |Check mortgage payment record in lieu of obtaining a full credit report, unless required by investor. |
| |For death or divorce cases, obtain a statement from the obligor(s) on the ability to make payments on the new loan|
| |without the co-obligor’s income. |
| |Obtain a statement about the addition of a different spouse, change in number of dependents, as applicable. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|l. Underwriting of IRRRLs|The lender should satisfy itself that the lower payment and interest rate, and the minimum 25 percent guaranty |
|When Obligors Have |compensate for no re-underwriting on the new loan when there has been a change in obligors. |
|Changed (continued) | |
|m. Occupancy |For IRRRLs, the veteran or the spouse of an active servicemember must certify that he or she previously occupied |
| |the property as his or her home. This is different than the requirement for non-IRRRL VA loans that the veteran |
| |must intend to personally occupy the property as his or her home. |
| | |
| |Reference: See chapter 3 for details. |
|n. VA Loan Identification|Request a new loan number for each IRRRL through The Appraisal System (TAS), without requesting an appraisal. |
|Number | |
|o. Credit Underwriting |No credit information or underwriting is required unless: |
| | |
| |the loan to be refinanced is 30 days or more past due (see section 2 of this chapter) or, |
| |the monthly payment (PITI) will increase 20 percent or more. |
| | |
| |Reference: See subsection d of this section. |
| | |
| |A borrower with a recent Chapter 13 bankruptcy may need approval of the trustee for the new loan. |
|p. Prior Approval |An IRRRL can be closed on an automatic basis by any lender (such as, a lender with or without automatic authority |
|Procedures |to close other types of loans on an automatic basis) in any geographic location. |
| | |
| |Exception: For IRRRLs to refinance existing VA loans 30 days or more past due, VA prior approval is needed (see |
| |section 2, subsection a of this chapter). |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|p. Prior Approval |A lender may choose to submit an IRRRL for prior approval, even if the existing loan is not 30 days or more past |
|Procedures (continued) |due. In such cases, submit only items 1 through 10 (and 17, if applicable) of the information listed under “Prior|
| |Approval Submission.” Also include an explanation of why the loan is being submitted for prior approval. |
| | |
| |Submit documents on closed prior approval IRRRLs in accordance with the instructions under section 2, subsection c|
| |of this chapter. |
| | |
| |Note: Prior approval for IRRRLs is not required for veteran’s in receipt of nonservice-connected pension or for |
| |veterans rated incompetent by VA when these veterans meet the requirements of this section. |
|q. Procedures for |An IRRRL can be closed on an automatic basis by any lender (such as, a lender with or without automatic authority |
|Automatic Processing of |to close other types of loans on an automatic basis) in any geographic location. |
|IRRRLs | |
| |Exception: For IRRRLs to refinance existing VA loans 30 days or more past due, VA prior approval is needed. See |
| |section 2, subsection a, of this chapter. |
| | |
| |A loan must be reported (such as, all documentation submitted) to VA within 60 days of closing. A lender that |
| |fails to meet this time limit must provide a written explanation. (see document #12.) |
| | |
| |To report a loan, submit the following documents to VA in the order listed. |
|Order |Document |
|1 |Lender’s cover or transmittal letter (if used). |
|2 |VA Form 26-0286, VA Loan Summary Sheet. |
|3 |VA Form 26-8320 (or 26-8320a), Certificate of Eligibility, or a request for a duplicate |
| |certificate on VA Form 26-1880, Request for a Certificate of Eligibility. |
|4 |Funding fee receipt. |
| | |
| |Reference: See section 8 of chapter 8 for information on exemptions. |
Continued on next page
1. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued
|q. Procedures for Automatic Processing of IRRRLs (continued) |
|Order |Document |
|5 |Statement signed by the veteran acknowledging the effect of the refinancing loan on the veteran’s |
| |loan payments and interest rate. |
| | |
| |The statement must show the interest rate and monthly payments for the new loan versus that for |
| |the old loan. |
| |The statement must also indicate how long it will take to recoup ALL closing costs (both those |
| |included in the loan and those paid outside of closing). |
| |If applicable, the veteran’s statement may be combined with the lender’s certification that the |
| |veteran qualifies for the new monthly payment which exceeds the previous payment by 20% or more. |
|6 |VA Form 26-8923, Interest Rate Reduction Refinancing Loan Worksheet. |
|7 |VA Form 26-1820, Report and Certification of Loan Disbursement. |
|8 |VA Form 26-8937, Verification of VA Benefits (if applicable). |
|9 |HUD-1, settlement statement. |
|10 |VA Form 26-0503, Federal Collection Policy Notice. |
|11 |Lender’s certification that the prior loan was current (not 30 days or more past due) at the time |
| |of loan closing. |
|12 |If loan is submitted more than 60 days after loan closing, a statement signed by a corporate |
| |officer of the lender which identifies the loan, provides the specific reasons for late reporting |
| |and certifies that the loan is current. This statement must be submitted with any late request |
| |for issuance of a Loan Guaranty Certificate. |
|13 |Documentation of the cost of energy efficiency improvements included in the loan. For cash |
| |reimbursement of the veteran, the improvements must have been completed within the 90 days |
| |immediately preceding the date of the loan. |
| | |
| |Reference: See section 3 of chapter 7. |
|14 |Any other necessary documents (see section 6 of chapter 5). |
2. IRRRL Made to Refinance a Delinquent Loan
|Change Date |April 10, 2009, Change 11 |
| |This section has been changed to update hyperlinks and to make minor grammatical edits. |
|a. Prior Approval |Any IRRRL made to refinance a loan that will be 30 days or more past due as of the date of closing, must be |
|Submission |submitted for prior approval. |
| | |
| |The lender must first obtain sufficient information and perform sufficient analysis to determine that: |
| | |
| |the cause of the delinquency has been resolved, and |
| |the veteran is willing and able to make the proposed loan payments. |
| | |
| |Submit a written proposal to VA which contains the following information: |
|Item |Information |
|1 |The full name of the veteran and all other parties obligated on the prior loan and to be obligated|
| |on the new loan. |
|2 |The VA loan number and month and year of origination of the loan to be refinanced. |
|3 |The name and address of the lender proposing to make the loan. |
|4 |The approximate proposed loan amount, interest rate, and term for the new loan versus the old |
| |loan. |
|5 |Discount to be charged, expressed as a percentage of the loan and a dollar amount. |
|6 |Statement signed by the veteran acknowledging the effect of the refinancing loan on the veteran’s |
| |loan payments and interest rate. |
| | |
| |The statement must show the interest rate and monthly payments for the new loan versus that for |
| |the old loan. |
| |The statement must also indicate how long it will take to recoup ALL closing costs (both those |
| |included in the loan and those paid outside of closing). |
Continued on next page
2. IRRRL Made to Refinance a Delinquent Loan, Continued
|a. Prior Approval Submission (continued) |
|Item |Information |
|7 |The appropriate certification concerning occupancy signed by the veteran or the spouse of an |
| |active duty servicemember. One of the following must be signed. |
| | |
| |“I have previously occupied the property securing this loan as my home.” |
| |___________________ |
| |veteran’s signature |
| | |
| |“While my spouse was on active duty and unable to occupy the property securing this loan, I |
| |occupied the property securing this loan as my home.” |
| |_________________ |
| |spouse’s signature |
|8 |VA Form 26-8923, Interest Rate Reduction Refinancing Loan Worksheet. |
|9 |VA Form 26-8937, Verification of VA Benefits (if applicable). |
|10 |Certificate of Eligibility, or, if unavailable, a request for a duplicate certificate VA Form |
| |26-1880, Request for a Certificate of Eligibility. |
|11 |Uniform Residential Loan Application (URLA). |
|12 |Explanation of the reason(s) for the loan delinquency, including appropriate documentation to |
| |verify the cause. |
|13 |Documentation to verify that the cause of the delinquency has been corrected. |
|14 |Credit report (in-file credit report is acceptable). |
|15 |Current pay stub and telephone verification of current employment. |
|16 |VA Form 26-6393, Loan Analysis. |
|17 |Documentation of the cost of energy efficiency improvements to be included in the loan, if known. |
| |See section 3 of chapter 7. For cash reimbursement of the veteran, the improvements must be |
| |completed within the 90 days immediately preceding the date of the loan. |
Continued on next page
2. IRRRL Made to Refinance a Delinquent Loan, Continued
|b. What Happens Next? |VA will inform the lender of its decision. |
| | |
| |The lender may close the loan in reliance on a VA-issued Certificate of Commitment. |
| | |
| |Reference: See section 4 of chapter 5 for further information on the Certificate of Commitment. |
|c. How to Report Loan |A prior approval IRRRL must be reported (such as, all documentation submitted) to VA within 60 days of closing. A|
|Closing and Request |lender that fails to meet this time limit must provide a written explanation. (see order #8). |
|Guaranty | |
| |To report an IRRRL, submit the following documents to VA in the order listed. |
|Order |Document |
|1 |Lender’s cover or transmittal letter (if used). |
|2 |VA Form 26-0286, VA Loan Summary Sheet. |
|3 |Funding fee receipt. |
| |See section 8 of chapter 8 for information on exemptions. |
|4 |If the loan amount has increased beyond the amount indicated on the Certificate of Commitment, an |
| |updated VA Form 26-8923, Interest Rate Reduction Refinancing Loan Worksheet. |
|5 |VA Form 26-1820, Report and Certification of Loan Disbursement. |
|6 |HUD-1, settlement statement. |
|7 |VA Form 26-0503, Federal Collection Policy Notice. |
|8 |If loan is submitted more than 60 days after loan closing, a statement signed by a corporate |
| |officer of the lender which identifies the loan and provides the specific reason(s) why the loan |
| |was not submitted on time. |
|9 |Any other necessary documents. (See section 6 of chapter 5.) |
Continued on next page
2. IRRRL Made to Refinance a Delinquent Loan, Continued
|d. Treatment of Late |All late payments and late charges (and reasonable costs if legal action to terminate the old loan has commenced) |
|Payments and Late Charges|can be rolled into the new loan. |
| | |
| |If the amount of late payments, late charges and legal costs is significant, the proposed monthly payment will be |
| |adversely impacted. Carefully analyze whether the IRRRL would benefit the veteran and not create unacceptable |
| |risk to the Government in light of the new monthly payment. |
3. Cash-Out Refinancing Loans
|Change Date |April 10, 2009, Change 11 |
| |Subsections a, b, and c were changed to remove references to a 90 percent limit on refinancing. P.L. 110-389, |
| |Veterans’ Benefits Improvement Act of 2008, signed October 10, 2008, removed this limit. |
| |Subsection b has been changed to state that refinances can now be made up to 100 percent of value, plus funding |
| |fee and any energy efficient improvements. |
| |Subsection d has been changed to remove the $36,000 maximum guaranty limit on most refinance loans. |
| |This section has been updated to correct hyperlinks and to make minor grammatical edits. |
|a. What is a VA Cash-Out |A cash-out refinancing loan is a VA-guaranteed loan that refinances any type of lien or liens against the secured |
|Refinancing Loan? |property. The liens to be paid off may be: |
| | |
| |current or delinquent, and |
| |from any source, such as |
| |tax or judgment liens, or |
| |VA, FHA, or conventional mortgages. |
| | |
| |Loan proceeds beyond the amount needed to pay off the lien(s) may be taken as cash by the borrower for any purpose|
| |acceptable to the lender. |
| | |
| |The loan must be secured by a first lien on the property. |
|b. Maximum Loan Amount |The maximum loan amount is 100 percent of the appraised value, plus the cost of any energy efficiency |
| |improvements, plus the VA funding fee. |
|c. What Fees and Charges |Cash proceeds from the loan may be used to pay allowable fees and charges and discount points. |
|Can be Included in the | |
|Loan? | |
Continued on next page
3. Cash-Out Refinancing Loans, Continued
|d. Maximum Guaranty |The maximum guaranty for regular (i.e., “cash-out”) refinancing loans is the same as the maximum guaranty for |
| |purchase loans. Prior to October 10, 2008, the maximum guaranty had been limited to $36,000. However, guaranty |
| |on this type of loan is now computed the same as for purchases (i.e., can vary depending on location). |
|e. Veteran’s Entitlement |The veteran must have sufficient available entitlement for the loan. If an existing VA loan on the same property |
| |will be paid off by the refinancing loan, the entitlement used for that existing loan can be restored for purposes|
| |of obtaining the new loan. |
|f. Occupancy |The veteran must certify that he or she intends to personally occupy the property as his or her home. |
| | |
| |Reference: See section 5 of chapter 3 for details. |
|g. Automatic or Prior |Only lenders with authority to close loans automatically may close cash-out refinancing loans automatically. All |
|Approval Processing |others must submit these loans for prior approval by VA. |
|h. Lender Procedures |Loan processing procedures are virtually the same as for non-refinancing loans. A full appraisal, credit |
| |information, and underwriting are required. Generally, follow the procedures described in chapter 5 of this |
| |handbook. |
| | |
| |To report loan closing, submit all of the documents required for non-refinancing loans (see chapter 5) plus a |
| |statement signed by the veteran which shows: |
| | |
| |the cash proceeds paid, |
| |an itemization of the debts paid from loan proceeds, and |
| |the identification of those debts secured by liens of record. |
4. Quick Reference Table for IRRRLs Versus Cash-Out Refinancing Loans
|Change Date |April 10, 2009, Change 11 |
| |This section has been updated to remove references to a 90 percent limit and a maximum guaranty on refinance |
| |loans, and to make minor grammatical edits. |
|a. Table IRRRL versus |The following table provides a quick reference for IRRRL loans versus cash-out refinancing loans: |
|Cash-out | |
|Feature |IRRRL |Cash-out Refinancing |
|Purpose |To refinance an existing VA loan at a lower interest rate|To pay off lien(s) of any type - can also provide cash |
| | |to borrower |
|Interest Rate |Rate must be lower than on existing VA loan (unless |Any negotiated rate |
| |existing loan is an ARM) | |
|Monthly Payment Amount |Payment must be lower than that on an existing VA loan |No requirement |
| |(unless the ARM is being refinanced, a term is shortened,| |
| |or energy efficiency improvements are being included) | |
|Discount Points |Reasonable points can be paid - only two of these points |Reasonable points can be paid - if paid from loan |
| |can be included in the loan amount |proceeds |
|Maximum Loan |Existing VA loan balance, plus allowable fees and |100 percent of the reasonable value of the property |
| |charges, plus up to two discount points, plus the cost of|indicated on the NOV, plus the cost of any energy |
| |any energy efficiency improvements, plus the VA funding |efficiency improvements, plus the VA funding fee |
| |fee | |
|Maximum Guaranty |Guaranty is at least 25 percent in all cases (See |Maximum guaranty is the same as for purchases |
| |section 1, subsection h of this chapter) | |
Continued on next page
4. Quick Reference Table for IRRRLs Versus Cash-Out Refinancing Loans, Continued
|a. Table IRRRL versus Cash-out (continued) |
|Feature |IRRRL |Cash-out Refinancing |
|Entitlement |Veteran re-uses the entitlement used on the existing VA |Must have sufficient available entitlement - if |
| |loan - the IRRRL does not impact the amount of |existing VA loan on the same property is being |
| |entitlement the veteran has in use |refinanced, entitlement can be restored for the |
| | |refinance |
|Fees and Charges in the|All allowable fees and charges, including up to two |Allowable fees and charges and points may be paid from |
|Loan |discount points, may be included in the loan |the loan proceeds |
|Cash to Borrower |Not permitted |Borrower can receive cash for any purposes acceptable |
| | |to the lender |
|Lien/Owner-ship |Must be secured by first lien - veteran must own property|Must be secured by first lien - veteran must own |
| | |property |
|Refinance of Other |Cannot refinance other liens - can only refinance the |Can refinance any type of lien(s) |
|Liens |existing VA loan | |
|Maximum Loan Term |Existing VA loan term plus 10 years, not to exceed 30 |30 years + 32 days |
| |years + 32 days | |
|Occupancy |Veteran or spouse of an active duty servicemember must |Veteran or spouse of an active duty servicemember must |
| |certify to prior occupancy |certify as to intent to occupy |
|Appraisal |No appraisal is required |Appraisal is required |
|Credit Underwriting |No underwriting is required except in certain cases |Full credit information and underwriting are always |
| | |required |
|Automatic Authority |All lenders can close IRRRLs automatically, except if the|Only lenders with automatic authority can close these |
| |loan being refinanced loan is 30 days or more past due, |loans automatically |
| |prior approval is always required | |
|Law |38 U.S.C. 3710(a)(8) |38 U.S.C. 3710(a)(5) |
5. Other Refinancing Loans
|Change Date |April 10, 2009, Change 11 |
| |Subsection c has been updated to note that maximum guaranty on these types of refinancing loans is limited to |
| |$36,000. |
| |This section has been updated to make minor grammatical edits. |
|a. What Are They? |Other refinancing loans are: |
| | |
| |construction loans, |
| |installment land sale contracts, and |
| |loans assumed by veterans at interest rates higher than that for the proposed refinance. |
|b. Maximum Loan |These loans may not exceed the lesser of: |
| | |
| |the VA reasonable value plus the VA funding fee, or |
| |the sum of the outstanding balance of the loan to be refinanced plus allowable closing costs (including the |
| |funding fee) and discounts. |
| | |
| |The cost of energy efficiency improvements can also be added to the loan. |
|c. Maximum Guaranty |The maximum guaranty for refinancing loans, noted in subsection a, is $36,000. |
How to get a loan with bad credit? Yes, mortgage lenders offer different rates based on their pricing models. But they also offer different fees. You can’t just compare one loan to another based on the rate. You also have to consider the full cost of the loan, including all estimated fees, and how that affects (A) your monthly payments and (B) the total amount paid over time.Do lenders check credit before closing?
