VA Lenders Handbook (VA Pamphlet 26-7), Chapter 3, Topic 1 — Basic Elements of a VA-Guaranteed Loan

VA Pamphlet 26-7, Chapter 3, Topic 1 — Basic Elements of a VA-Guaranteed Loan

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Topic 1. Basic Elements of a VA-Guaranteed Loan Change Date: May 14, 2024 This topic was updated to remove a hyperlink and make minor grammatical edits. The Funding Fee subject on Table 1 has been updated to include a note that for cash-out refinances, the loan amount, including the funding fee, may not exceed 100% of the reasonable value as determined by VA. a. General Rules The following table provides general rules and information critical to understanding a VA loan guaranty. Exceptions and detailed explanations have been omitted. Instead, a reference to the section in this handbook that addresses each subject is provided. Table 1: General Rules Regarding VA-Guaranteed Loans Subject Explanation Section Maximum Loan Amount VA has no specified dollar amount(s) for the “maximum loan.” The maximum loan amount depends upon: the reasonable value of the property indicated on the Notice of Value (NOV), and the lender’s needs in terms of secondary market requirements. 3 of this chapter Down payment No down payment is required by VA: unless the purchase price exceeds the reasonable value of the property, the loan is a Graduated Payment Mortgage (GPM), and is necessary to meet secondary market requirements. 3 of this chapter Amount of Guaranty Guaranty is the amount VA may pay a lender in the event of loss due to foreclosure. 4 of this chapter Occupancy The Veteran must certify that they intend to personally occupy the property as their home. 5 of this chapter Interest Rate and Points Interest rate and points are negotiated between the lender and Veteran. Points requirements: the Veteran and seller may negotiate for the seller to pay all or some of the points, they must be reasonable, and they may not be financed in the loan except with Interest Rate Reduction Refinancing Loans (IRRRLs). 6 and 7 of this chapter Purpose of Guaranty To encourage lenders to make VA loans by protecting lenders/loan holders against loss, up to the amount of guaranty, in the event of foreclosure. 11 of this chapter Underwriting Flexible standards. The Veteran must have: satisfactory credit, and satisfactory repayment ability □ stable income, □ residual income (net effective income minus monthly shelter expense) in accordance with regional tables, and □ acceptable ratio of total monthly debt payments to gross monthly income (ratios exceeding 41% requires closer scrutiny and compensating factors). Chapter 4 IRRRL (Streamline Refinancing Loans) Used to refinance an existing VA loan at a lower interest rate. no appraisal or underwriting is required, closing costs may be financed in the loan, reasonable discount points can be charged, but only two discount points can be financed in the loan, and no cash to the borrower. Note: A fixed rate loan to refinance a VA Adjustable Rate Mortgage (ARM) may be at a higher interest rate. Chapter 6 Funding Fee The Veteran, unless exempt, must pay a funding fee to help defray costs of the VA Home Loan program. The funding fee may always be financed in the loan. Note: for cash-out refinance loans, the loan amount, including the funding fee, may not exceed 100% of the reasonable value as determined by VA. find the percentage appropriate to the Veteran’s particular circumstances on the funding fee table, and apply this percentage to the loan amount to arrive at the funding fee. Chapter 8 Closing Costs Those payable by the Veteran are limited by regulation to a specific list of items plus a one percent flat charge by the lender. Any other party, including the seller, can pay any costs on behalf of the Veteran. (Subject to concession limits). Closing costs cannot be financed in the loan except on certain refinancing loans. (See chapter 8.) Chapter 8 Security Instruments The lender may use any note or mortgage forms they wish as long as they contain certain VA-required clauses. Chapter 9

Source: VA Pamphlet 26-7, Chapter 3, Topic 1 — Basic Elements of a VA-Guaranteed Loan · source URL · snapshot 89d35da51ce3778a