In an effort to take better care of our active duty service members and Veterans, VA has made some significant changes to both the IRRL (interest rate reduction refinance loan) and the cash-out refinance options.
Historically, almost immediately upon closing on a VA loan, Borrowers were inundated with “amazing” refinance opportunities that were not always in their best interest. In an effort to curb this practice and to make sure that a refinance is in fact beneficial for the Veteran, the following limitations and requirements have been implemented when refinancing an existing VA loan:
- 100% loan to value
- Loan seasoning
- Net tangible benefit
- Fee recoupment
To expand on the above individually, here is what is now required moving forward:
100% LOAN TO VALUE
The loan amount including the VA funding fee as well as all financed fees and charges cannot exceed 100% of the appraised value.
A new VA loan replacing an existing one may not occur until the later of the following two dates:
- 210 days after the 1st monthly payment is made on a VA loan and
- 6-monthly payments have been made on the loan being refinanced
NET TANGIBLE BENEFIT
The following test must be run on each cash-out loan scenario and at least one of the following must be met in order to be eligible for a cash-out refinance to take place:
- Proposed loan eliminates monthly mortgage insurance or monthly guaranty fee
- Proposed loan term is shorter than the current loan term
- Proposed interest rate is lower than the loan being refinanced
- Proposed payment is lower than the current payment
- Proposed loan results in an increase in the borrower’s residual monthly income
- Proposed loan is refinancing an interim loan that was used to construct, alter or repair a home
- Proposed loan amount is <90% of the appraised value
- Proposed loan is a fixed rate mortgage replacing an ARM
In addition to the above tests, there additional steps that must be taken by the Lender to further demonstrate that a refinance is in fact beneficial to the VA borrower.
Questions, give me a call, 360-459-1200!