VA Cash-Out Guidelines 2019 UPDATE For Homeowners

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This BLOG On VA Cash-Out Guidelines 2019 UPDATE For Homeowners Was PUBLISHED On February 2019

VA Cash-Out Guidelines 2019 UPDATE For Homeowners

VA Cash-Out Guidelines 2019 UPDATE:

If you are a frequent reader of Gustan Cho Associates, you will hear us reference ever-changing VA cash-out guidelines.

  • Well once again the Department of Veterans Affairs has changed the mortgage guidelines for VA Cash-Out Guidelines
  • The changes go into effect tomorrow February 15th, 2019
  • By the time you’re reading this, these changes will be in effect
  • There are now two types of VA cash-out refinances
  • In this blog we will detail both types
  • Back on December 19, 2018 the Department of Veterans Affairs released Circular 26-18-30 to announce these changes
  • The VA published a final rule addressing the guaranty requirements for  VA Cash-Out Guidelines for refinance loans
  • One thing to note, the changes also address refinancing construction-to-permanent loans

New VA Cash-Out Guidelines UPDATE For Homeowners 

New VA Cash-Out Guidelines UPDATE For Homeowners 

The new rules are in effect for any application taken on or after February 15th, 2019. VA now has three types of refinance loans.

  • An interest rate reduction refinancing loan (IRRRL)
  • TYPE 1 Cash Out Refinance
  • TYPE 2 Cash Out Refinance

IRRRL

  • A type of loan made to refinance an existing VA loan into a lower interest rate without taking cash out

TYPE 1 Refinance

  • When refinancing a loan in which the loan amount does not exceed the payoff amount of the loan being refinanced
  • The loan amount will also include the VA funding fee

TYPE 2 Refinance

  • When refinancing a loan in which the loan amount exceeds the payoff amount for the loan being refinanced
  • Once again, the loan amount will include the VA funding fee

NOTE-The new rule does not apply to IRRRLs, updates on IRRRL regulations will come out in the future. For now, lenders are to continue to use VA policy guidance from VA Circular 26-18-13.

VA Cash-Out Guidelines On Loan To Value

VA Cash-Out Guidelines On Loan To Value

Loan to Value (LTV) requirements are part of the new regulations put in place February 15th, 2019.

  • This is one of the largest changes we have seen on VA loans in a long time
  • Under the new regulations, the VA will no longer guarantee refinance loans where the LTV exceeds 100%
  • This includes the funding fee
  • For a veteran to close on a loan in which the loan amount exceeds 100% of the value of the property, the veteran must pay the amount over the appraised value
  • Long story short, you can still do them, but you must pay out of pocket for any amount above 100% loan to value

OLD RULE allowed funding fee to be financed in with a total loan to value of 103.3%:

Example of new regulation:

  • Refinance loan amount – $200,000
  • Funding fee – $6,600

TOTAL refinance loan amount – $206,600

Appraised Value – $200,000

Under the new guidelines, the total loan amount on the refinance loan may not exceed $200,000.

  • The veteran must pay the funding fee out-of-pocket
  • It will no longer be financed into the loan above 100% loan to value
  • In order to finance the funding fee into the loan, the total loan amount including funding fee cannot exceed $200,000

How To Calculate Loan To Value

How To Calculate Loan To Value

How to calculate loan to value:

Total loan amount (INCLUDING funding fee divided by appraised value.

TOTAL LOAN AMOUNT / APPRAISED VALUE

VA Refinance Lending Guidelines On Net Tangible Benefit Test

VA Refinance Lending Guidelines On Net Tangible Benefit Test

As part of the new guidelines, the veteran now must pass a net tangible benefit test.

  • This sounds like a complete overhaul, but really, it’s not a big change
  • Lenders must ensure they refinance is in the best interest of the borrower
  • Below is a list set by the Office of Veterans Affairs on what is required to pass the net tangible benefit test:

You must satisfy at least one of the following eight net tangible benefits:

  • The new loan eliminates monthly mortgage insurance
  • Lowering term of the loan (example, refinancing from a 30-year fixed to a 20-year fixed)
  • Obtaining a lower interest rate on new loan
  • Obtaining a lower payment on new loan
  • The new loan results in an increase in Veterans residual income
  • The new loan refinance an interim loan to build (construct)
  • Alter, repair their home
  • The new loan is equal to or less than 90% LTV (loan to value)
  • Refinancing from an adjustable rate to a fixed rate mortgage

Your lender will send you a net tangible benefit document as part of your disclosure package. You will sign off on how the new refinance loan benefits your financial situation. This will include key features of your new loan such as fixed rate, loan term, loan to value, and a comparison against your old loan. You will also document how utilizing the equity in your home will affect the veteran.

VA Refinance Lending Guidelines On Seasoning Requirements

VA Refinance Lending Guidelines On Seasoning Requirements

Loan seasoning requirements are also part of the February 15th, 2019 update. The VA will not guarantee the new refinance loan if the loan being refinance has not been properly seasoned. This requirement applies to TYPE 1 refinance loans made to refinance an existing VA-guaranteed home loan AND all TYPE 2 refinancing loans. Below are the requirements for the loan to be considered seasoned:

  • At least 210 days have passed since the first payment was made
  • AND at least six monthly payments have been made on the loan being refinanced

Fee Recoupment Update:

  • Are part of the new legislature, their recruitment
  • Of all fees including closing costs and Loan expenses must not exceed 36 months from the date of closing
  • The lender must certify the recruitment
  • To the office ofVeteran Affairs to receive a loan guarantee certificate
  • Keep in mind this doesnot include taxes, insurance, and any like assessments (escrow)
  • Best recruitment policy only applies to TYPE 1 cash-out refinancing loans made to refinance an existing VA guaranteed mortgage

Your lender will complete a recoupment calculation. See below:

  • Divide all fees, closing costs, expenses, and any incurred costs by the reduction of the monthly principal and interest payment on the new refinance loan
  • Once again, does not include taxes, insurance, and any like assessments escrow
  • If the loan being refinance has been modified, the principal and interest reduction must be computed and compared to the modified principal and interestmonthly payment

The information provided in this blog is considered to be current until  January 1st, 2020. The Gustan Cho Associates pride themselves on being up-to-date on all mortgage guidelines. This may sound like gibberish to you, we understand that and encourage you to reach out with questions. We are experts in VA mortgage financing. We helped hundreds of veterans each and every year. If you are in the market for cash out VA loan, please reach out to Mike Gracz on630-659-7644 or text us for faster response. Or email us at mgracz@gustancho.com. We are a full-service lender without mortgage overlays on all conventional, FHA, and VA mortgages. We are available for questions 7 days a week. No question is too small to ask, we look forward to hearing from you.

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