2017 VA Refinance Guidelines With No Lender Overlays
This BLOG On 2017 VA Refinance Guidelines With No Lender Overlays Was Written By Matthew Herbolich MBA JD LLM NMLS 1649154
Introduction To VA Loans & 2017 VA Refinance Guidelines With No Lender Overlays
VA Loans is guaranteed by the United States Department of Veterans Affairs (VA).
- The loan may be issued by qualified lenders.
- The main purpose of the VA loan is to offer long-term financing to eligible American Veterans or their surviving spouses (as long as they do not remarry).
- The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment.
- Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.
No Down Payment & No PMI
The major benefits of VA loans is that it offers 100% financing. No down payment is required and closing costs can be covered with sellers concessions or lender credit. VA Loans is the only loan program that do not require Private Mortgage Insurance (PMI) with less than 20% down payment.
- The VA loan allows veterans 103.3% percent financing (again no PMI) or a 20 percent second mortgage up to $6,000 for energy efficient improvements.
- The “catch” is that there is a “funding fee” equal to 0 to 3.3% of the loan amount which is paid to the VA.
- However, the funding fee may be financed and is normally rolled into the VA Loan Balance.
VA Refinance Guidelines Versus Purchase
- In a purchase, veterans may borrow up to 103.3% of the sales price or reasonable value of the home, whichever is less.
- Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment.
- Under VA Refinance Guidelines, when a new VA loan is created, veterans may borrow up to 100% of reasonable value, subject to state laws.
- Under VA Refinance Guidelines, In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount.
- The additional .5% is the funding fee for an VA Interest Rate Reduction Refinance.
- We will focus on VA refinancing in this particular blog.
- VA loans allow veterans to qualify for loan amounts larger than traditional Fannie Mae / conforming loans.
- They are a nice “perk” for our brave men and women serving in the armed forces.
VA Lender Overlays
Matthew Herbolich is part of The Gustan Cho Team at USA Mortgage. USA Mortgage, a division of DAS Acquisition Company NMLS 227262 has no lender overlays on government and conventional loans. This means that we have no lender overlays on VA Loans.
The benefits of VA Loans is the following:
- VA does not have any credit score requirements
- However, to get an approve/eligible per Automated Underwriting System, the veteran borrower should have at least a 580 credit score
- VA does not have a maximum debt to income ratio requirement
- I have gotten approve/eligible on veteran borrowers with 580 credit scores and 60% DTI countless of times and closed on their VA Loans
- The VA will insure a mortgage where the monthly payment of the loan is up to 60% of the gross monthly income vs. 45% for a conforming loan
- The maximum VA loan guarantee varies by county.
- As of 1 January 2017, the maximum VA loan amount with no down payment is usually $424,100, although this amount may rise to as much as $721,050 in certain specified “high-cost counties
Types of VA Refinances
The IRRRL or “Streamline Refinance”
- IRRRL stands for Interest Rate Reduction Refinance Loan, AKA a VA streamline.
- The VA streamline is a refinance loan that requires less paperwork than other VA loans.
- The VA streamline enables a qualified borrower to refinance to a lower interest rate at less cost and with less paperwork than their current VA loan.
- The VA does not require an appraisal, a credit check, or closing costs (except for a funding fee) on an IRRRL refinance.
- These are critical in declining markets.
- VA streamline requires no income documentation.
- This means the borrower doesn’t need to produce copies of their W2 forms, tax returns or even pay stubs.
- Moreover, no verification of employment is needed whatsoever.
- However, specific lenders may include an appraisal or credit check as part of their internal risk assessment.
- Closing costs are usually charged by mortgage companies, but the categories and amounts can range from among companies.
- VA guidelines allow their funding fee and any closing costs to be rolled into the loan so that homeowners can refinance without out-of-pocket expenses.
- There is also a possibility of rolling in the expense of energy improvements on the home.
- For IRRRL with the program, the current loan must be a VA loan.
- The interest rate on the new mortgage must also be lower than that of the current loan (the exception to this restriction is when refinancing from an adjustable rate mortgage to a fixed rate mortgage).
- Veterans may not receive any cash from the loan proceeds and no other debt, other than the original VA loan, may be paid off with the new loan.
- Veterans must also verify that they previously occupied the home as a primary residence.
- Additional qualification criteria can apply based on individual lenders.
A VA cash-out refinance is a loan that replaces an existing loan with a VA loan and pulls cash equity out of the property and into the pocket of the borrower.
- This is a fully documented loan, unlike the IRRRL, and requires the borrower to furnish their most recent paycheck stubs, W2 forms and two years federal tax returns to the VA lender.
- The amount of cash available to the borrower is calculated by determining the appraised value of the property.
- Most VA lenders will allow a cash-out loan amount up to 90 percent of the appraised value
- For example, a borrower has a loan amount of $100,000 and wants to refinance to a lower rate.
- The appraised value is reported at $130,000, allowing for a maximum cash-out loan of 90 percent of $140,000, or $126,000.
- The Gustan Cho Team at USA Mortgage will lend up to 100% LTV on VA cash-out refinance with an approve/eligible per Automated Underwriting System.
- The amount of cash available to the borrower is the difference between $126,000 and $100,000 (pay off current loan), less closing costs associated with the VA loan.
Conventional To VA Refinance
While a VA IRRRL refinance only allows a VA to VA transaction, VA loans can refinance other existing loan types including FHA and conventional mortgages. These types of loans are less common but can be advantageous to the borrower.
- Conventional loans allow for a refinance up to 90 percent of the current value of the property.
- If an existing mortgage balance is $100,000 then the appraisal must be at least $111,111 before a conventional refinance can take place.
- If the home value comes in closer to $100,000, then the borrower can’t refinance their conventional loan with another conventional loan (the 90% threshold isn’t met).
- But refinancing into a VA loan can be an option in this case.
- A standard VA refinance (no cash-out) allows the loan amount to be up to 100 percent of the value of the home.
- In the above-mentioned example, let’s say the property appraised at $105,000 the loan can be refinanced from a conventional mortgage to a VA loan.
- If the interest rate is low enough for the VA loan compared to an existing conventional or FHA loan, then it can make sense to refinance into a new VA mortgage.
About The Author: Matthew Herbolich NMLS 1649154
Matthew Herbolich NMLS 1649154 is the author of this blog, VA Refinance Guidelines. Matt, an attorney by education, but business entrepreneur by trade is a licensed mortgage loan originator with The Gustan Cho Team at USA Mortgage, a division of DAS Acquistion Company LLC NMLS 227262. Matt, armed with a masters of business administration (MBA) degree, is a team leader and expert not just in lending but in all aspects of real estate, especially title. Matt Herbolich trains his fellow loan officers on title topics, real estate investments, and countless of mortgage guidelines. Matthew Herbolich and Gustan Cho work hand in hand in educating not just the public but also mortgage professional on how to help first time home buyers and borrowers who meet government lending guidelines but cannot get financed with lenders due to lender overlays. Matt Herbolich is also a Certified Master Loan Processor and holds the CMLP certification.
Matthew R. Herbolich, MBA, JD, LLM
- NMLS# 1649105
- Certified Master Loan Processor NAMP®-CMLP
Cell: 786-390-9499 (Text for Faster Response)