Louisville Kentucky VA Home Loan Info

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Basic Elements of a Louisville Kentukcy VA-Guaranteed Loan

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
  • Subsection a has redefined the amount of guaranty.
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.
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 lenders needs in terms of secondary market requirements.
3 of this chapter
Downpayment No downpayment is required by VA unless the purchase price exceeds the reasonable value of the property, or the loan is a Graduated Payment Mortgage (GPM).  The lender may require a downpayment if 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 he or she intends to personally occupy the property as his or her home. 5 of this chapter

Continued on next page

 

1.  Basic Elements of a VA-Guaranteed Loan, Continued

a. General rules (continued)
Subject Explanation Section
Interest Rate and Points Interest rate and points are negotiated between the lender and veteran.

  • The veteran and seller may negotiate for the seller to pay all or some of the points.
  • Points must be reasonable.
  • Points 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 (A ratio in excess of 41% requires closer

scrutiny and compensating factors.).

chapter 4
IRRRLs (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.
  • Any reasonable discount points can be charged, but only two discount points can be financed in the loan.
  • 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.

1 and 2 of chapter 6

Continued on next page

 

1.  Basic Elements of a VA-Guaranteed Loan, Continued

a. General rules (continued)
Subject Explanation Section
Funding Fee The veteran must pay a funding fee to help defray costs of the VA home loan program.

  • Find the percentage appropriate to the veteran’s particular circumstances on the funding fee table.
  • Apply this percentage to the loan amount to arrive at the funding fee.
  • The funding fee may always be financed in the loan.
8 of 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.
  • Closing costs cannot be financed in the loan except on certain refinancing loans.  (See chapter 8.)
2, 4, and 7 of chapter 8
Security Instruments The lender may use any note or mortgage forms they wish as long as they contain certain VA-required clauses, samples of which may be found at: http://www.homeloans.va.gov/lenderssampdocs.htm. 1 of chapter 9
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Louisville VA Streamline Refinance

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Louisville VA Streamline Refinance

Louisville VA Guidelines– IRRRL

Interest Rate Reduction Refinancing Loans

An IRRRL is a Louisville VA-guaranteed loan made to refinance an existing Louisville VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing Louisville VA loan.

The principal and interest payment on an IRRRL must be less than the principal and interest payment on the loan being refinanced unless one of the following exceptions applies:

o

The IRRRL is refinancing an ARM
o

Term of the IRRRRL is shorter than the term of the loan being refinanced unless, OR
o

Energy efficiency improvements are included in the IRRRL. Improvements must be completed within 90 days immediately preceding the date of the loan closing.
A significant increase in the veteran’s monthly payment may occur with any of the above exceptions, especially if combined with one of more of the following:

o

Financing of closing costs
o

Financing of up to two discount points
o

Financing of the funding fee and/or
o

Higher interest rate when an ARM is being refinanced.
It is the underwriter’s discretion to determine whether or not the increase in monthly PITI is acceptable.

General Guidelines for IRRRL

:
• Minimum credit score of 640

• Maximum loan amount is the existing VA loan balance plus the following: o Allowable fees and charges, plus

o

The cost of energy efficiency improvements, and
o

The VA funding fee = .50.
• The maximum loan term is the original term of the VA loan being refinanced plus ten years, but not to exceed 30 years.

• The borrower cannot pay off liens other than the existing VA loan from IRRRL proceeds. Any second lien-holder would have to agree to subordinate.

• All IRRRLs must contain either a conforming appraisal or a 2055 exterior (at minimum). The loan amount + funding fee must be supported by the value.

• Not eligible in the state of Illinois.

• IRRRLs must be current and have no 30-day or greater mortgage lates in the most recent 12 months. The following documentation is required to be in the loan file:

o Evidence the existing loan is current
o

If the loan is seasoned 12 months or more, evidence that the existing loan has not had any 30-day or greater mortgage lates in the past 12 months
o

If the loan is seasoned less than 12 months, evidence:  The existing loan has no 30-day or greater mortgage lates since the inception of the loan and

No 30-day or greater mortgage lates for any other first mortgage loans associated with the property and borrower(s) in the most recent 12 months.

•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.

•An IRRRL cannot be used to take equity out of the property or pay off debts, other than the VA loan being 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.

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