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 which addresses each subject is provided.
| Subject |
Explanation |
| 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 |
Amount of Guaranty
|
The lesser of:
- the veteran’s available entitlement indicated on the COE (plus up to $14,750 additional for certain loans over $144,000),
or
- the maximum potential guaranty from the maximum guaranty table.
|
|
Maximum Loan Amount
|
Unlike other programs, 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 CRV or NOV,
and
- the lender’s needs in terms of secondary market requirements.
|
| Down Payment |
No down payment is required by VA unless the purchase price exceeds the reasonable value of the property, or the loan is a GPM. The lender may require a down payment if necessary to meet secondary market requirements.
|
| Occupancy |
The veteran must certify that he or she intends to personally occupy the property as his or her home.
|
| 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.).
|
| 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 2 discount points can be financed in the loan.
- No cash to the borrower.
Note: A fixed rate loan to refinance a VA ARM may be at a higher interest rate.
|
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 IRRRLs.
|
| 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.
|
| Closing costs |
Those payable by the veteran are limited by regulation to a specific list of items plus a 1% 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.
|
