VA no longer prescribes interest rates for VA guaranteed loans. The interest rate is negotiated between the veteran-borrower and the lender to allow the veteran to obtain the best available rate.
Changes to the Agreed Upon Interest Rate
The lender and borrower are expected to honor any lock-in or other agreements they have entered into which impact the interest rate on the loan. VA does not object to changes in the agreed upon rate, as long as no lender/borrower agreements are violated. The following procedures apply in such cases.
Any increase in the interest rate of more than one percent requires:
- reunderwriting to ascertain the veteran’s continued ability to qualify for the loan documentation of the change, and
- a new or corrected Uniform Residential Loan Application (URLA) with any corrections initialed and dated by the borrower.
Veterans may pay reasonable discount points on VA guaranteed loans. The amount of discount points is whatever the borrower and lender agree upon. Discount points can be based on the principal amount of the loan after adding the VA funding fee, if the funding fee will be paid from loan proceeds.
When Can Points be Included in the Loan?
Discount points may be rolled into the loan only in the case of refinancing loans, subject to the following limitations:
Interest Rate Reduction Refinancing Loans
A maximum of 2 discount points can be rolled into the loan.
If the borrower pays more than 2 points, the remainder must be paid in cash.
Refinancing of Construction Loans, etc.
For loans to refinance:
- A construction loan
- An installment land sales contract, or
- A loan assumed by the veteran at an interest rate higher than that for the proposed refinancing loan
Any reasonable amount of discount points may be rolled into the loan as long as the sum of the outstanding balance of the loan plus allowable closing costs and discount points does not exceed the VA reasonable value.
Cash-out Refinancing Loans
While discount points cannot specifically be included in the loan amount, the borrower can receive cash from loan proceeds, subject to maximum loan limits (See Section 3.03). The cash received by the borrower can be used for any purpose acceptable to the lender, including payment of reasonable discount points.
Changes to the Agreed Upon Discount Points
The lender and borrower are expected to honor any agreements they have entered into which impact the discount points paid on the loan. VA does not object to changes in the agreed upon points, as long as no lender/borrower agreements are violated. The following procedures apply in such cases.
Any increase in discount points requires:
- verification that the borrower has sufficient assets to cover the increase documentation of the change, and
- a new or corrected URLA with any corrections initialed and dated by the borrower