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 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 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.

1 and 2 of chapter 6