Change Date

September 15, 2004, Change 4

This section has been changed to create subsection lettering..

a. Requirement

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.

b. 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.

Reference:  See the maximum loan limitations in section 3 of this chapter.

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 of this chapter).  The cash received by the borrower can be used for any purpose acceptable to the lender, including payment of reasonable discount points.