b. Required Lien and Maximum Loan Term

It is the lender’s responsibility to obtain an effective lien of the required dignity. 

Possible methods to secure a supplemental loan are

·   through an open end provision of the instrument securing the existing loan

·   through an amendment of the existing loan security instrument

·   by taking a new lien to cover both the existing and the supplemental loans, or

·   by taking a separate lien immediately junior to the existing lien.

The maximum loan term is

·   30 years if amortized, or

·   5 years if not amortized.

c. Other Requirements

The existing loan must be current with respect to taxes, insurance, and amortized payments, and must not otherwise be in default unless a primary purpose of the supplemental loan is to improve the ability of the borrower to maintain the loan obligation.

The making of a supplemental loan can never result in any increase in the rate of interest on the existing loan. 

A supplemental loan to be written at a higher rate of interest than that payable on the existing loan must be evidenced by a separate note from the existing loan.

d. Prior Approval or Automatic Loan Closing

A supplemental loan will require the prior approval of VA if

·   the loan will be made by a lender who is not the holder of the currently guaranteed obligation

·   the loan is to be made by a lender that does not have authority to close loans on an automatic basis, or

·   an obligor liable on the currently outstanding obligation will be released from personal liability by operation of law or otherwise.