Some Important Changes Coming for VA Cash-Out Refinance
Effective 2.15.19

The Department of Veterans Affairs (VA) is implementing new rules for cash-out refinance loans that will apply to applications dated on or after February 15, 2019. We’ve summarized the most notable changes below. For specific details on all updates, you can review the VA Circular 26-18-30 and 26-18-30 Change 1.

Plaza Home Mortgage VA Program Guidelines have been updated to include these changes.

*Note: the new rules do not apply to IRRRLs.

VA will no longer guarantee refinancing loans when the LTV exceeds 100%. The VA funding fee can still be included in the new loan amount, up to 100% of the reasonable value on the Notice of Value. Any portion of the funding fee that pushes the loan amount to exceed 100% must be paid in cash at closing.

Net Tangible Benefit (NTB):
VA will now require documentation to be provided to the borrower that cash-out refinances will offer a NTB. The Veteran must be provided with a disclosure identifying the following, no later than three business days after application and again at closing:

  1. The refinancing loan satisfies at least one of the following eight NTB:
    • The new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty insurance
    • The term of the new loan is shorter than the term of the loan being refinanced
    • The interest rate on the new loan is lower than the interest rate on the loan being refinanced
    • The payment on the new loan is lower than the payment on the loan being refinanced
    • The new loan results in an increase in the borrower’s monthly residual income
    • The new loan refinances an interim loan to construct, alter, or repair the home
    • The new loan amount is equal to or less than 90% of the reasonable value
    • The new loan refinances an adjustable rate loan to a fixed rate loan
  2. A comparison of key loan characteristics or terms for the existing and refinancing loan, including:
    • Refinancing loan amount vs. the payoff amount of the loan being refinanced
    • Loan type (i.e., fixed, adjustable) of the refinancing loan vs. the loan being refinanced
    • Interest rate of the refinancing loan vs. the loan being refinanced
    • The total the Veteran will have paid after making all payments (principal and interest), and mortgage insurance, as scheduled, for both the refinancing loan and the loan being refinanced.
    • LTV of the refinancing loan vs. the loan being refinanced
  3. An estimate of the home equity being removed from the home as a result of the refinance and explain how the removal of home equity may affect the Veteran.

Fee Recoupment: 
For Type I cash-out refinances, (see the circular for a definition of Type I and Type II) all fees, closing costs, expenses (other than taxes, escrow/impound, insurance and like assessments) and incurred costs must be recouped in a time period not exceed 36 months from the date of closing.

Loan Seasoning: 
Current loan seasoning requirements per Plaza guidelines still apply.

If you are looking to grow your VA business, now is the time and Plaza’s VA lending is at your service.

Contact your Account Executive with any questions on these new changes.