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:
- 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
- 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
- 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.
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.
Current loan seasoning requirements per Plaza guidelines still apply.