VA Underwriting Guidelines 

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VA Cash Out Refinance

A VA cash-out refinance home loan is a VA-guaranteed loan which refinances any type of lien or liens against the secured property. The liens to be paid off may be current or delinquent, and from any source, such as tax or judgment liens, and/or VA, FHA, or conventional mortgages. 

Loan proceeds beyond the amount needed to pay off the lien(s) may be taken as cash by the borrower for any purpose acceptable to the lender. 

The loan must be secured by a first lien on the property. The maximum loan amount is 90 percent of the appraised value plus the cost of any energy efficiency improvements plus the VA funding fee. 

While only the VA funding fee can be added to (on top of) the 90 percent limit to increase the loan amount, cash proceeds from the loan may be used to pay allowable fees and charges and discount points. 

The total of the following items, if paid from loan proceeds, cannot exceed 90 percent of reasonable value:

  • Payoff of liens 
  • Allowable fees and charges (other than the funding fee.) 
  • Reasonable discount points, and 
  • Cash to the borrower. 

The maximum guaranty on cash-out refinancing loans is $36,000, even for loans greater than $144,000. For most other VA-guaranteed loans, the maximum guaranty is $60,000 on loans greater than $144,000. 

The veteran must have sufficient available entitlement for the loan. If an existing VA loan on the same property will be paid off by the refinancing loan, the entitlement used for that existing loan can be restored for purposes of obtaining the new loan. The veteran must certify that he or she intends to personally occupy the property as his or her home. 

Only lenders with authority to close loans automatically may close cash-out refinancing loans automatically. All others must submit these loans for prior approval by VA. 

Loan process procedures are virtually the same as for non-refinancing loans. A full appraisal, credit information, and underwriting are required. To report loan closing, submit all of the documents required for non-refinancing loans plus a statement signed by the veteran which shows: 

  • The cash proceeds paid 
  • An itemization of the debts paid from loan proceeds, and 
  • The identification of those debts secured by liens of record. 

Energy efficiency improvement loans can be made in conjunction with any type of VA purchase or refinancing loan. Energy Efficient Mortgages are used to improve a residence owned and occupied by the veteran as the veteran's home through the installation of a solar heating system, a solar heating and cooling system, or a combined solar heating and cooling system, or through the application of a residential energy conservation measure. 

Other Refinancing Loans

These consist of loans to refinance:

  • Construction loans. 
  • Installment land sale contracts, and 
  • Loans assumed by veterans at interest rates higher than for the proposed refinance. 

Note: These loans are like cash-out refinancing loans except:

  • The maximum loan amount is different, ... these loans are not based on 90 percent of reasonable value, and 
  • No cash is received by the borrower at close. 

These loans may not exceed the lesser of: The VA reasonable value plus the VA funding fee, or the sum of the outstanding balance of the loan to be refinanced plus allowable closing costs (including the funding fee) and discounts. 

The cost of energy efficiency improvements can also be added to the loan. 

 

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