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not required to show their Certicate of Eligibility to conrm the prior
use of entitlement; an email conrmation procedure is available to lend-
ers in lieu of a Certicate of Eligibility.
Special assistance for persons with disabilities: Veterans with service-
related disabilities are generally exempt from the funding fee (0.5
percent of the loan’s value, or 1 percent for an unafxed manufactured
home).
LOAN CRITERIA
Loan limits: The renanced loan cannot exceed the existing VA loan plus
any nanced funding fee.
Loan-to-value limits: There are no LTV limits set by VA. The new loan
amount may be more than the limits established by the secondary
market. It is the lender’s responsibility to ensure it has a marketable loan.
Adjustable-rate mortgages: Existing VA ARM loans may be renanced
into a xed rate, hybrid ARM, or traditional ARM, but it must bear a lower
interest rate than the loan it is renancing, unless the loan it is renanc-
ing is an ARM.
Down payment sources: No down payment is required; however, an
IRRRL may be done with “no money out of pocket” by including all costs
in the new loan.
Homeownership counseling: Homeownership counseling is
not required.
Mortgage insurance: Mortgage insurance is not required.
Debt-to-income ratio: No credit review is performed.
Temporary interest rate buy downs: Generally not allowed since the
purpose is to lower the interest rate.
Renance: The borrower may not receive any cash from the loan
proceeds for an IRRRL unless it is for the purpose of making energy
efciency improvements.
Interest rates and loan terms: Terms are set by the lender.
Funding fee: The funding fee for an IRRRL is 0.5 percent of the loan’s
value, or 1 percent for an unafxed manufactured home. Funding fees
may be nanced or paid in cash.
POTENTIAL BENEFITS
Lenders can offer existing cus
tomers a product to lower their
payments, which may generate
further business for the bank.
VA loans offer competitive pricing
and terms.
Loans originated through VA may
receive favorable consideration
under the CRA, depending on
the geography or income of the
participating borrowers.
Community banks, as supervised
institutions, receive automatic
authority to originate and close
loans with the VA guarantee,
making VA loans a relatively easy
type of mortgage business to
begin offering.
POTENTIAL CHALLENGES
Despite the ease of becoming a
VA-authorized lender, community
banks may need to acquire or
develop new expertise and infra
structure in order to participate.
A limited pool of borrowers is eli
gible for this program due to the
military service requirement.
Lenders retain risk since they
are responsible for any loss over
25 percent.
IRRRL applications where a bor
rower is more than 30 days late
on a mortgage payment must be
approved directly by VA.
FDIC | Affordable Mortgage Lending Guide | 76