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Income Guidelines for VA Home Loans
VA requires a borrower to have sufficient and adequate income to cover the repayment of the mortgage. Before a borrower can be approved for a VA home loan, the stability of income and the continuance of the borrower's income must be established through acceptable sources of income, the borrower's past employment record, and the employer's confirmation of continued employment must be established.
Stability of a person's income is generally derived from their employment history. VA requires verification for the previous two full years and must be documented through lender verifications of previous employment or W-2's. This income must be analyzed to determine whether it can be expected to continue through the first 3 years of the mortgage loan (if the borrower intends to retire during this period, the expected retirement income, social security benefits, etc. should be used). Any gaps in employment must be reasonably explained by the borrower. Schooling or education for the borrower's profession (e.g. nursing school) can be counted towards the 2 year requirement. Allowances for seasonal employment, such as is typical in the building trades for example, may be used.
VA FUNDING FEE
In order for VA to guarantee the home loan, there is a closing cost assessed by the VA to originate the loan called a funding fee. This fee will vary, depending upon the type of VA loan, whether this is your first time to use your entitlement, if you are a disabled veteran, the down payment and if you served active duty or in the National Guard/Reserves.
The following table breaks down the funding fee charged by VA:
| First time use, purchase of an eligible property | ||
| Down Payment | Active Duty | Reserves/NG |
| 0% to 4.99% | 2.20% | 2.4% |
| 5% to 9.99% | 1.50% | 1.75% |
| 10% + | 1.25% | 1.50% |
| Second time use, purchase of an eligible property | ||
| Down Payment | Active Duty | Reserves/NG |
| 0% to 4.99% | 3.30% | 3.3% |
| 5% to 9.99% | 1.50% | 1.75% |
| 10% + | 1.25% | 1.50% |
Cash-out Refinance: 3.00% Funding Fee
VA STREAMLINE REFINANCE
An "Interest Rate
Reduction Refinance Loan" (IRRRL) or Streamline Refinance
allows Veterans to refinance their current mortgage interest rate
to a lower rate than they are currently paying. This program is
only available to veterans who are refinancing their original VA
mortgage in which they utilized their original eligibility.
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Loan Conditions:
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The VA charges ½ percent funding fee to guarantee the IRRRL Loan.
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There is no cash out on an IRRRL loan.
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The loan being refinanced must be current and have a perfect pay history for the last 12 months.
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2nd mortgages cannot be included and must subordinate.
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No assumptions are allowed.
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This loan can be done with "no out of pocket money" by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs.
VA Cash-Out Refinance
Cash-out refinances on properties owned more than one year prior to the refinance are permitted on owner occupied principal residences only, and are limited to 90% of the appraised value plus the allowable closing costs.
A cash-out refinance is when a borrower refinances their current mortgage for more than they owe in order to pull out the built up equity that has accrued in the home. The amount a home owner can borrower is limited by the value of the property compared to the loan amount (otherwise known as the loan-to-value or LTV).
The following are basic requirements of a cash-out VA refinance loan:
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If the property was purchased less than one year preceding the refinance, the borrower is allowed to refinance up to 90% of the original sales price plus the allowable new closing costs or the appraised value plus the allowable closing costs (whichever is lesser)
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If the property was purchased more than one year preceding the refinance, the borrower can cash-out 90% of the the appraised value plus the allowable closing costs
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Applies to owner occupied properties only
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2nd mortgages may be paid off with the cash-out refinance (the second mortgage must be at least 12 months old)
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Loan amounts may not exceed 90% of the appraised value.
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The borrower must have sufficient entitlement for the loan (not including any existing entitlement that was used for loans to be paid off by the refinance
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There must be a first lien against the property
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If the new loan is to refinance an existing mortgage to buy out an ex-spouse's equity, a divorce decree or settlement agreement must be provided to document the equity awarded to the ex-spouse
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All borrowers must credit qualify
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A funding fee of 3.00% will be added to the loan amount at time of closing (there are no refunds for previous funding fees assessed by the VA).
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Borrower may receive cash proceeds at closing
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Maximum loan term is 30 years plus 32 days
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