New lending rules passed by Congress and signed into law by President Donald Trump in May could impact homeowners looking to refinance their VA home loan.
Known as the Economic Growth, Regulatory Relief, and Consumer Protection Act, the law changes the legal code, which has a direct impact on how mortgages are processed and approved. So, what exactly does this mean for eligible active-duty service members, veterans and surviving spouses?
Let’s take a look at some of the changes:
- The timeline between new loans extended
- Refinancing veterans must receive tangible benefits
- Equity must be verified by appraisal in streamline refinances
Timeline extensions
One of the biggest changes is to the timeline when it comes to refinancing your current VA home loan. Some lenders will refer to this process as seasoning, which is code for the age of your loan.
Under the rule changes, homeowners looking to refinance into a VA loan or to switch from one VA loan to another must have a minimum of 210 days between the first payment of the original loan and the closing date of the new loan.
Tangible benefits
Another significant change applies specifically to streamline refinances (IRRRL) and regards a tangible benefit to the veteran or eligible borrower. The premise here is to help ensure the new loan benefits the veteran financially.
Basically, the VA requires a minimum interest rate reduction of 0.5% for fixed-rate loans and 2% for ARMs in order for the VA to approve a streamline refinance.
More stipulations come into play if you’re buying down your interest rate.
Equity verification
Buying down your interest rate is a common practice with mortgages. Borrowers will pay a certain percentage of the loan amount upfront in exchange for an equal percentage reduction in the interest rate. For example, a borrower may pay a 1 percent fee to have their interest rate reduced from 4.5% to 3.5%.
If you pay one point up front on a $200,000 loan at a cost of $2,000, it will take approximately 40 months, or just over three years, to break even with your reduced monthly payment. If you’re buying a point in order to meet the tangible benefit rule mentioned above, you will be required to meet additional financial considerations, including an appraisal to verify equity.
For more information on these rule changes, or to speak with a licensed loan officer about your VA loan, call us today at (888) 320-7888.
