VA LOAN LENDING

Helping Veterans Save Money on VA Loan Closing Cost

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VA IRRRL Guidelines 2019 – Changes Caused by Lenders

2019 VA IRRRL GUIDELINESIn 2018 VA changed their guidelines on their VA refinance programs as set forth by the U.S. Government. The changes were made in attempt to stop predatory lending. Then the VA IRRRL guidelines in 2019 were updated again as some large-name lenders were abusing the program. Now it appears VA has loosened up...just a bit. What’s caused all of these changes? I’ll explain what's transpired over the last year and update you on the VA IRRRL guidelines 2019 and how it impacts you.

VA IRRRL Guidelines Change in 2018

VA has made numerous changes to the IRRRL program in 2019 but this wasn’t the beginning. It has been an ongoing process since mid-2018. The changes were initiated due to the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (S. 2155).

This bill, (now a law) was passed by the senate on March 14, 2018. Within S. 2155 was another act meant to protect veterans from predatory lending. This act, “The Protecting Veterans From Predatory Lending Act of 2018” was specifically created to stop lenders from “loan churning” or “serial refinancing”.

Effects of Loan Churning

In 2018, several lenders were banned from issuing loans into Ginnie Mae’s security pools. The reason for the ban was reportedly, due to churning VA loans, or in other words, repeatedly refinancing veterans.

This practice affects veterans in two ways. One, it unnecessarily depletes equity and costs the veteran thousands of dollars in fees. It also negatively impact the secondary mortgage market, causing higher rates. When loans get paid off quickly, the investor doesn’t have enough time to recoup costs paid to brokers and banks for the loans. To counter this, they raise their rates offered on VA loans.

This all creates a trickledown effect on the economy but I’ll leave that for another article.

VA IRRRL Guidelines 2019 – Changes to Date

Below are all of the changes made to the VA IRRRL program beginning in May of 2018 up until this article was written:

May 23, 2018 – VA Circular 26-18-13

Net Tangible Benefit

The lender, broker or agent of the lender must provide the veteran with a net tangible benefit test (NTB).

  1. If refinancing from a fixed VA loan to a new fixed VA loan, the new interest rate must be .50 lower than the rate of the current VA loan.
  2. If refinancing from a Fixed loan to an Adjustable Rate Mortgage (ARM), the rate must be reduced by at least 2%.
Loan Seasoning

All VA guaranteed loans must be seasoned before using the IRRRL program to refinance. The seasoning requirement was set at 210 days after the date of the first payment AND 6 consecutive on time payments. This rule has since changed (see below).

Appraisal Requirement

If discount points are being charged, an appraisal is required.

August 8, 2019 – VA Circular 29-19-22

Loan Fee Recoupment Calculation

The VA funding fee is no longer calculated into the 36 month cost recoupment. Previously the rule included the funding fee into the recoupment calculation. This left non-exempt veterans (veterans with no service connected disability rating) unable to utilize the IRRRL as the total fees were more than an exempt veteran.

Fixed to Adjustable

One of the following rules must apply on all VA loans where the veteran is refinancing from a fixed loan to an ARM:

  1. Discount points may be used to lower the rate in order to meet the 2% reduction rule. However, the new interest rate CANNOT be produced solely from discount points.
  2. Discount points less than or equal to 1% may be used SOLELY to reduce the interest rate, but only if the resulting balance of the loan after all fees and expenses maintains a loan to value (LTV) of 100% or less.
  3. Discount points greater than 1% may be used SOLELY to reduce the rate but LTV of the new loan cannot exceed 90%. No more than 2% discount points may be used.
Loan Seasoning

The date to which the 210 seasoning starts is now the first payment date as determined by the mortgage note. It is no longer the date the first payment was made. VA continues its stance on 6 consecutive payments.

 

For more detailed information regarding all changes made as of August 8, refer to VA Circular 26-19-22.

Of course the changes made to the IRRRL program were for the for the betterment of the veteran. Yet it’s unfortunate that it has actually made it more difficult, until now. It appears VA is heading back in the right direction.

It is great that VA is regulating the costs on VA IRRRL’s. This makes it much more difficult for high priced lenders to charge higher VA closing costs. Now if VA can only start regulating the VA closing costs charged by lenders on regular VA refinances and more importantly new home purchases.

 

Until then, I’ll continue my fight to help veterans pay lower closing costs.

 

See also:

What is VA Origination Fee?

VA Closing Cost Assistance

Apply for No Cost VA loan

 

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VA Loan Origination Fee – Top 10 Reasons to Avoid

In a previous article, I explained what a VA loan origination fee is. Here we’re going to discuss 10 reasons you should avoid paying it “at all cost”. If you are currently working with a lender that charges one and they are unwilling to waive it, quickly find a lender that will. It's a fee that can either steal money from your bank account or equity.

10 Reasons to Avoid Paying VA Loan Origination Fees

Often times we make purchases or pay for services, blindly accepting the charge as non-negotiable. This is absolutely not the case with VA loans. Below are the 10 reasons why you should avoid paying origination fees for your VA loans.

Increases your APR

The APR basically tells home loan shoppers whether one lender is charging more or less fees than another. The APR is in essence, the rate you would actually be paying if you were to finance in the costs and pay that over the full term of the loan.

Raises your Purchase Price

You might wonder, “How can a VA loan origination fee increase my purchase price?” If you ask the seller to pay your closing cost for you, do you think they really want to do this out of their own pockets? Of course not. They are going to raise the purchase price and hope the appraisal comes in high enough to cover it.

Can jeopardize your loan approval

As you can imagine based on the previous scenario, the seller raises the purchase price to cover your extra closing costs. You wait weeks for the appraisal and to your dismay, it doesn’t come in at the purchase price. Now you find out the seller is unwilling to renegotiate the price and you don’t have the thousands of dollars to make up the difference.

This is a real scenario that can happen. The more you ask the seller to pay, the greater your chances of this happening.

Lowers your Buying Power

In certain instance, mainly with lower credit scenarios, the lender may want to see that you have money in reserves if your debt to income ratio is higher. This is to assure you will be able to make payments should something happen, such as a loss of job or another financial hardship. If you’re spending money on unnecessary closing costs such as the VA loan origination fee, leaving you no reserves, the only other possible solution would be to lower the ratios, which means purchasing a lower priced home.

Finding a lender that doesn’t charge origination fees is essential, especially in this particular scenario. Finding a lender that has Closing Cost Assistance would be a good solution as well.

Decreases your Equity

VA loan origination fees don’t only affect home buyers. It can affect home sellers as well.

Wait. How does that have anything to do with refinances?

Remember that last refinance you did? Or maybe you’ve done more than one. Every refinance you do with a lender that charges an origination fee, takes that much equity away when you sell the house. When realtors are charging anywhere between 3% and 6%, it pays to keep as much equity as you can.

Increases your Payment

This applies to both purchase and refinances. Obviously on a refinance, any fees you roll into the loan only increases the loan amount and as such increases the payment. On a purchase though, this happens when the seller pays your costs for you. Remember earlier when I mentioned the seller raising the purchase price to cover the costs? Higher purchase price equals higher loan amount. Higher loan amount equals higher payment.

Substantially increases the amount you finance

So of course, in either situation above, if you’re increasing the loan amount you end up paying more. However, it’s not just an increase by the closing costs. You’re paying interest on that money as well.

Consider a $400,000 loan at 3.5% versus a $404,000 at the same rate. Over 30 years you will have paid an additional $2,465 on that money. So instead of costing you $4,000, that origination fee would have actually costed you $6,465.

Makes Home expenses more difficult

This one is simple. Would you rather pay $4,000 in unnecessary VA origination fees or have your new home decorated or landscaped just the way you want? Maybe there’s a new mower you have your eye on? Whatever the case, you will have expenses that come with the new home and having that money when you move in will make things much, much easier.

Eliminates potential investment income

There are times when you have to dip into an investment account for one reason or another. Generally this is a last resort but it does happen once in a while. Imagine that feeling of losing all of that future income you could have made on that money? Now imagine you don’t actually have to take that money out but you do anyway.

Using investment money to pay towards something that offers no value makes zero cents. Yes, the pun was intended.

Is something you don't have to pay for

This is the most common sense reason and quite honestly it should be the only reason why you should avoid VA loan origination fees. Yet it’s one that most just don’t realize. You don’t have to pay the VA loan origination fee. There are lenders all over the country that don’t charge them.

So the question remains, if you don’t have to pay for one, why would you?

See also...

What is an Origination Fee?
VA Loan Closing Cost
VA Closing Cost Assistance

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What is an Origination Fee

Paying Origination Fees

You've gotten to the shocking point of seeing how much money you need to bring to closing on your VA loan. Somehow your lender either didn't talk much about it before now or not at all. In either case, it hits you like a ton of bricks. Origination fee? What is an Origination Fee?

This scenario happens far too often. This is especially the case with VA loans since VA makes it a point to say that VA lenders CAN charge an origination fee. But let's not blame it on VA. When it comes down to it, it's up to the lenders and brokers to charge it or not. In either case, I'll explain what is an origination fee, what to watch out for and how you can avoid it without being penalized.

What is an Origination Fee?

This is quite simply a charge set by the lender or broker for their services to provide you the loan. It begins with the initial application taken by the Loan Officer and ends when you sign the paperwork at closing. On a VA loan, this charge can be up to 1% of the loan amount. In fact, most brokers automatically charge the full amount. Some banks and lenders do not charge one at all. For instance, when you're connected with a lender through this website, you WILL NOT have to pay for an origination fee at all.

Is Origination Fee Same as Discount Points?

No. Discount points have a completely different purpose than the origination fee. However, you will need to be quite aware of how much the lender is charging and how it affects your loan. Often times brokers (unlawfully) use discount points as a way to generate more income.

The origination fee is meant to cover expenses to process the loan. It should have no impact on your loan rate or payment. On the other hand, the purpose of the discount point is to secure a lower rate in the form of a one time prepayment on the interest. This can have a tremendous benefit on your loan.

As an example, you pay 1% discount on a $300,000 VA loan or $3,000. The reduction you receive on the rate is 0.5%. This reduces your payment by nearly $100. Over 30 years, that lowers your overall payments by $36,000. This of course would be a benefit to you should you stay in the house over 30 month. Yet a 1% origination fee will serve nothing more than to deplete your bank account.

How can I keep from Paying an Origination Fee?

The short answer is to shop around. There are some lenders that don't charge origination fees. Here are some of the tips to get a VA loan with No Origination Fee:

Shop Different Lenders

This seems like a common sense answer but unfortunately veterans still fall victim to high priced brokers simply because they don't know better. Take some time to look around. In fact, complete a form on VA Loan Lending and rest assured, you won't be disappointed.

Watch out for Realtor Referrals

Some realtors have good lenders they refer business to. The problem generally relates to realtors that only refer to one lender or more specifically, one broker.

This brings up important questions you should always ask, such as:

  • Whose interest is being represented with a referral to a high priced broker?
  • Why would a realtor want to refer their customers to someone that over-charges their customers?
  • Could it be a case of a short term monetary gain versus a long term goal of gaining valuable customer retention and referrals?

Closing Cost Assistance

This is not only a great way to keep from paying origination fees, but all of your costs. There are several ways to get assistance. Find out the many ways to get VA closing cost assistance here.

Now you know what an origination fee is and that you have options that will save you from this expensive cost. Find out how much you can save on closing costs and your interest rate here.

SEE ALSO: VA LOAN NO CLOSING COSTS

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Do VA Loans Have PMI?

Benefits to your walletDo VA loans have PMI? This is still a very popular question, especially among first time home buyers. The quick answer is no. However, there is a little more to explore on this topic. I’ll discuss how this is still one of the biggest benefits for veterans and their wallets, and yet how a related item can be a turn off as well.

Benefits of VA Loans

There are so many benefits VA loans offer veterans and service members. It’s always sad to hear when a veteran is put into a loan like FHA or even conventional. Not only are down payments required for all FHA loans and conventional loans with less than 20% down, but so is PMI. Two of the biggest benefits VA loans offer are no down payment and no PMI. This not only saves home buyers thousands of dollars upfront but even more over the term of the loan. Add the fact that VA loans have lower rates and you can see why it’s such a great solution for veteran home buyers and even home owners.

Why do VA Loans not have PMI?

So here is where things become a little cloudy. Yes, VA does NOT require PMI (private mortgage insurance). PMI is a monthly payment home owners make to insure the lender should they default on the loan. However, they do require service members and some veterans to pay what’s called a funding fee. In essence, this is their insurance policy for anyone that might default on their loan. As you can see, by definition, this is mortgage insurance. It is not PMI though. VA thus, gets off on a technicality.

How much is the VA Funding Fee?

Let’s be sure we’re clear on this subject. The funding fee isn’t always required. If you have a service connected disability rating of at least 10%, you will always be exempt from the funding fee. For everyone else, the funding fee can range from 0.5% up to 3.3% of the loan amount. Factors that determine how much you are charged are Military service, down payment, type of VA loan and how many times you have used your eligibility. Find more about the VA funding fee.

Although VA loans do not have PMI, there can still be a related charge. Even with that that though, to date, there is absolutely no home loan product that offers the benefits a VA loan offers.


See other VA Loan Lending pages and articles:

VA Funding Fee
What are VA Closing Costs
Can I get a VA No Closing Costs Loan

Also, is the VA funding fee tax deductible?

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VA Loan No Closing Costs

I’ve started the VA loan process with this lender. Now I’m finding out there are more closing cost than I expected. What do I do? Is there any way to get VA closing cost assistance? I don’t want to start the process all over but I can't afford to pay this.

This exact scenario happens far too often. One of the biggest problems is the fact that veterans don’t realize their options. There are VA loan no closing costs lenders all over the country. More often than not, the veteran is steered to expensive local mortgage brokers by realtors or even builders. The veteran goes along with it without exploring all of the options. Then the surprise sets in. Not only is the broker not experienced in VA loans, has loads of paperwork, but they charge thousands of dollars for their services.

Let's look at it from a different perspective. You're standing on shore ready to take a swim. You even have someone telling you it's ok but you can read the sign. You know there's a shark (lender) swimming around waiting to take a huge bite out of your assets. On top of it all, you have a lifeguard (no cost lender) telling you to get back to shore before it's too late. You have time to make the right decision. Making it sooner than later is what's most important

What Does “VA Loan No Closing Costs” Mean?

First, let’s be clear that there are ALWAYS closing costs involved with any mortgage. There will be title fees, appraisal, prepaid interest, escrow and as you may have found, lender fees. What “No closing cost” means is you don’t have to pay closing costs for your VA loan. How?

 

 

Lender Paid VA Closing Costs

There are many ways to get VA closing cost assistance but one of the most popular ways to get a VA loan with no closing cost is Lender Paid assistance. Due to the fact that there are HUGE profits in VA loans, a lender can very well credit you for ALL of the costs you would normally pay at closing. This can easily be $5,000 to upwards of $25,000 of VA closing costs depending on the state, the loan amount and of course the lender. Some lenders don’t charge any origination fees. So the total closing cost could be reduced by $2,000 to as much as $20,000, depending on the loan amount and if the lender is charging discount points.

But I Don’t Want to Start the Process All Over

More often than not, this statement is coming from the assumption that the process will be as long and as tedious as it has been so far with the current lender. This couldn’t be further from the truth. In most cases it literally is only a matter of minutes to gather the documents that have already been gathered together. The rest of the process is pretty well finished. In fact, the appraisal, termite, title are all transferable. A simple verification of employment and income and you’re done.

Find the Best VA Lender for you

Before spending thousands of dollars on closing costs, check out your options. Even if you have 2 weeks until closing, you can still close on time with a VA Loan No Closing Costs Lender.