## Chapter 6. Refinancing Loans

#### Overview

+------------+---------------------------------------------------------+
| #          | > This chapter contains the following topics.           |
| #### In th |                                                         |
| is Chapter |                                                         |
+------------+---------------------------------------------------------+

+------+-----------------------------------------------------+---------+
| T    | Topic Name                                          | See     |
| opic |                                                     | Page    |
+------+-----------------------------------------------------+---------+
| 1    | Interest Rate Reduction Refinancing Loans (IRRRLs)  | 6-2     |
+------+-----------------------------------------------------+---------+
| 2    | IRRRL Made to Refinance Delinquent Loan             | 6-13    |
+------+-----------------------------------------------------+---------+
| 3    | Cash-Out Refinancing Loans                          | 6-17    |
+------+-----------------------------------------------------+---------+
| 4    | > Quick Reference Table for IRRRLs Versus Cash-Out  | 6-19    |
|      | > Refinancing Loans                                 |         |
+------+-----------------------------------------------------+---------+
| 5    | Other Refinancing Loans                             | 6-21    |
+------+-----------------------------------------------------+---------+

#### 1. Interest Rate Reduction Refinancing Loans (IRRRLs)

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | -   Subsection b adds a reference to the use of ARMs.   |
|            |                                                         |
|            | -   Subsection q has been changed by deleting Step 2,   |
|            |     VA Form 26-0285, VA Transmittal List, which is no   |
|            |     longer required. Steps 2 through 9 have been        |
|            |     renumbered.                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > An IRRRL is a VA-guaranteed loan made to refinance an |
| a. What is | > existing VA-guaranteed loan, generally at a lower     |
|  an IRRRL? | > interest rate than the existing VA loan, and with     |
|            | > lower principal and interest payments than the        |
|            | > existing VA loan.                                     |
|            | >                                                       |
|            | > Generally, no appraisal, credit information or        |
|            | > underwriting is required on an IRRRL, and any lender  |
|            | > may close an IRRRL automatically.                     |
|            | >                                                       |
|            | > ***Note:*** Exceptions and specific requirements are  |
|            | > explained in the remainder of this section.           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > An IRRRL (which can be a fixed rate, hybrid ARM or    |
| b. Interes | > traditional ARM) must bear a lower interest rate than |
| t Rate Dec | > the loan it is refinancing unless the loan it is      |
| rease Requ | > refinancing is an Adjustable Rate Mortgage (ARM).     |
| irement {# |                                                         |
| b.-interes |                                                         |
| t-rate-dec |                                                         |
| rease-requ |                                                         |
| irement .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The principal and interest payment on an IRRRL must   |
|  c. Paymen | > be less than the principal and interest payment on    |
| t Decrease | > the loan being refinanced unless one of the following |
| / Increase | > exceptions applies:                                   |
|  Requireme |                                                         |
| nts {#c.-p | -   The IRRRL is refinancing an ARM.                    |
| ayment-dec |                                                         |
| rease-incr | -   Term of the IRRRL is shorter than the term of the   |
| ease-requi |     loan being refinanced, or                           |
| rements .u |                                                         |
| nnumbered} | -   Energy efficiency improvements are included in the  |
|            |     IRRRL.                                              |
|            |                                                         |
|            | > A significant increase in the veteran's monthly       |
|            | > payment may occur with any of these three exceptions, |
|            | > especially if combined with one or more of the        |
|            | > following:                                            |
|            |                                                         |
|            | -   financing of closing costs                          |
|            |                                                         |
|            | -   financing of up to two discount points              |
|            |                                                         |
|            | -   financing of the funding fee, and/or                |
|            |                                                         |
|            | -   higher interest rate when an ARM is being           |
|            |     refinanced.                                         |
+------------+---------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

+------------+---------------------------------------------------------+
| c\.        | > If the monthly payment (PITI) increases by 20 percent |
| Payment    | > or more, the lender must:                             |
| Decrease/  |                                                         |
| Increase   | -   determine that the veteran qualifies for the new    |
| Re         |     payment from an underwriting standpoint; such as,   |
| quirements |     determine whether the borrower can support the      |
| (          |     proposed shelter expense and other recurring        |
| continued) |     monthly obligations in light of income established  |
|            |     as stable and reliable, and                         |
|            |                                                         |
|            | -   include a certification that the veteran qualifies  |
|            |     for the new monthly payment which exceeds the       |
|            |     previous payment by 20 percent or more.             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### d.   | > For all IRRRLs, the veteran must sign a statement     |
|  Veteran's | > acknowledging the effect of the refinancing loan on   |
|  Statement | > the veteran's loan payments and interest rate.        |
|  and Lende | >                                                       |
| r's Certif | > The statement must show the interest rate and monthly |
| ication {# | > payments for the new loan versus that for the old     |
| d.-veteran | > loan. The statement must also indicate how long it    |
| s-statemen | > would take to recoup ALL closing costs (both those    |
| t-and-lend | > included in the loan and those paid outside of        |
| ers-certif | > closing).                                             |
| ication .u | >                                                       |
| nnumbered} | > If the monthly payment (PITI) increases by 20 percent |
|            | > or more, the lender must include a certification that |
|            | > the veteran qualifies for the new monthly payment     |
|            | > which exceeds the previous payment by 20 percent or   |
|            | > more.                                                 |
|            | >                                                       |
|            | > **Example**:                                          |
|            |                                                         |
|            | -   Vet's monthly payment decreases by \$50.00.         |
|            |                                                         |
|            | -   Vet pays \$5,000 in closing costs (includes all     |
|            |     costs -- closing costs, funding fee, discounts,     |
|            |     etc).                                               |
|            |                                                         |
|            | -   Recoup closing costs in 100 months - \$5,000        |
|            |     divided by \$50.                                    |
|            |                                                         |
|            | > ***Note***: This would not be required in those       |
|            | > limited cases where the payment is not decreasing     |
|            | > (reduced term of loan, etc.).                         |
|            | >                                                       |
|            | > The veteran's statement may be combined with the      |
|            | > lender's certification and should be on the lender's  |
|            | > own letterhead. For a sample please go to:            |
|            | > <http:/                                               |
|            | /www.homeloans.va.gov/docs/VA_Rate_Reduction_Cert.pdf>. |
+------------+---------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

+------------+---------------------------------------------------------+
| ###        | > The following fees and charges may be included in an  |
| ## e. What | > IRRRL:                                                |
|  Closing C |                                                         |
| osts, and  | -   The VA funding fee, and                             |
| so on, can |                                                         |
|  be Includ | -   Any allowable fees and charges discussed in         |
| ed in the  |     [section 2 of chapter                               |
| Loan? {#e. |     8](http://w                                         |
| -what-clos | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch08.doc); |
| ing-costs- |     such as, all allowable closing costs, including the |
| and-so-on- |     lender's flat charge.                               |
| can-be-inc |                                                         |
| luded-in-t |     > ***However, There Is One Limitation***            |
| he-loan .u |                                                         |
| nnumbered} |     > While the borrower may pay any reasonable amount  |
|            |     > of discount points in cash**,** only up to two    |
|            |     > discount points can be included in the loan       |
|            |     > amount.                                           |
|            |                                                         |
|            |     > Although VA does **not** require an appraisal or  |
|            |     > credit underwriting on IRRRLs, any customary and  |
|            |     > reasonable credit report or appraisal expense     |
|            |     > incurred by a lender to satisfy its lending       |
|            |     > requirements may be charged to the borrower and   |
|            |     > included in the loan.                             |
|            |                                                         |
|            |     > The lender may also set the interest rate on the  |
|            |     > new loan high enough to enable the lender to pay  |
|            |     > all closing costs, as long as the requirements    |
|            |     > for lower interest rate and payments (or one of   |
|            |     > the exceptions to those requirements) are met.    |
|            |                                                         |
|            |     > For IRRRLs to refinance loans 30 days or more     |
|            |     > past due (which must be submitted for prior       |
|            |     > approval), the following can be included in the   |
|            |     > new loan:                                         |
|            |                                                         |
|            | -   Late payments and late charges on the old loan, and |
|            |                                                         |
|            | -   Reasonable costs if legal action to terminate the   |
|            |     old loan has commenced.                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### f.   | > An IRRRL cannot be used to take equity out of the     |
| When Can t | > property or pay off debts, other than the VA loan     |
| he Borrowe | > being refinanced. Loan proceeds may only be applied   |
| r Receive  | > to paying off the existing VA loan and to the costs   |
| Cash at Cl | > of obtaining or closing the IRRRL. Therefore, the     |
| osing? {#f | > general rule is that the borrower cannot receive cash |
| .-when-can | > proceeds from the loan. (If necessary, the            |
| -the-borro | > refinancing loan amount must be rounded down to avoid |
| wer-receiv | > payments of cash to the veteran).                     |
| e-cash-at- |                                                         |
| closing .u | The one exception is reimbursement of the veteran for   |
| nnumbered} | the cost of energy efficiency improvements up to        |
|            | \$6,000 completed within the 90 days immediately        |
|            | preceding the date of loan closing.                     |
+------------+---------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

+------------+---------------------------------------------------------+
| f\. When   | > ***Note***: Use of loan proceeds for energy           |
| Can the    | > efficiency improvements **not** involving cash        |
| Borrower   | > reimbursement of the veteran is also an option. See   |
| Receive    | > [section 3 of chapter                                 |
| Cash at    | > 7.](http://                                           |
| Closing?   | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch07.doc) |
| (          |                                                         |
| continued) | > In a limited number of situations, the borrower may   |
|            | > receive cash at closing. Some examples of situations  |
|            | > in which VA does not object to the borrower receiving |
|            | > cash are:                                             |
|            |                                                         |
|            | -   computational errors                                |
|            |                                                         |
|            | -   changes in final pay-off figures                    |
|            |                                                         |
|            | -   up-front fees paid for the appraisal and/or credit  |
|            |     report that are later added into the loan, and      |
|            |                                                         |
|            | -   refund of the escrow balance on the old loan. This  |
|            |     often occurs when a party other than the present    |
|            |     holder originates the loan.                         |
|            |                                                         |
|            | > VA does not to set a "ceiling" or a specific dollar   |
|            | > limitation on cash refunds resulting from adjustments |
|            | > at closing. However, if a situation involves a        |
|            | > borrower receiving more than \$500, consult VA as to  |
|            | > its acceptability. Lenders and VA personnel should    |
|            | > exercise common sense when assessing such situations  |
|            | > and draw from basic program information to know the   |
|            | > difference between an equity withdrawal and cash from |
|            | > unforeseen circumstances.                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Always use [VA Form                                   |
| ### g. Max | >                                                       |
| imum Loan  | 26-8923](http://www.vba.va.gov/pubs/forms/26-8923.pdf), |
| {#g.-maxim | > IRRRL Worksheet, to calculate the maximum loan        |
| um-loan .u | > amount. The maximum loan amount is:                   |
| nnumbered} |                                                         |
|            | The existing VA loan balances plus the following:       |
|            |                                                         |
|            | -   including any late payments\* and late charges,     |
|            |     plus                                                |
|            |                                                         |
|            | -   allowable fees and charges (includes up to two      |
|            |     discount points), plus                              |
|            |                                                         |
|            | -   the cost of any energy efficiency improvements, and |
|            |                                                         |
|            | -   the VA funding fee.                                 |
|            |                                                         |
|            |     \*Any IRRL that includes delinquent payments in the |
|            |     loan amount must be submitted for prior approval,   |
|            |     even when a lender has automatic authority.         |
+------------+---------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

+------------+---------------------------------------------------------+
| g\.        | > ***Note***: There is no maximum dollar amount for VA  |
| Maximum    | > loans. Since an IRRRL rolls the above items into the  |
| Loan       | > new loan, and VA guarantees at least 25 percent of    |
| (          | > the loan amount (without regard to the veteran's      |
| continued) | > entitlement), 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.                                      |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > No additional charge is made to the veteran's         |
| # h. Amoun | > entitlement for an IRRRL; such as, the amount of the  |
| t of Guara | > veteran's previously used and available entitlement   |
| nty and En | > remains the same before and after obtaining the       |
| titlement  | > IRRRL.                                                |
| Use {#h.-a |                                                         |
| mount-of-g | > The new IRRRL loan amount may be equal to, greater    |
| uaranty-an | > than, or less than, the original amount of the loan   |
| d-entitlem | > being refinanced. This may impact the amount of       |
| ent-use .u | > guaranty on the new loan, but **not** the veteran's   |
| nnumbered} | > use of entitlement.                                   |
|            |                                                         |
|            | > ***Example Of New Loan Amount More Than Old Loan***   |
|            |                                                         |
|            | > The existing VA loan was originally made for          |
|            | > \$110,000 with a guaranty of \$27,500, or 25 percent. |
|            | > The new IRRRL is for \$112,000. The guaranty on the   |
|            | > new loan is \$28,000 or 25 percent, but the veteran's |
|            | > entitlement use remains at \$27,500.                  |
|            |                                                         |
|            | > ***Example Of New Loan Amount Less Than Old Loan***   |
|            |                                                         |
|            | > The existing VA loan was originally made for \$42,000 |
|            | > with a guaranty of \$25,000, or almost 60 percent     |
|            | > (the percentage applicable under former law). The new |
|            | > IRRRL is for \$40,000. The guaranty on the new loan   |
|            | > is \$20,000 or 50 percent, but the veteran's          |
|            | > entitlement use remains at \$25,000.                  |
+------------+---------------------------------------------------------+

+---------+------------------------------------------------------------+
| Amount  | How to calculate the amount of guaranty on an IRRRL        |
+---------+------------------------------------------------------------+
| IRRRLs  | First, calculate the lesser of:                            |
| up to   |                                                            |
| \       | -   50% of the IRRRL loan amount, or                       |
| $45,000 |                                                            |
|         | -   The amount of guaranty used on the VA loan being       |
|         |     refinanced.                                            |
|         |                                                            |
|         |     The amount of guaranty is the greater of:              |
|         |                                                            |
|         | -   The above result, or                                   |
|         |                                                            |
|         | -   25% of the IRRRL loan amount.                          |
+---------+------------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

  -----------------------------------------------------------------------
  h\. Amount of Guaranty and Entitlement Use (continued)

  -----------------------------------------------------------------------

+---------+------------------------------------------------------------+
| Amount  | How to calculate the amount of guaranty on an IRRRL        |
+---------+------------------------------------------------------------+
| I       | First, calculate the lesser of:                            |
| RRRLsof |                                                            |
| \       | -   \$22,500, or                                           |
| $45,001 |                                                            |
| to      | -   The amount of guaranty used on the VA loan being       |
| \       |     refinanced.                                            |
| $56,250 |                                                            |
|         |     The amount of guaranty is the greater of:              |
|         |                                                            |
|         | -   The above result, or                                   |
|         |                                                            |
|         | -   25% of the IRRRL loan amount.                          |
+---------+------------------------------------------------------------+
| I       | First, calculate the lesser of:                            |
| RRRLsof |                                                            |
| \       | -   40% of the IRRRL loan amount, or                       |
| $56,251 |                                                            |
| to      | -   The amount of guaranty used on the VA loan being       |
| \$      |     refinanced.                                            |
| 144,000 |                                                            |
|         |     The amount of guaranty is the greater of:              |
|         |                                                            |
|         | -   The above result, or                                   |
|         |                                                            |
|         | -   25% of the IRRRL loan amount.                          |
+---------+------------------------------------------------------------+
| IRRRLs  | Guaranty on these is always 25% of the IRRRL loan amount.  |
| greater |                                                            |
| than    |                                                            |
| \$      |                                                            |
| 144,000 |                                                            |
+---------+------------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > The maximum loan term is the original term of the VA  |
| ### i. Max | > loan being refinanced plus ten years, but not to      |
| imum Loan  | > exceed 30 years and 32 days. For example, if the old  |
| Term {#i.- | > loan was made with a 15-year term, the term of the    |
| maximum-lo | > new loan cannot exceed 25 years.                      |
| an-term .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > The IRRRL must replace the existing VA loan as the    |
| ## j. Titl | > first lien on the same property. Any second           |
| e/Lien Req | > lien-holder would have to agree to subordinate.       |
| uirements  |                                                         |
| {#j.-title | -   The borrower cannot pay off liens other than the    |
| lien-requi |     existing VA loan from IRRRL proceeds.               |
| rements .u |                                                         |
| nnumbered} | -   The veteran (or surviving co-obligor spouse) must   |
|            |     still own the property.                             |
+------------+---------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

+------------+---------------------------------------------------------+
| ###        | > Generally, the party(ies) obligated on the original   |
| ## k. Who  | > loan must be the same on the new loan (and the        |
| Can an IRR | > veteran must still own the property).                 |
| RL be Made |                                                         |
|  to? {#k.- | > The lender should contact VA regarding a proposed     |
| who-can-an | > IRRRL involving a change in obligors unless the       |
| -irrrl-be- | > acceptability of the IRRRL is clear. Sample cases are |
| made-to .u | > provided in the table in this subsection.             |
| nnumbered} |                                                         |
|            | > **Examples**:                                         |
|            |                                                         |
|            | > In Case 7 the divorced spouse is keeping the home and |
|            | > wishes to refinance. The spouse cannot get an IRRRL   |
|            | > unless the veteran agrees to be obligated on the new  |
|            | > loan and commit his or her entitlement to the new     |
|            | > loan. A person without entitlement cannot get an      |
|            | > IRRRL or any other type of VA loan.                   |
|            |                                                         |
|            | > In Cases 8 through 10 the applicants cannot obtain an |
|            | > IRRRL because they do **not** include the veteran or  |
|            | > a person who was the veteran's spouse at the time the |
|            | > original loan was made, and who was obligated on the  |
|            | > loan along with the veteran.                          |
|            |                                                         |
|            | > In the case of the unmarried veteran obtaining the    |
|            | > original loan (Case 8):                               |
|            |                                                         |
|            | -   the marriage and death of the veteran occurred      |
|            |     after the loan was made, and                        |
|            |                                                         |
|            | -   the deceased veteran's spouse is **not** obligated  |
|            |     on the original loan. **Thus**, an IRRRL is **not** |
|            |     possible.                                           |
|            |                                                         |
|            | > In the case of the veteran and spouse obligated on    |
|            | > the original loan (Case 9):                           |
|            |                                                         |
|            | -   the divorce, remarriage, then death of the veteran  |
|            |     occurred after the loan was made and,               |
|            |                                                         |
|            | -   the deceased veteran's new spouse is **not**        |
|            |     obligated on the original loan. **Thus**, an IRRRL  |
|            |     is not possible.                                    |
+------------+---------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

+------------+---------------------------------------------------------+
| k\. Who    | > In the case of the veteran/nonveteran joint loan      |
| Can an     | > (Case 10):                                            |
| IRRRL be   |                                                         |
| Made to?   | -   The veteran "sold out" to the nonveteran co-obligor |
| (          |     after the loan was made and,                        |
| continued) |                                                         |
|            | -   The veteran no longer has any ownership interest in |
|            |     the property.                                       |
|            |                                                         |
|            | > **Thus**, an IRRRL is not possible.                   |
+------------+---------------------------------------------------------+

  ----------- ----------------------- ------------------------------ -----------
  Parties                             Parties to be Obligated on new Is IRRRL
  Obligated                           IRRRL                          Possible?
  on Old VA                                                          
  Loan                                                               

  1           Unmarried veteran       Veteran and new spouse         Yes

  2           Veteran and spouse      Divorced veteran alone         Yes

  3           Veteran and spouse      Veteran and different spouse   Yes

  4           Veteran alone           Different veteran who has      Yes
                                      substituted entitlement        

  5           Veteran and spouse      Spouse alone (veteran died)    Yes

  6           Veteran and nonveteran  Veteran alone                  Yes
              joint loan obligors                                    

  7           Veteran and spouse      Divorced spouse alone          No

  8           Unmarried veteran       Spouse alone (veteran died)    No

  9           Veteran and spouse      Different spouse alone         No
                                      (veteran died)                 

  10          Veteran and nonveteran  Nonveteran alone               No
              joint loan obligors                                    
  ----------- ----------------------- ------------------------------ -----------

+------------+---------------------------------------------------------+
| #####      | > Although VA does **not** require any credit/income    |
| l. Underwr | > documentation or                                      |
| iting of I |                                                         |
| RRRLs When | > re-underwriting of IRRRLs when there has been a       |
|  Obligors  | > change in obligors, lenders may want to consider the  |
| Have Chang | > following:                                            |
| ed {#l.-un |                                                         |
| derwriting | -   Check mortgage payment record in lieu of obtaining  |
| -of-irrrls |     a full credit report, unless required by investor.  |
| -when-obli |                                                         |
| gors-have- | -   For death or divorce cases, obtain a statement from |
| changed .u |     the obligor(s) on the ability to make payments on   |
| nnumbered} |     the new loan without the co-obligor's income.       |
|            |                                                         |
|            | -   Obtain a statement about the addition of a          |
|            |     different spouse, change in number of dependents,   |
|            |     as applicable.                                      |
+------------+---------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

+------------+---------------------------------------------------------+
| l\.        | > The lender should satisfy itself that the lower       |
| Un         | > payment and interest rate and the minimum 25 percent  |
| derwriting | > guaranty compensate for no re-underwriting on the new |
| of IRRRLs  | > loan when there has been a change in obligors.        |
| When       |                                                         |
| Obligors   |                                                         |
| Have       |                                                         |
| Changed    |                                                         |
| (          |                                                         |
| continued) |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > For IRRRLs, the veteran or the spouse of an active    |
| m. Occupan | > service member must certify that he or she previously |
| cy {#m.-oc | > occupied the property as his or her home. This is     |
| cupancy .u | > different than the requirement for non-IRRRL VA loans |
| nnumbered} | > that the veteran must intend to personally occupy the |
|            | > property as his or her home.                          |
|            |                                                         |
|            | > ***Reference***: See [chapter                         |
|            | > 3](http://                                            |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch03.doc) |
|            | > for details.                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Request a new loan number for each IRRRL through [The |
| n. VA Loan | > Appraisal System                                      |
|  Identific | > (TAS)](http://tas.vba.va.gov/tas/index.html), without |
| ation Numb | > requesting an appraisal.                              |
| er {#n.-va |                                                         |
| -loan-iden |                                                         |
| tification |                                                         |
| -number .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > No credit information or underwriting is required     |
| o. Credit  | > unless:                                               |
| Underwriti |                                                         |
| ng {#o.-cr | -   The loan to be refinanced is 30 days or more past   |
| edit-under |     due (see section 2 of this chapter) or,             |
| writing .u |                                                         |
| nnumbered} | -   the monthly payment (PITI) will increase 20 percent |
|            |     or more.                                            |
|            |                                                         |
|            |     > ***Reference***: See subsection d of this         |
|            |     > section.                                          |
|            |                                                         |
|            |     > A borrower with a recent Chapter 13 bankruptcy    |
|            |     > may need approval of the trustee for the new      |
|            |     > loan.                                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### p.   | > An IRRRL can be closed on an automatic basis by any   |
|  Prior App | > lender (such as, a lender with or without automatic   |
| roval Proc | > authority to close other types of loans on an         |
| edures {#p | > automatic basis) in any geographic location.          |
| .-prior-ap |                                                         |
| proval-pro | > ***Exception***: For IRRRLs to refinance existing VA  |
| cedures .u | > loans 30 days or more past due, VA prior approval is  |
| nnumbered} | > needed (see section 2, subsection a of this chapter). |
+------------+---------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

+------------+---------------------------------------------------------+
| p\. Prior  | > A lender may choose to submit an IRRRL for prior      |
| Approval   | > approval, even if the existing loan is not 30 days or |
| Procedures | > more past due. In such cases, submit only items 1     |
| (          | > through 10 (and 17, if applicable) of the information |
| continued) | > listed under "Prior Approval Submission." Also        |
|            | > include an explanation of why the loan is being       |
|            | > submitted for prior approval.                         |
|            |                                                         |
|            | > Submit documents on closed prior approval IRRRLs in   |
|            | > accordance with the instructions under section 2,     |
|            | > subsection c of this chapter.                         |
|            |                                                         |
|            | > **Note**: Prior approval for IRRRLs **is not          |
|            | > required** for veteran's in receipt of                |
|            | > nonservice-connected pension or for veterans rated    |
|            | > incompetent by VA when these veterans meet the        |
|            | > requirements of this section.                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### q.   | > An IRRRL can be closed on an automatic basis by any   |
|  Procedure | > lender (such as, a lender with or without automatic   |
| s for Auto | > authority to close other types of loans on an         |
| matic Proc | > automatic basis) in any geographic location.          |
| essing of  |                                                         |
| IRRRLs {#q | > ***Exception***: For IRRRLs to refinance existing VA  |
| .-procedur | > loans 30 days or more past due, VA prior approval is  |
| es-for-aut | > needed. See section 2, subsection a of this chapter.  |
| omatic-pro |                                                         |
| cessing-of | > A loan must be reported (such as, all documentation   |
| -irrrls .u | > submitted) to VA within 60 days of closing. A lender  |
| nnumbered} | > that fails to meet this time limit must provide a     |
|            | > written explanation. (see document #12.)              |
|            |                                                         |
|            | > To report a loan, submit the following documents to   |
|            | > VA in the order listed.                               |
+------------+---------------------------------------------------------+

+-------+--------------------------------------------------------------+
| Order | Document                                                     |
+-------+--------------------------------------------------------------+
| 1     | Lender's cover or transmittal letter (if used).              |
+-------+--------------------------------------------------------------+
| 2     | > [VA Form                                                   |
|       | > 26-0286](http://www.vba.va.gov/pubs/forms/26-0286.pdf), VA |
|       | > Loan Summary Sheet.                                        |
+-------+--------------------------------------------------------------+
| 3     | > [VA Form 26-8320]{.underline} (or 26-8320a), Certificate   |
|       | > of Eligibility, or a request for a duplicate certificate   |
|       | > on [VA Form 26-1880]{.underline}, Request for a            |
|       | > Certificate of Eligibility.                                |
+-------+--------------------------------------------------------------+
| 4     | Funding fee receipt.                                         |
|       |                                                              |
|       | ***Reference***: See [section 8 of chapter                   |
|       | 8](ht                                                        |
|       | tp://www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch08.doc) |
|       | for information on exemptions.                               |
+-------+--------------------------------------------------------------+

Continued on next page

1\. Interest Rate Reduction Refinancing Loans (IRRRLs), Continued

  -----------------------------------------------------------------------
  q\. Procedures for Automatic Processing of IRRRLs (continued)

  -----------------------------------------------------------------------

+-------+--------------------------------------------------------------+
| Order | Document                                                     |
+-------+--------------------------------------------------------------+
| 5     | Statement signed by the veteran acknowledging the effect of  |
|       | the refinancing loan on the veteran's loan payments and      |
|       | interest rate.                                               |
|       |                                                              |
|       | -   The statement must show the interest rate and monthly    |
|       |     payments for the new loan versus that for the old loan.  |
|       |                                                              |
|       | -   The statement must also indicate how long it will take   |
|       |     to recoup ALL closing costs (both those included in the  |
|       |     loan and those paid outside of closing).                 |
|       |                                                              |
|       | -   If applicable, the veteran's statement may be combined   |
|       |     with the lender's certification that the veteran         |
|       |     qualifies for the new monthly payment which exceeds the  |
|       |     previous payment by 20% or more.                         |
+-------+--------------------------------------------------------------+
| 6     | [VA Form                                                     |
|       | 26-8923](http://www.vba.va.gov/pubs/forms/26-8923.pdf),      |
|       | Interest Rate Reduction Refinancing Loan Worksheet.          |
+-------+--------------------------------------------------------------+
| 7     | [VA Form                                                     |
|       | 26-1820](http://www.vba.va.gov/pubs/forms/26-1820.pdf),      |
|       | Report and Certification of Loan Disbursement.               |
+-------+--------------------------------------------------------------+
| 8     | [VA Form                                                     |
|       | 26-8937](http://www.vba.va.gov/pubs/forms/26-8937.pdf),      |
|       | Verification of VA Benefits (if applicable).                 |
+-------+--------------------------------------------------------------+
| 9     | [HUD                                                         |
|       | -1](http://www.hudclips.org/sub_nonhud/html/pdfforms/1.pdf), |
|       | settlement statement.                                        |
+-------+--------------------------------------------------------------+
| 10    | [VA Form                                                     |
|       | 26-0503](http://www.vba.va.gov/pubs/forms/26-0503.pdf),      |
|       | Federal Collection Policy Notice.                            |
+-------+--------------------------------------------------------------+
| 11    | Lender's certification that the prior loan was current (not  |
|       | 30 days or more past due) at the time of loan closing.       |
+-------+--------------------------------------------------------------+
| 12    | > If loan is submitted more than 60 days after loan closing, |
|       | > a statement signed by a corporate officer of the lender    |
|       | > which identifies the loan, provides the specific reasons   |
|       | > for late reporting and certifies that the loan is current. |
|       | > This statement must be submitted with any late request for |
|       | > issuance of a Loan Guaranty Certificate.                   |
+-------+--------------------------------------------------------------+
| 13    | > Documentation of the cost of energy efficiency             |
|       | > improvements included in the loan. For cash reimbursement  |
|       | > of the veteran, the improvements must have been completed  |
|       | > within the 90 days immediately preceding the date of the   |
|       | > loan.                                                      |
|       |                                                              |
|       | > ***Reference***: See [section 3 of chapter                 |
|       | > 7](htt                                                     |
|       | p://www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch07.doc). |
+-------+--------------------------------------------------------------+
| 14    | Any other necessary documents (see [section 6 of chapter     |
|       | 5](http                                                      |
|       | ://www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch05.doc)). |
+-------+--------------------------------------------------------------+

#### 2. IRRRL Made to Refinance Delinquent Loan  {#irrrl-made-to-refinance-delinquent-loan .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | Subsection c has been changed to delete Step 2, VA Form |
|            | 26-0285, VA Transmittal List, which is no longer        |
|            | required. Steps 2 through 9 have been renumbered.       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > Any IRRRL made to refinance a loan that will be 30    |
|  Prior App | > days or more past due as of the date of closing, must |
| roval Subm | > be submitted for prior approval.                      |
| ission {#a |                                                         |
| .-prior-ap | > The lender must first obtain sufficient information   |
| proval-sub | > and perform sufficient analysis to determine that     |
| mission .u | > the:                                                  |
| nnumbered} |                                                         |
|            | -   cause of the delinquency has been resolved, and     |
|            |                                                         |
|            | -   veteran is willing and able to make the proposed    |
|            |     loan payments.                                      |
|            |                                                         |
|            |     > Submit a written proposal to VA which contains    |
|            |     > the following information:                        |
+------------+---------------------------------------------------------+

+-------+--------------------------------------------------------------+
| Item  | Information                                                  |
+-------+--------------------------------------------------------------+
| 1     | The full name of the veteran and all other parties obligated |
|       | on the prior loan and to be obligated on the new loan.       |
+-------+--------------------------------------------------------------+
| 2     | The VA loan number and month and year of origination of the  |
|       | loan to be refinanced.                                       |
+-------+--------------------------------------------------------------+
| 3     | The name and address of the lender proposing to make the     |
|       | loan.                                                        |
+-------+--------------------------------------------------------------+
| 4     | The approximate proposed loan amount, interest rate, and     |
|       | term for the new loan versus the old loan.                   |
+-------+--------------------------------------------------------------+
| 5     | Discount to be charged, expressed as a percentage of the     |
|       | loan and a dollar amount.                                    |
+-------+--------------------------------------------------------------+
| 6     | Statement signed by the veteran acknowledging the effect of  |
|       | the refinancing loan on the veteran's loan payments and      |
|       | interest rate.                                               |
|       |                                                              |
|       | -   The statement must show the interest rate and monthly    |
|       |     payments for the new loan versus that for the old loan.  |
|       |                                                              |
|       | -   The statement must also indicate how long it will take   |
|       |     to recoup ALL closing costs (both those included in the  |
|       |     loan and those paid outside of closing).                 |
+-------+--------------------------------------------------------------+

Continued on next page

2\. IRRRL Made to Refinance Delinquent Loan, Continued

  -----------------------------------------------------------------------
  a\. Prior Approval Submission (continued)

  -----------------------------------------------------------------------

+-------+--------------------------------------------------------------+
| Item  | Information                                                  |
+-------+--------------------------------------------------------------+
| 7     | > The appropriate certification concerning occupancy signed  |
|       | > by the veteran or the spouse of an active-duty service     |
|       | > member. One of the following must be signed.               |
|       |                                                              |
|       | > "I have previously occupied the property securing this     |
|       | > loan as my home."                                          |
|       |                                                              |
|       | > \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_                     |
|       |                                                              |
|       | > veteran's signature                                        |
|       |                                                              |
|       | "While my spouse was on active duty and unable to occupy the |
|       | property securing this loan, I occupied the property         |
|       | securing this loan as my home."                              |
|       |                                                              |
|       | > \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_                         |
|       |                                                              |
|       | spouse's signature                                           |
+-------+--------------------------------------------------------------+
| 8     | > [VA Form                                                   |
|       | > 26-8923](http://www.vba.va.gov/pubs/forms/26-8923.pdf),    |
|       | > Interest Rate Reduction Refinancing Loan Worksheet.        |
+-------+--------------------------------------------------------------+
| 9     | > [VA Form                                                   |
|       | > 26-8937](http://www.vba.va.gov/pubs/forms/26-8937.pdf),    |
|       | > Verification of VA Benefits (if applicable).               |
+-------+--------------------------------------------------------------+
| 10    | > Certificate of Eligibility, or, if unavailable, a request  |
|       | > for a duplicate certificate [VA Form                       |
|       | > 26-                                                        |
|       | 1880](http://www.vba.va.gov/pubs/forms/vba-26-1880-ARE.pdf), |
|       | > Request for a Certificate of Eligibility.                  |
+-------+--------------------------------------------------------------+
| 11    | > Uniform Residential Loan Application (URLA).               |
+-------+--------------------------------------------------------------+
| 12    | > Explanation of the reason(s) for the loan delinquency,     |
|       | > including appropriate documentation to verify the cause.   |
+-------+--------------------------------------------------------------+
| 13    | > Documentation to verify that the cause of the delinquency  |
|       | > has been corrected.                                        |
+-------+--------------------------------------------------------------+
| 14    | > Credit report (in-file credit report is acceptable).       |
+-------+--------------------------------------------------------------+
| 15    | > Current pay stub and telephone verification of current     |
|       | > employment.                                                |
+-------+--------------------------------------------------------------+
| 16    | > [VA Form                                                   |
|       | > 26-6393](http://www.vba.va.gov/pubs/forms/26-6393.pdf),    |
|       | > Loan Analysis.                                             |
+-------+--------------------------------------------------------------+
| 17    | > Documentation of the cost of energy efficiency             |
|       | > improvements to be included in the loan, if known. See     |
|       | > [section 3 of chapter                                      |
|       | > 7](htt                                                     |
|       | p://www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch07.doc). |
|       | > For cash reimbursement of the veteran, the improvements    |
|       | > must be completed within the 90 days immediately preceding |
|       | > the date of the loan.                                      |
+-------+--------------------------------------------------------------+

Continued on next page

2\. IRRRL Made to Refinance Delinquent Loan, Continued

+------------+---------------------------------------------------------+
| ###        | > VA will inform the lender of its decision.            |
| ## b. What |                                                         |
|  Happens N | > The lender may close the loan in reliance on a        |
| ext? {#b.- | > VA-issued Certificate of Commitment.                  |
| what-happe |                                                         |
| ns-next .u | > ***Reference***: See [section 4 of chapter            |
| nnumbered} | > 5](http://                                            |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch05.doc) |
|            | > for further information on the Certificate of         |
|            | > Commitment.                                           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > A prior approval IRRRL must be reported (such as, all |
| ### c. How | > documentation submitted) to VA within 60 days of      |
|  to Report | > closing. A lender that fails to meet this time limit  |
|  Loan Clos | > must provide a written explanation. (see order #8).   |
| ing and Re |                                                         |
| quest Guar | > To report an IRRRL, submit the following documents to |
| anty {#c.- | > VA in the order listed.                               |
| how-to-rep |                                                         |
| ort-loan-c |                                                         |
| losing-and |                                                         |
| -request-g |                                                         |
| uaranty .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+-------+--------------------------------------------------------------+
| Order | Document                                                     |
+-------+--------------------------------------------------------------+
| 1     | Lender's cover or transmittal letter (if used).              |
+-------+--------------------------------------------------------------+
| 2     | > [VA Form                                                   |
|       | > 26-0286](http://www.vba.va.gov/pubs/forms/26-0286.pdf), VA |
|       | > Loan Summary Sheet.                                        |
+-------+--------------------------------------------------------------+
| 3     | Funding fee receipt.                                         |
|       |                                                              |
|       | > See [section 8 of chapter                                  |
|       | > 8](ht                                                      |
|       | tp://www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch08.doc) |
|       | > for information on exemptions.                             |
+-------+--------------------------------------------------------------+
| 4     | If the loan amount has increased beyond the amount indicated |
|       | on the Certificate of Commitment, an updated [VA Form        |
|       | 26-8923](http://www.vba.va.gov/pubs/forms/26-8923.pdf),      |
|       | Interest Rate Reduction Refinancing Loan Worksheet.          |
+-------+--------------------------------------------------------------+
| 5     | [VA Form                                                     |
|       | 26-1820](http://www.vba.va.gov/pubs/forms/26-1820.pdf),      |
|       | Report and Certification of Loan Disbursement.               |
+-------+--------------------------------------------------------------+
| 6     | [HUD                                                         |
|       | -1](http://www.hudclips.org/sub_nonhud/html/pdfforms/1.pdf), |
|       | settlement statement.                                        |
+-------+--------------------------------------------------------------+
| 7     | [VA Form                                                     |
|       | 26-0503](http://www.vba.va.gov/pubs/forms/26-0503.pdf),      |
|       | Federal Collection Policy Notice.                            |
+-------+--------------------------------------------------------------+
| 8     | If loan is submitted more than 60 days after loan closing, a |
|       | statement signed by a corporate officer of the lender which  |
|       | identifies the loan and provides the specific reason(s) why  |
|       | the loan was not submitted on time.                          |
+-------+--------------------------------------------------------------+
| 9     | > Any other necessary documents. (See [section 6 of chapter  |
|       | > 5](http                                                    |
|       | ://www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch05.doc).) |
+-------+--------------------------------------------------------------+

Continued on next page

2\. IRRRL Made to Refinance Delinquent Loan, Continued

+------------+---------------------------------------------------------+
| ####       | > All late payments and late charges (and reasonable    |
| # d. Treat | > costs if legal action to terminate the old loan has   |
| ment of La | > commenced) can be rolled into the new loan.           |
| te Payment |                                                         |
| s and Late | > If the amount of late payments, late charges and      |
|  Charges { | > legal costs is significant, the proposed monthly      |
| #d.-treatm | > payment will be adversely impacted. Carefully analyze |
| ent-of-lat | > whether the IRRRL would benefit the veteran and not   |
| e-payments | > create unacceptable risk to the Government in light   |
| -and-late- | > of the new monthly payment.                           |
| charges .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

#### 3. Cash-Out Refinancing Loans {#cash-out-refinancing-loans .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | Language referring to a maximum guaranty of \$60,000    |
|            | has been deleted from subsection d.                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > A cash-out refinancing loan is a VA-guaranteed loan   |
|  a. What i | > which refinances any type of lien or liens against    |
| s a VA Cas | > the secured property. The liens to be paid off may    |
| h-Out Refi | > be:                                                   |
| nancing Lo |                                                         |
| an? {#a.-w | -   current or delinquent, and                          |
| hat-is-a-v |                                                         |
| a-cash-out | -   from any source, such as                            |
| -refinanci |                                                         |
| ng-loan .u | ```{=html}                                              |
| nnumbered} | <!-- -->                                                |
|            | ```                                                     |
|            | -   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.         |
|            |                                                         |
|            |     > A cash-out refinancing loan is limited to 90      |
|            |     > percent of the reasonable value of the property.  |
|            |                                                         |
|            |     > The loan must be secured by a first lien on the   |
|            |     > property.                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The maximum loan amount is 90 percent of the          |
| b. Maximum | > appraised value plus the cost of any energy           |
|  Loan Amou | > efficiency improvements plus the VA funding fee.      |
| nt {#b.-ma |                                                         |
| ximum-loan |                                                         |
| -amount .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c    | > While only the VA funding fee can be added to the 90  |
| . What Fee | > percent limit to increase the loan amount, cash       |
| s and Char | > proceeds from the loan may be used to pay allowable   |
| ges can be | > fees and charges and discount points.                 |
|  Included  |                                                         |
| in the Loa | > The total of the following items, if paid from loan   |
| n? {#c.-wh | > proceeds, cannot exceed 90 percent of reasonable      |
| at-fees-an | > value:                                                |
| d-charges- |                                                         |
| can-be-inc | -   payoff of liens                                     |
| luded-in-t |                                                         |
| he-loan .u | -   allowable fees and charges (other than the funding  |
| nnumbered} |     fee)                                                |
|            |                                                         |
|            | -   reasonable discount points, and                     |
|            |                                                         |
|            | -   cash to the borrower.                               |
+------------+---------------------------------------------------------+

Continued on next page

3\. Cash-Out Refinancing Loans, Continued

+------------+---------------------------------------------------------+
| #####      | > The maximum guaranty on cash-out refinancing loans is |
|  d. Maximu | > \$36,000, even for loans greater than \$144,000.      |
| m Guaranty |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### e. V | > The veteran must have sufficient available            |
| eteran's E | > entitlement for the loan. If an existing VA loan on   |
| ntitlement | > 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.   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### f.   | > The veteran must certify that he or she intends to    |
|  Occupancy | > personally occupy the property as his or her home.    |
|            | >                                                       |
|            | > ***Reference***: See [section 5 of chapter            |
|            | > 3](http://                                            |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch03.doc) |
|            | > for details.                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### g.   | > Only lenders with authority to close loans            |
|  Automatic | > automatically may close cash-out refinancing loans    |
|  or Prior  | > automatically. All others must submit these loans for |
| Approval P | > prior approval by VA.                                 |
| rocessing? |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Loan processing procedures are virtually the same as  |
| h. Lender  | > for non-refinancing loans. A full appraisal, credit   |
| Procedures | > information, and underwriting are required.           |
|            | > Generally, follow the procedures described in         |
|            | > [chapter                                              |
|            | > 5](http://                                            |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch05.doc) |
|            | > of this handbook.                                     |
|            | >                                                       |
|            | > To report loan closing, submit all of the documents   |
|            | > required for non-refinancing loans (See [chapter      |
|            | > 5](http://w                                           |
|            | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch05.doc)) |
|            | > 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.                                          |
+------------+---------------------------------------------------------+

#### 4. Quick Reference Table for IRRRLs Versus Cash-Out Refinancing Loans {#quick-reference-table-for-irrrls-versus-cash-out-refinancing-loans .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | Subsection a has been updated to provide the            |
|            | appropriate legal citations.                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > The following table provides a quick reference for    |
| ## a. Tabl | > IRRRLs versus cash-out refinances                     |
| e IRRRL vs |                                                         |
| . Cash-out |                                                         |
+------------+---------------------------------------------------------+

  ------------ ----------------------------- ----------------------------
  Feature      IRRRL                         Cash-out Refinancing

  Purpose      To refinance existing VA loan To pay off lien(s) of any
               at lower interest rate        type - can also provide cash
                                             to borrower

  Interest     Rate must be lower than on    Any negotiated rate
  rate         existing VA loan (unless      
               existing loan is ARM)         

  Monthly      Payment must be lower than on No requirement
  payment      existing VA loan (unless ARM  
  amount       being refinanced, term        
               shortened or energy           
               efficiency improvements       
               included)                     

  Discount     Reasonable points can be      Reasonable points can be
  points       paid - only two of these      paid - if paid from loan
               points can be included in the proceeds, do not exceed 90%
               loan amount                   loan limit

  Maximum Loan Existing VA loan balance plus 90% of the reasonable value
               allowable fees and charges    of the property indicated on
               plus up to two discount       the NOV plus the cost of any
               points plus the cost of any   energy efficiency
               energy efficiency             improvements plus the VA
               improvements plus the VA      funding fee
               funding fee                   

  Maximum      See section 1 subsection h of \$36,000 - See section 3
  Guaranty     this chapter. Guaranty is at  subsection d of this
               least 25% in all cases        chapter.
  ------------ ----------------------------- ----------------------------

Continued on next page

4\. Quick Reference Table for IRRRLs Versus Cash-Out Refinancing Loans,
Continued

  -----------------------------------------------------------------------
  a\. Table IRRRL vs. Cash-out (continued)

  -----------------------------------------------------------------------

  ----------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  Feature           IRRRL                                                                                                                                                                                            Cash-out Refinancing

  Entitlement       The veteran re-uses the entitlement used on the existing VA loan - The IRRRL does **not** impact the amount of entitlement the veteran has in use                                                Must have sufficient available entitlement - if existing VA loan on the same property is being refinanced, entitlement can be restored for the refinance

  Fees and Charges  All allowable fees and charges, including up to two discount points, may be included in loan                                                                                                     Allowable fees and charges and points may be paid from loan proceeds, subject to the 90% limit
  in Loan                                                                                                                                                                                                            

  Cash to Borrower  Not permitted                                                                                                                                                                                    Borrower can receive cash for any purposes acceptable to the lender

  Lien/Owner-ship   Must be secured by first lien - veteran must own property                                                                                                                                        Must be secured by first lien - veteran must own property

  Refinance of      Cannot refinance other liens - can only refinance the existing VA loan                                                                                                                           Can refinance any type of lien(s)
  Other Liens                                                                                                                                                                                                        

  Maximum Loan Term Existing VA loan term plus 10 years, not to exceed 30 years + 32 days                                                                                                                            30 years + 32 days

  Occupancy         Veteran or spouse of active duty member must certify to prior occupancy                                                                                                                          Veteran or spouse of active duty member must certify as to intent to occupy

  Appraisal         No appraisal is required                                                                                                                                                                         Appraisal is required

  Credit            No underwriting is required except in certain cases                                                                                                                                              Full credit information and underwriting are always required
  Underwriting                                                                                                                                                                                                       

  Automatic         All lenders can close IRRRLs automatically, except if refinanced loan is 30 days or more past due, prior approval is always required                                                             Only lenders with automatic authority can close these loans automatically
  Authority                                                                                                                                                                                                          

  Law               [38 U.S.C.                                                                                                                                                                                       [38 U.S.C.
                    3710(a)(8)](http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t37t40+814+1++()  AND ((38) ADJ USC)%3ACITE AND (USC w%2F10 (3710))%3ACITE  AND (CHAPTER ADJ (37))%3AEXPCITE       )   3710(a)(5)](http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t37t40+814+1++()  AND ((38) ADJ USC)%3ACITE AND (USC w%2F10 (3710))%3ACITE  AND (CHAPTER ADJ (37))%3AEXPCITE       )
  ----------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#### 5. Other Refinancing Loans {#other-refinancing-loans .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date |                                                         |
|            | -   This section has been changed to update formatting  |
|            |     for subsection lettering.                           |
|            |                                                         |
|            | -   Subsection a has been changed to include the        |
|            |     previous subsection c.                              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > These consist of loans to refinance                   |
|  a. What a |                                                         |
| re they? { | -   construction loans                                  |
| #a.-what-a |                                                         |
| re-they .u | -   installment land sale contracts, and                |
| nnumbered} |                                                         |
|            | -   loans assumed by veterans at interest rates higher  |
|            |     than that 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                                                 |
|            |                                                         |
|            | -   borrowers receive no cash at closing.               |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > These loans may not exceed the lesser of              |
| ### b. Max |                                                         |
| imum Loan  | -   the VA reasonable value plus the VA funding fee, or |
| {#b.-maxim |                                                         |
| um-loan .u | -   the sum of the outstanding balance of the loan to   |
| nnumbered} |     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.                        |
+------------+---------------------------------------------------------+