Ginnie Mae announced that effective September 1, 2019, VA loan refinance loans for cash out will have new restrictions. Prior to 9/1/2019, homeowners could use a VA cash out loan to access up to 100% of the home’s appraised value. This was quite an advantage for homeowners. Yet, Ginnie Mae has seen some VA lenders who have not played well in the sandbox. Basically, it is felt that VA cash out loans are being used at an alarming rate and it should reduce the risk of such loans in their lending pools. So, the VA cash out loan may not exceed 90% of the VA appraised value. Although, there is an exception explained further down.
Why Change the VA Loan Refinance Rules?
As mentioned above, it has been a concern for several years that the VA refinance loan is increasing at an alarming rate. Ginnie Mae feels that some lenders are churning loans. This means refinancing borrower equity too fast and too often with little benefit to the homeowner. Actually, the number of 100% VA cash-out loans has increased significantly in recent years. Thus, taking equity out of a Veteran’s home. Now, this doesn’t mean that all lenders are taking equity. Additionally, many homeowners want this loan. But, Ginnie Mae feels that a reduction had to be made in order to protect homeowners.
Furthermore, statistics show that VA cash-out loans are more susceptible to be refinanced quickly. That means losses for lenders and Ginnie Mae. So, the end result is that this new rule will strengthen the pool of VA loans. Less risk means overall lower VA loan refinance rates for all!
90% LTV VA Cash Out Refinance Exception
Fortunately for military and Veterans building a home, refinancing a construction loan was left alone (for the most part). Refinancing a construction loan is the only exception to the more restrictive 90% of appraised value rule. Therefore, VA still allows a construction loan to be refinanced up to 100% of the as completed appraised value. The one caveat is that the new loan AND the VA funding fee must not exceed the VA appraised value. So, this is still a great thing!
If a VA cash out refinance of a construction loan had been limited to 90%, this would have been a huge negative. Yet, VA realizes that construction loans must be refinanced because of their temporary nature and there is little ability to strip equity from Veterans in these cases. Plus, a 10% down payment requirement would severely limit one’s ability to build a new home.
So if you are looking to build a home, contact a loan officer today to discuss a construction and VA loan.