Chapter 5 Home Loan Guaranty 48ally <strong>and</strong> five percent over the life of the loan. For a hybrid ARM withan initial fixed period of five years or more, the initial adjustment maybe up to two percent. The Secretary has the authority to determineannual adjustments thereafter. Currently annual adjustments may beup to two percentage points <strong>and</strong> six percent over the life of the loan.If the lender charges discount points on the loan, the veteran maynegotiate with the seller as to who will pay points or if they will besplit between buyer <strong>and</strong> seller. Points paid by the veteran may notbe included in the loan (with the exception that up to two points maybe included in interest rate reduction loans). The term of the loanmay be <strong>for</strong> as long as 30 years <strong>and</strong> 32 days.Loan Assumption Requirements <strong>and</strong> Liability: VA loans madeon or after March 1, 1988, are not assumable without the prior approvalof VA or its authorized agent (usually the lender collecting themonthly payments). To approve the assumption, the lender mustensure that the assumer is a satisfactory credit risk <strong>and</strong> will assumeall of the veteran’s liabilities on the loan. If approved, the assumerwill have to pay a funding fee that the lender sends to VA, <strong>and</strong> theveteran will be released from liability to the federal <strong>gov</strong>ernment. A releaseof liability does not mean that a veteran’s guaranty entitlementis restored. That occurs only if the assumer is an eligible veteranwho agrees to substitute his or her entitlement <strong>for</strong> that of the seller.If a veteran allows assumption of a loan without prior approval, thenthe lender may dem<strong>and</strong> immediate <strong>and</strong> full payment of the loan, <strong>and</strong>the veteran may be liable if the loan is <strong>for</strong>eclosed <strong>and</strong> VA has to paya claim under the loan guaranty.Loans made prior to March 1, 1988, are generally freely assumable,but veterans should still request VA’s approval in order to be releasedof liability. <strong>Veterans</strong> whose loans were closed after Dec. 31, 1989,usually have no liability to the <strong>gov</strong>ernment following a <strong>for</strong>eclosure,except in cases involving fraud, misrepresentation, or bad faith, suchas allowing an unapproved assumption. However, <strong>for</strong> the entitlementto be restored, any loss suffered by VA must be paid in full.2009 VA Funding FeesA funding fee must be paid to VA unless the veteran is exempt fromsuch a fee because he or she receives VA disability compensation.The fee, which is 1.25 percent <strong>for</strong> loans to purchase, construct orimprove a home, <strong>and</strong> 0.5 percent to reduce the interest rate on an
Chapter 5 Home Loan Guaranty 49existing VA loan, may be paid in cash or included in the loan. Closingcosts such as VA appraisal, credit report, loan processing fee,title search, title insurance, recording fees, transfer taxes, surveycharges, or hazard insurance may not be included in the loan.Loan CategoryLoans <strong>for</strong> purchaseor construction withdownpayments ofless than 5%, refinancing,<strong>and</strong> homeimprovement.Loans <strong>for</strong> purchaseor construction withdownpayments ofat least 5% but lessthan 10%.Loans <strong>for</strong> purchaseor construction withdownpayments of10% or more.Loans <strong>for</strong> manufacturedhomesInterest rate reductionloansAssumption of a VAguaranteedloanSecond or subsequentuse ofentitlement with nodownpayment.Active Duty <strong>and</strong><strong>Veterans</strong>Reservists <strong>and</strong>National Guard2.15 percent 2.40 percent1.50 percent 1.75 percent1.25 percent 1.50 percent1 percent 1 percent.50 percent .50 percent.50 percent .50 percent3.3 percent 3.3 percentVA Assistance to <strong>Veterans</strong> in Default: When a veteran’s homeloan becomes delinquent, the veteran should contact the lender assoon as possible to explain what caused the missed payments, <strong>and</strong>discuss how they can be repaid. Depending on a veteran’s situation,the lender may offer any of the following options to avoid <strong>for</strong>eclosure:• Repayment Plan: make a regular payment each month plus
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