1. U.S. Code
  2. title 38
  3. part III
  4. chapter 37
  5. subchapter I
  6. § 3709

Collapse to view only § 3709. Refinancing of housing loans

§ 3701. Definitions
(a) For the purpose of this chapter, the term “housing loan” means a loan for any of the purposes specified by sections 3710(a) and 3712(a)(1) of this title.
(b) For the purposes of housing loans under this chapter—
(1) The term “World War II” (A) means the period beginning on September 16, 1940, and ending on July 25, 1947, and (B) includes, in the case of any veteran who enlisted or reenlisted in a Regular component of the Armed Forces after October 6, 1945, and before October 7, 1946, the period of the first such enlistment or reenlistment.
(2) The term “veteran” includes the surviving spouse of any veteran (including a person who died in the active military, naval, air, or space service) who died from a service-connected disability, but only if such surviving spouse is not eligible for benefits under this chapter on the basis of the spouse’s own active duty. The active duty or service in the Selected Reserve of the deceased spouse shall be deemed to have been active duty or service in the Selected Reserve by such surviving spouse for the purposes of this chapter.
(3) The term “veteran” also includes, for purposes of home loans, the spouse of any member of the Armed Forces serving on active duty who is listed, pursuant to section 556 of title 37, United States Code, and regulations issued thereunder, by the Secretary concerned in one or more of the following categories and has been so listed for a total of more than ninety days: (A) missing in action, (B) captured in line of duty by a hostile force, or (C) forcibly detained or interned in line of duty by a foreign government or power. The active duty of the member shall be deemed to have been active duty by such spouse for the purposes of this chapter. The loan eligibility of such spouse under this paragraph shall be limited to one loan guaranteed or made for the acquisition of a home, and entitlement to such loan shall terminate automatically, if not used, upon receipt by such spouse of official notice that the member is no longer listed in one of the categories specified in the first sentence of this paragraph.
(4) The term “veteran” also includes an individual serving on active duty.
(5)
(A) The term “veteran” also includes an individual who is not otherwise eligible for the benefits of this chapter and (i) who has completed a total service of at least 6 years in the Selected Reserve and, following the completion of such service, was discharged from service with an honorable discharge, was placed on the retired list, was transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service in the Selected Reserve characterized by the Secretary concerned as honorable service, or continues serving in the Selected Reserve, or (ii) who was discharged or released from the Selected Reserve before completing 6 years of service because of a service-connected disability.
(B) The term “Selected Reserve” means the Selected Reserve of the Ready Reserve of any of the reserve components (including the Army National Guard of the United States and the Air National Guard of the United States) of the Armed Forces, as required to be maintained under section 10143(a) of title 10.
(6) The term “veteran” also includes, for purposes of home loans, the surviving spouse of a veteran who died and who was in receipt of or entitled to receive (or but for the receipt of retired or retirement pay was entitled to receive) compensation at the time of death for a service-connected disability rated totally disabling if—
(A) the disability was continuously rated totally disabling for a period of 10 or more years immediately preceding death;
(B) the disability was continuously rated totally disabling for a period of not less than five years from the date of such veteran’s discharge or other release from active duty; or
(C) the veteran was a former prisoner of war who died after September 30, 1999, and the disability was continuously rated totally disabling for a period of not less than one year immediately preceding death.
(7) The term “veteran” also includes, for purposes of home loans, an individual who performed full-time National Guard duty (as that term is defined in section 101 of title 10) for a period—
(A) of not less than 90 cumulative days; and
(B) that includes 30 consecutive days.
(c) Benefits shall not be afforded under this chapter to any individual on account of service as a commissioned officer of the National Oceanic and Atmospheric Administration (or predecessor entity), or of the Regular or Reserve Corps 1
1 See Change of Name note below.
of the Public Health Service, unless such service would have qualified such individual for benefits under title III of the Servicemen’s Readjustment Act of 1944.
(Pub. L. 85–857, Sept. 2, 1958, 72 Stat. 1203, § 1801; Pub. L. 91–584, § 5(a), Dec. 24, 1970, 84 Stat. 1576; Pub. L. 94–324, § 7(1), (2), June 30, 1976, 90 Stat. 721; Pub. L. 97–72, title III, § 303(a), Nov. 3, 1981, 95 Stat. 1059; Pub. L. 97–295, § 4(62), Oct. 12, 1982, 96 Stat. 1309; Pub. L. 100–322, title IV, § 415(c)(1), May 20, 1988, 102 Stat. 551; Pub. L. 101–237, title III, § 313(a), Dec. 18, 1989, 103 Stat. 2077; renumbered § 3701 and amended Pub. L. 102–83, § 5(a), (c)(1), Aug. 6, 1991, 105 Stat. 406; Pub. L. 102–547, § 2(a)(1), Oct. 28, 1992, 106 Stat. 3633; Pub. L. 103–446, title IX, § 901, Nov. 2, 1994, 108 Stat. 4675; Pub. L. 104–106, div. A, title XV, § 1501(e)(2)(B), Feb. 10, 1996, 110 Stat. 501; Pub. L. 112–154, title II, § 206(a), Aug. 6, 2012, 126 Stat. 1178; Pub. L. 116–283, div. A, title IX, § 926(a)(47), Jan. 1, 2021, 134 Stat. 3830; Pub. L. 116–315, title II, § 2101(a), Jan. 5, 2021, 134 Stat. 4981.)

CITE AS: 38 USC 3701

§ 3702. Basic entitlement
(a)
(1) The veterans described in paragraph (2) of this subsection are eligible for the housing loan benefits of this chapter. In the case of any veteran who served on active duty during two or more of the periods specified in paragraph (2) for which eligibility for the housing loan benefits under this chapter may be granted, entitlement derived from service during the most recent such period (A) shall cancel any unused entitlement derived from service during any earlier such period, and (B) shall be reduced by the amount by which entitlement from service during any earlier such period has been used to obtain a direct, guaranteed, or insured housing loan—
(i) on real property which the veteran owns at the time of application; or
(ii) as to which the Secretary has incurred actual liability or loss, unless in the event of loss or the incurrence and payment of such liability by the Secretary the resulting indebtedness of the veteran to the United States has been paid in full.
(2) The veterans referred to in the first sentence of paragraph (1) of this subsection are the following:
(A) Each veteran who served on active duty at any time during World War II, the Korean conflict, or the Vietnam era and whose total service was for 90 days or more.
(B) Each veteran who after September 15, 1940, was discharged or released from a period of active duty for a service-connected disability.
(C) Each veteran, other than a veteran described in clause (A) or (B) of this paragraph, who—
(i) served after July 25, 1947, for a period of more than 180 days and was discharged or released therefrom under conditions other than dishonorable; or
(ii) has served more than 180 days in active duty status and continues on active duty without a break therein.
(D) Each veteran who served on active duty for 90 days or more at any time during the Persian Gulf War, other than a veteran ineligible for benefits under this title by reason of section 5303A(b) of this title.
(E) Each veteran described in section 3701(b)(5) of this title.
(F) Each veteran who was discharged or released from a period of active duty of 90 days or more by reason of a sole survivorship discharge (as that term is defined in section 1174(i) of title 10).
(G) Each individual described in section 3701(b)(7) of this title.
(3) Any unused entitlement of World War II or Korean conflict veterans which expired under provisions of law in effect before October 23, 1970, is hereby restored and shall not expire until used.
(4) A veteran’s entitlement under this chapter shall not be reduced by any entitlement used by the veteran’s spouse which was based upon the provisions of paragraph (3) of section 3701(b) of this title.
(b) In computing the aggregate amount of guaranty or insurance housing loan entitlement available to a veteran under this chapter, the Secretary may exclude the amount of guaranty or insurance housing loan entitlement used for any guaranteed, insured, or direct loan under the following circumstances:
(1)
(A) The property which secured the loan has been disposed of by the veteran or has been destroyed by fire or other natural hazard; and
(B) the loan has been repaid in full, or the Secretary has been released from liability as to the loan, or if the Secretary has suffered a loss on such loan, the loss has been paid in full.
(2) A veteran-transferee has agreed to assume the outstanding balance on the loan and consented to the use of the veteran-transferee’s entitlement, to the extent that the entitlement of the veteran-transferor had been used originally, in place of the veteran-transferor’s for the guaranteed, insured, or direct loan, and the veteran-transferee otherwise meets the requirements of this chapter.
(3)
(A) The loan has been repaid in full; and
(B) the loan for which the veteran seeks to use entitlement under this chapter is secured by the same property which secured the loan referred to in subparagraph (A) of this paragraph.
(4) In a case not covered by paragraph (1) or (2)—
(A) the loan has been repaid in full and, if the Secretary has suffered a loss on the loan, the loss has been paid in full; or
(B) the Secretary has been released from liability as to the loan and, if the Secretary has suffered a loss on the loan, the loss has been paid in full.
The Secretary may, in any case involving circumstances the Secretary deems appropriate, waive one or more of the conditions prescribed in paragraph (1). The authority of the Secretary under this subsection to exclude an amount of guaranty or insurance housing loan entitlement previously used by a veteran may be exercised only once for that veteran under the authority of paragraph (4).
(c) An honorable discharge shall be deemed to be a certificate of eligibility to apply for a guaranteed loan. Any veteran who does not have a discharge certificate, or who received a discharge other than honorable, may apply to the Secretary for a certificate of eligibility. Upon making a loan guaranteed or insured under this chapter, the lender shall forthwith transmit to the Secretary a report thereon in such detail as the Secretary may, from time to time, prescribe. Where the loan is guaranteed, the Secretary shall provide the lender with a loan guaranty certificate or other evidence of the guaranty. The Secretary shall also endorse on the veteran’s discharge, or eligibility certificate, the amount and type of guaranty used, and the amount, if any, remaining. Nothing in this chapter shall preclude the assignment of any guaranteed loan or the security therefor.
(d) Housing loans will be automatically guaranteed under this chapter only if made (1) by any Federal land bank, national bank, State bank, private bank, building and loan association, insurance company, credit union, or mortgage and loan company, that is subject to examination and supervision by an agency of the United States or of any State, or (2) by any State, or (3) by any lender approved by the Secretary pursuant to standards established by the Secretary. Any housing loan proposed to be made to a veteran pursuant to this chapter by any lender not of a class specified in the preceding sentence may be guaranteed by the Secretary if the Secretary finds that it is in accord otherwise with the provisions of this chapter.
(e) The Secretary may at any time upon thirty days’ notice require housing loans to be made by any lender or class of lenders to be submitted to the Secretary for prior approval. No guaranty or insurance liability shall exist with respect to any such loan unless evidence of guaranty or insurance is issued by the Secretary.
(f) Any housing loan at least 20 percent of which is guaranteed under this chapter may be made by any national bank or Federal savings and loan association, or by any bank, trust company, building and loan association, or insurance company, organized or authorized to do business in the District of Columbia. Any such loan may be so made without regard to the limitations and restrictions of any other law relating to—
(1) ratio of amount of loan to the value of the property;
(2) maturity of loan;
(3) requirement for mortgage or other security;
(4) dignity of lien; or
(5) percentage of assets which may be invested in real estate loans.
(Pub. L. 85–857, Sept. 2, 1958, 72 Stat. 1203, § 1802; Pub. L. 86–73, § 1, June 30, 1959, 73 Stat. 156; Pub. L. 87–84, § 1(b), July 6, 1961, 75 Stat. 201; Pub. L. 90–19, § 25(1), May 25, 1967, 81 Stat. 28; Pub. L. 90–77, title IV, § 403(a), Aug. 31, 1967, 81 Stat. 190; Pub. L. 91–506, § 2(a), Oct. 23, 1970, 84 Stat. 1108; Pub. L. 91–584, § 5(b), Dec. 24, 1970, 84 Stat. 1576; Pub. L. 93–569, § 2(a), (b), Dec. 31, 1974, 88 Stat. 1863; Pub. L. 94–324, § 7(3)–(5), June 30, 1976, 90 Stat. 721; Pub. L. 95–476, title I, § 102, Oct. 18, 1978, 92 Stat. 1497; Pub. L. 97–72, title III, § 303(b), Nov. 3, 1981, 95 Stat. 1060; Pub. L. 97–295, § 4(61), Oct. 12, 1982, 96 Stat. 1309; Pub. L. 98–223, title II, § 204, Mar. 2, 1984, 98 Stat. 42; Pub. L. 100–322, title IV, § 415(a)(1), (2), May 20, 1988, 102 Stat. 549, 550; Pub. L. 101–237, title III, §§ 310, 313(b)(1), Dec. 18, 1989, 103 Stat. 2075, 2077; Pub. L. 102–25, title III, § 341, Apr. 6, 1991, 105 Stat. 92; Pub. L. 102–40, title IV, § 402(d)(1), May 7, 1991, 105 Stat. 239; renumbered § 3702 and amended Pub. L. 102–83, § 5(a), (c)(1), Aug. 6, 1991, 105 Stat. 406; Pub. L. 102–547, § 2(a)(2), Oct. 28, 1992, 106 Stat. 3633; Pub. L. 103–446, title IX, § 902, title XII, § 1201(f)(4), Nov. 2, 1994, 108 Stat. 4676, 4687; Pub. L. 105–368, title VI, § 603(a), Nov. 11, 1998, 112 Stat. 3348; Pub. L. 106–117, title VII, § 711, Nov. 30, 1999, 113 Stat. 1584; Pub. L. 107–103, title IV, § 405(a), Dec. 27, 2001, 115 Stat. 993; Pub. L. 108–183, title IV, § 403, Dec. 16, 2003, 117 Stat. 2664; Pub. L. 110–317, § 6(a), Aug. 29, 2008, 122 Stat. 3528; Pub. L. 116–315, title II, § 2101(b), Jan. 5, 2021, 134 Stat. 4981.)

CITE AS: 38 USC 3702

§ 3703. Basic provisions relating to loan guaranty and insurance
(a)
(1)
(A) Any loan to a veteran eligible for benefits under this chapter, if made for any of the purposes specified in section 3710 of this title and in compliance with the provisions of this chapter, is automatically guaranteed by the United States in an amount not to exceed the lesser of—
(i)(I) in the case of any loan of not more than $45,000, 50 percent of the loan;(II) in the case of any loan of more than $45,000, but not more than $56,250, $22,500;(III) except as provided in subclause (IV) of this clause, in the case of any loan of more than $56,250, the lesser of $36,000 or 40 percent of the loan; or(IV) in the case of any loan of more than $144,000 for a purpose specified in clause (1), (2), (3), (5), (6), or (8) of section 3710(a) of this title, 25 percent of the loan; or
(ii) the maximum amount of guaranty entitlement available to the veteran as specified in subparagraph (B) or (C).
(B) With respect to loans described in subclauses (I), (II), or (III) of subparagraph (A)(i), the maximum amount of guaranty entitlement available to a veteran for purposes specified in section 3710 of this title shall be $36,000, reduced by the amount of entitlement previously used by the veteran under this chapter and not restored as a result of the exclusion in section 3702(b) of this title.
(C)
(i) With respect to loans described in subclause (IV) of subparagraph (A)(i) made to a veteran not covered by clause (ii), the maximum amount of guaranty entitlement available to the veteran shall be 25 percent of the loan.
(ii) With respect to loans described in subclause (IV) of subparagraph (A)(i) made to a covered veteran, the maximum amount of guaranty entitlement available to the veteran shall be 25 percent of the Freddie Mac conforming loan limit, reduced by the amount of entitlement previously used by the veteran under this chapter and not restored as a result of the exclusion in section 3702(b) of this title.
(iii) In this subparagraph:(I) The term “covered veteran” means a veteran who has previously used entitlement under this chapter and for whom the full amount of entitlement so used has not been restored as a result of the exclusion in section 3702(b) of this title.(II) The term “Freddie Mac conforming loan limit” means the limit determined under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) for a single-family residence, as adjusted for the year involved.
(2)
(A) Any housing loan which might be guaranteed under the provisions of this chapter, when made or purchased by any financial institution subject to examination and supervision by any agency of the United States or of any State may, in lieu of such guaranty, be insured by the Secretary under an agreement whereby the Secretary will reimburse any such institution for losses incurred on such loan up to 15 per centum of the aggregate of loans so made or purchased by it.
(B) Loans insured under this section shall be made on such other terms, conditions, and restrictions as the Secretary may prescribe within the limitations set forth in this chapter.
(b) The liability of the United States under any guaranty, within the limitations of this chapter, shall decrease or increase pro rata with any decrease or increase of the amount of the unpaid portion of the obligation.
(c)
(1) Loans guaranteed or insured under this chapter shall be payable upon such terms and conditions as may be agreed upon by the parties thereto, subject to the provisions of this chapter and regulations of the Secretary issued pursuant to this chapter, and shall bear interest not in excess of such rate as the Secretary may from time to time find the loan market demands, except that in establishing the rate of interest that shall be applicable to such loans, the Secretary shall consult with the Secretary of Housing and Urban Development regarding the rate of interest applicable to home loans insured under section 203(b) of the National Housing Act (12 U.S.C. 1709(b)). In establishing rates of interest under this paragraph for one or more of the purposes described in clauses (4) and (7) of section 3710(a) of this title, the Secretary may establish a rate or rates higher than the rate specified for other purposes under such section, but any such rate may not exceed such rate as the Secretary may from time to time find the loan market demands for loans for such purposes.
(2) The provisions of the Servicemen’s Readjustment Act of 1944 which were in effect before April 1, 1958, with respect to the interest chargeable on loans made or guaranteed under such Act shall, notwithstanding the provisions of paragraph (1) of this subsection, continue to be applicable—
(A) to any loan made or guaranteed before April 1, 1958; and
(B) to any loan with respect to which a commitment to guarantee was entered into by the Secretary before April 1, 1958.
(3) This section shall not be construed to prohibit a veteran from paying to a lender any reasonable discount required by such lender, when the proceeds from the loan are to be used—
(A) to refinance indebtedness pursuant to clause (5), (8), or (9)(B)(i) of section 3710(a) of this title or section 3712(a)(1)(F) of this title;
(B) to repair, alter, or improve a farm residence or other dwelling pursuant to clauses (4) and (7) of section 3710(a) of this title;
(C) to construct a dwelling or farm residence on land already owned or to be acquired by the veteran except where the land is directly or indirectly acquired from a builder or developer who has contracted to construct such dwelling for the veteran;
(D) to purchase a dwelling from a class of sellers which the Secretary determines are legally precluded under all circumstances from paying such a discount if the best interest of the veteran would be so served; or
(E) to refinance indebtedness and purchase a manufactured-home lot pursuant to section 3710(a)(9)(B)(ii) or 3712(a)(1)(G) of this title, but only with respect to that portion of the loan used to refinance such indebtedness.
(4)
(A) In guaranteeing or insuring loans under this chapter, the Secretary may elect whether to require that such loans bear interest at a rate that is—
(i) agreed upon by the veteran and the mortgagee; or
(ii) established under paragraph (1).
The Secretary may, from time to time, change the election under this subparagraph.
(B) Any veteran, under a loan described in subparagraph (A)(i), may pay reasonable discount points in connection with the loan. Except in the case of a loan for the purpose specified in section 3710(a)(8), 3710(b)(7), or 3712(a)(1)(F) of this title, discount points may not be financed as part of the principal amount of a loan guaranteed or insured under this chapter.
(C) Not later than 10 days after an election under subparagraph (A), the Secretary shall transmit to the Committees on Veterans’ Affairs of the Senate and House of Representatives a notification of the election, together with an explanation of the reasons therefor.
(d)
(1) The maturity of any housing loan at the time of origination shall not be more than thirty years and thirty-two days.
(2)
(A) Any loan for a term of more than five years shall be amortized in accordance with established procedure.
(B) The Secretary may guarantee loans with provisions for various rates of amortization corresponding to anticipated variations in family income. With respect to any loan guaranteed under this subparagraph—
(i) the initial principal amount of the loan may not exceed the reasonable value of the property as of the time the loan is made; and
(ii) the principal amount of the loan thereafter (including the amount of all interest to be deferred and added to principal) may not at any time be scheduled to exceed the projected value of the property.
(C) For the purposes of subparagraph (B) of this paragraph, the projected value of the property shall be calculated by the Secretary by increasing the reasonable value of the property as of the time the loan is made at a rate not in excess of 2.5 percent per year, but in no event may the projected value of the property for the purposes of such subparagraph exceed 115 percent of such reasonable value. A loan made for a purpose other than the acquisition of a single-family dwelling unit may not be guaranteed under such subparagraph.
(3)
(A) Any real estate housing loan (other than for repairs, alterations, or improvements) shall be secured by a first lien on the realty. In determining whether a loan is so secured, the Secretary may either disregard or allow for subordination to a superior lien created by a duly recorded covenant running with the realty in favor of either of the following:
(i) A public entity that has provided or will provide assistance in response to a major disaster as determined by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.).
(ii) A private entity to secure an obligation to such entity for the homeowner’s share of the costs of the management, operation, or maintenance of property, services, or programs within and for the benefit of the development or community in which the veteran’s realty is located, if the Secretary determines that the interests of the veteran borrower and of the Government will not be prejudiced by the operation of such covenant.
(B) With respect to any superior lien described in subparagraph (A) created after June 6, 1969, the Secretary’s determination under clause (ii) of such subparagraph shall have been made prior to the recordation of the covenant.
(e)
(1) Except as provided in paragraph (2) of this subsection, an individual who pays a fee under section 3729 of this title, or who is exempted under section 3729(c) of this title from paying such fee, with respect to a housing loan guaranteed or insured under this chapter that is closed after December 31, 1989, shall have no liability to the Secretary with respect to the loan for any loss resulting from any default of such individual except in the case of fraud, misrepresentation, or bad faith by such individual in obtaining the loan or in connection with the loan default.
(2) The exemption from liability provided by paragraph (1) of this subsection shall not apply to—
(A) an individual from whom a fee is collected (or who is exempted from such fee) under section 3729(b)(2)(I) of this title; or
(B) a loan made for any purpose specified in section 3712 of this title.
(f) The application for or obtaining of a loan made, insured, or guaranteed under this chapter shall not be subject to reporting requirements applicable to requests for, or receipts of, Federal contracts, grants, loans, loan guarantees, loan insurance, or cooperative agreements except to the extent that such requirements are provided for in, or by the Secretary pursuant to, this title.
(Pub. L. 85–857, Sept. 2, 1958, 72 Stat. 1205, 1212, § 1803; Pub. L. 86–73, § 2, June 30, 1959, 73 Stat. 156; Pub. L. 86–665, § 1, July 14, 1960, 74 Stat. 531; Pub. L. 87–84, § 1(a), July 6, 1961, 75 Stat. 201; Pub. L. 89–358, § 5(d), Mar. 3, 1966, 80 Stat. 26; Pub. L. 90–77, title IV, § 403(b), Aug. 31, 1967, 81 Stat. 190; Pub. L. 91–22, § 4, June 6, 1969, 83 Stat. 32; Pub. L. 91–506, § 2(b), (c), Oct. 23, 1970, 84 Stat. 1108; Pub. L. 93–75, July 26, 1973, 87 Stat. 176; Pub. L. 93–569, §§ 2(c), 8(1)–(5), Dec. 31, 1974, 88 Stat. 1863, 1866; Pub. L. 94–324, § 7(6), (16), June 30, 1976, 90 Stat. 721; Pub. L. 95–476, title I, § 103, Oct. 18, 1978, 92 Stat. 1498; Pub. L. 96–385, title IV, § 401(c)(1), Oct. 7, 1980, 94 Stat. 1533; Pub. L. 97–66, title V, § 501(a), Oct. 17, 1981, 95 Stat. 1031; Pub. L. 97–72, title III, § 303(c), (e), Nov. 3, 1981, 95 Stat. 1060; Pub. L. 97–295, § 4(61), (63), Oct. 12, 1982, 96 Stat. 1309; Pub. L. 97–306, title IV, § 406(b), Oct. 14, 1982, 96 Stat. 1444; Pub. L. 98–223, title II, § 205(c), Mar. 2, 1984, 98 Stat. 43; Pub. L. 100–198, § 3(a)(1), Dec. 21, 1987, 101 Stat. 1315; Pub. L. 100–253, § 3(a), Feb. 29, 1988, 102 Stat. 20; Pub. L. 100–322, title IV, § 415(a)(3), (c)(2), (d)(1), May 20, 1988, 102 Stat. 550–552; Pub. L. 101–237, title III, §§ 304(a), 306(a), 313(b)(1), (6), Dec. 18, 1989, 103 Stat. 2073, 2074, 2077; Pub. L. 102–54, §§ 4(b), 6, June 13, 1991, 105 Stat. 268; renumbered § 3703 and amended Pub. L. 102–83, § 5(a), (c)(1), Aug. 6, 1991, 105 Stat. 406; Pub. L. 102–547, § 10(a), Oct. 28, 1992, 106 Stat. 3643; Pub. L. 103–78, § 6, Aug. 13, 1993, 107 Stat. 769; Pub. L. 103–353, § 7, Oct. 13, 1994, 108 Stat. 3175; Pub. L. 104–110, title I, § 101(d), Feb. 13, 1996, 110 Stat. 768; Pub. L. 105–368, title VI, § 602(e)(1)(A), Nov. 11, 1998, 112 Stat. 3346;

CITE AS: 38 USC 3703

§ 3704. Restrictions on loans
(a) No loan for the purchase or construction of residential property shall be financed through the assistance of this chapter unless the property meets or exceeds minimum requirements for planning, construction, and general acceptability prescribed by the Secretary; however, this subsection shall not apply to a loan for the purchase of residential property on which construction is fully completed more than one year before such loan is made.
(b) Subject to notice and opportunity for a hearing, the Secretary may refuse to appraise any dwelling or housing project owned, sponsored, or to be constructed by any person identified with housing previously sold to veterans under this chapter as to which substantial deficiencies have been discovered, or as to which there has been a failure or indicated inability to discharge contractual liabilities to veterans, or as to which it is ascertained that the type of contract of sale or the methods or practices pursued in relation to the marketing of such properties were unfair or unduly prejudicial to veteran purchasers. The Secretary may also refuse to appraise any dwelling or housing project owned, sponsored, or to be constructed by any person refused the benefits of participation under the National Housing Act pursuant to a determination of the Secretary of Housing and Urban Development.
(c)
(1) Except as provided in paragraph (2) of this subsection, no loan for the purchase or construction of residential property shall be financed through the assistance of this chapter unless the veteran applicant, at the time that the veteran applies for the loan, and also at the time that the loan is closed, certifies in such form as the Secretary may require, that the veteran intends to occupy the property as the veteran’s home. Except as provided in paragraph (2) of this subsection, no loan for the repair, alteration, or improvement of residential property shall be financed through the assistance of the provisions of this chapter unless the veteran applicant, at the time that the veteran applies to the lender for the loan, and also at the time that the loan is closed, certifies, in such form as may be required by the Secretary, that the veteran occupies the property as the veteran’s home. Notwithstanding the foregoing provisions of this subsection, in the case of a loan automatically guaranteed under this chapter, the veteran shall be required to make the certification only at the time the loan is closed. For the purposes of this chapter the requirement that the veteran recipient of a guaranteed or direct home loan must occupy or intend to occupy the property as the veteran’s home means that the veteran as of the date of the veteran’s certification actually lives in the property personally as the veteran’s residence or actually intends upon completion of the loan and acquisition of the dwelling unit to move into the property personally within a reasonable time and to utilize such property as the veteran’s residence. Notwithstanding the foregoing requirements of this subsection, the provisions for certification by the veteran at the time the veteran applies for the loan and at the time the loan is closed shall be considered to be satisfied if the Secretary finds that (1) in the case of a loan for repair, alteration, or improvement the veteran in fact did occupy the property at such times, or (2) in the case of a loan for construction or purchase the veteran intended to occupy the property as the veteran’s home at such times and the veteran did in fact so occupy it when, or within a reasonable time after, the loan was closed.
(2) In any case in which a veteran is in active-duty status as a member of the Armed Forces and is unable to occupy a property because of such status, the occupancy requirements of this chapter shall be considered to be satisfied if—
(A) the spouse of the veteran occupies or intends to occupy the property as a home and the spouse makes the certification required by paragraph (1) of this subsection; or
(B) a dependent child of the veteran occupies or will occupy the property as a home and the veteran’s attorney-in-fact or legal guardian of the dependent child makes the certification required by paragraph (1) of this subsection.
(d) Subject to notice and opportunity for a hearing, whenever the Secretary finds with respect to guaranteed or insured loans that any lender or holder has failed to maintain adequate loan accounting records, or to demonstrate proper ability to service loans adequately or to exercise proper credit judgment or has willfully or negligently engaged in practices otherwise detrimental to the interest of veterans or of the Government, the Secretary may refuse either temporarily or permanently to guarantee or insure any loans made by such lender or holder and may bar such lender or holder from acquiring loans guaranteed or insured under this chapter; however, the Secretary shall not refuse to pay a guaranty or insurance claim on loans theretofore entered into in good faith between a veteran and such lender. The Secretary may also refuse either temporarily or permanently to guarantee or insure any loans made by a lender or holder refused the benefits of participation under the National Housing Act pursuant to a determination of the Secretary of Housing and Urban Development.
(e) Any housing loan which is financed through the assistance of this chapter and to which section 3714 of this chapter applies shall include a provision that the loan is immediately due and payable upon transfer of the property securing such loan to any transferee unless the acceptability of the assumption of the loan is established pursuant to such section 3714.
(f) A loan for the purchase or construction of new residential property, the construction of which began after the energy efficiency standards under section 109 of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12709), as amended by section 101(c) of the Energy Policy Act of 1992, take effect, may not be financed through the assistance of this chapter unless the new residential property is constructed in compliance with the standards established under such section 109, as in effect on the date of such construction.
(Pub. L. 85–857, Sept. 2, 1958, 72 Stat. 1206, § 1804; Pub. L. 86–73, § 3, June 30, 1959, 73 Stat. 156; Pub. L. 86–665, § 5, July 14, 1960, 74 Stat. 532; Pub. L. 89–117, title II, § 217(b), Aug. 10, 1965, 79 Stat. 473; Pub. L. 90–19, § 25(2), May 25, 1967, 81 Stat. 28; Pub. L. 91–506, § 2(d), Oct. 23, 1970, 84 Stat. 1108; Pub. L. 93–569, § 2(d), (e), Dec. 31, 1974, 88 Stat. 1863, 1864; Pub. L. 94–324, § 7(7), (8), June 30, 1976, 90 Stat. 721; Pub. L. 97–295, § 4(64), Oct. 12, 1982, 96 Stat. 1309; Pub. L. 100–198, §§ 8(a)(1), 10(b), Dec. 21, 1987, 101 Stat. 1319, 1323; Pub. L. 100–322, title IV, § 415(c)(3), May 20, 1988, 102 Stat. 551; Pub. L. 101–237, title III, § 313(b)(1), Dec. 18, 1989, 103 Stat. 2077; renumbered § 3704 and amended Pub. L. 102–83, § 5(a), (c)(1), Aug. 6, 1991, 105 Stat. 406; Pub. L. 102–486, title I, § 101(c)(2), Oct. 24, 1992, 106 Stat. 2787; Pub. L. 103–446, title IX, § 903, Nov. 2, 1994, 108 Stat. 4676; Pub. L. 112–154, title II, § 207, Aug. 6, 2012, 126 Stat. 1179; Pub. L. 117–328, div. U, title II, § 203(b), Dec. 29, 2022, 136 Stat. 5451.)

CITE AS: 38 USC 3704

§ 3705. Warranties
(a) The Secretary shall require that in connection with any property upon which there is located a dwelling designed principally for not more than a four-family residence and which is appraised for guaranty or insurance before the beginning of construction, the seller or builder, and such other person as may be required by the Secretary to become warrantor, shall deliver to the purchaser or owner of such property a warranty that the dwelling is constructed in substantial conformity with the plans and specifications (including any amendments thereof, or changes and variations therein, which have been approved in writing by the Secretary) on which the Secretary based the Secretary’s valuation of the dwelling. The Secretary shall deliver to the builder, seller, or other warrantor the Secretary’s written approval (which shall be conclusive evidence of such appraisal) of any amendment of, or change or variation in, such plans and specifications which the Secretary deems to be a substantial amendment thereof, or change or variation therein, and shall file a copy of such written approval with such plans and specifications. Such warranty shall apply only with respect to such instances of substantial nonconformity to such approved plans and specifications (including any amendments thereof, or changes or variations therein, which have been approved in writing, as provided in this section, by the Secretary) as to which the purchaser or home owner has given written notice to the warrantor within one year from the date of conveyance of title to, or initial occupancy of, the dwelling, whichever first occurs. Such warranty shall be in addition to, and not in derogation of, all other rights and privileges which such purchaser or owner may have under any other law or instrument. The provisions of this section shall apply to any such property covered by a mortgage insured or guaranteed by the Secretary on and after October 1, 1954, unless such mortgage is insured or guaranteed pursuant to a commitment therefor made before October 1, 1954.
(b) The Secretary shall permit copies of the plans and specifications (including written approvals of any amendments thereof, or changes or variations therein, as provided in this section) for dwellings in connection with which warranties are required by subsection (a) of this section to be made available in their appropriate local offices for inspection or for copying by any purchaser, home owner, or warrantor during such hours or periods of time as the Secretary may determine to be reasonable.
(Pub. L. 85–857, Sept. 2, 1958, 72 Stat. 1206, § 1805; Pub. L. 94–324, § 7(9), June 30, 1976, 90 Stat. 721; Pub. L. 101–237, title III, § 313(b)(1), Dec. 18, 1989, 103 Stat. 2077; Pub. L. 102–54, § 15(a)(1), June 13, 1991, 105 Stat. 288; renumbered § 3705, Pub. L. 102–83, § 5(a), Aug. 6, 1991, 105 Stat. 406; Pub. L. 103–446, title XII, § 1202(a)(2), Nov. 2, 1994, 108 Stat. 4689.)

CITE AS: 38 USC 3705

§ 3706. Escrow of deposits and downpayments
(a) Any deposit or downpayment made by an eligible veteran in connection with the purchase of proposed or newly constructed and previously unoccupied residential property in a project on which the Secretary has issued a Certificate of Reasonable Value, which purchase is to be financed with a loan guaranteed, insured, or made under the provisions of this chapter, shall be deposited forthwith by the seller, or the agent of the seller, receiving such deposit or payment, in a trust account to safeguard such deposit or payment from the claims of creditors of the seller. The failure of the seller or the seller’s agent to create such trust account and to maintain it until the deposit or payment has been disbursed for the benefit of the veteran purchaser at settlement or, if the transaction does not materialize, is otherwise disposed of in accordance with the terms of the contract, may constitute an unfair marketing practice within the meaning of section 3704(b) of this title.
(b) If an eligible veteran contracts for the construction of a property in a project on which the Secretary has issued a Certificate of Reasonable Value and such construction is to be financed with the assistance of a construction loan to be guaranteed, insured, or made under the provisions of this chapter, it may be considered an unfair marketing practice under section 3704(b) of this title if any deposit or downpayment of the veteran is not maintained in a special trust account by the recipient until it is either (1) applied on behalf of the veteran to the cost of the land or to the cost of construction or (2), if the transaction does not materialize, is otherwise disposed of in accordance with the terms of the contract.
(Added Pub. L. 86–665, § 6(a), July 14, 1960, 74 Stat. 532, § 1806; amended Pub. L. 94–324, § 7(10), June 30, 1976, 90 Stat. 721; Pub. L. 101–237, title III, § 313(b)(1), Dec. 18, 1989, 103 Stat. 2077; renumbered § 3706 and amended Pub. L. 102–83, § 5(a), (c)(1), Aug. 6, 1991, 105 Stat. 406; Pub. L. 103–446, title XII, § 1201(e)(13), Nov. 2, 1994, 108 Stat. 4685.)

CITE AS: 38 USC 3706

§ 3707. Adjustable rate mortgages
(a) The Secretary shall carry out a project under this section for the purpose of guaranteeing loans in a manner similar to the manner in which the Secretary of Housing and Urban Development insures adjustable rate mortgages under section 251 of the National Housing Act.
(b) Interest rate adjustment provisions of a mortgage guaranteed under this section shall—
(1) correspond to a specified national interest rate index approved by the Secretary, information on which is readily accessible to mortgagors from generally available published sources;
(2) be made by adjusting the monthly payment on an annual basis;
(3) be limited, with respect to any single annual interest rate adjustment, to a maximum increase or decrease of 1 percentage point; and
(4) be limited, over the term of the mortgage, to a maximum increase of 5 percentage points above the initial contract interest rate.
(c) The Secretary shall promulgate underwriting standards for loans guaranteed under this section, taking into account—
(1) the status of the interest rate index referred to in subsection (b)(1) and available at the time an underwriting decision is made, regardless of the actual initial rate offered by the lender;
(2) the maximum and likely amounts of increases in mortgage payments that the loans would require;
(3) the underwriting standards applicable to adjustable rate mortgages insured under title II of the National Housing Act; and
(4) such other factors as the Secretary finds appropriate.
(d) The Secretary shall require that the mortgagee make available to the mortgagor, at the time of loan application, a written explanation of the features of the adjustable rate mortgage, including a hypothetical payment schedule that displays the maximum potential increases in monthly payments to the mortgagor over the first five years of the mortgage term.
(Added Pub. L. 102–547, § 3(a)(1), Oct. 28, 1992, 106 Stat. 3634; amended Pub. L. 103–78, § 7, Aug. 13, 1993, 107 Stat. 769; Pub. L. 108–454, title IV, § 404, Dec. 10, 2004, 118 Stat. 3616; Pub. L. 110–389, title V, § 505(a), Oct. 10, 2008, 122 Stat. 4176; Pub. L. 112–154, title II, § 208, Aug. 6, 2012, 126 Stat. 1179.)

CITE AS: 38 USC 3707

§ 3707A. Hybrid adjustable rate mortgages
(a) The Secretary shall carry out a project under this section for the purpose of guaranteeing loans in a manner similar to the manner in which the Secretary of Housing and Urban Development insures adjustable rate mortgages under section 251 of the National Housing Act in accordance with the provisions of this section with respect to hybrid adjustable rate mortgages described in subsection (b).
(b) Adjustable rate mortgages that are guaranteed under this section shall be adjustable rate mortgages (commonly referred to as “hybrid adjustable rate mortgages”) having interest rate adjustment provisions that—
(1) specify an initial rate of interest that is fixed for a period of not less than the first three years of the mortgage term;
(2) provide for an initial adjustment in the rate of interest by the mortgagee at the end of the period described in paragraph (1); and
(3) comply in such initial adjustment, and any subsequent adjustment, with subsection (c).
(c) Interest rate adjustment provisions of a mortgage guaranteed under this section shall—
(1) correspond to a specified national interest rate index approved by the Secretary, information on which is readily accessible to mortgagors from generally available published sources;
(2) be made by adjusting the monthly payment on an annual basis;
(3) in the case of the initial contract interest rate adjustment—
(A) if the initial contract interest rate remained fixed for less than 5 years, be limited to a maximum increase or decrease of 1 percentage point; or
(B) if the initial contract interest rate remained fixed for 5 years or more, be limited to a maximum increase or decrease of such percentage point or points as the Secretary may prescribe;
(4) in the case of any single annual interest rate adjustment after the initial contract interest rate adjustment, be limited to a maximum increase or decrease of such percentage points as the Secretary may prescribe; and
(5) be limited, over the term of the mortgage, to a maximum increase of such number of percentage points as the Secretary shall prescribe for purposes of this section.
(d) The Secretary shall promulgate underwriting standards for loans guaranteed under this section, taking into account—
(1) the status of the interest rate index referred to in subsection (c)(1) and available at the time an underwriting decision is made, regardless of the actual initial rate offered by the lender;
(2) the maximum and likely amounts of increases in mortgage payments that the loans would require;
(3) the underwriting standards applicable to adjustable rate mortgages insured under title II of the National Housing Act; and
(4) such other factors as the Secretary finds appropriate.
(e) The Secretary shall require that the mortgagee make available to the mortgagor, at the time of loan application, a written explanation of the features of the adjustable rate mortgage, including a hypothetical payment schedule that displays the maximum potential increases in monthly payments to the mortgagor over the first five years of the mortgage term.
(Added Pub. L. 107–330, title III, § 303(a), Dec. 6, 2002, 116 Stat. 2825; amended Pub. L. 108–454, title IV, § 405(a), (b), Dec. 10, 2004, 118 Stat. 3616; Pub. L. 109–233, title I, § 102, June 15, 2006, 120 Stat. 399; Pub. L. 110–389, title V, § 505(b), Oct. 10, 2008, 122 Stat. 4176; Pub. L. 112–154, title II, § 209, Aug. 6, 2012, 126 Stat. 1179.)

CITE AS: 38 USC 3707A

§ 3708. Authority to buy down interest rates: pilot program
(a) In order to enable the purchase of housing in areas where the supply of suitable military housing is inadequate, the Secretary may conduct a pilot program under which the Secretary may make periodic or lump sum assistance payments on behalf of an eligible veteran for the purpose of buying down the interest rate on a loan to that veteran that is guaranteed under this chapter for a purpose described in paragraph (1), (6), or (10) of section 3710(a) of this title.
(b) An individual is an eligible veteran for the purposes of this section if—
(1) the individual is a veteran, as defined in section 3701(b)(4) of this title;
(2) the individual submits an application for a loan guaranteed under this chapter within one year of an assignment of the individual to duty at a military installation in the United States designated by the Secretary of Defense as a housing shortage area;
(3) at the time the loan referred to in subsection (a) is made, the individual is an enlisted member, warrant officer, or an officer (other than a warrant officer) at a pay grade of O–3 or below;
(4) the individual has not previously used any of the individual’s entitlement to housing loan benefits under this chapter; and
(5) the individual receives comprehensive prepurchase counseling from the Secretary (or the designee of the Secretary) before making application for a loan guaranteed under this chapter.
(c) Loans with respect to which the Secretary may exercise the buy down authority under subsection (a) shall—
(1) provide for a buy down period of not more than three years in duration;
(2) specify the maximum and likely amounts of increases in mortgage payments that the loans would require; and
(3) be subject to such other terms and conditions as the Secretary may prescribe by regulation.
(d) The Secretary shall promulgate underwriting standards for loans for which the interest rate assistance payments may be made under subsection (a). Such standards shall be based on the interest rate for the second year of the loan.
(e) The Secretary or lender shall provide comprehensive prepurchase counseling to eligible veterans explaining the features of interest rate buy downs under subsection (a), including a hypothetical payment schedule that displays the increases in monthly payments to the mortgagor over the first five years of the mortgage term. For the purposes of this subsection, the Secretary may assign personnel to military installations referred to in subsection (b)(2).
(f) There is authorized to be appropriated $3,000,000 annually to carry out this section.
(g) The Secretary may not guarantee a loan under this chapter after September 30, 1998, on which the Secretary is obligated to make payments under this section.
(Added Pub. L. 104–106, div. B, title XXVIII, § 2822(b)(1), Feb. 10, 1996, 110 Stat. 556.)

CITE AS: 38 USC 3708

§ 3709. Refinancing of housing loans
(a)Fee Recoupment.—Except as provided in subsection (d) and notwithstanding section 3703 of this title or any other provision of law, a loan to a veteran for a purpose specified in section 3710 of this title that is being refinanced may not be guaranteed or insured under this chapter unless—
(1) the issuer of the refinanced loan provides the Secretary with a certification of the recoupment period for fees, closing costs, and any expenses (other than taxes, amounts held in escrow, and fees paid under this chapter) that would be incurred by the borrower in the refinancing of the loan;
(2) all of the fees and incurred costs are scheduled to be recouped on or before the date that is 36 months after the date of loan issuance; and
(3) the recoupment is calculated through lower regular monthly payments (other than taxes, amounts held in escrow, and fees paid under this chapter) as a result of the refinanced loan.
(b)Net Tangible Benefit Test.—Except as provided in subsection (d) and notwithstanding section 3703 of this title or any other provision of law, a loan to a veteran for a purpose specified in section 3710 of this title that is refinanced may not be guaranteed or insured under this chapter unless—
(1) the issuer of the refinanced loan provides the borrower with a net tangible benefit test;
(2) in a case in which the original loan had a fixed rate mortgage interest rate and the refinanced loan will have a fixed rate mortgage interest rate, the refinanced loan has a mortgage interest rate that is not less than 50 basis points less than the previous loan;
(3) in a case in which the original loan had a fixed rate mortgage interest rate and the refinanced loan will have an adjustable rate mortgage interest rate, the refinanced loan has a mortgage interest rate that is not less than 200 basis points less than the previous loan; and
(4) the lower interest rate is not produced solely from discount points, unless—
(A) such points are paid at closing; and
(B) such points are not added to the principal loan amount, unless—
(i) for discount point amounts that are less than or equal to one discount point, the resulting loan balance after any fees and expenses allows the property with respect to which the loan was issued to maintain a loan to value ratio of 100 percent or less; and
(ii) for discount point amounts that are greater than one discount point, the resulting loan balance after any fees and expenses allows the property with respect to which the loan was issued to maintain a loan to value ratio of 90 percent or less.
(c)Loan Seasoning.—Except as provided in subsection (d) and notwithstanding section 3703 of this title or any other provision of law, a loan to a veteran for a purpose specified in section 3710 of this title that is a refinance may not be guaranteed or insured under this chapter until the date that is the later of—
(1) the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced; and
(2) the date that is 210 days after the first payment due date of the loan being refinanced.
(d)Cash-out Refinances.—
(1) Subsections (a) through (c) shall not apply in a case of a loan refinancing in which the amount of the principal for the new loan to be guaranteed or insured under this chapter is larger than the payoff amount of the refinanced loan.
(2) Not later than 180 days after the date of the enactment of this section, the Secretary shall promulgate such rules as the Secretary considers appropriate with respect to refinancing described in paragraph (1) to ensure that such refinancing is in the financial interest of the borrower, including rules relating to recoupment, seasoning, and net tangible benefits.
(Added Pub. L. 115–174, title III, § 309(a)(1), May 24, 2018, 132 Stat. 1348; amended Pub. L. 116–33, § 2(b), July 25, 2019, 133 Stat. 1038.)

CITE AS: 38 USC 3709