38 U.S.C. Ch. 37 are not restated herein and must be taken into consideration in the interpretation or application of the regulations concerning direct loans to veterans. [24 F.R. 2658, Apr. 7, 1959]

36.4500 Applicability.

(a) The regulations concerning direct loans to veterans shall be applicable to loans made by Veterans Administration pursuant to 38 U.S.C. 1811.

(b) Title 38, U.S.C. Ch. 37 is a continuation and restatement of the provisions of title III of the Servicemen's Readjustment Act of 1944, and may be considered to be an amendment to such title III. References in the regulations concerning direct loans to veterans to the sections or chapters of title 38, United States Code, shall, where applicable, be deemed to refer to the prior corresponding provisions of the law.

[24 FR. 2658, Apr. 7, 1959]

§ 36.4501 Definitions.

Wherever used in 38 U.S.C. 1811 or the regulations concerning direct loans to veterans, unless the context otherwise requires, the terms defined in this section shall have the meaning herein stated, namely:

(a) "Administrator" means the Administrator of Veterans Affairs, or any employee of the Veterans Administration authorized by him to act in his stead.

(b) "Cost" means the entire consideration paid or payable for or on account of the application of materials and labor to tangible property.

(c) "Default" means failure of a borrower to comply with the terms of a loan agreement.

(d) "Dwelling" means a building designed primarily for use as a home, consisting of one residential unit only and not containing any business unit.

(e) "Farm residence" means a dwelling located on a farm which is to be occupied by the veteran as his home.

(f) “Guaranty" means the obligation of the United States, incurred pursuant to 38 U.S.C. Ch. 37, to repay a specified percentage of a loan upon the default of the primary debtor.

(g) "Home" means a place of residence.

(h) "Improvement” means any addition or alteration which enhances the utility of the property for residential purposes.

(1) "Indebtedness" means the unpaid principal and interest plus any other sums a borrower is obligated to pay Veterans Administration under the terms of the loan instruments or of the regulations concerning direct loans to veterans.

(j) "Loan" means a loan made to a veteran by Veterans Administration pursuant to the provisions of 38 U.S.C. 1811 and the regulations concerning direct loans to veterans.

(k) "Purchase price" means the entire legal consideration paid or payable upon or on account of the sale of property, exclusive of acquisition costs, or for the cost of materials and labor to be applied thereto.

(1) "Reasonable value" means that figure which represents the amount a reputable and qualified appraiser, unaffected by personal interest, bias, or prejudice, would recommend to a prospective purchaser as proper price or cost in the light of prevailing conditions.

(m) "Repairs" means any alteration of existing realty which is necessary or advisable for protective, safety, or restorative purposes.

(n) "Veterans Administration" means the Administrator of Veterans Affairs, or any employee of the Veterans Administration authorized by him to act in his stead.

(o) "A period of more than 180 days": For the purposes of section 1818 of title 38, United States Code, the term "a period of more than 180 days" in section 1652(a) of title 38, United States Code, shall mean 181 or more calendar days of continuous active duty.

(p) "At least 2 years": For the purposes of section 1818 of title 38, United States Code, the term "at least 2 years" in section 1652(a) of title 38, United States Code, shall mean 730 or more calendar days of active duty.

[24 FR 2658, Apr. 7, 1959, as amended at 31 FR 16713, Dec. 30, 1966; 35 FR 17180, Nov. 7, 1970]

§ 36.4502 Use of guaranty entitlement.

The guaranty entitlement of the veteran obtaining a direct loan which is closed on or after May 7, 1968, shall be charged with an amount which bears the same ratio to $12,500 as the amount of the loan bears to $25,000. The charge against the entitlement of a veteran who obtained a direct loan which was closed prior to the aforesaid date, or the date

on which an increased maximum is established pursuant to section 1811(d) for the area in which the loan security is located, shall be the amount which would have been charged had the loan been closed subsequent to such date.

[38 FR 33772, Dec. 7, 1973] § 36.4503

Amount and amortization.

(a) The original principal amount of any loan made on or after May 7, 1968, shall not exceed an amount which bears the same ratio to $25,000 as the amount of the guaranty to which the veteran is entitled under 38 U.S.C. 1810 at the time the loan is made bears to $12,500. This limitation shall not preclude the making of advances, otherwise proper, subsequent to the making of the loan pursuant to the provisions of § 36.4511. Loans made by the Veterans Administration shall bear interest at the rate of 84 percent per annum.

(b) Each loan shall be repayable on the basis of approximately equal monthly installments; except that in the case of loans made for any of the purposes described in clause (2), (3), or (4) of subsection (a) of 38 U.S.C. 1810, such loans may provide for repayment in quarterly, semiannual, or annual installments, provided that such plan of repayment corresponds to the present and anticipated income of the veteran.

(c) The first installment payment on a loan to construct, alter or improve a farm residence or other dwelling may be postponed for a period not exceeding 12 months from the date of the loan instruments. The first installment payment for a loan for the purchase of a dwelling or farm on which there is a farm residence may not be postponed more than 60 days from the date of loan closing: Provided, That if the loan is repayable in quarterly, semi-annual or annual installments, the first installment payment date may be postponed for not more than 12 months from the date of the loan instruments.

(d) The final installment on any loan shall not be in excess of two times the average of the preceding installments, except that on a construction loan the final installment may be for an amount not in excess of 5 percent of the original principal amount of the loan. The limitations imposed by this paragraph on the amount of the final installment shall not apply in the case of any loan extended

or recast pursuant to §§ 36.4505 or 36.4506.

[15 FR 6288, Sept. 20, 1950, as amended at 24 FR 2658, Apr. 7, 1959; 39 FR 17441, May 16, 1974]

§ 36.4504

Loan closing expenses.

(a) Veterans' Administration will designate a loan closer to represent Veterans' Administration at the closing and in advance thereof will agree with him upon the fee to be paid by the Veterans' Administration for preparing the loan closing instruments and attending at the closing of the loan. The loan closer as such is neither an agent nor employee of the Veterans' Administration.

(b) With respect to a loan made to a veteran-borrower pursuant to an application (VA Form 26-6921) received by the Veterans Administration after March 3, 1966, the borrower shall pay the Veterans Administration the following:

on

or

(1) $50, or one percent (1%) of the loan amount, whichever is greater, which charge shall be in lieu of the loan closer's fee, credit report, and cost of appraisal: Provided, That if the loan is to finance the cost of construction, repairs, alterations, or improvements necessitating disbursements of the loan proceeds as the construction or other work progresses, the charge to the veteran-borrower shall be two percent (2%) of the loan amount, but not less than $50 in any event.

(2) Costs or expenses normally paid by a purchaser or lienor incident to loan closing including but not limited to the following:

(1) Fee of Veterans Administration designated compliance inspector.

(ii) Recording fees and recording taxes or other charges incident to recordation.

(iii) That portion of taxes, assessments, and other similar items for the current year chargeable to the borrower and his initial deposit (lump-sum payment) for the tax and insurance account. (iv) Hazard insurance as required by § 36.4512.

(v) Survey, if any.

(vi) Title examination and title evidence.

Charges or costs payable by the veteran-borrower shall be paid in cash and may not be paid out of the proceeds of the loan. No service or brokerage fee shall be charged against the veteranborrower by any third party for procur

ing a direct loan or in connection therewith.

(c) With respect to a loan to construct, repair, alter, or improve a farm residence or other dwelling, Veterans Administration may require the veteran to deposit with Veterans Administration, or in an escrow satisfactory to Veterans Administration, 10 percent of the estimated cost thereof or such alternative sum, in cash or its equivalent, as Veterans Administration may determine to be necessary in order to afford adequate assurance that sufficient funds will be available, from the proceeds of the loan or from other sources, to assure completion of the construction, repair, alteration, or improvement in accordance with the plans and specifications upon which Veterans Administration based its loan commitment.

[15 F. R. 6288, Sept. 20, 1950, as amended at 23 FR. 2339, Apr. 10, 1958; 33 F.R. 6976. May 9, 1968; 35 F.R. 17180, Nov. 7, 1970]

§ 36.4505 Maturity of loan.

The maturity of a loan shall not exceed 25 years, except that if Veterans Administration determines that the income and expenses of a veteran-applicant at the time of his application for a loan, or at the time of closing of the loan, are such that under customary credit standards he would be unable to maintain the required schedule of amortized payments for a loan which matures in 25 years, but that taking into consideration the veteran's current and prospective income and expenses he would be able to make the payments on the loan if amortized over a longer period of time, the loan may be made with a maturity for such longer period of time but not in excess of 30 years: Provided, That in no event will the maturity exceed the estimated economic life of the property securing the loan. Nothing in this section shall preclude extension of the loan pursuant to the provisions of § 36.4506. [23 F. R. 2339, Apr. 10, 1958]

mate repayment of a loan beyond the expiration of 30 years from the date of the loan, or 40 years in the case of a loan for the construction or improvement of a farmhouse. Provided further, That nothing in this section shall be deemed to limit the forbearance or indulgence which the Administrator may extend in an individual case pursuant to the provisions of 38 U.S.C. 1820 (f).

[36 F.R. 5412, Mar. 23, 1971]

§ 36.4507 Refinancing of mortgage or other lien indebtedness.

(a) Loans may be made for the purpose of refinancing an existing mortgage loan or other indebtedness secured by a lien of record on a dwelling or farm residence owned and occupied by an eligible veteran as his home, provided that

(1) The amount of the loan does not exceed the sum due the holder of the mortgage or other lien indebtedness on such dwelling or farm residence, and also is not more than the reasonable value of the dwelling or farm residence, and

(2) The loan is otherwise eligible.

(b) A refinancing loan for an amount which exceeds the sum due the holder of the mortgage or other lien indebtedness (the excess proceeds to be paid to the veteran) may also be made, provided that

(1) The loan is otherwise eligible, and

(2) The issuance of a commitment to make any such loan for an amount which exceeds eighty (80) percent of the reasonable value of the veteran's dwelling or farm residence shall require, unless the Chief Benefits Director otherwise directs, the approval of the Director, Loan Guaranty Service.

(c) Nothing in 38 U.S.C. chapter 37 shall preclude making a loan to an eligible veteran having home loan guaranty entitlement to refinance a loan previously guaranteed, insured or made by the Administrator which is outstanding on the dwelling or farm residence owned and occupied by the veteran as his home.

(d) A refinancing loan may include contractual prepayment penalties, if any, due the holder of the mortgage or other lien indebtedness to be refinanced.

(e) Nothing in this section shall preclude the refinancing of the balance due for the purchase of land on which new construction is to be financed through the proceeds of the loan, or the refinanc

(a) Veterans' Administration shall not include in the loan contract any provisions which will impede the right of a veteran to convey, transfer, or otherwise alienate whatever right or title he may have in the property purchased or constructed with the aid of the proceeds of a direct loan, except that Veterans' Administration may include in the loan instruments such provisions as may be deemed necessary for the protection of the security and the Federal Government.

(b) Whenever any veteran disposes of residential property securing a direct loan obtained by him under 38 U.S.C. Ch. 37, the Veterans Administration, upon application made by such borrower, shall issue to the borrower a release relieving him of all further liability to the Veterans Administration on account of such loan (including liability for any loss resulting from any default of the transferee or any subsequent purchaser of such property) if the Veterans Administration has determined, after such investigation as it deems appropriate, that there has been compliance with the conditions prescribed in 38 U.S.C. 1817. The assumption of full liability for repayment of the loan by the transferee of the property must be evidenced by an agreement in writing in such form as the Veterans Administration may require. Any release of liability granted to a veteran by the Veterans Administration shall inure to the spouse of such veteran.

(c) If, on or after July 1, 1972, any veteran disposes of the property securing a direct loan obtained by him under 38 U.S.C. Ch. 37, without receiving a release from liability with respect to such loan under 38 U.S.C. 1817(a) and a default subsequently occurs which results in liability of the veteran to the Administrator on account of the loan, the Administrator may relieve the veteran of such liability if he determines that:

(1) A transferee either immediate or remote is legally liable to the Administrator for the debt of the original veteran-borrower established after the termination of the loan, and

(2) The original loan was current at the time such transferee acquired the property, and

(3) The transferee who is liable to the Administrator is found to have been a satisfactory credit risk at the time he acquired the property.

[15 FR 6289, Sept. 29, 1950, as amended at 33 FR 5362, Apr. 4, 1968; 37 FR 24034, Nov. 11, 1972]

§ 36.4509 Joint loans.

(a) No loan will be made unless an eligible veteran is the sole principal obligor, or such veteran and his spouse are the principal obligors thereon, nor unless such veteran alone, or he and his spouse, acquire the entire fee simple or other permissible estate in the realty for the acquisition of which the loan was obtained. Nothing in this section shall preclude other parties from becoming liable as comaker, endorser, guarantor, or surety.

(b) Notwithstanding that an applicant and spouse are both eligible veterans and will be jointly and severally liable as borrowers, the original principal amount of the loan may not exceed the maximum permissible under § 36.4503(a). In any event the loan may not exceed $25,000.

[15 FR 6289, Sept. 20, 1950, as amended at 34 FR 9561, June 18, 1969; 38 FR 33772, Dec. 7, 1973]

§ 36.4510 Prepayment,

and liquidation.

acceleration,

(a) Any credit on the loan not previously applied in satisfaction of matured installments, other than the gratuity credit required by prior provisions of law to be credited to principal, may be reapplied by Veterans Administration at the request of the borrower for the purpose of curing or preventing a default.

(b) Veterans' Administration shall include in the instruments evidencing or securing the indebtedness provisions relating to the following:

(1) The right of the borrower to prepay at any time without premium or fee, the entire indebtedness or any part thereof: Provided, That any such prepayment, other than payment in full, may not be made in any amount less than the amount of one installment, or $100, whichever is less: And provided further, That any prepayment made on other than an installment due date will not be credited until the next following