38 U.S.C. § 3710 — Purchase or construction of homes

**(a)** Except as provided in [section 3704(c)(2) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3704/c/2&num=0&edition=prelim), any loan to a veteran, if made pursuant to the provisions of this chapter, is automatically guaranteed if such loan is for one or more of the following purposes: (1) To purchase or construct a dwelling to be owned and occupied by the veteran as a home. (2) To purchase a farm on which there is a farm residence to be owned and occupied by the veteran as the veteran’s home. (3) To construct on land owned by the veteran a farm residence to be occupied by the veteran as the veteran’s home. (4) To repair, alter, or improve a farm residence or other dwelling owned by the veteran and occupied by the veteran as the veteran’s home. (5) To refinance existing mortgage loans or other liens which are secured of record on a dwelling or farm residence owned and occupied by the veteran as the veteran’s home. (6) To purchase a one-family residential unit in a condominium housing development or project, if such development or project is approved by the Secretary under criteria which the Secretary shall prescribe in regulations. (7) To improve a dwelling or farm residence owned by the veteran and occupied by the veteran as the veteran’s home through energy efficiency improvements, as provided in subsection (d). (8) To refinance in accordance with subsection (e) of this section an existing loan guaranteed, insured, or made under this chapter. (9) (A) (i) To purchase a manufactured home to be permanently affixed to a lot that is owned by the veteran. (ii) To purchase a manufactured home and a lot to which the home will be permanently affixed. (B) (i) To refinance, in accordance with the terms and conditions applicable under the provisions of subsection (e) of this section (other than paragraph (1)(E) of such subsection) to the guaranty of a loan for the purpose specified in clause (8) of this subsection, an existing loan guaranteed, insured, or made under this chapter that is secured by a manufactured home permanently affixed to a lot that is owned by the veteran. (ii) To refinance, in accordance with [section 3712(a)(5) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3712/a/5&num=0&edition=prelim), an existing loan that was made for the purchase of, and that is secured by, a manufactured home that is permanently affixed to a lot and to purchase the lot to which the manufactured home is affixed. (10) To purchase a dwelling to be owned and occupied by the veteran as a home and make energy efficiency improvements, as provided in subsection (d). (11) To refinance in accordance with subsection (e) an existing loan guaranteed, insured, or made under this chapter, and to improve the dwelling securing such loan through energy efficiency improvements, as provided in subsection (d). (12) With respect to a loan guaranteed after the date of the enactment of this paragraph and before the date that is five years after that date, to purchase stock or membership in a cooperative housing corporation for the purpose of entitling the veteran to occupy for dwelling purposes a single family residential unit in a development, project, or structure owned or leased by such corporation, in accordance with subsection (h). If there is an indebtedness which is secured by a lien against land owned by the veteran, the proceeds of a loan guaranteed under this section or made under [section 3711 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3711&num=0&edition=prelim) for construction of a dwelling or farm residence on such land may be used also to liquidate such lien, but only if the reasonable value of the land is equal to or greater than the amount of the lien. **(b)** No loan may be guaranteed under this section or made under [section 3711 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3711&num=0&edition=prelim) unless— (1) the proceeds of such loan will be used to pay for the property purchased, constructed, or improved; (2) the contemplated terms of payment required in any mortgage to be given in part payment of the purchase price or the construction cost bear a proper relation to the veteran’s present and anticipated income and expenses; (3) the veteran is a satisfactory credit risk, as determined in accordance with the credit underwriting standards established pursuant to subsection (g) of this section; (4) the nature and condition of the property is such as to be suitable for dwelling purposes; (5) except in the case of a loan described in clause (7) or (8) of this subsection, the loan to be paid by the veteran for such property or for the cost of construction, repairs, or alterations, does not exceed the reasonable value thereof as determined pursuant to [section 3731 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3731&num=0&edition=prelim); (6) if the loan is for repair, alteration, or improvement of property, such repair, alteration, or improvement substantially protects or improves the basic livability or utility of such property; (7) in the case of a loan (other than a loan made for a purpose specified in subsection (a)(8) of this section) that is made to refinance— (A) a construction loan, (B) an installment land sales contract, or (C) a loan assumed by the veteran that provides for a lower interest rate than the loan being refinanced, the amount of the loan to be guaranteed or made does not exceed the lesser of— (i) the reasonable value of the dwelling or farm residence securing the loan, as determined pursuant to [section 3731 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3731&num=0&edition=prelim); or (ii) the sum of the outstanding balance on the loan to be refinanced and the closing costs (including discounts) actually paid by the veteran, as specified by the Secretary in regulations; and (8) in the case of a loan to refinance a loan (other than a loan or installment sales contract described in clause (7) of this subsection or a loan made for a purpose specified in subsection (a)(8) of this section), the amount of the loan to be guaranteed or made does not exceed 100 percent of the reasonable value of the dwelling or farm residence securing the loan, as determined pursuant to [section 3731 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3731&num=0&edition=prelim). **(c)** Repealed. Pub. L. 100–198, § 3(a)(2), Dec. 21, 1987, 101 Stat. 1315.] **(d)** (1) The Secretary shall carry out a program to demonstrate the feasibility of guaranteeing loans for the acquisition of an existing dwelling and the cost of making energy efficiency improvements to the dwelling or for energy efficiency improvements to a dwelling owned and occupied by a veteran. A loan may be guaranteed under this subsection only if it meets the requirements of this chapter, except as those requirements are modified by this subsection. (2) The cost of energy efficiency measures that may be financed by a loan guaranteed under this section may not exceed the greater of— (A) the cost of the energy efficiency improvements, up to $3,000; or (B) $6,000, if the increase in the monthly payment for principal and interest does not exceed the likely reduction in monthly utility costs resulting from the energy efficiency improvements. (3) Notwithstanding the provisions of [section 3703(a)(1)(A) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3703/a/1/A&num=0&edition=prelim), any loan guaranteed under this subsection shall be guaranteed in an amount equal to the sum of— (A) the guaranty that would be provided under those provisions for the dwelling without the energy efficiency improvements; and (B) an amount that bears the same relation to the cost of the energy efficiency improvements as the guaranty referred to in subparagraph (A) bears to the amount of the loan minus the cost of such improvements. (4) The amount of the veteran’s entitlement, calculated in accordance with subparagraph (B) or (C) of [section 3703(a)(1) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3703/a/1&num=0&edition=prelim), shall not be affected by the amount of the guaranty referred to in paragraph (3)(B). (5) The Secretary shall take appropriate actions to notify eligible veterans, participating lenders, and interested realtors of the availability of loan guarantees under this subsection and the procedures and requirements that apply to the obtaining of such guarantees. (6) For the purposes of this subsection: (A) The term “energy efficiency improvement” includes a solar heating system, a solar heating and cooling system, or a combined solar heating and cooling system, and the application of a residential energy conservation measure. (B) The term “solar heating” has the meaning given such term in section 3(1) of the Solar Heating and Cooling Demonstration Act of 1974 ([42 U.S.C. 5502(1)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section5502/1&num=0&edition=prelim)) and, in addition, includes a passive system based on conductive, convective, or radiant energy transfer. (C) The terms “solar heating and cooling” and “combined solar heating and cooling” have the meaning given such terms in section 3(2) of the Solar Heating and Cooling Demonstration Act of 1974 ([42 U.S.C. 5502(2)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section5502/2&num=0&edition=prelim)) and, in addition, include a passive system based on conductive, convective, or radiant energy transfer. (D) The term “passive system” includes window and skylight glazing, thermal floors, walls, and roofs, movable insulation panels (when in conjunction with glazing), portions of a residential structure that serve as solar furnaces so as to add heat to the structure, double-pane window insulation, and such other energy-related components as are determined by the Secretary to enhance the natural transfer of energy for the purpose of heating or heating and cooling a residence. (E) The term “residential energy conservation measure” means— (i) caulking and weatherstripping of all exterior doors and windows; (ii) furnace efficiency modifications limited to— (I) replacement burners, boilers, or furnaces designed to reduce the firing rate or to achieve a reduction in the amount of fuel consumed as a result of increased combustion efficiency, (II) devices for modifying flue openings which will increase the efficiency of the heating system, and (III) electrical or mechanical furnace ignition systems which replace standing gas pilot lights; (iii) clock thermostats; (iv) ceiling, attic, wall, and floor insulation; (v) water heater insulation; (vi) storm windows and doors; (vii) heat pumps; and (viii) such other energy conservation measures as the Secretary may identify for the purposes of this subparagraph. **(e)** (1) For a loan to be guaranteed for the purpose specified in subsection (a)(8) or for the purpose specified in subsection (a)(11) of this section— (A) the interest rate of the loan must be less than the interest rate of the loan being refinanced or, in a case in which the loan is a fixed rate loan and the loan being refinanced is an adjustable rate loan, the loan bears interest at a rate that is agreed upon by the veteran and the mortgagee; (B) the loan must be secured by the same dwelling or farm residence as was the loan being refinanced; (C) the amount of the loan may not exceed— (i) an amount equal to the sum of the balance of the loan being refinanced and such closing costs (including any discount permitted pursuant to [section 3703(c)(3)(A) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3703/c/3/A&num=0&edition=prelim)) as may be authorized by the Secretary (under regulations which the Secretary shall prescribe) to be included in the loan; or (ii) in the case of a loan for the purpose specified in subsection (a)(11), an amount equal to the sum of the amount referred to with respect to the loan under clause (i) and the amount specified under subsection (d)(2); (D) notwithstanding [section 3703(a)(1) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3703/a/1&num=0&edition=prelim), the amount of the guaranty of the loan may not exceed the greater of (i) the original guaranty amount of the loan being refinanced, or (ii) 25 percent of the loan; (E) the term of the loan may not exceed the original term of the loan being refinanced by more than 10 years; and (F) the veteran must own the dwelling or farm residence securing the loan and— (i) must occupy such dwelling or residence as such veteran’s home; (ii) must have previously occupied such dwelling or residence as such veteran’s home and must certify, in such form as the Secretary shall require, that the veteran has previously so occupied such dwelling or residence; or (iii) in any case in which a veteran is in active duty status as a member of the Armed Forces and is unable to occupy such residence or dwelling as a home because of such status, the spouse of the veteran must occupy, or must have previously occupied, such dwelling or residence as such spouse’s home and must certify such occupancy in such form as the Secretary shall require. (2) A loan to a veteran may be guaranteed by the Secretary under this chapter for the purpose specified in clause (8) of subsection (a) of this section without regard to the amount of outstanding guaranty entitlement available for use by such veteran, and the amount of such veteran’s guaranty entitlement shall not be charged as a result of any guaranty provided for such purpose. For purposes of [section 3702(b) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3702/b&num=0&edition=prelim), such loan shall be deemed to have been obtained with the guaranty entitlement used to obtain the loan being refinanced. (3) If a veteran is deceased and if such veteran’s surviving spouse was a co-obligor under an existing loan guaranteed, insured, or made under this chapter, such surviving spouse shall, only for the purpose specified in subsection (a)(8) of this section, be deemed to be a veteran eligible for benefits under this chapter. **(f)** (1) For a loan to be guaranteed for the purpose specified in subclause (A)(ii) or (B)(ii) of subsection (a)(9) of this section, the purchase of (or the refinancing of a loan secured by) the manufactured home and the lot for that home shall be considered as one loan and must comply with such criteria as may be prescribed by the Secretary in regulations. (2) A loan may not be guaranteed for the purposes of subsection (a)(9) of this section unless the manufactured home purchased, upon being permanently affixed to the lot, is considered to be real property under the laws of the State where the lot is located. **(g)** (1) For the purposes of this subsection, the term “veteran”, when used with respect to a loan guaranteed or to be guaranteed under this chapter, includes the veteran’s spouse if the spouse is jointly liable with the veteran under the loan. (2) For the purpose of determining whether a veteran meets the standards referred to in subsection (b)(3) of this section and [section 3712(e)(2) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3712/e/2&num=0&edition=prelim), the Secretary shall prescribe regulations which establish— (A) credit underwriting standards to be used in evaluating loans to be guaranteed under this chapter; and (B) standards to be used by lenders in obtaining credit information and processing loans to be guaranteed under this chapter. (3) In the regulations prescribed under paragraph (2) of this subsection, the Secretary shall establish standards that include— (A) debt-to-income ratios to apply in the case of the veteran applying for the loan; (B) criteria for evaluating the reliability and stability of the income of the veteran applying for the loan; and (C) procedures for ascertaining the monthly income required by the veteran to meet the anticipated loan payment terms. If the procedures described in clause (C) of this paragraph include standards for evaluating residual income, the Secretary shall, in establishing such standards, give appropriate consideration to State statistics (in States as to which the Secretary determines that such statistics are reliable) pertinent to residual income and the cost of living in the State in question rather than in a larger region. (4) (A) Any lender making a loan under this chapter shall certify, in such form as the Secretary shall prescribe, that the lender has complied with the credit information and loan processing standards established under paragraph (2)(B) of this subsection, and that, to the best of the lender’s knowledge and belief, the loan meets the underwriting standards established under paragraph (2)(A) of this subsection. (B) Any lender who knowingly and willfully makes a false certification under subparagraph (A) of this paragraph shall be liable to the United States Government for a civil penalty equal to two times the amount of the Secretary’s loss on the loan involved or to another appropriate amount, not to exceed $10,000, whichever is greater. All determinations necessary to carry out this subparagraph shall be made by the Secretary. (5) Pursuant to regulations prescribed to carry out this paragraph, the Secretary may, in extraordinary situations, waive the application of the credit underwriting standards established under paragraph (2) of this subsection when the Secretary determines, considering the totality of circumstances, that the veteran is a satisfactory credit risk. **(h)** (1) A loan may not be guaranteed under subsection (a)(12) unless— (A) the development, project, or structure of the cooperative housing corporation complies with such criteria as the Secretary prescribes in regulations; and (B) the dwelling unit that the purchase of stock or membership in the development, project, or structure of the cooperative housing corporation entitles the purchaser to occupy is a single family residential unit. (2) In this subsection, the term “cooperative housing corporation” has the meaning given such term in section 216(b)(1) of the Internal Revenue Code of 1986. (3) When applying the term “value of the property” to a loan guaranteed under subsection (a)(12), such term means the appraised value of the stock or membership entitling the purchaser to the permanent occupancy of the dwelling unit in the development, project, or structure of the cooperative housing corporation. **(i)** (1) The Secretary, in consultation with the advisory group established under paragraph (3)(A), shall prescribe regulations and issue guidance to assist lenders in evaluating the sufficiency of the residual income of a veteran pursuant to paragraph (2). (2) (A) Pursuant to the regulations and guidance prescribed under paragraph (1), in the case of a loan to a veteran to be guaranteed under this chapter, if the veteran provides to the lender an energy efficiency report described in subparagraph (B)— (i) the evaluation by the lender of the sufficiency of the residual income of the veteran shall include a consideration of the estimate of the expected energy cost savings contained in the report; and (ii) the lender may apply the underwriting expertise of the lender in adjusting the residual income of the veteran in accordance with the information in the report. (B) An energy efficiency report described in this subparagraph is a report made with respect to a home for which a loan is to be guaranteed under this chapter that includes each of the following: (i) An estimate of the expected energy cost savings specific to the home, based on specific information about the home, including savings relating to electricity or natural gas, oil, and any other fuel regularly used to supply energy to the home. (ii) Any information required to be included pursuant to the regulations and guidance and regulations prescribed by the Secretary under paragraph (1). (iii) Information with respect to the energy efficiency of the home as determined pursuant to— (I) the Residential Energy Service Network’s Home Energy Rating System (commonly know as ‘HERS’) by an individual certified by such Network; or (II) an other method determined appropriate by the Secretary, in consultation with the advisory group under paragraph (3), including with respect to third-party quality assurance procedures. (3) (A) To assist the Secretary in carrying out this subsection, the Secretary shall establish an advisory group consisting of individuals representing the interests of— (i) mortgage lenders; (ii) appraisers; (iii) energy raters and residential energy consumption experts; (iv) energy efficiency organizations; (v) real estate agents; (vi) home builders and remodelers; (vii) consumer advocates; (viii) veterans’ service organizations; and (ix) other persons determined appropriate by the Secretary. (B) The advisory group established under subparagraph (A) shall not be subject to the Federal Advisory Committee Act (5 U.S.C. App.).11 See References in Text note below. (4) The Secretary shall ensure that marketing materials that the Secretary provides to veterans with respect to loans guaranteed under this chapter include information regarding the use of energy efficiency reports under this subsection. (5) Not later than one year after the date on which the Secretary issues the regulations and guidance pursuant to paragraph (2), and every year thereafter, the Secretary shall submit to Congress and make publicly available a report that includes the following information for the year covered by the report: (A) An enumeration of the number of loans guaranteed under this chapter for which a veteran provided to the Secretary an energy efficiency report under this subsection, including the number of such loans for which cost savings were taken into account pursuant to paragraph (1). (B) Of the number of loans enumerated under subparagraph (A), an enumeration of the default rates and rates of foreclosure, including how such enumeration compares with the default rates and rates of foreclosure for guaranteed loans for which no energy efficiency report is provided.