FARGO VA FEDERAL CREDIT UNION
POLICY MANUAL
HOME EQUITY LOANS
I. The maximum home equity line of credit granted on any primary residence is $80,000.00.
II. No more than 20% of Credit Union assets will be advanced toward home equity loans.
III. An open-end line of credit will be established for each home equity loan.
A. The line of credit will be determined according to the following formula:
1. Estimated market value of home less any existing mortgages times 80%. The estimated value of the home will be determined from any of the three following documents:
a. Current tax statement market value.
b. A copy of a certified appraisal not more than 2 years old.
c. An appraisal (non-certified) of the home not more than 1 year old.
2. An available line of credit must be at least $7,500 to qualify for a home equity loan.
B. The initial advance must be at least $5,000. Subsequent advances must be at least $500.
IV. Determining the interest rate
A. The interest rate is variable. It will change January 1 and July 1 of each year, based on 1.0% below the Prime Rate 15 days prior (June 16 and December 17) to the date of the rate change.
B. The rate will always be rounded up to the nearest 0.25%. The maximum rate that can apply is 16.0% APR and the minimum rate will be 6.0% APR. There is no limit to the amount the rate can increase or decrease with each rate change.
V. Authorizations
A. Credit Union CEO is authorized to approve home equity lines of credit for members meeting the following debt ratios:
1. Housing expense to gross income - 30%
2. Monthly debt to income ratio - 40%
B. Lines of credit must be signed by the CEO of the Credit Union for review by the Supervisory Committee.
Home Equity Loans
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VI. Draw period
A. The draw period of a home equity loan is the period during which the borrower may obtain advances. Advances are additional money loaned (advanced) to the member within the established line of credit.
B. The initial draw period is 5 years. It may be renewed or extended at the discretion of the Loan Officer with a maximum extended draw period of five years.
VII. Repayment period
After the draw period the outstanding balance must be repaid and no further advances are allowed.
VIII. Payments
A. Payments during the draw period will be calculated at the interest rate in effect at the time of each advance, based on the outstanding balance after the advance according to the repayment schedule below.
B. Payments during the repayment period of a Home Equity Loan will be based on the balance at the time of last advance during the draw period according to the repayment schedule below.
C. Payments will be adjusted when the interest rate increases.
D. Payments will be rounded up to the nearest dollar.
E. Minimum payment is $100 per month.
IX. Repayment Schedule
$1.00 - $10,000.00 up to 60 monthly payments
$10,000.01 - $20,000 .00 up to 120 monthly payments
$20,000.01 + up to 180 monthly payments
X. Fees
All fees to establish a line of credit will be paid by the member. These may include:
A. Abstract update
B. Attorney opinion
C. Appraisal
D. Credit report
E. Any fees associated with establishing the line of credit
Home Equity Loans
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XI. Insurance requirements of property
A. All home equity loans made, increased, extended, or renewed after January 1, 1996 will have a "Flood zone determination" done and "Life of Loan" tracking will be obtained by the Credit Union.
B. If property is found to be within a flood zone, the member will be required to purchase flood insurance within one month of that determination.
C. All home equity loan files will be documented with proof of property insurance with the Credit Union listed as lienholder.
XII. Loan Exceptions
In Cases warranting special consideration, the CEO may approve loans outside this policy. Reasons will be documented in the loan file and reported to the Board of Directors in writing.
Approved by the Board of Directors: 5/23/95
Reviewed: 8/00; 10/01; 7/02; 7/03; 12/07; 12/10; 7/12
Revised: 10/95; 7/96; 9/99; 4/05; 5/06; 8/07