Section 2
VA Product Highlights
Page
Fixed Rate Brief
1
Adjustable Rate Brief
2
Fixed Rate Program Profile
3&4
ARM Program Profile
5&6
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Index - Section 2
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VA PRODUCT BRIEF
VA FIXED RATE
A Fixed Rate Loan that provides the eligible Veteran with level principal and interest payments
over the term of the loan.
Features
*
Can be used for Purchases, Rate and Term and Cash Out Refinances, with restrictions
*
15 and 30 Year Terms
*
Available for 1-4 unit primary residence, VA approved Condos and PUDs
*
Processing options as per VA guidelines
*
VA guaranteed
*
100% financing available to eligible Veterans
Selling Points
*
100% financing available
*
No prepayment penalty
*
Easier qualification requirements-based on residual income calculation
*
Interest rate is constant throughout the mortgage term
*
Monthly payment amount is constant
*
Borrower can budget for monthly payments with no risk of change to rate, term or
payment
Potential Borrowers
*
Across the board potential for eligible veterans
*
Must have Certificate of Eligibility
*
Unmarried spouse of Veteran eligible
Investor Requirements
*
Maximum Loan Amount based on VA limits (limited to amount shown on Certificate of
Reasonable Value) not to exceed Freddie Mac lending limits
*
Housing expenses (PITI) plus recurring obligations (10 months or over) should be under
41% (Some exceptions apply)
*
Assumable to qualified buyers with fee and VA approval
*
Reserves as per VA guidelines
*
Buydowns - permitted with restrictions
*
No mortgage insurance - VA guarantees loan
*
VA Funding Fee required-payable upfront but may be financed
*
No monthly funding fee
*
Alta Form 6 Title Insurance required
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VA PRODUCT BRIEF
VA Hybrid ARM LOAN
Effective December 1-, 2004, Circular 26-04-12, announced that the VA would now guarantee
Hybrid ARM loans; i.e., 3/1, 5/1, 7/1 or 10/1 ARM products. This program has been extended
through September 30, 2012 (Circular 26-08-19, 10/16/08)
Features
*
Can be used for Purchases, Rate and Term and Cash Out Refinances, with restrictions
*
15 and 30 Year Terms
*
Available for 1-4 unit primary residence, VA approved Condos and PUDs
*
Processing options as per VA guidelines
*
VA guaranteed
*
100% financing available to eligible Veterans
Selling Points
*
100% financing available
*
No prepayment penalty
*
Easier qualification requirements, borrower is qualified at lower start rate.
*
Initial interest rate remains constant for the first 3, 5, 7 or 10 years
*
For loans with an initial interest rate change of less than 5 years, the initial adjustment is
limited to 1% adjustments annually, 5% lifetime
*
For loans with an initial interest rate change of 5 years or more, the initial adjustment is
limited to 2% and the life of loan adjustment will be limited to 6%.
Potential Borrowers
*
Across the board potential for eligible veterans
Investor Requirements –
Be sure to check with your investor, not all investors offer these
products.
*
*
*
*
*
*
*
*
Maximum Loan Amount based on VA limits (limited to amount shown on Certificate of
Reasonable Value)
Housing expenses (PITI) plus recurring obligations (10 months or over) should be under
41% (Some exceptions apply)
Assumable to qualified buyers with fee and VA approval
Reserves as per VA guidelines
Buydowns –
not permitted with Hybrid ARM loans
No mortgage insurance - VA guarantees loan
VA Funding Fee required
Alta Form 6 Title Insurance required
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FIXED RATE VA PROGRAM PROFILE
Description:
A fixed rate loan partially guaranteed by the U.S. Department of Veteran’
s Affairs and
available to qualified Veterans that provides the borrower with level principal and interest
payments over the term of the loan with little or no down payment.
Terms: 10 Year minimum to 30 Year maximum
Eligible Properties Primary residence 1-4 units
When purchasing a primary residence, there are no limitations on the number of
properties the borrower can have financed, so long as they are not financed with VA
mortgages.
Eligible Borrower For VA home loan purposes, a veteran is a person who served in the active military,
naval, or air service, and who, except for a service member on active duty, was
discharged or released from active duty under conditions other than dishonorable. The
unremarried surviving spouse of an eligible person who died as a result of service or
service-connected injuries may also be considered to be a veteran for certain benefits
under title 38, U.S.Code. For Service Eligibility refer to VA Lenders Handbook, Section
2.05. The veteran must provide the Eligibility Certificate at time of application.
Effective 1-11-00 (Circular 26-00-01) restores the reinstatement of Loan Guaranty
for remarried surviving spouses of veterans upon termination of their remarriage.
Property Types Single Family Detached and Attached, Condo’
s and PUD’
s. Note: Condo’
s and PUD’
s
must be VA approved.
Energy Efficient Improvements Purchase: Up to $3,000. In energy efficient improvements may be added to a purchase
loan. Up to $6,000. in energy efficient improvements may be added to purchase loans if
the increase in the monthly payment of principal and interest does not exceed the
probable reduction in monthly utility costs resulting from the energy efficient
improvements. Local utility companies can be used as a source of information for
documenting probable utility costs.
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Refinance: The loan may not exceed 90% of the appraised value plus the cost of the
energy efficient improvements. (Reasonable value X .90 + cost of improvements)
VA will guarantee an energy efficient mortgage in the same proportion as a loan not
including energy improvements. The charge to the veteran’
s entitlement will be based on
the loan amount before adding the cost of energy improvements. (See Section 5 of this
manual for further details on VA’
s Refinance program.)
The Funding Fee must be calculated on the full loan amount, including the cost of
energy improvements.
Temporary Buydowns
- Maximum first year buy down rate is 3% below the Note Rate
- Maximum buydown term:
3 years for Seller funded buy down
2 years for Lender funded buy down
2 years for Borrower funded buy down
- Maximum Rate increase - 1% annual
- Qualification Rate
Must Qualify at Note Rate
Documentation - Alternate Doc. Is acceptable.
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Hybrid ARM VA PROGRAM PROFILE
Description:
An Adjustable Rate Mortgage loan partially guaranteed by the U.S. Department of
Veteran’
s Affairs and available to qualified Veterans that provides the borrower with
principal and interest payments that are subject to a 1% annual increase following the
initial term of the loan with little or no down payment.
Hybrid ARM’
s will specify an initial rate of interest that is fixed for a period of at least 3 years.
After that the rate can be adjusted annually. Annual adjustments are limited to 1%, and the
maximum increase in the interest rate over the life of the loan is capped at 5%. If the initial
contract interest rate remains fixed for 5 years or more, then the initial adjustment is limited to
2% with a lifetime adjustment of 6%.
Interest Rate Index: The index for VA Hybrid ARMs will be the same as that used by HUD
which is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of
1 year.
Margins: VA will not dictate what margin lenders must use when processing Hybrid ARM
loans. It is expected that market conditions will determine what the appropriate margin should
be.
Frequency of Interest Rate Changes: Interest rate adjustments must occur on an annual basis,
except that the first adjustment period may occur no sooner than 36 months from the date of the
borrower’
s first mortgage payment.
Pre-loan Disclosure: The lender is required to explain the nature of the obligation to the
borrower in writing at the time of the loan application. The borrower must certify that he or she
fully understands the obligation. A copy of the signed certification should be retained as part of
the loan application package. The lender disclosure must include:
1. The fact that the mortgage interest rate may change, and an explanation of how changes
correspond to changes in the interest rate index;
2. Identification of the interest rate index, its source of publication and availability;
3. The frequency (i.e. annually) with which interest rate levels and monthly payments will
be adjusted, and the length of the interval (36 months) that will precede the initial
adjustment;
4. A hypothetical monthly payment schedule that displays the maximum potential increases
in monthly payments to the borrower over the first 5 years of the mortgage, subject to the
provisions of the mortgage instrument.
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Underwriting: Hybrid ARMs are underwritten at the note rate. Because the interest rate will
remain the same for at least 3 years, there is no need to underwrite at a higher rate in anticipation
of a possible rate increase within 12 months.
Temporary Buydowns: Lenders may not use temporary buydowns in connection with Hybrid
ARM loans.
Loan Assumptions: For VA Hybrid ARMs that are later assumed, the lender must provide the
transferee with the same disclosure noted at (4) above.
VA Loan Summary Sheet, VA Form 26-0286: This form has been revised to accommodate the
new Hybrid ARM loan. (Exhibit 30-1 and 30-2)
Eligible Properties - Primary residence 1-4 units
When purchasing a primary residence, there are no limitations on the number of
properties the borrower can have financed, so long as they are not financed with VA
mortgages.
Eligible Borrower –
Same as under Fixed Rate VA Loan Program
Property Types Single Family Detached and Attached, Condo’
s and PUD’
s. Note: Condo’
s and PUD’
s
must be VA approved.
Energy Efficient Improvements –
Same as under Fixed Rate VA Loan Program
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Section 3
Borrower Qualifications
Page
Qualifying Ratio’
s
Employment
Active Duty Status
Base Pay analysis & Quarters Allowance
Reserves and/or National Guard
Income Reliability
Recently Discharged Veterans
Alimony, Child Support, Maintenance Payments
Self-employed
Rental Income
Income from Foster Care
Overtime, Commission income, Alimony and Child Support income
Trailing Spouse, auto allowance and other income
Gifts
Seller Contributions
Debts & Obligations
Child Care Expenses & Alimony payments
Bankruptcy and Foreclosure
401K and Cash Value Life Insurance
Absence of Credit History
Compensating Factors
Debt Obligations with the Federal Government
Rate Increase before Closing
Joint Loans
Mortgage Credit Certificates
Cash Requirements
The Eligibility Certificate
Obtaining the Eligibility Certificate
Allowable Closing Costs
W/sec3Index/08-02-07
Index - Section 3
1
2
2
3
4
5
5
6&8
6
7
7
8
9
10
10
10
11
11
11
11
12
12
13
13
14
14
15
15
16 & 17
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QUALIFYING RATIO’
S
Ratios are based on residual income, which is considered to be income remaining after payment
of debt, PITI, maintenance and utilities, and taxes (federal, state, social security, and local taxes)
where applicable. The housing and debt ratio is 41%.
The ratio may exceed 41%; however, a written statement from the underwriter’
s supervisor is
required to allow a VA applicant to exceed VA’
s maximum ratio of 41% for total obligations-toincome unless the applicants residual income exceeds guidelines by 20% or more. If the
applicant or spouse is an active duty service person, and there is a clear indication that the
applicant or spouse will continue to receive benefits resulting from the use of facilities on a
nearby military base, reduce the residual figures by a minimum of 5%.
All members of the veteran’
s household must be included in determining that the residual
income is in line with the guideline for family size. Even if the veterans spouse will not be
included in the title or obligated on the note, unless there is verifiable income (not otherwise
considered in the loan analysis) available to offset the portion of the residual income guideline
attributable to that spouse. The same applies to children of a previous marriage who, while not
the veteran’
s legal dependents, reside with the veteran and are members of the veteran’
s
household.
Minimum Family Support Requirements
For use in the Residual Formula
(Effective 11-13-97)
For Loans $79,999. and under
1.
$390.
2.
$654.
3.
$788.
4.
$888.
5.
$921.
Each additional member add $75.
(Up to 7 people)
For Loans $80,000. And above
1.
$450.
2.
$755.
3.
$909.
4.
$1,025.
5.
$1,062.
Each additional member add $80.
(Up to 7 people)
Use Worksheet, Exhibit 2 to qualify all VA applicants.
Note: 1) Foster children are not considered in the head count.
2) The above family support requirements are for the Northeast Region only.
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Employment
A minimum of 2 years employment must be verified. An explanation is required on any
gap in employment during the most recent 2 year period.
Verification of employment may be in the form of VA Form 26-8497, (Request for
Verification of Employment.) Alternate documentation is allowed via W-2 forms and
pay stubs covering the most recent 30 day period. The lender must obtain a telephone
verification of current employment for both borrowers.
The alternative documentation of employment may not be used if the employer is not
willing to give telephone confirmation of employment or if the pay stubs or W-2 forms
are in any way questionable as to their authenticity. In such case, standard written
verification of employment is required.
Active Duty Applicants
If the veteran borrower is on active duty, a military LES (Leave & Earnings Statement) is
required instead of an employment verification as long as the LES contains essentially all
information provided on VA Form 26-8497. An LES must be no more than 120 days old
and must be the original or a lender-certified copy of the original. For loans closed
automatically, this requirement is satisfied if the date of the LES is within 120 days of the
date the note is signed. NOTE: The Department of Defense provides service members
access to computer generated LES through MyPay. This is acceptable.
Service members within 12 months of release from active duty will require certain
additional information. Examination of an enlisted service members LES or an officers
order will show the date of expiration of the service members current contract for active
service. When that date is within 12 months of the anticipated date that the loan will
close, the loan package must include one of the following in order to be approved:
1. Documentation that the service member has in fact already re-enlisted or extended
his/her period of active duty to a date beyond the 12 month period following the
projected closing of the loan.
2. Verification of a valid offer of local civilian employment following release from
active duty. All data pertinent to sound underwriting procedures (date employment will
begin, earnings, etc.) must be included.
3. A statement from the service member that he/she intends to reenlist or extend his/her
period of active duty to a date beyond the 12 month period following the projected loan
closing date,
and
a statement from the service members commanding officer confirming that the service
member is eligible to reenlist or extend his/her active duty as indicated and that the
commanding officer has no reason to believe that such reenlistment or extension of active
duty will not be granted.
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Active Duty Applicants: (continued)
4. Other unusually strong positive underwriting factors, such as:
a) A down payment of at least 10 percent.
b) Significant cash reserves
c) Clear evidence of strong ties to the community coupled with a non-military spouse’
s
income so high that only minimal income from the active duty service member is needed
to qualify.
Analysis: Base Pay
Consider the borrowers base pay as stable and reliable
EXCEPT
If the borrower is within 12 months of release from active duty:
Analyze the additional documentation submitted.
If the borrower will not be re-enlisting, determine:
Whether the borrowers anticipated source of income is stable and reliable
AND/OR
Whether unusually strong underwriting factors compensate for any
unknowns regarding future sources of income.
Verification: Military Quarters Allowance
To use military quarters allowance in the underwriting analysis, obtain:
* DD Form 1747, Status of Housing Availability, indicating that item b (Permanent) or
item d of that form apply. This form serves as notice that:
Quarters will not be made available to the borrower OR
The borrower is authorized to make permanent arrangements for nonmilitary
housing.
DD Form 1747 is not required in either of the following circumstances:
* When the borrowers duty assignment clearly qualifies the borrower for quarters
allowance. Examples include:
Personnel stationed overseas whose families remain stateside, recruiters on
detached duty, and military personnel stationed in areas where no-base housing
exists. Include an explanation with the loan submission of the circumstances
justifying the omission of the form.
OR
When VA has established that the waiting lists for on-base housing in a particular
geographic area are so long that it is improbable that individuals desiring to
purchase off-base housing would be precluded from doing so in the foreseeable
future.
VA issues a release to all lenders in the jurisdiction to inform them of its
determination.
OR
When the veteran is purchasing a home in any of the New England states or
the state of New York.
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Analysis: Military Quarters Allowance
The lender may include a military quarters allowance in effective income if properly verified. In
most cases there will be an additional variable housing allowance, which can also be included.
* The military quarters and variable housing allowances are not taxable income.
* Ensure that the borrower meets the occupancy requirements as stated in Section 5 of
VA Handbook, Chapter 3.
Verification: Subsistence and Clothing Allowance
Any subsistence (rations) and clothing allowances are indicated on the LES statement.
The lender may include verified allowances in effective income.
* These allowances are not taxable income.
* NOTE: The clothing allowance generally appears on the LES as an annual
amount and must be converted to monthly for the loan analysis.
Verification: Other Military Allowances
To consider a military allowance in the underwriting analysis, obtain verification of the type and
amount of the military allowance, and how long the borrower has received it.
Examples include pro-pay, flight or hazard pay, overseas pay and combat pay.
* All of these are subject to periodic review and/or testing of the recipient to
determine continued eligibility.
* These types of allowances are considered taxable income by the IRS.
Military allowances may be included in effective income only if such income can be
expected to continue because of the nature of the recipients assigned duties. (Example:
Flight pay verified for a pilot.) If duration of the military allowance cannot be
determined, this source of income may still be used to offset obligations of 10 to 24
months duration.
Reserves or National Guard
Income from service in the Reserve or National Guard may be included in effective income if the
length of the borrowers total active and Reserve/Guard service indicates a strong probability that
the Reserve/Guard income will continue.
Otherwise, this income may be used to offset
obligations of 10 to 24 months.
Lenders must ask every applicant if their income is subject to change due to pending activation.
When a borrower indicates that they have received notification of pending activation the
underwriter must consider carefully the effect on their income if:
·
·
Reduced income, carefully evaluate the impact the reduction may have on the
borrowers ability to repay the loan
Increased income, consider the likelihood of continuance beyond 12 months.
There are no clear cut procedures that can be applied to all cases. Evaluate all aspects of each
individual case, including credit history, assets, overall employment history and make the best
decision for each loan regarding the use of income in qualifying for the loan.
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It is extremely important that loan files be thoroughly documented as to the reasons for using or
not using reservist income in these situations.
Weigh the desire to provide the veteran their benefit with the responsibility to ensure that the
veteran will not be placed in a position of financial hardship.
Lenders may always contact their local VA Regional Center for assistance.
Income Reliability
It must be concluded that income will continue during the foreseeable future to determine the
borrower’
s ability to meet the mortgage payments.
Income from annuities, pensions, disability, retirement benefits or from part-time employment
may be used if it is continuous and will continue in the foreseeable future. Generally such
income cannot be considered reliable unless it has continued for 2 years. The hours of duty and
other work conditions of the applicants primary job, and the period of time in which the
applicant was employed under such arrangement must permit a clear conclusion that such
employment can and will continue.
Income from overtime work, if verified for 12 months, but less than 24 months, may be used to
offset payments due on debts of an intermediate term; i.e., 10 to 24 months. Pension, disability
income, or compensation and income from stock dividend, interest from bonds, savings
accounts, or other deposits, rents, royalties, etc. may also be used to offset intermediate term
debts if it cannot be reasonably expected to continue for the foreseeable future.
Recently Discharged Veterans
If the borrower has been employed in a position for only a short time, obtain a statement
from the employer that the borrower is performing the duties of the job satisfactorily and
the probability of continued employment is favorable.
Analyze prospects for continued employment as follows:
* If the duties of the borrower performed in the military are similar or directly related to
the duties of the present position, use this as one indicator the employment is likely to
continue.
* If the applicants current job requires skills for which the borrower has had no training
or experience, greater time in the current job may be needed to establish stability.
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Alimony, Child Support, Maintenance Payments
Such payments are considered as income to the extent that they are likely to continue for
a minimum of 5 years. If an applicant chooses to reveal income from alimony, child
support, or maintenance payments (after first having been informed that any such
disclosure is voluntary pursuant to Regulation B), such payments are considered as
income to the extent that the payments are likely to continue. Factors to be considered in
determining the likelihood of consistent payments include, but are not limited to:
Whether the payments are received pursuant to a written agreement or court decree; the
length of time the payments have been received; the regularity of receipt; the availability
of procedures to compel payment; and the creditworthiness of the payor, including the
credit history of the payor when available under the Fair Credit Reporting Act or other
applicable laws. However, the Fair Credit Reporting Act (15 U.S.C. 168 lb) limits the
permissible purposes for which credit reports may be ordered, in the absence of written
instructions of the consumer to whom the report relates.
Self Employed
Income from self-employment is considered when the applicant has been in business for
at least 2 years. Less than 2 years, but more than 1 year, may be considered if the
borrower has had previous related employment and/or extensive specialized training.
Self-employment income requires the following documentation:
1.
Current financial statements to include a year-to-date profit & loss statement and
a balance sheet. Note: The financial statements must be sufficient for a loan
underwriter to determine the necessary information for loan approval. The lender
may require accountant-prepared statements or financial audited by a CPA, if
needed, to make such a determination due to the nature of the business or the
content of the statements.
2.
Signed and dated Federal Tax Returns, plus all schedules for the previous 2 years.
3.
If the business is a corporation or partnership, copies of signed Federal business
tax returns for the previous 2 years, with all schedules. A list of stockholders or
partners showing the interest each holds in the business must be included.
See Chapter 4, section 4.02 of VA Pamphlet 26-7 - Revised.
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Rental Income:
Multi-unit subject Property: When the loan pertains to a structure with more than a one-family
dwelling unit, the prospective rental income will not be considered unless:
a)
the veteran can demonstrate a reasonable likelihood of success as a landlord, and
b)
sufficient cash reserves are verified to enable the veteran to carry the mortgage
loan payments (PITI) without assistance from the rental income for a period of at
least 6 months.
The determination of the veterans likelihood of success as a landlord will be based on
documentation of any prior experience in managing rental units, or other background
involving both property maintenance and rental or other collection activities.
The amount of rental income to be used in the loan analysis will be based on 75% of the
prior rental history of the units as verified by the sellers financial records (e.g. prior years
tax returns) for existing structures. Adjustments will be applied to reduce estimated gross
rental income by proper allowances for operating expenses and vacancy losses.
Rental of Existing Home: Proposed rental of a veterans existing property may be used to
offset the mortgage payment on that property, provided there is no indication that the property
will be difficult to rent. If available, a copy of the rental agreement should be obtained. It is the
responsibility of the loan underwriter to be aware of the condition of the local rental market. For
instance, in areas where the rental market is very strong the absence of a lease should not
automatically prohibit the offset of the mortgage by the proposed rental income.
Other Rental Property: If rental from other rental property will be used to qualify for the new
loan, then the documentation required of a self-employed applicant should be obtained together
with evidence of cash reserves equaling 3 months PITI on the rental property. As for any selfemployed earnings, depreciation claimed may be added back in as income on line 39 of VA
Form 26-6393. In the case of a veteran who has no experience as a landlord, it is unlikely that
the income from a rental property may be used to qualify for the new loan.
Income from Foster Care - Income from Foster Care may be used to offset the cost of the child
and cannot be added to income. However, the foster child is not considered in the head count
for family support.
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Overtime, Part-time jobs, Second jobs and bonuses:
Generally such income cannot be considered stable and reliable unless it has continued (and is
verified) for 2 years.
To include income from these sources as effective income, the income must be regular and
predictable. There must be a reasonable likelihood that it will continue in the foreseeable future
based on:
its compatibility with the hours of duty and other work conditions of the borrowers
primary job, and how long the borrower has been employed under such arrangement.
The lender may use this income, if it is not eligible for inclusion in effective income, but is
verified for at least 12 months, to offset debts of 10 to 24 months. The lender must include an
explanation.
Commission income:
When all or a major portion of the borrowers income is derived from commissions, the lender
must obtain the following documentation:
* Verification of employment or other written verification which provides the actual
amount of commissions paid year-to-date.
* The basis for payment (i.e., salary plus commission, straight commission, or draws
against commission).
* When commissions are paid (i.e., monthly, quarterly, semiannually, or annually)
PLUS
* Individual income tax returns, signed and dated, plus all applicable schedules for the
previous 2 years (or additional periods if needed to demonstrate a satisfactory earnings
record).
Generally, income from commissions is considered stable when the applicant has obtained such
income for at least 2 years. Less than 2 years cannot usually be considered stable unless the
applicant has had previous related employment and/or extensive specialized training.
Less than 1 year can rarely qualify. In-depth development is required for a conclusion of stable
income on less than 1 year.
Income from Alimony, child support and maintenance payments:
If the applicant wants this type of income to be considered, it must be verified. The payments
must be likely to continue in order to include them as effective income. Consideration needs to
be given to the following:
Whether the payments are received pursuant to a written agreement or court decree
The length of time the payments have been received
The regularity of receipt
The availability of procedures to compel payment
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Trailing spouse:
VA does not have any provision for the “
trailing spouse.”
In cases of re-location, the spouse
must have a signed contract for employment and must have started work with the new employer
before loan closing.
Automobile or similar allowances:
Generally, automobile allowances are paid to cover specific expenses related to employment, and
it is appropriate to use such income to offset a corresponding car payment.
However, in some instances, such an allowance may exceed the car payment. With proper
documentation, income from a car allowance which exceeds the car payment can be counted as
effective income. Likewise, any other similar allowance which exceeds the specific expenses
involved may be added to gross income to the extent it is documented to exceed the actual
expense.
Other types of income:
If it is reasonable to conclude that such income will continue in the foreseeable future, include it
in effective income; otherwise, consider if it is reasonable to use the income to offset debt
obligations of 10 to 24 months duration.
Such other types of income might be:
Pension or retirement benefits
Disability income
Dividends from stocks
Interest from bonds, savings accounts, etc.
Royalties
The lender may include verified income from public assistance programs as effective income if
evidence indicates it will probably continue for 3 years or more.
Workers compensation income that will continue in the foreseeable future may be considered.
Do not include temporary income items such as VA education allowances and unemployment
compensation as effective income. Exception - if unemployment income is a regular part of the
applicants income due to the nature of his or her work (seasonal work), it may be included.
For further details on income - See Chapter 4.02 of VA’
s Lenders Handbook (Pamphlet 26-7)
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Gifts
A gift may be provided to the Veteran for the entire down payment, closing costs and pre-paid
expenses. The gift must come from a relative of the Veteran.
Seller Contributions
Total seller contributions may not exceed 4% of value. Seller contributions include any portion
of the funding fee, prepaids, escrowed funds to provide temporary interest rate buy-downs, or
payoff of credit balances on behalf of the borrowers. Normal discount points and payment of the
buyers closing costs are not considered seller concessions for the purpose of determining the
four percent limit. (See VA Lenders Handbook Sec. 8.05 for details)
Debts and Obligations
All known debts must be reflected on the application. Installment debts must be used in
the qualification formulas if there are 10 or more payments remaining.
Any accounts with less than 10 months remaining which require monthly payments so
large as to cause an impact on the borrowers resources for any period of time must still be
considered in the loan analysis. For example, monthly payments of $300. on an auto loan
with a remaining balance of $1500. would be included in the loan analysis even though
only 5 months remain. It is clear in this case, that the borrower must carry the burden of
a $300. payment for the first, most critical months of the mortgage.
If a married veteran wants to obtain the loan in his or her name only, the veteran may do
so without regard to the spouses debts and obligations in a non-community property
state. However, in community property states, the spouses debts and obligations must be
considered even if the veteran wishes to obtain the loan in his or her name only.
Debts assigned to an ex-spouse by a divorce decree will not generally be charged against
a veteran-borrower. (This includes debts that are now delinquent) (See 5.15 - Change 34,
issued 11-13-97).
Borrower as co-obligor on another debt:
The borrower may have a contingent liability based on co-signing a loan. However;
* IF there is evidence that the loan payments are being made by someone else
* AND there is no reason to believe that the applicant will have to participate in
repayment of the loan
* THEN the lender may exclude the loan payment from the monthly obligations factored
into the net effective income calculation in the loan analysis.
Pay-stub Debt:
When a pay stub or leave-and-earnings statement indicates an allotment, the lender must
investigate the nature of the allotment to determine whether the allotment is related to a
debt.
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Child Care Expenses should be developed and considered as a monthly debt on VA
loans. If the child is age 11 or older, no expense is necessary. If any children are 10 or
under, an explanation of child-care must be included and any expense must be included
in monthly debt obligations.
Child Support & Alimony payments, if there are payments to be made, beyond 10
months, the monthly obligation must be included in the veterans debts for purpose of
qualifying. Remember though, if the children are not living with the veteran, they should
not be included in the head count for the family support requirement.
Bankruptcy
The borrower must provide complete information on the facts and circumstances of the
bankruptcy. The bankruptcy must have been discharged for 2-3 years unless both of the
following requirements are met:
a) The borrower or spouse has obtained consumer items on credit subsequent to
the bankruptcy and has made satisfactory payments over a continued period.
b) The bankruptcy was caused by circumstances beyond control; i.e.
unemployment, prolonged strikes, medical bills not covered by insurance. The
circumstances must be verified.
If the bankruptcy was caused by self-employment, it must be shown that the failure of the
business was not due to misconduct.
Foreclosure
The fact that a home loan foreclosure exists in an applicants credit history does not in
itself disqualify the loan. Develop complete information on the facts and circumstances
of the foreclosure and apply the guidelines provided for bankruptcies filed under the
straight liquidation and discharge provisions of the bankruptcy law.
If the foreclosure was on a VA loan, the applicant may not have full entitlement available
for the new loan. Ensure that the applicants Certificate of Eligibility reflects sufficient
entitlement to meet any secondary marketing requirements of the lender.
401 K and Cash Value Life Insurance
If the borrower has obtained funds from either a 401K or Cash Value Life Insurance, the
VA does not debt them for the debt obligation of any re-payment arrangements that may
be necessary. VA treats these debts, the same as FHA does.
Absence of Credit History
The reason for such absence must be explained and the underwriter must develop
evidence of timely payment of obligations such as rent and utilities. An offset to the
absence of credit would be evidence of systematic savings.
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Compensating Factors
When reviewing marginal loans with respect to residual income or the debt-to-income
ratio, the following examples of compensating factors should be considered:
Excellent long-term credit
Conservative use of consumer credit
Minimal consumer debt
Long-term employment
Significant liquid assets
Sizable down payment
Existence of equity in refinanced loans
Little or no increase in housing costs
Down payment or equity in property
Military benefits
Satisfactory home ownership experience
High residual income
Low debt-to-income ratio
Tax credits for child care
Tax benefits of home ownership
Debt Obligations with the Federal Government
The borrower must sign VA Form 26-8937, Verification of VA Benefit-Related
Indebtedness at the time of application to allow the lender to verify the veterans status of
debt obligations with the Federal Government. (Details of the results of this search are
found in VA Pamphlet 26-7, Chapter 5, Pages 42 - 44)
NOTE: Effective February 4, 1998 (Change 36), Form 26-8937 (Exhibit 18) is no longer
required on ALL VA loans because the CAIVRS system provides the debt information.
It is only required:
* When the Veteran is receiving VA disability benefits
* When the Veteran indicates they would be entitled to VA disability payments
* When the Veteran indicates they have received VA disability in the past
* When the applicant is a surviving spouse of a veteran who died on active duty
or as a result of service-connected disability.
Lenders are responsible for asking the Veteran if they fall into one of the above
categories; if so, Form 26-8937 must be processed and obtained before the loan is closed.
If the veteran meets any of these situations, the form should be submitted to determine if:
* The veteran is exempt from the funding fee
* The veteran has been rated incompetent by VA
* The veteran is receipt of pension payments (Loan must then be processed by
VA.)
* The veteran is currently on a repayment plan with VA because of a prior debt.
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Rate increase after loan approval and before closing.
If the rate increases more than 1%, the loan must be re-underwritten and approved by an
underwriter.
Joint Loans
(Always check with your investor.)
VA will allow a joint loan involving a veteran and a non-veteran who is not the veterans spouse.
The veterans income must be sufficient to repay at least that portion of the loan allocable to the
veterans interest in the property, and the non-veterans income must be adequate to cover the
balance of the payment obligation.
In joint loans, each veteran pays the fee based on his/her portion of the base loan amount. (See
7.01 in VA Pamphlet 26-7) If one of the borrowers is not an eligible veteran or is exempt from
the fee, the fee will be collected for the portion of the loan attributable to the borrower.
When the veterans share of the Eligibility Certificate does not provide 25% of the purchase price
of a property, an additional amount of cash down payment will be needed to meet investor
requirements. For example:
John Doe and Sue Smith are not married, but wish to purchase a home with Johns VA Eligibility
Certificate. John has full eligibility of $50,750. Assuming 50/50 ownership in the property,
Johns Eligibility Certificate would provide $25,375. of VA guaranty. (50% of $50,750.)
The purchase price of the property they wish to purchase is $137,000. 25% of which would be
$34,250.; therefore, they will need an additional cash down payment of $8,875. To maintain the
25% guaranty from the VA. ($34,250 less $25,375 = $8.875).
In such a case; they may be better to apply for FHA financing which would require a lower cash
down payment and would allow them to finance some of the closing costs.
If the purchase price of the property was $101,500. or less, Johns 50% share of the Eligibility
Certificate would provide the 25% guaranty from VA and no additional cash down payment
would be needed.
In addition, the qualifying ratios need to be applied separately to evidence that the income of
both borrowers is sufficient to cover their share of the mortgage payment.
If Johns income were 70% of their combined income, and they entered into an agreement that
John Doe owned 70% of the property and Sue Smith owned 30%; then 70% of Johns Eligibility
Certificate or $35,525. could be used toward the VA guaranty and no further cash down payment
would be required.
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This apportionment of equity in the property may be required to satisfy the investor or the
secondary market. However, a lenders investor has the right to not accept joint loans under the
VA program, unless the parties are married without conflicting with ECOA in regard to
discrimination based on marital status. The VA Funding Fee must be calculated on the veterans
portion of the loan. (See Section 7.01, Change 3 in VA Lender Handbook).
Joint loans must be submitted to VA for Prior approval.
MCC - Mortgage Credit Certificate
Veterans who are recipients of MCC’
s may realize a significant reduction in their income tax
liability by receiving a Federal Tax credit for a percentage of their mortgage interest payment.
The MCC will specify the rate of credit allowed and the amount of certified indebtedness; i.e.,
the indebtedness incurred by the veteran to acquire a principal residence, qualified home
improvements or rehabilitation loan.
VA treats the amount of the tax credit allowed under an MCC as a reduction in the monthly
income tax entered as item 33 on the Loan Analysis Worksheet. (Form 26-6393).
Example: A veteran having a $600.00 monthly interest payment and an MCC providing a 30%
tax credit would receive a $180.00 (30% of $600.) tax credit each month. However, because the
annual tax credit, which amounts to $2,160. (12 X $180), exceeds $2,000 and is based on a 30%
credit rate, the maximum tax credit the veteran can receive is limited to $2,000 per year or
$167.00 per month. ($2,000 / 12) As a consequence of the tax credit, the interest on which a
deduction can be taken is reduced by the amount of the credit to $433.00 ($600 - $167). This
reduction should be reflected in item 33 of Form 26-6393.
For underwriting purposes, the amount of the tax credit is limited to the amount of the veterans
maximum tax liability. If, in the above example, the veterans tax liability for the year were only
$1,500.00, the monthly tax credit would be limited to $125.00 ($1,500 / 12).
Cash Requirements:
The borrower(s) must have sufficient cash to cover:
Any closing costs or points which are the borrowers responsibility and are not financed in
the loan, AND
If a graduated payment mortgage, the down payment required, AND
If the sales price exceeds the reasonable value established by VA, the difference between
the sales price and the loan amount.
VA does not required cash reserves after closing. However, the borrowers ability to accumulate
liquid assets and their availability should be considered in the overall credit analysis.
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The VA Eligibility Certificate:
Although the Certificate of Eligibility must be restored or originals obtained if lost, it is not
necessary to update the Certificate for every loan. Older certificates which show a lower
entitlement amount but no previous use, i.e. $17,500 available - or other amount, do not need to
be updated.
VA has a new web site to update the status of a Certificate of Eligibility called WebGIL and is
located at http://vip.vba.va.gov.
To access this application, each intended user must register as a Lender or Servicer to obtain an
individual user ID and password. Current users should already have access and do not need to reregister. This is an instant automated service that will process Status Inquiries within seconds.
This service can be used for all VA loans, regardless of the property location or VA office of
jurisdiction. If the LIN Search returns information showing the Active loan to be refinanced etc.,
print the output and use in lieu of a COE.
To access the LIN Search Function:
Login and click on the WebGIL application listed under the Applications section on the left-hand
side of the screen. After the WebGIL application opens, put your cursor over the words ALL
USERS, then select Search LIN. If you have any questions, please email the VIP Helpdesk
vip@vba.va.gov for assistance
A copy of VA Forms 26-8320 & 26-8320A, (Certificates of Eligibility) are shown as Exhibits
39 and 40 in Section 10 of this manual.
a)
If the certificate is conditioned as to active duty status (Valid unless discharged or
released), the applicant must be on active duty on the day the loan is closed. The lender
must assure that the certification concerning active duty status, which is directly above
the government monitoring data on VA Form 26-1820 (Exhibit 36), is checked. If this
condition is on the certificate and the borrower has been or will be discharged prior to the
closing date, the certificate is not valid and a new unconditional certificate must be
applied for by submitting a copy of the veterans DD-214 (member 4 copy) or applicable
National Guard/Reserves documentation to VA. (A lost DD214 may be obtained by
filing Form SF180 - See Sec. 2.04 in VA Lender Handbook revised edition.
b)
If previous entitlement has been excluded solely for the purpose of refinancing an
existing VA loan with cash out, the second condition on the certificate will be checked.
The veteran may obtain this type of exclusion by submitting the following to the VA.
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1) An original VA Form 26-1880 (Exhibit 42), fully completed and signed by the
veteran; and
2) A copy of the refinancing loan application; and
3) An original, signed statement that the refinancing loan will be secured by the same
property which is security for the guaranty, and states the veteran currently owns and
occupies the property; and
4) The veterans original Certificate of Eligibility.
Although the amount of entitlement may reflect $36,000, or a lesser figure, if the entitlement has
no entries against it, the veteran is qualified for the maximum financing of $417,000. If a portion
of the entitlement amount has been used previously, and not reinstated, the veteran is generally
eligible for maximum financing in the amount of the entitlement shown X 4, as the entitlement
represent 25% of the amount to be financed.
Example: Unused entitlement remaining equals
$ 21,500.
Multiply
X4
Maximum mortgage allowable
$ 86,000.
Therefore, the entitlement = 25% of $86,000.
Whenever there is a partial entitlement, as the case above, the lender should check with the
investor purchasing the VA loan to be sure they will accept loans with partial entitlement.
Fees Chargeable to the Veteran at Closing:
The veteran may pay a 1.0% origination fee to the lender, plus reasonable discount points and
reasonable and customary amounts for any of the following items:
1)
VA Appraisal Fee, initial fee only.
The veteran cannot be charged for a second appraisal for the purpose of
reconsideration of value, unless the veteran is requesting reconsideration of
value.
Compliance inspections designated by the VA may be charged to the veteran.
2)
Recording fees.
3)
Actual cost of the credit report.
4)
Real estate taxes and assessments for the current year chargeable to the borrower plus
normal escrow deposits for the tax account.
5)
Hazard insurance required plus normal escrow deposits for the insurance account,
including flood insurance, if required.
6)
Survey or plot plan, except on condominium loans. Prior approval of a survey on a
condominium property is required from the VA.
7)
Title examination.
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8)
Title insurance, including an environmental protection lien endorsement, if needed.
9)
Reasonable discount fees to obtain a lower than market interest rate.
10)
Flood Certification
When the lender charges an origination fee, not to exceed 1 point, the lender may not charge the
veteran any of the following fees:
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
Lenders appraisal. (An appraisal separate from the usual VA appraisal.)
Lenders inspections, except in construction loan cases.
Loan closing or settlement fees.
Preparation of loan papers or conveyance fees.
Attorney’
s services other than for title work. (This is why we always recommend those
charges to be shown on the RESPA on line 1103, Title Examination.)
Photographs
Postage and other mailing charges.
Amortization schedules, pass books, etc.
Escrow fees or charges. Example: Tax service fee.
Notary fees.
Further details see VA Lender Handbook Section 8.03
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Section 4
Property Qualifications
Page
Maximum Mortgage and Loan-To-Value (LTV)
1
VA Funding Fee
2
Condominiums and PUD’
s
3-8
New construction - See Section 7 of this manual
Manufactured Homes - See Section 8 of this manual
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Maximum Mortgage and LTV
The VA has temporarily increased the maximum guaranty amount for all loans closed January 1,
2009 through December 31, 2011. The current limits are:
Type
Mortgage Amount
LTV
Purchase
up to $417,000.
100%
Note: Veteran must have full VA eligibility. Funding fee cannot result in the loan
exceeding $417,000.
Purchase
exceeding $417,000
100%
Note: The VA will guarantee up to 25% of the original principal loan amount up
to the maximum guaranty depending on the property location:
1. All states (except Alaska, Guam, Hawaii, US Virgin Islands)
Maximum guaranty is 25% up to 125% of median price for a single family not to
exceed 175% of Freddie Mac conforming loan limit.
Maximum potential loan limit is $1,094,625.
2. In Alaska, Guam, Hawaii, US Virgin Islands the maximum guaranty is:
25% of $625,000 or
125% of area median price for a single family not to exceed 175% of the Freddie
Mac conforming loan limit. Maximum potential loan limit is $1,641,937.50
To calculate the maximum loan limit for a mortgage exceeding $417,000 there is help:
1. www.fhaoutreach.com
2. scroll to the bottom of the page, select your state and county,
3. click on “
Submit”
4. multiply the median price for your county by 1.25
5. If the result is:
a. less than $417,000 then use $417,000 to calculate the maximum
b. Greater than $417,000 but less than $1,094,625 (or $1,641,937.50 in
high cost areas use the result to calculate maximum guaranty
c. Greater than $1,094,625 (or $1,641,937.50) use these bases amount to
calculate maximum guaranty
Refinances are now calculated at the same maximum guaranty as purchase money transactions.
Cash Out Refinances are now allowed to be calculated at the same maximum guaranty rate and
LTV considerations. Basically this means you can do a 100% LTV on all refinances.
Remember the VA Funding Fee must be considered in the LTV calculation.
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VA Funding Fee
The Veteran is required (unless exempt) to pay a one-time VA Funding Fee at closing. This may
be paid in cash or financed. Total loan amount inclusive of any financed funding fee may not
exceed the maximum loan amount for that specific category as indicated above. A minimum
25% guaranty is required on all loans. Interest Rate Reduction Loans (IRRRLs) are
automatically eligible for 25% guaranty.
VA Funding Fee Table
(Effective October 1, 2007)
Type of Loan
·
First Time Entitlement Only
Second and Subsequent Use
Active Duty
or Veteran
Selected Reservist
National Guard
Only
Active Duty
or Veteran
Purchase - Down payment
0 - 4.99%
2.15%
2.40%
5 - 9.99%
1.50%
1.75%
1.50%
2.25%
10.0% or more
1.25%
1.50%
1.25%
2.00%
Regular Refinance
2.15%
2.40%
3.30%
3.30%
Interest Rate Reduction Refinances
.50%
.50%
.50%
.50%
Loan Assumptions
.50%
.50%
.50%
.50%
Manufactured Home Loans
1.00%
1.00%
1.00%
1.00%
3.30%
Selected
National Guard
3.30%
The higher subsequent fee does not apply to these types of loans if the veteran’
s only prior use of entitlement
was for a manufactured home loan.
**The funding fee for a subsequent use is increased from 3.3% to 3.35% from October 1, 2006-September 30, 2007
The funding Fee is now determined on when the loan closes
There is no Funding Fee, if the veteran is disabled.
Note: Circular 26-03-9 (dated 12-17-2003) extends permanent authority for the above funding fee. Previously,
eligibility for this group was set to expire on September 30, 2009.
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Condominiums and PUD’
s
When a condominium or PUD has been reviewed and determined to be acceptable by VA, the project will be
included on a list published on the VA’
s Website. (http://condopudbuilder .vba.ba.gov)
In the future, VA no longer needs to approve PUD’
s, only condominiums.
Appraisal requests for units in these projects must include the following:
a.
b.
c.
d.
e.
f.
g.
VA Form 26-1805, copies 1-6;
A copy of the Purchase Agreement (N/A refinancing);
Minutes of the last two association or board meetings;
Current association budget;
Most recent association financial statement;
Statement by an officer of the association that specifies any existing or pending special
assessments and/or any litigation affecting the condominium or PUD;.
Floor plan of the unit to be appraised. (Condominium)
Fee appraisers will use
* Freddie Mac Form 70/FannieMae Form 1004, Uniform Residential Appraisal Report, for properties
located in a planned unit development, or
* Fannie Mae Form 1073, Individual Condominium Unit Appraisal Report, for properties located in a
condominium.
If there are any commercial or other non-residential ownership interests in the condominium, the appraisal
report must include them and their impact on the value of the residential units.
In declarant/developer controlled condominium conversions, the appraiser must
* ascertain the degree to which the converted structure and unit(s) has been or will be rehabilitated for
condominium use. The structure may have been, or is proposed to be, remodeled, renovated,
rehabilitated, modernized, or "cosmetically" refurbished, and
* provide a description of the type of work completed or proposed to be completed in the conversion
being appraised for declarant/developer sales. This information is not required in spot resales by sellers
other than the declarant/developer.
The notice of value for all properties in a PUD or condominium will be conditioned: "This property is
located in a development with mandatory membership in a homeowners' association. The lender is
responsible for ensuring that title meets VA requirements for such property and that homeowner
association assessments are subordinate to the VA-guaranteed mortgage."
In addition, the notice of value for a property in a condominium which has not been approved by VA or for
which VA approval-related requirements remain to be satisfied, will be conditioned "The lender is
responsible for ensuring that this condominium is acceptable to VA and that any condominium-related
special conditions or requirements have been met. There may be additional information in "Other
Conditions/Requirements," below.
See Lenders VA Handbook Chapter 16 for more details.
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Note: There are other regulatory-related requirements for a property in a condominium. For
example:
Condominiums are subject to pest inspections. If the unit is a garden style and is located on an
upper level (2nd floor or higher) no pest inspection is required. If it is a first floor unit or a
Townhouse style, a pest inspection is required. Exception - If the property is located in Maine,
New Hampshire or Vermont, it may not need a pest inspection - the appraiser should note if it is
needed in these states.
The following pages include the process for Condominium Approval as shown in VA Lender Handbook, Chapter 16.
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Condominium Approval Procedures, Continued
VA Decision after completing its review of the material submitted with the requests for project
approval, the VA office of jurisdiction sends a written notice of its decision to the
lender/sponsor.
When . . .
The project is approved
Then the notice will . . .
Indicate any special conditions/requirements which must
be met prior to VA guaranty of an individual loan in the
project, such as
·
·
·
Recording of documents
Pre-sale requirement, or
Completing of common areas.
Note: There is no formal VA approval letter for projects
accepted by VA based on their approval by HUD or
USDA.
There were
Explain what further documentation is needed.
·
·
Note: V will then suspend processing pending receipt of
the needed information or material.
Missing/incomplete documents
Inaccurate/inconsistent
information, or
· Correctable deviations from VA
requirements
The project is unacceptable
State the reason.
Note: When there are objectionable provisions related
to unreasonable retained controls or rights of the
declarant/developer, and it is difficult to amend the
documents, VA may consider a separate recorded
agreement from the declarant/developer relinquishing
the objectionable provisions.
Document Amendments after Project Approval:
VA recommends that declarants have amendment procedures for the declaration or equivalent
document, amendable by an instrument approved by not less than 67 percent of unit owners. The
association must request VA approval of proposed amendments prior to recordation.
VA approval of any amendments to the declaration, bylaws, or other enabling documentation is
required while the declarant is in control of the homeowner's association. A written statement
signed by an officer of the Association's Board of Directors and submitted with VA Form 261844, is required as evidence of approval.
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Changes made by the declarant prior to the first sale in a condominium project may require
amendment of the organizational documents.
Note: VA approval is not required for amendments which annex additional phases to the
condominium in accordance with a development plan previously accepted by VA.
Mortgage Rights:
The condominium documents may specify the following rights for the holders of first mortgages,
provided the lender makes a written request to the Association for the right, and includes
·
·
·
Prior approval by first lien-holders before the Association can
· Abandon condominium status or partition or subdivide a unit or the common elements
· Change the percentage interest of unit owners, or
· Materially amend the legal documents
Timely written notice to first lien-holders of
· Any condemnation or eminent domain proceeding, and
· Substantial damage or destruction to the common elements
The right to
· Examine the association books
· Receive annual audited financial statements and record, and
· Be given notice of association meetings and be entitled to a representative at such
meetings.
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The table below identifies the documents (two copies) that the VA office of jurisdiction must
review in order to approve a particular condominium project.
Using the table: As indicated in the table, some documents are required only
· If applicable
· If the declarant is in control of the project, or
· For condominium conversion projects
The last column indicated whether or not it is acceptable to submit a draft of the document.
Recorded or existing final documents must be provided if loans have closed in the project.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Required Document
Declaration of Covenants,
Conditions and Restrictions
Bylaws for HOA
Articles of Incorporation for HOA
"Umbrella" projects, Declaration,
Bylaws and Articles of
Incorporation, as above
Plat, map and/or air lot survey of
unit(s)
Plat, map and/or air lot survey of
unit(s)
Development plan and schedule
Information or Public Offering
Statement
Grant/deed/leasehold agreement
form
State reviewing agency's report
Annexation documents
Cross-easements(s)
Facility Leases
Management agreement
Service contract (either form of r
actual)
HOA budget (existing or proposed)
Current financial statements and
reserves of project
Special assessments/litigation
statement
Minutes of last two HOA meetings
Registered architect/engineer
statement on project condition
(conversions only
W/Sec4/08-22-06
New Project
Yes
Existing Resale
Yes
Draft
Yes
Yes
If Applicable
If Applicable
Yes
If Applicable
If Applicable
Yes
Yes
Yes
Yes
Yes
Yes
If Applicable
If Applicable
Yes
Yes
Yes
If Applicable
If Applicable
If Applicable
If Applicable
If Applicable
If Applicable
If Declarant
Controls
If Declarant
Controls
If Declarant
Controls
If Applicable
If Applicable
If Applicable
If Applicable
If Applicable
If Applicable
Yes
If Applicable
Yes
If Applicable
No
No
Yes
Yes
No
Yes
If Declarant
Controls
Yes
If Declarant
Controls
No
No
Yes
Yes
Section 4, Page 7
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
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Submit as available: Although the following documents are also required, as applicable, they
may not be available for submission with the initial package. They must be submitted as soon as
available and before any lots or units in the project can be considered eligible for VA loan
guaranty.
Document
New Project
Existing Resale
Draft
21 Recorded Documents
Yes
Yes
No
22 Recorded annexation document for
Yes
Yes
No
subject phase (expandable projects
only)
23 Evidence recreational facilities
Yes
Yes
No
completed and common area
conveyed to HOA
24 Statement on adequacy of utilities
If Declarant
If Declarant
serving site (conversions only)
Controls
Controls
25 Evidence of common area title free
Yes
If Applicable
No
of financial encumbrances
26 Evidence of final local authority
Yes
Yes
No
approval and final VA inspection
(Low/High Rise and Conversions
only)
27 Lender's certification that pre-sale
Yes
Yes
No
requirement met
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Section 4, Page 8
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Section 5
VA Refinance
Page
VA to VA - Cash Out
1
Conventional to VA
1
VA to VA - Interest Rate Reduction Refinance
Requirements
1
Items needed at time of application
3
Minimum Mortgage and LTV Table
4
VA Funding Fee Table for Refinance
4
Processing Procedure
5
Comparison of VA Refinance Programs
6
W/IndexSec5/1-29-2004
Index - Section 5
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Refinance (Circular 26-08-19 effective 10/16/08)
Regular Refinances
All refinances are now subject to the maximum guaranty amount the same as purchase
mortgages.
This means that you may now finance up to 100% (including VA Funding Fee) on all refinancesno cash out and cash out up to the loan limits in Section 4.
VA to VA
Interest Rate Reduction Refinance with no cash out up to a maximum current loan
guaranty limit, including the appropriate Funding Fee.
Use Interest Rate Reduction Refinance Worksheet to calculate maximum mortgage
(Exhibit 21B.)
Eligible programs include Fixed, ARM’
s and Hybrid ARM’
s
Interest Rate Reduction Refinance Requirements –
“
IRRRL”
1.
Loan being refinanced must be a VA and
a. The interest rate must be lower than the current rate unless the IRRRL is to
refinance an ARM into a Fixed Rate.
b. P & I payment must be less than the payment on the loan being refinanced
unless:
a) the term of the new loan is shorter,
b) an ARM is being refinanced to a fixed-rate mortgage,
c) or energy efficient improvements are included in the IRRRL.
2.
The occupancy requirement for an IRRRL is different from the occupancy
requirement for other VA loans. The veteran, including the Active-duty service
member who may be stationed elsewhere, is able to satisfy the occupancy
requirement by certifying to prior occupancy. .
3.
Must have at least 25% Guaranty (See Exhibit 22 for calculations) (Reference VA
Lender Handbook, Sec. 6.01, page 6 & 7.)
4.
No cash back allowed to veteran at closing. (Any adjustments must result in less
than $50.00 at closing.
5. Proceeds may not be used to pay off any secondary liens or other debts. Maximum
loan is limited to outstanding principal balance plus closing costs, discount points and
funding fee (if required). The only exception to these prohibitions is that up to
$6,000 may be used to reimburse the veteran for the cost of energy efficient
improvements completed within 90 days immediately preceding the date of the
loan or to pay for the cost of such improvements.
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Section 5, Page 1
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Note: VA makes the lender responsible for the disbursement of funds for the
purpose of Energy Efficient Improvements. If repairs have not been made prior to
the closing of the loan, VA will allow a Holdback of the “
EE”
funds without any
additional amounts for contingency reserves. VA does not have to approve the
holdback prior to closing.
The veteran may NOT finance more than 2 discount points into the IRRRL
loan. [See Change 29 of 26-7 published by VA 2-21-97]. The veteran may
choose to pay more than 2 points; if so, the veteran must pay the additional points
in cash at closing. See Exhibit 21A for worksheet. (See 6.01, page 6-4 of VA
Handbook)
6.
New loan must be secured by same home as the old loan. The term of the new
loan may not exceed the original term of the loan being refinanced by more than
10 years, not to exceed 30 years. If the old loan was made with a 15 year term,
the term of the new loan cannot exceed 25 years.
Certain circumstances could result in a new mortgage payment equal to or greater
than the original loan. (Example: If the veteran requests a shorter term on the new
loan than the original loan.) The veteran’
s statement will signify his or her
awareness that the loan payments will not be reduced.
If the loan is refinanced for a shorter term, the resulting PITI may be higher
than the current PITI. If the monthly PITI increases by 20% or more, the lender
must: 1) determine that the veteran qualifies for the new payment from an
underwriting standpoint; such as, determine whether the borrower can support the
proposed shelter expense and other recurring monthly debt in light of income
established as stable and reliable, and 2) include a certification that the veteran
qualifies for the new monthly PITI which exceeds the previous payment by 20%
or more.
No credit underwriting is required unless, 1) the loan to be refinanced is 30 days
or more past due, or 2) the monthly PITI will increase by 20% or more.
7.
No credit underwriting or appraisal is required, even in the instance of a recent
bankruptcy. Although no underwriting is required, approval of new credit may be
required by the trustee in a Chapter 13 bankruptcy or by the investor purchasing
the new loan. (Chapter 6.01, page 6-12 of VA Lender Handbook)
8.
New loan term may be extended up to 10 years longer than that of the old term
but may not exceed 30 years. (See Chapter 6.01, page 6-8 of VA Lender
Handbook)
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Section 5, Page 2
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9.
If the veteran whose entitlement was used to obtain the existing VA loan is
deceased, regardless of the cause of death, and the veteran’
s unmarried surviving
spouse was a co-borrower; the unmarried surviving spouse is considered a veteran
for the purpose of refinancing under this program.
10.
The veteran must still own the property. The parties obligated on the original
loan must be the same on the new loan. The addition of a spouse of the original
veteran obligor is acceptable. This includes a different spouse, if there has been a
termination of the marriage that existed at the time of the original loan.
11.
A“
no money out of pocket”
rate reduction refinance may be done by including all
costs in the new loan or by setting the interest rate on the new loan high enough to
enable the lender to pay all loan closing costs. (Remember, except when
refinancing an adjustable rate mortgage to a fixed-rate mortgage, the rate on the
new loan must be lower than the loan being refinanced.).
12.
No lien other than the existing VA loan may be paid from the proceeds of the
IRRRL. It may be necessary that the holder of a second lien agree to subordinate
that lien. (See VA Lender Handbook 6.01, page 6-8)
13.
Any lender, including those without authority to process other VA loans on the
automatic basis, may process IRRRLs on the automatic basis as long as the
existing loan is not in default.
14.
If the existing loan is 30 days or more past due, the IRRRL must be submitted as a
prior approval. (See 6.02, page 6-15 of VA Lender Handbook).
15.
When submitting an IRRRL to refinance a delinquent VA loan for prior approval,
include documentation to show that:
The cause of any past due payment(s) on the existing loan has been resolved,
AND
The veteran qualifies for the IRRRL from the standpoint of income and credit.
16.
W/Sec5/10-20-08
If the existing loan was assumed by a veteran who substituted his/her entitlement,
the veteran transferee may refinance the loan under the IRRRL program.
Section 5, Page 3
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Items Needed at Application for Refinance Applications:
1.
Original Certificate of Eligibility or request for duplicate certificate on VA Form 26-1880.
(Exh. 39 or 39-A)
2.
Interest Rate Reduction Refinancing Worksheet, Exhibit 21A.
3.
Verification of VA Benefit-Related Indebtedness Form 26-8937 (Exhibits 18) See note below.
4.
Copy of most recent pay-stub. VA does not require, but most investors do.
5.
Copy of signed HUD-1 Settlement Statement on purchase of property.
6.
Copy of Note.
7.
Copy of present Recorded Deed.
8.
9.
Original VA Case No. (6 digits)
IRRRL Loan Comparison Statement (Exhibit 21) must be included in file submitted to VA.
Note regarding item 3 above:
The borrower must sign VA Form 26-8937, “
Verification of VA Benefit-Related Indebtedness”
at the time
of application to allow the lender to verify the veteran’
s status of debt obligations with the Federal
Government.
NOTE: Effective February 4, 1998 (Change 36), Form 26-8937 is no longer required on ALL VA loans
because the CAIVRS system provides the debt information. It is only required:
* When the Veteran is receiving VA disability benefits
* When the Veteran indicates they would be entitled to VA disability payments
* When the Veteran indicates they have received VA disability in the past
* When the applicant is a surviving spouse of a veteran who died on active duty or
as a result of service-connected disability.
Lenders are responsible for asking the Veteran if they fall into one of the above categories; if so, Form 268937 must be processed and obtained before the loan is closed.
If the veteran meets any of these situations, the form should be submitted to determine if:
* The veteran is exempt from the funding fee
* The veteran has been rated incompetent by VA
* The veteran is receipt of pension payments (Loan must then be processed by VA.)
* The veteran is currently on a repayment plan with VA because of a prior debt
VA Funding Fee Table for Refinancing
Type of Loan
First Time Entitlement Only
Second and Subsequent Use
Active Duty
or Veteran
Selected Reservist
National Guard
Only
Active Duty or
Veteran
Selected
National
Guard
Regular Refinance/Cash out
2.15%
2.40%
3.30% *
3.30% *
Interest Rate Reduction Refinance
.50%
.50%
.50%
.50%
* The higher subsequent fee does not apply to these types of loans if the veteran’
s only prior use of entitlement was
for a manufactured home loan.
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Section 5, Page 4
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Processing Procedure
VA Refinance and IRRRL
CAIVRS
The Credit Alert Interactive Voice Response System must be checked on all VA loans,
including IRRRL’
s. CAIVRS is now available through The FHA Connection only.
The CAIVRS response code must be indicated on line 47 of VA Form 6393, Loan Analysis and
on VA Form 26-8923 “
IRRRL Worksheet”
next to the word Note located near the bottom of the
page.
Ordering a Case Number
For IRRRL’
s
A VA interest rate reduction refinancing loan is for the sole purpose of refinancing an
outstanding VA guaranteed loan to reduce the interest rate or convert a VA ARM mortgage to a
Fixed Rate. No cash out is allowed and an appraisal is not required. The procedure to order a
VA case number is the same as outlined in Section 8, page 1, except that you clearly indicate
the request is for interest rate reduction purposes on the Appraisal Request.
For Other VA Refinance Loans
Use the Internet VA Assignment System as outlined in Section 8, page 1 for a case number and
appraisal assignment.
For case number assignment via the Internet, go to http://vaas.vba.va.gov
See also VA Lender Handbook, Chapter 10, pages 10-4 & 10-5.
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Section 5, Page 5
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A Comparison of VA Refinance Programs
Regular Refinance
Rate Reduction
38 U.S.C. 1810(a)(5)
38 U.S.C. 1810(a)(8)
Guaranty Entitlement required
Yes
No
Cash to Veteran
Yes
No
Loan Limit
Yes
No
Must veteran own property?
Yes
Yes
Must veteran occupy property?
Yes
No (Must have once occupied)
30 years + 32 days
Existing VA loan terms + 10
years not to exceed 30 years +
32 days
Maximum interest rate
No
Rate must be lower than rate
on present VA loan with the
exception of VA ARM to
Fixed Rate
Lien of record required?
Yes
Yes
OK to refinance other liens?
Yes
No
Appraisal required?
Yes
No
Credit package required?
Yes
No
Yes, all lenders unless
existing VA loan is
delinquent
Yes, all lenders unless existing
VA loan is delinquent
Statutory Authority
Maximum loan term
OK for automatic processing
Submission checklist:
Use Exhibit 26 for refinance loans that are other than IRRRL’
s.
Use Exhibit 26-B for IRRRL’
s
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Section 5, Page 6
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Section 6
Other
Page
Subordinate Financing
1
Assumptions
1
Pre-payment Penalty
1
Restoration of Entitlement
2
Automated Underwriting Cases
3
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Index Section 6
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Subordinate Financing
Secondary Financing is permitted provided the CLTV does not exceed VA’
s Certificate of
Reasonable Value and the following requirements are met:
*
Any secondary financing must be clearly subordinate to the lender’
s first lien.
*
The interest rate and term on the second mortgage may exceed the interest rate and term
on the first mortgage, however; it may not exceed industry standards for second
mortgages. A “
rule of thumb”
is that second mortgages are usually 1 or 2% above
market rates on first mortgages. Obtain a copy of the preliminary note and deed of trust
(security instrument) for underwriting submission, or verify that the sales agreement
clearly defines repayment terms. Loan approval will then be contingent upon copies of
the final note, deed of trust, and subordination agreement.
*
The subordinate financing cannot contain any restrictions on the veteran’
s ability to sell
the property which are more restrictive than those on the VA loan. For example, the loan
should be assumable to a credit-worthy purchaser.
*
Subordinate financing is not allowed to cover any portion of the purchase price that
exceeds the appraised value. (Closing costs are allowed as long as the total loan does not
exceed the CRV.)
*
GNMA’
s normal requirement that cash down payment plus eligibility = 25% of value
must be met prior to allowing any subordination financing. If the veteran has insufficient
entitlement remaining and must make a cash down payment to meet GNMA’
s 25%
requirement, the subordination financing cannot take the place of that cash down
payment.
*
The second mortgage must be amortized for a period of time established for repayment to
be sure that the veteran will be able to pay it off when due. It must be reasonable that any
balloon due can be financially met by the veteran.
See details in VA Lender Handbook Section 9.04
Assumptions
VA loans are assumable at the existing interest rate to a qualified owner occupant. The
assumptor does not have to be a Veteran.
Prepayment Penalty:
None with VA loans.
W/Sec6/10-28-2004
Section 6, Page 1
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VA Restoration of Entitlement Although Property Still Owned
Previously a veteran could not obtain any restoration of entitlement unless they paid off the
mortgage on the home AND the property for which the VA loan was on WAS SOLD.
VA will now allow restoration ONE TIME ONLY if the veteran repays the prior VA loan in full
and has not sold the house. After this one time restoration, any future restoration will require
evidence that the veteran has disposed of all property previously financed with a VA loan,
including the property not disposed of under the “
one time only”
provision. (See Section 2.06 in
VA Lender Handbook)
EXAMPLE: A veteran owns a home that was financed using his VA Entitlement. He or she has
paid the loan off but never sold the property. They can now obtain another VA loan as long as
they have sufficient entitlement (partial guaranty) on another property without the first house
being sold. (The second home would have to be owner-occupied and reasons for purchasing this
new home must be logical from an underwriting standpoint). If, in the future, the veteran sells
the new home and wants to purchase another home using their VA entitlement, THE VA WILL
NOT RESTORE SAME WITHOUT EVIDENCE THAT BOTH THE FIRST HOUSE AND
THE SECOND HOUSE were sold.
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Section 6, Page 2
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Automated Underwriting Cases:
VA has approved the following automated underwriting systems to run VA mortgages:
· Freddie Mac’
s Loan Prospector
· Fannie Mae DO,DU
· Countrywide’
s Clues
· Chase’
s Zippy
The systems are only for use by VA automatic lenders and only on loans eligible for automatic
processing.
Data Integrity:
It is imperative that the data entered into the automated systems be accurately verified. The data
utilized by the system must be supported by source documentation obtained by the lender.
Inaccurate or unverified data will result in invalidation of the risk classification. Under certain
circumstances it could also result in a finding of material misrepresentation, which could affect
the validity of the guaranty.
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Section 6, Page 3
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Section 7
New Construction
Page
New Existing Construction, less than 1 year old
1
Proposed and Under Construction Cases
2
Exhibit A
5
Exhibit B
6
Manufactured Homes
7
W/sIndex7/1-8-2007
Index Section 7
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Property must be 90% complete prior to the appraisal unless the property was built with a
10 year Insurance Backed Protection Plan.
Properties less than one year old, owned by the builder, and not inspected by VA/FHA
during construction, will need the following exhibits when ordering the appraisal.
1.
2.
3.
4.
5.
6.
7.
8.
W/sec7/1-8-2007
VA form 26-1805, copies 1-6 (Appraisal Order Form)
Two copies of the site plan showing lot dimensions.
Two copies of the signed P & S Agreement with the VA option clause
included.
A statement from the veteran purchase as shown in Exhibit A attached.
A statement from the builder as shown in Exhibit B attached.
Evidence from the local building authority that verifies construction was
acceptably completed, such as a final inspection or occupancy permit. In
those areas that do not have building authorities that perform building
inspections, the builder must provide a written statement that the dwelling
was not inspected during construction by any state, county or local
jurisdiction.
Completed VA Form 26-8375, ?Subterranean Termite Treatment
Builder’
s Certification and Guarantee. (Exhibit 49-A)
VA Form 26-1859 (Exhibit 24) One-year Builder’
s Warranty as per VA
Lender Handbook Section 13.06
OR,
evidence the property is to be covered by a ten-year insured protection
plan. (See VA Lender Handbook Section 10.09)
Section 7, Page 1
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PROCEDURES FOR PROCESSING
PROPOSED AND UNDER CONSTRUCTION CASES
Changes were made during 2006 resulting in more streamlined processing and reduction of
paperwork for proposed and properties under construction.
Previously, VA has required fee compliance inspections at the foundation, framing, and final
stages of construction for all proposed and under construction cases. When the VA inspection
requirement was established, few local authorities had acceptable building standards and/or
performed inspections during construction of residential properties. Over the years, however,
many local authorities (building departments) adopted comprehensive residential building
codes, developed intensive inspector training programs, and implemented thorough
inspection programs. It is not unusual for local building departments to perform mandatory
inspections equivalent to those required by VA at the foundation, framing, and final stages of
construction. Duplication of local building department inspections by VA has been
determined to be unnecessary.
DETAILS. For VA proposed or under construction cases:
1. If the local authority performs the required foundation, framing, and final inspections and
issues a Certificate of Occupancy (CO) or equivalent, VA will accept the CO for the property
as evidence of local authority inspections and satisfactory completion of construction. VA
assistance with construction complaints will be limited to defects in equipment, material, and
workmanship reported during the required 1-year VA builder’
s warranty period.
2. If the local authority performs the required three inspections but does not issue a CO or
equivalent, VA will accept copies of the inspection reports, which verify full compliance
with local building codes, or a written statement from the local authority that states that the
required three inspections were performed satisfactorily as evidence of satisfactory
completion of construction. VA assistance with construction complaints will be limited to
defects in equipment, material, and workmanship reported during the required 1-year VA
builder’
s warranty period.
3. If the local authority does not perform the required inspections, the property must be
covered by a 10-year insurance backed protection plan that is acceptable to the Department of
Housing and Urban Development (HUD), and a 1-year VA builder’
s warranty. In addition:
•
The lender is to certify that the property is 100 percent complete (both on-site and offsite improvements) and that it meets VA’
s Minimum Property Requirements for
existing construction.
•
VA assistance with construction complaints will be limited to defects in equipment,
material, and workmanship reported during the required 1-year VA builder’
s
warranty period.
4. Effective immediately, for proposed and under construction cases, VA will accept the
construction inspections performed by the local authority, which verify full compliance with
local building codes, in lieu of the three VA compliance inspections. The Notice of Value
W/sec7/1-8-2007
Section 7, Page 2
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(NOV) must be acceptably completed with the lender obtaining the requisite exhibits that
follow. This action will eliminate duplicative and unnecessary VA compliance inspections.
5. When issuing NOVs for proposed and under construction properties, VA and Lender Staff
Appraisal Reviewers are to determine to their satisfaction whether local inspections are
performed and adhere to the following procedures:
6. Where local authority performs inspections:
•
Check Items 12 and 12a in the Conditions/Requirements section of the NOV.
•
Check Item 17 (Proposed Construction) and Item 19 (Construction Warranty) in the
Conditions/Requirements section of the NOV.
•
Check Item 20 (Other Conditions) and insert the following statement:
“
All construction inspections have been or will be performed by the local building-code
enforcement authority in accordance with its policies and procedures with satisfactory
results.”
•
Call for all other applicable proposed construction conditions and requirements on the
NOV.
7. Where local authority does not make inspections:
•
Check Items 12 and 12a in the Conditions/Requirements section of the NOV.
•
Check Item 13 (Ten-Year Insured Protection Plan) in the Conditions/Requirements
section of the NOV.
•
Check Item 17 (Proposed Construction) and Item 19 (Construction Warranty) in the
Conditions/Requirements section of the NOV.
•
Check Item 20 (Other Conditions) and insert the following statement:
“
The lender is to certify that the property is 100 percent complete (both on-site and off-site
improvements) and that it meets VA’
s Minimum Property Requirements for existing
construction.”
•
Call for all other applicable proposed construction conditions and requirements on the
NOV.
8. The acceptance of local authority inspections described in this circular does not eliminate
the requirement for a 1-year VA builders warranty as required by Section 10.09 of VA
Pamphlet 26-7 (Lenders Handbook).
9. VA compliance inspections are to be performed in all Specially Adapted Housing cases.
10. These new procedural modifications will be incorporated in VA Pamphlet 26-7.
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Section 7, Page 3
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11. The builder must have a valid builder identification number for a VA NOV to be issued
and meet any State and/or local licensing requirements.
12. Construction exhibits must continue to be provided to the appraiser with the request to
appraise properties as proposed or under construction.
Construction / Permanent Home Loans:
VA will guarantee a “
construction / permanent home loan,”
that is, a loan to finance the
construction / purchase of a residence. The loan is closed prior to the start of
construction with proceeds disbursed to cover the cost of, or balance owed on, the land,
and the balance into escrow. The escrowed monies are paid out to the builder during
construction.
The lender must obtain written approval from the borrower before each draw payment is
made.
See VA Handbook, Change 3, Section 7.02 for full details.
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Section 7, Page 4
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Exhibit A
The veteran-purchaser must prepare and sign the following statement.
To the Veterans Administration:
I am aware that the property being purchased was not inspected during construction by
either VA or HUD, and as such, will not qualify for government assistance in the
correction of structural defects, and that VA will not intercede on the veteran’
s behalf in
the processing of construction complaints.
Signed: ________________________________________________
Veteran-Purchaser
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Section 7, Page 5
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Exhibit B
The builder must prepare and sign the following statement, preferably on his/her
letterhead.
To The Veterans Administration:
The construction of the property located at
is
fully complete or completed up to the installation of customer preference items (e.g.,
appliances, finish fixtures, carpeting) and those exterior improvements for which escrows
are permissible.
I am a builder who has never been involved with VA financing, or who only occasionally
is involved with VA financing.
The dwelling was constructed in accordance with standard building practices and is in
conformity with all applicable building codes (including energy conservation standards of
the 1992 Council of American Building Officials (CABO)).
I am aware that this property is being accepted by VA on an exception basis only upon
request of the veteran-purchaser, and that normal VA processing requires that plans,
specifications, etc. be submitted prior to construction with VA compliance inspections
during construction.
Signed: ___________________
Builder
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Section 7, Page 6
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MANUFACTURED HOME APPRAISAL REPORT
BACKGROUND
1. Previously, VA appraisal reports for manufactured homes (MH) appraised as real estate
were required to be completed on the same appraisal report form as site built single-family
residences, Uniform Residential Appraisal Report (URAR), Freddie Mac Form 70/Fannie
Mae Form 1004.
2. A review of the new Manufactured Home Appraisal Report has resulted in the
determination that its use is preferable to the URAR for MH appraisals, as it was specifically
designed to identify MH information in detail and should allow for a more comprehensive
and consistent MH appraisal report that is easier to prepare and read.
3. Effective immediately, the Manufactured Home Appraisal Report (dated March 2005) may
be used for all VA appraisals for manufactured homes. On April 1, 2006, the use of the
Manufactured Home Appraisal Report (dated March 2005) is mandatory for all VA
manufactured home appraisals. MH appraisals that are completed on or after April 1, 2006,
using any other form will be unacceptable to VA.
4. The new Manufactured Home Appraisal Report is available online at:
Fannie Mae’
s website: http://www.efanniemae.com/sf/formsdocs/forms/1004c.jsp and at
Freddie Mac’
s website: http://www.freddiemac.com/sell/forms/.
5. The new Manufactured Home Appraisal Report form must be acceptably completed,
including entries for all relevant questions based on personal observation. In addition, VA fee
appraisers must identify and require correction of deficiencies or conditions necessary to
ensure the subject property meets applicable VA minimum property requirements.
e. Fee appraisers are expected to be familiar with State and local code laws or regulations in
their locality governing manufactured homes (such as missing HUD labels, alterations,
modifications, additions, component replacements), and to make appropriate requirements for
compliance.
Any case in which the foundation has not been fully completed and the manufactured
home unit installed is considered to be "proposed or under construction."
Geological or Soil Instability
In areas that have a history of geological or soil instability, the builder must submit either
?
a certification that to the best of the builder's knowledge and belief, any
geological or soil-related hazard and no portion of the construction will rest on
fill, or
?
evidence from a qualified geologist or engineer that the subject site either does
not present unusual geological soils-related hazards or such hazards have been
compensated for in the engineering design of the improvements.
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Section 7, Page 7
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Qualified geologists are State licensed or are a member of a national or State organization
which requires responsibility, experience, education and demonstrated ability in the field
of engineering geology.
Additional Notations
1.
If individual water and/or sewerage disposal, submit local health authority
approval of design and location of systems.
2.
If veteran owns the land, VA requires a copy of the contract to build or cost
estimate plus balance to be paid off on lot loan, if applicable. These figures must
support proposed loan amount.
3.
If prefabricated construction, VA requires evidence of FHA approval, i.e., FHA
structural engineering bulletin number.
4.
If property is to be covered by a 10-year insurance backed protection plan, please
so indicate in Items 14A-14C of VA Form 26-1805.
5.
If property is located in a subdivision (25 or more house lots), submit a statement
from the developer as to arrangements in connection with construction,
dedication, and maintenance of streets and utilities. If individual water and/or
sewerage disposal systems, provide a statement from the local board of health that
it is not economically feasible to establish public or adequate community systems.
See VA Lender Handbook, Change 3, Section 7.02, page 7-13 for details on Construction
/ Permanent Home Loans.
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Section 7, Page 8
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Section 8
Appraisals
Page
Procedure
1-3
Repairs & Improvements
3
Energy Related weatherization items
4
LAPP Program
4
VA Appraisal Facts (From VA’
s Training Program)
5 - 10
Pest Inspections (Termite Report)
11
Water Quality
11
Manufactured Homes (Reference to VA Lender Handbook)
11
W/Index8/3-16-2004
Index Section 8
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Appraisals
The complete instructions for ordering and processing a VA appraisal are detailed in VA Lenders
Handbook Chapters 10.03 and 10.04.
Effective July 14, 2003, the Manchester Office of VA will use The Appraisal System (TAS) via
the Internet to obtain Appraisal Assignment, case number and fee appraiser. That Internet
address is as follows and may be reached via the Internet service provided of the user’
s choice.
http://vip.vba.va.gov/por tal/VBAH.home
Instructions for use of the system are available on-line to gain access.
Appraisal assignments will be based on the mailing address of the property, including the
county name.
Using the information entered by the lender at the time of the appraisal request, TAS will
generate an online VA Form 26-1805-1, (Exhibit 44) request for Determination of
Reasonable Value. This will save the time of manually preparing that form, and allow
the lender to fax it to the appraiser or download it as an HTML file for e-mailing to the
appraiser.
In addition to obtaining VA case numbers and appraiser assignments, lenders will be able
to check the status of appraisal requests and search for misplaced case numbers.
Appraisers and inspectors will be able to access TAS to review and update the basic file
information regarding assignments.
As a public Internet site, the CPB will be available to anyone who wants to know if a
particular condominium or PUD is VA approved or if a builder is eligible to participate in
the Loan Guaranty program. The list will provide names, locations (i.e., city/county,
State) and VA assigned identification numbers.
Getting Started:
a)
The first user of the new system for each lender must provide the VA ID number for the
company (or branch, if applicable). TAS will then assign a User ID number and provide
a password that the user can modify for security purposes. That user ID and password
must be used each time the system is subsequently accessed by anyone from that
company.
b)
The system operates using Netscape Navigator 4.x or Microsoft Internet Explorer 4.x.
Free downloads are available on the Internet from Netscape and Microsoft. The User
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Guide for the system is contained within the system. Technical assistance is available from a
central help desk at (215) 381-3050.
3.
Upon receipt of the appraisal assignment and case number from VA, Form 26-1805
will be completed by the system and can be forwarded via fax or e-mail to the
appraiser.
A copy should be printed for the file.
The appraiser will forward the completed appraisal to VA where it will be reviewed.
VA will mail the completed CRV to the lender, after they have reviewed and approved
the value of the property.
It is important for the Loan Originator to be aware of the following procedures:
I.
Once a VA Case Number is assigned and an appraisal has been completed on a property,
the completed appraisal is in effect for a period of six months.
In the event that a transaction is not completed, for any reason, (i.e. borrower withdraws
or is declined), this existing appraisal may be transferred to a new borrower during the 6
month period, provided:
II.
1)
the appraisal has listed “
Any Qualified Veteran”
as the borrower on the appraisal
2)
the lender provides evidence that the original borrower has been refunded the cost
of the appraisal.
If the appraised value comes in less than the purchase price, reconsideration of value
must be requested in writing to the appraiser to determine if any increase in value can be
considered. The lender may furnish additional comparable’
s or other data to the
appraiser for his/her review, but a second appraisal cannot be ordered during the six
month period, without the express permission of the VA in Manchester, NH. The veteran
cannot be charged for a second appraisal.
The maximum mortgage must be calculated on the lesser of the purchase price or the
appraised value. The borrower may pay the difference between the appraised value and
the purchase price.
III.
If the appraiser identifies any repairs to be done on the property, such repairs must
generally be completed before the loan can close. During cold weather, generally
November through April, if repairs are to the exterior and weather will not permit the
work to be completed, a Holdback Escrow of funds in the amount of 1.5 times the cost of
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the repair may be held at closing. Such escrow is to be released upon completion of the
repairs and satisfactory inspection by the VA appraiser.
The funds must be held by the lender and must be based upon the estimate provided by
the appraiser, or other qualified licensed contractor. Generally three written estimates are
required and the escrow is based on 1.5 times the highest estimate. Funds may be held
back from either the borrower or the seller and a Request for Holdback (Exhibit 27) and
Builder's Warranty (Exhibit 28) must be completed and included in the closed loan
package to VA. Prior approval from VA is no longer required. (See Lender Handbook
Sec. 9.09).
A Holdback Agreement stating the terms of the Holdback; the specific work to be
completed; the date the work is to be completed; who is responsible for the completion of
such work and who is to pay for the work. If the borrower is to pay for the work, they
must show sufficient funds to close and cover the Holdback Escrow.
See Escrow Agreement (Exhibit 28).
Proper forms are required by VA to be furnished with the file when submitted for
issuance of the VA Guaranty and the VA appraiser is required to do a compliance
inspection when the work is completed.
An additional fee for the Compliance Inspection should be charged to the appropriate
parties at closing.
Exception: The VA buyer can request a waiver of repairs under certain conditions. The
request for waiver must be submitted by the veteran to the lender. The lender then
submits the request to the Appraisal Section of VA with a statement that the lender will
close the loan if the VA grants such waiver of repair. If granted, the VA will issue a
Change Notice to the Appraisal stating the repair conditions that will be waived. A loan
cannot close without receipt of the "Change Notice" from the VA.
Excess Land: If the loan includes the purchase of excess acreage, the excess land is
appraised at its residential value. (See Section 11.13 of VA Lender Handbook).
REPAIRS & IMPROVEMENTS
VA takes the stand that, if the property needs any repairs or improvements, as determined
by the appraiser, the repairs must be completed. Who pays for the repairs is a matter
decided by the parties in the transaction. (The appraised value will already reflect these
repairs and improvements.)
If repairs cannot be completed before loan closing, the lender must establish an escrow
account to assure eventual completion of all required repairs.
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The veteran-buyer may request a waiver of repairs if he/she has negotiated the price of
the property knowing that these repairs would be necessary and if the veteran-buyer has
the ability (or available funds) to complete the repairs after closing. (See paragraph
above about “
exceptions”
).
ENERGY RELATED WEATHERIZATION ITEMS:
Purchase: Up to $3,000. In energy efficient improvements may be added to a purchase
loan. Up to $6,000. In energy efficient improvements may be added to purchase loans if
the increase in the monthly payment of principal and interest does not exceed the
probable reduction in monthly utility costs resulting from the energy efficient
improvements. Local utility companies can be used as a source of information for
documenting probable utility costs.
Weatherization items include thermostats, insulation, storm windows and doors, weather
stripping and caulking, etc. (A contractor's statement of the cost of the work completed
must be submitted.
Refinance: The loan may not exceed 90% of the appraised value plus the cost of the
energy efficient improvements. (Reasonable value X .90 + cost of improvements)
VA will guarantee an energy efficient mortgage in the same proportion as a loan not
including energy improvements. The charge to the veteran's entitlement will be based on
the loan amount before adding the cost of energy improvements.
The Funding Fee must be calculated on the full loan amount, including the cost of
energy improvements.
Lender Appraisal Processing Program (LAPP)
Program Outline:
Only supervised lenders and non-supervised lenders who have been approved for the
automatic authority by Central Office are eligible to apply for LAPP participation.
The VA-assigned fee appraiser sends the appraisal report directly to the LAPP lenders
VA-approved staff appraisal reviewer (SAR). The SAR reviews the appraisal for
completeness and conformity with industry-accepted appraisal techniques, practices and
other current VA requirements. After determining the reasonable value, the SAR sends
the veteran a written notice which also includes any conditions upon which the VA loan
guaranty is contingent. The lender may then underwrite and close the loan on the
automatic basis.
See VA Lender Handbook, Chapter 13 for details and Chapter 15 for an Application for
LAPP approval.
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VA Appraisal Facts
Q.
A veteran is required to obtain an appraisal in all of the following
instances, except
a. When purchasing an existing property,
b. When purchasing a new home
c. When obtaining an Interest Rate Reduction Loan on an existing
VA loan
d. When obtaining a VA loan for alteration, improvement or
repair.
E. When refinancing a VA loan and taking out part of the equity.
A.
c. No appraisal is required for an IRRRL loan. (See Lenders Handbook,
para 8.02).
Q.
VA's CRV's, Certificates of Reasonable Value, are usually issued with
a validity period of six months.
When a CRV is requested in the name of a veteran purchaser the loan
must go to settlement within six months of the date of the CRV.
A.
False. When a veteran enters into a contract within the validity period,
the CRV remains in effect until the sale is either completed or terminated.
(See Lenders Handbook 12.05)
Q.
Appraisals may only be requested from VA by mailing a completed
VA F-26-1805, VA Request for Determination of Reasonable Value /
HUD Application for Property Appraisal and Commitment, to the
appropriate office.
A.
False. Appraisals may be requested from VA by telephone, and at some
VA offices, by computer. At some future date, all VA offices will have
computer assignment capabilities (See VA Handbook 9.01)
Q.
Veteran is purchasing a property that FEMA, Federal Emergency
Management Agency, has determined to be located in a "special flood
hazard area"
At its discretion, the lender may or may not require the veteran to purchase
flood insurance.
A.
W/Sec.8/3-16-2004
False. Although VA guarantees the loan, the lender must require flood
insurance for any property located in a FEMA, "special hazard flood area."
Section 8, Page 5
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Q.
After the appraisal has been completed and submitted to VA, it is
reviewed by a VA staff appraiser and the following document is
completed and sent to the requester.
A. Certificate of Eligibility
b. Certificate of Reasonable Value
c. Report and Certificate of Loan Disbursement
d. Certificate of appreciation
A.
b. Certificate of Reasonable Value (Handbook 12.02)
Q.
Once lenders are approved to participate in the LAPP, Lender
Appraiser Processing Program, they are required to process all their
cases under LAPP.
A.
False. Even though lenders approved under the LAPP program are
encouraged to process cases under that program, they are not required to
do so.
Q.
VA requirements for the condition of existing properties is best
described in which of the following statements:
a.
b.
c.
d.
Properties be brought up to local code requirements
Properties are only acceptable if they require no repairs
Properties must be structurally sound, safe and sanitary
Properties must not be in need of repairs in excess of $6,000.
A.
c. VA requires that properties be safe, sound and sanitary. Handbook
13.01
Q.
VA fee appraisers perform a detailed inspection during the appraisal
of the property; therefore, veterans and lenders should not be
concerned about the condition of a property.
A.
False. The appraiser is not a building inspector, so buyers and lenders are
encouraged to have a residential inspector inspect the property. (See
Handbook VA Form 26-0593, "Important Information for Homebuyers.")
Q.
To apply for approval under the Lender Appraisal Processing
Program (LAPP), lenders may submit their application to any office.
A.
False. They must submit them through the Regional office with
jurisdiction over the area where each nominated employee is physically
located.
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A "national" lender may need to submit packages to several VA offices.
Q.
Which of the following requests is eligible for processing under the
LAPP program?
a.
b.
c.
d.
Appraisal of a manufactured home
Appraisal of a multi-family home
Appraisal of a singled family existing construction
Liquidation appraisals.
A.
c. Only individual single family existing construction can be processed
under the LAPP program. (Handbook 18.02A)
Q.
VA's property evaluation procedure is to protect the interest of the
government as potential guarantor. VA guarantees the condition and
quality of existing homes and their equipment.
A.
False. The appraisal process does not include an inspection of existing
dwellings (over one year old or previously occupied). There are no
warranties either expressed or implied.
Q.
Of the following, which must be sent to the VA by the LAPP lender
after the notification of value letter is issued (for post closing auditing
purposes)?
a.
b.
c.
d.
A photocopy of the URAR, Uniform Residential Appraisal Report,
A photocopy of all addenda to the URAR, including photographs
A photo copy o of the lenders notification of Reasonable Value ;letter
All of the items
A.
d. All the items must be sent (Handbook 21.14)
Q.
LAPP staff appraiser reviewers have no limitations placed on them
concerning adjustments to the Reasonable Value Estimates for VA
Loan Guarantee purposes.
A.
False. During the initial review of the appraisal, or in processing an
appeal of value, the LAPP reviewer cannot adjust the value by more than
2.0%. (Handbook 21.07)
Q.
In most LAPP cases the determination that repairs have been
satisfactorily completed will be made by:
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a. The Lender
b. The VA appraiser who completed the report
c. The VA Fee compliance inspector
d. A VA Fee appraiser who did not complete the appraisal report
A.
b. In most cases the appraiser would be expected to make the
determination that the required repairs were acceptably completed.
( Handbook 21.16)
Q.
In most places CRV's will always be conditioned on an acceptable
VAF 26-8850, Wood Destroying Insect Information - Existing
Construction, or VA F26-8375, Termite Soil Treatment Guaranty Proposed Construction.
VA Form 26-8375, Provided by the builder/seller, must be for an effective
period of five years.
A.
True. New construction cases require a five-year guarantee when soil
treatment is specified by the builder or required by VA.
Q.
Approved Ten Year Insurance Backed protection plans provide an
alternative to having a full compliment of VA compliance inspections.
Proposed construction cases built under an approved ten-year
protection plan always require a minimum of three inspections by VA
during construction.
A.
False. Proposed construction cases built under a ten year protection plan
generally only have a final VA inspection after the dwelling is fully
completed. In some cases additional inspections may be required by VA.
Q.
A veteran may pay the difference in cash, renegotiate the contract
price, or request VA to reconsider the value when the reasonable
value is established below the contract price.
Only the purchaser or the seller may request reconsideration of a
reasonable value determination.
A.
W/Sec.8/3-16-2004
False. Any party of interest may request reconsideration of the reasonable
value determination.
Section 8, Page 8
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Q.
When the loan file began with a LAPP appraisal request, automatic
lenders are prohibited from sending the case to VA for prior approval
credit and underwriting.
A.
False. There is no prohibition. (Handbook 21.21)
Q.
VA maintains a roster of licensed, experienced fee appraisers who are
used to conduct appraisals for submission to VA or to the requesting
lender if under LAPP.
When assigning a VA appraiser to make an appraisal of a property, the
assignment is made on a rotating basis by VA.
A.
True. The rotational procedure VA uses in assigning VA appraisers is
statutory.
Q.
In LAPP cases, VA Form 26-1839, Compliance Inspection Report,
may be completed by an appraiser or compliance inspector
concerning repair requirements. VA Form 26-1839 should be sent to
VA for review and signature.
A.
False. In such cases, compliance inspection reports are sent directly to the
LAPP lender for review and signature. (Handbook 21.16)
Q.
Only the seller is permitted to pay for MPR (Minimum Property
Requirement) repairs called for on a CRV.
A.
False. Who pays for repairs required on a CRV is a matter decided by the
parties in the transaction.
Q.
Properties in condos or PUD's planned unit developments that are
currently certified by HUD, are generally eligible for VA appraisals.
A.
True. Projects that are currently certified by HUD are accepted by VA
under a reciprocity agreement.
Q.
LAPP staff appraisal reviewers who have completed the initial five
case review and training requirement can only process cases within
the jurisdiction of the approving office.
A.
True. To extend their use of LAPP authority lenders must apply to each
station to which they wish to extend their authority.
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Q.
The reasonable value on the CRV may not be appealed.
A.
False. VA Regional offices must consider all written requests from parties
of interest to reconsider the value on any CRV. (Handbook 12.09)
Q.
A CRV with only one month of validity period remaining is never
useful to a lender since one month is usually not sufficient time to
process and close a loan.
A.
False. When a veteran enters into a Purchase contract within the validity
period, the CRV will remain effective until the transaction is either
consummated or otherwise terminated.
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Termite Report (Pest Inspections)
VA requires a Termite Report on every property that is located in Massachusetts,
Connecticut and Rhode Island. Properties in Maine, New Hampshire and
Vermont may require pest inspections. The appraiser should note if it is needed
in these three states. Inspection reports are valid for VA purposes for 90 days
from the date of inspection.
Condominiums are subject to pest inspections. If the unit is a garden style and is located
on an upper level (2nd floor or higher) no pest inspection is required. If it is a
first floor unit or a Townhouse style, a pest inspection is required. Exception - If
the property is located in Maine, New Hampshire or Vermont, it may not need a
pest inspection - the appraiser should note if it is needed in these states.
Water Quality A water quality test is required whenever the property is served by a private water
system.
Throughout the VA Pamphlet 26-7, the VA makes the following statement regarding
water quality. "Evidence that they water supply is satisfactory to health
authorities must be provided. If the local authority does not have specific
requirements, the maximum contaminant levels established by the EPA shall
apply."
If the local board of health does not provide evidence of satisfactory water quality for the
property, it will be necessary to obtain a Water Quality Report from a private
laboratory.
The following list shows items to be tested and the maximum allowable limits:
Lead
Nitrate
Nitrite
Total Nitrate/Nitrite
Total Coliform
Fecal Coliform
or E. Coli
.015 mg/l
10 mg/l
1 mg/l
10 mg/l
10/100 ml
Zero
If a property is located in an area where the local or state requirements are more stringent
than those outlined in FHA's Mortgagee Letter 95-34, then the lender should take
appropriate steps to assure compliance with the local and/or state requirements.
Manufactured Homes (See Lender Handbook, Section 7.11, page 7.39 for details.
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Section 9
VA Specification Sheet
Page
VA Specification Sheet
1&2
VA Automatic Procedure
3
VA Processing Procedure
4&6
Payment of Funding Fee
7
Frequently Asked Questions
8
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VA SPEC SHEET
Category
Age of Docs: 120 days at submission to VA for prior approval loans. 120 days at closing (at
discretion of VA U/W)
Aliens:
Not applicable
Bridge Loans: Case by case - must qualify.
Buydowns:
O.K., but must qualify at note rate. (See Temporary Buydowns, Page 2-4)
Construction .to Permanent:
Treated as a refinance and limited to 90% if cash out - if no cash out, treat as
purchase, and maximum financing will apply. All docs for existing construction
less than 1 year old will apply.
Co-signors:
Not allowed.
Credit:
All applicants must evidence at least 3 pieces of good credit. All self-employed
borrowers if not sole proprietors, need business credit report.
Gifts:
Allowed by relative, but VA looks for history of borrowers own savings. Gifts by
parties other than relatives may be allowed on a case by case basis, but should
prove established relationship and must submit letter explaining reason for gift.
Income-Active Duty:
If applicant is active duty and within 12 months of release, will need:
1- reinstatement documents, or
2- valid offer of civilian employment, or
3- veterans statement of intent to re-enlist beyond the 12 month period and
statement from Commanding Officer confirming veterans eligibility to re-enlist,
and statement that the Commanding Officer knows of no reason why reenlistment wouldn’
t be granted. Income from public assistance may only be used
to qualify if it will continue for at least 1/3 of the loan term.
Maximum
number
properties:
One - under VA guaranty unless owner occupancy is proven and there is
sufficient
entitlement to produce 25% guaranty.
Non-Occupying Co-Borrowers:
NOT ALLOWED
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PITI Reserves:
None required on single family, 6 months PITI needed on 2-4 unit properties.
Must demonstrate savings history if housing is increasing or must satisfactorily
justify reasons for lack of same.
Rental Income Non-Subject Property:
Usually N/A - is case by case - Rather use to wash liability. If it has 2 year
history on REO - may use to quality as supported with 2 years tax returns if 3
months PITI reserves are evident and must document previous collection AND
property management.
Savings:
All borrowers must show history of savings, or documentation to prove lack
thereof, if housing is increasing.
Sales Concession:
Limited to 4% of value (lesser of purchase price or appraised value). Discount
points and customary closing costs ARE NOT included in this calculation.
FUNDING FEE, PREPAIDS, EXTRA DISCOUNT POINTS gifts, furniture, etc.,
ARE included in this calculation.
Secondary Financing:
Not allowed if property value comes in low. If property appraises to sale price
can borrow up to sale price secured or unsecured as long as borrower qualifies for
payments. Must amortize over 20, 25, 30 years or to balloon 5 or more.
(See page Subordinate Financing for details)
Self Employed seasonal, or Trade:
2 years business tax returns and year to date business P & L with supporting
(Commissioned balance sheet signed by accountant plus 2 years personal returns
and VOE by Accountant or superior officer if not sole proprietorship.)
Title in Trust
Not allowed.
Zoning
Must conform.
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VA Automatic Procedure
Lenders who are supervised or have been approved as non-supervised lenders to process loans on
the automatic basis, may develop all exhibits, make a credit determination, approve and close a
VA loan without first submitting it to VA for approval.
Lenders with automatic approval status should use that authority in every possible instance.
Except for those types of loans listed below, the only cases submitted to VA for prior approval
should be those in which the underwriter firmly believes approval can be justified, in spite that
the specific facts of the case appear to preclude approval. In such instances, the underwriter will
be expected to include a detailed explanation of why the loan should be approved by VA along
with a thorough justification for not approving the loan on the automatic basis. It is not
sufficient to justify submitting the loan to VA solely to comply with the veterans request to do
so.
If a loan is submitted to VA for prior-approval, the documentation must be in the order stated in
Exhibit 26.
Loans that must be submitted to VA for Prior Approval
The following loan types must be submitted to VA for Prior Approval regardless of automatic
authority:
Joint Loans
Supplemental Loans
Loans to veterans receiving VA nonservice-connected pension
Loans to veterans rated incompetent by VA
IRRRL’
s in which the veteran is one or more payments in arrears
(See Exhibit 26 for submission of documents to VA for Prior Approval Loans)
A non-supervised lender may apply to VA for authority to close loans on the automatic basis.
Application for Automatic Authority is covered in Chapter 1, Section 5 of the VA
Pamphlet 26-7, Change 3.
The experience requirement is either 2 recent years of VA loan origination experience, with a
minimum of ten VA loans originated, or less than 2 years with a minimum of 25 VA loans
originated and closed.
The experience requirement for underwriters is 3 years experience in processing or underwriting
mortgage loans with at least 1 recent year VA experience.
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Processing Procedure - VA Loans
Upon acceptance of a VA application, the processor needs to do the following steps as soon as
possible:
1.
Review application package to be sure all required documents are included in the file.
(See checklist - Section X, Exhibit 8 and 23).
2.
Input all data into computer system and be sure borrower meets qualifying ratios of the
loan program. (Cross check results with Qualifying worksheet - Exhibit 2).
3.
Obtain an Access Code for each borrower on the application from HUD’
s Credit Alert
System. This is obtained by calling (301) 344-4000 and following the voice mail prompts
to provide the borrower and co-borrower information. (Underwriters note: See VA
Pamphlet 26-7, Chapter 4, Section 4.06, Pages 38-39 for details on CAIVRS and actions
to be taken.)
The response code should be entered on VA Form 26-6393 (Exhibit 25) Loan Analysis,
at item 47 in the space next to the “
NO”
block.
This step should be taken early in the application process to provide as much time as
possible to resolve a CAIVRS match.
When CAIVRS identifies a problem, the following actions should be taken:
a.
Suspend processing of the loan application, or,
b.
Contact the borrower for information concerning the default or claim. The voice
response to the inquiry will provide the phone number for a debt collection office.
If the applicant and Federal Agency owed agree to terms for repayment of the debt, the
repayment terms must be considered in the loan analysis.
4.
Order the VA Appraisal as outlined in Section 8, Page
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5.
or
The borrower must sign VA Form 26-8937, “
Verification of VA Benefit-Related
Indebtedness”
at the time of application to allow the lender to verify the veterans status of
debt obligations with the Federal Government. (Details of the results of this search are
found in VA Pamphlet 26-7, Chapter 5, Pages 42 - 44)
NOTE: Effective February 4, 1998 (Change 36), Form 26-8937 is no longer required on
ALL VA loans because the CAIVRS system provides the debt information. It is only
required:
* When the Veteran is receiving VA disability benefits
* When the Veteran indicates they would be entitled to VA disability payments
* When the Veteran indicates they have received VA disability in the past
* When the applicant is a surviving spouse of a veteran who died on active duty
as a result of service-connected disability.
Lender’
s are responsible for asking the Veteran if they fall into one of the above
categories; if so, Form 26-8937 must be processed and obtained before the loan is closed.
If the veteran meets any of these situations, the form should be submitted to determine if:
* The veteran is exempt from the funding fee
* The veteran has been rated incompetent by VA
* The veteran is receipt of pension payments (Loan must then be processed by
VA.)
* The veteran is currently on a repayment plan with VA because of a prior debt
6.
Process the file as with any other loan file.
7.
Once the loan file is complete, prepare the Loan Analysis, VA Form 26-6393 (Exhibit
25) for underwriter review, approval and signature.
Prepare a comment sheet to justify your reason for approving the loan.
8.
Prepare VA Form 26-1802a (Exhibit 35), Addendum to URLA. The veteran borrower
must sign this completed application at closing. If the file is submitted to VA for prior
approval, this form must be completed and signed by the veteran before submission to the
VA.
9.
When the loan has been approved by the lender, all documents in the file must be placed
in the order as outlined in Exhibit 26 and 26A after loan closing.
If the loan file is being submitted to VA under the prior-approval procedure, use the list
of documents shown on Exhibit 26.
10.
If Automated Underwriting is used to approve the loan. See Section 4.08 in VA Lender
Handbook - Revised, page 4-50 for Underwriters Certification.
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Modified Guaranty Submission Procedure:
a)
Effective immediately, lenders must submit copies (except Certificate of Eligibility,
which must be the original) of only the items listed on EXHIBIT 26-A (in the order listed) to
VA when requesting guaranty for all loans except Rate Reduction Refinancing Loans
(IRRRLs). There are no changes to IRRRL procedures for requesting guaranty.
b)
VA Field stations will identify cases selected for full review or other audit purposes at
least weekly within 30 days of receipt by VA. Lenders will then be notified of selected cases by
letter (similar to Exhibit 48) or e-mail, if the lender has that capability. Lenders must forward
the complete origination package to the requesting VA office within 15 days of receiving
notification from VA.
c)
The following illustrates how the procedure will work:
1) Lender processes loan and obtains all documentation needed per the VA Lender’
s
Handbook (see Chapter 4 of VA Pamphlet 26-7, Change 37).
2) Lender submits only the items noted on Exhibit 26-A when requesting guaranty;
3) Lender will be notified by letter, or electronic mil, from VA identifying which cases
must be submitted to VA for full review/audit purposes;
4) Lender submits copy of origination package to VA.
d)
VA Field stations may, at their discretion, terminate a lender’
s participation in this
modified guaranty submission procedure if that lender demonstrates an ongoing inability
or unwillingness to be timely in responding to requests from VA.
e)
It is absolutely imperative that lenders:
1) Complete VA Form 26-0286, Loan Summary Sheet accurately. This is critical to the
success of this test program. VA appreciates and supports the concept of streamlining
procedures when possible. However, the VA cannot do so if the integrity of the data
collected suffers. If periodic evaluations of the test procedure reveal serious problems
with inaccurate or incomplete VA Forms 26-0286, it will be necessary to bar those
lenders who continually furnish inaccurate data from further participation in the modified
procedure.
2) In LAPP cases, send a Uniform Residential Appraisal Report (URAR), with an
original set of pictures and other information as required by paragraph 21.13(t) in VA
Pamphlet 26-7 and lenders Notice of Value to the VA office that assigned the appraiser.
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Section 9, Page 6
©MTS
Payment of Funding Fee
Effective January 1, 1998, VA will no longer accept Funding Fee Payment by check.
Payments must be handled through the ACH (Automated Clearing House) system set up with
Mellon Bank in Philadelphia.
For details of this procedure see VA Pamphlet 26-7, Appendix C. For access to this information
and to download, you may connect to the VA home page via the Web Site for Mortgage
Training Solutions at:
http://www.mor tgagetr aining.us
Go to our “
VA Information”
page, and then look for VA Lenders.
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Section 9, Page 7
©MTS
Frequently Asked Question:
Q.
When a veteran is refinancing for “
cash out”
(either VA to VA or Conv. to VA) is it
necessary to have water & septic tests and a pest inspection?
A.
Yes, for all conventional to VA loans the same tests that are required for a purchase are
necessary. If it is a VA to VA “
cash-out”
a water and septic test is necessary. If the
property is located in Massachusetts, a Title 5 inspection is required.
Q.
How does VA calculate the Adjusted Net Worth for a Lender to participate in VA
Programs?
A.
The answer to this question is found in Chapter 1 of VA Pamphlet 26-7, Change 3, Pages
1-42 & 43.
Q.
What does the VA look for in the required Control Plan?
A.
See “
Elements of a Q.C. Plan”
in Chapter 1, VA Pamphlet 26-7, change 37, pages 1-44 to
1-47.
Q.
Will VA allow the buyer to pay a Broker/Buyer Fee on the purchase of their
property?
A.
According to Monique, in the Manchester, NH Office of VA, the buyer cannot pay any
Buyer/Broker fees even though they may have signed a contract to do so. The seller
must pay the fee to the Buyer/Broker on behalf of the veteran buyer.
Q.
Will VA allow a rental hot water heater in a property?
A.
In an e-mail from Kevin Nash at the Manchester, NH office of VA on June 11, 2001, Mr.
Nash confirmed that VA will allow a rented hot water heater.
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Section 9, Page 8
©MTS
Section 10
Exhibits
Exhibit No.
Schedule of Fees
VA Qualification Formula Worksheet
State Tax Tables (if applicable)
Federal Tax Tables
Good Faith Estimate Worksheet
VA Escape Clause (use with P & S)
VA Documentation Matrix
VA Child Care Letter
VA Nearest Relative Form
VA Funding Fee Statement
VA Interest Rate and Discount Disclosure Statement
(consolidated into Exh. 50)
VA Counseling Checklist for Military Home Buyers (Form 26-0592)
VA Servicing Transfer Disclosure
VA Borrower’
s Rights
VA Federal Collection Policy (Form 26-0503)
Request for Copy of Tax Form (Form 4506)
(Form 4506T)
Verification of VA Benefit (Related Indebtedness Form 26-8937)
Interview Checklist
Request for Additional Information
Lead Paint Disclosure
IRRRL Loan Comparison Statement
(consolidated into Exh. 50)
VA IRRRL Loan Worksheet Analysis (Form 26-8923)
MTS IRRRL Worksheet Analysis Form
Worksheet for Computing VA Guaranty
VA Documents for Processing
Warranty of Completion of Construction (Form 26-1859)
VA Loan Analysis Worksheet (Form 26-6393)
VA Loan File Set-up for Prior Approved Loans
Checklist for Request of VA Guaranty
Checklist for Review of Automatic Loan (When requested by VA for Audit)
Submission to VA of IRRRL documentation
10-20-08
Section 10-Index MTS
1
2
3
4
6
7
8
9
10
11
12
13
14
15
16
17A
17B
18
19
19-A
20
21
21 A
21 B
22
23
24
25
26
26-A
26-B
26-C
Request for Postponement of Offsite Improvements (Form 26-1847)
VA Escrow Agreement (Form 26-6378)
VA Transmittal List (Form 26-0285)
VA Loan Summary Sheet (Form 26-0286)
VA Equal Employment Opportunity Lender Cert. (Form 26-8812)
VA Affirmative Marketing Cert. (Form 26-8791)
Request for Acceptance of Changes in Approved Plans (HUD 92577)
VA Back-up Qualifying Worksheet
VA Addendum to URLA (Form 26-1802a Page 1 & 2)
VA Report and Certification of Loan Disbursement (Form 26-1820)
Lender’
s Quality Certification
VA Forms Required List
VA Certificate of Eligibility (Form 26-8320)
VA Certificate of Eligibility - Reservist (Form 26-8320a)
Guidelines for applying for Certificate of Eligibility (Regular military)
Guidelines for applying for Cert. of Eligibility (Reserve/National Guard)
Request for Determination of Eligibility (Form 26-1880)
Request for Determination of Eligibility - Unmarried Surviving Spouse (Form 26-1817)
VA Request for Appraisal Order (Form 26-1805)
Instructions for completing VA Form 26-1805
Builders Description of Materials (Form 26-1852)
Loan Guaranty Funding Fee Transmittal (Form 26-8986)
Acknowledgement Receipt of VA Funding Fee (Form 26-8998)
Sample letter from VA when an audit of a closed loan is requested
Termite Report (Form NPMA-33)
Subterranean Termite Treatment Builder’
s Guarantee (Form NPCA-99a)
Common Certifications
10-20-08
Section 10-Index MTS
27
28
29
30
31
32
33
34
35
36
37
38
39
39-A
40
41
42
43
44
44-A
45
46
47
48
49
49-A
50
September 5, 2008
Circular 26-08-17
Exhibit A
COMMON CERTIFICATIONS
Borrower Certifications
1. INTEREST RATE AND DISCOUNT DISCLOSURE STATEMENT
This statement must be delivered to you prior to execution of the certification on the HUD/VA addendum to the Uniform
Residential Loan Application.
VA does not establish or set a maximum or minimum interest rate for mortgage loans. A borrower may pay interest rate
and discount points as agreed upon by you and the lender. It’
s also permissible for a seller to pay all or a portion of the
discount points. The interest rate and discount points as well as the length of time the lender will honor the loan terms are
all freely negotiable with the lender. Lenders may or may not agree to offer the loan terms for a definite period of time
through a lock-in agreement. Note that any agreement with the seller could also affect the date you can close your loan.
The terms of your agreement with the lender will determine if, and how much, the interest rate and discount points may
change before closing. An increase of more that 1.00% in the interest rate may require re-underwriting by VA or the
lender. It may also be necessary for the lender to obtain your signature on a new application. If, after re-underwriting, it is
determined that you remain qualified from a credit risk standpoint, the conditions of your agreements with the lender and
the seller may require you to complete the transaction or lose your deposit.
IT IS YOUR RESPONSIBILITY TO ASSURE THAT YOU UNDERSTAND THE TRANSACTION.
Borrower : __________________________________________________ Date: _______________________________
2. INTEREST RATE REDUCTION REFINANCING LOAN (IRRRL) CERTIFICATION
Previous Loan Number ___________________ Loan Amount $_________________ Original Term ______________
Monthly Payment $______________________ Interest Rate _____________________________________________
Original Obligors __________________________________________________________________________________
New Loan Number ________________ Proposed Loan Amount $_________________ Proposed Term____________
Proposed Monthly payment $_____________________________ Interest Rate ________________________________
Obligors _____________________________
Monthly decrease in payments $_______________________________________________________________________
Total Closing Costs $________________________________________________________________________________
Recoup Closing Costs _____________________Months
I/We hereby certify that I/we understand the effect of the loan payment and interest rate involved in refinancing our home
loan.
__________________________________________ _____________________________
________________
Borrower
Co-Borrower
Date
3. ADJUSTABLE RATE MORTGAGE (ARM) CERTIFICATION
The undersigned borrower(s) acknowledge receipt of the appropriate ARM loan program disclosure and the “
Consumer
Handbook on Adjustable Rate Mortgages”
prior to submitting an ARM loan application or payment of any non-refundable
fee.
__________________________
Borrower Signature
Date
_________
_________________________
Co-Borrower’
s Signature
Date
_________
3
Circular 26-08-17
Exhibit A (Cont.)
September 5, 2008
Lender Certifications
1. LENDER CERTIFICATION FOR PAYMENT INCREASE
I hereby certify that the borrower(s) qualify for the new payment (PITI) which exceeds the previous payment by at least 20 percent.
________________________________________________
Lender Representative
___________________________________
Date
2. INTEREST RATE REDUCTION REFINANCING LOAN (IRRRL) LOAN STATUS
I hereby certify that the VA loan being refinanced was current (not more than 30 days past due) at the time of loan closing.
____________________________________________________
Lender Representative
___________________________________
Date
3. POWER OF ATTORNEY CERTIFICATION
I hereby certify that written evidence in the form of correspondence from the veteran or, if on active military duty, statement of his or
her commanding officer or designee, indicating that the veteran was alive and, if the veteran is on active military duty, not missing in
action status on _____________________, was examined by the undersigned and that said date is subsequent to the date the note and
security instruments were executed on the veteran’
s behalf by the attorney-in-fact.
_____________________________________________
Lender Representative
___________________________________
Date
4. LATE REPORTING CERTIFICATION
Guaranty is being requested more than 60 days after loan closing because
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
_____________________________________________
Lender Representative
___________________________________
Date
5. LOAN QUALITY CERTIFICATION
The undersigned lender certifies that the loan application, all verifications of employment, deposit, and other income and credit
verification documents have been processed in compliance with 38 CFR Part 36; that all credit reports obtained in connection with the
processing of this borrower’
s loan application have been provided to VA; that, to the best of the undersigned lender’
s knowledge and
belief, the loan meets the underwriting standards recited in chapter 37 of title 38 United States Code and 38 CFR Part 36; and that all
information provided in support of this loan is true, complete and accurate to the best of the undersigned lender’
s knowledge and
belief.
____________________________________________
Lender Representative
4
__________________________________
Date