VA Loan Program Guidelines

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1 The following guidelines apply to all DIRECTORS MORTGAGE VA loan programs. All loans must adhere to the criteria of these guidelines or the individual loan programs. While DIRECTORS MORTGAGE makes every attempt to include all guidelines, the user is also encouraged to consult the VA LENDERS HANDBOOK which can be found at: Please note, however, that DIRECTORS MORTGAGE VA Guides will supersede any conflict with the VA LENDER HANDBOOK. DIRECTORS MORTGAGE may, at its discretion allow exceptions to the guidelines. Exceptions must be requested by a Loan Officer or Processor. Any exception granted will have a price adjustment. DIRECTORS MORTGAGE s philosophy is to weigh all the risk factors inherent in the loan file. Consideration is given to each individual transaction, applicant profile, documentation provided, and collateral. Because each loan is unique, underwriters are expected and encouraged to use professional judgment in making a lending decision based on the entire profile presented and the relative risk for DIRECTORS MORTGAGE. Our commitment to fairness and equal opportunity is clear. In keeping with that, all transactions/borrowers will be treated in a consistent and fair manner. And all customers/clients should receive the HIGHEST level of customer service. DIRECTORS MORTGAGE VA Guidelines Last Updated Page 1

2 Table of Contents Appraisal 4 Borrower Eligibility 4 Cash Reserves 5 Condo/PUD 5 Conversion of Current Home to Investment Property 5 Construction/existing less than 1 year 5 Credit 5 Documentation 7 Down Payment/Funds to Close 7 EEM/Energy efficient Mortgages 8 Entitlement 8 Escrow/ Escrow Holdbacks 9 Fees; allowable and non-allowable 9 Funding Fee 9 Geographic areas 10 Income 10 Liabilities 16 Loan Terms 17 Mortgage Insurance/Upfront MIP 17 Maximum Mortgage Calculations 17 DIRECTORS MORTGAGE VA Guidelines Last Updated Page 2

3 Non-occupying co-borrowers 17 Number of Properties Owned 18 Occupancy 18 Property Eligibility 18 Ratios 19 Refinances 19 Recently listed properties 19 Residual income 20 Seller Contributions 20 Subordinate Financing 20 Title Reports 21 Underwriting 21 Glossary of VA terms 21 DIRECTORS MORTGAGE VA Guidelines Last Updated Page 3

4 Appraisal Borrower Eligibility General Guidelines Must be completed by a VA approved appraiser. Fannie Mae s Market Conditions Addendum, form 1004MC is required with all appraisals. Values are not valid until the underwriter issues the NOV, Notice of Value. Age of appraisal: DIRECTORS MORTGAGE will not accept appraisals dated more than 180 days (existing & new construction) prior to the note date. Eligible: For VA home loan purposes, a veteran is a person who has served on active duty in the Army, Navy, Air Force, Marines, or Coast Guard, and who (except for a service member on active duty) was discharged or released from active duty under conditions other than dishonorable. In general, the following eligibility criteria apply: The minimum service required during wartime periods is 90 days of active duty. The minimum service required for the peacetime periods is 181 days of continuous active duty. Veteran discharged or released from active duty under other than dishonorable conditions, who served less than the minimum required period, may be eligible if discharged because of service-connected disabilities. Members of the Reserves or National Guard upon completion of six years of service in the Selected Reserve, or upon discharge from the Reserves or National Guard because of a service-connected disability before completing six years. The un-remarried surviving spouse of an eligible service member who died as a result of service or serviceconnected injuries may also be eligible. Eligible borrower: Veteran Veteran and spouse Permanent and non permanent resident alien permitted if Veterans spouse Ineligible Borrowers: Non-Veterans. Co-borrowers other than spouse. Loans that require VA prior approval such as 2 veterans wanting to spilt eligibility. Veterans who served less than the minimum service term requirements. Veterans that were released or discharged with anything other than honorable conditions. Non-occupying co-borrowers. DMI will rely on a COE as proof the veteran is eligible for the home loan benefit. Although eligible for the home loan benefit, veterans must still qualify based on income and credit before loan approval is granted. Cash As determined by DU/LP. DIRECTORS MORTGAGE VA Guidelines Last Updated Page 4

5 Reserves Condos/PUD s Conversion of current residence to investment property 6 months required if subject is a 2-4 unit property and rental income is used to qualify 3 months PITI required on other properties owned if rental income is being used to qualify Loan amounts greater than $417,000 requires 6 months PITI. (high balance only) 401K is not an acceptable source for reserves See converting current home to rental for special consideration. Attached condominiums must be approved by VA. The approved list can be located at Detached condominiums (site Condos) and PUDs do not require project approval. When borrowers are departing a primary residence and converting it into a second home or rental property: Borrowers must qualify for both PITI payments. Have minimum reserves of 3 months PITI for the retained property. Rental income may be used to offset the payment except with the following documentation. o A properly executed lease agreement at least 12 months in duration from the date the loan closes, and evidence that the homebuyer received the security deposit and/or 1 st month s rent. New Construction and existing less Than 1 year and Never occupied If loan on existing home is a VA See maximum loans to one borrower and eligibility section Builder VA ID number required and may be checked at Purchases only (refinanced require an exception) Newly constructed, completed less than 1 year and never owner-occupied require Covered by a one-year VA builder warranty, or Enrolled in a HUD-accepted ten-year insured protection plan, or Built by the veteran as the general contractor, for his/her own occupancy Proposed or Under construction property is eligible if : Appraisal is based on construction exhibits, and Builder must offer a one-year VA builder warranty Credit History Provide a clear CAIVRS on borrowers and LDP & GSA on all parties to the transaction. Acceptable Individual Credit Reports: Residential Mortgage Credit Report Alternate credit is NOT acceptable. All loans require submission to the AUS Total Scorecard with credit scores Credit documents should be no older than 120 days Credit Score Determination DIRECTORS MORTGAGE VA Guidelines Last Updated Page 5

6 Use: lower of two (2), middle of three (3). Use the lowest score of all borrowers on the loan. Minimum Trade line requirement: Minimum 3 trade lines with a recent 12 month history Credit Score Requirements: Minimum credit score: 640 Recent and/or Undisclosed Debts. The lender must determine the purpose of any recent debts as the indebtedness may have been incurred to obtain part of the required cash investment. See the following for documentation requirements: Verify the actual monthly payment amount Include the monthly payment amount and resubmit the loan if the liability is greater than $100 per month, and Determine that any funds borrowed were not/will not be used for the homebuyers cash investment into the transaction. A borrower must provide a satisfactory explanation for any significant debt that is shown on the credit report but not listed on the loan application. Written explanation is required for all inquiries shown on the credit report in the last 90 days. Mortgage lates: none in the past 12 months regardless of AUS findings Paying off collections and judgments: Collection accounts are not always required to be paid off as a condition of the mortgage approval however; courtordered judgments must be paid off. Previous Mortgage Foreclosure or Short Sale. Bankruptcy. Not eligible for a new VA mortgage if during the last 4 years Chapter 7 Bankruptcy: Credit History (cont.) Not eligible for a new VA mortgage if during last 4 years, and then Have re-established good credit, or Chosen not to incur new credit obligations Chapter 13 bankruptcy: DIRECTORS MORTGAGE VA Guidelines Last Updated Page 6

7 Not eligible for a new VA mortgage if during last 4 years from discharged date, and then Have re-established good credit, or Chosen not to incur new credit obligations Consumer Credit Counseling Payment Plans: The borrower s decision to participate in consumer credit counseling does not trigger a requirement for additional documentation since the credit scores already reflect the degradation in credit history. The borrower s credit history, not voluntary participation in consumer credit counseling, is the important variable in scoring the mortgage and, thus, no explanation or other documentation is needed if the program is completed. If borrowers are still in CCC than the following are required: 12 months satisfactory payment history and The counseling agency approves the new credit. Non-purchasing Spouses. The community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington & Wisconsin. If the borrower resides in or the subject property is located in a community property state and only one spouse is the borrower, a credit report of the non-purchasing spouse must be pulled and all of the debts included in the qualifying ratios for the loan. The payment history is not factored into the loan decision and CAVIRS, LDP & GSA checks are not completed for the non-purchasing spouse. This applies for all Purchase or Refinance Transactions. Documentation AGE OF DOCUMENTATION Credit documentation may not be dated more than 120 days prior to the Note date. Credit documentation includes all: Income documents Asset Documents Credit reports Preliminary title reports Appraisal documentation may not be dated more than 180 days prior to the note date. Please refer to Appraisal section for any additional requirement. Down Payment/ Funds to Close All non original documents must be certified as true and original copies. A blanket certification is acceptable, Only required if: The purchase price is more than the reasonable value established for the property or The veteran doesn t have sufficient entitlement or The purchase price exceeds the VA agency conforming limits or DIRECTORS MORTGAGE VA Guidelines Last Updated Page 7

8 The veteran chooses to put money down. Acceptable sources include: Bank accounts checking and savings 401k/retirement funds for down payment with evidence of liquidation but not allowed for reserves. Gift funds, document with letter and transfer and receipt of funds. Self-Employed Borrowers: The following requirements are applicable for self-employed borrowers if using business funds in a mortgage transaction. Business funds from a partnership or corporation may not be used to meet any required product/program minimum down payment requirements. These funds must all be from the borrower s personal assets. This does not apply to a sole proprietorship where personal and business funds can be comingled. (EEM) Energy Efficient Mortgage Entitlement Not allowed Entitlement is the amount available for use on a loan. The basic entitlement is $36,000. May be less if the veteran has previously used entitlement and it hasn t been restored. The basic entitlement will be displayed near the center of the COE. For example it may say: THIS VETERAN S BASIC ENTITLEMENT IS $. TOTAL ENTITLEMENT CHARGED TO PREVIOUS VA LOANS IS $. The veteran s basic entitlement amount is $36,000. If the loan amount exceeds $144,000, an additional amount of entitlement is available, for a maximum entitlement of 25 percent of the VA loan limit for a single-family residence, currently $417,000. Basic entitlement $36,000 - $36,000 X 4 = $144,000 Additional entitlement available for purchases$68,250; $36,000 + $68,250 = $104,250 - $104,250 X 4 = $417,000 Restoration of entitlement Veterans can have previously-used entitlement restored to purchase another home with VA if: The property purchase with the prior VA loan has been sold and the loan paid in full, or A qualified veteran buyer assumed the VA loan and substituted their entitlement for our veteran borrower s entitlement. May also be restored one time only if the borrower has repaid the prior VA loan but has retained the DIRECTORS MORTGAGE VA Guidelines Last Updated Page 8

9 property purchased with the VA loan. Escrow/ Escrow Holdbacks Fees Funding Fee A temporary increase in entitlement for certain counties designated as high cost. This increase is effective for loans close between January 1, 2009, and December 31, See higher cost county loan limits at Escrows are required on all VA loans. Escrow holdbacks are NOT allowed. VA limits the fees that the borrower can pay. Veteran can pay all the reasonable and customary costs including: 1% flat origination fee (calculated on base loan amount before adding funding fee) 2 discount fees (calculated on the total loan amount including the funding fee) Unallowable closing costs not to be paid by the veteran include but not limited to: Loan closing and settlement costs Review appraisal Escrow Doc Prep, Conveyance, locking fees Notary, loan application, trustee fees Postage, telephone, mailing Tax service VA loans require a non-refundable VA Funding Fee. This fee may be financed in whole or paid in whole. The Loan amount may exceed the maximum loan amount and LTV by the amount of any financed funding fee. Use the following charts to determine the Funding Fee Purchase Type of Veteran Down payment Percentage for First time Use Regular % 2.15% Military % 1.50% Reserves/ National Guard Cash- Out Regular Refinance 10% or more % % 10% or more 1.25% 2.4% 1.75% 1.5% Percentage for Subsequent Use 3.3% * 1.50% 1.25% 3.3% * 1.75% 1.5% Type of Veteran Percentage for Percentage for First time Use Subsequent Use Regular Military 2.15% 3.3% * Reserves/ National Guard 2.4% 3.3% * DIRECTORS MORTGAGE VA Guidelines Last Updated Page 9

10 *Subsequent Use refers to borrowers who have previously purchased a home using their VA benefits. Eligibility must be restored to use it again. Please see entitlement section. The following persons are exempt from paying the Funding Fee: Veterans receiving VA compensation for service-connected disabilities. Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay. Veterans who are rated by VA as eligible to receive compensation as a result of pre-discharge disability examination and rating. Veterans entitled to receive compensation, but who are not presently in receipt because they are on active duty. Surviving spouses of veterans who died in service or from service-connected disabilities (whether or not such surviving spouses are veterans with their own entitlement and whether or not they are using their own entitlement on the loan) Verify exempt status with one of the following: A properly completed and signed by both the Veteran and the VA, Verification of VA Benefits, VA form , indicating the borrower s exempt status. Certificate of Eligibility (COE) indicating that the borrower is entitled as an unmarried surviving spouse Geographic Restrictions Income documentation Properties located in Oregon and Washington only. Full Documentation type is permitted only. 4506T required to be executed by all borrowers on all loans. 2 years most recent 1040 s EFFECTIVE INCOME The anticipated amount of income, and the likelihood of its continuance, must be established to determine a borrower's capacity to repay mortgage debt. Income may not be used in calculating the borrower's income ratios if it comes from any source that cannot be verified, is not stable, or will not continue. This section describes acceptable types of income, procedures for calculating effective income, and requirements for establishing income stability. STABILITY OF INCOME Minimum of 2 year employment history is required. This includes jobs that are seasonal, as long as the meet requirements for seasonal income. Schooling in combination w/new employment typically does not meet this requirement; however we will look at these on a case by case only. The AUS Accept recommendation does not require an explanation for gaps in employment of six months or less, during the most recent two years. DIRECTORS MORTGAGE VA Guidelines Last Updated Page 10

11 ACTIVE MILITARY APPLICANTS: A military Leave and Earnings Statement (LES) is required instead of a VOE. The Department of Defense provides service member s access to a computer generated LES through mypay (formerly known as E/MSS - Employee Member Self Service). This type of LES is acceptable. In addition, identify service members who are within 12 months of release from active duty or end of contract term. Find the date of expiration of the applicant s current contract for active service on the LES (for an enlisted service member). For a National Guard or Reserve member, find the expiration date of the applicant s current contract. Base Pay: Consider the applicant s base pay as stable and reliable except if the applicant is within 12 months of release from active duty. Income documentation (cont) If the date is within 12 months of the anticipated date that the loan will close, the loan package must also include one of the following four items, or combinations of items, to be acceptable: documentation that the service member has 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, or Verification of a valid offer of local civilian employment following the release from active duty. All data pertinent to sound underwriting procedures (date employment will begin, earnings, and so on) must be included, or 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, plus a statement from the service member s commanding officer confirming that: the service member is eligible to reenlist or extend his/her active duty as indicated, and commanding officer has no reason to believe that such reenlistment or extension of active duty will not be granted, or documentation of other unusually strong positive underwriting factors, such as: a down payment of at least 10 percent, significant cash reserves, and clear evidence of strong ties to the community coupled with a nonmilitary spouse s income so high that only minimal income from the active duty service member is needed to qualify. Military Quarters Allowance: The lender may include a military quarters allowance in effective income if properly verified. In most areas there will be an additional variable housing allowance, which can also be included. The military quarters and variable housing allowances are not taxable income. Subsistence and Clothing Allowances Any subsistence (rations) and clothing allowances are indicated on the LES. 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. Convert it to a monthly amount DIRECTORS MORTGAGE VA Guidelines Last Updated Page 11

12 for the loan analysis. 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 applicant has received it. Examples include propay, 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 Military allowances may be included in effective income only if such income can be expected to continue because of the nature of the recipient s assigned duties. INCOME FORM SERVICE IN THE RESERVES OR NATIONAL GUARD: Income derived from service in the Reserves or National Guard may be included in effective income if the length of the applicant s total active and Reserve/Guard service indicates a strong probability that the Reserve/Guard income will continue. Non Military income: SALARIES, WAGES, AND OTHER FORMS OF EFFECTIVE INCOME A. Overtime and Bonus Income. Both overtime and bonus income may be used to qualify if the borrower has been employed with the same employer for two years and received such income for the past two years and it is likely to continue. The lender must develop an average of bonus or overtime income for the past two years, If employment verification states that such income is unlikely to continue, it may not be used for qualifying. Periods of less than two years may be acceptable provided the lender justifies and documents in writing the reason for using the income for qualifying purposes. An earnings trend also must be established and documented for overtime and bonus income. If either type shows a continual decline, the lender must provide a sound rationalization in writing for including the income for borrower qualifying. If bonus income varies significantly from year to year, a period of more than two years must be used in calculating the average income. B. Part-Time Income. Part-time/second job income, including employment in seasonal work, may be used in qualifying if the lender documents that the borrower has worked the part-time job uninterrupted for the past two years and will continue to do so. Seasonal income. Seasonal employment is considered uninterrupted and may be used in qualifying if the lender documents that the borrower has worked the same type of job for the past two years and DIRECTORS MORTGAGE VA Guidelines Last Updated Page 12

13 Expects to be rehired during the next season. A Verification of employment from employer would satisfy these two conditions. C. Commission Income. Commission income must be averaged over the previous two years. The borrower must provide: copies of signed tax returns for the last two years, and Most recent pay stub. Commission income showing a decrease from one year to the next requires significant compensating factors to allow for loan approval. Commissions earned for less than one year are not considered effective income. (Borrower must be employed with the same employer for two years to use commission income) D. Retirement and Social Security Income. Retirement and social security income require verification from the source (former employer, Social Security) or federal tax returns. If any benefits expire within the first full three years, the income source may be considered only as a compensating factor. E. Alimony, Child Support, or Maintenance Income. Income in this category may be considered as effective income if the borrower documents: Income documentation (cont) Provide a copy of the final divorce decree, legal separation agreement, or voluntary payment agreement, Evidence that payments have been received during the most recent 3 months. Acceptable evidence of payment includes using deposits on bank statements, canceled checks, deposit slips, tax returns, and court records. Must continue for at least 3 years F. Notes Receivable. A copy of the note must be presented to establish the amount and length of payment. The borrower also must provide Copy of the Note to establish the amount and length of payment, and Evidence that these payments have been received consistently for the last twelve months, which may include deposit slips, canceled checks, or tax returns. I If the borrower is not the original payee on the note, the lender must also establish that the borrower is now a holder in due course and able to enforce the note. G. Interest and Dividends. Interest and dividend income may be used, provided that documentation (tax returns or account statements) supports a two-year history of receipt. This income must be averaged over the two years. Any funds derived from these sources and required for the cash investment must be subtracted before the projected interest or dividend income is calculated. H. Government Assistance Programs. Income received from government assistance programs is acceptable, subject to documentation from the paying agency, provided the income is expected to continue at least three years. If the income is not expected to be received for at least three years, such income may be considered as DIRECTORS MORTGAGE VA Guidelines Last Updated Page 13

14 a compensating factor. (Unemployment income must be documented for two years. Reasonable assurance of its continuance is also required. This requirement may apply to individuals employed on a seasonal basis, such as farm workers, resort employees, etc.) I. Rental Income. Rent received for properties owned by the borrower is acceptable if documentation provided to show the stability of rental income through: 2-4 unit subject property: to use income; 6 months PITI Borrowers has 2 years experience managing rental property Use 75% of the lesser of current lease or appraisers estimate of fair market rents Other rental properties; to use income: 2 years most recent 1040 s which show rental income generated by the property 3 months PITI on the property. A separate schedule of real estate is not required for rental properties, provided all properties are shown on the URLA. NOTE: The underwriting analysis may not consider rental income from any property being vacated by the borrower, see converting current home section for exceptions. J. Automobile Allowances and Expense Account Payments. Only the amount by which the borrower's automobile allowance or expense account payments exceed actual expenditures may be considered income. To establish the amount add to gross income, the borrower must provide the following: IRS Form 2106, Employee Business Expenses, for the previous two years, and Employer that these payments will continue. Income documentation (cont) If the borrower uses the standard per-mile rate in calculating automobile expenses, the portion that the IRS considers depreciation may be added back to income. Expenses that must be treated as a recurring debt include: The borrowers monthly car payment, and Any loss resulting from the calculation of the difference between the actual expenditures and the expense account allowance K. Trust Income. Income from trusts may be used if guaranteed, constant payments will continue for at least the first three years of the mortgage term. Documentation is required and includes: DIRECTORS MORTGAGE VA Guidelines Last Updated Page 14

15 Copy of the Trust Agreement, confirming amount, Frequency of distribution, and duration of payments. Income documentation (cont) Trust Funds may be used for the required cash investment if the borrower provides adequate documentation that the withdrawal of funds will not negatively affect income. The borrower may use funds from the trust account for the required cash investment, but the trust income used to determine repayment ability cannot be affected negatively by its use. L. Nontaxable Income. May be grossed up for debt to income ratios only, not for residual income. Can only be grossed up by the federal tax liability. M.. Projected Income. Projected or hypothetical income is not acceptable for qualifying purposes. SELF-EMPLOYED BORROWERS A borrower with a 25 percent or greater ownership interest in a business is considered self-employed for VA mortgage loan underwriting purposes. Minimum Length of Self-Employment. 2 years are required (no exceptions) Length of self-employment is documented by: Most recent personal federal taxes w/all applicable schedules, signed & dated Most recent business federal taxes (if ownership greater than 25%) w/all applicable schedules, signed & dated Liabilities Deduct significant debts and obligations from total effective income when determining ability to meet the mortgage payments. Significant debts and obligations include: debts and obligations with a remaining term of 10 months or more; that is, long-term obligations, and Accounts with a term less than 10 months that require payments so large as to cause a severe impact on the family s resources for any period of time. Example: Monthly payments of $300 on an auto loan with a remaining balance of $1,500, even though it should be paid out in 5 months, would be considered significant. The payment amount is so large as to cause a severe impact on the family s resources during the first, most critical, months of the home loan. If a married veteran wants to obtain the loan in his or her name only, the veteran may do so without regard to the spouse s debts and obligations in a non-community property state. However, in community property states, the spouse s debts and obligations must be considered even if the veteran wishes to obtain the loan in his or her name only. Job Related Expense : include any job-related expenses associated with borrowers employment including: DIRECTORS MORTGAGE VA Guidelines Last Updated Page 15

16 Child care expenses for child age 13 and under (child care expense letter required). Union dues. Significant comminuting expenses. Recurring Obligations. The following additional information deals with revolving accounts and alimony payments: 1. Revolving Accounts. If the account shown on the credit report has an outstanding balance, monthly payments for qualifying purposes must be calculated at the greater of 5 percent of the balance or $10 (unless the account shows a specific minimum monthly payment). 2. Alimony. Because of the tax consequences of alimony payments, the lender may choose to treat the monthly alimony obligation as a reduction from the borrower's gross income in calculating qualifying ratios, rather than as a monthly obligation. Contingent Liabilities. A contingent liability exists when an individual will be held responsible for payment of a debt, should another party, jointly or separately obligated, default on that payment. Other Obligations Considered. Obligations to be considered when calculating residual income Federal, state, and FICA taxes; (This doesn t count against DTI just required residual.) Maintenance and utilities, calculated at.14 cents per square foot of the subject property. Calculate by going to always use monthly for pay frequency. Liabilities (cont) PAYOFF OF REVOLVING DEBT TO QUALIFY Not Allowed. Non-purchasing Spouses. If required by state law in order to perfect a valid and enforceable first lien, the nonpurchasing spouse may be required to sign either the security instrument or documentation evidencing that he or she is relinquishing all rights to the property. When the security instrument is executed for this reason, the non-purchasing spouse is Not considered a borrower, and Not required to sign the loan application NOTE: In all other cases, the non-purchasing spouse does not Appear on the security instrument or Take title to the property at loan settlement DIRECTORS MORTGAGE VA Guidelines Last Updated Page 16

17 Non-Purchasing Spouse Credit History: Except for the obligations specifically excluded by state law, the debts of the non-purchasing spouse must be included in the borrower's qualifying ratios if the borrower resides in a community property state or Property to be insured is located in a community property state. The non-purchasing spouse's credit history is not to be considered a reason for credit denial, however, the nonpurchasing spouse s credit report that complies with the requirements of the above non-purchasing guides must be obtained for the non-purchasing spouse in order to determine the debt-to-income ratio Loan Terms 30 year fixed rate 15 year fixed rate 5/1 ARM; qualify at the note rate 3/1 ARM; qualify at the note rate 2-1 buy-downs not allowed suspended Calculated using the actual payment method for pricing. Maximum Loan LTV / CLTV LTV CLTV Purchase 100% 100% Rate and Term 90% 90% Cash out 90% 90% Funding fee can be financed over and above the LTV/CLTV, except, the total loan amount can t exceed $417,000. Mortgage Insurance See Funding Fee Maximum Loan Amount Maximum loan amount $417,000 for veterans with full entitlement. Can be exceeded if property is located in county that as additional entitlement and considered a High Balance loan: htpp:// High balance loans $417,000-$650,000 require the following be meet:: 720 minimum credit score 6 months PITI in reserves 1 unit SFR, condos and PUDs only (2-4 units are not allowed) Maximum Cash out $325,000 (refinances only) Gift funds not allowed. Non-Occupying Co-Borrower Not allowed DIRECTORS MORTGAGE VA Guidelines Last Updated Page 17

18 Number of Properties owned/financed Occupancy Borrower may only have one VA financed property at a time. No limited on the number of properties financed/ owned. Directors Mortgage will not finance more than 4 loans per borrower. Owner occupied properties only. Borrower must certify their intent to live in the property. Active Duty Veterans may be able to meet the occupancy requirement if: Occupy within 60 days of closing Current spouse will occupy Occupy within 12 months with satisfactory documented reason If the buyer is on active duty, a spouse may certify occupancy. Single or married service members deployed from their permanent duty station are considered to be in a temporary-duty status and are able to certify intent to occupy. There is no need to have a spouse, if applicable, certify occupancy. Property Eligibility Property ELIGIBLE PROPERTY TYPES 1-4 UNITs PUD, Detached or Attached: Condos - must be VA approved see Condo Section for details INELIGIBLE PROPERTY TYPES: Properties not likely to meet Minimum Property Requirements (MPRs); Location-related problems; A Coastal Barrier Resources System area An airport Noise Zone 3, if proposed or under construction A transmission line easement involving high-pressure gas or liquid petroleum or high-voltage electricity, if any part of the residential structure is located within the easement, or An area susceptible to geological or soil instability (such as earthquakes, landslides, or other history of unstable soils), if proposed/under/new Condominium project not approved Ownership not fee-simple A Special Flood Hazard Area (SFHA), and The property s proposed, under, or new construction with elevation of the Lowest floor below the 100-year flood level, or Flood insurance is not available. o An area subject to regular flooding whatever reason, whether or not it is in an SFHA Properties which represent an illegal use under zoning regulations, or subject to hazards, noxious odors, etc. Properties on Native American Reservations Manufactured Homes and other Factory Built Housing Properties that are landlocked, without full utilities and/or not accessible year round Working farm, ranch or orchard Hobby farms Unique properties DIRECTORS MORTGAGE VA Guidelines Last Updated Page 18

19 Eligibility (cont) Purchase Money Transactions: The purchase contract for all purchase money transactions must be provided to the appraiser so that sales contributions or concessions can be accounted for in the valuation Ratios. 41% debt to income ratio (VA doesn t have a separate housing ratio).. May be exceeded up 55% with AUS approved ratios and 120% of required residual. Residual Income: The Veteran must also meet the residual income requirement based on family size, loan amount and region. Refinances A refinance transaction involves repaying an existing real estate debt from the proceeds of a new mortgage that has the same borrower(s) and the same property. Free and clear properties are not eligible. VA doesn t not distinguish between rate and term and Cash out. Regular refinanced all allowed up to 90% of current Notice of Reasonable value (issued by an underwriter after reviewing the appraisal). Refinances on the following will require an exception and may not be allowed to the full 90% when paying off:: Construction loans Land sales contracts Loans assumed by the veteran Proceeds from the loan may be used to pay fees, and discount points. Maximum cash-out: Loan amounts < $417,000 unlimited. Loan amounts > $417,000 limited to $325,000 applies on to high balance loans only Recently listed IRRRLS not allowed. Refinances on properties listed for sale are not permitted. Properties previously listed for sale must have been off the market and the listing canceled in the time frames described below: Rate and Term Refinances: The listing agreement must be canceled at least one day prior to the date the loan application is taken. Cash Out Refinances: Listing agreements on the subject property must be canceled six months prior to the loan application date or the loan is subject to a maximum loan-to-value of 70%. In all circumstances, listing agreements must be canceled prior to the loan application. A copy of the canceled/expired listing should be placed in the file and a search of the current multiple listing services should be DIRECTORS MORTGAGE VA Guidelines Last Updated Page 19

20 Residual Income completed to verify that the property is not currently listed by a different agency. Residual Incomes Chart Family Size Loan amount $80,000 and above Loan amount $79,999 & below 1 $491 $425 2 $823 $713 3 $990 $859 4 $1,117 $967 5 $1,159 $1,004 Add $80 for each additional family member up to 7 for loan amounts $80,000 and above and $75 for loan amounts $79,999 and below. Seller Contributions Reduce the required residual by 5% if the veteran is currently actively in the military 4% maximum of the Notice of Value (NOV) may be contributed. Concessions are defined as anything of value added to the transaction, which the seller is not customarily expected to pay: Not consider concessions, therefore not included in the 4% limitation include the following: Non-reoccurring closing cost that is standard and typical. Seller paid discount points. Concessions included in the 4% limitation included but not limited to: VA funding fee Temporary buy downs Pre paids Subordinate Financing Real Estate Commissions: An aggregate real estate commission including a bonus greater than 8% of the sales price of the subject property is considered a sales concession and that commission and/or bonus amount over 8% must be deducted from the sales price. Secondary borrowing is acceptable as long as The veteran is not placed in a substantially worse position than if the entire amount borrowed had been guaranteed by VA, and the requirements detailed below are met The total financed loan amount, including the subordinate financing must not exceed the allowed LTV/CTLV ratios. The second mortgage must be subordinated to the VA-guaranteed loan. There can be no cash back to the veteran from the VA first mortgage or a second mortgage obtained simultaneously The rate on the second mortgage may not exceed industry standards for second mortgages. The second should not restrict the veteran s ability to sell the property any more than the first. That is, it DIRECTORS MORTGAGE VA Guidelines Last Updated Page 20

21 should be assumable by creditworthy purchasers Proceeds of the second mortgage may be used for a variety of purposes, including but not limited to Closing costs or a down payment to meet secondary market requirements of the lender. But may not be used to cover any portion of a down payment required by VA to cover the excess of the purchase price over VA s reasonable value. Title Reports Underwriting Glossary of VA Terms A 24 month chain of title will be required for all transactions. Your title commitment/preliminary title report must show an acceptable history or the underwriter must pull it from another acceptable source. Judgment/lien search required on all borrowers/title holders. This program requires: LP Feedback Cert with Accept Risk Class, or DU Findings with Approve recommendation. No Manual underwriting ACE/ Automated Certificate of Eligibility: This system is used by VA-approved lenders in order to help Veterans get the Certificate of Eligibility they need to take part in the VA Home Loan Guarantee Program Automatic Lender: Lender with delegated Underwriting Authority Base Loan Amount: loan amount before adding the financed funding fee. Certificate of eligibility/coe: Form provided by VA to indicate veteran s eligibility for home loan benefits. CRV/Certificate of Reasonable Value: This certifies the fair market value of the property once the home is appraised. DD214: Service separation papers given to veteran upon leaving the service. Entitlement: the amount of guarantee that is available to the Veteran. Entitlement divided by base loan amount = s the guaranty. Funding Fee: A non refundable fee payable to VA to provide funds for the Home Loan Guaranty Program. GNMA: Government National Mortgage Association Guaranty entitlement: The Guaranty protects lenders against loss if the borrower defaults on the loan. Secondary, GNMA, require 25% guaranty. IRRRLS: Interest Rate Reduction Refinance Loan, also known as the streamline refinance. This allows borrowers to refinance current VA loans to a lower interest rate with reduced documentation. LES: Leave and earning statement: Active military paystub. LH Number: Loan Home VA loan obtained from VA when ordering the appraisal. NOV/Notice of Reasonable Value: Appraised value when the appraisal has been done through LAPP process. DIRECTORS MORTGAGE VA Guidelines Last Updated Page 21

22 SAR: lenders Staff Review Appraise. Employee of the lender issues the NOV on the appraisal. TAS: The appraisal system used for, on-line system where appraisal and case number assignments can be ordered 24 hours a day. VA Eligibility Center: Where Veterans submit their requests for a COE. Once a VA Form and a Form DD 214 have been completed, when the COE is not available electronically through the ACE system. Send the completed forms to the VA Eligibility Center at: Loan Eligibility Center PO Box Winston-Salem, NC 27120M Phone # DIRECTORS MORTGAGE VA Guidelines Last Updated Page 22

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