VA OVERVIEW COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED. Last Revised: 06/21/16

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2 DISCLAIMER These materials are intended for informational use only. This is neither legal advice nor a substitute for Agency Guidelines. Please do not reproduce, display, or distribute without the express written permission of AFR. This information is subject to change in AFR s sole discretion. Updated AFR guidelines may be accessed on AFR s website, All rights reserved. The AFR underwriter has the right to decline or suspend a file at their sole discretion for any reason allowed by law. AFR is an equal housing lender. NMLS American Financial Resources, Inc., 9 Sylvan Way, Parsippany, NJ, COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 2

3 AGENDA Overview VA Approval & Process Flow Overlays Age Of Documents Basic Eligibility Requirements Programs, Transactions, Terms & Property Types Maximum LTV/CLTV Occupancy Underwriting Method Certificate of Eligibility & Entitlement Credit Appraisals LIN Numbers Loan Limits Fees COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 3

4 VA PROGRAM OVERVIEW A mortgage loan program established by the United States Department of Veterans Affairs to help veterans and their families obtain home financing. VA helps Servicemembers, Veterans, and eligible surviving spouses become homeowners, build, repair, retain, or adapt a home for personal occupancy. An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

6 AFR requires all clients to have VA Sponsorship prior to submitting VA loans. Complete Request for VA Recognition of an Agent Form > Becoming a Lending Partner > FORMS > Request for VA Recognition of an Agent nt.pdf Provide copy of the your VA approval reflecting the VA Lender ID Number $100 check made payable to: American Financial Resources, Inc. Send check to American Financial Resources, Inc. 9 Sylvan Way Parsippany NJ attention: Client Services Send completed form and proof of VA Lender ID Number to clientservices@afrwholsale.com with subject line: VA Agent Approval Note: VA ID Number each agent must contact the VA office with jurisdiction over its home office to obtain a VA ID number if you do not already have one. This number is used as the agent s identifier on all VA lending transactions, whether the agent is acting as an agent/broker, or on its own behalf as a lender. COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 6

8 VA FULLY AMORTIZING FIXED All overlays herein are subject to change by AFR without notice. Where AFR is silent, the UW must follow all guidelines outlined in the Lender s Handbook - VA Pamphlet CREDIT PROPERTY AFR requires a 620 minimum qualifying credit score required for all qualifying borrowers : A minimum of 2 qualifying credit scores are required for all qualifying borrowers. Use the middle score if 3 credit scores or the lower of the two if 2 credit scores. Lowest representative score from all borrowers will be used for qualification purposes. 660+: A minimum of 1 qualifying credit score is required for all required borrowers. 700 minimum qualifying credit score for VA Jumbo Transactions Non-traditional credit not permitted; with the exception of CDE loans with an AUS Approve Eligible Recommendation. Housing History 0x30 for 12 months required Significant Derogatory Credit (Bankruptcy, Foreclosure) waiting periods less than 2 yrs. from the resolution of the event to application must be approved by the credit committee. Any purchase where the seller is an LLC or Corporation and/or title shows no mortgages or liens being paid off AFR will require a VOD that is requested and verified by AFR. AFR will permit a private VOR only if 12 months cancelled checks are provided to support documentation. New secondary financing not permitted AFR Policy on Federal Tax Liens: AFR requires the borrower to provide proof they are in an approved repayment plan and must have made at least 1 payment for the debt to remain open. All payments must be made on time. (0x30 Max). Monthly payment must be included in the debt-to-income ratios. Tax liens may remain unpaid provided the lien holder subordinates the tax lien. AFR will not permit an appraisal to be over 120 days if the appraiser states the property value is declining. Manufactured Homes require an IBTS Certificate if the HUD Tags are missing or not legible. AFR does not permit the use of a plat mat in lieu of a survey if a survey is required AFR requires $1000 Deductible for Homeowners Insurance and Flood Insurance The following property types are not permitted: 3 Units 4 Units Co-Ops Manufactured Housing in a Condominium Project Manufactured Housing that has been moved and/or traded Mixed- Use Under Construction Properties with commercial influence are subject to additional review. Any property where marijuana is grown or processed inside the home or on the property, regardless of the quantity or state law is unacceptable COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 8

9 VA FULLY AMORTIZING FIXED CONTINUED ASSETS INCOME All loans that have a purchase money grant/silent (or soft) second must get an approval from the AFR Title Review prior to underwriting approval/afr purchase Trade Equity not permitted Sweat Equity not permitted Trade-Ins not permitted Private Savings Clubs or Pooled Savings Accounts are not permitted Cash on hand is not permitted Employer Assistance Plans not permitted Employer Differential Payments not permitted AFR requires a minimum of 2 years for the length of selfemployment to use as income. AFR does not permit voluntary agreements for child support, maintenance and alimony. AFR requires 2 years receipt of OT and Bonuses to be used as qualifying income; anything less than 2 years will not be eligible for income. Marijuana income is unacceptable income regardless of state law AFR does not permit amended tax returns if they are dated 90 days of application date. All amended tax returns must be more than 90 days of the application date and acknowledged (stamped and signed by the IRS or with the transcripts) COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 9

10 VA FULLY AMORTIZING FIXED CONTINUED PROGRAMS OWNERSHIP TYPES AFR permits CEMA transactions on NY properties No prior CEMA's allowed. AFR requires an approved closing attorney in NY to conduct all NY settlements. You or the borrower may choose from the list below: Richard H. Lovell, Esq. - (Closing all transactions, including CEMA) Mincone & Mincone, PC - (CEMA Approved) Gregory J. Felber, Esq. - (CEMA Approved) Gregg M. Febbraio, P.C. - (CEMA Approved) AFR does not participate in the following Programs: Texas Equity Section 50(a)(6) Program Energy Efficient Mortgages (EEMs) Adjustable Rate Mortgages (ARMS) Graduated Payment Mortgages (GPM) Growing Equity Mortgages (GEMs) Loans Involving Temporary Interest Rate Buy downs Farm Residence Loans Native American Direct Loan (NADL) Specially Adapted Housing (SAH) Grant Special Housing Adaptation (SHA) Grant Supplemental Loans Loans for Alteration and Repair The following are ineligible for submitting/delivery to AFR: Life Estate Blind Trusts Irrevocable Trusts 1031 Exchanges LLCs, Corporations and Partnerships Community Land Trusts COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 10

11 VA FULLY AMORTIZING FIXED CONTINUED COMPLIANCE MISCELLANEOUS AFR s Net Tangible Benefit Policy For all refinances, the borrower's total costs must be recouped from the monthly savings within 48 months from the date of closing. Note: Massachusetts has a requirement for the borrower to recoup the total costs within 24 months from the date of closing. See AFR Website for State requirements/forms ** VA IRRRLS must adhere to VA Final Rule for NTB requirements AFR does not close and/or purchase any New York loan that is a subprime home loan. All NY Loans must be tested the time the commitment is prepared. If the APR at the time of commitment cannot be determined AFR will not proceed with or purchase a loan with a client code of TF, C or CDE. Any loan that is classified as a Rebuttable Presumption must have all HPML provisions applied and must meet residual income guidelines. (See Higher-Priced Mortgage Loan and Residual Income Sections in Underwriting Specifications for guidance). Any loan that is classified as a Higher-Priced Mortgage Loan (HPML) must have all HPML provisions applied. (See Higher-Priced Mortgage Loan Section in Underwriting Specifications for guidance.) File remains subject to all Qualified Mortgage ( QM ) and Ability-to-Repay ( ATR ) underwriting guidelines, including Points and Fees thresholds through consummation. AFR will not originate, close, fund, or purchase any loan that is not legally deemed as a QM. AFR will also require all VA loans to follow specific ATR/QM provisions specified by VA. All loans must provide evidence of the borrower s compliance of QM/ATR with a compliance report. Note: Delegated Correspondents must provide a compliance report evidencing compliance. All loans must provide evidence of the borrower s ability to repay with a fully completed/executed Ability to Repay Worksheet. Note: Delegated Correspondents must provide a fully completed/executed Ability to Repay Worksheet showing evidence the borrower meets the ability to repay requirements. AFR will not originate loans as a high cost or predatory mortgage loan AFR will comply in all respects with CFPB s Rule on TILA-RESPA Integrated Disclosures. AFR will not originate, close, fund, or purchase any loan that does not adhere to the Rule. Escrow waivers are not permitted Temporary Interest Rate Buy downs not permitted Gap Letters for Title are not permitted Prepayment penalties are not permitted Qualifying Ratios: Approve/Eligible AUS recommendations follow AUS findings Refer AUS recommendations or manual underwrites follow Manual Downgrade guidelines. Maximum Cash Out: For Approve/Eligible AUS recommendations, follow findings; for Refer AUS recommendations or manual underwrites $100,000 COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 11

13 AFR OVERLAYS JUMBO LOANS AFR requires additional overlays for VA Jumbo loans. Applications for a VA Jumbo Loan must have all overlays outlined in this matrix and: 700 minimum qualifying credit score, AUS Approve Eligible recommendation only; refers are not permitted, Liquid reserves equal to 2 months PITI required, Maximum 80% LTV/CLTV on Refinance Transactions Clean credit history required, Clean credit history is determined by the underwriter No prior foreclosures, Maximum Loan Amount of $1.5 million (Note: The maximum loan amount of $1.5 million includes the VA Funding Fee), There may be a Price Adjustment for loan sizes that are considered Jumbo. Please see the daily rate sheets for details. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 13

14 AGE OF DOCUMENTS Appraisal: 180 days; recert of value not permitted Notice of Value (NOV): 6 months Assets: 120 days CPL: 60 days Credit: 120 days Income: 120 days Title: 90 days (TX and LA 60 days) COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 14

16 A veteran is eligible for VA home loan benefits if he or she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard after September 15, 1940, and was discharged under conditions other than dishonorable after either: 90 days or more, any part of which occurred during wartime, or 181 continuous days or more (peacetime). 2 year requirement: A greater length of service is required for veterans who: Enlisted (and service began) after September 7, 1980, or Enlisted service as an officer after October 16, These veterans must have completed either: 24 continuous months of active duty, or The full period for which called or ordered to active duty, but not less than 90 days (any part during wartime) or 181 continuous days (peacetime) Important: Cases involving other than honorable discharges require further development by the VA. COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

17 Wartime Peacetime World War II 9/16/1940-7/25/1947 Korean conflict 6/27/1950-1/31/1955 Vietnam Era 8/5/1964-5/7/1975 (The Vietnam Era begins 2/28/1961 for those individuals who served in the Republic of Vietnam) Post World War II period 07/26/1947-6/26/1950 Post Korean period 2/1/1955-8/4/1964 Post Vietnam period 5/8/1975-8/1/1990 Persian Gulf War 8/2/1990 date to be determined COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 17

18 Members of the Reserves and National Guard who are not otherwise eligible for loan guaranty benefits are eligible upon completion of 6 years service in the Reserves or Guard (unless released earlier due to a service-connected disability). The applicant must have received an honorable (a general or under honorable conditions is not qualifying) discharge from such service unless he or she is either: In an inactive status awaiting final discharge, or Still serving in the Reserves or Guard. Some spouses of veterans may have home loan eligibility They are: The unmarried surviving spouse of a veteran who died as a result of service or service-connected causes, The surviving spouse of a veteran who dies on active duty or from service-connected causes, who remarries on or after age 57 and on or after December 16, 2003, and The spouse of an active duty member who is listed as MIA or a POW for at least 90 days. Eligibility under this MIA/POW provision is limited to onetime use only Surviving spouses of veterans who died from non-service connected causes may also be eligible if certain conditions are met Those conditions are: The veteran was rated totally disabled for 10 years or more immediately preceding death; or Was rated totally disabled for not less than 5 years from date of discharge or release from active duty to date of death, or The veteran was a former POW who died after September 30, 1999, and was rated totally disabled for not less than 1 year immediately preceding death COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 18

20 This table provides a quick reference to some additional types of eligible veterans. This table is not exhaustive. A veteran s eligibility for home loan benefits may only be determined by VA. Active Duty Member Other Eligible Persons Time Required 90 days (181 during peacetime) Note: Certificate valid only while veteran remains on active duty. Reserves/Guards Unmarried Surviving Spouses 6 years in Selected Reserves No time requirement. Veteran must have died on active duty or from a service-connected disability. The surviving spouse of a veteran who dies on active duty or from service-connected causes, who remarries on or after age 57 and on or after December 16, 2003, may also be eligible. POW/MIA Spouses The spouse of an active duty member who is listed as POW/MIA for at least 90 days. Eligibility under the MIA/POW provision is limited to one time only. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 20

22 PROGRAMS & FICOS Programs VA Fully Amortizing Fixed & High Balance VA Jumbo VA Interest Rate Reduction Refinance Loan ( IRRRL ) VA Construction-to-Permanent One Time Close ( OTC ) Note: Permitted for Wholesale Broker Minimum Qualifying Credit Scores VA Fully Amortizing Fixed & High Balance: 620 VA Jumbo: 700 IRRRLs: 620 OTC: 620 TRANSACTIONS & TERMS Transactions Purchase Regular Refinance (Full Doc) Interest Rate Reduction Refinance (IRRRL) Terms 10 Yr., 15 Yr., 25 Yr., & 30 Yr. Fixed Rate Note: OTC 15Yr. And 30 Yr. Only ARMS are not permitted COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 22

23 VA IRRRLS What is an IRRRL? An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan. Interest Rate Decrease Requirement An IRRRL must bear a lower interest rate than the loan it is refinancing unless the loan it is refinancing is an ARM. Payment Decrease/Increase Requirements The principal and interest payment on an IRRRL must be less than the principal and interest payment on the loan being refinanced unless one of the following exceptions applies: The IRRRL is refinancing an ARM, or Term of the IRRRL is shorter than the term of the loan being refinanced A significant increase in the veteran s monthly payment may occur with any of these three exceptions, especially if combined with one or more of the following: Financing of closing costs, Financing of up to two discount points, Financing of the funding fee, and/or Higher interest rate when an ARM is being refinanced If the monthly payment (PITI) increases by 20 percent or more, the lender must: 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 obligations in light of income established as stable and reliable, and Include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 23

24 Veteran s Statement and Lender s Certification For all IRRRLs, the veteran must sign a statement acknowledging the effect of the refinancing loan on the veteran s loan payments and interest rate The statement must show the interest rate and monthly payments for the new loan versus that for the old loan. The statement must also indicate how long it would take to recoup ALL closing costs (both those included in the loan and those paid outside of closing) If the monthly payment (PITI) increases by 20 percent or more, the lender must include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more The veteran s statement may be combined with the lender s certification and should be on the lender s own letterhead. For a sample please go to: What Closing Costs can be Included in the Loan? The following fees and charges may be included in an IRRRL: The VA funding fee, and Any allowable fees and charges discussed in section 2 of chapter 8 of the WARMS pamphlet; such as, all allowable closing costs, including the lender s flat charge However, There Is One Limitation While the borrower may pay any reasonable amount of discount points in cash, only up to two discount points can be included in the loan amount. The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing costs, as long as the requirements for lower interest rate and payments (or one of the exceptions to those requirements) are me COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 24

25 Cash to the Borrower An IRRRL cannot be used to take equity out of the property or pay off debts, other than the VA loan being refinanced. Loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or closing the IRRRL. Therefore, the general rule is that the borrower cannot receive cash proceeds from the loan. If necessary, the refinancing loan amount must be rounded down to avoid payments of cash to the veteran. COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 25

26 IRRRL VS. REGULAR REFINANCE (FULL DOC) Feature IRRRL Regular Refinance (Full Doc) Purpose To refinance an existing VA loan at a lower interest rate To pay off lien(s) of any type can also provide cash to borrower Interest Rate Monthly Payment Amount Discount Points Maximum Loan Amount Rate must be lower than on existing VA loan (unless existing loan is an ARM) Payment must be lower than that on an existing VA loan (unless an ARM is being refinanced or a term is shortened) Reasonable points can be paid only two of these points can be included in the loan amount Existing VA loan balance, plus allowable fees and charges, plus up to two discount points, plus the VA Funding Fee Any negotiated rate No requirement Reasonable points can be paid, if paid from loan proceeds 100% of the reasonable value of the property indicated on the NOV, plus the VA funding fee Maximum Guaranty Guaranty is at least 25% in all cases Maximum guaranty is the same as for purchases Entitlement Fees and Charges in the Loan Veteran re-uses the entitlement used on the existing VA loan the IRRRL does not impact the amount of entitlement the veteran has in use All allowable fees and charges, including up to two discount points, may be included in the loan Must have sufficient available entitlement if existing VA loan on the same property is being refinanced, entitlement can be restored for the refinance Allowable fees and charges and points may be paid from the loan proceeds Cash to Borrower Not permitted Borrower can receive cash for any purposes acceptable to the AFR UW Lien/Ownership Must be secured by first lien veteran must own the property Must be secured by first lien veteran must own the property Refinance of Other Liens Cannot refinance other liens can only refinance the existing VA loan Can refinance any type of lien(s) Maximum Loan Term Existing VA loan term plus 10 years, not to exceed 30 years + 32 days 30 years + 32 days Appraisal No Appraisal required Reminder: AFR requires an AVM Appraisal is required COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 26

27 VA ONE-TIME CLOSE (OTC) American Financial Resources, Inc. (AFR) offers Construction-to-Permanent loans for new manufactured, modular homes, and one unit stick built homes. The One-Time Close program provides construction financing, lot purchase and permanent loan, all wrapped up in one loan. Why worry about re-qualifying, second appraisals, or incurring additional costs? AFR underwrites and approves the permanent portion of the loan before the construction begins. The construction portion of the loan is also underwritten and approved. When all conditions for closing are cleared with AFR, other than the final construction related conditions, the closing will be coordinated. Once closed, construction can begin. Because the permanent loan is closed before construction begins, there is no re-qualifying the borrower. This is a true One-Time Close the borrowers will not need to return to the settlement agent for a second closing once construction is complete. COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 27

28 PROPERTY TYPES ELIGIBLE INELIGIBLE 1 Unit Primary Residence 2 Unit Primary Residence 1-2 Unit Investment Property (IRRRLs ONLY) The veteran or the spouse of an active servicemember must certify that he or she previously occupied the property as his or her home VA Approved Condominiums PUDs Manufactured Housing (classified as real estate) Existing Construction (defined as a home which either has been previously owner-occupied or had all onsite and offsite improvements fully completed for one year or more is eligible) New Construction (defined as completed less than one year and never owner-occupied). Reminder: The subject property must be 100% complete at the time of the appraisal. Appraisals done subject to require a final inspection by appraiser. Proposed Construction (under the VA OTC Program) Investment Properties (with the exception of IRRRLs) 2 Unit Properties for the VA OTC Program 3 Unit and 4 Unit Properties Single-width Manufactured Housing (VA OTC Program) Second Homes Non-approved VA Condominiums Properties with ownership not fee simple (leaseholds, co-ops, ground rental agreements) Under Construction Mixed-Use Properties Co-Ops Any property in a Special Flood Hazard Area and either: Is a proposed/new construction with elevation of the lowest floor below the 100 year flood level, or Flood insurance ins not available Any property in a Coastal Barrier Area Any property in an airport noise zone 3 if proposed construction Any property in an area susceptible to geological or soil instability (earthquakes, landslides, etc.) if proposed/new construction and the builder cannot provide evidence the site is not affected. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 28

30 FULLY AMORTIZING FIXED & HIGH BALANCE PURCHASE VA base loan amount cannot exceed 100%/100% LTV/CLTV Total loan amount (base loan amount plus VA funding fee) cannot exceed county loan limits Reminder: If a family member is buying a home from another family member, AFR will require documentation verifying that the seller's mortgage is in good standing is required. If the seller's mortgage is in default, the loan is not eligible. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 30

31 FULLY AMORTIZING FIXED & HIGH BALANCE REGULAR REFINANCE FULL DOC A regular refinance is a VA-guaranteed loan that refinances any type of lien or liens against the secured property. The liens to be paid off may be: Current or delinquent, and From any source, such as Tax or judgment liens, or VA, FHA or conventional mortgages Loan proceeds beyond the amount needed to pay off the lien(s) may be taken as cash by the borrower for any purpose acceptable to the AFR UW. The loan must be secured by a first lien on the property. The maximum loan amount is 100% of the appraised value, plus the VA Funding Fee Cash proceeds from the loan may be used to pay allowable fees and charges and discount points The maximum guaranty is the same for purchase loans The veteran must have sufficient available entitlement for the loan Housing History = 0x30 12 months Properties owned free and clear are not eligible COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 31

32 IRRRL Unlimited LTV Important: If the LTV is greater than 125% based off of the required AVM, a pricing adjustment (LLPA) will be applied. See Appraisal Slides > VA IRRRL AVMs for more information COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 32

33 JUMBO PURCHASE JUMBO REGULAR REFINANCE 100%/100% The total maximum loan amount of $1.5 million includes the VA Funding Fee 80%/80% The total maximum loan amount of $1.5 million includes the VA Funding Fee COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 33

35 The Law on Occupancy What is Reasonable Time? The law requires a veteran obtaining a VA-guaranteed loan to certify that he/she intends to personally occupy the property as his/her home. As of the date of certification, the veteran must either: Personally live in the property as his/her home, or Intend, upon completion of the loan and acquisition of the dwelling, to personally move into the property and use it as his/her home within a reasonable time The above requirement applies to all types of VA-guaranteed loans except IRRRLs. For IRRRLs, the veteran need only certify that he/she previously occupied the property as his/her home. Example: A veteran living in a home purchased with a VA loan is transferred to a duty station overseas. The veteran rents out the home. He/she may refinance the VA loan with an IRRRL based on previous occupancy of the home. Occupancy within a reasonable time means within 60 days after the loan closing. More than 60 days may be considered reasonable if both of the following conditions are met: The veteran certifies that he or she will personally occupy the property as his or her home at a specific date after loan closing, and There is a particular future event that will make it possible for the veteran to personally occupy the property as his or her home on a specific future date Occupancy at a date beyond 12 months after loan closing generally cannot be considered reasonable by VA COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 35

36 Occupancy by Veteran s Spouse or Dependent Child Occupancy (or intent to occupy) by the spouse or dependent child satisfies the occupancy requirement for a veteran who is on active duty and cannot personally occupy the dwelling within a reasonable time. In the case of a dependent child, the veteran s attorney-in-fact or legal guardian of the dependent child must make the certification and sign VA Form , Report and Certification of Loan Disbursement. Occupancy by the spouse may also satisfy the requirement if the veteran cannot personally occupy the dwelling within a reasonable time due to distant employment other than military service. In these specific cases, consult your Regional Loan Center (RLC) to determine if this type of occupancy meets VA requirements. Occupancy Requirements for Deployed Active Duty Service Members Single or married service members, while deployed from their permanent duty station, are considered to be in a temporary duty status and able to meet the occupancy requirement. This is true without regard to whether or not a spouse will be available to occupy the property prior to the veteran s return from deployment. Note: The cost of maintaining separate living arrangements should be considered in underwriting the loan. For an IRRRL, a certification that the spouse or dependent child (or children) previously occupied the dwelling as a home will satisfy the requirement COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 36

37 Occupancy After Retirement Intermittent Occupancy If the veteran states that he or she will retire within 12 months and wants a loan to purchase a home in the retirement location: Verify the veteran s eligibility for retirement on the specified date. Include a copy of the veteran s application for retirement submitted to his or her employer. Carefully consider the applicant s income after retirement. If retirement income alone is insufficient, obtain firm commitments from an employer that meet the usual stability of income requirements. The veteran need not maintain a physical presence at the property on a daily basis. However, occupancy as the veteran s home implies that the home is located within reasonable proximity of the veteran s place of employment. If the veteran s employment requires the veteran s absence from home a substantial amount of time, the following two conditions must be met: the veteran must have a history of continuous residence in the community, and there must be no indication that the veteran has established, intends to establish, or may be required to establish, a principal residence elsewhere. Note: Only retirement on a specific date within 12 months qualifies. Retirement within the next few years or in the near future is not sufficient. Use of the property as a seasonal vacation home does not satisfy the occupancy requirement. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 37

38 Delayed Occupancy Due to Property Repairs/Improvements Home improvements or refinancing loans for extensive changes to the property which will prevent the veteran from occupying the property while the work is being completed, constitute exceptions to the reasonable time requirement. The veteran must certify that he or she intends to occupy or reoccupy the property as a home upon completion of the substantial improvements or repairs. The Certification The veteran certifies that the occupancy requirement is met by checking the appropriate occupancy block and signing: VA Form a, HUD/VA Addendum to the Uniform Residential Loan Application, at the time of loan application (prior approval loans only), and VA Form , Report and Certification of Loan Disbursement, at the time of loan closing (all loans). This satisfies the lender s obligation to obtain the veteran s occupancy certification. The lender may accept the occupancy certification at face value unless there is specific information indicating the veteran will not occupy the property as a home or does not intend to occupy within a reasonable time after loan closing. Where doubt exists, the test is whether a reasonable basis exists for concluding that the veteran can and will occupy the property as certified. Contact the appropriate VA office if the lender cannot resolve issues involving the veteran s intent by applying this test. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 38

40 AFR permits the use of Desktop Underwriter (DU) or Loan Prospector (LP) on all VA transactions with the exception of VA IRRRLs (IRRRLs cannot have an AUS and must be manually underwritten). AFR permits the following AUS determinations: DU Approve/Eligible DU Refer/Eligible LP Accept LP Refer/Eligible Note: AFR does not permit DU Refer or LP Refer on the VA OTC program Manual Underwriting is permitted, the loan must adhere to all VA guidelines. AFR requires all manually underwritten to be reviewed by AFR s PFQC department. Note: The AFR VA UW has the sole discretion to determine eligibility of both Approve Eligible and Refer Eligible manually underwritten loans. Reminder: IRRRLs require a FNMA 3.2. Files submitted with AUS (DU/LP) on these loans cannot be accepted by AFR. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 40

42 Eligibility means the veteran meets the basic criteria of appropriate length and character of service to utilize the home loan benefit An eligible veteran must still meet credit and income standards in order to qualify for a VA-guaranteed loan All VA transactions, excluding the VA IRRRLs, require a Certificate of Eligibility in order to determine that the veteran is eligible for a VA home loan benefit at time of underwrite. A COE is the only reliable proof of eligibility and is needed at time of submission to AFR. Note: The Funding Fee Exemption Status on IRRRLs is displayed in weblgy at the time the Case Number is ordered A Certificate of Eligibility is valid for 1 year. However, if there is satisfactory documentation in the file that shows there may be a discrepancy on the COE for example COE shows not exempt, but we have documentation from VA showing veteran borrower is now receiving service connected disability income the COE must be updated COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

43 TYPES OF COE WHAT DOES A COE TELL YOU? There are three types of certificate of eligibility: Veteran Annotated for Unmarried Surviving Spouse; and, Reservist/National Guard A different funding fee applies for each type of COE and whether or not the VA benefits has been used previously. The Certificate of Eligibility will provide critical information about the veteran borrower and their eligibility including the following: Amount of Entitlement Funding Fee ( FF ) status: Exempt status indicates a veteran is exempt from paying the FF Not Exempt, - status indicates a veteran is not exempt from paying the FF Contact RLC indicates a system-generated determination is not available Conditions on COE Veteran entitlement code Did they have a prior VA transaction Active duty status or Reservist Regardless of the new Funding Fee (FF) status shown on the COE, lenders must be sure to read any and all statements appearing the Conditions field, which appears near the middle portion of the COE COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 43

44 ENTITLEMENT Entitlement is the amount available for use on a loan. The amount of available basic entitlement is $36,000. This may be reduced if the Veteran has used entitlement before which has not been restored. The amount of 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 $. For certain loans in excess of $144,000, additional entitlement may be available. For loans greater than $144,000, but less than $417,000, the maximum entitlement is 25% of $417,000, which equals $104,250. For loans greater than $417,000, the maximum entitlement is 25% of the appropriate loan limit which can vary by county, visit the VA Loan Limits webpage. Please note county limits can change yearly. VA will post limits each year on the website as they change. Even though the veteran may have entitlement for certain loans greater than $144,000, the COE will never reflect this potential extra entitlement. Instead, an asterisk by the word available refers to a note, which explains the possibility of additional entitlement. If the Veteran previously used entitlement, which has not been restored, available entitlement is reduced by the amount used on the prior loan(s). The lender has two options: Make the loan knowing that VA's guaranty is limited to the amount of available entitlement, or Have the veteran apply for restoration of previously used entitlement Note: The possible additional entitlement for certain loans in excess of $144,000 may be available even if the veteran has no entitlement or partial basic entitlement. However, in such cases, the lack of full entitlement may result in lenders receiving less than a 25% guaranty from VA. AFR policy is that all VA loans must have a 25% guaranty from VA. COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 44

46 AMOUNT OF GUARANTY The maximum guaranty on a VA loan is the lesser of; The veteran s available entitlement on the COE, or Assuming the veteran has full entitlement as shown in the table: COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 46

48 GIFT FUNDS Gift funds are acceptable from immediate family members only Money must be verified as having been deposited in Veteran s account or given directly to closing agent Provide gift letter and source donor s ability with a bank statement, copy of the cancelled personal check or certified funds COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 48

50 BANKRUPTCY The fact that a bankruptcy exists in an applicant s (or spouse s) credit history does not in itself disqualify the loan. Develop complete information on the facts and circumstances of the bankruptcy. Consider the reasons for the bankruptcy and the type of bankruptcy filing. CHAPTER 7 CHAPTER 13 A Bankruptcy Chapter 7 must be discharged for 2 years from the time of the application Borrower must have reestablished credit If the applicant has satisfactorily made at least 12 months worth of the payments and the Trustee or the Bankruptcy Judge approves of the new credit, the lender may give favorable consideration If the applicant has finished making all payments satisfactorily, the lender may conclude that the applicant has reestablished satisfactory credit COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 50

51 CAIVRS CREDIT ALERT VERIFICATION RECORDING SYSTEM CAIVRS IS A DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) MAINTAINED COMPUTER INFORMATION SYSTEM WHICH ENABLES PARTICIPATING LENDERS TO LEARN WHEN AN APPLICANT HAS PREVIOUSLY DEFAULTED ON A FEDERALLY-ASSISTED LOAN. THE VA DEFAULT INFORMATION INCLUDED IN THE DATABASE RELATES TO: OVERPAYMENTS ON EDUCATION CASES, OVERPAYMENTS ON DISABILITY BENEFITS INCOME, AND CLAIMS PAID DUE TO HOME LOAN FORECLOSURES CAIVRS must be pulled (via FHA Connection) on all borrowers Agency Type must be selected as Veterans Affairs AFR Lender ID: Defaulted CAIVRS are not permitted COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

52 CHILD CARE Amount of child care must be included in the total DTI A childcare letter and copy of the child care bill must be included in the submission for children under the age of 13 Note: An exception may be made if one spouse on the 1003 is listed as a homemaker COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 52

53 COLLECTION ACCOUNTS Per VA Lender Handbook Section 4.7c: Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. For example, a credit report may show numerous satisfactory accounts and one or two unpaid medical (or other) collections. In such instances, while it would be preferable to have collections paid, it would not necessarily be a requirement for loan approval. However, collection accounts must be considered part of the borrower's overall credit history and unpaid collection accounts should be considered open, recent credit. Borrowers with a history of collection accounts should have reestablished satisfactory credit in order to be considered a satisfactory credit risk. Note: The AFR underwriter has sole discretion to decide whether or not this guideline has been met. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 53

54 CONTINGENT LIABILITY Underwriter can choose not to consider this debt if the borrower can provide evidence that the primary obligor has been making payments on a regular basis (at least 12 months) and does not have a history of delinquent payments on the loan over the past 12 months COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 54

55 CONSUMER CREDIT COUNSELING PLAN If a veteran, or veteran and spouse are participating in a Consumer Credit Counseling plan, they may be determined to be a satisfactory credit risk if they demonstrate 12 months satisfactory payments and the counseling agency approves the new credit. Permitted Borrower must demonstrate 12 months satisfactory repayments CCCS Administrator must sign a letter allowing the borrower to seek financing Payment must be included in the DTI COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 55

56 DEROGATORY CREDIT A detailed letter of explanation is required for all negative accounts and histories reporting on the credit report within 24 months Note: Additional requirements may be needed at the Underwriter s discretion COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 56

57 FEDERAL DEBTS An applicant cannot be considered a satisfactory credit risk if he or she is presently delinquent or in default on any debt to the Federal Government until the delinquent account has been brought current or satisfactory arrangements have been made between the applicant and the Federal agency. The refinancing of a delinquent VA loan with an IRRRL satisfies this requirement. An applicant cannot be considered a satisfactory credit risk if he or she has a judgment lien against his or her property for a debt owed to the Government until the judgment is paid or otherwise satisfied. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 57

58 FORECLOSURES / DEED IN LIEU OF FORECLOSURE The fact that a home loan foreclosure (or deed-in-lieu of foreclosure) exists in an applicant s (or spouse s) credit history does not in itself disqualify the loan. The UW must develop complete information on the facts and circumstances of the foreclosure. The discharge date or the date the deficiency balance was paid must be two years prior to the application date. For wet states (escrow states) the date is based on the acknowledgment date of the document For dry states the date is based on the recorded date Important: If the foreclosure was on a VA loan, the applicant may not have full entitlement available for the new loan. Ensure that the applicant s Certificate of Eligibility reflects sufficient entitlement to meet any secondary marketing requirements of the lender. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 58

59 HOUSING HISTORY AFR requires the following housing histories: Purchase A management VOR or cancelled checks is required regardless of the FICO and the AUS findings showing proof of 12 months rental history for all borrowers. (0x30) Exception if the Veteran is recently discharged and was living on a military base, VA will not require a housing history, but the file still must meet VA guidelines Regular Refinance (Full Doc) 12 month housing history is required (0x30). If loan originated less than 12 months all payments must be paid as agreed. IRRRL 6 month housing history is required (0x30) COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 59

60 JUDGMENTS Must be paid in full, or A satisfactory repayment play is in effect at time of application and there have been no late payments on the plan for 12 months. Reminder: Payment must be included in DTI COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 60

61 MAINENANCE & UTILITY FACTORS Veterans must qualify with the monthly maintenance and utility factors into the housing expense and residual income guidelines: $0.14 times the Gross Living Area (GLA) Example: 1500 square feet X.14 per square foot per month = $ per month COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 61

62 STUDENT LOANS If student loan repayments are scheduled to begin within 12 months of the date of funding, lenders should consider the anticipated monthly obligation in the loan analysis. If the borrower is able to provide evidence that the debt may be deferred for a period outside that timeframe, the debt need not be considered in the analysis. COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 62

63 RATIOS (DTI) Approve / Eligible DU Recommendation or LP Accept/Eligible Risk Class: Follow AUS findings Refer AUS Recommendations or Manual Underwriting: Follow VA Guidelines COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 63

64 RESIDUAL INCOME REQUIREMENTS Loan amounts of $79,999 and below: Family Size Northeast Midwest South West Note: Over 5 in Family Size, add $75 for each additional family member up to a family of 7 Active duty Veterans may reduce residual income requirements by 5% Non-qualifying spouse may be discounted from family size if income can be verified to show spouse can be self-supporting Non-taxable income cannot be grossed up for residual income requirements COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 64

65 RESIDUAL INCOME REQUIREMENTS Loan amounts of $80,000 and more: Family Size Northeast Midwest South West Note: Over 5 in Family, add $80 for each additional member up to a family of 7 Active duty Veterans may reduce residual income requirements by 5% Non-qualifying spouse may be discounted from family size if income can be verified to show spouse can be self-supporting Non-taxable income cannot be grossed up for residual income requirements COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 65

66 RESIDUAL INCOME GEOGRAPHIC REGIONS Northeast Midwest South West Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 66

67 SHORT SALE / PRINCIPAL FORGIVENESS Short Sale Mortgage late payments not permitted on or before any loan modification/short sales within the past 12 months If a late payment occurred prior to a loan modification/short sale borrower is not eligible to apply for a VA loan prior to 3 years Principal Forgiveness A letter/acknowledgement from vet s current lender that the difference in current outstanding balance and appraised value will be wiped off is required A letter/acknowledgement from vet s current lender that the difference in current outstanding balance and appraised value will be wiped off is required No waiver is permitted from the Vet stating that they will be paying off the difference at a later date No secondary financing is permitted COPYRIGHT 2016 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 67

69 WHY AN APPRAISAL IS REQUIRED An appraisal is required to help ensure that any property which will become the security for a VA-guaranteed loan: Has value of at least as much as the loan amount, and Is in a condition acceptable to VA The reasonable value of a property is that figure which represents the amount a reputable and qualified appraiser, unaffected by personal interest, bias, or prejudice, would recommend to a prospective purchaser as a proper price or cost in the light of prevailing conditions. VA considers reasonable value and market value to be synonymous. VA s definition of market value is consistent with that used by Fannie Mae, Freddie Mac and major appraisal organizations. COPYRIGHT 2015 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED 69