Understand the VA Loan Program. Serve the mortgage lending needs of borrowers who serve our country

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1 Understand the VA Loan Program Serve the mortgage lending needs of borrowers who serve our country

2 Eligible Borrowers A veteran is eligible for VA home loan benefits if he or she served in the Army, Navy, Air Force, Marine Corps, Coast Guard, Reserves or National Guard and was discharged under conditions other than dishonorable The minimum duty service required during wartime periods is 90 days of active duty The minimum service required for peacetime periods is 181 days of continuous active duty The minimum service required for members of the Reserves and/or National Guard is 6 years Veterans who served less than the minimum required period may be eligible if discharged because of service-related disabilities An unmarried surviving spouse of an eligible service member who died as a result of service or service-connected injuries 3

3 Common VA Terms Certificate of Eligibility (COE): Certificate provided by the VA to evidence a veteran s entitlement to participate in the VA Home Loan Guarantee Program; in order to get a Certificate of Eligibility, lenders can access the Automated Certificate of Eligibility or ACE system on the Internet to prove eligibility Certificate of Reasonable Value (CRV): The VA certifies the fair market value of the property once the home is appraised Entitlement: Dollar amount of loan guarantee that the Veterans' Benefit Administration (VA) provides to each eligible veteran 4

4 Common VA Terms Lender Appraisal Processing Program (LAPP): allows Lenders who meet specific requirements to review all types of origination appraisals; staff Appraisal Reviewers (SARs) can review existing, new construction, under construction and proposed construction cases, single family and multifamily Funding Fee: The name of the fee the VA charges when a Veteran uses its Home Loan Guarantee Program; this fee is generally around 2% to 3% depending on whether it is your first VA Loan; disabled Veterans may be exempt from this fee Notice of Value (NOV): This form is issued to the borrower in conjunction with an appraisal; every NOV must include an estimated reasonable value of the property, estimated economic life of the property, and a list of any property-related conditions and requirements necessary for VA loan guaranty 5

5 VA 2009 loan limits On October 10, 2008, the President signed the Veterans Benefits Improvement Act of 2008 (VA Circular ) The maximum guaranty amount varies depending upon the location of the property For all locations in the United States other than Alaska and Hawaii, the maximum guaranty amount is the greater of 25% of (a) $417,000 or (b) 125% of the area median price for a single-family residence, but in no case will the guaranty exceed 175% of the Freddie Mac loan limit for a single family residence in the county in which the property securing the loan is located; this translates to a potential maximum loan amount of $1,094,625 In Alaska and Hawaii, the maximum guaranty amount is the greater of 25% of (a) $625,500 or (b) 125% of the area median price for a single-family residence, but in no case will the guaranty exceed 175% of the Freddie Mac loan limit for a single family residence in the county in which the property securing the loan is located; this translates to a potential maximum loan amount of $1,641,

6 VA overlays for 2009 loan limits Criteria Loan Amounts <$417,000 Loan Amounts from $417,001 to $650,000 (including funding fee) Loan Amounts > $650,000 (including funding fee) Maximum LTV/CLTV Purchase: 100/100% Refinance: 90/90% Purchase: 100/100% Refinance: 90/90% Purchase: 100/100% Refinance: 90/90% Min Credit Score Documentation AUS conditions allowed Full Doc regardless of AUS conditions for income and asset documentation Full Doc regardless of AUS conditions for income and asset documentation Reserves No minimum 6 months PITI 12 months PITI Gift Funds Allowed Not Allowed Not Allowed Appraisal VA Appraisal VA Appraisal >$650,000 and < $1,000,000: VA Appraisal and LARA >$1,000,000: VA Appraisal and field review Maximum Cash-Out No Maximum $325,000 $325,000 7

7 VA program eligibility for 2009 loan limits Eligible properties owner-occupied only Loan amounts < $417,000 SFRs, PUDs, VA Approved Condos, 2-4 units Loan amounts > $417,000 SFRs, PUDs, VA Approved Condos Eligible transactions Purchase Cash-out refinances VA does not have a rate/term refinance program other than the VA IRRRL, so all refinance loans are designated as cash-out since Bank of America no longer offers VA IRRRL Types of mortgages Fixed rate mortgage terms up to 30-year 3/1, 5/1 and 1-year adjustable-rate mortgages with a 30-year term Buydowns allowed on fixed rate mortgages 8

8 Maximum Guaranty The VA guaranty or a combination of the VA guaranty plus the borrower's down payment and/or equity, must be equal to at least 25% of the subject property's estimated reasonable value as documented in the Notice of Value (NOV); the maximum guaranty on a VA loan is the lesser of the veteran's available entitlement or the maximum potential guaranty amount indicated below Loan Amount Loan Type Maximum Potential Guaranty Up to $45,000 All 50% of loan amount $45,001 - $56,250 All $22,500 $56,251 - $144,000 All 40% of the loan amount with a maximum of $36,000 $144,001 - $417,000 Purchase and refinance 25% of the loan amount with maximum $104,250 ($156,375 in AK and HI) $417,001 - $1,500,000 Purchase and refinance 25% of the greater of: (a) $417,000 OR (b) 125% of the area median price for a SFR not to exceed 175% of the GSE limit ($1,094,625) 9

9 VA Guaranty Calculation Examples Veteran has used $48,000 of entitlement on a prior loan, which may not be restored, and is purchasing a home for $320,000 where the county loan limit is $625,000 $625,000 X 25% = $156,250 Maximum Guaranty $156,250 - $48,000 = $108,250 Entitlement Available $108,250 X 4 = $433,000 Maximum Loan Amount with 25% Guaranty Since the proposed loan amount will be less than $433,000, the lender will receive 25% VA Guaranty on the loan of $320,000; a down payment should not be required 10

10 VA Guaranty Calculation Examples Veteran has used $104,250 of entitlement on a prior loan, which may not be restored, and is purchasing a home for $380,000 where the county loan limit is $815,000 $815,000 X 25% = $203,750 Maximum Guaranty $203,750 - $104,250 = $99,500 Entitlement Available $99,500 X 4 = $398,000 Maximum Loan Amount with 25% Guaranty Since the proposed loan amount will be less than $398,000, the lender will receive 25% VA Guaranty on the loan of $380,000; a down payment should not be required 11

11 VA Guaranty Calculation Examples Veteran has full entitlement available and is purchasing a home for $800,000 where the county loan limit is $729,750 $729,750 X 25% = $182, Maximum Guaranty and Entitlement Available $182, / $800,000 = 22.81% Guaranty $800,000 X 25% = $200,000 Guaranty and Down Payment Combination Required $200,000 - $182, = $17, Down Payment Final loan amount = $782,435 VA loan amounts higher than the county limit are acceptable provided that the borrower makes up the difference for the 25% guaranty requirement with down payment from their own funds 12

12 VA Funding Fee Required at time of closing Funding Fee can be financed or paid from proceeds For loan amounts greater than $417,000, the Funding Fee can only be financed if the loan amount + funding fee are less than the maximum loan amount for the MSA Amount varies by Type of veteran Down payment amount Transaction type Type of loan Use of the VA home loan program Certain borrowers are excluded from paying the fee Veterans receiving service-connected compensation Those who would be receiving service-connected compensation, but are instead receiving military retirement pay Surviving spouses of veterans who died in service or from service-connected causes 13

13 VA Funding Fee for Purchase & Refinance Loans Funding Fee* Type of Veteran Down Payment Purchase Percentage for First Time Use Refinance Percentage for First Time Use 0%-4.99% 2.15% n/a Regular Military 5%-9.99% 1.50% n/a 10% or more 1.25% 2.15% 0%-4.99% 2.40% n/a Reserves and National Guard 5%-9.99% 1.75% n/a 10% or more 1.50% 2.40% 14 *Different funding fees apply for subsequent use.

14 VA Funding Fee Calculation Example - Financed Veteran has full entitlement available and is purchasing a home in Denver for $600,000 where the county limit is $625,500 Veteran is eligible for 100% financing and is putting no money down Funding Fee is $600,000 x 2.15% = $12,900 $600,000 + $12,900 = $612,900 Since the combined loan amount plus funding fee is less than the county maximum of $625,500, the funding fee can be financed into the loan amount; the final LTV for this transaction including the funding fee is % 15

15 VA Funding Fee Calculation Example Not Financed Veteran has full entitlement available and is purchasing a home in Denver for $625,500 where the county limit is $625,500 Veteran is eligible for 100% financing and is putting no money down Funding Fee is $625,500 x 2.15% = $13, $625,500 + $13, = $638, Since the combined loan amount plus funding fee is more than the county maximum of $625,500, the funding fee cannot be financed into the loan amount and must be paid in cash; the final LTV for this transaction is 100% 16

16 Loan Delivery VA funding fees must be paid by the originating seller within 15 days of the seller s loan closing Fees paid after 15 days will automatically be assessed a 4% late fee If more than 30 days late, an interest charge will be assessed in addition to the late fee If borrower is exempt from fee, documentation verifying the exemption must be provided Loan monitoring reports provided by Bank of America Documents not received Delinquent loans 17

17 VA Loans in Automated Underwriting Systems DU With the January 24 release of DU, the maximum loan amount calculation applied to VA loans are removed; DU will now only identify if the property s loan amount exceeds the individual county limit Lenders must manually determine the guaranty percentage and maximum loan amount based on the borrower s entitlement LP With the December 16 release, LP was updated to align with the VA changes on maximum 100% LTV for cash-out refinances (Bank of America max LTV = 90%) LP is not updated to identify the maximum loan amount for a particular property location based on the MSA 18

18 Resources Department of Veterans Affairs VA Lender Handbook: VA Circulars: VA 2009 Loan Limits: VA Approved condominium list: DU User Guide on VA Loans: https://www.efanniemae.com/sf/guides/duguides/pdf/vaduug.pdf 19

19 For More Information Contact your Account Executive DO NOT DUPLICATE WITHOUT PERMISSION

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