PRODUCT GUIDE. Page 1 of 13 VA PRODUCT GUIDE REVISED

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1 VA PRODUCT GUIDE Page 1 of 13

2 VA Maximum Loan : VA maximum loan amount with no down payment/ equity is limited to the VA maximum County loan limit (including VA Funding Fee). The county loan limit can be exceeded with a cash down payment/equity in the property, as long as the combination of entitlement/down payment or equity equates to 25% guaranty, meeting the secondary market requirements per GNMA. The total loan amount (base + VAFF) cannot exceed the VA County loan limit without a down payment/equity. There are two types of : Basic : Is $36,000 May be reduced due to an active loan or prior VA Loan that has not been terminated. Bonus : IS ONLY applied to guaranty on loans > $144,000 Varies based upon VA Maximum County Loan Limit Can be used if veteran currently has $0 in basic entitlement, (Provide Loan >$144,000) VA County Loan Limits: The Veterans Benefits Act of 2004 changed the maximum guaranty amount for loans in excess of $144,000, to an amount equal to 25% of the Freddie Mac conforming loan limit. Annually those limits are reviewed/changed based upon county median home price, henceforth the maximum VA county loan limits changed accordingly. Link for 2013 VA Loan Limits If the county is not listed, then the limit is $417,000 Down Payment/Equity: Examples of where a Down Payment/Equity would be required: The Purchase Price exceeds the VA Reasonable Value of the property; the veteran will have to make a cash down payment of the difference. If the Purchase Price/Base Loan exceeds the Maximum VA County Loan Limit, the veteran will have to make a down payment of the difference between the Purchase Price and Maximum VA County Loan Limit to enable 25% Guaranty. If the Veteran has less than full entitlement available, a down payment may be needed to meet 25% Guaranty Requirements. Page 2 of 13

3 Example 1(Bonus ): Veteran has full entitlement available and is purchasing a home for $300,000 in Riverside California: Riverside California is not listed above in the 2013 Loan Limits, therefore the maximum county loan limit would revert to the $417,000 maximum. VA will guaranty up to 25% of the VA county loan limit therefore the VA County Loan Limit of $417,000 x 25% = $104,250 Maximum Guaranty and Available Actual Sales Price $300,000 x25% = $75,000 Maximum Guaranty Since the veteran has full entitlement, and the sales price of $300,000 is below the maximum county loan limit of $417,000 The veteran would be able to finance the entire purchase price of $300,000, plus the VA Funding Fee of 2.15% (first time use) of $6,450 for a total loan amount of $306,450. VA Worksheet County Loan Limit 417, Enter only if Loan is > $144,000 1a 1b Enter $36,000 entitlement for all loans < $144,000, or Enter 25% of the VA County Loan Limit for loans > $144,000. $104, Less used entitlement (if applicable) ( ) $ available for new loan (=) $104, Page 3 of 13

4 MaximumLoan Computation 4 Lesser of property value per NOV or Sales Price $300, Multiply by 75% (x) $225, Plus available entitlement (line 3) (+) $329, a Maximum Base Loan * (the lesser of Line 4 or Line 6), or $300, b 7c 90% of NOV for regular/cash out refinance (100% permitted if new Applicable loan amount from either 7a.or 7b. $300, Required Cash Downpayment Computation 8 Lesser of property value per NOV or Sales Price (line 4) $300, Less maximum Loan (line 7c) ( ) $300, Required Cash Downpayment/Equity $0.00 The Final Loan 11 Base Loan (line 7c) $300, Funding Fee 2.15% (+) $6, Final Loan * $306, Guaranty Percentage on Proposed Loan Computation 14 (line 3) $104, Plus required cash downpayment/equity (line 10) (+) $ Total of line 14 plus line 15 (=) $104, Divide line 16 by Property Value per NOV or Sales Price on line 4 (/) $300, Guaranty Percentage (cannot be less than 25%) % *Notes: If the purchase price does not exceed the VA County Loan Limit, the total loan amount, including funding fee, may never exceed the maximum VA County Loan Limit. Example 2 (Loan = Maximum VA County Loan Limit): Using the same property location of Riverside California, and now a sales price is now $417,000 the veteran would still be able to finance the entire property, however since the county maximum is $417,000, and knowing that VA will only guaranty 25% of the maximum of VA county loan limit, in this scenario the veteran would be unable to add the VA funding fee onto the loan amount of $417,000 and have to pay the VA funding fee in cash. VA County Loan Limit $417,000 x 25% = 104,250 Maximum Guaranty and Available Sales Price $417,000 x 25% = 104,250 Maximum Guaranty Page 4 of 13

5 VA Worksheet County Loan Limit 417, Enter only if Loan is > $144,000 1a 1b Enter $36,000 entitlement for all loans < $144,000, or Enter 25% of the VA County Loan Limit for loans > $144,000. $104, Less used entitlement (if applicable) ( ) $ available for new loan (=) $104, MaximumLoan Computation 4 Lesser of property value per NOV or Sales Price $417, Multiply by 75% (x) $312, Plus available entitlement (line 3) (+) $417, a Maximum Base Loan * (the lesser of Line 4 or Line 6), or $417, b 7c 90% of NOV for regular/cash out refinance (100% permitted if new Applicable loan amount from either 7a.or 7b. $417, Required Cash Downpayment Computation 8 Lesser of property value per NOV or Sales Price (line 4) $417, Less maximum Loan (line 7c) ( ) $417, Required Cash Downpayment/Equity $0.00 The Final Loan 11 Base Loan (line 7c) $417, Funding Fee 2.15% (+) 13 Final Loan * $417, Guaranty Percentage on Proposed Loan Computation 14 (line 3) $104, Plus required cash downpayment/equity (line 10) (+) $ Total of line 14 plus line 15 (=) $104, Divide line 16 by Property Value per NOV or Sales Price on line 4 (/) $417, Guaranty Percentage (cannot be less than 25%) % *Notes: If the purchase price does not exceed the VA County Loan Limit, the total loan amount, including funding fee, may never exceed the maximum VA County Loan Limit. Page 5 of 13

6 Example 3 (Partial ): Veteran has used 36,000 of his entitlement, and it has not been restored. Veteran is purchasing a home in King County Washington for $300,000 The Maximum VA county loan limit for King County Washington is $500,000 I VA County Loan Limit $500,000 x 25% = 125,000 Maximum Guaranty and Available Maximum Guaranty Available $125,000 36,000 ( Used) = 89,900 available Sales Price of $300,000 x 25% = 75,000 entitlement needed for 25% guaranty Page 6 of 13

7 Since veteran has available entitlement of 89,900, and only needs 75,000 to obtain 25% guaranty, veteran is able to purchase the property with 100% financing in this example the veteran is exempt from the VA funding fee however if he was not exempt, the VA funding fee could be added to the loan amount since the amount would not be over the VA County Loan Limit. VA Worksheet County Loan Limit 500, Enter only if Loan is > $144,000 1a 1b Enter $36,000 entitlement for all loans < $144,000, or Enter 25% of the VA County Loan Limit for loans > $144,000. $125, Less used entitlement (if applicable) ( ) $36, available for new loan (=) $89, MaximumLoan Computation 4 Lesser of property value per NOV or Sales Price $300, Multiply by 75% (x) $225, Plus available entitlement (line 3) (+) $314, a Maximum Base Loan * (the lesser of Line 4 or Line 6), or $300, b 7c 90% of NOV for regular/cash out refinance (100% permitted if new Applicable loan amount from either 7a.or 7b. $300, Required Cash Downpayment Computation 8 Lesser of property value per NOV or Sales Price (line 4) $300, Less maximum Loan (line 7c) ( ) $300, Required Cash Downpayment/Equity $0.00 The Final Loan 11 Base Loan (line 7c) $300, Funding Fee (+) 13 Final Loan * $300, Page 7 of 13

8 The Final Loan 11 Base Loan (line 7c) $300, Funding Fee (+) 13 Final Loan * $300, Guaranty Percentage on Proposed Loan Computation 14 (line 3) $89, Plus required cash downpayment/equity (line 10) (+) $ Total of line 14 plus line 15 (=) $89, Divide line 16 by Property Value per NOV or Sales Price on line 4 (/) $300, Guaranty Percentage (cannot be less than 25%) % Example 4 (Base for loan < $144,000): Veteran has used $36,000 that has not been restored. Veteran is purchasing a home in King County Washington for $120,000. Bonus entitlement is only available for Loan s> $144,000, therefore only basic entitlement of $36,000 is eligible to be used for the purchase; however the veteran has already used $36,000 so unable to use VA financing for this transaction without a 25% cash down payment. Basic 36,000 $36,000 Used = 0 available for the Purchase This transaction would require a full 25% cash down payment for VA guaranty. VA Worksheet County Loan Limit 500, Enter only if Loan is > $144,000 1a Enter $36,000 entitlement for all loans < $144,000, or $36, b Enter 25% of the VA County Loan Limit for loans > $144,000. $36, Less used entitlement (if applicable) ( ) $36, available for new loan (=) $0.00 Page 8 of 13

9 Example 5 (Sales Price exceeds Maximum VA County Loan Limit): Veteran has full entitlement available, and is purchasing a home for $480,000 in El Centro, California where the maximum VA County loan limit is $417,000 $417,000 x 25% = 104,250 Maximum Guaranty and Available To determine Guaranty, divide the entitlement by the Value or Sales Price whichever is less, a minimum of 25% is required by GNMA. 104,250 / $480,000 = 21.72% Guaranty Does not meet required 25% Guaranty, so a down payment will be needed to meet GNMA requirements of 25% Guaranty $480,000 x 25% = 120,000 & Down Payment needed for 25% total Guaranty $120,000 (Needed) $104,250 (Available) = $15,750 Down Payment $104,250 + $15,750 Down Payment = $120,000 / $480,000 = 25% Guaranty VA Worksheet County Loan Limit 417, Enter only if Loan is > $144,000 1a 1b Enter $36,000 entitlement for all loans < $144,000, or Enter 25% of the VA County Loan Limit for loans > $144,000. $104, Less used entitlement (if applicable) ( ) $ available for new loan (=) $104, MaximumLoan Computation 4 Lesser of property value per NOV or Sales Price $480, Multiply by 75% (x) $360, Plus available entitlement (line 3) (+) $464, a Maximum Base Loan * (the lesser of Line 4 or Line 6), or $464, b 7c 90% of NOV for regular/cash out refinance (100% permitted if new Applicable loan amount from either 7a.or 7b. $464, Page 9 of 13

10 7c Applicable loan amount from either 7a.or 7b. $464, Required Cash Downpayment Computation 8 Lesser of property value per NOV or Sales Price (line 4) $480, Less maximum Loan (line 7c) ( ) $464, Required Cash Downpayment/Equity $15, The Final Loan 11 Base Loan (line 7c) $464, Funding Fee 2.15% (+) $9, Final Loan * $474, Guaranty Percentage on Proposed Loan Computation 14 (line 3) $104, Plus required cash downpayment/equity (line 10) (+) $15, Total of line 14 plus line 15 (=) $120, Divide line 16 by Property Value per NOV or Sales Price on line 4 (/) $480, Guaranty Percentage (cannot be less than 25%) % *Notes: If the purchase price does not exceed the VA County Loan Limit, the total loan amount, including funding fee, may never exceed the maximum VA County Loan Limit. If the purchase price and base loan amount exceeds the VA County Loan Limit and the borrower is making a cash downpayment, the VA Funding Fee can be financed in. Example 6 (Partial + Down Payment = 25% Guaranty) Veteran has used $27,500 of entitlement on a prior loan, which may not be restored, and is purchasing a home for $320,000 where the Maximum VA County loan limit is $417,000 $417,000 x 25% = $104,250 Maximum Guaranty $104,250 $27,500 ( Used) = $76,500 Available $76,500 / $320,000 = 23.98% Guaranty Does not meet the required 25%, so a down payment will be required. $76,500 x 4 = $307,000 maximum Loan amount with 25% Guaranty To determine down payment needed: $320,000 x 25%= $80,000 and Down payment needed to obtain 25% Guaranty $80,000 (Needed) $76,750 ( Available) = $ 3250 Down Payment Needed. Page 10 of 13

11 $76,750 + $3250 Down Payment = $80,000 / 320,000 = 25% Guaranty VA Worksheet County Loan Limit 417, Enter only if Loan is > $144,000 1a 1b Enter $36,000 entitlement for all loans < $144,000, or Enter 25% of the VA County Loan Limit for loans > $144,000. $104, Less used entitlement (if applicable) ( ) $27, available for new loan (=) $76, MaximumLoan Computation 4 Lesser of property value per NOV or Sales Price $320, Multiply by 75% (x) $240, Plus available entitlement (line 3) (+) $316, a Maximum Base Loan * (the lesser of Line 4 or Line 6), or $316, b 7c 90% of NOV for regular/cash out refinance (100% permitted if new Applicable loan amount from either 7a.or 7b. $316, Required Cash Downpayment Computation 8 Lesser of property value per NOV or Sales Price (line 4) $320, Less maximum Loan (line 7c) ( ) $316, Required Cash Downpayment/Equity $3, The Final Loan 11 Base Loan (line 7c) $316, Funding Fee 3.30% (+) $10, Final Loan * $327, Guaranty Percentage on Proposed Loan Computation 14 (line 3) $76, Plus required cash downpayment/equity (line 10) (+) $3, Total of line 14 plus line 15 (=) $80, Divide line 16 by Property Value per NOV or Sales Price on line 4 (/) $320, Guaranty Percentage (cannot be less than 25%) % Page 11 of 13

12 Example 7 (Cash Out Refinance, Loan Exceeds VA County Loan Limit): Veteran is refinancing his current home located in San Bernardino California, which currently has veteran s entitlement on the property. Maximum VA County loan limit is $417,000. The value came in at $625,000, and he owes $525,000 on the property. Veteran is requesting a loan amount of $550,000. Due to veteran s entitlement currently being used on subject property, the Certificate of Eligibility needs to reflect restoration. This is accomplished correctly completing the VA Box 10A completed to reflect current own a home with a VA Guaranteed Loan, and Box 12A reflecting application for restoration of entitlement to obtain a Regular (Cash Out) Refinance on current home! VA will then issue the Certificate of Eligibility reflecting full entitlement, and limiting the use of the Certificate of Eligibility to restoration only $417,000 x 25% = $104,250 Maximum Available $104,250 / $625,000 = 16.68% Guaranty. Does not meet the required 25%, so equity will be required. To determine equity needed: $625,000 x 25%= $156,250 and Equity needed to obtain 25% Guaranty $156,250 (Needed) $104,250 ( Available) = $52,000 Minimum Equity needed. $104,250 + $75,000 actual equity = $179,250 / $625,000 = 28.68% Guaranty Page 12 of 13

13 VA Worksheet County Loan Limit 417, Enter only if Loan is > $144,000 1a 1b Enter $36,000 entitlement for all loans < $144,000, or Enter 25% of the VA County Loan Limit for loans > $144,000. $104, Less used entitlement (if applicable) ( ) 3 available for new loan (=) $104, MaximumLoan Computation 4 Lesser of property value per NOV or Sales Price $625, Multiply by 75% (x) $468, Plus available entitlement (line 3) (+) $573, a 7b Maximum Base Loan * (the lesser of Line 4 or Line 6), or 90% of NOV for regular/cash out refinancemax $562, c Applicable loan amount from either 7a.or 7b. $562, Required Cash Downpayment Computation 8 Lesser of property value per NOV or Sales Price (line 4) $625, Less maximum Loan (line 7c) Actual Ln Amt Request ( ) $550, Required Cash Downpayment/Equity $75, The Final Loan 11 Base Loan (line 7c) $562, Funding Fee 3.30% (+) $18, Final Loan * $581, Guaranty Percentage on Proposed Loan Computation 14 (line 3) $104, Plus required cash downpayment/equity (line 10) Actual Equity (+) $75, Total of line 14 plus line 15 (=) $179, Divide line 16 by Property Value per NOV or Sales Price on line 4 (/) $625, Guaranty Percentage (cannot be less than 25%) % MaximumGuaranty VAwill issue is 25% even though calculation is higher *Notes: If the purchase price does not exceed the VA County Loan Limit, the total loan amount, including funding fee, may never exceed the maximum VA County Loan Limit. If the purchase price and base loan amount exceeds the VA County Loan Limit and the borrower is making a cash downpayment, the VA Funding Fee can be financed in. Cash out refinances with a base loan amount equal to or less than the VA County Loan Limit, must have the total loan amount reviewed, including any financed funding fee, as the total loan amount may never exceed the VA County Loan Limit. Cash out refinances with a base loan amount greater than the VA County Loan Limit, may add the VA Funding Fee to the base loan amount, if the property has sufficent equity plus entitlement. Page 13 of 13