VA Guaranteed Home Loans Training

Transcription

1 Serve the mortgage lending needs of borrowers who serve our country VA Guaranteed Home Loans Training OFFERED BY FIRST MORTGAGE CORPORATION NOVEMBER 21, 2014 Desktop Underwriter is a registered trademark of Fannie Mae. Loan Prospector is a registered trademark of Freddie Mac. This presentation is a summary and is not complete. This information is for mortgage professionals only and should not be distributed to or used by consumers or other third-parties. Information is accurate as of the date shown below and is subject to change without notice. 11/21/2014 Introduction VA History Highlights of the Program 7 Step Process General Eligibility Guidelines Borrower Eligibility CAIVRS Certificate of Eligibility VA Funding Fee Program Guidelines Interest Rate Reduction Refinance Loans Underwriting Guidelines Income Assets Debts & Obligations Credit Property VA Fees & Charges Resources, Tools, Training, Support TOPICS FOR DISCUSSION 1

2 VA History Highlights of the Program Common VA Terms What the VA Loan Offers 7 Step Process to a VA Loans VA Guaranteed Home Loans Veterans Administration (VA) HISTORY Established in 1930 to provide federal benefits to veterans and their families, including health care, financial assistance, and burial benefits. In 1944, the Servicemen s Readjustment Act (known as the G.I. Bill was signed into law and provided a variety of benefit programs to facilitate the adjustment of returning veterans to civilian life, including federally insured home loans with no down payment. In 1989, the Veterans Administration was renamed the Department of Veterans Affairs. 2

3 Common VA Terms Entitlement: Dollar amount of loan guarantee that the Veteran s Benefit Administration (VA) provides to each eligible veteran COE (Certificate of Eligibility): Certificate provided by VA to evidence a Veteran s entitlement to participate in the VA Home Loan Guarantee Program. A COE is the only reliable Proof of Eligibility for the Lender In order to get a COE, lenders can access the ACE (Automated Certificate of Eligibility) System on the internet to prove eligibility Funding Fee: The fee that VA charges when a veteran uses its Home Loan Guarantee Program This fee is generally rounded to 2% to 3% depending on whether its your 1 st VA loan; disabled veterans may be exempt from this fee CRV (Certificate of Reasonable Value): The VA certifies the fair market value of the property once the home is appraised NOV (Notice of Value): 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 list of any property related conditions and requirements necessary for VA loan guaranty What is a VA Guaranteed Loan? VA guaranteed loans are loans made by private lenders such as banks, savings and loans, or mortgage companies, to eligible veterans for the purchase of a home THAT MUST BE FOR THEIR OWN PERSONAL OCCUPANCY. A veteran applies with a lender and once approved, VA will guarantee a portion of it to the lender. This guarantee protects lenders against loss in the event of foreclosure, up to the amount of the guaranty, and allows a veteran favorable financing terms. The Veterans Benefit Act of 2004 changed the maximum guaranty amount to 25% of the Freddie Mac Conforming loan limit. Example: The Freddie Mac Conforming loan limit is $417,000. $417,000 x 25% = $104,250 Therefore, the maximum guaranty amount is $104,

4 What the VA Loan Offers Benefits of a VA Loan: NO DOWN PAYMENT NO MONTHLY MORTGAGE INSURANCE PREMIUMS NO RESERVE REQUIREMENTS Conforming 1 unit only (Own no other real estate) 100% GIFT FUNDS ALLOWED Ability to finance the funding fee (plus reduced funding fee depending on down payment, and the exemptions for veterans receiving compensation) Fully Assumable to qualified borrowers VA does NOT do the following: Guaranty that the property is free of defects. VA guarantees only the loan. It is the veterans responsibility to assure that they are satisfied with the property being purchased. The VA appraisal is not intended to be an inspection of the property. A veteran should seek expert advice (a qualified residential service) as necessary BEFORE legally committing to a purchase contract. If you have a home built, VA cannot compel the builder to correct construction defects although VA does have the authority to suspend a builder from further participation in the home loan program. VA can t guarantee the veteran is making a good investment. 7 STEPS to a VA Loan Step1 Veteran applies for Certificate of Eligibility (COE). Processer may apply for it using the WebLGY application (AUTOMATED PROCESS) Step 2 Veteran finds home and signs purchase agreement pending VA loan approval (NOT AUTOMATED) Step 3 Veteran completes 1003 and presents COE (NOT AUTOMATED) Step 4 Processor orders Appraisal from a VA licensed appraiser who will issue the Notice of Value (NOV) See FMC process on ordering VA Appraisals Step 5 Submit loan file to UW for full loan approval. Approval issued if appraisal, credit and income are acceptable (NOT VA AUTOMATED) Step 6 Upon satisfaction of all loan conditions, docs are drawn, loan closes (Follow FMC closing process) (NOT AUTOMATED) Step 7 First Mortgage applies to VA for evidence of guaranty (AUTOMATED) 4

5 Basic Veteran Eligibility Occupancy CAIVRS Certificate of Eligibility (COE) VA Guarantee Loan Limits ELIGIBILITY GUIDELINES Who is ELIGIBLE? Topic Description Active duty Veterans or Veterans discharged other than dishonorable condition 90 days (181 during peacetime). No time requirement if discharged because of service-related disabilities. Service disabled Veterans National Guard and Reserves At least 6 yrs in selected reserves with Honorable Discharge Unmarried Surviving Spouses widows who have not re-married No time requirement. Veteran must have died on active duty or from a service-connected disability Spouses of MIAs / POWs Veteran must have been MIA or POW for at least 90 days 5

6 Proof of Service Active Duty DD form 214 (Member 4 copy) Statement of Service Reserve/Guard Members NGB Form 22 Retirement Points Statement Unmarried Surviving Spouse Report of Casualty DD Form 1300 Death Certificate 11 Eligible Branches of Service Army Navy Air Force Marine Corps Coast Guard 6

7 Eligibility Continues Only the spouse of a Veteran is eligible to co-borrow with the Veteran on VA Home Loan. See VA s Joint Loan policy on other eligible non-spouse co-borrower eligibility Joint Loans are submitted to VA direct for prior approval Non purchasing spouse is acceptable in community property states. Provide current credit report on non-purchasing spouse Obligations will be used against Veteran AND non-purchasing spouse s credit history will be analyzed Two Veterans or VA eligible borrower s can purchase together. Must be submitted directly to VA for approval 13 Basic Occupancy Requirements OCCUPANCY 14 7

8 Occupancy Primary Residence Veteran to certify: Personally live in the property as his/her home, or Intent to occupy property upon completion of loan Veteran must occupy within 60 days after loan closing Exceptions: IRRRLs previously occupied Active duty service person on temporary status Spouse or Dependent Child satisfies occupancy requirement Spouse occupancy also satisfy requirement if due to distant employment of veteran other than military service Specific future event Refer to Chapter 3.05 for more details 15 Credit Alert Interactive Voice Response System CAIVRS 16 8

9 CAIVRS CAIVRS (Credit Alert Interactive Voice Response System) is a HUDmaintained system to determine if the borrower has defaulted on any federally-assisted loan. A CAIVRS inquiry must be performed on all borrowers. HUD offers online access for CAIVRS to current FHA lenders, and to VA lenders with registration. (Veterans Information Portal) Consider any obligations appearing in CAIVRS when qualifying. Any delinquent or default disqualifies the borrower from obtaining the loan, unless brought current or to satisfactory status with the Federal Agency and a clear CAIVRS is received. 17 Certificate of Eligibility COE 18 9

10 Certificate of Eligibility (COE) Topic Eligibility What is a COE? What does the COE show? Description A COE is the veteran s entitlement to VA home loan benefits under the law based on military service. An eligible veteran must still meet credit and income standards in order to qualify for a VA-guaranteed loan. A lender cannot make a VA-guaranteed loan to an ineligible applicant under any circumstances. A Certificate of Eligibility is the ONLY reliable Proof of Eligibility for the Lender. There are actually 3 types of COE s: Regular / Full Time / Active Duty - VA Form , COE for Loan Guaranty Benefits, or Reservist / National Guard VA Form a, COE for Loan Guaranty Benefits (Reserves/National Guard) Annotated for Unmarried Surviving Spouse It shows the amount of available entitlement which is found at the center of the COE. Certificate of Eligibility (COE) Topic Basic Entitlement Description Maximum amount that can be shown on the COE is $36,000 Exception for higher entitlement is available for certain loans greater than $144,000 May be reduced due to an active loan or prior VA loan termination Bonus Entitlement Is only applied to guaranty on loans over $144,000 Varies by county based on median home price Subject to annual changes based on changes to median home prices Can be used even if veteran has $0 in basic entitlement (provided loan is over $144,000) 10

11 FYI Ordering an Electronic COE Topic Who orders the COE? Description The Veteran provides the COE. How can you get the COE? If the Veteran does not have his/her COE, you can order it through ACE (Automated Certificate of Eligibility) which can be found at Scroll down the left-hand side of the page until you see Application and WebLGY. Click this and choose Eligibility from the main menu. Chose Automated Certificate of Eligibility Follow Instructions Input Veterans name as it appears on DD214 (discharge papers) 22 11

12 FYI Ordering an Electronic COE Cont d 23 FYI Ordering an Electronic COE Topic ACE will not process: Description Persons whose service was or is in the Reserves/National Guard Persons who may have had prior VA loan(s) that went into foreclosure Persons who did not serve the minimum required length of service and were not discharged for an authorized exception Persons who were discharged under conditions other than honorable Persons seeking restoration of previously used entitlement Unmarried surviving spouse 24 12

13 COE continues A COE does not expire. It can be re-used again and again if it s properly restored If a Veteran holds a valid COE, you can assume he/she has the appropriate length and character of service. Sometimes, the COE is annotated for individuals currently serving in active duty It is possible for the COE to show an amount that is less than $36,000. Refer to the VA Lender Handbook Chapter 2 on How to apply for a COE and more details on this issue. 25 Restorations of Entitlement Full Restoration requires Payoff Transfer of Title Must apply for a new COE One-Time Restoration (Still owns home) Provide documentation VA Entitlement Codes 01 World War 2 02 Korean War 04 Viet Nam 05 Entitlement Restored 06 Un-remarried Surviving Spouse 07 Spouse of POW / MIA 08 Post World War 2 09 Post Viet Nam 10 Persian Gulf War 11 Selected Reserves 26 13

14 VA GUARANTEE 27 Maximum Guaranty The VA guarantee is the amount VA may pay a lender in the event of loss due to a Foreclosure 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 The percentage and amount of guaranty is based on the loan amount including the funding fee portion when the fee is paid from loan proceeds

15 Maximum Guaranty Loan Amount Maximum Potential Guaranty (Assumes Veteran has FULL entitlement) Up to $45,000 50% of the loan amount $45,001 to $56,250 $22,500 $56,251 to $144,000 40% of the loan amount, with a maximum of $36,000 $144,001 to $417,000 25% of the loan amount Greater than $417,000 The lesser of: 25% of the VA County loan limit, or 25% of the loan amount 29 VA Guaranty Samples Calculations Example 1: Veteran has full entitlement available and is purchasing a home for $300,000 where the county loan limit is $417,000. $417,000 x 25% = $104,250 Maximum Guaranty and Available Entitlement $300,000 x 25% = $75,000 Guaranty and Down Payment Combination Required Since VA s guaranty is limited to the lesser of 25% of the county loan limit or 25% of the loan amount, VA will guaranty $75,000 on Veteran s $300,000 loan in this county. A down payment should not be required. Example 2: 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 and Available Entitlement $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

16 Example 3: VA Guaranty Samples Calculations 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. Example 4: 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 Available Entitlement $182, / $800,000 = 22.81% Guaranty $800,000 x 25% = $200,000 Guaranty and Down Payment Combination Required $200,000 - $182, = $17, Down Payment A down payment of $17, is required. 31 VA 2014 Loan Limits LOAN LIMITS 32 16

17 VA 2014 Loan Limits Loan limits: VA has no specified dollar amount(s) for the maximum loan. It depends on: The NOV reasonable value of the property, AND Lenders needs in terms of Secondary Market requirements The maximum guaranty amount (available for loans over $144,000) is 25% percent of the 2014 VA Limit shown. A veteran with full entitlement available may borrow up to the limit shown and VA will guarantee 25 percent of the loan amount. If a veteran has previously used entitlement that has not been restored, the maximum guaranty amount available to that veteran is reduced accordingly. 33 VA County Loan Limits Published on VA website: Based on a guaranty of 25% Loans may exceed this amount, however may require a down payment to meet investor requirements May need to adjust loan limit based on un-restored entitlement 34 17

18 Basic Program Guidelines Interest Rate Reduction Refinance Loans (IRRRLs) PROGRAM GUIDELINES 35 Program Guidelines Topic Eligible Product Types Eligible Properties Eligible Transactions Description 30 Year Fixed Mortgage Conforming & Jumbo 15 Year Fixed Mortgage (Program FG only) Conforming Loan amounts up to $417,000 SFRs PUDs VA Approved Condos 2-4 units Manufactured Homes to 100% LTV/CLTV with 660 fico (Program 07 only) Loan amounts > $417,000 SFRs PUDs VA Approved Condos Purchase IRRRL (Program 07 only) Cash out refinances up to 90% Max LTV (80% for Jumbo) VA does not have a R&T refinance program other than the VA IRRRL; all other refinance loans are designated as cash-out 18

19 Basic Program Guidelines Topic Cash Out Refinance Description Max 90% LTV of the VA reasonable value (no seasoning), PLUS VA Funding Fee, PLUS Cost of any energy efficiency improvements up to $6,000 Cash Out may be used to pay off existing liens on the property, allowable fees, charges, and discount points Cash Out to the borrower only under the following circumstances Cash Out Refinance loan Refund of items that the borrower paid cash for and were subsequently included in the loan amount Occupancy Owner Occupied only except: IRRRL s (Interest Rate Reduction Refinance Loans) NOO or 2 nd Home allowed if veteran can attest that he/she once occupied property as primary residence Occupancy by Veteran s spouse in the case when a Veteran is stationed elsewhere satisfies the occupancy requirement 37 Basic Program Guidelines Topic Down Payment Description No down payment is required by VA since VA loans can be for the full reasonable value of the property, unless: The purchase price exceeds the reasonable value of the property, or Down Payments is required per investor requirements. Eg., when veteran has less than full entitlement available in which case a down payment may be required Down payment cannot be gifted 2 nd Mortgages may not be used for down payment Rule of Thump for GNMA: The VA guaranty or a combination of VA guaranty plus down payment and/or equity must cover at least 25% of the loan. Secondary Financing Allowed and must be simultaneously with the 1 st Mortgage Must submit documentation as to source, amount, repayment terms Veteran must qualify for the 2 nd as additional recurring monthly obligation Cannot be used towards DP required by VA; OK for excess down payment Can be used to pay closing costs 38 19

20 Maximum Loan Amount Topic Purchase Description 100% up to $417,000 (Including Funding Fee) Conforming FMC overlay for Jumbo VA loans in High Cost Areas: 100% up to $650,000 75% for greater than $650,000 up to County Limit Cash Out Cash out refinance is 90% of the appraised value (base amount) PLUS the VA Funding Fee, PLUS cost of the energy efficient improvements up to $6,000 Jumbo VA caps at 80% LTV for cash out IRRRL See IRRRL sheet See next slide for more details Processing an IRRRL IRRRL loan limits VA IRRRL 40 20

21 Interest Rate Reduction Refinance Loans (IRRRL s) IRRRL is a VA loan to refinance an existing VA loan at a lower interest rate and monthly payments with streamlined documentation Loan Limit Maximum: $417,000 Interest Rate: Interest Rate and PITI must be lower than rate on current VA loan (unless previous loan is an ARM) Term: Lesser of 30 years, or original VA term 10 years Payment: The P&I must be less than the P&I on the current loan, unless the IRRRL is refinancing an ARM, or the term of the IRRRL is shorter than the term of the current loan, or Energy Efficient Improvements are included in the IRRRL If the PITI increases by more than 20%, the Veteran must credit qualify 41 VA IRRRL FMC VA IRRRL Highlights (07 Program only): NO Credit Report required NO Fico Score required 12-Month Mortgage Rating on Subject Property Only No Appraisal / No AVM VA loan must be current No Mortgage lates in last 12 months Finance up to 2 discount points No Cash Back to borrower Refer to Chapter 6 for change in obligors depends on Veteran on loan 42 21

22 Basic Program Guidelines Maximum Loan Amount = The amount of the existing VA loan balance, PLUS Allowable fees and closing costs, PLUS VA funding fee, PLUS Up to 2 discount points, PLUS Cost of any energy efficient improvements up to $6, Basic Program Guidelines Initial Computation Preliminary Loan Amount Provides initial computation of fees and charges Final Computation Adjusts for discount and funding fee 44 22

23 Order a VA IRRRL Case 45 VA IRRRL vs Cash Out Feature IRRRL Cash-Out Refinance Purpose Refinance an existing VA loan to a lower interest rate Pay off lien(s) of any type can also provide cash to the borrower Rate & Payment Must be lower than existing VA loan No requirement any negotiated rate Maximum Loan Discount Points Existing VA balance, plus allowable fees & charges, plus up to 2% discount points, plus cost of any energy efficiency improvements, plus VA funding fee Reasonable points can be paid only 2% can be financed in loan amount 90% of reasonable value of property on NOV, plus cost of energy efficiency improvements, plus VA funding fee No Reasonable points can be paid if paid from loan proceeds Maximum Guaranty Guaranty is at least 25% in all cases Maximum guaranty same as for purchases Entitlement Veteran re-uses entitlement used on the existing VA loan IRRRL doesn t impact amount the veteran has in use Must have sufficient available entitlement can be restored if loan is for same property Fees & Charges All allowable fees & charges including up to 2% discount points, may be included in loan Allowable fees & charges & points may be paid from loan proceeds Cash to borrower Not permitted Cash to borrower allowed for any purpose Refinance other lien Cannot refinance other liens, only existing VA Can refinance any type of lien(s) Maximum Term Existing VA loan term + 10 yrs not to exceed 30 years + 32 days 30 years + 32 days Appraisal No appraisal required (FMC requires drive-by on non FMC to FMC loans) Appraisal is required Credit Underwriting Not required except in certain cases Full credit information & underwriting required 46 23

24 Underwriting Methods General Underwriting Guidelines Credit UW Standards (Income, Assets, Debts & Obligations) Property Guidelines UNDERWRITING GUIDELINES 47 Underwriting Philosophy Two Basic Underwriting Questions 1. Can the applicant pay? 2. Will the applicant pay? Uses flexibility and sound judgment Make sense, case by case basis not an exact science FMC Overlays 48 24

25 Underwriting Methods UW follows standard VA guidelines and regulations Refer to VA Handbook Chapter 4 (DU Automated Underwriting Engine incorporates VA s credit standards) Underwriting Method Eligible Acceptable AUS Result Manual (Program 07 only) Yes N/A Desktop Underwriter (DU ) Yes Approve/Eligible Underwriting Methods A finding of Approve/Eligible can reduce the amount of documentation requirements, and underwriting time of a loan file Garbage In = Garbage Out Data Integrity Follow Feedback Certification Downgrade to a Refer when necessary Risk Calculator Reduced Documentation Refer does NOT equal denial Absence of the above findings does not provide a basis for denying a loan application. Manual UW is permitted on Program 07 only. 25

26 UW: General Guidelines Topic Co-Borrowers Non-Borrowing Spouse Non Occupant Co-Borrower Description Allowed only if co-borrower is a veteran Must consider all income and debt Non-married borrowers or 2 veterans / active service personnel borrowers must be UW by VA as a prior approval Acceptable on Purchases only. Community Prop State rules: Credit report ordered AND consider credit history in analysis Debts are counted in ratio calculation Allowed Co-Signers Resident Alien & Non Permanent Resident Alien Permitted (Program 07 only) Allowed as long as primary occupying applicant is a Veteran UW: General Guidelines Topic Funds to Close Description Gift from relative: provide acceptable gift letter to evidence withdrawal from donor and transfer to borrower If given by seller, realtor, builder, must be considered in 4% contribution calculation Not allowed from non-profit agencies Funds from Seller Contribution Borrowers own funds On jumbo loan amounts where veteran has to come in with down payment on a purchase, it cannot be gifted funds Borrower Contribution No Minimum Required Reserves NO RESERVES for loan amounts up to $417,000 6 Months PITI for loan amounts exceeding conforming limit 26

27 UW: Seller Concessions Topic Seller Contribution Description Up to 4% Limit - Lesser of sales price or appraised value and above any discount points paid by seller. Do not include: Payment of the buyer s closing costs Payment of discount points applicable to the market Include: Payment of the VA funding Fee Prepayment of property taxes and insurance Buy-down funds temporary or extra point for permanent buy-down Payoff credit balances or judgments on behalf of the borrower Gifts such as TV, Lawnmower, Microwave, etc. UW: General Guidelines Topic Repairs Description Repairs required by VA generally performed by seller or veteran Not required for minor or cosmetic defects or normal wear & tear # of VA loans Limited only by amount of available entitlement (New loan - O/O) Temporary Buydowns Survey Requirements Termite inspection Escrow Waivers Assumable Prepayments Allowed on 30 Year Fixed product only Required on all property types except condominiums In areas where surveys are not customary, the title insurance policy must insure over matters of survey Required for all properties located in areas prone to termite infestation Not allowed all VA loans must have Impounds. Yes NONE 27

28 UW: Income Stable, Reliable & Anticipated to Continue 2 Year History Consider: Type Training/Education/Special Qualifications Past history Explain gaps Less than 12 month history: Generally not considered stable and reliable Carefully consider special circumstances, employers probability of continued employment Explain why you are using UW INCOME: Verification VOE VA Form Employment Verification Services Alternative Documentation: Verbal Verification Pay stubs for most recent 30 days W-2 s for previous 2 years 28

29 Topic Description UW INCOME: Non-Military Employment Wages Regular, predictable and likely to continue Verified for at least 2 years Less than 2 years considered on a case by case basis at UW discretion Overtime Income & 2 nd Job Income Seasonal jobs & Unemployment Regular, predictable and likely to continue Verified for at least 2 years Less than 2 years; use to offset debts (10-24 months) May be averaged 24 month history for both, if it is considered normal for the field the borrower is in Alimony/Child Support Must be verified and stable UW: Non-Military Employment Topic Commission Income Description 2 year history YTD payments Basis of Payment eg., Salary plus commission, straight commission, draws against commission, etc. When paid monthly, quarterly, semiannually, annually 1040 s required (watch for 2106 expenses) Less than 2 years not eligible unless previous related employment or extensive specialized training Self Employed Borrowers 25% or greater ownership interest in a business 2 year history Income Tax Returns plus all applicable schedules YTD Profit and Loss Balance Sheet 29

30 UW INCOME: Active Duty Income UW INCOME: Active Duty Income Active Military income consider base pay as stable & reliable unless applicant is within 12 months of release of active duty. Leave and Earnings Statement is required (LES) instead of a VOE and must be no more than (120 days old -180 for new construction) 90 days for FMC. If re-enlisting, letter from commanding officer & the veteran stating may/will reenlist. Military quarters allowance and Basic Allowance Subsistence (BAS) can be considered income. Both non-taxable. Other Military allowances obtain verification of type and amount and length of receipt. Income from Reserves or National Guard can be considered if the length of total service indicates a strong probability of continuance

31 UW INCOME: Rental Income Topic Rental Income Description Program 07 has no equity requirement on departing residence Multi-Unit Property (Security Loan) Veteran must occupy one of the units 6 months PITI required Must have prior experience managing properties & rental experience May use 75% as effective income Other Investment Properties owned by Borrower 3 Months PITI reserves required Obtain 2 years individual tax returns documenting rental income Must be verified as stable and reliable Previous Owner Occupied Property Departing Residence Provide lease Minus 75% vacancy factor May be used to offset mortgage payment (of the other property) if qualify Cannot be used as income NO reserves required UW INCOME: Other Income Topic Non Taxable Income Description Allowed Includes Disability, Public Assistance, Military Allowances, etc. Does not apply to residual income Retirement Income Allowed Only non-taxable income may be grossed up for ratio Projected Income Generally not acceptable. Exceptions on a case by case at UW discretion. Eg., Bonuses, Performance raises, etc. to begin within 60 days of closing and verified by employer New jobs with non-revocable contract if borrower can support PITI & other obligations during the interim period Other Income Other Income, Pension, Retirement, Disability, MCC, etc. must be verified. Document per AUS Not allowed VA Educational allowances Unemployment compensation unless part applicant s income due to nature of his/her employment (eg., seasonal work) 31

32 UW INCOME: Income Tax Calculator Determine the appropriate deductions for Federal income tax and Social Security/Medicare by using Employer s Tax Guide charts. Determine the appropriate deductions for state and local taxes. Social Security/Medicare is 7.65% of gross monthly income; OR Log on to and select Personal Calculators, then Paycheck Calculator to determine all types of taxes. 63 UW ASSETS: Assets Sufficient in amount Verification of Deposit ( a) Alt docs: Last 2 months Bank Statements Large Deposits Gift Letters Reserves not required, however, helpful when determining overall credit analysis 32

33 Consider: Alimony / Child Support Must verify Childcare Allotments or Loan Pay advances (primarily seen on LES/Pay stubs of in-service veterans) Any debt with significant payments Installment debts with less than 10 months remaining do not necessarily need to be included in credit qualifying. Large payments should be considered. Do not omit these debts in the AUS system. Disregard: UW: Debts and Obligation Student loans deferred 12+ months. Student loans scheduled to begin within 12 months of the Note Date will be counted. 401k loans - Loans secured by deposited funds (do not include in assets) Insignificant debts < 10 months Co-obligor on another s loan if: Evidence payments made by someone else No reason to believe the borrower will need to make payments in the future Always populate liabilities in AUS. 65 UW CREDIT: Fico Scores Topic Minimum Fico Scores Description Program 07 NO minimum Fico required Program FG Minimum 620 Alternative Credit Allowed with Program 07 only Use non-traditional *** FOLLOW FMC OVERLAYS AS APPLICABLE *** 33

34 UW: CREDIT Bankruptcy Topic Bankruptcy (Chapter 7) Description Discharged over 24 month disregard o Reason must be documented and not likely to reoccur. Discharged over 12 months 24 months o Credit has been re-established for that period of time o Was caused by circumstances beyond borrower s control and o Evidence the applicants have demonstrated their ability to handle their credit affairs Bankruptcy (Chapter 13) Acceptable with 12 month payment history Borrower s effort to repay 1 Year seasoning with satisfactory payment performance Approval of trustee or agency - Permission from court to enter into new obligation UW CREDIT: Foreclosures / Short Sales Topic Foreclosure / Short Sale Description Treat same as Chapter 7 BK. Develop facts / circumstances Re-established credit since If it was a VA loan, check if any amount of entitlement was forfeited Ensure no debt to government Entitlement restoration Includes Deed in Lieu of Foreclosure and Short Sales 34

35 UW CREDIT: Reestablished Credit/Collections Topic Reestablished Credit (Not involving a Bankruptcy) Collection Description Satisfactory reestablished credit required for 12 months after date of last derogatory item was satisfied. Eg., Assume borrower with multiple unpaid collections some outs for several years. Once all have been satisfied, make timely payments on subsequent obligations for 12 months, satisfactory credit is re-established. Payoff is not required for approval Unpaid collections are considered Open, Recent Derogatory Credit regardless of age No lates in last 12 months on manually UW loans Obtain credit explanation even if not required by AUS UW CREDIT: Judgments/CCCs/Disputed Accts Topic Judgments Consumer Credit Counseling Disputed Accounts Description Must be paid in full or a satisfactory payment plan is in effect at time of application with no late payments Permitted with 12 months satisfactory repayments and counseling agency approves new credit VA (product code 07): Follow the DU findings for accounts in dispute. If the accounts in dispute are reflecting a balance, the disputed account with the balance must be paid off and reflect a zero balance via credit supplement. If an Approved/Eligible is obtained, follow the findings as long as all disputed accounts have zero balances or a supplement has been provided to show each account with a zero balance. 35

36 UW: Compensating Factors Topic Compensating Factors Sample Compensating Factors Description Valid compensating factors should logically be able to compensate for the identified weakness in the loan. Should represent unusual strength rather than mere satisfaction of basic program requirements. Eg., Sufficient assets for closing or meets residual income guidelines is not a compensating factor. Eg., Significant liquid assets may compensate for a residual income shortfall whereas long term employment would not. Excellent credit history Conservative use of consumer credit Minimal consumer debt Long-term employment Significant liquid assets Sizable down payment Existence of equity in a refinance loan Military benefits High residual income Low DTI Tax credits for child care Tax benefits of home ownership Ratios, Residual Income Topic Max DTI Description 41% - VA uses a single ratio Ratios may be exceeded with: DU approval, or Existence of tax-free income (notate file of tax free income OR gross up tax-free income to bring ratios down income) Manually underwritten loans May be stretched to 46% if veteran meets residual requirement with strong compensating factors (such as high residual income greater than 20%) Residual Income VA uses Residual Income veteran should have at least the minimum residual income remaining to qualify When the DTI > 41%, the residual income should be at least 20% over stated guideline. Otherwise, a 2 nd UW signature is required Residual Income is calculated based on the total number of dependents and the number of persons residing in the household 72 36

37 Residual Income by Region TABLE 73 FMC VA Overlays 37

38 FMC VA Overlays Cont d FMC VA Overlays Cont d 38

39 FMC VA Overlays Cont d Property Requirements THE PROPERTY 78 39

40 Property Requirements Minimum Property Requirements Safe, Sanitary, Sound Condominiums approved by VA HUD/FHA/USDA approvals OK prior to 12/7/09 Foreclosed Properties MPRs paid for by Seller 79 The Appraisal Process Follow FMC s guideline on ordering VA Appraisals Bulletin Ordered by FMC Corporate via the VA Portal WebLGY Need a copy of the purchase contract Provide copies of home and pest inspections if completed Appraiser completes report Within 10 business days Electronic copy uploaded to WebLGY Lender Appraisal Processing Program (LAPP) Lender Staff Appraiser Reviewer (SAR) reviews and issues a Notice of Value (NOV) to the Veteran SAR has authority to adjust value up to 5% 80 40

41 Appraisal Requirements for Loans > $417,000 ($625,000 in AK & HI) Loan Amount Appraisal Requirement $417,001 - $650,000 VA-required appraisal $650,001 - $1 million VA-required appraisal and LARA $1 million (Exception basis) VA-required appraisal and field review Appraisals are ordered via The Appraisal System (TAS) by the FMC Vendor Support Department See FMC Bulletin for the most current guidelines for ordering VA Appraisals VA Funding Fee Sample Calculations VA FUNDING FEE 82 41

42 VA Funding Fee What is a VA Funding Fee? This is a charge that most Veterans pay to use the VA Loan Guaranty Program (similar to the FHA UFMIP) A National Guard/Reservist member who has been on active duty under USC Title 10 for 90+ days will be considered Regular Military for funding fee purposes Required at time of closing. Helps defray the cost of the VA Home Loan Program. Calculated on the full loan amount. Fee can be paid in cash, financed or paid from proceeds Can be paid by veteran, seller or via premium pricing. 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 Who is EXEMPT from the VA Funding Fee? Certain Veteran/borrowers are exempt from paying the fee Veterans receiving service-connected compensation (for serviceconnected disabilities) Veterans who would be receiving compensation for service-connected compensation, if they did not receive retirement pay Veterans rated by VA as eligible due to pre-discharge disability examination Veterans entitled to receive compensation, but who are presently in receipt because they re on active duty Surviving spouses of veterans who died in service or from serviceconnected causes 42

43 VA Funding Fee Cont d How to verify exempt status: Verify exempt status by obtaining: A properly completed and signed VA Form , Verification of VA Benefits Form, sent to and processed by VA For a Veteran who elected service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and documentation of the Veteran s service retirement income, along with the form completed Indications on the COE that the borrower is entitled as an unmarried surviving spouse. Examine the COE for notations regarding Funding Fee exemptions! OR Purchase, Cash Out, Construction Loans VA Funding Fee Purchase & Construction Loans Cash Out Refinance Effective 11/22/2011 Down Payment First Time Use Subsequent Use Effective 11/22/2011 First Time Use Subsequent Use Regular Military / Active Duty Reserves/ National Guard None- 4.99% 2.15% 3.30% 5%-9.99% 1.50% 1.50% 10% or more None- 4.99% 1.25% 1.25% 2.40% 3.30% 5%-9.99% 1.75% 1.75% 10% or more 1.50% 1.50% Type of Loan Other Loan Types First Time Use Subsequent Use IRRRL.50%.50% Loan Assumptions Regular Military 2.15% 3.30% Reserves/ National Guard 2.40% 3.30%.50%.50% 43

44 VA Funding Fee Sample Calculations Example 1 Funding Fee Financed: Veteran has full entitlement available and is purchasing a home 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 % Example 2 Funding Fee NOT Financed: Veteran has full entitlement available and is purchasing a home for $625,500, where the county loan 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 including the funding fee is 100% 87 Veteran Allowable Fees & Charges Veteran Non-Allowable Fees & Charges VA FEES & CHARGES 88 44

45 VA Rates & Fees Topic Interest Rates Description Interest rate is fixed and the payment is fully amortized over the entire term of the loan. Origination Fees and Discount Points Points are negotiated between LO and Veteran See next slides for allowable and non-allowable fees Closing Costs See next slides for allowable and non-allowable fees Chapter 8.2 of VA Lender Handbook FYI Veteran Fees & Charges ALLOWABLE FEES: The following fees are always allowed regardless of the 1% origination fee being charged. VA Appraisal fee - per allowable maximum appraisal fee schedule for that state Including 2 nd appraisals requested by the Veteran for reconsideration of value Compliance Inspection - Only if required by NOV Credit report - In most cases should not exceed $50 Recording fees, taxes and stamps Prorated tax and insurance escrow Hazard insurance if it was not paid directly out of pocket by eveteran outside closing Survey and plot plan Title Insurance, Title Policy, Title Exam, Title Search, Title Endorsement and any fees required to prepare title work Environmental protection lien endorsement 1% Origination Fee VA Funding Fee Discount Points Closing protection letter sometimes just listed as CPL (should not exceed $35, except in Pennsylvania it is $75) Interthinx DISSCO fraud protection report MERS fee Well and Septic inspection fees Express mail fees (only for cashout refinances and IRRRL s) actual cost should be reasonable. If not question it (over $50 should be questioned ask for actual invoice) 90 45

46 FYI Veteran Fees & Charges UN-ALLOWABLE FEES: The following fees are always unallowed if the1% origination fee charged. Lender s VA Appraisal fee the Veteran can only be charged for 1 appraisal unless VA deemed a 2 nd Appraisal mandatory Lender s Inspection If it is not required on the appraisal/nov, it cannot be charged to the Veteran Settlement fee, escrow fee, closing fee Document preparation fee Underwriting fee Processing fee Application fee a Veteran can be charged up front the cost of the appraisal and credit report to ensure the loan officer is not stuck with those fees if the veteran walks away from the deal UN-ALLOWABLE FEES cont d: The following fees are always un-allowed if the1% origination fee charged. Pest Inspection fee Attorney fees if for something other than title work Assignment fee Copying fee fee Fax fee Photographs Postage fees if not a cash out refinance or IRRRL Amortization schedule Notary fee Commitment fee Trustee fee Truth in lending fee Mortgage broker fee Tax service fee 91 FYI Veteran Fees & Charges VA FEES: The previous lists are not all inclusive. You may find something other than those listed. These fees cannot be charged by the lender, title company or investor. Please refer those to the Loan Production Officer for review. Unless a fee is mandated by a city, county or state, and it is not on the allowable fee list, it cannot be charged to the veteran if a 1% origination fee was charged. If the 1% origination fee was not charged, the above list of unallowable fees can be charged to the veteran provided they do not exceed 1%. If the lender chose to charge the veteran a ½% origination fee, then items from the unallowable list can be charged provided they do not exceed ½% of the loan amount. Finally, there are some fees that can never be paid by the veteran regardless of whether the 1% origination fee was paid or not. Those are: Termite/Pest inspection Attorney Fee Charged as a Benefit to the Lender Mortgage Broker Fee Realtor Commission Prepayment Penalties HUD/FHA Inspection Fees for Builders 92 46

47 VA Processing Steps Ordering a COE Loan Analysis Worksheet VA Forms & Disclosures OTHER INFORMATION 93 VA Processing Steps 94 47

48 Loan Analysis Worksheet Loan Analysis Worksheet (VA Form ). This is where everything comes together. There are 6 sections: Loan Data Borrower s Personal and Financial Status Estimated Monthly Shelter Expenses Debts and Obligations Monthly Income and Deductions Disposition of Application and Underwriter Loan Analysis Worksheet 48

49 Loan Analysis Worksheet Sections A & B Loan Analysis Worksheet Sections C& D 49

50 Loan Analysis Worksheet Sections E Loan Analysis Worksheet Sections E Cont d 50

51 VA Cash Out Refinance Worksheet 101 VA Jumbo Loans 51

52 VA Forms & Disclosures 103 VA Forms & Disclosures Cont d

53 FYI - Reserve Guard Certification 105 Important TIPS / Hot Buttons Resources Trainings, Tools, Marketing & Support MISCELLANEOUS

54 FYI TIPS to remember Hot Buttons Veterans purchasing loans with a non-veteran is OK but VA will only guaranty that portion of the loan attributed to the veteran and a spouse. Eg., Non-married borrower s or two veterans may be OK; must be submitted directly to VA for approval. If two veterans are purchasing a home together, the use of 2 certificates does not mean you can double the guaranty or loan amount. We cannot issue a loan approval prior to an appraisal being ordered. A veteran can re-use VA benefits multiple times as long as there is sufficient entitlement to cover the new loan and the new loan is for a Primary Residence. A Veteran may still do a IRRRL on a property they no longer occupy. 401k loans may be disregarded Credit standards are a lot more stricter on VA loans compared to FHA loans especially when there are unpaid open collection accounts. FYI TIPS to remember Hot Buttons Review paystub for deductions that are required to be reflected as a debt such as union dues or other job expenses reflected. List number of dependent s once on DU. Eg., for husband and wife, list # of dependents under the first borrower only and list zero under the other. If the veteran states he/she will be living in military quarters at no cost and his/her spouse will be living in the subject property, you do not have to consider separate household expenses. Debt Letter is no longer required because your COE will reflect if the veteran is EXEMPT or has used the eligibility in the past. Counseling Checklist only has to be completed if the Veteran is on active duty or a reservist. Child care statement and Nearest Relative Information is required Read VA DD214 54

55 FYI TIPS to remember Hot Buttons Income should be predictable Documents should support calculations used Part time income for borrowers with a full time job is considered overtime income Non taxable income can be grossed up for determining the ratio only. VA allows grossing up 125% Reconcile any discrepancies List compensating factors Complete and include all necessary forms and certifications DOCUMENT, DOCUMENT, DOCUMENT!!! VA Resources VA Lender Handbook: VA Circulars: VA 2014 Loan Limits: VA Approved Condominium list: DU User Guide on VA Loans: ACE system (obtain Case Numbers): Paycheck deduction calculator: 55

56 WEB SITE FMC websites: 1. RATE SHEET 2. TRAINING MATERIALS 3. GUIDELINES 4. FORMS 5. CALCULATORS 6. TOOLS 7. MARKETING TRAININGS First Mortgage offers FREE Weekly ONLINE Trainings See the FMC website for the upcoming Training schedule Scheduled Trainings: 8/7 FMC Product Overview 8/7 FMC Calyx Point Training 8/12 Access/FirstDOWN Program 8/14 Property Flipping Training 8/20 VA Program Training FMC SUPPORT SUPPORT Retail: Contact Loan Help Wholesale/Correspondent: Contact your FMC A/E For help with your: Scenarios Pricing / Fees Guidelines Loan Submissions Trainings THANK YOU FOR YOUR BUSINESS On behalf of First Mortgage, thank you for joining today s training and we hope the information provided will help you build your business! The main purpose of First Mortgage Corporation s (FMC) training documents is to assist real estate and mortgage professionals in developing entry-level competence with loan programs. While FMC staff, employees, contractors and contributors take care to ensure the accuracy of the content of training documents, FMC makes no warranties as to the accuracy of the information contained within these materials. Furthermore, every user of this material uses it understanding that he or she must still conduct his or her own original legal research, analysis and drafting. In addition, every user must refer to the relevant legislation, case law, administrative guidelines, rules and other primary sources. FMC specifically disclaims any liability for any loss or damage any user may suffer as a result of information contained within this training material. While the information contained in FMC s training material addresses guidelines and issues surrounding mortgage programs, these materials do not constitute legal advice.all non-legal professionals are urged to seek legal advice from a lawyer. 56