VA 101: An Introduction to VA Guaranteed Home Loans

Transcription

1 VA 101: An Introduction to VA Guaranteed Home Loans

2 Course Description: The Basics of VA course is comprised of the fundamentals of VA. It provides both an excellent foundation for those newer to VA as well as in depth discussion for more experienced individuals. The course is designed for those who want to build a solid foundation with VA through understanding credit qualifications, borrower eligibility, funding fee, effective income, and underwriting philosophy including manual underwriting and underwriter discretion. Who Should Attend? People in the following situations will gain considerable benefit from attending this training course: Anyone who would like to increase their productivity. People who are looking to develop a deeper knowledge base about the company s product offering. The base line principles and practices are applicable to all sales and processing roles. Course Objectives: Participants will be able to understand and appreciate the power of the VA Guarantee Loan program. Discover strategies to help increase sales productivity through the company s product offering. Appreciate that product knowledge is a key differentiator between top performers and everyone else. 4/20/2015 2

3 Overview The VA Home Loan Mortgage is a mortgage guarantee program administered by the Department of Veterans Affairs under the GI Bill. Under this mortgage guarantee (insurance) program, eligible veterans and active service men can obtain home loan financing up to 100% LTV with VA Loan Guarantee. Today, the VA loan market is stronger and bigger than ever, It includes a huge potential client base for you from renters who want to be owners, to firsttime homebuyers, to people who would be unable to qualify for Conventional or FHA loans. The opportunity for a mortgage professional, such as you, is considerable. 4/20/2015 3

4 Table of Contents The Lender and VA Guarantee Types of Lenders 6 Advantages of VA Guaranteed Loans 7 VA Home Loan Guaranty Program 8 VA Guaranty 9-10 Eligibility What is Eligibility? 12 Who is Eligible? Restoration of Eligibility 18 Loan Types and Requirements Eligible Loan Purposes, Loan Types, and Maximum Loan Amounts Seller Concessions 25 VA Funding Fee Property Eligibility 28 Properties Not Eligible For VA Loans 29 The Appraisal System TAS Energy Efficient Mortgages 32 4

5 Table of Contents Underwriting CAIVRS Income Verification Assets 43 Debts and Obligations Credit Analysis Compensation Factors 54 Completing VA Form , Loan Analysis Residual Income Automated Underwriting Systems (AUS) 64 5

6 The Lender and VA Guarantee Supervised Lenders Commercial Banks, Savings Banks, or other entities under the supervision of a Federal or State Agency, such as FDIC. Have VA automatic authority by reason of being supervised. No separate VA approval of automatic authority is required. Non-Supervised Lenders Mortgage companies or other lenders not subject to FDIC or other Federal or State supervision. Can be approved for prior approval authority, i.e. loan packages are submitted to VA for commitment before closing. May be approved for automatic authority if they meet certain VA requirements. Non-Supervised Lenders Lenders may designate other entities (correspondents, mortgage brokers, etc.) to perform origination functions on their behalf. VA will approve such relationships upon receiving a copy of the lender s corporate resolution and a $100 processing fee. Thus, a mortgage broker, without automatic authority, may originate VA loans for an automatic lender, with the automatic lender doing the underwriting on the automatic basis, if a VA approved agency relationship has been established. If the lender uses an agent one time, or very infrequently (up to four times per year) it may authorize the agency relationship on a loan-by-loan basis, using the lender s certification on VA Form It is VA s policy to encourage the maximum possible use of automatic authority and LAPP authority. 6

7 Advantages of a VA Guaranteed Loans No down payment Loan Maximum may be up to 100 percent of the VA established reasonable value of the property. However, due to secondary market requirements, VA loans generally do not exceed the Freddie Mac conforming loan limit for a single-family residence (currently $417,000 and $625,500 for Alaska, Hawaii, Guam and the Virgin Islands).* No monthly mortgage insurance premium to pay. Limitations on the buyer s closing costs. An assumable mortgage, subject to lender or VA approval of the assumer s credit. Right to prepay loan without penalty. VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties. *See Retail Resources VA County Loan Limits

8 VA Home Loan Guaranty Program Automatic Loans Loans processed on the automatic basis are prepared, underwritten and closed by the lender before being submitted to VA for guaranty, bypassing the VA commitment stage. Over 90 percent of VA loans are done on the automatic basis. LAPP Loans Loans processed on the Lender Appraisal Processing Program (LAPP) basis are automatic loans which also bypass the appraisal review and Notice of Value (NOV) issuance by VA. LAPP lenders have their own VA-approved staff appraisal reviewers (SAR) who review appraisal and issue NOV letter to veteran instead of VA. After issuing NOV, the lender proceeds to close the loan on an automatic basis. Loans Not Eligible For Automatic Closing 1. Joint loans* between a veteran and non-veteran or between two veterans. 2. Loans to veterans receiving non-service connected VA pension** income. 3. Loans to veterans rated incompetent by VA. *Any joint loan for which the veteran will hold title to the property and any person other than the veteran s spouse must be submitted for VA prior approval by MSF VA Automatic underwriter. See VA Handbook for additional information. **Veterans receiving VA compensation income may be processed on the automatic basis. 8

9 VA Guaranty Purpose of VA Guaranty To encourage lenders to make VA loans by protecting loan holders and lenders against loss, up to the amount of the guaranty, in the event the loan is terminated by foreclosure. Amount of Guaranty The maximum guaranty on a VA loan is the lesser of the veteran s available entitlement indicated on the Certificate of Eligibility (COE), or the maximum potential guaranty amount as shown in the table below. The maximum potential guaranty is $104,250, if the veteran has full eligibility.* Loan Amount Maximum Potential Guaranty Special Provisions Up to $45, percent of the loan amount. Minimum guaranty of 25 percent on IRRRLs. $45,001 to $56,250 $22,500 Minimum guaranty of 25 percent on IRRRLs. $56,251 to $144, percent of the loan amount, with a maximum of $36,000. $144,001 to $417, percent of the loan amount, with a maximum of $50,750. Greater than $417,000 The lesser of: 25 percent of the VA county loan limit, or 25 percent of the loan amount Minimum guaranty of 25 percent on IRRRLs. Minimum guaranty of 25 percent on IRRRLs. Minimum guaranty of 25 percent on IRRRLs 9

10 VA Guaranty Continued *Note: The veteran s basic entitlement amount is $36,000. If the loan amount exceeds $144,000, an additional amount of entitlement is available, for a maximum entitlement of 25 percent of the Freddie Mac conforming loan limit for a singlefamily residence (currently $417,000 and $625,500 in Alaska, Hawaii, Guam and U.S. Virgin Islands). **Note: Only the basic entitlement of $36,000 is available to guaranty construction to permanent refinance, installment land contract loans and loans assumed by veterans at interest rates higher than that for the proposed refinance. Loans over $144,000 will receive less than 25% guaranty. Public Law provides a temporary increase in entitlement for certain counties designated as high cost. This increase is effective for loans closed between February 28, 2014 through December 31, See higher cost county loan limits at VA County Loan Limits 2014 Net Tangible Benefit must be less than 120 months to recoup costs. Costs include Origination, Discount (real and/or charged) and borrower paid closing costs (not included: pre-paid items and Funding Fee). Basic entitlement $36,000 Bonus entitlement under new law allows for additional bonus entitlement of $68,250 to be used for purchases over $144,000 (not to exceed $273,000 loan amount). VA s Guarantee must cover at least 25% of the loan amount, with a maximum of $104,250. Refer to the VA Maximum Loan Amount Worksheet for calculations on full qualifying refinance transactions. You must order a Certificate of Eligibility to ensure the Veteran has entitlement to a VA Guaranteed Loan. Refer to: VA Lender s Handbook Chapter 2 for Eligibility and Entitlement MSF Requires VA Form on VA Loans VA Guaranty Calculation Examples VA Max Loan Calculation Worksheet IRRRL VA Max Loan Calculation Worksheet Full Qualifying 10

11 Eligibility. 11

12 What is Eligibility? Eligibility 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. The Lender s Role. Before processing a loan for an applicant, the lender must ensure VA has determined the applicant is an eligible veteran. Each applicant must be evaluated by VA to see if the applicant meets criteria established by law. It is critical that a potential borrower s eligibility be established early in the loan process. This assures that a lender is working with an eligible party. Delaying the application for eligibility can create the following problems: Time and money may have been expended needlessly, if VA determines the veteran is not eligible. The loan closing may be delayed pending a final decision, if the veteran s eligibility determination is more complex than normal. Once VA finds an applicant eligible, VA issues the veteran either VA Form , Certificate of Eligibility for Loan Guarantee Benefits, or VA Form a, Certificate of Eligibility for Loan Guarantee Benefits (Reserves/National Guard) 12

13 Who Is Eligible? 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 Cost 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 Entered service as an Officer after October 16, 1981 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). For additional details including the Wartime and Peacetime table refer to Chapter 2 Section 5 Page 2-17 of the VA Lender s Handbook Continued on next page... 13

14 Who Is Eligible Continued Types of Service ERA DATES MINIMUM SERVICE WWII 9/16/40-7/25/47 90 continuous days Peacetime 7/26/47-6/26/ days Korean 6/27/50-1/31/55 90 days Post-Korean 2/1/55-8/4/ days Vietnam 8/5/64-5/7/75 90 days Post-Vietnam (Enlisted) 5/8/75-9/7/ days Post-Vietnam (Officer) 5/8/75-10/16/ days Post-Vietnam (Enlisted) 9/8/80-8/1/90 2 years Post Vietnam (Officer) 10/17/81-8/1/90 2 years Persian Gulf 8/2/90 - undetermined 2 years or period called to active duty, not less than 90 days Continued on next page... 14

15 Who Is Eligible Continued OTHER ELIGIBLE PERSONS Active duty member** Active Reserve or National Guard Unmarried surviving spouse*** POW/MIA spouse MINIMUM SERVICE REQUIRED 90 continuous days (181 during peacetime) 6 years in Selected Reserves No time requirement. Veteran must have died on active duty or from a service-connected disability. Veteran must have been POW or MIA 90 days. *A veteran who has served less than the minimum required period of service or was discharged because of a serviceconnected disability, may be eligible for home loan benefits. Other categories of exceptions can be found in Chapter 2: Veteran s Eligibility and Entitlement Section 5 of the Lender s Handbook. ***For IRRRLs only, the surviving spouse of a deceased veteran may do an IRRRL using the veteran s Certificate of Eligibility (if the spouse was on the loan with the veteran). The spouse, in this case, does not have separate entitlement. 15

16 Who Is Eligible Continued A Certificate of Eligibility is the only reliable Proof of Eligibility for a Lender Once a Certificate of Eligibility (COE) is received contact VA if there is some question as to the accuracy of data on the COE In all cases in which the applicant does not already have a COE, the applicant, the lender or an authorized representative acting on the applicant s behalf, should submit a properly completed VA Form , Request for a Certificate of Eligibility to VA, even if it appears the applicant is not eligible. Additionally, lenders should utilize the Automated Certificate of Eligibility (ACE) system whenever possible. For more details regarding ACE see Chapter 2 Section 3 of the VA Lender s Handbook. Certificate of Eligibility for IRRRLs: VA has developed an alternate procedure for lenders to use when closing an Interest Rate Reduction Refinance Loan (IRRRL). This system provides an automated response: Prior Loan Validation. Lenders MUST print the Prior Loan Validation and provide it with the loan package for underwriting. Note: the printed response can ONLY be used in lieu of a COE for IRRRLs Continued on next page... 16

17 Who Is Eligible Continued Electronic Certificate Of Eligibility This program allows lenders to input data about their potential veteran-borrower and obtain an eligibility determination, on some cases, in a matter of seconds. If eligibility is established, the lender prints out the certificate to submit with their guaranty package. This eliminates completing a paper application (VA Form , Request for a Certificate of Eligibility), mailing it to an eligibility center and waiting for a reply by mail. If eligibility cannot be established, a refer message will instruct the lender to submit a completed VA Form electronically or via mail to VA for processing. Lenders can access the electronic Certificate of Eligibility program at The program is located in the WebLGY application. If eligibility cannot be established, the lender will get a message saying the determination cannot be made. A reference number will be assigned (keep the reference number for tracking purposes). A refer message only means that further development is necessary. It does not necessarily mean the veteran is ineligible. This application is intended for use by lenders who have the veteran s permission to obtain an eligibility determination for them. The use of the system will be monitored for security and administrative purposes and accessing the system constitutes consent to such monitoring. 17

18 Restoration of Eligibility Restoration Of Entitlement (Lender s Handbook, Chapter 2, Topic 6) To qualify for restoration of entitlement, one of the following requirements must be met: The prior VA loan must be paid in full and the property disposed of, OR The prior VA loan must have been assumed by an eligible veteran who substituted his/her entitlement. Note: Lenders should request restoration prior to closing the new loan. Lenders are also encouraged to research the veteran s prior loans to confirm those loans using VA entitlement. Documents Required For Restoration VA Form , completed, signed and dated by the veteran. Evidence that previous loan is paid in full. Proof of Military Service Special One-Time Restoration Home loan entitlement may be restored one time only, if the veteran has repaid the prior VA loan in full, but has not disposed of the property securing the loan. After such a restoration, any future restoration will require the veteran to dispose of all property financed with VA loans, including the property not disposed of under the one time only exception. Documentation requirements are the same as those listed above. Divorce Cases When property is awarded to the veteran s spouse as a result of divorce, entitlement cannot be restored unless the spouse refinances the property and/or pays the VA loan in full or the ex-spouse is a veteran who substitutes their entitlement. 18

19 Loan Types and Requirements 19

20 Eligible Loan Purposes, Loan Types & Max Loan Amounts VA loans may be used for the following purposes: Lender s Handbook, Chapter 3, Topic 2 To buy an existing home, including a townhouse or condominium unit in a VA-approved development. To build a home. (Mortgage Solutions Financial currently does not offer Construction Loans) To simultaneously purchase and improve a home. To improve a home by installing energy-related features Lender s Handbook, Chapter 7, Topic 3 To refinance an existing home loan. Lender s Handbook, Chapter 6, Topic 1 Cash-out refinance. Lender s Handbook, Chapter 6, Topic 3 Reduce the interest rate (Interest Rate Reduction Loan or Streamline) Lender s Handbook, Chapter 6, Topic 1 Hybrid Adjustable Rate Mortgage Adjustable Rate Mortgage Convert an adjustable rate mortgage (ARM) to a fixed rate mortgage. To purchase a multi-family property (up to four units). The veteran must occupy one of the units as his or her primary residence. Additional information regarding Eligible Loan Purposes can be found in Lender s Handbook, Chapter 3, Topic 2 20

21 Eligible Loan Purposes, Loan Types & Max Loan Amounts Maximum / Minimum Loan Amount: Maximum total loan amount of $417,000 including any financed Funding Fee. (see Jumbo below) Minimum loan amount of $25,000 The veteran s available entitlement plus the veteran s down payment and/or equity in the property must equal at least 25% of the purchase price or Notification of Value (NOV), whichever less, on purchases, new construction, and non- IRRRL refinances. IRRRL s are not subject to this rule as VA will automatically issue a 25% guaranty on any eligible IRRRL transaction. Bonus entitlement may be used for base loan amounts greater than $144,000 (VA Circular ). Maximum VA Regular loan is $417,000 or VA posted county limits, whichever is higher. VA Loan Limits Maximum VA Jumbo loan is $700,000 with 25% eligibility guaranty. TRANSACTION PURCHASE VA Max Loan Amount Worksheet VA Jumbo Loan Amount Worksheet Purchase Transactions IRRRL (Interest Rate Reduction Refinancing Loan) IRRRL Max Loan Amount Worksheet IRRRLs not allowed on investment properties located AK MAXIMUM LOAN AMOUNT CALCULATION (provided veteran has sufficient entitlement/equity) 100% of the lesser of the sales price or VA Reasonable Value/Notification of Value Plus VA Funding Fee Total may not exceed the maximum loan amount permitted for this product. Existing VA loan balance Plus allowable fees and charges Plus up to 2 Discount Points (actual charges only, paid to AFS) Plus VA Funding Fee Total may not exceed the maximum loan amount permitted for this product. 21

22 Eligible Loan Purposes, Loan Types & Max Loan Amounts TRANSACTION Refinance (Rate/Term or Cash out called Cash out by VA regardless of cash received) MAXIMUM LOAN AMOUNT CALCULATION (provided veteran has sufficient entitlement/equity) The calculation below may be used provided that equity + available entitlement equal at least 25% of the VA Reasonable Value (NOV). Equity is the positive difference between the NOV and the new base loan amount. Entitlement is no longer limited to $36,000 on a regular Refinance (rate/term or cash-out). Bonus entitlement may be used. (VA Circular ) The home must be encumbered by a lien. A home that is owned free and clear may not be refinanced. 90% of the VA Reasonable Value Plus the cost of eligible energy efficient improvements Plus VA Funding Fee Total may not exceed the maximum loan amount permitted for this product Example of the calculation using equity + entitlement: Property Value: $300,000 Available Entitlement: $36,000 Minimum Guaranty required 25% ($300,000x.25) $75,000 Minimum Equity Required ($75,000-$36,000) $39,000 Maximum Loan Amount ($300,000-$39,000) $261,000 LTV 87.00% 22

23 Eligible Loan Purposes, Loan Types & Max Loan Amounts TRANSACTION Other Refinancing Loans Loans that refinance: - a construction loan - an installment land sales contract - a loan assumed by the veteran at a Rate higher than the proposed refinance. JUMBO MAXIMUM LOAN AMOUNT CALCULATION (provided veteran has sufficient entitlement/equity) The lesser of: The VA Reasonable Value, or The sum of: The outstanding balance of the loan (for construction loans, includes the balances of construction financing and lot liens, if any) Plus allowable closing costs and discounts Plus the cost of eligible energy efficient improvements Plus VA Funding Fee Total may not exceed the maximum loan amount permitted for this product. Funding fee is included in all total loan amounts Minimum Jumbo VA loan amount: $417,001 Maximum Jumbo VA loan amount: $1,500,000 (includes funding fee) with a minimum of 25% guaranty County limits: County Limits for

24 Eligible Loan Purposes, Loan Types & Max Loan Amounts Refinance Comparison Regular Cash-Out IRRRL Rate Reduction Statutory Authority 38 USC 3710(a)(5) 38 USC 3710(a)(8) Entitlement Required Yes No Cash to Veteran Yes No Loan Limit 100% of NOV plus funding fee (with certain exceptions) (80% in TX) Must Veteran Own Property Yes Yes VA loan balance plus allowable closing costs & funding fee (plus up to $6,000 for EEM Improvements) Must Veteran Occupy Property Yes No, (must have once occupied) Maximum Loan Term Maximum Interest 30 years + 32 days Negotiated Rate Lien of Record Required Yes Yes OK to Refinance Other Liens Yes No Appraisal Required Yes Yes Existing VA loan term plus 10 years not to exceed 30 years and 32 days Rate must be lower than rate on present VA loan (unless refinancing ARM to fixed rate) Credit Package Required Yes No, (Unless delinquent) OK for Automatic Processing Yes, Automatic lenders Yes, all lenders unless existing VA loan is delinquent 24

25 Seller Concessions Seller Concessions Lender s Handbook, Chapter 8, Topic 5 Seller concessions include, but are not limited to, the following: payment of the buyer s VA funding fee prepayment of the buyer s property taxes and insurance gifts such as a television set or microwave oven payment of extra points to provide permanent interest rate buy downs provision of escrowed funds to provide temporary interest rate buy downs, and payoff of credit balances or judgments on behalf of the buyer. Seller concessions do not include payment of the buyer s closing costs, or payment of points as appropriate to the market. VA Allowable Fees - Lender s Handbook, Chapter 8 Example: If the market dictates an interest rate of 7½ percent with two discount points, the seller s payment of the two points would not be a seller concession. If the seller paid five points, three of these points would be considered a seller concession. Any seller concession or combination of concessions which exceeds 4% of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans. Normal discount points and payment of the buyer s closing costs do count in total concessions for determining whether concessions exceed the 4% limit. 25

26 VA Funding Fee VA Funding Fee Requirement Lender s Handbook, Chapter 8, Topic 8 The law requires that VA be paid a funding fee on guaranteed loans. The only exceptions are loans made to: Veterans receiving VA compensation for service-connected disabilities. Veterans who would be entitled to receive compensation if they were not receiving military retirement pay. Loans made to surviving spouses of veterans who died in service or from service-connected disabilities. Veterans whose entitlement is based on active duty will pay a 2.15% fee on their first VA loan and 3.30% on all future loans for the purchase of a home or cash-out refinances. Veterans whose entitlement is based on Guard/Reserve service will pay 2.40% on their first loan and 3.30% on all future loans for the purchase of a home or cash-out refinances. A down payment will reduce the amount of the funding fee (see chart on next page). The funding fee on VA Assumptions and Interest Rate Reduction Refinance Loans is currently 0.5%. This rate remains unchanged regardless of the number of times it is used. The funding fee may be financed into the loan amount (over and above the appraised value of the property). Continued on next page... 26

27 VA Funding Fee Continued Type of Veteran Down Payment Percentage for First Time Use Regular Military Reserves/ National Guard None 5% or more (up to 10%) 10% or more None 5% or more (up to 10%) 10% or more 2.15% 1.50% 1.25% 2.40% 1.75% 1.50% Percentage for Subsequent Use 3.30% * 1.50% 1.25% 3.30% * 1.75% 1.50% Cash-Out Refinancing Loans Type of Veteran Percentage for First Time Use Percentage for Subsequent Use Regular Military 2.15% 3.30% * Reserves/National Guard 2.40% 3.30% * *The higher subsequent use fee does not apply to these types of loans if the veteran s only prior use of entitlement was for a manufactured home loan. Type of Loan Interest Rate Reduction Refinancing Loans Manufactured Home Loans (NOT permanently affixed) Percentage for Either Type of Veteran Whether First Time or Subsequent Use.50% 1.00% Loan Assumptions.50% 27

28 Property Eligibility Eligible Properties Lender s Handbook, Chapter 10, Topic Existing Construction Single family or multi-family (up to four units) dwellings that: Have been fully completed for one year, or Have been previously owner occupied, and Meet VA Minimum Property Requirements (MPRs Lender s Handbook, Chapter 12) New Construction Property must be 100% complete or 100% complete through customer preference items (i.e. appliances, countertops, carpet installation). No compliance inspection is required. Newly constructed properties (completed less than one year and never owner-occupied) are eligible if either Covered by a one-year VA builder s warranty, Enrolled in a HUD-accepted ten-year insured protection plan, or Built by the veteran as the general contractor, for his/her own occupancy. Proposed or Under Construction (Currently Mortgage Solutions Financial does not offer Construction Loans) Property is eligible for appraisal prior to construction or during construction if Appraisal is based on proposed construction exhibits, and Builder must offer a one-year VA builder s warranty. Manufactured homes must be attached to a permanent foundation and be taxed as real estate. Note: VA accepts the construction inspections performed by the local authority. Refer to VA Circular , dated February 16, 2006, for complete details. Condos must be VA approved. The nationwide list of VA approved condominiums is located at 28

29 Properties Not Eligible For VA Loans Ineligible Properties Lender s Handbook, Chapter 10, Topic Does not meet Minimum Property Requirements (and cannot be made to comply) Located in Flood Hazard area where flood insurance is not available Located in the Coastal Barrier Resource System Proposed or new construction located in Airport Noise Zone 3 (high noise) Located in unapproved Condominium Developments (Condo). Condos must be VA approved. The nationwide list of VA approved condominiums is located at Cooperatives Note: The VA Minimum Property Requirements (MPRs) can be found in Chapter 12 of the VA Lender s Handbook. Questions about property eligibility (if not specifically addressed in the MPRs) should be directed to the Construction & Valuation section of the regional loan center having jurisdiction of the area where the property is located. 29

30 The Appraisal System - TAS The Appraisal System TAS TAS is Internet based, and accessed via Veteran s Information Portal (VIP). Appraisal assignments are based on the mailing address of the property, including the county name. In addition to obtaining VA case numbers and having appraisers assigned, lenders or brokers may check the status of appraisal requests and use the property address or veteran s name to search for a misplaced case number. Fee appraisers are able to access TAS to review and update their basic reference file information, such as mailing address, telephone numbers and address. They are also able to review information about their pending assignments (e.g. property address, VA case number, appraisal requester information and the current status of each assignment). Case numbers for Interest Rate Reduction Refinance Loans may be ordered TAS can be accessed at the following Internet address: See Appraisal Assignment on the next page for more details Continued on next page... 30

31 The Appraisal System TAS Continued Appraisal Assignments VA regional offices will assign appraisals only to fee appraisers whose professional ability and past performance warrant retention on the current roster of designated fee appraisers and who have been designated to appraise for VA in the area in which the property is situated. Favoritism or unfair discrimination in appraisal assignments is prohibited by Federal statute, which requires that assignments be made on a rotational basis. Lenders who request appraisals from VA may not circumvent this requirement. Requests for assignment of a particular appraiser cannot be honored. All requests for appraisal assignments must be ordered through VA s Information Portal on the Internet at Lenders encountering problems with appraisal assignments should contact us at or by . Requesters should become familiar with Chapter 10 of the Lenders Handbook prior to requesting an assignment. Automatic lenders may be approved for the Lender Appraisal Processing Procedure (LAPP). With LAPP, the lender s VAapproved Staff Appraisal Reviewer (SAR) may review the appraisal report and issue the Notice of Value. VA s new E- appraisal process allows the fee appraiser to upload appraisal reports to our Central Appraisal Management System where the SAR can view the appraisal. E-appraisal saves mailing time, paper, and eliminates the risk of lost reports. TAS can be accessed at the following Internet address: TAS User Guide Version

32 Energy Efficient Mortgages Energy Efficient Mortgages Lender s Handbook, Chapter 7, Topic 3 Energy Efficient Mortgages are loans for: The acquisition of an existing dwelling, and the cost of making energy efficiency improvements to the dwelling, Refinancing an existing VA loan with an IRRRL and including efficiency improvements, Energy efficiency improvements to a dwelling already owned and occupied by a veteran. The mortgage may be increased by: up to $3,000 based solely on the documented costs of the energy improvements; OR up to $6,000 provided the increase in the monthly mortgage payment does not exceed the likely reduction in monthly utility costs; OR more than $6,000 subject to a value determination by VA. VA will guarantee an energy efficient mortgage in the same proportion as a loan not including energy efficiency improvements. However, the charge to the veteran s entitlement will be based upon the loan amount before adding the cost of energy efficiency improvements. The funding fee must be calculated on the full loan amount, including the cost of the energy efficiency improvements. 32

33 Underwriting 33

34 CAIVRS What Is CAIVRS? Lender s Handbook, Chapter 4, Topic 6c CAIVRS is an acronym for Credit Alert Interactive Voice Response System. It is a HUD-maintained computer information system that enables lenders to learn if an applicant has previously defaulted on a federally-assisted loan from any of the following agencies: Department of Agriculture, Small Business Administration, Department of Education, HUD, and VA. The VA default information includes: Overpayments on education cases, Overpayments on disability benefits income, Claims paid due to home foreclosures CAIVRS screening is required on all applicants, including co-obligors and a non-purchasing spouse in community property states. For more information about how to access CAIVRS click the following link: Credit Alert Interactive Voice Response System Continued on next page... 34

35 CAIVRS Continued What If CAIVRS Shows A Debt? Lender s Handbook, Chapter 4, Topics 6d, e 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. 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. If the CAIVRS screening indicates an applicant (or co-obligor) is presently delinquent or has had a foreclosure or a claim paid on a loan made, guaranteed, or insured by a Federal agency, take the following actions: Step 1 Suspend processing of the loan application. Action 2 Contact the applicant or co-obligor for information regarding the loan default, foreclosure, or claim If a previous VA Loan is involved, the applicant may call to make arrangements to repay the debt 3 Contact the Federal agency that reported the applicant to CAIVRS if further information is needed Use the phone number provided by CAIVRS 35

36 Income Verification Income Verification Lender's Handbook, Chapter 4 Verify a minimum of two years of employment (including previous jobs, if needed). Only verified income can be considered in qualifying for a VA loan. Income of a spouse who will be obligated on the loan must also be verified, if needed. Acceptable verification of employment consists of the following: VA Form , Request for Verification Of Employment (VOE), or any format that obtains the same information. All Verifications of Employment must be originals. Note: It is acceptable for Department of Defense civilian employees to provide computer generated pay stubs accessed through E/MSS (Employee Member Self Service). An original or certified copy of the applicant s pay stub, when furnished by the employer, must be provided. The employment verification should be compared with the pay stub for consistency. Note: The VOE and pay stub must not be more than 120 days old (180 days for new construction) for loans closed on the automatic basis. Mortgage Solutions Financial does not accept Credit Docs older than 30 days which include but are not limited to; VOE and pay-stubs. Continued on next page... 36

37 Income Verification Continued Alternative Documentation Lender s Handbook, Chapter 4 Telephone verifications should be obtained and be similar in content to the employment verification form. Phone verification should show the person contacted, their position, phone number, and date contacted. Furnish the original pay stub(s) covering the most recent 30-day period together with W-2 forms for the previous 2 yrs. Note: If documents are questionable in authenticity or consistency, or if the employer is unwilling to provide a verbal verification, then a standard verification of employment is required. Alternative documentation can be used in conjunction with verification of employment forms to meet the two-year coverage. Additional Sources of Income Lender s Handbook, Chapter 4, Topics 2p,q,r Receipt of child support, alimony, or separate maintenance must be disclosed and verified to be considered when qualifying for the loan. In accordance with the Equal Credit Opportunity Act (ECOA), do not ask questions about the income of a spouse unless the spouse will be contractually liable or the applicant is relying on the spouse s income to qualify. In community property states, information concerning a non-purchasing spouse may be requested and considered in the same manner as for the applicant, even if the spouse will not be contractually obligated on the loan. Generally, income from a 2nd job should only be used after the applicant has 24 months experience of working two jobs. Continued on next page... 37

38 Income Verification Continued Additional Sources of Income, Continued Generally, income from overtime or part-time work is not considered reliable unless the applicant has received this income for 2 years. Overtime and part-time earnings that have been received for at least 1 year can be used to off-set intermediate term debts with less than 24 months remaining. Seasonal income may be used under special circumstances. It is important to document the past history and the likelihood it will continue. Income from Worker s Compensation, Foster Care, Public Assistance, Social Security, Alimony, and Child Support may be considered if they have been verified as consistently paid and are likely to continue. Public assistance programs and Social Security must continue for a minimum of 3 years from the date of closing to be counted. Note: Temporary income such as VA educational allowances and unemployment compensation do not represent stable and reliable income and as a general rule, are not to be considered as income. Income From Self-Employment Lender s Handbook, Chapter 4, Topic 2j Generally, income from self-employment may be used when the applicant has been self-employed for at least 2 years. Copies of the past two years business or individual tax returns must be provided. The current year-to-date profit & loss statement, and balance sheets are required. These exhibits can be prepared by the business or the veteran, if adequate information is provided. Normal business expenses that can be added-back to the net profit or bottom-line figures include depreciation, business interest, and amortization of organizational fees (corporations). Continued on next page... 38

39 Income Verification Continued Income From Self-Employment, Continued Business debts listing the name of a Sole Proprietor on a Schedule C must be counted against the veteran on the loan analysis. The same applies to partnerships filed on IRS Form Only corporate debts are exempt from the veteran s loan analysis. For partnerships and corporations, furnish a list of the primary owners and their percentage in the business. This can usually be found on the K-1 Forms for partnership and sub-chapter S corporations, or on the 1120 Form, Schedule E for standard corporations. Taxable Income listed on the bottom of a corporate tax return (IRS Form 1120) may be divided by the veteran s percentage of ownership and then used as additional income (subject to tax). Income From Commissions Lender s Handbook, Chapter 4, Topic 2i When all or a major portion of an applicant s income is from commissions, a verification exhibit is needed. It must show the year-to-date commissions, the basis for computing commissions, and how frequently commissions are paid to the applicant. Commission income can be considered stable after the applicant has received it for two years. The prior two years' income tax returns must be provided with W-2s and 1099-MISC Forms. These individual returns must be complete with all schedules, signatures and dates included. Continued on next page... 39

40 Income Verification Continued Rental Income Lender s Handbook, Chapter 4, Topic 2o Rental of an existing present residence is generally used to off-set the mortgage payment if there is a positive cash flow. A copy of the lease should be furnished. The debt should still be listed on the loan analysis, but shown as a rental offset. Rental Income from Property To Be Secured by VA Loan If the veteran is purchasing multi-family housing, the lender should obtain (1) documentation (education, prior experience, professional management contract, etc) supporting the likelihood of the veteran s success as a landlord, (2) copies of leases (if available), and (3) evidence of cash reserves equaling 6 months of mortgage payments. 75 percent of the anticipated rental income can be considered as qualifying income. All of the conditions must be met to include rental income as qualifying income. Active Military Income Verification Lender s Handbook, Chapter 4, Topic 2k An original or certified copy of the applicant's Leave and Earnings Statement (LES) is required. Note: The Department of Defense provides service members access to a computer generated LES through the E/MSS (Employee Member Self Service). This type of LES is acceptable. Service members who are within 12 months of release from active duty or the end of their contract term require additional information. Continued on next page... 40

41 Income Verification Continued Active Military Income Verification, Continued Lender s Handbook, Chapter4, Topic 2k Note: The ETS (Expiration of Term of Service) or EAOS (Expiration of Active Obligated Service) date can be found on the LES for enlisted personnel or on an officer s orders. If release will be within 12 months of the anticipated closing date, one of the following is required: Evidence that the applicant has already re-enlisted or extended his or her period of active duty to a date 12 months beyond the date of loan closing, OR Verification of a valid offer of local civilian employment, OR A statement from the service member that he/she intends to reenlist or extend his or her active duty to a date beyond the 12-month period. PLUS A statement from the applicant s commanding officer confirming that the applicant is eligible to reenlist or extend his or her active duty and has no reason to believe that such reenlistment or extension of active duty will not be granted. Note: Continuation of Military Allowances (flight pay, hazardous duty pay, etc.) must be determined to count as income. If continuation cannot be determined, these allowances may be used to offset short term debts (24 months or less). Continued on next page... 41

42 Income Verification Continued Can Employment of Less Than 12 Months Be Considered As Qualifying Income? (VA Lender s Handbook, Chapter 4, Topic 2) Generally, employment of less than 12 months duration is not considered stable and reliable. However, it may be considered stable and reliable if the individual facts warrant such a conclusion. Carefully consider: The employer s evaluation of the probability of continued employment (If provided). Whether the applicant s training and/or education equipped him or her with particular skills, which relate directly to the duties of his or her current position. Examples include nurse, medical technician, lawyer, paralegal, and computer systems analyst. Note: If the probability of continued employment is high based on these factors, then the lender may give favorable consideration to including the income in total effective income. 42

43 Assets What Amount Of Liquid Assets Are Required For a VA Loan? Lender s Handbook, Chapter 4, Topic 4a The lender should verify all liquid assets claimed by the applicant required for: Closing costs or points, which are the applicant s responsibility and are not financed in the loan. The difference between the sales price and the loan amount, if the sales price exceeds the reasonable value established by VA. Note: VA does not require the applicant to have additional cash to cover a certain number of mortgage payments, unplanned expenses, or other contingencies. Note: Mortgage Solutions Financial requires document as determined DU. 43

44 Debts and Obligations Debts and Obligations Lender s Handbook, Chapter 4, Topic 5 All significant debts and obligations of the applicant(s) must be verified and rated. The lender must obtain a credit report. Credit reports used in analyzing VA loans must be either: Three file Merged Credit Reports (MCR), OR Residential Mortgage Credit Reports (RMCR). For automatically closed loans, the date of the credit report must be within 120 days of the date the note is signed (180 days for new construction) Mortgage Solutions Financial: credit report must be within 120 days. For prior approval loans, the date of the credit report must be within 120 days of the date the application is received by VA (180 days for new construction). Mortgagee Solutions Financial: credit report must be within 120 days. What If Debts And Obligations Listed On The Loan Application Do Not Appear On The Credit Report? Lender s Handbook, Chapter 4, Topic 5a For obligations not included on the credit report, which are revealed on the application or through other means, you must obtain a verification of deposit showing the obligation or other written verification directly from the creditor. You must also separately verify accounts listed as will rate by mail only or need written authorization. When a pay stub or leave and earnings statement indicates an allotment being withheld, you must investigate the nature of the allotment to determine whether the allotment is related to a debt. Continued on next page... 44

45 Debts and Obligations Continued What If There Are Discrepancies Found On The Credit Report? Lender s Handbook, Chapter 4, Topic 5a Resolve All Discrepancies. If the credit report or deposit verification reveals significant debts or obligations, which were not divulged by the applicant, obtain clarification as to the status of such debts from the applicant, then verify any remaining discrepancies with the creditor. Equal Credit Opportunity Act (ECOA) Lender s Handbook, Chapter 4, Topic 5a The Equal Credit Opportunity Act (ECOA) prohibits requests for, or consideration of, credit information on a spouse who will not be contractually obligated on the loan except: If the applicant is relying on alimony, child support, or maintenance payments from the spouse (or former spouse), OR If the property is located in a community property state, VA requires consideration of the spouse s credit information (whether or not the spouse will be personally liable on the note and whether or not the applicant the spouse s income is considered). How Can The Lender Verify Alimony And Child Support Obligations? Lender s Handbook, Chapter 4, Topic 5b The payment amount on any alimony and/or child support obligation of the applicant(s) must be verified. This can usually be verified in the divorce decree. Payment often is noted on applicant s pay stub. Do not request documentation of applicant s divorce unless it is necessary to verify the amount of any alimony or child support liability indicated by the applicant. If, however, in the routine course of processing the loan, the lender encounters direct evidence (e.g., in the credit report) that a child support or alimony obligation exists, make any inquiries necessary to resolve discrepancies and obtain the appropriate verification. Continued on next page... 45

46 Debts and Obligations Continued Analysis Of Debts And Obligations Lender s Handbook, Chapter 4, Topic 5c Deduct significant debts and obligations from total effective income when determining ability to meet the mortgage payments. Significant debts and obligations include: Debts and obligations with a remaining term of 10 months or more, and Accounts with a term less than 10 months that require payments so large as to cause a severe impact on the family s resources for any period of time. What If A Married Veteran Wants To Obtain The Loan In His Or Her Name Only? Lender s Handbook, Chapter 4, Topic 5c If a married veteran wants to obtain the loan in his or her name only, the veteran may do so without regard to the spouse s debts and obligations in a non-community property state. However, in community property states the spouse s debts and obligations must be considered even if the veteran wishes to obtain the loan in his or her name only. Also, if debts are assigned to an ex-spouse by a divorce decree, they will not be charged against a veteran borrower. This includes debts that are now delinquent. The spouse must still be counted as a family member for residual income purposes unless income to exclude the spouse is documented. See Information Bulletin on the Houston RLC website for more information on loans in community property states. Continued on next page... 46

47 Debts and Obligations Continued Applicant As Co-Obligor On Another s Loan Lender s Handbook, Chapter 4, Topic 5d The applicant may have a contingent liability based on co-signing a loan. If there is evidence that the loan payments are being made by someone else, and there is no reason to believe that the applicant will have to participate in repayment of the loan, the lender may exclude the loan payments from the monthly obligations factored into the net effective income calculation in the loan analysis. Example: Applicant cosigned for his daughter s car; however, she is making the payments. Request copies of canceled checks. Likewise, if payments are being deducted from her pay, obtain copies of pay stubs. Compare the amount of deduction with the amount of the payment reflected on the credit report. Pending Sale Of Real Estate Lender s Handbook, Chapter 4, Topic 5e Sale proceeds from the applicant s current home may be necessary to: Pay off the outstanding mortgage or other obligations. Make a down payment. Pay closing costs. Obtain a copy of the sales contract and any applicable information that provides a reasonable basis for concluding the equity that will be realized from the sale will be sufficient. Verification that the sale has closed should be obtained as part of the lender s file documentation. 47