U.S. Bank Home Mortgage VA Presentation This material is not to be reproduced without the approval of U.S. Bank Corporate Compliance. The information is provided to assist Mortgage Brokers and is not intended to extend credit as defined by section 226.2 of Reg Z. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Visit usbank.com to learn more about U.S. Bank products and services. Mortgage and Home Equity products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association, Member FDIC. 2015 U.S. Bank MMWR54772
Table of Contents Topic: Page: Topic: Page: Benefits of VA...3 VA Vocabulary...4-5 Occupancy...6 VA Eligibility...7-8 Borrower Eligibility...9 Property Eligibility...10 Appraisal Information...11 Minimum Property Standards...12 Anti-Flipping Regulations...13 USBHM VA Programs...14 Underwriting...15 VA Loan Limits...16 Borrower Investment...17 VA Refinances...18 IRRRL State Restrictions...19 VA Funding Fee...20-21 Credit...22 Cash to Close...23 Closing Costs...24 Employment...25-26 Debt Ratio...27 Residual Income...28-29 Compensating Factors...30 VA Forms...31 VA Resources...32 2
Benefits of VA Seller can pay 100% of all closing costs and also contribute up to another 4% to assist the veteran in qualifying. Seller can pay the funding fee in full, paying off the veteran s debts, even a judgment clouding the title, and other items such as pre-paids. Zero down or limited down payment program for Military Service Veterans and currently active Military Service personnel or the surviving spouses of the Veterans with VA loan eligibility. Eliminates the need for Mortgage Insurance. Non-borrowing spouses are acceptable Homestead/Dower Rights must be released. (check local/state guidelines for requirements) 100% Gift funds are allowed. Bankruptcy: Chapter 7 must be discharged for at least two (2) years. Chapter 13 if the applicant has satisfactorily made at least 12 months worth of payments and the Trustee or the Bankruptcy Judge approves of the new credit, we may give favorable consideration. 3
VA Vocabulary CAIVRS Credit Alert Interactive Verification. COE Certificate of Eligibility. Entitlement A veteran s benefit which guarantees their VA loan. Their amount of entitlement is shown on their COE. IRRRL Interest Rate Reduction Refinance Loan. Loan Guaranty The entitlement shown on the COE is used to guaranty a minimum of 25% of the loan balance in the event of default. NOV Notice of Value. 4
VA Vocabulary (cont d) Residual Income The amount of net income remaining (after deduction of state and federal income tax, social security, monthly debts, child care, new mortgage payment, maintenance and utilities. SAR Staff Appraisal Reviewer. TAS - The Appraisal System. The VA case number and appraisal must be ordered through TAS. The processing centers complete this process. VA Funding Fee VA charges a funding fee on all veteran loans. This fee may be financed into the loan amount. Some veterans who receive disability payments are exempt from this fee. VIP Veterans Information Portal. This website is used to retrieve various information regarding VA loan processing including the COE. 5
Occupancy The law requires the veteran obtaining a VA loan to certify that he or she intends to personally occupy the property as his or her home. As of the date of certification, the veteran must either: Personally live in the property as his or her home, or family member for Veterans on Active Duty Intend, upon completion of the loan and acquisition of the dwelling, to personally move into the property and use it as his or her home within a reasonable time. The above requirement applies to all types of VA guaranteed loans except Interest Rate Reduction Refinancing Loans (IRRRLs). For IRRRLs, the veteran need only certify that he or she previously occupied the property as his or her home. 6
VA 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. A veteran is eligible for VA home loan benefits if he or she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard after September 15, 1940, and was discharged under conditions other than dishonorable after either: 90 days or more, any part of which occurred during wartime or 181 continuous days or more (peacetime) 7
VA Eligibility (cont d) Two 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)> Note: Cases involving other than honorable discharges will usually require further evaluation by VA. This is necessary to determine if the service was under other than dishonorable conditions. The VA loan application needs to be approved by the VA office for those who are not honorably discharged. 8
Borrower Eligibility Co-Borrowers Allowed if spouse of the veteran Allowed if co-mortgagor is also a veteran Must be on the Note Must consider all income and debt Down payment could be required to assure sufficient guaranty Non married (veteran and non-veteran) borrowers or 2 veterans /active service personnel borrowers, called a Joint Loan, must be underwritten by VA Non-Borrowing Spouse Acceptable on Purchase Money Mortgages. Homestead and Dower Rights must be released 9
Property Eligibility One Unit Primary 2-4 Unit Owner Occupied PUD & Condo Condo project must be VA approved Must have the Homeowners in control of the Association Manufactured Housing is not an eligible property type Seasoning of recently listed properties: Refinance loans of all types on subject properties that have been listed for sale by the current owner within 90 days of the loan application are unacceptable to USBHM. 10
Appraisal Information Appraiser must certify the property complies with VA minimum property requirements. Utilize VA LAPP procedures whenever possible. Full URAR with Market Conditions Addendum is required. For VA loan guaranty purposes, the reasonable value of a property is that figure which represents the amount a reputable and qualified appraiser, unaffected by personal interest, bias, or prejudice, would recommend to a prospective purchaser as a proper price or cost in the light of prevailing conditions. VA considers reasonable value and market value to be synonymous. VA s definition of market value is consistent with that used by Fannie Mae, Freddie Mac, and major appraisal organizations. 11
Minimum Property Standards Property must be in at least average condition. Fee appraisers are experienced observers who must view both the interior and exterior of the subject property to: Determine its overall condition. Recommend any readily observable repairs necessary to make it meet VA Minimum Property Requirements (MPRs) stated in chapter 12 of the VA Handbook. The MPRs provide a basis of determining that the property is safe, structurally sound and sanitary, and meets the standards considered desirable in a permanent home in its locality. 12
Anti-Flipping Regulations Purchase Transactions: The property seller must have taken title to the subject property more than 90 days prior to the contract date on the sale of the property to the applicant. Property sales involving any of the following entities as property seller are exempt from these requirements: U.S. Bank or affiliate, HUD, VA, USDA/FmHA (United States Department of Agriculture/Farmers Home Administration), FHLMC (Freddie Mac, any approved Delegated Correspondent, Owners as a result of inheritance to include divorce. Cash Out Refinance Transactions: The applicant must have taken title to the subject property more than 180 days prior to the loan application date. A new appraisal will be required. Owners as a result of inheritance or Divorce are exempt from these requirements. Evidence of required seasoning must be submitted in the Underwriting file. 13
USBHM VA Programs 2001, VA Fixed rate 30 Year 2002, VA Fixed 15 Years 2024, 5/1 ARM 2.0 Margin Purchase Interest Rate Reduction Refinance Loan (IRRRL) Cash Out Refinance 14
Underwriting Lenders with VA Automatic Lender authority who have been approved by USBHM for delegated underwriting may underwrite. All other lenders who have current sponsorship through USBHM may submit loans to their assigned USBHM Underwriting Center or directly to their local VA office. Underwriting is based on the more restrictive of VA Guidelines or USBHM VA underwriting guidelines on our website. Refer to the VA Practical guide on AllRegs for funding fee, maximum guaranty tables and forms for calculating maximum loan amount and funding fee. USBHM requires all Certificates of Eligibility to be updated when issued more than 12 months prior to the date of application and VA highly recommends this. 15
VA Loan Limits Purchase Maximum loan amounts for High Cost County limit can be found at http://www.homeloans.va.gov/loan_limits.htm The maximum loan amount for all counties other than those in high cost counties is $417,000. USBHM has set maximum mortgage amounts with guaranty/entitlement and cash down payment: USBHM requires a total 25% guaranty amount on all VA loans. This can be a combination of guaranty, cash and equity. The cash amounts at the higher loan amounts may be more restrictive All IRRRLs have an automatic 25% coverage. Entitlement does not come into play. Regular Refinance (cash out) USBHM maximum allowed loan amount is 100% of value. 16
Borrowers Investment No minimum borrower cash investment is required on a VA loan. The veteran must invest 25% of the lesser of the sales price or appraised value on a purchase transaction, in entitlement or a down payment would be required. The loan amount can only exceed the VA appraised value of the subject property as indicated on the Certificate of Reasonable Value issued by the VA by the amount of the funding fee, if the funding fee is financed. Certificates of eligibility must be updated when issued or last updated more than 12 months prior to the date of application or at underwriter s request. 17
VA Refinances Interest Rate Reduction Refinance Loan (IRRRL) Must be an existing VA Guaranteed Mortgage with no delinquency; no other liens or debts may be paid from the proceeds A fully completed Uniform Residential Loan Application is required Financing the discount points (max 2%), pre-paids, Funding Fee and allowable closing costs along with the payoff and clear CAIVRS is allowed Veteran must sign/date Rate/Term Comparison form. Interest Rate and payment must both be reduced Regular Refinance (cash out) Maximum loan amount is 100% of the appraised value 18
IRRRL State Restrictions Additional requirements for loans not currently serviced by USBHM: Minimum FICO required (see page 22) Investment properties and Second Homes are not allowed (only allowed if they are USB to USB transactions) 0 X 30 days delinquency in the last 12 months on the existing mortgage The maximum LTV will be restricted to 100% of the new appraisal exclusive of the VA Funding Fee. 19
VA Funding Fee All VA loans require a Funding Fee. The fee varies based on loan type, usage, and whether the borrower is a Veteran or Reservist. Funding Fee can be financed on loan amounts not exceeding the county limit Funding Fee can be paid in cash by Seller or Veteran or Premium pricing Funding Fee can not be partially financed and partially paid in cash For additional information see VA Lenders Handbook Chapter 8 and Circular 26-03-09 20
VA Funding Fee Table Purchase or Construction Down Payment Percentage for First Time Use Percentage for Subsequent Use Regular Military Reserves/ National Guard Cash Out Refinance Loans 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% 3.30% 1.50% 1.25% 3.30% 1.75% 1.50% Regular Military 2.15% 3.30% Reserves/National Guard 2.40% 3.30% Type of Loan Interest Rate Reduction Refinance Loans (IRRRL) Percentage for either type of Veteran Whether First Time or Subsequent Use.50% Loan Assumptions.50% 21
Credit LP/DU Approved & IRRRL loans serviced by USBHM: Use tri-bureau merged FICO score regardless of the number of trade lines evaluated (middle of three, lower of two or single FICO if only one is issued. Manually Underwritten Loans: The minimum FICO score must be based upon a tribureau merged credit report and be considered a valid score. USBHM considers a valid score to be based upon a minimum of 3 trade lines evaluated of 12 months or more. All borrowers must meet minimum FICO score requirements. Minimum 640 FICO Score if loan amount <= $417,000 Minimum 660 FICO Score for loan amounts from $417,001 - $650,000 Minimum 680 FICO Score for loan amounts from $650,001 - $1,000,000 IRRRL of existing USBHM mortgages: Minimum FICO score 640 up to $417,000, 680 up to $650,000, 700 up to $1,000,000 IRRRL of an existing loan not owned by USBHM: Minimum FICO score 660 up to $417,000, 680 up to $650,000, 700 up to $1,000,000 22
Cash to Close The applicant or spouse must have sufficient cash to cover: Any closing costs or points which are the applicant s responsibility and are not financed in the loan The down payment, if required Borrower s own funds Gift from relative Must provide acceptable gift letter standard documentation to evidence withdrawal from donor and transfer to borrower Sellers contributions up to 4% (closing cost are not included in this calculation) The maximum cash on hand that is acceptable to USBHM is $2,000 23
Closing Costs Veteran Can Pay Veteran Cannot Pay 1% Origination USBHM Commitment Fee Credit Report Escrow Fees Appraisal Attorney Fees Title Policy Underwriting Fee Funding Fee Processing Fee Recording Fee Tax Service Fee 3 Inspections (new construction) Wire Fees Home Warranty Fee Re-conveyance Fee CLTA (if customary) Escrow for Repairs Pre-Paids / Impounds Actual Costs Flood Service Fees Survey 24
Employment Only verified income can be considered in total effective income Verify and treat the income of a spouse who will be contractually obligated on the loan the same as the veteran s income If it is reasonable to conclude that other types of income will continue in the foreseeable future, include it in effective income. Otherwise consider whether it is reasonable to use the income to offset obligations of 10-24 months duration Pension or other retirement benefits Disability income Dividends from stocks Interest from bonds, savings accounts, others Royalties 25
Employment (cont d) Self Employed Individual Income Tax Returns for the previous two years If the most recent tax return has not been prepared, provide a profit and loss statement for that year If business is a corporation or partnership provide copies of signed federal business tax returns for two years plus all schedules Do not include temporary income items such as VA educational allowances and unemployment compensation* in effective income * If unemployment compensation is a regular part of the applicant s income due to the nature of his or her employment ( for example, seasonal work), it may be included 26
Debt Ratio 41% Ratios may exceed 41% with compensating factors (such as must high residual income). With LP Accept or DU Approve, the ratio may be exceeded. Maintenance and Utility fees must be added to new housing payment. The charge is.14 per square foot of subject property. 27
Residual Income Residual Income is the amount of net income remaining after deduction of debts and obligations and monthly shelter expenses to cover family living expenses such as food, health care, clothing, and gasoline. Count all members of the household (without regard to the nature of the relationship) when determining family size. Table of Residual Income by Region For loan amounts of $79,900 and below Family Size Northeast Midwest South West 1 $390 $382 $382 $425 2 $654 $641 $641 $713 3 $788 $772 $772 $859 4 $888 $868 $868 $967 5 $921 $902 $902 $1,004 Over 5 Add $75 for each additional member up to a family of 7 28
Residual Income (cont d) Table of Residual Income by Region For loan amounts of $80,000 and above Family Size Northeast Midwest South West 1 $450 $441 $441 $491 2 $755 $738 $738 $823 3 $909 $889 $889 $990 4 $1,025 $1,003 $1,003 $1,117 5 $1,062 $1,039 $1,039 $1,158 Over 5 Add $80 for each additional member up to a family of 7. Northeast - CT, ME, MA, NH, NJ, NY, PA, RI, VT Midwest IL, IN, IA, KS, MI, MN, MO, NE, ND, OH, SD, WI South AL, AR, DE, DC, FL, GA, KY, LA, MD, MS, NC, OK, PR, SC, TN, TX, VA, WV West AK, AZ, CA, CO, HI, ID, MT, NV, NM, OR, UT, WA, WY 29
Compensating Factors Excellent credit history Conservative use of consumer credit Minimal consumer credit Long term employment Significant liquid assets Sizable down payment The evidence of equity in refinancing loans Little or no increase in housing expense Military benefits Satisfactory homeowner experience High residual income Tax credit for child care and tax benefits of home ownership 30
VA Forms HUD/VA Addendum to URLA Notice to Veterans; Assumption Notice VA Lenders Certification Amendatory Clause, if not in purchase agreement Federal Collection Policy Notice Only when VA Addendum to URLA not executed Counseling Checklist for Military Homebuyers 26-893 Related Indebtedness Form only with Yes answered to 4 specific questions Updated Certificate of Eligibility Certificate of Reservist and National Guard Duty Clear CAIVRS All borrowers (required on all VA loan types) Origination Statement (Itemizing the Origination charges) Debt Questionnaire (required only when VA Addendum to URLA not executed) Nearest Living Relative requirement Child Care Expense Statement Consent Form IRRRL Worksheet If Veteran does not have a Certificate of Eligibility or needs one updated, the following will need to be completed and submitted: VA Form 26-1880 and DD214 31
VA Resources USBHM Website: https://sellus.usbank.com VA Website: www.homeloans.va.gov Certificate of Eligibility: www.vip.vba.va.gov High Cost Counties http://homeloans.va.gov/doc/2010_county_loan_limits.pdf 32
Thank You Contact your Wholesale/Correspondent Account Executive This material is not to be reproduced without the approval of U.S. Bank Corporate Compliance. The information is provided to assist Mortgage Brokers and is not intended to extend credit as defined by section 226.2 of Reg Z. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Visit usbank.com to learn more about U.S. Bank products and services. Mortgage and Home Equity products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association, Member FDIC. 2014 U.S. Bank MMWR54772