Program Summary Loan Term & Program Category Entitlement These guidelines represent underwriting requirements for VA fixed rate mortgages. Also review the VA Lender s Handbook for any guidelines not specifically addressed herein. Loan Term Program Name 30 Year Fixed Rate VA Fixed 30 15 Year Fixed Rate VA Fixed 15 30 Year Fixed Rate IRRRL VA IRRRL 30 The veteran must provide a Certificate of Eligibility evidencing sufficient entitlement for VA loan purposes. The maximum entitlement available to any veteran is $104,250 up to a loan amount of $417,000. A veteran s available entitlement may be less if the veteran has previously used the entitlement and it has not been restored. Review the Certificate of Eligibility carefully to determine the amount of entitlement available. Guaranty Service Eligibility Proof of Service The amount of guaranty on VA loans must be at least 25 percent of the purchase price or appraised value, whichever is less, on purchase and new construction loans as well as for cash out refinances. This is exclusive of the funding fee (on refinances, the amount must be 25 percent of the new loan). Refer to the VA Lender s Handbook, Chapter 2 - Veteran s Eligibility and Entitlement for service eligibility requirements. Refer to the VA Lender s Handbook, Chapter 2 - Veteran s Eligibility and Entitlement for specific minimum length of service requirements. Transaction Type Purchase Rate/Term Refinance Cash-out Refinance Interest Rate Reduction Refinance Regular Refinance Regular refinances allow for the payoff of existing liens and any other outstanding debts, and are limited to a LTV of 90%. Loan amounts over $144,000 will require cash or equity in addition to the Veteran s entitlement to meet the minimum 25% guaranty requirement. The CLTV is calculated on the base loan amount (excluding the VAFF plus the cost of any energy efficiency improvements), and is capped at 100% on all refinance transaction types. Refer to the Entitlement section of this program highlight and the VA Lender s Handbook, Chapter 6 Refinancing Loans for further details. 01/16/14 Page 1 of 6
Interest Rate Reduction Refinance (IRRRL) Guidelines Streamline refinancing (Interest Rate Reduction Refinance, IRRRL) is permitted, where only the first existing VA lien is refinanced, subject to: A credit score is required, and all borrowers must have a minimum credit score of 640. IRRRL s are not to be run through an AUS system, and are to be manually underwritten. Credit qualifying: No ratios calculated but minimum credit score and payment history requirements must be met. Signed 4506T required at closing Credit report required validating credit score Verbal VOE required. Any junior lien must be subordinated to the new VA loan. The LTV/CLTV cannot exceed 100%. Refer to the Maximum Loan Amount section for details regarding loan limits The veteran may not receive cash back. The loan amount is limited to the existing VA loan balance plus allowable closing costs (including up to 2 discount points), the cost of any energy efficiency improvements, and the funding fee. A current mortgage payment history which reflects 0 x 30 in the last 12 months. If the loan is seasoned less than 12 months, the mortgage payment history must show no 30-day or greater mortgage lates since the inception of the loan and no 30-day or greater mortgage lates for any other first mortgage loans associated with the property in the most recent 12 months. The loan term is limited to the existing VA loan term plus 10 years not to exceed 30 years and 32 days. Owner occupied transactions only. Minimum six months payment history on current loan Minimum of a 2055 exterior appraisal is required. For properties with more than one unit a full appraisal is required. The interest rate must be lower than the rate on the existing VA loan (unless refinancing an ARM to a fixed rate). The principal and interest payment on an IRRRL must be less than the principal and interest payment on the loan being refinanced unless one of the following exceptions applies: 1. The term of the IRRRL is shorter than the term of the loan being refinanced, OR; 2. Energy efficient improvements are included in the IRRRL. A significant increase in the veteran s monthly payment may only occur with any of the exceptions, particularly when combined with one or more of the following: 1. Financing of closing costs 2. Financing of up to 2 discount points 3. Financing of the funding fee, and/or 01/16/14 Page 2 of 6
Interest Rate Reduction Refinance (IRRRL) Guidelines (continued) Occupancy If the monthly payment increases by twenty percent (20% or more), the veteran must be credit qualified for the new payment AND the file must include a certification that the veteran qualifies for the new monthly payment, which exceeds the previous payment by > 20%. The Veteran must certify that he or she intends to personally occupy the property as his or her home. The veteran must certify to current or previous occupancy on the Veteran Occupancy Cert. (152ST). Documentation Full/Alt Documentation Refer to the VA Lender s Handbook, Chapter 4, Credit Underwriting for additional details. Maximum Loan Amount The county limits in the link below must be used to calculate VA s maximum guaranty amount for a particular county. These limits apply to all loans closed January 1, 2014 through December 31, 2014. If a county is not listed the maximum loan amount is $417,000. The maximum loan amount cannot exceed the lesser of the VA 2014 county loan limit or the Notice of Value (NOV). VA 2014 County Loan Limits The maximum loan amount that may be guaranteed is limited to the lesser of the sales price or the amount shown on the Certificate of Reasonable Value (CRV). Loan limits are inclusive of any financed VA Funding Fee. Please refer to the VA Lender s Handbook, Chapter 3 - The VA Loan and Guaranty and Chapter 6 Refinancing Loans for exceptions to the maximum loan amount. Eligible Properties Geographic Restrictions 1-4 unit attached and detached SFRs Attached and detached Condos, PUDs In addition to the above restrictions, eligible properties are limited to those states where the company is currently authorized to originate loans. Illinois Land Trusts are not eligible Georgia Power Leaseholds are not eligible Properties in the state of Massachusetts are not eligible Ineligible Properties Manufactured Homes Cooperatives Leaseholds 01/16/14 Page 3 of 6
Project Approval Maximum Financed Properties Automated Underwriting Systems (AUS) Credit Credit Score Condominiums must be approved by VA. Lists of approved condominiums may be accessed via the internet at http://condopudbuilder.vba.va.gov. Also refer to the VA Lender s Handbook, Chapter 16 Common Interest Communities, Condominiums and Planned Unit Development for additional information and requirements. Note: VA PUD approvals have been eliminated. Acceptable title (title which meets VA requirements for such property) AND a superior VA lien (HOA assessments are subordinate to VA mortgage liens) must be obtained. A maximum of four financed properties is allowed including the subject transaction. Desktop Underwriter (DU) automated underwriting systems is acceptable for underwriting VA loans. Loans must be run through AUS and the findings included in the case binder. Only DU Approve/Eligible loans are acceptable. No manual underwriting allowed except on VA IRRRL which must be underwritten manually. Must meet VA credit standards and underwriting guidelines. Collection and charge off of accounts that total more than $5,000 must be paid prior to closing even if AUS processed and approved. Judgments must be paid. Non-traditional Credit is not permitted. A credit score is required. The following are the minimum Credit Score requirements for all borrowers: Purchase and Refinance 640 A full credit report is required validating credit score. Mortgage/Rent History Mortgage History: Maximum 1x30 in the last twelve months. Verification of rental payment history is not required 4506T An executed 4506T is required at application and again at closing. Foreclosure Qualifying Ratios A previous foreclosure action or deed-in-lieu of foreclosure in the past two (2) years can make the applicant ineligible for any insured or guaranteed mortgage unless the action was caused by certain circumstances beyond his or her control. (i.e., loss of an industry or cutbacks in the community, unemployment, prolonged strikes, medical bills not covered by insurance, and so on, and the circumstances are verified.) Divorce is not generally viewed as beyond the control of the borrower and/or spouse. 41% Qualify at the Note rate. Refer to the VA Lender s Handbook, Chapter 4 Credit Underwriting for special procedures if ratio exceeds 41% 01/16/14 Page 4 of 6
Residual Income The veteran must meet the residual income requirement based on family size, loan amount, and region. Refer to the VA Lender s Handbook, Chapter 4 Credit Underwriting and review the table for Residual Income Requirements. Reserves As determined by AUS for 1 unit properties. If using rental income on 2-4 units, 6 months PITI required. Down Payment Loan amounts in excess of the current conforming loan limit will require a cash down payment and/or equity in addition to the Veteran s entitlement in order to meet the 25% guaranty requirement. The cash down payment must also include the amount, if any, by which the purchase price exceeds the CRV. Loan originated in conjunction with Down Payment Assistance programs (DAP) are allowed provided that: The DAP meets all published requirements of VA and the loan is not subject to any terms or conditions of a bond program and The DAP does not restrict the transfer of servicing rights of the first Mortgage Loan. In addition, it may not require prior notification or approval from the sponsoring authority in the event of the transfer of the first mortgage s servicing rights. Borrower Fees and Charges Closing Costs Refer to the VA Lenders Handbook, Chapter 8 Borrower Fees and Charges and The VA Funding Fee for allowable borrower fees and charges. 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. Refer to the VA Lenders Handbook, Chapter 8 Borrower Fees and Charges and The VA Funding Fee for allowable borrower fees and charges. 01/16/14 Page 5 of 6
Interested Party Contributions Any concession or combination of concessions which exceeds 4% of the established reasonable value of the property is considered excessive for VA loan purposes. Examples of concessions include the payment of: The veteran s funding fee Discount points exceeding market pricing Note: Discount points appropriate to the market and payment of the veteran s closing costs will not be considered a concession for purposes of determining if the total concessions are within the 4% limit. Extra discount points for permanent interest rate buy downs Prepaid taxes and insurance The seller or any other interested party, without limitation, may pay nonrecurring closing costs. Subordinate Financing Secondary financing is permitted subject to the requirements listed in the VA Lender s Handbook, Chapter 9 Legal Instruments, Liens, Escrows and Related Issues. The CLTV/TLTV is capped at 100% for purchase calculated inclusive of the VAFF and is capped at 105% for cash out and rate and term refinances calculated inclusive of the VAFF. Assumability Escrow Holdbacks Temporary Buydowns VA Funding Fee Loans are assumable subject to the lender s review and approval of the credit application for the new mortgagor. Not allowed. Not allowed. The VA Funding Fee applicable to a VA loan is based on the usage (i.e., first use or reuse of entitlement). Refer to the VA Lenders Handbook, Chapter 8 Borrower Fees and Charges and The VA Funding Fee for allowable borrower fees and charges. 01/16/14 Page 6 of 6