VA Lending Basic Training Brought to you by: Quicken Loans Mortgage Services Q-University October 19, 2011 February 2014 1
What You will learn Today The Facts and Benefits Of VA Who is Eligible for VA Loans How to Structure VA Loans Qualification Parameters The You Do/We Do 2
Top 10 VA MyThs DebunkeD $ 3
The Benefits of VA Loans What is it? What s the Opportunity? What are the Benefits? How Does it Compare? Product Options? 4
What is a VA Guaranteed Loan? Guarantee means the lender is protected against loss in the event of a foreclosure, and replaces the protection the lender normally receives by requiring a down payment and/or PMI allowing the veteran to obtain favorable financing terms. VA charges a Funding Fee to pay for this insurance. 5
What are the Benefits of VA? Zero Down Purchases No Monthly Mortgage Insurance Lowest Monthly Payment No Prepayment Penalties The Mortgage is Assumable Competitive Interest Rates & Closing Fees 100% LTV on Rate and Term Refinances 90% Cash out Refinances Credit Scores as low as 620 DTI up to 60% with Approve Eligible Findings Fixed rate only If FICO score is < 640 and LTV > 95%, DTI is capped at 45% 6
Product Comparison VA FHA Agency Loan Scenario: $200,000 Loan Amount 30 Year Fixed Purchase 4% Interest Rate Funding Fee* for a 100% Purchase with Subsequent Use. Max LTV 100% 96.5% 95% (min 680 FICO score) Max Base Loan Amount $200,000 $193,000 $190,000 Upfront Mortgage Insurance $6,600 (3.3% funding fee*) $3377.00 (1.75% UFMIP) Max Total Loan Amount $206,600 $196,377 $190,000 Monthly MI $0 $217.13 $207.42 $0 $168.32 cheaper to go VA than FHA Total Payment $986.34 $1,154.66 $1,114.51 Sir, Yes, sir! VA has the Lowest Monthly Payment! 7
VA Loan Programs Terms available: Fixed: 15, 20, 25 and 30 year ARM: 5/1 ARM Also available: VA Jumbo: 15, 25 and 30 year + 5/1 ARM 8
Who Is Eligible for VA Loans? Who s VA Eligible? Who is VA IRRRL Eligible? What are the Guidelines and Qualifications for VA Loans? 9
Who is eligible For VA? An eligible veteran is a person who: Served in the military (Active Duty, Reserves, or National Guard) Served with acceptable character of service, or Is the unmarried spouse of a deceased veteran who died while in service or of service connected issues. Reserves/National Wartime Active Duty Guard Service 90 Days 6 Years 90 days A veteran who has served less than the minimum required period of service or was discharged because of a service-connected disability, may still be eligible. 10
Who is eligible for VA IRRRL? IRRRL Interest Rate Reduction Refinance Loan What Is it? A VA loan program where a veteran refinances an existing VA loan. What are the Benefits of an IRRRL? 11 Requires less documentation Lower VA Funding Fee (only.5%) Quicker Turn Times Conventional appraisal required except for Quicken to Quicken refinances (loan must be currently serviced by Quicken) General Rule: All clients on the previous loan must be on the new loan
VA Loan Specific Requirements Only Veteran and Spouse may be on loan and title No non-owner occupied borrowers allowed Co-borrower must be married to Veteran Same Sex marriages are now allowed in certain states. VA must approve prior to submission to underwriting. Must count child care for children < 12 years old in debt ratio Residual Income calculations used in qualification, along with debt ratio calculations Condos and Builders must be on VA approved list https://vip.vba.va.gov/portal/vbah/vbahome/condopudsearch OR https://entp.hud.gov/idapp/html/condlook.cfm 12
Qualification Details No Housing Ratio Calculation Max Debt Ratio Up to 60% with Approve/Eligible Findings 45% on ARMS 620 Minimum Credit Score Max 1x30 mortgage/rent history in past 12 months Max 45% Refer/Manual 640 Minimum Credit Score 0x30 mortgage/rent history in last 12 months Max 2x30 in last 12 months on revolving/installment debt 2 months reserves required 13
How to Structure a VA Loan What are the Key Questions to Ask? How do you Price? Compensation? What does the 1003 Look Like? How Do I Calculate Funding Fee/Entitlement? Fees & GFE Preparation 14
Other Key Questions VA qualification Who will be occupying the property at close? If active duty, spouse can satisfy occupancy requirements Who will be on title? Only spouse can be co-client or added to title What s the name, address, telephone # of the nearest living relative outside of the home? If condo, what is the condo project name? (Must be on approved VA list) If new construction, builder must be on the VA approved list 15
How do you calculate the VA Funding Fee? To determine Funding Fee, the following factors will apply: Type of Service (Regular duty or Reserves/National Guard) Down Payment amount First time or Subsequent Use Veteran receiving VA Related Disability and Surviving Spouses May be eligible for exemption of Funding Fee (Funding Fee = 0%) 16
Key Questions for funding fee What is your military branch of service? What is your service type? Are you currently receiving, eligible to receive or have previously received VA disability? Yes/ No (If yes, then exempt from Funding Fee.) Have you ever had a VA loan? What is your military status? Is your current loan a VA loan? (IRRRL has Reduced Funding Fee of.50%) 17
VA Funding Fee CHART 18
Veterans Can Use the VA Home Loan Benefit Multiple Times! Here s how it works: VA provides each qualified Veteran with at least $104,250 in entitlement and extra entitlement in select high cost counties. Entitlement has a 25% rule you have to have 25% of the loan amount in entitlement to guarantee the loan. When a Veteran obtains a VA loan, a portion of the entitlement is charged to the loan as a guaranty to the lender in the event of default 19
How to calculate entitlement Entitlement Examples Full Entitlement Reduced Entitlement High Cost County (Camden, NJ) Non-High cost County Loan Amount $200,000 $200,000 $940,000 $940,000 Value $200,000 $200,000 $940,000 $940,000 Entitlement Available Entitlement Required Equity or Down payment needed Max Loan Amount $104,250 $25,000 $235,000 $104,250 $50,000 $50,000 $235,000 $235,000 $0 $25,000 $0 $130,750 $200,000 $175,000 $940,000 $809,250 All qualified Veterans start out with: $36,000 in basic entitlement; and $68,250 in bonus entitlement or $120,375 bonus in AK and HI Extra entitlement for high cost counties available to county limit (see chart in GURU) Note: Bonus entitlement can only be applied to loan amounts > $144,000 The math: $104,250 in entitlement x 25% = $417,000 20
Pricing a VA Loan 21
How You Earn Your compensation Client Paid Compensation (Direct) VA mandates that total origination charges not exceed 1%. This includes percentage based and flat fees (i.e. loan application or processing fees) Lender Paid Compensation Must choose a rate that produces a rate premium that is AT OR ABOVE your pre-determined compensation plan with QLMS. QLMS charges NO ($0)underwriting fees for VA loans 22
Closing Costs *Non-allowable Costs: **Allowable Costs: Administration Underwriting Processing Tax service Courier/mail fees, etc. Attorney services that are other than for title work Must be on title exam line on HUD-1 *Non-allowable costs may be paid by Lender or Seller. Origination (1% max) Discount Appraisal Credit report Title search (Title Exam) Title insurance Recording fees Survey ** Allowable Costs may be paid by veteran/borrower. Lender Paid Compensation = You can make your Broker Comp up to 3% 23
GFE Example 24
The Process Of a VA Loan at QLMS Who Does What? The You Do/We Do and The Things We Need From You (TTWNFY) 25
What we Do for your client QLMS will issue the Things We Need From You and Post Required Disclosures QLMS will access from the Automated Certificate of Eligibility (ACE) System If unable to obtain, your CCS will reach out for assistance QLMS will ensure VA Appraisal is Ordered Do not order an appraisal through the VA site! This will be considered an appraisal transfer with additional documentation required We will perform all the Vendor Management Services (HOI, VOE s, Payoffs, etc.) QLMS will Underwrite and Condition the File QLMS will send Funding Fee and application for Guarantee after loan closing 26
Your part - What You do Complete the 1003 and Register Gather The Things We Need from You HUD VA Addendum to URLA QLMS Mortgage Broker Fee Agreement VA Child Care Expense Statement (If Applicable) VA Loan Disclosures and Certifications VA Amendment to Purchase Contract (If Applicable) Help with COE if needed (obtain DD214 or other documentation from client) Manage the lock process Initiate Appraisal Order on Lender Portal Send Conditions Set Closing Time with Veteran 27
What evidence is needed to get the COE? If Quicken is unable to obtain the client s Certificate of Eligibility (COE) from VA s automated site, we will require one of the following: Veteran Active Duty Currently Serving in Reserves/National Guard Discharged Member of National Guard Discharged Member of Selected Reserve DD Form 214; A current statement of service signed by (or by the direction of): the adjutant, personnel office, or commander of the unit or higher headquarters showing: Your full name Social Security Number Date of birth Statement of service signed by (or by the direction of): the adjutant, personnel officer or commander of your unit or higher headquarters showing: Your full name Social Security Number Date of birth Entry date on duty Either: NGB Form 22, Report of Separation and Record of Service, for each period of National Guard service OR NGB Form 23, Retirement Points Accounting, and proof of the character of service Copy of your latest annual retirement points statement and evidence of honorable service Entry date on active duty The total number of creditable years of service The duration of any lost time The name of the command providing the information The duration of any lost time The name of the command providing the information In GURU under VA Client Eligibility > VA Documentation Requirements 28
COE example 29
COE For COEs with exempt status the following conditions may appear: Funding fee Veteran is exempt from the funding fee due to receipt of service connected disability compensation of $ monthly Funding fee Veteran is exempt from the funding fee due to receipt of service connected disability compensation. Monthly compensation rate has not been determined to date Funding fee Please fax a copy of VA form 26-8937(VOB) to the VA regional loan center of jurisdiction Funding fee Please have the lender VA regional loan center for loan processing. Please fax a copy of VA form 26-8937 to the RLC of jurisdiction For COEs with a non-exempt status the following condition may appear: Funding fee Veteran is not exempt from the funding fee Funding fee Veteran is not exempt from the funding due to receipt of non-serviced connected pension. Loan application will require prior approval processing by VA. For COEs with contact RLC status the following condition will appear Funding fee - Please fax a copy of the 26-8937 to the RLC of jurisdiction. 30
VA Survival Guide Underwriting and Structuring the loan 31
basic underwriting: The Diff Military Income Active Duty Additional income may be used for qualification BAS, BAH, OHA, Combat Pay, etc. Cannot be grossed up Look for allotments on LES If ETS is < 12 months from closing date Client must prove re-enlisted, or Civilian offer letter Assets Only need reserves if using rental income or if loan is Refer/Eligible 32
basic underwriting: The Diff Only one Qualifying Ratio = 41% To exceed 41% ratio, the veteran must have 20% additional residual income above the required amount and obtain Approve/Eligible Findings Residual Income requirements must be satisfied Residual income must be greater or equal to amount established for applicable region, income level, and family size Residual is calculated by number in family, geographic location and square footage of subject property Include all household members in family size 33
Key Questions for residual income calculation Are you located within 30 miles of a military base? Reduction in Residual Income calculation How much are your monthly tax withholdings? (Federal/State/SSI/FICA) How many dependents do you have? What are their ages? Residual calculation is dependent on number in household How much are your monthly child care expenses? Required for children ages 12 and younger What s the square footage (gross living area) of your home? Utilities and Maintenance expense is $0.14 x GLA 34
Residual Income chart 35
5 instances allow a veteran to get more than one VA loan: 1. They can use left-over entitlement that was not charged to a prior loan. 2. They can sell the property to pay off the previous VA loan and restore the entitlement. 3. They can pay off a VA loan (by paying it down or refinancing), and restore the entitlement. VA allows entitlement to be restored using this method only once. 4. They can refinance the old VA loan into a new VA loan to reduce the rate and payment or convert your ARM into a Fixed. In this case, the entitlement from the prior loan transfers to the new loan. 5. Another qualified Veteran can assume the prior VA loan (subject to lender approval) and substitute his/her own entitlement. 36
PURCHASE MONEY: Seller Concessions 4% Max Seller Concessions Does not include normal and customary closing costs or discount points of up to 2% 4% includes: Paying over 2% in discount points Paying veterans debt to qualify for the loan Payment of veterans judgments Funding Fee Prepayment of property taxes and insurance 37
Want to Learn More? Email us today at: QUniversity@QuickenLoans.com 38