Here’s All You Need To Know About VA Loans. VA stands for the Veterans Administration. VA is part of the Department of Affordable Housing for all eligible veterans. The Veteran Administration guarantees the loan for the leader against the veteran’s default. This guarantee permits the lender to allow no or little down payment by the veteran.
VA is not a lending institution.
The lender must be an approved VA financing provider and underwrite by VA guidelines.
VA does not warrant the condition of the property.
In this guide, “All You Need To Kown About Va Loans”, an approved VA appraiser appraises the property based on the VA guidelines. The VA appraisers are assigned on a rotational basis and approved by the VA. The appraiser strictly ensures the property is safe and meets the veteran’s requirements for safe living conditions.
The maximum mortgage amount
including the VA funding fee if financed, is $ 700,000 – with exceptions for a higher loan amount (up to $ 1.5 million) considered on a case-by-case basis. Loan amounts above $ 417,000 require a down payment. VA has a 0% down payment on loans financed up to $ 417,000.
The VA will finance 1-2 single-family units, condos, and PUDs. All properties must be the primary residence, and Condos and PUDs must be VA-approved. VA will no longer finance 3 to 4 units or second homes.
The VA does not have a front qualifying ratio. There is only one total debt ratio of 41%. This represents the proposed monthly housing expense and reoccurring debts divided by the monthly income. This ratio can be exceeded with compensating factors (see FHA compensating factors).
VA financing is for Servicemen (active or inactive), Reservists / National guardsmen with six years of service, and spouses of deceased eligible veterans.
The Veteran may purchase a property with a co-mortgagor in the following circumstances:
The co-borrower is the veteran’s spouse or a veteran with sufficient entitlement.
The co-borrower is a non-veteran, but the combination of entitlement and down payment gives the lender at least 25% coverage of the sales price or value, whichever is less.
The VA funding fee:
VA loans only have a funding fee, which is either financed or paid upfront at the time of closing. There is no monthly VA Insurance premium.
VA loans are assumable. Another veteran can substitute their entitlement for the current veteran’s entitlement.
If the veteran received $ 50.00 or more per month in VA disability entitlement, then the veteran is exempt from the VA funding fee. The VA funding fee is not refundable.
Other Loan Types
All You Need to Know about Va Loans: Resources
- Obtain up-to-date changes in VA Loan Guaranty procedures and policies
- Download a copy of VA Pamphlet 28-7. Lenders Handbook and any changes to the Handbook
- Review pertinent information regarding other areas of Loan Guaranty that include Loan Administration, Appraisal, and Property Management
- Obtain links to the Regional Loan Centers and other Veterans Benefits programs
- The website for the Veterans Information Portal where all VA systems such as TAS, E – Appraisals, and Web.GY is located. The Portal minimizes the need for several login i.d. and passwords to use VA’s systems.
- Obtain online underwriter training for new employees or existing underwriters
- Visit the Cleveland Regional Loan Center’s web page for a variety of regional information
- This is the military’s website for Information on receiving a veteran’s discharge papers
All You Need to Know about Va Loans Eligibility
Automated Certificates of Eligibility (ACE)
A system where lenders can obtain some certificates of eligibility online through VA’s Information Portal
Typical ACE customer:
- First-time user of the VA home loan program
- Served an active duty tour and has been discharged (not reserves or National Guard)
- Discharged after 1980
VA Eligibility Center:
VA has created a centralized Eligibility Center in Winston-Salem, North Carolina. Its principal role is to determine eligibility for VA home loans. To obtain a certificate of eligibility, the veteran must send the following:
- Completed VA Form 26 -1880, Request for a Certificate of Eligibility
- Copy of military discharge (DD214) or other discharge documents
- If the veteran served in the reserves or National Guard, the veteran’s active duty or discharge documents will show the number of years served and the total number of points accumulated for showing up to weekend and two-week drills.
- If the veteran is an active duty member, a Statement of Service showing the veteran’s entry date
Send documents to:
VA Eligibility Center
P.O. Box 20729
Winston – Salem, NC 27120
- Veterans who are currently on active duty and have served two years
- Veterans who served two years and were discharged with at least a general discharge
- Veterans who have served six years in the Selected Reserves or National Guard – currently active or discharged with an honorable discharge
- Veterans who were called to active duty and served 90 continuous days of wartime duty
- Veterans who were called to active duty and served 181 continuous days during peacetime
- Surviving spouses whose veteran spouse died as a result of active duty injuries
- Some members of various uniformed services as specified in Chapter 2 of VA’s Lender Handbook (certain members of Public Health Service, cadets at various service academies, and certain merchant seaman)
VA anticipates tens of thousands of veterans eventually returning from overseas who have not fulfilled their 5-year reserve/national guard duty yet were called to active duty and served 90 days wartime service. These veterans will be eligible for VA home loan entitlement.
Subsequent Use of Entitlement:
Veterans can use their home loan entitlement more than once. For a veteran to obtain a Restoration of Entitlement, the veteran must be sent to the Eligibility Center:
- Completed VA Form 26-1880
- Copy of discharge documents, active duty documents or reserve / national Guard duty discharge
- HUD – 1 Settlement Statement showing the home from the previous VA loan was paid off and tittle transferred
VA loans do not have targeted, geographic loan limits like HUD.
What this means:
Every eligible veteran receives $ 36,000 of basic entitlement for loans up to $ 144,000
Every eligible veteran receives an additional bonus entitlement equal to 25% of the conforming loan limit minus the $ 36,000 basic entitlement. This only locks in for loans over $ 144,000.
All You Need to Know about Va Loans: The VA Appraisal Process
VA Loan Products:
A veteran can use his home loan eligibility for the following purposes:
- Purchase a single-family home with up to 4 attached units (provided the veteran occupies one of these units).
- Construct a new home.
- Purchase a new or used condominium or townhouse in a VA and FHA-approved development.
- Purchase or construct a manufactured home, provided it is on a permanent foundation and titled as real estate
- Cash-out refinance – 100% financing up to Freddie Mac’s conforming loan limit based on county purchase farm property with no acreage limitations (VA does not allow valuation to include crops, supplies, or livestock)
- Energy Efficient Improvements – up to $ 3,000 can be added to the 100% financing simply by having a contractor provide a bid for the work to be completed
- VA appraiser must be assigned through the VA’s automated system called TAS.
- VA appraisers have been carefully selected based on qualifications, credit references, and experience.
- VA appraisers must follow the VA’s minimum property standards.
- VA appraisals are not home inspections.
- A seller must pay for the termite/pest inspection. A seller must pay for the municipality-mandated well and septic inspection.
- VA appraisers have been trained to minimize the number of cosmetic repair issues.
- If the seller has peeling paint, it’s probably a home built before 1978 and may have lead paint issues. The seller must deal with that issue.
Improvements to VA appraisals:
- 40% new appraisers added to most counties across America
- The Appraisal System (TAS) – the online ordering of appraisals
- Cosmetic repairs are no longer viewed as a requirement to meet minimum property requirements
- E – Appraisals – Appraisers must be able to upload an electronic appraisal into VA’s FileNet system
- Lenders can now do PUD approvals with automatic underwriting authority
- Builder approval documents now require only 3 certifications
Open Communication with Appraisers:
VA Circular 26-03-11, New Procedures for Improving Communications with Fee Appraisers and Streamlining Reconsiderations of Value, mandates that VA appraisers must accept additional information from outside sources for reconsidering value, provided it is well supported and documented. The idea behind this mandate is to remove the authoritarian reputation that VA appraisers had been known for in the past.
A VA APPRAISAL AND / OR COMPLIANCE INSPECTION SHOULD TAKE NO MORE THAN THE NORMAL TIME FRAME THAT THE APPRAISER WOULD TAKE TO COMPLETE A NON-VA APPRAISAL.
In most cases, that means approximately five days. If you have problems with a VA appraiser we want to know about it you can e-mail the specifics of the problems you are having to:
All You Need to Know about Va Loans: VA/FHA Amendatory Clause:
A contract for the purchase of a home using a VA home loan requires the following language:
“It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard the amount of the reasonable value established by the Department of Veterans Affairs. (Authority: 38 U.S.C. 501, 3703 (c) (1))”
VA Funding Fees
The following table will be used to calculate VA Funding fees. All fees are calculated on the base loan amount:
|Type of VA Loan||Active Duty COE||Reserve/National Guard COE|
|Purchase- 1st Time Use (No Money Down)||2.15%||2.40%|
|Purchase- Subsequent Use (No Money Down)||3.30%||3.30%|
|Purchase- 5% Down Payment||1.50%||1.75%|
|Purchase- 10% Down Payment||1.25%||1.50%|
|Interest Rate Reduction Refinance Loan||.50%||.50%|
Some veterans are exempt from the VA funding fee:
- Veterans in receipt of at least 10% VA disability compensation
- Veterans who opted for military retired pay instead of VA compensation
- Veterans who are at least 10% disabled but the veteran may not currently be receiving Those funds direct
- Surviving spouses of veterans who died as a result of active duty injuries
All You Need to Know about Va Loans: Underwriting
Automated Underwriting Systems:
VA has approved use of the following underwriting systems:
- Loan Prospector
- Desktop Underwriter
- Countrywide Home Loans Clues
- Chase Manhattan’s Zippy
- PMI/AURA for VA loans
Lenders with automatic authority can only use these systems to underwrite VA home loans.
As we all know, with automated underwriting systems, and for VA home loans, it is no different; ACCEPT high credit scores and liquid assets drive classifications. The approximate bottom Tine credit score is programmed at around 640 for VA loans.
A REFER status does not mean a VA loan will be automatically denied. It means the loan will be referred to an underwriter for more scrutiny.
VA has no bottom-line credit score for approval/denial
While underwriters for VA home loans are required to review the trade lines on a tri-merged credit report with no mandate to look at credit scores only, credit scores are certainly a good baseline for understanding where a borrower is at credit-wise. We have seen numerous VA home loans closed in the 540-640 range with proper documentation.
Debt Ratios and Residual Income Guidelines:
Quote from numerous. VA underwriters:
“VA’s use of the residual income qualifier shows that VA is the only institution that is looking at a mortgage loan the proper way.”
In this world of loan prospector “ACCEPT” cases where the debt to income ratio in some cases is 65% or more on gross income no less!), shouldn’t there be something left over to pay other bills?
VA’s general guideline for debt ratio is 41%. This does not mean a debt ratio above 41% will not be approved. Numerous VA loans are approved well beyond a 41% debt ratio.
Likewise, the fact that VA has a residual income guideline doesn’t mean a loan won’t be approved if the residual income is marginal. It is a tool to review the veteran’s ability to pay “other” bills. The residual income tables follow on the next page.
Residual Income Guidelines
For loan amounts of $79,999 and below
|Over 5||Add $75 for each additional member up to a family of 7|
For loan amounts of $80,000 and above
|Over 5||Add $80 for each additional member up to a family of 7|
What Is Acceptable Credit?
No past due payments in the past 12 months (or very few past due payments – not more than 30 days past due)
No outstanding, unpaid judgments, federal debts, or tax liens (unless payment arrangements were made and at least 12 timely payments have been made)
Minimal collection and chargeoff accounts – the more open collections and chargeoffs, the less chance of approval. The higher the amount of collections, the less chance of approval.
If a Chapter 7 bankruptcy was filed, the veteran generally must wait at least two years from the bankruptcy discharge date and re-establish at least one consumer credit trade line, making payments on time over 12 months.
If a Chapter 13 bankruptcy was filed, 12 months of timely payments into the bankruptcy plan (if still open), or if the Chapter 13 bankruptcy was dismissed, all other payments must be paid on time over the past 12 months.
There is no consumer credit; VA looks at rental verifications and alternative credit sources such as car insurance, telephone and utility bills, cable bills, etc. (12 months paid on time).
The bottom line for any mortgage: Good credit drives the decision to approve.
VA regulates the veteran’s fees for a VA home loan. The following list of allowable fees is provided:
- VA appraisal
- Credit report fee
- Pre-paid to set up tax and insurance escrow account
- Flood certification
- EPA endorsement
- Title exam, title commitment, title binder, title search, title policy
- Closing protection letter (Ohio, Pennsylvania and New Jersey)
- Recording fees
- Tax stamps Discount points
- VA funding fee
To reimburse lenders for other “unallowable” fees, VA allows a 1% origination fee to be charged on all VA loans, including Interest Rate Reduction Refinance Loans. Those unallowable fees include:
- Processing fee
- Underwriting fee
- Application fee
- Document preparation fee
- Tax service fee
- Broker fee
- Mail/ Fax/ Express Mail / Internet fee
- Attorney fees for work Other than title work
- Copying fees
The unallowable list is not all-inclusive. The intent is to regulate the so-called third-party ‘Junk fees. All of the above fees are what VA deems the cost of doing business and should not be passed on to the veteran. The 1% origination fee should be used to cover these costs.
Fees That Can Never Be Charged To A Veteran:
- Termite Inspection – VA’s notice of value delivered to the veteran states: “The property must be inspected at no cost to you by a qualified pest control operator …”
- Mortgage broker fee – Mortgage brokers are allowed to charge yield spreads as a means of compensation. They cannot charge a “broker” fee on the HUD – 1.
VA also allows seller concessions at a limit of up to 4% of the purchase price. VA only deems the following items as part of the seller concession rule:
- Paying off collections or judgments
- Paying the veteran’s VA funding fee
- Paying towards the setup of the veteran’s tax and insurance escrow
- Offering gifts or upgrades as an incentive to purchase
Standard buyer’s closing costs do not apply under the seller concession rule for VA loans. That means items like recording fees and taxes, title work, flood certifications, etc., are not limited to a 4% cap. A veteran could buy a home using VA financing, with no money out of pocket, provided that the above rule is followed.
VA has a program that pays out millions every year to realtors for finding buyers on properties owned by veterans who already have a VA home loan. VA calls it a Compromise Sale. Mary Institutions refer to it as a ‘Short Sale. “Here are some basic details:
- Realtor gets paid from the sale proceeds
- There is no claim to file with the VA
- VA does not have to take title back to the property
- Junior lien holders will not get paid (although the junior may be convinced to release the lien and have the veteran/borrower sign an unsecured note)
- VA or a VA-approved mortgage servicer will accept a Compromise Sale if it saves the government money.
VA will approve the transaction if the Compromise Sale claim is less than the Foreclosure claim. Plus, VA does not get the property back as an REO property.
All You Need to Know about Va Loans: Realtors
Want to earn more money!!!
You can sell a veteran’s home even if the offer is insufficient to pay off the loan. What’s holding you back?
Here’s what you need to do:
- Find out from the veteran or mortgage servicer how much is owed on the first mortgage
- Attempt to sell the home for the most excellent possible price
- If the payoff is more incredible than net proceeds from the sale, is your veteran owner what is called a “Compromise Sale”.
- If net proceeds from the sale of a home are more significant than the VA’s anticipated loss in foreclosure, most Compromise Sales are approved.
- Realtor receives a commission directly from sale proceeds, and the title company
- Mortgage servicer files a claim with the VA for their short payoff
Some simple rules:
- House must be lien-free – in some cases, VA has even allowed a small amount of money to be paid to a junior lien holder in return for a lien release.
- All parties to the deed must be able to process the transaction.
- Offer must be reasonable concerning the value.
VA now permits financing over $ 417,000.
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