VA stands for the Veterans Administration. VA is part of the Department of affordable housing for all eligible veterans. Va guarantees the loan for the leader against the veterans default on the loan. 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 provider of financing and underwrite in accordance with VA guidelines.
VA does not warrant the condition of the property. An approved VA appraiser appraises the property based on the VA guidelines. VA appraisers are assigned on a rotational basis approved by the VA. The appraiser is strict on assuring that the property is safe and meets the requirements for safe living conditions for the veteran.
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 units, single family, condos and PUDs. All properties must be primary residence, 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 Guardsman with 6 years of service and spouse 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:
Active Vet Nat. Gu/Res
Purchase
0% 2.15% 2.40%
5% 1.50% 1.75%
10% 1.25% 1.50%
Second or Subsequent user
0% 3.30% 3.30%
5% 1.50% 1.75%
10% 1.25% 1.50%
VA loans only have funding fee which is either financed or paid up front 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.
Example of VA financing with 0% down payment:
Sales Price is $200,000.00
VA Funding Fee (2.15%) $4,300.00
Total Amount financed $204,300.00
maximum guaranty amount. The maximum guaranty amount varies depending upon the location of the property.
(1) For all locations in the United States other than Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the maximum guaranty amount is the greater of 25 percent of (a) 8417,000 or (b) 125 percent of the area median price for a single – family residence, but in no case will the guarantee exceed 175 percent of the Freddie Mac loan limit for a single family residence in the county in which the property securing the loan is located. This translates to a potential maximum loan amount of $ 1,094,625
(2) In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the maximum guaranty amount is the greater of 25 percent of (a) $ 625,500 or (b) 125 percent of the area median price for a single family residence, but in no case will the guarantee exceed 175 percent of the Freddie Mac loan limit for a single family residence in the county in which the property securing the loan is located. This translates to a potential maximum loan amount of $ 1,641,937.50.
c. Annual Adjustments: The maximum guaranty amounts set forth above will be adjusted annually. The first adjustment will affect loans closed on or after January 1, 2010.
5. CALCULATING THE MAXIMUM GUARANTY FOR LOANS OVER $ 417.000:
The applicable maximum guaranty amount may be calculated using data available online from the Federal Housing Administration (FHA). To calculate the maximum guaranty amount for a particular property:
- go to http://www.flagutreach.com/
- scroll to the bottom of the page;
- select the state where the property is located:
- type the name of the county where the property is located in the box labeled “County”:
- Click “Submit”; and,
- multiply the resulting “Median Price” for the appropriate county by 1.25.
- if the resulting figure is:
(1) less than $ 117,000, use $ 417,000 to calculate the maximum guaranty amount;
(2) greater than $ 417,000, but less than $ 1,094,625 (or $ 1,641,937.50 in Alaska, Guam, Hawaii, and the US Virgin Islands), use the result to calculate the maximum guaranty amount, or,
(3) greater than $ 1,094,625 (or $ 1,641,937.50) use $ 1,094,625 (or $ 1,641,937.50) to calculate the maximum guaranty amount
VA Home Loans
U.S. Department of Veterans Affairs
Cleveland Regional Loan Center
1240 East Ninth Street
Cleveland, OH 44199
(800) 729-5772
Serving Veterans In:
Ohio, Michigan, Indiana,
New Jersey, Pennsylvania
and Delaware
Outline
Mortgage Financing Products
- Dispelling the myth about alternative mortgage products vs. VA Home Loans
VA Internet Websites and E – Mail Addresses of Interest – Page 2
Innovations in VA Home Loans –
- VA Information Portal – E – Appraisals Webl.GY, TAS
- Automated Certificates of Eligibility (ACE)
- The Appraisal System (TAS)
- Lender Appraisal Processing Program (LAPP)
- Automated Underwriting Systems – Desktop Underwriter, Loan Prospector and others
- VA Funding Fee Payment System
Eligibility –
- Automated Certificates of Eligibility (ACE)
- VA Eligibility Center
- Who’s eligible for a VA home loan
- Subsequent use of entitlement
- A veteran can have two open VA home loans at one time
The VA Appraisal Process –
- VA Loan Products
- Improvements to VA Appraisals
- Open communication
- Appraisal timeliness
- Amendatory / Escape Clause is mandatory
VA Funding Fees –
- Active duty funding fee
- Reserve / National Guard funding fee
- Down payment can reduce funding fee percentage
- Exemption from VA funding fee
Underwriting –
- Automated Underwriting Systems
- Debt ratios and residual income guidelines
- Great credit drives approval decisions
- What is acceptable credit?
Outline (cont.)
Allowable Fees and Charges – Page 11
- Allowable Fees
- VA Origination Fee
- Unallowable Charges
- Seller Concessions
VA Compromise Sales – Page 13
- Realtor gets paid at closing
- Great deal for VA and mortgage servicer
- Hundreds of mortgage servicers approved to process without VA intervention
FY 2008 VA Nationwide Loan Volume – Page 15
VA Form 26-1880, Request for A Certificate of Eligibility – Page 17
Mortgage Financing Products
Myth # 1: A mortgage broker can get the veteran a better deal with
95% conventional financing
Purchase price: $ 200,000
30 year fixed rate loan
Credit Score 660
Conventional Loan VA Home Loan
Rate at 95% LTV 6.00% Rate at 100 % LTV 5.375%
Loan amount $ 200,000 Loan Amount W2 15% VA Funding Fee: $204.300
Payment $ 1,169.88 Payment $1,144.02
PMI: $ 160,00 No PMI
Total Payment: $ 1.329.86 Total Payment: $ 1,144.02
In this scenario, the VA home loan saves the VA borrower $ 185.84 more per month or potentially another $ 22,000 + in buying power. The above rates were from an actual mortgage lender’s rate sheet as of November 26, 2008. A 660 score was used because for 100% LTV conventional financing, the credit score must be in this range or higher. Bond financing for 95% conventional financing required a higher interest rate versus the VA interest rate.
Myth # 2: A mortgage broker can get a better deal on a HUD mortgage than a VA home loan.
Purchase Price: $ 200,000
30 year fixed rate loan
Credit Score 660
Conventional Loan VA Loan
Rate at 97% LTV 6.00% Rate at 100% LTV 5.375%
Loan Amount $200,000 Loan Amount w/VA Funding Fee: $204,300
Payment @ 97%: $1,163.13 Payment: $1,144.02
PMI
Total Payment: $1,246.46 Total: $1,144.02
In this scenario, the VA home loan saves the veteran $ 102.44 per month or approximately another $ 10,000 + in buying power. Again, the mortgage rates are offered from a mortgage lender’s rate sheet as of November 28 2008.
Why are you pushing your veteran customers into a mortgage loan product that will cost them considerably more money every month? There are thousands of mortgage lenders and mortgage brokers who originate VA home loans. The average time to close on a VA home loan is no more than any other mortgage loan product, 3-4 weeks from application to closing.
VA Web sites and E – Mail Addresses of Interest
Internet Sites:
http://www.homeloans.va.gov.htm
- 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 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 Benefit programs
https://vip.vba.va.gov/portal/userprofiling/login.jsp
- The website for the Veterans Information Portal where all VA systems such as TAS, E – Appraisals, and Webl.GY are located. The Portal minimizes the need to have several login i.d.’s and passwords to use VA’s systems.
http://www.homeloans.va.gov/train.htm
- Obtain online underwriter training for new employees or existing underwriters
http://www.vba.va.gov/cleveland-ric.htm
- Visit the Cleveland Regional Loan Center’s web page for a variety of regional information
http://www.nara.gov/regional/mpr.html
- This is the military’s website for Information on receiving a veteran’s discharge papers
E – Mail addresses:
- Send inquiries to the Cleveland Regional Loan Center direct
Innovations in VA Home Loans
Over the course of the past several years, VA has implemented significant changes to assist lenders in closing loans quicker. Some of these changes have already been implemented and others are forthcoming. These innovations include:
- The VA Information Portal that allows lenders to access a variety of VA websites using only one password. Within that system, lenders can find the Appraisal System, WebLGY and E Appraisals.
- A Hybrid Adjustable Rate Mortgage Program that started on October 1, 2003. The VBA Act of 2004 added an additional provision for ARM’s allowing a one year ARM product as well as the 3/1, 5/1 and 7/1 ARM’s. These ARM products have been extended until September 30, 2012.
- The Veterans Benefits Improvement Act of 2008 also changed the maximum guaranty amount, for certain loans in excess of $ 144,000, to an amount equal to 25 percent of the Freddie Mac conforming loan limit as determined by the specific county loan limit for the area where the home is located. In some instances a veteran can obtain a VA home loan up to $ 729,750 with no money down. The same Act also changed VA’s cashout refinance law to meet 100% of the appraised value up to the aforementioned Freddie Mac conforming loan limits.
- The WebLGY system implemented November 21, 2004, where lenders input their own data to obtain the Loan Guaranty Certificate. Lenders will no longer have to submit paperwork to VA for guaranty, only if selected for audit.
- The Inception of automatic underwriting that allows lenders to underwrite their own VA loans using VA approved underwriters. Automatic lenders can use various automated underwriting systems such as Loan Prospector and Desktop Underwriter to approve VA loans.
- Implementation of the Lender Appraisal Processing Program (LAPP) – this program allows lenders to review appraisals directly in their office and issue a final notice of value. Lenders in this program must be automatic lenders.
- VA’s automated appraisal system called The Appraisal System (TAS). This system allows lenders to order an appraisal over the Internet thereby eliminating the need to call VA for an appraisal assignment. The system also provides a data input screen for the notice of value so the lender and VA can view the appraisal date. Visit: http://vip.vba.va.gov
- Automated Certificate of Eligibility (ACE) program. This system was released June 2002. It allows lenders to access VA records to determine a veteran’s eligibility. The lender is able to issue an online certificate of eligibility to first time home buying veterans. The ACE system allows you to view all loans guaranteed by VA during the previous day. This system is available through the WebLGY system.
- The Funding Fee Payment System – a direct link with the Internet where lenders can enter funding fee submissions and print their own receipt within 24 hours
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 located in Winston – Salem, North Carolina. Its principle 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 veteran served in the reserves or national guard, the veteran’s active duty or discharge documents will show the number of years served along with 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
Who’s Eligible:
- 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 peace time
- Surviving spouses who’s 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. In order for a veteran to obtain when called a Restoration of Entitlement, the veteran must send 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
Two Open VA Loans Consecutively:
VA loans do not have targeted, geographic loan limits like HUD. As previously stated, The VBA Act of 2004 changed the maximum guaranty amount, for certain loans in excess of $ 144,000 to an amount equal to 25 percent of the Freddie Mac conforming loan limit determined under section 305 (a) (2) of the Federal Home Loan Mortgage Corporation Act for a single family residence, as adjusted for the year involved. In order for lenders to pool VA home loans with Government National Mortgage Association (GNMA) mortgage backed securities, they must have at least a 25% guaranty.
What this means:
Basic Entitlement: Every eligible veteran receives $ 36,000 of basic entitlement for loans up to $ 144,000
Bonus Entitlement: Every eligible veteran receives additional bonus entitlement that is equal to 25% of the conforming loan limit minus the $ 36,000 basic entitlement. This only klcks in for loans over $ 144,000.
Example:
25% of $417,000 (Freddie Mac’s limit): $104,250
Basic Entitlement: – 36,000
Bonus Entitlement: $ 68,250 (for 2007)
A veteran could have an open VA home loan for $ 144,000, thereby extinguishing his basic entitlement yet, the veteran would still be allowed to use the bonus entitlement of $ 68.250 for a purchase over $ 144,000, provided he qualifies based on credit, debt ratio, etc,
Bonus entitlement of $ 68,250 will afford the veteran an opportunity to purchase a home up to four times the available entitlement (remember the 25% guaranty rule):
$ 68,250 x 4 = $ 273,000
or
$ 273,000 x 25% = $ 68,250
The VA Appraisal Process
VA Loan Products:
A veteran can use his home loan eligibility for the following purposes:
- Purchase a single family home 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 VAJFHA 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 Appraisals:
- VA appraiser must be assigned through VA’s automated system called TAS
- VA appraisers have been carefully selected based on qualifications, credit references and experience.
- VA appraisers must follow 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) – 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
- PUD approvals can now be done by lenders 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 be willing to accept additional information from outside sources for a reconsideration of 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.
Appraisal Timeliness:
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 5 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:
VA/FHA Amendatory Clause:
A contract for 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% |
| Loan Assumption | .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 in lieu 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
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
These systems can only be used by lenders who have automatic authority to underwrite VA home loans.
As we all know with automated underwriting systems, and for VA home loans it is no different, ACCEPT classifications are driven by high credit scores and liquid assets. For VA loans, the approximate bottom Tine credit score is programmed at around 640.
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 on 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 that 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 used 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
| 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 |
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 |
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, veteran generally must wait at least 2 years from the bankruptcy discharge date and re-establish at least one consumer credit trade line making payments on time over a 12 month period
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.
If 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 just about any mortgage: Good credit drives the decision to approve.
Allowable Fees and Charges
VA regulates the fees and charges that a veteran can pay for a VA home loan. The following list of allowable fees is provided:
Allowable:
- VA appraisal
- Credit report fee
- Pre – paids 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
As a means of reimbursing 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:
Unallowable:
- 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 that is 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 are not allowed to also charge a “broker” fee on the HUD – 1.
Seller Concessions:
VA also allows seller concessions at a limit 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 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. In essence a veteran could buy a home using VA financing, with no money out of pocket, provided that the above rule is followed.
Compromise Sales
VA has a program that pays out millions every year to realtors for finding buyers on properties that are owned by veterans who have a VA home loan already in place. 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
- No claim to file with 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.
Here’s how it works:
Example:
Foreclosure: Compromise Sale:
Payoff of Mortgage: $100,000 Sale Price of Property: $100,000
Foreclosure Costs 2,500 Closing Costs, including 9,000
Relator fee:
Total Payoff: $100,000 Net Proceeds: $ 91,000
Value Property to VA: $100,000 Payoff of Mortgage $ 100,000
Minus Property Management
Expenses: $ 12,000
Net Value to VA: $ 88,000
Total Payoff: $102,500
Loss to VA: ($ 14,500) Loss to VA: ($ 9,000)
If the Compromise Sale claim is less than the Foreclosure claim, VA will grant approval for the transaction. Plus, VA does not get the property back as an REO property.
VA
Compromise Sale Program
Realtors
Want to earn more money!!!
You can sell a veteran’s home even if the offer is not enough to payoff 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 home for the greatest possible price
- If payoff is greater than net proceeds from sale, is your veteran owner what is called a “Compromise Sale”.
- If net proceeds from sale of home is greater than VA’s anticipated loss in a foreclosure, most Compromise Sales are approved
- Realtor receives commission directly from sale proceeds and 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 been able to allow a small amount of money to be paid to a junior lien holder in return for a release of lien.
- All parties to the deed must be able to process transaction
- Offer must be of a reasonable nature in relation to the value
Veterans Benefits Administration Circular 26-08-19
Department of Veterans Affairs October 16, 2008
Washington, D.C. 20420
IMPLEMENTATION OF LOAN GUARANTY PROVISIONS OF PUBLIC LAW 110-389
1. PURPOSE: On October 10, 2008, the President signed Public Law 110-389, the Veterans Benefits Improvement Act of 2008. This circular addresses the changes to VA Loan Guaranty Program that were included in that law.
2. EXTENSION OF ADJUSTABLE RATE MORTGAGE AUTHORITY: VA’s Authority to guarantee adjustable rate mortgages (ARMs) and hybrid adjustable rate mortgages (HARMs) was scheduled to expire on September 30, 2008. Section 505 of Public Law 110-389 extended this authority through September 30, 2012. All VA program requirements related to ARMs and HARMs remain in effect.
3. ENHANCEMENT OF REGULAR REFINANCING LOANS: Section 504 of Public Law 110-389 made changes to VA’s regular (“cash – out”) refinancing loans. Effective immediately, the maximum guaranty amount for regular refinancing loans is the same as the maximum guaranty amount for purchase loans. Regular refinancing loans are now available for up to 100 percent of the appraised value of a home, which is an increase from VA’s previous threshold of 90 percent. All other VA program requirements for regular refinancing loans remain the same.
4. GUARANTY AMOUNTS: Section 501 of Public Law 110-389 provides a temporary increase in the maximum guarantee amount for loans closed January 1, 2009, through December 31, 2011. During this period, the “maximum guaranty amount” set forth in this circular should be substituted for the maximum guaranty amount specified at 38 U.S.C. 3703 (OC), 38 CFR 8836.4302 (a) (4) and 36.4802 (a) (4), and in the VA Lender’s Handbook. Please note that, if a veteran has previously used entitlement that has not been restored, the guaranty amount for that veteran must be reduced accordingly.
a. Loans for S417,000 or Less Are Unaffected: The guaranty amount for loans where the original principal loan amount is $ 417,000 or less remain unchanged. On these loans, VA will continue to guarantee the amounts specified at 38 U.S.C. 3703 (a) (1) and the VA Lender’s Handbook.
b. Loans for More Than S417,000: If the original principal loan amount is greater than $ 417,000, VA will guarantee 25 percent of the original principal loan amount, up to the
VA now permits financing in excess of $ 417,000.
Here is how it works:
The veteran must pay 25% down of the overage above $ 417,000
Example:
Sales price $ 500,000
VA limit $ 417,000
Difference $ 83,000
25% of $ 83,000 = $ 20,750
Max Mortgage amount is $ 479,250
If adding the VA Funding Fee then it is also 25% over the $ 417,000.
VA max mtge amount is $ 479,250 (96% LTV)
$479,250
Plus 1,50% (VA Funding Fee)
Total $ 486,438.75
Less $ 17,359.69 (25% overage on VA FF)
Equals $ 470,876 max mtge amount with VA
Funding Fee
Deborah Ann Spence, CRS, e-PRO, RENE, GREEN
Http://www.fiercerealestatecorp.com
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