VA LOAN GUIDELINES

VA Borrower Eligibility
Veteran
Veteran with Spouse
Veteran with another veteran
Veteran with Non-veteran (who is not the spouse) is sent directly to the VA Eligibility center for prior approval
Veteran Entitlement Service Period
ERA Dates Minimum Service
WWII 9-16-40 thru 7-25-47 90 continous days
Peacetime 7-26-47 thru 6/26/50 181 days
Korean 6-27-50 thru 1-31-55 90 days
Post-Korean 2-1-55 thru 8/4-64 181 days
Vietnam 8-5-64 thru 5-7-75 90 days
Post-Vietnam (Enlisted) 5-8-75 thru 9-7-80 181 days
Post-Vietnam (Officer) 5-8-75 thru 10-16-81 2 years
Post Vietnam (Officer) 9-8-80 thru 8-1-90 2 years
Persian Gulf 8-2-90 thru undetermined 2 years or period called to active duty, not less than 90 days
Other Eligible Persons
Active Duty Members 90 continous days (181 during peacetime)
Active Reserve or National Guards 6 years in selected reserves
Un-remarried surviving spouse No time requirement, Veteran must have died on active duty or from a service-connected disability.
POW/MIA spouse Veteran must have been a POW or MIA for 90 days
Eligible Loan Purpose
Purchase 1- 4 family units, including
Condominiums (VA approved)
Townhouses
Manufactured Home (and Lot)
To Build a Home
To Purchase and improve a home
To improve a home by installing energy-related features
To Refinance an existing home loan for the purpose of:

Cash Out – up to 90% LTV
Reducing the interest rate (IRRRL)
Interest Rate Reduction Refinance Loan
Only existing VA loans qualify
Converting an adjustable rate mortgage (ARM) to a fixed rate mortgage
Available Programs
Fixed Rate
15 and 30 Year Term
Adjustable Rate Mortgage (ARM)
1 year – must Qualify at 1% above note rate
3/1
5/1
Margins: 1 YR = 2.25%, 3/1 and 5/1 = 1.75%
Caps: 1/5
Maximum Loan Limits
Purchase = $417,000
Refinance (Rate & Term) = 90% Loan to Value of home (not to exceed $417,000)
Refinance (Cash Out) = 90% Loan to Value of home (not to exceed $417,000)
Refinance (IRRRL) = 100% Loan to Value of home
Maximum LTV’s
Zero Down
100% LTV
LTV may be up to 103.3% (when Funding Fee is financed)
Loan Approval Requirements
Applicant must be an eligible veteran who has available entitlement;
100% LTV
The loan must be for eligible purposes;
Veteran must occupy home within a reasonable period after closing;
Veteran must be a satisfactory credit risk, and
Income must be stable and sufficient to
Meet mortgage payment
Take care of obligations and expenses and have enough left over for family support.
Loan Types Requiring Prior Approval
Joint Loans with someone other than spouse.
Loans to veterans in receipt of VA non service-connected pension
Loans to vets rated incompetent by VA
VA Eligibility Center 
P. O. Box 20729 251
N. Main Street
Winston-Salem, NC 27120
888-244-6711 (8:00-4:00 EST
Occupancy:
Any person who uses entitlement on a joint loan must certify intent to personally occupy the property.
Any borrower on a joint loan who does not use entitlement for the loan (such as a non-veteran) does not have to occupy the property.
Lenders Handbook, VA Pamphlet 26-7, Revised, Change 3, Chapter 5
Energy Efficient Mortgage (EEM)
Loans for the acquisition of an existing dwelling and the cost of making energy efficient improvements, refinancing an existing VA loan.
Mortgage may be increased by:
Up to $3000 documented costs
Up to $6000 provided increase in PITI does not exceed reduction in monthly utility
More than $6000 subject to determination by VA
Cash Out Refinance
Loan Limit 90% of the Loan to Value (appraisal) (Max $417,000)
+ Funding Fee
+ cost of Energy Efficient Improvements
Must payoff an existing lien(s) of record.
Itemization of debts paid off required.
Veteran can receive cash proceeds.
Other Refinancing Loans
To payoff Construction Loans
Installment land sales contracts
Loans assumed by veterans at interest rates higher than that for the proposed refinance
These loans are like cash-out, except:
Loan amount is not limited to 90%
Loan may not exceed the lesser of the VA reasonable value or the sum of the outstanding balance of the loan to be refinanced
+ allowable closing costs and discount points
Interest Rate Reduction Refinance Loan (VA to VA)
Loan Limit 90% of the Notice of Value (appraisal)
+ Funding Fee
+ cost of Energy Efficient Improvements
Must payoff an existing lien(s) of record.
Itemization of debts paid off required.
Veteran can receive cash proceeds.
IRRRL Borrower Eligibility
Parties obligated on old VA Loan Parties to be obligated on new IRRRL Is IRRRL Possible?
Unmarried veteran Veteran and new spouse Yes
Spouse alone (veteran died) No
Veteran alone Different veteran who has substituted entitlement Yes
Veteran and spouse Divorced veteran alone Yes
Veteran and different spouse Yes
Spouse alone (veteran died) Yes
Divorced spouse alone No
Different spouse alone (veteran died) No
Veteran and non-veteran joint loan obligors Veteran alone Yes
Non-veteran alone No
Standard Documentation
Income claimed by applicant that cannot be verified should not be given consideration.
A minimum of two years employment verified.
VOE’s dated within 120 days of the note, 180 days for new construction.
Certified copy of applicant’s pays stub.
VOE should be compared to pay stub for consistency.
If in school/military during this time, borrower must provide evidence: transcripts or discharge papers.
Explain any gaps in employment of a month of more. No explanation required on gaps < 60 days if LP approved.
Reservists, National Guard & Active Duty Applicants
The Leave and Earnings Statement (LES)must identify service members who are within 12 months of release from active duty or end of contract term.
Continuation of Military Allowances must be determined to count as income.
Flight pay, hazardous duty pay, etc If cannot be determined use to offset debts of 24 months or less.
Leave & Earnings Statement
If the date is within 12 months of the anticipated date that the loan will close, the loan package must also include one of the following items or combination of:
Re-enlistment documentation
Valid offer of local civilian employment following release of active duty
Intent to re-enlist letter certified by commanding officer
Or Documentation of unusually strong underwriting factors such as – Down payment of 10%; significant cash reserves, and evidence of strong community ties, coupled with non-military spousal income.
Notified of Mobilization
Lenders must recognize that activated reservists whose incomes are reduced may be unable to qualify for the loan they are seeking.
Ask if applicant has been notified of a mobilization of his or her unit.
If so, the loan must be underwritten on the basis of the projected active duty income.
Employment Income
Self-employment Income- 2 years, or
Related Experience and/or specialized training
Commission Income – 2 years
Rental Income – 25% vacancy factor
Multi-family Housing – 6 mos. reserves
Rental of Existing Property – offset PITI
Other Rental Property – 2 mos. reserves
Stability & Use of Income
12 months or longer to count as income
2nd job income, only after 2 years
Ability of working two jobs must be demonstrated
Overtime or Part-time – reliable after 2 years
Seasonal Income – document continuance
Unemployment compensation – not stable
Worker’s Compensation, Foster Care, Alimony, and Child Support – paid consistently and likely to continue
Public Assistance and Social Security – 3 yrs continuance
Credit Requirements
General Rule:
No derogatory references within last 12 months, generally = acceptable credit. Exceptions are:
Outstanding judgments – loan cannot be approved with unpaid judgment, unless acceptable payment plan with acceptable payment history.
Unresolved Federal debts –Must be paid in full, in non-collectible status, or on repayment plan.
Tri-merge Credit Report – 120 days, 180 new construction
Credit History
Credit scores not required.
Non-traditional credit allowed.
Examples of non-traditional credit:
Rental history
Utilities
Insurance (not payroll deducted), auto, life, renters
Auto payments paid to alternative resources
Child Care, department stores
Bankruptcy
Chapter 13
Need 12 months satisfactory payment history and approval of court.
Chapter 7
2 years, date of discharge, with no derogatory credit
Due to circumstances beyond borrower’s control, 12 month with no derogatory credit and documentation of circumstances.
Foreclosures & CCCS
Foreclosure:
At least two years since foreclosure completed.
Guidelines for bankruptcies filed under Chapter 7
Prior VA loans: sufficient entitlement, no unresolved debt to government
Consumer Credit Counseling Service
If entered before delinquency, a positive or neutral factor.
One year acceptable payment history, and counselor approval
Assets
Applicant or spouse must have sufficient cash to cover:
Closing costs or points which are their responsibility
Down Payment, if less than 100% LTV
Difference between sales price and the loan amount, if sales price exceeds appraised value
VA does not require reserves
Liquid assets must be verified to the extent that are needed to close the loan.
Gift Funds
Gift Funds are acceptable from the following sources:
Borrower’s relative
Borrower’s employer or labor union
Charitable Organization
Governmental Agency or public entity that has a program to provide homeownership assistance
Compensating Factors
Excellent long term credit
Minimal consumer debt
Significant liquid assets
Little or no increase in shelter expense
Low debt to income ratio
Tax benefit of home ownership
Conservative use of consumer credit
Long-term employment
Down Payment
Military benefits
High residual income
Tax credits for child care
Equity in refinancing loans
VA Residual Income
Monthly balance of funds available for family support after meeting the borrowers shelter, expenses, debts, and taxes.
It is calculated per the VA Loan Analysis.
The table of residual income figures is based off of loan amount, region and family size.
Residual Income
Table of Residual Incomes by Region For Loan Amounts of $ 80,000 ans above (VA Lender’s Handbook 26-7, Chapter 4, Page 4-63)
Family Size Northeast Midwest South West
1 $450 $441 $441 $491
2 $755 $768 $768 $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 upto a family of 7.
Maintenance & Utilities
To be used to determine residual income and entered on line 19 of the VA Loan Analysis:
Calculated at 14 cents per square foot
Calculation is utilized in the required VA Loan Analysis
1500 sq. ft. X .14 = $210
Child Care Expenses
Required on VA Purchases and any Credit Qualifying Refinance if the borrower has disclosed dependents.
If the Veteran has any children, then a Child Care Letter/Statement will be required.
The child care statement must disclose who will be taking care of the children.
Any expenses as a result of child care are included in the total debt to income ratio.
Non-allowable Closing Costs
VA does not recognize certain closing costs as charges/fees that the Veteran is allowed to pay. VA does not set a percentage of allowable closing costs, they refer to what is typical for the area.
Non-allowable costs include:
Administration
Underwriting
Processing
Tax service
Courier/mail fees, etc.
These fees are payable by the seller or lender.
Seller Concessions
Anything of value added to the transaction by the builder or seller for which the buyer pays nothing. May not exceed 4% of reasonable value.
Payment of buyer’s funding fee
Gifts, such as big screen television or car
Payoff of credit balances or judgments
Payment of extra points for rate buy down
Seller Concessions Do Not Include:
Payment of buyer’s closing costs
Payment of points as appropriate to the market.
Power of Attorney
VA will allow a veteran to use an attorney-in-fact to execute any documents necessary to obtain a VA guaranteed loan.
Requires a general or specific Power of Attorney and written consent to transaction.
Entitlement – clear intent to use his COE
Purpose – obtain a loan for purchase, refinance.
Property Identification
Price and terms – sales price and loan terms
Occupancy – intent to occupy by veteran
Veteran’s Status as Alive and not MIA
At time of closing, the lender must verify that the veteran is alive, and, if on active military duty, not missing in action.
Lender to Certify
If lender has difficulty obtaining, lender may request VA to obtain the necessary information.
VA may deny guaranty on a loan if a lender fails to properly verify, and veteran was deceased or MIA at the time the loan was closed.
Funding Fee Requirements
Verify status of any veteran who may be exempt from paying the funding fee
Determine amount of funding fee owed by a non-exempt borrower
Collect the appropriate fee
A veteran may be exempt, complete Verification of VA Benefit-related Indebtedness if any apply:
Vet receives VA compensation for service connected disability
Has received a VA disability in the past
ASK your Veteran if he is exempt!
VA Funding Fee
VA Funding Fees – Purchases
Transaction Type Down Payment Military Reservist / National Guard
Initial use of entitlement Less than 5% 2.15% 2.40%
Second or Subsequent use Less than 5% 3.30% 3.30%
Initial use of entitlement or Second or subsequent use 5% but less than 10% 1.50% 1.75%
Initial use of entitlement or Second or subsequent use More than 10% 1.25% 1.50%
VA Funding Fees – Refinances
Transaction Type Down Payment Military Reservist / National Guard
Initial use of entitlement Less than 5% 2.15% 2.40%
Second or Subsequent use Less than 5% 3.30% 3.30%
Initial use of entitlement or Second or subsequent use 5% but less than 10% 1.50% 1.75%
Initial use of entitlement or Second or subsequent use More than 10% 1.25% 1.50%
VA Funding Fees – Interest Rate Reduction Refinance Loan and Assumptions
Transaction Type Military Reservist / National Guard
All IRRRL’s and Assumptions 0.50% 0.50%
Veteran Entitlement Service Period
ERA Dates Minimum Service
WWII 9-16-40 thru 7-25-47 90 continous days
Peacetime 7-26-47 thru 6/26/50 181 days
Korean 6-27-50 thru 1-31-55 90 days
Post-Korean 2-1-55 thru 8/4-64 181 days
Vietnam 8-5-64 thru 5-7-75 90 days
Post-Vietnam (Enlisted) 5-8-75 thru 9-7-80 181 days
Post-Vietnam (Officer) 5-8-75 thru 10-16-81 2 years
Post Vietnam (Officer) 9-8-80 thru 8-1-90 2 years
Persian Gulf 8-2-90 thru undetermined 2 years or period called to active duty, not less than 90 days
Pricing Scenario
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