Everything you need to know about VA
VA Overview
VA Benefits The Veteran’s Best Friend
No down payment required. See county list for limits. Maximum seller contributions may exceed 6% 100% gift funds allowed 90% LTV cash out refinances No minimum reserve requirements Manual and automated underwriting Citizenship is not required Veteran can use entitlement many times Not limited to first time homebuyers Fixed rate assumable loan Reservists qualify for VA benefits Quick closings
Your Bay Equity VA Resource:
Kari Clouse 415-820-4563
Please call if you have questions about a VA transaction!
Everything you need to know about VA
Who can Originate VA Loans? Loan Programs VA Eligibility Documentation and Underwriting Qualifying and Debt to Income Ratio (DTI) Credit Residency History Assets Appraisals and Collateral
Everything you need to know about VA Who can Originate VA Loans?
Anyone who originates conventional loans may originate VA loans! A mortgage broker may act as an agent for a VA approved lender without a VA ID number if the brokerage originates less than 4 VA loans per year.
If a loan originator originates more than 4 VA loans in one year, the LO must be employed by a VA approved lender, or may act as an agent for a VA approved lender. Becoming an agent for a VA approved lender is simple. Once a year, the mortgage brokerage must apply to become an agent for the VA approved lender. The cost is $100. The broker hands a $100 check made out to the VA to the VA approved lender. The VA approved lender then submits a corporate resolution and the broker’s check to the VA. This application process is quite simple and can be accomplished in a few weeks. The VA then issues a VA ID number to the broker identifying them as an agent for the VA approved lender.
Everything you need to know about VA Loan Programs
VA loans can be fixed or adjustable. However, for all practical purposes the fixed rate loan is the only VA loan ever used. Fixed rate loans can be 15 or 30 year terms.
Everything you need to know about VA VA Eligibility
Every veteran is entitled to a VA loan after a minimum time of active duty and an honorable discharge, or current active duty conducted honorably. Reservists and National Guard are eligible for a VA loan if they have served 6 years or more in the reserves. Un-remarried spouses of veterans killed in the line of service are also eligible.
A veteran may use all part of his or her entitlement. If a veteran has already used part of his entitlement, and the loan is still active, he or she will not be eligible for the full $593,750 zero down loan in Orange and LA County. It is important to establish if the veteran has full entitlement very early in the loan process.
A veteran is eligible for VA home loan benefits if he or she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard after September 15, 1940, and was discharged under conditions other than dishonorable after either: – 90 days or more, any part of which occurred during wartime, or – 181 continuous days or more (peacetime).
Two year Requirement - A greater length of service is required for veterans who: – enlisted (and service began) after September 7, 1980, or – entered service as an officer after October 16, 1981
Everything you need to know about VA VA Eligibility (Cont’d).
These veterans must have completed either: – 24 continuous months of active duty, or – the full period for which called or ordered to active duty, but not less than 90 days (any part during wartime) or 181 continuous days (peacetime).
Note: Cases involving other than honorable discharges will usually require further development by VA. This is necessary to determine if the service was under other than dishonorable conditions.
Wartime and peacetime refer to the following periods of service:
If a veteran served after 8/21/1990, he or she only had to serve 90 days to be fully eligible. You can research VA eligibility using the Veteran’s Portal on the VA website, once you have a user name and PW. Approved brokers must have their own VA ID #.
Everything you need to know about VA VA Eligibility (Cont’d). CO-BORROWERS • •
Only the spouse of a Veteran is eligible No other person may co-borrow, i.e. brother, sister, parent, uncle, aunt, significant other, etc.
NON PURCHASING SPOUSE
Acceptable in community property states • Credit Report for Non-Purchasing spouse required • Obligations will be counted in DTI calculation against Veteran • Credit history will be analyzed
MORE THAN ONE VETERAN/ELIGIBILE BORROWERS Two Veterans or VA eligible borrower’s can purchase together with VA Approval Must be submitted directly to VA for approval
Everything you need to know about VA Documentation and Underwriting
All VA loans require full income and asset documentation. All VA loans can be run through Fannie Mae DU or Freddie Mac LP. An approval by one of these systems is acceptable to VA regardless of debt to income ratios. However, the VA underwriter has the discretion to override an automated approval based on certain negative factors such as poor credit payment history. If the loan is not approved though DU or LP the loan may be manually underwritten. Regardless of the underwriting method, VA loans must meet basic prudent underwriting standards. The underwriter always has the final say.
Everything you need to know about VA Qualifying and Debt to Income Ratios (DTI)
VA qualifying total debt to income ratio is 41%. If the ratio exceeds 41%, the borrower must have 120% of the region’s required residual income. Table of Residual Income - Western Region
Income for self employed borrowers, overtime, bonuses, or non salaried income must be averaged for two years. If the borrower owns rental property, VA uses a 25% vacancy factor when calculating rent and cash flow. If the borrower does not have a 2 year history as a landlord, rental income can only be used to offset the mortgage payment on the rental property and may not be used as income to qualify.
NOTE:
Spouse’s debts and obligations must be included in the DTI even if spouse is not on title.
Everything you need to know about VA Credit
All borrowers must have a valid social security number.
Borrowers must have a minimum 620 credit score. Borrowers must pay all tax liens and judgments before COE. Open collections must be explained.
Use the lower of 2, or middle of 3 scores for the lowest scoring borrower. BKs must have been discharged for more than 2 years and the borrower must have re-established credit. No foreclosures within 7 years.
Everything you need to know about VA Residency History
Borrower must provide proof of rental payment or VOR to prove 2 year residence history. Payment shock should be explained and evaluated.
Everything you need to know about VA Assets / Reserves
60 day paper trail required on all borrowers’ asset accounts.
The VA has no specified reserve requirements, however, secondary market overlays require reserves on loans above $417,000.
For example: One investor requires 6 months PITI in reserves on loans between $417,000 and $600,000 and 12 months PITI in reserves on loans over $600,000. This is a guideline that can change depending on the secondary market, so if you have a loan over $417,000 that is light on reserves, check your guidelines ASAP.
Everything you need to know about VA Appraisals and Collateral
As of this writing, there has been no change in the VA appraisal ordering system. All VA loans require a full appraisal. Appraisals must be performed by a VA approved appraiser. The appraisers are assigned by the VA and not chosen by the lender, although the lender orders the appraisal. Appraisers also inspect the property while appraising. The subject property must meet VA Minimum Property Requirements (MPR) prior to loan funding. This will affect properties being sold “as is”. Repairs noted on the appraisal must be complete before closing. The appraiser must inspect the repairs and issue a clear inspection report prior to funding. All VA loans except IRRL refinances require a clear termite report.
Everything you need to know about VA Appraisals and Collateral (Cont’d)
Condos must be on the VA approved condo list. There are no “spot approvals” within condo projects. Anyone may access the approved list on the VA web site: https://vip.vba.va.gov/portal/VBAH/Home
PROPERTY ELIGIBILITY
All VA Loans require Termite Report and Clearance for Heavy and Moderate to heavy areas, according to the Terminte Infestation Probability Map SFR, Condo, PUD, 2-4 units ($417,000 max) Condos must be acceptable to VA, check VA’s site: http://condopudbuilder.vba.va.gov/2.2/frames.html Unacceptable properties •Manufactured Homes •Co-ops •Modular Homes •VA REO’s •Other properties not likely to meet min. property requirements
Well Water and Septic Systems need only be inspected if the appraiser notes any problems Must confirm distance between well and septic field Septic systems must be inspected if property is vacant at time of appraisal Septic system installation permit must be provided for new construction
Check with Individual VA Lenders for Programs and other limitations
Minimum Down Payment and Maximum Loan Amount
The VA guaranty or a combination of the VA guaranty plus the borrower’s down payment and/or equity, must be equal to at least 25% of the subject property’s estimated reasonable value as documented in the Notice of Value (NOV). Because of this, there is no minimum down payment on VA loans at or below the county limit. To verify the county limit, go to: http://www.homeloans.va.gov/docs/2010_county_loan_limits.pdf
For example: If the county limits is $593,750 and the sales price is $793,750, the veteran must put $50,000 down and may borrow $743,750. Here is the Calculation: $793,750 sales price - $593,750 county limit = $200,000 $200,000 difference x 25% down payment required from the veteran = $50,000 $793,750 (sales price) - $50,000 (down payment) = $743,750 Max VA Loan. (That is 94% LTV!)
There is no maximum VA loan amount. However, the secondary market has maximum limits so it is wise to call your AE right away on loans above $1.5 million.
Entitlement/Guaranty The maximum guaranty on a VA loan is the lesser of the veteran’s available entitlement or the maximum potential guaranty amount indicated below
Full Entitlement: • $144,000 and below = $36,000 basic • $144,001 to $417,000 = $104,250 -$36,000 = $68,250 (bonus)
Entitlement/Guaranty
Entitlement/Guaranty Example • • •
Purchasing a home for $425,000 County loan limit is $650,000 (Ventura) Veteran has used $48,000 of entitlement on a prior loan, which may not be restored
Maximum Entitlement/Guaranty
$625k County Loan Limit x 25%
= $162,500 Max Entitlement/Guaranty
Entitlement Available
$162,500 Max Entitlement/Guaranty Less $48k USED Entitlement Prior Loan
= $114,500 Entitlement Available
Maximum Loan Amount
Entitlement Available $114,500 x 4
$458,000 Maximum Loan Amount
Since the proposed loan amount will be less than the $458,000, the lender will receive 25% VA Guaranty on the loan of $425,000 and a down payment will not be required
VA Funding Fee: What is a VA Funding Fee?
This is a charge that most Veterans pay to use the VA Loan Guaranty Program (similar to the FHA UFMIP) Helps defray the cost of the VA Home Loan Program
Required at time of closing..
Calculated on the full loan amount. Fee can be paid in cash, financed or paid from proceeds Can be paid by veteran, seller or via premium pricing. For loan amounts greater than $417,000, the Funding Fee can only be financed if the loan amount + funding fee are less than the maximum loan amount for the MSA.
Funding Fee Amounts vary (See Funding Fee Table)
Type of veteran Down payment amount Transaction type Type of loan Use of the VA home loan program
EXEMPT from VA Funding Fee
Veterans receiving service-connected compensation (for service-connected disabilities) Those who would be receiving service-connected compensation, but are instead receiving military retirement pay Surviving spouses of veterans who died in service or from service-connected causes Must provide VA Indebtedness
VA Funding Fee:
The VA collects a funding fee to offset the cost of their Guaranty. The funding fee is usually financed into the loan amount, but can be paid upfront by the buyer or seller.
The VA funding fee for a first time user with zero down is 2.15%. The VA funding fee for a subsequent user (a veteran who has used entitlement previously) is 3.3% If the veteran puts 5% down the funding fee is 1.5% If the veteran puts 10% down the funding fee is 1.25%. If the Veteran is receiving benefits for a service connected disability the funding fee is waived. The funding fee is also waived for un-remarried spouses of veterans killed in the line of service.
For a complete list of the various funding fees, please see VA Pamphlet 26-7, section 8.
VA Funding Fee:
VERIFYING Exempt status Verify exempt status by obtaining on of the following: A properly completed and signed VA Form 26-8937, Verification of VA Benefits, sent to and processed by VA An award letter issued within 1 year of the date of the loan application indicating Veteran is entitled to receipt of VA disability compensation For a Veteran who elected service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and documentation of the veteran’s service retirement income or Indications on the Certificate of Eligibility that the borrower is entitled as an unmarried surviving spouse.
VERIFYING OF VA BENEFITS 26-8937 This form should be completed on every VA loan, at origination Ask the veteran and applicable co-borrowers if he or she: 1.Is receiving VA disability benefits 2.Would be entitled to receive VA disability, but receives retired pay 3.Has received VA disability benefits in the past, or 4.Is a surviving spouse of a veteran who died on active duty or as a result of a serviceconnected disability. If the answer is yes to one of the above questions, submit the form to: U.S. Department of Veterans Affairs Phoenix Regional Loan Center 3333 North Central Avenue Phoenix, AZ 85012
Calculating VA Funding Fee Example 1 – Funding Fee Financed:
Veteran has full entitlement available and is purchasing a home for $600,000, where the county limit is $625,500
Veteran is eligible for 100% financing and is putting no money down Funding Fee is $600,000 x 2.15% = $12,900 $600,000 + $12,900 = $612,900 Since the combined loan amount plus funding fee is less than the county maximum of $625,500, the funding fee can be financed into the loan amount. The final LTV for this transaction including the funding fee is 102.15%
Example 2 – Funding Fee NOT Financed:
Veteran has full entitlement available and is purchasing a home for $625,500, where the county loan limit is $625,500.
Veteran is eligible for 100% financing and is putting no money down Funding Fee is $625,500 x 2.15% = $13,448.25 $625,500 + $13,448.25 = $638,948.25 Since the combined loan amount plus funding fee is more than the county maximum of $625,500, the funding fee cannot be financed into the loan amount and must be paid in cash The final LTV for this transaction including the funding fee is 100%
Calculating VA Funding Fee Example 3 PRIOR Entitlement Used: Veteran has used $104,250 of entitlement on a prior loan, which may not be restored and is purchasing a home for $380,000, where the county loan limit is $815,000.
$815,000 x 25% = $203,750 Maximum Guaranty $203,750 - $104,250 = $99,500 Entitlement Available $99,500 x 4 = $398,000 Maximum Loan Amount with 25% Guaranty Since the proposed loan amount will be less than $398,000, the lender will receive 25% VA Guaranty on the loan of $380,000. A down payment should not be required.
Example 4 FULL ENTITLEMENT –Max Loan Limits: Veteran has full entitlement available and is purchasing a home for $800,000 where the county loan limit is $729,750.
$729,750 x 25% = $182,437.50 Maximum Guaranty and Available Entitlement $182,437.50 / $800,000 = 22.81% Guaranty $800,000 x 25% = $200,000 Guaranty and Down Payment Combination Required $200,000 - $182,437.50 = $17,562.50 Down Payment
A down payment of $17,562.50 is required.
Closing Cost and Seller Contributions The Veteran is allowed to pay:
Up to 1% loan origination Discount points: (depends on market, usually between 0-3%) Credit report Hazard insurance: (based on property value and area) Flood determination: Appraisal Fee Recording Fees Alta Policy: (based on loan amount)
Closing Cost and Seller Contributions (Cont’d) The Veteran is NOT allowed to pay:
Escrow and associated fees Tax service contract Notary fees Loan Tie In Sub Escrow Any brokerage or lender fees such as processing, underwriting, documents, admin, etc. Attorney fees Any appraisal not ordered in the veteran’s name. MCRV (master VA appraisal on a project)
Closing Cost and Seller Contributions (Cont’d)
Broker Fees: Originators cannot charge the veteran unallowable fees such as processing, underwriting, documents, admin, etc. It’s OK to charge these fees to the seller. Unallowable fees discovered after funding must be paid back to reduce the veteran’s loan amount. If the originator does not charge a 1% loan origination fee, the veteran may pay non-allowable fees up to 1% of the loan amount.
Originators can’t charge discount points and receive a rebate. For example, if the rate sheet price at 6% is (.75) rebate, the originator can only charge the 1 point loan origination fee.
The origination fee is based on the gross loan amount, after the funding fee has been added.
Closing Cost and Seller Contributions (Cont’d)
This table shows the difference in closing costs for a veteran and a seller under two scenarios: the first column shows how much the seller and veteran each pay if the veteran pays all allowable costs and the seller pays the minimum required on a VA loan; the second column shows how much a seller would pay in a classic “VA No-No” where the seller pays everything.
In Example 1 The seller pays about $2,930 in costs, or about 3/4 of a percent of the sales price (.75 pts), and the veteran pays $8,276, or just over 2% of the sales price to close.
In Example 2 The seller pays all costs, the total is $11,206, or just under 3% of the sales price. Closing costs are not considered seller contributions, so the seller can still contribute another 4% to the veteran to buy down the interest rate or pay the funding fee.
What does a Realtor need to know about VA loans?
VA loans can be closed quickly. conventional loans.
They don’t take longer to close than
The seller must pay all escrow fees and non allowable charges. In a $400,000 transaction this will total about $3,000 (.75% - 1.0% is a quick rule of thumb to make sure everything is covered)
The seller may pay 4% over and above all the closing costs. Closing costs are not counted towards the 4% seller contribution. This means the seller may pay all of the closing costs and up to 4% towards discount points or the VA funding fee. This is the classic “VA No-No” - no closing costs, no down payment.
The appraisal must be done by a VA approved appraiser. If the property does not appraise, the borrower may cancel escrow with no loss of deposit.
What does a Realtor need to know about VA loans? (Cont’d)
Repairs requested by the appraiser must be completed and re-inspected before closing.
Termite report and clearance is always required for VA approval – except on condos.
Non occupant borrowers are not permitted to help the borrower qualify. Only a spouse or another veteran who is occupying the property can co-mortgage.
Borrowers must occupy the property. No investment property purchases allowed. VA is often confused as a “first time homebuyer” program, but this is not the case. VA borrowers may own other property as long as the subject property will be owner occupied.
What does a Realtor need to know about VA loans? (Cont’d)
VA loans are assumable - if you have a listing on a property with a VA loan, the terms of that loan might be better than the terms your borrower can obtain in the current market - so check it out.
Condos must be on the VA approved list. Anyone may access the approved list on the VA web site: https://vip.vba.va.gov/portal/VBAH/Home
What do LO’s and Processors Need to Know About VA Loans? Except for the VA specific disclosures, there is no difference in the application process between a VA loan and a conventional loan. The basic application is a 1003. There are a handful of additional loan application forms. Here is a typical checklist:
VA Loan Limits in California by County http://www.benefits.va.gov/homeloans/docs/2011_county_loan_limits.pdf The national loan limit is $417,000. This chart is for high cost counties where the loan limit is above $417,000. Note the higher limits in Northern California.
VA Matrix
Note: Most other lenders require higher FICO and more reserves.
Statistical Data (for CA, NV, NM, AZ)
Units
Total Loan Amount
Average Loan Amount
2008 California
7,723
$2,273,194,361
$294,341
2008 All States
18,751
$4,664,776,288
$248,775
2009 California
21,602
$6,044,262,065
$279,801
2009 All States
43,185
$10,471,139,087
$242,472
2010 California
12,597
$3,547,249,224
$281,595
2010 All States
24,188
$5,770,065,261
$238,551
In 2009, a limited group of lenders funded over 21,000 VA loans for $6 billion in California alone. Let’s grab some of this market!
Here are some important websites for further research:
VA home page: http://www.homeloans.va.gov/
Lender’s Handbook: http://www.warms.vba.va.gov/ pam26_7.html
Questions Q) What is the maximum loan a veteran can obtain in Los Angeles county with zero down payment? A) $593,750 Q) If our county is not on this list, what is the maximum zero down payment loan amount? A) $417,000. The above list is only for high cost counties above $417K. Q) My Dad served in WWII and has never used his VA benefits. Is he still eligible? A) Yes. All veterans who served the required time are eligible for life. Q) I have used my VA previously. Can I use it again? A) Yes. As long as the first loan has been paid off and in most cases the property sold. Q) If the borrower only receives $100/month in disability income from the VA, how does this effect his funding fee? A) If a veteran receives ANY monthly disability payment from the VA the funding fee will be waived.
Thank you!
VA Benefits The Veteran’s Best Friend
No down payment required. See county list for limits. Maximum seller contributions may exceed 6% 100% gift funds allowed 90% LTV cash out refinances No minimum reserve requirements Manual and automated underwriting Citizenship is not required Veteran can use entitlement many times Not limited to first time homebuyers Fixed rate assumable loan Reservists qualify for VA benefits Quick closings
Your Bay Equity VA Resource:
Kari Clouse 415-820-4563
Please call if you have questions about a VA transaction!
Everything you need to know about VA
Who can Originate VA Loans? Loan Programs VA Eligibility Documentation and Underwriting Qualifying and Debt to Income Ratio (DTI) Credit Residency History Assets Appraisals and Collateral
Everything you need to know about VA Who can Originate VA Loans?
Anyone who originates conventional loans may originate VA loans! A mortgage broker may act as an agent for a VA approved lender without a VA ID number if the brokerage originates less than 4 VA loans per year.
If a loan originator originates more than 4 VA loans in one year, the LO must be employed by a VA approved lender, or may act as an agent for a VA approved lender. Becoming an agent for a VA approved lender is simple. Once a year, the mortgage brokerage must apply to become an agent for the VA approved lender. The cost is $100. The broker hands a $100 check made out to the VA to the VA approved lender. The VA approved lender then submits a corporate resolution and the broker’s check to the VA. This application process is quite simple and can be accomplished in a few weeks. The VA then issues a VA ID number to the broker identifying them as an agent for the VA approved lender.
Everything you need to know about VA Loan Programs
VA loans can be fixed or adjustable. However, for all practical purposes the fixed rate loan is the only VA loan ever used. Fixed rate loans can be 15 or 30 year terms.
Everything you need to know about VA VA Eligibility
Every veteran is entitled to a VA loan after a minimum time of active duty and an honorable discharge, or current active duty conducted honorably. Reservists and National Guard are eligible for a VA loan if they have served 6 years or more in the reserves. Un-remarried spouses of veterans killed in the line of service are also eligible.
A veteran may use all part of his or her entitlement. If a veteran has already used part of his entitlement, and the loan is still active, he or she will not be eligible for the full $593,750 zero down loan in Orange and LA County. It is important to establish if the veteran has full entitlement very early in the loan process.
A veteran is eligible for VA home loan benefits if he or she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard after September 15, 1940, and was discharged under conditions other than dishonorable after either: – 90 days or more, any part of which occurred during wartime, or – 181 continuous days or more (peacetime).
Two year Requirement - A greater length of service is required for veterans who: – enlisted (and service began) after September 7, 1980, or – entered service as an officer after October 16, 1981
Everything you need to know about VA VA Eligibility (Cont’d).
These veterans must have completed either: – 24 continuous months of active duty, or – the full period for which called or ordered to active duty, but not less than 90 days (any part during wartime) or 181 continuous days (peacetime).
Note: Cases involving other than honorable discharges will usually require further development by VA. This is necessary to determine if the service was under other than dishonorable conditions.
Wartime and peacetime refer to the following periods of service:
If a veteran served after 8/21/1990, he or she only had to serve 90 days to be fully eligible. You can research VA eligibility using the Veteran’s Portal on the VA website, once you have a user name and PW. Approved brokers must have their own VA ID #.
Everything you need to know about VA VA Eligibility (Cont’d). CO-BORROWERS • •
Only the spouse of a Veteran is eligible No other person may co-borrow, i.e. brother, sister, parent, uncle, aunt, significant other, etc.
NON PURCHASING SPOUSE
Acceptable in community property states • Credit Report for Non-Purchasing spouse required • Obligations will be counted in DTI calculation against Veteran • Credit history will be analyzed
MORE THAN ONE VETERAN/ELIGIBILE BORROWERS Two Veterans or VA eligible borrower’s can purchase together with VA Approval Must be submitted directly to VA for approval
Everything you need to know about VA Documentation and Underwriting
All VA loans require full income and asset documentation. All VA loans can be run through Fannie Mae DU or Freddie Mac LP. An approval by one of these systems is acceptable to VA regardless of debt to income ratios. However, the VA underwriter has the discretion to override an automated approval based on certain negative factors such as poor credit payment history. If the loan is not approved though DU or LP the loan may be manually underwritten. Regardless of the underwriting method, VA loans must meet basic prudent underwriting standards. The underwriter always has the final say.
Everything you need to know about VA Qualifying and Debt to Income Ratios (DTI)
VA qualifying total debt to income ratio is 41%. If the ratio exceeds 41%, the borrower must have 120% of the region’s required residual income. Table of Residual Income - Western Region
Income for self employed borrowers, overtime, bonuses, or non salaried income must be averaged for two years. If the borrower owns rental property, VA uses a 25% vacancy factor when calculating rent and cash flow. If the borrower does not have a 2 year history as a landlord, rental income can only be used to offset the mortgage payment on the rental property and may not be used as income to qualify.
NOTE:
Spouse’s debts and obligations must be included in the DTI even if spouse is not on title.
Everything you need to know about VA Credit
All borrowers must have a valid social security number.
Borrowers must have a minimum 620 credit score. Borrowers must pay all tax liens and judgments before COE. Open collections must be explained.
Use the lower of 2, or middle of 3 scores for the lowest scoring borrower. BKs must have been discharged for more than 2 years and the borrower must have re-established credit. No foreclosures within 7 years.
Everything you need to know about VA Residency History
Borrower must provide proof of rental payment or VOR to prove 2 year residence history. Payment shock should be explained and evaluated.
Everything you need to know about VA Assets / Reserves
60 day paper trail required on all borrowers’ asset accounts.
The VA has no specified reserve requirements, however, secondary market overlays require reserves on loans above $417,000.
For example: One investor requires 6 months PITI in reserves on loans between $417,000 and $600,000 and 12 months PITI in reserves on loans over $600,000. This is a guideline that can change depending on the secondary market, so if you have a loan over $417,000 that is light on reserves, check your guidelines ASAP.
Everything you need to know about VA Appraisals and Collateral
As of this writing, there has been no change in the VA appraisal ordering system. All VA loans require a full appraisal. Appraisals must be performed by a VA approved appraiser. The appraisers are assigned by the VA and not chosen by the lender, although the lender orders the appraisal. Appraisers also inspect the property while appraising. The subject property must meet VA Minimum Property Requirements (MPR) prior to loan funding. This will affect properties being sold “as is”. Repairs noted on the appraisal must be complete before closing. The appraiser must inspect the repairs and issue a clear inspection report prior to funding. All VA loans except IRRL refinances require a clear termite report.
Everything you need to know about VA Appraisals and Collateral (Cont’d)
Condos must be on the VA approved condo list. There are no “spot approvals” within condo projects. Anyone may access the approved list on the VA web site: https://vip.vba.va.gov/portal/VBAH/Home
PROPERTY ELIGIBILITY
All VA Loans require Termite Report and Clearance for Heavy and Moderate to heavy areas, according to the Terminte Infestation Probability Map SFR, Condo, PUD, 2-4 units ($417,000 max) Condos must be acceptable to VA, check VA’s site: http://condopudbuilder.vba.va.gov/2.2/frames.html Unacceptable properties •Manufactured Homes •Co-ops •Modular Homes •VA REO’s •Other properties not likely to meet min. property requirements
Well Water and Septic Systems need only be inspected if the appraiser notes any problems Must confirm distance between well and septic field Septic systems must be inspected if property is vacant at time of appraisal Septic system installation permit must be provided for new construction
Check with Individual VA Lenders for Programs and other limitations
Minimum Down Payment and Maximum Loan Amount
The VA guaranty or a combination of the VA guaranty plus the borrower’s down payment and/or equity, must be equal to at least 25% of the subject property’s estimated reasonable value as documented in the Notice of Value (NOV). Because of this, there is no minimum down payment on VA loans at or below the county limit. To verify the county limit, go to: http://www.homeloans.va.gov/docs/2010_county_loan_limits.pdf
For example: If the county limits is $593,750 and the sales price is $793,750, the veteran must put $50,000 down and may borrow $743,750. Here is the Calculation: $793,750 sales price - $593,750 county limit = $200,000 $200,000 difference x 25% down payment required from the veteran = $50,000 $793,750 (sales price) - $50,000 (down payment) = $743,750 Max VA Loan. (That is 94% LTV!)
There is no maximum VA loan amount. However, the secondary market has maximum limits so it is wise to call your AE right away on loans above $1.5 million.
Entitlement/Guaranty The maximum guaranty on a VA loan is the lesser of the veteran’s available entitlement or the maximum potential guaranty amount indicated below
Full Entitlement: • $144,000 and below = $36,000 basic • $144,001 to $417,000 = $104,250 -$36,000 = $68,250 (bonus)
Entitlement/Guaranty
Entitlement/Guaranty Example • • •
Purchasing a home for $425,000 County loan limit is $650,000 (Ventura) Veteran has used $48,000 of entitlement on a prior loan, which may not be restored
Maximum Entitlement/Guaranty
$625k County Loan Limit x 25%
= $162,500 Max Entitlement/Guaranty
Entitlement Available
$162,500 Max Entitlement/Guaranty Less $48k USED Entitlement Prior Loan
= $114,500 Entitlement Available
Maximum Loan Amount
Entitlement Available $114,500 x 4
$458,000 Maximum Loan Amount
Since the proposed loan amount will be less than the $458,000, the lender will receive 25% VA Guaranty on the loan of $425,000 and a down payment will not be required
VA Funding Fee: What is a VA Funding Fee?
This is a charge that most Veterans pay to use the VA Loan Guaranty Program (similar to the FHA UFMIP) Helps defray the cost of the VA Home Loan Program
Required at time of closing..
Calculated on the full loan amount. Fee can be paid in cash, financed or paid from proceeds Can be paid by veteran, seller or via premium pricing. For loan amounts greater than $417,000, the Funding Fee can only be financed if the loan amount + funding fee are less than the maximum loan amount for the MSA.
Funding Fee Amounts vary (See Funding Fee Table)
Type of veteran Down payment amount Transaction type Type of loan Use of the VA home loan program
EXEMPT from VA Funding Fee
Veterans receiving service-connected compensation (for service-connected disabilities) Those who would be receiving service-connected compensation, but are instead receiving military retirement pay Surviving spouses of veterans who died in service or from service-connected causes Must provide VA Indebtedness
VA Funding Fee:
The VA collects a funding fee to offset the cost of their Guaranty. The funding fee is usually financed into the loan amount, but can be paid upfront by the buyer or seller.
The VA funding fee for a first time user with zero down is 2.15%. The VA funding fee for a subsequent user (a veteran who has used entitlement previously) is 3.3% If the veteran puts 5% down the funding fee is 1.5% If the veteran puts 10% down the funding fee is 1.25%. If the Veteran is receiving benefits for a service connected disability the funding fee is waived. The funding fee is also waived for un-remarried spouses of veterans killed in the line of service.
For a complete list of the various funding fees, please see VA Pamphlet 26-7, section 8.
VA Funding Fee:
VERIFYING Exempt status Verify exempt status by obtaining on of the following: A properly completed and signed VA Form 26-8937, Verification of VA Benefits, sent to and processed by VA An award letter issued within 1 year of the date of the loan application indicating Veteran is entitled to receipt of VA disability compensation For a Veteran who elected service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and documentation of the veteran’s service retirement income or Indications on the Certificate of Eligibility that the borrower is entitled as an unmarried surviving spouse.
VERIFYING OF VA BENEFITS 26-8937 This form should be completed on every VA loan, at origination Ask the veteran and applicable co-borrowers if he or she: 1.Is receiving VA disability benefits 2.Would be entitled to receive VA disability, but receives retired pay 3.Has received VA disability benefits in the past, or 4.Is a surviving spouse of a veteran who died on active duty or as a result of a serviceconnected disability. If the answer is yes to one of the above questions, submit the form to: U.S. Department of Veterans Affairs Phoenix Regional Loan Center 3333 North Central Avenue Phoenix, AZ 85012
Calculating VA Funding Fee Example 1 – Funding Fee Financed:
Veteran has full entitlement available and is purchasing a home for $600,000, where the county limit is $625,500
Veteran is eligible for 100% financing and is putting no money down Funding Fee is $600,000 x 2.15% = $12,900 $600,000 + $12,900 = $612,900 Since the combined loan amount plus funding fee is less than the county maximum of $625,500, the funding fee can be financed into the loan amount. The final LTV for this transaction including the funding fee is 102.15%
Example 2 – Funding Fee NOT Financed:
Veteran has full entitlement available and is purchasing a home for $625,500, where the county loan limit is $625,500.
Veteran is eligible for 100% financing and is putting no money down Funding Fee is $625,500 x 2.15% = $13,448.25 $625,500 + $13,448.25 = $638,948.25 Since the combined loan amount plus funding fee is more than the county maximum of $625,500, the funding fee cannot be financed into the loan amount and must be paid in cash The final LTV for this transaction including the funding fee is 100%
Calculating VA Funding Fee Example 3 PRIOR Entitlement Used: Veteran has used $104,250 of entitlement on a prior loan, which may not be restored and is purchasing a home for $380,000, where the county loan limit is $815,000.
$815,000 x 25% = $203,750 Maximum Guaranty $203,750 - $104,250 = $99,500 Entitlement Available $99,500 x 4 = $398,000 Maximum Loan Amount with 25% Guaranty Since the proposed loan amount will be less than $398,000, the lender will receive 25% VA Guaranty on the loan of $380,000. A down payment should not be required.
Example 4 FULL ENTITLEMENT –Max Loan Limits: Veteran has full entitlement available and is purchasing a home for $800,000 where the county loan limit is $729,750.
$729,750 x 25% = $182,437.50 Maximum Guaranty and Available Entitlement $182,437.50 / $800,000 = 22.81% Guaranty $800,000 x 25% = $200,000 Guaranty and Down Payment Combination Required $200,000 - $182,437.50 = $17,562.50 Down Payment
A down payment of $17,562.50 is required.
Closing Cost and Seller Contributions The Veteran is allowed to pay:
Up to 1% loan origination Discount points: (depends on market, usually between 0-3%) Credit report Hazard insurance: (based on property value and area) Flood determination: Appraisal Fee Recording Fees Alta Policy: (based on loan amount)
Closing Cost and Seller Contributions (Cont’d) The Veteran is NOT allowed to pay:
Escrow and associated fees Tax service contract Notary fees Loan Tie In Sub Escrow Any brokerage or lender fees such as processing, underwriting, documents, admin, etc. Attorney fees Any appraisal not ordered in the veteran’s name. MCRV (master VA appraisal on a project)
Closing Cost and Seller Contributions (Cont’d)
Broker Fees: Originators cannot charge the veteran unallowable fees such as processing, underwriting, documents, admin, etc. It’s OK to charge these fees to the seller. Unallowable fees discovered after funding must be paid back to reduce the veteran’s loan amount. If the originator does not charge a 1% loan origination fee, the veteran may pay non-allowable fees up to 1% of the loan amount.
Originators can’t charge discount points and receive a rebate. For example, if the rate sheet price at 6% is (.75) rebate, the originator can only charge the 1 point loan origination fee.
The origination fee is based on the gross loan amount, after the funding fee has been added.
Closing Cost and Seller Contributions (Cont’d)
This table shows the difference in closing costs for a veteran and a seller under two scenarios: the first column shows how much the seller and veteran each pay if the veteran pays all allowable costs and the seller pays the minimum required on a VA loan; the second column shows how much a seller would pay in a classic “VA No-No” where the seller pays everything.
In Example 1 The seller pays about $2,930 in costs, or about 3/4 of a percent of the sales price (.75 pts), and the veteran pays $8,276, or just over 2% of the sales price to close.
In Example 2 The seller pays all costs, the total is $11,206, or just under 3% of the sales price. Closing costs are not considered seller contributions, so the seller can still contribute another 4% to the veteran to buy down the interest rate or pay the funding fee.
What does a Realtor need to know about VA loans?
VA loans can be closed quickly. conventional loans.
They don’t take longer to close than
The seller must pay all escrow fees and non allowable charges. In a $400,000 transaction this will total about $3,000 (.75% - 1.0% is a quick rule of thumb to make sure everything is covered)
The seller may pay 4% over and above all the closing costs. Closing costs are not counted towards the 4% seller contribution. This means the seller may pay all of the closing costs and up to 4% towards discount points or the VA funding fee. This is the classic “VA No-No” - no closing costs, no down payment.
The appraisal must be done by a VA approved appraiser. If the property does not appraise, the borrower may cancel escrow with no loss of deposit.
What does a Realtor need to know about VA loans? (Cont’d)
Repairs requested by the appraiser must be completed and re-inspected before closing.
Termite report and clearance is always required for VA approval – except on condos.
Non occupant borrowers are not permitted to help the borrower qualify. Only a spouse or another veteran who is occupying the property can co-mortgage.
Borrowers must occupy the property. No investment property purchases allowed. VA is often confused as a “first time homebuyer” program, but this is not the case. VA borrowers may own other property as long as the subject property will be owner occupied.
What does a Realtor need to know about VA loans? (Cont’d)
VA loans are assumable - if you have a listing on a property with a VA loan, the terms of that loan might be better than the terms your borrower can obtain in the current market - so check it out.
Condos must be on the VA approved list. Anyone may access the approved list on the VA web site: https://vip.vba.va.gov/portal/VBAH/Home
What do LO’s and Processors Need to Know About VA Loans? Except for the VA specific disclosures, there is no difference in the application process between a VA loan and a conventional loan. The basic application is a 1003. There are a handful of additional loan application forms. Here is a typical checklist:
VA Loan Limits in California by County http://www.benefits.va.gov/homeloans/docs/2011_county_loan_limits.pdf The national loan limit is $417,000. This chart is for high cost counties where the loan limit is above $417,000. Note the higher limits in Northern California.
VA Matrix
Note: Most other lenders require higher FICO and more reserves.
Statistical Data (for CA, NV, NM, AZ)
Units
Total Loan Amount
Average Loan Amount
2008 California
7,723
$2,273,194,361
$294,341
2008 All States
18,751
$4,664,776,288
$248,775
2009 California
21,602
$6,044,262,065
$279,801
2009 All States
43,185
$10,471,139,087
$242,472
2010 California
12,597
$3,547,249,224
$281,595
2010 All States
24,188
$5,770,065,261
$238,551
In 2009, a limited group of lenders funded over 21,000 VA loans for $6 billion in California alone. Let’s grab some of this market!
Here are some important websites for further research:
VA home page: http://www.homeloans.va.gov/
Lender’s Handbook: http://www.warms.vba.va.gov/ pam26_7.html
Questions Q) What is the maximum loan a veteran can obtain in Los Angeles county with zero down payment? A) $593,750 Q) If our county is not on this list, what is the maximum zero down payment loan amount? A) $417,000. The above list is only for high cost counties above $417K. Q) My Dad served in WWII and has never used his VA benefits. Is he still eligible? A) Yes. All veterans who served the required time are eligible for life. Q) I have used my VA previously. Can I use it again? A) Yes. As long as the first loan has been paid off and in most cases the property sold. Q) If the borrower only receives $100/month in disability income from the VA, how does this effect his funding fee? A) If a veteran receives ANY monthly disability payment from the VA the funding fee will be waived.
Thank you!
