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VA HOME LOANS 4/12/2017.

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Presentation on theme: "VA HOME LOANS 4/12/2017."— Presentation transcript:

1 VA HOME LOANS 4/12/2017

4/12/2017 VETERAN ELIGIBILITY GENERAL RULES FOR ELIGIBILITY A veteran is eligible for VA home loan benefits if he or she has served on active duty and was discharged under conditions other than dishonorable after: 90 days or more during wartime, OR 181 continuous days or more during peacetime prior to 09/08/80 2-Year Requirement: A greater length of service is required for a veteran who: enlisted after September 7, 1980, OR was an officer AND began service after October 16, 1981. These veterans must have completed either at least 24 continuous months, OR the full period ordered to active duty, (not less than 90 days during wartime, or 181days during peacetime). PERIOD DATES TIME REQUIRED___ WWII 9/16/40-7/25/47 90 DAYS POST WWII 7/25/47-6/26/ DAYS KOREAN CONFLICT 6/27/50-1/31/55 90 DAYS POST KOREAN CONFLICT 2/01/55-8/05/ DAYS VIETNAM ERA 8/05/64-5/07/75 90 DAYS POST VIETNAM ERA 5/08/75-9/07/ DAYS PERSIAN GULF WAR 8/02/90-PRESENT 2 YEARS or THE FULL PERIOD CALL TO ACTIVE DUTY ( AT LEAST 90 ) 4/12/2017 2

4/12/2017 RESERVES/NATIONAL GUARD The veteran must complete a total of 6 years in the Select Reserves or National Guard with an honorable discharge and not be otherwise eligible. Members may also be eligible with less than 6 years if they were called to active duty for at least 90 days during the Persian Gulf Era. ACTIVE DUTY SERVICE PERSONNEL A member of the military who is currently serving on active duty is eligible after having served on continuous active duty for at least 181 days ( 90 days during the Gulf War period) unless discharged or separated from a previous qualifying period of active duty service. ALL OTHERS Eligibility may be established for certain other individuals, such as the Unmarried Surviving Spouse of a veteran who died while in service or From a service connected disability, Merchant Marines, Public Health Service, WAC’S and other World War II Services, and Officers of the Coast and Geodetic Survey. 4/12/2017 3

4 How To Obtain A Certificate Of Eligibility Verification
1. Log into the VA Portal 2. Click the link to WebLGY 4/12/2017

5 4. Complete Veteran Borrower Information form DD-214
3. Click the link to “ACE” 4. Complete Veteran Borrower Information form DD-214 4/12/2017

6 Sample of C.O.E. (certificate of eligibility)

7 Attach a copy of DD214 , Certificate of Separation from Active Duty.
If unable to obtain the C.O.E. from WebLGY, you must request one using the following steps: The veteran completes VA Form , Request For A Certificate Of Eligibility For VA Home Loan Benefits. The application must be signed and dated. Attach a copy of DD214 , Certificate of Separation from Active Duty. Active duty personnel will need to furnish a Statement of Service letter issued by, or by direction of, the adjutant, personnel officer, or commander of the unit in place of the DD214. Upload the applicable forms to the VA Portal (WebLGY / ACE) 4/12/2017

8 Sample DD214 Sample VA 4/12/2017

9 How to Determine Entitlement from the C.O.E.

10 Entitlement Codes 4/12/2017

11 If a Veteran has previously used their VA , it must be deducted to determine amount of entitlement still available (see worksheet). Previous entitlement used. 4/12/2017

12 County Limits To verify County Loan limit use the following link : 4/12/2017

13 Max Loan Amount 4/12/2017

14 Examples 4/12/2017

15 4/12/2017

16 Restoration of Entitlement
To qualify for restoration of entitlement, one of the following requirements must be met: The prior VA loan must be paid in full and the property disposed of, OR The prior VA loan must have been assumed by an eligible veteran who substituted his/her entitlement. NOTE: Lenders should request restoration prior to closing the new loan. Lenders are also encouraged to research the veteran’s prior loans to confirm those loans using VA entitlement. Documents required for restoration: VA Form , completed, signed and dated by the veteran. Evidence that previous loan is paid in full Proof of Military Service 4/12/2017

17 Special one time Restoration:
Home loan entitlement may be restored one time only, if the veteran has repaid the prior VA loan in full, but has not disposed of the property securing the loan. After such a restoration, any future restoration will require the veteran to dispose of all property financed with VA loans, including the property not disposed of under the “one time only” exception. Note: Documentation requirements are the same as those listed in the previous slide. Divorce Cases: When property is awarded to the veteran’s spouse as a result of divorce, entitlement cannot be restored unless the spouse refinances the property and/or pays the VA loan in full or the ex-spouse is a veteran who substitutes their entitlement. 4/12/2017

18 Closing Costs - Allowable and Non Allowable Fees
Policy The VA Home Loan program involves a veteran's benefit. VA policy has evolved around the objective of helping the veteran to use his or her home loan benefit. Therefore, VA regulations limit the fees that the veteran can pay to obtain a loan. Lenders must strictly adhere to the limitations on borrower-paid fees and charges when making VA loans. The VA Funding Fee In order to defray the cost of administering the VA Home Loan program, each veteran must pay a funding fee to VA at loan closing. Congress may periodically change the funding fee rates to reflect changes in the cost of administering the program, or to assist a certain class of veterans. 4/12/2017

19 Closing Costs - Allowable and Non Allowable Fees

20 Who is Exempt from Paying The Funding Fee?
4/12/2017 The following persons are exempt from paying the funding fee: Veterans receiving VA compensation for service-connected disabilities. Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay. Veterans who are rated by VA as eligible to receive compensation as a result of pre-discharge disability examination and rating or on the basis of a pre-discharge review of existing medical evidence (including service medical and treatment records) that results in issuance of a memorandum rating. Veterans entitled to receive compensation, but who are not presently in receipt because they are on active duty. Surviving spouses of veterans who died in service or from service-connected disabilities (whether or not such surviving spouses are veterans with their own entitlement and whether or not they are using their own entitlement on the loan). 4/12/2017 20

21 Fees and Charges the Veteran Can Pay
4/12/2017 Overview The veteran can pay a maximum of reasonable and customary amounts for any or all of the "Itemized Fees and Charges" designated by VA, plus a one percent flat charge by the lender, plus reasonable discount points. Whenever the charge relates to services performed by a third party, the amount paid by the borrower must be limited to the actual charge of that third party. Examples: If the lender obtains a credit report at a cost of $30, the lender may only charge the borrower $30 for the credit report. The lender may not charge $35, even if it believes that a $5 handling charge is fair. In addition, the borrower may not pay a duplicate fee for services that have already been paid for by another party. An appraisal is completed on a property and paid for by a prospective purchaser, but the sale is never completed. A second purchaser applies for a loan before the validity period of the Notice of Value (NOV) expires. The lender uses the same NOV. The lender may not charge the second purchaser an appraisal fee if no second appraisal A survey or flood zone determination, if the lender elects to use an existing survey or flood determination. 4/12/2017 21

22 Itemized Fees and Charges
The veteran may pay any or all of the following itemized fees and charges, in amounts that are reasonable and customary 4/12/2017

23 Lender's One Percent Flat Charge
In addition to the “itemized fees and charges,” the lender may charge the veteran a flat charge not to exceed one percent of the loan amount. Calculate the one percent on the principal amount after adding the funding fee to the loan, if the funding fee is paid from loan proceeds (except Interest Rate Reduction Refinancing Loans (IRRRLs). The lender’s flat charge is intended to cover all of the lender’s costs and services which are not reimbursable as “itemized fees and charges.” The following list provides examples of items that cannot be charged to the veteran as “itemized fees and charges.” Instead, the lender must cover any cost of these items out of its flat fee: lender's appraisals loan closing or settlement fees preparing loan papers or conveyance fees photographs postage and other mailing charges, stationery, telephone calls, and other overhead escrow fees or charges commitment fees or marketing fees of any secondary purchaser of the mortgage and preparation and recording of assignment of mortgage to such purchaser loan application or processing fees lender's inspections, except in construction loan cases document preparation fees attorney's services other than for title work interest rate lock-in fees amortization schedules, pass books, and membership or entrance fees notary fees trustee's fees or charges fees for preparation of truth-in-lending disclosure statement tax service fees fees charged by loan brokers, finders or other third parties whether affiliated with the lender or not 4/12/2017

24 Attorney's Fees The lender may not charge the borrower for attorney's fees. However, reasonable fees for title examination work and title insurance can be paid by the borrower. They are allowable itemized fees and charges. VA does not intend to prevent the veteran from seeking independent legal representation. Therefore, the veteran can independently retain an attorney and pay a fee for legal services in connection with the purchase of a home. Closing documents should clearly indicate that the attorney's fee is not being charged by the lender, but is being paid by the veteran as part of an independent arrangement with an attorney. Brokerage Fees Fees or commissions charged by a real estate agent or broker in connection with a VA loan may not be charged to or paid by the veteran-purchaser. While use of "buyer" brokers is not precluded, veteran-purchasers may not, under any circumstances, be charged a brokerage fee or commission in connection with the services of such individuals. Since information on property available for purchase and financing options is widely available to the public from a variety of sources, VA does not believe that preventing the veteran from paying buyer-broker fees will harm the veteran. Prepayment Penalties A veteran obtaining a VA refinancing loan cannot use loan proceeds to pay penalty costs for prepayment of an existing lien. A veteran purchasing a property with a VA loan cannot pay penalty costs required to discharge any existing liens on the seller's property. 4/12/2017

25 Closing Cost Credits and Seller Concessions
Policy -The seller, lender, or any other party may pay fees and charges, including discount points, on behalf of the borrower. VA regulations limit charges "made against or paid by" the borrower. They do not limit the payment of fees and charges by other parties. Excessive seller concessions are prohibited. Credits from the lender must be itemized on the HUD-1. Seller Concessions-A seller concession is anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide. Seller concessions include, but are not limited to: payment of the buyer's VA funding fee prepayment of the buyer's property taxes and insurance, gifts such as a television set or microwave oven, payment of extra points to provide permanent interest rate buy down provision of escrowed funds to provide temporary interest rate buy downs, and payoff of credit balances or judgments on behalf of the buyer do not include payment of the buyer’s closing costs, or payment of points as appropriate to the market. The Four Percent Limit - Any seller concession or combination of concessions which exceeds four percent of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans. Do not include normal discount points and payment of the buyer's closing costs in total concessions for determining whether concessions exceed the four percent limit. 4/12/2017

26 VA Loans – Qualifying Loan types we offer: Underwriting Methods:
Purchase: 100% LTV with a 640 FICO (Includes High Balance) ** Loans at $1,000, > requires a minimum FICO of 700 ** Cash Out: Up to 90% with a 640 FICO/100% LTV with a 680 FICO. No seasoning required (Includes High Balance) Interest Rate Reduction Refinance Loan (VA to VA Streamline): 640 FICO Underwriting Methods: Automated Underwriting System – DU Approve/Eligible or LP Accept/Eligible. Exceptions can be granted for manual underwrite on a case by case basis. VA Prior Approval (Joint Entitlement of Two Veteran Borrowers or for a Veteran who is rated Incompetent). 4/12/2017

27 Residual Income Requirement:
Eligible Borrowers: Veteran Veteran and spouse Surviving spouse of a qualified Veteran Veteran and Veteran/Non Veteran (Joint Loans Subject to VA Prior Approval and Lender Analysis of Guarantee) Debt to Income Ratio: Max DTI determined by Automated Underwriting System. A DTI over 41% may require additional residual income and other compensating factors. In addition to obligations normally included in the Debt to Income Ration, Childcare expenses will also be counted in the Debt to Income ratio. Residual Income Requirement: VA requires a minimum balance available for family support. In addition to PITIA, rental property losses, installment, and revolving debts, the VA will also analyze the following in the residual income calculation. Maintenance and Utilities (0.14 per SOFT of the subject property) Federal Income Tax Withholdings State Income Tax Withholdings FICA Withholdings (Social Security and Medicare) ** Withholdings for payroll taxes will be calculated using Apply the number of dependents to the largest wage earner only** 4/12/2017

28 Balance Available for Family Support
Residual income is the amount of net income remaining (after deduction of debts and obligations and monthly PITIA expenses) to cover family living expenses such as food, health care, clothing, and gasoline. The numbers are based on data supplied in the Consumer Expenditures Survey (CES) published by the Department of Labor’s Bureau of Labor Statistics. They vary according to loan size, family size, and region of the country. Count all members of the household (without regard to the nature of the relationship) when determining “family size”, including an applicant’s spouse who is not joining in title or on the note, and any other individuals who depend on the applicant for support. For example, children from a spouse’s prior marriage who are not the applicant’s legal dependents. The current dependent situation must be properly disclosed on the 1003 and validated by underwriting. Exception: The lender may omit any individuals from “family size” who are fully supported from a source of verified income which, for whatever reason, is not included in effective income in the loan analysis. For example, a spouse not obligated on the note who has stable and reliable income sufficient to support his or her living expenses, or a child for whom sufficient foster care payments or child support is received regularly. Reduce the residual income figure (from the following tables) by a minimum of five percent if the applicant or spouse is an active-duty or retired serviceperson, and there is a clear indication that he or she will continue to receive the benefits resulting from use of military-based facilities located near the property. 4/12/2017

29 For loan amounts of $79,999 and below
*over 5, add $75 for each additional member up to a family of seven* For loan amounts of $80,000 and above *over 5 Add $80 for each additional member up to a family of seven* 4/12/2017

30 Key to Geographic Regions Used in the Preceding Tables
Northeast - Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont Midwest - Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin South - Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, and West Virginia West - Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming 4/12/2017

31 Grossing Up Non-Taxable Income for Qualifying
Tax free income may be grossed up for purposes of calculating the debt to income ratio only. Tax free income includes certain military allowances, child support payments, workers compensation benefits, disability payments, and certain types of public assistance payments. The incomes eligible for grossing up may be adjusted to the same level as of the borrowers actual tax rate as determined by the Federal, State, and FICA withholdings used to qualify. The grossing up of income cannot be used for residual income calculation. 4/12/2017

32 4/12/2017 4/12/2017 32

33 VA IRRRL An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan. Generally, no credit information or underwriting is required on an IRRRL, and any lender may close an IRRRL automatically. Intercap Lending does require a full appraisal (conventional 1004) of the subject property. The value of the subject property must be equal to or greater than the total loan amount. An IRRRL (which can be a fixed rate, hybrid Adjustable Rate Mortgage (ARM) or traditional ARM, must bear a lower interest rate than the loan it is refinancing unless the loan it is refinancing is an ARM. The principal and interest payment on an IRRRL must be less than the principal and interest payment on the loan being refinanced unless one of the following exceptions applies: The IRRRL is refinancing an ARM Term of the IRRRL is shorter than the term of the loan being refinanced, or Energy efficiency improvements are included in the IRRRL 4/12/2017

34 If the monthly payment (PITI) increases by 20 percent or more, the lender must:
Determine that the veteran qualifies for the new payment from an underwriting standpoint; such as, determine whether the borrower can support the proposed shelter expense and other recurring monthly obligations in light of income established as stable and reliable, and Include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more. For all IRRRLs, the veteran must sign a statement acknowledging the effect of the refinancing loan on the veteran’s loan payments and interest rate. The statement must show the interest rate and monthly payments for the new loan versus that for the old loan. The statement must also indicate how long it would take to recoup ALL closing costs (both those included in the loan and those paid outside of closing). If the monthly payment (PITI) increases by 20 percent or more, the lender must include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more. 4/12/2017

35 VA IRRRL Comparison Sheet

36 Closing Costs The following fees and charges may be included in an IRRRL: The VA funding fee, and any allowable fees and charges including the lender’s flat charge. While the borrower may pay any reasonable amount of discount points in cash, only up to two discount points can be included in the loan amount. Although VA does not require an appraisal or credit underwriting on IRRRLs, any customary and reasonable credit report or appraisal expense incurred by a lender to satisfy its lending requirements may be charged to the borrower and included in the loan. The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing costs, as long as the requirements for lower interest rate and payments (or one of the exceptions to those requirements) are met. 4/12/2017

37 Maximum Loan Amount Always use VA Form , IRRRL Worksheet, to calculate the maximum loan amount. The maximum loan amount is the existing VA loan balances plus the following: Any late payments* and late charges, plus allowable fees and charges (include up to two discount points), plus The cost of any energy efficiency improvements, and The VA funding fee. Any IRRRL that includes delinquent payments in the loan amount must be submitted for prior approval, even when a lender has automatic authority* 4/12/2017

38 Maximum Loan Term The maximum loan term is the original term of the VA loan being refinanced plus 10 years, but not to exceed 30 years and 32 days. For example, if the old loan was made with a 15-year term, the term of the new loan cannot exceed 25 years. Eligible Borrowers 4/12/2017

39 VA Underwriting FAQ’s Credit
Q: What is the waiting period after BK7, BK13, Foreclosure or Short Sale? A: Chapter 7: 24 months from discharge (less than 24 months on a case by case basis) Chapter 13: Not required to be discharged, but does require 12 months paid as agreed on Repayment plan and Trustee Approval Foreclosure: 24 months Trustee Sale date (transfer back to Lender) Short Sale: 24 months from settlement date for short sale (less than 24 months on a case by case basis) Q: What is the min. credit score allowed? A: Purchases, Cash Out up to 90% , IRRRLS: 640, Cash out: 680 to 100% LTV Q: Do unpaid collections have to be paid? A: Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. For example, a credit report may show numerous satisfactory accounts and one or two unpaid medical (or other) collections. In such instances, while it would be preferable to have collections paid, it would not necessarily be a requirement for loan approval. However, collection accounts must be considered part of the borrower’s overall credit history and unpaid collection accounts should be considered open, recent credit. Borrower’s with a history of collection accounts should have reestablished satisfactory credit in order to be considered a satisfactory credit risk. Q: Do credit inquiries have to be explained? A: Yes, all inquiries made within the last 120 days must be explained. Q: What are the credit scores requirements? A: At least one (1) borrower must have a score. AUS approval required. (Manual UW is not available) 4/12/2017

40 Q: Does Non-purchasing spouse debt need to be included
Q: Does Non-purchasing spouse debt need to be included? A: Yes, all open accounts on non-purchasing spouse’s credit must be included with the veteran’s liabilities if the subject property is in a community property state. Q: What is considered re-established credit? A: Satisfactory credit is generally considered to be re-established after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date the last derogatory credit item was satisfied. Q: Do we have to address disputed accounts? A: Manual underwriting and/or rapid re-scoring may not be required. Contact underwriting Q: Do judgments and tax liens need to be paid off prior to closing? A: Judgments must be paid and released. Tax liens with a payment agreement can remain in place. Payments must be included in liabilities and must show a history of paid as agreed for at least 12 months. Q: Can I pay off debt to qualify? A: Installment debts and obligations with a remaining term of 10 months or more can be paid. Accounts with a term less than 10 months that require payments so large as to cause a severe impact on the family’s resources for any period of time must be included in DTI even if borrower is willing to pay it off. Example: Monthly payments of $300 on an auto loan with a remaining balance of $1,500, even though it should be paid out in 5 months, would be considered significant. The payment amount is so large as to cause a severe impact on the family’s resources during the first, most critical months of the home loan. When paying off revolving debt, accounts being paid must be closed and funds used to pay off debt must be sourced. 4/12/2017

41 A: Calculate a minimum payment of 5% of balance and include in DTI
Q: Do 30 days open accounts, such as Amex need to be counted in the DTI? A: Calculate a minimum payment of 5% of balance and include in DTI Q: Do deferred student loans need to be counted in the DTI? A: If student loan repayments are scheduled to begin within 12 months of the date of closing (note date), lenders should consider the anticipated monthly obligation in the loan analysis. If documentation evidencing that the debt is deferred for a period that exceeds 12 months from the Note date, the debt can be omitted. Q: How is co-signed debt treated? A: When the applicant is a co-signer on another loan, the lender may exclude the loan payment from the monthly obligations if documentation can be provided to verify: The person making the payments is on the contract or note and legally responsible for the debt in addition to the borrower. Copies of the most recent 12 months canceled checks or bank statements to verify the other person has made the payments from their own funds. The lender may exclude the loan payments form the monthly obligations factored into the net effective income calculations. 4/12/2017

42 Income Q: What are the general verification requirements?
A: Verify a minimum of 2 years employment. If the applicant has been employed by the present employer less than 2 years: verify prior employment plus present employment covering a total of 2 years. Q: What about employed less than 12 months? A: Generally, employment less than 12 months is not considered stable and reliable. However, it may be considered stable and reliable if the individual facts warrant such a conclusion. Carefully consider the employer’s evaluation of the probability of continued employment, if provided. Assess whether the applicant’s training and/or education equipped him or her with particular skills that relate directly to the duties of his/her current position. This generally applies to skilled positions. Examples include nurse, medical technician, lawyer, paralegal, and computer system analyst. If the probability of continued employment is high based on these factors, then the lender may give favorable consideration to including the income in the total effective income. An explanation of why income of less than 12 months duration was used must accompany the loan submission. Q: What about persons employed in the building trade or other seasonal or climate dependent work? A: In addition to the standard documentation (VOE and paystub), obtain: Documentation evidencing the applicant’s total earnings year to date Signed and dated individual income tax returns for the previous 2 years, and If applicant works out of a union, evidence of the union’s history with the applicant. IF applicant received unemployment due to being seasonal, evidence of unemployment insurance received of required to be included when averaging income. 4/12/2017

43 Q: How do we calculate income from overtime, part time or second jobs
Q: How do we calculate income from overtime, part time or second jobs? A: Generally, such income cannot be considered stable and reliable unless it has continued (and is verified) for 2 years. To include income from these sources in effective income: The income must be regular and predictable and there must be reasonable likelihood that it will continue. Base Income: Must have 2 years verified with written VOE, current paystub, W2s Overtime: Must have 2 years verified with written VOE, current paystub, W2s and VOE must indicate if likely to continue. Bonuses: Must have 2 years verified with written VOE, current paystub, W2s and VOE must indicate if likely to continue NOTE: Income not verified as indicated, could be used as compensating factor on a case by case basis 2nd Job: Must have 2 years verified with written VOE, current paystub, W2s Q: Can commission income be used to qualify? A: Yes, as long as the VOE provides: Actual amount of commissions paid YTD, Basis for payment (is it salary plus commission? Straight commission? When commissions are paid? [monthly, quarterly, semi-annually, or annually?]). Two years of individual tax returns signed and dated must be provided. Q: What income can I gross up to qualify? A: Social Security, Disability, Child Support, BAH (Basic Allowance for Housing) and BAS (Basic Allowance for Sustenance) can be grossed 25% up for qualifying purposes only if non-taxable. If a portion is taxable, it cannot be grossed up. (not for residual income) Q: Can alimony, child support be used to qualify? A: Yes, file must document at least 6 months receiving it and at least 2 years remaining 4/12/2017

44 Income – Active Military -An active duty service member may use the following income to qualify: Vase Pay, BAH, and BAS. The Veteran must provide a Military Statement of Service (similar to a civilian full VOE). If the Veteran lives on base, a DD-Form 1747 must be completed by the base housing office confirming the Veteran is eligible to live off base. All other traditional income verification guidelines apply. For Veterans on deployment, a military power of attorney may be used. An Alive and Well statement must be completed prior to funding to validate the Veterans identity. 4/12/2017

45 Self Employed Income Q: What documentation is needed for self-employed borrowers? A: Current financial statements prepared in a generally recognized format, including: Year-to-date profit and loss statement, Current balance sheet if 1 quarter has passed from the last filed 1040’s, individual income tax returns, signed and dated, plus all applicable schedules for the previous 2 years (or additional periods if needed to demonstrate a satisfactory earning record). If the most recent year’s tax return has not yet been prepared, provide a profit and loss statement for that year, and if the business is a corporation or partnership obtain complete 1120, 1120S, or 1065 returns plus Copies of the signed federal business income tax returns for the previous 2 years plus all applicable schedules and audited P&L and Balance Sheet are required if income will be used to qualify Q: Can I add back business use of home and mileage from the Schedule C for self-employed borrower? A: Only business use of the home can be added back. 4/12/2017

46 4/12/2017 Rental Income Multi-Unit Property Securing the VA Loan: Documentation of the applicant’s prior experience managing rental units of other background involving both property maintenance and rental. The prospective rental income can be included in effective income if: 1) totaling at least 6 months PITI are available. 2) the amount of rental income to include in effective income is based on 75% of verified prior rent collected on the units (existing property) or the appraiser’s opinion of the property’s fair monthly rental. Properties reported on Schedule E Rental of other property not securing the VA loan: provide the following: Individual tax returns, signed and dated, plus all applicable schedules for the previous 2 years which show rental income generated by the property. Property deprecation claimed as a deduction on the tax returns may be included in effective income. Complete the ICL Rental Income Worksheet to determine the net income that can be used to qualify. NOTE: rental income verified as stable and reliable may be included in effective income. If there is little or no prior rental history on the property, make a determinations based on: 1) documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental, 2) any leases on the property and 3) the strength of the local rental market. Property acquired after the most recent 1040’s were filed Documentation of cash reserves totaling at least 2 months PITIA Copy of the lease agreement, first month rent and deposit from tenant Departing Residence: Obtain a copy of the rental agreement. The amount of rent may only be used to offset the PITIA for the property. Any excess positive cash flow many not be used for qualifying or residual income purposes. No verification of the borrower’s equity position in the departure residence is required. 4/12/2017 46

47 Assets Q: Are gifts accepted?
A: Yes, a gift letter from a family member is accepted. Must be fully executed, and donor’s ability must be documented. Transfer of the gift funds must be documented. Q: How many back statements are needed from the borrower(s)? A: Original or certified true copies of the applicant’s last two bank statements, OR the borrower’s bank statements available to them by Internet or Faxed from the depository directly to the lender. In cases where the lending institution uses Internet based verifications, ensure the URL appears on the document. Q: Are reserves required? A: No, for single family residences, but for rental properties the following applies: Multi-Unit Property Securing the VA loan; Cash reserves totaling at least 6 months mortgage payments (PITIA) Departing Property if not VA secured loan; Cash reserves totaling at least 3 months mortgage payments (PITIA) 4/12/2017

48 Properties Not Eligible for Appraisal
Ownership Not Fee Simple Property involving a less than fee simple ownership (i.e., leaseholds, cooperatives, ground rental arrangements) is not eligible for appraisal without prior VA approval of the specific legal arrangements or project. Submission to VA Central Office must include: Details of the ownership arrangement Copies of leases or other instruments creating the estate, and Recommendations of the VA office of jurisdiction. Condo Not Approved To avoid unnecessary appraisal fee, a condominium unit should not be appraised unless there is reasonable likelihood that VA or HUD will accept the project prior to loan closing. No Duplicate Appraisals. No new appraisal can be requested on property which already has a valid VA value determination 4/12/2017

49 Builder ID Required -For any property appraised as either “proposed or under construction” or “new construction”, the builder must have a valid builder identification number prior to a VA notice of value being issued. Ineligible Condition-Property in a badly deteriorated condition is not eligible for appraisal unless VA agrees there is a reasonable likelihood that it can be repaired to meet VA Minimum Property Requirements (MPRs) prior to loan closing. Federal Law requires all appraisals for VA guaranteed loans must be completed by a fee appraiser on a rotational basis from a panel of approved fee appraisers. All assignments are made through WebLGY which is located in the VA Information Portal at The system is designed to generate a Request for Determination of Reasonable Value, VA Form The request will have the assigned appraisers information on the form. The must be sent to the signed appraiser. For purchase cases, the fully executed sales contract with all addendums and counteroffers must be loaded to the VA portal. 4/12/2017

50 4/12/2017

51 Appraisals Timeliness – appraisal should be completed within the normal time frames that a conventional appraisal is completed, which is typically five (5) business days from date of receipt of assignment. The SAR has 5 days from the date of receipt to provide the veteran-borrower with a copy of the reviewed report. Any delay without documented extenuating circumstances will not be acceptable. The SAR will issue a Notice of Value in the VA portal which will list any conditions as well as the reasonable value of the subject property. The NOV and a copy of the appraisal must be provided to the Veteran once the NOV is issued by the SAR. Appraisals are valid for six (6) months with a clearly defined expiration date on the NOV. Appraisals can be transferred when the originating lender calls the RLC of jurisdiction and provides the new lenders VA Lender I.D. number. The new lenders SAR must re-issue the NOV under the same timeliness requirements as any other new appraisal. 4/12/2017

52 VA Appraisals 4/12/2017

53 Minimum Property Requirements (MPR’s)
In existing and new construction cases, the MPRs provide a basis for determining that the property is safe, and structurally sound and sanitary, and meets the standards considered desirable in a permanent home in its locality. An MPR for existing construction can be waived by the VA field office if: A veteran is under contract to purchase the property, and The veteran and lender request the exemption in writing, and the property is habitable form the standpoint of safely, structural soundness and sanitation, and VA is satisfied that the nonconformity has been fully taken into account by way of depreciation in the VA valuation. 4/12/2017

54 Common MPRs Mechanical systems must be safe to operate, be protected from destructive elements have reasonable future utility, durability and economy, and have adequate capacity and quality Heating must be adequate for healthful and comfortable living conditions. Homes with a wood burning stove as a primary heat source must also have a permanently installed conventional heating system that maintains a temperature of at least 50 degrees Fahrenheit in areas with plumbing. Solar systems for domestic water heating and/or space heating must meet standards in HUD Handbook , Solar Heating and Domestic Hot Water Heating Systems, and be backed-up 100 percent with a conventional thermal energy subsystem or other backup system which will provide the same degree of reliability and performance as a conventional system. Note: VA field stations may determine that climatic conditions are such that mechanical heating is not required. Water supply and sanitary facilities must have a domestic hot water, a continuing supply of safe and potable water for drinking and other household uses, and sanitary facilities and a safe method of sewage disposal 4/12/2017

55 Roof Covering – The roof covering must prevent entrance of moisture, and provide reasonable future utility, durability, and economy of maintenance. When a defective roof with three or more layers of shingles must be replaced, all old shingles must first be removed. The crawl space must have adequate access, be clear of all debris, and be properly vented. The floor joists must be sufficiently above the highest level of the ground to provide access for maintenance and repair of ductwork and plumbing. Any excessive or ponding of water in the crawl space must be corrected. Ventilation – Natural ventilation of structural spaces such as attics and crawl spaces must be provided to reduce the effect of excess heat and moisture which could cause decay and deterioration of the structure. Electricity – Each unit must have electricity for lightning and for necessary equipment. Connection to public system – Connection to a public or community water/sewage disposal system is required whenever feasible. 4/12/2017

56 Water quality – Water quality for an individual water supply must meet the requirements of the health authority having jurisdiction. If the local authority does not have specific requirements, the maximum contaminant levels established by the Environmental Protection Agency (EPA) will apply. If the health authority is unable to perform the water quality analysis in a timely manner, a commercial testing laboratory or a licensed sanitary engineer acceptable to the health authority may take and test the water sample. Water treatment systems – Water treatment systems are not acceptable for wells which do not meet VA quality standards due to insufficient depth or a contamination source near the supply. However, if public water is not available and individual water supplies in the area are served by an aquifer confirmed by the health department to be contaminated, the property is eligible for a VA loan if the lender provides a copy of the health department letter confirming the aquifer contamination evidence that all of the requirements in HUD Mortgagee Letters and 95-34, concerning individual water purification systems, have been met for the property, and the veteran purchaser’s written acknowledgment that he/she understands that the well water serving the property must be continuously treated by the homeowner, as required by the local health department, to be considered safe for human consumption. 4/12/2017

57 SHARED WELLS - The following requirements must be met for a shared well: The well must be capable of providing a continuing supply of safe and potable water to each property simultaneously, so that each dwelling will be assured a sufficient quantity for all domestic purposes. There must be a permanent easement which allows access for maintenance and repair. There must be a well-sharing agreement which makes reasonable and fair provisions for maintenance and repair of the system and the sharing of those costs is binding on the signatory parties and their successors in title, and is recorded in local deed records. SEWAGE DISPOSAL SYSTEM – An individual sewage disposal system must adequately dispose of all domestic wastes in a manner which will not create a nuisance, or in any way endanger the public health. UTILITIES – Utility services must be independent for each living unit, except living units under a single mortgage or ownership may share water, sewer, gas, or electricity as long as there are separate service shut-offs for each unit, and living units under separate ownership may share connections from the main to the building line when those connections are protected by easement or covenant, and a maintenance agreement acceptable to VA. Individual utilities serving one living unit shall not pass over, under or through another living unit unless there is a legal provision for permanent right of access for maintenance and repair of the utilities without trespass on adjoining properties. 4/12/2017

58 Termites - The Department of Veterans Affairs is concerned about wood destroying insects and other organisms that can cause serious problems in the wood structural components of a house. The problem could go undetected if not inspected. VA Regional Loan Centers determine if areas that they govern require a termite inspection (or any other special type of inspection unique to their jurisdiction). The VA reviews the Termite Infestation Probability Zones (TIP Zones) in order to decide which areas require termite inspections (or any other special type of inspection unique to their jurisdiction). If you have a question about termites or any other special inspection that could be required, please contact your lenders Staff Appraisal Reviewer (SAR). Many times, a SAR calling the Construction and Valuation department at the Regional Loan Center of jurisdiction is the best way to obtain an accurate answer. 4/12/2017

59 Condominiums - When the subject property is located in a Condo project, that project must be approved by VA. VA publishes a list of approved projects in the Veterans Information Portal. Note: If your subjects project is not on this list, please see your lenders SAR. The project will need to be approved by the Construction and Valuation department at the Regional Loan Center of jurisdiction. Intercap Lending requires a full review of the project even if it has already been approved by VA (HOA questionnaire, budget, and insurances). 4/12/2017

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