Prior Approval Loan Procedures

Which loans require prior underwriting by VA? Joint loans Veteran/Non-Veteran Veteran/Veteran Loans to veterans receiving nonservice-connected pension Loans to veterans rated incompetent by VA Interest Rate Reduction Refinance Loans to refinance delinquent VA loans

Joint Loans Any joint loan for which title to the property will be held by the veteran and any person other than the veteran’s spouse must be submitted to VA for prior approval.

Veteran/Veteran Joint Loan Two or more veterans each using their VA entitlement to guaranty the loan. Each veteran must occupy the property Combined income and assets considered Entitlement used will be divided evenly between veterans

Veteran/Non-Veteran Joint Loan What does this mean to the lender? A loan involving at least one veteran and one non-veteran (not including the spouse). Veteran using entitlement must occupy. Non-veteran not required to occupy. Veteran’s income must be sufficient to cover their portion of the loan. VA will only guaranty the veteran’s portion of the loan. What does this mean to the lender?

Guaranty on Veteran/Non-Veteran Loan Because VA will only guaranty the veteran’s portion of the loan, the lender could end up with less than 25% coverage on the total loan. The lender’s investor may require that a down payment be made on the non-veteran’s portion of the loan. See Chapter 3, section 4a of the VA Lender's Handbook for the guaranty calculation table.

Non-Service Connected (NSC) Pension NSC Pension is based on financial need. VA needs to ensure that the income being reported to the lender on their loan application is the same as the income reported to VA. False income reporting could lead to the termination of the benefit, as well as the creation of an overpayment that the veteran would be required to repay. This could also affect the veteran’s ability to repay the mortgage.

Veteran Rated Incompetent by VA Fiduciary is assigned to veteran to handle finances VA must ensure that the new loan is in the best interest of the veteran The VA Fiduciary Unit at appropriate VA Regional Office will review the loan terms, etc. A fiduciary review/letter may be obtained by lender or VA Regional Loan Center. May be in best interest of veteran to get approval letter prior to ordering appraisal.

Interest Rate Reduction Refinance Loan (IRRRL) (made to refinance a delinquent VA loan) If loan is more than 30 days past due Lender must provide: Explanation of reasons for default Evidence that reasons for default have been corrected Evidence veteran is willing and able to make new payments

Except for the types of loans previously discussed, an automatic lender must use their automatic authority in every possible instance before submitting a loan to VA for underwriting on the prior approval basis.* *The lender’s underwriter must provide analysis and explanation for submitting to VA for prior approval.

Automatic Lender Denial Do not send loan file to VA on emotional appeal of veteran, loan officer, Realtor, etc. Lender’s underwriter must give justification for not approving on automatic basis reasons why VA should approve Do not shift burden of denial to VA

Prior Approval Submission A full package is required Include letter to explain reason for prior approval submission Appraisal & Notice of Value must be included (except for IRRRL) VA does not underwrite credit-only packages See Chapter 5, section 4c of the VA Lender’s Handbook for the transmittal list.

Reminder! VA has 10 days to underwrite the file after all required documentation is received from the lender. Generally, underwriting takes much less than 10 days. Don’t take a chance though! Send in loan package as soon as possible.

Reference: VA Lender’s Handbook Current Issues, section a Chapter 5, section 4 Chapter 7, section 2

Contact your nearest VA Regional Loan Center Questions? Contact your nearest VA Regional Loan Center

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