Loan Program

Eligible Loan Purposes

• Purchase 1- 4 family units, including
• Condominiums (VA approved)
• Townhouses
• Manufactured Home (and Lot)
• To Build a Home
• To Purchase and improve a home
• To improve a home by installing energy-related features
• To Refinance an existing home loan for the purpose of: 

1. Cash Out – up to 100% of the appraised value (most lenders cap at 90% LTV)
2. Reducing the interest rate (IRRRL); Interest Rate Reduction Refinance Loan or only existing VA loans qualify
3. Converting an adjustable-rate mortgage (ARM) to a fixed rate mortgage

Available Programs

• Fixed Rate; 15 & 30 year terms
• Adjustable Rate Mortgage (ARM); 1 year - must qualify at 1% above note rate
• 3/1
• 5/1 

1. Margins: 1 YR = 2.25% 
2. 3/1 & 5/1 = 1.75%
3. Caps: 1/5

Energy Efficient Mortgage (EEM)

• Loans for the acquisition of an existing dwelling and the cost of making energy-efficient improvements, refinancing an existing VA loan.
• A mortgage may be increased by:

1. Up to $3000 documented costs
2. Up to $6000 provided increase in PITI does not exceed reduction in monthly utility
3. More than $6000 subject to determination by VA

Maximum Loan Limits

• Purchase and Refinance = $417,000 (depending on the county the property is in, the VA Jumbo Loan may be available)
• Click here for list of High Cost Counties
• Refinance (IRRRL) = up to VA loan limit

Loan Approval Requirements

• Applicant must be an eligible veteran who has available entitlement
• 100% LTV
• The loan must be for eligible purposes
• Veteran must occupy home within a reasonable period after closing
• Veteran must be a satisfactory credit risk
• Income must be stable and sufficient to:

1. Meet mortgage payment
2. Take care of obligations and expenses and have enough left over for family support

Loan Types Requiring Prior Approval

• Joint loans with someone other than a spouse
• Loans to veterans in receipt of VA non service-connected pension
• Loans to Veterans rated incompetent by the VA

VA Eligibility Center

P.O. Box 20729251

N. Main St.

Winston-Salem, NC 27120

888-244-6711 (8:00-4:00 EST)

Occupancy

• Any person who uses entitlement on a joint loan must certify intent to personally occupy the property
• Any borrower on a joint loan who does not use entitlement for the loan (such as a non-veteran) does not have to occupy the property
• Lenders Handbook, VA Pamphlet 26-7, Revised, Change 3, Chapter 5

Reservists, National Guard & Active Duty Applicants

• The Leave and Earnings Statement (LES)must identify service members who are within 12 months of release from active duty or the end of the contract term.
• The continuation of Military Allowances must be determined to count as income.

1. Flight pay, hazardous duty pay, etc If cannot be determined using to offset debts of 24 months or less.

 Maximum LTV's

• Zero down
• 100% LTV
• LTV may be up to 103.3% (when the Funding Fee is financed)

VA Funding Fee

The VA Funding Fee is paid directly to the Department of Veterans Affairs. It guarantees the lender up to 25% of the loan amount in case of default and is the reason they are able to offer veterans a no-money-down loan program. Since VA loans are guaranteed by the VA, they do not require mortgage insurance.

• Purchases
• Refinances
• Interest Rate Reduction Refinance Loan & Assumptions

The VA funding fee is typically rolled into the loan. On a purchase, this is the only amount allowed to be rolled in, and is the only amount allowed to bring the loan amount above 100% of the home's value.

Funding Fee Requirements

• Verify the status of any veteran who may be exempt from paying the funding fee
• Determine the amount of funding fee owed by a non-exempt borrower
• Collect the appropriate fee

Borrowers are exempt from paying the funding fee if they receive any disability payments from the VA or are considered at least 10% disabled.

Cash Out Refinance

• Loan Limit – up to 100% of appraised value (most lenders cap at 90% LTV)

1. Funding Fee
2. Cost of Energy Efficient improvements

• Must payoff an existing lien(s) of record
• Itemization of debts paid off required
• Veteran can receive cash proceeds

Other Refinancing Loans

• To pay off Construction Loans
• Installment land sales contracts
• Loans assumed by Veterans at interest rates higher than that for the proposed refinance
• These loans are like cash-out, except:

1. Loan amount is not limited to 90%
2. Loan may not exceed the lesser of the VA reasonable value or the sum of the outstanding balance of the loan to be refinanced (Allowable closing costs and discount points)

Interest Rate Reduction Refinance Loan (VA to VA)

• Loan Limit – Payoff of the existing first lien plus reasonable closing costs

1. May be able to subordinate second loans or lines of credit
2. Minimal cash back to veteran allowed (usually up to $500)

Standard Documentation

• Income claimed by applicant that cannot be verified should not be given consideration
• A minimum of two years employment verified
• VOE’s dated within 120 days of the note, 180 days for new construction
• Certified copy of applicant’s pays stub
• VOE should be compared to pay stub for consistency
• If in school/military during this time, borrower must provide evidence: transcripts or discharge papers
• Explain any gaps in employment of a month of more. No explanation required on gaps < 60 days if LP approved
• Click here to view The Lender's Handbook (chapter 4) and learn more

Employment Income

• Self-employment Income- 2 years, or related Experience and/or specialized training
• Commission Income – 2 years
• Rental Income – 25% vacancy factor

1. Multi-family Housing – 6 mos. reserves
2. Rental of Existing Property – offset PITI
3. Other Rental Property – 2 mos. reserves

• Click here to view Military Pay Schedules

VA Residual Income

• Monthly balance of funds available for family support after meeting the borrower's shelter, expenses, debts, and taxes
• It is calculated per the VA Loan Analysis
• Click here to view the table of residual income figures

Stability & Use of Income

• 12 months or longer to count as income
• 2nd job income, only after 2 years

1. Ability to work two jobs must be demonstrated

• Overtime or Part-time – reliable after 2 years
• Seasonal Income – document continuance
• Unemployment compensation – not stable
• Worker’s Compensation, Foster Care, Alimony, and Child Support - paid consistently and likely to continue
• Public Assistance and Social Security – 3 yrs continuance

Maintenance & Utilities

To be used to determine residual income and entered on line 19 of the VA Loan Analysis:

• Calculated at 14 cents per square foot
• The calculation is utilized in the required VA Loan Analysis 1500 sq. ft. X .14 = $210

Child Care Expenses

• Required on VA Purchases and any Credit Qualifying Refinance if the borrower has disclosed dependents.
• If the Veteran has any children, then a Child Care Letter/Statement will be required.

1. The child care statement must disclose who will be taking care of the children.
2. Any expenses as a result of child care are included in the total debt-to-income ratio.

Credit Requirements

General Rule: No derogatory references within last 12 months, generally = acceptable credit. Exceptions are:

• Outstanding judgments – loan cannot be approved with unpaid judgment, unless acceptable, payment plan with acceptable payment history.
• Unresolved Federal debts – Must be paid in full, in non-collectible status, or on repayment plan.
• Tri-merge Credit Report - within 60 days, 180 new construction

Credit History

• Credit scores are not required, however, most lenders have their own minimum credit score requirements.
• Non-traditional credit allowed. Examples of non-traditional credit:

1. Rental history
2. Utilities
3. Insurance (not payroll deducted), auto, life, renters
4. Auto payments paid to alternative resources
5. Child Care, department stores

Bankruptcy

Chapter 13 

• Need 12 months of satisfactory payment history and approval of the court.

Chapter 7

• 2 years, date of discharge, with no derogatory credit
• Due to circumstances beyond the borrower’s control, 12 months with no derogatory credit and documentation of circumstances.

Foreclosures & CCCS

• At least two years since foreclosure completed.
• Guidelines for bankruptcies filed under Chapter 7
• Prior VA loans: sufficient entitlement, no unresolved debt to government
• Consumer Credit Counseling Service
• If entered before delinquency, a positive or neutral factor.
• One year acceptable payment history, and counselor approval

Notification of Mobilization

• Lenders must recognize that activated reservists whose incomes are reduced may be unable to qualify for the loan they are seeking.
• Ask if applicant has been notified of a mobilization of his or her unit.
• If so, the loan must be underwritten on the basis of the projected active duty income.

Leave & Earnings Statement

• If the date is within 12 months of the anticipated date that the loan will close, the loan package must also include one of the following items or combination of:
• Re-enlistment documentation
• Valid offer of local civilian employment following release of active duty
• Intent to re-enlist letter certified by commanding officer
• Or Documentation of unusually strong underwriting factors such as – Down payment of 10%; significant cash reserves, and evidence of strong community ties, coupled with non-military spousal income.

Assets

Applicant or spouse must have sufficient cash to cover:

• Closing costs or points which are their responsibility
• Down Payment, if less than 100% LTV
• Difference between sales price and the loan amount, if sales price exceeds appraised value
• VA does not require reserves
• Liquid assets must be verified to the extent that are needed to close the loan.

Gift Funds

Gift Funds are acceptable from the following sources:

• Borrower’s relative
• Borrower’s employer or labor union
• Charitable Organization
• Governmental Agency or public entity that has a program to provide homeownership assistance

Compensating Factors

• Excellent long term credit
• Minimal consumer debt
• Significant liquid assets
• Little or no increase in shelter expense
• Low debt to income ratio
• Tax benefit of home ownership
• Conservative use of consumer credit
• Long-term employment
• Down Payment
• Military benefits
• High residual income
• Tax credits for child care
• Equity in refinancing loans

Non-allowable Closing Costs

VA does not recognize certain closing costs as charges/fees that the Veteran is allowed to pay. VA does not set a percentage of allowable closing costs, they refer to what is typical for the area. Please refer to chapter 8 of The Lender's Handbook.

Non-allowable costs include:

• Administration
• Underwriting
• Processing
• Tax service
• Courier/mail fees, etc.

These fees are payable by the seller or lender.

Seller Concessions

Anything of value added to the transaction by the builder or seller for which the buyer pays nothing. May not exceed 4% of reasonable value.

Power of Attorney

VA will allow a veteran to use an attorney-in-fact to execute any documents necessary to obtain a VA guaranteed loan.

• Requires a general or specific Power of Attorney and written consent to transaction.

1. Entitlement – clear intent to use his COE
2. Purpose – obtain a loan for purchase, or refinance.
3. Property Identification
4. Price and terms – sales price and loan terms
5. Occupancy – intent to occupy by veteran