VA Basic Information

Transcription

1 VA Basic Information Sierra Pacific Mortgage

2 What is a VA loan? The VA Loan became known in 1944 through the original Servicemen's Readjustment Act also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. The GI Bill contributed more than any other program in history to the welfare of veterans and their families, and to the growth of the nation's economy. Who is Eligible for a VA loan? Eligibility for the VA loan is defined as Veterans who served on active duty and have a discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime. There is a two-year requirement if the veteran enlisted and began service after September 7, 1980 or was an officer and began service after October 16, There is a six-year requirement for National guards and reservists (unless they were called up on a Title 10, then the six years is waived) with certain criteria and there are specific rules concerning the eligibility of surviving spouses. How do VA loans work? VA will guarantee a maximum of 25 percent of a home loan amount up to $104,250, which limits the maximum loan amount to whatever the maximum county limit is. Generally, the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed. All veterans must qualify, for they are not automatically eligible for the program. VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if borrower or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

3 VA Advantages: Zero down payment requirement for loan amounts to county loan limit VA Funding fee can be financed No monthly MI Split eligibility for non-veterans No cash reserve requirement for 1 unit Flexible credit with derogatory credit Seller can pay up to 4% of Veteran's closing costs, including any down payment that may be required and debt VA Loan Basic Information: 100% Financing for Purchase up to county limits Jumbo loan requires 25% investment Cash Out up to 100% LTV / CLTV (cannot be free & clear) VA IRRRL No maximum loan amount with 25% investment Owner Occupied / must be occupied within 60 days of closing spouse can meet this requirement SFR, 2-4 units, manufactured homes, PUDS & VA approved Condos; check VA condo website for approved condos: Full documentation except VA IRRRL VA loans are qualified off net income, not gross income Debt to income ratio: 41% - can exceed with DU approval and 20% additional residual income & compensating factors / spousal debt is included, even if not on loan Residual Income must be meet for family size see chart No reserves required for 1 unit Appraisal are completed by VA appraiser that is randomly assigned when case number is ordered by lender Non-occupant co-borrowers are not allowed DU only approved AUS DTI & Credit Score Requirements: Loan Amount DTI Credit AUS < $700,000 50% 620 Approve / Eligible < $700,000 55% 660 Approve / Eligible > $700,000 55% 660 Approve / Eligible < $700,000 45% 620 Manual UW No manual UW >$700,000 is not allowed

4 Credit History Requirements: Clean credit last 12 months <$700,000-2 years for BK and/or FC (measured from last date to loan application) >$700,000-7 years for BK and/or FC Overdrafts and/or late fees on banks statements is considered negative credit history Assets: No assets required on 1 unit properties 6 months PITI required on 2-4 unit properties, if rental income being used to qualify 3 months PITI required if rental income used for qualifying on any other investment properties, including departing residence Liquid funds are required Gift for down payment & reserves is not allowed If current primary residence is being converted to rental income, 3 months PITI is required but can be non-liquid. 401k to be used at 60% Student Loans: Document student loans are deferred for 12 months to omit from DTI. GI Bills Income / Housing: Cannot be used as qualifying income VA policy Expenses: Do not Reduce monthly income by 2106 expense amount Count as a liability VA policy Termite Reports: Report & Clearance required on ALL VA transactions excluding; o 2 nd story approved VA condo o VA IRRRLs Section 2 are to be completed for health, safety & structural Page 1 of termite report to be signed by the Veteran Well / Septic Certifications: Well and Septic certification is not required unless it is a condition of the purchase contract or a specific issue is mentioned in the appraisal.

5 Certificate of Eligibility Restoration: If a veteran has sold or refinanced a home that we was purchased/refinanced VA, the Veteran will contact Dept of VA to have their eligibility restored so they can purchase/refinance another home utilizing the VA program. This typically takes about 48 hours. Dept of VA: (888) Partial Entitlement: Veteran who has used part of their entitlement for another home, will have a maximum loan amount based upon eligibility Ex: Veteran has used $27,500 of entitlement. $417,000 x 25% guarantee = $104,250; 25% guarantee of max loan amount $104,250 - $27,500 used = $76,750 left over entitlement $76,750 x 4 = $307,000 maximum loan amount before Veteran must bring in down payment Requires loan to be submitted to VA Regional Center for prior approval after loan is CTC Split Eligibility: Veteran and Non-Veteran (not a spouse) requires the Non-Veteran to bring in their 25% of the guarantee Ex: Purchase Price $400,000 $400,000 / 2 people - $200,000 x 25% for guarantee of Non-Veteran = $50,000 Non-Veteran required down payment $50,000 Requires loan to be submitted to VA Regional Center for prior approval after loan is CTC

6 How to complete VA Form , Loan Analysis a. General In order to properly enter information on VA Form , the underwriter must understand and apply the guidelines Self explanatory items are not discussed in this section. b. Estimated Special instructions are listed in the following table Monthly Shelter Expenses Item Special Instructions 16 If taxes are expected to increase, use the increased amount. Important for new construction. 17 Include the flood insurance premium for properties located in special flood hazard areas. 18 If special assessments are anticipated, us the anticipated amount (Mello Roos) 19 Calculate maintenance and utility costs using 14 per square foot Example: A 1500 square foot home would have a combined maintenance and utility cost of $210 (1500 x.14) 20 For condominiums or houses in a Planned Unit Development (PUD), include the monthly amount of maintenance assessment payable to the homeowner s association. c. Debts and Obligations d. Item 32, Federal Income Tax List all known debts and obligations of the applicant and spouse including any alimony and/or child support payments. (If spouse not on loan, debts are still included) Place a check mark in the (3 rd ) column next to any significant debt or obligation. Deduct significant debts and obligations from total effective income when determining ability to meet the mortgage payments. Significant debts and obligations include: o Debts and obligations with a remaining term of ten months or more; long-term obligations o Accounts with a term less than ten months that require payments so large as to cause a severe impact on the family s resources for any period of time. (typically $100 or more) Job related expense Include any costs for child care, significant commuting costs, and any other direct or incidental costs associated with the applicant s (or spouse s) employment. Checkmark this item if total job related expenses are significant. Enter the applicant s estimated monthly Federal Income Tax. Use If the applicant has Mortgage Credit Certificate, reduce the Federal income tax by the estimated tax credit.

7 d. Item 33, State Income Tax Enter the applicant s estimated monthly State Income Tax. Use d. Item 35, Other Enter the applicant s estimated CA SDI & Medicare Tax. Use e. Item 44, Enter the appropriate residual income amount from the provided table. 1Q Balance Available Residual Income is the amount of net income remaining (after deduction of for Family debts and obligations & monthly shelter expenses) to cover family living Support 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 & region of the country. e. Item 44, Balance Available for Family Support Continued Special Instructions for using tables: 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. Example: children from a spouse s prior marriage who are not the applicant s legal dependents Exception: You 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/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 Residual Income Table) by a minimum of 5% if the applicant or spouse is an active-duty or retired serviceperson, and there is a clear indication that he/she will continue to receive the b benefits resulting from use of a militarybased facility located near the property. (Commissary, Navy/Army Exchange) Use 5% unless the VA office of jurisdiction has established a higher percentage; in which case, apply the specific percentage for that jurisdiction.

8 f. Item 45 Debtto-Income Ratio VA s Debt-to-Income (DTI) ratio is a ratio of total monthly debt payments (housing expense, installment debts, and other debt) to gross monthly income. Add: Items = Debt Add: Items * = Income Divide: Debt Income = DTI Round: To the nearest 2 digits If DTI ratio exceeds 41%, file will require closer scrutiny regardless of DU approval. *Tax-free income may be grossed up for purposes of calculation DTI only (not residual income). This is a tool that may be used to lower the debt ratio for veterans who clearly qualify for the loan. Grossing up involves adjusting the income upward to a pre-tax or gross income amount which, after deducting state and federal income taxes, equals the tax-exempt income. Use current income tax withholding tables to determine an amount which can prudently employed to adjust the borrower s actual income. Don no tad nontaxable income to taxable income before grossing up. Tax-free income includes certain military allowances, child support payments, workers compensation benefits, disability retirement payments, and certain types of public assistance payments. Verify that the income is indeed tax-free before grossing up (Typically tax returns are required to document income is not taxable) g. Item 46, Past Credit Record If grossing up is used, indicate such and provide the grossed up ratio in item 47, remarks. Indicate whether the applicant (and spouse, if applicable) is a satisfactory or unsatisfactory credit risk based on a complete analysis of credit data.

9 Residual Income Table For Loan Amounts >=$80,000 Family Northeast Midwest South West Size 1 $450 $441 $441 $491 2 $755 $738 $738 $823 3 $909 $889 $889 $990 4 $1,025 $1,003 $1,003 $1,117 5 $1,062 $1,039 $1,039 $1,158 Over 5 Add $80 for each additional member up to a family of 7 Key to Geographic Regions used in Residual Income Tables Region States Included Northeast Connecticut Massachusetts New Jersey Maine Pennsylvania New Hampshire New York Vermont Rhode Island Midwest Illinois Kansas Missouri Ohio Wisconsin Michigan Nebraska Iowa North Dakota Minnesota South Dakota Indiana South Alabama Florida Maryland S. Carolina Arkansas Georgia Mississippi Tennessee Delaware Kentucky N. Carolina Texas W. Virginia Oklahoma Virginia Louisiana District of Columbia West Alaska Hawaii New Mexico Wyoming Arizona Idaho Oregon Utah California Montana Colorado Nevada Washington Funding Fee Chart Use of Entitlement Transaction Type Down Payment Active Duty or Veteran National Guard / Reservist Initial* % 2.40% Subsequent* % 3.30% Purchase Initial& 5% - 10% 1.50% 1.75 % Subsequent Initial& 10% or more 1.25% 1.50% Subsequent Refinance Initial N/A 2.15% 2.40% (cash out & other) Subsequent N/A 3.30% 3.30% Refinance IRRRL N/A N/A.500%.500% Assumption N/A N/A.500%.500% *Funding Fee for Cash Out (LTV does not matter)

10 VA allowable & Non-Allowable Fees VA Allowable Fees: Veteran/Active Military Borrower CAN PAY Fees must be considered reasonable and customary and limited to actual cost Loan Origination Fee 1% maximum* (Borrower Paid Compensation only) Reasonable Discount Points 2% maximum* Appraisal and one VA Compliance Inspection Recording Fees Actual Cost of Credit Report Prepaid Items (Taxes, Hazard Ins., Interest, HOA fees, etc.) Flood Zone Determination Title Insurance VA Funding fee, if paid in cash *Based upon total loan amount VA Non-Allowable Fees: Veteran/Active Military Borrower CANNOT PAY On Lender Paid Compensation (LPC), borrower can pay up to 1% of the loan amount in non-allowable fees since there is no origination fee charged on LPC. The interest rate credit can go toward these fees BUT cannot exceed 1% to pay these costs. Entire Escrow Fee / Sub Escrow Fee Endorsements on Title Policy Notary Fees Underwriting Review fee and/or Quality Control Fee Attorney's fees Commitment Fees Appraisal Review Termite Report (repairs can be paid by borrower) Lender's inspection Fee Any Broker Fees such as processing, doc prep, admin (Borrower Paid Compensation only) Condo Questionnaire Fees Seller concessions up to 4% are allowed on VA loans. 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. Do not include normal discount points and payment of the buyer s closing costs in total concessions for determining whether concessions exceed the 4% limit.

11 Grossing Up Income How To SPM will allow Non-Taxable Income to be grossed up to 115%. You must be able to document that it is nontaxable income by tax returns and/or letter from the income source. The challenge in grossing up income is how ExpressLoan (DU) reads the residual income. You must "trick" ExpressLoan to read the residual income correctly. How to trick ExpressLoan: Manually calculate the difference between the standard income & the grossed up income Example: Pension standard income amount $400 Grossed up income 125%: $500 Difference: $100 In ExpressLoan/Government Section/Total Taxes Add the $100 to amount of taxes already in there so the tax amount stays the same for the residual income. Example: Taxes being taken out to determine residual is $500 - add the $100 to it to make it $ If you are not sure how to calculate the correct amount of taxes being taken out, please refer to VA Paycheckcity How To guide. (next page) Examples of Non Taxable Income: BAS BAH Social Security (as documented on tax returns)

12 How to Use for VA taxes For VA loans, they require taxes to be taken out of the gross monthly income to calculate the residual income. Follow these steps: Click on Salary Calculator on left top Ensure that you have the correct State: Enter in all applicable fields:

13 Enter in all applicable fields: Gross Pay = Monthly income x 12 Gross Pay Type = Annually Pay Frequency = However they are paid Federal Filing Status = How they file their taxes # of Federal Allowances = # of dependents claimed on tax returns CA SDI = Yes Filing Status = How they file their taxes If your veteran does have additional monies taken out of his paycheck for federal/state withholdings, enter that amount in Voluntary Deduction Section. Or leave Blank. Use figures to complete VA Loan Analysis, Section E Monthly Income and Obligations Line 32 Federal Inc Tax - Federal Withholding Line 33 State Inc Tax California Line 34 Ret / Social Security Social Security Line 35 Other add Medicare & CA SDI PDF Print the Calculation page to upload to efolder. Ensure correct figures entered into Government section of AUS for correct residual income calculation.

14 VA Manual Underwriting Reference Sheet SPM will allow manual underwrite on files that get "refer/eligible" for ratios with credit challenges that meet VA guidelines: Clean credit for last 12 months o No lates payments on ANY credit o No Non-sufficient funds on bank statements o No negative balances on bank statements o No late payments on rental history o ONLY credit exception is a medical collection 120% minimum residual income required 2 months most recent bank statements o No minimum balance required (cannot be negative) o Reserves are not required but strengthens file o 6 months reserves of borrowers own funds required if purchasing 2-4 units Housing Documentation required o If living on base; letter from borrower indicating living on base o If living with family; letter from family member indicating living rent free o If renting, VOR required with no late payments in last 12 months If purchasing 2-4 unit and borrower does not have a 2 year history of landlord experience, subject property must be listed with a property management company. Maximum DTI: 45% All manually underwritten files are subject to any and all conditions of the VA Underwriter. Meeting the above criteria does not guarantee loan approval. Please review all loan scenarios with Account Executive prior to submission. San Diego VA Sponsor ID:

15 VA Submission Checklist Submission Sheet with program code of: T200, T201, T203, T200J Cover letter to UW outlining bullet points of file ExpressLoan DU Findings Completed VA Analysis Form (POINT) Typed 1003 with VA form a (2 pages) SPM VA # (POINT) (Lender is SPM, Sponsor is Broker) Broker to complete Section H ; function processing loan application and sign Section J / Borrower to sign page 2 (2 places) Original Upfront 1003 with VA form a signed by all appropriate parties Credit Report (VA requires credit report of non-purchasing spouse or registered domestic partner as well as social security card debts used in DTI ratio) SPM Rule 620 credit score for all borrowers <$700k / 660 >$700k Certificate of Eligibility AND VA Request for Certificate of Eligibility VA Verification of VA Benefits Statement of Service from commanding officer for all active military Childcare letter from borrower verifying monthly child care expenses (children 13 or younger) VOE or LES required for active military (VOE or 2 years w-2 & most current 30 day paystub) 2 months most recent bank statements or VOD / document any large, non payroll deposits Fully Executed Purchase and Sale Contract with all addendums **Legible copy is required** Preliminary Title Report / escrow instructions with vesting / Settlement Statement VA Case Number Assignment / VA Appraisal by VA appraiser VA Form Debt Questionnaire (POINT) Nearest Living relative letter signed by Veteran (Website) VA Amendment to Contract (POINT) VA Interest Rate and Discount (POINT) Service Providers List (not required if submitted with LE request) Anti-Steering Fair Lending, ECOA, General Consent/Authorization letter, Right to Privacy Act, Etc

16 VA IRRRL Submission Checklist Submission Sheet with program code of: T200, T201, T203, T200J Completed VA Interest Rate Reduction Refinance Loan Worksheet Form (POINT) Typed 1003 with VA form a (2 pages) SPM VA # (POINT) (Lender is SPM, Sponsor is Broker) Broker to complete Section H ; function processing loan application and sign Section J / Borrower to sign page 2 (2 places) - DO NOT INCLUDE INCOME Original Upfront 1003 with VA form a signed by all appropriate parties DO NOT INCLUDE INCOME Credit Report: 620 credit score for all borrowers up to $700k / 660 over $700k *Credit inquires up to 120 days Certificate of Eligibility AND VA Request for Certificate of Eligibility Current Pay off Demand showing last payment made through month of closing Copy of Current Note Social Security Card / Driver s License for all borrowers 2 months most recent bank statements or VOD / document any large, non-payroll deposits, if needed Current Hazard Insurance with SPMC listed as mortgagee, borrowers vesting & loan # Preliminary Title Report Escrow instructions with vesting Settlement Statement (needed at submission to calculate loan amount) VA IRRRRL Case Number Assignment VA Verification of VA Benefits VA Form Counseling Checklist for Military Homebuyers; signed by borrower and loan officer (Active Duty only) (POINT) VA Form Debt Questionnaire (POINT) Nearest Living relative letter signed by Veteran (Website) VA Amendment to Contract (POINT) VA Rights of VA Loan Borrower VA Interest Rate and Discount (POINT) Anti-Steering Borrower Authorization