VA GUIDELINES 301: Appraisal 302: Assumability 303: Borrowers 304: Cash Reserves 305: Cash to Borrower 306: Closing Cost 307: Closing Requirements 308: Condos/PUDS 309: Credit History 310: Credit Scores 311: Down Payment 312: Escrows 313: Occupancy 314: Property Eligibility 315: Property Inspections 316: Ratios 317: Refinance Transactions 318: Underwriting
301: Appraisal 301.1: Appraisal Forms 1 unit properties require Fannie Mae Form 1004/Freddie Mac Form 70. 2-4 unit properties require Fannie Mae Form 1025/Freddie Mac Form 72. Condominiums require Fannie Mae Form 1073/Freddie Mac Form 465. Form 1004MC Market Conditions Addendum required with all appraisals of 1-4 unit properties. 301.2: General Guidelines UAD (Uniform Appraisal Data) compliant appraisals are required for VA loans. Except where indicated otherwise, all appraisals for VA loans must be ordered through the VA Appraisal System and performed by VA-approved appraisers. The appraisal/notice of Value (NOV) for property appraised as existing, new, proposed, or under construction is valid for 6 months. AFG does not accept properties rated in fair condition for any loan program. Appraisal transfers/reassignments are permitted and must be UAD compliant. 301.3: IRRRL Appraisal Guidelines No appraisal is required on IRRRL transaction 301.4: Repair/ Completion Inspections Appraisers may use FHLMC Form 442 or FNMA Form 1004D, Part B, Certification of Completion, or their appraiser letterhead to certify satisfactory completion of the required repairs. Photos of completed repairs are expected to be included with the appraiser's inspection or certification. All requirements as per the VA Lender's Handbook must be met.
302: Assumability May be assumed with conditions and servicer approval
303: Borrowers 303.1: General Information Only eligible borrowers who sign the note may take title to the property at closing. The only exception is the veteran's legal spouse. More than four (4) borrowers to a transaction not permitted. Inter Vivos trusts: A beneficial interest in a revocable Family Living Trust that ensures that the Veteran or the Veteran and Spouse have an equitable life estate provided the lien attaches to any remainder interest and the trust arrangement is valid under State law. No other parties other than the Veteran or Veteran and Spouse may be listed as beneficiaries. 303.2: Eligible/Ineligible Veteran/Borrower Combinations Refer to the VA Lenders Handbook and VA Circular 26-15-10.
304: Cash Reserves See VA Lenders Handbook for reserve guidelines
305: Cash to Borrower 305.1: Purchase Transactions Limited to out-of-pocket reimbursement: Appraisal or credit report: The veteran may receive cash-back at closing up to their out-of-pocket cost, provided the amounts paid are listed as POC-borrower on the HUD-1/Closing Disclosure. Further verification of payment by the veteran is not required. Earnest money: The veteran may receive cash-back at closing up to the amount of their earnest money deposited with the settlement agent and credited on the HUD-1/Closing Disclosure. Further verification of payment by the veteran is not required. Real estate tax credit: The veteran may receive cash back at closing for a legitimate pro-rated real estate tax credit when taxes are paid in arrears and the borrower is paying their tax escrow out-of pocket. 305.2: Refinance Transactions Refer to the applicable type in the Refinance Section
306: Closing Cost The veteran can pay a maximum of: A 1% flat charge (typically called an Origination Fee ), plus, Reasonable discount points used to buy down the interest rate, plus, Reasonable and customary amounts for any or all of these Itemized Fees and Charges Appraisals, including second appraisals requested by the veterans for reconsideration of value Compliance inspections on new construction Home inspection if desired by veteran Credit report or charges for AUS-decisioned loans: Both credit report charges and AUS charges require evidence with corresponding invoices The combined total for all credit reports cannot exceed $100 The combined total for AUS submissions cannot exceed $100 The only time where both a credit report and an AUS can be charged to the Veteran is on AUS Refer cases. A maximum total of $100.00 still applies for the combined total of the credit report and AUS charges If invoices cannot substantiate the charges to the Veteran on the HUD- 1/Closing Disclosure, a refund will be due to the Veteran Recording fees and recording taxes MERS registration fee Hazard insurance premium including flood insurance, if required Flood zone determination Survey fee Title exam and insurance VA funding fee Prepaid items for taxes, assessments, and similar items for the current year chargeable to the veteran and the initial deposit for the impound account Overnight courier fees on a refinance if interest savings will exceed the cost of special handling Third-party charges are limited to the invoice charge, regardless of the amount charged for the loan origination fee. Appraisal fees may not exceed VA's published rate for the jurisdiction. Refer to http://benefits.va.gov/homeloans/appraiser_fee_schedule.asp. If a 1% flat charge is not paid, or is paid but is less than 1%, then the veteran may pay fees and charges that would otherwise be non-allowable, provided the total does not exceed 1%. VA no longer prohibits the veteran from paying the pest inspection fee on a purchase transaction, provided the fee is included in the 1% aggregate calculation. Fees and charges must comply with all Federal, State and local regulations and predatory lending rules.
307: Closing Requirements Standard fixed rate documentation. Interest credit allowed. Loan must close by the 10th calendar day of the month preceding the first payment date. Power of Attorney permitted. Must meet the requirements of VA Lenders Handbook Ch 9, Sec 7 and be accompanied by an Alive and Well Statement obtained at the time of closing (see par b. and c. of the referenced section). All POA must be approved before closing by AFG. A minimum of twelve (12) months chain of title as evidenced by the title commitment Balance of the existing mortgage as reflected by the title commitment or credit report must be consistent with the payoff shown on the HUD-1/Closing Disclosure for refinance/cash-out transactions.
308: Condos/PUDS Eligible Condos must be listed on VA's Approved Condo List. No exceptions. The nationwide list of VA approved condominiums is located at: https://vip.vba.va.gov/portal/vbah/vbahome/condopudsearch. PUD's do not require VA approval. Ineligible Multiple units not eligible. Leasehold condos.
309: Credit History 309.1: Acceptable Credit History AUS Approve/Accept: Per AUS Manual Downgrades/Manual Underwrite: Defined per VA Lender Handbook Borrowers must meet AFG minimum credit score requirements. See Credit Scores. A clear CAIVRS on all borrowers must be provided. Bankruptcies (Chapter 7 or 13): Refer to VA Lender's Handbook Ch 4, Sec 7-e Collections and Judgments: Refer to VA Lender's Handbook, Ch 4, Sec 7-c Disputed Accounts: Refer to Manual Downgrades in the Underwriting section. Foreclosure and Deed of Lieu of Foreclosure: Refer to VA Lender's Handbook, Ch 4, Sec 7-f Short Sale, Short Payoff/Restructured Loans: Refer to VA Lender's Handbook, Ch 4, Sec 7-f 309.2: Mortgage Payment History Requirements Purchases: Maximum of 1 30-day mortgage late within the last 12 months. Refinances: All Refinance Transactions: No mortgage late payments within the last 12 months. IRRRL's: Minimum 6 month mortgage history required. If less than 12 payments have been made, following additional requirements apply: Full, tri-merge credit report. No 30-day late payments on any mortgage account for any property owned by the borrower(s) No late payments since inception of the loan. Bankruptcy or Foreclosure: must meet VA standard waiting period requirements. 309.3: Non-Purchasing Spouse Debts of a non-purchasing spouse must be counted in the borrower's qualifying ratios when the subject property is located in a community property state. VA requires that the credit of a non-purchasing spouse be considered when the subject property is located in a community property state. The minimum credit score requirements do not apply to the non-purchasing spouse. Community Property States include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin
310: Credit Scores Credit Score Requirements Minimum 600 Decision Score, regardless of AUS findings. If three scores are provided (one from each repository), the middle score will be used. If two scores are provided, the lower of the two scores are used. If one score is provided, that score is used. For multiple borrowers, determine a decision score for each individual borrower, then use the lowest of the individual scores as the Decision Score for the loan. All borrowers must have at least one valid score. Non-traditional credit is not permitted.
311: Down Payment No down payment is required except in the following circumstances: If the purchase price exceeds the reasonable value of the property, the borrower must pay the difference from his/her own resources. If a veteran has less than full entitlement available, borrower's down payment plus available entitlement plus equity must equal at least 25% of the purchase price or Notification of Value (NOV), whichever is less, on purchases, new construction, and non- IRRRL refinances. The down payment may not be derived from a second mortgage on the property.
312: Escrows Escrow waivers not permitted under any circumstances. No exceptions.
313: Occupancy Owner occupied primary residence only. Second homes and investment properties are permitted on IRRRL transactions only. Refer to Interest Rate Reduction Loan (IRRRL).
314: Property Eligibility 314.1: Eligible 1-4 unit attached or detached primary residence including condos and PUDs. Condos must be VA approved. The nationwide list of VA approved condominiums is located at https://vip.vba.va.gov/portal/vbah/vbahome/condopudsearch. Real Estate Owned (REO) properties. These include properties owned by: HUD Fannie Mae Freddie Mac VA USDA Banking Institutions Modular homes. Log Homes Leaseholds must meet all VA requirements 314.2: Ineligible Any property where the seller is not the owner of record. Properties which are not primarily residential in nature and use. Properties with water purifications systems needed to make water safe. All non-owner occupied properties (except IRRRLs meeting the previous occupancy requirement) Any property type not listed as eligible, including but not necessarily limited to: Manufactured or mobile housing. Leasehold condos and multiple unit condominiums. Geodesic dome, Earth or Geothermal homes. Ranches, orchards, working or hobby farms Co-ops. Trade Equity.
315: Property Inspections 315.1: Termite Inspections Required on all VA Loan Types, except IRRRLs. Some areas are exempted from termite inspections by VA Local Requirements. (Note: If the area is exempt, it will be specifically stated as such. No local conditions does not mean inspections are not required; it simply means there are no additional local requirements.) 315.2: Well Inspections Required for all VA Loan Types, except IRRRLs. Properties with water purification systems are NOT eligible if the system is required to make the water safe, Systems installed to improve the taste or softness of the water are acceptable. 315.3: Septic Inspections Required for new construction properties. Required for existing construction cases in which there is an indication of a problem or the property is in an area known to have soil percolation problems.
316: Ratios VA qualifying ratios are 41%, unless there are significant compensating factors or an AUS Approval is received.
317: Refinance Transactions 317: Refinance Transactions VA considers all refinances (Except IRRRL's) as Cash-Out transactions. Property must be encumbered by a lien. Refinance of previously modified loan is not permitted. AFG is expected to exercise sound judgment and due diligence in the underwriting of loans to be insured by VA. In order to comply with VA's directive, refinance transactions should make sense and be in the borrower's best interest. 317.1: Rate/Term: There are no seasoning requirements Refer to Property Listed for Sale. Loan amount may include: Payoff of existing first mortgage Payoff of purchase money second liens Payoff of subordinate liens (non-purchase money liens) seasoned at least 12 months. NOTE: Lines of credit cannot have any draws greater than $1,000 in the past 12 months, unless used for property improvements. Documented improvements to the property Equity buy-out of a title holder or inheritance/estate settlement (documentation required). EEM improvements Allowable, closing costs, prepaids, discount points (R/E taxes due with 60 days of closing may be included) Incidental cash back closing is limited to $500.00 for Rate/Term refinance. For primary residences in the state of Texas, incidental cash back to the borrower at closing is not permitted, including incidental cash back as a result of POC fees being refunded to the borrower. 317.2: Cash-Out There are no seasoning requirements Refer to Property Listed for Sale. 317.3: Interest Rate Reduction Refinance Loan (IRRRL) High Priced Mortgage Loans (HPMLs) are not permitted. Refer to Appraisal section for appraisal requirements Refer to Property Listed for Sale. A tri-merged mortgage only credit report is required. Refer to Credit History for Mortgage Payment History requirements Current VA loan must be VA guaranteed.
Maximum term is lesser of 30 years or not more than original term plus 10 years rounded down to 15, 20, 25 or 30 years. Second home or investment properties are eligible provided the veteran signs a letter verifying the property had previously been their primary residence. The P&I payment on an IRRRL must be less than the P&I payment on the loan being refinanced unless one of the following exceptions applies: The IRRRL is refinancing an ARM to a fixed rate, or Term of the IRRRL is shorter than the term of the loan being refinanced, or Energy efficiency improvements are included in the IRRRL. No credit qualifying, unless PITI payment increasing by more than 20%. Fully executed Old vs. New Statement as per VA Lender's Handbook, Chapter 6, 1-d Incidental cash back closing is limited to $500.00 for Rate/Term refinance. For primary residences in the state of Texas, incidental cash back to the borrower at closing is not permitted, including incidental cash back as a result of POC fees being refunded to the borrower. 317.4: Construction-to-Permanent Refer to Credit History for Mortgage Payment History requirements. To be considered a construction-to-permanent transaction, the following conditions must be met: The borrower is the primary obligor on the construction finance loan which was obtained through a legitimate financial institution. The borrower is the owner of record on the lot on which the residence is constructed. All Veteran's Administration Loan Guaranty Program guidelines must be met, unless otherwise stated in this section. Non-arm's length transactions are not permitted. The Construction-Permanent loan program described in Chapter 7 of the Lender's Handbook, which pays draws to a builder during construction, is not permitted. 317.5: Other Refinnace Other refinance transactions are loans to pay off installment land contracts. A Land Contract, also known as a Contract for Deed, is a real estate contract between a seller and buyer in which the seller of third party lender provides financing to buy the property for an agreed-upon purchase price and the buyer repays the loan in installments. Land Contract must be recorded and title commitment provided supporting borrower(s) in title and the lien that is to be paid off. A Land Contract that is to be recorded at closing must be considered as a Purchase transaction. Refer to Credit History for Mortgage Payment History requirements. 317.6: Privately Held Mortgage If a borrower is refinancing a privately held mortgage, the following guidelines apply: The borrower must provide evidence that 12 months of mortgage payments have been made on the current mortgage.
The mortgage payments must be verified with either 12 months of cancelled checks or 12 months of bank statements (if the payment is automatically withdrawn from the borrower's account). Evidence must be included in the loan file that the lien being paid off is a current recorded lien against the subject property. 317.7: Property Listed for Sale 317.7.1: Cash-Out Transactions A property listed for sale must provide evidence the listing agreement was cancelled at least one (1) day prior to application. The loan file must also document a letter of intent signed by the borrower acknowledging they do not intend to relist the property for 12 months after the note date. 317.7.2: Rate/Term and IRRRL Transactions A property listed for sale must provide evidence the listing agreement was cancelled at least one (1) day prior to application. The loan file must also document a letter of intent signed by the borrower acknowledging they do not intend to relist the property for 12 months after the note date.
318: Underwriting 318.1: General Underwriting Information The more restrictive or AFG or VA Lender's Handbook requirements apply. All VA Loans must be submitted through DU or LP except for IRRRL transactions or manual downgrades that comply with Manual Underwriting requirements. We will close loans that receive an Approve/Accept or Refer. The Refer must be approved by a VA Underwriter and comply with VA and AFG guidelines and regulations. Limited Denial of Participation (LDP) list at https://www5.hud.gov/ecpcis/main/ecpcis_list.jsp and the System for Award Management (SAM) Excluded Party List at https://www.sam.gov/ must be checked. Any entity noted on either of the LDP or SAM lists will cause the loan to be ineligible for purchase. All borrowers must be screened using CAIVRS. 318.2: Manual Downgrades In the event that credit terms and/or loan information were not considered in the AUS decision, an Approve/Eligible or Accept decision must be downgraded to Refer and be manually underwritten. Circumstances requiring a downgrade, if not considered in the AUS decision, include but are not limited to: Delinquent federal debt, CAIVRS, and/or suspended and debarred individuals. Disputed accounts, significant inaccuracy or undisclosed debt. If the disputed account has a zero balance or no derogatory information is reported and does not impact qualification, and there are no other significant issues present with the overall credit history: The underwriter may document the file with their justification and proceed with AUS approval. Previous mortgage foreclosure and bankruptcy (within 2 years of application). If additional derogatory credit information is received that was not included on the credit report evaluated by the AUS. Collection accounts, tax lien, charge-off, judgment. Failure to meet the specific conditions of an AUS approval. 318.3: Manual Underwriting Not permitted. Must have an AUS approval. 318.4: Employment and Income Unless otherwise noted, document employment and income in accordance with VA standard policies. 319.5: Rental Income
Rental Income may be considered effective income if the borrower has sufficient cash reserves, prior rental experience and the appropriate vacancy factor is used. See Chapter 4, Section 2 of VA Handbook for further guidance. 319.6: Borrower employed in a residential real estate related profession: Loans on builder or developer owned properties are ineligible. 319.7: Student loans How to Calculate a Student Loan Monthly Payment. If the Veteran or other borrower provides written evidence that the student loan debt will be deferred at least 12 months beyond the date of closing, a monthly payment does not need to be considered. If a student loan is in repayment or scheduled to begin within 12 months from the date of VA loan closing, the lender must consider the anticipated monthly obligation in the loan analysis and utilize the payment established in paragraph (1) or (2) below. Calculate each loan at a rate of 5 percent of the outstanding balance divided by 12 months (example: $25,000 student loan balance x 5% = $1,250 divided by 12 months = $104.17 per month is the monthly payment for debt ratio purposes). (1) The lender must use the payment(s) reported on the credit report for each student loan(s) if the reported payment is greater than the threshold payment calculation above. (2) If the payment reported on the credit report is less than the threshold payment calculation above, the loan file must contain a statement from the student loan servicer that reflects the actual loan terms and payment information for each student loan(s). The statement(s) must be dated within 60 days of VA loan closing and maybe an electronic copy from the student loan servicer s website or a printed statement provided by the student loan servicer. It is the lender s discretion as to whether the credit report should be supplemented with this information. Note on option 2. If the payment statement shows that the payment is to last for 12 months or less from the note date, the higher threshold payment from the above calculation must be used for qualifing the borrower.