Reference Who is eligible for a VA loan? Those servicemen and women who meet the eligibility requirements. What is eligibility? General rule for eligibility Eligibility is the veteran s entitlement to VA home loan benefits under the law, based on military service. An eligible veteran must still meet credit and income standards to qualify for a VA-guaranteed loan. A lender cannot make a VA-guaranteed loan to an ineligible applicant under any circumstances. A veteran is eligible for VA home loan benefits if he or she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard after September 15, 1940, and was discharged under conditions other than dishonorable after either: 90 days or more (any part of which occurred during wartime) 181 continuous days or more (peacetime) Service after September 7, 1980 (enlisted) or October 16, 1981 (officer): If the applicant was separated from service which began after these dates, the applicant must have completed: 24 continuous months of active duty The full period for which called or ordered to active duty, but not less than 90 days (any part during wartime) or 181 continuous days (peacetime) Note: Cases involving other than honorable discharges will usually require further development by VA. This is necessary to determine if the service was under other than dishonorable conditions.
What is considered wartime and peacetime? Wartime and peacetime refer to the following periods of service: Wartime World War II 9/16/40 7/25/47 Korean conflict 6/27/50 1/31/55 Vietnam era 8/5/64 5/7/75 (Vietnam era begins 2/28/61 for individuals who served in the Republic of Vietnam.) Persian Gulf War 8/2/90 undetermined Peacetime Post-World War II 7/26/47 6/26/50 Post-Korean 2/1/55 8/4/64 Post-Vietnam 5/8/75 8/1/90 Are members of the Reserves and National Guard eligible for VA loans? Members of the Reserves and National Guard who are not otherwise eligible for loan guaranty benefits are eligible upon completion of 6 years of service in the Reserves or Guard. The applicant must have been honorably discharged from such service unless he or she is either: In an inactive status awaiting final discharge Still serving in the Reserves or Guard Are spouses of veterans eligible for a VA loan? The eligible veteran and their spouse can go on a loan together. There are exceptions as to when the spouse alone can get a VA loan. Some spouses of veterans may have home loan eligibility. They are: The unmarried surviving spouse of a veteran who died because of service or serviceconnected causes The spouse of an active duty member who is listed as missing in action (MIA) or a prisoner of war (POW) for at least 90 days. Eligibility under this MIA/POW provision is limited to one-time use only.
Quick Reference Tables for VA Eligibility ERA Dates Time Required WW II 9/16/40 7/25/47 90 days POST WW II 7/26/47 6/26/50 181 days KOREAN 6/27/50 1/31/55 90 days POST KOREAN 2/1/55 8/4/64 181 days VIETNAM 8/5/64 5/7/75 Note: The Vietnam era began 2/28/61 for those individuals who served in the Republic of Vietnam POST VIETNAM 5/8/75 9/7/80 5/8/75 10/16/81 9/8/80 8/1/90 10/17/81 8/1/90 90 days enlisted 181 days officers 181 days enlisted 2 years** officers 2 years** PERSIAN GULF 8/2/90 undetermined 2 years **Note: The veteran must have served 2 years or the full period in which called or ordered to active duty (at least 90 days during wartime and 181 during peacetime) Other Eligible Persons Active duty member Note: Certificate only valid while veteran remains on active duty Reserves/Guard Unmarried surviving spouses POW/MIA spouses Time Required 90 days or 181 during peacetime 6 years in Selected Reserves. No time requirement. Veteran must have died on active duty or from a service-connected disability. Veteran must have been POW or MIA 90 days.
Certificate of Eligibility Is there any documentation that specifically shows that a veteran is eligible for a VA loan? o Yes! It is called a Certificate of Eligibility (COE). o The request for a COE should be the first step in the loan process for a veteran who does not already have a COE. If a borrower does not have their COE, they can request a certificate by doing the following: 1. Complete VA Form 26-1880, Request for a Certificate of Eligibility for Home Loan Benefits. Reference the VA website at www.benefits.va.gov/homeloans under the purchase & cash out refinance tab where you can download/print a copy of the Certificate of Eligibility form. See next page for an example. 2. Send the completed 1880 and the supporting evidence required to the VA Eligibility Center to the address listed on the form. Additionally, many lenders have access to the Web LGY system, which can establish eligibility and issue an online COE, if applicable. Review with your manager to determine if your company has access to this system. Under normal circumstances, a response can be anticipated in roughly 10 days. This time frame will vary during periods of heavy activity. 3. Include photocopies of your most recent discharge papers (DD-214) or separation papers covering active military duty, which show active duty dates and type of discharge. IF YOU SERVED ON REGULAR ACTIVE DUTY (NOT A RESERVIST) AND WERE DISCHARGED AFTER 1975 OR YOU HAVE PREVIOUSLY HAD A VA LOAN, IT MAY NOT BE NECESSARY FOR YOU TO PROVIDE DOCUMENTATION OF YOUR MILITARY SERVICE. However, it is best to provide such evidence with your VA Form 26-1880 if it is readily available to avoid possible delays in processing your request. If a veteran currently owns a VA guaranteed loan which they will be selling and the Certificate of Eligibility and 26-1880 refelct this prior usage, there us no need to have the COE (Certificate of Eligibility) updated. Hint
Sample Form 26-1880 Request for a Certificate of Eligibility FOR REFERENCE ONLY COURSE VII: UNDERSTANDING VA LENDING
Proof of Service for Others Still Active or not Mentioned Previously Veteran still on active duty Discharged Reserve/Guard Members Current Reserve/Guard Members Must provide a current statement of service signed by, or by the direction of, the adjutant, personnel office, or commander of the unit or higher headquarters they are attached to. There is no one form used uniformly by the military for a statement of service. While statements of service are typically on military letterhead, some may be computer generated. The statement of service must clearly show: Veteran s full name Social Security number (SSN) Date of birth The entry date on active duty The duration of lost time, if any, and The name of the command providing the information There is no one form used by the Reserves or National Guard which is similar to DD Form DD 214. Discharged members of the Army or Air National Guard may submit: NGB Form 22, Report of Separation and Record of Service, or NGB Form 23, Retirement Points Accounting Typically, all members of the Reserves and/or Guard receive an annual retirement points summary which indicates the level and length of participation. The applicant should submit the latest such statement received along with evidence of honorable service. VA will accept originals or legible copies. Documentation must reflect at least 6 years of honorable service. Must provide a statement of service signed by, or by the direction of, the adjutant, personnel office, or commander of the unit or higher headquarters they are attached to. There is no one form used uniformly by the military for a statement of service. While statements of service are typically on military letterhead, some may be computer-generated. The statement of service must clearly show: Veteran s full name Social Security Number (SSN) Entry date of applicant s Reserve/Guard duty, and The name of the command providing the information. Documentation must reflect at least 6 years of honorable service. Note: The statement must clearly indicate that the applicant is an "active" reservist and not just in a control group (inactive status).
Unmarried surviving spouses Veteran unable to provide proof of service (Doesn t have the DD214) If they are applying for the first time, they must complete VA Form 26-1817, Request for Determination of Loan Guaranty Eligibility Unmarried Surviving Spouses (instead of VA Form 26-1880). Forward VA Form 26-1817to the appropriate VA Eligibility Center. NOTE: Eligibility determinations for unmarried surviving spouses may take considerably longer to process than others. If the veteran has been discharged from regular active duty, submission of VA Form 26-1880 to the appropriate Eligibility Center should not be delayed while the veteran attempts to obtain evidence of service since VA may be able to make determination by referring to internal records. Discharged reservists and other discharged vets for whom VA has no internal records should obtain an SF 180, Request Pertaining to Military Records from the nearest Eligibility Center, or other VA Office. An SF 180 can be used by the veteran to request a copy of his or her Form DD 214 or equivalent.
How do you verify the exempt status? The lender must verify exempt status by obtaining one of the following: A properly completed and signed VA Form 26-8937, Verification of VA Benefit-Related Indebtedness, indicating the borrower s exempt status An award letter issued within 1 year of the date of the loan application indicating the veteran is entitled to receipt of VA disability compensation For a veteran who elected service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and documentation of the veteran s service retirement income Indications on the Certificate of Eligibility that the borrower is entitled as a surviving spouse who has not remarried What if exempt status cannot be determined? The following is for reference only your borrowers most commonly will NOT be exempt. If the veteran s exempt status cannot be verified prior to loan closing, the funding fee must be remitted as if the borrower were not exempt. Indicate in the closing package that the veteran claims exempt status. VA will determine the borrower s status and refund the funding fee if appropriate. If the veteran has a pending disability compensation claim at the time of loan closing, the funding fee must be remitted as if the borrower were not exempt. Advise the veteran to contact the VA regional office to request a refund if it is later determined that the veteran is entitled to compensation retroactively to a date prior to loan closing.
How much is the funding fee? The lender determines the appropriate percentage in the funding fee tables using the following listed parameters: Is the veteran eligible for VA loan benefits through service in the regular military or the Reserves/National Guard? Examine the Certificate of Eligibility (COE). For Reserves/National Guard, the COE bears the notation, RESERVES/NATIONAL GUARD - INCREASED FUNDING FEE, and is buff-colored rather than green. Is the veteran a subsequent user of VA home loan benefits or obtaining his or her first VA loan? Examine the COE. An entitlement code of 5 indicates subsequent use, as does a loan number entered in the Loan Number column. What type of loan is the veteran obtaining? The funding fee varies depending upon whether the loan is a purchase or construction loan, an IRRRL, or a cash-out refinance loan (You will soon learn about an IRRRL). Is the veteran making a down payment of at least 5 or 10%? Calculate what percentage of the sales price of the property the veteran is remitting as a down payment. The down payment may come from the veteran s own resources or borrowed funds. Except, if the purchase price exceeds the reasonable value of the property, the difference between the purchase price and the reasonable value must be paid by the veteran in cash without borrowing. For construction loans only, equity in the secured property counts as a down payment for calculating the funding fee.
What is the Lender s role in this Funding Fee? COURSE VII: UNDERSTANDING VA LENDING o Verify the status of a veteran who may be exempt from paying the Funding Fee o Determine the amount of Funding Fee owed by any non-exempt borrower o Collect the appropriate fee from all non-exempt borrowers at loan closing o Electronically remit the funds to VA in a timely manner o Obtain proof of payment of the Funding Fee, and o Submit proof that the Funding Fee has been paid or that the veteran is exempt from paying the Funding Fee to VA with the closed loan package Who is exempt from paying the Funding Fee? The following persons are exempt from paying the Funding Fee: o Veterans receiving VA compensation for service-connected disabilities o Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay o 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) o The majority of the time your borrowers will not be exempt! o If the veteran s exempt status cannot be verified prior to loan closing, the funding fee must be remitted as if the borrower was not exempt. Remember, ask yourself the following questions: 1. Regular military or reserves/national guard? 2. Has the veteran used their eligibility before? 3. Is this a purchase or refinance? 4. Is there a down payment? (You will seldom see a down payment)
The veteran may pay any or all the following itemized fees and charges, in amounts that are reasonable and customary: o Appraisal o Compliance Inspection (if needed) o Credit Report o Prepaid Items o Hazard Insurance o Flood Zone Determination o Survey o Title Exam o Title Insurance o Special Mailing Fees for Refinancing loans o VA Funding Fee (unless exempt) o Other fees authorized by VA
Funding Fee Tables Purchase and Construction Loans Type of veteran Down payment First time use Subsequent use Regular Military Zero to 4.99% 5% to 9.99% 10% or more Reserves/ National Guard Zero to 4.99% 5% to 9.99% 10% or more 2.15% 1.50% 1.25% 2.40% 1.75% 1.50% 3.30% 1.50% 1.25% 3.30% 1.75% 1.50% Cash-Out Refinance Loans Type of veteran First time use Subsequent use Regular Military 2.15% 3.30% * Reserves/National Guard 2.40% 3.30% * *The higher subsequent use funding fee does not apply to these types of loans if the veteran s only prior use of entitlement was for a manufactured home loan. Other Types of Loans Type of loan Interest Rate Reduction Refinance Loans (IRRRLs) Percentage for any type of veteran first time or subsequent use.50% Manufactured home loans 1.00% Loan assumptions.50% Calculating the funding fee and loan amount The actual dollar amount of the funding fee that will be charged to the borrower is determined by multiplying the loan amount by the appropriate percentage from the funding fee tables.
What are the VA fees and allowable closing costs? COURSE VII: UNDERSTANDING VA LENDING 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 1% flat charge by the lender, plus Reasonable discount points Note: Some special provisions apply to construction, alteration, improvement and repair loans. Remember The amount of entitlement, which is found on the Certificate of Eligibility (COE) in the ENTITLEMENT section, determines how much of the loan will be guaranteed by the VA. Amount of available entitlement is the most important item on a COE to a Lender, because VA s guaranty on the loan generally cannot exceed this amount. Eligible veterans and service personnel may obtain loans for the following purposes: o To buy or build a home o To buy a residential unit in a condominium project o To repair, alter or improve a home o To refinance an existing home loan o To buy a new or used manufactured home and/or lot o To buy and improve a manufactured home lot on which to place a unit owned and occupied by the veteran o To improve a home through installation of a solar heating and/or cooling system or other energy efficient improvements o To refinance a loan currently guaranteed, insured or made by the VA for the purpose of lowering the interest rate o To refinance a manufactured home in order to purchase the lot on which the home is or will be placed
Details: VA Fees and Closing Costs Reference Only! Charge Appraisal and compliance inspections Recording fees Credit report Prepaid items Hazard insurance Flood zone determination Survey Description The veteran can pay the fee of a VA appraiser and VA compliance inspectors. The veteran can also pay for a second appraisal if he or she is requesting reconsideration of value. The veteran cannot pay for an appraisal requested by the lender or seller for reconsideration of value. The veteran cannot pay for appraisals requested by parties other than the veteran or lender. The veteran can pay for recording fees and recording taxes or other charges incident to recordation. The veteran can pay for the credit report obtained by the lender. On Loan Prospector cases, the veteran may pay the evaluation fee of $50 in lieu of the charge for a credit report. For Refer cases, the veteran may also pay the charge for a merged credit report, if required. The veteran can pay that portion of taxes, assessments, and similar items for the current year chargeable to the borrower and the initial deposit for the tax and insurance account. The veteran can pay the required hazard insurance premium. This includes flood insurance, if required. The veteran can pay the actual amount charged for a determination of whether a property is in a special flood hazard area, if made by a third party who guarantees the accuracy of the determination. The veteran can pay a charge for a life-of-the-loan flood determination service purchased at the time of loan origination. A fee may not be charged for a flood zone determination made by the lender or a VA appraiser. The veteran can pay a charge for a survey, if required by the lender or requested by veteran. Any charge for a survey in connection with a condominium loan must have the prior approval of VA. Continued on the next page
Charge Title examination and title insurance Special Mailing Fees for Refinancing Loans VA Funding Fee Other Fees Authorized by VA Description The veteran may pay a fee for title examination and title insurance, if any. If the lender decides that an environmental protection lien endorsement to a title policy is needed, the cost of the endorsement may be charged to the veteran. For refinancing loans only, the veteran can pay charges for Federal Express, Express Mail, or a similar service when the saved per diem interest cost to the veteran will exceed the cost of the special handling. Unless exempt from the fee, each veteran must pay a funding fee to VA. Additional fees attributable to local variances may be charged to the veteran only if specifically authorized by VA. The lender may request VA to approve such a fee if it is: Normally paid by the borrower in a particular jurisdiction, and considered reasonable and customary in the jurisdiction. In addition to the itemized fees and charges, the lender may charge the veteran a flat charge not to exceed 1% of the total loan amount. Calculate the 1% on the principal amount after adding the Funding Fee to the loan, if the Funding Fee is paid from loan proceeds (except IRRRLs which we will explain later). Hint
What are the seller contribution/seller concession limits? COURSE VII: UNDERSTANDING VA LENDING For purposes of this topic, 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 the following: 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-downs Provision of escrowed funds to provide temporary interest rate buy-downs and Payoff of credit balances or judgments on behalf of the buyer Seller concessions do not include: Payment of the buyer s closing costs, or Payment of points as appropriate to the market Example If the market dictates an interest rate of 7½% with 2 discount points, the seller s payment of the 2 points would not be a seller concession. If the seller paid 5 points in this same market, 3 of these points would be considered a seller concession. Remember it is what the market dictates. The 4% Limit Any seller concession or combination of concessions which exceeds 4% 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 4% limit.
What are the qualifying ratios on a VA loan? VA qualifies the veteran based on: Back ratio and the balance available for family support VA s debt-to-income ratio is a ratio of total monthly debt payments. The total monthly obligations include everything mentioned in previous lessons AND child care. Debt Income = Debt-to-Income Ratio (DTI) MAXIMUM DTI Ratio is 41%
Residual Income Residual Income is the amount of income available for family support after taxes and social security expense has been subtracted from the gross income and after the house payment and other long-term debt has been paid. Residual Income Tables Balance Available for Family Support Reduce the residual income figure from the tables by a minimum of 5% if the applicant or spouse is an active-duty or retired service person, and there is a clear indication that he or she will continue to receive the benefits resulting from the use of military-based facilities located near the property. Reference Only! Table of Residual Incomes by Region For loan amounts of $79,999 and below Family Size Northeast Midwest South West 1 $390 $382 $382 $425 2 $654 $641 $641 $713 3 $788 $772 $772 $859 4 888 $868 $868 $967 5 $921 $902 $902 $1,004 over 5 Add $75 for each additional member up to a family of 7 Table of Residual Incomes by Region For loan amounts of $80,000 and above Family Size Northeast Midwest South West 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 $1062 $1,039 $1,039 $1,158 over 5 Add $80 for each additional member up to a family of 7
Reference Only! Key to Geographic Regions Used in the Preceding Tables Northeast Connecticut Maine Massachusetts New Hampshire New Jersey New York Pennsylvania Rhode Island Vermont Midwest Illinois Indiana Iowa Kansas Michigan Minnesota Missouri Nebraska North Dakota Ohio South Dakota Wisconsin South Alabama Arkansas Delaware District of Columbia Florida Georgia Kentucky Louisiana Maryland Mississippi North Carolina Oklahoma Puerto Rico South Carolina Tennessee Texas Virginia West Virginia West Alaska Arizona California Colorado Hawaii Idaho Montana Nevada New Mexico Oregon Utah Washington Wyoming What types of loans can you get with a VA loan? You can get a fixed-rate loan and a temporary buy-down! VA allows an ARM product, but not all lenders offer this product. The ARM requires a minimum of 3 years fixed and a 1% per year and 5% lifetime caps. Hint
Basic Elements of a VA-Guaranteed Loan Reference Only! Subject Purpose of Guaranty Amount of Guaranty Maximum Loan Amount Down payment Interest Rate and Points Funding Fee Closing costs Explanation To encourage lenders to make VA loans by protecting lenders/loan holders against loss, up to the amount of guaranty, in the event of foreclosure. The lesser of: the veteran s available entitlement indicated on the COE or, the maximum potential guaranty from the maximum guaranty table. (Highest possible guaranty is 25% of FHLMC loan limit for single family residence) The maximum loan amount depends upon: the reasonable value of the property indicated on the CRV or NOV, and the lender s needs in terms of secondary market requirements. No down payment is required by VA unless the purchase price exceeds the reasonable value of the property, or the loan is a GPM. The lender may require a down payment if necessary to meet secondary market requirements. Interest rate and points are negotiated between the lender and veteran: The veteran and seller may negotiate for the seller to pay all or some of the points. Points must be reasonable. Points may not be financed in the loan except with IRRRLs. The veteran must pay a funding fee to help defray costs of the VA home loan program. Find the percentage appropriate to the veteran s particular circumstances on the funding fee table. Apply this percentage to the loan amount to arrive at the funding fee. The funding fee is always financed in the loan. Those payable by the veteran are limited by regulation to a specific list of items plus a 1% flat charge by the lender. Any other party, including the seller, can pay any costs on behalf of the veteran. Closing costs cannot be financed in the loan except on certain refinancing loans. Continued on the next page
Occupancy IRRRLs (Streamline Refinancing Loans) The veteran must certify that he or she intends to occupy the property as his or her home. Used to refinance an existing VA loan at a lower interest rate No appraisal or underwriting is required. Closing costs may be financed in the loan. Any reasonable discount points can be charged, but only 2 discount points can be financed in the loan. No cash to the borrower. Note: A fixed-rate loan to refinance a VA ARM may be at a higher interest rate. VA Terms HUD: Department of Housing and Urban Development LAPP: Lender Appraisal Processing Program - Lenders approved by VA to review appraisals LAPP Case: Cases ordered and processed by a LAPP lender IRRRL: Interest Rate Reduction Refinance Loan SAR: Staff Appraisal Reviewer - Employee of a LAPP lender authorized to review appraisals CRV: Certificate of Reasonable Value, issued by VA COE: Certificate of Eligibility NOV: Notification of Value, issued by SAR at LAPP lender AAAPS: Automated Appraiser Assignment Processing System VA form 26-1880: Request for Determination of Eligibility and Available Loan Guaranty
Notes COURSE VII: UNDERSTANDING VA LENDING