INDEX:
In order to assist veterans in obtaining affordable housing, the U.S. government
set up the VA home loan program. Under this program, the Veterans Administration
guarantees a certain portion of a home loan made by institutional investors to qualified
veterans.
The amount of entitlement for a qualified veteran has been increasing throughout
the years. Presently, full entitlement is $89,913 (01-05). Since investors usually require
at least 25% coverage on VA loans, the maximum loan available, without a down payment, is
$417,000. Although there is no maximum loan amount mandated by the VA, the secondary
mortgage market will not purchase VA loans over $417,000
(this would
require a down payment in addition to the entitlement to maintain 25% coverage.)
Mortgage Resources is only offering VA Home Loans in
California.
TERM - 15 or 30 Year Fixed Rate Loans. All are fully
Amortized. However, loan term can not exceed 3/4 of the property's remaining economic
life.
PROPERTY - Single to four unit family dwellings, condo's and
PUD's (in approved projects.) All VA loans are only for owner-occupied properties. No
increase in maximum loan amount, is available for multiple units.
VA FUNDING FEE - The Veterans
Administration charges a funding fee which is based upon the total loan amount. Effective
10-1-93 the funding fee charged is based upon Loan- to-Value, Veteran's status and whether
the Veteran has used the loan program before. The funding fee may be paid in cash or
financed.
Basic Funding Fee - First Time Use: Present or Previous Active Duty -
- 2.00% - For loans in excess of 95% LTV.
- 1.50% - For loans over 90% but less than 95% LTV.
- 1.25% - For loans less than or equal to 90% LTV.
- Basic Funding Fee for Reservists - First Time Use: (Based
upon 6 years of Selective Reserve or Nat'l Guard)
- 2.75% - For loans in excess of 95% LTV.
- 2.25% - For loans over 90% but less than 95% LTV.
- 2.00% - For loans less than or equal to 90% LTV.
Funding Fee for Subsequent Use:
- 3.00% - For loans in excess of 95% LTV.
- 1.50% - (or 2.25% for Reserves/Nat'l Guard) For loans over 90% but less than 95%
LTV
- 1.25% - (or 2.00% for Reserves/Nat'l Guard) For loans less than or equal to 90%
LTV.
Funding Fee for Refinances:
- 0.50% - For Rate Reduction Refinances.
- 3.00% - For Cash-Out Refinances of Present VA Loans.
- 2.00% - (or 2.75% for Reserves/Nat'l Guard) for Refinances of present Conventional
Loans, assuming no previous uses of eligibility.
EXEMPTIONS FROM THE VA FUNDING FEE - The VA funding fee will
not be collected if any of the following apply:
- The Veteran is receiving VA Disability Compensation (regardless of percentage).
- The veteran is rated as being eligible for such compensation, even though not
collecting it.
- The borrower is an "Un-remarried Surviving Spouse" who is eligible for
such benefits.
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SECONDARY FINANCING - The
VA does allow secondary financing. If the first and second loans are less than $240,000,
the rate on the second should not (but may) exceed the VA rate on the first. If combined
loans exceed $240,000, the rate may exceed that on the first but the averaged rate must be
`reasonable'. Payments on the 2nd must be at least interest only. A balloon payment is
allowed after five years. The sum of the veteran's entitlement plus the cash investment
must be at least 25% of the property's sale price or appraised value (whichever is less.)
INTEREST RATE - As of October
29, 1992, the VA no longer sets the interest rate. It is fully negotiable between the
buyer and seller and the lender.
TEMPORARY BUY-DOWNS -
Temporary interest rate buy-downs are available (on purchases only) and may be paid by
either buyer or seller. Buy-downs may be 1% for the first year only, a 2-1
buy-down or a
3-2-1 buy-down. The buyer qualifies at the start rate.
POINTS - Effective August 13, 1993, the
Veteran is allowed to pay points on either a purchase or a refinance. This should allow
much greater success in getting your VA offers accepted than the previous VA mandates
allowed!
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All Veterans are eligible for VA loan guarantee who have been discharged under any
condition other than dishonorably, including those discharged under hardship conditions,
and those discharged for disability (whether or not it was service-connected). And, if
they have served on ACTIVE DUTY during the following periods of time:
- 09/08/80 - Present 24 Months, if discharged or 90 days if still active duty
- 05/08/75 - 09/07/80 181 Days
- 08/05/64 - 05/07/75 90 Days
- 02/01/55 - 08/04/64 181 Days
- 06/27/50 - 01/31/55 90 Days
- 07/26/47 - 06/26/50 181 Days
- 09/15/40 - 07/25/47 90 Days
Reservists - 6 Years (does not have to be continuous)
Exception: 08/01/90 - Present 90 days (if called to active duty under Title 10 by
Executive Order; i.e. Desert Storm, Berlin Crisis, Bay of Pigs)
ENTITLEMENTS
The amount of entitlement for a VA loan has increased dramatically during the
years. When entitlement increases, all eligible veterans benefit from that increase.
If a veteran has previously used his/her
entitlement, a full reinstatement may be obtained if:
- The previous VA loan was paid in full and the property has been disposed
of, or
- If another eligible veteran has substituted his/her entitlement on the loan.
PARTIAL ENTITLEMENT: Partial
Entitlement is available for those veterans who purchased a home in the past with a VA
loan, if the amount of entitlement has increased since that purchase. To figure the
remaining entitlement: Take Sales Price of original property, multiply that by 60%
(maximum coverage allowed an investor). Take the lesser of this figure or the maximum
entitlement in effect at date of purchase. This lower figure is the amount of the
entitlement which was actually used. Subtract this figure from current entitlement -
$60,000; this is the amount of entitlement that is remaining for the veteran's use. For
loans closed after Feb. 1, 1988, a maximum coverage of 40% was allowed for the investor.
Utilize the same formula but decrease multiple.
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ASSUMPTION POLICY: Prior to March 1, 1988, all VA loans were
fully assumable. All loans written after this date include an acceleration clause. Any
assumption must now be prior approved by the Veterans Administration. A full assumption
package is required and, if approved, the assumptor must pay a .50% VA funding fee in
order to consummate the transaction. After the assumption, the veteran will be released
from liability in the event of default (full eligibility is not restored.)
DEFICIENCY JUDGMENTS: VA loans are the only purchase-money
transactions, within California, which allow for a deficiency judgment against the buyer
in the event of foreclosure. Since the program is governed by federal statute, the state's
real estate law provisions are pre-empted. Those veterans that allowed assumptions of
their properties prior to March of '88 (without a specific release of liability) will
still be held liable in the event of a foreclosure which results in a deficiency.
REFINANCES: VA will allow
refinances up to a maximum of 90% of the appraised value of a property, with or without
cash out, up to a maximum loan amount of $240,000. There must be enough equity in the
property, added to a maximum refinance eligibility of $46,000, to cover 25% of the new
loan amount.
RATE REDUCTION
REFINANCES: Rate reduction refinances are allowed with streamlined
processing which requires neither employment nor credit verifications. Some investors are
allowing these refinances without the need of a new appraisal. This can translate into
true loan-to values of well over 100%! Maximum loan is $240,000.
JOINT LOANS: When two or more
veterans, who are not married, will be purchasing a property together, the loan must be
prior approved by the VA; no automatic underwriting is allowed.
CO-SIGNERS: VA allows no co-signers on a VA loan except the
veteran's spouse or another veteran (see Joint Loans above.)
GIFTS: 100% of the money required for
down payment (if any), closing costs and reserves may come from gifted funds. The giver
must be either a relative or an unrelated person who can prove a long term relationship
with the veteran. A gift letter is required as well as proof of the ability to give and
proof of the receipt of funds.
QUALIFYING: A combined housing
expense plus long-term debt ratio of 41% of gross income is recommended. The calculation
is the same as on conventional loans except that any child care or lengthy commute
expenses are also included as long term debt. Residual income may be utilized if the ratio
is higher than 41%. Please call for specifics if your client's ratio will exceed this
figure.
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Employment Stability - No
arbitrary limits are mandated for the holding of a present position. Most underwriters
will require at least a year. However, if a recent job change has occurred within the same
line of work, for advancement or a salary increase, this should be acceptable. For those
employed less than two years, who were previously students, diplomas are required.
Bonus, Overtime and
Second Job Income - Can only be fully utilized if it has been continuous
for at least two years, and if the future continuance can be ascertained through the
employer. If less than two years, it can be used to offset debt or as a compensating
factor.
Self-Employment - Two years
minimum history is required, unless the borrower had substantial experience or specialized
training in the same line of work. Less than one year is unacceptable, regardless. Any
ownership position of more than 10% is considered self-employment. Two years tax returns
as well as year-to-date Financial Statements are mandatory. Financial Statements must be
prepared by an accountant or CPA. If the business is a corporation, corporate returns are
required.
Room
& Board, Travel Expenses & Auto Allowances - Income from such
sources can not be counted.
Notes Receivable - A
copy of the note is required. Receipt of payments for the previous 12 months must be
verified and the note must call for payments to continue for at least 5 years beyond the
date of loan application. If the note is payable before 5 years, interim payments may be
used to offset debt of a similar duration.
Child
Support, Alimony & Separate Maintenance Payments - A copy of the
divorce decree or separation agreement is required. Proof of receipt for the previous 12
months, and continuance of at least 5 additional years is required.
Rental Property Income -
Income is calculated using Schedule E of the federal tax returns. Depreciation may be
added back to income. For newly acquired properties, rental agreements must be supplied
and related debt verified. Vacancy and collection expenses of between 15% and 25% will be
deducted from gross income. After computation, positive rent will be added to income,
negative rent will be included as a long- term liability.
Foreclosures - If a foreclosure
has been filed against the veteran within the last three years, VA will not accept the
application, unless a well documented reason can be found that the foreclosure was totally
outside of the applicant's control.
Bankruptcy - A Bankruptcy must have
been discharged for at least two years, and the veteran's credit must have been
satisfactorily re-established during that time. For a Chapter 13, three-quarters of the
payment plan must be completed and the Trustee or Bankruptcy Judge must approve of the
mortgage loan. A complete copy of all Bankruptcy papers are required.
No Credit History - Must
verify satisfactory payment of rent and utilities.
ALLOWABLE CLOSING COSTS
- Discount Points (Purchase or Refinance)
- Loan Origination Fee (1% Max)
- Appraisal Fee
- Credit Report Fee
- Title Insurance Fees
- Recording Fees
- Compliance Inspections
- VA Funding Fee (May be Financed)
- Pre-Paid Interest
- Tax and Insurance Impounds
COSTS THAT A VETERAN MAY NOT PAY (Must be Paid by the Seller
on a Purchase or by the Lender/Broker on a Refinance)
- Escrow Fee or Sub-Escrow Fee
- Administrative Fees
- Document Preparation Fee
- Underwriting Review Fee
- Processing Fee
- Wire Fee
- Tax Service Fee
- Notary Fee
- City Transfer Taxes or Tax Stamp Fee
SPECIAL NOTES
- The Seller may pay ALL of the Veteran's Fees including both Non-Recurring and
Recurring Closing Costs
- All of the Borrower's down payment and closing costs may be a gift from a relative.
- Seller concessions are limited to 4% of appraised value (not including closing
costs.)
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