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Table of Contents Introduction to VA Loans .............................................................................................................................. 4 VA Forms and Disclosures ............................................................................................................................. 5

VA Mandatory Forms: ............................................................................................................................... 5 Up Front Disclosures ................................................................................................................................. 5 VA Lender ID Number ............................................................................................................................... 6

Examples of Forms and Disclosures .............................................................................................................. 7 VA Purchase and Refinance Submission Form .......................................................................................... 7 How to Complete the VA 26-1802a .......................................................................................................... 9 How to Complete the VA 26-1802a for Brokered Loans ........................................................................ 11 How to Complete the VA 26-1802a for EMB Loans ................................................................................ 13

Certificate of Eligibility (COE) ...................................................................................................................... 19 Request for COE – VA Form 26-1880 ...................................................................................................... 21

VA Entitlement Codes ................................................................................................................................. 24 VA Funding Fee ........................................................................................................................................... 25

Funding Fee Exemption .......................................................................................................................... 26 VA Form 26-8937 ........................................................................................................................................ 27 Entitlement, Guaranty, and Maximum Loan Amounts ............................................................................... 28

Guaranty and Loan Amount Calculation Examples ................................................................................. 29 VA Loan Amount Exercises...................................................................................................................... 30

Closing Cost Summary................................................................................................................................. 32 Fees and Charges ........................................................................................................................................ 33 Underwriting Guidelines ............................................................................................................................. 36 Minimum Downpayment Requirements .................................................................................................... 38 Income Summary and Documentation ....................................................................................................... 39

Active Duty and Reservists, National Guard Applicants ......................................................................... 40 Self-employment Income ........................................................................................................................ 40 Commission Income ................................................................................................................................ 42 Rental Income ......................................................................................................................................... 42

How to Read an Active Duty Leave and Earnings Statement ..................................................................... 45 Credit Summary .......................................................................................................................................... 49

Collection Accounts................................................................................................................................. 49 Bankruptcy .............................................................................................................................................. 49 Short Sale, Short Payoff/Restructured Loans ......................................................................................... 50

CAIVRS ......................................................................................................................................................... 51 Debts and Obligations ................................................................................................................................. 53

Community Property States .................................................................................................................... 53 Eligible Veteran/ Borrower Combinations .................................................................................................. 53 Power of Attorney ....................................................................................................................................... 54 Ratios .......................................................................................................................................................... 55 Compensating Factors ................................................................................................................................ 55 Maximum/Minimum LTV/CLTV .................................................................................................................. 55 Table of Residual Incomes by Region.......................................................................................................... 56 VA Qualifying Exercise ................................................................................................................................ 58 The VA Case Number and Appraisal ........................................................................................................... 60

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Property Eligibility ....................................................................................................................................... 62 Existing Construction .............................................................................................................................. 62 New Construction ................................................................................................................................... 62 Eligible Properties ................................................................................................................................... 63 EEM Program .......................................................................................................................................... 63 Ineligible Properties ................................................................................................................................ 63 Number of Properties Owned ................................................................................................................. 63

VA IRRRL ...................................................................................................................................................... 64 VA IRRRL Qualified Mortgage ..................................................................................................................... 65 VA Benefit to Borrower ............................................................................................................................... 66 VA IRRRL Forms ........................................................................................................................................... 67 VA Jumbos ................................................................................................................................................... 70

EEM Program .......................................................................................................................................... 70 Maximum/Minimum Loan Amount ........................................................................................................ 71 Property .................................................................................................................................................. 71 Jumbo Refinances ................................................................................................................................... 71

Regional Loan Centers ................................................................................................................................ 72 Useful VA Websites ..................................................................................................................................... 75

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Introduction to VA Loans Overview – VA Loans VA guaranteed loans are made by private lenders and mortgage companies to eligible veterans for the purchase of a home that must be for their own personal occupancy. To get a loan, the veteran must apply to a lender. If the loan is approved, the VA will guarantee a portion of it to the lender. If the veteran has never used their entitlement before, or previously used it for a home which has been sold and the loan paid in full, then they have their full entitlement available and can apply for maximum VA financing. Based on secondary market requirements, lenders generally limit VA purchase loans to a base loan amount of $417,000 (plus the funding fee), which is equal to the conventional conforming loan limit for 2015. In December 2004, the VA guidelines were modified so the maximum entitlement will index and increase accordingly with conforming loan limits, therefore always equaling 25% of the current conforming limit. Limits above $417,000 are available in certain “high-cost” areas. Requirements for VA Loan Approval To obtain a VA loan, the law requires that:

• The applicant must be an eligible veteran who has available entitlement. • The veteran must occupy the property as a home (Excluding VA IRRRLs).

Eligible Loan Purpose Eligible veterans and service personnel may obtain VA loans from Franklin American Mortgage for the following purposes:

• To buy a home up to four family units for one veteran, including townhouses or condominium units in a VA approved project.

• To replace interim new construction financing with permanent financing. • To refinance an existing home loan.

– Cash-out refinance – Reduce the interest rate (Interest Rate Reduction Refinance Loan – “IRRRL”). – Convert an Adjustable Rate Mortgage (ARM) to a Fixed Rate Mortgage.

• Franklin American Mortgage does not allow: – Manufactured, mobile or modular homes – HUD repos – Leasehold condos – Geodesic dome – Log homes – Earth homes – Geothermal homes – Co-ops – Ranches, – Orchards – Working or hobby farms – Properties without a permanent source of heat and cooling (if typical for the area). NOTE: space heaters and similar sources are not considered permanent heating sources.

(Reference: Chapter 3, Section 2a, VA Lender’s Handbook at: http://www.benefits.va.gov/warms/pam26_7.asp)

http://www.benefits.va.gov/warms/pam26_7.asp

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Introduction to VA Loans, cont. Advantages of VA Home Loans

• 100% financing/no downpayment. • One ratio calculated – back ratio 41%. • No cash reserves required (except as required by AUS). • The VA funding fee can be financed. • Seller contribution 4% including pre-paids (the 4% cap is only on pre-paids not on closing costs). • No monthly mortgage insurance. • Maximum loan amount equal to the conforming loan limit (higher in certain “high-cost” areas).

VA Forms and Disclosures VA Mandatory Forms: Include the following documents when submitting a loan:

• VA Purchase and Refi Q.image Submission Form

• Nearest Living Relative

Up Front Disclosures: In addition to the required RESPA disclosures, the following additional up front disclosures are required.

• Initial 1003

• The LO taking the application must sign and date the initial 1003; no other person

(including FAMC employees) can sign on behalf of the LO. • The LO must correctly complete their Nationwide Mortgage Licensing System

(NMLS) information on the initial 1003. • The borrower(s) must sign and date the initial 1003 before FAMC underwrites the

loan.

Final 1003

• The LO is not required to sign the final 1003; however, if signed, it must be the same LO that signed the initial 1003.

• The borrower(s) must sign and date the final 1003 at loan closing.

• Initial Addendum, VA 26-1802a/HUD 92900a

• The LO must always sign the initial addendum for all loans except IRRRLs. o Note: VA requires the Federal Collection Policy on IRRRLs. If there is not a

signed Federal Collection Policy in the file, in lieu of this, FAMC will accept a signed copy of the initial addendum.

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VA Forms and Disclosures, cont.

• Final Addendum VA 26-1802a/HUD 92900a • As a reminder, FAMC generates the final addendum, which will be provided to the

closing agent along with the final 1003 at the time that the closing package is prepared by FAMC.

• Brokers are not required to sign the final 26-1802a as these forms will be handled by FAMC.

• VA Interest Rate and Discount Disclosure • Veteran and spouse (if applicable) sign and date and include in loan submission package.

• VA Form 26-0592 (6/95) – Counseling Checklist for Military Homebuyers

ACTIVE DUTY MILITARY ONLY: veteran and broker must sign and include in loan submission package.

• Franklin American Mortgage VA Benefit Questionnaire (Form 1) and Statement of

Active Duty Status 1/19/05 (Form 2) Veteran and spouse (if applicable) complete and sign Form 1. All applicants with qualifying income need to complete and sign Form 2 and the broker will sign and include in loan submission package.

VA Lender ID Number To become an agent of a sponsoring lender (Franklin American Mortgage) you must submit a $100 check (made payable to Franklin American Mortgage Co.) to Franklin American Mortgage. This fee must be paid annually to maintain your VA Agent status. You should receive your VA lender ID number in six to eight weeks. In certain cases, the VA does not provide the VA lender ID number to Franklin American Mortgage and in those cases it will be the responsibility of the agent (broker) to contact the local VA office and request the VA Lender ID number. NOTE: Visit the VA website at http://www.benefits.va.gov/homeloans/lenders.asp to access forms, lenders handbook (underwriting guidelines), eligibility centers, training information, and more.

http://www.benefits.va.gov/homeloans/lenders.asp

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Examples of Forms and Disclosures VA Purchase and Refinance Submission Form

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Examples of Forms and Disclosures, cont.

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Examples of Forms and Disclosures, cont. How to Complete the VA 26-1802a The initial VA 26-1802a is not required for VA loans. The final VA 26-1802a is signed by the borrower(s) at closing along with the other closing documents.. Franklin American Mortgage Company (FAMC) prints the final 26-1802a. Page 1; Part I

1 – Mark “VA” 2 – Complete VA Case Number 3 – Lender Loan Number: FAMC Loan Number 4 – Section of the Act: Applies to FHA only 5-12 – Self-Explanatory 13 –FAMC’s VA Number (8753184811) for brokered loans and EMB VA ID Number for EMB loans 14 – Enter Broker VA ID # for brokered loans and FAMC VA Number (8753184811) for EMB loans 15 – Enter FAMC name & corporate address for brokered loans and EMB name & address and “agent for Franklin American Mortgage Company” for EMB loans 16 – Enter Broker name & address and “agent for Franklin American Mortgage Company” for brokered loans and FAMC name & address for EMB loans 17 – FAMC corporate phone number (615-778-1104) for brokered loans and EMB phone number for EMB loans 18 – Indicate whether the borrower is a first time homeowner 19 –Indicate how the title will be vested; if other specify 20 –Choose one box from items 1-12. Franklin American Mortgage does not provide financing for boxes 2, 7, 8, 9, 10, 11, and 12

Page 1; Part II 21, H- Enter broker’s name & address and “Took application & obtained all processing documents” FAMC signs and dates bottom of page 1 Page 2; Part IV Borrower consent for Social Security Administration to verify Social Security Number: borrower/co-borrower to sign and date at closing.

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Examples of Forms and Disclosures, cont. How to Complete the VA 26-1802a Page 2; Part V

22 (A-F) – Leave blank (applies to FHA) 23 – Borrower(s) to indicate whether they have ever had a VA guaranteed loan

25(2) – Borrower(s) to complete Occupancy Certification from boxes A-D 25(3) – Required for purchase transactions only. Complete the appraised value in the

( ) and mark the box that states “the reasonable value of the property as determined by VA”

25 (3 A or B) – Only one box can be marked, in most cases it will be B, which states “I was not aware of this valuation when I signed my contract....” Box A states “I was aware of this valuation when I signed my contract....”

25(6) – Applies to FHA loans only Borrower to sign and date bottom of part V (page 2). Remember that if 25 (2B) or 25 (2D) is marked, the veteran’s spouse must also sign. Final VA 26-1802a must be signed and dated by the borrower(s) at closing.

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Examples of Forms and Disclosures, cont. How to Complete the VA 26-1802a for Brokered Loans

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Examples of Forms and Disclosures, cont. How to Complete the VA 26-1802a for EMB Loans

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Examples of Forms and Disclosures, cont.

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Who is Eligible? Service Era Dates Minimum Service WWII 9/16/40 – 7/25/47 90 continuous days Post WWII 7/26/47 – 6/26/50 181 days Korean 6/27/50 – 1/31/55 90 days Post Korean 2/01/55 – 8/04/64 181 days Vietnam 8/05/64 – 5/07/75 90 days Post Vietnam (Enlisted) 5/08/75 – 9/07/80 181 days Post Vietnam (Officer) 5/08/75 – 10/16/81 181 days Post Vietnam (Enlisted) 09/08/80 – 08/01/90 Two years * Post Vietnam (Officer) 10/17/81 – 08/01/90 Two years * Persian Gulf 08/02/90 – Present Two years

* The veteran must have served two years or the full period which called or ordered to active duty

(at least 90 days during wartime and 181 during peacetime). Other Eligible Persons Minimum Service Active Duty Member † 90 days (181 during peacetime). Reserve/Guard 6 years in Selected Reserves. Disabled Veteran As determined by the VA. IRRRL Following Veteran’s Death Surviving spouse must be on

original loan. Unmarried Surviving Spouse‡ No time requirement. Veteran must have died on active duty or from a service connected disability. POW/MIA Spouse Veteran must have been POW or MIA 90 days. Limited to one-time use.

† Certificate valid only while veteran remains on active duty. ‡ A surviving spouse that does not qualify for VA entitlement may still be eligible for an Interest

Rate Reduction Refinance Loan (IRRRL). If the spouse previously purchased property with the veteran (who is now deceased) under a VA loan and now wishes to take advantage of a lower interest rate, they can reuse the veteran’s entitlement to obtain an IRRRL.

NOTE: This chart is only a general guide as to who may be eligible to receive a VA-guaranteed loan. Eligibility and available entitlement must always be determined and reported by the VA on Form 26-8320 “Certificate of Eligibility for Loan Guaranty Benefits”, or Form 26-8320a “Certificate of Eligibility for Loan Guaranty Benefits (Reserves/National Guard).” A veteran who has served less than the minimum required period of service, or was discharged because of a service-connected disability may be eligible for home loan benefits. (Reference: Chapter 2, Exhibit 2-A, VA Lender’s Handbook at http://www.benefits.va.gov/WARMS/Site_Map.asp)

http://www.benefits.va.gov/WARMS/Site_Map.asp

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Certificate of Eligibility (COE) Establishing the veteran’s eligibility is the first and most important step in processing a VA loan. If the veteran does not have an original COE at the time of loan application, the broker must immediately take steps to obtain the VA’s determination of the veteran’s eligibility. 1. Requesting an Automated Certificate of Eligibility (ACE) Using the VA’s WebLGY System

• Log on to the VA Information Portal at https://vip.vba.va.gov/portal/userprofiling/login.jsp Select “User Registration” if your company does not already have a user ID and password.

• After signing on, select the “WebLGY” link under “Applications.” • Under “Eligibility,” select “Automated Certificate of Eligibility.” • Complete the required information and submit.

If eligibility is approved:

• Select “View Certificate of Eligibility.” Print a paper copy and include it in the loan submission package.

If the WebLGY system is NOT able to determine the veteran’s eligibility:

• Apply online by selecting “Electronic Application.” In many cases you will be able to upload the required proof of service to expedite receipt of an electronic COE.

If unable to complete the Electronic Application:

• Follow instructions below to request a Certificate of Eligibility (COE) by mail.

COEs that cannot be processed by WebLGY (must request the COE by mail): • Veterans whose service was/is in the Reserves/National Guard. • Veterans who may have had prior VA loan(s) that went to foreclosure. • Veterans who did not serve the minimum required length of service and were not

discharged for an authorized exception. • Veterans who were discharged under conditions other than honorable. • Veterans for which the VA has insufficient data to make the determination. • Veterans seeking restoration of previously used entitlement.

2. Requesting a Certificate of Eligibility by Mail

• Have the veteran complete, sign, and date the VA Form 26-1880 “Request for a Certificate of Eligibility.”

• Have the veteran provide the appropriate proof of service (i.e., DD-214). • Mail documents to the VA eligibility center (address on next page). • Incomplete submissions will result in processing delays.

NOTE: It may take eight to 10 business days from the VA’s receipt of Form 26-1880 and supporting documents to receive a hard-copy COE. Franklin American Mortgage requires the original COE prior to Documents so please be sure to allow adequate processing time. The current lead time for hard-copy COEs is usually posted on the VA Information Portal at: https://vip.vba.va.gov/portal/VBAH/Home

https://vip.vba.va.gov/portal/userprofiling/login.jsp

https://vip.vba.va.gov/portal/VBAH/Home

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Certificate of Eligibility (COE), cont. 3. Requesting Restoration (Updated Certificate of Eligibility)

• Have the veteran fully complete, sign, and date the VA Form 26-1880 “Request for a Certificate of Eligibility.”

• Include evidence of payment in full of any prior loans (HUD-1 settlement statement). • Include any previous COEs. • Mail documents to the VA eligibility center (address below).

4. Concurrent Restoration and Guaranty (“Back-to-Back” Closings)

When a veteran is selling their current home and purchasing a new home within a short period of time (10 business days)*, the following information may be submitted in lieu of mailing a request for restoration to the VA eligibility center:

• Evidence of the presently-used entitlement, showing VA loan number of the property being sold (original paper COE, or automated COE from the WebLGY system).

• VA Form 26-1880, “Request for a Certificate of Eligibility,” fully completed and containing veteran’s original signature.

• Copy of HUD-1 on sale of existing property.

* Must close on new home within 10 business days of sale of existing home. 5. Requesting a Certificate of Eligibility for an IRRRL using VA’s WebLGY System

• Login to the VA Information Portal at https://vip.vba.va.gov/portal/userprofiling/login.jsp.

• Select “User Registration” if your company does not already have a User ID and password.

• After signing on, select the “WebLGY” link under “Applications.” • Under “Eligibility” select “Prior Loan Validation.” • Complete the required information and submit. • If the Prior Loan Validation Search returns information showing the active loan to be

refinanced, print the output and use it in lieu of a COE. VA Eligibility Center

As of Oct. 1, 2011, the Atlanta Regional Loan Center became the sole center for processing hard-copy COE requests. Brokers should obtain the COE by utilizing the VA’s WebLGY system’s Automated Certificate of Eligibility (ACE) (as detailed on the previous page) whenever possible. If unable to obtain the COE via ACE, please mail VA Form 26-1880 with the supporting documents to the following address: Atlanta Regional Loan Center Attn: COE (262) Eligibility Center P.O. Box 100034 Decatur, GA 30031 Telephone: 1-888-244-6711

NOTE: veterans can also apply for a COE online at https://www.ebenefits.va.gov/ebenefits-portal/ebenefits.portal

https://www.ebenefits.va.gov/ebenefits-portal/ebenefits.portal

https://www.ebenefits.va.gov/ebenefits-portal/ebenefits.portal

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Request for COE – VA Form 26-1880

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Request for COE – VA Form 26-1880, cont.

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COE – VA Form 26-1880, cont. A = Entitlement Code (see chart below) B = Funding Fee Waiver – You will see either exempt or non exempt (see chart below) to determine funding fee amount. C = This will show if the vet has any remaining entitlement left – even if it shows 0, there still may have bonus entitlement left to use on another home. D = Total amount of entitlement charged on previous use – this will determine how much partial entitlement you have left if VA benefits have been previously used. E = As referenced in A, Code 11 stands for Reserve/National Guard – This is subject to a higher funding fee than active duty benefits. See chart below. On subsequent use, the reserve and active duty zero down VA funding fee rates are the same. F = Subsequent Use Funding Fee Notice – Putting a 5% or more down payment will greatly reduce the subsequent use VA funding fee. G = Funding Fee Exemption – this will also show how much the vet is receiving in VA disability benefits per month.

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VA Entitlement Codes Entitlement Code

Separation, effective, or honorable discharge date

01 World War II 02 Korean War 03 Post-Korean 04 Vietnam War 05 Entitlement Restored 06 Un-remarried Surviving Spouse 07 Spouse of POW/MIA 08 Post World War II 09 Post-Vietnam 10 Gulf War 11 Selected Reserves Here’s a chart of the dates that correspond to the above time frames: Era Dates Minimum Service* WWII 09/16/40 – 07/25/47 90 continuous days Peacetime 07/26/47 – 06/26/50 181 days Korean 06/27/50 – 01/31/55 90 days Post-Korean 02/01/55 – 08/04/64 181 days Vietnam 08/05/64 – 05/07/75 90 days Post-Vietnam 05/08/75 – 09/07/80 181 days Post-Vietnam 09/08/80 – 08/01/90 2 years Persian Gulf 8/2/90 – undetermined 2 years or period

called to active duty, not less than 90 days

*Veterans discharged due to a service-connected disability may be eligible for a VA home loan even though they served less than the minimum service requirement.

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VA Funding Fee The VA Funding Fee is a one-time, up-front charge applied as a percentage to the “Base Loan Amount.” The Funding Fee may be financed on top of the base loan amount. The final loan amount may exceed $417,000 by the amount of the financed Funding Fee. The fee is remitted by the lender to the VA after loan closing. The fee is fully earned by the VA upon loan closing and is not available as a prorated refund to the veteran, even if the veteran refinances to another VA loan at a later date. Funding Fee Tables

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VA Funding Fee, cont. Funding Fee Exemption In certain cases, a veteran may be exempt from the funding fee. Immediately upon receipt of a loan application, the VA requires the broker to ask these four specific questions of the veteran or surviving spouse applicant:

• Are you currently receiving VA disability benefits? • Have you (or your deceased veteran spouse) ever received VA disability benefits? • Have you (or your deceased veteran spouse) ever been rated as disabled or

incompetent by the VA, regardless of whether or not benefits were ever received? • Are you the surviving spouse of a veteran who died on active duty or as a result of a

service-connected disability? If the answer to any of the questions is yes, the VA Requires VA Form 26-8937 “Verification of VA Benefits” to be completed and the VA will determine if the veteran is exempt. If the VA determines the veteran is exempt, the funding fee is not charged. This form must be included in the underwriting package any time the funding fee is not charged. If the answer to all four questions is no, the funding fee IS charged, the VA-completed form 26-8937 is not required, and evidence that all required questions were answered as no may be included in the underwriting package in lieu of Form 26-8937. As a convenience to our wholesale brokers, Franklin American Mortgage provides a dual form, the “VA Benefit Questionnaire and Statement of Active Duty Status” that can be completed at application to cover these four required questions along with the VA-required “Statement of Active Duty Status.” Every veteran, including active duty, must answer Part 1 of the dual form (or equivalent), and every applicant whose income is used to qualify (including non-military applicants) must answer Part 2 of the dual form (or equivalent). Refer to the VA Handbook Chapter 4, Section 6.a. at http://www.benefits.va.gov/warms/pam26_7.asp. NOTE: The 26-8937 form should be submitted to the VA Regional Loan Center with jurisdiction over the property's state. There are 11 RLCs that cover the entire the US, listed with the states they cover at: http://www.benefits.va.gov/homeloans/contact_rlc_info.asp. This list is reproduced on pages 60-62 of this handbook for your convenience.


http://www.benefits.va.gov/homeloans/contact_rlc_info.asp

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VA Form 26-8937

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Entitlement, Guaranty, and Maximum Loan Amounts The VA does not establish maximum loan amounts. However, the secondary market requires VA loans (other than IRRRLs) to have a 25% guaranty, which can be met with a combination of VA entitlement, plus the veteran’s downpayment and/ or equity in the property. The maximum amount of the VA guaranteed loan that can be made to a veteran and sold in the secondary market is, therefore, determined by the type of loan, the amount of the funding fee, the value of the property, the veteran’s downpayment and/ or equity in the property, and the veteran’s available entitlement.

For 2015, the maximum loan that can be made to a veteran with full entitlement is $417,000, plus any financed funding fee may be added to the maximum base loan amount. Higher loan limits are available in certain counties known as “high-cost” areas. See http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp

The Two Types of Entitlement – Basic and Bonus Eligible veterans have two types of entitlement, basic and bonus: Basic entitlement is $36,000. This is the maximum that can be shown on the COE unless changed by federal legislation. Bonus entitlement is never shown on the COE and varies year-to-year based on the conforming limit. For 2014-2015, bonus entitlement is $68,250.

• Bonus entitlement may only be used on purchase and refinance loan amounts (excluding Irrrls)

that exceed $144,000. • See the VA Lenders Handbook, Chapter 6, sections 3 and 5 for loan definitions.

See http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp for guaranty and county loan limit calculation examples. Some of these examples are included on the next page.

http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp


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Guaranty and Loan Amount Calculation Examples (Selected examples taken directly from http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp) Example 1 The veteran has their full entitlement available and is purchasing a home for $300,000 where the county loan limit is $417,000.

$417,000 X 25% = $104,250 maximum guaranty and available entitlement $300,000 X 25% = $75,000 guaranty and downpayment combination required

Since the VA guaranty is limited to the lesser of 25% of the county loan limit or 25% of the loan amount, the VA will guaranty $75,000 on the veteran’s $300,000 loan in this county. A downpayment should not be required. Example 2 The veteran has used $48,000 of their entitlement on a prior loan, which may not be restored, and is purchasing a home for $320,000 where the county loan limit is $625,000.

$625,000 X 25% = $156,250 maximum guaranty $156,250 - $48,000 = $108,250 entitlement available $108,250 X 4 = $433,000 maximum loan amount with 25% guaranty

Since the proposed loan amount will be less than $433,000, the lender will receive a 25% VA guaranty on the loan of $320,000. A downpayment should not be required. Example 3 The veteran has their full entitlement available and is purchasing a home for $480,000 where the county loan limit is $417,000.

$417,000 X 25% = $104,250 maximum guaranty and entitlement available $104,250 / $480,000 = 21.72% guaranty

Since the VA’s guaranty will be less than 25%, a downpayment will be required to meet investor requirements.

$480,000 X 25% = $120,000 $120,000 - $104,250 = $15,750 downpayment

Example 4 The veteran has used $36,000 of their entitlement on a prior loan, which may not be restored, and is purchasing a home for $120,000 where the county loan limit is $417,000. Since the loan amount will not be over $144,000, the veteran’s additional entitlement cannot be used. Therefore, the guaranty would be 0%: $0 / $120,000.


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VA Loan Amount Exercises

Total Loan Amount Exercise #1 Assumptions:

• Regular military first-time use • Lesser of sales price or value – $220,000 • Downpayment – $0 • COE entitlement used – $0 • COE entitlement available – $36,000

$ available entitlement + $ bonus entitlement = $_______________ (total entitlement) $ X 4 = $ loan amount maximum (total entitlement) % funding fee X lesser of sales price or value = $ funding fee amount $ funding fee amount + $ lesser of sales price or value = $ total loan amount

________________________________________________________________________________

Total Loan Amount Exercise #2 Assumptions: 1. Regular military (used eligibility to purchase a previous single-family home which has been paid-in-full) 2. Lesser of sales price or value – $199,000 3. Downpayment – 5% 4. COE entitlement used – $0 5. COE entitlement available – $36,000 $ available entitlement + $ bonus entitlement = $________________ (total entitlement) $ X 4 = $ loan amount maximum (total entitlement) $ lesser of sales price or value - $ downpayment = $___________________(a) proposed loan amount (providing entitlement covers) % funding fee X proposed loan amount = $ funding fee amount $ funding fee amount + $ (a) proposed loan amount= $ total loan amount

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VA Loan Amount Exercise Answers

Total Loan Amount Exercise #1 Assumptions:

• Regular military first-time use • Lesser of sales price or value – $220,000 • Down payment – $0 • COE entitlement used – $0 • COE entitlement available – $36,000

$36,000 __available entitlement + $68,250 bonus entitlement = $104,250 (total entitlement) $104,250_______ X 4 = $417,000 loan amount maximum (total entitlement) 2.15 % funding fee X lesser of sales price or value = $4730 funding fee amount $4730 funding fee amount + $220,000 lesser of sales price or value = $224,730 total loan amount

________________________________________________________________________________

Total Loan Amount Exercise #2 Assumptions: 1. Regular military (used eligibility to purchase a previous single-family home which has been paid-in-full) 2. Lesser of sales price or value – $199,000 3. Down payment – 5% 4. COE entitlement used – $0 5. COE entitlement available – $36,000 $36,000 available entitlement + $68,250 bonus entitlement = $104,250_ (total entitlement) $104,250 X 4 = $417,000 loan amount maximum (total entitlement) $199,000 lesser of sales price or value - $9950 down payment = $189,050___ (a) proposed loan amount (providing entitlement covers) 1.5 % funding fee X proposed loan amount = $2835.75 funding fee amount $2835.00 funding fee amount + $189,050 (a) proposed loan amount= $ 191,885 total loan amount

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Closing Cost Summary The following is a closing cost summary for a VA purchase transaction:

† – Provided the total of itemized fees paid in lieu of the 1% origination fee does not exceed 1%.

Veteran may pay the following closing costs in addition to a 1%

origination fee

Veteran may pay the following closing costs IN LIEU OF a

1% origination fee†

Summary of closing costs

Appraisal Fee YES YES

VA Compliance Inspection for new construction YES YES

Recording & Endorsement Fees YES YES

MERS Registration Fee YES YES

Credit Report Fee YES YES

Prepaid Items YES YES

Flood Certification YES YES

Survey Fee YES YES

Title Exam & Insurance YES YES

Overnight Courier Fee NO YES

VA Funding Fee YES YES

Home Inspection if desired by veteran YES YES

Notary Fees NO YES

Termite Inspection Fee NO YES

Tax Service Fee NO YES

Underwriting Fee NO YES

Document Prep Fee NO YES

Discount Points (reasonable) YES YES

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Fees and Charges Allowable Fees and Charges The veteran can pay a maximum of:

• Reasonable and customary amounts for any or all of the “Itemized Fees and Charges” designated by the VA, PLUS

• A 1% flat charge (typically called an “Origination Fee”), PLUS • Reasonable discount points used to buy down the interest rate.

Allowable Fee Description

Appraisal and Compliance Inspections

• The veteran can pay the fee of a VA appraiser and VA compliance inspectors.

• The veteran can also pay for a second appraisal if they are 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.

Recording Fees • The veteran can pay for a recording fee and recording taxes or other charges incident to recordation.

MERS Registration Fee The veteran can pay the reasonable and customary fee for registration of the loan with the Mortgage Electronic Registration System.

Credit Report The veteran can pay for the credit report obtained by the lender. For Automated Underwriting cases, the veteran may pay the AUS fee 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.

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Fees and Charges, cont. The veteran can pay any or all of the following itemized fees and charges, in amounts that are reasonable and customary. It is the VA’s intention for the 1% Origination Fee to cover all other fees and charges that are not listed.

Allowable Fee Description Pre-paid Items The Veteran can pay for taxes, assessments, and similar items for the current

year chargeable to the veteran, and the initial deposit for the impound account.

Hazard Insurance The veteran can pay the required hazard insurance premium. This includes flood insurance, if required.

Flood Zone Determination 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.

Survey The veteran can pay a charge for a survey, if required by the lender or veteran. Charges for a survey in connection with a condominium loan must have the prior approval of the VA.

Title Examination and Title Insurance

The veteran can pay a fee for title examination and title insurance. 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.

Special Mailing Fees for Refinancing Loans

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.

VA Funding Fee Unless exempt from the fee, each veteran must pay a funding fee to the VA.

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Fees and Charges, cont. Unallowable Fees and Charges The following are examples of fees and charges that cannot be charged to the veteran when a 1% Origination Fee is paid. If no Origination Fee is paid, the veteran may pay fees and charges that would otherwise be unallowable, provided the total does not exceed 1%.

• Attorney fees • Loan broker fees, real estate broker fees, finder fees • Pre-payment penalties • HUD/FHA inspection fees (for proposed construction constructed under

HUD supervision) • Notary fees • Commitment fees, marketing fees • Preparation or recording of assignment due to a secondary loan sale • Trustee fees or charges • Loan application or processing fees • Fees for preparation of truth-in-lending or other disclosure statement • Fees charged by loan brokers, finders, or other third parties whether affiliated with the

lender or not • Tax service fees

The veteran can never, under any circumstances, pay a termite inspection fee on a purchase transaction.

Seller Contributions

(Reference: Chapter 8, Section 5, VA Lender’s Handbook at: http://www.benefits.va.gov/warms/pam26_7.asp)

Seller contributions may not exceed 4% of the sales price. The 4% seller contribution may include pre-paid expenses, discount points and the VA funding fee. The seller may also pay closing costs over and above the 4% which are reasonable and customary for the area in which the property is located. These costs typically include the following:

• Origination Fee • Title Examination Fee • Appraisal Fee • Recording Fee • Credit Report Fee • Flood Determination Fee • Survey Fee


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Underwriting Guidelines Documentation Standards

• Age: all verification documents (credit, employment, income, assets, etc.) must be dated within

120 days of the note (180 days for new construction).

• Source: verification documents may not be handled or transmitted by or through any interested third party or their equipment (e.g., real estate agent, builder, seller).

• Copied Documentation: documents should be originals or certified true copies.

• Blanket “True-Copy” Certifications: subject to the limitations below, Franklin American Mortgage will accept, in lieu of individually stamped documents, a signed “blanket certification” that states that all documents are true and correct copies of the original.

• Individual “True-Copy” Certifications: if included in a loan package, collateral documents must be individually true-certified, including, but not limited to, the following:

– Security Instrument (Deed of Trust/Mortgage) – Riders to the Security Instrument – All assignments – Other documents related to the Note and/or the Security Instrument (for

example, Power of Attorney)

• Faxed and Internet Documentation: acceptable in lieu of an original/true-certified document, provided it:

– Clearly identifies the source of information – Contains a fax header consistent with the information source – Identifies the name and telephone number of a person who can verify

faxed information – Indicates the date and time printed and includes the Internet Uniform Resource

Locator (URL) to identify the downloaded webpage(s) – Was not handled or transmitted by, from, or through interested third parties or

their equipment, including, but not limited to, real estate agents, builders, and sellers

– Is clear, completely legible, and contains no cut off text

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Underwriting Guidelines, cont. Documentation Standards, cont. Non-Purchasing Spouse Issues When the spouse is not an applicant (not contractually obligated, does not complete the application or sign the note), the ECOA prohibits inquiring about the spouse’s income, debt, and credit history, or a divorce situation unless:

• The veteran is relying on the spouse’s income to qualify – verify and treat the spouse’s income the same as the veteran’s income (require the spouse to sign the application and the note).

• The veteran reveals, or evidence suggests, that the veteran is obligated to pay alimony, child support, or maintenance to a spouse or former spouse – obtain documentation to sufficiently verify the monthly payment due to the spouse/ former spouse and count as a debt of the veteran.

• The veteran is relying on alimony, child support, or maintenance payments from the spouse or former spouse – sufficiently verify the past and future income stream from the spouse/ former spouse to the veteran.

• The subject property is located in a community property state – Community Property States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico,

Texas, Washington, and Wisconsin. – Debts of a non-purchasing spouse must be counted in the borrower’s qualifying ratios. – Credit of a non-purchasing spouse must be evaluated by DU/LP since the VA does

require the credit performance of a non-purchasing spouse to be considered. – The non-purchasing spouse need not meet Franklin American Mortgage minimum credit

score requirements. – If a married veteran wants to obtain the loan in his or her name only, the veteran may

do so without regard to the spouse’s credit only in a non-community property state. In order to pull credit on a non-purchasing spouse/domestic partner, the Fair Credit Reporting Act (FCRA) requires the non-purchasing spouse/domestic partner give his or her authorization in writing. If the non-purchasing spouse/domestic partner does not give written authorization, then the loan is ineligible. While the non-purchasing spouse/domestic partner is not considered to be a borrower and does not have to sign the loan application (1003), the VA requires the credit history of the non-purchasing spouse/domestic partner be considered when underwriting the loan. Refer to the Income and Debt sections for further details on required documentation. Note: The CFPB’s Memorandum on Ensuring Equal Treatment for Same Sex Married Couples specifies the definition of spouse and domestic partner. It is the policy of the CFPB and FAMC to recognize all marriages as valid at the time of marriage in the jurisdiction where the marriage was celebrated. The terms “marriage”, “spouse”, “married”, “husband”, “wife”, and any other similar terms related to family or marital status are to include same sex marriages and married same-sex spouses. Consistent with other federal agencies, the CFPB and FAMC will not regard a person to be married by virtue of being in a domestic partnership, civil union, or other relationship not designated by law as marriage.

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Minimum Downpayment Requirements A downpayment is the difference between the sales price of real estate and the mortgage amount which is paid by the borrower. When assets are used for the downpayment or closing costs, documentation must be provided to evidence and verify the sale or liquidation of the funds. For additional information on documentation guidelines, refer to validation requirements. No downpayment 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 their own resources. If this cash payment exceeds 5% of the purchase price, a reduced funding fee will apply as per the tables under Mortgage Insurance.

• If a veteran has less than full entitlement available, the borrower's downpayment/equity (plus available entitlement) 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 downpayment may not be derived from a second mortgage on the property. Cash Reserves Are determined by AUS. Earnest Money Deposit Earnest money can be refunded to the veteran on a no-downpayment loan. Gifts Gifts are allowed.

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Income Summary and Documentation (Reference: Chapter 4, Section 2, of the VA Lender’s Handbook (current version published at http://www.benefits.va.gov/warms/pam26_7.asp) Employment History

• Verify a two-year employment history (including past employers if needed). • Applicants with less than 12 months of civilian employment history will be evaluated for

acceptability as provided in Chapter 4, Section 2.f. of the VA Handbook, taking into consideration documented experience, training, and education related to the present position.

Employed less than 12 months with Current Employer In order to be considered effective income, the following requirements apply:

• A full VOE supporting the probability of continued employment in current position • Document previous employment and/or training/education in related field and position. • If unable to document as shown above, the income may only be considered on a case-by case

basis to partly offset installment debt of 10 to 24 months duration.

Gaps in Employment

• AUS Approval: o No Explanation for employment gaps is required if the gaps are less than 60 days

• Manual Underwrite: o No Explanation is required for employment gaps if the gaps are less than 30 days

Standard Documentation

• Written Verification of Employment/VOE (VA Form 26-8497 or equivalent), PLUS • Most recent 30 days worth of paystubs.

Alternative Documentation

• Verbal VOE (identifying the person contacted, their position, phone number, date contacted,

and probability of continued employment). • Pay stub(s) covering the most recent 30-day period. The VA requires consecutive pay stubs

covering the 30-day period. A single pay stub showing a YTD figure does not meet the VA requirement.

• W-2 forms for the previous two years and an explanation of all gaps in employment. • Alternative documentation may be combined with standard documentation to meet the

two-year requirement. Per VA Circular 26-12-6, dated Aug. 2, 2012, the VA no longer requires that the employment verification service provider be VA approved.


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Income Summary and Documentation, cont. Active Duty and Reservists, National Guard Applicants

• A certified copy or original Leave and Earnings Statement (LES) is required to verify military employment and substitutes for the VOE.

• An original military Leave and Earning Statement (LES) dated no more than 120-days prior to the Note is required in place of a VOE. Determine if the service member is within 12-months of release from active duty or end of the contract term. Find the date of expiration on the LES. For a National Guard or Reserve member, find the expiration date of the applicant's current contract. If the date is within 12-months of the anticipated loan closing date, obtain any of the following: – Documentation is required that the service member has already re-enlisted or that the

period of active duty has been extended to a date beyond the 12-month period following the projected closing of the loan, OR

– Verification is required of a valid offer of local civilian employment following release from active duty. All data pertinent to the employment, including, but not limited to, the date employment will begin and earnings must be included, OR

– A statement from the service member indicating their intention to re-enlist or extend the period of active duty to a date beyond the 12-month period plus: • A statement from the service member's commanding officer confirming the service

member is eligible to re-enlist or that the service member is eligible to extend active duty, AND

• That the commanding officer has no reason to believe that the re-enlistment or extension of active duty will not be granted, OR

– Documentation of strong mitigating factors such as: • A downpayment of at least 10% • Significant cash reserves • Clear evidence of strong ties to the community coupled with a nonmilitary spouse's

income high enough that only minimal income from the active duty service member is needed to qualify

See the following pages for an example of the LES. Self-employment Income Underwriting Factors The following special underwriting factors must be considered in analyzing the business of the self-employed borrower: • Stability of income • Location and nature of the business • Demand for the product or services offered • Current financial strength of the business • Future outlook for the business; whether the business will have the ability to meet its obligations

and continue to provide a similar income stream • Businesses that show a significant decline in income over the analysis period are not acceptable,

even if the current income and debt ratios meet guidelines • Self-employment income may not be used to qualify a borrower who is relocating to a new

geographic area unless the underwriter can demonstrate and justify why business income and customer base will not be affected by a change in geographic location.

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Income Summary and Documentation, cont. Self-Employment Income, cont. Documentation All documentation, including written analysis and conclusions must be completed to include the following: • Length of self-employment • Verification of income • Personal income • Business income Length of Self-employment • Income from self-employment is considered stable when the borrower has been in business for at

least two (2) years. • Less than two (2) years cannot be considered stable unless the borrower has had previous related

employment and/or extensive specialized training.

Verification of Income

• Individual Tax Returns: • AUS Approval and Manual Underwrite: Copies of individual tax returns, including all schedules

for the most recent 2-year period. • Business Tax Returns:

o AUS Approval: No Business tax returns are required if all of the following are met: Satisfactory proof of ownership of the business for at least the past 5 years is

provided AND Individual tax returns reflect consistent income for the past 2 years. If above cannot be met, 2 years most recent business tax returns including all

schedules are required. o Manual Underwrite: Copies of business tax returns including all schedules for the most

recent 2 years. Profit and Loss Statement/Balance Sheet

• AUS Approval: No balance sheet or P & L are required. • Manual Underwrite: No balance sheet or YTD P & L are required if the application date is less

than or equal to 7 months from the business’ fiscal year end for which tax returns were provided.

• Verification of self-employed borrowers requires one of the following requirements to be completed not more than 30 calendar days prior to closing (date the Note is signed):

o Verification of the existence of the borrower’s business from a third party that may include a CPA, regulatory agency, or appropriate licensing bureau; and

o Verification of a phone listing and address for the borrower’s business through resources such as the telephone book, directory assistance, internet, or contact the appropriate licensing bureau. Internet sites such as 411.com, Chamber of Commerce sites and Manta.com where they allow the business owner to add their own information are not acceptable.

o Single source verifications, such as from www.superpages.com are not allowed.

http://www.superpages.com/

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Income Summary and Documentation, cont. The LES Samples of other military branches can be found at: http://www.dfas.mil/militarymembers.html Commission Income When commission income is being used as effective income in qualifying, the following are the documentation requirements: • Full VOE or other written verification which supports a 24 month history of receipt and provided the

following information o The actual amount of the commissions paid year-to-date o The basis for the payment (salary plus commission, straight commission, or draws against

commission o When commissions are paid o Individual tax returns, plus all applicable schedules for the previous two years (or additional

periods if needed to demonstrate a satisfactory earnings record. • Less than two (2) years cannot be considered stable unless the borrower has had previous related

employment and/or extensive specialized training. Rental Income

• Multi-Unit Property Securing the VA Loan – if the veteran is purchasing owner-occupied multi-unit housing, the documentation required would include two years tax returns to verify prior landlord experience, copies of leases (if available), and evidence of cash reserves equaling six months PITI. If all of these conditions are met, rental funds may be included in effective income as follows:

• Existing Property – 75% of the verified prior rent. • Proposed Construction – 75% of the appraiser’s estimate of the property’s fair

monthly rental.

• Other Rental Property – if the veteran has other rental property, required documentation includes two years tax returns to verify rental income and prior landlord experience, evidence of continued ownership (open mortgage or other proof of ownership), copies of leases (if available), and evidence of cash reserves equaling three months PITI. If all of these conditions are met, positive cash flow may be added as effective income.

http://www.dfas.mil/militarymembers.html

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Income Summary and Documentation, cont. Rental Income, cont.

• Conversion of a Principal Residence - Borrowers, who currently own a primary residence and

are purchasing a new primary residence, typically have the option to either sell the previous residence, or convert the previous residence to a second home or an investment property. General underwriting and qualification requirements for each type are as follows:

– All conversions: 0 x 30 on previous mortgage for the past 12 months is required; full PITI must be documented.

– The underwriter must insure that the veteran has sufficient entitlement for the new mortgage.

• Pending Sale or Conversion to Second Home - Current residence is a pending sale but will not

close prior to or simultaneous with the new transaction or the current home is a Conversion to Second Home:

– Both the current and proposed mortgage payments must be used to qualify the borrower.

• Conversion to Investment Property –

– Conversion of a Primary Residence to Investment Guidelines allow lease income to be used to offset the mortgage payment.

– The borrower must have a total of six months reserves on the converted property and a copy of the lease is required in the file.

– The income to offset the mortgage payment may not be used if the borrower does not have a total of six months reserves and the current and proposed mortgage payments must be used to qualify the borrower.

This applies solely to the conversion of a primary residence to an investment property and is not applicable to existing rental properties disclosed and confirmed by federal income tax returns (Schedule E of form IRS 1040).

Projected Income • Projected income with a start date with 60 days may be used with a non-revocable

contract/offer letter, VOEs covering past 2 years, paystub from former employer & VVOE confirming hire & start date.

Stability and Use of Other Income

• Generally, second job income should only be used after the applicant has 24-months experience of working two jobs. The ability to withstand the physical and emotional stress of working two jobs must be demonstrated before income can be included.

• Generally, income from overtime or part-time work is NOT considered reliable unless the applicant has received this income for two years and has a stable or increasing trend.

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Income Summary and Documentation, cont. Child Support, Alimony or Maintenance Income In order to be considered as effective income, child support, alimony, or maintenance payments must be expected to continue for at least a three (3) year period. The following documentation requirements apply:

• A copy of divorce decree, court order, legal separation agreement or a voluntary agreement signed by a judge evidencing the terms which would include:

o The amount of the monthly payments and proof of three year continuance. • Document most recent 3 months consecutive payments with:

o Three consecutive bank statements reflecting receipt of payments o Three most recent cancelled checks o Copy of the court payment record supporting most recent 3 months payments

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How to Read an Active Duty Leave and Earnings Statement This is a guide to help you understand the Leave and Earnings Statement (LES). The LES is a comprehensive statement of a member’s leave and earnings showing entitlements, deductions, allotments (fields not used for Reserve and National Guard members), leave information, tax withholding information, and Thrift Savings Plan (TSP) information. The function of each numbered box is reviewed on the following pages. Source: http://www.dfas.mil/militarymembers.html

http://www.dfas.mil/militarymembers.html

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How to Read an Active Duty Leave and Earnings Statement, cont.

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Credit Summary See Franklin American Mortgage Lending Guide for additional credit requirements. General Rule A borrower who has made satisfactory payments on traditional credit accounts for 12 months since the date of the last derogatory credit item can generally be considered to have acceptable credit. Exceptions are:

• Bankruptcy • Outstanding judgments • Unresolved federal debts

Credit history and credit scores are required for each borrower on an application. Non-traditional credit is not allowed. Minimum credit score is 620, regardless of AUS. IRRRL refinance transactions require a minimum 640 credit score. AUS Manual Downgrades Loans with borrowers having more than 1X30 in the past 12 months or any significant non-mortgage debt that has been omitted with more than 1x30 day late in the past 12 months requires an AUS manual downgrade in accordance with the VA handbook. Disputed Accounts Disputed accounts do not require a manual downgrade if the disputed account has a zero balance or has no derogatory rating and does not impact overall qualification. Collection Accounts Payment of collection accounts at or near the time of loan application does not improve creditworthiness of the borrower. A borrower with an unacceptable credit history does not become acceptable simply by paying collection accounts. Conversely, a borrower with an overall favorable history might be considered acceptable with isolated unpaid collection accounts. In the strictest sense, unpaid collection accounts are considered derogatory items the entire time they remain unpaid. Under the “General Rule” above, the 12 months of clean credit would start the date collection accounts are satisfied. Judgments/Tax Lien A loan cannot be approved with an unpaid judgment or tax lien. If the veteran is on acceptable repayment plan of at least 12 months predating the application and has strong compensating factors the loan may be considered for approval. Consumer Credit Counseling Need 12 months of acceptable history predating the application and the approval of counselor. Bankruptcy

• Chapter 7: two-year waiting period from discharge date (with two years clean credit). • Chapter 13: one-year into the pay-out period, satisfactory payments, and court approval. Also

need a satisfactory history for 12 months on payment plan and approval of the court. Foreclosures or “Deed-in-Lieu”

• Two-year waiting period from the date the deed was surrendered or the claim was paid by the VA.

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Credit Summary, cont. See Franklin American Mortgage Lending Guide for additional credit requirements. Foreclosures or “Deed-in-Lieu”

• Two-year waiting period from the date the deed was surrendered or the claim was paid by the VA.

Divorce Situations Adverse credit due to divorce is not generally given consideration as a “circumstance beyond the borrower’s control.” However, delinquent payments made after documented assignment of responsibility to an ex-spouse may be disregarded. Refer to the non-purchasing spouse section on page 29 for further information on divorces. Short Sale, Short Payoff/Restructured Loans

• A short sale is the sale of a property for less than the total amount needed to satisfy the

mortgage obligation. Under this procedure, when the borrower cannot sell the property for the full amount of their indebtedness, the lender considers accepting a payoff of less than the total amount owed on the mortgage if that enables the lender to reduce the loss it would incur if the lender foreclosed on and acquired the property.

• A short payoff/restructured loan is a mortgage loan in which the terms of the original transaction have been changed, resulting in either the absolute forgiveness of debt or a restructure of debt through either a modification of the original loan or origination of a new loan.

• Regardless of AUS findings, credit guidelines for short sales or short payoff/restructured loans must be met as AUS may not detect the presence of these items. The credit report, loan application, preliminary title opinion, and any other information in the loan file must be reviewed and considered extensively.

• A pre-foreclosure sale involves the sale of the property by the borrower to a third party for less than the amount owed to satisfy a delinquent mortgage, as agreed to by the lender, investor, and mortgage insurer.

Eligibility Requirements

• Previous Short Sale/Short Payoff/Restructured Loans

Regardless of AUS Findings, credit guidelines for short sales or short payoff/restructured loans must be met as AUS may not detect the presence of these items. The credit report, loan application, preliminary title opinion and any other information in the loan file must be reviewed and considered extensively. Borrowers who have previously completed a short sale, short refinance or restructured loan and are now purchasing or refinancing a property are subject to a minimum waiting period of two (2) years following the completion of the short sale/short refinance/restructure and no more than 1 x 30 days late on any mortgage in the past 12 months.

• Refinancing a Restructured Loan-Subject Property Loans submitted with payoff letters that are significantly less than the balance outstanding on the credit report or with documentation concerning the short payoff approval from the lender are ineligible.

• Purchasing a Short Sale Borrowers purchasing a home that is being sold under a short sale are eligible provided the transaction is arm’s length and all information is disclosed and considered during the underwriting process.

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CAIVRS For all VA loans including Interest Rate Reduction Refinancing Loans (IRRRLs), lenders must screen all borrowers using CAIVRS. FAMC will check the borrowers on a VA loan when the file has been placed in line with the Underwriter. Credit Alert Interactive Voice Response System (CAIVRS)

• If CAIVRS indicates the borrower is presently delinquent or has had a claim paid within the

previous three years on a government-insured loan made on their behalf, the borrower is not eligible. Exceptions to this may be granted under the following situations:

• Assumptions – if the borrower sold the property, with or without a release of liability, to a mortgagor who subsequently defaulted and it can be established that the loan was not in default at the time of assumption, the borrower is eligible.

• Divorce – a borrower may be eligible if the divorce decree or legal separation agreement awarded the property and responsibility for payment to the former spouse. However if a claim was paid on a mortgage in default at the time of divorce, the borrower is not eligible.

• Bankruptcy – when the property was included in a bankruptcy that was caused by circumstances beyond the borrower's control (such as the death of the principal wage earner; loss of employment (due to business closings, reductions-in-force, etc.), or serious long-term uninsured illness), the borrower may be eligible.

• If the processor has reason to believe the CAIVRS message is erroneous, or must establish the

date of claim payment, the lender must contact the local VA Regional Office for instructions or provide documentation to support the borrower's eligibility.

Using CAIVRS

• FHA Approved Lenders – while logged-in to The FHA Connection, select Single Family FHA/Single Family Origination/Case Processing/CAIVRS Authorization. In the drop-down for SSN/TIN Indicator select SSN. Enter the Social Security Number for the first borrower. Continue until you have selected the SSN indicator and entered the Social Security Number for each borrower on the loan. Enter your company’s 10-digit VA ID Number in the Lender ID box. In the Agency drop-down box select Veterans’ Affairs/SEND. If successfully completed, a CAIVRS authorization number beginning with an “A” will be returned and should be entered on the VA Loan Analysis Worksheet or the IRRRL Worksheet.

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CAIVRS, cont.

• Non-FHA Approved Lenders – A non-FHA-approved lender or non-HUD Federal agency CAIVRS user accesses the CAIVRS Credit Alert System, a delinquent Federal borrowers database, to pre-screen loan applicants' creditworthiness. Each non-FHA lender must request at least one Application Coordinator User ID as well as a Standard User ID for each individual user. Go to: https://entp.hud.gov/caivrs/public/home.html Click “Registration for Lender User ID” The following page will appear with the following instructions: To apply for an Application Coordinator ID (Note: You need at least one Application Coordinator User ID), check the "Coordinator" radio button, fill out the form below, and click Send Application. Upon verification of the information, an ID will be assigned and mailed to the CEO of your organization. The password will not be disclosed, so make sure you remember it!!! To apply for a Standard User ID, check the "User" radio button, fill out the form below and click Send Application. Upon verification of the information below, a User ID will be assigned. The “Application Coordinator” of your organization will retrieve the User ID. The password will not be disclosed, so make sure you remember it!!! And remember: Warning! Misuse of Federal Information at this Web site falls under the provisions of Title 18, United States Code, section 1030. This law specifies penalties for exceeding authorized access, alteration, damage or destruction of information residing on Federal Computers.

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Debts and Obligations Debts and Obligations Debts and obligations of the applicant must be rated and a tri-merge credit report must be obtained. When a pay stub or leave-and-earnings statement indicates an allotment, the lender must investigate the nature of the allotment and determine if it is related to a debt. Include significant debts and obligations in the borrower’s debt ratio when determining ability to meet mortgage payments. Significant debts and obligations include:

• Debts and obligations with a remaining term of 10 months or more (long-term). • Accounts with a term less than 10 months that require payments so large as to cause a severe

impact on the family’s resources for any period of time (generally debts with monthly payments greater than $100).

Community Property States If the property is located in a community property state (currently AZ, CA, ID, LA, NV, NM, TX, WA, and WI), the broker must obtain a credit report on the spouse and treat their debts and credit history just like those of the veteran, regardless of whether or not the veteran and spouse choose to have the spouse’s income considered as qualifying income. Refer to the non-purchasing spouse section for further information.

Eligible Veteran/ Borrower Combinations • Veteran. • Veteran and non-veteran spouse. • Two veterans who are married to each other where only one veteran will be using entitlement. • Un-remarried surviving spouse of an eligible veteran who died due to service-connected injuries

(if determined eligible by a VA-issued COE). • Spouse of an active-duty service person who has been listed as MIA or POW for more than

90-days (if determined eligible by a VA-issued COE). Eligible Veteran/ Borrower Combinations that require VA Approval (Joint Loans) The following borrower combinations require underwriting approval by the VA and exception processing by Franklin American Mortgage. A pricing adjustment may apply:

• Two veterans who are married to each other where each veteran will be using entitlement. • Two veterans who are not married to each other where each veteran will be using entitlement.

Ineligible Veteran/ Borrower Combinations Any type of borrower not listed as eligible, including, but not limited to:

• Veteran and non-veteran who is not the veteran’s spouse (because the VA will only issue guaranty on the veteran’s portion of the loan).

• Any individual without a valid US Social Security Number. • Individuals with a US Individual Taxpayer Identification Number (ITIN). An ITIN is formatted like a

Social Security Number but begins with “9.” No valid Social Security Number begins with a “9.” • Non-occupying veteran, except for an IRRRL on a previously owner-occupied property. • Foreign nationals and borrowers with diplomatic immunity.

(Reference: Chapter 7, Section 1, VA Lender’s Handbook at http://www.benefits.va.gov/warms/pam26_7.asp)


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Power of Attorney The VA will allow a veteran to use an attorney-in-fact to execute any documents necessary to obtain a VA guaranteed loan. This enables active duty service persons stationed overseas, and other veterans who cannot be present to execute loan documents, to obtain VA loans. Requirements The veteran must execute a general or specific power of attorney, which is valid and legally adequate. The veteran’s attorney-in-fact may use this power of attorney to apply for a Certificate of Eligibility and initiate processing of a loan on behalf of the veteran. To complete the loan transaction using an attorney-in-fact, ensure that the general or specific power of attorney complies with state law to the extent that the mortgage can be legally enforced in that jurisdiction, and clear title can be conveyed in event of foreclosure. To complete the loan transaction using an attorney-in-fact, the VA also requires the veteran’s written consent to the specifics of the transaction. This requirement can be satisfied by either:

• The veteran’s signature on both the sales contract and the URLA, as long as the veteran’s intention to obtain a VA loan on the particular property is expressed somewhere in those documents, OR

• A specific power of attorney or other document(s) signed by the veteran, which encompasses the following elements:

– Entitlement – A clear intention to use all or a specified amount of entitlement. – Purpose – A clear intention to obtain a loan for purchase, construction, repair,

alteration, improvement, or refinancing. – Property Identification – Identification of the specific property. – Price and Terms – The sales price, if applicable, and other relevant terms of the

transaction. – Occupancy – The veteran’s intention to use the property as a home to be occupied by

the veteran (or other applicable VA occupancy requirement). Veteran’s Status as Alive and not MIA In addition, at the time of loan closing, the lender must:

• Verify the veteran is alive and not missing in action (if on active duty), AND • Make the following certification:

“The undersigned lender certifies that written evidence in the form of correspondence from the veteran or, if on active military duty, statement of his or her commanding officer (including statement of person authorized to act for said officer), affirmatively indicating that the veteran was alive and, if the veteran is on active military duty, not missing in action status on (date), was examined by the undersigned and that the said date is subsequent to the date the note and security instruments were executed on the veteran’s behalf by the attorney-in-fact.” The lender must always verify that the veteran is alive at the time of loan closing, whether or not the veteran is still in the military. For service members who are deployed, an e-mail certification that the service member is alive and not missing in action is acceptable, but the e-mail must be identifiable that it came from a military installation or marine vessel. The VA may deny guaranty on a loan if the lender failed to properly verify the veteran’s status and the veteran was deceased (or MIA) at the time the loan was closed.

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Ratios

• The qualifying debt-to-income ratio is 41% unless there are significant compensating factors or an AUS Approval is received. Refer to Compensating Factors.

• Transactions with a credit score < 650 (where allowed) are limited to 45% DTI, regardless of AUS approval.

• A second level signature is required if the ratio exceeds 41% and there is less than the 120% required residual income, regardless of the AUS decision.

Compensating Factors A valid compensating factor is an unusual factor to strengthen the loan, not mere satisfaction of a program requirement. For example, significant liquid assets might compensate for a residual income shortfall whereas long-term employment would not. Compensating factors cannot be used to compensate for unsatisfactory credit. Compensating factors include, but are not limited to, the following:

• Excellent long-term credit • Conservative use of consumer credit • Minimal consumer debt • Long-term employment • Significant liquid assets • Down payment or the existence of equity in refinancing loans • Little or no increase in housing expense • Military benefits • Satisfactory home ownership experience • High residual income • Low debt-to-income ratio

Maximum/Minimum LTV/CLTV • 100% LTV/CLTV on purchase transactions calculated on the base loan amount. • 100% LTV/CLTV on Rate/Term Refinance calculated on the base loan amount. • 90% LTV/CLTV on Cash-Out Refinance transactions calculated on the base loan amount.

o There is no limit on dollar amount of cash back as long as CLTV and loan guaranty parameters are met.

• 100% LTV/CLTV on IRRRL Refinance transactions.

The VA Funding Fee may be added to the base loan amount and the total loan amount may exceed the maximum loan amount permitted for this product. Refer to Purchase, Interest Rate Reduction Refinance Loan (IRRRL), Regular Refinance (Rate/Term or Cash-Out), and “Other” Financing for the loan amount calculation. Existing subordinate financing may remain in place however; the CLTV cannot exceed the maximum allowable LTV for the transaction. No new subordinate financing is allowed on any refinance transaction.

http://www.allregs.com/tpl/content.aspx





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Table of Residual Incomes by Region (Reference: Chapter 4, Section 9e, VA Lender’s Handbook at http://www.benefits.va.gov/warms/pam26_7.asp)

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 $1,062 $1,039 $1,039 $1,158

over 5 Add $80 for each additional member up to a family of 7. Loans with DTI ratios greater than 41% must exceed the residual income guideline by at least 20% as published by the VA. Reduce the residual income figure by a minimum of 5% if:

• The applicant or spouse is an active-duty or retired serviceperson, AND • There is a clear indication that they will continue to receive the benefits resulting from use of

military-based facilities located near the property.


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Table of Residual Incomes by Region, cont. (Reference: Chapter 4, Section 9e, VA Lender’s Handbook at http://www.benefits.va.gov/warms/pam26_7.asp)

Key to Geographic Regions Used in Preceding Tables

Northeast Connecticut New Hampshire Pennsylvania

Maine New Jersey Rhode Island

Massachusetts New York Vermont

Midwest Illinois Michigan North Dakota

Indiana Minnesota Ohio

Iowa Missouri South Dakota

Kansas Nebraska Wisconsin

South Alabama Kentucky Puerto Rico

Arkansas Louisiana South Carolina

Delaware Maryland Tennessee

District of Columbia Mississippi Texas

Florida North Carolina Virginia

Georgia Oklahoma West Virginia

West Alaska Hawaii New Mexico

Arizona Idaho Oregon

California Montana Utah

Colorado Nevada Washington

Wyoming Maintenance and Utilities

• Use $.14 per square foot. • Add $75.00 if the home has a pool.


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VA Qualifying Exercise Use the following assumptions to complete these sections on the attached Loan Analysis Worksheet: SECTION C – estimated monthly shelter expenses SECTION D – debts and obligations SECTION E – monthly income and deductions – items 41 through 45 Loan Type 30-year fixed Interest Rate 6.25% Purchase Price $199,000 Funding Fee 2.15% Downpayment $0 Size of Home 1,450 sq. ft. Maintenance Costs $0.14/sq. ft. Property Taxes $200/month Hazard Insurance $52/month Revolving Debt $20/month Child Care Expense $585/month Number of Children Two Property Location Kansas City, Missouri Veteran is salaried, employed for four years with same company with monthly income of $2,800.

Federal Income Tax = $251 State Income Tax = $86 Veteran’s spouse is hourly, with same company for two years, 40 hours/ wk with an hourly income of $12.80. Federal Income Tax = $237 State Income Tax = $69 They have two children with child care expenses of $135.00 per week.

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VA Qualifying Exercise, cont.

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The VA Case Number and Appraisal Ordering VA Case Number and Appraisal:

1. A VA case number must be ordered for every VA loan using VA TAS (The Appraisal System). 2. You may register for TAS in the Veterans Information Portal at

https://vip.vba.va.gov/portal/VBAH/Home. Brokers should register as user type “Lender.” You will need the following information:

• Your company’s VA Lender ID number • Your company’s VA PIN number (the last four digits of your VA Lender ID number) • Franklin American Mortgage’s VA Sponsor ID number:

• TX Ops Center – 8753184811 • MA Ops Center – 8753182501 • TN Ops Center – 8753180000 • CA Ops Center – 8753180601 • PA Ops Center – 8753184201

3. When registration is complete, proceed to the log-in function. 4. From the menu at the far left under “Applications,” select “WebLGY.” 5. For Purchase or Non-IRRRL refinance – select “Request Appraisal,” then select “LAPP”

and submit. 6. IRRRL – select “Order IRRRL.” 7. Complete subsequent screens and click “Submit.” 8. Print the TAS-generated VA Form 26-1805-1 “VA Request for Determination of Reasonable

Value” for your records. Include a copy with your loan submission to Franklin American Mortgage.

IMPORTANT NOTE: With the exception of IRRRLs, when you order a case number you are automatically ordering an appraisal. When you click “Submit” to generate the case number, you are placing the order for an appraisal and making the following certification to the VA: “We agree to forward to the appraiser the approved fee which we are holding for this purpose.” Even if the loan does not close, you are responsible to pay the appraiser unless you cancel the order before the appraisal has been performed.

https://vip.vba.va.gov/portal/VBAH/Home

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The VA Case Number and Appraisal, cont.

9. E-mail, fax, or mail the VA Form 26-1805-1, the sales contract, and any other required

documentation (see section 10.04 of the VA handbook) to the assigned appraiser on the same day the case number is assigned.

10. For more details and training on the VA system, please contact your Account Executive. If you do not have access to the VA system you may access the “Forms” section of our website and select “VA Case Number Request Form.” Complete the necessary information and fax to the number listed on the bottom and Franklin American Mortgage will order the VA case number for you.

11. It will be the broker’s responsibility to order their own VA case numbers after the VA has issued their VA Lender ID number.

Canceling a VA Appraisal Order E-mail the assigned appraiser and the appropriate VA Regional Loan Center (RLC) with the case number, property address, and request to cancel.

• The appraiser’s e-mail address can be found on the VA Form 26-1805-1. • E-mail links to the RLCs are located at

http://www.benefits.va.gov/homeloans/contact_rlc_email.asp. • For RLC address and phone information see

http://www.benefits.va.gov/homeloans/contact_rlc_email.asp or page 12 of this manual. Be sure to confirm the appraisal order has been cancelled. If the request to cancel is not received and processed by the VA before the appraisal is performed, then the broker will be liable for the cost of the appraisal. (Reference: Chapter 10, VA Lender’s Handbook)

http://www.benefits.va.gov/homeloans/contact_rlc_email.asp

http://www.benefits.va.gov/homeloans/contact_rlc_email.asp

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Property Eligibility Existing Construction 1-4 family owner-occupied dwelling that at the time of appraisal:

• Has been previously owner-occupied, OR • Fully completed for 12-months or more. No special requirements.

New Construction 1-4 family owner-occupied dwelling that at the time of appraisal:

• Has been fully completed for less than 12-months and never owner-occupied, OR • Is fully completed EXCEPT for “Customer Preference” items (interior wall finishes, floor covering,

appliances, fixtures and equipment, etc.). The broker and builder should work closely together to determine when the property has reached this stage and when the appraisal should be ordered.

The following are required:

• Builder’s VA ID number, AND • One-year VA builder’s warranty (VA Form 26-1859 “Warranty of Completion of Construction”),

OR • 10-year Warranty Acceptance Letter *.

Proposed or Under Construction 1-4 family owner-occupied dwelling that at the time of appraisal:

• Is not completed to the “Customer Preference” stage (see above). The following are required:

• Builder’s VA ID number, AND • One-year VA Builder’s Warranty (VA Form 26-1859 “Warranty of Completion of Construction”),

AND • Certificate of Occupancy or equivalent issued by the local building authority, OR • 10-year Warranty Acceptance Letter AND Final Inspection by a VA Fee Inspector, VA Appraiser,

or the local building authority. From this final inspection, Franklin American Mortgage must be able to confirm that the property is 100% complete and meets the VA’s Minimum Property Requirements for an existing construction.

The following must be provided to the Appraiser with the TAS-generated VA Form 26-1805-1:

• One set of construction exhibits (see Section 10.10 VA Lenders Handbook). Veteran must sign “Description of Materials”.

• Fully completed Builder’s Certification (HUD Form 92541), OR • A certification identifying the property, signed and dated by a technically qualified and properly

identified individual (such as a builder, architect, engineer, etc.) which states “I certify that the construction exhibits meet all local code requirements and are in substantial conformity with the VA Minimum Property Requirements, including the energy conservation standards of the 1992 Council of American Building Officials’ Model Energy Code and the requirement for lead-free water piping.”

* The warranty plan that must be accepted by HUD is found at http://portal.hud.gov/hudportal/documents/huddoc?id=hoctenyr.pdf

http://portal.hud.gov/hudportal/documents/huddoc?id=hoctenyr.pdf

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Property Eligibility, cont. Eligible Properties

• 1-4 unit attached or detached SFRs and PUDs. • Condominiums must be VA approved. Refer to Condominium and PUD Projects. • 1-4 unit REO properties.

EEM Program

• Energy Efficient Mortgage (EEM) program is allowed. • VA allows up to $6,000 to be added to the loan amount to cover the cost of energy efficiency

improvements made in conjunction with a VA 30-year term purchase or refinance loan on an owner-occupied “existing” property.

• Subordinate financing is allowed. • Escrow waivers are not allowed.

Ineligible Properties (See Franklin American Mortgage Product Description for additional property types)

• Located in flood hazard area where flood insurance is not available. • Located in the Coastal Barrier Resource System. • Located in certain airport noise zones (see Section 11.12 VA Lenders Handbook). • Located in a condo project that has not been approved by the VA. • Leasehold condos. • Cooperatives. • Residential structures within a transmission line easement (see Section 12.07 VA

Lenders Handbook). • Ownership other than “fee simple” unless previously approved by the VA and Franklin

American Mortgage. • Properties that are not primarily residential in nature and use. • Franklin American Mortgage does not lend on manufactured housing.

Remember: The VA guarantees the loan, not the condition of the property. It is the purchaser’s responsibility to see that all components (i.e., heating, cooling, plumbing, etc.) of the house are in proper working condition. Number of Properties Owned

• Unless otherwise restricted by the Product Description, the borrower(s) is not permitted to own

more than four (4) financed residential properties, including the subject property. This limitation includes joint or total ownership, and is cumulative across all borrower(s) on the loan.


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VA IRRRL VA IRRRL Guidelines Overview A refinance transaction is a mortgage loan used to payoff an existing real estate obligation on the same property for borrower(s) with legal title to the subject property. Not all borrowers have to be obligated on the loan being paid off, but at least one borrower must be on the existing note. A home that is owned free and clear is not permitted to be refinanced as a VA loan, there must be a lien to payoff. The types of refinance transactions available are:

• Refinance (Rate/Term or Cash-Out) • Interest Rate Reduction Refinancing Loans (IRRRL) • Construction-Permanent Refinance • “Other” Refinance

Refinance (Rate/Term or Cash-Out) VA considers all refinances (Except IRRRLs) as “Cash-Out” transactions. FAMC has specific LTV/CLTV and eligibility criteria for Rate/Term vs. Cash-Out refinances. Refer to Rate/Term and Cash-Out in the below guidelines and the applicable VA Product Description.

Interest Rate Reduction Refinancing Loan (IRRRL) is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan. Refer to IRRRL in the below guidelines and the applicable VA Product Descriptions.

Construction-Permanent Refinance involves the granting of a long-term mortgage to the veteran for the purpose of replacing interim financing the borrower obtained in order to fund the construction of the home. Construction-to-Permanent financing is considered a cash-out and follows the Funding Fee chart for refinance transactions. Refer to Construction-to-Permanent in the below guidelines for requirements.

“Other” Refinance The only type of “Other” refinance transaction permitted by FAMC is the refinance of installment land contracts. Refer to “Other” in the below guidelines for requirements.

NOTE: VA IRRRLs need to be AIR compliant Conventional appraisals for VA IRRRLs must be AIR-compliant; the AIR appraisal ordering process does apply.

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VA IRRRL Qualified Mortgage Requirements for IRRRL Loans In order for an IRRRL to be exempt from the income verification under ATR/QM provisions under TILA, the total QM points and fees on the loan must not exceed 3% of the principal loan amount of the new loan. This is different than the current QM points and fees limits, which allows for points and fees above 3% for loan amounts below $100,000 (e.g. $3,000 for a loan greater than or equal to $60,000 but less than $100,000, etc.). A proposed IRRRL that does not meet the requirements for exemption of income verification, as explained above, will be subject to income verification and must receive prior approval from the VA to be guaranteed. As a reminder, all loans will continue to be tested for QM points and fees. In addition, FAMC has developed internal processes and procedures to ensure that all VA IRRRL transactions are in compliance with the updated VA guidelines. When required, income verification and VA prior approval will be coordinated through FAMC Underwriting and the loan will be conditioned accordingly.

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VA Benefit to Borrower In order to comply with the VA's directive, refinance transactions should “make sense” and be in the borrower's best interest. Refinance transactions must provide a net tangible benefit for the borrower. • The interest rate on the new loan must be lower than the interest rate on the old loan unless the old

loan is an AMR and the new loan is a fixed rate. • The P & I payment on the new loan must be less than the P & I payment on the old loan unless one

of these exceptions applies: o The old loan is an ARM and the new loan is a fixed rate, or o The term of the new loan is shorter than the term of the old loan, or o Allowable energy efficient improvements are included in the new loan

• If the monthly payment (PITI) increases by 20% or more, the underwriter must: o Determine that the borrower qualifies for the new monthly payment, and o Include a certification that the borrower qualifies for the new monthly payment.

• The VA requires a signed statement of acknowledgement regarding the effect of the change in the veteran’s loan payment and interest rate. This statement must also include the amount of time it would take to recoup ALL closing costs. All closing costs must include those paid outside of closing, any financed into the new loan amount, all prepaid items and any costs that are being paid with lender credits from premium pricing.

o This VA required statement of acknowledgement is located in the VA Forms section. o Refer to VA Old vs New Statement. o This form is required for all VA IRRRL transactions.

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VA IRRRL Forms VA IRRRL Q.image Submission Form An abbreviated 1003 is acceptable. The income and assets and other sections of the 1003 that do not pertain to VA IRRRL’s can be left blank.

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VA IRRRL Forms, cont.

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VA Jumbos 30-year fixed rate only Owner-occupied primary residence only Purchase, regular refinance (rate and term or cash-out) IRRRLs – Allowed 100% financing Construction to Permanent – Construction to permanent financing is not allowed. Secondary Financing – New or existing secondary financing is not eligible, regardless of the source. Appraisal – UAD (Uniform Appraisal Data) compliant appraisals are required for VA loans as of January 1, 2012 CAIVRS – a clear CAIVRS number must be provided for each borrower Cash Reserves – as determined by AUS Credit

• Credit history and credit scores are required for each borrower on an application. Non-traditional credit is not allowed.

• No bankruptcy or foreclosure in most recent two (2) years, regardless of DU/LP. • Minimum FICO is 680, depending on loan amount. • The credit report for the mortgage history must include the payment made for the most recent

month due. • The mortgage history requires no 30-day mortgage late payments in the last 12-month

mortgage history, regardless of AUS. Downpayment – may be required Gifts – not allowed Escrow Waivers – not allowed Escrow Holdbacks – not allowed EEM Program

• Energy Efficient Mortgage (EEM) Program is allowed. All EEM improvements must be completed prior to closing.

• The VA allows up to $6,000 to be added to the loan amount to cover the cost of energy efficiency improvements made in conjunction with a VA 30-year term purchase or refinance loan on an owner-occupied “existing” property.

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VA Jumbos, cont. Maximum/Minimum Loan Amount

Maximum loan amount: $1,000,000 for Purchase, Rate/Term and IRRRL transactions with a minimum FICO of 700. Minimum FICO of 680 is allowed up to a final loan amount of $700,000. Maximum loan amount includes any portion of the financed funding fee. Loan amounts up to $700,000 will be subject to a max 41% DTI unless compensating factors present. Loan amounts greater than $700,000 will be subject to a max 41% DTI. • To confirm county loan limits for calculating maximum VA entitlement, refer to:

http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp AND https://www.allregs.com/tpl/Viewform.aspx?formid=00024559&formtype=agency Minimum loan amount: $417,001.

• All loans must be submitted in whole dollar amounts.

Maximum/Minimum LTV • 100% LTV on purchase transactions calculated on the base loan amount. • 100% LTV on regular refinance (Rate/Term) calculated on the base loan amount. • (Note: Incidental cash back closing is limited to $500.00 for Rate/Term refinance) • 100% LTV on IRRRLs. • 90% LTV/CLTV calculated on the base loan amount on refinance transactions when the Veteran

is receiving cash out at closing.

The VA Funding Fee may be added to the base loan amount; however, the total loan amount may not exceed the maximum loan amount permitted for this product. Refer to Purchase, Regular Refinance (Rate/Term or Cash-Out), and Interest Rate Reduction Refinance Loan (IRRRL) for the loan amount calculation.

Manual Underwriting – not allowed Manual Downgrades – not allowed Number of Finances Properties Borrowers may own one other financed property. The additional financed property will require the borrower to have a minimum of 3 months reserves if rental income is being used from that property to qualify the Veteran. Property

Eligible: • 1-unit attached or detached SFRs and PUDs • Condominiums – must be on the VA approved condo list • 1-unit REO properties

Ineligible: • 2 – 4 units

Jumbo Refinances

• Regular refinance (rate/term or cash-out): • Maximum $325,000 cash-out; subject to maximum LTV and guaranty requirements.

http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp

https://www.allregs.com/tpl/Viewform.aspx?formid=00024559&formtype=agency





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Regional Loan Centers

Regional Loan

Center Jurisdiction Mailing and Website Addresses Phone

Number

Atlanta Georgia North Carolina South Carolina Tennessee

Department of Veterans Affairs VA Regional Loan Center 1700 Clairmont Rd. P.O. Box 100023 Decatur, GA 30031-7023 http://www2.va.gov/directory/guide/facility.asp?ID=357&dnum=All Eligibility Center Mailing Information Atlanta Regional Loan Center ATTN: COE (262) P.O. Box 100034 Decatur, GA 30031

1-888-768-2132

Cleveland Connecticut Delaware Indiana Maine Massachusetts Michigan New Hampshire New Jersey New York Ohio Pennsylvania Rhode Island Vermont

Department of Veterans Affairs Cleveland Regional Loan Center 1240 East Ninth Street Cleveland, OH 44199 http://www.vba.va.gov/ro/cleveland/index1.htm

1-800-729-5772

Denver Alaska Colorado Idaho Montana Oregon Utah Washington Wyoming

Department of Veterans Affairs VA Regional Loan Center 155 Van Gordon Street Lakewood, CO 80228 P.O. Box 25126 Denver, CO 80225 http://www.benefits.va.gov/denver/

1-888-349-7541

http://www2.va.gov/directory/guide/facility.asp?ID=357&dnum=All

http://www2.va.gov/directory/guide/facility.asp?ID=357&dnum=All

http://www.vba.va.gov/ro/cleveland/index1.htm

http://www.benefits.va.gov/denver/

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Regional Loan Centers, cont.

Regional Loan


Number

Honolulu Hawaii Guam American Samoa Commonwealth of the Northern Marianas

Department of Veterans Affairs VA Regional Office Loan Guaranty Division (26) 459 Patterson Road Honolulu, HI 96819 * Although not an RLC, this office is a fully functioning Loan Guaranty operation for Hawaii.

1-808-433-0481

Houston Arkansas Louisiana Oklahoma Texas

Department of Veterans Affairs VA Regional Loan Center 6900 Almeda Road Houston, TX 77030-4200 http://www.vba.va.gov/ro/houston/lgy/home.html

1-888-232-2571

http://www.vba.va.gov/ro/houston/lgy/home.html

http://www.vba.va.gov/ro/houston/lgy/home.html

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Regional Loan Centers, cont.

Regional Loan


Number

Phoenix Arizona California New Mexico Nevada

Department of Veterans Affairs VA Regional Loan Center 3333 N. Central Avenue Phoenix, AZ 85012-2402 http://www.benefits.va.gov/phoenix/

1-888-869-0194

Roanoke District of Columbia Kentucky Maryland Virginia West Virginia

Department of Veterans Affairs VA Regional Loan Center 116 N. Jefferson Street Roanoke, VA 24016 http://www.benefits.va.gov/roanoke/

1-800-933-5499

St. Paul Illinois Iowa Kansas Minnesota Missouri Nebraska North Dakota South Dakota Wisconsin

Department of Veterans Affairs VA Regional Loan Center 1 Federal Drive, Fort Snelling St. Paul, MN 55111-4050 http://benefits.va.gov/stpaul/

1-800-827-0611

St. Petersburg

Alabama Florida Mississippi Puerto Rico U.S. Virgin Islands

Department of Veterans Affairs VA Regional Loan Center 9500 Bay Pines Road St. Petersburg, FL 33708 P.O. Box 1437 St. Petersburg, FL 33731 http://www.benefits.va.gov/stpetersburg/

1-888-611-5916 (out of state) 1-800-827-1000 (in FL)

http://www.benefits.va.gov/phoenix/

http://www.benefits.va.gov/roanoke/

http://benefits.va.gov/stpaul/

http://www.benefits.va.gov/stpetersburg/

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Useful VA Websites Veterans Information Portal https://vip.vba.va.gov/portal/userprofiling/login.jsp INCLUDING:

• WebLGY (Certificate of Eligibility Online) • TAS (The Appraisal System) • e-Appraisal

Circulars / News http://www.benefits.va.gov/homeloans/resources_circulars.asp Condos, PUDs, Builder IDs https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch Construction and Valuation http://www.benefits.va.gov/homeloans/appraiser_cv.asp Forms http://www.va.gov/vaforms/ Handbook http://www.benefits.va.gov/warms/pam26_7.asp IRRRL Worksheet (fillable) http://www.vba.va.gov/pubs/forms/VBA-26-8923-ARE.pdf Lenders Homepage http://www.benefits.va.gov/homeloans/lenders.asp Loan Guaranty Homepage http://www.benefits.va.gov/homeloans/ Local Requirements http://www.benefits.va.gov/homeloans/appraiser_cv_local_req.asp Military Pay Charts http://www.military.com/benefits/military-pay Regional Loan Centers http://www.benefits.va.gov/homeloans/contact_rlc_info.asp Training Homepage http://benefits.va.gov/homeloans/resources_video.asp

Equal Housing Lender; Franklin American Mortgage Company, 6100 Tower Circle, Suite 600, Franklin, TN 37067. Company NMLS #1599. For mortgage banking professionals only; not authorized for distribution to consumers or third-parties. All info herein is current as of 11/18/2015 and subject to change without notice.

This presentation is made available to trusted partners of Franklin American Mortgage Company and is intended for sales enhancement purposes only. The material present herein is not intended as legal advice nor does it represent the counsel or opinion of Franklin American Mortgage or its employees. Borrowers must qualify in accordance with current Franklin American Mortgage product and program guidelines (login as a registered user at www.franklinamerican.com to view). All attendees should consult their company’s policies, procedures, and/or internal compliance/legal guidelines regarding all regulatory or compliance matters.

https://vip.vba.va.gov/portal/userprofiling/login.jsp

http://www.benefits.va.gov/homeloans/resources_circulars.asp

https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch

http://www.benefits.va.gov/homeloans/appraiser_cv.asp

http://www.va.gov/vaforms/


http://www.vba.va.gov/pubs/forms/VBA-26-8923-ARE.pdf

http://www.benefits.va.gov/homeloans/lenders.asp

http://www.benefits.va.gov/homeloans/

http://www.benefits.va.gov/homeloans/appraiser_cv_local_req.asp

http://www.military.com/benefits/military-pay

http://www.benefits.va.gov/homeloans/contact_rlc_info.asp

http://benefits.va.gov/homeloans/resources_video.asp