Nations Direct Mortgage VA Guidelines Updated: October 20 th, 2014 VA Underwriting Guidelines...

Last Updated: October 20th

, 2014

VA Underwriting Guidelines Nations Direct Mortgage, LLC. of 55 These guidelines are not a commitment to lend. Program, rates, terms and conditions are subject to change without notice. This information is intended for

Mortgage and Real Estate Professionals only and should not be distributed to consumers or other third parties. ©2012 Nations Direct Mortgage, LLC.

Nations Direct Mortgage VA Guidelines

Table of Contents

4506-T ...................................................................................................................................................................................... 8

APPRAISAL ............................................................................................................................................................................... 8

APPRAISAL VALIDITY ............................................................................................................................................................ 8

PROPERTY ADDRESSES ........................................................................................................................................................ 8

PURCHASES AND CASH-OUT REFINANCES .......................................................................................................................... 8

VA APPRAISER ASSIGNMENT – PURCHASE AND CASH-OUT TRANSACTIONS ONLY ........................................................... 9

APPRAISAL INVOICE ............................................................................................................................................................. 9

FORM REQUIREMENTS ........................................................................................................................................................ 9

APPRAISAL REVIEW ............................................................................................................................................................. 9

APPRAISAL DISPUTE PROCEDURES ...................................................................................................................................... 9

ASSETS ................................................................................................................................................................................... 10

EARNEST MONEY DEPOSITS .............................................................................................................................................. 10

SAVINGS AND CHECKING ACCOUNTS................................................................................................................................ 10

PROCEEDS FROM THE SALE OF REAL ESTATE .................................................................................................................... 10

SALE OF A PERSONAL ASSET .............................................................................................................................................. 10

SAVINGS BONDS ................................................................................................................................................................ 10

RETIREMENT SAVINGS ....................................................................................................................................................... 11

STOCKS AND/OR BONDS ................................................................................................................................................... 11

RENT CREDIT ...................................................................................................................................................................... 11

SWEAT EQUITY .................................................................................................................................................................. 11

AUS ........................................................................................................................................................................................ 11

DATA INTEGRITY ................................................................................................................................................................ 11

BORROWERS .......................................................................................................................................................................... 11

APPLICATION ..................................................................................................................................................................... 11

ELIGIBLE BORROWERS ....................................................................................................................................................... 11

INELIGIBLE BORROWERS ................................................................................................................................................... 12

CASH RESERVES ..................................................................................................................................................................... 12

CERTIFICATE OF ELIGIBILITY .................................................................................................................................................. 13

ELIGIBILITY DETERMINATION ............................................................................................................................................ 14

OBTAINING A CERTIFICATE OF ELIGIBILITY ....................................................................................................................... 14


, 2014



CERTIFICATE OF ELIGIBILITY RESOURCES .......................................................................................................................... 15

CLOSING COSTS ..................................................................................................................................................................... 16

ALLOWABLE CLOSING COSTS ............................................................................................................................................ 16

NON-ALLOWABLE BORROWER-PAID CLOSING COSTS ...................................................................................................... 17

CLOSING REQUIREMENTS ..................................................................................................................................................... 18

PROPERTY ADDRESSES ...................................................................................................................................................... 18

CLOSING REQUIREMENTS ................................................................................................................................................. 18

ESCROW STATES ................................................................................................................................................................ 19

NOTARY POLICY ................................................................................................................................................................. 19

CO-BORROWERS .................................................................................................................................................................... 20

COMPENSATING FACTORS .................................................................................................................................................... 20

CONDOMINIUMS ................................................................................................................................................................... 21

CONDOMINIUM RESOURCES ............................................................................................................................................ 21

CONFLICT OF INTEREST ......................................................................................................................................................... 21

CREDIT HISTORY .................................................................................................................................................................... 21

CREDIT INQUIRIES.............................................................................................................................................................. 21

REFER RESPONSES – CREDIT EXPLANATIONS .................................................................................................................... 21

NO CREDIT SCORE ............................................................................................................................................................. 22

FORECLOSURES ................................................................................................................................................................. 22

LOAN MODIFICATIONS AND/OR RESTRUCTURED LOANS ................................................................................................. 22

SHORT SALES ..................................................................................................................................................................... 22

SHORT REFINANCE TRANSACTIONS .................................................................................................................................. 22

CHAPTER 7 BANKRUPTCIES ............................................................................................................................................... 22

CHAPTER 13 BANKRUPTCIES ............................................................................................................................................. 22

CREDIT COUNSELING ......................................................................................................................................................... 23

JUDGMENTS ...................................................................................................................................................................... 23

DEFAULTED CAIVRS NUMBERS .......................................................................................................................................... 23

CREDIT REPORTS .................................................................................................................................................................... 23

AGE OF CREDIT REPORTS................................................................................................................................................... 23

DE CUSTOMERS ONLY ....................................................................................................................................................... 24

CREDIT SCORES ...................................................................................................................................................................... 24

DEBT-TO-INCOME RATIO ≤ 60% ........................................................................................................................................ 24

DECLINING MARKETS ............................................................................................................................................................ 24

DISCLOSURES/FORMS ........................................................................................................................................................... 24


, 2014



REQUIRED DISCLOSURES AND FORMS .............................................................................................................................. 24

DOWN PAYMENT................................................................................................................................................................... 24

DOWN PAYMENT ASSISTANCE .............................................................................................................................................. 24

DOWN PAYMENT ASSISTANCE RESOURCES ...................................................................................................................... 25

ELECTRONIC SIGNATURES ..................................................................................................................................................... 25

ELIGIBLE DOCUMENTS....................................................................................................................................................... 25

INELIGIBLE DOCUMENTS ................................................................................................................................................... 25

EMPLOYMENT/INCOME ........................................................................................................................................................ 25

INCOME DOCUMENTATION .............................................................................................................................................. 25

NON-MILITARY INCOME .................................................................................................................................................... 25

CURRENT EMPLOYMENT < 12 MONTHS ........................................................................................................................... 26

JOB CHANGES .................................................................................................................................................................... 26

MATERNITY LEAVE ............................................................................................................................................................. 26

ACTIVE-DUTY MILITARY INCOME ...................................................................................................................................... 26

COMMISSION .................................................................................................................................................................... 27

EDUCATIONAL ASSISTANCE ............................................................................................................................................... 27

OVERTIME/BONUS/PART-TIME EMPLOYMENT/SECOND JOB .......................................................................................... 27

RECENTLY DISCHARGED VETERANS .................................................................................................................................. 27

RESERVE/NATIONAL GUARD INCOME............................................................................................................................... 27

SELF-EMPLOYMENT ........................................................................................................................................................... 28

ENERGY EFFICIENT MORTGAGES/IMPROVEMENTS .............................................................................................................. 28

ENTITLEMENT/GUARANTY .................................................................................................................................................... 28

BASIC ENTITLEMENT .......................................................................................................................................................... 28

ADITIONAL OR BONUS ENTITLEMENT ............................................................................................................................... 28

RESTORATION OF ENTITLEMENT....................................................................................................................................... 29

ENTITLEMENT RESOURCES ................................................................................................................................................ 29

ESCROWS ............................................................................................................................................................................... 29

BANK-OWNED PROPERTIES ............................................................................................................................................... 29

FUNDING FEE ......................................................................................................................................................................... 30

FUNDING FEE TABLES ........................................................................................................................................................ 30

GEOGRAPHIC RESTRICTIONS ................................................................................................................................................. 31

COMMUNITY PROPERTY STATES ....................................................................................................................................... 31

ARIZONA ............................................................................................................................................................................ 31

CALIFORNIA ....................................................................................................................................................................... 31


, 2014



COLORADO ........................................................................................................................................................................ 32

GEORGIA ............................................................................................................................................................................ 32

HAWAII .............................................................................................................................................................................. 32

IDAHO ................................................................................................................................................................................ 32

INDIANA ............................................................................................................................................................................. 32

MARYLAND ........................................................................................................................................................................ 32

MASSACHUSETTS .............................................................................................................................................................. 32

MICHIGAN ......................................................................................................................................................................... 32

MINNESOTA ....................................................................................................................................................................... 32

MONTANA ......................................................................................................................................................................... 33

NEVADA ............................................................................................................................................................................. 33

OHIO .................................................................................................................................................................................. 33

OREGON ............................................................................................................................................................................ 33

TENNESSEE ........................................................................................................................................................................ 33

TEXAS ................................................................................................................................................................................. 33

UTAH.................................................................................................................................................................................. 33

WASHINGTON ................................................................................................................................................................... 33

GIFT FUNDS ........................................................................................................................................................................... 33

ELIGIBLE GIFT DONORS ..................................................................................................................................................... 33

INELIGIBLE GIFT DONORS .................................................................................................................................................. 34

GIFT DOCUMENTATION..................................................................................................................................................... 34

GIFT OF EQUITY ................................................................................................................................................................. 34

INSURANCE ............................................................................................................................................................................ 34

CONDO FIDELITY INSURANCE ............................................................................................................................................ 34

HO-6 POLICY ...................................................................................................................................................................... 34

JOINT LOANS ......................................................................................................................................................................... 34

LAND CONTRACTS ................................................................................................................................................................. 36

LIABILITIES ............................................................................................................................................................................. 36

EXCLUDED LIABILITIES ....................................................................................................................................................... 36

LOAN PURPOSE ..................................................................................................................................................................... 37

PURCHASE ......................................................................................................................................................................... 37

CASH-OUT REFINANCE ...................................................................................................................................................... 37

LOAN TERM ........................................................................................................................................................................... 37


, 2014



FIXED RATE MORTGAGES .................................................................................................................................................. 37

LTV/CLTV ............................................................................................................................................................................... 37

PURCHASES........................................................................................................................................................................ 37

CASH-OUT .......................................................................................................................................................................... 38

MAXIMUM/MINIMUM LOAN AMOUNTS.............................................................................................................................. 38

PURCHASES........................................................................................................................................................................ 38

CASH-OUT REFINANCES..................................................................................................................................................... 38

LOAN AMOUNT RESOURCES ............................................................................................................................................. 39

MINIMUM PROPERTY REQUIREMENTS ................................................................................................................................. 39

PROPERTY RESOURCES ...................................................................................................................................................... 39

MORTGAGE INSURANCE ....................................................................................................................................................... 39

MULTIPLE PROPERTIES/VA LOANS ........................................................................................................................................ 39

NEAREST LIVING RELATIVE .................................................................................................................................................... 40

NET TANGIBLE BENEFIT ......................................................................................................................................................... 40

NEW CONSTRUCTION ............................................................................................................................................................ 40

NEW CONSTRUCTION RESOURCES .................................................................................................................................... 41

NON-OCCUPANT CO-BORROWERS ....................................................................................................................................... 41

NOTICE OF VALUE .................................................................................................................................................................. 41

OCCUPANCY .......................................................................................................................................................................... 41

POWER OF ATTORNEY ........................................................................................................................................................... 42

POWER OF ATTORNEY RESOURCES ................................................................................................................................... 42

PROPERTY ELIGIBILITY ........................................................................................................................................................... 43

ELIGIBLE ............................................................................................................................................................................. 43

INELIGIBLE ......................................................................................................................................................................... 43

PROPERTY FLIPPING .............................................................................................................................................................. 44

PROPERTY INSPECTIONS ....................................................................................................................................................... 44

TERMITE INSPECTIONS ...................................................................................................................................................... 44

WELL INSPECTIONS ............................................................................................................................................................ 45

SEPTIC INSPECTIONS ......................................................................................................................................................... 45

PRESIDENTIALLY DECLARED DISASTERS ............................................................................................................................ 45

DISASTER RESOURCES ....................................................................................................................................................... 46

STATE AND LOCAL REQUIREMENTS .................................................................................................................................. 46

CHINESE DRYWALL ............................................................................................................................................................ 46

PROPERTY INSPECTION RESOURCES ................................................................................................................................. 46

QUALIFYING RATES ................................................................................................................................................................ 46


, 2014



FIXED RATE MORTGAGES .................................................................................................................................................. 46

RATIO ..................................................................................................................................................................................... 46

AUTOMATED UNDERWRITING .......................................................................................................................................... 47

DEBT-TO-INCOME RATIO ≤ 60% ........................................................................................................................................ 47

RECENTLY LISTED PROPERTIES .............................................................................................................................................. 48

PURCHASES........................................................................................................................................................................ 48


CASH-OUT REFINANCE – BORROWER DOES NOT RECEIVE CASH BACK OR CONSOLIDATE DEBT ..................................... 48

REFINANCE TRANSACTIONS .................................................................................................................................................. 48

CASH-OUT REFINANCE TRANSACTIONS ............................................................................................................................ 48

SHORT REFINANCE TRANSACTIONS .................................................................................................................................. 49

RENTAL INCOME .................................................................................................................................................................... 49

CONVERTING EXISTING HOMES TO RENTALS ................................................................................................................... 49

2-UNIT SUBJECT PROPERTY - PURCHASE .......................................................................................................................... 50

3-4 UNIT SUBJECT PROPERTY – PURCHASE ....................................................................................................................... 50

2 UNIT SUBJECT PROPERTY – CASH-OUT TRANSACTION AND VETERAN DOES NOT RECEIVE CASH BACK AND/OR

CONSOLIDATE NON-MORTGAGE DEBT ............................................................................................................................. 50

3-4 UNIT SUBJECT PROPERTY – CASH-OUT TRANSACTION AND VETERAN DOES NOT RECEIVE CASH BACK AND/OR

CONSOLIDATE NON-MORTGAGE DEBT ............................................................................................................................. 51

ADDITIONAL INVESTMENT PROPERTIES OWNED BY THE VETERAN – NOT THE SUBJECT PROPERTY .............................. 51

RESIDUAL INCOME ................................................................................................................................................................ 52

RESIDUAL INCOME RESOURCES ........................................................................................................................................ 52

SEASONING ............................................................................................................................................................................ 52

PURCHASES........................................................................................................................................................................ 52


SELLER CONTRIBUTIONS........................................................................................................................................................ 53

SOCIAL SECURITY VERIFICATION ........................................................................................................................................... 53

SUBORNDINATE FINANCING ................................................................................................................................................. 53

TITLE ...................................................................................................................................................................................... 54

ENERGY LOAN TAX ASSESSMENT PROGRAM (ELTAP) LIENS ............................................................................................. 55

PROPERTY ASSESSED CLEAN ENERGY (PACE) LIENS .......................................................................................................... 55

MANUAL UNDERWRITING ................................................................................................................................................. 55

AUTOMATED UNDERWRITING SYSTEMS .......................................................................................................................... 55

MANUAL DOWNGRADES ................................................................................................................................................... 55


, 2014




, 2014



Topics Sorted Alphabetically

4506-T

• A fully executed IRS Form 4506-T must be included in all loan files. • 4506 1040 transcript results for the most recent available tax year must be ordered and obtained from

IRS for all income sources. • For borrowers employed by a family-owned business, must order and obtain the most recent 2 years’

available 1040 transcripts from the IRS. • If the most recent tax year transcript is not available, Obtain the previous year’s transcript and proof of

extension for most recent year. If the extension is expired (loans closing with a note date on or after October 15th) must obtain tax return and transcript for most recent yearFor income derived from self-employment, other business income, or rentals, qualifying income calculations must include the amounts verified with the most recent available tax transcript. If the loan is closing with a note date on or after October 15th, qualifying income must include most recent year’s figures, and a transcript for that year must be ordered and obtained.

APPRAISAL

APPRAISAL VALIDITY

• Appraisals are valid for six months

PROPERTY ADDRESSES

• The property addresses on the appraisal, mortgage, note, flood certification must be identical. However, abbreviation of “Street,” “Road,” etc. is acceptable, even if “Street” or “Road” is fully spelled in another document. This is the only acceptable variance

o Use the standardized USPS address. Compare the USPS address to the legal description on the title commitment and use the city in the legal description if that differs from the USPS address

PURCHASES AND CASH-OUT REFINANCES

• Unless a broker has been approved by The Veterans Admin. to order their own VA appraisals,

they will place the order through Nations Direct. Submit the following items to Nations Direct:

o Fully completed VA Case Number/Appraiser Assignment, executed sales agreement and all addendums o Fax the completed form, sales agreement and all addendums to fax number indicated on

page 1 of VA Case Number/Appraiser Assignment

� Form must be legible and complete – For maximum clarity, fax all items at highest print quality/resolution

o Base LTV before addition of the financed funding fee must be ≤ 100% of the appraised value

o The property must meet VA’s minimum property requirements. Repairs that affect the health and safety of the occupants must be completed prior to closing

o Borrower may pay for appraisal o The case number must show that the loan is an IRRRL transaction. appraisals ordered


, 2014



VA APPRAISER ASSIGNMENT – PURCHASE AND CASH-OUT TRANSACTIONS ONLY

• All appraisals for purchase or cash-out refinance transactions must be ordered electronically through VA’s WebLGY System

• VA-approved appraisers are randomly assigned by WebLGY • Case Number is assigned simultaneously with completion of appraisal order • VA appraisers must provide appraisals in a timely manner • VA appraiser may only be contacted for status – questions related to repair or value are permitted

only by the Staff Appraisal Reviewer (SAR) • Rush appraisal requests are not permitted • Borrower may not pay more than the maximum appraisal or inspection fee established by VA.

Maximum appraisal and inspection fees are established by the Regional Loan Center having jurisdiction over the property. Refer to VA Appraisal Fee Schedule and Timeliness Requirements

APPRAISAL INVOICE

• VA appraiser sends appraisal and invoice to the underwriting lender that ordered the appraisal • Borrowers may not pay VA appraisers directly • Borrower may not pay more than the maximum appraisal or inspection fee established by VA.

Maximum appraisal and inspection fees are established by the Regional Loan Center having jurisdiction over the property. Refer to VA Appraisal Fee Schedule and Timeliness Requirements

FORM REQUIREMENTS

• 1-unit residences require Form 1004 • 2-4 unit residences require Form 1025 • Condos require Form 1073 • Double-wide manufactured homes are not allowed. • Fannie Mae Form 1004MC or Freddie Mac Form 71 – Market Conditions Addendum is required for

all appraisals • All appraisals must be Uniform Appraisal Dataset (UAD) compliant

o Only closed sales may be used as comparables o The “Lender/Client” field on the appraisal must reflect the lender’s name and “Department of

Veteran’s Affiars” o The address of the lender must now be entered in the “Address” field for the

lender o The “Borrower” field must reflect the name of the veteran

APPRAISAL REVIEW

• Appraisals are uploaded to VA’s WebLGY System by the appraiser o Lenders approved by Nations Direct to order their own appraisals must notify Nations

Direct when the appraisal has been uploaded to WebLGY.

• Staff Appraisal Reviewer (SAR) uploads Notice of Value (NOV) and appraisal to paperless file

APPRAISAL DISPUTE PROCEDURES

• The SAR (Staff Appraisal Reviewer) will review the new comps with the appraiser and if the SAR believes an adjustment is warranted based on the comps and discussion with the appraiser, he or she is permitted to adjust the value by up to 5%

• If there is still a dispute, on a limited basis, we will submit the appraisal to VA for review • Any adjustments > 5% of the original appraised value must be made by VA


, 2014



ASSETS All funds to close, when required, must be documented from an acceptable source. Acceptable sources of funds to close and documentation requirements are described below. For AUS “approve” or “accept”

responses, document to findings.

EARNEST MONEY DEPOSITS

• All EMDs must be verified prior to closing, regardless of the amount of the deposit

SAVINGS AND CHECKING ACCOUNTS

Funds must be verified via one or more of the following: o VOD or o Original or certified true copies of most recent two months’ bank statements or o Most recent two months’ internet bank statements – must include all pertinent

information and URL signature at top and/or bottom of document

All large deposits must be verified, regardless of whether the funds are required for closing. “Large deposits” are determined on a case-by-case basis and are non-payroll deposits that are unusual and high for the borrower’s income and obligations. If it’s impossible to verify a large deposit, and the funds are not needed for the loan closing or reserves, the funds may be deducted from the borrower’s bank balance, the AUS findings, the 1003 and the Loan Analysis. In all cases, if the source of the large deposit was a new debt, the payment must be included in the ratios and residual income calculations. When one or more of the bank account owners is not a borrower on the loan, the non-borrowing joint account owner(s) must provide a letter stating the borrower has access to the funds. However, if the account is joint with a non-borrowing spouse and there are no additional joint account owners, an access letter is not required.

PROCEEDS FROM THE SALE OF REAL ESTATE

• HUD-I Settlement Statement required

SALE OF A PERSONAL ASSET

• The borrower may sell a car, motorcycle, recreational vehicle, jewelry, stamp or coin or baseball

card collections, etc. All of the following documentation is required:

o Evidence of borrower’s ownership o Estimate of value o Bill of sale o Copy of purchaser’s check o Evidence of deposit of check into borrower’s bank account

SAVINGS BONDS

• Provide copies of bonds indicating ownership • Provide evidence of redemption value • Provide evidence of deposit of proceeds to borrower’s bank account


, 2014



RETIREMENT SAVINGS

• Document balances with the most recent statement • Document the terms and conditions for withdrawal and/or borrowing – Proof of liquidation is

required, if applicable • Unless funds may be withdrawn within 30 days of request, retirement savings accounts may not be

used as reserves but may be used as a compensating factor. If funds may not be withdrawn within

30 days of request, do not include in AUS findings

STOCKS AND/OR BONDS

• Provide most recent two months’ brokerage statements • When funds are required for closing, proof of liquidation is required

RENT CREDIT

• Provide a copy of the rent-with-option-to-buy agreement that clearly defines the terms and conditions, including rent credit

• The portion of rent credit that exceeds fair market rents for the area may be credited toward

borrower’s funds to close

o Fair market rents for the area are estimated by the appraiser o If borrower is purchasing a home other than the home he or she is currently renting, rent

credits may not exceed 4% of the purchase price (see Seller Contributions section)

SWEAT EQUITY

• Not allowed

AUS Loan Prospector or Desktop Underwriter response required for all loan types except IRRRLs

DATA INTEGRITY

• All information input to DU must mirror the documentation in the file

BORROWERS

APPLICATION

• The veteran must always be the primary borrower on the loan, regardless of whether income from

the veteran is being used to qualify

ELIGIBLE BORROWERS

For additional information, refer to VA Pamphlet 26-7, Chapter 7, Section 1 – Loans Requiring Special Underwriting - Joint Loans

• Eligible veteran(s)


, 2014



o If more than one veteran’s entitlement is used and the veterans are not married to one another, prior approval must be obtained by the VA regional loan center having jurisdiction over the property

o All veterans using entitlement must occupy the property

• Un-remarried surviving spouse of veteran who died from service-connected injuries o VA Regional Loan Center determines cause of death – see Certificate of Eligibility Section

• Veteran’s spouse co-borrower o The veteran must be the primary borrower on the loan, regardless of whether the veteran

contributes income to the loan o Veteran’s spouse is not required to be a veteran

• Non-veteran co-borrower who is not the veteran’s spouse o Eligible veteran must be primary borrower on the loan o Additional down payment that is ≥ 25% of the non-veteran’s half of the loan is required –

Refer to VA Pamphlet 26-7, Chapter 7, Section 1 – Loans Requiring Special Underwriting - Joint Loans

o Prior approval by VA Regional Loan Center having jurisdiction over the property is required o VA guaranty will not exceed the lesser of 25% of the veteran’s half of the loan or veteran’s

available entitlement – If veteran’s half of the loan is ≤ $144,000, bonus entitlement cannot be used, regardless of total loan amount

o Down payment plus VA guaranty must be ≥ 25% of the total loan amount, including the financed funding fee

o All borrowers must occupy the property o Veteran’s income must be sufficient to qualify for his or her half of the loan

INELIGIBLE BORROWERS

• Any borrower who does not meet the eligible borrower criteria described above

CASH RESERVES

• Borrower is using rental income to qualify - Borrower’s ability to accumulate liquid assets and the current availability of liquid assets for unplanned expenses should be considered in the overall credit

analysis o Borrower is using rental income from multi-unit subject property to qualify – Six months

reserves from the borrower’s own funds required o Borrower is using rental income from investment properties that are not the subject property to

qualify – Three months reserves from the borrower’s own funds required

• Borrower’s debt-to-income ratio exceeds 60% - Two months reserves from the borrower’s own funds

required:

o Reserves may not be gifted o 401k funds may be used for the borrowers reserve requirement. Unless funds may be

withdrawn within 30 days of request, retirement savings accounts may not be used as reserves. If funds may not be withdrawn within 30 days of request, do not include in AUS findings


, 2014



CERTIFICATE OF ELIGIBILITY A Certificate of Eligibility is required for all VA purchase and cash-out refinance transactions. The following information is included on a Certificate of Eligibility:

• Veteran’s full name – The veteran’s name on the Certificate of Eligibility must match the veteran’s

name in WebLGY, and the note and mortgage o The following name discrepancies are the only acceptable variations:

� James Everett Brown, James E. Brown, James Brown

� William Smith Jr., William Smith, William R. Smith, William Ryan Smith, Jr., William Ryan

Smith, William R. Smith, Jr. o The following name discrepancies must be resolved prior to the loan closing (this list is not all-

inclusive and name discrepancies are reviewed on a case-by-case basis):

� Name discrepancies due to marriage (C of E shows Mary Smith, but documentation in, WebLGY and/or the note and mortgage shows Mary Jones)

� Hyphenated name discrepancies (C of E shows Bill Smith, but documentation in, WebLGY and/or the note and mortgage shows Bill Smith-Jones)

� Middle name discrepancies (C of E shows Bill John Smith, but documentation in, WebLGY and/or the note and mortgage shows Bill Robert Smith)

� First name discrepancies (C of E shows Bill Smith, but documentation in, WebLGY and/or the note and mortgage shows William Smith)

� Last name prefix discrepancies (C of E shows Bill St. Pete, but documentation

in, WebLGY and/or the note and mortgage shows Bill Stpete)

• Veteran’s truncated social security number • Entitlement code

o 01 – World War II o 02 – Korean War o 03 – Post-Korean War o 04 – Vietnam War o 05 – Entitlement Restored o 06 – Un-remarried Surviving Spouse o 07 – Spouse of POW/MIA o 08 – Post World War II o 09 – Post Vietnam War

o 10 – Gulf War o 11 – Selected Reserves

• Veteran’s branch of service • Itemized list of entitlement amounts charged to previous loans – The following information is provided

for each loan:

o VA loan number o State in which property is located o Total loan amount o Date of loan o Entitlement amount charged

• Amount of basic entitlement available • Total entitlement charged to previous VA loans (includes total of all entitlement amounts for all active

VA loans)


, 2014



ELIGIBILITY DETERMINATION

• Eligibility is based on the veteran’s length and type of military service. Generally speaking, VA

determines that veterans who fulfill the criteria below are eligible for the VA home loan benefit:

o Veterans with two years of continuous active-duty and an honorable discharge o Veterans with six years of service in the Selected Reserves or National Guard and an

honorable discharge o Veterans with 90 days active-duty wartime service and an honorable discharge o Veterans with 181 days of continuous active-duty during peacetimes listed below and

an honorable discharge:

� July 26, 1947 – June 26, 1950

� February 1, 1955 – August 4, 1964 � May 8, 1975 – August 1, 1990

o Un-remarried surviving spouse of a veteran

� Eligibility determined by Veterans Administration (VA) � Veteran must have died on active-duty or as a result of service-connected injuries or

illness - VA determines cause of veteran’s death

OBTAINING A CERTIFICATE OF ELIGIBILITY

There are three methods for obtaining a veteran’s certificate of eligibility: • VA’s ACE (Automated Certificate of Eligibility) system – This must be attempted before using the

Eligibility Center or Regional Loan Center

o Obtained through VA’s Website: https://vip.vba.va.gov - For a brief on-line demonstration, refer to VA’s on-line training – Ordering a Certificate of Eligibility On-Line

o Register to receive a user name and password – You will need your lender ID and PIN number – Registration is required the first time only

o Select “WebLGY” o Select “Eligibility” link o Select “Eligibility” then “Create Record” o Complete the required fields using information from veteran’s VA Form DD-214 or other

Reservist/National Guard discharge papers o Usually successful for veterans who fulfill all of the following criteria:

� Discharged after 1980

� Served two years on active-duty � Had no previous VA loan

o Print certificate from ACE system and include with file submission o Users who do not have access to ACE may complete Automated Certificate of Eligibility

Request, and fax or e-mail to the fax number or e-mail address on the form with the following documentation:

� Fully executed Request for Certificate of Eligibility, VA Form 26-1880

� Member 4 copy of form DD-214 or other discharge papers for retired or discharged borrowers

� HUD-I from previous VA loans, if applicable � Request for Certificate of Veteran Status, VA Form 26-8261a

• VA’s Eligibility Center


, 2014



o 1700 Clairmont Road, Decatur, GA 30031 – 888-768-2132 o Send the following documentation to the address above (faxes are not permitted):

� Copy of veteran’s Member 4 copy of VA Form DD-214 or other Reservist/National Guard discharge papers

� Fully executed Request for Certificate of Eligibility, VA Form 26-1880

� Active-duty veterans must provide a current statement of service on military

letterhead and signed by the appropriate personnel stating all of the following:

• Veteran’s name • Veteran’s date of birth • Active-duty entry date • Lost time, if any and its duration • Name of commanding officer providing the information

o Turn time is typically seven days from receipt of documentation to VA mailing out the completed Certificate of Eligibility – Turn times may increase with volume increase

o Up-load a certified true copy of the Certificate of Eligibility into the paperless file – A blanket

certified-true-copy stamp for all the items in the file is sufficient

• Veteran Walk-In o Most Regional loan centers prepare Certificates of Eligibility for walk-in veterans o Call in advance to verify Regional Loan Center accepts walk-in requests and the office

hours during which Certificates of Eligibility are prepared o Provide the following documentation to regional loan center team member (faxes are not

permitted):

� Copy of veteran’s Member 4 copy of VA Form DD-214 or other Reservist/National Guard discharge papers

� Fully executed Request for Certificate of Eligibility, VA Form 26-1880 � Active-duty veterans must provide a current statement of service on military

letterhead and signed by the appropriate personnel stating all of the following:

• Veteran’s name • Veteran’s date of birth • Active-duty entry date • Lost time, if any and its duration • Name of commanding officer providing the information

o Up-load a certified true copy of the Certificate of Eligibility into the paperless file – A blanket

certified-true-copy stamp for all the items in the file is sufficient

CERTIFICATE OF ELIGIBILITY RESOURCES

• VA Pamphlet 26-7, Chapter 2 • Frequently Asked Questions - Eligibility


, 2014



CLOSING COSTS

ALLOWABLE CLOSING COSTS

Veteran may pay any of the following reasonable closing costs and fees: • 1% origination fee

o For purchase and cash-out loans, the origination fee is calculated using the total loan amount, including the financed funding fee

o For IRRRLs, the origination fee is calculated using the payoff minus any cash payments by

the veteran, if applicable

• Reasonable discount points o Brokers may charge only those discount points required to buy down the loan’s interest rate

– Correspondents/VA Automatic customers are exempt from this requirement, however, the

discount points charged must be reasonable and customary

• VA appraisal fee – The veteran may not pay a fee higher than the maximum allowable appraisal fee for the state in which the property is located – See VA Appraisal Fee Schedules

• VA compliance inspector fees – Only if required by the NOV (Notice of Value) • Recording fees • Taxes and stamps • Credit report fees – a $50 credit evaluation fee may be paid in lieu of the credit report fee for

automated underwriting approvals • Pre-paid items • Insurances (hazard and flood, when required) • Flood zone determination • Well and septic inspection fees • Survey, if required by lender or veteran, except for surveys of condominiums • Title insurance, title examination, title endorsement, title policy, title search • Environmental protection lien endorsement • Express mail fees for refinances if the saved per diem interest cost to the veteran will exceed the

cost of the special handling – Anything over $50, provide the invoice to verify fee • VA funding fee • Mortgage Electronic Registration System (MERS) fee • Closing protection letter – Should not exceed $35 • Fraud protection report • Termite, provided the loan is a cash-out refinance – The borrower may never pay these fees for

purchase transactions • If a fee is not listed above, assume VA does NOT permit the veteran to pay it


, 2014



NON-ALLOWABLE BORROWER-PAID CLOSING COSTS

Generally, the veteran may NOT pay any of the fees listed below, but the seller or lender may pay the non-allowable fees. However, if no origination fee is charged and the fee is not listed in the section below that itemizes fees the Veteran may never pay, the Veteran may pay non-allowable costs up to 1% of the purchase price. The veteran may also pay a combination of non-allowable fees and an origination fee, provided the combination does not exceed 1% of the purchase price. The non-allowable fees are:

• Attorney fees other than for title commitments • Lender’s appraisals • Lender’s inspections, except construction loan inspections and inspections required on the

appraisal/NOV • Loan closing or settlement fees • Doc prep, underwriting, loan application, admin or processing fees • Assignment fees • Photographs • Interest rate lock-in fees • E-Mail, fax, copying, postage, stationery, telephone or other overhead charges • Amortization schedules, Truth-in-Lending fees, etc. • Notary fees • Escrow fees or charges • Commitment fees or marketing fees of secondary purchasers • Trustee fees • Fees charged by third parties, regardless of affiliation with lender • Tax service fees • The veteran may never pay any of the following fees or charges, regardless of whether an

origination fee was paid:

o Termite inspection fee for a purchase transaction o Attorney fee that benefits the lender o Broker fee o Brokerage fees or commissions charged by real estate agents or real estate brokers in

connection with a VA loan o Prepayment penalties financed through a refinance transaction – When the payoff states a

pre-payment penalty is due, veterans may pay pre-payment penalties out-of-pocket only o FHA/VA inspection fees for builders (Normal new construction inspections of the dwelling

are permitted when required by the appraiser) o Any portion of the seller’s lien(s) or short sale fees o For purchase transactions, the cost of required repairs and inspections must be paid by the

seller. This policy applies to all purchases, including purchases of REO properties. VA does not permit the veteran to pay for repairs other than minor termite damage repairs


, 2014



CLOSING REQUIREMENTS

PROPERTY ADDRESSES

• The property addresses on the appraisal, mortgage, note, flood certification must be identical.

However, abbreviation of “Street,” “Road,” etc. is acceptable, even if “Street” or “Road” is fully spelled in another document. This is the only acceptable variance

o Use the standardized USPS address. Compare the USPS address to the legal description on the title commitment and use the city in the legal description if that differs from the USPS address

CLOSING REQUIREMENTS

• A fully executed VA Origination Statement itemizing all of the fees from lines 801 and 1101 and all

of the credits in section 200 of the HUD-I Settlement is required o Complete VA Origination Statement,

• Interest credit allowed - Loan must close by the 7th calendar day of the month preceding the first payment date

• A minimum of 12 months chain of title as evidenced by the title commitment satisfactory to Nations Direct review

• A verbal VOE must be submitted with the funding request o Verbal VOEs should be completed on the day of or the day prior to closing but not more

than ten business days prior to the loan closing – For additional information, refer to Verbal Verification of Employment Required for Funding,

• For purchase transactions, VA does not permit the borrower to bring additional funds to close to pay any portion of the remaining lien(s) on behalf of the seller or short sale fees on behalf of the seller – For example, if the seller owes $120,000 on an existing property, and the sales price is $100,000, the borrower may not pay any portion of the remaining $20,000 on behalf of the seller

• A payoff statement must be included in all refinance transaction files and must be reviewed by the underwriter

• All conditions must be collected and provided in the closing package o Down payment assistance funds are typically wired to the closing agent – Wire transfer

documentation must be included in the file prior to funding or purchase

• Any changes to loan amount, funding fee, cash-to-close, interest rate, points, PITI, etc. must be reviewed by underwriter prior to closing and disbursing loan

• Principal reductions are required when the total of lender and/or seller credits reflected on the HUD- I Settlement Statement exceeds the total of the actual closing costs, pre-paid expenses and discount points

• Principal reductions are required when the borrower receives any cash back at a purchase

transaction closing o Documented funds paid by the borrower outside of closing for items such as EMD or

appraisal and credit report may be refunded to the borrower at closing – Document funds paid outside of closing with one of the following:

� Cancelled checks � Bank statement showing transfer of funds


, 2014



� Money order receipts and evidence of source of funds � To ensure prompt loan funding/loan purchases, Nations Direct requires

verification of all EMD prior to closing

• Principal reductions are required when the borrower is receiving more than $500 cash at closing on an interest rate reduction refinancing loan. The principal reduction must include all cash back and not just the portion of cash back that exceeds $500. For example, if the HUD Settlement Statement indicates the borrower is receiving $626 cash back, a principal reduction in the amount of $626 is required. A principal reduction in the amount of $126 is insufficient

• Closing documents must be signed and notarized on or before the closing date indicated on the closing documents, regardless of the state in which the property is located and/or whether it’s an escrow state

• A fully executed Social Security Number Validation, is required in all closing packages

ESCROW STATES

• Alaska • Arizona • California • Colorado • Hawaii • Idaho • Montana • Nevada • New Mexico • Oregon • Utah • Washington • Wyoming

NOTARY POLICY

• Notaries may not be associated with the broker or correspondent. Ineligible notaries include but are

not limited to the following: o Any employee of the broker/correspondent, including but not limited to loan originators,

processors, etc. (When closing loans in-house, banks and credit unions may use an employee to perform notary services)

o Any family member of one of the principal owners o Anyone who receives funds, other than the notary fee, upon loan closing

• Loans that close with an unacceptable notary must be re-closed with a non-associated notary

prior-to-funding


, 2014



CO-BORROWERS

• Co-borrower must be Veteran’s spouse and/or eligible veteran or loan requires prior approval by VA regional loan center having jurisdiction over the property

• When co-borrower is not a veteran or the veteran borrower’s spouse, VA will guaranty only the veteran’s portion of the loan – A down payment ≥ 25% of the non-veteran co-borrower’s portion of the loan is required – If there is one co-borrower who is not the veteran’s spouse and is also not a veteran, the veteran’s “portion” of the loan is half of the loan amount

o Combination of veteran’s entitlement plus down payment must be ≥ 25% of the total loan

amount, including the financed funding fee

COMPENSATING FACTORS Ratio guidelines may be exceeded when compensating factor(s) that support loan approval are documented in the file. The remarks section of Loan Analysis , VA form 26-6393 must contain the underwriter’s list of compensating factors that were used to justify approval. The following items are VA recognized compensating factors:

• Excellent credit history • Conservative use of consumer credit • Minimal debt

Long-term employment • Significant liquid assets • Sizable down payment • Equity position in refinance loans • Minimal or no increase in monthly housing expense • Military benefits • Satisfactory homeownership experience • High residual income

o For loans that exceed VA’s 41% total debt ratio guideline, residual income must be at least 20% more than the loan’s residual income requirement

o Supervisory underwriter signature and written justification required when ratio exceeds 41% but borrower’s residual income is < 120% of requirement

• Low debt-to-income ratio • Tax credits for child care • Tax benefits of homeownership

When any of the above factors have been evaluated by automated underwriting and the loan receives a

“refer” response, automated underwriting has determined the compensating factor is not sufficient to

render an “approve” or “accept” response. Alternative compensating factors must be provided for

review.


, 2014



CONDOMINIUMS

• For all VA loan purposes, condos, including site condos must be VA-approved o If the condo project was approved by FHA prior to December 7, 2009, send evidence of

approval to VA, and they will add the project to the VA-approved condo list. VA will not accept FHA condo approvals having approval dates on or after December 7, 2009

• Condominiums located in Florida are subject to the following overlays: o Purchases of new construction condos are permitted, provided the condominium was approved

by VA and the borrower does not receive a gift, grant, down payment assistance and/or loan from family member for funds to close

o Refinances of new construction condominiums are ineligible o Attached new construction PUDs that do not meet Nations Direct 50% presale requirement

are not permitted

• Condominiums without Homeowner’s Associations are ineligible for financing with Nations Direct

CONDOMINIUM RESOURCES

• VA Pamphlet 26-7, Chapter 16

CONFLICT OF INTEREST Transactions in which the realtor and the originator are the same individual are ineligible.

CREDIT HISTORY

CREDIT INQUIRIES

• Inquiries within the most recent 90 days must be explained in writing, regardless of Total Scorecard

response

o Fully executed Undisclosed Debt Acknowledgement, is required for all loans having four or more inquiries in the most recent 90 days and may be used for all inquiry explanations, regardless of the number

• For purchase transactions of properties located in Florida, borrowers are ineligible for loan approval and/or closing when the credit report indicates four or more mortgage credit inquiries in the most recent 90 days

REFER RESPONSES – CREDIT EXPLANATIONS

• All “refer” response loans with derogatory credit data must contain a credit explanation letter at time

of initial submission. The following must be explained:

o Late payments within the most recent two years o Collections, chargeoffs, judgments, and public records, regardless of time

frame o Inquiries within the most recent 90 days


, 2014



NO CREDIT SCORE

• Nations Direct requires a minimum credit score of 600 for conforming balance, 700 for high balance (1 unit). Borrowers with no credit score are not eligible.

• Non-traditional credit cannot be used to offset poor credit, regardless of whether or not a credit score exists

FORECLOSURES

• Foreclosures require a mimimum of 2 years seasoning, with DU approve/eligible. • – The foreclosure time frame is measured form the foreclosure completion date, regardless of

whether the home was also included in a bankruptcy • Defaulted time-share loans are considered foreclosures • No 30 day late payments or derogatory credit is acceptable from the date the foreclosure was filed.

LOAN MODIFICATIONS AND/OR RESTRUCTURED LOANS

• No restriction, follow VA guidelines.

SHORT SALES

• Short sales require a mimimum of 2 years seasoning, with DU approve/eligible.

SHORT REFINANCE TRANSACTIONS

• The borrower may not consolidate more than the existing mortgages, and the borrower may not receive more than $500 cash back at closing. Any cash received by the borrower at closing must be the result of documented overages and may not be financed into the maximum mortgage calculation

• The borrower(s) must be current on the existing mortgage(s) • The borrower must have insufficient equity in the property to refinance the total loan payoff and/or

have experienced a reduction in income and no longer have the capacity to repay the existing debt • The existing servicer may not execute a subordinate or unsecured lien for the difference between

the existing balance and the short payoff • The borrower(s) may not have had a previous bankruptcy or foreclosure • Copies of the three most recent canceled checks for the mortgage payment and indicating all three

payments were made within the month due are required • A copy of a specific written principal reduction agreement between the borrower and existing lender

and referencing the property address and lien being paid off is required

CHAPTER 7 BANKRUPTCIES

• Chapter 7 bankruptcies require mimimum of 2 years seasoning, with DU approve/eligible. • Borrowers with a previous bankruptcy must have re-established credit.

CHAPTER 13 BANKRUPTCIES

• Must document at least one year into the payout plan has elapsed • Must document satisfactory payment history • Must obtain court permission to enter into new mortgage • When the bankruptcy is still in repayment, include Chapter 13 payment in the debt ratio


, 2014



• If the borrower has satisfactorily completed the repayment, the borrower is considered to have re-established credit

CREDIT COUNSELING

• The following documentation is required if veteran entered credit counseling after becoming

delinquent on one or more obligation. However, if borrower entered into credit counseling prior to incurring delinquent credit, credit counseling is treated as a neutral or positive factor.

o Must document at least one year into the payout plan has elapsed o Must document satisfactory payment performance o Must document the debts/trade lines included in the payment plan o Must obtain counseling agency permission to enter into new mortgage

JUDGMENTS

• Judgments must be paid in full prior to closing unless the borrower is in a re-payment plan –

Provide the following:

o Fully executed repayment agreement o Evidence timely payments have been made (Evaluated on a case-by-case basis generally

for a minimum of a 12-month period) - Payment must be included in ratios when qualifying borrower

• Judgments belonging to a non-purchasing spouse in a community property state are subject to all of the above requirements

DEFAULTED CAIVRS NUMBERS

• Credit Alert Interactive Voice Response System (CAIVRS) verification required for all borrowers o If you do not have access to FHA’s CAIVR system, fax or e-mail VA CAIVRS

Authorization, to the number or address listed on the form

• If the borrower is currently delinquent on any federal debt, VA mortgage, Title I Loan, Federal student loan, SBA loan, Federal taxes or has a lien against the property for debt owed to the United States, the borrower is not eligible until the delinquent account is brought current or satisfactory payment arrangements have been made. If the debt owed to the federal government is a judgment lien against the property, it must be satisfied.

CREDIT REPORTS

AGE OF CREDIT REPORTS

• All credit reports must be tri-merge credit reports or Residential Mortgage Credit Reports • Credit reports must be dated within 60 days of underwriting and must be dated within 120 days of

the note • To achieve Nations Direct and VA’s minimum credit requirements, a new credit report may be re-

pulled after a borrower has repaired derogatory credit, and Nations Direct will honor the new credit score.

• The following credit report discrepancies require a new credit report: o Social Security number is incorrect o Last name is incorrect o Middle initial is incorrect o Misspelled first names and/or missing or incorrect suffixes (Jr./Sr.) require a new credit


, 2014



report unless the name variation appears in the AKA section of the credit report

DE CUSTOMERS ONLY

• Credit report must contain Office of Foreign Assets Control (OFAC) screening

CREDIT SCORES

DEBT-TO-INCOME RATIO ≤ 60%

• All borrowers must have a minimum credit score of 620

• Purchases, and Cash-Out transactions through which the borrower does not receive cash back

and/or consolidate non-mortgage debt: o Attached/ detached SFRs, PUDs, Condo’s, and 2-4 units

• Cash-out refinance transactions through which the borrower receives cash back and/or

consolidates non-mortgage debt:

o Single-family residences only o 2-4 unit properties are ineligible o LTV ≤ 100%

DECLINING MARKETS At this time, there are no declining market restrictions

DISCLOSURES/FORMS

REQUIRED DISCLOSURES AND FORMS

• Refer to Government Forms and Disclosures, • A fully-executed VA Origination Statement, itemizing all of the fees from lines 801 and 1101 and

all of the credits in section 200 of the HUD-I Settlement Statement is required

DOWN PAYMENT

• No minimum down payment or cash investment required unless: o veteran’s available entitlement is less than 25% of the total loan amount, including funding fee

or o Co-borrower is not a veteran or the spouse of the veteran borrower

DOWN PAYMENT ASSISTANCE

• Government Entities – VA approval not required when administered by state, county or municipal


, 2014



government • Private Entities – Regional Loan Center review and approval required. Submit the following documents

to the Regional Loan Center having jurisdiction over the state in which the property is located:

o Program description o Samples of all documents

• Regardless of source of down payment assistance, only grant funds may be used to pay the difference between purchase price and appraised value if the purchase price exceeds the appraised value – secondary financing, including a silent second is not permitted for the difference between sales price and appraised value

• Down payment assistance funds are typically wired to the closing agent – Wire transfer documentation must be included in the file prior to funding or purchase

• All community second and grant programs must be Nations Direct-eligible

DOWN PAYMENT ASSISTANCE RESOURCES

• VA Circular 26-08-14 – VA Acceptance of Homebuyer Assistance Programs

ELECTRONIC SIGNATURES

ELIGIBLE DOCUMENTS

• Origination documents and disclosures • Appraisal

INELIGIBLE DOCUMENTS

• Purchase agreement • Power of attorney • Closing documents

EMPLOYMENT/INCOME

INCOME DOCUMENTATION

• Income documentation requirements for AUS “approve” or “accept” responses and for manually underwritten loans are listed in VA Pamplet 26-7, Section 8, Documentation for Automated Underwriting Cases

• If the property is located in a presidentially declared disaster area, and the disaster was declared by the President prior to the loan closing, the underwriter must determine the borrower remains employed and income has not declined as a result of the disaster or any other factors

NON-MILITARY INCOME

• Borrowers with non-military employment must have a two-year history of employment prior to application

o Verify all employment within the most recent two years


, 2014



CURRENT EMPLOYMENT < 12 MONTHS

• Current employment less than 12 months is generally not considered stable and reliable. The

following must be evaluated:

• Employer’s written statement of the probability of continued employment, if provided • Applicant’s training and/or education related to the duties of the current position – This

generally applies to skilled positions: nurses, medical technicians, lawyers, paralegals, computer systems analysts, etc.

• Underwriter must provide justification in writing on the Loan Analysis, VA Form 26-6393 for use of income from a borrower employed by his or her current employer less than 12 months

JOB CHANGES

• Frequent job changes for career advancement in the same or related field are acceptable – Borrower should be employed by current employer for the most recent 12 months unless there is strong justification provided by the employer for use of income

• Frequent job changes from one field to another and/or that do not improve the borrower’s position

are not acceptable without strong justification. Underwriter explanation must accompany the file

MATERNITY LEAVE

• A borrower’s regular, stable income may be considered as acceptable income when a maternity leave occurs. The employer must state in writing on their letterhead that the borrower’s employment and wages will not be adversely affected and will be available when the borrower returns to work. The borrower must state in writing his or her intent to return to work.

ACTIVE-DUTY MILITARY INCOME

• Obtain borrower’s Leave and Earnings Statement (LES) • ETS (Expiration of Term of Service) date must be at least 12 months after loan closing. If ETS date

is within 12 months of closing date, one of the following is required: o Documentation that active-duty service personnel has re-enlisted or extended period

of active duty beyond 12 months after closing o A written statement from active-duty service personnel that he or she intends to re-enlist or

extend period of active duty 12 months beyond closing and a written statement from commanding officer stating active-duty service personnel is eligible to re-enlist and commanding officer has no reason to believe re-enlistment will not be granted

o Evidence of a valid offer of local civilian employment following release from active duty

– Employer must document the following: � Date employment will begin

� Earnings, etc. • If the ETS field on the Leave and Earnings Statement reflects “9999,” evidence of 12 months

remaining enlistment must be obtained from the veteran’s commanding officer • Leave and earnings statements for officers will not have a date in the ETS field. The ETS field will

be blank or contain “XXXX” - No documentation of remaining length of service is required • In addition to base pay, active-duty military personnel receive various allowances and pays –


, 2014



allowances and pays may be included in income calculation when they are expected to continue due to the military personnel’s duty assignment

o Allowances are non-taxable (clothing allowance is reflected on LES as an annual figure – divide by 12 to determine monthly amount)

o Pro-pay, combat pay, etc. are taxable

COMMISSION

• Averaged over two years • Obtain the following documentation:

o Most recent two years’ signed and dated tax returns, including all schedules

� Borrower’s unreimbursed business expenses from Schedule A of IRS Form 1040 must be deducted from the gross commission before averaging the commission

income o Verification of employment or other written verification of YTD commissions, pay structure

(salary plus commission, straight commission, or draws against commission), and when commissions are paid

• Commission income received less than two years may only be considered when the borrower has previous related employment and/or extensive training

• Commissions received less than one year are generally not allowable

EDUCATIONAL ASSISTANCE

• May not be used as effective income

OVERTIME/BONUS/PART-TIME EMPLOYMENT/SECOND JOB

• Acceptable when received two years and income is regular and predictable – Income is calculated by averaging the income over the most recent two years

• If received between 12 and 24 months, may be used to offset debts with 10 to 24 months remaining

RECENTLY DISCHARGED VETERANS

• Employment Income o If applicant is employed less than 12 months in current position and does not have related

experience and/or education or training, obtain a statement from employer that verifies applicant is performing job duties satisfactorily and probability of continued employment is favorable

o Underwriter must provide justification for use of income from a borrower employed by his or

her current employer less than 12 months

RESERVE/NATIONAL GUARD INCOME

• May be used when the expiration date of the applicant’s current contract indicates a strong probability that the reserve/guard income will continue

• Underwriters must consider whether income for Reserve/National Guard borrowers is subject to

change due to activation o If the income will be reduced, consideration must be given to applicant’s ability to repay the

loan during activation o If income will increase, consideration must be given to applicant’s ability to repay the loan

once activation is terminated


, 2014



SELF-EMPLOYMENT

• Averaged over two years • Obtain the following documentation:

o Year-to-date profit and loss and balance sheet for the business – Required if an AUS “refer” response is received for a loan originated > seven months from the business’ fiscal year end

o Most recent two years’ signed and dated personal tax returns o Most recent two years’ signed and dated business or corporate returns, including all applicable

schedules and list of stockholders or partners showing percentage of ownership – Refer to findings for AUS “approve” or “accept” response requirements

o Business credit report as needed

• Self-employment income received less than two years may be considered when borrower has previous related employment and/or extensive specialized training

• Self-employment income received less than one year is ineligible

ENERGY EFFICIENT MORTGAGES/IMPROVEMENTS • Not allowed

ENTITLEMENT/GUARANTY

• Veteran’s available entitlement is the amount of the loan VA will guarantee • Investors require at least a 25% guaranty

o May consist of veteran’s available entitlement only, if available entitlement ≥ 25% of the loan amount, including the financed funding fee and the co-borrower is the veteran’s spouse and/or a veteran

o For purchase transactions, may consist of combination of the veteran’s available entitlement and down payment, provided the sum of the veteran’s available entitlement plus down payment ≥ 25% of the loan amount, including the financed funding fee

o For refinance transactions, may consist of a combination of the veteran’s available entitlement, existing equity and/or down payment, provided the total is ≥ 25% of the loan amount, including the financed funding fee

o Veterans without any available entitlement are ineligible for VA loans, regardless of the amount

of the down payment or equity in the property

BASIC ENTITLEMENT

• All veterans receive $36,000 basic entitlement • Remaining basic entitlement is shown on veteran’s Certificate of Eligiblity – Will be $0 to $36,000,

depending on the amount of outstanding un-restored entitlement used • Provides veteran with VA guaranty for loan amounts ≤ $144,000 • May be used multiple times (see restoration of entitlement below) • May be combined with bonus entitlement for loan amounts > $144,000

ADITIONAL OR BONUS ENTITLEMENT

• Amount depends on VA County Loan Limits – For a list of high cost counties, refer to 2011

VA County Loan Limits for High Cost Counties


, 2014



o If the county in which the property is located is not listed on the High Cost Matrix, the county

limit is $417,000 • Additional or bonus entitlement is calculated using the following formula: (County maximum limit X

25%) - $36,000 = additional or bonus entitlement (i.e. If the county maximum is $417,000 X 25% = $104,250. $104,250 minus $36,000 = $68,250. $68,250 is the additional or bonus entitlement)

• May be combined with basic entitlement for loan amounts > $144,000 • May not be used for loan amounts ≤ $144,000 • May be used for loan amounts > $144,000, even when there is no basic entitlement remaining

RESTORATION OF ENTITLEMENT

• Previously used entitlement may be restored only when the VA loan is paid in full and title has been

transferred to a new owner o A one-time exception to the transfer of title requirement may be granted by VA when the VA

loan is paid in full but the veteran still owns the property to which entitlement was charged

• To obtain restoration of entitlement, submit the following documents to the VA Eligibility Center: o Fully executed Request for Certificate of Eligibility, VA Form 26-1880 o Evidence prior loan was paid in full (HUD-I statement, etc.) o Previous certificates of eligibility, if available

• Borrower who had a previous foreclosure must pay the foreclosure in full before entitlement may be

restored o A borrower who had a previous VA foreclosure may use remaining available entitlement,

subject to meeting all underwriting guidelines, including clear CAIVR response

• Entitlement charged to the subject property is simultaneously restored and re-used for refinance transactions

• Simultaneous restoration of entitlement is permitted when a veteran is purchasing a new home and

the sale of his or her existing VA guaranteed residence will close within seven days of the new purchase – A fully executed Request for Certificate of Eligibility, VA Form 26-1880 is required

ENTITLEMENT RESOURCES

• VA Pamphlet 26-7 – Chapter 2 • VA Guaranty Calculation Examples

ESCROWS

• Escrow waivers not allowed • Property tax escrows for new construction properties may be calculated based on the fully assessed

property value – Obtain actual tax amounts from the local assessor’s office • For new construction properties and purchases of properties located in California only, property taxes

may be calculated using the higher of 1.25% of the appraised value of the property or the actual tax rate

BANK-OWNED PROPERTIES

• Repair escrows not permitted – Refer to VA Circular 26-09-5 – VA Appraisal Requirements

on Foreclosed Properties


, 2014



FUNDING FEE

• Most veterans pay a VA funding fee – The amount of the funding fee is determined by the following

veteran and/or loan characteristics:

o Type of military service (Regular Military or National Guard/Selected Reserve) o Down payment amount, if any on purchase transactions – For the purposes of calculating the

funding fee on purchases, the LTV is calculated by dividing the base loan amount by the purchase price, regardless of the appraised value. While this calculation includes transactions where the appraised value is less than the purchase price, the maximum base loan amount is 100% of the lesser of the purchase price or appraised value

o Loan purpose (purchase, cash-out refinance, IRRRL) o First time or subsequent use of entitlement

• The following borrowers are exempt from paying the VA funding fee: o Veterans currently receiving service-connected disability income o Veterans who were in receipt of disability compensation or who received military retirement

compensation instead of disability compensation but are now receiving active-duty pay due to re-enlistment or being recalled to active duty

o Veterans receiving pension in lieu of service-connected disability income o Veterans who previously received service-connected disability income

o Un-remarried surviving spouses of veterans who died as the result of service-connected injuries

� If the borrower indicates any of the statements above are true, and the Certificate of Eligibility states “Contact RLC” in the “Funding Fee” field, the VA regional loan center having jurisdiction over the state in which the property is located makes the funding fee exemption determination upon review of Verification of VA Benefits, VA Form 26-8937

� If the Certificate of Eligibility states “Exempt” or “Non-Exempt” in the “Funding Fee” field, and the comments section instructs the lender fax a copy of Verification of VA Benefits, VA Form 26-8937, fax the fully-executed form to the Regional Loan Center having jurisdiction over the property location

• Funding fee is a percentage of the base loan amount o For joint loans on which the co-borrower is not the veteran’s spouse, the funding fee is

calculated using the veteran’s portion of the loan o For joint loans on which two or more veterans use entitlement, each funding fee is calculated

separately for each veteran’s portion of the loan

• Funding fee may be financed and must be included when calculating the 25% guaranty requirement o If the veteran does not finance the funding fee, guaranty requirement is 25% of the loan amount,

excluding the funding fee and the funding fee is not considered in the guaranty requirement

• Funding fee is non-refundable

FUNDING FEE TABLES

Purchase Transactions

Type of Veteran Down Payment First-Time Use % Subsequent Use %

None to < 5% 2.15% 3.30%

Regular Military 5% to < 10% 1.50% 1.50%

≥ 10% 1.25% 1.25%

Reserves/National None to < 5% 2.40% 3.30%

5% to < 10% 1.75% 1.75%

Guard

≥ 10% 1.50% 1.50%


, 2014



Disabled Veteran N/A Exempt Exempt

GEOGRAPHIC RESTRICTIONS

COMMUNITY PROPERTY STATES

• The following states are community property states: • Alaska • Arizona • California • Idaho • Louisiana • Nevada • New Mexico • Texas • Washington • Wisconsin

• Debts of non-purchasing spouses must be counted in the borrower’s qualifying ratios o Underwriters must base the credit decision, in part, on the non-borrowing spouse’s credit

history o Derogatory items on the non-borrowing spouse’s credit report are evaluated on a case-by-

case basis o VA permits consideration of the non-borrowing spouse’s income when debts are being

included in the ratios and the property is located in a community property state – The income is not run through automated underwriting

ARIZONA

• Termite inspection required • Attached new construction condominiums and PUDs are ineligible

CALIFORNIA

• Termite inspection required • Property taxes for purchases and new construction properties may be calculated using the higher of

1.25% of the purchase price of the property or the actual tax rate


, 2014



COLORADO

• Termite inspection not required* • Net Tangible Benefit Worksheet required – Community banks are exempt from State form

requirement • In Colorado, HOA Association Assessments have a “super-lien” position over the first mortgage.

For both condominiums and PUDs, provide the following prior to closing: o A copy of the HOA by-laws indicating HOA assessments are subordinate to the first lien or o A subordination agreement executed by a representative of the HOA indicating that all

current and future HOA assessments are subordinate to the first lien mortgage

GEORGIA

• Termite inspection required

HAWAII

• Termite inspection required • Properties located in Lava Flow Zones 1 and 2 are not allowed • Properties located in Lava Flow Zone 3 are allowed

IDAHO

• Termite inspection not required*

INDIANA


MARYLAND

• Net Tangible Benefit Worksheet required • Termite inspection required

MASSACHUSETTS

• Net Tangible Benefit Worksheet required • Termite inspection required • If property has an individual sewage disposal system (septic tank, etc.), evidence the system meets

the Massachusetts Department of Environmental Protection Title 5 standards must be provided by the local health authority

MICHIGAN

• Termite inspection required if property is located in one of the following counties: Allegan, Barry, Berrien, Branch, Calhoun, Cass, Hillsdale, Ionia, Jackson, Kalamazoo, Kent, Lenawee, Livingston, Macomb, Mason, Monroe, Muskegon, Oakland, Oceana, Ottawa, St. Clair, St. Joseph, VanBuren, Washtentaw, Wayne*

• Copy of the builder’s license is required for all proposed, under construction or new construction

properties

MINNESOTA


, 2014




MONTANA


NEVADA

Nevada version of Net Tangible Benefit Worksheet required

Termite inspection required

OHIO

• Termite inspection required • Net Tangible Benefit Worksheet required

OREGON


TENNESSEE


TEXAS

• Primary Residences (“Homestead Properties”): Purchases and rate-term refinances only: Cash-out refinance transactions not allowed

• Borrower may not receive any cash back on an IRRRL transaction • Termite inspection required • Manufactured homes not allowed

UTAH


WASHINGTON

• Termite inspection is generally not required, however, if the appraiser requires a termite inspection,

Washington State requires the Washington State Pest Association form or an addendum to the NPMA-33 form that identifies rot and conditions conducive to rot*

*While rare, if local building codes require a termite inspection or the appraiser notices infestation,

a termite inspection is required in states and/or counties where a termite inspection is generally not

required.

GIFT FUNDS

ELIGIBLE GIFT DONORS

• Borrower’s relative o Gifts are an ineligible source of funds to close for borrowers purchasing new construction


, 2014



condominiums located in Florida

INELIGIBLE GIFT DONORS

• Any person or entity with an interest in the sale of the property, such as the seller, real estate agent

or broker, builder, or any entity associated with any of the above

GIFT DOCUMENTATION

• Fully executed gift letter – For an acceptable gift letter • Evidence of donor’s withdrawal of funds (e.g. Copy of donor’s cancelled check, bank statement or

bank-validated withdrawal slip) • Cash-on-hand is not an acceptable source of donor’s gift funds • Evidence of deposit into borrower’s account • Excess gift funds may not be considered as reserves but may be considered as a compensating

factor • All gift fund documentation must be satisfied prior-to-closing

GIFT OF EQUITY

• Only family members may provide equity credit as a gift on a property being sold to other family

members

INSURANCE

CONDO FIDELITY INSURANCE

• For projects having 20 or more units, provide evidence of Fidelity (employee dishonesty) coverage in an amount that is at least three months of the project’s HOA assessments. The HOA must be named as the insured.

HO-6 POLICY

• Required for all attached units, including PUDs, unless the master condo policy includes interior unit coverage – Master policy must include replacement of improvements and betterment coverage to cover any improvements made to the unit

• HO-6 policy that covers fixtures, equipment, and other personal property inside individual units is required unless the master policy meets all guides stated above

• Must be ≥ 20% of the unit’s appraised value • HO-6 Policy applies to PUDs that have any coverage maintained under a master policy

JOINT LOANS • Veteran and veteran’s spouse who is not a veteran

o Funding fee is calculated by multiplying the applicable funding fee factor by the base loan amount

o No down payment is required, provided veteran has sufficient remaining entitlement to guaranty 25% or more of the total loan amount, including the financed funding fee

• Veteran and veteran’s spouse who is also a veteran o Veterans may use one or both entitlements

� Funding fee calculation is based on whether entitlement is being used from one or both


, 2014



borrowers

• Only one spouse uses entitlement – Funding fee is calculated by multiplying the applicable funding fee factor by the base loan amount

• Both spouses use entitlement – Funding fees are calculated by multiplying the

applicable funding fee factor for each spouse by half of the base loan amount

o Nations Direct issues loan approval, even when both veterans use entitlement o No down payment is required, provided one or both veterans have sufficient remaining

entitlement to guaranty 25% or more of the total loan amount, including the financed funding fee o VA will not guaranty > 25% of the loan limit for the county in which the property is located,

regardless of the veterans’ combined available entitlement

• Multiple veterans who are not married to one another o Veterans may use entitlement from one or more of the veterans. However, VA will guaranty

only the portion(s) of the loan for veteran(s) who are using entitlement. The loan will require a down payment that, when combined with the VA guaranty, is ≥ 25% of the loan amount, including the financed funding fee

o All veterans must occupy the property, regardless of whether they are using entitlement o Funding fees are calculated by multiplying the applicable funding fee factor for each veteran

who is using entitlement by his or her portion of the base loan amount o Prior loan approval by the VA regional loan center having jurisdiction over the property is

required o No down payment is required, provided all veterans use entitlement and have sufficient

remaining entitlement to guaranty 25% or more of their portion of the total loan amount, including the financed funding fee

o VA will not guaranty > 25% of the loan limit for the county in which the property is located, regardless of the veterans’ combined available entitlement

o The federal government currently does not recognize the domestic partnership in the same

manner as a married veteran. This would be considered a joint loan (vet/non-vet) and we will

only guaranty the veteran’s portion of the loan. It must be submitted for prior approval.

• Veteran(s) with non-veteran co-borrowers • VA will guaranty only the veteran’s portion of the loan

� If there are two borrowers (one is a veteran and the other is not), the VA guaranty will not exceed 25% of half of the loan – In an example where the loan amount is $200,000 and assuming the veteran has sufficient remaining entitlement, VA will guaranty no more than $25,000 (half of $200,000 is $100,000. 25% of $100,000 is $25,000)

o Funding fees are calculated by multiplying the applicable funding fee factor for the veteran by his or her portion of the base loan amount

o Down payment required Combination of down payment and VA guaranty must be ≥ 25% of the total loan amount, including the financed funding fee – Using the example above, 25% of the total loan amount is $50,000 and the amount VA will guaranty is $25,000 – borrowers must make a $25,000 down payment

o Prior loan approval by the VA regional loan center having jurisdiction over the property is required

o Veteran’s income must be sufficient to repay the veteran’s portion of the property � Using the example above, the veteran’s portion of the loan is 50% or $100,000 –

Veteran’s income must be sufficient to repay $100,000


, 2014



LAND CONTRACTS

• Loans to refinance the unpaid balance of a land contract are acceptable. o Maximum loan amount is the lesser of the appraised value or the existing balance plus

allowable closing costs, discount points and funding fee o Borrowers receive no cash at closing

LIABILITIES

• The following items must be included in the borrower’s ratio: o

PITI for subject property � If the borrower subordinates a HELOC, the monthly payment is calculated using

the higher of the maximum accessible line of credit or existing balance

o All other real estate debts, including taxes and insurance for properties owned free and clear o Installment debts o Revolving debts

� Revolving debt paid off or significantly paid down prior-to or at closing may be excluded

from the ratios, provided all of the following requirements are met:

• The borrower may not have had any late payments on revolving or installment debt in the most recent 24 months

• The borrower may not have had any judgments, public records or collections, other than medical, in the most recent 24 months

• Gifts may not be used to pay off revolving debt for qualification purposes • If the borrower has any of the derogatory items listed above, the revolving debt

must be included in the ratio and residual income calculations, regardless of whether the account will be paid off, paid down and/or closed prior-to or at closing

o Auto leases, regardless of remaining term

o Child support o Alimony o Child care expenses for all children ≤ 12 years of age – Child care expenses may be excluded

when borrowers meet one of the following criteria:

� Spouse does not work or � Spouse works part-time or

� Spouse works full-time but provides proof that there are no child care expenses o Union dues and employment related expenses

o Significant commuting expenses

• In a community property state - debts of non-purchasing spouses must be counted in the borrower’s qualifying ratio

o Underwriters must base the credit decision, in part, on the non-borrowing spouse’s credit history

� All derogatory items on the non-borrowing spouse’s credit report are evaluated on a case-by-case basis

� VA permits consideration of the non-borrowing spouse’s income when debts are being included in the ratios because the property is located in a community property state – The income is not run through automated underwriting

EXCLUDED LIABILITIES


, 2014



• The following items may be excluded from the ratio: o Installment debts with fewer than ten payments remaining, provided they do not have a

severe impact on the family’s ability to make payments on the obligation o 401k loans o Student loans that are deferred more than 12 months after closing o Co-signed debts with the following documentation:

� Evidence payments have been made in a timely manner for 12 months

� Evidence payments have been made by the person for whom the borrower co-signed

� If the person making the payments is not a borrower on the co-signed debt,

the payment must be included in the ratio and residual income calculation

LOAN PURPOSE

PURCHASE

• 1-4 Unit owner-occupied properties

CASH-OUT REFINANCE

• Borrower pays off existing mortgage debt and finances closing costs, pre-paid expenses and/or discount points but does not receive more than $500 cash back or consolidate non-mortgage debt – 1-4 unit owner occupied property

• Borrower consolidates non-mortgage debt and/or receives cash back at closing – Single family

owner occupied properties only

LOAN TERM

FIXED RATE MORTGAGES

• 30-year fixed rate mortgages with or without 1-0 or 2-1 buydown (buydowns are temporarily

ineligible)

LTV/CLTV

PURCHASES

• LTV – Base loan amount may be up to 100% of the lower of the purchase price or appraised value. Entitlement plus down payment, if any, must be sufficient to guarantee at least 25% of the total loan amount, including the financed funding fee

• Minimum credit score for all borrowers is620.

• CLTV – 100% of acquisition cost – purchase price plus closing costs, pre-paid expenses and

discount points o Copies of the fully executed note and mortgage are required at closing and must be

provided prior to funding or loan purchase


, 2014



CASH-OUT

• LTV: o Base loan amount may be up to 100% of the appraised value. Entitlement plus

property equity must be sufficient to guaranty at least 25% of the total loan amount, including the financed funding fee – See the “Rental Income” section of this document for 3-4 unit property restrictions.

o Borrower receives cash-back and/or consolidates non-mortgage debt and loan to value is < = 75%, the minimum credit score is 660.

o Borrower receives cash back and/or consolidates non-mortgage debt and loan to value is ≥ 75% , the minimum credit score 720.

o Secondary liens being paid off through the VA refinance must be seasoned at least 12 months and may not have had any draws totaling $1000 or more in the most recent 12 months or the transaction will be considered one in which the borrower consolidates non-mortgage debt. However, if all draws in the most recent 12 months were used for documented home improvements, the transaction will not be considered consolidation of non-mortgage debt

• CASH OUT OVER 90% LTV:

o Minimum of six (6) months residing in the subject property. o No mortgage lates in last 12 months. o Cashout Refinance over 90% LTV/CLTV requires a DU Approve/Eligible. o LTV/CLTV over 90% is calculated in the base loan amount when proceeds are used to pay

off existing liens (1st & 2nd mortgages, non-purchase money 2nds). Proceeds may also be used to for closing costs and pre-paids.

o Max cash in hand is $75,000.

• CLTV � The maximum combined loan to value on cash out refinance transactions is 100%.

MAXIMUM/MINIMUM LOAN AMOUNTS

PURCHASES

• Single Family Residence o Borrowers with credit scores ≥ 620 – Maximum base loan amount is the lesser of $729,750

or 100% of the lesser of the purchase price or appraised value – If veteran does not have full entitlement remaining, and/or loan exceeds VA’s county loan limit, down payment is required

• 2-4 Unit – Maximum base loan amount is the lesser of $650,000 or 100% of the lesser of the

purchase price or appraised value - If veteran does not have full entitlement remaining, and/or loan exceeds VA’s county loan limit, down payment is required

CASH-OUT REFINANCES

• Single Family Residence o $417,000 or the LTV listed below – If veteran does not have full entitlement remaining,

additional equity may be required o Borrowers with credit scores ≥ 620 – Maximum base loan amount is the lesser of $729,750

or the LTV listed below - If veteran does not have full entitlement remaining, and/or loan exceeds VA’s county loan limit, additional equity may be required

• Borrower does not receive more than $500 cash back and/or consolidate non-


, 2014



mortgage debt – Maximum LTV may be up to 100% of the appraised value. Entitlement plus property equity must be sufficient to guaranty at least 25% of the total loan amount, including the financed funding fee – Refer to the “Rental Income” section of this document for additional 3-4 unit property restrictions

• Borrower receives cash back and/or consolidates non-mortgage debt and credit score is ≥ 620 – Maximum LTV may be up to 100% of the appraised value. Entitlement plus property equity must be sufficient to guaranty at least 25% of the total loan amount, including the financed funding fee

• Secondary liens other than purchase money seconds being paid off through the VA refinance must be seasoned at least 12 months and may not have had any draws totaling $1000 or more in the most recent 12 months or the transaction will be considered one in which the borrower consolidates non-mortgage debt. However, if all draws in the most recent 12 months were used for documented home improvements, the transaction will not be considered consolidation of non-mortgage debt

• 2-4 Units – Maximum loan amount is the lesser of $650,000 or 100% of the lesser of the appraised value - If veteran does not have full entitlement remaining, and/or loan exceeds VA’s county loan limit, additional equity may be required

o Borrower may not receive cash back and/or consolidate non-mortgage debt

LOAN AMOUNT RESOURCES

• 2011 VA County Loan Limits for High Cost Counties • VA Guaranty Calculation Examples

MINIMUM PROPERTY REQUIREMENTS All properties must meet the following requirements:

• Must be constructed in compliance with local building codes • Must meet Federal building regulations • Must meet HUD requirements • Must be safe, structurally sound, sanitary and habitable • Must meet the standards considered desirable in a permanent home in its locality

PROPERTY RESOURCES

• VA Pamphlet 26-7, Chapter 10 • VA Pamphlet 26-7, Chapter 11 • VA Pamphlet 26-7, Chapter 12 • VA Pamphlet 26-7, Chapter 13

MORTGAGE INSURANCE

• None required, regardless of LTV

MULTIPLE PROPERTIES/VA LOANS • The maximum number of properties financed by the borrower is two(inclusive of the subject) • Veteran is required to occupy the subject property when financed as VA purchase or cash-out refinance


, 2014



transaction – o Veteran must either occupy the home at the time of closing or certify that he or she will occupy

within 60 days of loan closing � The veteran’s spouse who occupies the home satisfies the occupancy requirement when

the veteran cannot occupy the home due to active-duty assignment � Active-duty veterans must occupy within 12 months of loan closing � Veterans who will retire within 12 months of loan closing satisfy occupancy requirement

when the following is presented:

• Copy of veteran’s application for retirement submitted to current employer (must indicate a retirement date within 12 months of loan closing)

• Evidence borrower will meet ratio and residual income requirements using post-

retirement income

NEAREST LIVING RELATIVE

• Borrower must provide the name, address and phone number of the his or her nearest living relative

Obtained at closing on Report and Certification of Loan Disbursement, VA Form 26-1820

NET TANGIBLE BENEFIT A net tangible benefit form must be completed when required by the state. The following states currently

require a fully-executed net tangible benefit form: • Colorado • Maryland • Massachusetts • Ohio

NEW CONSTRUCTION Refer to Government Forms and Disclosures, for specific documentation requirements

• VA defines new construction properties as properties that were completed less than 12 months prior to application and were not previously occupied

• No construction draws allowed • Builders must be VA-approved • If a property is less than one year old but being sold by a lender that foreclosed on the builder, VA will

consider the property to be “existing construction,” provided the property is fully completed (Properties that are not completed are ineligible until the lender completes construction)

o Borrower must sign a disclosure containing the following statement: “This property is being purchased as existing construction from a lender that acquired this new construction property from the builder. There is no warranty and VA will provide no assistance with any construction defects.”

o Although new construction documentation is not required, VA requires a copy of the certificate of occupancy or final inspection approval from the local building department

• Refinances of new construction draw loans must be processed and submitted as purchase loans o Funding fee is the appropriate purchase funding fee o Borrowers may not receive cash at closing


, 2014



o Loan amount is the lesser of:

� appraised value plus applicable funding fee or

� Existing balance on construction loan being paid off plus allowable closing costs, including discount points and funding fee

� County maximums apply and veteran must have sufficient remaining entitlement

• Building on own land – Not paying off construction financing o Borrower owns or acquires land separately from builder o Borrower acts as own general contractor o Maximum mortgage is the lesser of

� Appraised value or � Documented acquisition cost of the property (builder’s contract, sub-contactor’s bids,

materials, etc. plus cost of land plus funding fee) � County maximums apply and veteran must have sufficient remaining entitlement

o Borrower may receive cash back for documented cash (canceled checks and paid receipts) paid during construction

NEW CONSTRUCTION RESOURCES

• VA Pamphlet 26-7, Chapter 10 • VA Approved Builder Locator

NON-OCCUPANT CO-BORROWERS • Not permitted

NOTICE OF VALUE The Notice of Value (NOV) is required for all VA loans and is completed by the Staff Appraisal Reviewer (SAR)

within five days of receipt of the appraisal: • The NOV is uploaded to the paperless file by the SAR • VA approved Brokers must provide a copy of the NOV to borrowers within five days of receipt • Indicates appraised value, appraiser’s estimate of remaining economic life and required repairs

o For purchase transactions, the cost of required repairs and inspections must be paid by the seller. This policy applies to all purchases, including purchases of REO properties. VA does not permit the veteran to pay for repairs other than minor termite damage repairs

OCCUPANCY

• Owner-occupied primary residences only • Veteran is required to occupy the subject property for the new VA loan

o Veteran must either occupy the home at the time of closing (cash-out refinances) or certify that he or she will occupy within 60 days of loan closing

� The veteran’s spouse who occupies the home satisfies the occupancy requirement when the veteran cannot occupy the home due to active-duty assignment

� Active-duty veterans must occupy within 12 months of loan closing

� Veterans who will retire within 12 months of loan closing satisfy VA’s

occupancy requirement when the following is presented:


, 2014



• Copy of veteran’s application for retirement submitted to current employer (must

indicate a retirement date within 12 months of loan closing)

• Evidence borrower will meet ratio and residual income requirements using post-

retirement income

POWER OF ATTORNEY VA permits the following Powers of Attorney for active-duty military personnel stationed overseas and other veterans who cannot be present at closing:

• General Power of Attorney o Veteran must sign purchase agreement and initial 1003

• Specific Power of Attorney o Veteran does not need to sign the 1003, purchase agreement or any other application

documents o Specific power of attorney must include all of the following information:

� Entitlement – Must state the veteran intends to use all or a specified amount of entitlement

� Loan Purpose – Must state veteran intends to purchase, construct, or refinance

� Property – Must list address and legal description, if available � Sales Price – Must state the purchase price for the property

� Loan Terms – Must state loan type and term � Occupancy – Veteran must state he or she intends to meet VA occupancy requirements

• Verify veteran is alive and not missing in action on the day of closing for all loans that close with either general or specific powers of attorney – Missing in action certification is not required for veterans who are retired or discharged from the military and therefore not classified as active-duty. However, the alive and well verification is required for retired or discharged veterans who are not on active-duty

o E-Mail, fax or letter from the veteran or o If veteran cannot be reached due to deployment, E-Mail, fax or letter from veteran’s

commanding officer or o If neither veteran or commanding officer can be reached, provide lender certification of

conversation with commanding officer or rear detachment personnel – Include the following information in the lender certification:

� Name and rank/title of VA personnel with whom you communicated � Date of conversation � Method of communication, including phone number, if applicable

• All signatures on the power of attorney must be notarized, and the power of attorney must be reviewed by a Nations Direct underwriter. All signatures must match the signatures in the file

• There must be more than one borrower on the loan and at least one borrower must be present at

closing o POA is not allowed for single borrower transactions.

• Title policy may not include any exceptions related to the POA

POWER OF ATTORNEY RESOURCES

• VA Pamphlet 26-7, Chapter 9 • Power of Attorney Section of Conventional Underwriting Guidelines


, 2014



PROPERTY ELIGIBILITY

ELIGIBLE

• Owner occupancy required for all loans • 1 - 4 units

- 2- 4 units require a minimum credit score of 620 o 2-4 unit properties are ineligible if the loan is a cash-out transaction and the borrower

consolidates non-mortgage debt and/or receives cash back at closing o Cash-out transactions in which the borrower does not receive cash back or consolidate non-

mortgage debt are permitted for 1-4 units

• Condominiums – must be listed as approved on VA Approved Condominium Search Engine • PUDs

o PUDs must have all three of the following characteristics or VA does not consider the project to be a PUD:

� Common areas and

� Mandatory HOA membership and � Mandatory HOA fee

o Homeowner’s assessments must be subordinate to the VA-guaranteed mortgage – For purchase and cash-out refinance transactions provide one of the following items as documentation of HOA assessment subordination:

� PUD by-laws indicating all homeowner’s association assessments are subordinate to mortgage liens or

� Subordination agreement executed by a representative of the homeowner’s association or

� Title commitment stating that the title company will insure over any homeowner’s association assessment liens (due to Colorado’s “super lien” law, title commitments will not insure over HOA assessments in Colorado) or

� Letter on letterhead from the title company indicating that PUD liens cannot take first lien position in the state in which the property is located (not applicable for Colorado)

� 60-Day letters may not be provided in lieu of one of the documents above • Properties having shared wells, subject to the following documentation:

o Recorded shared well agreement that provides irrevocable water rights to the subject property

• Mixed-use properties o Non-residential use may not impair the residential character of the property o Non-residential use, including storage areas or similar spaces that are integral parts of the

non-residential portion of the property, may not exceed 25% of the total floor area

• Leaseholds o Leasehold properties require VA approval prior to ordering the appraisal. Approval is

obtained through the VA Central office – For additional documentation requirements, refer to VA Pamphlet 26-7, Chapter 10.06

o Attorney’s opinion letter stating all warranties are met is required unless leasehold is on Approved Leasehold List,

INELIGIBLE

• Any property where the seller is not the owner of record • 2-4 Unit properties are ineligible for cash out transactions in which the borrower consolidates non-

mortgage debt and/or receives cash back at closing • Second homes


, 2014



• Investment properties • Condotels • Non-owner occupied properties • Manufactured home units in a condominium project • Single-wide manufactured homes • Modular On-Frame properties • Co-ooperatives • Working farms, ranches and orchards • Condominiums without Homeowner’s Associations are ineligible for Nations Direct VA financing • Properties located in a “cancer cluster” or other health hazard area unless the local health authority

provides written certification that the subject property is not affected by the health hazard and the borrower provides a written certification acknowledging the health hazard and its resolution

• Properties having Chinese drywall or properties previously having Chinese drywall, regardless of

any drywall removal and/or efforts to cure the damage

PROPERTY FLIPPING

• Seller must be owner of record • Seller must have owned the property for at least 30 days – Purchase agreement must be executed by

borrower(s) at least 31 days after the seller acquired the property • A second appraisal may be required if the sales prices of the property is more than 20% or

more than the seller’s acquisition cost. • The following sellers are exempt from the 30 day seller seasoning requirement:

• State and Federally chartered financial institutions and government sponsored entities (Fannie Mae and Freddie Mac)

• Sales by HUD of its real estate owned properties • Local and State government agencies • Non-profits approved to purchase HUD REO properties • Sales of properties located in presidentially-declared disaster areas, provided the exemption is

announced by an FHA mortgagee letter • Sales of properties acquired through inheritance – Seller’s inheritance must be documented • Sales of properties acquired by employers or relocation agencies in connection with relocations of

employees • Sales of REO properties by lenders and property disposition firms they hire or with whom they are

affiliated • Builders selling a newly built home or building a home for a borrower • For Profit or non-profit entities that purchase abandoned or foreclosed properties using

Neighborhood Stabilization Program funds are temporarily exempt from the 90-day lock-out period.

� Seller must be a duly incorporated entity

� A copy of the written agreement granting the seller NSP funds is required

PROPERTY INSPECTIONS

TERMITE INSPECTIONS

• Required for properties located in areas where the termite infestation probability is ”very heavy” or “moderate to heavy” according to the Termite Infestation Probability Map published in the


, 2014



International Residential Code – Refer to Geographic Restrictions section for state requirements o Not required for IRRRL transactions

• If the property is a low-rise condo or high-rise condo, the termite inspection is required only if the appraiser notices a potential problem

• Must be signed by the borrower prior-to-closing

WELL INSPECTIONS

• If public or community water and/or sewer is available, hook-up is required unless the VA Regional Loan Center having jurisdiction over the property location grants a waiver

• When required by local codes • Water quality must meet the requirements of the health authority that has jurisdiction over the

property location • If there are no local requirements, water quality must meet the maximum contaminate requirements

set forth by the Environmental Protection Agency • Water test must be performed by the health authority that has jurisdiction over the property location.

If the health authority is unable to complete water analysis in a timely manner, a commercial testing

lab or licensed sanitary engineer acceptable to the health authority may perform the water test

SEPTIC INSPECTIONS

• If public or community water and/or sewer is available, hook-up is required unless the VA Regional Loan Center having jurisdiction over the property location grants a waiver

• When required by local codes • All septic systems must adequately dispose of waste in a safe method that does not create a

nuisance or endanger the public health

PRESIDENTIALLY DECLARED DISASTERS

• If the loan for a property located in a Presidentially declared disaster area closes prior to the date the President declares the disaster, VA will guaranty the loan without regard to the disaster

• If the property is located in a Presidentially declared disaster area and the appraisal is completed prior to the disaster but does not close until after the disaster is declared by the President, all of the following certifications and requirements must be provided prior to closing, funding and/or loan purchase:

o Lender Certification containing the following verbiage: “This is to affirm that the property which is security for VA loan number (insert VA case number) has been inspected to ensure that it was not damaged in the recently declared disaster or has been restored to its pre-disaster condition or better.”

� The certification must be signed and dated by a representative of the Lender and

must provide the signer’s title o Veteran Certification containing the following verbiage: “I have inspected the property

located at (insert full property address) and find its condition now to be acceptable to me. I understand that I will not be charged for any disaster-related expenses and now wish to close the loan.”

� The sentence related to disaster-related expenses is required for purchase transactions only

� The certification must be signed and dated by the veteran o The VA underwriter must make the following comings on the VA Loan Summary, VA

Form 26-0286: “Lender and Veteran Disaster Certifications Enclosed” o If local laws require a property inspection, a copy of the required inspection report meeting


, 2014



local building authority criteria must be included in the loan file o Veterans may not pay for disaster inspections or repairs o If there appears to be any indication of decline in value since the original appraisal was

completed, the VA fee appraiser must update the value on the appraisal.

� The veteran may pay for the appraisal revision o The lender must determine the borrower remains employed and income has not declined as

a result of the disaster or any other factors o Nations Direct requires evidence from a licensed appraiser, home inspector or fee

appraiser verifying all of the following:

� Improvements are still standing and in acceptable condition

� Neighborhood condition � A photograph of the subject property

DISASTER RESOURCES

• FEMA Disaster Website • VA Loan Guaranty Policy Regarding Natural Disasters

STATE AND LOCAL REQUIREMENTS

• Nations Direct will generally rely on the appraiser and realtor (via the sales contract) for

notification of mandatory state or local inspections

CHINESE DRYWALL

• If Nations Direct is made aware that Chinese drywall is currently present or previously existed in the home, we will not approve, fund or purchase the loan, regardless of any drywall removal and/or efforts to cure the damage

PROPERTY INSPECTION RESOURCES

• VA Pamphlet 26-7, Chapter 12

QUALIFYING RATES

FIXED RATE MORTGAGES

• Borrowers are qualified at note rate

RATIO • The following items must be included in the borrower’s ratio:

• PITI for subject loan • All other real estate debts, including taxes and insurance for properties owned free and clear o

Installment debts • Revolving debts

� Revolving debt paid off prior-to or at closing may be excluded from the ratios,

provided all of the following requirements are met:

• The borrower may not have had any late payments on revolving or installment debt in the most recent 24 months

• The borrower may not have had any judgments, public records or collections, other than medical, in the most recent 24 months


, 2014



• Gifts may not be used to pay off revolving debt for qualification purposes • If the borrower has any of the derogatory items listed above, the revolving debt

must be included in the ratio and residual income calculations, regardless of whether the account will be paid off and/or closed prior-to or at closing

• Auto leases, regardless of remaining term o Child support • Alimony • Child care expenses for all children ≥ 12 years of age – Child care expenses may be excluded

when borrowers meet one of the following criteria:

� Spouse does not work

� Spouse works part-time � Proof that there are no child care expenses is provided

• Union dues and employment related expenses • Significant commuting expenses

• In a community property state - debts of non-purchasing spouses must be counted in the borrower’s qualifying ratios

o Underwriters must base the credit decision, in part, on the non-borrowing spouse’s credit history

� Derogatory items on the non-borrowing spouse’s credit report are evaluated on a case-by-case basis

� VA permits consideration of the non-borrowing spouse’s income when debts are being included in the ratios because the property is located in a community property state –

The non-purchasing spouse’s income is not run through automated underwriting

• The following items may be excluded from the ratio: o Installment debts with fewer than ten payments remaining, provided they do not have a severe

impact on the family’s ability to make payments on the obligation o 401k loans o Student loans that are deferred more than 12 months after closing o Co-signed debts with the following documentation:

� Evidence payments have been made in a timely manner for the most recent 12 months and

� Evidence payments have been made by the person for whom the borrower co-signed

� If the person making the payments is not a borrower on the co-signed debt, the payment

must be included in the ratio and residual income calculations

AUTOMATED UNDERWRITING

• Loan receives an AUS “approve” or “accept” response o Loans that receive an automated “approve” or “accept” response may follow the approved

ratio in the findings, subject to underwriter evaluation for data integrity o If the ratio exceeds 41%, residual income must be at least 20% higher than the VA’s

requirement for the loan or supervisory underwriter’s signature and justification is required

DEBT-TO-INCOME RATIO ≤ 60%

• Purchases, and Cash-Out transactions through which the borrower does not receive cash back

and/or consolidate non-mortgage debt:

o Single Family Residences - All borrowers must have a minimum credit score of 600 o 2-4 unit properties – All borrowers must have a minimum credit score of 600 • Non-mortgage debt paid off with the cash-out refinance must be seasoned at least 12

months and there may not have been any draws totaling more than $1000 in the most recent 12 months. Draws > $1000 for documented home improvements are acceptable


, 2014



• Cash-out refinance transactions through which the borrower receives cash back and/or

consolidates non-mortgage debt:

• Single-family residences only • 2-4 unit properties are ineligible • LTV ≤ 75% - All borrowers must have a minimum credit score of 660, and LTV greater than or

equal to 75% requires a minimum credit score of 720.

RECENTLY LISTED PROPERTIES

PURCHASES

• No restrictions – Seller must be owner of record • See Seasoning for seller seasoning requirements

CASH-OUT REFINANCES

• Property must be off the market at least six months prior to application

CASH-OUT REFINANCE – BORROWER DOES NOT RECEIVE CASH BACK OR

CONSOLIDATE DEBT

• LTV < 70% - Property must be off the market at least one day prior to application – Evaluated on a case-by-case basis

• LTV ≥ 70% - Property must be off the market at least three months prior to application

REFINANCE TRANSACTIONS

CASH-OUT REFINANCE TRANSACTIONS

• Any refinance other than an Interest Rate Reduction Refinancing Loan (IRRRL) is classified as a

cash-out refinance, regardless of whether borrower receives cash or consolidates debt

• Nations Directs maximum LTVs and credit scores are based on whether the borrower receives

cash at closing and/or consolidates non-mortgage debt: o Borrower does not receive more than $500 cash back and/or consolidate non-mortgage

debt:

� Maximum LTV – 90%

� Single family residence - All borrowers must have a minimum credit score of 620

� 2-4 unit property – All borrowers must have a minimum credit score of 620 � � Secondary liens other than purchase money seconds being paid off with loan

proceeds must be seasoned at least 12 months and may not have had any draws totaling more than $1000 in the most recent 12 months unless the draws were for documented home improvements

• Borrower receives cash back at closing and/or consolidates non mortgage debt: � Property must be a single-family residence


, 2014



� Credit score ≥ 620 – Maximum LTV 90% • Existing lien of at least $1 required – Property may not be owned free and clear • Short refinance transactions are not permitted if the veteran receives cash back and/or

consolidates non-mortgage debt • Cash-out explanation required • If revolving debt will be paid at close, the most recent statement is required unless the last reported

month on the credit report is within 30 days of the loan closing

• Properties located in Texas:

• Primary Residences (“Homestead Properties”): Rate-term refinances only: Cash-out refinance

transactions not allowed

SHORT REFINANCE TRANSACTIONS

• The borrower may not consolidate more than the existing mortgages, and the borrower may not receive more than $500 cash back at closing. Any cash received by the borrower at closing must be the result of documented overages and may not be financed into the maximum mortgage calculation

• The borrower(s) must be current on the existing mortgage(s) • The borrower must have insufficient equity in the property to refinance the total loan payoff and/or

have experienced a reduction in income and no longer have the capacity to repay the existing debt • The existing servicer may not execute a subordinate or unsecured lien for the difference between

the existing balance and the short payoff • The borrower(s) may not have had a previous bankruptcy or foreclosure • Copies of the three most recent canceled checks for the mortgage payment and indicating all three

payments were made within the month due are required • A copy of a specific written principal reduction agreement between the borrower and existing lender

and referencing the property address and lien being paid off is required

RENTAL INCOME

CONVERTING EXISTING HOMES TO RENTALS

• Single-family residences: o Rental income from the borrower’s current primary residence may be used to offset the

mortgage payment only, provided at least one of the following requirements is met. The income may not be used as effective income. Provide evidence of one of the following:

� The borrower obtains new employment or a job transfer that is not within a reasonable commuting distance of the current primary residence or

� The borrower has a 25% equity position in the current primary residence as evidenced by an appraisal or sales price within the most recent six months. An exterior only appraisal may be used to determine the borrower’s equity position.

o If one or both of the requirements above are met, all of the following documentation is required:

� Fully executed lease agreement (A 25% vacancy factor will be applied to the lesser of the appraiser’s estimate of rent or the actual monthly rent stated on the lease agreement) and

� Evidence of the borrower’s receipt of the security deposit and

� Evidence of the borrower’s deposit of the security deposit to his or her bank account


, 2014



• 2-4 unit properties: o Rental income from the unit the borrower is vacating is not permitted o Rental income may be used from the currently rented units only. Rental income is

calculated using Schedule E of IRS Form 1040 only, regardless of property acquisition date

2-UNIT SUBJECT PROPERTY - PURCHASE

• If rental income is being used to calculate the borrower’s ratio and residual income, the borrower must document previous experience managing rental units and/or property maintenance and rental experience

• If rental income is being used to calculate the borrower’s ratio and residual income, six months reserves from the borrower’s own funds required

• Rental income from the second unit may be used, provided all of the following documentation is

provided: o Fully executed lease agreement – Borrower may provide a copy of the seller’s fully executed

existing lease agreement or a fully executed new lease agreement. If neither an existing or new lease agreement exists, rental income is not permitted

o A 25% vacancy factor will be applied to the lesser of the appraiser’s estimate of

rental income for the unit or the actual rental income stated on the lease agreement o Maximum financing of 100% of the lesser of the purchase price or appraised value is

permitted o All borrowers must have a minimum credit score of 620

3-4 UNIT SUBJECT PROPERTY – PURCHASE



• Loan must receive a Total Scorecard “approve” or “accept” response • Loans that receive a Total Scorecard “error” response due to the absence of credit scores are

ineligible • Minimum credit score – 620 • LTV < 90%:

o Rental income from the non-owner occupied units is permitted, subject to all of the following documentation:

� A fully executed lease agreement and � A 25% vacancy factor will be applied to the lesser of the appraiser’s estimate of rent

or the actual monthly rent stated on the lease agreement and � If the non-owner occupied units are not currently leased, rental income may not be

used for qualification

• LTV 90- 100%: o The borrower must qualify with the full PITI. Rental income from the units the borrower will

not occupy may not be used

2 UNIT SUBJECT PROPERTY – CASH-OUT TRANSACTION AND VETERAN DOES NOT

RECEIVE CASH BACK AND/OR CONSOLIDATE NON-MORTGAGE DEBT • Property was acquired during the previous calendar year or earlier - Rental income is calculated

using Schedule E of IRS Form 1040 unless the loan is being underwritten prior to April 15 of the


, 2014



calendar year after property acquisition • Lease agreements may be used to calculate rental income only if the property was acquired during

the current calendar year or the loan is being underwritten prior to April 15 of the calendar year after property acquisition

o Fully executed current lease required o 25% vacancy factor applies o If the second unit is not currently leased, rental income may not be used



• Maximum LTV – 90%

3-4 UNIT SUBJECT PROPERTY – CASH-OUT TRANSACTION AND VETERAN DOES NOT

RECEIVE CASH BACK AND/OR CONSOLIDATE NON-MORTGAGE DEBT • The loan must receive a Total Scorecard “approve” or “accept” response • Loans that receive an “error” response due to the absence of credit scores are ineligible • Minimum credit score – 620 • LTV < 90%:

o Rental income from the non-owner occupied units is permitted, subject to all of the following documentation:

� Property acquired in current calendar year:

• A fully executed lease agreement and • A 25% vacancy factor will be applied to the lesser of the appraiser’s estimate

of rent or the actual monthly rent stated on the lease agreement and • If the non-owner occupied units are not currently leased, rental income may

not be used for qualification � Property acquired in previous calendar years:

• Rental income from the units the borrower does not occupy is calculated using Schedule E of IRS Form 1040. Lease agreements may not be used to calculate rental income from properties acquired in previous calendar years

ADDITIONAL INVESTMENT PROPERTIES OWNED BY THE VETERAN – NOT THE

SUBJECT PROPERTY • 1-2 Unit Properties

o One to two unit properties acquired during the current calendar year – Rental income must be documented with all of the following items:

� Fully executed lease agreement(s) between the borrower and the renter(s)

� A 25% vacancy factor will be applied to the rental income stated on the lease agreement(s)

� If the units are not currently leased, rental income may not be used for qualification � Rental income from properties acquired during previous calendar years must be

calculated using Schedule E of IRS Form 1040 � Additional conditions may apply � If rental income is being used to calculate the borrower’s ratio and residual income,

the borrower must document previous experience managing rental units and/or property maintenance and rental experience


, 2014



� If rental income is being used to calculate the borrower’s ratio and residual income,

three months reserves from the borrower’s own funds required

• 3-4 Unit Properties o Rental income is calculated using Schedule E of IRS Form 1040 only, regardless of property

acquisition date o If rental income is being used to calculate the borrower’s ratio and residual income, the

borrower must document previous experience managing rental units and/or property maintenance and rental experience

o If rental income is being used to calculate the borrower’s ratio and residual income, three months reserves from the borrower’s own funds required

RESIDUAL INCOME Residual income is the amount of cash remaining for family support after the borrower(s) have satisfied all monthly obligations. All borrowers are required to meet VA’s residual income guidelines based on the following loan characteristics:

• Location of property • Number of persons residing in the home, regardless of relationship to the veteran

o AUS will not calculate the residual income correctly unless the ages of all occupants are entered on the loan application correctly. When inputting a VA loan, enter the date of birth for each borrower and enter all other occupants’ ages in the borrower’s dependents section of the application. Ages must be entered with commas between them but no spaces: i.e. 35,18,15 – In this example, there are three occupants in addition to the borrower(s) on the loan

• Loan amount • Borrowers approved with a debt-to-income ratio that exceeds 41% must have at least 20% more

residual income than VA’s requirement for the household size, loan amount and property location. • The following items must be deducted from the total gross income when calculating residual income:

o All items used in calculating the ratio o Maintenance and utility expense – calculated at 14 cents per square foot of living space in the

home (example: 1,000 square foot home X 14 cents = $140 maintenance and utility expense) o Social Security taxes – 4.200% of monthly income o Federal income taxes

� If borrower has an MCC (Mortgage Credit Certificate), reduce the federal income taxes by the amount of the MCC tax credit

� Must provide a copy of the Mortgage Credit Certificate � If the percentage of the MCC credit is more than 20%, the annual tax credit is the lesser

of $2000 or the borrower’s tax liability � For MCC calculation instructions, refer to VA Pamphlet 26-7, Chapter 4.3.b

• State income taxes

RESIDUAL INCOME RESOURCES

• Residual income tables - VA Fixed-Rate and Adjustable Rate Mortgage Product Description,

SEASONING

PURCHASES

• Seller must be owner of record


, 2014



• Seller must have owned the property for at least 30 days – Purchase agreement must be executed by the borrower(s) at least 31 days after the seller acquired the property

• The following sellers are exempt from the 30 day seller seasoning requirement: o State and Federally chartered financial institutions and government sponsored entities

(Fannie Mae and Freddie Mac) o Sales by HUD of its real estate owned properties o Local and State government agencies o Non-profits approved to purchase HUD REO properties o Sales of properties located in presidentially-declared disaster areas, provided the exemption

is announced by an FHA mortgagee letter o Sales of properties acquired through inheritance – Seller’s inheritance must be documented o Sales of properties acquired by employers or relocation agencies in connection with

relocations of employees o Sales of REO properties by lenders and property disposition firms they hire or with whom

they are affiliated o Builders selling a newly built home or building a home for a borrower o For Profit or non-profit entities that purchase abandoned or foreclosed properties using

Neighborhood Stabilization Program funds are temporarily exempt from the 90-day lock-out period.

� Seller must be a duly incorporated entity

� A copy of the written agreement granting the seller NSP funds is required

CASH-OUT REFINANCES

• No seasoning requirement – Value is based on appraised value, regardless of length of ownership

SELLER CONTRIBUTIONS • Seller may pay all reasonable and customary closing costs and discount points without limit • Seller may pay up to 4% of the purchase price toward any combination of the following:

o Pre-paid expenses o Funding fee o Buydown fees o Gifts, such as lawn mowers, televisions, etc. o Payoff of borrower liabilities, such as collections, judgments or other credit balances o Rent credits for any property other than the subject property (borrower is receiving rent credit for

rents paid on current residence, but subject property is different than current residence)

SOCIAL SECURITY VERIFICATION • A fully executed Social Security Number Validation Form, required on all loans.

SUBORNDINATE FINANCING Subordinate financing includes any financing that creates a lien against the subject property, even if it is a “soft”, “silent”, or “forgivable” second.

• All community second programs must be Nations Direct approved � Contact your Nations Direct account executive for eligibility.


, 2014



• Subordinate financing programs typically wire funds to the closing agent – Wire transfer documentation must be included in the file prior to funding or purchase

• Homebuyer Assistance Programs that are administered by government entities have blanket approval with VA

• Homebuyer Assistance Programs administered by private entities must also be approved by VA prior to loan closing – the following must be provided

o Program description o Sample loan documents

• Proceeds from the second may be used to pay closing costs and down payment o Unallowable closing costs and fees may not be paid by the Homebuyer Assistance Program

• When the sales price exceeds the appraised value, secondary financing may not be used to pay the required down payment for the difference between the sales price and the appraised value

• Veteran may not receive cash back • If repayment is required (loan is not a “silent” second), payment must be included in the ratio • If the second mortgage requires the borrower to occupy the property for a specified length of time, the

borrowers must certify they understand the repayment requirements • If the Homebuyer assistance program requires the borrower to pay fees that exceed $250, contact the

regional loan center that has jurisdiction over the state in which the property is located for approval • Second mortgage may not restrict the veteran’s ability to sell the property any more than the VA first

mortgage, and it should be assumable by creditworthy purchasers (Second mortgages from instrumentalities of government are eligible, regardless of assumability)

• Copies of the note and mortgage are required: o Purchase transactions – Copies of the fully executed note and mortgage are required at closing

and must be provided prior to funding or loan purchase

o Refinance transactions – Copies of the fully-executed note and mortgage are required prior-to-closing

TITLE • Effective date of title commitment must be no older than 60 days as of initial underwrite. • All borrowers take title to the property • Non-borrowing spouses are permitted to take title with a borrowing spouse • Non-borrowers who are not married to the borrower may not take title under any circumstance • Veterans who are on title may obtain a cash-out refinance, even if they are not obligated on the existing

lien(s) • Borrowers may take title in a trust, subject to the following requirements:

o The trust must be a living revocable trust also known as a “family trust” or an “inter vivos trust o The title company must insure over the trust with no exceptions for the trust or trustees o A copy of the trust must be included in the loan submission package o The settler or grantor must be a natural person and must also be the trustee or one of the co-

trustees o Full title must be vested in the trust with no other owners o The primary beneficiary of the trust must be the settler or grantor. If there’s more than one

settler or grantor, there may be more than one primary beneficiary, provided the income or assets of at least one of the grantors or settlors will be used to qualify for the mortgage and that grantor or settler will occupy the property and sign the mortgage instruments in his or her individual capacity

o The trust document must give the trustee or trustees the authority to mortgage trust assets and to incur debt on behalf of the trust and to hold legal title to and manage trust assets


, 2014



o An attorney’s opinion letter stating all of the requirements above are met must be provided – In California only, in lieu of the attorney’s opinion letter, a California Trust Certificate, is permitted

• For VA’s title requirements and a list of acceptable title restrictions, refer to VA Pamphlet 26-7,

Chapter 9

ENERGY LOAN TAX ASSESSMENT PROGRAM (ELTAP) LIENS

• Not permitted

PROPERTY ASSESSED CLEAN ENERGY (PACE) LIENS

• Not permitted

MANUAL UNDERWRITING

• All loans must be submitted thru Desktop Underwriter (DU). For loans receiving a “refer” response, NDM will allow a manual downgrade on an exception basis per the underwriter. The exception will be granted ONLY if all of the following criteria are met:

41% maximum DTI Two months PITI in reserves (cannot be from a gift) No mortgage lates in the last 24 months (on any mortgage) Residual income must exceed residual income guideline as set forth by VA by 150%

• Letters of explanation and supporting documentation, if applicable, are required for derogatory

credit when loan receives a “refer” response due to credit history o All late payments on revolving and installment debt in the most recent two years must be

explained o All collections, chargeoffs, judgments and public records must be explained, regardless of

age

AUTOMATED UNDERWRITING SYSTEMS

• All loans must be run through DU • Loans receiving an “approve” or “accept” response are eligible for documentation relief. Read the

findings carefully for required documentation

MANUAL DOWNGRADES

• VA requires the underwriter to manually downgrade an “approve” or “accept” response to a “refer” response and perform a complete manual underwrite based on standard VA guidelines if any of the following conditions exist:

o Verification of a payment history for a debt not reported on the credit report reveals more than one 30-day late payment in the most recent 12 months

o Any mortgage debt, whether included on the credit report or verified directly from the lien holder, reveals more than one 30-day late payment in the most recent 12 months

o If any debt on the credit report is past due, and the last update was > 90 days ago, current status is required. If the debt is past due by 90 or more days, the “approve” or “accept” response must be manually downgraded

o Borrowers for whom the CAIVR system indicates the borrower(s) have delinquent federal debt may not be approved

Nations Direct Mortgage VA Guidelines Updated: October 20 th, 2014 VA Underwriting Guidelines...

Documents

Transcript of Nations Direct Mortgage VA Guidelines Updated: October 20 th, 2014 VA Underwriting Guidelines...