INTRODUCTION:

In order to assist veterans in obtaining affordable housing, the U.S. government set up the VA home loan program. Under this program, the Veterans Administration guarantees a certain portion of a home loan made by institutional investors to qualified veterans.
The amount of entitlement for a qualified veteran has been increasing throughout the years. Presently, full entitlement is $60,000 (12-01). Since investors usually require at least 25% coverage on VA loans, the maximum loan available, without a down payment, is $240,000. Although there is no maximum loan amount mandated by the VA, the secondary mortgage market will not purchase VA loans over $300,700 (this would require a down payment in addition to the entitlement to maintain 25% coverage.)
HIGHLIGHTS:
TERM - 15 or 30 Year Fixed Rate Loans. All are fully Amortized. However, loan term can not exceed 3/4 of the property's remaining economic life.
PROPERTY - Single to four unit family dwellings, condo's and PUD's (in approved projects.) All VA loans are only for owner-occupied properties. No increase in maximum loan amount, is available for multiple units.
VA FUNDING FEE - The Veterans Administration charges a funding fee which is based upon the total loan amount. Effective 10-1-93 the funding fee charged is based upon Loan- to-Value, Veteran's status and whether the Veteran has used the loan program before. The funding fee may be paid in cash or financed.
Basic Funding Fee - First Time Use: Present or Previous Active Duty
· 2.00% - For loans in excess of 95% LTV.
· 1.50% - For loans over 90% but less than 95% LTV.
· 1.25% - For loans less than or equal to 90% LTV.
Basic Funding Fee for Reservists - First Time Use: (Based upon 6 years of Selective Reserve or Nat'l Guard)
· 2.75% - For loans in excess of 95% LTV.
· 2.25% - For loans over 90% but less than 95% LTV.
· 2.00% - For loans less than or equal to 90% LTV.
Funding Fee for Subsequent Use:
· 3.00% - For loans in excess of 95% LTV.
· 1.50% - (or 2.25% for Reserves/Nat'l Guard) For loans over 90% but less than 95% LTV
· 1.25% - (or 2.00% for Reserves/Nat'l Guard) For loans less than or equal to 90% LTV.
Funding Fee for Refinances:
· 0.50% - For Rate Reduction Refinances.
· 3.00% - For Cash-Out Refinances of Present VA Loans.
· 2.00% - (or 2.75% for Reserves/Nat'l Guard) for Refinances of present Conventional Loans, assuming no previous uses of eligibility.
EXEMPTIONS FROM THE VA FUNDING FEE - The VA funding fee will not be collected if any of the following apply:
The Veteran is receiving VA Disability Compensation (regardless of percentage).
The veteran is rated as being eligible for such compensation, even though not collecting it.
The borrower is an "Un-remarried Surviving Spouse" who is eligible for such benefits.

SECONDARY FINANCING - The VA does allow secondary financing. If the first and second loans are less than $240,000, the rate on the second should not (but may) exceed the VA rate on the first. If combined loans exceed $240,000, the rate may exceed that on the first but the averaged rate must be `reasonable'. Payments on the 2nd must be at least interest only. A balloon payment is allowed after five years. The sum of the veteran's entitlement plus the cash investment must be at least 25% of the property's sale price or appraised value (whichever is less.)
INTEREST RATE - As of October 29, 1992, the VA no longer sets the interest rate. It is fully negotiable between the buyer and seller and the lender.
TEMPORARY BUY-DOWNS - Temporary interest rate buy-downs are available (on purchases only) and may be paid by either buyer or seller. Buy-downs may be 1% for the first year only, a 2-1 buy-down or a 3-2-1 buy-down. The buyer qualifies at the start rate.
POINTS - Effective August 13, 1993, the Veteran is allowed to pay points on either a purchase or a refinance. This should allow much greater success in getting your VA offers accepted than the previous VA mandates allowed!

ELIGIBILITY
All Veterans are eligible for VA loan guarantee who have been discharged under any condition other than dishonorably, including those discharged under hardship conditions, and those discharged for disability (whether or not it was service-connected). And, if they have served on ACTIVE DUTY during the following periods of time:
· 09/08/80 - Present 24 Months, if discharged or 90 days if still active duty
· 05/08/75 - 09/07/80 181 Days
· 08/05/64 - 05/07/75 90 Days
· 02/01/55 - 08/04/64 181 Days
· 06/27/50 - 01/31/55 90 Days
· 07/26/47 - 06/26/50 181 Days
· 09/15/40 - 07/25/47 90 Days
Reservists - 6 Years (does not have to be continuous) Exception: 08/01/90 - Present 90 days (if called to active duty under Title 10 by Executive Order; i.e. Desert Storm, Berlin Crisis, Bay of Pigs)
ENTITLEMENTS
The amount of entitlement for a VA loan has increased dramatically during the years. When entitlement increases, all eligible veterans benefit from that increase. Dates of these entitlement changes are included only to assist in figuring partial eligibility.
· Prior to April 20, 1950 - $4,000
· April 20, 1950 - $7,500
· May 7, 1968 - $12,500
· December 31, 1974 - $17,500
· October 1, 1978 - $25,000
· October 20, 1980 - $27,500
· February 1, 1988 - $36,000
· Jan 1990 - $46,000
· October 17,1994 - $50,750
· December 27, 2001 - $60,000 (Purchase & RRR Only) = $240,000 Loan Amount.
If a veteran has previously used his/her entitlement, a full reinstatement may be obtained if:
The previous VA loan was paid in full and the property has been disposed of, or
If another eligible veteran has substituted his/her entitlement on the loan.
PARTIAL ENTITLEMENT: Partial Entitlement is available for those veterans who purchased a home in the past with a VA loan, if the amount of entitlement has increased since that purchase. To figure the remaining entitlement: Take Sales Price of original property, multiply that by 60% (maximum coverage allowed an investor). Take the lesser of this figure or the maximum entitlement in effect at date of purchase. This lower figure is the amount of the entitlement which was actually used. Subtract this figure from current entitlement - $60,000; this is the amount of entitlement that is remaining for the veteran's use. For loans closed after Feb. 1, 1988, a maximum coverage of 40% was allowed for the investor. Utilize the same formula but decrease multiple.
ASSUMPTION POLICY: Prior to March 1, 1988, all VA loans were fully assumable. All loans written after this date include an acceleration clause. Any assumption must now be prior approved by the Veterans Administration. A full assumption package is required and, if approved, the assumptor must pay a .50% VA funding fee in order to consummate the transaction. After the assumption, the veteran will be released from liability in the event of default (full eligibility is not restored.)
DEFICIENCY JUDGMENTS: VA loans are the only purchase-money transactions, within California, which allow for a deficiency judgment against the buyer in the event of foreclosure. Since the program is governed by federal statute, the state's real estate law provisions are pre-empted. Those veterans that allowed assumptions of their properties prior to March of '88 (without a specific release of liability) will still be held liable in the event of a foreclosure which results in a deficiency.
REFINANCES: VA will allow refinances up to a maximum of 90% of the appraised value of a property, with or without cash out, up to a maximum loan amount of $240,000. There must be enough equity in the property, added to a maximum refinance eligibility of $46,000, to cover 25% of the new loan amount.
RATE REDUCTION REFINANCES: Rate reduction refinances are allowed with streamlined processing which requires neither employment nor credit verifications. Some investors are allowing these refinances without the need of a new appraisal. This can translate into true loan-to values of well over 100%! Maximum loan is $240,000.
JOINT LOANS: When two or more veterans, who are not married, will be purchasing a property together, the loan must be prior approved by the VA; no automatic underwriting is allowed.
CO-SIGNERS: VA allows no co-signers on a VA loan except the veteran's spouse or another veteran (see Joint Loans above.)
GIFTS: 100% of the money required for down payment (if any), closing costs and reserves may come from gifted funds. The giver must be either a relative or an unrelated person who can prove a long term relationship with the veteran. A gift letter is required as well as proof of the ability to give and proof of the receipt of funds.
QUALIFYING: A combined housing expense plus long-term debt ratio of 41% of gross income is recommended. The calculation is the same as on conventional loans except that any child care or lengthy commute expenses are also included as long term debt. Residual income may be utilized if the ratio is higher than 41%. Please call for specifics if your client's ratio will exceed this figure.

SPECIFIC UNDERWRITING CONCERNS:

Employment Stability - No arbitrary limits are mandated for the holding of a present position. Most underwriters will require at least a year. However, if a recent job change has occurred within the same line of work, for advancement or a salary increase, this should be acceptable. For those employed less than two years, who were previously students, diplomas are required.
Bonus, Overtime and Second Job Income - Can only be fully utilized if it has been continuous for at least two years, and if the future continuance can be ascertained through the employer. If less than two years, it can be used to offset debt or as a compensating factor.
Self-Employment - Two years minimum history is required, unless the borrower had substantial experience or specialized training in the same line of work. Less than one year is unacceptable, regardless. Any ownership position of more than 10% is considered self-employment. Two years tax returns as well as year-to-date Financial Statements are mandatory. Financial Statements must be prepared by an accountant or CPA. If the business is a corporation, corporate returns are required.
Room & Board, Travel Expenses & Auto Allowances - Income from such sources can not be counted.
Notes Receivable - A copy of the note is required. Receipt of payments for the previous 12 months must be verified and the note must call for payments to continue for at least 5 years beyond the date of loan application. If the note is payable before 5 years, interim payments may be used to offset debt of a similar duration.
Child Support, Alimony & Separate Maintenance Payments - A copy of the divorce decree or separation agreement is required. Proof of receipt for the previous 12 months, and continuance of at least 5 additional years is required.
Rental Property Income - Income is calculated using Schedule E of the federal tax returns. Depreciation may be added back to income. For newly acquired properties, rental agreements must be supplied and related debt verified. Vacancy and collection expenses of between 15% and 25% will be deducted from gross income. After computation, positive rent will be added to income, negative rent will be included as a long- term liability.
Foreclosures - If a foreclosure has been filed against the veteran within the last three years, VA will not accept the application, unless a well documented reason can be found that the foreclosure was totally outside of the applicant's control.
Bankruptcy - A Bankruptcy must have been discharged for at least two years, and the veteran's credit must have been satisfactorily re-established during that time. For a Chapter 13, three-quarters of the payment plan must be completed and the Trustee or Bankruptcy Judge must approve of the mortgage loan. A complete copy of all Bankruptcy papers are required.
No Credit History - Must verify satisfactory payment of rent and utilities.

CLOSING COST SUMMARY
ALLOWABLE CLOSING COSTS
Discount Points (Purchase or Refinance)
Loan Origination Fee (1% Max)
Appraisal Fee
Credit Report Fee
Title Insurance Fees
Recording Fees
Compliance Inspections
VA Funding Fee (May be Financed)
Pre-Paid Interest
Tax and Insurance Impounds
COSTS THAT A VETERAN MAY NOT PAY (Must be Paid by the Seller on a Purchase or by the Lender/Broker on a Refinance)
Escrow Fee or Sub-Escrow Fee
Administrative Fees
Document Preparation Fee
Underwriting Review Fee
Processing Fee
Wire Fee
Tax Service Fee
Notary Fee
City Transfer Taxes or Tax Stamp Fee
SPECIAL NOTES
· The Seller may pay ALL of the Veteran's Fees including both Non-Recurring and Recurring Closing Costs
· All of the Borrower's down payment and closing costs may be a gift from a relative.
· Seller concessions are limited to 4% of appraised value (not including closing costs.)

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