Wholesale VA Guidelines Introduction
Wholesale VA Guidelines Introduction These VA Program Guidelines provide a general overview of the VA products and policies eligible for delivery to EA for financing consideration. The details are based on the policies outlined in the VA Handbook. This document should be used solely as a reference to EA’s interpretation of the VA Handbook and does not constitute a commitment to lend. Product Overview – Endeavor America currently offers the following VA loan programs: STAR High Balance Standard Advantage IRRRL 30 year Fixed 15 year Fixed 30 year Fixed 30 year Fixed 15 year Fixed 30 year Fixed 15 year Fixed 30 year Fixed 15 year Fixed 1 unit with 680 min FICO AUS Approve/Eligible $150,000 minimum loan Max 50% DTI > $417,000 loan amount 640 min FICO 580 - 639 FICO AUS Refer No FICO 580 FICO with Appraisal 620 FICO with No Appraisal Maximum Base Loan1 Principal Residence Base Loan Purpose Units LTV FICO Purchase, IRRRL 1–4 100% 580 Conforming IRRRL No Appraisal 1 Unlimited 620 Cash-out Refinance 1–4 100% 580 Purchase, Cash-out, IRRRL 1–4 100% 580 High Balance IRRRL No Appraisal 1 Unlimited 620 Second Home and Investment Property Conforming IRRRL 1–4 100% 580 High Balance IRRRL 1–2 100% 600 Funding Fee Type of Veteran Down Payment 1st Time Subsequent Purchase 0% - <5% 2.15% 3.30% Regular Military 5% to < 10% 1.50% 1.50% ≥ 10% 1.25% 1.25% 0% - <5% 2.40% 3.30% 5% to < 10% 1.75% 1.75% Reservists/National Guard ≥ 10% 1.50% 1.50% Cash-out Refinance Regular Military 2.15% 3.30% Reservists/National Guard 2.40% 3.30% IRRRL: Regular Military AND Reservists/Nat. Guard 0.50% 0.50% Endeavor America Loan Services VA Guidelines 11-05-2014 Units 1 2 3 4 Conforming High Balance $75,000 - $417,000 $417,001 - $1,200,000 $75,000 - $533,850 $533,851 - $1,200,000 $75,000 - $645,300 $645,301 - $1,200,000 $75,000 - $801,950 $801,951 - $1,200,000 Maximum Potential Guaranty2, 3, 4 Base Loan Guaranty ≤ $45,000 50% of Loan $45,001 - $56,250 $22,500 $56,251 - $144,000 40% of Loan with a maximum of $36,000 $144,001 - $417,000 25% of the Loan with a maximum of $104,250 > $417,0015 Lesser of 25% of VA county limit, OR 25% of loan amount NOTES 1. Maximum guaranty is 25% of VA high costs county limit. 2. VA guaranty or combination of guaranty plus down payment/ subject equity must equal ≥ 25% of the total loan amount including funding fee. 3. The maximum guaranty is the lesser of available entitlement or the maximum potential guaranty amount indicated above. 4. Minimum guaranty of 25% is required on IRRRLs. 5. CLTV is unlimited. The maximum LTV is 100% unless stated otherwise in a subtopic in the EALS Wholesale VA Guidelines. Page 1 of 58 Wholesale VA Guidelines Endeavor America’s Credit Philosophy .................................................................................................................................................................................................... 9 Ability to Repay ........................................................................................................................................................................................................................................ 9 Age of Documents .................................................................................................................................................................................................................................... 9 Credit Documents ................................................................................................................................................................................................................................ 9 Appraisal .............................................................................................................................................................................................................................................. 9 Appraisal .................................................................................................................................................................................................................................................. 9 General Information ............................................................................................................................................................................................................................ 9 Appraisal Form Requirements ........................................................................................................................................................................................................... 10 Acreage .............................................................................................................................................................................................................................................. 10 Age Restricted Properties (55+ senior communities allowed) ........................................................................................................................................................... 10 Carbon Monoxide Detectors .............................................................................................................................................................................................................. 10 Farm Residence .................................................................................................................................................................................................................................. 11 Inspection Requirements ................................................................................................................................................................................................................... 11 Minimum Property Requirements ..................................................................................................................................................................................................... 11 New/Existing Construction ................................................................................................................................................................................................................ 11 New/Existing < 1 Year Exhibits and Inspections ................................................................................................................................................................................ 12 Proposed/Under Construction ........................................................................................................................................................................................................... 13 Proposed/Under Construction Exhibits and Inspections ................................................................................................................................................................... 13 Notice of Value (NOV) ........................................................................................................................................................................................................................ 15 Property Listed for Sale ...................................................................................................................................................................................................................... 15 Swimming Pool/Spa Requirements.................................................................................................................................................................................................... 15 Assets ..................................................................................................................................................................................................................................................... 16 Cash to Close ...................................................................................................................................................................................................................................... 16 Endeavor America Loan Services VA Guidelines 11-05-2014 Page 2 of 58 Wholesale VA Guidelines Bank Statements – Large Deposits..................................................................................................................................................................................................... 16 Business Funds ................................................................................................................................................................................................................................... 16 Documentation .................................................................................................................................................................................................................................. 16 Down Payment ................................................................................................................................................................................................................................... 16 Earnest Money ................................................................................................................................................................................................................................... 17 Gift Funds ........................................................................................................................................................................................................................................... 17 Retirement Account ........................................................................................................................................................................................................................... 17 Sale of Home ...................................................................................................................................................................................................................................... 17 Assumability ....................................................................................................................................................................................................................................... 17 Borrower Eligibility ................................................................................................................................................................................................................................. 18 Other Eligible Borrowers .................................................................................................................................................................................................................... 18 Foreign Address ................................................................................................................................................................................................................................. 19 CAIVRS .................................................................................................................................................................................................................................................... 19 Certificate of Eligibility ........................................................................................................................................................................................................................... 19 Certificate of Eligibility (COE) ............................................................................................................................................................................................................. 19 Automated Certificates of Eligibility (ACE)......................................................................................................................................................................................... 19 Credit and Obligations ........................................................................................................................................................................................................................... 20 30-Day Charge Accounts .................................................................................................................................................................................................................... 20 Alimony/Child Support....................................................................................................................................................................................................................... 20 Bankruptcy ......................................................................................................................................................................................................................................... 20 Chapter 7........................................................................................................................................................................................................................................ 20 Chapter 13...................................................................................................................................................................................................................................... 20 Child Care Expenses ........................................................................................................................................................................................................................... 21 Co-Signed Loans ................................................................................................................................................................................................................................. 21 Endeavor America Loan Services VA Guidelines 11-05-2014 Page 3 of 58 Wholesale VA Guidelines Consumer Credit Counseling.............................................................................................................................................................................................................. 21 Collections and Delinquent Accounts ................................................................................................................................................................................................ 21 Deferred Student Loans ..................................................................................................................................................................................................................... 21 Delinquent Federal Debt .................................................................................................................................................................................................................... 21 Foreclosures ....................................................................................................................................................................................................................................... 22 Inquiries ............................................................................................................................................................................................................................................. 22 Housing History .................................................................................................................................................................................................................................. 22 Job Related Expenses ......................................................................................................................................................................................................................... 22 Judgments/Tax Liens .......................................................................................................................................................................................................................... 22 Modified/Restructured Loans ............................................................................................................................................................................................................ 22 Non-Traditional Credit ....................................................................................................................................................................................................................... 23 Payoff of Debt to Qualify ................................................................................................................................................................................................................... 23 Significant Debt .................................................................................................................................................................................................................................. 23 Short Sales.......................................................................................................................................................................................................................................... 24 Community Property States ................................................................................................................................................................................................................... 24 Conversion of Primary Residence .......................................................................................................................................................................................................... 25 Conversion of a Primary Residence to a Second Home ..................................................................................................................................................................... 25 Conversion of a Primary Residence to a Rental Property .................................................................................................................................................................. 25 Pending Sale of Real Estate ................................................................................................................................................................................................................ 25 Disaster Re-Inspections .......................................................................................................................................................................................................................... 25 Eligible Properties .................................................................................................................................................................................................................................. 26 Ineligible Properties ............................................................................................................................................................................................................................... 27 Eligible Transactions............................................................................................................................................................................................................................... 27 Ineligible Products or Transactions ........................................................................................................................................................................................................ 28 Endeavor America Loan Services VA Guidelines 11-05-2014 Page 4 of 58 Wholesale VA Guidelines Employment/ Income Verification ......................................................................................................................................................................................................... 28 Active Duty Military ........................................................................................................................................................................................................................... 28 Active Duty Military (continued) ........................................................................................................................................................................................................ 29 Allowances on LES .............................................................................................................................................................................................................................. 29 Basic Allowances ................................................................................................................................................................................................................................ 29 Flight Pay, Overseas Pay, Combat Pay ............................................................................................................................................................................................... 29 Special Separation Benefit (SSB) ........................................................................................................................................................................................................ 29 Voluntary Separation (VSI) ................................................................................................................................................................................................................. 29 Auto Allowances ................................................................................................................................................................................................................................ 30 Business Loss from Non-Purchasing Spouse ...................................................................................................................................................................................... 30 Disability Income ................................................................................................................................................................................................................................ 30 Foster Care ......................................................................................................................................................................................................................................... 30 Non-Taxable Income .......................................................................................................................................................................................................................... 30 Rental Income .................................................................................................................................................................................................................................... 31 Reserve/National Guard .................................................................................................................................................................................................................... 31 Retirement ......................................................................................................................................................................................................................................... 32 Same-Sex Marriages........................................................................................................................................................................................................................... 32 AUS Income Documentation .................................................................................................................................................................................................................. 33 Documentation .................................................................................................................................................................................................................................. 33 Alimony/Child Support....................................................................................................................................................................................................................... 33 Gap in Employment............................................................................................................................................................................................................................ 33 Current Employment.......................................................................................................................................................................................................................... 33 Documentation .................................................................................................................................................................................................................................. 34 Previous Employment ........................................................................................................................................................................................................................ 34 Endeavor America Loan Services VA Guidelines 11-05-2014 Page 5 of 58 Wholesale VA Guidelines De-Minimis Self-Employment ............................................................................................................................................................................................................ 34 Documentation .................................................................................................................................................................................................................................. 35 Self-Employed: Personal Tax Returns ................................................................................................................................................................................................ 35 Self-Employed: Commissioned Borrower .......................................................................................................................................................................................... 35 Self-Employed: Profit & Loss Statements and Balance Sheets .......................................................................................................................................................... 35 Self-Employed: Business Returns ....................................................................................................................................................................................................... 35 Entitlement ............................................................................................................................................................................................................................................ 36 Guaranty ................................................................................................................................................................................................................................................ 38 Escrow Waivers ...................................................................................................................................................................................................................................... 38 Fees and Charges ................................................................................................................................................................................................................................... 39 Funding Fee ............................................................................................................................................................................................................................................ 40 Insurance ................................................................................................................................................................................................................................................ 41 Interested Party Concessions ................................................................................................................................................................................................................. 41 Manufactured Homes ............................................................................................................................................................................................................................ 41 Restrictions ........................................................................................................................................................................................................................................ 41 General Eligibility Requirements – Title II .......................................................................................................................................................................................... 42 Additions, Modifications – Special State Requirements (continued) ................................................................................................................................................ 42 Additions, Modifications – Special State Requirements (continued) ................................................................................................................................................ 43 Credit Score ........................................................................................................................................................................................................................................ 43 Elevation Certificate – Flood Zones A & V ......................................................................................................................................................................................... 43 Engineer’s Certification of Foundation Compliance .......................................................................................................................................................................... 44 HUD Red Tags..................................................................................................................................................................................................................................... 44 HUD Red Tags (continued) ................................................................................................................................................................................................................. 45 HUD Data Plate .................................................................................................................................................................................................................................. 45 Endeavor America Loan Services VA Guidelines 11-05-2014 Page 6 of 58 Wholesale VA Guidelines Ineligible properties ........................................................................................................................................................................................................................... 46 Insurance ............................................................................................................................................................................................................................................ 46 Modular Homes ................................................................................................................................................................................................................................. 46 New Construction .............................................................................................................................................................................................................................. 46 Site ..................................................................................................................................................................................................................................................... 47 Title Binder ......................................................................................................................................................................................................................................... 47 Well and Septic .................................................................................................................................................................................................................................. 47 Maximum Term ...................................................................................................................................................................................................................................... 48 Occupancy .............................................................................................................................................................................................................................................. 48 Power of Attorney.................................................................................................................................................................................................................................. 48 Qualifying ............................................................................................................................................................................................................................................... 48 Reserves ................................................................................................................................................................................................................................................. 49 Interest Rate Reduction Refinance (IRRRL) ............................................................................................................................................................................................ 49 Non-Credit Qualifying ............................................................................................................................................................................................................................ 49 General Guidelines ............................................................................................................................................................................................................................. 49 Borrower Eligibility ............................................................................................................................................................................................................................. 49 Borrower Eligibility (continued) ......................................................................................................................................................................................................... 50 Credit Score ........................................................................................................................................................................................................................................ 50 Funding Fee ........................................................................................................................................................................................................................................ 50 Guaranty ............................................................................................................................................................................................................................................ 51 Loan Limit ........................................................................................................................................................................................................................................... 51 Matrix (LTC, Score, Units) .................................................................................................................................................................................................................. 51 Mortgage Verification ........................................................................................................................................................................................................................ 51 Net Tangible Benefit .......................................................................................................................................................................................................................... 52 Endeavor America Loan Services VA Guidelines 11-05-2014 Page 7 of 58 Wholesale VA Guidelines Occupancy .......................................................................................................................................................................................................................................... 52 Online Status Inquiry (in lieu of COE)................................................................................................................................................................................................. 52 Recently Listed Property .................................................................................................................................................................................................................... 52 Subordinate Financing ....................................................................................................................................................................................................................... 52 Rate Decrease and Maximum Term................................................................................................................................................................................................... 53 Loan Documentation.......................................................................................................................................................................................................................... 53 Credit Qualifying .................................................................................................................................................................................................................................... 54 Income/Assets.................................................................................................................................................................................................................................... 54 IRRRL Exterior Appraisal (Including Credit-Qualifying IRRRL) ................................................................................................................................................................ 54 IRRRL with NO Appraisal ........................................................................................................................................................................................................................ 54 Residual Income Requirement ............................................................................................................................................................................................................... 55 Secondary Financing .............................................................................................................................................................................................................................. 56 Star Program .......................................................................................................................................................................................................................................... 57 Underwriting .......................................................................................................................................................................................................................................... 57 Automated Underwriting (AUS) ......................................................................................................................................................................................................... 57 Manual Downgrades .......................................................................................................................................................................................................................... 57 Underwriting (continued) ...................................................................................................................................................................................................................... 58 Manual Underwriting ......................................................................................................................................................................................................................... 58 Compensating Factors ....................................................................................................................................................................................................................... 58 Endeavor America Loan Services VA Guidelines 11-05-2014 Page 8 of 58 Endeavor America’s Credit Philosophy Endeavor America credit philosophy is to offer loan programs with minimal overlays to our clients. Endeavor America evaluates each loan individually based solely on the borrower(s) creditworthiness and in accordance with the following principles: All loans must be submitted to Desktop Underwriter (DU) or Loan Prospector (LP) using a Credco credit report and receive an Approve or Accept rating with the exception of IRRRL. Loans that receive AUS Refer may be manually underwritten with a DTI ≤ 50% and ≥ 120% residual income. All VA policies as outlined in the VA Handbook and applicable circulars have been met. All requirements of the DU Approve/Eligible or LP Accept/Eligible recommendation have been met for AUS-approvals. All prudent factors have been weighed and evaluated on the loan file and no reasonable doubt remains about the borrower’s ability to meet the terms of the loan. Topic Guidelines Ability to Repay Endeavor America will verify borrower’s income, employment, assets, credit, recurring expenses and other aspects of the loan to make ensure the borrower can reasonably repay the loan in accordance to VA guidelines. The EALS underwriter must complete an Ability-to-Repay form for purchases and cash-out refinances which will be retained in the loan file. Age of Documents Credit Documents (credit report, employment, income, assets and preliminary title report) must be no more than: Existing Property: 90 days from the date the Note is signed. New Construction: 120 days from the date the Note is signed. Appraisal 180 days from the issuance date of the VA Notice of Value (NOV). Appraisal Endeavor America Loan Services VA Guidelines General Information Endeavor America requires all brokers to be sponsored to transact VA loans. Loans from broker with pending sponsorship will be reviewed on a case by case basis and the broker may not process more than four loans on an annual basis. Transferred Appraisals must reflect the “Any Qualified Veteran” in the borrower field as per VA Circular 26-14-26. 11-05-2014 Page 9 of 58 Appraisal (continued) Appraisal Form Requirements Form 1004 is for 1-unit single family property and the appraisal report must include: Interior photos of the Kitchen Examples of physical deterioration, if present All bathrooms Examples of recent updates such as restoration, remodeling and renovation, if present Main living area Clear, original photos of the front and rear with different views of the subject sides in each photo, subject street views and front view of each comparable. Appraiser to comment if photos from multiple listing service are used (e.g. gated community). Include photos of any improvement, site feature or view that would affect the final market value. Form 1004C for manufactured housing Form 1073 is required for attached condominiums Form 1025 is required on 2-4 unit properties Form 2055 Exterior Appraisal with 1004MC for single family (Forms 1075 & 1004MC for condos) are required for IRRRLs Acreage Acreage must be common for the area Age Restricted Properties (55+ senior communities allowed) The appraisal must reflect the impact that the restrictions have on the property’s value and marketability. The appraisal must be supported by comparables with similar restrictions. Borrower(s) must acknowledge the restriction terms by signing a Resale Restriction Notice at closing. Carbon Monoxide Detectors If required by the state the property and the carbon monoxide detectors are missing or nonfunctional: “As-is” appraisal requires a 1004D completed by the appraiser or a Lender Certification along with supporting photo(s) to verify the detectors have been installed and/or are currently functioning on every floor of the property. “Subject to” appraisal requires a 1004D completed by the appraiser to verify the detectors have been installed and/or are currently functioning on every floor of the property. Carbon monoxide detectors should not be listed as a MPR on the appraisal report. Endeavor America Loan Services VA Guidelines 11-05-2014 Page 10 of 58 Appraisal (continued) Farm Residence The property must be occupied by the veteran as the primary residence and cannot be income producing. VA only gives value to the home and the physical buildings attached to the land that support the residence. The valuation cannot include any income producing aspects such as livestock, crops, equipment and/or supplies. The loan cannot cover the nonresidential value of the farm land. Inspection Requirements Appraiser must look for and report evidence of wood destroying insect infestation, fungus growth, and dry rot, in addition to any other VA requirements. Refer to VA Circular 26-14-8 for guidance on repair inspection processing procedures. Minimum Property Requirements Subject property’s overall condition must meet VA’s Minimum Property Requirements (MPRs) for safety, sanitation and soundness. All readily observable repairs recommended by the VA appraiser must be satisfied prior to closing. Reference: VA LH, Chapter 12 and applicable VA circulars. New/Existing Construction (completed less than 1 year and never occupied) Builder must be VA approved with a valid VA builder ID number prior to NOV issuance, and Construction is 95% completed in accordance with VA MPRs with only customer preferences left (interior wall finishes, floor coverings, appliances, counter tops, fixtures – sinks and toilets, equipment – range, dishwasher, disposals, air conditioning compressors (not central A/C), minor trim work, insulation, final grading, sodding/seeding, etc.) Endeavor America Loan Services VA Guidelines 11-05-2014 Page 11 of 58 Appraisal (continued) Endeavor America Loan Services VA Guidelines New/Existing < 1 Year Exhibits and Inspections Subterranean Termite Soil Treatment Builder’s Guarantee (Form NPCA-99a/ NPMA-99-A) unless state specific form is more stringent. Form NPCA-99b/ NPMA-99-B is also required if builder treated with soil termiticide. If property is over 95% complete, a termite inspection report may be used. 1 year Builder’s Warranty (Warranty of Completion of Construction, VA Form 26-1859 or HUD Form 92544) if property was inspected at least 3 times during the construction process. NOV requirements are: VA “Not Inspected” Acknowledgment for New Construction with 1-Year Builder’s Warranty (NOV item 12a), AND "I am aware that VA did not inspect this property during construction and that VA assistance with construction complaints will be limited to defects in equipment, material and workmanship reported in writing during the one-year VA builder warranty period.” 1 year Builder’s Warranty on VA Form 26-1859, Warranty of Completion of Construction OR, if 10-year protection plan, NOV requirements are: Evidence of enrollment in a 10 year insurance protection plan acceptable to HUD, AND VA “Not Inspected” Acknowledgment for New Construction with 10-Year Warranty (NOV items 12b and 13) "I am aware that VA did not inspect this property during construction and that it does not qualify for VA assistance with construction complaints.” Builder Certification on company letterhead, signed and dated by the builder, architect or engineer. “I certify that the construction exhibits for [subject legal address] met all local code requirements and are in substantial conformity with VA Minimum Property Requirements, including the energy conservation standards of the 1992 Council of American Building Officials’ Model Energy Code and the requirement for lead-free water piping.” VA also accepts the HUD Form 92541 Lead/water distribution system from builder Off street improvements (unless SAR has evidence that the streets, drainage, water and sewer have been completed and accepted for maintenance by the local authority (i.e., the subject is a new home in an older established neighborhood. Clear Final Inspection with photos using VA Form 26-1839, VA Compliance Inspection Report Certificate of Occupancy Well & Septic, if applicable 11-05-2014 Page 12 of 58 Appraisal (continued) Proposed/Under Construction Builder must be VA approved, and Property must be constructed in accordance with VA Minimum Property Requirements (MPRs) and any applicable VA circulars. Proposed/Under Construction Exhibits and Inspections Certificate of Occupancy Warranty of Completion of Construction (VA Form 26-1859 or HUD Form 92544) Description of Materials (VA Form 26-1852) signed & dated by the builder and veteran borrower Plans of the Plot, identifying locations of the well/septic systems (if applicable) All exterior building elevations All floor levels Foundation or basement plan Sectional wall details Builder Certification on company letterhead, signed and dated by the builder, architect or engineer. “I certify that the construction exhibits for [subject legal address] met all local code requirements and are in substantial conformity with VA Minimum Property Requirements, including the energy conservation standards of the 1992 Council of American Building Officials’ Model Energy Code and the requirement for lead-free water piping.” VA also accepts the HUD’s Builder Certification of Plans, Specifications and Site (Form HUD-92541) Construction Inspections must be completed to ensure: Property was built according to the plans and specifications Property meets VA’s Proposed Construction MPRs [Refer to VA LH, Section 12.02] Endeavor America Loan Services VA Guidelines 11-05-2014 Page 13 of 58 Appraisal (continued) IF Property is appraised as: Proposed/Under Construction without 10-Year Insured Protection Plan and 1 year Builder Warranty Construction Inspections and Warranty Requirements 1 year builder warranty EITHER ONE of the following compliance Inspections: Local building authority completes inspections at 3 stages of construction and issues Certificate of Occupancy (CO) or equivalent, Stage 1/Foundation: completion of excavation and foundation walls Stage 2/Framing: completion of the superstructure AND below superstructure Stage 3/Final: completion of all onsite and offsite improvements IF local building authority does NOT issue CO, VA will accept copies of the inspections OR written statement from local authority that the required 3 inspections were performed satisfactorily as evidence completion in accordance with all applicable local building codes. Proposed/Under Construction with 10-Year Insured Protection Plan and 1 year Builder Warranty BOTH 1 year builder warranty and 10 year HUD accepted insured protection plan Existing Construction with major alterations, improvements, or repairs VA or LAPP underwriter will determine on case-by-case basis, based on the nature are required. If local authority does NOT perform the required inspections, then the lender must certify the property is 100% complete (both on-site and off-site improvements) and that property meets VA’s MPRs for existing construction. of the work: which regular or special inspections are required, if appropriate, AND appraiser or lender will certify satisfactory completion. Endeavor America Loan Services VA Guidelines New/Existing Construction < 1 year old EITHER 1-Year Builder’s Warranty of Completion of Construction (VA Form 26-1859 Existing Construction (1 year old) NO warranty is required. or HUD Form 92544) , OR 10-Year HUD accepted insured protection plan 11-05-2014 Page 14 of 58 Appraisal (continued) Changes to Exhibits: change is limited to substitution of mechanical equipment of equal value. After the appraisal was completed, use VA Form 26-1844, Request for Acceptance of Changes in Approved Drawings and Specifications. VA staff must approve any VA Form 26-1844 Notice of Value (NOV) The Notice of Value (NOV) is issued by an Endeavor America SAR (Staff Appraisal Reviewer) on LAPP cases based on appraisal report completed by the VA fee appraiser. Cases ordered as IND in webLGY will be reviewed by the Regional Loan Center. The veteran must receive a copy of the NOV within 5 days of the NOV issuance. NOV is valid for six months SAR must issue the NOV at the fee appraiser’s value estimate reflected in the appraisal report. SAR must consider the local requirements [VA web link: http://www.benefits.va.gov/HOMELOANS/appraiser_cv_local_req.asp Property Listed for Sale For refinances including IRRRLs, a property listed for sale at the time of the loan application is ineligible for financing with Endeavor America. There is no minimum waiting requirement for properties with expired listings, or have had their listing cancelled or removed prior to the loan application. Swimming Pool/Spa Requirements If the pool/Spa is included in appraised value (either above-ground or in-ground): The appraiser must state the swimming pool/spa does not pose any health, safety or environmental hazards. The appraiser must state the pool/spa equipment is fully operational. If the pool/Spa is NOT included in appraised value: The appraiser must state the swimming pool/spa does not pose any health, safety or environmental hazards. An empty swimming pool/spa may be acceptable provide one of the following is met: o The swimming pool/spa is secured by a cover that is sufficiently sturdy to prevent a person from falling into the pool or through the cover. o The swimming pool/spa has been filled with dirt o The swimming pool/spa is surrounded by a fence. Endeavor America Loan Services VA Guidelines 11-05-2014 Page 15 of 58 Assets Endeavor America Loan Services VA Guidelines Endeavor America requires the borrower(s) have sufficient assets to meet the down payment, closing costs not financed into the loan and the difference between the purchase and sales price (if higher), and cash reserves. AUS DU/LP findings will be followed with the exception of Verification of Deposits, which are not accepted by EALS. Cash to Close Verify sufficient cash to cover any veteran-paid closing costs or points AND Verify the difference between the sales price and loan amount IF the sales price exceeds the NOV. Bank Statements – Large Deposits Borrower’s explanation with source of funds documentation is required for: Large deposits which refers to a deposit amount that exceed 25% of the total qualifying income (or less at underwriter’s discretion). Unless readily identified deposit source such as federal/state tax refund, SSA benefit, payroll direct deposit, etc. Current balance is significantly higher than average balance Any bank account opened within 90 days of application date. Business Funds Document borrower’s ownership (e.g. business license, corporate/partnership returns) Used for down payment and closing costs (cannot be used for cash reserves) CPA provides a letter stating: Borrower has full use of business funds. No repayment is required and funds are not an advancement against future earnings/cash distributions. The withdrawal of funds does not have negative impact on business and comment on future tax implications. Documentation AUS Approve/Accept Loans: Obtain most recent bank statement for each account AUS Refer/Manual Approval Loans: Obtain most recent two (2) months consecutive months for each account Down Payment No down payment is required by VA (provided the borrower has full entitlement) unless: the sales price exceeds the appraised value, or the requested loan amount exceeds VA county loan limit: http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp 11-05-2014 Page 16 of 58 Assets (continued) Earnest Money Verify earnest money deposit (EMD) if: EMD will be credited back to the veteran borrower at closing EMD exceeds 2% of sales price Appears excessive based on the borrower’s accumulated savings history. Document as follows: Copy of the cancelled check and deposit holder’s acknowledgment of receipt. Bank statements to source the deposit check as determined by the AUS findings. Gift Funds Gift letter must: Certify the gift was not sourced from an interested party to the transaction (e.g. seller, realtor, builder, loan originator, etc.) Identify the relationship, donor’s name and address, gift amount and date given, donor’s source account Executed by the donor and recipient(s) Donor may be: An immediate family member A close friend with a clearly defined and documented interest in the borrower A local, federal, state agency, or a VA approved non-profit agency that is considered an instrumentality of the government Donor’s ability must be documented from an acceptable source (not an interested party). Cashon-hand is not acceptable. Document the gift transfer Endeavor America Loan Services VA Guidelines Retirement Account 60% of the vested balance can be considered as cash reserves Sale of Home AUS Approve/Accept Loans: Obtain executed HUD-1 or equivalent closing statement If relocation, obtain buyout agreement. AUS Refer/Manual Approval Loans: Additionally, verify source of funds for payment of any differences between sales price and loan amount plus closing costs, if sales price exceeds the NOV. Assumability A VA mortgage is assumable by qualified borrower(s) during the life of the loan. 11-05-2014 Page 17 of 58 Borrower Eligibility For veterans who served active duty and were honorably discharged, the minimum service periods shown in the following table are based on continuous days of active duty. Eligible Veterans Era World War II Post World War II Korean Post-Korean Vietnam Post-Vietnam Persian Gulf Dates 09/16/1940 – 07/25/1947 07/26/1947 – 06/26/1950 06/27/1950 – 01/31/1955 02/01/1955 – 08/04/1964 08/05/1964 – 05/07/1975 05/08/1975 – 09/07/1980 09/08/1980 – 08/01/1990 09/08/1980 – present Minimum Service Requirement 90 days 181 days 90 days 181 days 90 days 181 days 2 years: Enlisted after 09/07/1980 and Officer after 10/16/1981 2 years OR full period called to active duty, not less than 90 days Other Eligible Borrowers Additionally, the following table addresses identifies other eligible borrowers including Reserves/National Guards. The service times for Reservists and Nation Guards can be pieced together and do not have to be consecutive. Active Duty, Reserves/National Guards Other Eligible Borrowers Active duty member Active Reserve or National Guard Minimum Service Requirement 90 days minimum wartime service when called up under U.S.C. Title 10 181 days minimum peacetime service of continuous active duty. 6 years in Selected Reserves Except if discharged due to a service connected disability before completion of 6 years. Honorably discharged from service unless: Inactive status awaiting final discharge, or Still serving Spouses Other Eligible Borrowers Unmarried surviving spouse POW/MIA Spouse Endeavor America Loan Services VA Guidelines Minimum Service Requirement No time requirement. Veteran must have died on active duty or from a service-connected disability. VA Form 26-1817, Request for Determination of Loan Guaranty Eligibility – Unmarried Surviving Spouses must be completed and submitted to applicable VA Eligibility Center in Winston Salem, NC. or Atlanta, GA. A loan obtained with a surviving spouse COE requires an affidavit at closing that the surviving spouse is not married. Veteran must have been POW or MIA for 90 days. 11-05-2014 Page 18 of 58 Borrower Eligibility (continued) CAIVRS Certificate of Eligibility Foreign Address Borrowers currently residing in a foreign country must have a primary residence or second home in the U.S. The borrower’s U.S. residence must be reflected as the present address on the loan application. The borrower’s foreign address must be reflected as the mailing address on the loan application. A LOE from the borrower must be obtained to explain the borrower’s current residency situation. Perform and document a CAIVRS screening on each veteran and any co-obligor. An applicant cannot be considered a satisfactory credit risk if he or she is presently delinquent or in default on any debt to the federal government until the delinquent account has been brought current or satisfactory arrangements have been made between the veteran and the federal agency. CAVIRS is not required for non-purchasing spouses in community property states. Certificate of Eligibility (COE) The Certificate of Eligibility (COE) shows the available entitlement amount that VA will use to guaranty the loan. The borrower who is using his/her entitlement to guarantee the loan must be listed as the primary borrower. COE can be obtained by sending to the appropriate VA Eligibility Center the following documentation: VA Form 26-1880 Proof of service documentation (DD214, active duty statement of service, or Reserve/National Guard points statement) Copy of HUD-1 if veteran had a previous VA home that was sold Automated Certificates of Eligibility (ACE) Lenders can obtain an online COE through the ACE system accessed on VIP website: http://vip.vba.va.gov ACE certificate has an authorization number for authenticity ACE cannot make all determinations for Reserves/National Guard Prior VA loan foreclosure Insufficient time/discharge type Unmarried surviving spouse Endeavor America Loan Services VA Guidelines 11-05-2014 Page 19 of 58 Credit and Obligations 30-Day Charge Accounts Open 30-day charge accounts (monthly payment reported as equal to outstanding balance or as $0) requires the balance to be paid in full every month. If additional liquid assets are verified to sufficiently cover the unpaid balance, the debts may be excluded from the DTI. Otherwise, the entire outstanding balance must be included in the DTI. Alimony/Child Support Verify the payment amount and current status of the account Delinquent child support must be considered in the overall creditworthiness If the account is >90 days past due and there is no repayment arrangement, downgrade to a Refer. Bankruptcy Chapter 7 AUS Approve/Accept: a Chapter 7 bankruptcy may be disregarded if discharged more than 2 years ago. Manual underwrites or AUS Refer allow Chapter 7 that was discharged within 1-2 years provided both requirements are met: Obtain complete and thorough documentation trail of the circumstances that led up to the bankruptcy were beyond the borrower’s control (e.g. unemployment, prolonged strikes, medical bills not covered by insurance). Document reestablished credit with 4 consumer debts opened after the bankruptcy with satisfactory 12 months pay history Bankruptcy discharged within the past 12 months is not permitted. Chapter 13 Documentation of debt restructure Most recent 12 months acceptable payment history in accordance to the Ch. 13 Approved Plan. Court’s approval to proceed with VA loan If borrower converts a Chapter 13 into Chapter 7 that was subsequently discharged within the past 12 months, then refer to Chapter 7 guidance above. Endeavor America Loan Services VA Guidelines 11-05-2014 Page 20 of 58 Credit and Obligations (continued) Child Care Expenses Child care letter is required for all children 13-years-old or younger (state specific requirement supersedes) and must include: child care costs, name and address of the provider) Child care expenses must be included in the DTI and residual income If there is no child care expense, obtain an explanation. Co-Signed Loans A co-signed loan may be excluded from the borrower’s monthly obligations with: Documentation loan payments are being made by someone else, AND Verification that the loan is current and being paid on time Late payments reported on debts assigned to the ex-spouse in a divorce do not need to be charged to the borrower, if the delinquencies occurred after the divorce. Consumer Credit Counseling Consumer Credit Counseling Services (CCCS) is acceptable if ALL of the following are met: Endeavor America Loan Services VA Guidelines Documentation of debt restructure is required Acceptable 12 months payment history of debts included in the consumer’s debt restructure. Counseling agency provides written authorization to proceed with new VA loan. AUS Approve/Accept loans: the credit has met VA guidelines and the CCCS is not impacting the loan. Consequently, a written authorization is not necessary. Any additional requirements per AUS findings. Collections and Delinquent Accounts Delinquent accounts including collections do not necessarily have to be satisfied prior to closing, subject to the underwriter’s discretion and the AUS findings. Reestablished credit with 12 months satisfactory payments after the date of the last late payment if prior derogatory payments didn’t involve a bankruptcy. Deferred Student Loans Qualify with the monthly for ALL student loans due within 12 months of closing. Education loans with > 12 months verified deferment may be excluded in the debt calculation. Delinquent Federal Debt ANY delinquent federal debt (e.g. student loans; tax liens; etc.) must be brought current, paid in full, resolved with satisfactory repayment pan between the federal agency and the borrower. Written verification is required from the federal agency to document that the delinquency has been paid in full, or repayment arrangements have been established. Even though a debt may be satisfied, it doesn’t take away from the fact the delinquency occurred and must be considered in the credit risk analysis. 11-05-2014 Page 21 of 58 Credit and Obligations (continued) Foreclosures Two (2) years minimum seasoning (from application date) is required for prior foreclosure and deed-inlieu of foreclosure on both AUS Approved and manually underwritten loans. If prior VA foreclosure, check the COE to ensure sufficient entitlement and/or restoration of entitlement. A detailed explanation with documentation is required to support the situation(s) that caused the foreclosure or deed-in-lieu- were beyond the borrower’s control and unlikely to reoccur. Must have reestablished credit with no housing or installment late payments after the foreclosure. Inquiries Borrowers must address ALL inquiries within the past 120 days listed on the credit report and specifically addressing the reason and the disposition of each inquiry. No explanation is required on AUS Approve/Accept Housing History AUS Approved loans, rental verifications are not typically required Mortgage history with more than one (1) X 30 days late within the past 12 months require an explanation and must be manually underwritten. Mortgages not reporting on the credit report with more than one (1) X 30 requires a manual downgrade. Job Related Expenses Job related expenses include: child care expenses for children < 13-years-old, significant commuting costs of 50+ miles each way, undisclosed debt(s) on paystubs, and/or unreimbursed business expenses. Such expenses must be included in the DTI and residual income calculations. Judgments/Tax Liens All judgments appearing on title must be satisfied prior to closing. Judgment(s) not on title or tax lien(s) may be either: A) satisfied prior to closing, or; B) document repayment plan with at least two (2) scheduled payments made prior to loan application. Modified/Restructure Purchase and refinance transactions where the borrower has had a modified/restructured mortgage may be acceptable as follows: d Loans Endeavor America Loan Services VA Guidelines The modification/restructure adjusted the terms and/or payment only. The mortgage must be current with no lates within the last 12 months. 11-05-2014 Page 22 of 58 Credit and Obligations (continued) Non-Traditional Credit Endeavor America requires most loans to receive an AUS Approve/Accept. Loans with borrowers who have insufficient credit and non-traditional credit are manually underwritten with a 41% maximum DTI. Borrower’s payment habits may be determined with alternative credit reference from non-traditional sources of credit such as rent, utilities, cell phones, car insurance, or other expenses the borrower pays over time. Each credit reference should provide the most recent 12 months payment history and current account rating with creditor phone number validated through third party public sources. Non-traditional sources of credit cannot be used to offset poor credit history. Endeavor America Loan Services VA Guidelines Payoff of Debt to Qualify If the seller is willing to payoff the borrower’s debt to qualify, the assistance must be: Included for compliance of 4% seller concession, and Payoff statement provided by the creditor(s) and close-out letter from the borrower, and Reflected on the purchase HUD-1 Settlement Statement Significant Debt Any debt that will have significant impact on the veteran-borrower’s ability to meet their standard family living expenses must be included in calculating the debt ratio (VA defines significant as any debt that exceeds 2% of the total effective income used to qualify). This guideline also applies to debts with <10 monthly payments remaining. Underwriter may consider if there are reserves to cover the debt after closing or a source of income they were unable to use as “effective income.” Comments for excluding payments in DTI should be included in the Remarks section of the Loan Analysis. 11-05-2014 Page 23 of 58 Credit and Obligations (continued) Community Property States Endeavor America Loan Services VA Guidelines Short Sales There is no waiting period when the borrower has a short sale appearing on their credit report. All loans must be documented according to manual underwriting requirements. Most of these transactions will result in an AUS Refer. The following must be met: No lates on the most recent 12 month housing history. The requirement includes the mortgage with short sale if it was completed and the property was sold within the last 12 months. Exceptions may be considered on a case-by-case basis with a detailed borrower’s explanation and supporting documentation that the lender required the borrower to stop making payments in order to begin the short sale process. Community property states: Alaska (optional), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin. If the borrower resides in a community property state OR if the subject property is located in a community property state: Debts of the non-purchase spouse must be considered in the debt-to-income ratio and in the residual income calculation. o Obligations specifically excluded by state law need not be counted with satisfactory documentation to support the exempted debts. The greater of the reported monthly payment or 5% of the outstanding balance must be counted as the monthly obligation. Judgments, liens, and any other delinquent credit that would compromise Endeavor America’s first lien position must be paid off prior to closing. Other delinquent debts would only be required to be paid off at the EALS underwriter’s discretion. If the non-purchasing spouse doesn’t have a SSN, a credit report is still required with public records search. CAVIRS is not required for non-purchasing spouses in community property states. 11-05-2014 Page 24 of 58 Conversion of Primary Residence Conversion of a Primary Residence to a Second Home The veteran must qualify with the monthly housing expenses for both the departing residence and the subject transaction. Required reserves as determined per the AUS recommendation. Conversion of a Primary Residence to a Rental Property Rental income of the departed residence is calculated on a 75% of: Fair market rent as established by a state licensed appraiser’s current Market Rent Analysis, or; Monthly gross rent from an executed lease agreement with security deposit receipt. Any positive cash flow cannot be used as qualifying income. Rental income is allowed only to offset the mortgage payment and the mortgage debt should be listed on the loan analysis as a “rental offset.” If the cash flow is negative, this must be considered as a debt. Reserves are not required unless necessary to maintain AUS Approve/Accept recommendation. Pending Sale of Real Estate When the veteran intends to sell the property but the sale will not close prior to the new VA purchase; Veteran must qualify with the PITI on both the current residence and the new primary purchase; Veteran must document minimum cash reserves of: o Six (6) months PITI for both properties, or; o Two (2) months PITI for both properties is able to document a minimum of 30% equity in the current residence. Disaster ReInspections Endeavor America Loan Services VA Guidelines Appraisal inspected on/before a FEMA declared disaster incident period end date: Property must be re-inspected by the original appraiser or acceptable inspection source (e.g. a nationally recognized field company or local professional licensed inspector). The appraiser/property inspector must provide the following commentary/evidence: “Property is free from damage and the disaster had no effect on the value or marketability.” Monthly gross rent from an executed lease agreement with security deposit receipt. If the re-inspection indicates damage, the extent of damage must be addressed. Completion of repairs is required prior to funding as evidenced by form 1004D with photos. 11-05-2014 Page 25 of 58 Appraisal inspected after a FEMA declared disaster incident period end date: An interior inspection is required in all FEMA declared disaster areas for one year from the date of the disaster declaration. The appraiser must provide current photos of the subject property and comparable sales. Photos from MLS or the appraiser’s database are not acceptable. Property Valuation Update, PIW, Exterior Appraisals (forms 2055, 1075): Not allowed until one year after the disaster declaration date. VA Guaranty Eligibility: Any loan funded prior to the disaster is eligible for VA guaranty without regard to the disaster. For any unfunded loan that was appraised on/before the disaster date, the following certifications are required: o Lender Certification must be signed and dated by an EALS underwriter – “This is to affirm that the property which is the security for VA loan number _____________ has been inspected to ensure that it was either not damaged in the recent disaster or has been restored to its pre-disaster condition, or better.” o Veteran Certification must be signed and dated by the veteran – “I have inspected the property located at __________________________________ 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.” (for purchase transactions) Disaster ReInspections (continued) Eligible Properties The following properties are permitted under the VA Home Loan Program: 1-Unit single family and 2-4 multi-unit residential properties VA approved condo (VA web link: https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch) PUDs that meet all VA requirements Manufactured homes classified as real estate and meets VA requirements (single or double-wide) New construction by VA approved builder 95% completed construction except for customer preferences Completed less than 1 year and never occupied Proposed and Under Construction by a VA approved builder Note: EALS only provides the permanent financing; not construction draws. Endeavor America Loan Services VA Guidelines 11-05-2014 Page 26 of 58 Ineligible Properties Eligible Transactions Endeavor America Loan Services VA Guidelines Ineligible Property Types A property is ineligible if any of the following conditions are present: Condominium is not VA approved Condominiums or manufactured homes with less than 400 square feet Manufactured home not permanently affixed to the lot and is not considered real estate under the law Ownership NOT fee simple (e.g. cooperative, leasehold, ground rental arrangements) Property that cannot meet VA’s minimum property standards Property has Chinese drywall Property location in any of the following: A Special Flood Hazard Area (SFHA) and flood insurance is not available A SFHA and is proposed/under/new construction with elevation of the lowest floor below the 100 year flood level An area subject to regular flooding for whatever reason(s), regardless if it’s in SFHA. A Coastal Barrier Resources System area An Airport Noise Zone 3, if proposed or under construction A transmission line easement involving high-pressure gas or liquid petroleum or high voltage electricity, if any part of the residential structure is located within the easement An area susceptible to geological or soil instability (earthquakes, landslides, or other history of unstable soils) if proposed/under/new construction and the builder cannot provide evidence that either the site is not affected or the problem has been adequately addressed in the engineering design. Purchase Principal residences only Refinance Interest Rate Reduction Refinance Loan (IRRRL) may be second home/investment property previously occupied by veteran Cash-Out/regular refinance (debt consolidation, rate and term reduction, home improvement, spousal buyout, equity takeout) 11-05-2014 Page 27 of 58 Ineligible Products or Transactions Employment/ Income Verification Endeavor America Loan Services VA Guidelines Ineligible Products or Transactions Co-signer who is not a legal spouse to the veteran Energy Efficient Mortgages (EEMs) Escrow holdbacks Living and Land Trust Loans with non-occupying borrowers Non-arms-length transaction on a short sale when the seller and buyer are related Supplemental loans Temporary buydowns Texas cash-out refinances Transactions resulting in less than 25% guaranty Unsecured loans or loans secured by less than a first lien VA Adjustable Rate Mortgages (ARMs) VA Prior Approval loans: Loans made to two (2) or more veterans who will be using entitlement Loans made to veterans receiving VA non-service related pension Loans made to veterans rated incompetent by the Department of Veteran’s Affairs VA IRRRLs currently delinquent at the time of application or closing Active Duty Military If the borrower’s active duty release date or the end of the contract term is within 12 months of the closing date, obtain any of the following: Document re-enlistment date beyond the 12-month period from the closing. A statement from the service member that he/she intends to re-enlist or extend his/her period of active duty to date beyond the 12-month period plus a statement from his/her commanding officer confirming the service member is eligible to re-enlist or extend his/her active duty and that there is no reason re-enlistment or extension of active duty will not be granted. Verification of a valid offer of local civilian employment following the release from active duty. 11-05-2014 Page 28 of 58 Employment/ Income Verification (continued) Active Duty Military (continued) Allowances on LES Leave and Earnings Statement (LES) dated 120 days prior to the Note date is required. Basic Allowances Non-taxable basic allowances may be used as effective income such as: quarters (BAH), subsistence (BAS), and clothing. BAH is verified with form Stats of Housing Availability/DD Form 1747 that confirms borrower will not have housing accommodations available and that borrower has authorization to secure non-military housing. Endeavor America Loan Services VA Guidelines Documentation of strong mitigating factors such as: >10% down payment; significant cash reserves; and evidence of strong ties to community with adequate non-military spouse income so that only minimal income is needed from the active duty service member to qualify. A statement from the service member that he/she intends to re-enlist or extend his/her period of active duty to date beyond the 12-month period plus a statement from his/her commanding officer confirming the service member is eligible to re-enlist or extend his/her active duty and that there is no reason re-enlistment or extension of active duty will not be granted. Flight Pay, Overseas Pay, Combat Pay Other taxable allowances include: flight or hazard pay, pro-pay, overseas pay, and combat pay. May be used as effective income if documented as follows: Document amount and history of receipt. Verify continuance consistent with the nature of the service member’s duties (e.g. flight pay for a pilot). Special Separation Benefit (SSB) Special Separation Benefit (SSB) is a one-time lump sum that is taxable in the year of receipt. SSB is considered as a cash reserve (not effective income). Voluntary Separation (VSI) VSI is paid annually and is taxable in the year of receipt. VSI may be used as qualifying income. Payment period is calculated by multiplying the service member’s years of service times two. 11-05-2014 Page 29 of 58 Employment/ Income Verification (continued) Auto Allowances Generally, auto allowances are paid to cover specific expenses related to the applicant’s employment and may be used to offset a corresponding car payment. Business Loss from NonPurchasing Spouse 2106 expenses for the non-borrowing spouse do not need to be subtracted from the borrower’s income as long as the spouse’s 1040 wages offset these expenses. All other non-borrowing spouse’s losses, including Schedule E losses, must be subtracted from the borrower’s income. Disability Income Foster Care Foster care income may only be used to balance the expenses of caring for the foster children against any increased residual income requirements with documented history and verified continuance. Non-Taxable Income Non-taxable income may be “grossed up” only to calculate the debt ratio but not for the residual income calculation. The “grossed up” income must be annotated in the “Remarks” section of the Loan Analysis. The percentage of non-taxable income that may be added back is based on the appropriate tax rate for the income amount reflected on the borrower’s tax returns. Do NOT add non-taxable income to taxable income before “grossing up.” Endeavor America Loan Services VA Guidelines Disability income will be considered as acceptable income provided it can be documented by furnishing a recent copy of the respective letter of benefits or allotment setting forth the terms of the income. Disability income may only be used if it can be documented that the benefits must be on-going for a minimum of three (3) years. Temporary/short term disability income is not considered consistent or a stable source of income and cannot be used for qualifying purposes. 11-05-2014 Page 30 of 58 Employment/ Income Verification (continued) Rental Income 2-4 Unit Subject Property 2-4 unit subject property rental income can be used to qualify if the following are both met: Evidence indicates the borrower has a reasonable likelihood of success as a landlord; and o Document the borrower’s prior experience in managing rental units or other background involving both property maintenance and rental. Borrower has a minimum six (6) months PITI reserves Subject rental income is calculated based on 75% of: Verified rent collected on the units for an existing property; or Fair market rent per appraiser’s opinion on proposed construction Other Real Estate Owned Reserve/National Guard Endeavor America Loan Services VA Guidelines Three (3) months PITI reserves for each rental property owned, and; Rental cash-flow based on Schedule E from most recent two (2) years personal tax returns, signed and dated by the borrower. Depreciation claimed as a deduction may be added back to the rental cash-flow. For rental properties with <12 months rent history, underwriter’s determination to use rent will be based on: o Documented borrower’s prior experience in managing rental units or background involving both property maintenance and rental; and o Obtain executed lease(s) on the property; and o The strength of the local rental market. Borrower must indicate whether his/her income will change in any part due to his/her participation in the Reserve/National Guard; and If Reserve/National Guard income will probably continue based on the total length of service, then this income may be used to qualify If continuance is not likely, the income may be used to offset debt that has only 10-24 months of payment remaining. 11-05-2014 Page 31 of 58 Employment/ Income Verification (continued) Endeavor America Loan Services VA Guidelines Reserve/National Guard (continued) For recently activated Reserve/National Guard, the underwriter must determine the borrower’s income upon unit activation. Underwriter must also comment in the VA Analysis/26-6393 the reason(s) for using/not using Reserve/National Guard income. If income will be reduced by borrower leaving current job, the underwriter must carefully evaluate the impact to the borrower’s ability to repay (ATR) the loan as well as manage their current expenses. If income will increase, then consider if the likelihood the income will continue beyond a 12-month period. Retirement Non-taxable pension can be grossed up for debt ratio but not to meet the required residual income. Same-Sex Marriages VA Regional Office will determine whether both spouses’ income can be used to qualify, based on the following information: Date of marriage State of subject property State where marriage took place State of current residence State of residence at the time of the marriage Estimated closing date. 11-05-2014 Page 32 of 58 AUS Income Documentation AUS Approve/Accept Documentation Alimony/Child Support Gap in Employment Current Employment Endeavor America Loan Services VA Guidelines Most recent three (3) months bank statements to document receipt of deposit. Divorce decree (front and all applicable pages) that provide details of support payments and prove three (3) year continuance. No explanation for employment gap is required if both of the following conditions are met: Gap <60 days employment gap >6 months at new employment Verbal VOE with 3rd part employer validation Most recent paystub that covers at least one (1) full month of employment including: Year-to-date information Bonus information Overtime information 11-05-2014 AUS Refer 12 months receipt for manual approval. An explanation is required for each employment gap >30 days. Same as Approve/Accept Page 33 of 58 AUS Income Documentation (continued) Previous Employment De-Minimis SelfEmployment Endeavor America Loan Services VA Guidelines AUS Approve/Accept Documentation No VOE is required if borrower has been on current job for one (1) year with W-2s for previous year. No W-2s are required for active duty borrowers. No W-2s are required if all of the following are met: Borrower with same employer >2 years Verbal VOE verifies length of employment and current status (still employed) Qualifying with current base pay only (rather than total earnings) Bonus, overtime, or secondary income is not needed to qualify Borrower is not selfemployed or commissioned “De-minimis” self-employment is not considered. De-minimis employment refers to a business activity with income/loss that is less than 5% of total monthly income. 11-05-2014 AUS Refer Obtain a written VOE or any of the following to verify past two (2) year period: W-2s or W-2 transcripts Tax transcripts Same as Approve/Accept Page 34 of 58 AUS Income Documentation (continued) Self-Employed: Personal Tax Returns Self-Employed: Commissioned Borrower Self-Employed: Profit & Loss Statements and Balance Sheets Self-Employed: Business Returns Endeavor America Loan Services VA Guidelines AUS Approve/Accept Documentation Most recent two (2) years signed personal tax returns with all applicable schedules and referenced statements Most recent two (2) years signed 1040s with all applicable schedules Written VOE fully completed including the following: YTD paid commissions Basis for payment When commissions are paid AUS Refer Same as Approve/Accept Same as Approve/Accept Not required Obtain YTD P&L and Balance Sheet if >7 months have elapsed since the last business year tax ending date. No business tax returns are required if all of the following are met: Document borrower’s ownership for the past five (5) years Business funds are not used for closing costs or down payment No personal revolving/installment debt being paid by the business Business structure has not changed in the past five (5) years Obtain most recent two (2) years business tax returns with all schedules and referenced statements. 11-05-2014 Page 35 of 58 Available entitlement will be shown on the COE and is determined by the Veterans Administration based on the borrower’s military service. $36,000 = Basic Entitlement for loans amounts up to $144,000 $68,250 = Bonus Entitlement for loan amounts over $144,000. Maximum entitlement is 25% of the VA high-cost county limit Full Entitlement: If a borrower has never had a VA loan or if the previous VA loan has been paid off and the borrower has no other outstanding VA loans. Full entitlement + down payment (if any) = Final Entitlement/Guaranty. Divide Final Entitlement/Guaranty by the total loan amount = % of Guaranty. VA Entitlement, or combination of VA Entitlement + down payment and/or equity, must = >25% of the loan including the funding fee. Partial Entitlement: If a borrower has previously used his/her eligibility on another property which will not be restored, only the remaining entitlement amount is available for use for the new VA loan. Restoration of Entitlement: Not required prior to closing if the following are met: o IRRRLs o Veteran borrower will restore his/her entitlement with the sale of the existing residence closing simultaneously with the new residence. IS required when one of the following is true: o Property securing the VA guaranteed loan has been sold and the loan has been paid in full o Cash-out refinance of an existing VA loan o A qualified veteran buyer has assumed the outstanding VA loan balance, and Substituted his/her entitlement for the same amount originally used on the loan, and Our borrower has obtained a release of liability. o Note: ONE TIME ONLY (One Time Restoration), the original VA loan has been repaid in full, however, the property was not disposed. Entitlement Endeavor America Loan Services VA Guidelines 11-05-2014 Page 36 of 58 Entitlement (continued) 1. 2. 3. 4. 5. 6. Endeavor America Loan Services VA Guidelines If any of the above is true, the veteran must restore his/her entitlement prior to closing by forwarding the following documentation to the applicable Eligibility Center: o Completed VA Form 26-1880 o Proof of military service o Copy of signed and dated loan application (1003) for subject transaction Supporting documentation proving the disposition of the prior debt (such as Final HUD-1 statement, assumption paperwork, paid Note/paid in full statement from the prior lender, or statement that the loan will be used to refinance an existing primary residence). If the borrower is purchasing a home and will restore his entitlement with the sale of the existing residence simultaneously, o VA considers closings within a seven (7) day period as simultaneous closings. The original COE will reflect less than full entitlement and the debt listed on the COE must be paid in full with the statement of the existing residence, thereby restoring full entitlement for guaranty Simultaneous Closings ONLY: The following must be in the loan file to restore the entitlement at the time of insuring Original COE Completed VA Form 26-1880 showing the property has been sold Proof of military service Evidence of the disposition of the prior debt such as Final HUD-1 statement, paid in full statement from prior the lender Entitlement Code – Use the separation, effective, or discharge date to determine the code as follows: World War II 7. Spouse of POW/MIA Korean War 8. Post-World War II Post-Korean War 9. Post-Vietnam War Vietnam War 10. Persian Gulf War Entitlement Restored 11. Selected Reserves Un-Remarried Surviving Spouse 11-05-2014 Page 37 of 58 Guaranty Endeavor America requires a minimum of a 25% guaranty fee for veterans with full entitlement. VA entitlement solely, or a combination of entitlement plus down payment, and subject property equity, must equal >25% of the total loan amount including the funding fee. If <25% guaranty, EA underwriter must provide calculations used to determine the full 25% guaranty. EA maximum exposure, inclusive of the VA entitlement, is limited to 75% of the lesser of the sales price or appraised value. The maximum guaranty is lesser of the veteran’s available entitlement or the maximum potential guaranty amount as noted below: Loan Amount Up to $45,000 $45,001 to $56,250 $56,251 to $144,000 $144,001 to $417,000 >$417,001 Maximum Potential Guaranty* 50% of the loan amount $22,500 40% of the loan amount with a maximum of $36,000 25% of the loan amount with a maximum of $104,250 The lesser of 25% of the VA county loan limit, or 25% of the loan amount Special Requirements Minimum guaranty of 25% on IRRRLs Minimum guaranty of 25% on IRRRLs Minimum guaranty of 25% on IRRRLs Minimum guaranty of 25% on IRRRLs Guaranty will never exceed 175% of the Freddie Mac loan limit for a single family residence in the county where the subject property is located. *Maximum entitlement is 25% of the VA high cost county limit Escrow waivers are not allowed under any circumstances Escrow Waivers Endeavor America Loan Services VA Guidelines 11-05-2014 Page 38 of 58 Fees and Charges VA allows for the borrower to pay all fees and charges provided they are reasonable and customary. The following table identifies the veteran-paid fees and charged allowed by Endeavor America in consideration of VA regulations. If the seller is paying for allowable closing costs and prepaids, the loan approval condition must read “Seller to credit borrower up to $_________ toward closing costs and prepaids.” Allowable Veteran-Paid Fees/Charges Endeavor America Loan Services VA Guidelines 1% Flat Fee (Unallowable Fees/Charges) Flat fee (1% maximum) Amortization schedules Appraisal reconsideration fees if borrower requests the Attorney’s services other than for title work value reconsideration Commitment fee Courier/Express mail fees (refinance only) Document preparation fee Credit report and evaluation fees not exceeding $50 Escrow fees and charges Discount points Fees for preparing Truth-in-Lending (TIL) Statement Environmental protection lien Fees charged by Loan Brokers, Real Estate Agents, Finders or Flood certification fees from a 3rd party not included in the other third parties appraisal report Lender’s Inspection fee Hazard and Flood Insurance premiums Lender’s Appraisal fee MERS fee Loan application and processing fee Pest Inspection (refinances only) Loan closing or settlement fees Prorated taxes, assessments, and initial deposits for escrow Notary fees accounts Pest Inspection (purchase transaction) Recordation taxes and fees Photographs Survey and Plot Plan Postage and other mailing fees Title examination and insurance Preparing loan papers or conveyance fees VA appraisal fee Tax service fees VA Compliance inspector’s fee Trustee fees Well and Septic inspection fees Underwriting fees *Unallowable fees must be paid by the seller 11-05-2014 Page 39 of 58 Funding Fee The VA Funding Fee (FF) may be financed into the loan amount or paid in cash (upfront). For conforming loan amounts, the funding fee may not be split between financing and cash payment. For high balance loan amounts, only the portion of the total funding fee that exceeds the county limit may be financed into the loan amount if the combined loan amount plus the funding fee exceeds the county limit (http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp). When the borrower pays the funding fee in cash, the following must be documented: Funds must be sourced and seasoned Large deposits must be addressed When the seller pays any portion of the funding fee, it is considered a seller concession. Veterans may be exempt from the funding fee as verified on the COE or Verification of VA Benefits (VA Form 26-8937) ONLY if the following exceptions are allowed: Veteran receives 10% disability from VA. Veteran receives military pension from VA in lieu of compensation. Veteran is rated by VA as eligible to recent compensation as a result of pre-discharge disability exam. Surviving spouse of a Veteran who died as a result of active duty injuries. Type of Veteran Down Payment First Time Use % Subsequent Use % 0% to < 5% 2.15% 3.30% 5% to < 10% 1.50% 1.50% > 10% 1.25% 1.25% Purchase Regular Military Reservist / National Guard 0% to < 5% 2.40% 3.30% 5% to < 10% 1.75% 1.75% > 10% 1.50% 1.50% Cash-out Refinance Regular Military N/A 2.15% 3.30% Reservist / National Guard N/A 2.40% 3.30% Interest Rate Reduction Refinance (IRRRL) Regular Military AND Reservist / National Guard Endeavor America Loan Services VA Guidelines 11-05-2014 0.50% 0.50% Page 40 of 58 Insurance Interested Party Concessions Manufactured Homes All loan files must contain evidence of sufficient hazard insurance, title, and flood insurance policies in accordance with VA policies. Endeavor America requires minimum coverage equal to the lesser of the replacement costs or the total loan amount. 4% is the maximum seller concession permitted on all LTVs for purchase transactions. VA’s 4% rule does not include seller assistance for standard closing costs as described in the Fees and Charges section. Seller concession or combination concessions (paid by seller or any party involved in the transaction) that exceeds 4% of the lesser of the appraised value or sales price, is considered excessive. Seller concessions included, but are not limited to the following: VA Funding Fee Buyer’s property taxes, insurance, or association dues Gifts to entice buyers to purchase (new appliance packages, swimming pools/spas, television(s), etc.) Payment of extra points to provide permanent interest rate buydowns Payoff of a buyer’s credit balances or judgments, collections, charge-offs, etc. Endeavor America will lend on manufactured homes on purchase, rate & term, cash-out, and IRRRL transactions that comply with applicable requirements below. Restrictions Endeavor America Loan Services VA Guidelines Maximum loan amount is the lesser of the county limit or $417,000. Maximum land value ratio cannot exceed 30% of the appraised value if the property is located on 10+ acres. Maximum 100% LTV on cash-out refinances with < $500 maximum cash back to the borrower for the following purposes: debt consolidation, rate & term reduction, home improvement, and spousal buy-out. 11-05-2014 Page 41 of 58 Manufactured Homes (continued) General Eligibility Requirements – Title II A manufactured home (MH) is constructed to the Federal Code, Model Manufactured Home Installation, and Safety Standards. The dwelling is built on a steel chassis, assembled in units at the factory, and then transported to the site. To be eligible for financing, all manufactured homes must comply with the following: Minimum floor area of 400 square feet. Constructed after June 15, 1976, in conformance with the Federal Manufactured Home Construction and Safety Standards (HUD Code), as evidenced by an affixed certification label in accordance with 24 CFR. Be classified and treated as real estate by local authority Mortgage must cover both the manufactured home and its site. Built and remains on a permanent chassis. Designed for occupancy as a principal residence and installed with a permanent foundation (see VA pamphlet 26-7). Fee simple title with Alta 7 endorsement. Manufactured units must not have been installed or occupied previously at any other location or site. Additions, Modifications – Additions or structural modifications may put the home at risk if the changes were not performed in accordance with the HUD code. Special State Requirements Appraiser must describe any additions/modifications made to the MH since its initial site placement. (continued) Endeavor America Loan Services VA Guidelines Appraiser must notify the lender if it is suspected that an addition/modification poses a risk to the structural integrity of the home. Additions/Modifications must comply with the: Federal Manufactured Home Construction and Safety Standards (CFR3280), AKA HUD Code. Permanent Foundation Guidelines for Manufactured Housing, an Engineer’s Certification is required. 11-05-2014 Page 42 of 58 Manufactured Homes (continued) Additions, Modifications – Special State Requirements (continued) Credit Score Elevation Certificate – Flood Zones A & V Endeavor America requires a minimum qualifying FICO score of: 580 score for double-wide and triple-wide 620 score for single-wide An elevation certificate is required if the subject manufactured home is located in a flood hazard area. If the subject property is located in flood zones A and V, and a MH without a basement, the finished grade level beneath must be at or above the FEMA Special Flood Hazard Area (SFHA) 100 year return frequency elevation. MH with a basement, the grade beneath the basement floor shall be at or above the SFHA. FEMA Form 81-31 – Elevation Certificate must be dated and executed after the appraisal date. Endeavor America Loan Services VA Guidelines Some states require an inspection of any addition/modification (e.g. Washington state). The appraiser and underwriter are responsible for knowing the local regulations. A certification must be obtained from the local authority that governs manufactured housing if additions have been made to the dwelling. The report must state that the addition meets all applicable local/state codes and specifications. If there is no local authority, then a licensed engineer within the subject state may certify the addition to the property does not affect the subject’s structural integrity. 11-05-2014 Page 43 of 58 Manufactured Homes (continued) Engineer’s Certification of Foundation Compliance MH appraisals should be completed on form 1004C and be made “subject to” a required inspection by a licensed engineer or a registered architect certifying the foundation is in compliance with the HUD handbook 4930.3G, Permanent Foundations Guide for Manufactured Housing (PFGMH), dated September 1996. Foundation certification attesting compliance with HUD’s PFGMH The engineer’s certification of the foundation must be site specific and: Verify the subject foundation meets local municipality’s permanent foundation guidelines. Verify the manufactured home has not been moved from another location. Verify no alteration to the original structure and/or observable damage to the foundation The certification may be completed by a licensed engineer or a registered architect, who is licensed/registered with the state in where the manufactured home is located. The certification must contain the engineer’s or architect’s signature, stamp/seal, and/or valid state license/certification number. In states where seals are issued, the seal must be on the certification. Certification on Foundation Compliance is NOT required for: HUD Red Tags Endeavor America Loan Services VA Guidelines FHA to VA refinance transactions provided that no modifications have been made to the foundation or the structure from the date of the effective certification. HUD Real Estate Owned (REO) Division sales. IRRRL without an appraisal. All MHs must have a HUD label (commonly known as the “red tag”), a metal tag affixed outside. A multi-wide unit has multiple HUD tags; one for each transported section/unit. 11-05-2014 Page 44 of 58 Manufactured Homes (continued) HUD Red Tags (continued) When the HUD labels are missing: The appraiser must notify the lender and condition the appraisal for documentation verifying the HUD labels were issued to the manufactured home. Institute for Building Technology (IBTS) maintains data regarding HUD certification labels and data plates. IBTS can provide the following verifications: o HUD Label Verification Letter: Includes label number, serial number, date of manufacture, manufacturer name and plant location, location of the first destination (usually the retailer). o HUD Data Plate/Compliance Certificate Reference: VA circular 26-14-24 HUD Data Plate There is only one (1) data plate that is made of paper. It is typically found inside the home in one of three locations: Adjacent to the electric service panel in the utility room, or In a kitchen cabinet, or In a bedroom closet. Data plates contain the HUD Certification Label Number to assist in ordering the HUD Label Verification Letter from IBTS. Endeavor America Loan Services VA Guidelines It also contains useful information: manufacturer name, serial number, model and date of manufacture, as well as wind, roof load, and thermal zones. Appraiser should provide a legible photo of the data plate. Appraiser should report if the data plate is missing, but need not reject the property if so. Appraiser should also check the data plate to see if the MH was constructed for the geographic area for which it was installed. If not, the appraiser must report to the lender who will make the borrower aware of this fact. 11-05-2014 Page 45 of 58 Manufactured Homes (continued) Ineligible properties Insurance The following property types are ineligible for delivery to Endeavor America: Condo, Co-Ops, Parks Leasehold Multiple manufactured units on the same lot Single family with an accessory manufactured home (unless used for storage use only) Dwelling coverage is determined by the insurer. Modular Homes Dwelling is constructed at the factory in modular sections in compliance with the local codes (state codes) and Uniform Building Codes (UBC) or International Residential Code (IRC). Although factory-built, it is treated the same as a stick-built home and appraisal form 1004 is used. New Construction A property delivered to the site within the last 12 months is considered new construction. For newly constructed MHs, the appraiser must analyze the manufacturer’s invoice and any other documents that pertains to what the sale included such as: Endeavor America Loan Services VA Guidelines Payoff of personal debt Land included in the contract Personal property was included Documentation Requirements: Engineer’s Certification of Foundation Manufacturer’s Warranty Certificate of Occupancy Document purchase price and delivery/setup expenses (sales contract) Pest soil treatment (NPCA-99a and NPCA-99b or NPMA-99a, NPMA-99b) 11-05-2014 Page 46 of 58 Manufactured Homes (continued) Site Title Binder Well and Septic Endeavor America Loan Services VA Guidelines The manufactured unit must not have been installed or occupied previously at any other site or location. Manufactured units may be moved only from the manufacturer’s or dealer’s lot to the site on which the unit will be insured. If a permanent foundation is to be constructed under an existing eligible unit, the unit may be jacked up in order to install a new foundation. Preliminary title binder must reference an Alta 7 endorsement that will be included in the final policy. Title binder to: Reflect manufactured home has been relinquished from Department of Motor Vehicles and will be recorded as real property. Include the improvement tax, that is, what the taxes will be once the manufactured home is converted to real property. Survey requirements must be removed from the final title if the above two items are met. Borrowers to execute Affixation Affidavit at closing. Individual water and/or septic systems must meet local health standards, or EPA standards, in the absence of local standards. The following are required: Satisfactory well water test completed by the local health department or commercial lab or licensed sanitary engineer. Well test is valid within 90 days of the closing date. Satisfactory septic certification may be required when the appraiser indicates a problem with a septic system, indicates the subject location is in an area with soil percolation problems or is a condition of the NOV. Septic certification is valid for 90 days from the closing date. 11-05-2014 Page 47 of 58 Maximum Term Occupancy The maximum loan term for a VA home loan is 30 years (and 32 days). The term of the loan may never be longer than the remaining economic like of the property as verified by the appraisal. Primary residences only. Owner occupancy is generally required within 60 days of closing. Primary occupancy can be extended up to 12 months if the veteran borrower has a specific move-in date and particular reason/future event that is causing the delay. o Examples: active duty with separation orders of less than 12 months; or single veteran works overseas but certifies she/he will return quarterly to occupy as their primary home. Borrowers must certify they intend to occupy in the subject property for purchase and cash-out refinances. Only the legal spouse may also certify and fulfill the occupancy requirement for: o Active duty military personnel, whom are deployed from their permanent duty station, are considered to be in a temporary-duty status and able to provide a valid intent to occupy. Note: Second homes and investment properties are eligible for IRRRL transactions ONLY. Veteran must certify he/she previously occupied the property as a primary residence. Refer to Interest Rate Reduction Refinance (IRRRL) for additional guidelines. Power of Attorney Qualifying Endeavor America Loan Services VA Guidelines Endeavor America allows for borrower to sign using a power of attorney (POA) provided they meet the requirements as outlined in the VA Lenders Handbook. At a minimum, Endeavor America requires: POA may not be used to execute the initial loan application. POA signatures and typed names must match exactly. The POA must be legally enforceable and compliant with all state regulations and not include a clause that would prevent a clear title being conveyed in cases of foreclosure. The POA must include written consent from the veteran borrower consenting to the specifics of the loan transaction. That at the time of closing, the veteran borrower is alive and well, and if on active duty, not missing in action. Borrowers must meet VA’s residual income and debt ration requirements. Residual income is the net income after shelter, debts, expenses, and taxes are deducted from the gross effective income that is available for family support. Refer to Interest Rate Reduction Refinance (IRRRL) for the minimum required for the family size and geographic region of the property location. An obviously in adequate residual income alone can be a basis for disapproving a loan. If the residual income is marginal, the borrower’s credit history and previous housing expense can be considered to determine the adequacy of the residual income. The residual income includes the maintenance and utilities expense which is calculated nationwide at $0.14 per square feet of the property’s gross living area for the monthly shelter expenses (section C) on the VA Loan Analysis (26-6393). 11-05-2014 Page 48 of 58 Qualifying (continued) Reserves Interest Rate Reduction Refinance (IRRRL) Non-Credit Qualifying VA’s 41% guideline debt ratio may be exceeded with documented significant compensating factors as follows: DU Approve/LP Accept: Ratios evaluated by AUS. AUS Refer and manually underwritten loans: Up to 50% DTI maximum. VA compensating factors are required to stretch DTI > 41% regardless of AUS recommendation and should be noted by the underwriter in the Remarks section of the VA Loan Analysis (26-6393) When DTI > 41% and residual income > 120%, then at least two significant VA compensating factors are required by the underwriter to justify the loan approval. When the DTI > 41% and residual income is equal to the required minimum but less than 120%, then both requirements must be met: o ALL compensating factors including two significant factors must be noted by the underwriter to justify the approval recommendation, and o A second level approval is required and additional conditions may be requested. Verify all assets submitted to AUS that may have bearing on the overall credit analysis. When rental income is used to qualify, the minimum reserves required are: Six (6) months PITI for a 2-4 unit purchase Three (3) months PITI for each additional rental property owned. Interest Rate Reduction Refinance Loan (IRRRL) is a streamline refinance designed to lower the monthly principal and interest payment on the current VA mortgage. $500 is the maximum cash back to the borrower from adjustments made at closing. General Guidelines Borrower Eligibility Endeavor America Loan Services VA Guidelines All IRRRLs must be manually underwritten (do NOT run AUS). IRRRL must pay off the existing VA guaranteed mortgage reflected on the COE. In some cases, a copy of the exiting Note may be required to verify the LHG number. Generally the borrowers obligated on the original VA loan must be the same on the new loan and the veteran must still own the property. 11-05-2014 Page 49 of 58 IRRRL (continued) Borrower Eligibility (continued) The following table addresses if a refinance can be underwritten as an IRRRL when there is a change in the borrowers other than the veteran: Credit Score Funding Fee Endeavor America Loan Services VA Guidelines Old VA Loan Status Proposed Status Yes/No Unmarried Veteran Veteran and New Spouse Yes Unmarried Veteran Spouse Only (Deceased Veteran) No Veteran Different Veteran Who Substituted Entitlement Yes Veteran and Spouse Divorced Veteran Only Yes Veteran and Spouse Veteran and Different Spouse Yes Veteran and Spouse Spouse Only (Deceased Veteran) Yes Veteran and Spouse Divorced Spouse Only No Veteran and Spouse Different Spouse Only (Deceased Veteran) No Veteran and Non-Veteran (joint obligators) Veteran Only Yes Veteran and Non-Veteran (joint obligators) Non-Veteran Only No An IRRRL with an exterior appraisal (including a credit qualifying IRRRL) must have a minimum credit score of: No FICO 580 for both a conforming and high balance loan amount on a primary residence 580 for a conforming loan on a second home and investment property 600 for a high balance loan on a second home and investment property Funding Fee of 0.50% is required on all IRRRLs unless the veteran has a qualifying exemption. 11-05-2014 Page 50 of 58 IRRRL (continued) Guaranty Loan Limit 25% minimum guaranty is required for all IRRRLs regardless of the dollar amount of the guaranty being transferred from the prior loan. The maximum total loan amount may include: The existing VA payoff VA Funding Fee Allowable fees and charges Up to two (2) discount points Conforming Loans Matrix (LTC, Score, Units) Occupancy Units LTV Credit Score Principal Residence 1-4 100% 580 Second Home and Investment 1-4 100 580 High Balance Loans Mortgage Verification Endeavor America Loan Services VA Guidelines Principal Residence 1-4 100% 580 Second Home and Investment 1-2 100% 600 Evidence the existing VA loan was current at the time of application and is current at closing. Verify the most recent 12 months mortgage payment history through the month of funding on the existing VA loan with any of the following: Mortgage only credit report (credit score is optional*), or (*if no score provided, 580 will be used for pricing) Tri-merged credit report with a minimum score of 580 11-05-2014 Page 51 of 58 IRRRL (continued) Net Tangible Benefit Lower interest rate with PITI or reduce the loan amount Proposed PITI may increase < 20% when refinancing an ARM/GPM or with a term reduction If existing loan has a temporary buydown, both the interest rate and P&I must be lower on the IRRRL for both the buydown period as well as the Note rate. Lender must document the number of months it will take to recoup the closing costs for an IRRRL. (Calculation: Total closing costs (excluding prepaids) divided by monthly P&I costs savings.) Occupancy The veteran or the spouse of the service member must certify that she/he currently or previously occupied the property as her/his primary residence. Online Status Inquiry (in lieu of COE) Verify the VA case number provided by VA matches the VA case number on the existing loan before closing the IRRRL. Online status of existing VA loan can be accessed using the VA website. Submit the IRRRL status inquiries by: Recently Listed Property Subordinate Financing Endeavor America Loan Services VA Guidelines The first six digits of the VA lender identification number and an email address is required. If the response from the RLC confirms the loan is an active VA guaranteed loan made to the veteran, a COE will not be required. Use the printout from the RLC. Properties listed for sale are permitted if the listing was cancelled at least one day prior to the loan application date. Existing second mortgage would need to subordinate to the proposed IRRRL. For a new second, the underwriter must identify there is a benefit to the borrower and the transactional costs to obtain the second cannot be rolled into the proposed IRRRL. 11-05-2014 Page 52 of 58 IRRRL (continued) Rate Decrease and Maximum Term Maximum Term Is the original term of the existing loan plus 10 years but may not exceed 30 years plus 32 days Interest Rate Decrease The interest rate of the new loan must be less than the interest rate of the existing VA loan unless refinancing an ARM to a fixed rate. Loan Documentation Endeavor America Loan Services VA Guidelines VA Loan Summary Sheet (VA Form 26-0286) IRRRL Worksheet (VA Form 26-8923) VA Rate Reduction Refinance Certification Verification of VA Benefits (VA Form 26-8937) to verify if the borrower is exempt of Funding Fee VA Loan Analysis (VA Form 26-6393) if credit qualifying VA Federal Collection Policy Notice (VA Form 26-0503) Counseling Checklist for Military Homebuyers (VA Form 26-0592) if veteran borrower is on active duty Report and Certification of Loan Disbursement (VA Form 26-1820) Lender’s Certification that prior loan was current (not 30 days or more past due) Borrower’s Certification that he/she previously occupied the property as a primary residence 11-05-2014 Page 53 of 58 IRRRL Credit Qualifying In addition to compliance with all other IRRRL guidelines noted above, the veteran must be credit qualified for the increased monthly payment if: The loan is considered a Higher Priced Mortgage Loan (HPML); or The P&I payment will increase > 20% which may occur when Refinancing an existing ARM, or When the new loan term will be shorter than the original term Income/Assets Determine the borrower has stable and reliable income to support the proposed housing payment along with other recurring monthly obligations Provide a tri-merged in-file credit report Provide the following documentation: Paystubs covering at least the most recent 30-day period Most recent two (2) years W-2s Verbal VOE for the borrower’s current employment Maximum 50% DTI IRRRL Exterior Appraisal (Including CreditQualifying IRRRL) IRRRL with NO Appraisal Endeavor America Loan Services VA Guidelines Compensating factors required for DIT > 41% up to 50% No asset verification required For FICO <620, an Exterior Appraisal (form 2055 for SFR and Condo) is required with a1004MC. Required repairs should be addressed – any repairs that impact safety and habitability must be completed. The property condition must be rated “average” or better. The total loan amount must be supported by the appraised value of the property. An IRRRL with No Appraisal option is permitted on conforming and high balance loan amounts if ALL of the below criteria is met: 1 unit SFR, PUD, VA-approved condo, manufactured home, and Primary residence only, and 620 minimum decision score, and Property cannot be located in an area impacted by a federally declared disaster area within 90 days of closing. For pricing purposes, Endeavor America will pull a Corelogic GeoCore AVM to determine LTV. With exception to the appraisal requirement, the loan must comply with ALL other guidelines noted above in the NonCredit Qualifying section. 11-05-2014 Page 54 of 58 Residual Income Requirement VA requires residual income to ensure the borrower has sufficient income to pay for food, clothing, transportation, medical expenses, entertainment, and other day-to-day living expenses, after all monthly debts and taxes paid. Per the table below, the minimum residual income varies according to the loan size, family size, and region of the country for the property location. Loan Amounts $80,000 Loan Amounts > $80,000 Northeast Midwest South West < Minimum Residual Income by Region Family Size Northeast Midwest South 1 $390 $382 $382 2 $654 $641 $641 3 $788 $772 $722 4 $888 $868 $868 5 $921 $902 $902 Family sizes of 5+, add an additional $75 per additional family member Minimum Residual Income by Region Family Size Northeast Midwest South 1 $450 $441 $441 2 $755 $738 $738 3 $909 $889 $889 4 $1,025 $1,003 $1,003 5 $1,062 $1,039 $1,039 Family sizes of 5+, add an additional $75 per additional family member West $425 $713 $859 $967 $1,004 West $491 $823 $990 $1,117 $1,158 Geographic Regions for Residual Income Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming The residual income figures can be reduced by 5% if the active duty borrower or a retired applicant who will continue to have access to nearby military-based facilities. This reduction may also be applied to retired military applicants when the property is located reasonably near a military base or installation. If non-qualifying spouse elects to provide employment documentation (e.g. paystub and W-2s), the underwriter may consider removing the spouse from the residual requirement (reduce the number of family members by one). Additionally, if the nonqualifying spouse receives child support for children living with them, the child support may be used to offset the children in the residual income calculation with adequate documentation: court order, consistent receipt of child support payments, and verified continuance. The underwriter must document the exception in the remarks section of the loan analysis. Endeavor America Loan Services VA Guidelines 11-05-2014 Page 55 of 58 Secondary Financing Endeavor America Loan Services VA Guidelines Secondary financing is allowed provided the borrower is not placed in a substantially worse position that if the entire amount borrower had been guaranteed by VA. Requirement Assumability The second lien must be assumable by creditworthy purchasers AND should never restrict the borrower’s ability to sell the property. Assumption terms must not be more restrictive than VA requirements. Cash Back No cash back to the veteran from either the first or second mortgage when obtained simultaneously CLTV EALS doe s not have a CLTV restriction Documentation The loan file must include documentation disclosing the source, amount, and repayment terms with the veteran and co-borrower’s agreement to such terms. Grace Period The secondary financing must provide for a reasonable grace period before: A late charge becomes due, or Commencement of foreclosure proceedings in the event of default. Interest Rate Purchase: Interest rate may not exceed industry standard rates. Refinance: If subordinating existing junior lien, the second mortgage rate may exceed the new VA loan. Loan Purpose Proceeds from the second mortgage may be used for: closings costs, prepaids, and/or down payment (decreased entitlement or loan exceeding the applicable loan limits). Secondary financing may not be used to pay any portion of the excess of the purchase price over the appraised value. Qualifying Veteran must qualify with the second lien payment Simultaneous Closing Secondary financing must close simultaneously with the VA loan. Soft/Silent Liens Soft or Silent Liens that are secured against the property must be entered as secondary financing (not as gift funds). Such secondary financing has no scheduled repayments and the debt is forgiven over a period of time under the program guidelines. Sources Subordinate financing can be obtained from the following sources: Government agency Non-profit agency Builder Seller Private individuals Subordinate Lien The second mortgage must be subordinate to the VA first mortgage. Unacceptable Terms The second mortgage cannot be subject to deed restrictions or equity sharing. The underwriter will consult VA RLC regarding any unusual terms, interest rate, etc. to determine compliance with VA requirements. 11-05-2014 Page 56 of 58 Star Program Underwriting Endeavor America Loan Services VA Guidelines Well qualified borrowers who have demonstrated the ability to responsibly use credit, as well as having limited layered risk factors, are eligible for Endeavor’s Star Program. The following loan criteria must be met: AUS DU Approve/Eligible or LP Accept/Eligible recommendation > 680 qualifying FICO > $150,000 loan amount Owner-occupied properties: 1-unit single family residence, manufactured home, townhome, or condo unit Full documentation loan (not IRRRL) Automated Underwriting (AUS) The use of AUS DU or LP is mandatory for all loans with the exception of IRRRLs. A loan may be processed and approved with reduced documentation as described in the recommendation results with the following AUS risk classifications: LP Accept/Eligible DU Approval/Eligible 100% data integrity is required to prevent the AUS risk classification from being invalidated or affecting the loan guaranty. It is imperative that the data entered into the AUS be accurately verified. Manual Downgrades Any manual downgrade to Refer is required whenever any of the following is present on DU Approve/LP Accept results Any mortgage not reporting on the credit report that has more than 1x30 days late payment within the last 12 months. Any significant debt or obligation that is currently 90 days or greater past due (NOTE: Significant means a required payment large enough to cause a severe impact on the family’s resources for any period of time). Any new obligation that was obtained since the loan application date and is more than 30 days late. Delinquent federal debt, suspended/debarred individuals, and not clear CAIVRS. Disputed accounts, significant inaccuracy or undisclosed debt. Previous mortgage foreclosure or Chapter 7 bankruptcy discharged within two (2) years of the application date. Collection accounts, tax lien(s), charge-off(s), judgment(s). Bank statements that indicate multiple non-sufficient funds (NSF) charges over a 60 day period. A LOE is required and additional assets may be required as a condition for loan approval. Failure to meet specific conditions of the AUS Approve/Accept findings. The loan file must be documented according to VA’s Refer policies (AUS documentation relief no longer applies). EALS underwriter is required to: Comment on the creditworthiness assessment on the VA Loan Analysis Form 26-6393. Underwrite the loan file in accordance to VA’s manual underwriting guidelines as described in the VA Lenders Handbook and all applicable VA circulars. 11-05-2014 Page 57 of 58 Underwriting (continued) Manual Underwriting Manual underwriting is required on the following transactions: AUS DU/LP Refer recommendation may be manually underwritten with maximum of 50% DTI with a minimum 120% of the required residual income and the presence of compensating factors. IRRRL transactions. Loans in which the borrower does not have a credit score o Non-Traditional Credit may be used to determine the borrower’s payment habits. Creditor should provide a rating with 12 months payment history (e.g. rent, utilities, car insurance, etc.) Lender must certify the source of the credit reference though phone certification. o Non-Traditional credit may not be used to offset poor credit history. Loans in which the borrower has documented inaccurate credit score (e.g. identity theft, disputed accounts with open balances). Loans in which a manual downgrade is required. Refer to Manual Downgrades for detailed guidance. The loan file must meet all applicable guidelines published in the VA Lenders Handbook and applicable VA circulars as well as the most recent Endeavor America VA Wholesale Guidelines. The loan file must contain documented compensating factors (see below for specific Compensating Factors). EALS underwriter is required to: Comment on the creditworthiness assessment on the VA loan Analysis Form 26-6393. Underwrite the loan file in accordance to VA’s manual underwriting guidelines as described in the VA Lender’s Handbook and all applicable circulars. Compensating Factors Compensating factors are required for AUS Refer or manually underwritten loans. Endeavor America Loan Services VA Guidelines Excellent credit history Conservative use of consumer credit Minimal consumer debt Long-term employment Significant liquid assets Large down payment or existence of equity in refinancing loans 11-05-2014 Little or no increase in shelter expense Military benefits Satisfactory homeownership experience Tax benefits of homeownership Tax credits for child care High residual income Low debt-to-income ratio Page 58 of 58
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