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###### 2006 Training Guide

***Produced by:***

####### **VA's Manchester, NH RLC**

**275 Chestnut Street**

**Manchester, NH 03101**

**11/05**

**[TABLE OF CONTENTS]{.underline}**

**Chapter 1, The Manchester, NH Regional Loan Center**

> States Covered 1
>
> Departments, Staffing and How to Reach Us 1
>
> Important Website Addresses 2

**Chapter 2, Loan Basics**

> The Process, A Quick Summary 5
>
> Loan Amounts for Purchases and Refinances 5
>
> Refinance Facts 6
>
> Energy Efficient Improvement Loans (EEI's) 9
>
> VA Funding Fee 10
>
> Financing Options (Fixed and ARM's) 11
>
> Occupancy Requirements 12

**Chapter 3, Certificates of Eligibility**

> Sample COE 13
>
> How to Obtain a Certificate of Eligibility 14
>
> Restoration of Previously Used Entitlement 16

**Chapter 4, Loan Processing**

> Loan Processing Steps 19
>
> Basic Appraisal Survival Facts 22
>
> Loan Processing Forms 28

**Chapter 5, Credit Underwriting**

> Automated Underwriting 31
>
> Summary of Employment, Assets, Debt & Credit Requirements 32
>
> Residual 38
>
> Debt to Income Ratio 39
>
> Pre-Qualification Worksheet 41

**Chapter 6, Closing Loans and the Guaranty**

> Fees and Charges 43
>
> Seller Concessions 47
>
> Power of Attorney and Legal Instrument Requirements 47
>
> Paying VA's Funding Fee 48
>
> Obtaining a Guaranty 49

**Chapter 7, Other Items to Assist You**

> Frequently Asked Questions 51
>
> Checklists (cheat sheets) for Prior Approval, IRRRL and Audit Files 60
>
> **Chapter 1**

**Manchester RLC**

*The purpose of this training guide is to act as a quick reference,
providing you with information to help you process and close VA loans. A
more complete reference for processing VA loans is the Lender's
Handbook, VA Pamphlet 26-7, available on the Internet at
www.warms.vba.va.gov/pam26_7.html. This guide does not contain any data
concerning Loan Administration other than how to reach the department.
Information concerning servicing and claims may be found at
www.homeloans.va.gov/servicers.htm or by calling a Loan Administration
Representative.*

## 

######### States Covered

The Manchester Regional Loan Center (RLC) is one of nine nationwide
locations handling Loan Production (underwriting & closing), Valuation
(appraisal) and Loan Administration (servicing & claims) activities. The
Manchester RLC provides services for seven states of:

> \* Connecticut \* Maine
>
> \* Massachusetts \* New Hampshire
>
> \* New York \* Rhode Island
>
> \* Vermont

Our office is under the direction of William F. Dallmann, Loan Guaranty
Officer.

######### Departments, Staffing and How to Reach Us

-   Loan Production (LP, formerly called Loan Processing) handles
    questions on eligibility, processing of loans, credit
    standards/underwriting, guarantees and assumptions. Telephone number
    is (800)827-6311, option 7, fax 603-222-5862. E-mail address is
    nh_lp@vba.va.gov.

-   Questions commonly directed to us:

    I have a technical question on if I qualify for a COE and cannot
    reach anyone at

    Winston-Salem. (Did you try ACE? See chapter 3 of this guide)

    I want additional training.

    How does the veteran obtain a refund of a VA funding fee? (See
    chapter 6 of this guide)

    I have a question concerning a closing cost.

    Is this loan guaranteed? (Did you try ACE? See chapter 6 of this
    guide)

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-   Staff:

    -   Anne Keller, Loan Specialist

    -   Barbara Croman, Loan Specialist

    -   Gerri Casey, Loan Specialist

    -   Jimmy Clark, Loan Specialist

    -   Monique Beaudoin, Loan Production Officer

> *(continued on the next page)*

**How do you reach the Manchester RLC?** (continued)

-   Valuation (formerly known as C&V, commonly known as the Appraisal
    Department) handles all questions concerning what properties VA
    would accept; i.e., construction requirements, condo approval,
    appraisal issues, use of/logging into TAS, and water and/or pest
    inspections. Telephone number is (800)827-6311, option 6, fax
    603-222-5861. E-mail address is nh_appr@vba.va.gov.

    Questions commonly directed to Valuation:

    The appraiser gave the wrong value, was rude, asked for too many
    repairs, I want to talk to someone.

    Does VA require water analysis, radon test, pest, home or septic
    inspection?

    Is this VA condo approved? (You may also refer to the national
    website that contains a data base of all approved condos, PUDs and
    builders;
    [http://condopudbuilder.vba.va.gov/2.2/frames.html)]{.underline}

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-   Staff:

    -   Bethany Thompson, Staff Appraiser

    -   Christine Burridge, Staff Appraiser/SAH Agent (out-based in
        Buffalo)

    -   James Hanley, Staff Appraiser

    -   Jerry Corcoran, Staff Appraiser/SAH Agent (out-based in New York
        City)

    -   Kathlene Fleckenstein, Staff Appraiser

    -   Kenneth Beaudoin, Valuation Officer

    -   Robert Nelson, Specially Adaptive Housing Agent

    -   William Staffiere, Staff Appraiser

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-   Loan Administration (previously called Loan Service and Claims)
    handles questions from veterans who have an existing VA loan that is
    behind in the mortgage loan payments. Lenders may also call this
    department for information concerning bidding instructions, short
    sales, VA discharges, deeds for old installment contracts or the
    status of a claim. Telephone number is (800)827-0336. E-mail address
    is nh_la@vba.va.gov.

    Questions commonly directed to Loan Administration:

    I am having trouble making my mortgage payments ***and currently
    have*** a VA backed mortgage.

    I bought a home with a VA loan and want to subdivide the parcel.

    I am a lender looking for bidding instructions or claim information.

-   Property Management (PM) no longer exists within VA. This has been
    privately contracted out. So if a veteran or realtor calls and wants
    a listing of VA foreclosure homes s/he must contact OCWEN.
    ([www.OCWEN.com]{.underline} or 800-523-9479, option 1)

######### Important Websites Addresses

*www.homeloans.va.gov/ls.htm;* VA's home page specifically for lenders.
This link gives them information on training, what's hot, and how to
contact all the RLC's plus a link to the Portal (for ACE, TAS & WBLS),
and VA Lender's Handbook.

*www.homeloans.va.gov;* the national home site for Loan Guaranty that
offers information to lenders, veterans, forms, etc.

*(continued on the next page)*

**Important Website Addresses (continued)**

*www.homeloans.va.gov/eligibility.htm*; provides information and the
necessary form to obtain a certificate of eligibility

*http://vip.vba.va.gov/;* website address to access VA's Portal. The
portal allows you to access TAS (the appraisal system) to order case
numbers, appraisers, find out the status of a case, or print an NOV. You
can also access ACE-automated certificate of eligibility that is used to
obtain a certificates of eligibility for a veteran who served full time
active duty or who has a VA loan and will be doing a back to back
closing. ACE also can tell you if a loan is guaranteed. Finally you can
access WBLS, the new way to guaranty your loans on line!

*http://cpb.vba.va.gov;* provides a list of VA approved condominiums,
planned unit developments and builders

*www.vba.va.gov/ro/manchester/lgymain/loans.html*; Manchester's Regional
Loan Centers direct website

*www.warms.vba.va.gov/pam26_7.html*; direct access to VA Lender's
Handbook

*www.homeloans.va.gov/contact.htm*; website to E-mail various VA offices

*http://www.va.gov/vaforms*; to download various VA forms

> **Chapter 2**

**Loan Basics**

######### The Process, a quick summary

Here is a quick overview of the steps in obtaining a VA loan; we will be
going into more details. Complete details may be found in VA Lender's
Handbook, Pamphlet 26-7.

Note: All chapter references below are chapters in this guide, not VA's
Lender Handbook.

1.  The veteran or lender obtains a COE; see Chapter 3

2.  Prequalification or application (note steps 1 & 2 are
    interchangeable). Credit standards and a pre-qualification sheet are
    in Chapter 5, allowable closing costs are in chapter 6, and cheat
    sheets for documents are at the back of Chapter 7.

3.  Process the loan. Detailed processing steps are in Chapter 4.

4.  Underwrite the loan; Chapter 5 for a quick summary of the credit
    standards and Chapter 7 for cheat sheets will assist you concerning
    required documentation.

5.  Set up the closing; you fund the loan and set the closing date, not
    VA. Chapter 6 will help you the most.

6.  Obtain VA's guaranty; finally your work is almost over and Chapter 6
    will give you the details on closing out this case. Additionally,
    Chapter 7 has cheat sheets you may find helpful.

######### Loan Amounts for Purchases and Refinances

## 

VA does not set maximum loan amounts. We will issue a guaranty on any
mortgage amount (as long as it is supported by the appraisal) that a
lender is willing to give. However, the amount of guaranty is limited by
law. The figures you see below are based on standards of the secondary
mortgage market. This does not mean you cannot deviate from these
standards, but you should check with your secondary mortgage market
personnel to assure the loan will be salable unless your firm intends to
portfolio it.

VA's basic loan types and loan amounts (including VA's funding fee) are:

-   To build or purchase an existing home, multiple-unit property (up to
    4 units) or a condominium in a VA accepted project, \$359,650;

-   Regular (Cash-out) refinance of an existing home loan, \$144,000;

-   Interest Rate Reduction Refinancing Loan (Streamline) of a VA
    guaranteed home loan; this loan is to reduce the interest rate of
    the existing VA loan or convert an existing VA adjustable rate
    mortgage loan to a fixed rate. VA will give a 25% guaranty on
    ***any*** loan amount. Be sure that the loan amount is for the
    refinance of a first mortgage and closing costs only. Payoff of
    second mortgages, other debt or cash out are not allowed.

Specifics on guaranty percentages may be found in VA Lender's Handbook,
Chapter 3.

Note: VA does not have programs for home improvement, equity, business
or personal loans.

######### Special Note on Guarantees - Joint Loans (under VA guidelines)

The amount of guaranty on a joint loan may differ. The term "joint loan"
generally refers to any loan for which a veteran and any person other
than the veteran's spouse are liable. VA classifies a joint loan as a
loan with two veterans both using their certificates of eligibility
***or*** a loan between a veteran and person other than a spouse who
does not have a certificate of eligibility. Full details concerning
joint loans can be found in VA Lender's Handbook, Chapter 7.

Example of calculating the guaranty for a joint loan:

If a veteran is purchasing with a person who is not a spouse and who
does not have home loan benefits, the guaranty is calculated based on
the veteran's portion of the loan.

> *[Example]{.underline}* - Loan amount = \$136,000 (funding fee paid in
> cash)

1.  Veteran & spouse obligors = \$36,000 guaranty

2.  Two veteran obligors (both with full entitlement) = \$36,000
    guaranty

3.  Veteran and sister (not eligible for VA home loan benefits) =
    \$27,200 (20%) guaranty

> Calculation: \$136,000/2 (vet's portion) = \$68,000. Guaranty =
> \$27,200 *(this amount may not be sufficient to meet secondary market
> requirements - check with your investors).*

Additionally, joint loans require prior approval underwriting by VA.
Your firm's underwriter should review the loan prior to submitting it to
VA, assuring that the veteran(s) and other party qualify income and
credit wise. VA Form 26-6393 must be completed and signed by the
lender's approving authority. These loan packages require full
documentation (including a certificate of eligibility and notification
of value), and automated underwriting cannot be used.

######### 

######### Refinance Facts

Complete details on all VA backed refinance loans may be found in VA
Lender's Handbook, Chapter 6. This section will review regular refinance
loans and interest rate reduction refinance loans (commonly called a
streamline.)

**Cash-Out Refinance Loans**

A cash-out refinance loan is a VA-guaranteed loan that refinances any
type of lien or liens against the secured property. There must be a lien
to be paid off but the source may be:

-   Tax or judgment liens, and

-   VA, FHA, or conventional mortgage.

The maximum loan amount is 90 percent of the Notification of Value (NOV)
amount plus the cost of any energy efficiency improvements plus the VA
funding fee.

A full underwriting package (automated underwriting is acceptable) and
appraisal are required.

Loan proceeds beyond the amount needed to pay off the lien(s) may be
taken as cash by the borrower for any purpose acceptable to the lender.

**The maximum guaranty is \$36,000** (not \$89,912).

Other Refinance Loans

These consist of loans to refinance:

-   Construction loans that may also include the balance due on a land
    sale contract

-   Loans assumed by veterans at interest rates higher than the proposed
    refinance.

These loans are like cash-out refinances in all respects except:

-   The loan amount is not limited to 90% of the value but the guaranty
    is only \$36,000

-   No cash may be received from the borrower at closing

    > These loans may not exceed the lesser of:

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-   the VA reasonable value plus the VA funding fee, or

-   the sum of the outstanding balance of the loan to be refinanced plus
    allowable closing costs (including the funding fee) and pre-paids.

**Interest Rate Reduction Refinance Loan (IRRRL's)**

An Interest Rate Reduction Refinance Loan (IRRRL) is a quick refinance
of an existing VA loan to reduce the interest rate of a currently
VA-backed loan or to convert a VA adjustable rate mortgage (ARM) loan to
a fixed rate. It allows you to payoff the existing first mortgage loan
and closing costs but does not allow you to consolidate any other debt
(including second mortgages) or take out any equity. The loan being paid
off must be a VA-backed loan.

Here are some IRRRL facts:

-   The paperwork involved in an IRRRL is much less than a standard
    loan. VA does not generally require a credit report and never
    requires an appraisal. (See the cheat sheet on page 60.)

-   IRRRL's usually do not require credit underwriting unless the
    monthly payment (principle, interest, tax and insurance-PITI) is
    increasing by more than 20%. If the total payment increases by more
    than 20%, an underwriter for the firm must certify that the veteran
    will qualify for the new loan. Alternative documentation may be used
    for this.

-   These loans can be closed on the automatic basis unless the loan
    being paid off is in arrears by 30 days or more. If the loan being
    paid off is delinquent, it must be submitted to VA for prior
    approval underwriting.

-   The monthly P&I payment must be reduced unless the loan is to
    convert an ARM, reduce the loan's terms, or include energy efficient
    improvements.

-   Only 2 discount points may be financed.

-   IRRRL's require special paperwork in the form of a IRRRL comparison
    statement (there is no VA form but a sample follows) and VA Form
    26-8923, the IRRRL Worksheet. CAIVRS must be listed in the note
    section of the 26-8923.

-   VA does not have a maximum loan amount on an IRRRL (yes, you can
    exceed \$359,650) but may not pay off any other debts (besides the
    existing VA backed first mortgage) and allowable closing costs.
    Second mortgages would have to be subordinated.

-   The maximum loan term is the original term of the VA loan being
    refinanced plus 10 years; i.e. if the veteran originally had a
    15-year term (initial note term not existing term), the new loan
    could only be for 25 years or less.

-   Veterans are not required to occupy the home as their primary
    residence.

-   For IRRRL's only, the surviving spouse of a deceased veteran may do
    an IRRRL using the veteran's Certificate of Eligibility if the
    spouse was a co-borrower on the VA loan being refinanced.

## IRRRL Comparison Statement

***This portion is required for all IRRRL's***

Old Loan New Loan

Interest Rate: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Term: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mo Payment PITI: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Original Loan Amount (as on the note): \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Veteran's Signature:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

## 

## Veteran's Certification

*(Not required if the payment is not decreasing due to an EEI loan, ARM
conversion or term change.)*

The closing costs for this loan are \$\_\_\_\_\_\_\_\_\_\_ paid at
application/prior to closing and \$\_\_\_\_\_\_\_\_\_\_\_\_\_

paid at closing. My new payment will save me \$\_\_\_\_\_\_\_\_\_\_\_ a
month. It will take me approximately \_\_\_\_\_\_\_ months to recoup
these fees and begin saving with my new mortgage loan.

Veteran's Signature:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**Lenders Certification for IRRRL's with P&I Payment Increasing 20% or
More**

**Certification of Current Status**

***This portion is required for all IRRRL's***

**Refinance Comparison**

+----------------------+----------------------+------------------------+
|                      | **Regular            | **IRRRL**              |
|                      | Refinance**          |                        |
|                      |                      | **VA Streamline        |
|                      | **(Cash-out          | Refinance**            |
|                      | Refinance)**         |                        |
+----------------------+----------------------+------------------------+
| ***Cash out          | Yes (within 90%)     | No                     |
| allowed?***          |                      |                        |
+----------------------+----------------------+------------------------+
| ***Loan limit***     | 90% of NOV + funding | Payoff of previous VA  |
|                      | fee + up to \$6,000  | loan + allowable       |
|                      | for energy efficient | closing costs +        |
|                      | improvements\*       | funding fee + up to    |
|                      |                      | \$6,000 for energy     |
|                      |                      | efficient improvements |
+----------------------+----------------------+------------------------+
| ***Must veteran own  | Yes                  | Yes                    |
| property?***         |                      |                        |
+----------------------+----------------------+------------------------+
| ***Must veteran      | Yes                  | No (must have occupied |
| occupy property?***  |                      | at time of purchase)   |
+----------------------+----------------------+------------------------+
| ***Maximum loan      | 30 years             | Existing VA loan       |
| term***              |                      | term + 10 years (not   |
|                      |                      | to exceed 30 years).   |
+----------------------+----------------------+------------------------+
| ***Maximum           | Negotiated Rate      | Rate must be lower     |
| interest***          |                      | than rate on present   |
|                      |                      | VA loan, unless        |
|                      |                      | refinancing            |
|                      |                      | [ARM]{.underline} to   |
|                      |                      | fixed rate.            |
|                      |                      |                        |
|                      |                      | [Growing Equity        |
|                      |                      | Mortgage (GEM)         |
|                      |                      | Loans]{.underline}:    |
|                      |                      | Rate ***MUST*** be     |
|                      |                      | lower than existing    |
|                      |                      | rate                   |
+----------------------+----------------------+------------------------+
| ***Lien of record    | Yes                  | Yes                    |
| required?***         |                      |                        |
+----------------------+----------------------+------------------------+
| ***OK to refinance   | Yes                  | No                     |
| other liens?***      |                      |                        |
+----------------------+----------------------+------------------------+
| ***Appraisal         | Yes                  | No                     |
| required?***         |                      |                        |
+----------------------+----------------------+------------------------+
| ***Credit package    | Yes                  | No, unless 30 or more  |
| required?***         |                      | days past due          |
+----------------------+----------------------+------------------------+
| ***OK for automatic  | Yes, automatic       | Yes, all lenders,      |
| processing?***       | lenders              | unless existing VA     |
|                      |                      | loan is 30 or more     |
|                      |                      | days past due          |
+----------------------+----------------------+------------------------+

\* see page 7 of this guide or Chapter 6 of VA Lender's Handbook for
exceptions to "90%" rule.

Energy Efficient Improvement Loans (EEI's)

EEI's are loans to cover the cost of making energy efficiency
improvements to a dwelling. Funds for energy efficiency improvements are
considered part of the total loan. The escrow for the work must be made
at the time of the purchase or refinance.

The mortgage may be increased by:

-   Up to \$3,000 based solely on the documented costs of the energy
    improvements

**OR**

-   Up to \$6,000 provided the increase in monthly mortgage payment does
    not exceed the documented likely reduction in monthly utility costs;
    (Documentation of reduction is reviewed and accepted by the
    underwriter. It may be in form of an energy audit or information for
    a utility company website; it is up to that underwriter's judgment.)

**OR**

-   More than \$6,000 subject to a value determination by VA. (This
    option is not available with an IRRRL)

If the labor is to be performed by the veteran, the loan increase will
be limited to the amount necessary to pay for materials.

*(continued on the next page)*

**EEI Loans (continued)**

> **Examples of Energy Efficient Improvements**

-   Solar heating and cooling systems

-   Furnace replacement or efficiency modifications

-   Clock thermostats

-   New or additional ceiling, attic, wall and floor insulation

-   Water heater insulation

-   Storm windows and/or doors/vapor barriers

-   Heat pumps

> Questions concerning what is acceptable as an EEI should be directed
> to the Valuation (appraisal) Department.

VA will guaranty an energy efficient mortgage in the same proportion as
a loan not including energy efficiency improvements. However, the charge
to the veteran's entitlement will be based upon the loan amount before
adding the cost of energy efficiency improvements.

**Note**: The funding fee must be calculated on the full loan amount,
including the cost of the energy efficient improvements.

See VA Lender's Handbook, Chapter 7 for full details.

## The VA Funding Fee

The veteran must pay a funding fee. Although it is similar to private
mortgage insurance or HUD's MIP, this fee is not refundable, even if the
loan is paid off early. The monies are placed in a general account used
to help fund VA's home loan program.

Who is exempt from paying the funding fee?

The following persons are exempt from paying the funding fee:

-   Veterans receiving VA compensation for service-connected
    disabilities.

-   Veterans who would be entitled to receive compensation for
    service-connected disabilities if they did not receive military
    retirement pay in lieu of VA compensation.

-   A surviving spouse of veteran who died in service or from
    service-connected disability.

How do you verify a veteran's exempt status?

One of the following may be used to verify exempt status:

1.  A properly completed and signed VA Form 26-8937, Verification of VA
    Benefit-Related Indebtedness, indicating the borrower's exempt
    status (see chapter 4 Loan Processing Steps for more details on how
    to obtain this form);

2.  An award letter issued within 1 year of the date of the loan
    application indicating the veteran is entitled to receipt of monthly
    VA disability compensation; (Do not forget when using this
    documentation you are still required to obtain VA Form 26-8937 for
    your loan package.)

3.  Proof that a veteran elected to receive service retirement pay
    instead of VA compensation, a copy of the original VA notification
    of disability rating and documentation of the veteran's service
    retirement income, or

4.  Indications on the Certificate of Eligibility that the borrower is
    entitled as an unmarried surviving spouse.

> *(continued on the next page)*

######## VA FUNDING FEE SCHEDULE

**Purchase and Regular Refinance Loans**

  ----------------- ----------------- ----------------- -----------------
  **Veteran Type**  **Down Payment**  **Percentage for  **Percentage for
                                      First-Time Use**  Subsequent Use**

                                                        

                    None              2.15%             3.3%

  Regular Military  5% or more        1.50%             1.50%

                    10% or more       1.25%             1.25%

                                                        

                    None              2.4%              3.3%

  National Guard/   5% or more        1.75%             1.75%

  Reserves          10% or more       1.5%              1.5%
  ----------------- ----------------- ----------------- -----------------

Please note there is no down payment on refinance loans; equity is not
considered a down payment by VA.

**Other Loans**

  ----------------------------------- -----------------------------------
  **Type of Loan**                    **Percentage for Either Type of
                                      Veteran**

                                      

  Interest Rate Reduction Refinance   .50%
  (IRRRL)                             

  Loan Assumptions                    .50%
  ----------------------------------- -----------------------------------

**NOTE: Unlike FHA's Mortgage Insurance Premium (MIP), the VA Funding
Fee is non‑refundable.**

Information on paying the funding fee and refunds (if charged in error
or the veteran is determined to be exempt after the closing takes
place/retroactively to before the closing date) can be found in section
6, Paying VA's Funding Fee, of this booklet.

######### Financing Options (fixed and ARM options)

The majority of VA loans are either fixed rate mortgage loans or
adjustable rate mortgage loans (ARM's). Acceptable versions of ARM's
are:

-   Standard 1 year adjustable rate mortgage; the underwriting on this
    form of loan is done at 1% above the note rate unless the veteran
    (or co-applicant) has a contract with a guaranteed raise to offset
    the increase.

-   Hybrid Arms. These loans specify an initial interest rate that is
    fixed for a period of at least 3 years. Afterwards, the loans can be
    adjusted annually. Annual adjustments are limited to 1 percent, and
    the maximum increase in the interest rate over the life of the loan
    is capped at 5 percent. Hybrid Arms are underwritten at the note
    rate as the rate will remain fixed for at least 3 years.

All adjustable rate mortgage loans must have a disclosure which is sent
to VA if a full audit package is required.

######### Occupancy

VA requires the veteran to occupy the subject property as his/her
primary residence. The normal guideline is within 60 days from the date
of closing. Use of the property as a second home or seasonal vacation
home does not satisfy the occupancy requirement.

Exceptions:

-   If the veteran has a specific date that s/he will be moving in
    **and** a particular reason/future event that is causing the delay,
    this may be extended to 12 months

-   The home does not have to be a primary residence for an interest
    rate reduction refinance loan, IRRRL.

-   Service members deployed from their permanent duty station are
    considered to be in a temporary duty status and able to provide a
    valid intent to occupy if they are purchasing in the area where they
    are permanently stationed.

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-   Service members may also have a spouse occupy the property in their
    absence. Occupancy can only be met by a spouse, not another family
    member.

Other circumstances are addressed in VA Lender's Handbook, Chapter 3.

> **Chapter 3**

**Certificates of Eligibility**

*Insert sample COE in printed guide*

######### How to Obtain a Certificate of Eligibility

The first step every lender should take when a veteran does not have
his/her certificate of eligibility (COE) is to try VA's on-line system
available through the portal called Automated Certificate of Eligibility
(ACE). ACE is an Internet based application that allows lenders to
obtain a COE in a matter of 10-15 seconds. No forms need to be completed
and the veteran is not required to have their military service records
with them. It will issue COE's for most first-time users who served
full-time active duty in the military or will give a certificate if the
veteran has an existing VA loan (for use with an IRRRL). ACE currently
cannot issue certificates for individuals whose service is based solely
only Reserve/National Guard time or for complete restorations in most
cases. The program is accessed at the following site:
*https://vip.vba.va.gov.*

If ACE is not able to assist you, the lender or the veteran may request
a Certificate of Eligibility by mail. The veteran must complete VA Form
26-1880, Request for a Certificate of Eligibility for VA Home Loan
Benefits, and forward it to VA's Winston-Salem, NC, Eligibility Center.
It is suggested that the form be sent with proof of military service. If
a property was recently sold, proof of the sale and payoff of the
mortgage should also be included. If the COE is to be returned directly
to the lender, make sure the lender's name and proper mailing addresses
are noted in box 5 of the 1880. VA Form 26-1880 can be obtained on-line
at *www.va.gov/vaforms/,* by calling/writing/e-mailing the Eligibility
Center or from a local VA Regional Office.

Eligibility Center Contact Information

  ------------------------------ ----------------------------------------
  Standard Mailing Address       PO Box 20729, Winston-Salem, NC 27120

  Overnight Mailing Address      251 N. Main St., Winston-Salem, NC 27155

  Telephone Number               (888)244-6711 (press 1-1-2 to reach a
                                 rep.)

  E-Mail Address                 NCELIGIB@vba.va.gov
  ------------------------------ ----------------------------------------

**Processing Time - Eligibility Center**

-   All applications are processed in order by receipt date regardless
    of mode of submission.

-   Turnaround time (including mailing time) for complete applications
    not requiring development normally runs between 1-2 weeks with mail
    time.

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-   A relatively small percentage of applications require development
    which can extend the processing period. This might involve a request
    for additional information from the vet directly or from Department
    of Defense. When a delay for internal VA development is required,
    the requester is always advised by letter.

**Walk-In Applicants**

Veterans or lenders who require walk-in service can visit Manchester's
RLC during the hours of 7:30 am-4 pm ET, Monday through Friday to apply
for a COE. Lenders who wish to obtain the COE must have a fully
completed VA Form 26-1880 with the veteran's original signature. Proof
of service and/or payoff of previous loans is suggested but we will
attempt to issue a COE based on what we are given (although not always
possible.)

Some other VA Regional Offices provide limited walk-in service. It is
advised that veterans and lenders phone an office they plan to visit to
assure they can assist you prior to making a trip.

Updates

There is no need to update a COE that has never been used (regardless of
the type or when it was issued) unless it is a certificate issued
subject to active duty but the vet that has been discharged notes on VA
Form 26-1802a, box 23 that they had a previous VA home loan.

VA loan entitlement has been increased to \$89,912 from \$60,000 for
purchase, construction, or a rate reduction loan in excess of \$144,000.
This is automatic by law and a new COE is not required to reflect the
increase.

Reservist and National Guard eligibility is no longer subject to renewal
by Congress. The program was made permanent under PL108-183, December
16, 2003. Some certificates have an expiration date which is no longer
applicable, however, the COE does not need to be updated for the removal
of the expiration date.

Proof Of Military Service

Documentation of military service depends on whether the veteran served
on regular active duty or in the Reserves or National Guard, and whether
they are still active duty or not.

[Full Time Active Duty]{.underline} (past or present)

The length of service required for full time service personnel depends
on when they served.

-   For a veteran discharged from regular active duty after January 1,
    1950, a copy of DD 214, Certificate of Release or Discharge from
    Active Duty, should be included with VA Form 26-1880. If discharged
    after October 1, 1979, Copy 4 of DD 214 should be submitted.

-   If the applicant is on regular active duty and has not been
    previously discharged, a statement of service which includes the
    name of the issuing authority (base or command) and is signed by or
    at the direction of an appropriate official is required. The
    statement must include the service member's name, SSN, date of entry
    on active duty and the duration of any time lost. (Faxed copies and
    photocopies are not acceptable.)

[Reserve or National Guard Members]{.underline} (past or present)

Reserve and Guard members are required to have a minimum of 6 years of
actively participating (drilling) in their respective service. The only
exception to this is Reserve/Guard personnel called up for active duty
under Title 10 in support of a war effort (see exception for details).
All members must be honorably serving or discharged honorably.

-   If veteran was discharged from the National Guard, submit NGB Form
    22, Report of Separation and Record of Service, or NGB Form 23,
    Retirement Points Accounting.

-   If discharged from the Reserves, submit a copy of the latest annual
    points statement and evidence of honorable service. Unfortunately,
    there is no single form used by the Reserves.

-   If the veteran is still serving in the Reserves or the National
    Guard, include an original statement of service signed by the
    Commanding Officer or Personnel Officer. It should show the date of
    entry for the current tour of duty, list all previous service, and
    all previous service numbers. It must be identified with the
    veteran's social security number and date of birth. (Faxed copies
    and photocopies are not acceptable.) At least 6 years of honorable
    service must be documented.

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-   **Exception: *If the Reserve/National Guard member is currently
    serving in Iraq or other area because they have been mobilized under
    "Title 10" of the law and they have been serving for 90 days or
    more, they are be eligible for regular veteran benefits,-a green
    COE.*** You must have a DD-214 noting Title 10 or a war effort, such
    as "in Support of Operation Enduring/Iraqi Freedom", to submit with
    the 26-1880. A Statement of Service if they are currently serving
    clearly annotating Title 10 is also acceptable. Title 32 does not
    qualify the veteran for full time benefits.

Lost Military Records

The veteran's military records **are not** always required by VA. The
only time they are needed is to obtain a COE, if one cannot be generated
by ACE, or you need the form to document work history over the past 2
years. If you are attempting to obtain a COE and ACE cannot help you,
submit VA Form 26-1880 to Winston-Salem without the proof of service.
Department of Defense has the veteran's military records (not VA.) In
some cases, DOD has provided VA with a partial electronic record
sufficient to issue a COE. Winston-Salem will check our computer
database upon receipt of VA Form 26-1880 to see if there is any way of
assisting the veteran with the data we have. Meantime, have the veteran
complete GSA Standard Form 180, Request Pertaining to Military Records,
and mail it to the appropriate custodian of military service records
noted on the reverse of the form. This form in NOT processed by VA, so
please do not send it to VA. Additional information on obtaining lost
military records is available at National Personnel Records Center
(Military Personnel Records NPRC \[MPR\]):
*www.nara.gov/regional/mpr.html*. Obtaining records from DOD or its
custodian can take some time, so call VA if you need guidance.

**Eligibility For Unmarried Surviving Spouse**

An unmarried surviving spouse of a veteran who died on active duty or as
the result of a service-connected disability is eligible for home loan
benefits.

-   VA Form 26-1817, Request for Determination of Loan Guaranty
    Eligibility-Unmarried Surviving Spouses, must be completed and
    submitted to the Eligibility Center.

-   A loan obtained with a surviving spouse Certificate of Eligibility
    requires an affidavit at closing that the surviving spouse is not
    married.

Note: Processing of these application can take extra time as medical and
military records generally have to be obtained by the eligibility
center.

[Restoration of Previously Used Entitlement]{.underline}

You should first know that a blank certificate is not ***always*** an
indication that the veteran has full entitlement. There are two other
places to check for previous use: a credit report and VA Form 26-1802a,
item 23. Carefully review all these items in addition to the Certificate
of Eligibility to assure you have the benefit needed for your
transaction. If the veteran did use his/her benefit and wants to use the
VA benefit again, consider if a restoration of entitlement can be given.

**What About Interest Rate Reduction Refinance Loans (IRRRL's)?**

You do not need a restoration of entitlement for an IRRRL. As a matter
of fact you must have some proof, either a COE showing that the benefit
is tied or an e-mail from VA's Roanoke inquiry system,
www.vba.va.gov/ro/Roanoke/rlc/giloans.htm, noting there is an
***active*** VA loan to be refinanced. You can use an existing tied
certificate, you do not need to obtain an update.

What is Required for a Standard Restoration of Entitlement?

Entitlement used by a previous VA home loan may be restored under
certain circumstances. Once restored it can be used again for another VA
loan. Restoration of previously used entitlement is possible if:

-   The property which secured the VA loan has been sold, **and** the
    loan has been paid in full, **or**

-   An eligible veteran-buyer has agreed to assume the outstanding
    balance on a VA loan and substitute his or her entitlement for the
    same amount originally used on the loan. The assuming veteran must
    also meet occupancy, income and credit requirements of the law. This
    is an assumption called a release of liability with substitution of
    entitlement. It must be completed prior to the closing of the vets
    new VA backed loan.

### How to Apply for Standard Restoration

The veteran must complete and send VA Form 26-1880, Request for a
Certificate of Eligibility, to the Eligibility Center. If the veteran
has evidence of payment in full of any previous loans (HUD-1 settlement
statement, etc.), a copy should be included. Additionally, if they have
a previously issued COE and have the original (which is rare now), this
should be included also. A restoration cannot be requested until
**after** the transfer takes place.

**Restoring COE's for Back to Back Closings**

If the veteran will be selling a home with a VA backed loan and buying
another home with another VA loan simultaneously (or within 7 days of
each other), the lender may complete what is referred to as a back to
back closing. In these cases, the new VA loan may be closed without an
updated COE as long as the lender has:

1.  An original or ACE COE which shows the veteran's entitlement is tied
    to the VA loan being paid off.

2.  A fully completed 26-1880 from the second closing where the veteran
    is purchasing a new home. Assure section 8 of this form is completed
    noting the property previously backed by a VA loan is no longer
    owned by the veteran and has been sold. The veteran must sign and
    date the form (9 &10).

3.  A copy of the HUD-1 Settlement Statement from the sale of the
    previously backed VA property. The HUD must show the loan was paid
    in full, not assumed.

Are There Exceptions or Special Restorations?

Of course there are! In addition to the basic restorations noted above,
a veteran may obtain these special restorations of entitlement:

-   Restoration for a Regular Refinance on the Same Property; If the
    previous VA loan has been paid in full or will be paid in full at
    closing and the veteran is completing a standard or regular
    refinance (not an IRRRL), the benefit should be restored prior to
    the closing and the COE will be noted. The refinance must be for the
    same home previously backed by VA.

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-   Once in a Lifetime Restoration; if the previous VA loan has been
    paid in full but the veteran has not transferred or sold the
    property previously backed by a VA loan, the veteran may apply for a
    One Time Restoration. Unlike the refinance exception, this requires
    the VA home be paid in full. Again, the veteran's COE will be
    specially noted, indicating the one-time restoration. This advises
    that any future restoration will require disposal of **all**
    properties previously obtained with any VA loan.

When requesting one of these special restorations, it is suggested that
VA Form 26-1880 be noted in box 8, with *restoration request for
refinance* or *one time restoration* **or** the applicable certification
submitted:

***Reinstatement for a Regular Refinance***:

I certify that I am requesting a restoration to complete a refinance on
a home that had a previous VA guaranteed loan. This is the same property
and I intend to occupy it as my primary residence.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(veteran signature)

***Special Reinstatement/Once in a Life Time***:

I would like to take advantage of the special reinstatement program (PL
103-446) to enable me to purchase a primary residence. My previous VA
guaranteed loan has been paid in full. I am aware that this program can
be used only one time. In the future if I wish to have my benefit
reinstated again, I will be required to sell/transfer all properties
previously backed by VA loans and all VA backed loans will have to be
paid in full.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(veterans signature)

**[Note]{.underline}**: Other unusual situations or markings on the
Certificate of Eligibility should be discussed with your supervisor or
the VA Office with jurisdiction over the subject property at time of the
application.

**Chapter 4**

**Loan Processing**

######### Loan Processing Steps

**1. Obtain a Certificate of Eligibility (COE) from VA or ACE**

> The determination of the veteran's eligibility should be initiated as
> soon as possible, preferably at the time of loan application. This is
> especially important because if the veteran applies but does not have
> his/her military records or their particular scenario requires special
> review or development, i.e. retrieval of military records, etc. extra
> time may be required. Information on obtaining a COE is in Chapter 3
> of this booklet or Chapter 2 of VA's Lender Handbook.
>
> **OR**
>
> **For IRRRL's use the E-Mail Procedure;** Lenders wishing to confirm
> the status of an existing VA guaranteed loan for the purpose of
> processing an IRRRL, can do so by e-mailing VA at
> **http://www.vba.va.gov/ro/Roanoke/rlc/giloans.htm**. The response
> (e-mail) will be used in lieu of a COE. To order the e-mail, in lieu
> of a COE, you will need your lender identification number, your e-mail
> address, veteran's social security number or the number of the
> existing VA loan (one being paid off). Make sure the confirmation
> notes the ***Description***, as ***Active***.

**2. Order VA case number and appraisal assignment.**

> The appraisal should be ordered as soon as possible after the loan
> application is initially reviewed. Lenders must use VA's Internet
> based system, The Appraisal System (TAS). The web address is
> https://vip.vba.va.gov/. More details are available on page 22.

**3. Determine if VA Form 26-8937, Verification of Benefit Related
Indebtedness, must be processed.**

#### Ask the veteran and any veteran co-obligors (including spouse if a veteran) if he or she

-   is receiving VA disability benefits

-   would be entitled to receive VA disability benefits but waived
    because in receipt of retired pay

-   has received VA disability benefits in the past, or

-   is a surviving spouse of a veteran who died on active duty or as a
    result of a service-connected disability.

    If the veteran falls under one of the above categories, submit VA
    Form 26-8937 to a VA office or RLC for completion. If the loan is
    for a property in one of the six New England states or the State of
    NY, the form may be faxed to (603)222-5745 for processing. Our
    Support Services Division will complete the form and fax it back to
    the lender. The fax returned by VA is sufficient as long as it is
    legible.

    If the form indicates the veteran receives VA non service-connected
    pension or has been rated incompetent by VA, prior approval
    underwriting by VA is required.

    *(continued on the next page)*

    **Loan Processing Steps (continued)**

    **Step 3; VA Form 26-8937, Verification of Benefit Related
    Indebtedness**

    *Sample 26-8937 in printed guide*

    *(continued on the next page)*

    **Loan Processing Steps (continued)**

    **4.** **Confirm if any of the applicants are members of a Reserves
    or a National Guard unit.**

    Obtain a statement from every applicant on the loan application if
    they are a member of the Reserves or National Guard. If so, the
    statement must also confirm if the veteran or co-applicant (as
    applicable) has been notified that his/her unit has been mobilized.
    This is required for all applicants regardless of age, disability
    status, etc. The only exemptions are for a person(s) serving full
    time active duty in the US Armed Forces or if income for a borrower
    is not being used.\
    \
    Note: If the veteran is in a unit with actual orders for
    mobilization, the loan may have to be underwritten on the basis of
    the proposed active duty income. The underwriter will have to look
    at the income situation for each case carefully. If the loan is not
    underwritten on active duty income, comments must be on the loan
    analysis explaining why not. If the underwriter is unsure of the
    income to be used, seek advice from your supervisor or the RLC with
    jurisdiction over the property.

5\. Perform a CAIVRS screening on applicant(s)

> Please see VA Lenders Handbook, Chapter 4, Topic 6 for details. To do
> this you would either call HUD's computerized system at (301)344-4000
> or access the website:
> <http://www.hud.gov/offices/hsg/sfh/sys/caivrs/caivrs.cfm>. You need
> your VA lender identification number and the applicant(s) social
> security number. Assure the CAIVRS number(s) are written in either box
> 47 or 48 of the Loan Analysis form (VA F26-6393). If there is a debt,
> proof that it has been paid in full or the terms of repayment, which
> must be noted as a debt, must be included in the file.

**6. Develop a credit/income package and obtain the Notice of
Value/appraisal from either your Staff Appraisal Reviewer (SAR) (for
Lender Appraisal Processing Procedure-LAPP cases) or from VA.**

**7. A. Underwrite and approve or disapprove the application;** **or if
needed**

##### B. Submit complete original loan package to VA for prior approval underwriting

All lenders whether or not they have automatic authority, ***must***
submit the following types of loans to VA for prior approval:

-   Joint loans (the co-borrower is not the veteran's spouse)

-   Loans to veteran in receipt of VA non service-connected pension

-   Loans to veterans rated incompetent by VA

-   Interest Rate Reduction Refinancing Loans made to refinance
    delinquent (30 days or more behind) VA loans

> These packages must be fully developed; automated underwriting
> criteria may not be used.
>
> Lenders with automatic authority may also elect to submit a loan not
> on the above list for prior approval when issues or circumstances
> cannot be resolved by the lender's own underwriting staff.

-   The submission must include the underwriter's analysis and
    explanation of why the package is being submitted for prior
    approval. The underwriter must clearly note on the 26-6393 that the
    loan is marginal but should be approved.

-   Do ***not*** use this provision to shift the burden of a loan
    rejection to VA.

######### Basic Appraisal Survival Facts

There is a more detailed guide but this is a quick reference to get you
started . More details and scenarios are available in Valuation's
Training Guide available on the Manchester RLC Website,
http://www.vba.va.gov/ro/manchester/lgymain/loans.html, or complete
guidelines are listed in VA Lender's Handbook, Chapters 10-16**. Expert
advice on specific procedures or variations or unusual properties should
be obtained from the Valuation Department, 800-827-6311, option 6, or
nh_appr@vba.va.gov.**

**What Properties Does VA Accept?**

For VA to accept a home it must be safe, sound and sanitary. Generally
the properties are 1-4 family homes, or a unit in an approved
condominium or PUD development. Some of the unusual but acceptable
scenarios are:

-   A manufactured/mobile home affixed to a permanent foundation on its
    own lot. (VA does not have regulations on single/doublewide or age
    as long as it is up to code.)

-   Properties in commercial zoning, as long as they are grandfathered
    so if destroyed by a fire, they can be rebuilt. They may also have
    some commercial space included as long as the total square footage
    of the commercial portion does not exceed 25% and the building does
    not have a commercial façade, i.e. store front windows.

-   Homes must have a mechanical heating system, a wood stove is not
    sufficient.

-   If public water or sewer is available but the owners currently use
    well or septic, VA requires a conversion to public water or sewer.
    However, if this causes a financial hardship, a waiver would be
    considered by VA unless Title 5 is involved.

-   VA does take older properties that are up to code and grandfathered
    with items such as cesspools, dug wells in the cellar, crawl spaces,
    knob & tube wiring, underground oil tanks as long as disrepair/leaks
    are not evident, or properties with a dirt floor in the cellar.

-   Properties may be on private roads with a maintenance agreement and
    legal easement.

-   Properties with shared wells will require a water analysis, well
    flow test, maintenance agreement and recorded easement for use and
    maintenance purposes.

**How Do You Order an Appraisal?**

VA selects the appraiser on a rotation basis. The lender does not have
their choice nor are they able to ask for a re-assignment unless there
is a true conflict of interest involved in the case.

To order the appraisal, log onto the Internet and access TAS (The
Appraisal System) at the Portal,
https://vip.vba.va.gov/vba_proxy/portal/. (If you never have logged onto
TAS you will have to register. You enter your VA Lender Identification
number and 0000 as the initial password. From there you will have the
option of changing your password for future orders.) Follow the
directions which basically walks you through all the blanks on VA Form
26-1805, Request for Determination of Reasonable Value. You will need to
have the name/phone number of a contact person for the appraiser to gain
access to the home and also to contact if the value appears to be coming
in low. The point of contact for the value coming in low should be
placed in box 30 of the 1805. Once you enter all the data, the appraiser
and VA case number will be assigned. VA Form 26-1805 will then be
available to print. Assure you print and either fax or mail this form to
the appraiser with a copy of the legal description and purchase and
sales agreement. TAS does not notify the appraiser directly!

If the property involves construction you need to assure the builder is
approved and send the appraiser (and possibly the compliance inspector)
a set of construction plans; see the next section for details.

**Other Unusual Scenarios When Ordering Appraisals:**

-   Get a condominium approved; first see if the condo is approved by
    checking our website at http://cpb.vba.va.gov. If it is not
    approved, follow the appropriate checklist in VA Lender's Handbook,
    Chapter 16. If you have questions or the project is HUD approved,
    contact the Regional Loan Center (RLC) that has jurisdiction over
    the property.

-   New construction based on a home not built, where the foundation is
    not back-filled; the first step is to assure the builder is approved
    by checking the site http://cpb.vba.va.gov. If the builder is not
    approved, see the instructions below. Documentation required to
    order an appraisal is in VA Lender's Handbook, Chapter 10, Topic 10.
    If the property is already back-filled or covered by a 10 year
    warranty, contact the RLC with jurisdiction over the property for
    additional instructions.

-   Spec homes or new existing construction are homes completed to
    customer preference items, (the appraiser can go out and see the
    layout, size, and most of the materials to be used); details on how
    to order an appraisal for this home can be found in VA Lender's
    Handbook, Chapter 10, Topic 10.04 and 10.09.

-   A compliance inspector is required for proposed construction. The
    three stages where inspections will be required are prior to the
    foundation being backfilled, at the rough-in stage and the final
    inspection. The exception to 3 inspections is if the property will
    be covered by an approved 10-year plan **or** is located in a
    community that issues a Certificate of Occupancy. In these two
    cases, only a final VA inspection is required.

-   How do you get a builder approved? Check first at
    http://cpb.vba.va.gov. If not, gather this data and fax it to the
    RLC with jurisdiction over the property:

\[on builder's letterhead\]

**Builder Information and Certifications**

**VA Loan Guaranty Program**

1.  This is to certify that this company:

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a.  Will not use any marketing practices or sales contracts which
    include features considered by VA to be unfair or prejudicial to
    veteran-purchasers per Section 9.08 of the VA Lenders Handbook. I
    understand that the closing of the loan denotes that the builder has
    determined that the contract is acceptable to VA.

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b.  Will construct every property which is to become the security for a
    VA-guaranteed loan to substantially conform to applicable building
    codes, applicable VA requirements and the standards of quality as
    measured by acceptable trade practices.

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2.  In cases processed by VA as "proposed or under construction", I
    understand that all construction must equal or exceed that shown or
    described in the construction exhibits used by VA to appraise the
    property and that, in any conflict between construction exhibits and
    applicable VA minimum property requirements, the latter will govern;
    and that VA will consider changes to those exhibits to be binding
    only when they are listed on a properly executed VA Form 26-1844,
    Request for Acceptance of Changes in Approved Drawings and
    Specifications; and that I will be proceeding at my own risk in
    changing or deviating from those exhibits without advance VA
    approval.

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3.  A fully executed VA Form 26-421, Equal Employment Opportunity
    Certification, and VA Form 8791, VA Affirmative Marketing
    Certification, is either attached or was previously submitted to VA.
    (Note: these forms may be downloaded from VA Internet site at
    [http://www.va.gov/vaforms]{.underline}.)

> *(continued on the next page)*

**Builder Information and Certifications (continued)**

4.  Names of all persons who have a controlling or proprietary interest
    in this company or are principal shareholders, officers or
    directors. This company agrees to keep this list updated with VA:

    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Name (*Type or print*) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Title: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Signature
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Date:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**Inspections Required by VA:**

-   Home Inspection: This is an option of the veteran and not required
    by VA.

-   Pest: Our office requires a wood destroying insect inspection
    (existing construction) or soil treatment guarantee (proposed
    construction) in all of MA, RI, and CT, parts of southern VT
    (Bennington and Windham counties), and southern NH (Cheshire,
    Sullivan, Merrimack, Rockingham, Belknap, Hillsborough, and
    Strafford counties). Counties in New York requiring an insect
    inspection/treatment are: Bronx, Broome, Columbia, Delaware,
    Dutchess, Greene, Kings, Nassau, New York, Orange, Putnam, Queens,
    Richmond, Rockland, Suffolk, Sullivan, Ulster and Westchester. An
    inspection or treatment is not required for properties in Maine or
    the northern counties of NH and VT unless the appraiser notes
    evidence of infestation. An inspection or treatment is also not
    required for garden style condominium units located anywhere in New
    England or New York. A timeliness requirement for the report is
    within 90 days of the date of closing. If treatment was required,
    the date of treatment would supercede the date of inspection.

-   Radon: This is an option of the veteran and not required by VA.

-   Septic: Required by Title 5 for existing homes in Massachusetts.
    Elsewhere in New England or New York, it is not required unless the
    appraiser notes a potential problem.

-   Water: This is required whenever a well is the water source for the
    home. The local health authority or testing laboratory must indicate
    the water is safe (potable) for drinking. Should the analysis
    indicate that the water is potable but that some of the elements
    tested exceed EPA or the local health authority's standards, VA
    requires the veteran to acknowledge this by signing a copy of the
    report. The testing authority determines what parameters need to be
    tested to assure the water is potable. The water analysis must be
    dated after a contract for the property was entered into by the
    veteran.

**Other Questions You May Have or Fallacies:**

-   VA is incredibly strict on inspections; **False**! VA only wants the
    property safe, sound and sanitary. If a condition has been requested
    that one of the parties does not agree with, have the veteran
    request a waiver. The request must be in writing and the lender must
    sign off/accept it. This is sent to VA who considers if it is a
    safety issue. Please note that the request may lower the appraised
    value if it is a substantial item, such as painting when the whole
    house must be done. The most commonly waived item is chipping paint
    in small areas which has the potential for lead base paint.

-   If the value comes in low, the deal is done; False! The appraiser
    will call the point of contact you noted in box 30 of the 26-1805 if
    the value appears to be coming in low prior to issuing a value on
    the Uniform Residential Appraisal Report form. This gives the
    contact an opportunity to offer better comparables. If the value
    still comes in low, it can be appealed by any party. However, it is
    strongly recommended in these cases that the comparables be
    provided.

-   When reviewing a pest inspection, as the lender we only have to see
    if there is active infestation; False! When reviewing a pest report,
    look at everything the inspector advises including if there is
    damage. If there is damage, the inspector must address if it is
    structural in nature or not, or if the inspector cannot certify this
    a qualified individual/company must address this (i.e. engineer,
    uninterested contractor, etc.) or there must be proof the repairs
    have/will be made.

> *(continued on the next page)*

**Other Questions You May Have or Fallacies (continued):**

-   VA never escrows; False! VA will consider an escrow as long as the
    item does not affect livability or safety. Although we attempt to
    keep the majority of escrows limited to those for seasonal reasons,
    i.e., landscaping that cannot be done during the winter, VA will
    consider other requests on a case by case basis. Please contact the
    Valuation Dept. for details and have a cost estimate ready.

#### **Sample: LAPP Lender's Notice of Value**

\[on lender\'s or VA letterhead\]

**LENDER\'S NOTICE OF VALUE**

\[date of notice\] LENDER LOAN NO.: VA CASE NO.:

APPRAISAL REVIEWER: \[SAR name, SAR id #\]

\[Mr. and/or Ms. Purchaser\] PROPERTY ADDRESS: \[complete address\]

Current mailing address

Dear \[Mr. and/or Ms.\] \[purchaser\'s last name\]:

The above property has been appraised by a fee appraiser assigned by the
VA regional office in \[city and state\]. On \[date\], our VA-authorized
appraisal reviewer personally reviewed the fee appraiser\'s report and
determined the property\'s estimated reasonable value to be
\$\[amount\]. The maximum repayment period for a loan to purchase this
property is \[fee appraiser\'s \"economic life\" estimate or 30,
whichever is less\] years.

**The VA appraisal was made to determine the reasonable value of the
property for loan purposes. It must not be considered a building
inspection. Neither VA nor the lender can guarantee that the home will
be satisfactory to you in all respects or that all equipment will
operate properly. A thorough inspection of the property by you or a
reputable inspection firm may help minimize any problems that could
arise after loan closing. In an existing home, particular attention
should be given to plumbing, heating, electrical and roofing
components.**

**REMEMBER: VA GUARANTEES THE LOAN, NOT THE CONDITION OF THE PROPERTY.**

**THE CONDITIONS/REQUIREMENTS CHECKED BELOW APPLY TO THIS PROPERTY:**

\_\_\_\_\_1. **ENERGY CONSERVATION IMPROVEMENTS.** You may wish to
contact the utility company or a reputable firm for a home energy audit
to identify needed energy efficiency improvements to this previously
occupied property. Lenders may increase the loan amount to allow buyers
to make energy efficiency improvements such as: Solar or conventional
heating/cooling systems, water heaters, insulation,
weather-stripping/caulking and storm windows/doors. Other energy-related
improvements may also be considered. The mortgage may be increased by up
to \$3,000 based solely on documented costs; or up to \$6,000 provided
the increase in monthly mortgage payment does not exceed the likely
reduction in monthly utility costs; or more than \$6,000 subject to a
value determination by VA.

\_\_\_\_\_2. **WOOD-DESTROYING INSECT INFORMATION**

\_\_\_\_\_a. **Inspection Report (Existing Construction).** The property
must be inspected at no cost to you by a qualified pest control operator
using Form NPCA-1, or other form acceptable to VA. Any reported
infestation or structural damage affecting the value of the property
must be corrected to VA\'s satisfaction prior to loan settlement. You
must acknowledge receipt of a copy of the inspection report in the space
provided on the form.

\_\_\_\_\_b. **Soil Treatment Guarantee (Proposed or Under
Construction).** A properly completed Form NPCA-99a is required. If the
soil is treated with a termiticide, a properly completed Form NPCA-99b
is also required. The lender will provide you with a copy.

\_\_\_\_\_3. **LIEN-SUPPORTED ASSESSMENT.** This property is located in
a development with mandatory membership in a homeowners' association.
The lender is responsible for ensuring that title meets VA requirements
for such property and that homeowner association assessments are
subordinate to the VA-guaranteed mortgage.

\_\_\_\_\_a. **Homeowner Association Fee.** Estimated fee of
\$[\[amount\]]{.underline} per \[[period of time]{.underline}\].

\_\_\_\_\_b. **Other.**
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_4. **CONDOMINIUM REQUIREMENTS.** The lender is responsible for
ensuring that this condominium is acceptable to VA and that any
condominium-related special conditions or requirements have been met.
There may be additional information in "Other Conditions/Requirements"
below.

\_\_\_\_\_5. **WATER/SEWAGE SYSTEM ACCEPTABILITY.** Evidence from the
local health authority or other source authorized by VA that the
individual \_\_\_\_\_ **water supply**, **\_\_\_\_\_sewage disposal**
system(s) is/are acceptable.

\_\_\_\_\_6. **CONNECTION TO PUBLIC WATER/SEWER.** Evidence of
connection to \_\_\_\_\_ **public water**, \_\_\_\_\_ **public sewer**,
if available, and that all related costs have been paid in full.

\_\_\_\_\_7. **PRIVATE ROAD/COMMON-USE DRIVEWAY.** Evidence that use of
the private road or common-use driveway is protected by a recorded
permanent easement or recorded right-of-way from the property to a
public road, and that a provision exists for its continued maintenance.

\_\_\_\_\_8. **FLOOD INSURANCE.** Since improvements on this property
are located in a FEMA Special Flood Hazard Area, flood insurance is
required.

\_\_\_\_\_9. **"AIRPORT" ACKNOWLEDGEMENT.** Your written acknowledgement
that you are aware that this property is located near an airport and
that aircraft noise may affect the livability, value and marketability
of the property.

\_\_\_\_\_10.**REPAIRS.** The \_\_\_\_\_ **lender** \_\_\_\_\_ **fee
appraiser**
(\_\_\_\_\_\_\_\_\_[\[name\]]{.underline}\_\_\_\_\_\_\_\_\_\_)
\_\_\_\_\_ **fee compliance inspector**
(\_\_\_\_\_\_\_\_\_[\[name\]]{.underline}\_\_\_\_\_\_\_\_\_\_) is to
certify that the following repairs have been satisfactorily completed.
See the above second paragraph about your responsibility concerning the
condition of the property.

[\[List repairs recommended by fee appraiser which are necessary to make
the]{.underline}

[property meet VA minimum property requirements for existing
construction.]{.underline}

[Inspections/certifications should not be required unless there is an
indication]{.underline}

[of a potential problem.\]]{.underline}

\_\_\_\_\_11. **LOCAL HOUSING/PLANNING AUTHORITY CODE REQUIREMENTS.**
Evidence that local housing or planning authority code requirements, if
any, have been met.

\_\_\_\_\_12. **"NOT INSPECTED" ACKNOWLEDGEMENT.** Your written
Acknowledgement that, you are aware that since this new property was not
inspected during construction by VA,

\_\_\_\_\_a. VA assistance with construction complaints will be limited
to defects in equipment, material and workmanship reported during the
one-year builder's warranty period.

\_\_\_\_\_b. VA will not intercede on your behalf in the processing of
any construction complaints.

\_\_\_\_\_13. **TEN-YEAR INSURED PROTECTION PLAN.** Evidence of
enrollment of this new property in a 10-year insured protection plan
acceptable to the Department of Housing and Urban Development (HUD).

\_\_\_\_\_14. **ENERGY EFFICIENT CONSTRUCTION.** Builder\'s
certification which identifies this new dwelling and states that it was
constructed to meet the energy conservation standards of the Council of
American Building Officials (CABO) 1992 Model Energy Code (MEC).

\_\_\_\_\_15. **LEAD/WATER DISTRIBUTION SYSTEM.** Builder\'s
certification which identifies this new dwelling and states that the
solders and flux used in construction did not contain more than 0.2
percent lead and that the pipes and pipe fittings used did not contain
more than 8.0 percent lead.

\_\_\_\_\_16. **OFFSITE IMPROVEMENTS.** Evidence that the streets,
sidewalks, drains, water, sewer, etc. have been completed and accepted
for maintenance by the local authority.

\_\_\_\_\_17 **PROPOSED CONSTRUCTION.** To be completed based on
construction exhibits identified as \_\_\_\_[\[model name; or type of
construction, square footage, \# rooms, \# bedrooms and \#
bathrooms\]]{.underline}\_\_\_\_\_\_

\_\_\_\_\_18. **CONSTRUCTION INSPECTIONS.** By VA fee compliance
inspector (\_\_\_\_\_\_\_\_\_[\[name\]]{.underline}\_\_\_\_\_\_\_\_\_\_)
or HUD fee inspector (with prior VA approval). \_\_\_\_\_ Only a final
inspection is required if local building authority inspections are
acceptable to VA, or if builder to provide you with a ten-year insured
protection plan acceptable to HUD.

\_\_\_\_\_19. **CONSTRUCTION WARRANTY.** One-year VA builder\'s warranty
on a fully completed VA Form 26-1859, Warranty of Completion of
Construction.

\_\_\_\_\_20. **OTHER CONDITIONS/REQUIREMENTS**

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Sincerely,

\[signature, name and title of person authorized to sign notice\]

######### Loan Processing Forms

See Chapter 5 of VA Lenders Handbook, "How To Process VA Loans and
Submit Them To VA", for a complete list of required exhibits and forms.
"Cheat sheets" are provided in Chapter 7 of this guide but are not
mandated, only provided for your convenience.

VA specific forms are available on the Internet at:
*http://www.va.gov/vaforms/*

Samples of Statements and Certifications used in VA loan processing that
are not available on the Internet follow:

**[INTEREST RATE AND DISCOUNT DISCLOSURE STATEMENT]{.underline}**

1.  This statement regarding the interest rate and discount points that
    you may

    pay on a mortgage guaranteed by VA ( Dept. of Veterans Affairs) must
    be

    delivered to you prior to the execution of the borrowers
    certification on the

    HUD/VA Addendum to the Uniform Residential Loan Application.

2.  VA does not establish the interest rate for mortgage loans to be
    guaranteed, or the discount points that may be paid by you. This
    means that you may pay such interest rate and discount

    points as you and the lender agree upon. The seller may also pay the
    discount points, or a portion thereof, if you and the seller agree
    to such an arrangement.

3.  It is important for you to understand that the interest rate,
    discount points, and the length of time are all freely negotiable
    with the lender. Lenders may agree to offer the loan terms for a
    definite period of time (i.e., 30, 60, or 90 days) or may refuse to
    do so. This arrangement is commonly referred to as a lock-in
    agreement. Keep in mind that your agreement with the seller will
    also affect the date you can close your loan.

4.  The terms of your agreement with the lender will determine the
    degree, if

    any, that the interest rate and discount points may change before
    closing.

    An increase of more than 1 percent in the interest rate requires
    re-underwriting of the loan approval by VA or by the lender. It may
    be necessary for the lender to obtain your signature on a new
    application. If, after re-underwriting, it is determined that you
    remain qualified from a credit risk standpoint, the conditions of
    your agreement(s) with the lender may require you to complete the
    transaction or lose your deposit.

    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

    Veteran Co-applicant

    **LENDER'S LOAN QUALITY CERTIFICATION**

    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

    VA Case Number

    "The undersigned lender certifies that this loan application, all
    verifications of employment, deposit, and other income and credit
    verification documents have been processed in compliance with 38 CFR
    part 36; that all credit reports obtained in connection with the
    processing of this borrower's loan application have been provided to
    VA; that, to the best of the undersigned lender's knowledge and
    belief the loan meets the underwriting standards recited in Chapter
    37 of Title 38 United States Code and 38 CFR part 36, and that all
    information provided in support of this loan is true, complete and
    accurate to the best of the undersigned lender's knowledge and
    belief."

    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

    Lender Signature Date

    **VA OPTION CLAUSE**

    (required attachment to Purchase Agreement)

    "It is expressly agreed that, notwithstanding any other provisions
    of this contract, the purchaser shall not incur any penalty by
    forfeiture of earnest money or otherwise or be obligated to complete
    the purchase of the property described herein, if the contract
    purchase price or cost exceeds the reasonable value of the property
    established by the Department of Veterans Affairs. The purchaser
    shall, however, have the privilege and option of proceeding with the
    consummation of this contract without regard to the amount of
    reasonable value established by the Department of Veterans Affairs."

    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

    Seller Signature Buyer Signature

    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

    Seller Signature Buyer Signature

    Date:
    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**Chapter 5**

> **Credit Underwriting**

VA loans involve a veteran's benefit. Therefore, lenders are encouraged
to make VA loans to all qualified veterans. However, it is not to the
veteran's benefit to place them in a home they cannot afford. VA's
underwriting standards are intended to provide guidelines for all
underwriters. Underwriting decisions must be based on sound application
of VA standards, and underwriters are expected to use good judgment with
flexibility in applying the guidelines.

By law, VA may only guaranty a loan when it is possible to determine
that the veteran

-   is a satisfactory credit risk, and

-   has stable and sufficient income to allow repayment of the loan now
    and anticipated in the future.

VA's underwriting standards are explained in detail in VA Lender's
Handbook, Chapter 4. For training purposes a summary of the current
credit standards is provided.

######### Automated Underwriting; Chapter 4, Topic 8

VA has approved Freddie Mac's Loan Prospector, Fannie Mae's DU, (and the
pmiAura System for VA), the CLUES System (for use with loans originated
by Countrywide) and ZIPPY (for loans originated by Chase Home Mortgage)
as automated underwriting systems (AUS) for use in connections with VA
guaranteed home loans. These systems incorporate VA's credit standards
and processing requirements.

What Must the Lender Submit?

Automated underwriting (AU) may not be used for prior approval loans.
Although the lender may run the loan through an AU system, full
documentation and all signatures are required with the package sent to
VA for approval. This means a rental verification, clearing inquiries on
the credit report, 2 months of bank statements, W-2's and signatures on
the loan analysis form, VA Form 26-6393, are required.

When closing loans automatically, lenders may use certain reduced
documentation requirements noted on the feedback sheet. Assure to submit
the latest feedback sheet and AU certification with your documentation
if a complete package is requested for auditing purposes.

Here is a sample of the automated underwriter certification:

**CERTIFICATION FOR AUTOMATED UNDERWRITING CASES**

"I, the undersigned lender, hereby certify that case number
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ was processed through
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ , and received an ' Accept '
rating. I further certify that all information entered into the system
has been verified, and that any credit discrepancies have been
reconciled.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Lender Representative Title

*(continued on the next page)*

**Data Integrity**

It is imperative that the data entered into the AUS be accurately
verified and updated if needed. Care should be taken to assure the final
terms are accurate, assets are properly listed (i.e. checking, savings
or CD's are considered depository accounts, 401K's are standardly not,
etc.), whether the veteran is active duty military or not, and the
proper family size is indicated. Also remember, you must still follow VA
regulations concerning income and child care expenses; these are common
mistakes seen. Specific examples of income problems including using
overtime without a two year history and using short term income with no
background or education in that line of work. If you have any unusual
cases, remarks should still be placed in section 48 of the loan analysis
form.

######### Summary of Income (32), Assets (36), Debts (36) and Credit (37)

######### Income Summary; Chapter 4, Topic 2 of VA Lender's Handbook

The Basics

-   Income claimed by an applicant that is not or cannot be verified
    should not be given consideration. This applies to standard or
    automated underwriting cases.

-   A minimum of two years' employment must be verified (including past
    employers if applicable). This would be in the form of VOE's or
    standard alternative documentation. For automated underwriting,
    follow the feedback sheet.

-   Verification of employment forms should be dated within 120 days of
    the note, 180 days for new construction.

-   When using Fax or Internet documentation, the following must be
    > addressed:

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-   Contain the same information as a standard Verification of
    Employment.

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-   Clearly identify the employer and source of information.

-   Provide the name and telephone number of a person who can verify the
    information.

-   Ensure the authenticity of the documents. For Faxed Documents,
    review the "banner" information provided at the top of each page of
    the fax. For Internet documents, review the information contained on
    any headers/footers and the banner portion of the downloaded
    webpage(s). These pages must contain the uniform resource locator
    (URL) and the date and time printed.

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```
-   An original or certified true copy of the applicant's pay-stub must
    be provided in all cases.

-   The employment verification should be compared with the pay-stub and
    other income information in the file for consistency. Discrepancies
    must be resolved.

Alternative Documentation for Standard Underwriting

-   Generally, applicants should be with the employer for 12 months or
    have related experience to use alternative documentation.

-   Telephone verifications should be obtained and be similar in content
    to the employment verification form. Phone verifications should show
    the person contacted, their position and a phone number with the
    applicant's position, start date, lender employee's name who
    completed the form and date verified at a minimum.

-   Furnish the original pay-stub(s) covering the most recent 30 day
    period together with W-2 forms for the previous 2 years.

Note: If documents are questionable in any way, or if the employer is
unwilling to provide a verbal verification, then a standard verification
of employment form is required.

Active Duty, Reservists and National Guard Applicants

-   A certified copy or original Leave and Earnings Statement (LES) is
    required to verify military employment. The LES must be no more than
    120 days old (180 days for new construction). The LES takes the
    place of the VOE and pay-stub.

    ***Note:** The Department of Defense provides service members access
    to a computer generated LES through myPay (formerly E/MSS) system
    which is acceptable.*

-   Active duty military personnel who have less than one year remaining
    time in service (ETS date) must:

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```
-   Certify that they have reenlisted; or

-   Certify that they are going to re-enlist, along with a statement
    from their commander certifying that they are eligible to re-enlist;
    or

-   Must provide a firm job commitment if the applicant does not plan to
    continue with the military. Contract from the new employer must
    verify job position, rate of pay, starting date, hours per week and
    probability of continued employment; or

-   Document sufficient retirement income if this will be the income
    source.

```{=html}
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```
-   The continuation of Military Allowances must be determined to count
    as income. BAS (food-subsistence) and BAH (housing) are standard and
    allowable. For BAH assure you have the proper allowance for the
    applicable duty (look at the zip code on the LES.) Rates received
    can be found at www.dod.mil/dfas/money/milpay/. Other allowances
    (pro-pay, flight pay, etc.) must be documented as previously
    received and likely to continue. If you cannot determined the
    allowances are likely to continue, this income may only be used to
    offset intermediate debts of 24 months or less.

-   It is the lender's responsibility to separate allowances into
    taxable (line 32) and tax-free (line 39) categories. **C*lue:***
    allowances containing the word "pay" are taxable such as base pay
    and sea pay, while BAH and BAS are not.

*Sample LES in the printed guide*

**Required Certification for Every Case**

[IMPORTANT]{.underline}: Lenders must ask **every** applicant whose
income is being used to qualify, if they are members of a
Reserves/National Guard. If so, the lender must then ask if they have
been notified that their unit has been mobilized. This is required for
**every** applicant except those serving full time active duty or whose
income is not being used. Lender should have a statement in the file
documenting this.

If the applicant(s) state yes, their unit has been mobilized (called to
active duty), lenders must determine what the applicant's income will be
when serving in the Armed Forces full time and choose the income they
feel is appropriate for this particular situation based on income
levels, time involved, etc. If the underwriter does not use the active
duty income, they must explain their reasoning on the loan analysis
form, box 48.

*If the applicant states no*, the lender may proceed as usual.

[]{.mark}

Unusual cases should be discussed with a supervisor or the RLC having
jurisdiction for the property.

[]{.mark}

Self-Employment Income

Income from self-employment may be used when the applicant has been
self-employed for at least two years. If the applicant has related
experience and/or extensive specialized training, consideration may be
given after one year. For standard underwriting obtain:

-   Copies of the past two years' business and/or individual, signed tax
    returns with all schedules.

-   A current year-to-date profit and loss statement and balance sheet
    are required. These exhibits can be prepared by the business or the
    veteran, if adequate information is provided. If discrepancies
    exist, the underwriter may request financials be prepared by an
    accountant.

-   For partnerships and corporations, furnish a list of the primary
    owners and their percentage in the business. This can usually be
    found on the K-1 Forms for partnerships and sub-chapter S
    corporations or on the 1120 Form, Schedule E, for standard
    corporations.

Depreciation may be routinely "added-back" to the net profit of the
returns. Any other "add-backs" should be explained in the "Remarks
Section", item 48 on the Loan Analysis, VA Form 26-6393.

Commission Income

Generally commission income can be considered stable after the applicant
has received it for two years. Commissions can be considered after one
year, if the applicant has prior related experience or extensive
specialized training. Income should generally be averaged over a 12- to
24-month period. Commission income received for less than one year can
rarely be counted.

There is special documentation required when more than 25% of the needed
income is from commissions:

-   The employer must verify year-to-date commissions, the basis for
    computing commission, and how frequently commissions are paid to the
    applicant.

-   The previous two years' income tax returns (additional periods if
    needed) must be provided with W-2's and 1099-MISC forms. Returns
    must be signed and have all schedules, signatures and be dated. Be
    sure to check for un-reimbursed employee expenses on schedule A;
    these would be a debt if consistently noted for 2 or more years.

Rental Income

Rental income must be underwritten depending on the actual form of
property/residency:

1.  **Multi-Family Housing (subject property that the vet will
    occupy)--** If the veteran is purchasing multi-family housing,
    previous landlord experience and cash reserves equaling 6 months
    PITI must be documented. **Both** of these conditions must be met to
    include rental funds in income. ***If rental income is not required
    for qualification purposes, you do not need to address past landlord
    experience or reserves.***

-   The amount of rental income used on existing units would be based on
    75% of the verified previous rent, unless a higher percentage can be
    documented.

> *(continued on the next page)*

**Rental Income; Multi-Family Housing-subject home (continued)**

-   If the units are for a proposed property, VA requires a letter from
    the appraiser stating the "fair rental value" and a
    vacancy/operating cost reduction must be made, a 25% reduction would
    be acceptable.

2.  **Rental of Existing Property (where the vet currently lives but is
    not selling) --** Rental of an existing single-family property may
    be used to "off-set" the mortgage payment if there is a positive
    cash-flow, and there is no indication the property will be difficult
    to rent. A copy of the lease must be furnished. The mortgage debt
    should still be listed on the loan analysis, but shown as a "rental
    offset". If the existing single family has a negative cash flow, the
    loss must be considered as a debt.

3.  **Other Rental Property --** If the applicant has other rental
    property, the same conditions apply as in multi-family housing with
    the exception of cash reserve requirement. In this case reserves
    equaling three months' PITI are needed instead of six months. The
    strength of the local rental market should be evaluated to determine
    the property will not be difficult to rent. Depreciation and
    interest may be added back based on the tax returns provided.
    Without previous rental experience, it is unlikely rental income can
    be used.

Stability and Use of Income

**[Note]{.underline}**: These guidelines apply to both standard and
automated underwriting loans.

-   2 years' employment in the applicant's current position is not a
    required minimum and not always sufficient by itself to reach a
    conclusion on the probability of continued employment. A 2-year
    history should be documented for standard underwriting. The
    applicant must generally be employed 12 months or longer to count
    the income. Related training or experience may be documented to meet
    VA requirements. Items such as a change in the income received
    (large increases or decreases), employment used with less than 12
    months on the **current** job, or acceptance of full time income
    when the borrower has a history of part-time income should be
    addressed by the underwriter in the "Remarks" section on the loan
    analysis form.

-   Generally, income from overtime, part-time work, second jobs or
    bonuses is not considered reliable unless the applicant has received
    this income for 2 years. However, income from these sources can be
    used after 1 year of documented receipt to off-set debts with less
    than 24 months remaining.

-   Temporary income such as unemployment compensation may not be used
    unless it is received due to seasonal income; and there is a 2 or
    more year history of receipt documented. VA educational allowances
    do not represent stable and reliable income and as a general rule,
    may not be considered as income. The underwriter must carefully
    document and address the use of any temporary income in the remarks
    section on the loan analysis form.

-   Generally automobile allowances are paid to cover specific expenses
    related to applicant's employment and may be used to offset a
    corresponding car payment.

-   Generally foster care income is to be used only to balance the
    expenses of caring for the foster child(ren) against any increased
    residual requirements, (a wash).

-   Income from Worker's Compensation, Public Assistance, Social
    Security, Alimony and Child Support may be considered if they have
    been verified as consistently paid and are likely to continue.
    Public assistance programs and social security must continue for a
    minimum of 3 years from the date of closing to be counted.

######### Assets; Chapter 4, Topic 4

The applicant(s) must have sufficient cash to cover:

-   Closing costs or points which are their responsibility; those not
    paid by the seller;

-   VA's funding fee, if not financed, and any prepaids not paid by the
    seller (the 4% seller concession rule applies here, see chapter 6
    for details);

-   the down payment, if any; and

-   the difference between the sales price and loan amount, if the sales
    price exceeds the reasonable value established by VA or the Lender's
    SAR (LAPP).

VA does not require the applicant to have additional cash to cover a
certain number of mortgage payments (reserves) unless income from a
rental property is needed to qualify.

Liquid assets must be verified to the extent that they are needed to
close the loan. For standard underwriting, a verification of deposit
form or two months bank statements (originals or lender certified "true"
copies) are acceptable forms of documentation. Verifications must be no
more than 120 days old (180 days for new construction). Faxes and
Internet documentation may be acceptable; borrower's bank statements
available to them by Internet or faxed from the depository directly to
the lender. In cases where the lending institution uses Internet based
verifications, ensure the URL appears on the document.

######### Debts and Obligations; Chapter 4, Topic 5

Debts and obligations of the applicant must be rated and a credit report
must be obtained. All credit reports and verifications must be no more
than 120 days old (180 days for new construction). For standard
underwriting, inquiries within the past 90 days must be addressed.

When a pay-stub or leave-and-earnings statement indicates an allotment
or garnishment, the lender must investigate the nature of the allotment
and determine if it is related to a debt.

Deduct significant debts and obligations from total effective income
when determining ability to meet mortgage payments. Significant debts
and obligations include:

-   Installment debts and other obligations with a remaining term of 10
    months or more

-   Accounts with a term of less than 10 months that require payments so
    large as to cause a severe impact on the family's resources for any
    period of time

> (Note: This includes revolving charge cards with less than 10 payments
> where the monthly payment(s) is so large they could affect whether the
> borrowers can make all their monthly payments-including the new
> mortgage! Underwriters should also look to see if there is a long term
> history using revolving debt(s). Although currently the balance and
> minimum payment may indicate an installment of less than 10 months, a
> history may actually indicate a long term debt. This is where
> underwriter judgment and flexibility are used in combination with the
> veteran's history of overall credit use and financial management. If
> there is excellent credit and compensating factors, you may want to
> decide in the vet's favor.)

Child Care Expenses

Expenses for care of children 10 years old or younger must be included
in the debt section of the loan analysis form. A letter from the veteran
stating the cost, name and address of the provider or explanation of why
no expense is incurred is required. This is needed for all loans,
whether automated underwriting is involved or not. If there is any
indication (i.e. tax returns) that there are costs for children over 10
years of age, the underwriter must address these costs.

Co-Signed Loans

If there is evidence that loan payments are being made by someone else
for a co-signed loan and there is no reason to believe that the
applicant will have to repay the loan, the lender may exclude the
payment.

Other Types of Loans

Student loans in deferment may generally be disregarded if the deferment
will continue for at least 12 more months. If the obligation is not
being considered, proof of deferment must be included in the loan
package.

Loans secured against deposited funds (signature loan, 401k loan, etc.)
in which repayment may be obtained through extinguishing the asset may
be disregarded. However, the asset securing the loan may not be listed
in the asset section of the loan analysis form.

######### Credit History; Chapter 4, Topic 7

General Rules

A borrower with no derogatory credit within the last twelve months can
generally be considered to have acceptable credit. Exceptions are:

-   Outstanding judgments

-   Unresolved Federal debts

Any outstanding judgments or federal debts must be paid in full or have
a written repayment agreement.

VA will accept a three-file Merged Credit Report or a Residential
Mortgage Credit Report. The reports should be no more than 120 days old
(180 days for new construction). VA requires the lender to submit
**all** credit reports obtained during processing.

No Credit

Lack of references is not a reason for disapproval. If possible, obtain
references from non-traditional sources of credit.

Rental or Mortgage Payment History

VA requires the last 12 months of rental or mortgage history be verified
and rated for standard underwriting. Past housing payment history is
often the best indicator of how motivated the applicant is to make
timely mortgage payments in the future.

Collection Accounts

Payment of collection accounts at or near the time of the loan
application does not affect the credit worthiness of the borrower. A
borrower with unacceptable credit history does not become acceptable
simply by paying collection accounts. Conversely, a borrower with an
overall favorable history may be considered acceptable with an isolated
unpaid collection account.

Consumer Credit Counseling

-   If entered before delinquency, it is considered a positive or
    neutral factor.

-   If entered after delinquency, the veteran needs 12 months of
    documented acceptable payment history and the approval from the
    credit counselor.

Bankruptcy

[Chapter 13]{.underline} **--** Veteran needs a satisfactory history for
12 months on the payment plan [and]{.underline} approval from the
court/trustee.

[Chapter 7]{.underline} **--** If the bankruptcy was due to
circumstances beyond the borrower's control (i.e. job loss or medical
reasons), it would be acceptable 12 months from the date of discharge
with no derogatory credit and documentation of circumstances is
required. If the bankruptcy was for any other situation, VA requires two
years from the date of discharge with re-established credit.

Foreclosures

Apply the guidelines provided for bankruptcies.

> *Note: If a previous VA loan was involved assure there is sufficient
> entitlement for the new loan and no unresolved debt to the
> Government.*

Divorce Situations

You may disregard obligations and delinquent payments made after
assignment of responsibility to an ex-spouse by the courts.

######### Residual Income; Chapter 4, Topic 9

Remember to consider the following items when completing VA's Loan
Analysis Form:

-   Dependents, box 13, must be completed. Assure to check the URLA, tax
    returns or any other documentation that may show dependents and
    complete this box properly.

-   Real Estate Taxes are based on the appraisers figure unless the file
    is documented otherwise. Also, do not forget to review the URAR, or
    other proof, to see if the home is located in a flood zone requiring
    insurance.

-   Change 2 to VA Lender's Handbook established a nationwide figure for
    maintenance and utility costs rather than local charts. Effective
    immediately, lenders should use 14¢ per square foot of GLA. This
    charge is reflected on line 19 or 20 (or you can break up the charge
    and put a little on both!) The 14¢ covers both maintenance and
    utilities, it is not 28¢.

-   The underwriter must consider job related expenses such as child
    care expenses or extraordinary commuting costs. This is reflected on
    line 30 of the loan analysis form.

-   Taxes should be based on IRS Circular E and appropriate state income
    tax charts. Information may be obtained from the following sites;
    www.IRS.gov and http://www.taxsites.com/state.html. Do not use the
    figures off the paystubs. Social security/Medicaid is 7.65% or 15.3
    for self employed.

-   All members of the household, regardless of the nature of the
    relationship, should be counted when determining "family size".

-   CAIVRS clearance authorization must be obtained for all applicants.
    List the authorization number(s) in item 47 or 48 on VA Form
    26-6393.

-   Underwriters should comment on marginal credit (lates within the
    past year) for standard underwriting. Underwriters should always
    comment on questionable income issues (stability or large
    increase/decreases) regardless if standard or automated underwriting
    is being used. These, compensating factors, or any other unusual
    circumstances should be noted in section 48 of loan analysis form.

######## TABLE OF RESIDUAL INCOMES

For loan amounts of \$79,999 and below For loan amounts of \$80,000+

  ----------------------------- -----------------------------------------
  **Family Size**               **Northeast**

  1                             **\$390**

  2                             **\$654**

  3                             **\$788**

  4                             **\$888**

  5                             **\$921**

  Over 5                        Add \$75 for any other members up to a
                                family of 7
  ----------------------------- -----------------------------------------

######### Debt to Income Ratio; Chapter 4, Topic 9 & 10

VA considers the debt-to-income ratio a method to assist in the
assessment of the potential risk of the loan. It is a guide and, as an
underwriting factor, is secondary to the residual income. It should not
automatically trigger approval or rejection of a loan.

The ratio is determined by taking the sum of PITI, condo/HOA fees and
other assessments (items 15, 16, 17, 18, and 21), and obligations to be
deducted from income (item 41); and dividing by the total of gross
salary or earnings (item 32) and other compensation or net income (item
39).

In the case of borrowers relying on tax-free income to qualify,
"grossing up" is allowable as a compensating factor only. The actual
ratio should be listed on the loan analysis sheet in box 45 and the
ratio based on the "grossed up" income annotated in the "remarks"
section (box 48) of the loan analysis form if the lender chooses. You
may **never** gross up the actual income listed on line 39 of the loan
analysis as residual income is based on actual income received.

For standard underwriting, a ratio greater than 41% requires close
scrutiny unless

-   The residual income exceeds the guideline by at least 20%.

Otherwise, include a statement justifying the reason for approval,
signed by the underwriter's supervisor.

*Sample 26-6393 in printed file*

**PREQUALIFICATION
WORKSHEET**![](media/image3.wmf){width="1.2256944444444444in"
height="0.7666666666666667in"}

Proposed Loan Amount \$ *183,600* Household Size (all members of the
household): 3

**1. GROSS MONTHLY INCOME \$*4843.00* (1)**

2\. Monthly Housing Expense (PITI)

a\. Principal and Interest 6.75%\*\* *\$1191.00*

b\. Property Taxes *\$ 183.00*

c.  Homeowners Insurance \$ *45.00*

**TOTAL *\$1419.00 (2)***

3\. Monthly Debts and Obligations

a\. Car Loan(s) *\$ 450.00*

b\. Revolving Charge Accounts *\$ 80.00*

c\. Other Installment Loans \$ 0

d\. Child Care Expenses, Child Support or Alimony \$
[325.00]{.underline}

**TOTAL \$ *855.00 (3)***

4\. Monthly Estimate Maintenance & Utilities of the Home ***\$140.00
(4)***\
Please use 14 cents times the subject property's gross living area.

For a 1000 sq. ft. dwelling this would total \$140.00.

5\. Monthly Income Taxes

a\. Federal Income Tax *\$ 251.00*

b\. State Income Tax (works in NH) \$ 0

c\. Social Security/Medicare 7.65% *\$ [370.00]{.underline}*

**TOTAL** ***\$ 621.00 (5)***

6\. Residual Income

a.  Amount required by family size *\$909.00*

> Count all members of the veterans household regardless of the
>
> nature of the relationship. Use the "Tables of Residual Incomes"
>
> on page 39 or online at http://www.warms.vba.va.gov/pam26_7.html
>
> Chapter 4, Topic 9.

b\. From worksheet (1) minus (2,3,4,5) **\$*1808.00***

7.  Debt to Income Ratio **(2)** + **(3)** divided by **(1)** (ideal
    41%) **[47%]{.underline}**

**What Meets VA Standards?**

Generally speaking if the veteran meets the residual guideline and the
ratio is 41% or less, or if the ratio is greater than 41%, the veteran
should at least meet residual plus 20%. This one easily qualifies income
wise with almost double the residual requirement!

Additionally, the veteran must have acceptable credit with sufficient
and stable income.

**PREQUALIFICATION WORKSHEET**

Proposed Loan Amount \$ \_\_\_\_\_\_\_\_\_ Household Size (all members
of the household): \_\_\_\_\_\_\_\_\_

**1. GROSS MONTHLY INCOME \$\_\_\_\_\_\_\_\_\_(1)**

2\. Monthly Housing Expense (PITI)

a\. Principal and Interest \_\_\_\_\_\_%\*\* \$\_\_\_\_\_\_\_\_\_\_

b\. Property Taxes \$\_\_\_\_\_\_\_\_\_\_

c.  Homeowners Insurance \$\_\_\_\_\_\_\_\_\_\_

**TOTAL \$\_\_\_\_\_\_\_\_\_(2)**

3\. Monthly Debts and Obligations

a\. Car Loan(s) \$\_\_\_\_\_\_\_\_\_\_

b\. Revolving Charge Accounts \$\_\_\_\_\_\_\_\_\_\_

c\. Other Installment Loans \$\_\_\_\_\_\_\_\_\_\_

d\. Child Care Expenses, Child Support or Alimony \$\_\_\_\_\_\_\_\_\_\_

**TOTAL \$\_\_\_\_\_\_\_\_\_(3)**

4\. Monthly Estimate for Maintenance & Utilities of the Home (\$.14)
\$\_\_\_\_\_\_\_\_\_(4)

5\. Monthly Income Taxes

a\. Federal Income Tax \$\_\_\_\_\_\_\_\_\_\_

b\. State Income Tax \$\_\_\_\_\_\_\_\_\_\_

c\. Social Security/Medicare 7.65% \$\_\_\_\_\_\_\_\_\_\_

**TOTAL** \$\_\_\_\_\_\_\_\_\_(5)

6\. Residual Income

a\. Amount required by family size \$\_\_\_\_\_\_\_\_\_\_

b\. From worksheet (1) minus (2,3,4,5) **\$\_\_\_\_\_\_\_\_\_**

7\. Debt to Income Ratio **(2)** + **(3)** divided by **(1)** (ideal
41%) **[\_\_\_\_\_\_\_\_\_%]{.underline}**

######## 

Residual Tables

  ------------- ---------------------------------------------------------
  **Family      **For Loans \$80,000 and Up-Northeast**
  Size**        

  1             **\$450**

  2             **\$755**

  3             **\$909**

  4             **\$1,025**

  5             **\$1,062**

  Over 5        Add \$80 for any other members up to a family of 7
  ------------- ---------------------------------------------------------

  --------------------- -------------------------------------------------
  **Family Size**       **For Loans \$79,999 and Under-Northeast**

  1                     **\$390**

  2                     **\$654**

  3                     **\$788**

  4                     **\$888**

  5                     **\$921**

  Over 5                Add \$75 for any other member up to a family of 7
  --------------------- -------------------------------------------------

**Chapter 6**

**Closing Loans and the Guaranty**

######### Fees and Charges

The VA home loan program involves a veteran's benefit. The objective of
the program is to help the veteran to use his or her home loan benefit.
Therefore, VA regulations limit the fees that the veteran can pay to
obtain a loan and/or the fees that the lender can charge.

The veteran can pay a maximum of:

-   Reasonable and customary amounts for any or all of the "Itemized
    Fees and Charges" designated by VA, plus

-   A 1% flat charge by the lender (origination fee), plus

-   Reasonable discount points

***A complete listing of allowable fees and charges are discussed fully
in VA Lender's Handbook, Chapter 8.***

Itemized Fees and Charges

The veteran may pay any or all of the following itemized fees and
charges, in amounts that are reasonable and customary:

1.  VA appraiser and VA compliance inspectors (obtain the maximum
    allowable charges from the VA Construction & Valuation office with
    jurisdiction over the subject property)

2.  Recording fees and recording taxes

3.  Credit report or automated underwriting fee

4.  Prorated taxes and assessments and the initial deposit for the
    escrow account

5.  Hazard insurance

6.  Flood zone determination

7.  Survey/plot plan

8.  Title examination and title insurance and an environmental
    protection lien endorsement

9.  Federal Express or Express Mail (permitted for refinance loans only)

10. VA funding fee

11. Discount points

12. Charges for housing programs/grants approved by VA prior to the
    closing

13. MERS, Mortgage Electronic Registration System; the basic fee is
    \$3.95

Additionally the RLC with jurisdiction over the property should be
contacted concerning allowable fees for a particular housing program.

**Allowable Appraisal/Inspection Fees** (effective July 1, 2005)

  -------------------- ----------- ------------------ -------------- --------------
  **State**            **Single    **Multi-family**   **Condo Unit** **Compliance
                       Family**                                      Inspection**

  Connecticut          \$300       500                350            100

  Maine                325         500                350            100

  Massachusetts        300         475                350            100

  New Hampshire        300         500                350            100

  New York City (1)    300         475                325            100

  New York             275         450                300            100
  Upstate/Buffalo (2)                                                

  Rhode Island         300         450                350            100

  Vermont              325         500                350            100
  -------------------- ----------- ------------------ -------------- --------------

1.  New York City is defined as the counties of Bronx, Kings, Nassau,
    New York, Queens, Richmond and Suffolk.

2.  Upstate/Buffalo is defined as all other counties in the state of New
    York.

[Other Appraisal Fee Notes]{.underline}:

-   Mileage can be charged at a rate of 32.5¢ per mile beyond a 30 mile
    radius. There is a \$36.00 maximum that can be charged for mileage.

-   Unusual/complex or distant cases should be discussed with the
    Valuation Department for authorization of extra charges before the
    appraisal is completed. Proof of VA authorization of the increased
    fees will be required in an audit package.

Lenders 1% Flat Charge (aka the Origination Fee)

In addition to "itemized fees and charges", the lender may charge the
veteran a flat charge (commonly called the origination fee) not to
exceed 1% of the loan amount. The lender's flat charge is intended to
cover all of the lender's costs and services which are **not**
reimbursable as "itemized fees and charges."

The following list provides examples of items that must be covered out
of the lenders flat fee:

1.  Lender\'s appraisals (additional or for post audits)

2.  Lender\'s inspections (except in construction loan cases)

3.  Document preparation, loan closing or settlement fees

4.  Recording of assignment or mortgage conveyance fees

5.  Attorney\'s services other than for title work

6.  Photographs

7.  Postage or other costs such as overnight fees (except for on a
    refinance which allows overnight of the mortgage payoff), telephone
    calls, and overhead such as verification fees.

8.  Escrow fees or charges

9.  Notary fees

10. Commitment fees

11. Trustee fees

12. Loan application or processing fee

13. Fees to loan brokers, finders or other third parties

14. Tax service fee

15. Fees for housing programs not approved by VA

A complete listing can be found in VA Lender's Handbook, Chapter 8.

*HUD-1 page 1 in printed guide*

*HUD-1 page 2 in printed guide*

Seller Concessions: What Can the Seller Pay?

The Seller Can Pay For:

a.  All of the veteran buyer's closing costs.

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b.  Points as appropriate to the market. Example: If it is customary
    that lenders are charging two discount points to obtain the average
    on going interest rate, than 2 discount points would be appropriate
    to the market.

The Seller Typically Pays For:

> a\) The Wood Destroying Insect Inspection (if required by the NOV). VA
> regulations prohibit the veteran from paying this fee; however, it may
> be paid by the seller or a third party.

Is There Anything Else The Seller Can Pay For?

The seller can pay for the following items providing the total of these
do not exceed 4% of the Reasonable Value of the property as established
by the VA fee appraiser.

a.  Payment of the veteran-buyer's funding fee.

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b.  Payment of the veteran-buyer's prepaids (proration of real estate
    tax and hazard insurance)

c.  Payment of points above what is appropriate to the market.

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d.  Gifts such as television sets, cars, etc.

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e.  Payment of points to provide for a temporary buydown.

> f\) Pay off of credit balances or judgments on behalf of the veteran.

######### Powers of Attorney and Legal Instrument Requirements

**Powers of Attorney**

VA will allow a veteran to use a power of attorney (POA). There are
specific requirements that must be followed, however:

-   The veteran must execute a general or specific power of attorney. If
    a general POA is used, the veteran must have signed either the loan
    application or purchase and sales agreement noting the property
    address, sales price and that VA financing will be used in
    conjunction with the purchase.

-   In addition, at the time of loan closing, the lender must verify
    that the veteran is alive, and, if on active military duty, not
    missing in action. The following certification must be submitted
    with the closed loan package:\
    "The undersigned lender certifies that written evidence in the form
    of correspondence from the veteran or, if on active military duty,
    statement of his or her commanding officer (including statement of
    person authorized to act for said officer), affirmatively indicating
    that the veteran was alive and, if the veteran is on active military
    duty, not missing in action status on ([date]{.underline}), was
    examined by the undersigned and that the said date is subsequent to
    the date the note and security instruments were executed on the
    veteran's behalf by the attorney-in-fact." Should a written
    statement be unattainable, Manchester's RLC will accept a verbal
    confirmation completed by the lender with either the veteran or
    his/her commanding/personnel officer. Confirmation by the spouse or
    co-applicant is not sufficient proof the veteran is alive and well
    and not MIA.

> **Note**: This is required for the veteran whether or not s/he is
> still in the military. The alive and well certification is not
> required for IRRRL's.

Should you have any questions or problems meeting these requirements,
please contact the RLC with jurisdiction over the subject property for
guidance. Specifics on POA's can be found in VA Lender's Handbook,
Chapter 9, Topic 7.

Legal Instruments

Lenders may use any note and mortgage forms they wish for VA loans. VA
does not have specific forms, although the industry has created several
in response to our requirements. Although VA does not have requirements
concerning instruments and riders (i.e. condo or 2-4 family riders),
lenders must ensure that the security instruments they use:

-   Establish the required lien

-   Comply with the laws and regulations governing VA's home loan
    program

-   Comply with applicable state laws, and

-   Contain the following VA clauses

    -   Assumption Approval clause

    -   Acceleration clause

    -   Funding Fee clause

    -   Processing Charge clause, and

    -   Indemnity Liability Assumption clause

The notices, dealing with assumptions, must appear conspicuously on at
least one of the security instruments for the loan. Specific wording and
other details can be found in VA Lender's Handbook, Chapter 9, Topic 1.

######### Paying VA's Funding Fee (a guide with all the details is at www.homeloans.va.gov/vaach.htm)

Prior to a lender obtaining the guaranty, VA's Funding Fee must be
remitted. Even if the veteran is exempt, the lender must go to our
Internet system and enter data indicating no funding fee is due. All
fees are paid on line, directly through the Treasury. Fees must be
remitted within 15 days from the date of closing, not disbursement! If
you exceed 15 days from the closing, a late fee of 4% of the funding fee
will be charged.

To pay VA's Funding Fee go to http://www.pay.gov/va. The first time you
log in, you will be required to register and you will need your lender
tax identification number and the bank account information of where
monies for the refunds should be drawn. After that, you will just log
on, select payments and complete the screen. The Treasury will take the
money automatically out of your firms account that night and a receipt
will be ready to print the next day. If there is no funding fee due,
enter the data and print a receipt.

### Refund Requests

At times a funding fee refund may be due:

-   An exempt veteran paid a funding fee; or

-   A miscalculation caused an overpayment of the funding fee

Who does the refund go to?

-   A veteran who paid cash for the funding fee receives a cash refund
    for the amount of the overpayment directly from VA. Please have the
    veteran contact VA directly for this.

-   In the case of a veteran who financed the funding fee in the loan
    amount, the lender must apply the overpayment against the principal
    balance of the loan. Submit evidence to VA that the refund was
    applied against the principal balance of the loan. VA will refund
    the lender directly.

How do you request the refund?

Go to http://www.pay.gov/va and select Refunds. Complete the screen with
as much detail as possible. You will need to go back and check the
status a few days later to assure it was approved and to estimate the
day the funds will be transferred to your account. VA does not mail
checks directly to lenders any more. The funds are now automatically
transferred to an account someone in your firm has designated at time of
registration. Occasionally additional information will be needed and we
will suspend or deny the request until the necessary data has been
received.

######### Obtaining a Guaranty

VA now offers 2 different methods of obtaining a guaranty; over the
Internet using a system call WBLS (Web Based Loan Summary) or the
standard modified package. All loans must be input into WBLS or received
by VA for direct guaranty within 60 days from the closing, not
disbursement.

WBLS (Web-Based Loan Summary Sheet)

This application allows lenders to enter data over the Internet through
the "portal" (https://vip.vba.va.gov) and obtain the LGC 24 hours later.

-   No special software is needed

-   No fees involved

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-   When using ACE to obtain the COE, there will be less info to input
    as data will transfer to WBLS from ACE

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-   Lenders must wait 3 days after paying the funding fee to obtain the
    LGC

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-   System will let you know immediately if case is selected for audit

-   You may obtain duplicate LGC's directly from system for up to 6
    months

[Exceptions]{.underline} where the paperwork must be submitted to the
RLC with jurisdiction over the property for VA to manually issue the
LGC:

-   Loans for Unmarried Surviving Spouse

-   Joint Loans (2 unmarried veterans or unmarried veteran/non-veteran)

-   Prior Approval Loan (previously underwritten by VA)

-   Loans where restoration of entitlement is required, i.e. back to
    back closings

**Modified Guaranty Submission Procedure**

Lenders must submit copies (except for the COE, which must be an
original) of only the items listed below, in the order listed, to VA
when requesting guaranty for all loans except Interest Rate Reduction
Refinancing Loans (IRRRL's). IRRRL packages must contain all original
documents specified in Chapter 6, Topic 1 of VA Lender's Handbook.

1.  VA Form 26-0286, Loan Summary Sheet - The form may be downloaded
    from the Internet at: *http://www.va.gov/vaforms*

> ***NOTE:** It is imperative that this form be filled out completely
> and accurately. VA uses the data from this form to generate the Loan
> Guaranty Certificate (LGC) issued to lender. If the data is incorrect,
> the LGC will be incorrect.*

2.  An original Certificate of Eligibility (VA Form 26-8320 or VA For
    26-8320a or ACE COE) with sufficient benefit for the transaction,
    (If this was a prior approval loan, VA will already have the COE.)

3.  VA Funding Fee Receipt **or** evidence borrower is exempt (26-8937)

4.  Notice of Value

5.  VA Form 26-1820, Report and Certification of Loan Disbursement

6.  HUD-1 Settlement Statement

7.  Name and mailing address of lender contact person to be used when
    requesting file for full review or post audit

8.  E-mail address, if available, which may be used to request file in
    lieu of letter

***NOTE: Incomplete loan closing packages will be returned to the
lender.***

Note: VA field stations will identify cases selected for full review or
other audit purposes at least weekly usually within 30 days of receipt
by VA. Lenders will then be notified of selected cases by letter or
e-mail. Lenders must forward the complete origination package to the
requesting VA office within 15 days of receiving notification from VA.

**Lost LGC?**

Was the LGC lost in the mail? Please note GNMA and possibly other
investors may accept the confirmation of guaranty you can print from
ACE. To look at the report access ACE via the Veteran's Information
Portal at https://vip.vba.va.gov. Speak to your investor for final
acceptance.

> **Chapter 7**

**Other Items to Assist You**

### Frequently Asked Questions - Loan Processing

*What is VA's internet site address?*

Lenders can reach VA's Lender and Servicer Home Page at
***www.homeloans.va.gov/ls.htm***

At this site you can download VA's Lender Handbook, find out about
recent changes, upcoming satellite training and access other useful
information.

*What is the VA\'s maximum loan amount?*

VA does not have a maximum loan amount but we understand lenders
generally must have at least 25% of the loan guaranteed (backed) by VA
in order to sell the loan on the secondary market. Based on this factor
the following limits apply:

\*Purchases or construction refinances-\$359,650 including VA's Funding
Fee

\*Regular or Cash Out refinances-\$144,000 including VA's Funding Fee
(higher amounts so check with your investor on this one)

\*Interest Rate Reduction Refinance Loans-VA **will** guaranty 25% of
the final loan amount as long as it is in compliance with VA regulations

It is suggested that any deviations on loan amounts for purchases,
construction refinances or regular/cash-out refinances listed above be
discussed with your secondary mortgage market representative prior to
closing to assure you have the proper coverage needed to satisfy your
investors requirements

Specifics on loan amounts and guaranty percentages can be found in
Chapter 3 of VA's Lender Handbook.

*Can a veteran and his fiancée purchase a home together using a VA
backed loan?*

The veteran can purchase a home with any individual he/she chooses, but
VA will only guaranty the portion of the loan attributed to the veteran
and a spouse.

For example, if the veteran intends to purchase a home with a fiancée
prior to their marriage and will share the same interest in the
property, VA would only guaranty half of the loan.

Questions on the amount of guaranty available should be directed to your
office management. If they cannot, assist then contact your local
Regional Loan Center. Generally, loan amounts under \$90,000 would have
at least 25% guaranty available but there are always exceptions for both
higher and lower loan amounts.

Specifics on guaranty percentages for joint loans can be found in
Chapter 7 of VA's Lender Handbook.

*What is the maximum guaranty on a joint loan for two veterans who have
never used their Certificates of Eligibility?*

The same loan amounts and guaranty percentages listed above. The use of
two certificates does not mean you can double the guaranty or loan
amount.

*Can a veteran refinance over 90% LTV on a cash out refinance?*

The loan amount cannot exceed 90% of the appraised value plus the VA
funding fee and an energy efficient improvement loan (EEI) added to that
base. For example, if the appraised value of a home is \$115,000, the
base loan amount could be up to \$103,500 (90% of the appraised value).
To the base you could add VA's Funding Fee, (i.e. 2.15% for first time
use veteran \$2,225) for a total loan amount of \$105,725.00.

Also it is our understanding that the loan amount may not exceed
\$144,000 to sell the loan on the secondary mortgage market. The
exception to this is an addition for an energy efficient improvement
loan (EEI).

*How do you process a loan for a veteran who has been rated incompetent
by VA?*

Obtain proof that the person signing the documents for the veteran is
authorized.

Process VA Form 26-8937, Verification of VA Benefit Related
Indebtedness.

A complete package (including a NOV) **must** be sent to VA for review
and acceptance prior to the closing.

*Does VA require 2.4% funding fee if the borrower is currently in the
Reserves or National Guard but the veteran has a green certificate?*

If the veteran has a green certificate it was obtained because s/he
served full time active duty and is subject to the lower funding fee.

The fact that a person is in the Reserves or National Guard presently
does not mean they automatically have to pay the higher funding fee.
Please check the certificate as they may have qualified for the benefit
as a veteran with full time active duty service. Reserve/National Guard
certificates are clearly annotated as such and list the fact that the
veteran is subject to a higher funding fee right on the certificate. Any
unusual scenarios may be clarified with the VA Regional Loan Center in
your area or questionable certificates addressed with one of the
Eligibility Centers.

Information concerning VA Funding Fee may be found in VA's Lender
Handbook, Chapter 8.

*What documentation is acceptable to establish exemption from VA's
Funding Fee?*

\*VA Form 26-8937, Verification of VA Benefit Related Indebtedness (note
this is required for exempt veterans in audit packages)

\*A current award letter dated within the past 12 months (remember you
will still be required to have the 26-8937 in the loan folder)

\*Letter from the Veteran Service Center Manager confirming receipt of
service connected disability income.

\*Proof that the veteran elected to receive service retirement pay in
lieu of VA compensation, such as a copy of the original VA notification
of disability rating and proof of receipt of retirement income.

\*A certificate of eligibility which indicates that the borrower is
eligible for VA's benefit as a unmarried surviving spouse, this is
clearly typed on the COE.

*How many properties can a veteran own through VA?*

A veteran can reuse the VA benefit multiple times as long as s/he has
sufficient benefit to cover the new loan.

The new home s/he is purchasing must be their primary residence.

If there is less than full benefit remaining for the purchase of the
second property, it is suggested the lender consider if the veteran can
obtain a restoration or if the remaining benefit will cover the proposed
loan amount.

*Do we still need the off base housing authorization?*

This varies from region to region. You should check with your
supervisor, if not contact the VA Regional Loan Center you deal with.
The form is not required in New England or New York.

*Will VA accept a package for credit approval prior to an appraisal
being ordered?*

No, to underwrite a loan for commitment VA needs a complete loan
package. A listing of required data can be found Chapter 5 of VA's
Lender Handbook.

*How do I find out information about lender approval, automatic
authority, agents or such items?*

Chapter 1 of VA's Lender Handbook contains all the information you need
concerning requirements for lender approval, authority and agents. You
can access this on our Internet site that also has a checklist and
specific points to consider when applying for automatic underwriting
authority.

*Can you give a mortgage for an interest rate reduction refinance
(IRRRL) when the veteran no longer occupies the property?*

Yes, previous occupancy of the subject property is sufficient. The
interest rate reduction refinance loan is the only VA loan where the
veteran or his spouse does not have to occupy the property as their
primary residence. Specifics on occupancy requirements can be found in
Chapter 3 of VA's Lender Handbook.

**Assets**

*Should gift funds be verified in the donor\'s or applicant\'s account?*

Although there is no specific requirement in VA's Lender Handbook, many
lenders do document the donor ability to give and veteran's receipt of
funds. This assures the veteran did not obtain other financing to cover
the closing costs.

*Can the veteran\'s retirement fund be included as liquid assets?*

Retirement funds that are not available to the veteran can generally not
be included as a liquid asset. Voluntary contributory retirement plans
may demonstrate a veteran's ability to accumulate savings and should be
considered a compensating factor.

If a veteran is taking a loan against the retirement account for
sufficient funds to close the loan, you would need to document the
withdrawal.

**Income**

*What is considered satisfactory to meet the requirement for experience
as a landlord to use rental income?*

This answer will address a property in which a veteran is purchasing a
multi-family home to occupy as a primary residence. VA requires the
lender document reserves and previous landlord experience when the
veteran is purchasing a multi-unit home **only when the rental income is
needed to qualify** the veteran for the home loan. **If the veteran can
support the mortgage without any rental income, neither the landlord
experience nor reserves is required.** For landlord experience, the
veteran must have owned a multi-family home, had previous experience
managing rental units or other background involving property
maintenance/trades and rental or collections experience. In unusual
situations the underwriter should evaluate all the circumstances and
contact the regional loan center they deal with for guidance if needed.
Any landlord experience or equivalent must be properly documented in the
file and unusual situations addressed in the remarks section of the loan
analysis form, i.e. perhaps the veteran might initiate a contract with a
property manager for a year in lieu of the landlord experience.
Acceptance of the years contract combined with the reserves may be noted
in the remarks section and accepted by the underwriter on a case by case
basis in lieu of the standard regulation.

Other types of rental properties and specifics on rental income can be
found in Chapter 4 of VA's Lender Handbook.

*Does VA require 6 months PITI to use rental income?*

If the rental income is needed to qualify the veteran for purchase of a
multi-family primary residence, 6 months PITI in reserves (after
closing) must be documented. **If the rental income is not required to
qualify the veteran,** **then the reserves are not required.**

Other types of rental properties, such as other multi-family homes (not
the subject property) that the veteran owns (subject to 3 months
reserves) and specifics on reserve requirements for rental properties
can be found in Chapter 4 of VA's Lender Handbook.

*Can you use the income of the non veteran spouse to qualify for the
loan, if the veteran is not employed?*

If the spouse is on the application, you can use the spouse's income.

*Can we use income from a non-qualifying spouse (not listed on the URLA)
for qualifying the veteran?*

If the spouse is not on the application you cannot use his/her income
when completing the Loan Analysis. However, should the spouse **choose**
to provide documentation concerning his/her employment, i.e. pay-stub
and W-2, the underwriter could consider removing the spouse from the
residual requirement (reduce the number of family members by one). The
spouse cannot be forced to provide this data. The underwriter must
document the exception in the remarks section of the loan analysis form.

*Can we use income of a trailing spouse?*

This should be considered on a case by case basis and carefully
documented if the income is used in any form. Income from a trailing
spouse can generally not be considered as the spouse does not have
employment in the new location and there is no guaranty of employment
when s/he moves. The income could be used to possibly offset the expense
of the spouse in his/her current location. In unusual circumstances if
the lender can document a demand for the spouse's profession in the new
location, the underwriter may consider using the income or offsetting
some obligations with the potential income. Use of this income in any
form should be considered on a case by case basis and documented in the
remarks section of the loan analysis sheet.

*Can we consider the income of an applicant who has been on his current
job less than one year, and the current job is not related to his
previous job?*

Generally VA would like to see an applicant on a job for a year.
Consideration can be given if there has been a recent change when the
applicant is in the same line of work or has specialized training in
his/her field. The underwriter should also consider the employer's
evaluation of the probability of continued employment, how much of that
applicant's income is needed and if there are any compensating factors.
Just because the veteran does not have a full year on his/her current
job, even if it is not related, does not require an automatic denial.
Careful review and judgment, especially on the example noted above, is
required by the underwriter. These cases require careful scrutiny and
reasons for the decision should be annotated in the remarks section of
the loan analysis worksheet.

Specifics concerning income stability can be found in Chapter 4 of VA's
Lender Handbook. In all cases employment must be verified for a two-year
period and any gaps of employment addressed by the applicant in a
written format.

*Can commission income be used if the applicant has not been receiving
it for two years?*

If the applicant has not been receiving commission income for a two year
period, the underwriter must carefully review the applicants previous
work experience and commission history. If the applicant has been
receiving commission from current employer for at least one full year
and has a background in the field, it may be possible to use that income
or offset some debt. If the veteran has not been receiving commission
for at least a year, it is highly unlikely that this source of income
may be used. The underwriter should address the use of any income with
less than a two-year history in the remarks section of the loan analysis
and assure there is supportive documentation in the loan file. Specifics
on commission income, including the required paperwork, can be found in
Chapter 4 of VA's Lender Handbook.

*How long does a person have to be self employed before we can consider
the income?*

VA prefers to see an applicant to be self employed for a two-year
period. However, the underwriter may consider a candidate that has a
full year of documented self-employment and past regular employment or
education in the same line of work. Specifics concerning self-employment
income can be found in Chapter 4 of VA's Lender Handbook.

*What can be added back to net income for a self-employed applicant,
i.e., depreciation, interest, etc.*

Depreciation claimed on the tax returns and financial statements may be
included in effective income. Should the underwriter choose to add
additional items, they must be specified on the loan analysis form with
documentation contained in the file.

*For self employed persons, do you put any weight on YTD earnings based
on the profit and loss statement? Does the P&L have to be audited or
prepared by an accountant?*

VA will average the earnings based on a year-to-date profit and loss
statement if they are consistent with previous earnings. Generally VA
does not require financial statements to be audited; however in unusual
circumstances, the underwriter may feel it is necessary to obtain an
audited financial statement to clarify income or resolve discrepancies.

Specifics concerning self-employment documentation can be found in
Chapter 4 of VA's Lender Handbook.

*Applicant has a full time job, and has also had a part time job for the
past 11 months. Why can\'t income from both jobs be used?*

VA requires that overtime, part time and bonus income be documented as
consistently being received for a full two-year period and likely to
continue. This is to show that the income is stable and the veteran is
able to work beyond the normal work hours over a long period.

If the income has been received consistently for 12 months and is likely
to continue, the underwriter may choose to offset debt with this income.

Any income received for less than a 12-month period may be considered as
a compensating factor by the underwriter.

Specifics concerning overtime, second job or bonus income can be found
in Chapter 4 of VA's Lender Handbook.

*Is there a minimum length of time a borrower must have received
disability income to use it as qualifying income?*

There is no minimum time of receipt required to use disability income.
The lender must document the funds are currently being received and that
this income will continue generally for a three year period or be able
to draw the conclusion that it will continue in the foreseeable future.
If you cannot document this through the insurance company or social
security, you may have to obtain written confirmation from a doctor
addressing the applicant's probability of returning to work.

If the disability will not continue for a three-year-period
("foreseeable future"), the underwriter may choose to offset some debts.
As each case is distinct, each should be considered on a case by case
basis. The underwriter's decision of using income in unusual scenarios
or as a compensating factor should be documented in the remarks section
of the loan analysis form. Specifics concerning disability income are
listed in Chapter 4 of VA Lender's Handbook.

*Can a veteran purchase a home that is more than 50 miles away from his
place of employment and commute?*

Yes, as long as the veteran can commute to his primary residence. If the
veteran is going to be making an unusually long commute, the underwriter
must consider commuting expenses in the loan analysis. It is the
underwriter's responsibility to know what is considered a "normal"
commute from the subject property.

*Can we use the income from a spouse who is not a US citizen? Do we
require a green card?*

Yes, you may use the income of a spouse who is not a US citizen if they
are on the loan application. VA does not require a green card. Lenders
should check with their investors to insure that both of these issues
are in compliance with the secondary mortgage market.

*A veteran is employed by a "temp" agency for more than 9 months with a
well established employer, can the income be used?*

Generally, it may be difficult to use earnings from an individual
working at a temporary employment agency with less than an established
two-year history. Stability of income and a pattern of earnings may be
established after a year. However, if a person is a career temp
employee, the overall earnings and employment history should be
evaluated. Any income used without a year's history should be addressed
in the remarks section of the loan analysis form. The underwriter would
have to give careful consideration to these scenarios and address how
stability and the average income were determined.

*How long does child support have to continue to be used as income?*

Child support must continue for a three-year period or into the
foreseeable future. If the support is going to be for a timeframe less
than that, the underwriter may consider offsetting the child(ren) in the
residual guideline if receipt of funds on a consistent basis can be
proven. If the underwriter chooses to offset the child in the residual
guideline or offset an intermediate obligation, this should be noted in
the remarks section of the loan analysis form.

Specifics concerning child support income and the documentation required
can be found in Chapter 4 of VA's Lender Handbook.

**Debts**

*Does VA consider childcare cost a debt? If so, what is required?*

Yes, VA continues to consider childcare expenses as a debt. The lender
must obtain a letter from the veteran documenting the childcare expense
or explaining why no expense is incurred. Also assure the present
arrangement will still be logical based on the location of the new home.
If applicable, the name and address of the childcare provider should be
obtained. This expense must be listed on Loan Analysis Section D, line
30, job-related expense.

*Do we obligate the veteran for a mortgage that has been assigned to the
ex-spouse by the courts?*

No, generally you do not have to obligate the veteran for a debt that
the courts assigned to an ex-spouse even if that debt is delinquent.

This is specified in VA's Lender Handbook, Chapter 4.

*For military applicants, do we need to consider separate household
expenses if the applicant will be living in quarters and says he will
not have any expense?*

If the veteran states that he/she will be living in military quarters at
no cost and his/her spouse will be living in the subject property, you
do not have to consider separate household expenses. However, if a
review of the Leave and Earnings Statement shows a withdrawal for
housing or there is any indication in the file of current expenses,
clarification should be obtained.

*Can we disregard a debt if it will be paid off within the next 10
months?*

The underwriter must consider the following for accounts with less than
10 months remaining:

-   The payment must not be so large that it will have a severe impact
    on the financial situation of the household. The amount of "severe
    impact" is left to the underwriter's discretion.

-   If the payment is large, the underwriter may consider reserves to
    cover the debt after closing or income they were unable to use in
    the analysis.

-   The final determination is the underwriter's and if a debt is not
    used and the logic is not highly visible, a notation should be made
    in the remarks section of the loan analysis form.

-   For revolving or open ended accounts with a continued pattern of
    use, the underwriter must include the regular monthly
    payment/minimum payment on the loan analysis form.

    Specifics on this may be found in the analysis of debts and
    obligations section in VA's Lender Handbook, Chapter 4.

*If a veteran co-signs a loan, how do we not include this as part of his
obligations?*

In order to disregard a debt that the veteran has co-signed for another
individual, there must be proof in the file that the payments are being
made by someone else, i.e. canceled checks for a year, and there is no
reason to believe this will not continue. See VA's Lender Handbook,
Chapter 4.

*How does VA look at student loans? 401K loans?*

Student loans must be reviewed on a case-by-case basis. The underwriter
must consider the whole scenario and use judgment when making this
decision. Factors to consider include whether or not the payment is
deferred and if there will be new or additional income to offset this
expense? Loans deferred for more than a year may generally be
disregarded. Should the underwriter choose not to include a student
loan(s) as an obligation, a notation should be made in the remarks
section of the loan analysis form. Also, 401K loans may be disregarded.

*Are union dues, life insurance or medical insurance included in the
debt section?*

No. Expense for these items is considered in the residual income
guidelines. The residual is the net income after shelter, debts and
taxes are removed. Residual income covers items the veteran and family
need such as food, clothing, health care, gas, etc. Additional
information concerning residual income may be obtained in VA's Lender
Handbook, Chapter 4.

*How is child support considered from a credit standpoint as well as a
debt consideration?*

Child support is considered as a debt and must be listed in section D of
the loan analysis form. If late payments appear on the credit report it
should be addressed and considered in the overall credit picture.

**Credit**

*Do unpaid obligations, such as collections and charge-offs, listed on a
credit report have to be paid off? What about judgments or liens?*

Charge-offs and collection accounts are not required to be paid off by
VA. The underwriter should obtain the veteran's explanation and
supporting documentation if needed. If it has been under a steady
repayment plan, this may be considered as a positive factor. If there
has not been repayment scheduled, paying them off now does not alter the
unsatisfactory credit.

Judgments, Federal debts and liens **must** be paid in full or have a
written repayment agreement. Written repayment agreements must be
included in the debt section of the loan analysis form.

This is specified in VA's Lender Handbook, Chapter 4.

*I have a CAIVRS "hit"; what do I do now?*

\*Contact the veteran or co-applicant regarding the claim, ask them if
they are aware of it or have any proof it has been paid in
full/resolved.

\*If the applicant is not aware of the item or needs to resolve it,
someone must contact the federal agency listing the debt. The Lender's
Handbook, Chapter 4, has a listing of the agencies and a contact phone
number.

\*If it is determined that there is no claim against the veteran, the
lender should document this by written confirmation from the agency or
the lender telephone certification.

\*HUD'S CAIVRS line may not update their system quickly so do not hold
up an approval or closing for the CAIVRS data to be changed.

\*If indeed there is a loss to the government, the lender must obtain
proof of payoff or a written repayment agreement.

*When can a person with a bankruptcy on their credit report apply for a
VA loan?*

The guidelines for bankruptcy may be found in VA's Lender Handbook,
Chapter 4.

The date of the discharge and type of bankruptcy is a determining
factor.

If a Chapter 7 Bankruptcy was discharged more than 2 years ago, it may
be disregarded.

If it was discharged between 1-2 years ago, the veteran must have
reestablished credit by some means, and the cause of the bankruptcy must
be documented as beyond the control of the applicant, i.e. job loss or
medical issues.

If the bankruptcy was discharged less than a year ago, it will not
generally be possible to determine that the applicant(s) is a
satisfactory credit risk.

Marginal cases should be addressed in the remarks section of the loan
analysis.

*How do you treat CCCS?*

If an applicant is currently in consumer credit counseling, they must
have a 12-month history of timely payments under the plan and the
counseling agency must approve of the new credit.

Occasionally, individuals choose to participate in consumer credit
counseling to assist them with their finances although they are not
behind in their payments. In these cases consumer credit counseling may
be considered a neutral or even a positive factor. Do not treat this as
a negative credit item if the veteran entered the consumer credit
counseling plan before reaching the point of having bad credit.

Specifics on consumer credit counseling may be found in VA's Lender
Handbook, Chapter 4.

*Is a veteran eligible for a loan if s/he is behind on their child
support payment by \$1,000 or more?*

Child support is a credit obligation and if it is in arrears, it must be
addressed. The veteran may have a legal action pending and if
documented, this should not be considered a derogatory item.

However, if they are merely behind due to financial matters, the
underwriter must take this into account

-   If there is a repayment schedule, how will it be repaid?

-   Consider the reason the payment is delinquent. Will the cause have
    an impact on the veteran's proposed loan scenario?

    This is a judgment the underwriter must make on a case-by-case
    basis.

*In determining whether the veteran has a satisfactory payment history,
how many months do we need to review?*

Generally VA requires a 12-month satisfactory payment history.

Any lates within the past year should be developed for an explanation
and supporting documentation obtained if needed. The underwriter must
make a credit decision based on all the documentation of that particular
veteran. Comments should be placed in the remarks section of the loan
analysis for any loans approved that have lates in the past year.

In marginal cases, it may be helpful to review the mortgage or rental
history carefully as the applicant's past repayment history could
establish how motivated the applicant is to make timely mortgage
payments in the future.

Information on adverse credit or other scenarios such as bankruptcy and
foreclosures may be found in VA's Lender Handbook, Chapter 4.

*The veteran has been living with his/her parents and does not have any
loans or credit cards. What does s/he need to provide to be considered
credit worthy?*

The underwriter must look at these cases individually considering if
there was any past credit or other compensating factors. For VA, a lack
of credit is not considered a negative factor.

*Does VA use credit scoring? If so is there a minimum score?*

No VA does not use credit scoring at this time. The underwriter should
review the credit of applicants individually. However, VA does recognize
that credit scoring is a part of the standard mortgage industry. If the
underwriter is using an automated underwriting system such as Loan
Prospector, they would document the file in accordance with the feedback
sheet as long as the data is up-to-date.

*Can payment plans be used on derogatory credit? If so how long do they
have to have been established?*

If there are derogatory credit issues, i.e. a collection account, IRS
lien, past-due child support, but the veteran has been making payments
for a full year, the underwriter may consider this a positive factor. Be
sure to list the payment as an obligation. If the borrower has been
making payments for less than a year, the underwriter must review all
factors for the loan to determine if the overall credit is acceptable.
The underwriter must use their judgment on a case by case basis. These
decisions should be documented in the remarks section of the loan
analysis form.

**Final Analysis**

*If a veteran is married and the spouse is not on the application, but
that spouse has children living with them, can you use that child
support to offset the children in the residual?*

Yes as long as you can document the motivation for payment, i.e. court
order, and consistent receipt of the funds.

*For loans with ratios over 41%, do you consider compensating factors?*

VA is a residual-driven program. For VA loans, the ratio is used as a
secondary evaluator. The underwriter should consider the following:

-   If the residual is in excess of the guideline by more than 20%, a
    loan with a high ratio but good credit and job stability could be
    approved.

-   If the loan does not have residual + 20%, the underwriter must
    review all the compensating factors and the decision should be
    documented in the remarks section of the loan analysis form.

-   For loans with ratios over 41% and the residual does not exceed the
    guideline by 20%, the underwriter's supervisor must sign the loan
    analysis form concurring with the underwriter's determination, and
    the reasoning for loan approval must be listed in the remarks
    section of the loan analysis form.

    Specifics on ratios, second signatures and compensating factors may
    be found in VA's Lender Handbook, Chapter 4.

*Can non-taxable income be grossed-up?*

Non-taxable income can be grossed-up for determining the ratio only.
Item 39 of the loan analysis form must list the actual income, not the
grossed up figure. There should be two ratios listed on the loan
analysis form if you choose to gross up; the first in box 45 shows the
actual ratio and the second in box 48 lists the ratio based on the
grossed up income figure.

*The loan received and Accept or Approve ranking from AUS (using VA loan
designation). Does this mean the loan is acceptable to VA?*

The ranking from AUS is only as good as the data entered into the
system. It is the lender's responsibility to determine and document
income amount and stability, assure all potential debts (i.e. child-care
expense and pay allotments) are considered, and all the income used is
stable and in accordance with VA regulations (i.e. overtime can only be
added to income after 2 years of receipt). ***Remember: Inaccurate or
unverified data could affect the validity of loan guaranty from VA.***

CHECKLIST FOR INITIAL PRIOR APPROVAL SUBMISSIONS

+---+------------------------------------------------------------------+
| \ | Lenders cover letter with VA case number and person to contact   |
| _ | (optional)                                                       |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Original Certificate of Eligibility (COE) or ACE COE-look for    |
| _ | sufficient benefit                                               |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Uniform Residential Loan Application with VAF 26-1802a. Make     |
| _ | sure these forms are completed (dependents and occupancy) and    |
| \ | signed by the veteran. Note VA Form 26- 1802a must have box 23   |
| _ | completed.                                                       |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Interest Rate and Discount Disclosure Statement                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Counseling Checklist for Military Homebuyers, VA Form 0592; must |
| _ | be signed by active duty military personnel                      |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Verification of VA Benefit-Related Indebtedness, VA Form 8937    |
| _ | **if needed**. If the veteran has VA debt, an acceptable payment |
| \ | plan must be established with the VA Finance Division or the     |
| _ | debt must be paid in full prior to commitment.                   |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Loan Analysis, VA Form 6393 - Must be completed by the lender;   |
| _ | must have CAIVRS data and remarks if questionable credit or less |
| \ | than 1 year on job                                               |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Original Credit Report (Must have **all** credit reports         |
| _ | obtained during processing.)                                     |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Verification of Rental (or mortgage) - Must verify previous 12   |
| _ | months. Certified copies of the most recent twelve months of     |
| \ | canceled rent checks (front & back) are also acceptable.         |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Request for Verification of Deposit Form - Must be originals,    |
| _ | verify sufficient funds to close & indicate past two month       |
| \ | average balance. Two months bank statements, originals or true   |
| _ | copies are also acceptable. Look for large deposits or           |
| \ | overdrafts.                                                      |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Additional Deposit Verifications - ie. gift letters              |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Request for Verification of Employment 2 yrs. - Must be          |
| _ | originals & all items addressed. Compare with paystub to assure  |
| \ | they coincide. Compare previous and present years income to      |
| _ | assure there is correlation. Alt Doc only **if stability**. To   |
| \ | use must have all of the following; 1 month of pay-stubs, 2 yrs. |
| _ | W-2's and a telephone certification with the employer.           |
+---+------------------------------------------------------------------+
| \ | Original Pay-stubs - will accept lender certified true copies -  |
| _ | Examine for deductions such as loan allotment, child support or  |
| \ | garnishments.                                                    |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Leave and Earnings Statement (LES) - if applicable - examine for |
| _ | ETS date, advance pay, allotments, loans and child support.      |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Additional Income - VA compensation, retirement pay, Social      |
| _ | Security or child support                                        |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Self Employed Borrowers - two years signed tax returns, YTD      |
| _ | profit & loss and balance sheet                                  |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Statement on status of Reserves/National Guard duty & if         |
| _ | mobilized for any borrower whose income is being used except     |
| \ | full time active duty applicants.                                |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Copy of Signed Sales Contract, if applicable.                    |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Child Care Documentation noting the providers name & address;    |
| _ | children 10 and under                                            |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Blanket Signature/General Authorization Form - signed by         |
| _ | borrowers (if applicable).                                       |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+
| \ | Copy of the NOV and a copy of the appraisal                      |
| _ |                                                                  |
| \ | ARM Disclosure                                                   |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
| \ |                                                                  |
| _ |                                                                  |
+---+------------------------------------------------------------------+

IRRRL GUARANTY SUBMISSION CHECKLIST

**VA LOAN#
[\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_]{.underline}**

**VETERANS NAME SS#
[\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_]{.underline}**

[      ]{.underline} VA Transmittal List, VA Form 26-0285

[      ]{.underline} VA Loan Summary Sheet, VA Form 26-0286

[      ]{.underline} \*\***Certificate of Eligibility**-benefit should
be tied\*\*(ACE, Roanoke e-mail or an original)

[      ]{.underline} Acknowledgment of Funding Fee or proof the veteran
is exempt

[      ]{.underline} \*\*\*\***IRRRL Loan Comparison Statement** -(must
include the following items)\*\*\*\*\*

-   Old and new PITI payments-look for a PITI reduction unless ARM or
    term reduction or EEI

-   The term of the NEW LOAN **cannot** increase by more than 10 years

-   Old vs. new interest rate/assure the rate is being reduced unless
    old loan was ARM being refinanced

-   Length of time to recoup the closing costs (financed and POC)-not
    required if there is no reduction in payment due to an EEI loan or
    converting an ARM to a fixed rate or, decreasing the term

-   Statement must be signed by the veteran

-   If there is an increase in payment by more than 20% underwriter must
    certify the veteran qualifies for **new** loan

[      ]{.underline} \*\*\*\*\***Interest Rate Reduction Worksheet**, VA
Form 26-8923-make sure CAIVRS is listed in the note section\*\*\*\*\*

[      ]{.underline} Report and Certification of Loan Disbursement, VA
Form 26-1820

Check for completeness, signatures, need waiver for late reporting?,
check **occupancy** certification.

[      ]{.underline} HUD-1 Settlement Statement - Check for allowable
fees and charges. Discount points **financed** cannot be more than 2%.
If subordination recording charge-get a copy of the agreement.
Subordination processing is not an allowable fee. Also if credit report
and appraisal listed, a copy must be sent.

[      ]{.underline} \*\*\*\* **Federal Collection Policy Notice**, VA
Form 26-0503, **or 1802a**\*\*\*\*

[      ]{.underline} Certification that the prior VA loan was current at
the time of closing for loans

\_\_\_ ARM Disclosure if needed.

**[For Priors (IRRRL) *any loans where the existing VA backed loan is
more than 30 days delinquent*:]{.underline}**

[      ]{.underline} Explanation for delinquency with documentation to
support and evidence that problem has been resolved.

[      ]{.underline} Credit Report, in file is acceptable

[      ]{.underline} Current pay stub and telephone certification of
current employment or documentation\
concerning income

[      ]{.underline} Loan Analysis (CAIVRS CHECKED?)

[      ]{.underline} 12 month payment history of mortgage if it is not
on the credit report

[      ]{.underline} Asterisk items from above

**[CHECKLIST FOR REVIEW OF AUTOMATIC LOANS]{.underline}**

\_\_\_\_\_ Lender\'s cover letter with VA case number and person to
contact (optional)

\_\_\_\_\_ VA Transmittal List, VA Form 26-0285

\_\_\_\_\_ VA Loan Summary Sheet, VA Form 26-0286, fully completed

\_\_\_\_\_ Certificate of Eligibility or ACE - Check SSN versus credit
report, need active duty certification on VA

Form 26-1820 if box is checked.

\_\_\_\_\_    Funding Fee Receipt or proof that the veteran is exempt

\_\_\_\_\_ Loan Analysis, VA Form 6393 - Must have CAIVRS data, be
completed and signed.

\_\_\_\_\_ Report and Certification of Loan Disbursement, VA Form
26-1820, check for completeness, signatures, property address, check
occupancy cert., active duty certification, if applicable, and POA.

\_\_\_\_\_ Basic Lender Certification

\_\_\_\_\_ Automated Underwriting? Need the auto underwriter
certification **and** complete/latest feedback sheet;

check to assure the data is up to date and accurate

\_\_\_\_\_ Verification of VA Benefit-Related Indebtedness, VA Form
26-8937 **if needed**

\_\_\_\_\_ HUD Settlement Statement - Check for allowable fees and
charges, seller concessions or cash back allowed?

\_\_\_\_\_ Requirements of NOV (termite report, water analysis, repairs,
etc.)

\_\_\_\_\_ Request for waiver of late reporting, reason for delay and
certification the loan is current, if not reported

within 60 days from the date of closing.

\_\_\_\_\_ Interest Rate and Discount Disclosure Statement

\_\_\_\_\_ ARM Disclosure if needed

\_\_\_\_\_   Counseling Checklist for Military Homebuyers, VA Form
26-0592, for active duty applicants.

\_\_\_\_\_   Uniform Residential Loan Application with VA Form
26-1802a - make sure signed by all parties and

notes the final terms of the loan. Check 1802a for signatures, final
terms & items 23 & 25.

\_\_\_\_\_   Credit Report(s) - **All** credit reports, SS numbers,
credit explanation needed?

\_\_\_\_\_ Rental Verification Form or cancelled rent checks (front &
back) covering the previous 12 months if

not on credit report.

\_\_\_\_\_ Verification(s) of Employment Form- cover past two years,
compare YTD earnings with current wages.

IF stable income may use alternative docs; 1) telephone certification
from employer 2) paystubs

covering 30 days 3) past 2 years W-2's

\_\_\_\_\_ Pay-stubs - Examine for deductions such as loan allotments or
garnishments. If military personnel, Leave

and Earnings Statement (Examine for ETS date, advance pay/debts & assure
BAH is for the proper area.)

\_\_\_\_\_ Submit a statement addressing if **each borrower** is serving
in the Reserves/National Guard. If the

individual is serving, the certification must state if his/her unit has
been mobilized or not. If the unit has

been mobilized, the loan must be underwritten on the basis of the
projected active duty income. This is

required whether or not you are using the Reserve/National Guard income.

\_\_\_\_\_ Additional income - VA compensation, retirement pay, SS
income, child support

\_\_\_\_\_ Self-Employed Borrowers - Two years signed tax returns, YTD
profit & loss statement and balance sheet

\_\_\_\_\_ Verifications of Deposit Form- Should show past two months
average balance and document sufficient

funds to close. Alt docs-2 months bank statements are also acceptable.
Support large increases with

source and look for overdrafts, etc.

\_\_\_\_\_ Purchase and Sales Agreement

\_\_\_\_\_ Blanket Signature Authorization Form if applicable.

\_\_\_\_\_ Children under 10 require a certification from vet indicating
the cost with the name & address of

the provider.

\_\_\_\_\_ Copy of the appraisal and NOV

\_\_\_\_\_ ARM Disclosure