## Chapter 3. The VA Loan and Guaranty

#### Overview

+------------+---------------------------------------------------------+
| #          | > This chapter contains the following topics.           |
| #### In th |                                                         |
| is Chapter |                                                         |
+------------+---------------------------------------------------------+

  ------- -------------------------------------------------------- -------
  Topic   Topic Name                                               See
                                                                   Page

  1       Basic Elements of a VA-Guaranteed Loan                   3-2

  2       Eligible Loan Purposes                                   3-5

  3       Maximum Loan                                             3-7

  4       Maximum Guaranty on VA Loans                             3-10

  5       Occupancy                                                3-12

  6       Interest Rates                                           3-16

  7       Discount Points                                          3-17

  8       Maturity                                                 3-19

  9       Amortization                                             3-20

  10      Eligible Geographic Locations for the Secured Property   3-22

  11      What Does a VA Guaranty Mean to the Lender?              3-23

  12      Post-Guaranty Issues                                     3-26
  ------- -------------------------------------------------------- -------

#### 1. Basic Elements of a VA-Guaranteed Loan

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | -   Subsection a has been changed to show the increase  |
|            |     in available entitlement for loans in excess of     |
|            |     \$144,000.                                          |
|            |                                                         |
|            | -   Also added is a link in the Security Instruments    |
|            |     block that will display samples of required         |
|            |     clauses.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > The following table provides general rules and        |
| ### a. Gen | > information critical to understanding a VA loan       |
| eral rules | > guaranty. Exceptions and detailed explanations have   |
|            | > been omitted. Instead, a reference to the section in  |
|            | > this handbook which addresses each subject is         |
|            | > provided.                                             |
+------------+---------------------------------------------------------+

+-----------+---------------------------------------------------+------+
| Subject   | Explanation                                       | Sec  |
|           |                                                   | tion |
+-----------+---------------------------------------------------+------+
| Maximum   | VA has no specified dollar amount(s) for the      | 3 of |
| Loan      | "maximum loan." The maximum loan amount depends   | this |
| Amount    | upon:                                             | cha  |
|           |                                                   | pter |
|           | -   the reasonable value of the property          |      |
|           |     indicated on the Notice of                    |      |
|           |                                                   |      |
|           |     Value (NOV), and                              |      |
|           |                                                   |      |
|           | -   the lenders needs in terms of secondary       |      |
|           |     market requirements.                          |      |
+-----------+---------------------------------------------------+------+
| Down      | No down payment is required by VA unless the      | 3 of |
| payment   | purchase price exceeds the reasonable value of    | this |
|           | the property, or the loan is a Graduated Payment  | cha  |
|           | Mortgage (GPM). The lender may require a down     | pter |
|           | payment if necessary to meet secondary market     |      |
|           | requirements.                                     |      |
+-----------+---------------------------------------------------+------+
| Amount of | The lesser of:                                    | 4 of |
| Guaranty  |                                                   | this |
|           | -   the veteran's available entitlement indicated | cha  |
|           |     on the Certificate of Eligibility (COE)       | pter |
|           |     (which can be increased up to an amount equal |      |
|           |     to 25% of the Freddie Mac single family       |      |
|           |     conventional conforming loan limit for        |      |
|           |     certain loans over \$144,000), or             |      |
|           |                                                   |      |
|           | -   the maximum potential guaranty from the       |      |
|           |     maximum guaranty table (Highest possible      |      |
|           |     guaranty is 25% of the Freddie Mac single     |      |
|           |     family conventional conforming loan limit).   |      |
+-----------+---------------------------------------------------+------+
| Occupancy | The veteran must certify that he or she intends   | 5 of |
|           | to personally occupy the property as his or her   | this |
|           | home.                                             | cha  |
|           |                                                   | pter |
+-----------+---------------------------------------------------+------+

Continued on next page

1\. Basic Elements of a VA-Guaranteed Loan, Continued

  -----------------------------------------------------------------------
  a\. General rules (continued)

  -----------------------------------------------------------------------

+-----------+---------------------------------------------------+------+
| Subject   | Explanation                                       | Sec  |
|           |                                                   | tion |
+-----------+---------------------------------------------------+------+
| Interest  | Interest rate and points are negotiated between   | 6    |
| Rate and  | the lender and veteran.                           | and  |
| Points    |                                                   | 7 of |
|           | -   The veteran and seller may negotiate for the  | this |
|           |     seller to pay all or some of the points.      | cha  |
|           |                                                   | pter |
|           | -   Points must be reasonable.                    |      |
|           |                                                   |      |
|           | -   Points may not be financed in the loan except |      |
|           |     with Interest Rate Reduction Refinancing      |      |
|           |     Loans (IRRRLs).                               |      |
+-----------+---------------------------------------------------+------+
| Purpose   | To encourage lenders to make VA loans by          | 11   |
| of        | protecting lenders/loan holders against loss, up  | of   |
| Guaranty  | to the amount of guaranty, in the event of        | this |
|           | foreclosure.                                      | cha  |
|           |                                                   | pter |
+-----------+---------------------------------------------------+------+
| Und       | Flexible standards. The veteran must have:        | [cha |
| erwriting |                                                   | pter |
|           | -   satisfactory credit, and                      | 4    |
|           |                                                   | ](ht |
|           | -   satisfactory repayment ability                | tp:/ |
|           |                                                   | /www |
|           | ```{=html}                                        | .war |
|           | <!-- -->                                          | ms.v |
|           | ```                                               | ba.v |
|           | -   stable income                                 | a.go |
|           |                                                   | v/ad |
|           | -   residual income (net effective income minus   | min2 |
|           |     monthly shelter expense) in accordance with   | 6/pa |
|           |     regional tables, and                          | mphl |
|           |                                                   | et/p |
|           | -   acceptable ratio of total monthly debt        | am26 |
|           |     payments to gross                             | _7/c |
|           |                                                   | h04. |
|           | > monthly income (A ratio in excess of 41%        | doc) |
|           | > requires closer                                 |      |
|           | >                                                 |      |
|           | > scrutiny and compensating factors.).            |      |
+-----------+---------------------------------------------------+------+
| IRRRLs    | Used to refinance an existing VA loan at a lower  | [1   |
| (S        | interest rate.                                    | and  |
| treamline |                                                   | 2 of |
| Re        | -   No appraisal or underwriting is required.     | cha  |
| financing |                                                   | pter |
| Loans)    | -   Closing costs may be financed in the loan.    | 6    |
|           |                                                   | ](ht |
|           | -   Any reasonable discount points can be         | tp:/ |
|           |     charged, but only 2 discount points can be    | /www |
|           |     financed in the loan.                         | .war |
|           |                                                   | ms.v |
|           | -   No cash to the borrower.                      | ba.v |
|           |                                                   | a.go |
|           |     ***Note***: A fixed rate loan to refinance a  | v/ad |
|           |     VA Adjustable Rate Mortgage (ARM) may be at a | min2 |
|           |     higher interest rate.                         | 6/pa |
|           |                                                   | mphl |
|           |                                                   | et/p |
|           |                                                   | am26 |
|           |                                                   | _7/c |
|           |                                                   | h06. |
|           |                                                   | doc) |
+-----------+---------------------------------------------------+------+

Continued on next page

1\. Basic Elements of a VA-Guaranteed Loan, Continued

  -----------------------------------------------------------------------
  a\. General rules (continued)

  -----------------------------------------------------------------------

+-----------+---------------------------------------------------+------+
| Subject   | Explanation                                       | Sec  |
|           |                                                   | tion |
+-----------+---------------------------------------------------+------+
| Funding   | The veteran must pay a funding fee to help defray | [8   |
| Fee       | costs of the VA home loan program.                | of   |
|           |                                                   | cha  |
|           | -   Find the percentage appropriate to the        | pter |
|           |     veteran's particular circumstances on the     | 8    |
|           |     funding fee table.                            | ](ht |
|           |                                                   | tp:/ |
|           | -   Apply this percentage to the loan amount to   | /www |
|           |     arrive at the funding fee.                    | .war |
|           |                                                   | ms.v |
|           | ```{=html}                                        | ba.v |
|           | <!-- -->                                          | a.go |
|           | ```                                               | v/ad |
|           | -   The funding fee may always be financed in the | min2 |
|           |     loan.                                         | 6/pa |
|           |                                                   | mphl |
|           |                                                   | et/p |
|           |                                                   | am26 |
|           |                                                   | _7/c |
|           |                                                   | h08. |
|           |                                                   | doc) |
+-----------+---------------------------------------------------+------+
| Closing   | Those payable by the veteran are limited by       | [    |
| costs     | regulation to a specific list of items plus a 1%  | 2,4, |
|           | flat charge by the lender.                        | and  |
|           |                                                   | 7 of |
|           | -   Any other party, including the seller, can    | cha  |
|           |     pay any costs on behalf of the veteran.       | pter |
|           |                                                   | 8    |
|           | ```{=html}                                        | ](ht |
|           | <!-- -->                                          | tp:/ |
|           | ```                                               | /www |
|           | -   Closing costs cannot be financed in the loan  | .war |
|           |     except on certain refinancing loans. (See     | ms.v |
|           |     [section 7 of chapter                         | ba.v |
|           |     8](http://www.warm                            | a.go |
|           | s.vba.va.gov/admin26/pamphlet/pam26_7/ch08.doc).) | v/ad |
|           |                                                   | min2 |
|           |                                                   | 6/pa |
|           |                                                   | mphl |
|           |                                                   | et/p |
|           |                                                   | am26 |
|           |                                                   | _7/c |
|           |                                                   | h08. |
|           |                                                   | doc) |
+-----------+---------------------------------------------------+------+
| Security  | The lender may use any note or mortgage forms     | [1   |
| In        | they wish as long as they contain certain         | of   |
| struments | VA-required clauses, samples of which may be      | cha  |
|           | found at:                                         | pter |
|           | <                                                 | 9    |
|           | http://www.homeloans.va.gov/lenderssampdocs.htm>. | ](ht |
|           |                                                   | tp:/ |
|           |                                                   | /www |
|           |                                                   | .war |
|           |                                                   | ms.v |
|           |                                                   | ba.v |
|           |                                                   | a.go |
|           |                                                   | v/ad |
|           |                                                   | min2 |
|           |                                                   | 6/pa |
|           |                                                   | mphl |
|           |                                                   | et/p |
|           |                                                   | am26 |
|           |                                                   | _7/c |
|           |                                                   | h09. |
|           |                                                   | doc) |
+-----------+---------------------------------------------------+------+

#### 2. Eligible Loan Purposes {#eligible-loan-purposes .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > The law authorizes VA to guarantee loans made to      |
|  List of E | > eligible veterans only for the following purposes:    |
| ligible Lo |                                                         |
| an Purpose | -   To purchase or construct a residence to be owned    |
| s {#a.-lis |     and occupied by the veteran as a home               |
| t-of-eligi |                                                         |
| ble-loan-p | ```{=html}                                              |
| urposes .u | <!-- -->                                                |
| nnumbered} | ```                                                     |
|            | -   the loan may include simultaneous purchase of the   |
|            |     land on which the residence is situated or will be  |
|            |     situated                                            |
|            |                                                         |
|            | -   loans may also be guaranteed for the construction   |
|            |     of a residence on land already owned by the veteran |
|            |     (A portion of the loan may be used to refinance a   |
|            |     purchase money mortgage or sales contract for the   |
|            |     purchase of the land, subject to reasonable value   |
|            |     requirements.), and                                 |
|            |                                                         |
|            | -   the residential property may not consist of more    |
|            |     than four family units and one business unit except |
|            |     in the case of certain joint loans. (See [section 1 |
|            |     of chapter                                          |
|            |     7](http://                                          |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch07.doc) |
|            |     for this exception.)                                |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   To refinance an existing VA-guaranteed or direct    |
|            |     loan for the purpose of a lower interest rate.      |
|            |                                                         |
|            | -   To refinance an existing mortgage loan or other     |
|            |     indebtedness secured by a lien of record on a       |
|            |     residence owned and occupied by the veteran as a    |
|            |     home.                                               |
|            |                                                         |
|            | -   To repair, alter, or improve a residence owned by   |
|            |     the veteran and occupied as a home.                 |
|            |                                                         |
|            | -   To simultaneously purchase and improve a home.      |
|            |                                                         |
|            | -   To improve a residence owned and occupied by the    |
|            |     veteran as the veteran's home through the           |
|            |     installation of a solar heating system, a solar     |
|            |     heating and cooling system, or a combined solar     |
|            |     heating and cooling system, or through the          |
|            |     application of a residential energy conservation    |
|            |     measure. These energy efficiency improvement loans  |
|            |     can be made in conjunction with any type of VA      |
|            |     purchase or refinancing loan.                       |
|            |                                                         |
|            | -   To purchase a one-family residential unit in a      |
|            |     condominium housing development approved by VA.     |
|            |                                                         |
|            | -   To purchase a farm residence to be owned and        |
|            |     occupied by the veteran as a home. If the loan      |
|            |     includes the purchase of farmland, the farmland is  |
|            |     appraised at its residential value only. (See       |
|            |     [section 12 of chapter                              |
|            |     11](http://ww                                       |
|            | w.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch11.doc)). |
+------------+---------------------------------------------------------+

Continued on next page

2\. Eligible Loan Purposes, Continued

+------------+---------------------------------------------------------+
| #####      | > VA cannot guarantee loans made for ineligible loan    |
| b. Ineligi | > purposes. Examples of ineligible loan purposes        |
| ble Loan P | > include:                                              |
| urposes {# |                                                         |
| b.-ineligi | -   Purchase of unimproved land with the intent to      |
| ble-loan-p |     improve it at some future date (that is, the land   |
| urposes .u |     purchase is not in conjunction with a construction  |
| nnumbered} |     loan).                                              |
|            |                                                         |
|            | -   Purchase or construction of a dwelling for          |
|            |     investment purposes.                                |
|            |                                                         |
|            | -   Purchase or construction of a combined residential  |
|            |     and business property, unless,                      |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   the property is primarily for residential purposes  |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   there is not more than one business unit, and       |
|            |                                                         |
|            | -   the nonresidential area does not exceed 25 percent  |
|            |     of the total floor area.                            |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   Purchase of more than one separate residential unit |
|            |     or lot unless the veteran will occupy one unit and  |
|            |     there is evidence that                              |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   the residential units are unavailable separately    |
|            |                                                         |
|            | -   the residential units have a common owner           |
|            |                                                         |
|            | -   the residential units have been treated as one unit |
|            |     in the past, and                                    |
|            |                                                         |
|            | -   the residential units are assessed as one unit, or  |
|            |                                                         |
|            | -   partition is not practical, as when one unit serves |
|            |     the other(s) in some respect; for example, common   |
|            |     approaches or driveways.                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Cash to the veteran from loan proceeds is permissible |
| c. Cash to | > only for certain types of refinancing loans and under |
|  Veteran G | > very limited circumstances, as follows:               |
| enerally N |                                                         |
| ot an Elig | -   For IRRRLs, see [section 1 of chapter               |
| ible Loan  |     6](http://w                                         |
| Purpose {# | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch06.doc). |
| c.-cash-to |                                                         |
| -veteran-g | -   For cash-out refinancing loans, see [section 3 of   |
| enerally-n |     chapter                                             |
| ot-an-elig |     6](http://w                                         |
| ible-loan- | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch06.doc). |
| purpose .u |                                                         |
| nnumbered} |     > For other types of refinancing loans and all      |
|            |     > purchase/acquisition loans, the veteran generally |
|            |     > cannot receive cash from loan proceeds. The only  |
|            |     > exception is the refund of items for which the    |
|            |     > veteran paid cash, which were subsequently        |
|            |     > included in the loan amount.                      |
|            |                                                         |
|            |     > ***Example***: Earnest money can be refunded to   |
|            |     > the veteran on a no down payment loan.            |
+------------+---------------------------------------------------------+

#### 3. Maximum Loan {#maximum-loan .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Unlike other home loan programs, there are no maximum |
| # a. Does  | > dollar amounts prescribed for VA-guaranteed loans.    |
| VA have Ma |                                                         |
| ximum Loan | > Limitations on VA loan size are primarily             |
|  Amounts { | > attributable to two factors:                          |
| #a.-does-v |                                                         |
| a-have-max | > 1\. Lenders who sell their VA loans in the secondary  |
| imum-loan- | > market must limit the size of those loans to the      |
| amounts .u | > maximums prescribed by Government National Mortgage   |
| nnumbered} | > Association (GNMA) or whatever conduit they use to    |
|            | > sell the loans.                                       |
|            |                                                         |
|            | > 2\. VA limits the amount of the loan to the           |
|            | > reasonable value of the property shown on the Notice  |
|            | > of Value (NOV) plus the cost of energy efficiency     |
|            | > improvements up to \$6,000 plus the VA funding fee,   |
|            | > with the following exceptions.                        |
+------------+---------------------------------------------------------+

+-----------------------+----------------------------------------------+
| Exception             | Maximum Loan                                 |
+-----------------------+----------------------------------------------+
| Interest Rate         | -   Existing VA loan balance, plus           |
| Reduction Refinancing |                                              |
| Loan                  | -   The cost of any energy efficiency        |
|                       |     improvements up to \$6,000, plus         |
|                       |                                              |
|                       | -   Allowable fees and charges, plus         |
|                       |                                              |
|                       | -   Up to 2 discount points, plus            |
|                       |                                              |
|                       | -   VA funding fee.                          |
|                       |                                              |
|                       | **(Lenders must use [VA Form                 |
|                       | 26*-*8923](http:/                            |
|                       | /www.vba.va.gov/pubs/forms/26-8923fill.pdf), |
|                       | IRRRL Worksheet, for the actual              |
|                       | calculation.)**                              |
+-----------------------+----------------------------------------------+

Continued on next page

3\. Maximum Loan, Continued

  -----------------------------------------------------------------------
  a\. Does VA have Maximum Loan Amounts (continued)

  -----------------------------------------------------------------------

+-----------------------+----------------------------------------------+
| Exception             | Maximum Loan                                 |
+-----------------------+----------------------------------------------+
| Regular refinancing   | -   90% of the VA reasonable value, plus     |
| loan (cash-out)       |                                              |
|                       | -   the cost of any energy efficiency        |
|                       |     improvements up to \$6,000, plus         |
|                       |                                              |
|                       | -   VA funding fee.                          |
+-----------------------+----------------------------------------------+
| Loan to refinance:    | The lesser of:                               |
|                       |                                              |
| -   a construction    | -   the VA reasonable value, or              |
|     loan              |                                              |
|                       | -   the sum of the outstanding balance of    |
| -   an installment    |     the loan plus allowable closing costs    |
|     land sales        |     and discounts, plus                      |
|     contract, or      |                                              |
|                       |     (For construction loans, "balance of the |
| ```{=html}            |     loan" includes the balances of           |
| <!-- -->              |     construction financing and lot liens, if |
| ```                   |     any.)                                    |
| -   a loan assumed by |                                              |
|                       | -   the cost of any energy efficiency        |
|     the veteran at an |     improvements up to \$6,000, plus         |
|                       |                                              |
|     interest rate     | -   VA funding fee.                          |
|     higher            |                                              |
|                       |                                              |
|     than that for the |                                              |
|                       |                                              |
|     proposed          |                                              |
|     refinancing       |                                              |
|                       |                                              |
|     loan              |                                              |
+-----------------------+----------------------------------------------+
| Graduated Payment     | -   The VA reasonable value, minus           |
| Mortgage loan on      |                                              |
| existing property     | -   the highest amount of negative           |
|                       |     amortization, plus                       |
|                       |                                              |
|                       | -   the cost of any energy efficiency        |
|                       |     improvements up to \$6,000, plus         |
|                       |                                              |
|                       | -   VA funding fee.                          |
|                       |                                              |
|                       |     ***Reference***: See [section 7 of       |
|                       |     chapter                                  |
|                       |     7](http://www.warms.vb                   |
|                       | a.va.gov/admin26/pamphlet/pam26_7/ch07.doc). |
+-----------------------+----------------------------------------------+
| Graduated Payment     | 97.5% of the lesser of:                      |
| Mortgage loan on new  |                                              |
| home                  | -   the VA reasonable value or               |
|                       |                                              |
|                       | -   the purchase price, plus                 |
|                       |                                              |
|                       | -   the cost of any energy efficiency        |
|                       |     improvements up to \$6,000, plus         |
|                       |                                              |
|                       | -   VA funding fee.                          |
|                       |                                              |
|                       |     ***Reference***: See [section 7 of       |
|                       |     chapter                                  |
|                       |     7](http://www.warms.vb                   |
|                       | a.va.gov/admin26/pamphlet/pam26_7/ch07.doc). |
+-----------------------+----------------------------------------------+

Continued on next page

3\. Maximum Loan, Continued

+------------+---------------------------------------------------------+
| ##         | > Because VA loans can be for the full reasonable value |
| ### b. Dow | > of the property, no down payment is required by VA    |
| n payment  | > except in the following circumstances:                |
| {#b.-down- |                                                         |
| payment .u | -   If the purchase price exceeds the reasonable value  |
| nnumbered} |     of the property, a down payment in the amount of    |
|            |     the difference must be made in cash from the        |
|            |     borrower's own resources, and                       |
|            |                                                         |
|            | -   VA requires a down payment on all GPMs.             |
|            |                                                         |
|            |     > If a veteran has less than full entitlement       |
|            |     > available, a lender may require a down payment in |
|            |     > order to make the veteran a loan that meets GNMA  |
|            |     > or other secondary market requirements. The "rule |
|            |     > of thumb" for GNMA is that the VA guaranty, or a  |
|            |     > combination of VA guaranty plus down payment      |
|            |     > and/or equity, must cover at least 25 percent of  |
|            |     > the loan.                                         |
+------------+---------------------------------------------------------+

#### 4. Maximum Guaranty on VA Loans {#maximum-guaranty-on-va-loans .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date | >                                                       |
|            | > Subsection a has been changed to reference the        |
|            | > increase in VA entitlement.                           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > The maximum guaranty on a VA loan is the lesser of:   |
| ### a. Max |                                                         |
| imum Guara | -   the veteran's available entitlement (which can be   |
| nty Table  |     increased up to an amount equal to 25 percent of    |
| {#a.-maxim |     the Freddie Mac single family conventional          |
| um-guarant |     conforming loan limit for certain loans over        |
| y-table .u |     \$144,000)**,** or                                  |
| nnumbered} |                                                         |
|            | -   the maximum potential guaranty amount indicated     |
|            |     below.                                              |
+------------+---------------------------------------------------------+

+-----------------+---------------+-------------------+---------------+
| Loan Amount     | Loan Type(s)  | Maximum Potential | Special       |
|                 |               | Guaranty          | Provisions    |
+-----------------+---------------+-------------------+---------------+
| Up to \$45,000  | All           | 50% of the loan   | Minimum       |
|                 |               | amount.           | guaranty of   |
|                 |               |                   | 25% on        |
|                 |               |                   | IRRRLs.       |
+-----------------+---------------+-------------------+---------------+
| \$45,001 to     | All           | \$22,500          | Minimum       |
| \$56,250        |               |                   | guaranty of   |
|                 |               |                   | 25% on        |
|                 |               |                   | IRRRLs.       |
+-----------------+---------------+-------------------+---------------+
| \$56,251 to     | All           | 40% of the loan   | Minimum       |
| \$144,000       |               | amount, with a    | guaranty of   |
|                 |               | maximum of        | 25% on        |
|                 |               | \$36,000.         | IRRRLs.       |
+-----------------+---------------+-------------------+---------------+
| Greater than    | Must be for:  | up to an amount   | Cash-out      |
| \$144,000       |               | equal to 25% of   | refinances    |
|                 | -   Purchase  | the Freddie Mac   | have a        |
|                 |     or        | single family     | maximum       |
|                 |               | conventional      | guaranty of   |
|                 |  construction | conforming loan   | \$36,000.     |
|                 |     of a      | limit.            |               |
|                 |     home, or  |                   | Minimum       |
|                 |               |                   | guaranty of   |
|                 | -   Purchase  |                   | 25% on        |
|                 |     of a      |                   | IRRRLs.       |
|                 |               |                   |               |
|                 |  con-dominium |                   |               |
|                 |     unit, or  |                   |               |
|                 |               |                   |               |
|                 | -             |                   |               |
|                 |   Refinancing |                   |               |
|                 |     with an   |                   |               |
|                 |     IRRRL.    |                   |               |
+-----------------+---------------+-------------------+---------------+
| Any             | Joint Loans   | →                 | See [section  |
|                 |               |                   | 1 of chapter  |
|                 | Energy        | →                 | 7             |
|                 | Efficient     |                   | .](http://www |
|                 | Mortgages     | →                 | .warms.vba.va |
|                 |               |                   | .gov/admin26/ |
|                 | Construction  | →                 | pamphlet/pam2 |
|                 | loans on      |                   | 6_7/ch07.doc) |
|                 | which         |                   |               |
|                 | construction  |                   | See [section  |
|                 | is incomplete |                   | 3 of chapter  |
|                 |               |                   | 7             |
|                 | Supplemental  |                   | ](http://www. |
|                 | loans         |                   | warms.vba.va. |
|                 |               |                   | gov/admin26/p |
|                 |               |                   | amphlet/pam26 |
|                 |               |                   | _7/ch07.doc). |
|                 |               |                   |               |
|                 |               |                   | See [section  |
|                 |               |                   | 2 of chapter  |
|                 |               |                   | 7             |
|                 |               |                   | ](http://www. |
|                 |               |                   | warms.vba.va. |
|                 |               |                   | gov/admin26/p |
|                 |               |                   | amphlet/pam26 |
|                 |               |                   | _7/ch07.doc). |
|                 |               |                   |               |
|                 |               |                   | See [section  |
|                 |               |                   | 5 of chapter  |
|                 |               |                   | 7             |
|                 |               |                   | ](http://www. |
|                 |               |                   | warms.vba.va. |
|                 |               |                   | gov/admin26/p |
|                 |               |                   | amphlet/pam26 |
|                 |               |                   | _7/ch07.doc). |
+-----------------+---------------+-------------------+---------------+

4\. Maximum Guaranty on VA Loans, Continued

+------------+---------------------------------------------------------+
| a\.        | ***Note***: The percentage and amount of guaranty is    |
| Maximum    | based on the loan amount including the funding fee      |
| Guaranty   | portion when the fee is paid from loan proceeds.        |
| Table      |                                                         |
| (          | > For the maximum guaranty on loans for manufactured    |
| continued) | > homes that are not permanently affixed (i.e., not     |
|            | > considered real estate) see [38 U.S.C.                |
|            | > 3712](http://uscode.house.gov/uscode-cgi/f            |
|            | astweb.exe?getdoc+uscview+t37t40+816+0++()  AND ((38) A |
|            | DJ USC)%3ACITE AND (USC w%2F10 (3712))%3ACITE         ) |
|            | > and/or contact VA.                                    |
+------------+---------------------------------------------------------+

#### 5. Occupancy {#occupancy .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date |                                                         |
|            | -   This section has been changed to create subsection  |
|            |     lettering.                                          |
|            |                                                         |
|            | -   Subsection c has been changed to remove the         |
|            |     reference to a remote duty station.                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > The law requires a veteran obtaining a VA guaranteed  |
|  The Law o | > loan to certify that he or she intends to personally  |
| n Occupanc | > occupy the property as his or her home. As of the     |
| y {#a.-the | > date of certification, the veteran must either        |
| -law-on-oc |                                                         |
| cupancy .u | -   personally live in the property as his or her home, |
| nnumbered} |     or                                                  |
|            |                                                         |
|            | -   intend, upon completion of the loan and acquisition |
|            |     of the dwelling, to personally move into the        |
|            |     property and use it as his or her home within a     |
|            |     reasonable time.                                    |
|            |                                                         |
|            |     > The above requirement applies to all types of VA  |
|            |     > guaranteed loans except Interest Rate Reduction   |
|            |     > Refinancing Loans (IRRRLs). For IRRRLs, the       |
|            |     > veteran need only certify that he or she          |
|            |     > previously occupied the property as his or her    |
|            |     > home.                                             |
|            |                                                         |
|            |     > ***Example***: A veteran living in a home         |
|            |     > purchased with a VA loan is transferred to a duty |
|            |     > station overseas. The veteran rents out the home. |
|            |     > He/she may refinance the VA loan with an IRRRL    |
|            |     > based on previous occupancy of the home.          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > Occupancy within a "reasonable time\" means within 60 |
| #### b. Wh | > days after the loan closing. More than 60 days may be |
| at is a "r | > considered reasonable if both of the following        |
| easonable  | > conditions are met:                                   |
| time"? {#b |                                                         |
| .-what-is- | -   the veteran certifies that he or she will           |
| a-reasonab |     personally occupy the property as his or her home   |
| le-time .u |     at a specific date after loan closing, and          |
| nnumbered} |                                                         |
|            | -   there is a particular future event that will make   |
|            |     it possible for the veteran to personally occupy    |
|            |     the property as his or her home on a specific       |
|            |     future date.                                        |
|            |                                                         |
|            |     > Occupancy at a date beyond 12 months after loan   |
|            |     > closing generally cannot be considered reasonable |
|            |     > by VA.                                            |
+------------+---------------------------------------------------------+

Continued on next page

5\. Occupancy, Continued

+------------+---------------------------------------------------------+
| #          | > Occupancy (or intention to occupy) by the spouse      |
| #### c. Wh | > satisfies the occupancy requirement for a veteran who |
| en Can a S | > is on active duty and cannot personally occupy the    |
| pouse Sati | > dwelling within a reasonable time.                    |
| sfy the Oc |                                                         |
| cupancy Re | > Occupancy by the spouse may satisfy the requirement   |
| quirement? | > if the veteran cannot personally occupy the dwelling  |
|  {#c.-when | > within a reasonable time due to distant employment    |
| -can-a-spo | > other than military service. In these specific cases, |
| use-satisf | > consult your                                          |
| y-the-occu | > [RLC](http://www.homeloans.va.gov/RLCWEB.htm) to      |
| pancy-requ | > determine if this type of occupancy meets VA          |
| irement .u | > requirements.                                         |
| nnumbered} |                                                         |
|            | > ***Note***: The cost of maintaining separate living   |
|            | > arrangements should be considered in underwriting the |
|            | > loan.                                                 |
|            |                                                         |
|            | > For an IRRRL, a certification that the spouse         |
|            | > previously occupied the dwelling as a home will       |
|            | > satisfy the requirement.                              |
|            |                                                         |
|            | > **No family member or person other than the veteran's |
|            | > spouse can satisfy the occupancy requirement for the  |
|            | > veteran**.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > Single or married servicemembers, while deployed from |
| ## d. Occu | > their permanent duty station, are considered to be in |
| pancy Requ | > a temporary duty status and able to provide a valid   |
| irements f | > intent to occupy certification. This is true without  |
| or Deploye | > regard to whether or not a spouse will be available   |
| d Active D | > to occupy the property prior to the veteran's return  |
| uty Servic | > from deployment.                                      |
| e Members  |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### e. O | > If the veteran states that he or she will retire      |
| ccupancy A | > within 12 months and wants a loan to purchase a home  |
| fter Retir | > in the retirement location                            |
| ement {#e. |                                                         |
| -occupancy | -   verify the veteran's eligibility for retirement on  |
| -after-ret |     the specified date, and                             |
| irement .u |                                                         |
| nnumbered} |     \- Include a copy of the veteran's application for  |
|            |     retirement submitted to his or her employer.        |
|            |                                                         |
|            | -   carefully consider the applicant's income after     |
|            |     retirement.                                         |
|            |                                                         |
|            |     \- If retirement income alone is insufficient,      |
|            |     obtain firm commitments from an employer that meet  |
|            |     the usual stability of income requirements.         |
|            |                                                         |
|            |     > ***Note***: Only retirement on a specific date    |
|            |     > within 12 months qualifies. Retirement "within    |
|            |     > the next few years" or "in the near future" is    |
|            |     > not sufficient.                                   |
+------------+---------------------------------------------------------+

Continued on next page

5\. Occupancy, Continued

+------------+---------------------------------------------------------+
| ##         | > Home improvements or a refinancing loan for extensive |
| ### f. Del | > changes to the property which will prevent the        |
| ayed Occup | > veteran from occupying the property while the work is |
| ancy Due t | > being completed constitute exceptions to the          |
| o Property | > "reasonable time" requirement.                        |
|  Repairs o |                                                         |
| r Improvem | > The veteran must certify that he or she intends to    |
| ents {#f.- | > occupy or reoccupy the property as a home upon        |
| delayed-oc | > completion of the substantial improvements or         |
| cupancy-du | > repairs.                                              |
| e-to-prope |                                                         |
| rty-repair |                                                         |
| s-or-impro |                                                         |
| vements .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > The veteran need not maintain a physical presence at  |
| ### g. Int | > the property on a daily basis. However, occupancy "as |
| ermittent  | > the veteran's home" implies that the home is located  |
| Occupancy  | > within reasonable proximity of the veteran's place of |
| {#g.-inter | > employment. If the veteran's employment requires the  |
| mittent-oc | > veteran's absence from home a substantial amount of   |
| cupancy .u | > time, the following two conditions must be met:       |
| nnumbered} |                                                         |
|            | -   the veteran must have a history of continuous       |
|            |     residence in the community, and                     |
|            |                                                         |
|            | -   there must be no indication that the veteran has    |
|            |     established, intends to establish, or may be        |
|            |     required to establish, a principal residence        |
|            |     elsewhere.                                          |
|            |                                                         |
|            |     > **Use of the property as a seasonal vacation home |
|            |     > does not satisfy the occupancy requirement**.     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### h. U | > Discuss unusual circumstances of occupancy with the   |
| nusual Cir | > appropriate [VA                                       |
| cumstances | > office](http://www.homeloans.va.gov/RLCWEB.htm) or    |
|  {#h.-unus | > submit a description of the circumstances to the [VA  |
| ual-circum | > office](http://www.homeloans.va.gov/RLCWEB.htm) for   |
| stances .u | > prior approval.                                       |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

Continued on next page

5\. Occupancy, Continued

+------------+---------------------------------------------------------+
| ##         | > The veteran certifies that the occupancy requirement  |
| ### i. The | > is met by checking the appropriate occupancy block    |
|  Certifica | > and signing:                                          |
| tion {#i.- |                                                         |
| the-certif | -   [VA Form                                            |
| ication .u |     26                                                  |
| nnumbered} | -1802a](http://www.vba.va.gov/pubs/forms/26-1802a.pdf), |
|            |     Addendum to the Uniform Residential Loan            |
|            |     Application, at the time of loan application (prior |
|            |     approval loans only), and                           |
|            |                                                         |
|            | -   [VA Form                                            |
|            |                                                         |
|            | 26-1820](http://www.vba.va.gov/pubs/forms/26-1820.pdf), |
|            |     Report and Certification of Loan Disbursement, at   |
|            |     the time of loan closing (all loans).               |
|            |                                                         |
|            |     > This satisfies the lender's obligation to obtain  |
|            |     > the veteran's occupancy certification.            |
|            |                                                         |
|            |     > The lender may accept the occupancy certification |
|            |     > at face value unless there is specific            |
|            |     > information indicating the veteran will not       |
|            |     > occupy the property as a home or does not intend  |
|            |     > to so-occupy within a reasonable time after loan  |
|            |     > closing.                                          |
|            |                                                         |
|            |     > Where doubt exists, the test is whether a         |
|            |     > reasonable basis exists for concluding that the   |
|            |     > veteran can and will occupy the property as       |
|            |     > certified. Contact the appropriate VA office if   |
|            |     > the lender cannot resolve issues involving the    |
|            |     > veteran's intent by applying this test.           |
+------------+---------------------------------------------------------+

#### 6. Interest Rates {#interest-rates .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a. R | > VA no longer prescribes interest rates for VA         |
| equirement | > guaranteed loans. The interest rate is negotiated     |
|  {#a.-requ | > between the veteran-borrower and the lender to allow  |
| irement .u | > the veteran to obtain the best available rate.        |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b.   | > The lender and borrower are expected to honor any     |
|  Changes t | > lock-in or other agreements they have entered into    |
| o the Agre | > which impact the interest rate on the loan. VA does   |
| ed Upon In | > not object to changes in the agreed upon rate, as     |
| terest Rat | > long as no lender/borrower agreements are violated.   |
| e {#b.-cha | > The following procedures apply in such cases.         |
| nges-to-th |                                                         |
| e-agreed-u | > Any increase in the interest rate of more than 1      |
| pon-intere | > percent requires                                      |
| st-rate .u |                                                         |
| nnumbered} | -   re-underwriting to ascertain the veteran's          |
|            |     continued ability to qualify for the loan           |
|            |                                                         |
|            | -   documentation of the change, and                    |
|            |                                                         |
|            | -   a new or corrected Uniform Residential Loan         |
|            |     Application, (URLA) with any corrections initialed  |
|            |     and dated by the borrower.                          |
|            |                                                         |
|            |     > ***Reference***: For prior approval loans, see    |
|            |     > [section 4 of chapter                             |
|            |     > 5](http://w                                       |
|            | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch05.doc). |
+------------+---------------------------------------------------------+

#### 7. Discount Points {#discount-points .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Veterans may pay reasonable discount points on VA     |
| ### a. Req | > guaranteed loans. The amount of discount points is    |
| uirement { | > whatever the borrower and lender agree upon. Discount |
| #a.-requir | > points can be based on the principal amount of the    |
| ement-1 .u | > loan after adding the VA funding fee, if the funding  |
| nnumbered} | > fee will be paid from loan proceeds.                  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b    | > Discount points may be rolled into the loan only in   |
| . When Can | > the case of refinancing loans, subject to the         |
|  Points be | > following limitations:                                |
|  Included  | >                                                       |
| in the Loa | > ***Interest Rate Reduction Refinancing Loans***       |
| n? {#b.-wh |                                                         |
| en-can-poi | > A maximum of two discount points can be rolled into   |
| nts-be-inc | > the loan.                                             |
| luded-in-t |                                                         |
| he-loan .u | > If the borrower pays more than two points, the        |
| nnumbered} | > remainder must be paid in **cash**.                   |
|            |                                                         |
|            | > ***Refinancing of Construction Loans, etc.***         |
|            | >                                                       |
|            | > For loans to refinance:                               |
|            |                                                         |
|            | -   A construction loan                                 |
|            |                                                         |
|            | -   An installment land sales contract, or              |
|            |                                                         |
|            | -   A loan assumed by the veteran at an interest rate   |
|            |     higher than that for the proposed refinancing loan  |
|            |                                                         |
|            |     > Any reasonable amount of discount points may be   |
|            |     > rolled into the loan as long as the sum of the    |
|            |     > outstanding balance of the loan plus allowable    |
|            |     > closing costs and discount points does not exceed |
|            |     > the VA reasonable value.                          |
|            |                                                         |
|            |     > ***Reference***: See the maximum loan limitations |
|            |     > in section 3 of this chapter.                     |
|            |                                                         |
|            | > ***Cash-out Refinancing Loans***                      |
|            |                                                         |
|            | > While discount points cannot specifically be included |
|            | > in the loan amount, the borrower can receive cash     |
|            | > from loan proceeds, subject to maximum loan limits    |
|            | > (See section 3 of this chapter). The cash received by |
|            | > the borrower can be used for any purpose acceptable   |
|            | > to the lender, including payment of reasonable        |
|            | > discount points.                                      |
+------------+---------------------------------------------------------+

Continued on next page

7\. Discount Points, Continued

+------------+---------------------------------------------------------+
| ##         | > The lender and borrower are expected to honor any     |
| ### c. Cha | > agreements they have entered into which impact the    |
| nges to th | > discount points paid on the loan. VA does not object  |
| e Agreed U | > to changes in the agreed upon points, as long as no   |
| pon Discou | > lender/borrower agreements are violated. The          |
| nt Points  | > following procedures apply in such cases.             |
| {#c.-chang |                                                         |
| es-to-the- | > Any increase in discount points requires              |
| agreed-upo |                                                         |
| n-discount | -   verification that the borrower has sufficient       |
| -points .u |     assets to cover the increase                        |
| nnumbered} |                                                         |
|            | -   documentation of the change, and                    |
|            |                                                         |
|            | -   a new or corrected URLA with any corrections        |
|            |     initialed and dated by the borrower                 |
|            |                                                         |
|            |     > ***Reference***: For prior approval loans, see    |
|            |     > [section 4 of chapter                             |
|            |     > 5](http://w                                       |
|            | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch05.doc). |
+------------+---------------------------------------------------------+

#### 8. Maturity {#maturity .unnumbered}

+------------+---------------------------------------------------------+
| ##### Ch   | > September 15, 2004, Change 4                          |
| ange Date  | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a. M | -   Amortized loans: 30 years and 32 days,              |
| aximum Mat |                                                         |
| urity {#a. | -   Nonamortized loans: five years.                     |
| -maximum-m |                                                         |
| aturity .u |     > In addition, every loan must be repayable within  |
| nnumbered} |     > the estimated economic life of the property       |
|            |     > securing the loan.                                |
|            |                                                         |
|            |     > The period for repayment of a loan is measured    |
|            |     > from the date of the note or other evidence of    |
|            |     > indebtedness.                                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > VA regulations provide that any amounts which fall    |
| ### b. Mat | > due beyond the maximum maturity automatically fall    |
| urity Exte | > due on the maximum maturity date.                     |
| nding Beyo |                                                         |
| nd the Max | > Thus, if a lender inadvertently makes a loan which    |
| imum {#b.- | > exceeds the maximum maturity, it may still be subject |
| maturity-e | > to guaranty.                                          |
| xtending-b |                                                         |
| eyond-the- | > However, the regulations also limit the amount that   |
| maximum .u | > can be collected as a final installment, such as,     |
| nnumbered} | > they prohibit excessive ballooning. The holder of a   |
|            | > loan which violates this provision may desire to      |
|            | > correct the situation through means which are legally |
|            | > proper in the jurisdiction.                           |
+------------+---------------------------------------------------------+

#### 9. Amortization {#amortization .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > All VA loans must be amortized if the maturity date   |
| ### a. Req | > is beyond 5 years from the date of the loan. Loans    |
| uirement { | > with terms less than five years are considered term   |
| #a.-requir | > loans and need not be amortized.                      |
| ement-2 .u |                                                         |
| nnumbered} | > Generally, VA loans must be amortized as follows:     |
|            |                                                         |
|            | -   Payments must be approximately equal                |
|            |                                                         |
|            | -   Principal must be reduced at least once annually,   |
|            |     and                                                 |
|            |                                                         |
|            | -   The final installment must not exceed two times the |
|            |     average of the preceding installments.              |
|            |                                                         |
|            |     > Exceptions to these requirements are made in the  |
|            |     > case of                                           |
|            |                                                         |
|            | -   GPMs - See [section 7 of chapter                    |
|            |     7](http://                                          |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch07.doc) |
|            |                                                         |
|            | -   GEMs - See [section 8 of chapter                    |
|            |     7](http://                                          |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch07.doc) |
|            |                                                         |
|            | -   Alternative amortization plans prior approved by    |
|            |     VA, and                                             |
|            |                                                         |
|            | -   Construction loans.                                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b.   | > Certain amortization plans which do not meet the      |
| Alternativ | > requirements described in section a above may be used |
| e Amortiza | > if approved in advance by VA. A lender may submit an  |
| tion Plans | > amortization plan to VA for prior approval if the     |
|   {#b.-alt | > plan:                                                 |
| ernative-a |                                                         |
| mortizatio | -   is generally recognized; that is, is used           |
| n-plans .u |     extensively by established lending institutions,    |
| nnumbered} |     but                                                 |
|            |                                                         |
|            | -   does not meet the requirements of approximately     |
|            |     equal periodic payments and a reduction in          |
|            |     principal not less often than annually.             |
|            |                                                         |
|            |     Exception: Graduated payment mortgages and growing  |
|            |     equity mortgages).                                  |
+------------+---------------------------------------------------------+

Continued on next page

9\. Amortization, Continued

+------------+---------------------------------------------------------+
| ##### c. S | > See "Amortization" in [section 2 of chapter           |
| pecial Pro | > 7](http://w                                           |
| visions fo | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch07.doc). |
| r Construc |                                                         |
| tion Loans |                                                         |
|  {#c.-spec |                                                         |
| ial-provis |                                                         |
| ions-for-c |                                                         |
| onstructio |                                                         |
| n-loans .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### d.   | > The Standard and Springfield plans satisfies VA       |
|  Standard  | > amortization requirements.                            |
| and Spring |                                                         |
| field Plan | -   The Standard plan provides for equal payments over  |
| s {#d.-sta |     the life of the loan. The amount applied to         |
| ndard-and- |     interest decreases, with a corresponding increase   |
| springfiel |     in the amount applied to principal.                 |
| d-plans .u |                                                         |
| nnumbered} | -   The Springfield plan provides for gradually         |
|            |     decreasing payments over the life of the loan. The  |
|            |     amount applied to interest decreases, while the     |
|            |     amount applied to principal remains constant.       |
+------------+---------------------------------------------------------+

#### 10. Eligible Geographic Locations for the Secured Property {#eligible-geographic-locations-for-the-secured-property .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Real property securing a VA guaranteed loan must be   |
|  a. Where  | > located in the United States, its territories, or     |
| Can the Pr | > possessions (Puerto Rico, Guam, Virgin Islands,       |
| operty be  | > American Samoa and the Northern Mariana Islands).     |
| Located? { |                                                         |
| #a.-where- |                                                         |
| can-the-pr |                                                         |
| operty-be- |                                                         |
| located .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

#### 11. What Does a VA Guaranty Mean to the Lender?  {#what-does-a-va-guaranty-mean-to-the-lender .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date |                                                         |
|            | -   This section has been changed to create subsection  |
|            |     lettering.                                          |
|            |                                                         |
|            | -   Subsection e has been changed to spell out the      |
|            |     acronym Electronic Data Interchange (EDI).          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > VA guarantees a portion of the loan, identified on    |
| # a. Prote | > the VA Loan Guaranty Certificate (LGC) by percentage  |
| ction Agai | > and dollar amount. If a loss ultimately occurs on the |
| nst Loss { | > loan, VA will reimburse the loan holder for all or    |
| #a.-protec | > part of such loss                                     |
| tion-again |                                                         |
| st-loss .u | -   limited by the stated percentage and dollar amount  |
| nnumbered} |     of the guaranty                                     |
|            |                                                         |
|            | -   limited by any VA maximums for reasonable and       |
|            |     customary foreclosure expenses, and                 |
|            |                                                         |
|            | -   subject to the lender's compliance with applicable  |
|            |     law and regulations.                                |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b. L | > It is the lender's responsibility to comply with all  |
| ender Resp | > laws and regulations related to the VA loan guaranty  |
| onsibility | > program, and thereby prevent VA's denial or reduction |
|  {#b.-lend | > of a payment on a future claim. A lender can          |
| er-respons | > accomplish this by ensuring that its employees who    |
| ibility .u | > perform work related to VA lending                    |
| nnumbered} |                                                         |
|            | -   understand and comply with VA policies, procedures  |
|            |     and regulations, and applicable law, and            |
|            |                                                         |
|            | -   direct questions to VA when issues arise that are   |
|            |     not addressed in this handbook or other materials   |
|            |     provided by VA.                                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c.   | > A loan is automatically guaranteed by VA upon closing |
| When is a  | > (prior to issuance of the LGC) provided the loan was  |
| Loan that  | > made by either                                        |
| was Closed |                                                         |
|  Automatic | -   a supervised or a nonsupervised lender with         |
| ally Guara |     automatic authority, and                            |
| nteed? {#c |                                                         |
| .-when-is- | -   the lender complied with applicable law and         |
| a-loan-tha |     regulations.                                        |
| t-was-clos |                                                         |
| ed-automat |                                                         |
| ically-gua |                                                         |
| ranteed .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### d. W | > A prior approval loan is also guaranteed by VA upon   |
| hen is a P | > closing (prior to issuance of the LGC) provided       |
| rior Appro |                                                         |
| val Loan G | -   the closed loan matches the proposed loan upon      |
| uaranteed? |     which the Certificate of Commitment was based, and  |
|   {#d.-whe |                                                         |
| n-is-a-pri | -   the lender complied with applicable law and         |
| or-approva |     regulations.                                        |
| l-loan-gua |                                                         |
| ranteed .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

Continued on next page

11\. What Does a VA Guaranty Mean to the Lender?, Continued

+------------+---------------------------------------------------------+
| #####      | > Evidence of guaranty is VA Form 26-1899, Loan         |
|  e. What i | > Guaranty Certificate (LGC), or is available through   |
| s Evidence | > Electronic Data Interchange (see [section 7 of        |
|  of Guaran | > Current                                               |
| ty? {#e.-w | > Issues](http://www.                                   |
| hat-is-evi | warms.vba.va.gov/admin26/pamphlet/pam26_7/issues.doc)). |
| dence-of-g | > These LGCs represent tangible proof to the lender     |
| uaranty .u | > that VA's guaranty is given in good faith. It is      |
| nnumbered} | > contingent upon:                                      |
|            |                                                         |
|            | -   the veteran, property and purpose of the loan being |
|            |     eligible                                            |
|            |                                                         |
|            | -   no fraud or material misrepresentation on the part  |
|            |     of the lender, and                                  |
|            |                                                         |
|            | -   the lender's compliance with applicable law and     |
|            |     regulations.                                        |
|            |                                                         |
|            |     > For example, VA may deny or reduce payment on a   |
|            |     > future claim based on the lender or holder's      |
|            |     > noncompliance whether or not VA has issued        |
|            |     > evidence of guaranty on the loan.                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Willful fraud or material misrepresentation by the    |
| ### f. Tot | > lender or holder, or by an agent of either, will      |
| al Loss of | > relieve VA of liability for payment of any claim on   |
|  Guaranty  | > the loan. VA also has no liability in the case of     |
| {#f.-total |                                                         |
| -loss-of-g | -   forgery on the note, mortgage, loan application, or |
| uaranty .u |     other loan documents, or                            |
| nnumbered} |                                                         |
|            | -   a Certificate of Eligibility or discharge papers    |
|            |     that are counterfeited, falsified, or not issued by |
|            |     the Government.                                     |
|            |                                                         |
|            |     > A holder of a VA loan who acquired the loan       |
|            |     > without notice or knowledge of fraud or material  |
|            |     > misrepresentation in procuring the guaranty, will |
|            |     > not be denied payment of any claim on the loan by |
|            |     > reason of such fraud or material                  |
|            |     > misrepresentation.                                |
+------------+---------------------------------------------------------+

Continued on next page

11\. What Does a VA Guaranty Mean to the Lender?, Continued

+------------+---------------------------------------------------------+
| #####      | > A holder of a VA loan who fails to comply with        |
| g. Partial | > applicable law and regulations may receive only       |
|  Loss of G | > partial payment of a claim if VA's liability          |
| uaranty {# | > increases due to the holder's noncompliance. Material |
| g.-partial | > misrepresentation which is not willful has the same   |
| -loss-of-g | > consequence.                                          |
| uaranty .u |                                                         |
| nnumbered} | > No claim will be paid on such loan until the amount   |
|            | > of any increase in VA's liability is known. The       |
|            | > burden of proof is on the holder to establish that    |
|            | > VA's increased liability is not due to the holder's   |
|            | > noncompliance or misrepresentation.                   |
|            |                                                         |
|            | > Examples of noncompliance with applicable law and     |
|            | > regulations which may lead to an increase in VA's     |
|            | > liability include                                     |
|            |                                                         |
|            | -   failure to obtain and retain the required lien on   |
|            |     property to secure the loan                         |
|            |                                                         |
|            | -   failure to include the power to substitute trustees |
|            |                                                         |
|            | -   failure to procure and maintain insurance coverage  |
|            |                                                         |
|            | -   failure to advise VA as to default                  |
|            |                                                         |
|            | -   failure to provide notice of intention to begin     |
|            |     foreclosure action                                  |
|            |                                                         |
|            | -   failure to provide notice to VA in any suit or      |
|            |     action, or notice of sale                           |
|            |                                                         |
|            | -   improper release, conveyance, substitution or       |
|            |     exchange of security                                |
|            |                                                         |
|            | -   lack of legal capacity of a party to the            |
|            |     transaction                                         |
|            |                                                         |
|            | -   failure to assure that escrowed/earmarked funds are |
|            |     expended in accordance with the agreement, and      |
|            |                                                         |
|            | -   failure to take into consideration limitations upon |
|            |     the quantum or quality of the estate or property.   |
+------------+---------------------------------------------------------+

#### 12. Post-Guaranty Issues {#post-guaranty-issues .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > An LGC with minor typographical errors that do not    |
| a. Correct | > compromise accurate identification of the loan is     |
| ions to LG | > valid.                                                |
| Cs {#a.-co |                                                         |
| rrections- | > Lenders and holders may not correct or alter LGCs in  |
| to-lgcs .u | > any way.                                              |
| nnumbered} |                                                         |
|            | > If a LGC contains an erroneous VA loan number, loan   |
|            | > amount, guaranty percentage, loan date, lender name,  |
|            | > and/or veteran's name, return it to the appropriate   |
|            | > VA office for corrective action.                      |
|            |                                                         |
|            | > Do not return LGCs with minor inaccuracies that do    |
|            | > not affect accurate identification of the loan.       |
|            | > Example of minor inaccuracy that does not require     |
|            | > correction: Veteran's name appears as John Doe rather |
|            | > than John H. Doe (all other identifying information   |
|            | > is correct).                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b. R | > A holder may request, in writing, duplicate evidence  |
| eplacement | > of guaranty when the original Loan Guaranty           |
|  of Missin | > Certificate has been lost, or destroyed, and if lost, |
| g LGC with | > a reasonable effort has been made to locate it.       |
|  Duplicate | > Requests for a duplicate should include               |
|  {#b.-repl |                                                         |
| acement-of | -   a written request indicating the original LGC has   |
| -missing-l |     been lost or destroyed                              |
| gc-with-du |                                                         |
| plicate .u | -   clear identification of the VA loan identification  |
| nnumbered} |     number, veteran and property location               |
|            |                                                         |
|            | -   a copy of the original note, if available           |
|            |                                                         |
|            | -   a copy of the original LGC, if available, and       |
|            |                                                         |
|            | -   a copy of the letter of assignment if the           |
|            |     requesting lender is different from the original    |
|            |     lender.                                             |
|            |                                                         |
|            |     > Duplicate LGCs are marked "Duplicate" and contain |
|            |     > the following language: "By using this Loan       |
|            |     > Guaranty Certificate, you agree to hold the       |
|            |     > Department of Veterans Affairs harmless from any  |
|            |     > loss by reason of the issuance of this duplicate  |
|            |     > Loan Guaranty Certificate."                       |
+------------+---------------------------------------------------------+

Continued on next page

12\. Post-Guaranty Issues, Continued

+------------+---------------------------------------------------------+
| ##         | > It is not necessary to notify VA of the assignment of |
| ### c. Tra | > a guaranteed loan.                                    |
| nsfer of L |                                                         |
| oans {#c.- |                                                         |
| transfer-o |                                                         |
| f-loans .u |                                                         |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### d. L | > The assumption of VA-guaranteed loans for which       |
| oan Assump | > commitments were made on or after March 1, 1988,      |
| tions {#d. | > requires the approval of VA (or certain lenders on    |
| -loan-assu | > VA's behalf).                                         |
| mptions .u |                                                         |
| nnumbered} | > ***Note***: See sections 13 and 14 of chapter 1 of    |
|            | > *VA Handbook H26-94-1*, *The VA Servicing Guide*      |
|            | > (<http://www.homeloans.va.gov/docs/sg.pdf>) for       |
|            | > details on authorities and procedures for processing  |
|            | > assumptions.                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Lenders are required to report paid-in-full loans to  |
| # e. Paid- | > VA upon full satisfaction of the loan by payment or   |
| in-full Lo | > otherwise.                                            |
| ans {#e.-p |                                                         |
| aid-in-ful | > ***Procedures***                                      |
| l-loans .u |                                                         |
| nnumbered} | -   Mark the Loan Guaranty Certificate (LGC) "**PAID IN |
|            |     FULL**"                                             |
|            |                                                         |
|            | -   Have an authorized officer of the holder date and   |
|            |     sign the LGC, then                                  |
|            |                                                         |
|            | -   Return the LGC to VA.                               |
|            |                                                         |
|            |     > If VA has endorsed the note as evidence of        |
|            |     > guaranty, cancel the endorsement and send         |
|            |     > notification to VA.                               |
|            |                                                         |
|            |     > If the LGC has been lost or inadvertently         |
|            |     > destroyed, send notification to VA of full        |
|            |     > satisfaction of the loan and the disposition of   |
|            |     > the LGC.                                          |
+------------+---------------------------------------------------------+

Continued on next page

12\. Post-Guaranty Issues, Continued

+------------+---------------------------------------------------------+
| ##         | > Lenders must maintain copies of all loan origination  |
| ### f. Mai | > records on VA guaranteed home loans for at least two  |
| ntenance o | > years from the date of loan closing. Even if the loan |
| f Loan Rec | > is sold, the original lender must maintain these      |
| ords {#f.- | > records (or legible copies) for the required period.  |
| maintenanc |                                                         |
| e-of-loan- | > Loan origination records include                      |
| records .u |                                                         |
| nnumbered} | -   the loan application (including any preliminary     |
|            |     application)                                        |
|            |                                                         |
|            | -   verifications of employment and deposit             |
|            |                                                         |
|            | -   all credit reports (including preliminary credit    |
|            |     reports)                                            |
|            |                                                         |
|            | -   copies of each sales contract and addendum          |
|            |                                                         |
|            | -   letters of explanation for adverse credit items,    |
|            |     discrepancies and the like                          |
|            |                                                         |
|            | -   direct references from creditors                    |
|            |                                                         |
|            | -   correspondence with employers                       |
|            |                                                         |
|            | -   appraisal and compliance inspection reports         |
|            |                                                         |
|            | -   reports on termite and other inspections of the     |
|            |     property                                            |
|            |                                                         |
|            | -   builder change orders, and                          |
|            |                                                         |
|            | -   all closing papers and documents.                   |
|            |                                                         |
|            | > Lenders must make these records accessible to VA      |
|            | > personnel conducting audit reviews.                   |
+------------+---------------------------------------------------------+