> ![](media/image1.png){width="3.467361111111111in"
> height="2.122916666666667in"}

###### January 2004 

#######  **VA Regional Office**

**275 Chestnut Street**

**Manchester, NH 03101**

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

**Chapter 1, Loan Basics**

> Introduction 1
>
> Lender Participation 3
>
> Loan Types and Amounts 3
>
> Occupancy 4
>
> Loan Approval Requirements 4

**Chapter 2, Eligibility**

> How to Obtain a Certificate of Eligibility 5
>
> Restoration of Previously Used Entitlement 9

**Chapter 3, Loan Processing**

> Loan Processing Forms 11
>
> Loan Processing Steps 14

**Chapter 4, Funding Fee & Special Programs**

> The VA Funding Fee 17
>
> Energy Efficient Mortgages (EEM's) 19
>
> Refinancing Loans 20

**Chapter 5, Credit Underwriting**

> Income Summary 23
>
> Assets 27
>
> Debts & Obligations 28
>
> Credit History 29
>
> Automated Underwriting 30
>
> Debt-to-Income Ratio 32
>
> Compensating Factors 32

**Chapter 6, Loan Closing**

> Fees and Charges 33
>
> Seller Concessions 34
>
> Obtaining Guaranty 35
>
> Paperless Guaranty Processing 36

**Frequently Asked Questions** 37

> **...Chapter 1**

**Loan Basics**

**[INTRODUCTION]{.underline}**

The Manchester Regional Loan Center (RLC) is one of nine nationwide
locations handling Loan Production (LP) activities. The Manchester RLC
provides loan origination activities for seven states:

-   Connecticut

-   Maine

-   Massachusetts

-   New Hampshire

-   New York

-   Rhode Island

-   Vermont

The purpose of this training guide is to provide information that will
facilitate the processing of VA guaranteed loans in our area of
jurisdiction. A more comprehensive reference for processing VA loans is
your VA Lender's Handbook, VA Pamphlet 26-7. Other sources of
information available on the internet are:

-   **VA National** website: *www.va.gov*

-   VA **National Home Loan Program** website: *www.homeloans.va.gov*

-   The **Manchester, NH** website:
    *www.vba.va.gov/ro/manchester/lgymain/loans.html*

-   Information concerning **Certificates of Eligibility**:
    *www.homeloans.va.gov/eligibility.htm* **or** **ACE access via the
    Veterans Information Portal***: https://vip.vba.va.gov*

-   Direct access to **VA Lender's Handbook**:
    *www.homeloans.va.gov/handbook.htm*

-   Website to **E-mail Various VA offices**:
    *www.homeloans.va.gov/contact.htm*

-   To **Download Various VA Forms**: *www.vba.va.gov/pubs/forms1.htm*

-   Information concerning **Electronic Data Interchange** **(EDI):**
    *www.homeloans.va.gov/link.htm*

**MANCHESTER REGIONAL LOAN CENTER**

**Loan Production Team**

Monique Beaudoin, Loan Production Officer

Gerri Casey, Loan Assistant

Donna Clement, Loan Specialist/Underwriter

Barbara Croman, Loan Specialist/Underwriter

Jim Clark, Loan Assistant

Anne Keller, Loan Specialist/Underwriter

Toll Free Phone Number (800)827-6311, option 7

Fax (603)222-5862

Office E-mail Address nh_lp@vba.va.gov

**[LENDER PARTICIPATION]{.underline}**

Lenders must contact VA to obtain approval and a VA Lender
Identification number prior to accepting a veteran's loan application.
VA Lenders are classified by the following definitions:

-   **Supervised Lender -** is subject to periodic examination and
    supervision by a federal, state or territorial agency. A supervised
    lender can close VA loans without prior approval underwriting by VA.

-   **Nonsupervised Lender -** any lender that is **not** a supervised
    lender. A nonsupervised lender **cannot** close loans without prior
    approval underwriting by VA unless granted automatic authority (see
    next bullet).

-   **Nonsupervised Automatic Lender -** nonsupervised lender who, after
    applying to VA for authority to close loans on an automatic basis,
    has been formally granted such authority by VA.

-   **Agent -** person or entity that performs any portion of the work
    involved in originating and closing a VA-guaranteed loan on behalf
    of, or in the name of, a sponsoring lender.

See VA Lenders Handbook, Chapter 1, for complete information regarding
lender approval and participation.

## LOAN TYPES AND AMOUNTS

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

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

-   To build or purchase an existing home, multiple-unit property (up to
    4 units) or a condominium in a VA accepted project, \$240,000;
    (higher loans check w/your investors\*)

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

-   Interest Rate Reduction Refinancing Loan (Streamline) of a VA
    guaranteed home loan. This loan is to reduce the interest rate of
    the existing VA loan or convert an existing VA adjustable rate
    mortgage loan to a fixed rate; VA will give a 25% guaranty on any
    loan amount.

-   Energy Efficient Improvements, see VA Lenders Handbook, Section
    7.03; and Chapter 4 of this training guide for specifics.

*A complete listing of VA loans and detailed information is available in
VA Lender's Handbook, Chapter 3.\
*

-   **\*Please Note:**

> Ginnie Mae, part of the secondary mortgage market, announced on
> December 24, 2003 *they will accept into their pools, VA Home loans up
> to \$333,700.00 , when the combination of veteran's*
>
> *Entitlement plus cash down-payment equals at least 25% of the total
> loan amount.* For example, to obtain a VA Home Loan of \$333,700.00,
> the veteran would need to use his/her full available entitlement of
> \$60,000 and provide a down payment of \$23,425.

*Please check with your investor to assure all loans meet their
requirements.*

**[Special Notes on Guarantees]{.underline}**

Specifics on guaranty percentages may be found in VA Lender's Handbook,
Section 3.04. Please contact our office if you have questions. The
amount of guaranty on a joint loan may differ. See following discussion.

**Guaranty Limits On Joint Loans**

The term "joint loan" generally refers to any loan for which a veteran
and any person other than the veteran's spouse are liable. VA classifies
a joint loan as a loan with two veterans both using their certificates
of eligibility ***or*** a loan between a veteran and person other than a
spouse who does not have a certificate of eligibility.

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

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

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

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

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

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

## OCCUPANCY

VA requires the veteran to occupy the subject property as his/her
primary residence. The normal guideline is within 60 days from the date
of closing. However this may be extended to 12 months if the veteran has
a specific date that s/he will be moving in **and** a particular
reason/future event that is causing the delay. Use of the property as a
second home or seasonal vacation home does not satisfy the occupancy
requirement.

**Active Duty Military Personnel:**

-   Service members deployed from their permanent duty station are
    considered to be in a temporary duty status and able to provide a
    valid intent to occupy.

Other circumstances are addressed in VA Lender's Handbook, Section 3.05,
or can be discussed with the Regional Loan Center with jurisdiction over
the property.

**Exception**: The veteran does not have to occupy the property for
interest rate reduction refinance loans (IRRRL's).

## LOAN APPROVAL REQUIREMENTS

The basic requirements for a VA loan are:

-   The veteran must have sufficient eligibility/benefit. (see Chapter
    2)

-   The loan must be for an acceptable purpose. (see page 3)

-   The occupancy requirement must be met.

-   The veteran (and spouse, if applicable) must have sufficient, stable
    income and acceptable credit. (see Chapter 5)

**...Chapter 2**

**Eligibility**

**[HOW TO OBTAIN A CERTIFICATE OF ELIGIBILITY]{.underline}**

To request a Certificate of Eligibility (COE), the veteran must complete
VA Form 26-1880, Request for a Certificate of Eligibility for VA Home
Loan Benefits, and submit it along with proof of military service to
VA's Winston-Salem, NC, Eligibility Center.

Eligibility Center Contact Information

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

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

  Telephone Number               \(888\) 244-6711

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

VA Form 26-1880 can be obtained at *www.vba.va.gov/pubs/forms1.htm,* by
calling/writing/e-mailing the Eligibility Center, from a local VA
Regional Office, or from a lender who participates in the VA home loan
program.

**\* \* \* WANT TO TRY A QUICKER METHOD?! \* \* \***

**[ACE, Automated Certificate of Eligibility & OnLine Loan Status
Inquiry]{.underline}**

ACE is an Internet based application that allows lenders to obtain a COE
in a matter of 10-15 seconds. It will issue COE's for most first-time
users who served full-time active duty military or will give a
certificate if the veteran has an existing VA loan (for use with an
IRRRL). It will also allow lenders to check on status of loans submitted
for guaranty. ACE currently can not issue certificates for individuals
whose service is based solely only Reserve/National Guard time (if they
had full time active duty service it may be possible) or complete
restorations in most cases. The program is accessed via the Veterans
Information Portal at the following site:
*[https://vip.vba.va.gov](https://vip.vba.va.gov/).*

**Proof Of Military Service**

Acceptable documentation of military service depends on whether the
veteran served on regular active duty or in the Selected Reserves or
National Guard, or whether the veteran remains on regular active duty or
in the Selected Reserves or National Guard.

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

B.  If the applicant is on regular active duty and has not been
    previously discharged from active duty service, a statement of
    service which includes the name of the issuing authority (base or
    command) and is signed by or at the direction of an appropriate
    official is required. The statement must include the service
    member's name, SSN, date of entry on active duty and the duration of
    any time lost. If on active Selected Reserve duty, the statement of
    service should be from the unit Commanding Officer and should cite
    the length of time served with the reserve unit. (Faxed copies and
    photocopies are not acceptable.)

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C.  If veteran was discharged from the Selected Reserves or the National
    Guard, include copies of documentation of at least 6 years of
    honorable service. If discharged from the Army or Air Force National
    Guard, submit NGB Form 22, Report of Separation and Record of
    Service, or NGB Form 23, Retirement Points Accounting, or its
    equivalent. If discharged from the Selected Reserve, submit a copy
    of the latest annual points statement and evidence of honorable
    service. Unfortunately, there is no single form used by the Reserves
    or National Guard similar to the DD Form 214. It is veteran's
    responsibility to furnish adequate documentation of at least 6 years
    of honorable service.

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

> ***NOTE:*** If the veteran has been discharged from regular active
> duty, it may be possible to make a determination without the veteran
> providing evidence of military service. However, it is best to provide
> such evidence with VA Form 26-1880 to prevent possible delays in
> processing the request.

**Military Records**

GSA Standard Form 180, Request Pertaining to Military Records, is used
to apply for copies of military service records regardless of whether
the veteran served on regular active duty or in the Selected
Reserves/National Guard. This form in NOT processed by VA. Standard Form
180 is completed and mailed to the appropriate custodian of military
service records. Instructions are provided on the reverse of the form to
assist in determining the correct mailing address. Additional
information is available at National Personnel Records Center (Military
Personnel Records NPRC \[MPR\]): *www.nara.gov/regional/mpr.html*.

**Personnel Reserve Centers**

If a reservist needs to obtain copies of point statements or other
documentation that reflects 6 years participation with evidence of
honorable discharge contact:

+------------------+--------------------------------+-----------------+
| **Branch**       | **Type of Form**               | **Telephone**   |
+------------------+--------------------------------+-----------------+
| Army/Air         | NGB 22, Report of Separation & | (314)592-0123   |
| National Guard   | Record of Service              |                 |
+------------------+--------------------------------+-----------------+
| Army Reserve \*  | DARP FM 249-2E or ARPC FM 606, | (314)592-0123   |
|                  | Chronological Statement of     |                 |
|                  | Retirement Points              |                 |
+------------------+--------------------------------+-----------------+
| Navy Reserve     | NRPC 1070-124, Annual          | (800)966-9174   |
|                  | Retirement Point Record        |                 |
+------------------+--------------------------------+-----------------+
| Air Force        | AF 526, Point Summary Sheet    | 800. 525-0102   |
| Reserve          |                                |                 |
|                  |                                | ext. 388 or 403 |
+------------------+--------------------------------+-----------------+
| USMC Reserve     | NAVMC 798                      | (314)538-4200   |
|                  |                                | or 4147         |
+------------------+--------------------------------+-----------------+
| Coast Guard      | CG 4175                        | (314)538-4200   |
| Reserve          |                                | or 4147         |
+------------------+--------------------------------+-----------------+

\*note for Army reserve you ask the veteran to try obtaining records
from this site; https://www.2xcitizen.usar.army.mil/

**Processing Time - Eligibility Center**

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

-   Turnaround time (including mailing time) for complete applications
    not requiring development normally runs about 14 days.

-   Telephone contact personnel at the Center only have access to
    records of processed applications. So, it is best to wait at least
    10 days after mailing before calling for the status of an
    application.

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-   A relatively small percentage of applications require development
    which can extend the processing period. This development might
    involve return to the requester for additional information or it
    might involve development internal to VA. In some cases, it will be
    necessary to research information regarding a previous VA loan(s) or
    resolve such issues as character of discharge, service-connected
    disability, or surviving spouse benefits. When a delay for internal
    VA development is required, the requester is always advised by
    letter.

**QUICK REFERENCE CHART FOR ELIGIBILITY**

  --------------------- ----------------------- --------------------------
  **ERA**               **DATES**               **MINIMUM SERVICE\***

  WWII                  09/16/40 - 07/25/47     90 continuous days

  Peacetime             07/26/47 - 06/26/50     181 days

  Korean                06/27/50 - 01/31/55     90 days

  Post-Korean           02/01/55 - 08/04/64     181 days

  Vietnam               08/05/64 - 05/07/75     90 days

  Post-Vietnam          05/08/75 - 09/07/80     181 days

  Post-Vietnam          09/08/80 - 08/01/90     2 years

  Persian Gulf          8/2/90 - undetermined   2 years or period called
                                                to active duty, not less
                                                than 90 days
  --------------------- ----------------------- --------------------------

*\*A veteran who has served less than the minimum required period of
service or was discharged because of a service-connected disability, may
be eligible for home loan benefits. Other information concerning
eligibility and/or exceptions can be found in VA Lenders Handbook,
Chapter 2.*

  ---------------------------- ------------------------------------------
  **OTHER ELIGIBLE PERSONS**   **MINIMUM SERVICE REQUIRED**

  Active duty member\*\*       90 continuous days (181 during peacetime)

  Active Reserve or National   6 years of active drilling or 90 days
  Guard                        Active Duty service under Title 10 USC
                               (service in Gulf War, Bosnia, Iraq, etc.)

  Unmarried surviving          No time requirement. Veteran must have
  spouse\*\*\*                 died on active duty or from a
                               service-connected disability.

  POW/MIA spouse               Veteran must have been POW or MIA 90 days.
  ---------------------------- ------------------------------------------

*\*\*Certificate only valid while veteran remains on active duty*

*\*\*\*For IRRRL's only, the surviving spouse of a deceased veteran may
do an IRRRL using the veteran's Certificate of Eligibility if the spouse
was a co-borrower on the existing VA loan. The spouse, in this case,
does not have separate entitlement.*

Detailed information regarding qualifying criteria is available on the
Internet at *www.homeloans.va.gov/elig2.htm*. A description of what is
acceptable proof of military service can be found at
*www.homeloans.va.gov//faqelig.htm* as part of a list of frequently
asked questions regarding eligibility for a home loan.

**Walk-In Applicants**

Veterans who require walk-in service can visit the Veterans Service
Center or the Regional Loan Center in Manchester, NH, during the hours
of 7:30 am-4 pm ET, Monday through Friday to apply for a COE.

In some cases, a COE may be obtained at other VA Regional Offices;
however, most Regional Offices provide limited walk-in service, if any,
and veterans should phone a specific office prior to making a trip.

**Updates**

There is no need to update a COE that has never been used (regardless of
the type or when it was issued) unless it is a conditional certificate
issued to active duty service member who was subsequently discharged.

VA loan entitlement has been increased to \$60,000 from \$50,750 for
purchase, construction, or rate reduction loans in excess of \$144,000
closed on or after December 27, 2001.

Basic entitlement is \$36,000 minus any entitlement previously used
(unless previously used entitlement has been excluded and entitlement
restored). This is the maximum amount available for regular and cash-out
refinance loans.

Reservist and National Guard eligibility is no longer subject to renewal
by Congress. The program was made permanent under PL108-183, December
16, 2003. Some certificates have an expiration date which is no longer
applicable. They all show entitlement code 11 for first-time use. A
higher funding fee rate applies in most cases when entitlement is
derived from service in Selected Reserves/National Guard. *Reference: VA
Lenders Handbook, Chapters 2, 3 & 8.*

# **Previously Used Benefit**

A blank certificate is not ***always*** an indication that the veteran
has full entitlement. There are several ways to determine previous
usage: credit report; VA Form 26-1880, item 8; and VA Form 26-1802a,
item 23.

**Eligibility For Unmarried Surviving Spouse**

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

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

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

## RESTORATION OF PREVIOUSLY USED ENTITLEMENT

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

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

-   An eligible veteran buyer has agreed to assume the outstanding
    balance on a VA loan and substitute his or her entitlement for the
    same amount originally used on the loan. The assuming veteran must
    also meet occupancy, income and credit requirements of the law.

Special Restoration

In addition to the basic restoration criteria outlined above, a veteran
may obtain restoration of the entitlement used on a previous VA loan
under any of the following circumstances:

-   The previous VA loan has been paid in full and the veteran has made
    application for a loan to be secured by the same property which
    secured the previous VA loan, or

> ***Not***e: *This includes refinancing situations in which the
> previous loan will be paid off at closing from a VA refinancing loan
> on the same property.*

-   The previous VA loan has been paid in full, but the veteran has not
    disposed of the property securing the loan. The veteran may obtain
    restoration of the entitlement used on the previous loan in order to
    purchase a different property one time only. Once such restoration
    is effected, the veteran's COE will indicate the one-time
    restoration. It will also advise that any future restoration will
    require disposal of all property obtained with a VA loan.

### How to Apply for Restoration

The veteran must complete and send VA Form 26-1880, Request for a
Certificate of Eligibility, to the appropriate Eligibility Center. If
the veteran has evidence of payment in full of any previous loans
(HUD-1, settlement statement, etc.), a copy should be included.
Additionally, any previously issued COE's should be included.

If the veteran is applying for restoration in order to obtain another VA
loan on the same property (as described above in "Special Restoration
Cases"), the veteran should include a copy of the loan application
submitted to the lender along with VA Form 26-1880. Unmarried surviving
spouses applying for restoration of entitlement also need to complete VA
Form 26-1880 supplying the deceased veteran's military service data and
VA claims file number.

Foreclosure on Previous VA Guaranteed Home Loan

When a veteran's previous VA guaranteed loan has been terminated by
foreclosure, deed in lieu of foreclosure or compromise sale (short
sale), VA may have sustained a loss because of a claim payment to the
lender. Even if the veteran was released from liability on the loan
and/or the debt was waived, the Government may still have suffered a
loss on the loan.

-   The law does not permit restoration of the veteran's eligibility
    until the Government's loss has been repaid in full.

What If the Previous VA Loan Was Assumed?

Entitlement is not automatically restored with an approved
Assumption/Release of Liability. A veteran's entitlement can only be
restored if the assumer is also an eligible veteran who will occupy the
property as a personal residence and is willing to substitute his or her
available entitlement for that of the original veteran. Otherwise, the
original veteran cannot have entitlement restored until the assumer has
paid the loan in full.

**...Chapter 3**

**Loan Processing**

**[LOAN PROCESSING FORMS]{.underline}**

See Chapter 5 of VA Lenders Handbook, "How To Process VA Loans and
Submit Them To VA", for a complete list of required exhibits and forms.

Forms unique to VA loan processing are available on the Internet at:
*http://www.vba.va.gov/pubs/homeloanforms.htm*

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

**IRRRL COMPARISON STATEMENT**

  ----------------------------------- -----------------------------------
  **OLD VA LOAN**                     **NEW VA LOAN**

  VA Case Number:                     VA Case Number:

  Date of loan:                       

  Interest Rate:                      Interest Rate:

  Term:                               Term:

  Original Loan Amount                New Loan Amount

  Principal & interest payment:       Principal and interest payment:
  ----------------------------------- -----------------------------------

I hereby acknowledge that I understand the effects of this refinancing
loan on my loan payments and interest rate.

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

Borrower(s) Date

**For IRRRL's with principal & interest payment increasing 20% or
more:**

Lenders Certification for IRRRL

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

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

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

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

    HUD/VA Addendum to the Uniform Residential Loan Application.

2.  VA does not establish the interest rate for mortgage loans to be
    guaranteed,

    or set either or minimum on the interest rate or on discount points
    that may be paid by you. This means that you may pay such interest
    rate and discount

    points as you and the lender agree upon. The seller may also pay the

    discount points, or a portion thereof, if you and the seller agree
    to such an

    arrangement.

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

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

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

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

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

    Veteran

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

    Co-applicant

    **LENDER'S LOAN QUALITY CERTIFICATION**

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

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

    Lender Signature Date VA Case Number

**CERTIFICATION FOR AUTOMATED UNDERWRITING CASES**

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

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

Lender Representative Title

**VA OPTION CLAUSE** (required attachment to Purchase Agreement)

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

**[LOAN PROCESSING STEPS]{.underline}**

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

> The determination of the veteran's eligibility should be initiated as
> soon as possible, preferably at the time of loan application. This is
> especially important if the nature of the veteran's application will
> require special review or development, i.e. retrieval of military
> records, etc. Detailed information on obtaining a COE is in Chapter 2.

-   **E-Mail Procedure For IRRRL's (to be used when the veteran does not
    have his/her old COE)**

    Lenders wishing to confirm the status of an existing VA guaranteed
    loan for the purpose of processing an IRRRL, can do so by e-mailing
    VA. VA's e-mail (electronic confirmation) response will be used in
    lieu of an original COE.

a)  Obtain an electronic confirmation (e-mail) at the following website;
    www.vba-roanoke.com/rlc/GILoans.asp. A lender identification number,
    e-mail address, veteran social security number or the existing (loan
    being paid off) VA loan number is required.

b)  VA's response will be received within 24 hours. If they system is
    unable to confirm the old loan, you may contact the Regional Loan
    Center with jurisdiction over the subject property for assistance or
    advice.

c)  If the lender receives a response from VA confirming the loan they
    propose

    to refinance is an active VA guaranteed loan made to the veteran in
    question, a Certificate of Eligibility will not be required with
    their guaranty submission. Instead a copy of the e-mail reply from
    VA must be included in the guaranty submission.

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

> The appraisal should be ordered as soon as possible after the loan
> application is initially reviewed, and a decision is made that based
> on the application information, and perhaps a soft copy credit report,
> the loan appears feasible.
>
> Lenders are strongly encouraged to use VA's Internet based system, The
> Appraisal System (TAS). The web address is ***vip.vba.va.gov***

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

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

-   is receiving VA disability benefits

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

-   has received VA disability benefits in the past, or

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

    If the veteran falls under one of the above categories, submit VA
    Form 26-8937 to the VA office where the loan application and/or
    closed loan package will be sent. VA will complete and return the
    form to the lender.

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

    If the loan is for a property in one of the six New England states
    or the State of NY, the form may be faxed to 603 222-5745 for
    processing. Our Support Services Division will complete the form and
    return it to the lender.

    **4.** **Determine if the veteran is a member of a Reserve or Guard
    unit.**

    If so, the lender must ascertain if the veteran has been notified of
    the mobilization of his or her unit. If the veteran is in a unit
    with actual orders for mobilization, the loan must be underwritten
    on the basis of the proposed active duty income. A certification or
    documentation addressing this must be included in the loan package.
    (If proposed active duty income is higher than regular employment
    income, please contact VA for assistance in determining qualifying
    income).

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

> Please see VA Lenders Handbook, Chapter 4, Section 4.06 for details.
> To do this you would call HUD's computerized system at (301)344-4000.
> You need your lender identification number and the applicant(s) social
> security number. If you have access to the computerize CAIVRS data,
> that is acceptable too.

**6. Develop a credit package.**

**7. Appraisal completed and Notice of Value issued by VA or lender
(LAPP lenders)**

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

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

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

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

-   Loans to veteran in receipt of VA nonservice-connected pension

-   Loans to veterans rated incompetent by VA

-   Interest Rate Reduction Refinancing Loans made to refinance
    delinquent VA loans

> Lenders with automatic authority may also elect to submit a loan of a
> type not on the above list for prior approval when issues or
> circumstances cannot be resolved by the lender's own underwriting
> staff.

-   The submission must include the underwriter's analysis and
    explanation of why it is being submitted for prior approval.

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

9\. Lender closes loan and transmits VA Funding Fee, if applicable.

**10. Lender sends closed loan package to VA for guaranty.** The Current
Issue section of VA Lender's Handbook contains details on how to submit
a modified package for guaranty. Details on a complete loan package are
noted in chapter 5. Assure to annotate the lender ID number where you
want the LGC to be mailed on VA Form 26-0286.

**Chapter 4**

**Funding Fee & Special Programs**

**[THE VA FUNDING FEE]{.underline}**

The veteran must pay a funding fee to help defray costs of the VA home
loan program.

It is the lender's responsibility to:

-   Verify the status of any veteran who may be exempt from paying the
    funding (most lenders use a questionnaire so everyone in the process
    can see the determination has been made);

-   Determine the amount of funding fee due from a non-exempt borrower
    (look carefully at the COE to make this determination);

-   Collect the appropriate fee from all non-exempt borrowers at loan
    closing;

> *(Note: The funding fee may be paid from loan proceeds and/or borrower
> cash)*

-   Remit the funds to VA timely (15 days from the date of closing-not
    disbursement);

-   Obtain proof of payment of the funding fee; and

-   Submit proof that the funding fee has been paid or that the veteran
    is exempt with the closed loan package.

**NOTE:** VA now uses a web-based Funding Fee Payment System (FFPS).
FFPS is fully automated and accessible via the Internet. The website
address is *www.pay.gov/va*. A user's guide is at
www.homeloans.va.gov/vaach.htm. ***A funding fee receipt can be printed
from this system the day after payment information is entered.***

**Who is Exempt from Paying the Funding Fee?**

The following persons are exempt from paying the funding fee:

-   Veterans receiving VA compensation for service-connected
    disabilities.

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

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

If you have any questions call us at 800 827-6311, option 7.

**HOW TO VERIFY EXEMPT STATUS**

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

1.  A properly completed and signed VA Form 26-8937, Verification of VA
    Benefit-Related Indebtedness, indicating the borrower's exempt
    status (see Step 3, Chapter 3, in this guide);

2.  An award letter issued within 1 year of the date of the loan
    application indicating the veteran is entitled to receipt of VA
    disability compensation;

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

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

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

**Purchase and Construction Loans**

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

                                                        

                    None              2.2% **\*note**   3.3%

  Regular Military  5% or more        1.50%             1.50%

                    10% or more       1.25%             1.25%

                                                        

                    None              2.4%              3.3%

  National Guard/   5% or more        1.75%             1.75%

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

**\*note:** This percentage will change to 2.15% October 1, 2004.

**Other Loans**

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

                                      

  Interest Rate Reduction Refinance   .50%
  (IRRRL)                             

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

**If funding fee is submitted late (more than 15 days from date of
closing), a late fee of 4% will be assessed.**

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

**Refunding Overpayments**

A refund is appropriate if

-   An exempt veteran paid a funding fee; or

-   A miscalculation caused an overpayment of the funding fee

Instructions for requesting refunds are available in the FFPS manual.
Please remember that supporting documentation must be provided to the
RLC of jurisdiction to process the refund.

If the veteran was overcharged, the following applies:

-   A veteran who paid cash for the funding fee receives a cash refund
    for the amount of the overpayment.

-   In the case of a veteran who paid the funding fee out of loan
    proceeds, the lender must apply the overpayment against the loan
    balance. Submit evidence to VA that the refund was applied against
    the principal balance of the loan.

**[ENERGY EFFICIENT MORTGAGES (EEM's)]{.underline}**

EEM's are loans to cover the cost of making energy efficiency
improvements to a dwelling. Funds for energy efficiency improvements are
considered part of the total loan.

They can be made in conjunction with:

-   A VA loan for the purchase of an existing dwelling, or

-   A VA refinancing loan secured by the dwelling.

The mortgage may be increased by:

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

**OR**

-   Up to \$6,000 provided the increase in monthly mortgage payment does
    not exceed the likely reduction in monthly utility costs

**OR**

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

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

> **Examples of Energy Efficient Improvements**

-   Solar heating and cooling systems

-   Furnace replacement or efficiency modifications

-   Clock thermostats

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

-   Water heater insulation

-   Storm windows and/or doors/vapor barriers

-   Heat pumps

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

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

*Reference: VA Lenders Handbook, Section 7.03.*

**[REFINANCING LOANS]{.underline}**

**Cash-Out Refinancing Loans**

A cash-out refinancing loan is a VA-guaranteed loan which refinances any
type of lien or liens against the secured property. The liens to be paid
off may be from any source, such as

-   Tax or judgment liens, and

-   VA, FHA, or conventional mortgage.

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

The loan must be secured by a first lien on the property.

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

**The maximum guaranty is \$36,000** (not \$60,000).

*Reference: VA Lenders Handbook, Section 6.03*

**Other Refinancing Loans**

These consist of loans to refinance:

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

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

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

-   The loan amount is not limited to 90% of the value

-   These loans may not exceed the lesser of

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-   the NOV

    **or**

-   the sum of the outstanding balance of the loan(s) to be refinanced
    plus allowable closing costs and discount points.

*Reference: VA Lenders Handbook Section 6.05*

**REFINANCE COMPARISON**

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

\* see previous page for exceptions to "90%" rule.

Reference: VA Lenders Handbook Section 6.04

> **...Chapter 5**

**Credit Underwriting**

VA loans involve a veteran's benefit. Therefore, lenders are encouraged
to make VA loans to all qualified veterans who apply.

VA's underwriting standards are intended to provide guidelines for
lenders' underwriters as well as VA's underwriters. Underwriting
decisions must be based on sound application of the underwriting
standards, and underwriters are expected to use good judgment and
flexibility in applying the guidelines.

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

-   is a satisfactory credit risk, and

-   has present and anticipated income that bears a proper relation to
    the contemplated terms of repayment.

Lenders are responsible for

-   developing all credit information

-   properly obtaining all required verifications and the credit report

-   ensuring the accuracy of all information on which the loan decision
    is based

-   complying with the law and regulations governing VA's underwriting
    standards, and with VA's underwriting policies, procedures, and
    guidelines, and

-   certifying as to compliance with all of the above.

VA's underwriting standards are incorporated into VA regulations at [38
CFR 26.4337]{.underline} and are explained in detail in VA Lenders
Handbook, Chapter 4.

For training purposes a summary of the current credit standards follows.

**[INCOME SUMMARY]{.underline} (see VA Lenders Handbook, Section 4.02)**

**Standard Documentation**

-   Income claimed by an applicant that is not or cannot be verified
    should not be given consideration.

-   A minimum of two years' employment must be verified (including past
    employers if needed).

-   Verification of employment forms should be originals (faxes &
    internet documentation may be acceptable-see
    www.homeloans.va.gov/new.htm for details) and should be dated within
    120 days of the note, 180 days for new construction.

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

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

*Reference: VA Lenders Handbook, Section 4.02*.

**Alternative Documentation**

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

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

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

-   If documents are questionable in authenticity or consistency, or if
    the employer is unwilling to provide a verbal verification, then a
    standard verification of employment form is required.

-   Alternative documentation can be used in conjunction with
    verification of employment forms to meet the two year coverage.

-   "Full" verifications of employment through "The Work Number for
    Everyone", a service of the TALX Corporation. (No pay stub is needed
    with the TALX verification).

-   Verifications through VIE, Inc. VIE verifications must be
    supplemented by a pay stub or telephone verification of the
    applicant's current employment. For telephone verification, document
    the date of verification and the name, title and telephone number of
    the person with whom employment was verified.

**Active Duty, Reservists and National Guard Applicants**

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

    ***Note:** The Department of Defense provides service members access
    to a computer generated LES through the Employee Member Self Service
    (E/MSS) system which is acceptable.*

-   Veterans who have less than one year remaining time in service (ETS
    date) must certify that they are going to re-enlist, along with
    their commander certifying that they are eligible to re-enlist. If
    the applicant does not plan to continue with the military, s/he must
    provide a firm job commitment or contract from the new employer
    verifying the job position, rate of pay, starting date, hours
    scheduled per week and probability of continued employment. Document
    sufficient retirement income if this will be the income source.

-   The continuation of Military Allowances must be determined to count
    as income. If the duration of allowances (pro-pay, flight pay,
    hazardous duty pay, etc.) cannot be determined then the allowances
    will only be used to offset intermediate debts of 24 months or less.
    It is the lender's responsibility to separate allowances into
    taxable and tax-free categories. **C*lue:*** allowances containing
    the word "pay" are taxable such as base pay and sea pay, while BAH
    and BAS are not.

    *IMPORTANT: Lenders must determine if the veteran is a member of a
    Reserve or Guard unit. If so, the lender must ascertain if the
    veteran has been notified of the mobilization of his or her unit. If
    the veteran is in a unit with actual orders for mobilization, the
    loan must be underwritten on the basis of the veteran's income on
    active duty. A certification or documentation addressing this must
    be included in the loan package.*

**Self-Employment Income**

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

-   Copies of the past two years' business and/or individual, signed tax
    returns must be provided.

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

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

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

-   Taxable Income listed on the bottom of a corporate tax return (IRS
    Form 1120) may be divided by the veteran's percentage of ownership
    and then used as additional income (subject to tax).

**Commission Income**

-   When all or a major portion of an applicant's income is from
    commissions, additional information is needed. The employer must
    verify year-to-date commissions, the basis for computing commission,
    and how frequently commissions are paid to the applicant.

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

-   The previous two years' income tax returns (additional periods if
    needed) must be provided with W-2's and 1099-MISC forms. These
    individuals returns must be complete with all schedules, signature
    and dates included.

-   Commission income received for less than **one** year can rarely be
    counted. To conclude the stability of "short-term" commissions, the
    lender would be required to do an in-depth development and verify
    stability.

**Rental Income**

**Multi-Family Housing -** If the veteran is purchasing multi-family
housing, the applicant's previous landlord experience and evidence of
cash reserves equaling 6 months PITI would have to be documented. Both
of these conditions must be met to include rental funds in income. ***If
rental income is not required for qualification purposes, you do not
need to address past landlord experience or reserves.***

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

-   If the units are proposed property, then VA would require a letter
    from the appraiser stating the "fair rental value" and a
    vacancy/operating cost reduction of that rental figure (a 25%
    reduction would be acceptable).

**Rental of Existing Property -** Rental of an existing single-family
property may be used to "off-set" the mortgage payment if there is a
positive cash-flow, and there is no indication the property will be
difficult to rent. A copy of the lease must be furnished. The mortgage
debt should still be listed on the loan analysis, but shown as a "rental
offset". If the existing single family has a negative cash flow, this
must be considered as a debt.

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

**Stability and Use of Income**

-   The applicant must generally be employed 12 months or longer to
    count the income. Related training or experience may be substituted
    to satisfy this 12 month requirement. Employment used with less than
    12 months on the current job should be addressed by the underwriter
    in the "Remarks" section of the loan analysis form.

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

-   Temporary income such as VA educational allowances and unemployment
    compensation do not represent stable and reliable income and as a
    general rule, are not considered as income. The exception would be
    seasonal income or unemployment compensation that has a documented
    history of receipt and is likely to continue. The underwriter must
    carefully document and address the use of this income in the remarks
    section on loan analysis form.

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

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

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

**[ASSETS]{.underline} (see VA Lenders Handbook, Section 4.04)**

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

-   closing costs or points which are their responsibility and are not
    financed in the loan;

-   the down payment, if any; and

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

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

Liquid assets must be verified to the extent that are needed to close
the loan. A verification of deposit form or two months bank statements
(originals or lender certified "true" copies) are acceptable forms of
documentation. Verifications must be no more than 120 days old (180 days
for new construction). Faxes and internet documentation may be
acceptable; see www.homeloans.va.gov/new.htm for details.

**[DEBTS & OBLIGATIONS]{.underline} (see VA Lenders Handbook, Section
4.05)**

Debts and obligations of the applicant must be rated and a credit report
must be obtained. When a pay stub or leave-and-earnings statement
indicates an allotment, the lender must investigate the nature of the
allotment and determine if it is related to a debt.

Include written explanation for any obligation that is not rated. All
credit reports and verifications must be no more than 120 days old (180
days for new construction).

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

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

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-   debts on revolving accounts

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

**Revolving Accounts With a Zero Balance**

VA does not require a minimum payment to be calculated for revolving
accounts with a zero balance. However, all revolving accounts reflecting
a balance must be considered in monthly debt. (The 10 month rule does
not apply to revolving charges.)

**Child Care Expenses**

Expenses for care of children 10 years old or younger must be included
in the debt section of the loan analysis form. A letter from the veteran
stating the cost, name and address of the provider or explanation of why
no expense is incurred is acceptable documentation.

**Co-Signed Loans**

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

**Other Types of Loans**

Student loans in deferment may generally be disregarded if the deferment
will continue for at least 12 more months. However, this is an
underwriter's judgment call that should be made on a case by case basis.

Loans against a borrower's 401k plan or other retirement may be
disregarded as long as the borrower has sufficient funds vested in the
account to pay the loan in full.

**[CREDIT HISTORY]{.underline} (see VA Lenders Handbook, Section.
4.07)**

**General Rule**

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

-   Outstanding judgments

-   Unresolved Federal debts

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

**No Credit**

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

**Rental or Mortgage Payment History**

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

**Collection Accounts**

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

**Judgments and Debts Owed to the Federal Government**

A loan cannot be approved with an unpaid judgment or debt to the Federal
Government unless the veteran is on an acceptable repayment plan.

**Consumer Credit Counseling**

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

-   If entered after delinquency, need 12 months of acceptable history
    and the approval from the credit counselor.

**Bankruptcy**

**Chapter 13 -** need a satisfactory history for 12 months on payment
plan and approval from the court.

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

**Foreclosures -** Apply the guidelines provided for bankruptcies.

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

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

**[AUTOMATED UNDERWRITING]{.underline}**

**(see Lenders Handbook, Section 4.08)**

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

Lenders may use certain reduced documentation requirements on cases
processed with approved AUS's. The level of reduced documentation
depends on the risk classification assigned.

**Data Integrity**

It is imperative that the data entered into the AUS be accurately
verified. The data utilized by the system must be supported by source
documentation obtained by the lender. Invalid or unverified data will
result in invalidation of the risk classification. Under certain
circumstances it could also result in a finding of material
misrepresentation, which could affect the validity of the guaranty. Care
should be taken to assure the final terms are accurate, that assets are
properly listed (i.e. checking, savings or CD's are considered
depository accounts, 401K's are not, etc.), whether the veteran is
active duty military or not, and that the proper family size is
indicated.

**Special Documentation**

-   Underwriter certification (in addition to the standard lender
    certification) specified in VA Lenders Handbook, Section 4.08. A
    sample may be found on page 13 of this guide.

-   Complete copy of the feedback sheet(s); and

-   Documentation required by the feedback sheet to support the loan.

**Notes concerning Residual Income and VA Form 26-6393**

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

-   Change 2 to VA Lender's Handbook established a nationwide figure for
    maintenance and utility costs rather than local charts. Effective
    immediately, lenders should use \$.14 per square foot of GLA.

-   The underwriter must consider job related expenses such as child
    care expenses or extraordinary commuting costs.

-   Taxes should be based on IRS Circular E and appropriate state income
    tax charts. Information may be obtained from the following sites;
    www.IRS.gov and http://www.taxsites.com/state.html.

-   CAIVRS clearance authorization must be obtained for all applicants.
    List the authorization number(s) in item 47 or 48 on VA Form 26-6393
    (see VA Lender's Handbook, Section 4.06.).

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

-   Underwriters should comment on marginal credit (lates within the
    past year) or income issues (stability or increase/decreases) in
    section 48 of loan analysis form. Unusual circumstances should be
    addressed in a written format.

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

For loan amounts of \$79,999 and below

  -------------- ------------ --------------- -------------- -------------- --------------
  **Family                    **Northeast**   **Midwest**    **South**      **West**
  Size**                                                                    

  1                           **\$390**       \$382          \$382          \$425

  2                           **\$654**       \$641          \$641          \$713

  3                           **\$788**       \$772          \$772          \$859

  4                           **\$888**       \$868          \$868          \$967

  5                           **\$921**       \$902          \$902          \$1,004

  Over 5         Add \$75 for                                               
                 each                                                       
                 additional                                                 
                 member up to                                               
                 a family of                                                
                 7                                                          
  -------------- ------------ --------------- -------------- -------------- --------------

For loan amounts of \$80,000 and above

  -------------- ------------ --------------- -------------- -------------- --------------
  **Family                    **Northeast**   **Midwest**    **South**      **West**
  Size**                                                                    

  1                           **\$450**       \$441          \$441          \$491

  2                           **\$755**       \$738          \$738          \$823

  3                           **\$909**       \$889          \$889          \$990

  4                           **\$1,025**     \$1,003        \$1,003        \$1,117

  5                           **\$1,062**     \$1,039        \$1,039        \$1,158

  Over 5         Add \$80 for                                               
                 each                                                       
                 additional                                                 
                 member up to                                               
                 a family of                                                
                 7                                                          
  -------------- ------------ --------------- -------------- -------------- --------------

**[DEBT-TO-INCOME RATIO]{.underline}**

**(see VA Lenders Handbook, Sections 4.09 and 4.10)**

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

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

In the case of borrowers relying on tax-free income to qualify,
"grossing up" is allowable as a compensating factor only. The actual
ratio should be listed on the loan analysis sheet in box 45 and the
ratio based on the "grossed up" income annotated in the "remarks"
section of the loan analysis form if the lender chooses.

A ratio greater than 41% requires close scrutiny unless

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

Include a statement justifying the reason for approval, signed by the
underwriter's supervisor, unless the residual income exceeds the
guideline by 20% when the ratio is in excess of 41%.

**[COMPENSATING FACTORS]{.underline}**

**(see VA Lenders Handbook, Section 4.10)**

Compensating factors are useful when reviewing loans that are
marginal***. They cannot be used to compensate for unsatisfactory
credit.*** These factors include, but are not limited to the following:

-   Excellent long-term credit history

-   Conservative use of consumer credit

-   Minimal consumer debt

-   Long-term employment

-   Significant liquid assets

-   Down payment or the existence of equity in refinancing loans

-   Little or no increase in shelter expense

-   Military benefits

-   Satisfactory home ownership experience

-   High residual income

-   Low debt-to-income ratio

-   Tax credits for child-care

-   Tax benefits of home ownership.

**...Chapter 6**

**Loan Closing**

**[FEES AND CHARGES]{.underline}**

The VA home loan program involves a veteran's benefit. VA policy has
evolved around the objective of helping the veteran to use his or her
home loan benefit. Therefore, VA regulations limit the fees that the
veteran can pay to obtain a loan. Lenders must **strictly** adhere to
the limitations on borrower-paid fees and charges when making VA loans.

The veteran can pay a maximum of

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

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

-   Reasonable discount points

*NOTE: Some special provisions apply to construction, alteration,
improvement and repair loans. Reference VA Lenders Handbook Section
8.02*

**Itemized Fees and Charges**

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

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

2.  Recording fees and recording taxes

3.  Credit report

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

5.  Hazard insurance

6.  Survey/plot plan

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

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

9.  VA funding fee

10. Discount points

**Lenders 1% Flat Charge**

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

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

1.  Lender\'s appraisals

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

3.  Loan closing or settlement fees

4.  Preparing loan papers or conveyance fees

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

6.  Photographs

7.  Postage and other mailing charges, stationary, telephone calls, and
    other overhead.

8.  Amortization schedules

9.  Escrow fees or charges

10. Notary fees

11. Commitment fees

12. Trustee fees

13. Loan application or processing fee

14. Fees for preparation of the truth in lending statement

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

16. Tax service fee

17. Assignment fee

18. Any other fees, charges, commission or expenses except those listed
    in Paragraph a above

*Allowable fees and charges are discussed fully in VA Lender's Handbook,
Chapter 8.*

**[Seller Concessions]{.underline}: What Can The Seller Pay?**

The Seller Can Pay For:

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

> This does not include prepaid items ( hazard insurance, escrow
> requirements for real estate
>
> taxes or hazard insurance), and prorations of real estate taxes.

b.  Points as appropriate to the market.

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

The Seller Typically Pays For:

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

Is There Anything Else The Seller Can Pay For?

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

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

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

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

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

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

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

**[OBTAINING GUARANTY]{.underline}**

Loans must be reported (that is, all required documentation submitted)
to VA within 60 days of closing. If a loan is submitted more than 60
days after loan closing, a statement signed by a corporate officer of
the lender which identifies the loan, provides the specific reasons for
late reporting and certifies that the loans is current must be included
in documents submitted for guaranty.

**Modified Guaranty Submission Procedure**

Lenders must submit copies (except for the COE, which must be an
original) of only the items listed below, in the order listed, to VA
when requesting guaranty for all loans except Interest Rate Reduction
Refinancing Loans (IRRRL's). IRRRL packages must contain all original
documents specified in Section 6.01 of VA Lenders Handbook.

1.  VA Form 26-0286, Loan Summary Sheet - A new version of the form was
    published in October 2003 and is now mandatory. The new form may be
    downloaded from the Internet at:
    *http://www.vba.va.gov/pubs/forms/26-0286.pdf*

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

2.  An original Certificate of Eligibility (VA Form 26-8320 or VA For
    26-8320a or ACE COE) with sufficient benefit for the transaction, if
    not previously submitted in connection with a previous approval loan
    application.

3.  Evidence of payment of funding fee **or** evidence borrower is
    exempt

4.  VA's Notice of Value

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

6.  HUD-1 Settlement Statement

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

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

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

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

**[PAPERLESS GUARANTY PROCESSING]{.underline}**

VA is pleased to announce the availability of new paperless guaranty
processing systems to enable participating lenders to electronically
submit a VA loan for guaranty and receive an electronically generated
Loan Guaranty Certificate (LGC), usually within 2 business days. At the
same time, lenders will be notified when a case is selected for review
and a full loan package must be submitted to VA. This new procedure will
have a major impact on the way business is done with VA. We view this as
an opportunity for both lenders and VA to take a significant step on the
road to a paperless environment. VA benefits by the reduction in time
expended in keying data into our systems. Lenders benefit in many ways,
including:

-   Quicker receipt of the LGC (2 days compared to weeks)

-   No need to mail paper package to VA for guaranty (unless selected
    for review)

-   Ability to submit loans for guaranty at most hours of the day

-   No need to complete VA Form 26-0286, Loan Summary Sheet

-   Ability to deliver final documents to investors quicker; this
    enables investors to purchase pool loans faster and thus reduces
    costs of carrying the loan.

VA lenders wishing to take advantage of VA\'s new paperless guaranty
processing now have two ways to participate depending on their current
EDI capability, associated resources and cost considerations. In
general, the recommended option for lenders that are not EDI capable who
would like to participate is Electronic Guaranty via the Internet. EDI
capable lenders may benefit from Electronic Guaranty via the Internet or
EDI Direct. EDI capable means you have the necessary software layers in
place, including application, translation, communications and
bridging/interface software and that your application has the ability to
work with EDI data.

For more information concerning EDI visit VA's website at
www.homeloans.va.gov/link.htm.

**GNMA and Document Custodian Verification**

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

**Frequently Asked Questions - Loan Processing**

*What is VA's internet site address?*

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

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

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

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

\*Purchases or construction refinances-\$240,000 including VA's Funding
Fee

\*Regular or Cash Out refinances-\$144,000 including VA's Funding Fee

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

It is suggested that any deviations on loan amounts for purchases,
construction refinances or regular/cash-out refinances listed above be
discussed with your secondary mortgage market representative prior to
closing to assure you have the proper coverage needed to satisfy your
investors requirements. (See info on GNMA's \$333,700 loan amount in
Chapter 1 of this guide.)

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

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

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

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

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

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

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

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

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

The loan amount cannot exceed 90% of the appraised value plus the VA
funding fee added to that base. For example, if the appraised value of a
home is \$115,000, the base loan amount could be up to \$103,500 (90% of
the appraised value). To the base you could add VA's Funding Fee, (i.e.
2% for first time use veteran \$2,070) for a total loan amount of
\$105,570.00.

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

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

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

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

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

*Does VA require 2.4% funding fee if the borrower is currently in the
reserves or national guard but the veteran has a green certificate?*

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

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

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

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

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

\*A current award letter dated within the past 12 months

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

**Assets**

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

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

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

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

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

**Income**

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

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

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

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

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

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

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

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

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

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

*Can we use income of a trailing spouse?*

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

**Debts**

*Does VA consider child-care cost a debt? If so what is required?*

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

**Credit**

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

*How do you treat CCCS?*

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

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

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

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

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

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

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

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

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

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

Generally VA requires a 12-month satisfactory payment history.

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

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

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

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

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

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

No VA does not use credit scoring at this time. The underwriter should
review the credit of applicant individually. However, VA does recognize
that credit scoring is a part of the standard mortgage industry. If the
underwriter is using an automated underwriting system such as Loan
Prospector, they follow specific guidelines in accordance with the
automated underwriting system.

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

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

**Final Analysis**

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

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

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

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

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

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

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

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

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

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

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

> The ranking from AUS is only as good as the data entered into the
> system. It is the lender's responsibility to determine and document
> income amount and stability, assure all potential debts (i.e.
> child-care expense and pay allotments) are considered, and all assets
> (included for analysis) verified. ***Remember: Inaccurate or
> unverified data could affect the validity of loan guaranty from VA.***