VA Home Loan Underwriting Guidelines and Process

VA Home Loan Underwriting Process

So what is the VA home loan underwriting process and guidelines? If you’ve ever looked into taking out a home loan, you’ve probably heard the term “underwriting.” What does underwriting mean for you and for your home? And how can you as the borrower affect its outcome? These are the questions we’ll tackle today in this article.

VA Underwriting Guidelines?

The VA home loan underwriting process is the longest and most intensive stage when it comes to mortgage lending. It’s the stage in which the real decisions are made: underwriters ultimately determine if you’re going to be approved for a loan or rejected. They look closely at your credit and assets to determine whether you are likely to pay back the loan; they make sure the originating loan officer packaged the file properly and that nothing is missing; and they’re also in charge of ensuring the property title is clean and that the loan meets all VA guidelines regarding income, VA loan credit requirements, debt, down payments, equity, and compensating factors. Essentially, underwriters are there to make sure you are a good investment for the lender to make and that all the rules are being followed. It’s especially important for VA lenders to follow the rules because the government guarantees a portion of all their loans. If you can make it past the underwriter, you’re pretty much home free.


The Three Typical Underwriting Outcomes

In general, there are three ways the underwriting process can go. First, your loan could be approved, but in need of tweaking. At this point, the lender will ask you for some more documents and see to smaller errors or clarifications on the file. Second, underwriters could clear your loan to close (CTC) immediately. This is rare, but it does happen. The third outcome, then, is rejection.

However, it’s more common for underwriters to offer a conditional approval instead of outright denying you the loan. We’ll explain what conditional approvals are a little later.


General Underwriting Requirements

Here’s a bare-bones list of what underwriters are looking for when they evaluate your loan file:

  • Sufficient VA entitlement
  • Eligible purpose behind the loan
  • Occupancy requirements are met
  • Low credit risk
  • Steady income, able to repay the mortgage
  • A residual income (the income left over after your debt payments are made) of 41 percent or higher
  • A suitable debt-to-income ratio
  • No judgment liens
  • Verification of employment (VOE)
  • No large or otherwise unusual bank deposits
  • Clear CAIVRS numbers, meaning you have no outstanding government debt
  • 12 months of punctual and complete payments (some lenders will allow 30 days delinquency)


Underwriting Process

The workflow of a VA loan looks like this:

First, your loan is originated by a loan officer. Loan officers establish the value of the home, order a home appraisal, obtain the needed title work, document your income, and acquire the proper disclosures from the VA, among other necessary items.

After this, your information is sent to a processor, who verifies it all and compiles it into your loan file. Your loan file contains nitty-gritty information, such as property details, the loan request, and your financial profile. Once the processor is done, the file then goes to the underwriter.

Underwriters must analyze your loan file based on the three C’s: Credit, Capacity, and Collateral. You must be a reasonably low credit risk, with a payment history that proves you can make payments on time and in full. You must have the capacity—such as the income, debt, reserves, and employment—to pay back the loan. And the third C, collateral, refers to the value of the home. If the underwriter is satisfied with your loan file in relation to the three C’s, you’ll likely be approved.

All in all, this process can take up to 60 days, given the number of underwriters available and how big or complex your file is. As cold and calculating as underwriters can seem, they really are on your side: they want to save everyone the pain of unwisely lending/buying a home. Their job is incredibly important to the success of both borrower and lender.


Manual vs. Automated Underwriting

Up until now, we’ve described the underwriting process as it is performed by human beings, but in our increasingly digital world, lots of underwriting duties have gone to computers. The Automated Underwriting System (AUS) is used by some lenders to approve or deny loan applications. AUS’s are usually flexible when evaluating your file. For instance, an AUS will be more forgiving when it comes to the age of your credit lines or your debt-to-income ratio (DTI). Manual underwriters will consider credit lines younger than 2 or 3 years to be a higher risk than those older than 2 or 3 years, while this wouldn’t phase an AUS. And while an AUS might approve a borrower with a DTI as high as 55 percent, underwriters themselves may stick to the conventional 41-45 percent maximum.

But sometimes the approval of a loan is more complicated than the numbers suggest. Sometimes an AUS will turn away a borrower who a manual underwriter would approve. In this case, lenders may order a manual underwrite of your file as a second opinion. Specific issues on your application, such as foreclosure or bankruptcy, benefit from human reasoning. And today, many lenders use a combination of manual and automatic underwriting to make sure borrowers are getting the fairest treatment.

If you’re ever denied a loan after only being evaluated by an AUS, request a manual underwrite from your lender. It may change things for you!


Conditional Approval

Earlier, we mentioned conditional approvals as one of the three outcomes of underwriting. Here’s what a conditional approval entails:

It’s often the case that before a final approval can be made on your loan, certain conditions will need to be met. All this means is that, for the most part, your loan is good to go, but there are a few little things that need to be addressed before you can close. So don’t panic if you get this response from an underwriter. Lots of borrowers get it; in fact, it’s very rare to just sail through the underwriting process with no hiccups at all.

Most of the time, conditional approvals have to do with documentation: either a certain document is missing, or the underwriter needs more proof of something mentioned in the file. Maybe the underwriter wants to see additional pay stubs or tax returns, or maybe they’ve already been ordered and you’re just waiting for them to arrive. If there are certain anomalies on your file, such as periods of extreme debt or extreme wealth, you’ll need to explain those thoroughly and assure the underwriter that you can be as predictable and consistent in your finances as possible. Borrowers usually make these sorts of explanations in the form of letters.


Underwriting and the Interest Rate Reduction Refinance Loan (IRRRL)

The Interest Rate Reduction Refinance Loan (IRRRL) or VA Streamline refinance loan is one of our favorite refinance options here at Low VA Rates. Why? Because it’s effective, fast, and easy. There’s little to no underwriting required when you take out an IRRRL, meaning no second home appraisal, no new Certificate of Eligibility, and no new credit underwriting package. Loan officers can just recycle the underwriting that was done on your file when you took out your original loan.


What Can You Do as the Borrower?

Even though it’s the underwriter who decides whether or not to approve your loan, you can still have a positive impact on the process by doing your very best as a borrower. Here are some tips for working with your loan officer and underwriter:


  • Make sure all your forms are complete and valid! Turning in half-completed or ineligible documents will only delay the underwriting process and create headaches for everyone involved.
  • Be honest! Don’t try to trick the underwriter. Remember, their job is to make sure you don’t take on a loan you won’t be able to handle.
  • Submit documents in a timely manner. The sooner the underwriter can get to work on your file, the sooner you could be approved and potentially close on your home. Additionally, and perhaps more importantly, the sooner you turn in your documents, the sooner any errors can be found and dealt with. Some mistakes can push the process back weeks, so you want to get them addressed as early on as you can.


Preparing Veterans for Success

At Low VA Rates, we strongly believe in educating our borrowers instead of keeping them in the dark about things that are going to massively affect their financial futures. That’s why we write articles like this one: we want to bring you into the loop and make sure you have all the information necessary to make informed intelligent decisions. The VA loan process can be complex and overwhelming to the first or even second-time borrower, but our well-trained loan officers are ready and able to help you every step of the way. To learn more about the many processes and requirements that make up a VA loan, visit the rest of our website or give us a call at 866-569-8272.  We thank you for your service!

Top 5 Jobs After the Military

jobs after the military

Military personnel put a lot of effort into being the BEST OF THE BEST. They go through a lot of training to gain the skills they need to accomplish their missions, and many of these skills translate to civilian occupations. The trick is knowing which jobs are best suited for veterans and also knowing how to market yourself. So what’s out there in the job market and what does it pay? Here are the top five jobs after the military according to salary and stability.


1.  Operations or Intelligence Analyst – Median Pay is $65,332 and the top earners are making $100,071.  Your security clearance is the golden ticket to a job with a defense contractor. Having skills in geospatial intelligence or knowing Russian can also help you earn a higher pay when you enter this profession. Intelligence and operations offer a diverse set of opportunities – you could even score an international job if you prefer to travel abroad. The 10-year job growth percent is at 30 percent.

2.  Network Manager – Median pay is $85,492 and the top earners are making $123,766.  You might manage network security systems or work on development, installation, and modification of computer operating systems. Or you might deal with security and telecommunications issues. Almost every industry has jobs to fill. Storage area networking and project management are great skills to have entering this profession. The 10-year job growth is at 8 percent.

3.  Field Service Engineer – Median pay is $64,410 and the top earners are making $87,157. You’ll install, fix, and maintain equipment at sites around the country as well as repair and replace parts. You might also train others. You can work on just about anything that goes into a building or factory. Some skills that can bump up your salary include project management and systems troubleshooting. The 10-year job growth is at 8 percent.

4.  Operations Manager – Median pay is $60,904 and the top earners are making $97,901.  Logistics is a natural for vets, who have a good understanding of supply-chain procedures. There’s a broad range of work choices from warehouses to ports to shipping company hubs. You’ll monitor quality, cost, and efficiency of moving goods from place to place and negotiate with customers and suppliers. Budget management and project management are great skills to have in order to bump up your salary.  The 10-year job growth is at 36 percent.

5.  Training Manager – Median pay is $66,897 and the top earners are making $100,877.  You’ve done this before, leading enlisted personnel through training and team building exercises. Technical trainers focus on equipment and computers. Business trainers touch on everything from procedures to branding. In addition to classroom work, you’ll design and implement programs, as well as research new training techniques. Good skills to have include articulate e-learning software and training program development. The 10-year job growth is at 26 percent.

Every one of these jobs pays above the national average for household income and gets a B+ rating for stability. Every veteran should love what they do and enjoy coming to work every day. The jobs listed above are the perfect fit for many veterans, and one of them could be perfect for you. Hard work and being personable go a long way in job interviews, and remember that since employers select the best candidate for the job, you should work hard to be that person. The best of the best!

To read more about civilian and military jobs, check out other articles on our blog. You can also view our job opening by clicking here.

Why Doesn’t Everyone with a VA Streamline Do a VA Hybrid?

If you would have asked me just a few years ago, if I would ever put my own property or mortgage on an adjustable rate loan, I would have said NO WAY!  Fast forward to today and I only wish I could do what so many men and women Veterans or VA loan holders can do with their loans.  I only wish the VA streamline loan into a VA hybrid loan was something that I could do and take advantage of.  I have not served and thus do not have the right or privilege to get this loan.

In order to take advantage of the VA streamline refinance or VA IRRRL (Interest Rate Reduction Refinance Loan), you must have a VA loan now and must have honorably served in the Armed Forces.  If you do have a VA loan and are eligible and do not take advantage, you are making people like me, who wish we could, very frustrated!  Ok well in all honesty, not everyone benefits from the streamline, but the cases are very few and far between.

Who can benefit from the VA streamline refinance?

  • Anyone with an ARM or adjustable rate loan now
  • Anyone with a fixed rate now that is at 4.25% or higher
  • Anyone that is on a 30 yr loan but wants to pay their home off much faster
  • Anyone that does not plan on being in the home for more than 3-5 yrs.
  • Anyone in a short pinch for cash that could benefit from an instant amount of money in their pocket

So who will NOT BENEFIT from a VA streamline or VA IRRRL?

  • Someone who does not like saving money
  • Someone who won’t take time to educate themselves
  • Someone who has been fed false info for too long

Ok, those were joking, kind of.  The fact is very few people will not benefit from the VA streamline.  Those that will not benefit normally have been in their loans for 10 plus years without refinancing and are close to paying the balance off.  Someone who has a fixed rate in the low 4 to high 3 range or someone on a 15-year loan that does NOT need to lower a payment by going to a longer term.  Other than those examples, you will benefit normally by doing the VA streamline.

So please, spend some time on this blog and research all the reasons to streamline your VA loan, or send us a question or call us up.  There has never been a better time to get locked in at such low VA interest rates like there is now.

VA Home Loan Benefits

If you need a home loan, you might consider a VA Loan.

Department of Veterans Affairs home loans — VA loans for short — are a popular option with home buyers.  The loans require no down payment and are available from most lenders. In addition, the government limits the amount of closing costs and origination fees lenders can charge, as well as the appraisal fees. In general, the loans are available to some veterans, active service members, reservists and members of the Public Health Service.

Another important fact to know is that a VA loan is not a loan through the Veterans Administration, but a loan through a traditional lender that is backed by the VA. Having the backing of the government, veterans do not have to jump through as many hoops to get a mortgage.

Rates generally follow the market, just like any other home loan. Rates are generally in line with conventional rates. The advantage of going VA is that you do not have to make a down payment. According to VA statistics, 91 percent of VA buyers skip the down payment. While buying would not make sense in most scenarios when no down payment is available, veterans can forgo years of renting for years of equity.

Unlike conventional loans that permit this practice of putting no money down, the VA forbids lenders to bother their clients with any PMI payments, which is a form of insurance for owners who do not hold 20% equity in their home.

On a $126,000 mortgage will have a PMI range of up to $64 a month that may require five years to pay off. The result is almost $4,000 spent that did not go into the equity of the home, or for anything else that is to the benefit of the owners.

Most home buyers can think of many ways to utilize $4,000 to their advantage. The VA home loan keeps that money in your pockets.

I hope that this has helped you identify all of the advantages that a VA Loan offers you. Please be sure that you take advantage of the great rates that are available to you right now.

VA Streamlines and Bankruptcies

Does a BK have any effect on a VA streamline refinance? This is a question that gets asked by Veterans almost every day and from all walks of life. The simple answer is Yes, Yes it does! The requirements or guidelines are much different than if you were trying to purchase a home. I might add that everyone’s situation is different and really it also depends on if the Bankruptcy was a chapter 7 or  chapter 13.

The difference between a BK 7 and a BK 13 is this – A Chapter 7 will involve a complete liquidation of debts listed in the bankruptcy whereas a Chapter 13 will  involve debt restructuring by paying a trustee every month who in turns pays the debts listed on the bankruptcy.

Here is what the VA says on a streamline refinance bankruptcy – “Although no underwriting is required, approval of new credit may be required by the trustee in a chapter 13 BK” This is always the case. If a Veteran is paying on a chapter 13 BK they must get special permission from the courts and trustee to refinance their VA loan. Things are different for a Chapter 7. Most lenders will do a streamline refinance just as long as the Chapter 7 bankruptcy is discharged.

Remember though that the rules of late payments and minimum credit scores are still applicable. A Veteran cannot have any 30-day late payments on the mortgage within the last 12 months and must have a credit score of at least 620. If a Chapter 7 has just been discharged chances are the credit score is not going to be 620 and thus making them ineligible for the streamline refinance. Please understand that the credit score requirement IS NOT VA! This is an overlay for both credit bureaus and the VA itself.

If this information has been helpful or you have any additional questions please contact us at LowVARates at 866-569-8272, We’d be more than happy to answer your other questions and help you into the Refinance that will be easiest for you and best for your situation. Refinancing can be overwhelming especially when you have to deal with a BK 7 or a BK 13, but we will talk with you personally and help you find what’s best for you!

VA Loan Officers Give Thanks to Veterans

Being in the mortgage industry for the past 8 years I have come to realize that showing appreciation to your clients is a must. If I were running my own company I would even make it mandatory for VA loan officers. If you think about the process of buying a home it would seem like the Broker holds all the cards, but in reality it’s the Solider or Veteran.

The Loan Officer works for them, not the other way around. At any time during the process of completing the application and closing of escrow, the client – if they want – can find someone else to work with. I don’t want to sound like VA loan officers have no value or bring nothing to the table, its just good to understand what my responsibility is – WHICH IS HELPING THE SOLDIER/VETERAN! Without them I cannot put food on the table, but they can still get a VA loan without me.

I hope that did not sound like a rant, I just want to get the point across of how important the Veteran is.

There are many ways that I can show appreciation for Veterans and Soldiers buying homes. Let me list some of what I have done:

1. Give them the service they deserve. When talking with them on the phone or in person be sure to thank them for their military service. Sometimes address them using their Rank – this shows respect. Be prompt in your timelines and expectations.

2. Offer competitive rates. Be competitive in the marketplace. Veterans and Soldiers will know if you are giving them higher VA interest rates and higher fees. I’m not suggesting doing the loan for free, but don’t “stick it” to them either. Trying to back pedal after you’ve been “caught” offering a bad deal is not a fun situation to be in.

3. Communicate. This is key. The best clients I have are the ones where I talk with them about the process of buying a home. I always try to educate Veterans or Active Military. Before closing explain to them how the final settlement statement looks and if there are any changes regarding rates, fees etc. NEVER DO A BAIT AND SWITCH!

4. Give them something of value. This is not too much to ask. Something simple like a Home Depot gift card or a house warming gift. The most recent purchase I did was here locally in UT. There were some speed bumps along the way to say the least. At the closing table I brought in a gift basket full of over the counter medicine as a joke. I also had some dish towels for the wife. They did not expect this, but they were very grateful because it was going above and beyond the call of duty.

5. Follow up. After the dust settles and your clients have moved in or completed their refinance, call them and ask how they like their new home or lower monthly payments. Send them birthday cards or Holiday cards.

In order to be successful in this business, you must always show your Veteran/ Active military clients that you care and appreciate them. Before you know it they will be sending referrals to you and that’s when you know you have created a business partner for life.

FAQ; VA Loan with Poor Credit

Working in the VA mortgage industry for 8 years I get a lot of questions asked regarding everything from credit to inspections.  Needless to say, I have been around the block a few times.  Today I thought I would post a topic because I have recently started focusing on VA purchases instead of the VA IRRRL program.  Now credit becomes a factor of approval whereas the IRRRL does not.


Back when the subprime market was such a big thing is seemed like anyone could buy a home.  The only thing that was affected by bad credit was the interest rate.  If someone with bad credit got a loan their interest rate would be anywhere from 7.5% to 10%.  The idea was let’s get a home and then when our credit improved the home was just refinanced to a lower rate.  Obviously that wasn’t the case because property values dropped and no one could qualify – thus the housing crisis.  Now that the mortgage industry is “back to basics” there are fewer home buyers and an ever increasing need to make sure your credit is in good standing.  Because of the housing crisis the VA loan has been effected although the program hasn’t changed.  What changed was the lenders and their requirements to lend money to Veterans.  Here is how the VA analyzes credit – Its the Veterans past repayment practices on obligations.  This is the best indicator of his/her willingness to repay future obligations.  The Emphasis should be on the Veterans overall payment patterns rather than the credit score and isolated occurrences of unsatisfactory repayment.  In the case of adverse data (late payments), satisfactory credit is considered to be reestablished after the Veteran has made satisfactory payments for 12 months after the date of the last late payment.  Here is where the lenders have decided that does not work.  They have put minimum credit score requirements on VA loans.  Usually if the score is not 640 plus there will be no loan regardless of the payment history.


Not all is lost.  In fact, I have helped many Veterans when they don’t meet the credit guidelines.  Over the years, we have gotten much smarter to our approach to getting a Veteran approved.  LowVARates has created an in-house credit repair department.  Just because you may think you have bad credit doesn’t mean you should not try to own a home.  Giving up would be fruitless and a poor decision.  Through credit repair, we can increase scores and remove late payments creating a valuable opportunity for a Veteran to own a home.


Having no credit does not automatically disqualify you either.  There are several circumstances where a Veteran might be in this situation.  Maybe a recently discharged Veteran has not had the opportunity to develop a credit history.  Maybe they use cash rather than credit.  Some will not use the credit after a BK or credit counseling and enough time has passed that there is no credit.  If this is the case then here is what can be considered as credit history:  Payment record of rent, utilities, car insurance, health insurance, cell phone bill, etc.  If there are in good standing then credit can be issued for buying a home.  Keep in mind that this is for Veterans having no credit.  These additional payment records will not be used to offset bad credit.

The bottom line is if you (Veteran) are looking at owning a home and you think you have bad credit you still should apply.  There are ways to help you and in some cases it might not be right away but through persistence and dedication on both the Banker and Veteran’s part YOU WILL BE ABLE TO OWN A HOME.

If this information has been useful or you have questions about this please feel free to contact me at 1-866-260-1379 ext 222 or email me at  Have a great day and as always happy house hunting!

Top 5 Reasons to Choose Mortgage Broker as a Career

Why on earth would anyone choose to be a mortgage broker in these hard economic times? If given the choice with all the issues in the housing market, you might think me or anyone else a fool to get started in this industry.

But I am here to dispel this myth and shed some light on why mortgage brokering can be a great employment choice.

My Path to a Secure Job in the Mortgage Industry

I have been doing loans since 2001. In fact, it was right after the 9/11 tragedy that I started. Before becoming a mortgage broker, I managed financial accounts with companies like Sprint, American Express, and Fleet credit cards. I worked for a company that handled these accounts, which seemed to be good for me at the time.

I thought that I must work for the “MAN” to be successful and earn a decent wage, but I was wrong. The company started downsizing, and I took a 50% pay cut on my salary. This was extremely bad for me financially because my wife stopped working and we had just had our first child. Because job security working for corporate America was not secure anymore, I figured I must make a change.

Through a family member, I started working as a loan officer for a company that specialized in nothing but government loans (FHA, VA).

I have since stayed on that career path, and it’s proven to be more stable than any other job. I have found out that if you have a niche market and a good business model, you can be successful in the industry.

Being a mortgage broker has its benefits over working for a lender. Look at Countrywide, Taylor Bean & Whitaker, etc. They serviced mortgage loans and they are out of business. Being a mortgage broker, you don’t service your own loans and you are set up with multiple lenders, which makes brokering loans more flexible and adaptable to an ever-changing market.

Top 5 Best Things about a Career as a Mortgage Broker:

The following are some of the top reasons to choose mortgage brokering as a career:

1.  Job Security – You are not a liability to the company (salaried employee). If you don’t close loans, then you don’t make money (and you end up by costing the company nothing). No one goes to work and says, “I’m not going to make any money today.” Work hard and you’ll likely find success.

2.  Schedule – You can make your own schedule. It’s up to you. If you take more time off you make less money due to a lack of prospects. The difference is you are in control, not your boss.

3.  Satisfaction of doing good – Seriously, it’s been great, in my situation, to get to help Veterans and other families obtain homes. Homeownership is much better than paying rent, and it’s something people can call their own. Whether or not you get to help veterans, knowing you played an important part of helping someone get a home gives a certain sense of purpose and satisfaction.

4.  Money opportunity – Once again this is not like a salaried job where no matter how many hours you put in and how hard you work you end up by making the same. Actually in a salaried position the longer hours you work the less you are actually making per hour. Being a Loan Officer the harder I work the more opportunity there is to make money. There is no ceiling, no cap on how much you can make.

5.  Industry Knowledge – Having a full understanding of how mortgages work can actually save you a lot of mortgage interest money. If you understand how interest works, escrow and your loan program on your own home loan then you can apply the principles you learn and probably tell others to your own loan.

But aren’t Mortgage Brokers the Bad Guys?

I have recently read on other blogs that mortgage brokers contributed to this housing mess and that we have no place in the industry.

I will admit that there were probably many brokers who engaged in predatory lending, but to say that all mortgage brokers caused this would be ignorant. There are many actions, people, and systems to blame, and mortgage brokering as a whole can’t be blamed.

After this mess, I hope that all homebuyers, especially Veterans, do their due diligence to avoid brokers who are less than reputable. I sincerely hope for the best for homebuyers and owe a lot to this industry and Veterans. My company specializes in VA home loans, and this has been able to keep us busy and in business through all the difficult and uncertain times.

In summary, I would not have changed my career path whatsoever. The last 7 years have been very rewarding.

Follow up to VA Residual Income

Last week I posted some information regarding VA residual income, but I didn’t really go into a lot of details as to how it’s calculated and the factors that affect it.  Here is a link to that last post – VA residual income. Residual income is basically the income left after all the expense of the house, daycare (if applicable), and state and federal taxes.  The VA has this requirement because they want to make sure the Veteran can afford the home and not get into any financial hardship.  Remember too, that the VA will guarantee a portion of the loan to the lender so there is some level of risk for the Dept of Veteran Affairs.

Factors in VA’s Calculation for Residual Income

As I briefly mentioned above there are some specific calculations when determining a Veterans residual income.  The way it’s calculated is all the same, but the outcomes can be very different.  Another term for residual income is balance available for family support.  Here is a list of deductions from a Veterans pay that will be used to calculate the leftover balance:  Federal taxes, State taxes, Social Security, Medicare, Debts and Obligations and Monthly Shelter Expenses.

Federal Taxes – We can all count on 2 constants in life, death and taxes.  Anyone who makes money understands taxes so I wont go into detail about it.

State Taxes – See comment above.

Social Security – This is a depleting fund the government has set up to pay for others retirement and maybe your own.  I doubt in my life time I will never see any money from SS when I retire.

Medicare – Another Government health insurance plan.

Debts and Obligations – This is all the debt – example – car payments, credit cards, installment loans, etc.  This also includes child support and alimony.

Monthly Shelter Expenses – VA uses this to determine the amount of monthly expenses for the utilities like gas, electric, water/sewer and garbage.  How much a Veteran actually spends each month for these housing expenses can and are obviously different from one Veteran to another, so the VA set the standard by multiplying the square footage of the home by .14 cents.  For example if the SQ footage of a home is 2500 X .14 the monthly housing expense would be $350 per month.

Now that we know what to deduct from a Veterans pay, let’s actually calculate the residual income.

Veteran (Mike) makes $4875.25 GROSS every month and has a wife who doesn’t work and 1 child and lives in the state of Utah and wants to buy a home for $150,000 that has 1850 SQ feet.

Federal Taxes Deducted $361.29
State Taxes Deducted $225.14
Social Security $301.27
Medicare $70.69
Debts and Obligations (including new mortgage payment PITI) $850 for debt
$1072.23 for mortgage
Total debt $1922.23
Monthly Shelter Expense $259
Total Deductions $3139.62

So the gross is $4875.25 and the total deductions are $3139.62 which leaves Mike with a total amount balance of $1735.63 available for family support.  In the last post I gave a table for residual incomes required by region and loan amount.  The amount required for Mike is $990 (West, loan amount over $80,000 and family of 3).  Based on this scenario Mike would be able to qualify for his home.

With this post and my last post, I would think I have hit on all points of VA Residual income and can be used as a reference.

VA Residual Income Requirements for Veterans

Anytime someone wants to partake of the American Dream and own a home, they must go through a series of  checks and balances.  One of them is the capacity to make the payments every month.  This is calculated by determining the total debt ratio which is the gross monthly income divided by the total monthly debts; including the new mortgage payment.  Usually, this is it when doing FHA or conventional loans. The VA, however,  has a step that trumps the debt-to-income ratio, called residual income, which has minimum standards depending on loan size, family size and geographical location.  The VA’s minimum residual income, which is also considered the balance available for family support, is a guide  and should not automatically trigger an approval or rejection of a VA loan.  Instead, it is considered in conjunction with all other credit factors.  An obviously inadequate residual income alone can be a basis for denying a VA loan. Sometimes the residual income can be marginal, but the VA can also look at other compensating factors such as good credit, monthly reserves and how the Veteran applying has handled their past housing expense.

The VA’s debt-to-income ratio is a guide and is an underwriting factor, however, it IS secondary to the residual income calculation.  Over the years, I have done many VA purchases and I have seen Veterans get approved and buy a home with over 55% DTI as long as they met the minimum residual income requirement.  I will now list what the requirements are in a table format:

Table of Residual Incomes for loan amounts of $79,999 and below

Family Size Northeast Midwest South West
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 family member up to 7

Table of Residual Incomes for loan amounts of $80,000 and above

Family Size Northeast Midwest South West
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 family member up to 7

Here are the states that fall into the regional locations determined by VA


Connecticut, New Hampshire, Pennsylvania, Maine, New Jersey, Rhode Island, Massachusetts, New York, Vermont


Illinois, Michigan, North Dakota, Indiana, Minnesota, Ohio, Iowa, Missouri, South Dakota, Kansas, Nebraska, Wisconsin


Alabama, Kentucky, Puerto Rico, Arkansas, Louisiana, South Carolina, District or Columbia, Mississippi, Texas VA loan, Florida VA loan, North Carolina VA loan, Virginia, Georgia, Oklahoma, West Virginia


Alaska, Hawaii, New Mexico, Arizona, Idaho, Oregon, California, Montana, Utah, Colorado, Nevada, Washington

Some might consider the residual income to be a deterrent, but I feel just the opposite.  With other loans as soon as you go over a certain DTI then the loan can be denied on the spot, but with VA that sometimes is not the case.  It gives the Veteran an additional outlet for approval which is especially nice during these hard economic times.

VA Streamlines with Second Mortgages

Is it even possible to refinance a VA loan with a second mortgage attached to the property?  Well, to understand if this is possible I need to discuss what is involved when there are multiple mortgages on one property.  A second mortgage is given to a Veteran homeowner when they have equity in their home and they want to borrow against it; so they go to a lending institution and take out another loan against the home.  Now there are 2 mortgages listed on the title.  This can be problematic when trying to do a streamline refinance.  Mortgages are recorded on a title based on dates.  When a Veteran uses his/her VA loan to buy a home, then there is a Mortgage recorded on the title as a first mortgage (recorded first).  Then they take out another mortgage on the same home (recorded second).  This is pretty simple to understand.

When VA mortgage rates drop and a Veteran wants to do a streamline (non-credit qualifying loan) refinance and they have a second the mortgage company must now complete a subordination request.  This is simply preparing documents or a loan package for the second mortgage company outlining the details of the streamline refinance transaction.  You see since the second mortgage company has an interest in the property (they loaned money on it) they must agree to stay in second lien position, or subordinate to the new first mortgage.  Most of the time a second mortgage company will agree to do this, but there are instances when they will not.  There are 2 main reasons for this – 1.  The borrower is late on the payments with the second mortgage company. 2.  The cost or investment to refinance the first is too high and might affect the loan to value based on the original appraisal.  If the second mortgage company refuses to subordinate then the refinance of the first will not take place.

As a Loan Officer, this can be very frustrating at times because I can see much value when doing these streamline loans for Veterans.  There isn’t much recourse we can take when a second mortgage company denies a subordination.  I would say about 75% of the time we can obtain an agreement from the second mortgage company.  My suggestion to all Veterans who have second mortgages is to attempt to refinance because the odds are in your favor that your second mortgage company will agree to remain in their current lien position and this works for California VA Loan, Florida VA Loan, and really all VA Loan types.

Are We Ready for Another Military Draft?

What it would take for the US Military to activate the Draft again.

When I was a kid this was talked about quite often and it always made me wonder what paths I would have take had I been drafted.  The last time the Draft was instituted was from 1948 to 1973.  For more than 50 years, Selective Service and the registration requirement for America’s youth have served as a backup system to provide manpower to the US Armed Forces.  President Franklin Roosevelt signed the Selective Training and Service Act of 1940 which created the country’s  first peacetime draft and formally established the Selective Service Service System as an independent Federal Agency.  From 1948 until 1973, during both peacetime and periods of conflict, men were drafted to fill vacancies in the armed forces which could not be filled through voluntary means.  In 1973, the draft ended and the US converted to an All-Volunteer military.

So what would it take for the Draft to be re-instituted?

I can think of only 2 reasons.

1.  A conflict that becomes so severe that it requires more military than what’s enlisted.

2.  Regardless of conflict – less and less people are volunteering for the military.

Its basically a simple calculation of supply and demand.  Could we ever get to that point like we did back in 1948?  I believe we can.  For example:  The Selective Service System (SSS) and the U.S. Department of Education now are gearing up to compare their computer records, to make sure all men between the ages of 18 and 25 who are required to register for a military draft have done so.  The SSS and the education department will begin comparing their lists on Jan. 1, 2005, according to a memo authored by Jack Martin, acting Selective Service director.  While similar record checks have been done periodically for the past 10 years, Martin’s memo is dated Oct. 28, just a few days before the Nov. 2 presidential election, a hard-fought campaign in which the question of whether the nation might need to reinstate a military draft was raised in debates and on the stump. It took several more days, until Nov. 4, for the document to reach the Federal Register, the official daily publication for rules and notices of federal agencies and organizations. The memo was also produced after the U.S. House voted 402-2 on Oct. 5, against House Resolution 163, a bill that would have required all young people, including women, to serve two years of military service.  Under federal law, a military draft cannot be started without congressional support.  About 94 percent of all men are properly registered for a draft, according to Richard Flahavan, associate director of the office of public and intergovernmental affairs for SSS.

Here are some requirements for registration:

All male US citizens and male aliens living in the US between the ages of 18 and 25
Dual nationals of the US and another country, regardless of where they live
Young men who are in prison or mental institutions do not have to register while they are committed, but must do so if they are released and not reached age 26
Disabled men who live at home and can move about independently.

What happens in a Draft?:

Congress would likely approve a military draft in a time of crisis, in which the mission requires more troops than are in the volunteer military.
Selective Service procedures would treat married men or those with children the same as single men.
The first men to be called up will be those whose 20th birthday falls during that year, followed by those age 21, 22, 23,24 and 25.
The last men to be called are 18 and 19 years of age.

Here are some historical facts from the last Draft:

The last man to be drafted was in June 1973.
Number of Drafted for WWI : 2.8 million
Number of Drafted for WWII: 10 million
Number of Drafted for the Korean War: 1.5 million
Number of Drafted for the Vietnam War: 1.8 million
Source: Selective Service System

So could the state of things in our country cause another Draft?  I stand by my resolve and answer – YES.  GET READY.

Veterans Dealing with Post Traumatic Stress Disorder

Working Together for Treatment

I have often wondered why this is an issue for both men and women in the military.  I have never served in the military so I don’t know what it would be like to always be on my guard and paranoid of attack and learning to suppress my feelings and taking orders all the time.  I can imaging for Veterans that it must be difficult to adapt to civilian life after years of service.  In my line of work I get the privilege of working with Veterans everyday and sometimes it comes up in conversation.  So what is going on to help deal with this situation?

Let me refer to an article that was published in Utah to help Veterans specifically to help deal with PTSD.

Dozens of Veterans are up in Park City for a week-long retreat, and they all have a few things in common.  They all suffer from post-traumatic stress disorder.  Veterans back from war are invited to an outdoor retreat to meet others who are also dealing with the memories of war and dealing with PTSD.  It can be intense for the Veterans, but its also a lot of fun!  They are learning how to breath again and relax.  Veteran Erika Vandenberg said, “In Iraq and Afghanistan you were on alert all the time.  You didn’t know who was your friend or enemy, so you were always on alert”.  These Veterans can’t sleep and they’ve shut people out.  “Anxiety around people, being in a crowd, I still have issues with that” Vandenberg said.

The Veterans participate in team-building exercises, learning how to trust and cope with civilian life again, now that they are out of the military.  “Being in the Marine Corp. for six years does a lot to you,” said Veteran Rodriquez.  “You have to hide a lot of emotions and feelings”.

This retreat is a big step for those Veterans who attended and I can imagine that they all want the lives they had before they left for war.

There are things like this going on all over the country and there are support groups that are here to help those who continue to defend our freedoms.


  • You have reoccurring flashbacks and/or nightmaresPost Traumatic Stress Disorder
  • You avoid anything that reminds you of the trauma you experienced
  • You have a heightened state of arousal or anxiety that makes it hard to fall asleep or stay asleep
  • You have trouble controlling your anger–this may or may not include aggression or violence, you just feel a lot of anger
  • You are hyper vigilant–meaning, you are almost always on the alert, looking around, watching other people, etc. as if you were expecting some kind of attack or crisis

This does not only affect the Veteran but it also affects their families too.  I know that there is help for this and I also recognize that some Veterans would not take advantage of that help because they might feel inadequate in admitting they suffer from the symptoms mentioned above, especially if they have learned to reject or “hide” their feelings due to the nature of how they have been trained.  The bottom line is this – you cannot let this go and it must be dealt with when its recognized.  A Vietnam Veteran named Randy Vest said it took him 30 years to finally get life back to normal.  This is probably an extreme case because of how the Veterans were treated after the Vietnam War.  The point is, the sooner a Veteran gets help the sooner life gets back to normal.  Look at it like this – Its just like combat, you don’t quit in the middle of it.  You just keep going until the mission is accomplished.

I didn’t want this to be taken as a charity plead for Veterans, I am simply point out that there are things being done to help our countries Veterans who suffer from PTSD.  Many Veterans don’t have PTSD and as far as I know there is no clues as to determine why some do and some don’t.  For those Veterans that don’t then please offer your friendship and advice to those that do.  If you are a Veteran that does then please contact your local Dept of Veteran Affairs and they can help.  Norman Schwarzkopf said “The truth of the matter is that you always know the right thing to do.  The hard part is doing it”

Good luck – we are with you all the way.

Veterans are Being Robbed of their Hard Earned Loan Benefits

I might get fired for posting this, but its worth it to me to explain to Veterans what is happening in the mortgage industry and specifically what so called new requirements many of the Nation’s Top Lenders are requiring to approve VA streamline refinances.  One of the main benefits of getting a VA loan is the option or ability to do a streamline refinance.  Basically a streamline refinance is where a Veteran gets a new mortgage at a lower rate without going through the hassle of credit check, appraisal and income verification.


“A Veteran who obtained a VA loan may refinance it with a VA guaranteed loan at a lesser interest rate without using additional entitlement.”  They go on the list restrictions and instructions with this refinance.  Here they are:

1. The new loan must be at a lesser interest rate than the old VA loan EXCEPT when refinancing an existing ARM with a new fixed rate mortgage.

2. The dollar amount of guaranty applicable to the prior VA loan is transferred to the new loan.

3. Although no underwriting IS REQUIRED, approval of new credit may be required by the trustee in a Chapter 13 BK


5. The Veteran may not obtain cash proceeds.

6. The new loan is limited to the balance of the old loan, the funding fee, up to $6000 of energy efficient improvements, and allowable closing costs including not more than 2 discount points.

7. The term of an IRRRL any not exceed the original term of the loan being refinanced by more than 10 years.

The one that I want to draw attention too is number 4.  The no appraisal option is what makes this one of the best ways for a Veteran to refinance his/her home.  Some Lenders have taken upon itself to overwrite the VA’s policy and start instituting appraisals on VA streamline refinances starting July 1st.  Here is the email I received from them:

Non-XXXXXXX  (lender name removed) VA Interest Rate Reduction Refinance Loan (IRRRL) Transactions

May Require A Conventional Appraisal – Effective 7/1/09

In an effort to mitigate the risk of declining home values on VA IRRRL transactions, effective with registrations on and after July 1, 2009, for non-XXXXXXX serviced VA IRRRLs, XXXXXX  Wholesale Lending will require the Broker to obtain and deliver to XXXXXXX:

• A conventional appraisal that supports the total loan amount (appraised value >= base loan amount plus VA funding fee), or AVM that supports <=95% LTV

Note: Conventional appraisals ordered for non-XXXXXX serviced VA IRRRL transactions are not subject to Home Valuation Code of Conduct (HVCC) requirements. Additional comments and/or reminders:

• If a conventional appraisal is not in the loan file upon receipt, XXXXXX will order an AVM to verify the value. AVMs are not allowed for condominiums, manufactured homes, multi unit properties (2-4 unit), investment properties and second homes. If the AVM does not return an acceptable result, XXXXX will condition for a full appraisal. • It will be the responsibility of the broker to order the full conventional appraisal.  VA has indicated this appraisal should not be ordered with the case number assignment through VA’s The Appraisal System (TAS) and should not be submitted to VA with the guaranty package.

o VA’s Jurisdictional Maximum VA Appraisal Fee Chart must be met. The Veteran may not be charged an appraisal fee exceeding VA’s maximum.

o The 1004 MC (Market Conditions) form is required when an appraisal is required.

o XXXXXX  Appraisal Policy applies (Broker Guide Section 300).

This change in policy (even though VA does not require it) will limit thousands of Veterans from refinancing their homes.  Look at what is happening in the market today.  Job loss is at an all time high, taxes are going up, inflation will be a huge factor.  Right now people need to save money more than ever.  I also find it interesting that the Federal Government which VA is a part of, is dumping so much money in the market to help with rates and stimulation, yet the biggest bank is instituting this which will keep our VETERANS WHO FOUGHT FOR THIS COUNTRY unable to refinance to better their situation.  Who now days has equity in their home?  I don’t.  Wells Fargo states that “in an effort to mitigate the risk of declining home values on VA IRRRL transactions”.  Give me a break.  What’s more important to a Veteran – equity in their home, or risk losing their home because of a financial situation change when a lower monthly payment is needed.

My advice is to all Veterans – write your congressman and contact the Dept of Veteran Affairs and let them know your feelings.  Hopefully if enough people respond the 100 pound gorilla (XXXXXX) will wake up and realize they are not doing anybody any favors.

To Contact your Congressman CLICK HERE

To Contact the VA via email CLICK HERE

To Call your VA office CLICK HERE

Veteran’s Guide to Understanding a VA Good Faith Estimate

Veterans must understand how to read and interpret a good faith estimate (GFE).  This is probably one of the most important documents when deciding what company to choose to handle the financing on the VA LOAN.  This GFE disclosure IS REQUIRED by the Real Estate Settlement Procedure Act (RESPA).  If you don’t get one then the broker or lender is not adhering to laws that govern the mortgage industry.


In a nutshell this disclosure should list all the costs associated with the VA loan.  It will show the new monthly payment, payoff amount or Good Faith Estimatepurchase price amount, taxes and insurance and funds required to close or funds the VETERAN is getting back (refinance) and debts being paid off if applicable.  There are specific costs and they are broken down into categories or numbers.  I will list them below:


These are all the charges that the lender or broker will charge.  In this section would be listed the ORIGINATION or DISCOUNT FEE.  The appraisal and other broker or lender fees will be listed here too.  Please remember the  veteran will not pay the “junk fees”.  The DEPT of VETERAN AFFAIRS will not allow an originating company to charge these fees which in return should benefit the veteran.  Here is a list of the NON allowable charges.  NON allowable means that the Veteran cannot pay them; on a refinance the broker or lender must pay them or not charge them at all, and on a purchase the seller can pay them.

NON Allowable Fees/Charges

  • Attorney Fees
  • Brokerage Fees
  • Prepayment Penalties
  • HUD/Inspection Fees
  • Signing Fees
  • Escrow/Closing Fee


Yield Spread Premium (YSP) is the fee the bank or lender (the entity lending the money who you will make first payment to) has the ability to pay the broker a fee or premium for locking your rate in at an above PAR rate.  We will discuss, understanding interest rates and points at another time.


All of the Title Charges will be listed here.  They are title insurance, title exam, wire and endorsements.  Just like the broker there are fees here that the title company cannot charge a Veteran.


The fees listed under this section would be recording fees, city and state tax stamps.  The recording fee is what the county recorder will charge for recording the new Deed of Trust.  State and City tax stamps are state specific.  Some states have tax stamps and other do note.


This area would list any pest, termite inspections and home inspections.


This heading makes it sound like the VETERAN must pay for these before the loan can close.  This is not the case.  Is simply is referring to monies collected before the first payment.  The charges listed here are the interest that needs to be collected before the first payment is due.  With VA loans interest is billed in arrears which means when a payment is made in June the Veteran is paying for the interest accrued in May.  So lets say you close on the 20thof the month.  You will have 10 or 11 days of interest collected in this section.  With VA LOANS the VA FUNDING FEE is listed in this section.  If  Veteran is receiving VA disability then there will be no funding fee.  Veterans should pay close attention to this.  An experience broker knows not to charge a VAFF when disability is being received by the veteran.


WithVA loans your taxes and insurance will need to be collected with your monthly payment.  An escrow account is used to hold the money that is owed for taxes and insurance.  When a Veteran makes a payment a portion of the payment gets deposited into an account.  This account will continue to build payment after payment until the taxes or insurance are due.  The lender will make the payment for the Veteran.  This is very helpful because it will prevent unforeseen expenses on the home owner and delinquent taxes and insurance.  The amount collected upfront varies  based on the dates they are due.  For example, lets say that taxes are due in December and the Veteran is refinancing and their first payment is due in March.  The Veteran will have made 10 payments before taxes are due, but you must have enough for the year plus 2 months as a cushion.  So in this section we would collect 4 months.  This same principle applies to the insurance.


This just gives the overall costs and details of the transaction and the total new monthly payment.

Like I said earlier.  This is a very important disclosure and should be looked at very carefully.  In my experience the GFE should be used to compare offers from other companies and it also shows how competent the originating company is.  Remember also, that this is just an estimate.  Usually this will never be 100% accurate to the final costs.  Those are listed on the HUD 1 or Settlement Statement, however, the GFE should be as close as possible and should give Veterans a good idea what to expect cost wise when buying or refinancing a home.

Veterans-Discount Points to Lower Your VA Rate

Veterans often hear the term “discount points” or buying down the rate and immediately think this is negative or bad.  I would like to explain how this works and to define these terms.  Veterans have the ability to get a better interest rate when buying a home or refinancing.  Interest rates change daily and are affected by what happens in the market.  Lenders offer these rates at certain pricing levels.  These levels either pay back money to them or cost them money.  The amount is determined by percentages, so for example if the rate is paying the lender 1.5 percent and the loan amount is $100,000 then amount being paid to the lender would be $1500.  This also goes the opposite way.  If the rate is costing 1.5 percent then the lender gets charged $1500 for offering that rate.


Veterans pay for a rate that is discounted.  This is why its called discount points.  This is not a bad thing because it means lower monthly payments and more savings over the life of the loan.  In a  streamline refinance these points can be rolled into the loan and with a purchase the seller can pay up to 6% concessions and discount points can be included in that.


There is some caution to be taken when paying discount points.  If a Veteran is refinancing a home and is paying discount points, he/she must realize their long term goals with the house and the length of time they plan on living there.  Veterans should be able to recoup the amount of money used to buy the rate down shorter than the length of time in the house.  In addition to this remember that the higher the rate the more the lender/broker is getting paid to do the loan.  This should be gauged on what other companies are offering and the nature of the market.  There was a time that the best rate being offered was over 12% and that was considered good.


Only you the Veteran can answer that question.  Like I stated before, paying discount point is not a bad thing.  Remember the old saying – “you get what you pay for”.  This absolutely applies to discount points.  Although it costs more up front, the only drawback is spending too much  up front and then selling right away and then you lose a little money but thats all.  By spending too little, you risk more because the cost of interest over time will be devastating compared to the cost of discount points.  Its an Economic truth that its seldom possible to get the most by spending the least.

VA Loans vs. Conventional Loans – Which is better?

What should you choose?  VA or Conventional?

At some point Veterans will come to a dilemma when deciding what type of loan to use when buying a home.  This is a very valid question or concern as both have their place in the home buying process.  Having worked with Veterans for the past 7 years I can shed some light on this subject.  First let me start by saying that owning your own home is still one of the best financial decisions an individual can make if its done right.  What I mean by that is simply don’t bite off more than you can chew.  Once you sign on that dotted line you are now responsible for making payments for the next 15 to 30 yrs.  BE SMART ABOUT IT.  OK, lets analyze the VA loan and Conventional loan.

VA loans allow NO MONEY DOWN 100% financing

VA loans  allow for a Veteran to borrow 100% of the purchase price.  This now is one of the only loan programs that allow for 100% financing.  Unlike Conventional loans, you don’t have to pay any mortgage insurance premium (MIP) on Veteran Home Loans.  MIP is a separate insurance that covers the lender in case of loan default.  The amount of MIP is paid on a monthly basis and is completely risk based and can be very expensive.  The reason why a Veteran does not have to pay this is simple.  The Department of Veteran Affairs is guaranteeing a portion of the loan to the lender.  This is what is commonly known as your VA entitlement.  For the Dept of Veteran Affairs to guarantee a VA loan to the lender there is a fee assessed by the VA.  This is called a VA Funding Fee (VAFF).  The amount of this fee is usually 2.15% of the loan amount and it CAN BE financed into the loan.  This fee can be decreased if the Veteran puts money down and will also be waived is the Veteran is receiving 10% or more VA disability.  In this day and age, who has $20,000 just laying around to put down on home.  This is just my opinion, but if you have that much money saved its better left in an interest bearing account.  Besides, all the interest on home loans is tax deductible so on that $20k you will will gain interest and be able to deduct more interest on your home.

Do I need to have great credit?

Credit Qualifications on VA loans are much different than conventional loans.  With VA loans its based on timely payments within the last 12 months whereas Conventional loans are score driven.  A Veteran who has a credit score of 620 can get them same rate as someone with an 800 credit score.

How much money do I have to make?

There is an additional step with VA loans.  VA is not so concerned about Debt to Income (DTI) but rather Residual Income (RI).  The Department of Veteran Affairs has established a calculation based on family size, loan size and location and takes into account net income (after taxes).  Conventional calculates DTI on gross income (before taxes).

These are the main differences between VA loans and Conventional Loans.  If a Veteran has served his country and helped the cause of Freedom and is given the ability to use a VA loan, there is no reason why he/she should not use it.  I’ve done both VA and Conventional loans.  VA LOANS provide lower monthly payments.  This industry is changing so much. It isn’t what it used to be but the VA loan has remained constant.  Good luck and happy house hunting.

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