Deciphering the VA Lender’s Handbook Chapter 7 Part 3
Joint VA loans are among some of the most complicated loans to underwrite in the VA loan program. The complications largely arise from the fact that only VA-eligible veterans are able entitled to a certain amount of VA guaranty (obviously). In a joint VA loan, one or more of the borrowers may not be a VA-eligible borrower; this makes for some extra steps in the underwriting process. In the last article, we covered some common questions about the VA loan program including how many units the property is permitted to have, which joint VA loans require prior approval and some special underwriting considerations for joint VA loans. In this article, we’re going to be going in depth about how guaranty and entitlement use is calculated on a veteran/nonveteran joint loan.
The first thing to remember is that the VA guaranty is limited to the portion of the loan that the veteran is responsible for. There is no getting around this – only VA-eligible borrowers can take advantage of the VA guaranty. The lender is responsible for making sure that its investor or a secondary market will be satisfied with the limited guaranty. The VA makes no promises that a joint VA loan will be marketable to investors, and this can cause some lenders to determine not to approve the loan even if it satisfies the VA’s requirements. The Handbook provides a handy step-by-step table of how the lender calculates the amount of guaranty on the loan. Below is the table:
|1||Divide the total loan amount by the number of borrowers.|
|2||Multiply the result by the number of veteran borrowers who will be using entitlement on the loan.
There is usually only one veteran borrower, in which case the result of this step is the same as the result of step 1.
|3||Calculate the maximum potential guaranty of the portion of the loan arrived at in Step 2 (as if that portion was the total loan)
Use the maximum guaranty table in section 4 of chapter 3 of this handbook.
|4||VA will guarantee the lesser of:
|5||VA makes a charge to the veteran borrowers available entitlement in the amount of the guaranty.
If more than one veteran is involved, VA divides the entitlement charge equally between them if possible. If only unequal entitlement is available, unequal charges may be made with the written agreement of the veterans.
So the process is actually fairly straightforward; the lender determines how much of the loan the veteran is accountable for, determines how much of that amount the VA will guarantee, and alerts the VA of such. To further clarify the process, the VA has also provided a table of examples in the Handbook to show how the calculations come together. Below is the table:
|Borrowers and Available Entitlement||Total Loan Amount||Vet’s Portion||Maximum Potential Guaranty on Vet’s Portion||Entitlement Charge————–
|Vet $36,000Nonvet $0||$100,000||$50,000||$22,500||$22,500|
|Vet $36,000Nonvet $0||$290,000||$145,000||$36,250||$36,250|
|Vet $27,500Vet $36,000
|$108,000||Total for both vets $72,000||Total for both vets $28,800||$14,400$14,400
|Vet $25,000Vet $11,000||$201,000||Total for both vets $134,000||$36,000||$25,000$11,000
The last example presented would require written agreement from both veterans that unequal charges would be made to their entitlement. Using the two tables above you should be able to fairly accurately estimate how much of your loan will be guaranteed if you are intending to open a joint VA loan with a nonveteran. In the next article, we’ll be discussing how guaranty is calculated on a two veteran joint loan. While there are similarities, there are enough differences to discuss each separately. If you’re wondering how your guaranty will be calculated if you’re working on a joint VA loan with a fellow VA-eligible borrower, that is the article you’ll want to check out.