Request for Determination of Reasonable Value Explained

VA Form 26-1805 

 

After you start the process of applying for a VA loan to purchase a home, one of the first things you and your lender need to do is request an appraisal on the home. To do so, you or your lender will use VA Form 26-1805: Request for Determination of Reasonable Value. That may seem confusing at first; why not “request for appraisal”? However, the primary purpose of the appraisal is to determine the reasonable value, which makes the name of the VA form a little bit easier to understand. In most situations, the lender will take care of requesting the appraisal, in which case you won’t need to worry about filling out this form, but there are some cases in which the borrower may be required to request the appraisal or simply want to do so instead of the lender. In cases like these, instructions on how to do so can be very welcome.

 

How to Fill Out the Form

The first thing to know about this form is that the VA requires it to be filled-out with a computer. All of the answers on the form must be typed and not handwritten. Handwriting can often be difficult to read, and it’s very important that all of the information on this form be correct. Most of the information here should be fairly easy to access. Your lender should be able to provide your case number, and the seller of the home should be able to provide the legal description of the home. For #4, Title Limitations and Restrictive Covenants, you’ll generally know what those are by the time you are requesting the appraisal. Generally if there are easements on the property you’ll want to ask the lender if they would be considered title limitations, but you’ll usually only run into title limitations and restrictive covenants if the home is a condo or is in an HOA. If the home is in a condo or HOA, you’ll need to get the documentation from the managers to show what limitations there are.

 

Lot dimensions should be easy to find, as should most of the other information in question 7-13b. If you’re not sure on any of those questions, you can ask the seller and they should be able to answer them for you. Most of them, however, are things you should probably have found out before you agreed to buy the home. The information from 14a-23 may need to come from the seller, as they are things that you may not know at this point. You’ll need to get the originator’s identity number from your loan officer, as well as the sponsor’s identity number and the institution’s case number.

 

If you’re buying a new or existing construction, then you can skip #28. If the building is proposed or under construction, you’ll need to not only answer those questions about the builder and warrantor, but also attach construction exhibits to this form when you submit it, which the appraiser will use to help determine the reasonable value of the property. Starting with #29, you may need a lot more help from your loan officer, the seller, and possibly even local government offices in order to get the information they are asking for. It can be helpful to attach the proposed sale contract to the form, and #38 is the place you can indicate whether you have done that. The rest of the form is under the “Certification for Submission to VA” section, and is all fairly straightforward. The signature of the person authorizing the request is the only field that can be hand-written. The rest must be typed.

 

The form itself also has some instructions on the backside that give guidance on some of the fields that may not be as obvious. It gives instructions on the name, address, and zip code fields, the legal description, title limitations, lot dimensions, removable equipment, construction completed, comments on special assessments and/or homeowner association charges, mineral rights, leasehold cases, and sale price. As you fill out the form, you should look at those instructions and understand them, as well as use this document as a guide for where you can get the required information.

 

What is Amortization?

You will hear this word all the time when you’re researching, applying for, and closing on your loan. Your loan officer can probably explain it to you, but amortization is something you should understand long before you apply for a specific loan, because the method and time-frame of amortization is what makes loans different from one another. We’ll explain what amortization is, why it’s used, and the variations you’ll see between different loan options. You might be surprised which loan is the cheapest from an amortization standpoint.

 

Defining AmortizationDefining Amortization

Investopedia defines Amortization as: “The paying off of debt with a fixed repayment schedule in regular installments over a period of time. Consumers are most likely to encounter amortization with a mortgage or car loan.” So, amortization is the schedule that is used to pay back your home loan. Amortization is how the lender calculates how much you need to pay each month to pay off the loan within the loan term (usually 15-30 years). With x percent of interest and y number of months, your lender calculates how much interest you need to pay each month and how much principal you need to be pay off each month to be finished by the end of your loan term and maintain the same monthly payment for the duration of the loan. At least, this is how a fixed-rate loan goes. We’ll talk about adjustable rates a little down the way.

 

Why Amortization is Used

Amortization is essential; it’s how the lender figures out how much the borrower is going to pay in interest and principal throughout the entire duration of the loan. There are such things as non-amortizing loans (referred to as balloon mortgages) but they really aren’t an awesome option. In a non-amortized loan, all you pay is interest (no principal) until the maturity date, at which point the entire sum of the principal (so like hundreds of thousands of dollars) is due at once. In a non-amortized loan, the entire balance is usually due within five to seven years. Since most borrowers are not interested in a balloon mortgage, you’ll find amortizing loans much more common.

 

Amortization Variations and Options

So, you can actually choose how you want your loan to amortize. You do this by what type of loan you choose. If you choose a fixed-rate mortgage, your loan will be amortized once at loan closing to calculate the minimum monthly payment you must make in order to have the loan paid off by the end of the loan term (usually either 15 or 30 years). If you choose a VA hybrid-ARM, your loan will be amortized once at the beginning of the initial fixed period, then amortized every year when the interest rate adjusts. This may sound like a bad thing, but it’s actually a very cool, underappreciated feature of the hybrid ARM. Allow me to elaborate.

 

If you are on a 30-year fixed and are making extra payments, your required minimum will never go down (unless you refinance). You’ll simply pay off your loan early, which is still a great thing. However, if you are on a hybrid ARM, your monthly payment will slowly go down over time if you make more than the minimum payment. Consider the following example: If you buy a home for $200k at 4.5% interest for a 30-year fixed, your minimum PI payment will be $1,013.37 for the entire life of the loan. If you buy that same home at that same rate on a hybrid ARM, after making the minimum payments + $100 each month for the first three years, your balance is at $186,436 (just like the fixed-rate would be if you paid $100 extra), but your loan reamortizes that year, and let’s say your interest rate stays exactly the same. For a $186,436 loan at 4.5% on a 27-year term, the minimum payment is $995.05, which is what your monthly payment would drop to in that scenario. Considering that starting rates on the hybrid ARM are actually much lower than fixed-rate mortgages, the difference is even more noticeable.

 

So that’s amortization, I hope that all made sense, and you have a better understanding of what your loan officer is talking about when they mention amortization.

 

Good Laws for a VA Loan Borrower to Know

There is no shortage of documentation, articles, and even books available to help a VA loan borrower navigate not only the housing market but also the VA loan program. The difficulty is often finding the specific answer to a specific question without having to weed through all of the stuff you either already know, don’t care about, or don’t see how it applies to you. There’s good news and bad news.

The good news is that those specific answers are out there. The bad news is you probably will have to dig through stuff to find them. Granted, a lot of questions can be answered by a VA-approved lender, but it’s always valuable to be a knowledgeable borrower before you ever speak to a lender. As such, there are some important laws that have been enacted that directly affect a VA loan borrower that both first-time and experienced buyers should be very familiar with.

Consumer Credit Protection Act

First, you definitely want to be familiar with this law (found here http://www.fdic.gov/regulations/laws/rules/6500-200.html). The Consumer Credit Protection Act directly affects any borrower, including a VA borrower. While the Consumer Credit Protection Act brings a lot of safeguards for the borrower, probably the most influential one is the ability of a borrower to correct errors on their credit report. Errors are very common, and they can be devastating to a credit report. The Consumer Credit Protection Act allows the borrower to provide documentation to correct errors that may have appeared on their credit report. It’s good to know everything else that’s in there as well. For example, did you know that a credit report can not adjust your credit score based on assumptions that you may become pregnant or have a child in the near future? Also, the Act prohibits credit reporting agencies from using or accessing your information for anything other than official credit report requests. There are lots of other things in there that are very good to be aware of.

Truth in Lending Act

Next in line is the (TILA), sometimes referred to as the Federal Consumer Credit Protection Act. TILA, found here: http://www.fdic.gov/regulations/compliance/manual/pdf/V-1.1.pdf is a 92-page document with the sole purpose of making sure that lenders and borrowers are honest with each other during the lending process. Specifically, the TILA makes provisions that a lender must provide the borrower with all the terms and conditions of the agreement before the borrower commits to it. The idea is that the borrower should have the ability to compare and contrast offers and make a smart and accurate decision based on complete information about the different offers available. The TILA also has a very useful chart (page 8) that shows what charges a lender must put on the borrower, can put on the borrower, and must not put on the borrower. The TILA is definitely a valuable read (and re-read) for anyone looking to get a VA loan.

Real Estate Settlement Procedures Act

Recently updated is the (RESPA), which can be found here: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/res/respa_hm. The RESPA goes along with the TILA, in that it primarily involves information that a lender must give a borrower in relation to their loan. The RESPA ensures that the lender must provide the borrower with information about settlement costs, monthly mortgage payments, estimates on closing costs and anything else the borrower might be expected to pay and when they would be expected to pay it. It is also a good thing to know well.

Equal Credit Opportunity Act

Last but not least, enacted in 1975 and protecting minorities ever since. The ECOA prohibits any discrimination based on race, color, religion, national origin, sex or marital status, or age. Obviously, a law can only do so much to prevent discrimination, but the ECOA gives the borrower more power to get the loan they are eligible for regardless of any of the above. The ECOA can be found here: http://consumer.findlaw.com/credit-banking-finance/equal-credit-opportunity-act.html.

These four laws are great starting points as you try to become an expert in all things VA loans, but they are far from the whole story. It’s good to do as much research as you can before committing to a certain deal from a lender.

 

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