Handbook Sparknotes Chapter 5

 

How VA Loans Are Processed – VA Handbook Chapter 5

VA Lenders Handbook Chapter 5

Knowing how your VA loan is going to be processed is good information to have to go into your first meeting with your loan officer. You can be more prepared for that meeting with all the documentation you will need and a lot of the information the loan officer is going to ask for in order to get the process going. Plus, you’ll be prepared for your loan officer or underwriter to ask for more documents and will be ready to get those documents ready very promptly after receiving the request. You’ll need to establish your eligibility for getting a VA loan, establish your credit and income qualifications for the loan amount you’re requesting, and get your application through underwriting.

 

Make Sure You Can Use a VA Loan

This is the first step you’ll go through when your VA loan is being processed. You’ll be required to obtain a COE, which you’ll probably want to do through your loan officer. They have easy access to an online system where they can retrieve your COE fairly quickly. To get your COE, you will need to provide proof of service. If you are a veteran, you can simply provide your DD-214, but if you are still on active-duty, you’ll need to provide a statement of service from the leadership of your company. Part of the process of making sure you can use a VA loan involves the home itself; you need to make sure it meets the VA’s Minimum Property Requirements, which means calling in a VA appraiser to inspect the home. After that, you’ll also need to make sure you fulfill the occupancy requirement, which means you are intending to occupy the home as your primary residence. Next, you need to make sure you’re qualified for the loan amount you are applying for.

 

Make Sure Your Income and Credit Are Sufficient

Once you and your loan officer have made sure that you are eligible for the VA loan program, the next step will be to get information on your credit and income qualifications. This can happen in the same sitting as the first step, especially if you are prepared. They’ll ask a lot of questions about your financial history over the last two years and want to get clarification on any gaps in your employment over that time frame. If you’ve got a full-time job, you’ll need to provide pay stubs for at least the last 30 days. If you are using part-time work or self-employment income to qualify, they will require a lot more documentation. They will also need a good phone number to call your employer and verify your employment. If you’re not sure what number to give them, just give them the HR department’s. Your lender will be able to run a credit report just using your personal information such as your name and SSN. However, it’s a good idea to run your credit report a few months beforehand so that you can see any issues that might be bringing your score down.

 

Getting Your Loan Application Through Underwriting

Underwriting can be either the simplest part of the process or the biggest headache. If, in working with the loan officer, you were just barely able to qualify for the loan, you can expect that the underwriter is going to ask for some more information to make them feel safer about approving the loan. These can be anything from more bank statements to an outline of your monthly budget and where you are spending your money, to a list of your current assets that can count as compensating factors. Really, the sky’s the limit on what the underwriter might ask for.

 

However, if you easily qualify for the loan amount you’re getting and there are no concerns about your creditworthiness, then underwriting will probably happen very quickly with little to no involvement on your end.

Approval through Underwriting

Chapter 5 Of The VA Lender’s Handbook

Chapter 5 of the Handbook is mostly about how the lender is expected to process loan applications. Much of it has nothing to do with the borrower and is not important for you to know. If you’re trying to learn as much about the VA loan program as possible then it’s a good thing to read, but for most people, all of the really valuable information in Chapter 5 is in this article.

 

How VA Loan Assumptions Are Processed Part 6

Deciphering the VA Lender’s Handbook Chapter 5 Part 10

 

In the previous article, we discussed applying for a release of liability in the event of a divorce or a loan that was transferred without prior approval from the VA or the loan servicer. In both cases, the servicer or holder of the loan can process the request if they have automatic authority. If not, they must submit the application to the VA for processing. For divorce cases, no funding fee is assessed for the release of liability, but for loans that were transferred without approval, a funding fee may be assessed for the new borrower. In this article, we’ll be going over how substitutions of entitlement factor in loan assumptions, as well as what is meant by “unrestricted transfers”.

 

It catches a great deal of VA borrowers by surprise to discover that their VA loan entitlement will likely not be available to them after they conduct an assumption on their existing VA loan. In fact, it is not uncommon for veterans to expect to be able to obtain another VA loan after an assumption, and, therefore, decide to allow an assumption to take place. For veterans who wish to restore their entitlement after an assumption, the VA will have to evaluate their eligibility after the servicer has issued the release of liability after the assumption. There are very specific circumstances that must be the case in order for the VA to restore a veteran’s entitlement after he or she has allowed another borrower to assume their old loan.

 

First, the new borrower that has taken over the loan must be an eligible veteran who has enough entitlement to fully cover the loan that has been assumed.Second, the new borrower must also fulfill the occupancy requirement; which means that he or she will be occupying the property as their primary residence. Lastly, the new borrower must agree to use his or her entitlement to cover the loan. Put in the context of the VA loan program, all of these conditions make perfect sense and are very reasonable to allow the original veteran borrower to purchase another home with their VA benefits. Low VA RatesThe first step for the new borrower to use his or her entitlement to assume the loan is for them to fill out the VA Form 26-8106, Statement of Veteran Assuming GI Loan.

 

Once the ownership transfer approval process is complete, the form will be sent to the VA to update their records on whose entitlement is being used where. The servicer is instructed to attach the COE for both the old borrower and the new borrower to the form, which may require first requesting a COE for the new borrower. All of these things should accompany the credit package that is used to approve the transfer of ownership of the property.

 

There are a number of situations which amount to a transfer of ownership that are considered “unrestricted transfers”. In these cases, the servicer should update the account records and is permitted to charge a “reasonable” fee of up to $50 to do so. Other than that, there is not much involvement required on the part of the loan servicer. The servicer reports the unrestricted transfer to the VA, and the VA’s system usually automatically updates. The Handbook lists all of the circumstances that allow for an unrestricted transfer, here is the list shown:

 

  • The creation of a lien or other encumbrance subordinate to the lender’s security instrument that does not relate to a transfer of rights of occupancy in the property.
  • The creation of a purchase money security interest for household appliances.
  • A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety.
  • The granting of a leasehold interest of 3 years or less not containing an option to purchase.
  • A transfer to a relative resulting from the death of a borrower.
  • A transfer when the spouse or child of the borrower becomes a joint owner of the property with the borrower.
  • A transfer into an inter-vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.
  • A transfer resulting from a decree to dissolve a marriage, legal separation agreement, or from an incidental property settlement agreement by which the spouse of the borrower becomes the sole owner of the property.

How VA Loan Assumptions Are Processed Part 5

 

Deciphering the VA Lender’s Handbook Chapter 5 Part 9

 

In the last article, we talked mostly about loan assumptions that take place without approval from the loan servicer or the VA. These situations can be complicated at best and devastating at worst. However, VA loans dated prior to March 1, 1988, could have been transferred without the VA’s prior approval (this rule has changed recently). There may be a situation where an unapproved assumption took place and there are no penalties imposed on the seller or buyer. However, in these cases, the seller and buyer might want to apply for a release of liability after closing the transfer. This article will outline how to handle release of liability, in this case, as well as handling the release of liability in case of divorce.

 

Military Loan AssumptionsThe process for handling release of liability requests depends on whether the servicer or holder have automatic authority. If the servicer has automatic authority, they are obligated to process the release of liability when the seller and buyer specifically apply for one. If a servicer does not have automatic authority, they are required to advise the holder of the loan with the request, and the holder will be responsible for approving the release – if the holder has automatic authority. If the holder also does not have automatic authority, then the servicer takes the application and the complete credit package to the VA to determine the creditworthiness of the purchaser. Just like with processing other changes to a loan commitment, there may likely be a processing charge just for reviewing the request. Additionally, if a current VA borrower “…sells his or her home to transfer ownership without requesting a release of liability, the servicer may charge up to $50 for amending its records to reflect a change in ownership, if the parties involved agree and it is permissible under the loan agreement.”

 

The great thing about requesting a release of liability for loans originally closed before March 1, 1988, is that there is no charge for the VA funding fee to the borrower when the release of liability is processed. However, if a loan that was originally closed on after March 1, 1988, has a release of liability applied for, the VA will charge the funding fee. The funding fee is something the borrower would have paid at the time of the assumption if it had been done with the proper approval, and it is one of the main reasons that the VA insists on VA borrowers getting proper approval before conducting an assumption. But an unauthorized transfer of a loan is not the only reason one might apply for a release of liability. What about in the case of a divorce?

 

There are generally two possible outcomes in the case of a divorce: either the veteran acquires the home as a result of the divorce proceedings or the veteran’s spouse does. In either case, it is typical and appropriate for the spouse that did not acquire the home to seek to be released from liability of the loan. This generally only happens when the spouses were jointly liable on the loan. Releases of liability for divorce reasons are handled in the same basic way as the other release of liability procedures. The same processing charge can be assessed in order to conduct the release of liability, but in the case of a divorce release of liability, generally no funding fee can be assessed on the new sole borrower. There are also several requirements that must be met before a release of liability due to a divorce can be processed.
First, the divorce must be final and absolute, and it has been determined that no appeal will be taken. Second, the entire estate being financed with the VA loan has become vested in the name of the veteran’s former spouse, and third, there is no property settlement that could legally make the veteran liable between the parties pay the guaranteed loan. In the case that the veteran borrower retains the home and the ex-spouse is to be removed, the release of liability should be referred to the local VA RLC. The servicer can still charge up to $50 for amending its records to reflect the change in ownership.

How VA Loan Assumptions Are Processed Part 4

 

Deciphering the VA Lender’s Handbook Chapter 5 Part 8

 

In the last article, we talked about the steps that must be taken after approval for an assumption has been received from the VA. The process essentially involves correctly documenting the assumption, paying the VA funding fee, and notifying the VA that the assumption has taken place. But not all assumptions are approved by the VA before they take place. These assumptions are done without the knowledge of the loan servicer but can still be legally binding if the deed to the property has changed hands. In this article, we’ll be going into depth about this scenario and what actions the servicer can take if it is discovered that an assumption has taken place that was not approved beforehand.

 

If a servicer learns that a transfer (assumption) took place without prior approval, they have 60 days to notify the VA. That notice must let the VA know the 60 days to notifyservicer’s intended course of action. The servicer can immediately refer the case to foreclosure or give the seller and buyer the opportunity to apply for retroactive approval. The servicer can also decide to demand immediate payment of half of the VA funding fee that the buyer would have had to pay at the time of transfer. The remainder would be paid once the assumption is approved. The servicer will also need to learn the legal liability of the buyer, so will require a copy of the instrument of transfer in order to review it and determine the liability.

 

The buyer’s liability is very important to determine because it helps the servicer know which route may be the best to go in getting the situation resolved. If the buyer has assumed liability of the mortgage, then it is best to give the buyer the opportunity to apply for retroactive approval. As long as the buyer pays the funding fee, has assumed all of the seller’s obligations in the transfer, has used language that is legally binding in the assumption, and appears to intend to satisfy those obligations, then he or she will most likely be given an opportunity to apply for retroactive approval. Most of the really unpleasant situations occur when the buyer has not assumed liability.

 

If liability wasn’t assumed by the buyer, that means that the title was transferred “subject to” the mortgage or deed of trust. In this case, the buyer has no liability on the loan and no liability for the funding fee. As a servicer, it is impossible to predict whether the buyer with zero liability will really be motivated to make their monthly mortgage payment. The servicer certainly can still give the buyer the chance to apply for retroactive approval, but often this situation is taken care of much more quickly and with fewer headaches (and dollars lost) for the servicer just by taking it immediately to foreclosure.

 

If the servicer gives the buyer and seller the opportunity to apply for retroactive approval, and they decide to do so, the process is actually very similar to the approval process for a normal approval. In fact, it is completed in the same manner, including the right to appeal a disapproval. If a purchaser does not cooperate in the retroactive approval process, the servicer can accelerate the loan. The servicer must stay in accordance with state law and is advised to consider acceleration compared to letting the normal payments continue to be made on time. The servicer must report their decisions to the VA.
Loans “…for which a commitment was made prior to March 1, 1988,” are the exception to everything above. Loans made before that date are known as freely assumable loans and the owners can sell the property under whatever terms they wish, and a servicer cannot charge them any fees or put any restrictions on the sale. The exception to this exception is if the loan was made by a government agency that requires acceleration of the maturity of the loan when it is sold or transferred. A veteran looking to let someone assume their VA loan should keep in mind that even being released from liability on the loan does not restore their VA entitlement.

How VA Loan Assumptions Are Processed Part 3

Deciphering the VA Lender’s Handbook Chapter 5 Part 7

 

The last article focused on the requirements for a VA loan assumption to be approved, the expectations for processing times, and that the decision from either the loan servicer/holder or the VA will come as either an approval or disapproval. In this article we’ll be focusing primarily on how you can appeal a disapproval on your application for an assumption, as well as what to do after an approval has been obtained, whether through appeal or after the first application. After reading this article, you should know more about appealing a disapproval on a VA loan assumption and what to do after an approval has been granted.

 

First, to appeal a disapproval decision the seller and purchaser must do so within 30 days of getting the disapproval notice. The seller and buyer can request an appeal through their loan servicer, who can instruct them on how to submit the request. After 30 days, the seller and buyer do not have the option to appeal the decision. After the VA’s receives an appeal request, they give the servicer 7 days to provide a copy of the original assumption application package that was disapproved. The VA reviews the application again and decides either to approve the application on appeal or uphold the original disapproval.

 

Not to worry, though, for even if the disapproval is upheld, the seller can request “special approval” within 15 days of receiving the verdict from the appeal. Special approvals are turned around fairly quickly; the VA gives themselves 7 days after receiving the request to make a determination. Special approval is only granted in a few circumstances, such as the seller agreeing to remain secondarily liable on the loan following assumption, the seller is unable to otherwise continue payments on the loan, or reasonable efforts have been made to find a creditworthy borrower for the property. Sometimes it can take a combination of those things.

 

Challenge_AssumptionsAssuming you’ve gotten your assumption approved (pun intended), there are several steps that need to be taken. Much of the work is done by the servicer of the loan, but you’ll find that you as the seller or borrower have some work involved as well. The first step is for the seller and buyer to sign the Assumption Clause along with the deed that conveys the property to the buyer. The loan servicer will provide the seller with the exact language that needs to be on the Assumption Clause. After both the seller and buyer have signed it, it is the seller’s responsibility to return a copy of the entire deed that shows the date and place of recordation to the servicer. At that point, the servicer reviews the document to make sure it contains the properly worded Assumption Clause and that it is legally sound.

 

The second step listed in the Handbook is to prepare an agreement creating liability. However, this step needs only be completed if a copy of the assumption clause has not been given to the servicer. This is a step the servicer will take and that the seller and buyer are legally obligated to comply with. The servicer will send three copies of an “Agreement Creating Liability to Holder and to the United States” to the seller with instructions on what to do with them. The documents must be properly completed and returned to the servicer, who will review them to ensure completeness and accuracy.
The third step is for the buyer to pay the VA loan funding fee, unless he or she is exempt from it. The fee must be paid to the VA within 15 days of the date of assumption. The buyer should use the VA Funding Fee Payment System to make payment. Speak with the loan servicer for clarification on whether the buyer is exempt from the funding fee. Generally veterans who are receiving or are eligible for disability compensation are exempt, as well as a surviving spouse of a veteran who died in service or due to a service-connected disability. The fourth and final step is to notify the VA that the assumption is complete. This is a step that the servicer will take and should not require the seller or buyer’s direct involvement.

How VA Loan Assumptions Are Processed Part 2

Deciphering the VA Lender’s Handbook Chapter 5 Part 6

 

In the last article, we began talking about processing a VA loan assumption. The ability to be assumed is one of the greatest advantages of a VA loan, but a VA loanVA Loan Assumptions
cannot be assumed without going through your loan servicer, who may need to go through the holder of the loan or even the VA itself in order to obtain approval. In this article, we’re going to go into detail about the requirements for approval of a loan assumption, as well other aspects of VA loan assumptions such as processing time guidelines and decision notices. There’s a lot to talk about to do with VA loan assumptions, so if it’s something you’re considering, be prepared to learn a great deal of information about them.

 

There are several requirements that the VA has in order for assumptions to be approved. Thankfully, they are really pretty obvious and none of them should come as a surprise. The first requirement is that the loan must either be current or will be brought current at the time of the assumption. In other words, the seller needs to be up-to-date on his or her payments in order for a loan to be assumed. Second, the prospective purchaser is creditworthy; the buyer needs to have sufficient income and a solid enough credit history to qualify for the loan. Third, the buyer needs to agree to assume all of the obligations of the loan, absolving the seller of any responsibility. These obligations include the obligation to indemnify the VA if a claim is paid.

 

Part of the approval process involves a processing fee, which can be collected in advance using a reasonable estimate for the cost of the credit report. There is, however, a maximum amount that the seller can be charged for the processing fee, which covers processing the request for assumption approval and changing the loan records. The maximum amount depends on whether the assumption was approved by the servicer or holder with automatic authority or by the VA, and on whether there is a maximum prescribed by the state in which the loan is being assumed. For loan assumptions approved by servicers or holders with automatic authority, you can expect a maximum charge of $300 plus the actual cost of the credit report or the state maximum, whichever is lesser. For loan assumptions approved by the VA, the maximum is $250 plus the credit report or the state maximum.

 

The time it can take to process the application for loan assumption depends on whether the servicer or holder has automatic authority or not. If the servicer or holder does have automatic authority, they are required to complete their processing and notify the seller of their decision within 30 days of receiving the approval application package. If the package is submitted incomplete, the 30-day clock does not start until the seller has provided the servicer all of the required documents. In cases where neither the servicer nor the holder of the loan has automatic authority, the application package must be submitted to the VA for processing within 21 days of when all of the required documents were submitted to the servicer.

 

Since, in the case of no automatic authority, the servicer isn’t even required to get it into the hands of the ones who will actually do the processing for 21 days, you might expect a significantly longer wait overall. But actually, the VA gives itself 14 days to complete the processing of the application, so the maximum you could wait if the application has to be sent to the VA is 35 days. Granted, that is assuming that everything goes correctly; if requests for information are not responded to in a timely manner, the overall processing time may be extended with no penalty to the VA or the loan servicer/holder.
When the results come back, it will either be an approval or a disapproval. If it is an approval, it will contain instructions to the seller for conducting the assumption, including the assumption of liability, payment of the funding fee, and any documentation needed. If it is a disapproval, it will include an explanation of why it was disapproved and instructions on how to submit an appeal.

How VA Loan Assumptions Are Processed Part 1

Deciphering the VA Lender’s Handbook Chapter 5 Part 5

The ability to assume a VA loan and have someone else assume your VA loan is one of the coolest features of the VA loan program. Coincidentally, or perhaps not so coincidentally, it can also be one of the most complicated, especially for the lender. In the previous articles for chapter 5, we talked about processing prior-approval loans and automatically approved loans, and now we’re going to shift focus onto one of the more detailed portions of the VA Lender’s Handbook: Processing Loan Assumptions. Since this section is quite long, we’ll be breaking it up into parts and covering only a portion with each article. Let’s start by giving some general information about VA loan assumptions.

In certain circumstances, the property being financed by a VA loan can be sold even though the loan is not paid in full. Borrowers who sell their properties under this circumstance are still responsible for any loss that the VA may incur as a result of a future default and claim by the holder of the loan. The exception to this rule is when the property is sold to a creditworthy purchaser who agrees to assume the payment obligation. This is called an assumption. Assumptions can be a great opportunity for the new owner of the home, and is often done from a parent to an adult child, or from one sibling or good friend to another.

So who can process loan assumptions? In other words, if you’d like to let someone assume your loan, or would like to assume someone else’s loan, are you going to be able to talk to your current loan holder, or will you need to find someone else. The good news is that now any loan holder or servicer with automatic authority can access the new VA Loan Electronic Reporting Interface (VALERI). This didn’t use to be the case, but for those looking to do a loan assumption, it will be simpler than ever. Loan holders and servicers with automatic authority can determine creditworthiness on all assumption approval requests that come their way.

Obviously, the servicers with automatic authority must still follow the VA underwriting guidelines for determining creditworthiness, but they can still generally authorize loan assumption approval on the behalf of the VA. This is one of the advantages of working with a servicer that has automatic authority, as opposed to a lender that requires prior approval on all VA loans.

There are many instances where the servicer does not have automatic authority, but the holder of the loan does. For a servicer without automatic authority, they must send the request up to the holder for determining creditworthiness. In the event that neither the servicer nor the holder has automatic authority, it is up to the servicer to put together a complete credit package and submit it to the VA. The package must include a copy of the original purchase contract and the current status of the loan, and will be submitted to the Loan Production section at the local VA Regional Loan Center. The assumption will be underwritten there.

As the current borrower who is wanting to let someone else assume the home, it’s important to know that if you bought the home after March 1, 1988, you must have the approval of either the holder of your loan or the servicing agent if one of them has automatic authority, and even if they don’t, you still need to work through them to send a credit package to the VA for underwriting and approval. You cannot transfer ownership of your home without working through your loan servicer. Once you’ve applied with your servicer for approval, the application will be reviewed to make sure it complies with applicable VA laws, guidelines, and provisions, and either the servicer, loan holder, or the VA will make a determination whether the application meets the requirements.

The next article will go over the requirements for an application for a loan assumption to be approved. Knowing what those requirements are will answer many questions right off-the-bat when you are considering a loan assumption, and will also help you streamline the process to get approved to conduct a loan assumption.

 

Automatically Closed VA Loan Procedures, Deciphering the VA Lender’s Handbook Chapter 5 Part 4

The first part of Chapter 5 is dedicated to summarizing the basic process that a VA loan must go through from beginning to end in order to be closed. The second and third articles are written on Chapter 5 to cover in depth the Certificate of Commitment that is issued in the case of a prior-approval loan. They covered what the Certificate of Commitment means, what changes to a loan can be made after the Certificate is issued but before it is closed, and the conditions that might be placed on the Certificate depending on the situation of the borrower. In this article, we’ll be moving from prior-approval loans to automatically approved loans. The difference between prior-approved and automatically approved loans is that prior-approved loans must first be submitted to the VA for approval before the lender can close on the loan with the borrower. Automatically-approved loans do not. Most lenders have the authority to automatically approve most VA loans, but some loans require prior approval regardless of the lender’s status.

vacation home

One of the differences between the two loan types is the document that gives the lender evidence that the VA has guaranteed the loan. For prior approval loans, the VA issues a Certificate of Commitment (COC), but for automatically approved loans, they issue a Loan Guaranty Certificate (LGC). While a COC is issued by the VA after approval, the lenders can obtain an electronic LGC from the VA’s web-based Loan Guaranty system (WebLGY). Lenders are strongly encouraged to use this method for several reasons. In most cases the LGC can be almost instantly generated, it removes the need to mail loan documents to the VA, a loan can be submitted for guaranty at any time – not just business hours, the Lender does not need to complete VA Form 26-0286, and the lender can deliver final documents to investors quickly, reducing their cost in carrying the loan.

With both prior approval and automatically approved loans, there may be a circumstance where the VA requires additional documentation. These are classified as “other necessary documents” and the following table outlines them very clearly:

 

Circumstances Required Documentation
The loan includes funds for energy efficiency improvements. Improvements of $3,000 to $6,000:Documentation of the lender’s determination that the increase in monthly mortgage payments does not exceed the likely reduction in monthly utility costs.

 

Improvements up to $6,000:

Evidence of the cost of improvements such as a copy of the bid(s) or contract itemizing the improvements and their cost.

 

Improvements over $6,000:

Documentation of the VA’s evaluation of the energy efficiency improvements.

 

Reference: See section 3 of chapter 7 for details, including special provisions for IRRRLs.

Postponed completion of exterior improvements. VA Form 26-1849, Escrow Agreement for Postponed Exterior Onsite Improvements.

Reference: See section 9 of chapter 9

The loan involves the use of an attorney in fact. Power of attorney requirements as described in section 7 of chapter 9, including written evidence of the veteran’s consent to the specific transaction, plus the lender certification found under the “Requirements” heading.
Veteran intended to sell a property on which he/she has an existing VA loan prior to closing on the new VA loan, in order to have entitlement restored.
  • A completed VA Form 26-1880, Request for a Certificate of Eligibility, and
  • Evidence that the veteran has sold the property and either

○        evidence that the veteran has fully repaid the prior loan, or

 

Note:  A HUD-1, Settlement Statement, clearly showing the sale of the property by the veteran and pay-off of the prior VA loan, satisfies this requirement.

 

  • documentation that the veteran can be released from liability and the assumer meets the requirements for substitution of entitlement.

 

Veteran intended to sell property in order to have sufficient income and/or assets to qualify for the loan. Lender’s certification that the sale of the veteran’s property has been completed and the proceeds disbursed.

  • Note:  The lender’s certification must be based on examination of a HUD-1, Settlement Statement or other appropriate documentation of the transaction.

 

The loan is to the unmarried surviving spouse of an eligible, deceased veteran. The following affidavit obtained from the surviving spouse at the time of loan closing:

“I, ________, being first duly sworn, on oath, say, that, on the __ day of _____, 2___ (insert date loan was closed), I am (was) the unmarried surviving spouse of _________ and that I make this affidavit for the express purpose of inducing _______ to make a loan to me and/or for inducing the Department of Veterans Affairs to guarantee or insure such loan, knowing that it is a criminal offense to make a false statement for this purpose; and that the above and foregoing is true and correct.”

____________      ____________________

Notary’s jurat         Signature of surviving spouse

The loan is to the spouse of a MIA/POW. Documentation that, at the time of loan closing, the lender asked the applicant and the applicant provided verbal assurance that:

  • No official notice of any change in the servicemember’s status had been received, and
  • Applicant was still the spouse of the service member

 

Supplemental loan for home improvements See “Procedures” in section 5 of chapter 7
Graduated Payment Mortgage (GPM). Veteran’s statement acknowledging payment increases.

Reference: See section 7 of chapter 7.

Restrictions exist on the purchase or resale of the property the veteran is purchasing. Veteran’s written consent to the restrictions (obtained at the time of loan application).

Reference: See section 2 of chapter 9.

 

Conditions Placed on the Certificate of Commitment, Deciphering the VA Lender’s Handbook Chapter 5 Part 3

In the last article, we talked about the Certificate of Commitment that the VA provides lenders who submit VA loans for prior approval. We went into depth about what the VA requires in order honor the COC and how lenders can handle different changes to the loan after the COC is issued but before closing. The VA will often issue conditional commitments; a COC that lists one or more conditions that must be met in order for the Certificate to be considered valid. The Handbook itself has a very well-explained table that covers each condition quite clearly, so the bulk of this article will be the table below.

Case Condition/Notation on Certificate
Loan is to the spouse of a serviceperson missing in action or prisoner of war (MIA/POW) “Prior to closing the subject loan, the lendershould obtain assurance from the borrower that official notice of any change in the

servicemember’s status has not been received and that the applicant is still the spouse of the service member.”

 

Reference: See section 6 of this chapter for

required documentation.

Loan is to the unmarried surviving spouse of an eligible, deceased veteran “Conditioned on borrower’s certification that status as an unmarried surviving spouse has not changed since the Certificate of Eligibility was issued.”

Reference: See section 6 of this chapter for required documentation.

Loan is to a serviceperson who has not received an honorable discharge and must certify to continuous active duty “Certification of active duty status as of date of note required.”

To ensure compliance, check the active duty box in Section III, Veteran’s Certifications, on VA Form 26-1820, Report and Certification of Loan Disbursement. Ensure that the veteran signs the form.

Loan is to a veteran and fiance/fiancee who intend to marry prior to loan closing – title is to be taken in the name of veteran and spouse “Conditioned on proof of marriage prior to loan closing.”

A copy of the applicant’s marriage certificate or other proof of marriage must be submitted with the closing package. A marriage license is inadequate.

Loan involves use of attorney in fact “No evidence of guaranty with respect to the loan to which this commitment relates will be issued by the Secretary unless the lender makes the certification specified by the Department of Veterans Affairs at the time the lender requests a certificate of guaranty to the effect that the veteran was alive and, if the veteran is on active military duty, not in a “missing in action” status on the date the note and security instruments were executed on the veteran’s behalf by the attorney-in-fact.”

Reference: See section 6 of this chapter for required documentation

Veteran intends to sell property on which he/she has an existing VA loan prior to closing on the new VA loan, in order to have entitlement restored “This commitment is conditioned upon submission of evidence of disposal of the property which the veteran now owns and previously purchased using VA entitlement and evidence that the loan has been paid in full or that an eligible veteran has substituted his or her entitlement for that used by the original veteran.”

Reference: See section 6 of this chapter for required documentation.

Veteran intends to sell property in order to have sufficient income and/or assets to qualify for the loan. “This commitment is conditioned upon the consummation of the sale of residential real property now owned by the veteran, as proposed in the loan application.”

Reference: See section 6 of this chapter for required documentation.

 

The conditions above are the only ones you should see on a Certificate of Commitment that has come back from the VA. As you can see, only certain situations warrant a conditional commitment, and you’ll definitely know if you’re in one of those situations. If you are going to be in one of the situations mentioned above, it is best to expect that the VA will have the corresponding condition on your COC, and you should have the appropriate documentation ready when it’s asked for. We’ll go over the individual conditions and their related documentation in a future article.

Certificate of Commitment From Prior Approval, Deciphering the VA Lender’s Handbook Chapter 5 Part 2

In the previous article, we talked about the basic process that a lender must take a borrower through to get their loan approved. Part of that process is contingent on whether the loan must get prior approval from the VA or the lender can automatically approve it. For loans that require the VA to give prior approval, the VA will issue a Certificate of Commitment if they approve the loan. The Certificate of Commitment (COC) is what the lender can use as evidence of the VA’s approval of the loan. As such, if a COC has been issued, the lender will be entitled to the VA guaranty if the borrower defaults on the loan. However, there are two conditions that must be met in order for the guaranty to be granted in the event of a default.

veteranhome

First, the VA requires that the closed loan is completely and 100% identical to the loan that was submitted to the VA for prior approval. Nothing can differ. From the Handbook: “The closed loan is identical in all respects to that submitted to VA on the URLA and described on the Certificate of Commitment (or, if not identical, any required VA approval of changes was obtained prior to closing).” Second, the lender must have been fully compliant with all of the laws and regulations associated with the VA loan program. Any non-compliance can void the VA guaranty. From the Handbook: “The lender has complied with all applicable provisions of the law and loan guaranty regulations in making the loan.”

The COC has a validity period which does expire, and the VA may cancel a commitment is the validity period has expired and there is no reason to believe that the lender will need to cash in on the guaranty. Also, if either the lender or the VA has a reason to believe that the borrower’s qualification for the loan has changed, the lender can delay closing until verifying the facts that are in question. This does not happen often, but if it does, your best bet is to just cooperate with the lender and provide everything they ask for. They have the right to hold off on approving your loan as long as necessary to verify all the facts.

Just like everything else, there are exceptions to the VA’s no-change policy. The table below is taken directly out of the Handbook and covers a variety of situations and what happens in those situations. Remember, these instructions are addressed to the lender.

 

 

If… Then…
An increase in the amount of down payment decreases the loan amount (with or without a reduction in the term of the loan) and there is no increase in the monthly mortgage payments, No VA approval is needed.

Include an explanation of the change with the closing package

The maturity of the loan is extended, but does not exceed the maximum of 30 years and 32 days or the remaining economic life of the property as provided by the NOV, and there is no increase in the monthly mortgage payments, No VA approval is needed.

Include an explanation of the change with the closing package.

The loan amount is increased to cover the cost of energy efficiency improvements up to $6,000. No VA approval is needed.

See section 3 of chapter 7 for special underwriting requirements and documentation required with the closing package.

Discount points to be paid by the applicant increase by any amount over the points indicated on the Certificate of Commitment No VA approval is needed.

Include with closing package:

  • An explanation of the change
  • The URLA with changes initialed and dated by the applicant.
  • If previously verified assets are not sufficient to cover the additional points, verification of sufficient additional assets.

 

The loan is to be closed at an interest rate more than 1% greater than the rate indicated on the Certificate of Commitment, VA approval is needed.

Submit the Certificate of Commitment and a new URLA, signed and dated by the applicant, or the original URLA with the change initialed and dated by the applicant, to VA for re-underwriting.

 

In our next article, we will discuss Conditional Commitments – Certificates of Commitment that come with conditions that must be met in order to qualify.

VA Loan Processing Procedures, Deciphering the VA Lender’s Handbook Chapter 5 Part 1

Chapter 5 of the VA Lender’s Handbook is primarily dedicated to explaining to lenders how to process and submit VA loans. While much of this chapter in the Handbook is only relevant to lenders, there is good information here for potential borrowers to be aware of. Previous chapters have already covered a great deal of information regarding the VA loan process, with Chapter 4 being the most in-depth. If you’re looking for information regarding VA loans that you do not find in the articles about Chapter 5, take a look at the previous articles in the series and you may find what you’re looking for. This article will be discussing the seven basic procedures that a lender needs to go through to process a VA loan. As a borrower, you can speed up and greatly simplify the process if you know what the lender is going to expect and have it ready.

homecalc

The first step is for the lender to acquire the borrower’s Certificate of Eligibility (COE). This is usually very easy for the lender to do online using the VA’s Information portal, and many borrowers obtain their COE with the lender’s assistance. However, you are able to obtain your COE on your own either online or through a mailed-in application. Doing so could save you some time in the application process, and will also provide you some good information. Whether you decide to do it before going to see a lender or have a lender assist you, a COE will need to be obtained before much more loan processing is done.

The second step is for the reasonable value of the property to be established. This involves scheduling a VA appraisal of the home, the appraisal being conducted, waiting for the results of the appraisal, and finally receiving the results. It is highly advised that the appraisal be ordered early on in the process because it can sometimes take weeks to go from ordering the appraisal to receiving the results. The loan application process can continue before the Notice of Value (NOV) comes back, but it cannot be completed without it.

The third step is for the lender to determine whether the borrower meets the occupancy requirement established by the VA. The occupancy requirement essentially states that the borrower must certify they are intending to occupy the property as his or her primary residence. In order for the VA to agree to guarantee the loan, this requirement must be met. Your lender can give you more information for unusual or extenuating circumstances.

The fourth step is for the loan to be underwritten. In order to complete this step, the NOV must have come back and all of the paperwork must be completed up this point. Chapter 4 (discussed in great detail in previous articles) covers the underwriting process from start to finish. Your loan officer will submit the loan application to the underwriter, but should only do so if the loan officer is reasonably confident that the application will be approved. In other words, if your application makes it as far as underwriting, you have a good chance of getting your loan approved.

The next step that is listed is for the lender to complete the Counseling Checklist for Military Homebuyers with the borrower if the borrower is an active duty service member. This step should be administered as soon as possible after the underwriter has approved the loan. This checklist is required to help military members understand clearly the nature of a home loan and let them know their rights and obligations associated with the loan. For borrowers who go off of active duty after the COE is obtained but before the loan is closed, a new COE that establishes the borrower’s current eligibility is required.

Lastly, for prior approval loans (loans that the lender must submit to the VA for approval before they can be processed – this depends primarily on whether the lender has automatic authority, but also on the type of loan), the lender must submit the loan for prior approval and obtain a Certificate of Commitment (COC) from the VA, and make sure that any conditions listed on the COC are met before closing.

© 2019 Low VA Rates, LLC™. All Rights Reserved. Low VA Rates, LLC™ is not affiliated with any U.S. Government Agency nor do we represent any of them. Corporate Address: 384 South 400 West Suite 100, Lindon, UT 84042, 801-341-7000. Alaska Mortgage Broker/Lender License No. AK-1109426; Arizona Mortgage Banker License #0926340; Licensed by the Delaware State Banking Commission License #018115; Georgia Residential Mortgage Licensee License #40217; Illinois Residential Mortgage License #MB.6761021; Licensed by the New Jersey Department of Banking and Insurance, Ohio Mortgage Loan Act Certificate of Registration #SM.501937.000; Oregon Mortgage Lending License # ML-5266; Rhode Island Licensed Mortgage Lender License #20143026LL; Texas License LOCATED at 201 S Lakeline Blvd., Ste 901, Cedar Park, TX 78613; EAH041719. Click on these links to access our Privacy Policy and our Licensing Information. Consumer NMLS Access - NMLS #1109426