Lender’s Handbook VA Pamphlet 26-7, Revised

1 lender s Handbook VA Pamphlet 26-7, Revised VA Pamphlet 26-7, Revised Table of Contents i Table of Contents Chapter 1-The lender 1-1 Definitions and Authorities .. 1-2 Before a lender Starts Making VA 1-6 Before a lender Starts Making VA Loans in a New State .. 1-8 Lenders That are Considered Supervised .. 1-9 How a Nonsupervised lender Applies for Automatic 1-12 Certifications a Nonsupervised Automatic lender Must Comply 1-19 How a Nonsupervised Automatic lender Requests Extension of Authority, Underwriter Approval or Approval to Close Loans Involving an 1-22 How a Supervised or Nonsupervised Automatic lender Requests VA Recognition of an 1-25 Mergers and Acquisitions Involving Supervised or Nonsupervised Automatic Lenders.

2 1-31 Withdrawal of Automatic Authority from Supervised or Nonsupervised Automatic Lenders .. 1-36 Participation Fees for Supervised and Nonsupervised Automatic 1-40 Maintenance of Loan 1-45 lender ID Numbers .. 1-46 lender Access to Training and Information .. 1-48 Figure 1-A Calculation of Adjusted Net 1-50 Figure 1-B Elements of a Quality Control 1-52 Figure 1-C Checklist Application for Authority to Close Loans on an Automatic Basis .. 1-56 Chapter 2-Veterans Eligibility and Entitlement 2-1 How to Establish the Applicant s Eligibility for a VA 2-2 What the Certificate of Eligibility Tells the lender .. 2-4 How to Apply for a Certificate of 2-8 Proof of Service 2-10 Basic Eligibility 2-13 Restoration of Previously Used Entitlement .. 2-15 Misuse of Veteran s Entitlement.

3 2-17 Certificate of Veteran Status FHA Loans .. 2-18 Exhibit 2-A Quick Reference Table for VA 2-20 Continued on next page Table of Contents VA Pamphlet 26-7, Revised ii Table of Contents, Continued Chapter 3-The VA Loan and Guaranty 3-1 Basic Elements of a VA-Guaranteed Loan .. 3-2 Eligible Loan Purposes .. 3-5 Maximum Loan .. 3-8 Maximum Guaranty on VA Loans .. 3-11 3-13 Interest Rates .. 3-17 Discount 3-18 3-20 3-21 Eligible Geographic Locations for the Secured Property .. 3-23 What Does VA Guaranty Mean to the lender ? .. 3-24 Post-Guaranty Issues.

4 3-27 Chapter 4-Credit Underwriting 4-1 How to Underwrite a VA Guaranteed Loan .. 4-2 4-6 Income Taxes and Other Deductions from 4-27 Assets .. 4-29 Debts and 4-31 Required Search for and Treatment of Debts Owed to the Federal Government .. 4-36 Credit 4-44 Documentation for Automated Underwriting Cases .. 4-50 How to Complete VA Form 26-6393, Loan 4-60 How to Analyze the Information on VA Form 4-65 Examples of Underwriting 4-69 Continued on next page VA Pamphlet 26-7, Revised Table of Contents iii Table of Contents, Continued Chapter 5-How to Process VA Loans 5-1 Refinancing 5-2 Procedures the lender Must Complete Before VA Issues Guaranty.

5 5-3 How to Submit Loan Documents to 5-5 Prior Approval Loan Procedures .. 5-6 Automatically Closed Loan Procedures .. 5-15 Submit Other Necessary Documents .. 5-18 What Does VA Do When Loans are Reported?.. 5-22 Exhibit 5-A VA Form 26-0285, VA Transmittal 5-23 Exhibit 5-B VA Form 26-0286, VA Loan Summary Sheet .. 5-24 Chapter 6-Refinancing Loans 6-1 Interest Rate Reduction Refinancing Loans (IRRRLs).. 6-2 IRRRL Made to Refinance Delinquent 6-14 Cash-Out Refinancing Loans .. 6-19 Quick Reference Table for IRRRLs Versus Cash-Out Refinancing 6-21 Other Refinancing Loans .. 6-23 Chapter 7-Loans Requiring Special Underwriting, Guaranty and Other Considerations 7-1 Joint Loans .. 7-2 Construction/Permanent Home Loans .. 7-13 Energy Efficient Mortgages (EEMs) .. 7-15 Loans for Alteration and Repair .. 7-21 Supplemental 7-22 Graduated Payment Mortgages (GPMs).

6 7-27 Growing Equity Mortgages (GEMs) .. 7-32 Loans Involving Temporary Interest Rate 7-33 Farm Residence 7-36 Cooperative Home 7-38 Loans for Manufactured Homes Classified as Real Estate .. 7-39 Loans to Native American Veterans on Trust Lands .. 7-42 Continued on next page Table of Contents VA Pamphlet 26-7, Revised iv Table of Contents, Continued Chapter 8-Borrower Fees and Charges and the VA Funding Fee 8-1 VA Policy on Fees and Charges Paid by the Veteran-Borrower .. 8-2 Fees and Charges the Veteran-Borrower Can Pay .. 8-3 Fees and Charges the Veteran-Borrower Cannot 8-9 Other Parties Fees and Charges for the 8-11 Seller Concessions .. 8-12 What Happens to Fees and Charges If the Loan Never 8-14 Fees and Charges That Can be Included In the Loan 8-15 The VA Funding 8-17 Chapter 9-Legal Instruments, Liens, Escrows and Related Issues 9-1 Security Instruments.

7 9-2 Title 9-5 Land Sale Contracts and Option Contracts .. 9-8 Secondary 9-9 Purchase of Property with Encumbrances .. 9-11 Liens Covering Community-Type Services and 9-12 Powers of 9-14 lender Review of Sales Contracts on Proposed 9-17 Escrow for Postponed Completion of 9-19 Hazard 9-24 Escrow for Taxes and Insurance .. 9-27 Chapter 10-Property Eligibility and Appraisal Requests 10-1 Why An Appraisal Is Required .. 10-2 Who Can Request an 10-3 The VA Assignment System .. 10-4 How to Request an 10-5 Types of Property Eligible for 10-8 Properties Not Eligible for Appraisal .. 10-13 Other Appraisal Request 10-15 New Construction .. 10-18 Ten-Year Insured Protection 10-20 Construction Exhibits .. 10-22 Conversion of HUD Value Notices for VA Use.

8 10-27 Fees For Appraisals and Inspections .. 10-28 Figure 1: Builder Information and 10-30 Continued on next page VA Pamphlet 26-7, Revised Table of Contents v Table of Contents, Continued Chapter 11-Appraiser Requirements 11-1 Using This 11-2 VA Reasonable 11-3 VA Appraisal Requirements .. 11-4 Appraisal Report Contents .. 11-6 Submission of Appraisal Reports .. 11-8 Approaches to 11-9 Selection and Analysis of Comparable Sales .. 11-10 Other Market Analysis 11-12 Minimum Property Requirements and Repairs .. 11-15 Remaining Economic Life of Improvements .. 11-16 Proposed 11-17 Other Property Types and Situations .. 11-19 Liquidation 11-24 Figure 1: Liquidation Appraisal Addendum Example.

9 11-27 Chapter 12-Minimum Property Requirements 13-1 MPR Variations and Exemptions .. 12-3 Proposed Construction MPRs .. 12-4 Basic MPRs .. 12-6 Shared Facilities and 12-9 Access-Related Issues .. 12-10 Hazards and Defective 12-11 Fuel Pipelines and High Voltage Electric Lines .. 12-13 Individual Water Supply/Sewage Disposal 12-14 Community Water Supply/Sewage Disposal 12-16 Manufactured Homes Classified as Real 12-20 Continued on next page Table of Contents VA Pamphlet 26-7, Revised vi Table of Contents, Continued Chapter 13-Value Notices 13-1 Reviewing Appraisal 13-3 Resolving LAPP Appraisal Review Problems .. 13-5 Documenting LAPP Appraisal 13-7 LAPP Related Changes to Appraiser s Value 13-9 Preparing Notices of Value.

10 13-11 Notice of Value Conditions and Requirements .. 13-12 Distributing Notices of 13-24 How Long Notice of Value is Valid .. 13-25 Changing Notices of Value .. 13-26 Transfer of Appraiser s Reports Between Lenders .. 13-29 Discovery of Title Limitations & 13-30 Effect of Major Disasters on Notices of Value .. 13-34 Exhibit 1 LAPP lender s Notice of Value .. 13-35 Chapter 14-Construction Inspections 14-1 Obtaining an Inspection .. 14-3 Inspection Stages .. 14-4 VA Reliance on Local Building Inspections for First and Second Stages .. 14-10 Manufactured Homes Classified as Real 14-11 Delayed Installation of Appliances and Finished Floor Covering .. 14-13 lender Use of Inspection Reports .. 14-14 Changes to Construction Exhibits .. 14-15 Chapter 15- lender Appraisal Processing Program 15-1 LAPP 15-3 lender Quality Control System Requirements.