VHM VA Credit Policy - VA Loan Requirements 2015 | VA ...

1 Veterans Home Mortgage VA Credit Policy THIS INFORMATION IS TO BE PROVIDED EXCLUSIVELY TO MORTGAGE PROFESSIONALS/REFERRAL SOURCES AND IS NOT INTENDED FOR PUBLIC USE. THIS IS NOT AN ADVERTISEMENT TO EXTEND CONSUMER Credit AS DEFINED IN REGULATION Z, ALL LOANS ARE SUBJECT TO Credit AND PROPERTY APPROVAL. PROGRAMS, RATES, TERMS AND CONDITIONS ARE SUBJECT TO CHANGE WITHOUT NOTICE. NOT ALL PRODUCTS ARE AVAILABLE IN ALL STATES OR FOR ALL loan AMOUNTS. OTHER RESTRICTIONS APPLY. ALL RIGHTS RESERVED. 08/06/2008 The Credit Policy Manual makes reference to The Lender . The Lender shall at all times refer to the institution or business, which is to ultimately fund or purchase the mortgage loan . Any outside business or entity involved, at any time, in the process of the originating, processing, underwriting, or closing of the mortgage must comply with The Lender s Credit Policy as set forth in this manual.

2 Any discrepancies between this Credit Policy Manual and published Product Profiles will defer to whichever has the most recent revision date. This manual was last revised REVISION CHAPTER 1 ELIGIBILITY Requirements ..8 INTRODUCTION ..8 UNDERWRITING PHILOSOPHY ..8 IMPLEMENTING Credit Policy ..8 REGULATORY ISSUES ..9 GUIDELINE CHANGES ..9 PRODUCT AVAILABILITY ..9 SECTION GENERAL ELIGIBILITY ISSUES ..9 Applicant s Age ..9 Co-Borrower/Co-Signer ..9 Foreign Documentation .. 10 Non-Borrowing/Non-Purchasing Spouse .. 10 Residency Status .. 10 Trust Eligibility Criteria .. 10 Checklist for Inter Vivos Revocable Trusts .. 11 SECTION OCCUPANCY .. 12 Owner Occupied Principle Residence .. 12 SECTION SECONDARY FINANCING .. 12 SECTION CONTRACT FOR DEED / LAND CONTRACT .. 13 CHAPTER 2 VA FINANCING .. 14 SECTION INTRODUCTION .. 14 SECTION VA FUNDING FEE 14 Funding Fees .. 14 Computing Funding Fee .. 14 Exemption from Funding Fee.

3 15 SECTION APPLICANT ELIGIBILITY .. 15 Reserves and National Guard .. 16 Surviving Spouse of an Eligible Veteran .. 16 Co-Applicants/Joint Loans .. 16 Credit Alert Interactive Voice Response (CAIVRS) .. 18 SECTION VA ENTITLEMENT AND loan GUARANTY .. 19 Certificate of Eligibility .. 19 Requesting a Certificate of Eligibility .. 19 Multiple Certificates of Eligibility .. 19 SECTION ELIGIBLE REFINANCE TRANSACTIONS .. 19 Comparison of VA Refinancing Loans .. 19 Regular Refinances .. 20 Interest Rate Reduction Refinancing Loans (IRRRL) .. 21 Rate Reduction Refinance of an Adjustable Rate 21 Recently Listed Properties .. 22 SECTION SUBORDINATE FINANCING .. 22 SECTION MAXIMUM GUARANTY AMOUNT .. 23 Worksheet for Computing VA Guaranty for Purchase of a Home .. 23 Entitlement for loan Guaranty Benefits .. 24 SECTION VA loan FEES AND CHARGES .. 25 Closing Costs .. 25 Allowable Fees.

4 25 Seller Concessions .. 28 What Happens to Fees and Charges if the loan Never Closes .. 28 SECTION VA PROCESSING .. 28 Assignment of VA Case Number .. 28 Veteran Applicant Signatures .. 28 Veteran Income Not Required .. 29 Changes in Interest Rate or Discount .. 29 Nearest Living 29 VA Residual Income Requirements .. 29 Number of Dependents .. 29 Minimum Residual Income 29 Exceeding Ratios and Residual .. 29 Debt to Income Ratio .. 30 Status of Housing Availability .. 30 Verification of VA Related Indebtedness .. 30 Non-Taxable Income/Grossing Up .. 30 Amendatory Clause .. 30 Power of Attorney .. 31 VA Loans In Disaster Areas .. 31 SECTION VA AUTOMATIC LIMITATIONS .. 32 LAPP Property Eligibility .. 32 SECTION ASSUMPTIONS .. 32 CHAPTER 3 Credit .. 33 SECTION INTRODUCTION .. 33 SECTION DOCUMENTING Credit .. 33 SECTION Credit HISTORY .. 34 SECTION OTHER FEDERAL DEBTS.

5 34 SECTION RESIDENTIAL MORTGAGE Credit REPORT .. 34 Three Repository Merged Credit Report .. 35 Unacceptable Credit Reporting Practices .. 35 Credit Reports on Non-Borrowing Spouses .. 36 Separate Verifications of Credit .. 36 Non-Traditional Forms of Credit .. 36 Document Expiration Dates .. 37 Credit Explanation Letters .. 37 SECTION REVIEWING Credit HISTORY / ANALYSIS OF RISK .. 38 How to Analyze Credit .. 38 Debt Payoff/Pay Down .. 39 Paying Down Debt to Qualify .. 39 SECTION Credit AND LIABILITY DOCUMENTATION .. 40 Alimony/Separate Maintenance .. 40 Automobile Leases .. 40 Bankruptcy .. 40 Business Debts (Self-employed Applicant) Corporations .. 41 Child Care .. 41 Child Support .. 41 Collection Accounts .. 41 Consumer Credit Counseling Services (CCCS) .. 41 Contingent Liability .. 41 Deed in Lieu of Foreclosure .. 42 Delinquent Housing (Mortgage or Rental).

6 42 Delinquencies Installment .. 42 Delinquencies - Revolving .. 42 Delinquent Federal Debt-VA .. 43 Defaulted Student Loans .. 43 Deferred Loans .. 43 Employee Savings Plan Loans (401K, etc.) .. 43 Foreclosure/Primary Residence .. 43 Foreclosures on Second Homes or Investment Property .. 44 Garnishment .. 44 Lawsuits .. 44 Military Allotments .. 45 Military Advance Pay .. 45 Mortgage History .. 45 Mortgages .. 45 Mortgages - Relocating Applicant .. 46 Projected Liabilities .. 46 Real Estate Expense .. 46 Rental Loss .. 46 Revolving Accounts .. 46 Installment Accounts .. 46 Tax Liens .. 47 Term Notes .. 47 Debts Owed to Relatives .. 47 Margin Loans/Stock Accounts .. 47 Repossessions .. 47 Employment/Job Related Expense .. 48 Short Pays at loan Payoff .. 48 Rent Payments .. 48 NSF / Non-Sufficient Funds .. 48 Compensating Factors .. 48 SECTION EXTENUATING CIRCUMSTANCES.

7 49 Examples of Extenuating Circumstances .. 49 Situations That Do Not Qualify as Extenuating Circumstances .. 49 Financial 50 SECTION RE-ESTABLISHING Credit .. 50 SECTION REVIEWING QUALIFYING .. 50 Applicant s Qualifying Ratios .. 51 An Increase in Obligations .. 51 SECTION QUALIFYING THE APPLICANT .. 51 Monthly Housing Expense .. 51 Total Monthly Obligations .. 51 Long Term Obligations .. 51 Qualifying Ratios .. 52 CHAPTER 4 INCOME .. 53 SECTION INTRODUCTION .. 53 Income History .. 53 Stable Earnings .. 53 Continuance of 53 SECTION DOCUMENTING INCOME .. 53 Alternative Documentation .. 54 Written Verification of Employment .. 54 Income Tax Returns .. 55 Reviewing Employment 55 SECTION CALCULATING INCOME .. 56 Calculating Variable Forms of Income .. 56 Source of Income .. 56 Non-Taxable Income .. 57 SECTION TYPES OF INCOME .. 57 Alimony / Separate 58 Auto Allowance.

8 58 58 Capital Gains .. 58 Child Support .. 58 Clergy .. 59 Commission .. 59 59 Disability .. 59 Dividends and Interest .. 60 Employment (Wages and Salary) .. 60 Family Owned Business .. 60 Foster Care Income/Court Ordered Custody .. 61 Foreign Income .. 62 Government Assistance Programs .. 62 IRA/KEOGH Distributions .. 62 Military (Active Duty) .. 62 Mortgage Differential Payments .. 63 Notes Receivable .. 63 Overtime .. 63 Partnership Income .. 64 Pension/Retirement .. 64 W2 Professional Salaried Income .. 64 Projected Income .. 64 Recently Discharged or Retired Veteran .. 64 Rental Income .. 65 Rental Income - Subject Investment Property .. 65 Reservist/National Guard .. 65 Room and Board .. 65 Seasonal Employment .. 65 Second Job .. 66 Shift Differential .. 66 Social Security - Retirement .. 66 Social Security -- Surviving Spouse and Child or Payments to Family Members.

9 66 Temporary Employment .. 66 Tips .. 66 Trailing Spouse .. 67 Truck Drivers .. 67 Trust Income .. 67 Unemployment Compensation .. 67 Union Member .. 67 VA Benefits .. 67 Workers Compensation .. 68 Lottery Income .. 68 SECTION SPECIAL INCOME CRITERIA .. 68 Maternity Leave .. 68 Payroll/Leasing Company Employees .. 69 Unacceptable Forms of Income .. 69 VA-Short Term Employment to Offset Debts .. 69 SECTION SELF-EMPLOYED APPLICANT .. 69 Length of Self-Employment .. 69 SECTION SELF-EMPLOYED BUSINESS STRUCTURES .. 70 Sole Proprietorship .. 70 Partnership .. 70 Corporation .. 70 S Corporation .. 70 SECTION SELF-EMPLOYED INCOME ANALYSIS .. 71 Schedule Analysis Method of Evaluating Returns .. 71 Adjusted Gross Income Method of Evaluating Tax Returns .. 72 Evaluating Corporate Tax Returns .. 74 Evaluating S Corporation Tax Returns .. 74 Evaluating Partnership Tax Returns.

10 75 Evaluating Profit and Loss Statements .. 75 Evaluating the Balance Sheet .. 75 CHAPTER 5 ASSETS .. 77 SECTION INTRODUCTION .. 77 Required Funds .. 77 SECTION DOCUMENTING ASSETS .. 77 Alternative Documentation .. 77 Written Verification of Deposit (VOD) .. 77 SECTION ACCESS TO FUNDS .. 78 SECTION DETAILS OF THE TRANSACTION (URLA) .. 78 Applicants Minimum Investment .. 78 Required Reserves .. 78 Seller Contributions (Financing Concessions) .. 79 Sales Concessions .. 79 Non-Arms Length Transactions .. 79 SECTION SOURCE OF FUNDS / ASSETS TO CLOSE .. 79 1031 Exchange .. 80 Bank Account .. 80 Bridge loan .. 80 Cash .. 80 Cash Advance on Credit Card .. 81 Cash Saved at Home .. 81 Collateralized/Secured Loans .. 81 Commission From Sale of Subject Property .. 81 Corporate Funds .. 81 Currency Conversions .. 82 Earnest Money Deposit .. 82 Employee Savings Plans (401K).