VA Lending – Basic Training

Brought to you by: Quicken Loans Mortgage Services – Q-University

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October 19, 2011

February 2014

What You will learn Today

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The Facts and Benefits Of VA

Who is Eligible for VA Loans

How to Structure VA Loans

Qualification Parameters

The “You Do/We Do”

Top 10 VA MyThs…DebunkeD

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$

The Benefits of VA Loans

What is it? What’s the Opportunity? What are the Benefits? How Does it Compare? Product Options?

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What is a VA Guaranteed Loan?

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“Guarantee” means the lender is protected against loss in

the event of a foreclosure, and replaces the protection

the lender normally receives by requiring a down

payment and/or PMI allowing the veteran to obtain

favorable financing terms.

VA charges a Funding Fee to pay for this insurance.

What are the Benefits of VA?

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Zero Down Purchases

No Monthly Mortgage Insurance

Lowest Monthly Payment

No Prepayment Penalties

The Mortgage is Assumable

Competitive Interest Rates & Closing Fees

100% LTV on Rate and Term Refinances

90% Cash out Refinances

Credit Scores as low as 620

DTI up to 60% with Approve Eligible Findings

Fixed rate only

If FICO score is < 640 and LTV > 95%, DTI is capped at 45%

Product Comparison

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VA FHA Agency

Max LTV 100% 96.5% 95%

(min 680 FICO score)

Max Base Loan

Amount $200,000 $193,000 $190,000

Upfront Mortgage

Insurance $6,600

(3.3% funding fee*) $3377.00

(1.75% UFMIP) $0

Max Total Loan

Amount $206,600 $196,377 $190,000

Monthly MI $0

$217.13 $207.42

Total Payment $986.34 $1,154.66 $1,114.51

Sir, Yes, sir! VA has the Lowest Monthly Payment!

Loan Scenario:

$200,000 Loan Amount

30 Year Fixed

Purchase

4% Interest Rate

Funding Fee* for a 100% Purchase with Subsequent Use.

$168.32

cheaper to

go VA than

FHA

VA Loan Programs

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Terms available:

Fixed: 15, 20, 25 and 30 year

ARM: 5/1 ARM

Also available: VA Jumbo: 15, 25 and 30 year +

5/1 ARM

Who Is Eligible for VA Loans?

Who’s VA Eligible? Who is VA IRRRL Eligible? What are the Guidelines and Qualifications for VA Loans?

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Who is eligible For VA?

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An eligible veteran is a person who:

Served in the military (Active Duty, Reserves, or National

Guard)

Served with acceptable character of service, or

Is the unmarried spouse of a deceased veteran who died while

in service or of service connected issues.

Active Duty Reserves/National

Guard Wartime Service

90 Days 6 Years 90 days

A veteran who has served less than the minimum required period of service or was discharged because of

a service-connected disability, may still be eligible.

Who is eligible for VA IRRRL?

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IRRRL – Interest Rate Reduction Refinance Loan

What Is it? A VA loan program where a veteran

refinances an existing VA loan.

What are the Benefits of an IRRRL?

Requires less documentation

Lower VA Funding Fee (only .5%)

Quicker Turn Times

Conventional appraisal required except for Quicken to

Quicken refinances (loan must be currently serviced by

Quicken)

General Rule: All clients on the previous loan must be on

the new loan

VA Loan Specific Requirements

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Only Veteran and Spouse may be on loan and title No non-owner occupied borrowers allowed

Co-borrower must be married to Veteran

Same Sex marriages are now allowed in certain states. VA must approve prior to submission to underwriting.

Must count child care for children < 12 years old in debt ratio

Residual Income calculations used in qualification, along with debt ratio calculations

Condos and Builders must be on VA approved list https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch

OR

https://entp.hud.gov/idapp/html/condlook.cfm

Qualification Details

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No Housing Ratio Calculation

Max Debt Ratio

Up to 60% with Approve/Eligible Findings 45% on ARMS

620 Minimum Credit Score

Max 1x30 mortgage/rent history in past 12 months

Max 45% Refer/Manual

640 Minimum Credit Score

0x30 mortgage/rent history in last 12 months

Max 2x30 in last 12 months on revolving/installment debt

2 months reserves required

How to Structure a VA Loan What are the Key Questions to Ask? How do you Price? Compensation? What does the 1003 Look Like?

How Do I Calculate Funding Fee/Entitlement? Fees & GFE Preparation

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Other Key Questions VA qualification

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Who will be occupying the property at close?

If active duty, spouse can satisfy occupancy requirements

Who will be on title?

Only spouse can be co-client or added to title

What’s the name, address, telephone # of the nearest

living relative outside of the home?

If condo, what is the condo project name? (Must be on

approved VA list)

If new construction, builder must be on the VA approved

list

How do you calculate the VA Funding

Fee?

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To determine Funding Fee, the following factors will

apply:

Type of Service (Regular duty or Reserves/National Guard)

Down Payment amount

First time or Subsequent Use

Veteran receiving VA Related Disability and Surviving Spouses

May be eligible for exemption of Funding Fee (Funding Fee = 0%)

Key Questions for funding fee

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What is your military branch of service?

What is your service type?

Are you currently receiving, eligible to receive or have

previously received VA disability?

Yes/ No (If yes, then exempt from Funding Fee.)

Have you ever had a VA loan?

What is your military status?

Is your current loan a VA loan?

(IRRRL has Reduced Funding Fee of .50%)

VA Funding Fee CHART

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Veterans Can Use the VA Home Loan

Benefit Multiple Times!

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Here’s how it works:

VA provides each qualified Veteran with at least

$104,250 in “entitlement” and extra entitlement in

select high cost counties.

Entitlement has a 25% rule – you have to have 25% of the

loan amount in entitlement to guarantee the loan.

When a Veteran obtains a VA loan, a portion of the

entitlement is “charged” to the loan as a guaranty to

the lender in the event of default

How to calculate entitlement

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Entitlement Examples Full Entitlement Reduced Entitlement High Cost County (Camden, NJ) Non-High cost County

Loan Amount $200,000 $200,000 $940,000 $940,000 Value $200,000 $200,000 $940,000 $940,000

Entitlement

Available $104,250 $25,000 $235,000 $104,250

Entitlement

Required $50,000 $50,000 $235,000 $235,000

Equity or Down

payment

needed $0 $25,000 $0 $130,750

Max Loan

Amount $200,000 $175,000 $940,000 $809,250

All qualified Veterans start out with: $36,000 in basic entitlement; and

$68,250 in bonus entitlement or $120,375

bonus in AK and HI

Extra entitlement for high cost counties

available to county limit (see chart in GURU)

Note: Bonus entitlement can only be applied

to loan amounts > $144,000

The math:

$104,250 in entitlement x

25% = $417,000

Pricing a VA Loan

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How You Earn Your compensation

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Client Paid Compensation (Direct)

VA mandates that total origination charges not exceed 1%.

This includes percentage based and flat fees (i.e. loan

application or processing fees)

Lender Paid Compensation

Must choose a rate that produces a rate premium that is AT

OR ABOVE your pre-determined compensation plan with

QLMS.

QLMS charges NO ($0)underwriting fees

for VA loans

*Non-allowable Costs:

Administration

Underwriting

Processing

Tax service

Courier/mail fees, etc.

Attorney services that are other than for title work Must be on title exam line on

HUD-1

Origination (1% max)

Discount

Appraisal

Credit report

Title search (Title Exam)

Title insurance

Recording fees

Survey

Closing Costs

**Allowable Costs:

** Allowable Costs may be paid by

veteran/borrower.

*Non-allowable costs may be paid by

Lender or Seller.

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Lender Paid

Compensation =

You can make your Broker

Comp up to 3%

GFE – Example

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The Process Of a VA Loan at QLMS

Who Does What? The “You Do/We Do” and The Things We Need From You (TTWNFY)

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What we Do for your client

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QLMS will issue the Things We Need From You and Post Required

Disclosures

QLMS will access from the Automated Certificate of Eligibility (ACE) System

If unable to obtain, your CCS will reach out for assistance

QLMS will ensure VA Appraisal is Ordered

Do not order an appraisal through the VA site! This will be considered an appraisal

transfer with additional documentation required

We will perform all the Vendor Management Services (HOI, VOE’s, Payoffs,

etc.)

QLMS will Underwrite and Condition the File

QLMS will send Funding Fee and application for Guarantee after loan closing

Your part - What You do

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Complete the 1003 and Register

Gather The Things We Need from You

HUD – VA Addendum to URLA

QLMS Mortgage Broker Fee Agreement

VA Child Care Expense Statement (If Applicable)

VA Loan Disclosures and Certifications

VA Amendment to Purchase Contract (If

Applicable)

Help with COE if needed (obtain

DD214 or other documentation from

client)

Manage the lock process

Initiate Appraisal Order on Lender

Portal

Send Conditions

Set Closing Time with Veteran

What evidence is needed to get the COE?

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Veteran

• DD Form 214;

Active Duty

• A current statement of service signed by (or by the direction of): the adjutant, personnel office, or commander of the unit or higher headquarters showing:

• Your full name Social Security Number

• Date of birth

• Entry date on active

• duty

• The duration of any

• lost time

• The name of the command providing the information

Currently Serving in Reserves/National Guard

• Statement of service signed by (or by the direction of): the adjutant, personnel officer or commander of your unit or higher headquarters showing:

• Your full name Social Security Number

• Date of birth Entry date on duty

• The total number of creditable years of service

• The duration of any lost time

• The name of the command providing the information

Discharged Member of National Guard

• Either: NGB Form 22, Report of Separation and Record of Service, for each period of National Guard service

• OR

• NGB Form 23, Retirement Points Accounting, and proof of the character of service

Discharged Member of Selected Reserve

• Copy of your latest annual retirement points statement and evidence of honorable service

If Quicken is unable to obtain the client’s Certificate of Eligibility (COE)

from VA’s automated site, we will require one of the following:

In GURU under VA Client

Eligibility > VA Documentation

Requirements

COE example

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COE

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For COEs with exempt status the following conditions may appear:

Funding fee – Veteran is exempt from the funding fee due to receipt of service connected

disability compensation of $____monthly

Funding fee – Veteran is exempt from the funding fee due to receipt of service connected

disability compensation. Monthly compensation rate has not been determined to date

Funding fee – Please fax a copy of VA form 26-8937(VOB) to the VA regional loan center of

jurisdiction

Funding fee – Please have the lender VA regional loan center for loan processing. Please fax a

copy of VA form 26-8937 to the RLC of jurisdiction

For COEs with a non-exempt status the following condition may appear:

Funding fee – Veteran is not exempt from the funding fee

Funding fee – Veteran is not exempt from the funding due to receipt of non-serviced

connected pension. Loan application will require prior approval processing by VA.

For COEs with “contact RLC” status the following condition will appear

Funding fee - Please fax a copy of the 26-8937 to the RLC of jurisdiction.

VA Survival Guide

Underwriting and Structuring the loan

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bAsic unDerwriTing: The “Diff”

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Military Income – Active Duty

Additional income may be used for qualification

BAS, BAH, OHA, Combat Pay, etc.

Cannot be grossed up

Look for allotments on LES

If ETS is < 12 months from closing date

Client must prove re-enlisted, or

Civilian offer letter

Assets

Only need reserves if using rental income or if loan is Refer/Eligible

bAsic unDerwriTing: The “Diff”

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Only one Qualifying Ratio = 41%

To exceed 41% ratio, the veteran must have 20% additional

residual income above the required amount and obtain

Approve/Eligible Findings

Residual Income requirements must be satisfied

Residual income must be greater or equal to amount

established for applicable region, income level, and

family size

Residual is calculated by number in family, geographic location

and square footage of subject property

Include all household members in family size

Key Questions for residual income

calculation

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Are you located within 30 miles of a military base?

Reduction in Residual Income calculation

How much are your monthly tax withholdings? (Federal/State/SSI/FICA)

How many dependents do you have? What are their ages?

Residual calculation is dependent on number in household

How much are your monthly child care expenses?

Required for children ages 12 and younger

What’s the square footage (gross living area) of your home?

Utilities and Maintenance expense is $0.14 x GLA

Residual Income chart

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5 instances allow a veteran to get more

than one VA loan:

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1. They can use left-over entitlement that was not charged to a prior

loan.

2. They can sell the property to pay off the previous VA loan and restore

the entitlement.

3. They can pay off a VA loan (by paying it down or refinancing), and

restore the entitlement.

VA allows entitlement to be restored using this method only once.

4. They can refinance the old VA loan into a new VA loan to reduce the

rate and payment or convert your ARM into a Fixed.

In this case, the entitlement from the prior loan transfers to the new loan.

5. Another qualified Veteran can assume the prior VA loan (subject to

lender approval) and substitute his/her own entitlement.

PURCHASE MONEY: Seller Concessions

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4% Max Seller Concessions

Does not include normal and customary closing costs or

discount points of up to 2%

4% includes:

Paying over 2% in discount points

Paying veterans debt to qualify for the loan

Payment of veterans judgments

Funding Fee

Prepayment of property taxes and insurance

Want to Learn More?

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Email us today at:

QUniversity@QuickenLoans.com