PDF VHM VA Credit Policy - VA Loan Requirements 2015

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, ?226.2. 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.

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 02.21.2009.

CHAPTER 1 ? ELIGIBILITY REQUIREMENTS ........................................................................................................8

INTRODUCTION ....................................................................................................................................................8 UNDERWRITING PHILOSOPHY...........................................................................................................................8 IMPLEMENTING CREDIT POLICY........................................................................................................................8 REGULATORY ISSUES.........................................................................................................................................9 GUIDELINE CHANGES .........................................................................................................................................9 PRODUCT AVAILABILITY .....................................................................................................................................9 SECTION 100.00 ? GENERAL ELIGIBILITY ISSUES...........................................................................................9

100.01 - Applicant's Age ....................................................................................................................................9 100.02 - Co-Borrower/Co-Signer .......................................................................................................................9 100.03 - Foreign Documentation .................................................................................................................... 10 100.04 - Non-Borrowing/Non-Purchasing Spouse ......................................................................................... 10 100.05 - Residency Status.............................................................................................................................. 10 100.06 - Trust Eligibility Criteria...................................................................................................................... 10 Checklist for Inter Vivos Revocable Trusts...................................................................................................... 11 SECTION 101.00 ? OCCUPANCY...................................................................................................................... 12 101.01 ? Owner Occupied Principle Residence .............................................................................................. 12 SECTION 102.00 ? SECONDARY FINANCING ................................................................................................. 12 SECTION 103.00 ? CONTRACT FOR DEED / LAND CONTRACT ................................................................... 13

CHAPTER 2 - VA FINANCING .............................................................................................................................. 14

SECTION 200.00 ? INTRODUCTION ................................................................................................................. 14 SECTION 201.00 ? VA FUNDING FEE REQUIREMENT................................................................................... 14

201.01 - Funding Fees.................................................................................................................................... 14 201.02 - Computing Funding Fee ................................................................................................................... 14 201.03 - Exemption from Funding Fee ........................................................................................................... 15 SECTION 202.00 ? APPLICANT ELIGIBILITY ................................................................................................... 15 202.01 - Reserves and National Guard .......................................................................................................... 16 202.02 - Surviving Spouse of an Eligible Veteran .......................................................................................... 16 202.03 - Co-Applicants/Joint Loans................................................................................................................ 16 202.04 - Credit Alert Interactive Voice Response (CAIVRS).......................................................................... 18 SECTION 203.00 ? VA ENTITLEMENT AND LOAN GUARANTY ..................................................................... 19 203.01 - Certificate of Eligibility ...................................................................................................................... 19 203.02 - Requesting a Certificate of Eligibility ................................................................................................ 19 203.03 - Multiple Certificates of Eligibility ....................................................................................................... 19 SECTION 204.00 ? ELIGIBLE REFINANCE TRANSACTIONS ......................................................................... 19 204.01 - Comparison of VA Refinancing Loans ............................................................................................. 19 204.02 - Regular Refinances .......................................................................................................................... 20 204.03 - Interest Rate Reduction Refinancing Loans (IRRRL) ...................................................................... 21 204.04 - Rate Reduction Refinance of an Adjustable Rate Mortgage............................................................ 21 204.05 ? Recently Listed Properties................................................................................................................ 22 SECTION 205.00 ? SUBORDINATE FINANCING.............................................................................................. 22 SECTION 206.00 ? MAXIMUM GUARANTY AMOUNT ..................................................................................... 23 206.01 - Worksheet for Computing VA Guaranty for Purchase of a Home.................................................... 23 206.02 - Entitlement for Loan Guaranty Benefits ........................................................................................... 24 SECTION 207.00 ? VA LOAN FEES AND CHARGES ....................................................................................... 25

207.01 - Closing Costs ................................................................................................................................... 25 207.02 - Allowable Fees ................................................................................................................................. 25 207.03 - Seller Concessions........................................................................................................................... 28 207.04 - What Happens to Fees and Charges if the Loan Never Closes ...................................................... 28 SECTION 208.00 ? VA PROCESSING............................................................................................................... 28 208.01 - Assignment of VA Case Number...................................................................................................... 28 208.02 - Veteran Applicant Signatures ........................................................................................................... 28 208.03 - Veteran Income Not Required .......................................................................................................... 29 208.04 - Changes in Interest Rate or Discount .............................................................................................. 29 208.05 - Nearest Living Relative..................................................................................................................... 29 208.06 - VA Residual Income Requirements ................................................................................................. 29 208.07 - Number of Dependents .................................................................................................................... 29 208.08 - Minimum Residual Income Requirements........................................................................................ 29 208.09 - Exceeding Ratios and Residual ....................................................................................................... 29 208.10 - Debt to Income Ratio........................................................................................................................ 30 208.11 - Status of Housing Availability ........................................................................................................... 30 208.12 - Verification of VA Related Indebtedness.......................................................................................... 30 208.13 - Non-Taxable Income/Grossing Up ................................................................................................... 30 208.14 - Amendatory Clause .......................................................................................................................... 30 208.15 - Power of Attorney ............................................................................................................................. 31 208.16 - VA Loans In Disaster Areas ............................................................................................................. 31 SECTION 209.00 ? VA AUTOMATIC LIMITATIONS.......................................................................................... 32 209.01 ? LAPP Property Eligibility ................................................................................................................... 32 SECTION 210.00 ? ASSUMPTIONS .................................................................................................................. 32

CHAPTER 3 - CREDIT........................................................................................................................................... 33

SECTION 300.00 ? INTRODUCTION ................................................................................................................. 33 SECTION 301.00 ? DOCUMENTING CREDIT ................................................................................................... 33 SECTION 302.00 ? CREDIT HISTORY .............................................................................................................. 34 SECTION 303.00 ? OTHER FEDERAL DEBTS ................................................................................................. 34 SECTION 304.00 ? RESIDENTIAL MORTGAGE CREDIT REPORT ................................................................ 34

304.01 - Three Repository Merged Credit Report .......................................................................................... 35 304.02 - Unacceptable Credit Reporting Practices ........................................................................................ 35 304.03 - Credit Reports on Non-Borrowing Spouses ..................................................................................... 36 304.04 - Separate Verifications of Credit........................................................................................................ 36 304.05 - Non-Traditional Forms of Credit ....................................................................................................... 36 304.06 - Document Expiration Dates.............................................................................................................. 37 304.07 - Credit Explanation Letters ................................................................................................................ 37 SECTION 305.00 ? REVIEWING CREDIT HISTORY / ANALYSIS OF RISK .................................................... 38 305.01 - How to Analyze Credit ...................................................................................................................... 38 305.02 - Debt Payoff/Pay Down ..................................................................................................................... 39 305.03 - Paying Down Debt to Qualify ........................................................................................................... 39 SECTION 306.00 ? CREDIT AND LIABILITY DOCUMENTATION .................................................................... 40 306.01 - Alimony/Separate Maintenance ....................................................................................................... 40 306.02 - Automobile Leases ........................................................................................................................... 40 306.03 - Bankruptcy........................................................................................................................................ 40 306.04 - Business Debts (Self-employed Applicant) Corporations ................................................................ 41 306.05 - Child Care......................................................................................................................................... 41 306.06 - Child Support .................................................................................................................................... 41 306.07 - Collection Accounts .......................................................................................................................... 41 306.08 - Consumer Credit Counseling Services (CCCS)............................................................................... 41 306.09 - Contingent Liability ........................................................................................................................... 41 306.10 - Deed in Lieu of Foreclosure ............................................................................................................. 42 306.11 - Delinquent Housing (Mortgage or Rental)........................................................................................ 42 306.12 - Delinquencies ? Installment ............................................................................................................. 42 306.13 - Delinquencies - Revolving ................................................................................................................ 42

306.14 - Delinquent Federal Debt-VA ............................................................................................................ 43 306.15 - Defaulted Student Loans .................................................................................................................. 43 306.16 ? Deferred Loans ................................................................................................................................. 43 306.17 - Employee Savings Plan Loans (401K, etc.) ..................................................................................... 43 306.18 ? Foreclosure/Primary Residence ....................................................................................................... 43 306.19 - Foreclosures on Second Homes or Investment Property ................................................................ 44 306.20 - Garnishment ..................................................................................................................................... 44 306.21 - Lawsuits............................................................................................................................................ 44 306.22 - Military Allotments ............................................................................................................................ 45 306.23 - Military Advance Pay ........................................................................................................................ 45 306.24 - Mortgage History .............................................................................................................................. 45 306.25 - Mortgages......................................................................................................................................... 45 306.26 - Mortgages - Relocating Applicant .................................................................................................... 46 306.27 - Projected Liabilities........................................................................................................................... 46 306.28 - Real Estate Expense ........................................................................................................................ 46 306.29 - Rental Loss....................................................................................................................................... 46 306.30 - Revolving Accounts .......................................................................................................................... 46 306.31 - Installment Accounts ........................................................................................................................ 46 306.32 - Tax Liens .......................................................................................................................................... 47 306.33 - Term Notes ....................................................................................................................................... 47 306.34 - Debts Owed to Relatives .................................................................................................................. 47 306.35 - Margin Loans/Stock Accounts .......................................................................................................... 47 306.36 - Repossessions ................................................................................................................................. 47 306.37 - Employment/Job Related Expense .................................................................................................. 48 306.38 - Short Pays at Loan Payoff................................................................................................................ 48 306.39 - Rent Payments ................................................................................................................................. 48 306.40 - NSF / Non-Sufficient Funds.............................................................................................................. 48 306.41 - Compensating Factors ..................................................................................................................... 48 SECTION 307.00 ? EXTENUATING CIRCUMSTANCES .................................................................................. 49 307.01 - Examples of Extenuating Circumstances......................................................................................... 49 307.02 - Situations That Do Not Qualify as Extenuating Circumstances ....................................................... 49 307.03 - Financial Mismanagement................................................................................................................ 50 SECTION 308.00 ? RE-ESTABLISHING CREDIT.............................................................................................. 50 SECTION 309.00 ? REVIEWING QUALIFYING ................................................................................................. 50 309.01 - Applicant's Qualifying Ratios ............................................................................................................ 51 309.02 - An Increase in Obligations ............................................................................................................... 51 SECTION 310.00 ? QUALIFYING THE APPLICANT ......................................................................................... 51 310.01 - Monthly Housing Expense................................................................................................................ 51 310.02 - Total Monthly Obligations ................................................................................................................. 51 310.03 - Long Term Obligations ..................................................................................................................... 51 310.04 - Qualifying Ratios .............................................................................................................................. 52

CHAPTER 4 - INCOME.......................................................................................................................................... 53

SECTION 400.00 ? INTRODUCTION ................................................................................................................. 53 400.01 - Income History.................................................................................................................................. 53 400.02 - Stable Earnings ................................................................................................................................ 53 400.03 - Continuance of Income..................................................................................................................... 53

SECTION 401.00 ? DOCUMENTING INCOME .................................................................................................. 53 401.01 - Alternative Documentation ............................................................................................................... 54 401.02 - Written Verification of Employment .................................................................................................. 54 401.03 - Income Tax Returns ......................................................................................................................... 55 401.04 - Reviewing Employment Documentation........................................................................................... 55

SECTION 402.00 ? CALCULATING INCOME .................................................................................................... 56 402.01 - Calculating Variable Forms of Income ............................................................................................. 56 402.02 - Source of Income ............................................................................................................................. 56 402.03 - Non-Taxable Income ........................................................................................................................ 57

SECTION 403.00 ? TYPES OF INCOME ........................................................................................................... 57 403.01 ? Alimony / Separate Maintenance...................................................................................................... 58 403.02 ? Auto Allowance ................................................................................................................................. 58 403.03 - Bonus................................................................................................................................................ 58 403.04 ? Capital Gains .................................................................................................................................... 58 403.05 - Child Support .................................................................................................................................... 58 403.06 - Clergy ............................................................................................................................................... 59 403.07 - Commission ...................................................................................................................................... 59 403.08 - Contractor/Consultant....................................................................................................................... 59 403.09 - Disability ........................................................................................................................................... 59 403.10 - Dividends and Interest...................................................................................................................... 60 403.11 - Employment (Wages and Salary)..................................................................................................... 60 403.12 - Family Owned Business ................................................................................................................... 60 403.13 - Foster Care Income/Court Ordered Custody ................................................................................... 61 403.14 - Foreign Income................................................................................................................................. 62 403.15 - Government Assistance Programs................................................................................................... 62 403.16 - IRA/KEOGH Distributions................................................................................................................. 62 403.17 - Military (Active Duty)......................................................................................................................... 62 403.18 - Mortgage Differential Payments ....................................................................................................... 63 403.19 - Notes Receivable ............................................................................................................................. 63 403.20 - Overtime ........................................................................................................................................... 63 403.21 - Partnership Income .......................................................................................................................... 64 403.22 - Pension/Retirement .......................................................................................................................... 64 403.23 ? W2 Professional Salaried Income .................................................................................................... 64 403.24 - Projected Income.............................................................................................................................. 64 403.25 - Recently Discharged or Retired Veteran.......................................................................................... 64 403.26 - Rental Income .................................................................................................................................. 65 403.27 - Rental Income - Subject Investment Property.................................................................................. 65 403.28 - Reservist/National Guard ................................................................................................................. 65 403.29 - Room and Board .............................................................................................................................. 65 403.30 - Seasonal Employment...................................................................................................................... 65 403.31 - Second Job....................................................................................................................................... 66 403.32 - Shift Differential ................................................................................................................................ 66 403.33 - Social Security - Retirement ............................................................................................................. 66 403.34 - Social Security -- Surviving Spouse and Child or Payments to Family Members............................ 66 403.35 - Temporary Employment ................................................................................................................... 66 403.36 - Tips ................................................................................................................................................... 66 403.37 - Trailing Spouse................................................................................................................................. 67 403.38 - Truck Drivers .................................................................................................................................... 67 403.39 - Trust Income..................................................................................................................................... 67 403.40 - Unemployment Compensation ......................................................................................................... 67 403.41 - Union Member .................................................................................................................................. 67 403.42 - VA Benefits ....................................................................................................................................... 67 403.43 - Workers Compensation .................................................................................................................... 68 403.44 - Lottery Income .................................................................................................................................. 68

SECTION 404.00 ? SPECIAL INCOME CRITERIA ............................................................................................ 68 404.01 - Maternity Leave ................................................................................................................................ 68 404.02 - Payroll/Leasing Company Employees.............................................................................................. 69 404.03 - Unacceptable Forms of Income ....................................................................................................... 69 404.04 - VA-Short Term Employment to Offset Debts ................................................................................... 69

SECTION 405.00 ? SELF-EMPLOYED APPLICANT ......................................................................................... 69 405.01 - Length of Self-Employment .............................................................................................................. 69

SECTION 406.00 ? SELF-EMPLOYED BUSINESS STRUCTURES ................................................................. 70 406.01 - Sole Proprietorship ........................................................................................................................... 70 406.02 - Partnership ....................................................................................................................................... 70 406.03 - Corporation ....................................................................................................................................... 70

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