VA Underwriting Guidelines 

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VA Down Payment Guidelines

Down Payment Requirements

VA down payment guidelines are a little more complicated than just "zero down".  Be sure to brows all the details of this page including seller concessions, closing costs, verification and reserves.

Zero Down

Because VA loans can be for the full reasonable value of the property, no down payment is required by VA except in the following circumstance:

If the purchase price exceeds the reasonable value of the property, a down payment in the amount of the difference must be made in cash from the borrower's own resources. 

The applicant or spouse must have sufficient cash to cover: 

  • Any closing costs or points which are the applicant's responsibility and are not financed in the loan. 
  • The down payment, if a Graduated-Payment Mortgage, and 
  • The difference between the sales price and the loan amount, if the sales price exceeds the reasonable value established by VA. 

VA does not require the applicant to have additional cash to cover a certain number of mortgage payments, unplanned expenses, or other contingencies. These fees are commonly called reserves.

However, the applicant's ability to accumulate liquid assets and the current availability of liquid assets for unplanned expenses should be considered in the overall credit analysis. 

If a veteran has less than full entitlement available, a lender may require a down payment in order to make the veteran a loan that meets GNMA or other secondary market requirements.  The rule of thumb for GNMA is that the VA guaranty, or a combination of VA guaranty plus down payment and/or equity, must cover at least 25 percent of the loan. 

Verification Requirement

Verify all liquid assets owned by the applicant or spouse to the extent they are needed to close the loan. In addition, verify any liquid assets that may have a bearing on the overall credit analysis; that is, significant assets.

Use VA Form 26-8497a, Request for Verification of Deposit, as appropriate, 
OR original or certified true copies of the applicants last two bank statements, 
OR the borrower’s bank statements available to them by Internet or faxed from the depository directly to the lender. In cases where the lending institution uses Internet based verifications, ensure the URL appears on the document. 

Verifications must be no more than 120 days old (180 days for new construction). 

Pending Sale of Real Estate

In some cases, the determination that the income and/or assets of a veteran are sufficient to qualify for the loan depends upon the consummation of the sale of presently owned real property.

Sales proceeds may be necessary to make a down payment or pay closing costs on the VA loan.  In addition, the lender may want to consider the amount of equity the applicant has accumulated in the property and the extent to which that equity is attributable to the applicants investment rather than the housing market, in evaluating the applicants ability to manage assets. 

The lender may consider any down payment or costs on the VA loan as provided for by the sale of the property if available information provides a reasonable basis for concluding the equity to be realized from the sale will be sufficient for this purpose.

Reserve Requirements

VA does not require the applicant to have additional cash to cover a certain number of mortgage payments, unplanned expenses or other contingencies.

Contributions

The seller, lender, or any other party may pay fees and charges, including discount points, on behalf of the borrower. 

VA regulations limit charges "made against or paid by " the borrower. They do not limit the payment of fees and charges by other parties. However, excessive seller concessions are prohibited. 

Seller Contributions

A seller concession is anything of value added to the transaction by a builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide. Seller concessions include but are not limited to the following:

  • Payment of buyer's VA funding fee, 
  • Prepayment of the buyer's property taxes and insurance, 
  • Gifts such as a television or microwave oven, 
  • Payment of extra points to provide permanent interest rate buy-downs, 
  • Provision of escrowed funds to provide temporary interest rate buy-downs, and 
  • Payoff of credit balances or judgments on behalf of the buyer. 

Seller concessions do not include: 

  • Payment of the buyer's closing costs, or 
  • Payment of points as appropriate to the market.  Example: Market dictates interest rate at 7.5% with 2 discount points, seller's payment of 2 points would not be a seller concession. If seller paid 5 points, 3 of these points would be considered a seller concession. Any seller concession or combination of concessions which exceed 4% of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans. 

Do not include normal discount points and the payment of the buyer's closing costs in total concessions for determining whether concessions exceed the 4% limit. 

Closing Costs

Those payable by the veteran are limited by regulation to a specific list of items plus a 1% flat charge by the lender and reasonable discount points.

The following list provides examples of items that cannot be charged to the veteran as "itemized fees and charges." Instead, the lender must cover any costs of these items out of it's flat fee.

  • Lender's appraisals. 
  • Lender's inspections, except in construction loan cases. 
  • Loan closing or settlement fees. 
  • Document preparation fees. 
  • Preparing loan papers or conveyancing fee. 
  • Attorney's services other than for title work. 
  • Photographs. 
  • Interest rate lock-in fees. 
  • Postage and other mailing charges, stationery, telephone calls, and other overhead. 
  • Amortization schedules, pass books, and membership or entrance fees. 
  • Escrow fees or charges. 

Examples of items that cannot be charged to the veteran:

  • Notary fees. 
  • Commitment fees or marketing fees of any secondary purchaser of the mortgage and preparation and recording of assignment of mortgage such purchaser. 
  • Trustee's fees or charges 
  • Loan application or processing fees 
  • Fees for preparation of truth-in-lending disclosure statement. 
  • Fees charged by loan brokers, finders or other third parties whether affiliated with the lender or not, and 
  • Tax service fees 

Fees or commissions charged by a real estate agent or broker in connection with a VA loan may not be charged to or paid by the veteran-purchaser. While use of "buyer" brokers is not precluded, veteran-purchaser may not, under any circumstances, be charged a brokerage fee of commission in connection with the serves of such individuals. 

Since information on property available for purchase and financing options is widely available to the public from a variety of sources, VA does not believe that preventing the veteran from paying buyer-broker fees will harm the veteran. 

A veteran obtaining a VA refinancing loan cannot use loan proceeds to pay penalty costs for prepayment of an existing lien. 

A veteran purchasing a property with a VA loan cannot pay penalty costs required to discharge any existing liens on the seller's property. 

In proposed construction cases in which the dwelling was constructed under HUD supervision, the cost of any inspections or re-inspections must be borne by the builder or sponsor and are not chargeable to the veteran-purchaser. This includes:  Re-inspection by VA or HUD of onsite or offsite work for which an escrow agreement was established, and  any additional re-inspections deemed necessary by VA to assure conformity with VA regulations. 

The veteran may pay any or all of the following itemized fees and charges, in amounts that are reasonable and customary.

  • Appraisal and Compliance Inspections
  • The veteran can also pay for a second appraisal if he or she is requesting reconsideration of value.  The veteran cannot pay for an appraisal requested by the lender or seller for reconsideration of value. The veteran cannot pay for appraisals requested by parties other than the veteran or lender. 
  • Recording Fees
  • Credit Report
  • For Automated Underwriting cases, the veteran may pay the evaluation fee of $50 in lieu of the charge for a credit report. For "Refer" cases, the veteran may also pay the charge for a merged credit report, if required.
  • Prepaid Items: The veteran can pay that portion of taxes, assessments, and similar items for the current year chargeable to the borrower and the initial deposit for the tax and insurance account.
  • Hazard Insurance: The veteran can pay the required hazard insurance premium. This includes flood insurance, if required.
  • Flood Zone Determination: The veteran can pay the actual amount charged for a determination of whether a property is in a special flood hazard area, if made by a third party who guarantees the accuracy of the determination.
  • The veteran can pay a charge for a life-of-the-loan flood determination service purchased at the time of the loan origination.  The fee may not be charged for a flood zone determination made by the lender or a VA appraiser. 
  • Survey: The veteran can pay a charge for a survey, if required by the lender of veteran.  Any charge for a survey in connection with a condominium loan must have the prior approval of VA. 
  • Title Examination and Title Insurance. The veteran may pay a fee for title examination and title insurance, if any. 
  • If the lender decides that an environmental protection lien endorsement to a title policy is needed, the cost of the endorsement may be charged to the veteran. 
  • Special Mailing Fees for Refinancing Loans: For refinancing loans only, the veteran can pay charges for Federal Express, Express Mail, or a similar service when the saved per diem interest cost to the veteran will exceed the cost of the special handling.
  • VA Funding Fee: Unless exempt from the fee, each veteran must pay a funding fee to VA.

Discount Points to Veteran

Veterans may pay reasonable discount points on VA guaranteed loans.  The amount of discount points is whatever the borrower and lender agree upon.  Discount points can be based on the principal amount of the loan after adding the VA funding fee, if the funding fee will be paid from loan proceeds. 

Points can be Included in the Loan Amount:  Discount points may be rolled into the loan only in the case of refinancing loans, subject to the following limitations: 

  • Any reasonable amount of discount points may be rolled into the loan as long as the sum of the outstanding balance of the loan plus allowable closing costs and discount points does not exceed the VA reasonable value, plus 
  • VA funding fee, plus 
  • Cost of any energy efficiency improvements. 
  • Interest Rate Reduction Refinancing Loans

A maximum of 2 discount points can be rolled into the loan. If the borrower pays more than 2 points, the remainder must be paid in cash. 

Loans to Refinance:

A construction loan:  An installment land sales contract, or a loan assumed by the veteran at an interest rate higher than that for the proposed refinancing loan. 

Cash-out Refinancing Loans:  While discount points cannot specifically be included in the loan amount, the borrower can receive cash from loan proceeds, subject to maximum loan limits.  The cash received by the borrower can be used for any purpose acceptable to the lender, including payment of reasonable discount points. 

If the Loan Never Closes

The borrower's out-of-pocket expenses for itemized fees and charges already incurred, such as the appraisal and credit report, do not get refunded. 

If the lender has already collected the 1% flat fee from the borrower, the lender must refund the fee. This applies to a loan that does not close for any reason, including the borrower going to another lender. 

 

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