VA Loan Policies and Regulations

VA Loan Policies and Regulations –updated 10-04-23

Veterans Administration (VA) loans are for those men, women, and surviving spouses who have served time in the military. VA provides a portion of the loan guarantee while lenders, i.e. banks, and mortgage companies make the loan. This is similar to FHA loans. VA does not make the actual loan. They provide guidelines and VA Loan Policies and Regulations.

Today’s post will talk about eligibility requirements, length of service, product, Certificate of Eligibility (COE), loan limits, acceptable lender fees, funding fees, and credit.

Eligibility Requirements – for service during wartime:

World War II Veterans who served from September 16, 1040 – July 25, 1947

Korean War Veterans who served from June 27, 1950 – January 31, 1955

Vietnam War – Veterans who served from August 5, 1964 – May 7, 1975

 The Requirement for Length of Service

• At least 90 days of active duty, but cannot be dishonorably discharged
• A veteran with less than 90 days of active duty if discharged with a service-connected disability

Gulf War dates – August 2, 1990 –

Requirements for  Service:

• Must have 24 months of ongoing active-duty service -but cannot be dishonorably discharged
• A minimum of 90 Days or completing the full 24 months or term that was ordered to active duty – cannot be dishonorably discharged
• There must be a minimum of 90 days active duty, but discharged for hardship, early out, the benefit of the Government, reduction of troops/force, condition interfered with duty, or a complete service-connected disability
• The only less than 90 days of active duty is if there was a discharge for a service-connected disability

VA Loan Policies and Regulations With Products and Guidelines

• Purchase
• Refinance and
• Cash-Out Refinances

Loan To Value up to 100% – if all eligibility requirements are fulfilled for approval

Loan Limited is designated by the county residence – and re VA Housing Assistance

With the right entitlement, your VA home loan limit is based on the county loan limit where you live.  This means that with a default on your loan, VA will pay your lender up to 25% of the county loan limit minus the amount of your entitlement you’ve already used.

Loan Limits within VA Loan Policies and Regulations

If you are full entitlement- you do not have a loan limit. See more here

Certificate of Eligibility (COE)

• You will need a copy of your DD214 – release from service form
• A copy of the Certificate of Eligibility (COE) HERE must be completed and sent to VA

The Lender of Choice can:

• Order the COE for you, or
• You can complete it online or mail it to the VA

Lender Fees are limited to:

1% origination fee

Customary Charges for Closing Cost * Seller can pay the closing cost:

• Credit report
• Appraisal/Inspections
• Survey
• Prepaid Items *referred to escrow items on the closing disclosure
• Hazard Insurance * 12-month policy plus escrow
• Any Taxes due and payable -but the seller may pay these * will be included in the escrow
• Flood Zone Determination
• Title Examination and Title Insurance * paid to a Closing Agent/Closing Attorney
• VA Funding Fee
• Any fee authorized specifically by the VA

VA Funding Fee is a requirement and is added to the loan as part of the total loan amount. The VA funding fee for 2023 *updated 10-4-23

VA-backed purchase and construction loans

Rates for Veterans, active-duty service members, and National Guard and Reserve members

If your down payment is…	Your VA funding fee will be…
First use	Less than 5%	2.15%
	5% or more	1.50%
	10% or more	1.25%
After first use	Less than 5%	3.30%
	5% or more	1.50%

 

VA-backed cash-out refinancing loans

Rates for Veterans, active-duty service members, and National Guard and Reserve members

First use	After first use
2.3%	3.6%

Type of use	VA funding fee
Purchase	2.15% @ 100%  LTV
Cash-out Refinance	2.15%

Loan Type	VA funding fee
Interest Rate Reduction Refinancing Loans (IRRRLs)	0.5%
Manufactured home loans (not permanently affixed)	1%
Loan assumptions	0.5%
Vendee loan, for purchasing VA-acquired property	2.25%

Ref: VA.Gov Housing Assistance

 

Who Makes VA Loans

You may apply at any lender who is approved by the Veterans Administration to partner with them. It is wise to check out lenders to see their expertise in making VA loans.

The lender will take your application regarding the guidelines @ Consumer Financial Services with regard to all applicable consumer laws, just like Conventional and FHA loans.

A VA loan purchase must be occupied by the borrower, and or spouse if the Veteran is in the service within 60 days.

The VA applicant must be determined as:

• acceptable credit risk – meaning has his or her current obligations have been paid in a timely manner, or only minor deficiencies
• his or her income is sufficient to repay the debt/loan that the lender is furnishing the money for

Credit for VA Loans Policies and Regulations

The laws of the VA are similar to those of Conventional and FHA lending requirements for the credit standard.

• A credit report must be ordered from the three major bureaus
• The credit report is obtained and analyzed by the lender’s underwriter
• Credit report must be within 120 days of closing or there will need to be an updated report drawn *factor this as saying you do not need to make a new loan while you are applying for any mortgage loan.
• Any derogatory credit issues must be explained and documented
• The credit report must determine that the borrower has an acceptable credit
• If you make an application for a loan of any kind- the inquiry will show up on the credit report
• Inquiries for credit must be addressed by the applicant (s)
• All obligations are evaluated by the lender’s underwriter to include a prior mortgage or rental property
• If a spouse is being considered as having an obligatory status on the loan, their credit history is also evaluated

Non-Traditional Credit History

If there are insufficient credit lines on the credit report non-traditional accounts must be verified:

• rental history
• phone
• utilities
• auto insurance, and any account that has a history

All Derogatory Credit Must Be Analyzed

• If there are minor collections accounts such as a medical collection account – they may not have to be paid for approval. Also if the collections are minor and do not affect the lender’s lien status.
• If there is a history of collection accounts by the applicant (s) there must be re-established credit lines for 12 months. This does not mean that the loan cannot be approved, but each situation must be evaluated as all circumstances are not the same for all applicants.
• If the applicant is in a Chapter 13 Bankruptcy – which is considered a repayment plan that usually exists for a 24 to 36 months time period. The payout time for approval must be a satisfactory repayment history of at least 12 months. An attorney who handles Chapter 13 must give their approval to enter into credit again.
• Chapter 7 Bankruptcy – required at least 2 years from discharge to prove that they have had sufficient time to re-establish themselves.
• A determination is usually made by a review of the credit report for all significant issues that may have caused delinquency.
• If there are extenuating circumstances, the underwriter can evaluate the credit report/obligations prior to and after the bankruptcy.
• The latter can provide the lender with a final determination as to the re-established credit and willingness to repay their debts.

Summary

The lender will make a decision based on the final analysis of all credit information, eligibility, and determination that the loan being obtained will be paid.

As with any mortgage loan – VA documentation is somewhat detailed. The mortgage loan is detailed in general and rightly so. This not only protects the lender but also protects the purchaser from what could be a disaster down the road.

We will be back with more on VA Loan Policies and Regulations later. We will address income, and assets, talk about the automated underwriting system, and more.