Kentucky VA Loan Guidelines

Exception Maximum Loan

IRRRLs

  • Existing VA loan balance, plus
  • The cost of any energy efficiency improvements up to $6,000, plus
  • Allowable fees and charges, plus
  • Up to two discount points, plus
  • VA funding fee.

(Lenders must use VA Form 268923, IRRRL Worksheet, for the actual calculation.)

a. Does VA have Maximum Loan Amounts?
Unlike other home loanprograms, there are no maximum dollar amounts prescribed for VA-guaranteed loans. Limitations on VA loan size are primarily attributable to two factors:1.   Lenders who sell their VA loans in the secondary market must limit the size of those loans to the maximums prescribed by Government National Mortgage Association (GNMA) or whatever conduit they use to sell the loans.

2.   VA limits the amount of the loan to the reasonable value of the property shown on the NOV plus the cost of energy efficiency improvements up to $6,000 plus the VA funding fee, with the following exceptions.

Continued on next page


3.  Maximum Loan, Continued

a. Does VA have Maximum Loan Amounts? (continued)
Exception Maximum Loan
Regular refinancing loan (cash-out)
  • 100 percent of the VA reasonable value, plus
  • the cost of any energy efficiency improvements up to $6,000, plus
  • VA funding fee.
Loans to refinance are:

the veteran at an

interest rate higher

than that for the

proposed refinancing

loan.

The lesser of:

  • the VA reasonable value, or
  • the sum of the outstanding balance of the loan plus allowable closing costs and discounts, plus
  • (For construction loans, “balance of the loan” includes the balances of construction financing and lot liens, if any.)
  • the cost of any energy efficiency improvements up to $6,000, plus
  • VA funding fee.
Graduated Payment Mortgage (GPM) loan on existing property
  • The VA reasonable value, minus
  • the highest amount of negative amortization, plus
  • the cost of any energy efficiency improvements up to $6,000, plus
  • VA funding fee.

Reference:  See section 7 of chapter 7.

GPM loan on new home 97.5 percent lesser of:

  • the VA reasonable value or
  • the purchase price, plus
  • the cost of any energy efficiency improvements up to $6,000, plus
  • VA funding fee.

Reference:  See section 7 of chapter 7.

Continued on next page


3.  Maximum Loan, Continued

b. Downpayment
Because VA loans can be for the full reasonable value of the property, no downpayment is required by VA except in the following circumstances:

  • If the purchase price exceeds the reasonable value of the property, a downpayment in the amount of the difference must be made in cash from the borrower’s own resources, and
  • VA requires a downpayment on all GPMs.

If a veteran has less than full entitlement available, a lender may require a downpayment 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 downpayment and/or equity, must cover at least 25 percent of the loan.


4.  Maximum Guaranty on VA Loans

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
  • Subsection a has been updated to reflect the temporary increase in maximum potential guaranty for loans closed January 1, 2009, through December 31, 2011.
a. Maximum Guaranty Table
Public Law 110-389, the Veterans’ Benefits Improvement Act of 2008, signed October 10, 2008, provided a temporary increase in the maximum guaranty for loans closed January 1, 2009 through December 31, 2011.  The maximum guaranty now varies depending on the location of the property.  While VA does not have a maximum loan amount, there are effective “loan limits” for high-cost counties.  The limits are derived by considering both the median home price for a county and the Freddie Mac conforming loan limit.  To aid lenders in determining the maximum guaranty in high-cost counties, VA has created a Loan Limitchart, with instructions.  This will be updated yearly.

  • In general, maximum guaranty, assuming the veteran has full entitlement, is as shown in the table below.
Loan Amount Maximum Potential Guaranty Special Provisions
Up to $45,000 50 percent of the loan amount. Minimum guaranty of 25 percent on IRRRLs.
$45,001 to $56,250 $22,500 Minimum guaranty of 25 percent on IRRRLs.
$56,251 to $144,000 40 percent of the loan amount, with a maximum of $36,000. Minimum guaranty of 25 percent on IRRRLs.
$144,001 to $417,000 25 percent of the loan amount Minimum guaranty of 25 percent on IRRRLs.
Greater than $417,000 The lesser of:

  • 25 percent of the VA county loan limit, or
  • 25 percent of the loan amount

 

Minimum guaranty of 25 percent on IRRRLs


4.  Maximum Guaranty on VA Loans, Continued

a. Maximum Guaranty Table (continued) Note:  The percentage and amount of guaranty is based on the loan amount including the funding fee portion when the fee is paid from loan proceeds.For the maximum guaranty on loans for manufactured homes that are not permanently affixed (i.e., not considered real estate) see 38 U.S.C. 3712 and/or contact VA.


5.  Occupancy

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
a. The Law on Occupancy
The law requires a veteran obtaining a VA-guaranteed loan to certify that he or she intends to personally occupy the property as his or her home.  As of the date of certification, the veteran must either

  • personally live in the property as his or her home, or
  • intend, upon completion of the loan and acquisition of the dwelling, to personally move into the property and use it as his or her home within a reasonable time.

The above requirement applies to all types of VA-guaranteed loans except IRRRLs.  For IRRRLs, the veteran need only certify that he or she previously occupied the property as his or her home.

 

Example:  A veteran living in a home purchased with a VA loan is transferred to a duty station overseas.  The veteran rents out the home.  He/she may refinance the VA loan with an IRRRL based on previous occupancy of the home.

b. What is a “Reasonable Time?”
Occupancy within a “reasonable time” means within 60 days after the loan closing.  More than 60 days may be considered reasonable if both of the following conditions are met:

  • the veteran certifies that he or she will personally occupy the property as his or her home at a specific date after loan closing, and
  • there is a particular future event that will make it possible for the veteran to personally occupy the property as his or her home on a specific future date.

Occupancy at a date beyond 12 months after loan closing generally cannot be considered reasonable by VA.

Continued on next page


5.  Occupancy, Continued

c. When Can a Spouse Satisfy the Occupancy Requirement?
Occupancy (or intention to occupy) by the spouse satisfies the occupancy requirement for a veteran who is on active duty and cannot personally occupy the dwelling within a reasonable time.Occupancy by the spouse may satisfy the requirement if the veteran cannot personally occupy the dwelling within a reasonable time due to distant employment other than military service. In these specific cases, consult your Regional Loan Center (RLC) to determine if this type of occupancy meets VA requirements.Note:  The cost of maintaining separate living arrangements should be considered in underwriting the loan.

For an IRRRL, a certification that the spouse previously occupied the dwelling as a home will satisfy the requirement.

No family member or person other than the veteran’s spouse can satisfy the occupancy requirement for the veteran.

d. Occupancy Requirements
for Deployed
Active Duty Servicemembers
Single or married servicemembers, while deployed from their permanent duty station, are considered to be in a temporary duty status and able to meet the occupancy requirement.  This is true without regard to whether or not a spouse will be available to occupy the property prior to the veteran’s return from deployment.
e. Occupancy After Retirement
If the veteran states that he or she will retire within 12 months and wants a loan to purchase a home in the retirement location

  • verify the veteran’s eligibility for retirement on the specified date, and

– Include a copy of the veteran’s application for retirement submitted to his or her employer.

  • carefully consider the applicant’s income after retirement.

– If retirement income alone is insufficient, obtain firm commitments from an employer that meet the usual stability of income requirements.

Note:  Only retirement on a specific date within 12 months qualifies.  Retirement “within the next few years” or “in the near future” is not sufficient.

Continued on next page


5.  Occupancy, Continued

f. Delayed Occupancy Due to Property Repairs or Improvements
Home improvements or refinancing loans for extensive changes to the property which will prevent the veteran from occupying the property while the work is being completed, constitute exceptions to the “reasonable time” requirement. The veteran must certify that he or she intends to occupy or reoccupy the property as a home upon completion of the substantial improvements or repairs.
g. Intermittent Occupancy
The veteran need not maintain a physical presence at the property on a daily basis.  However, occupancy “as the veteran’s home” implies that the home is located within reasonable proximity of the veteran’s place of employment.  If the veteran’s employment requires the veteran’s absence from home a substantial amount of time, the following two conditions must be met:

  • the veteran must have a history of continuous residence in the community, and
  • there must be no indication that the veteran has established, intends to establish, or may be required to establish, a principal residence elsewhere.

Use of the property as a seasonal vacation home does not satisfy the occupancy requirement.

h. Unusual Circumstances
Discuss unusual circumstances of occupancy with the appropriate VA office or submit a description of the circumstances to the VA office for prior approval.

Continued on next page


5.  Occupancy, Continued

i. The Certification
The veteran certifies that the occupancy requirement is met by checking the appropriate occupancy block and signing:

  • VA Form 26-1802a, HUD/VA Addendum to the Uniform Residential Loan Application, at the time of loan application (prior approval loans only), and
  • VA Form 26-1820, Report and Certification of Loan Disbursement, at the time of loan closing (all loans).

This satisfies the lender’s obligation to obtain the veteran’s occupancy certification.

The lender may accept the occupancy certification at face value unless there is specific information indicating the veteran will not occupy the property as a home or does not intend to occupy within a reasonable time after loan closing.

Where doubt exists, the test is whether a reasonable basis exists for concluding that the veteran can and will occupy the property as certified.  Contact the appropriate VA office if the lender cannot resolve issues involving the veteran’s intent by applying this test.


6.  Interest Rates

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
a. Requirement
VA no longer prescribes interest rates for VA-guaranteed loans.  The interest rate is negotiated between the veteran-borrower and the lender to allow the veteran to obtain the best available rate.
b. Changes to the Agreed Upon Interest Rate
The lender and borrower are expected to honor any lock-in or other agreements they have entered into which impact the interest rate on the loan.  VA does not object to changes in the agreed upon rate, as long as no lender/borrower agreements are violated.  The following procedures apply in such cases.Any increase in the interest rate of more than one percent requires

  • re-underwriting to ascertain the veteran’s continued ability to qualify for the loan,
  • documentation of the change, and
  • a new or corrected Uniform Residential Loan Application, (URLA) with any corrections initialed and dated by the borrower.

Reference:  For prior approval loans, see section 4 of chapter 5.


7. Discount Points

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
a. Requirement
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.
b. When Can Points be Included in the Loan?
Discount points may be rolled into the loan only in the case of refinancing loans, subject to the following limitations:Interest Rate Reduction Refinancing Loans A maximum of two discount points can be rolled into the loan.

If the borrower pays more than two points, the remainder must be paid in cash.

Refinancing of Construction Loans, etc.

Loans to refinance are:

  • 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

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.

Reference:  See the maximum loan limitations in section 3 of this chapter.

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 (See section 3 of this chapter).  The cash received by the borrower can be used for any purpose acceptable to the lender, including payment of reasonable discount points.

Continued on next page


7. Discount Points, Continued

c. Changes to the Agreed Upon Discount Points
The lender and borrower are expected to honor any agreements they have entered into which impact the discount points paid on the loan.  VA does not object to changes in the agreed upon points, as long as no lender/borrower agreements are violated.  The following procedures apply in such cases.Any increase in discount points requires

  • verification that the borrower has sufficient assets to cover the increase,
  • documentation of the change, and
  • a new or corrected URLA with any corrections initialed and dated by the borrower

Reference:  For prior approval loans, see section 4 of chapter 5.


8.  Maturity

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
a. Maximum Maturity
  • Amortized loans:  30 years and 32 days,
  • Nonamortized loans: 5 years.

In addition, every loan must be repayable within the estimated economic life of the property securing the loan.

The period for repayment of a loan is measured from the date of the note or other evidence of indebtedness.

b. Maturity Extending Beyond the Maximum
VA regulations provide that any amounts, which fall due beyond the maximum maturity automatically, fall due on the maximum maturity date. Thus, if a lender inadvertently makes a loan that exceeds the maximum maturity, it may still be subject to guaranty.However, the regulations also limit the amount that can be collected as a final installment, such as, they prohibit excessive ballooning.  The holder of a loan that violates this provision may desire to correct the situation through means which are legally proper in the jurisdiction.


9.  Amortization

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
a. Requirement
All VA loans must be amortized if the maturity date is beyond 5 years from the date of the loan.  Loans with terms less than 5 years are considered term loans and need not be amortized.Generally, for amortized VA loans:

  • payments must be approximately equal,
  • principal must be reduced at least once annually, and
  • the final installment must not exceed two times the average of the preceding installments.

Exceptions to these requirements are made in the case of

  • GPMs – See section 7 of chapter 7,
  • GEMs – See section 8 of chapter 7,
  • alternative amortization plans prior approved by VA, and
  • construction loans.
b. Alternative Amortization Plans
Certain amortization plans which do not meet the requirements described in section a above may be used if approved in advance by VA.  A lender may submit an amortization plan to VA for prior approval if the plan:

  • is generally recognized; that is, is used extensively by established lending institutions, but
  • does not meet the requirements of approximately equal periodic payments and a reduction in principal not less often than annually.

Exception:  GPMs and GEMs.

Continued on next page


9.  Amortization, Continued

c. Special Provisions for Construction Loans
See “Amortization” in section 2 of chapter 7.
d. Standard and Springfield Plans
The Standard and Springfield plans satisfy VA amortization requirements.

  • The Standard plan provides for equal payments over the life of the loan.  The amount applied to interest decreases, with a corresponding increase in the amount applied to principal.
  • The Springfield plan provides for gradually decreasing payments over the life of the loan.  The amount applied to interest decreases, while the amount applied to principal remains constant.


10.  Eligible Geographic Locations for the Secured Property

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
a. Where Can the Property be Located?
Real property securing a VA-guaranteed loan must be located in the United States, its territories, or possessions (Puerto Rico, Guam, Virgin Islands, American Samoa and the Northern Mariana Islands).


11.  What Does a VA Guaranty Mean to the Lender?

Change Date
April 10, 2009, Change 9

  • This section has been updated to correct hyperlinks and make minor grammatical edits.
  • Subsection e has been updated to note that evidence of guaranty is issued through VA’s webLGY system.
a. Protection Against Loss
VA guarantees a portion of the loan, identified on the VA Loan Guaranty Certificate (LGC) by percentage and dollar amounts.  If a loss ultimately occurs on the loan, VA will reimburse the loan holder for all or part of such loss

  • limited by the stated percentage and dollar amount of the guaranty,
  • limited by any VA maximums for reasonable and customary foreclosure expenses, and
  • subject to the lender’s compliance with applicable law and regulations.
b. Lender Responsibility
It is the lender’s responsibility to comply with all laws and regulations related to the VA Loan Guaranty Program, and thereby prevent VA’s denial or reduction of a payment on a future claim.  A lender can accomplish this by ensuring that its employees who perform work related to VA lending

  • understand and comply with VA policies, procedures and regulations, and applicable law, and
  • direct questions to VA when issues arise that are not addressed in this handbook or other materials provided by VA.
c. When is a Loan that was Closed Automatically Guaranteed?
A loan is automatically guaranteed by VA upon closing (prior to issuance of the LGC) provided the loan was made by

  • a supervised or a nonsupervised lender with automatic authority, and
  • the lender complied with applicable law and regulations.

Continued on next page


11.  What Does a VA Guaranty Mean to the Lender?, Continued

d. When is a Prior Approval Loan Guaranteed?
A prior approval loan is also guaranteed by VA upon closing (prior to issuance of the LGC) provided

  • the closed loan matches the proposed loan upon which the Certificate of Commitment was based, and
  • the lender complied with applicable law and regulations.
e. What is Evidence of Guaranty?
Evidence of guaranty is VA Form 26-1899, Loan Guaranty Certificate, which is generated electronically via VA’s webLGY application.  The LGC represents tangible proof to the lender that VA’s guaranty is given in good faith.  It is contingent upon:

  • the veteran, property and purpose of the loan being eligible,
  • no fraud or material misrepresentation on the part of the lender, and
  • the lender’s compliance with applicable law and regulations.

For example, VA may deny or reduce payment on a future claim based on the lender or holder’s noncompliance whether or not VA has issued evidence of guaranty on the loan.

The LGC also has an audit indicator that, if noted Yes, lets the lender know the case has been identified for full review.  In these instances, the lender then needs to submit a complete loan origination package to the appropriate VA office for review.  Packages should be submitted within 15 days of the LGC being generated.

f. Total Loss of Guaranty
Willful fraud or material misrepresentation by the lender or holder, or by an agent of either, will relieve VA of liability for payment of any claim on the loan.  VA also has no liability in the case of

  • forgery on the note, mortgage, loan application, or other loan documents, or
  • a Certificate of Eligibility or discharge papers that are counterfeited, falsified, or not issued by the Government.

A holder of a VA loan who acquired the loan without notice or knowledge of fraud or material misrepresentation in procuring the guaranty will not be denied payment of any claim on the loan by reason of such fraud or material misrepresentation.

Continued on next page


11.  What Does a VA Guaranty Mean to the Lender?, Continued

g. Partial Loss of Guaranty
A holder of a VA loan who fails to comply with applicable laws and regulations may receive only partial payment of a claim if VA’s liability increases due to the holder’s noncompliance.  Material misrepresentation which is not willful has the same consequence.No claim will be paid on such loan until the amount of any increase in VA’s liability is known.  The burden of proof is on the holder to establish that VA’s increased liability is not due to the holder’s noncompliance or misrepresentation.Examples of noncompliance with applicable law and regulations which may lead to an increase in VA’s liability include:

  • failure to obtain and retain the required lien on property to secure the loan,
  • failure to include the power to substitute trustees,
  • failure to procure and maintain insurance coverage,
  • failure to advise VA as to default,
  • failure to provide notice of intention to begin foreclosure action,
  • failure to provide notice to VA in any suit or action, or notice of sale,
  • improper release, conveyance, substitution or exchange of security,
  • lack of legal capacity of a party to the transaction,
  • failure to assure that escrowed/earmarked funds are expended in accordance with the agreement, and
  • failure to take into consideration limitations upon the quantum or quality of the estate or property.


12.  Post-Guaranty Issues

Change Date
April 10, 2009, Change 9

  • This section has been changed to reflect present procedures, correct hyperlinks, and make minor grammatical edits.
a. Corrections to LGCs
LGCs are generated using data entered from several sources, including the VA Funding Fee Payment System (VA FFPS).  If a lender discovers an error in reported data, such as date of loan closing, beforethey have generated the LGC, they must access the VA FFPS system to make the correction.  This will then result in the correct closing date being shown when the LGC is obtained. If the error is discovered after the LGC has been generated, lenders will need to contact the appropriate VA RLC for assistance.  An LGC with minor typographical errors that do not compromise accurate identification of the loan is valid.
b. Replacement of Missing LGC with Duplicate
A lender may obtain duplicate LGCs at any time simply by accessing the system and reprinting the LGC.
c. Transfer of Loans
It is not necessary to notify VA of the assignment of a guaranteed loan.
d. Loan Assumptions
The assumption of VA-guaranteed loans for which commitments were made on or after March 1, 1988, requires the approval of VA (or certain lenders on VA’s behalf).

Continued on next page


12.  Post-Guaranty Issues, Continued

e. Paid-in-Full Loans
Holders of VA-guaranteed loans are required to electronically report the date the loan was paid-in-full in the VA Loan Electronic Reporting Interface (VALERI) system. Lenders are required to report paid-in-full loans to VA upon full satisfaction of the loan by payment or otherwise. Lenders/servicers are not required to mail LGCs to VA when a loan is terminated. Since this information will now be reported through VALERI, there is no need to have the actual LGC returned to VA upon termination of the loan.
f. Maintenance of Loan Records
Lenders must maintain copies of all loan origination records onVA-guaranteed home loans for at least 2 years from the date of loan closing.  Even if the loan is sold, the original lender must maintain these records (or legible copies) for the required period.Loan origination records include:

  • the loan application (including any preliminary application),
  • verifications of employment and deposit,
  • all credit reports (including preliminary credit reports),
  • copies of each sales contract and addendum,
  • letters of explanation for adverse credit items, discrepancies and the like,
  • direct references from creditors,
  • correspondence with employers,
  • appraisal and compliance inspection reports,
  • reports on termite and other inspections of the property,
  • builder change orders, and
  • all closing papers and documents.

Lenders must make these records accessible to VA personnel conducting audit reviews.

Residual Income for a Kentucky VA Loan Approval
Residual income is the amount of income remaining after housing expenses, income taxes, long-term obligations and other expenses have been deducted from the borrower’s total gross pay. VA requires a specific amount of monthly residual income be available for the borrower’s use. This amount is based on the family size, location of the property and loan amount.

  • Federal, state and local taxes must be entered in DU or LP. Taxes should be calculated using the most recently published tax charts by the IRS and state or local taxing authorities. Click here for Tax tables.
  • Maintenance and utility costs may be estimated at 14 cents per square foot.

Minimum Residual Income with DTI <=41% 

http://www.mylouisvillekentuckymortgage.com/p/va-loans.html

Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
kentuckyloan@gmail.com
http://www.mylouisvillekentuckymortgage.com/
 
http://www.emailmeform.com/builder/form/0bfJs9b6bK8TGoc6mQk9hIu
 
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4 thoughts on “Kentucky VA Loan Guidelines

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