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Guidelines

VA Underwriting Guidelines | Table of Contents

Table of Contents

MiMutual Underwriting____________________________________________________________________ 9 Philosophy _____________________________________________________________________________________ 9 Program Description ____________________________________________________________________________ 10

Requirements and Restrictions _____________________________________________________________ 11 Loan Requirements _____________________________________________________________________________ 11 Loan Restrictions (Ineligible) _____________________________________________________________________ 11 Qualified Mortgages with Rebuttable Presumption ___________________________________________________ 11 Maximum LTV / CLTV ___________________________________________________________________________ 12

Purchase of Existing Properties ____________________________________________________________________________ 12 New Construction by Property Type ________________________________________________________________________ 12

Home Built FOR Veteran on Lot Acquired by Veteran ________________________________________________________ 12 Home Built BY Veteran on Lot Acquired by Veteran _________________________________________________________ 12 Property (House and Lot) Purchased From Builder as Package ________________________________________________ 12 Property Construction was Financed by a Construction Loan__________________________________________________ 13 Cash-Out Refinance _____________________________________________________________________________________ 13 Paying off an Installment Land Contract _____________________________________________________________________ 13 IRRRLs ________________________________________________________________________________________________ 13

Collateral Requirements __________________________________________________________________ 14 Eligible Collateral ______________________________________________________________________________ 14 Ineligible Collateral _____________________________________________________________________________ 14 Appraisals ____________________________________________________________________________________ 15

Ordering an Appraisal ___________________________________________________________________________________ 15 VA Case Number Assignments_____________________________________________________________________________ 15 VA Appraisal Assignment _________________________________________________________________________________ 15 Appraisal Requirements__________________________________________________________________________________ 16 Uniform Appraisal Dataset (UAD) __________________________________________________________________________ 16 Compliance Inspection Report (VA Form 26-1839) ____________________________________________________________ 16 Appraisal Rebuttal Process _______________________________________________________________________________ 16 Revisions Due to Sales Contract Amendments ________________________________________________________________ 17 Appraisal Portability/VA Case Transfers _____________________________________________________________________ 17 Appraisal Validity Period _________________________________________________________________________________ 17 Appraisal Delivery Requirements __________________________________________________________________________ 17

Modular Home Eligibility ________________________________________________________________________ 18 Minimum Property Requirements _________________________________________________________________ 18 FEMA Declared Disaster Area Policy _______________________________________________________________ 19 Repair Escrows ________________________________________________________________________________ 19 Required Repairs_______________________________________________________________________________ 19 Acreage ______________________________________________________________________________________ 19 Estimated Remaining Economic Life _______________________________________________________________ 19 Commercial/Industrial Zoning ____________________________________________________________________ 20 Properties Listed for Sale within the Last 6 Months (Refinances) ________________________________________ 20 Attic _________________________________________________________________________________________ 20 Crawl Space ___________________________________________________________________________________ 20 Roof _________________________________________________________________________________________ 20

Inspection and Life Expectancy ____________________________________________________________________________ 20 Snow Covered Roof _____________________________________________________________________________________ 20

Multiple Parcels of Land _________________________________________________________________________ 21 Property Seasoning _____________________________________________________________________________ 21

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VA Underwriting Guidelines | Table of Contents

Termite Inspections ____________________________________________________________________________ 21

Termite Inspections on New Construction Properties __________________________________________________________ 21

Water and Sewage Systems Requirements __________________________________________________________ 22

Individual Water Supply System (Well) ______________________________________________________________________ 22 Shared Well ___________________________________________________________________________________________ 23 Community Well _______________________________________________________________________________________ 23 Water Testing __________________________________________________________________________________________ 24 Water Purification Systems _______________________________________________________________________________ 24 Individual Sewage System (Septic) _________________________________________________________________________ 25 Distance Between the Well and the Septic System ____________________________________________________________ 25

Access to Property _____________________________________________________________________________ 25 Access to Living Unit ____________________________________________________________________________ 25 Access to Rear Yard_____________________________________________________________________________ 25 Party Walls ___________________________________________________________________________________ 26 Gas and Petroleum Pipelines _____________________________________________________________________ 26 High Voltage Electric Transmission Lines ____________________________________________________________ 26 Lead-Based Paint_______________________________________________________________________________ 26 Planned Unit Developments (PUDs)________________________________________________________________ 26 New Construction ______________________________________________________________________________ 27

Construction Warranty __________________________________________________________________________________ 27

Condominiums __________________________________________________________________________ 28 Condominium Property Eligibility _________________________________________________________________ 28

Eligible _______________________________________________________________________________________________ 28 Ineligible ______________________________________________________________________________________________ 28

Insurance Requirements_________________________________________________________________________ 28

Hazard/Liability Insurance (Project Approval) ________________________________________________________________ 28 HO-6 (Loan Level) _______________________________________________________________________________________ 29 Fidelity Bond / Fidelity Insurance (Project Approval) ___________________________________________________________ 29 Flood (Project and Loan Level) ____________________________________________________________________________ 29

Site Condominiums _____________________________________________________________________________ 30 Condominium Conversions_______________________________________________________________________ 30

Credit__________________________________________________________________________________ 31 Documentation Requirements ____________________________________________________________________ 31

Verification of Institutional Mortgage History ________________________________________________________________ 31 Verification of Rental Payment History ______________________________________________________________________ 31 Land Contract/Contract for Deed __________________________________________________________________________ 31 Lease with Option to Purchase ____________________________________________________________________________ 31

Credit Reports _________________________________________________________________________________ 31 Housing Payment History ________________________________________________________________________ 32

Purchases _____________________________________________________________________________________________ 32 Cash Out Refinances and/or Refer Recommendations _________________________________________________________ 32

Bankruptcy ___________________________________________________________________________________ 32

Chapter 7 Bankruptcy ___________________________________________________________________________________ 32 Chapter 13 Bankruptcy __________________________________________________________________________________ 32

Foreclosure/Deed-in-Lieu ________________________________________________________________________ 33

Foreclosure Discharged in a Chapter 7 Bankruptcy ____________________________________________________________ 33

Pre-Foreclosure Sales / Short Sales ________________________________________________________________ 33 Hardship Modification __________________________________________________________________________ 33

Purchases _____________________________________________________________________________________________ 33 Refinances ____________________________________________________________________________________________ 33

Consumer Credit Counseling _____________________________________________________________________ 34

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VA Underwriting Guidelines | Table of Contents

Credit Score ___________________________________________________________________________________ 34 Valid Credit Score ______________________________________________________________________________ 34 Credit Inquiries within 90 Days of Report Date _______________________________________________________ 34 Accounts with No Monthly Payment Reported _______________________________________________________ 34 Open 30-Day Charge Accounts ____________________________________________________________________ 34 Disputed Accounts _____________________________________________________________________________ 34 Recurring Obligations ___________________________________________________________________________ 35 Contingent Liability _____________________________________________________________________________ 35 Joint/Co-signed Debts by Applicants _______________________________________________________________ 35 Installment Debt _______________________________________________________________________________ 35 Projected Obligations ___________________________________________________________________________ 36

Student Loans__________________________________________________________________________________________ 36

Obligations Not Considered Debt__________________________________________________________________ 36 Payment Plans_________________________________________________________________________________ 36 Subordinating a Lien ____________________________________________________________________________ 36 CAIVRS _______________________________________________________________________________________ 37 MiMutual Infile Credit Reports____________________________________________________________________ 37

Employment/Income _____________________________________________________________________ 38 Documentation Requirements ____________________________________________________________________ 38 Hourly or Salaried Employees (Non-Military Employment) _____________________________________________ 38

Standard Documentation ________________________________________________________________________________ 38 Alternative Documentation _______________________________________________________________________________ 39

Overtime and Bonus Income _____________________________________________________________________ 39 Second Jobs / Part-Time Income __________________________________________________________________ 39 Seasonal Employment __________________________________________________________________________ 39 Unemployment Benefits Income __________________________________________________________________ 39 Union Employment _____________________________________________________________________________ 40 Commission Income ____________________________________________________________________________ 40 1099 Employees _______________________________________________________________________________ 40 Unreimbursed Employee Business Expenses_________________________________________________________ 40 Automobile Allowances _________________________________________________________________________ 41 Self-Employed _________________________________________________________________________________ 41 Child Support and Maintenance Income ____________________________________________________________ 41 Social Security Income __________________________________________________________________________ 42 Social Security (Long-Term) Disability Income________________________________________________________ 42 Social Security Income Received for a Child _________________________________________________________ 42 Retirement Income _____________________________________________________________________________ 42 Military Income ________________________________________________________________________________ 43 Military Personnel within 12 Months of Active Duty Release ___________________________________________ 43 Military Allowances ____________________________________________________________________________ 44

Military Quarters Allowance ______________________________________________________________________________ 44 Subsistence and Clothing Allowances _______________________________________________________________________ 44 Other Military Allowances ________________________________________________________________________________ 44

Leave and Earnings Statement (LES) _______________________________________________________________ 44 Foster Care Income _____________________________________________________________________________ 45 Non-Taxable Income ____________________________________________________________________________ 45 Short Term Disability/Workman's Comp ____________________________________________________________ 46 Foreign Income ________________________________________________________________________________ 46 Maternity Leave _______________________________________________________________________________ 46 Rental Income _________________________________________________________________________________ 47

Multi-Unit Property Securing the VA Loan ___________________________________________________________________ 47 Verification _________________________________________________________________________________________ 47

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VA Underwriting Guidelines | Table of Contents

Analysis ____________________________________________________________________________________________ 47 Rental of the Property Applicant Occupied Prior to the New Loan ________________________________________________ 47

Verification _________________________________________________________________________________________ 47 Analysis ____________________________________________________________________________________________ 47 Rental of Other Property Not Securing the VA Loan ___________________________________________________________ 48 Verification _________________________________________________________________________________________ 48 Analysis ____________________________________________________________________________________________ 48 Section 8 Income _______________________________________________________________________________________ 48

Income Transcript Verification ____________________________________________________________________ 48

Full Tax Return Transcripts (1040s) _________________________________________________________________________ 49 W2 Transcript Waiver ___________________________________________________________________________________ 49

Timing of Tax Returns ___________________________________________________________________________ 50

Additional Documentation Requirements ___________________________________________________________________ 51

Deductions from Income ________________________________________________________________________ 52

FICA Withholding _______________________________________________________________________________________ 52 Income Tax Withholding _________________________________________________________________________________ 52

Assets _________________________________________________________________________________ 53 Borrower's Own Funds to Close ___________________________________________________________________ 53

Bank Statements _______________________________________________________________________________________ 53 Verification of Deposit ___________________________________________________________________________________ 53 HUD-1 from Sale of Current Residence ______________________________________________________________________ 53

Large Deposits _________________________________________________________________________________ 53 Gifts (Personal and Equity) ______________________________________________________________________ 54

Acceptable Sources for Gift Funds _________________________________________________________________________ 54 Donor's Source of Funds _________________________________________________________________________________ 54 Gift Letter _____________________________________________________________________________________________ 54 Documenting the Transfer of Gift Funds_____________________________________________________________________ 55 Gifts of Equity __________________________________________________________________________________________ 55

Gift Funds/Grants by Charitable Organizations _______________________________________________________ 55 Collateralized Loans ____________________________________________________________________________ 56 Sale of Personal Property ________________________________________________________________________ 56 Cash Saved at Home ____________________________________________________________________________ 56

Refinance Transactions ___________________________________________________________________ 57 Mortgage Payoffs ______________________________________________________________________________ 57

Payoff Used for Mortgage Amount Calculation _______________________________________________________________ 57 Short Payoffs __________________________________________________________________________________________ 57

Subordinate liens ______________________________________________________________________________ 57 Property Listed for Sale _________________________________________________________________________ 57 Cash Out and Principal Curtailments _______________________________________________________________ 58 Texas Refinances _______________________________________________________________________________ 58

50(f)(2) _______________________________________________________________________________________________ 59

Purchase Transactions ____________________________________________________________________ 60 Fully Executed Residential Purchase Agreement______________________________________________________ 60 Earnest Money Deposit (EMD) ____________________________________________________________________ 60 Amendatory Clause/VA Escape Clause _____________________________________________________________ 60 Real Estate Certification _________________________________________________________________________ 60 Reacquisition of a Formerly-Owned Property ________________________________________________________ 60 Short Sales ____________________________________________________________________________________ 61

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VA Underwriting Guidelines | Table of Contents

Seller Contribution/Concessions __________________________________________________________________ 61 Determining Property Taxes on New Construction Dwellings ___________________________________________ 62 Property Flipping_______________________________________________________________________________ 62 Second Appraisal / Desk Review / Field Review Requirements __________________________________________ 62 Prior Sales ____________________________________________________________________________________ 62 12-Month Chain of Title _________________________________________________________________________ 62 Downpayment Assistance Programs (DAPs) _________________________________________________________ 62 Reimbursement of Buyer-Paid Costs _______________________________________________________________ 62 Seller Utilizing a Relocation Company ______________________________________________________________ 63

Relocation Company Takes Power of Attorney _______________________________________________________________ 63 Double Escrow _________________________________________________________________________________________ 63 Relocation Company Acts as Seller without Taking Title ________________________________________________________ 63

General Provisions _______________________________________________________________________ 64 Documentation Requirements ____________________________________________________________________ 64 Citizenship ____________________________________________________________________________________ 64

Permanent Resident Aliens _______________________________________________________________________________ 64 Non-Permanent Resident Aliens ___________________________________________________________________________ 64 Additional Immigration Status_____________________________________________________________________________ 65 North American Free Trade Agreement (NAFTA) Workers ______________________________________________________ 65 Diplomatic Immunity ____________________________________________________________________________________ 65

Social Security Number__________________________________________________________________________ 65 Translated Documents __________________________________________________________________________ 65 Non-Occupant Co-Borrowers _____________________________________________________________________ 65 Legal Name ___________________________________________________________________________________ 66

Married Names ________________________________________________________________________________________ 66

Maximum Number of Financed Properties/Multiple Properties _________________________________________ 66 Age of Borrower _______________________________________________________________________________ 66 Power of Attorney (at Closing) ____________________________________________________________________ 67 Rescission ____________________________________________________________________________________ 68 Taxes and Insurance Escrows _____________________________________________________________________ 68 Flood Insurance ________________________________________________________________________________ 68 Hazard Insurance_______________________________________________________________________________ 68 Non-Homestead Property Taxes __________________________________________________________________ 69 Title Companies/Settlement Agents _______________________________________________________________ 69 Title Requirements _____________________________________________________________________________ 69

Redemption Periods on Title ______________________________________________________________________________ 69 Schedule B ____________________________________________________________________________________________ 69

Delinquent Property Taxes _______________________________________________________________________ 69 Paying Debt at Closing __________________________________________________________________________ 69 Verifications __________________________________________________________________________________ 70 Age of Documents______________________________________________________________________________ 70 Non-Purchasing Spouse _________________________________________________________________________ 70 Electronic Signatures____________________________________________________________________________ 71

Ineligible Documents for eSignature ________________________________________________________________________ 71 Approved Vendors ______________________________________________________________________________________ 71

Trusts ________________________________________________________________________________________ 72

Eligible Borrowers ______________________________________________________________________________________ 72 Eligible Properties ______________________________________________________________________________________ 72 Required Documentation ________________________________________________________________________________ 72 Exception for Trust Certificate Authorized States______________________________________________________________ 72 Other Title and Closing Requirements ______________________________________________________________________ 73 Ineligible ______________________________________________________________________________________________ 73

LDP/SAM Lists _________________________________________________________________________________ 73

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VA Underwriting Guidelines | Table of Contents

CAIVRS _______________________________________________________________________________________ 73

Assumptions ___________________________________________________________________________________________ 73 Divorce _______________________________________________________________________________________________ 73 Bankruptcy ____________________________________________________________________________________________ 74

Debt-to-Income Ratios / Qualifying Ratios __________________________________________________________ 74 VA Policy Limiting the Number of Mortgages per Borrower ____________________________________________ 74 Compensating Factors___________________________________________________________________________ 75 Solar Leases and Power Purchase Agreements _______________________________________________________ 76

Program Specifics ________________________________________________________________________ 77 Broker Approval _______________________________________________________________________________ 77 Required Forms ________________________________________________________________________________ 77

Origination Forms ______________________________________________________________________________________ 77 Loan Analysis Worksheet ? VA 26-6393 ___________________________________________________________________ 77 Request for Determination of Reasonable Value ? VA 26-1805 ________________________________________________ 77 Counseling Checklist for Military Homebuyers ? VA 26-0592 __________________________________________________ 77 Compliance Inspection Report ? VA 26-1839_______________________________________________________________ 77 Request for Certificate of Eligibility ? VA 26-1880 ___________________________________________________________ 77 Request for Certificate of Eligibility Unmarried Surviving Spouse ? VA 26-1817 ___________________________________ 78 Federal Collection Policy Notice ? VA 26-0503 _____________________________________________________________ 78 Debt Questionnaire ? VA 26-0551 _______________________________________________________________________ 78 Reservist/National Guard Certification ___________________________________________________________________ 78 VA 3-Year Hybrid ARM Disclosure _______________________________________________________________________ 78 VA 5-Year Hybrid ARM Disclosure _______________________________________________________________________ 78 VA ARM Certification _________________________________________________________________________________ 78 VA Notice to Homeowner ______________________________________________________________________________ 78 Veterans Certification _________________________________________________________________________________ 78

Closing Forms __________________________________________________________________________________________ 79 Report and Certification of Loan Disbursement ? VA 26-1820 _________________________________________________ 79 VA Notice to Homeowner ______________________________________________________________________________ 79

Miscellaneous Forms ____________________________________________________________________________________ 79 Certificate of Release or Discharge from Active Duty ? DD Form 214 ___________________________________________ 79

Other Important Links/Documents _________________________________________________________________________ 79 How to read an Active Duty Leave & Earnings Statement (LES) ________________________________________________ 79 Federal Income Tax Chart ______________________________________________________________________________ 79 Department of Revenue/State and Local Income Tax information 79

Eligibility Requirements ___________________________________________________________________ 80 Veteran Eligibility Rules/Documentation Requirements _______________________________________________ 80

Veterans Discharged From Regular Military __________________________________________________________________ 80 Veterans Discharged From the Reserves/National Guard _______________________________________________________ 80 Active Duty Service Personnel _____________________________________________________________________________ 80 Reservists _____________________________________________________________________________________________ 81 Certification of Military Reservist Status_____________________________________________________________________ 81 Unmarried Surviving Spouses _____________________________________________________________________________ 82 Spouses of Service Personnel Missing in Action or Prisoners of War ______________________________________________ 82 Veteran with Non-Veteran /Non-Spouse ____________________________________________________________________ 82 Two or More Veterans that are Not Married _________________________________________________________________ 83 Military Personnel within 12 Months of Active Duty Release ____________________________________________________ 83

Certificate of Eligibility __________________________________________________________________________ 84

Entitlement Codes ______________________________________________________________________________________ 84 Entitlement Codes for Other People ________________________________________________________________________ 85

Calculating Veterans Entitlement__________________________________________________________________ 85 Funding Fee ___________________________________________________________________________________ 86

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Requirements __________________________________________________________________________________________ 87

Veteran/Borrower (Eligible/Ineligible) _____________________________________________________________ 88

General Information ____________________________________________________________________________________ 88 Eligible Veteran/Borrower Combinations ____________________________________________________________________ 88 VA Prior Approval (Joint Loans) ____________________________________________________________________________ 88 Ineligible Veteran/Borrower Combinations __________________________________________________________________ 88 Occupancy ____________________________________________________________________________________________ 89

Fees and Charges_______________________________________________________________________________ 90

Unallowable Fees _______________________________________________________________________________________ 91

Qualifying Ratios _______________________________________________________________________________ 92 Grossing Up Non-Taxable Income _________________________________________________________________ 92 Maintenance and Utility Costs for All Regions _______________________________________________________ 92 Residual Income Tables _________________________________________________________________________ 93

Exception _____________________________________________________________________________________________ 93

IRRRLs _________________________________________________________________________________ 95 Minimum Credit Score __________________________________________________________________________ 95 Maximum Loan Amount _________________________________________________________________________ 95 Available Terms________________________________________________________________________________ 95

Maximum Loan Term ____________________________________________________________________________________ 95

Funding Fee ___________________________________________________________________________________ 95 AUS _________________________________________________________________________________________ 95 Requirements _________________________________________________________________________________ 96 VA Rate Reduction Certification ___________________________________________________________________ 96

Example ______________________________________________________________________________________________ 97

Cash Back to Borrower at Closing__________________________________________________________________ 97 Documentation Requirements ____________________________________________________________________ 97

Credit ________________________________________________________________________________________________ 97 Income _______________________________________________________________________________________________ 97 Ratios ________________________________________________________________________________________________ 97 Occupancy ____________________________________________________________________________________________ 97 Appraisal______________________________________________________________________________________________ 97

CAIVRS _______________________________________________________________________________________ 98 Title/Lien Requirements _________________________________________________________________________ 98 Underwriting of IRRRLs When Obligors Have Changed_________________________________________________ 98

High Balance____________________________________________________________________________ 99 Maximum Guaranty ____________________________________________________________________________ 99 Available Terms________________________________________________________________________________ 99 Maximum DTI _________________________________________________________________________________ 99 AUS Requirements _____________________________________________________________________________ 99

Automated Underwriting Systems / Desktop Underwriter ______________________________________ 100 Approve/Eligible Risk Classification _______________________________________________________________ 100 Approve/Ineligible Recommendation _____________________________________________________________ 100 Refer/Eligible Classification _____________________________________________________________________ 100 System Overrides and Manual Downgrades ________________________________________________________ 101 Upfront Disclosure Policy _______________________________________________________________________ 101

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