Qualifying & Residual Income

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 LO's, remember to conduct a thorough assessment using form 6393, ensuring consideration of residual income and accounting for childcare expenses. Check out today's video.  

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

In light of a recent podcast by NAR commemorating Veterans Day, it's crucial to address two points.  

The podcast mentioned that, with VA loans, Veteran buyers cannot contribute to the seller's closing costs. Contrary to this, there are no restrictions in the VA guidelines against such contributions. Buyers can indeed cover expenses like the entire Title charge, HOA dues, or prorated taxes, with the caveat that these fees are encompassed within the origination charge, limited to 1%.  

The 2nd item is regarding the minimum FICO Score for VA Loans. It was stated that VA loans have a minimum 620 FICO score. However, this is not accurate; there is no inherent minimum FICO score for VA loans. Any mention of such scores pertains to lender overlays. While I've witnessed successful VA loans with scores below 620, it's essential to note that lower scores may pose challenges in qualification, potentially leading to higher loan pricing.  

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

Let's dive into the world of hybrid adjustable-rate mortgages (Hybrid ARMs). These mortgages gained popularity between 2005 and 2007 as an attractive alternative to fixed-rate loans. At that time, fixed rates were hovering in the high 6% to low 7% range, while hybrid ARMs offered much lower initial rates, typically in the 3.05% range for 3/1 and 5/1 ARMs.

Interestingly, we're witnessing a resurgence in the popularity of hybrid ARMs today. With average 30-year fixed rates currently in the high 7% to low 8% range, hybrid ARMs are starting with rates about 1% lower.

While some may hesitate to consider a hybrid ARM due to the potential for rate increases over time, it's essential to highlight situations where this type of loan can make perfect sense. For instance, active-duty service members, who often relocate due to PCS orders, may find hybrid ARMs a valuable option. They can take advantage of the lower initial rate for the first 5 years, likely selling the home before the rate adjusts. This can result in significant savings in the early years of homeownership and faster reduction of the outstanding balance.

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

This week we wanted to go over minimum property requirements. 

MPR's are designed to safeguard the interests of veterans and are not intended to complicate the loan closing process. It's a common misconception that sellers and real estate agents are wary of VA loans due to concerns about potential MPR-related issues.

What many may not realize is that several MPR issues can actually be waived if requested by the veteran and acknowledged by them. However, certain MPR requirements related to safety are non-negotiable. Examples include lead-based paint and security bars that cannot be easily opened from the inside. These safety considerations are crucial to ensure that occupants can escape in case of a fire or other emergencies.

It's essential to understand that most other MPRs can be waived, so they shouldn't deter you from making a sale. Keep in mind that various loan types have their own safety standards in place.

If you have any further questions or need clarification, please feel free to reach out.

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

 We're eager to resume our discussion on the distinctions between seller concessions and credits. Feel free to watch the video and don't hesitate to get in touch if you have any inquiries. 

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

Hello, everyone. I'm currently speaking to you from Phoenix, having just wrapped up our attendance at the VAREP conference in Orlando yesterday. 

If you recall, on Monday, we brought up a question regarding seller concessions. Can anyone here tell me what the maximum seller concession is allowed on a VA loan?

I appreciate your responses, and yes, it's close but not quite. The maximum VA seller concession is indeed 4% of the property value, not the sale price.

For our discussion on Monday, we'll delve deeper into understanding the distinction between Seller Concessions and Seller Credits. These terms are not interchangeable, and it's crucial to grasp the difference between them. 

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

Today's Mortgage Monday comes in the form of a question. How much seller concession is allowed? Watch the video and we will be back with the answer. 

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

Today's focus revolves once more around loan assumptions. When dealing with a veteran borrower who intends to assume another veteran's loan, it's crucial to confirm the borrower's eligibility by ensuring they possess the required entitlement. Take a listen. 

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

It's Mortgage Monday! 

Today, we want to share a brief message about utilizing VA loans for a new home purchase while retaining ownership of your current home.  If your Certificate of Eligibility (COE) indicates that you have $0 remaining entitlement, it's essential to understand that any new loan must exceed $144,000. Yes, that's right—more than $144,000. This requirement stems from the fact that, in order to access your remaining entitlement, the loan amount must surpass what the basic entitlement covers. Consequently, a new loan of $144,000 or less won't qualify for VA loan guaranty.  Should you seek more detailed information on this topic, please don't hesitate to reach out to us directly.

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

This week's installment of Mortgage Monday delves into a crucial subject—the VA Amendatory Clause. This particular VA regulation has often been misunderstood and applied incorrectly over time, making it imperative that we shed light on this vital regulatory aspect. This is for all Mortgage Professionals as well as Real Estate Professionals. Please, take time and watch this recording. 

For further information on this subject and others, please, reach out by calling 615-293-2775 or support@vahousingeducators.com.  

 When purchasing a new home utilizing your VA loan benefit while maintaining your existing mortgage, it is highly probable that you've exhausted your basic entitlement during that transaction. Consequently, to tap into any residual entitlement you may still possess, you'll need a loan amount of at least $144,000 on the new home acquisition. 

For further clarification and to inquire about the reasons behind this requirement, reach out to @ 615-293-2775 or jeff@vahousingeducators.com.  

Let’s talk today about the dreaded Non-allowable fees!

I think what we really need to do is take a step back and see just what is a non-allowable fee.  Let’s find the definition in the lender’s handbook… Hmmm… not there.  How about the Law… not there either… Wait, I bet those non-allowable fees are listed in the regulation!... Huh… not there either!

Did you know that VA does not define a non-allowable fee and never has?  You know what?  That means every fee is allowable!  Now before you start salivating over fees you can start charging, remember that there are limits!

Our real estate industry coined the use of the term non-allowable decades ago.  Many in both the real estate and mortgage industry use this as a reason to steer a Veteran away from the VA loan. It is a fallacy and myth that sellers have to pay VA non-allowable fees, and this myth has driven through the industry like a plague on the VA loan to steer Veterans out of the best loan in the industry.

If you want to know more about what fees are allowed and what fees can never be charged, please contact us for more detailed information and to schedule a training for your team. 

Welcome to Mortgage Monday!

Let’s talk briefly about the Servicemembers Civil Relief Act or SCRA. This used to be the SSCRA or Soldiers and Sailors Civil Relief Act but that was changed back in 2003. I just want to touch on a couple issues for all of you to consider regarding your customer base.

1) Interest Rates-If you have customers that were activated since buying or refinancing and their  rate was in excess of 6%, then make sure that you remind them that while they are activated, their rate can be reduced to 6%.  It will go back up after they leave active service, but during the interim, the rate can be reduced.  They have to ask for this as well.

2) Credit Debt-Don’t forget credit debt.  Even credit card debt has to be reduced to 6% during the activation period.  And the servicer of the debt cannot accrue interest at the original rate during this period either.

3) Extension-These protections actually extend for up to 12 months after the activation, but they have to ask for it.

If you want to learn more, stay tuned and check out our webpage for more information and training including a short training class on SCRA coming soon!

If you are a VAREP member and you will be attending this years convention in Orlando, be sure to catch the entire class on SCRA. 

Have a great week!

#servicemembers #protection #ServiceBeforeSelf #homeownership #vahomeloan

Today from Reno, Nevada, Kim and I are on our way home and we wanted to give you all a shout out regarding the Renovation loan with a Refinance.  Don't forget that any equity you have between the loan amount and value counts toward reduction in the VA Funding Fee.  That's correct, it works like a construction loan and equity of 5% or 10% will reduce the Funding Fee!  

Leave yourself some room and save on your loan!

In part 1, we discussed “Departing Residence” income and how that can be used to offset the mortgage from the previous home. In part 2, we discussed income from rental property and what was required to use that income. So, now let’s talk about rent from a multi-family property to support a purchase loan using a VA loan, and rent from the other units to support the mortgage debt. Let me start with an example and we’ll work from there:

• Let’s say the Veteran, Cindy, is buying a 4-plex property and intends on living in one unit.  She’s never owned a rental property before, much less a multi-unit property, but she needs the income from the other units to help support the mortgage debt.  So how does the mortgage company support that income when Cindy has no history of managing rental property, much less counting on that income to support the debt?  After all, this is much like self-employment income from a small business. In Chapter 4 of the VA Lenders Handbook, VA explains that in cases such as this, a Veteran can use the income with either a 2-year history of experience managing rental property, or the Veteran can hire a property manager for 12 months to learn how to manage renters. VA says that the lender can use up to 75% of the potential rents toward the income to support the mortgage debt.  Obviously, that would also be “net” from the management contract if one is necessary. So how does the underwriter obtain the income to be used if the borrower has no history of ownership or income on this property? The easiest method is to use the current leases from the units being rented. But what if this is a new build and has no leases, or the previous owner cleared out the tenants in order to prep the property for sale? In this case, the appraisal, or 1007, will have a section from the appraiser on the potential rents for the rental units so the underwriter can use that to support the rents and count 75% toward debt service. In addition to the required income, the Veteran is going to need 6 months PITI in liquid assets. Assets such as life insurance policies or retirement accounts that cannot easily be accessed cannot be counted. The assets must be the borrower’s own funds and cannot be borrowed or gifted. And I left the best for last… If the borrower doesn’t need the rent to support the debt and can do so with her normal income, then neither the management history nor the reserves are required!

Here are some other considerations:  

I know that some of you are aware that the VA law allows for more than a 4-unit property; however, GNMA does not. SO, lenders will only allow for a 4-unit property. And it shouldn’t need to be said, but it does need to be said; the Veteran must occupy one of the units. But what if all the units are currently rented and the Veteran buyer can’t move in right away?  VA will allow the Veteran 60 days to move in so an underwriter is more than likely going to want to see a lease from one unit that will be vacated within 60 days. If there isn’t one available, I would suggest that the underwriter contact VA to ask for guidance on this matter and determine if VA will still allow more than 60 days for occupancy.

And there you have it; rental income is a great way a Veteran can offset mortgages with other people’s money using the VA Home Loan!

I hope you all have been able to obtain some information from this series on income and it helps you support our Veterans housing needs!

Let me know what you think, leave a post or comment on social media or a google review and thank you for supporting our mission to be a leader in supporting Veteran’s housing needs!

See you next week from Reno, NV!  Good day!

This is our first attempt at a video! Be kind, but share feedback so that we may improve. 

We’d also love to hear your suggestion as to what you want to see more of.  And don’t forget to subscribe to our Facebook and LinkedIn pages.  If you need help getting your VA loans approved, subscribe, and join us at VA Housing Educators and Consulting! 

Now, let’s dig deeper into rental income from REO properties. First and foremost, in order to count income from a rental property that is already owned, the borrower has to have reported the income on the last 2 tax returns.  That doesn’t mean 2 full years, but it does require that the property is listed on 2 returns. 

For instance, the borrower could have purchased the rental property in November 2021, reported it on 2021 taxes for the December rent and then all of 2022.  That’s only 13 months, but it counts because it has been listed on 2 returns and an underwriter can average income over the 13 months. In addition to taxes, the borrower must have 3 months of PITI reserves to cover each property. Many people mistakenly believe that if the rental property is a multi-family home that they need 6 months PITI, but the Handbook and the Regulation are clear on this subject and only requires 3 months PITI for “other rental property” used as income to support a VA loan on another property.  VA considers that 2 years tax history supports the borrower’s “self-employment” income using rental properties.

And one particular caveat is that the reserves must be from the borrower’s own funds; they cannot be borrowed or gifted.  So, document the reserves properly.

And finally, VA allows the borrower to add back depreciation as effective income if it was reported on taxes. The best part is that if rental income is not being used to qualify or cover the rental properties, VA does not require reserves or tax returns!  But you must count the entire mortgage as a reduction to borrower’s income.

I hope you all have a great week ahead and get out there and help more veterans and their families!!

Over the next 3 weeks we are going to get into rental income, what can be used and what cannot. Let’s start with using the previous home or as VA calls it “Departing Residence” for rental income. In this case, VA allows the Veteran to offset the rent obtained on the departing residence up to the amount of the debt. VA doesn’t require any proof of success as a property manager or to even employ a property manager to help learn the ropes. VA doesn’t even require rental reserve funds in case of vacancy.

But here are the caveats and overlays.  

Many investors require 3 months PITI in reserve and some only allow up to 75% of rental income to be counted toward the debt. Here is a good example of departing residence:

Veteran was stationed at Ft. Hood in Texas and was going to be reassigned to Ft. Knox, Kentucky.  He went on a house hunting trip but couldn’t immediately find a home to buy. Meanwhile, the market as we know it has changed and is making his low interest rate loan much more competitive from a payment standpoint and could make an extra $500 a month if he kept his Texas home and rented it and buy in Kentucky. The Veteran found a short-term rental, packed up his family, moved to Kentucky and put his Texas home on the market for rent.  He immediately found a tenant and rented the Texas home for $1,500 a month but only had a $1,000 mortgage. After about 5 months he found a home in Kentucky and was due to close the following month. Because he had not really established a full-time residence in Kentucky, he could still use the departing residence in Texas and was able to offset the full monthly payment of $1,000 from his DTI using the new rent. 

As for the $500 over the mortgage, VA won’t allow the Veteran to use that income, but in a pinch, an underwriter might be able to justify a portion of the $500 to offset a short-term debt for DTI purposes but certainly not for residual calculations.

Next week we’ll talk more about rental income.  In the meantime, if you have any questions please contact me for more information.

#rentalproperty #purchase #homeownership #offset #PCS #vahomeloans #military #veterans #getaprofessional

Have you ever tried to get a loan through an underwriter only to have them tell you that the Veteran doesn’t live in the town that they are buying in and so they can’t buy the home there? This seems to be the issue when underwriters don’t consider the use of Intermittent Occupancy as an option. Intermittent Occupancy is a perfect solution to the Veteran that is buying a home near the spouse’s family but will only live there a few days a week.  Let me give you an example:

Take the case of a married couple where the Veteran is using entitlement to purchase a home near Palm Springs where his wife has family, but he works in San Diego 4 days a week as a fire fighter.  The Veteran is only going to be home from Friday to Sunday but will be in San Diego Sunday night through Thursday evening.  This is perfectly acceptable to VA.

Chapter 3 section 5 explains Intermittent Occupancy.  There are two requirements:

1) there must be a history of residence in the community… his wife’s family lives there, and they lived there before;
2) there must be no indication the Veteran has or will be required to maintain a principal residence other than where the new home is located.

Simply put, if the Veteran has ties to the community and doesn’t have to maintain a permanent home at the alternate location, then this is acceptable as the Veteran’s primary home.

If you have any questions about this issue, please don’t hesitate to contact us on how to document the circumstances and close this type of loan for your Veteran buyer.

#vahomeloans #homeownership #Veterans #military #occupancy

Student Loan Debt…  It’s all in the news today both politically and financially. Student loan debt and a VA loan are not necessarily a bad thing.  VA is very easy to navigate outstanding student loans.  There are 3 ways to figure it out:

     1. If the debt is in forbearance for 12 months or more, then VA doesn’t require the lender to count anything.

     2. If less than 12 months, then VA says to count the IBR or Income Based Repayment amount.
   3. If that hasn’t been established then look at the Credit Report.  If there is an actual amount there, then use that; if not, count the total amount of the debt times 5% divided by 12 months.

It really is that simple.  Just remember, active duty members generally have repayment waivers while still on active duty so you may be able to waive repayment with just one document.

#vahomeloans #veterans #Activeduty #studentloandebt #studentloans #homeownership 

As we move into this holiday in recognition of the historical event that established our nation’s freedom from British rule, let’s remember all those that continue to fight for our freedom.

If you follow our page, you saw our Mortgage Monday post on June 5th, about VA Home Loan Assumptions and the Release of Liability (ROL) process.  In this circular, VA didn’t really change anything about assumptions except the process… a little.  The problem is, that many servicers still lack the knowledge not only about who can process an assumption but how even to process the ROL.  Let’s start at some basics:

• Anyone can purchase a VA loan through assumption from the seller.
• The buyer/assumer does NOT have to be a Veteran or family member of the seller.
• The buyer/assumer does NOT have to occupy the home and can purchase it as an investment property.  While VA doesn’t really like this, and has said so, the law does not limit an assumption to an owner occupant.
• The Seller does not have to be the original Veteran.  In other words, if the seller inherited the property, they can sell it as an assumption.  If the seller assumed the loan previously from the original Veteran, they can sell it again through assumption to a new borrower.
• Because this is technically a purchase contract, it requires all of the normal processing as any other purchase such as an LE/CD, all of the normal qualifying documents, title review and insurance, etc.  It also requires a .5% funding fee paid in cash at closing.  This can be paid by either buyer, seller, or split. This is very important to address because a lot of ‘Assumers’ think that it is very simple and has no cost associated with it… not true.  The only thing the assumer is not doing is negotiating a loan rate or discount points.  Those are fixed with the loan being assumed.
• VA discusses assumptions in Chapter 5 section 6 of the VA Lenders  Handbook in much more detail.
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If you are having difficulty processing an assumption for one of your customers, please don’t hesitate to contact us and we can assist you in processing this as well give you guidance.

#assumptions #veterans #vahomeloans #Benefits