VA LOANS (VETERANS ADMINSTRATION)
VA loans (for 1 to 4 unit residential owner occupied properties) are underwritten and originated to VA criteria and are guaranteed by VA for borrowers who are eligible thru military service. A certificate of eligibility is issued by VA indicating the amount of VA guarantee. The percentage of the loan that VA will guarantee is based on the loan amount and the amount of the veteran’s eligibility. In most cases, this will equate to 100%LTV financing with no down payment required and a loan amount up to comparable 417,000 conforming limit. The VA funding fee is usually financed into the loan (after calculating the base loan amount LTV). The amount of funding fee will vary depending on entitlement and if the borrower has utilized previous entitlement (used a VA loan previously). VA has a limit of 4 percent that the seller can contribute to a buyer on a VA purchase without it being considered excessive. The 4 percent is based on the appraised value. For VA purposes, a seller concession is defined as anything of value added to the transaction which the buyer pays no additional amount and which the seller is not customarily expected to pay.
Some examples of concessions include seller payment of the following:
• Buyer’s VA funding fee
• Buyer’s prepaids.
• Gifts, such as television
• Temporary rate buydown.
Two items not considered a concession include seller payment of:
• Non-recurring closing costs (most one time customary settlement costs)
• Discount points.
Under no circumstances can the veteran receive cash proceeds in a purchase transaction derived from a seller’s contribution. If concessions exceed 4 percent, they must be adjusted to 4 percent.
Therefore, it is wise to apply the 4% seller assist towards prepaids first, as can nonrecurring closing costs can be paid by the seller above and beyond the max 4% limit.
Special Note: While WFHM/PMC does not prohibit the seller from paying off borrower’s debts to qualify on a VA loan, this typically would not be allowed unless the borrower proves to be a strong credit risk. If debts are paid by the seller, this would be considered a seller concession. Obtain lender approval of this upfront, prior to closing