Table of Contents. Last Updated: October 20 th, 2014

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Motive Lending

VA Guidelines

Topics Sorted Alphabetically

4506-T

• A fully executed IRS Form 4506-T must be included in all loan files.

• 4506 1040 transcript results for the most recent available tax year must be ordered and obtained from IRS for all income sources.

• For borrowers employed by a family-owned business, must order and obtain the most recent 2 years’ available 1040 transcripts from the IRS.

• If the most recent tax year transcript is not available, Obtain the previous year’s transcript and proof of extension for most recent year. If the extension is expired (loans closing with a note date on or after October 15th) must obtain tax return and transcript for most recent yearFor income derived from self-employment, other business income, or rentals, qualifying income calculations must include the amounts verified with the most recent available tax transcript. If the loan is closing with a note date on or after October 15th, qualifying income must include most recent year’s figures, and a transcript for that year must be ordered and obtained.

APPRAISAL

APPRAISAL VALIDITY

• Appraisals are valid for six months

PROPERTY ADDRESSES

• The property addresses on the appraisal, mortgage, note, flood certification must be identical. However, abbreviation of “Street,” “Road,” etc. is acceptable, even if “Street” or “Road” is fully spelled in another document. This is the only acceptable variance

o Use the standardized USPS address. Compare the USPS address to the legal description on the title commitment and use the city in the legal description if that differs from the USPS address

PURCHASES AND CASH-OUT REFINANCES

• Unless a broker has been approved by The Veterans Admin. to order their own VA appraisals, they will place the order through Motive Lending. Submit the following items to Motive Lending:

o Fully completed VA Case Number/Appraiser Assignment,

executed sales agreement and all addendums

o Fax the completed form, sales agreement and all addendums to fax number indicated on page 1 of VA Case Number/Appraiser Assignment

 Form must be legible and complete – For maximum clarity, fax all items at highest print quality/resolution

o Base LTV before addition of the financed funding fee must be ≤ 100% of the appraised

value

o The property must meet VA’s minimum property requirements. Repairs that affect the health and safety of the occupants must be completed prior to closing

o Borrower may pay for appraisal

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VA APPRAISER ASSIGNMENT – PURCHASE AND CASH-OUT TRANSACTIONS ONLY

• All appraisals for purchase or cash-out refinance transactions must be ordered electronically through VA’s WebLGY System

• VA-approved appraisers are randomly assigned by WebLGY

• Case Number is assigned simultaneously with completion of appraisal order • VA appraisers must provide appraisals in a timely manner

• VA appraiser may only be contacted for status – questions related to repair or value are permitted only by the Staff Appraisal Reviewer (SAR)

• Rush appraisal requests are not permitted

• Borrower may not pay more than the maximum appraisal or inspection fee established by VA. Maximum appraisal and inspection fees are established by the Regional Loan Center having jurisdiction over the property. Refer to VA Appraisal Fee Schedule and Timeliness Requirements

APPRAISAL INVOICE

• VA appraiser sends appraisal and invoice to the underwriting lender that ordered the appraisal • Borrowers may not pay VA appraisers directly

• Borrower may not pay more than the maximum appraisal or inspection fee established by VA. Maximum appraisal and inspection fees are established by the Regional Loan Center having jurisdiction over the property. Refer to VA Appraisal Fee Schedule and Timeliness Requirements

FORM REQUIREMENTS

• 1-unit residences require Form 1004 • 2-4 unit residences require Form 1025 • Condos require Form 1073

• Double-wide manufactured homes are not allowed.

• Fannie Mae Form 1004MC or Freddie Mac Form 71 – Market Conditions Addendum is required for all appraisals

• All appraisals must be Uniform Appraisal Dataset (UAD) compliant

o Only closed sales may be used as comparables

o The “Lender/Client” field on the appraisal must reflect the lender’s name and“Department of Veteran’s Affiars”

o The address of the lender must now be entered in the “Address” field for the lender o The “Borrower” field must reflect the name of the veteran

APPRAISAL REVIEW

• Appraisals are uploaded to VA’s WebLGY System by the appraiser

o Lenders approved by Motive Lending to order their own appraisals must notify Motive Lending when the appraisal has been uploaded to WebLGY.

• Staff Appraisal Reviewer (SAR) uploads Notice of Value (NOV) and appraisal to paperless file

APPRAISAL DISPUTE PROCEDURES

• The SAR (Staff Appraisal Reviewer) will review the new comps with the appraiser and if the SAR believes an adjustment is warranted based on the comps and discussion with the appraiser, he or she is permitted to adjust the value by up to 5%

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ASSETS

All funds to close, when required, must be documented from an acceptable source. Acceptable sources of funds to close and documentation requirements are described below. For AUS “approve” or “accept” responses, document to findings.

EARNEST MONEY DEPOSITS

• All EMDs must be verified prior to closing, regardless of the amount of the deposit

SAVINGS AND CHECKING ACCOUNTS

Funds must be verified via one or more of the following:

o

VOD or

o

Original or certified true copies of most recent two months’ bank statements or

o Most recent two months’ internet bank statements – must include all pertinent information and URL signature at top and/or bottom of document

All large deposits must be verified, regardless of whether the funds are required for closing. “Large deposits” are determined on a case-by-case basis and are non-payroll deposits that are unusual and high for the borrower’s income and obligations. If it’s impossible to verify a large deposit, and the funds are not needed for the loan closing or reserves, the funds may be deducted from the borrower’s bank balance, the AUS findings, the 1003 and the Loan Analysis. In all cases, if the source of the large deposit was a new debt, the payment must be included in the ratios and residual income calculations. When one or more of the bank account owners is not a borrower on the loan, the non-borrowing joint account owner(s) must provide a letter stating the borrower has access to the funds. However, if the account is joint with a non-borrowing spouse and there are no additional joint account owners, an access letter is not required.

PROCEEDS FROM THE SALE OF REAL ESTATE

• HUD-I Settlement Statement required

SALE OF A PERSONAL ASSET

• The borrower may sell a car, motorcycle, recreational vehicle, jewelry, stamp or coin or baseball card collections, etc. All of the following documentation is required:

o Evidence of borrower’s ownership

o Estimate of value

o Bill of sale

o Copy of purchaser’s check

o Evidence of deposit of check into borrower’s bank account

SAVINGS BONDS

• Provide copies of bonds indicating ownership • Provide evidence of redemption value

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RETIREMENT SAVINGS

• Document balances with the most recent statement

• Document the terms and conditions for withdrawal and/or borrowing – Proof of liquidation is required, if applicable

• Unless funds may be withdrawn within 30 days of request, retirement savings accounts may not be used as reserves but may be used as a compensating factor. If funds may not be withdrawn within 30 days of request, do not include in AUS findings

STOCKS AND/OR BONDS

• Provide most recent two months’ brokerage statements

• When funds are required for closing, proof of liquidation is required

RENT CREDIT

• Provide a copy of the rent-with-option-to-buy agreement that clearly defines the terms and conditions, including rent credit

• The portion of rent credit that exceeds fair market rents for the area may be credited toward borrower’s funds to close

o Fair market rents for the area are estimated by the appraiser

o If borrower is purchasing a home other than the home he or she is currently renting, rent credits may not exceed 4% of the purchase price (see Seller Contributions section)

SWEAT EQUITY

• Not allowed

AUS

Loan Prospector or Desktop Underwriter response required for all loan types except IRRRLs

DATA INTEGRITY

• All information input to DU must mirror the documentation in the file

BORROWERS

APPLICATION

• The veteran must always be the primary borrower on the loan, regardless of whether income from the veteran is being used to qualify

ELIGIBLE BORROWERS

For additional information, refer to VA Pamphlet 26-7, Chapter 7, Section 1–Loans Requiring SpecialUnderwriting - Joint Loans

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o If more than one veteran’s entitlement is used and the veterans are not married to one another, prior approval must be obtained by the VA regional loan center having jurisdiction over the property

o All veterans using entitlement must occupy the property

• Un-remarried surviving spouse of veteran who died from service-connected injuries

o VA Regional Loan Center determines cause of death – see Certificate of Eligibility Section • Veteran’s spouse co-borrower

o The veteran must be the primary borrower on the loan, regardless of whether the veteran contributes income to the loan

o Veteran’s spouse is not required to be a veteran • Non-veteran co-borrower who is not the veteran’s spouse

o Eligible veteran must be primary borrower on the loan

o Additional down payment that is ≥ 25% of the non-veteran’s half of the loan is required –

Refer to VA Pamphlet 26-7, Chapter 7, Section 1–Loans Requiring Special Underwriting -Joint Loans

o Prior approval by VA Regional Loan Center having jurisdiction over the property is required

o VA guaranty will not exceed the lesser of 25% of the veteran’s half of the loan or veteran’s available entitlement – If veteran’s half of the loan is ≤ $144,000, bonus entitlement cannot be used, regardless of total loan amount

o Down payment plus VA guaranty must be ≥ 25% of the total loan amount, including the financed funding fee

o All borrowers must occupy the property

o Veteran’s income must be sufficient to qualify for his or her half of the loan

INELIGIBLE BORROWERS

• Any borrower who does not meet the eligible borrower criteria described above

CASH RESERVES

• Borrower is using rental income to qualify - Borrower’s ability to accumulate liquid assets and the current availability of liquid assets for unplanned expenses should be considered in the overall credit analysis

o Borrower is using rental income from multi-unit subject property to qualify – Six months reserves from the borrower’s own funds required

o Borrower is using rental income from investment properties that are not the subject property to qualify – Three months reserves from the borrower’s own funds required

• Borrower’s debt-to-income ratio exceeds 60% - Two months reserves from the borrower’s own funds required:

o Reserves may not be gifted

o 401k funds may be used for the borrowers reserve requirement. Unless funds may be withdrawn within 30 days of request, retirement savings accounts may not be used as reserves. If funds may not be withdrawn within 30 days of request, do not include in AUS findings

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CERTIFICATE OF ELIGIBILITY

A Certificate of Eligibility is required for all VA purchase and cash-out refinance transactions. The following information is included on a Certificate of Eligibility:

• Veteran’s full name – The veteran’s name on the Certificate of Eligibility must match the veteran’s name in WebLGY, and the note and mortgage

o The following name discrepancies are the only acceptable variations:  James Everett Brown, James E. Brown, James Brown

 William Smith Jr., William Smith, William R. Smith, William Ryan Smith, Jr., William Ryan Smith, William R. Smith, Jr.

o The following name discrepancies must be resolved prior to the loan closing (this list is not all-inclusive and name discrepancies are reviewed on a case-by-case basis):

 Name discrepancies due to marriage (C of E shows Mary Smith, but documentation in, WebLGY and/or the note and mortgage shows Mary Jones)

 Hyphenated name discrepancies (C of E shows Bill Smith, but documentation in, WebLGY and/or the note and mortgage shows Bill Smith-Jones)

 Middle name discrepancies (C of E shows Bill John Smith, but documentation in, WebLGY and/or the note and mortgage shows Bill Robert Smith)

 First name discrepancies (C of E shows Bill Smith, but documentation in, WebLGY and/or the note and mortgage shows William Smith)

 Last name prefix discrepancies (C of E shows Bill St. Pete, but documentation in, WebLGY and/or the note and mortgage shows Bill Stpete)

• Veteran’s truncated social security number • Entitlement code o 01 – World War II o 02 – Korean War o 03 – Post-Korean War o 04 – Vietnam War o 05 – Entitlement Restored

o 06 – Un-remarried Surviving Spouse

o 07 – Spouse of POW/MIA

o 08 – Post World War II

o 09 – Post Vietnam War

o 10 – Gulf War

o 11 – Selected Reserves • Veteran’s branch of service

• Itemized list of entitlement amounts charged to previous loans – The following information is provided for each loan:

o VA loan number

o State in which property is located

o Total loan amount

o Date of loan

o Entitlement amount charged • Amount of basic entitlement available

• Total entitlement charged to previous VA loans (includes total of all entitlement amounts for all active VA loans)

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ELIGIBILITY DETERMINATION

• Eligibility is based on the veteran’s length and type of military service. Generally speaking, VA determines that veterans who fulfill the criteria below are eligible for the VA home loan benefit:

o Veterans with two years of continuous active-duty and an honorable discharge

o Veterans with six years of service in the Selected Reserves or National Guard and an honorable discharge

o Veterans with 90 days active-duty wartime service and an honorable discharge

o Veterans with 181 days of continuous active-duty during peacetimes listed below and an honorable discharge:

 July 26, 1947 – June 26, 1950  February 1, 1955 – August 4, 1964  May 8, 1975 – August 1, 1990

o Un-remarried surviving spouse of a veteran

 Eligibility determined by Veterans Administration (VA)

 Veteran must have died on active-duty or as a result of service-connected injuries or illness - VA determines cause of veteran’s death

OBTAINING A CERTIFICATE OF ELIGIBILITY

There are three methods for obtaining a veteran’s certificate of eligibility:

• VA’s ACE (Automated Certificate of Eligibility) system – This must be attempted before using the Eligibility Center or Regional Loan Center

o Obtained through VA’s Website: https://vip.vba.va.gov - For a brief on-line demonstration, refer to VA’s on-line training – Ordering a Certificate of Eligibility On-Line

o Register to receive a user name and password – You will need your lender ID and PIN number – Registration is required the first time only

o Select “WebLGY”

o Select “Eligibility” link

o Select “Eligibility” then “Create Record”

o Complete the required fields using information from veteran’s VA Form DD-214 or other Reservist/National Guard discharge papers

o Usually successful for veterans who fulfill all of the following criteria:  Discharged after 1980

 Served two years on active-duty  Had no previous VA loan

o Print certificate from ACE system and include with file submission

o Users who do not have access to ACE may complete Automated Certificate of Eligibility Request, andfax or e-mail to the fax number or e-mail address on the form withthe following documentation:

 Fully executed Request for Certificate of Eligibility, VA Form 26-1880

 Member 4 copy of form DD-214 or other discharge papers for retired or

discharged borrowers

 HUD-I from previous VA loans, if applicable

 Request for Certificate of Veteran Status, VA Form 26-8261a • VA’s Eligibility Center

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o 1700 Clairmont Road, Decatur, GA 30031 – 888-768-2132

o Send the following documentation to the address above (faxes are not permitted):

 Copy of veteran’s Member 4 copy of VA Form DD-214 or other Reservist/National Guard discharge papers

 Fully executed Request for Certificate of Eligibility, VA Form 26-1880  Active-duty veterans must provide a current statement of service on military

letterhead and signed by the appropriate personnel stating all of the following: • Veteran’s name

• Veteran’s date of birth • Active-duty entry date

• Lost time, if any and its duration

• Name of commanding officer providing the information

o Turn time is typically seven days from receipt of documentation to VA mailing out the completed Certificate of Eligibility – Turn times may increase with volume increase

o Up-load a certified true copy of the Certificate of Eligibility into the paperless file – A blanket certified-true-copy stamp for all the items in the file is sufficient

• Veteran Walk-In

o Most Regional loan centers prepare Certificates of Eligibility for walk-in veterans

o Call in advance to verify Regional Loan Center accepts walk-in requests and the office hours during which Certificates of Eligibility are prepared

o Provide the following documentation to regional loan center team member (faxes are not permitted):

 Copy of veteran’s Member 4 copy of VA Form DD-214 or other Reservist/National Guard discharge papers

 Fully executed Request for Certificate of Eligibility, VA Form 26-1880  Active-duty veterans must provide a current statement of service on military

letterhead and signed by the appropriate personnel stating all of the following: • Veteran’s name

• Veteran’s date of birth • Active-duty entry date

• Lost time, if any and its duration

• Name of commanding officer providing the information

o Up-load a certified true copy of the Certificate of Eligibility into the paperless file – A blanket certified-true-copy stamp for all the items in the file is sufficient

CERTIFICATE OF ELIGIBILITY RESOURCES

• VA Pamphlet 26-7, Chapter 2

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CLOSING COSTS

ALLOWABLE CLOSING COSTS

Veteran may pay any of the following reasonable closing costs and fees:

• 1% origination fee

o For purchase and cash-out loans, the origination fee is calculated using the total loan amount, including the financed funding fee

o For IRRRLs, the origination fee is calculated using the payoff minus any cash payments by the veteran, if applicable

• Reasonable discount points

o Brokers may charge only those discount points required to buy down the loan’s interest rate – Correspondents/VA Automatic customers are exempt from this requirement, however, the discount points charged must be reasonable and customary

• VA appraisal fee – The veteran may not pay a fee higher than the maximum allowable appraisal fee for the state in which the property is located – See VA Appraisal Fee Schedules

• VA compliance inspector fees – Only if required by the NOV (Notice of Value) • Recording fees

• Taxes and stamps

• Credit report fees – a $50 credit evaluation fee may be paid in lieu of the credit report fee for automated underwriting approvals

• Pre-paid items

• Insurances (hazard and flood, when required) • Flood zone determination

• Well and septic inspection fees

• Survey, if required by lender or veteran, except for surveys of condominiums • Title insurance, title examination, title endorsement, title policy, title search • Environmental protection lien endorsement

• Express mail fees for refinances if the saved per diem interest cost to the veteran will exceed the cost of the special handling – Anything over $50, provide the invoice to verify fee

• VA funding fee

• Mortgage Electronic Registration System (MERS) fee • Closing protection letter – Should not exceed $35 • Fraud protection report

• Termite, provided the loan is a cash-out refinance – The borrower may never pay these fees for purchase transactions

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NON-ALLOWABLE BORROWER-PAID CLOSING COSTS

Generally, the veteran may NOT pay any of the fees listed below, but the seller or lender may pay the non-allowable fees. However, if no origination fee is charged and the fee is not listed in the section below that itemizes fees the Veteran may never pay, the Veteran may pay non-allowable costs up to 1% of the purchase price. The veteran may also pay a combination of non-allowable fees and an origination fee, provided the combination does not exceed 1% of the purchase price. The non-allowable fees are:

• Attorney fees other than for title commitments • Lender’s appraisals

• Lender’s inspections, except construction loan inspections and inspections required on the appraisal/NOV

• Loan closing or settlement fees

• Doc prep, underwriting, loan application, admin or processing fees • Assignment fees

• Photographs

• Interest rate lock-in fees

• E-Mail, fax, copying, postage, stationery, telephone or other overhead charges • Amortization schedules, Truth-in-Lending fees, etc.

• Notary fees

• Escrow fees or charges

• Commitment fees or marketing fees of secondary purchasers • Trustee fees

• Fees charged by third parties, regardless of affiliation with lender • Tax service fees

• The veteran may never pay any of the following fees or charges, regardless of whether an origination fee was paid:

o Termite inspection fee for a purchase transaction

o Attorney fee that benefits the lender

o Broker fee

o Brokerage fees or commissions charged by real estate agents or real estate brokers in connection with a VA loan

o Prepayment penalties financed through a refinance transaction – When the payoff states a pre-payment penalty is due, veterans may pay pre-payment penalties out-of-pocket only

o FHA/VA inspection fees for builders (Normal new construction inspections of the dwelling are permitted when required by the appraiser)

o Any portion of the seller’s lien(s) or short sale fees

o For purchase transactions, the cost of required repairs and inspections must be paid by the seller. This policy applies to all purchases, including purchases of REO properties. VA does not permit the veteran to pay for repairs other than minor termite damage repairs

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CLOSING REQUIREMENTS

PROPERTY ADDRESSES

• The property addresses on the appraisal, mortgage, note, flood certification must be identical. However, abbreviation of “Street,” “Road,” etc. is acceptable, even if “Street” or “Road” is fully spelled in another document. This is the only acceptable variance

o Use the standardized USPS address. Compare the USPS address to the legal description on the title commitment and use the city in the legal description if that differs from the USPS address

CLOSING REQUIREMENTS

• A fully executed VA Origination Statement itemizing all of the fees from lines 801 and 1101 and all of the credits in section 200 of the HUD-I Settlement is required

o Complete VA Origination Statement,

• Interest credit allowed - Loan must close by the 7th calendar day of the month preceding the first payment date

• A minimum of 12 months chain of title as evidenced by the title commitment satisfactory to Motive Lending review

• A verbal VOE must be submitted with the funding request

o Verbal VOEs should be completed on the day of or the day prior to closing but not more than ten business days prior to the loan closing – For additional information, refer to Verbal Verification of Employment Required for Funding,

• For purchase transactions, VA does not permit the borrower to bring additional funds to close to pay any portion of the remaining lien(s) on behalf of the seller or short sale fees on behalf of the seller – For example, if the seller owes $120,000 on an existing property, and the sales price is $100,000, the borrower may not pay any portion of the remaining $20,000 on behalf of the seller • A payoff statement must be included in all refinance transaction files and must be reviewed by the

underwriter

• All conditions must be collected and provided in the closing package

o Down payment assistance funds are typically wired to the closing agent – Wire transfer documentation must be included in the file prior to funding or purchase

• Any changes to loan amount, funding fee, cash-to-close, interest rate, points, PITI, etc. must be reviewed by underwriter prior to closing and disbursing loan

• Principal reductions are required when the total of lender and/or seller credits reflected on the HUD- I Settlement Statement exceeds the total of the actual closing costs, pre-paid expenses

and discount points

• Principal reductions are required when the borrower receives any cash back at a purchase transaction closing

o Documented funds paid by the borrower outside of closing for items such as EMD or appraisal and credit report may be refunded to the borrower at closing – Document funds paid outside of closing with one of the following:

 Cancelled checks

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 Money order receipts and evidence of source of funds

 To ensure prompt loan funding/loan purchases, Motive Lending requires

verification of all EMD prior to closing

• Principal reductions are required when the borrower is receiving more than $500 cash at closing on an interest rate reduction refinancing loan. The principal reduction must include all cash back and not just the portion of cash back that exceeds $500. For example, if the HUD Settlement Statement indicates the borrower is receiving $626 cash back, a principal reduction in the amount of $626 is required. A principal reduction in the amount of $126 is insufficient

• Closing documents must be signed and notarized on or before the closing date indicated on the closing documents, regardless of the state in which the property is located and/or whether it’s an escrow state

• A fully executed Social Security Number Validation, is requiredin all closing packages

ESCROW STATES

• Alaska • Arizona • California • Colorado • Hawaii • Idaho • Montana • Nevada • New Mexico • Oregon • Utah • Washington • Wyoming

NOTARY POLICY

• Notaries may not be associated with the broker or correspondent. Ineligible notaries include but are not limited to the following:

o Any employee of the broker/correspondent, including but not limited to loan originators, processors, etc. (When closing loans in-house, banks and credit unions may use an employee to perform notary services)

o Any family member of one of the principal owners

o Anyone who receives funds, other than the notary fee, upon loan closing

• Loans that close with an unacceptable notary must be re-closed with a non-associated notary prior-to-funding

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CO-BORROWERS

• Co-borrower must be Veteran’s spouse and/or eligible veteran or loan requires prior approval by VA regional loan center having jurisdiction over the property

• When co-borrower is not a veteran or the veteran borrower’s spouse, VA will guaranty only the

veteran’s portion of the loan – A down payment ≥ 25% of the non-veteran co-borrower’s portion of the loan is required – If there is one co-borrower who is not the veteran’s spouse and is also not a veteran, the veteran’s “portion” of the loan is half of the loan amount

o Combination of veteran’s entitlement plus down payment must be ≥ 25% of the total loan

amount, including the financed funding fee

COMPENSATING FACTORS

Ratio guidelines may be exceeded when compensating factor(s) that support loan approval are documented in the file. The remarks section of Loan Analysis , VA form 26-6393 must contain the underwriter’s list of

compensating factors that were used to justify approval. The following items are VA recognized compensating factors:

• Excellent credit history

• Conservative use of consumer credit • Minimal debt

Long-term employment • Significant liquid assets • Sizable down payment

• Equity position in refinance loans

• Minimal or no increase in monthly housing expense • Military benefits

• Satisfactory homeownership experience • High residual income

o For loans that exceed VA’s 41% total debt ratio guideline, residual income must be at least 20% more than the loan’s residual income requirement

o Supervisory underwriter signature and written justification required when ratio exceeds 41% but borrower’s residual income is < 120% of requirement

• Low debt-to-income ratio • Tax credits for child care • Tax benefits of homeownership

When any of the above factors have been evaluated by automated underwriting and the loan receives a “refer” response, automated underwriting has determined the compensating factor is not sufficient to render an “approve” or “accept” response. Alternative compensating factors must be provided for review.

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CONDOMINIUMS

• For all VA loan purposes, condos, including site condos must be VA-approved

o If the condo project was approved by FHA prior to December 7, 2009, send evidence of approval to VA, and they will add the project to the VA-approved condo list. VA will not accept FHA condo approvals having approval dates on or after December 7, 2009

• Condominiums located in Florida are subject to the following overlays:

o Purchases of new construction condos are permitted, provided the condominium was approved by VA and the borrower does not receive a gift, grant, down payment assistance and/or loan from family member for funds to close

o Refinances of new construction condominiums are ineligible

o Attached new construction PUDs that do not meet Motive Lending 50% presale requirement are not permitted

• Condominiums without Homeowner’s Associations are ineligible for financing with Motive Lending

CONDOMINIUM RESOURCES

• VA Pamphlet 26-7, Chapter 16

CONFLICT OF INTEREST

Transactions in which the realtor and the originator are the same individual are ineligible.

CREDIT HISTORY

CREDIT INQUIRIES

• Inquiries within the most recent 90 days must be explained in writing, regardless of Total Scorecard response

o Fully executed Undisclosed Debt Acknowledgement, is required for all loans having four or more inquiries in the most recent 90 days and may be used for all inquiry explanations, regardless of the number

• For purchase transactions of properties located in Florida, borrowers are ineligible for loan approval and/or closing when the credit report indicates four or more mortgage credit inquiries in the most recent 90 days

REFER RESPONSES – CREDIT EXPLANATIONS

• All “refer” response loans with derogatory credit data must contain a credit explanation letter at time of initial submission. The following must be explained:

o Late payments within the most recent two years

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NO CREDIT SCORE

• Motive Lending requires a minimum credit score of 600 for conforming balance, 700 for high balance (1 unit). Borrowers with no credit score are not eligible.

• Non-traditional credit cannot be used to offset poor credit, regardless of whether or not a credit score exists

FORECLOSURES

• Foreclosures require a mimimum of 2 years seasoning, with DU approve/eligible.

• – The foreclosure time frame is measured form the foreclosure completion date, regardless of whether the home was also included in a bankruptcy

• Defaulted time-share loans are considered foreclosures

• No 30 day late payments or derogatory credit is acceptable from the date the foreclosure was filed.

LOAN MODIFICATIONS AND/OR RESTRUCTURED LOANS

• No restriction, follow VA guidelines.

SHORT SALES

• Short sales require a mimimum of 2 years seasoning, with DU approve/eligible.

SHORT REFINANCE TRANSACTIONS

• The borrower may not consolidate more than the existing mortgages, and the borrower may not receive more than $500 cash back at closing. Any cash received by the borrower at closing must be the result of documented overages and may not be financed into the maximum mortgage calculation

• The borrower(s) must be current on the existing mortgage(s)

• The borrower must have insufficient equity in the property to refinance the total loan payoff and/or have experienced a reduction in income and no longer have the capacity to repay the existing debt • The existing servicer may not execute a subordinate or unsecured lien for the difference between

the existing balance and the short payoff

• The borrower(s) may not have had a previous bankruptcy or foreclosure

• Copies of the three most recent canceled checks for the mortgage payment and indicating all three payments were made within the month due are required

• A copy of a specific written principal reduction agreement between the borrower and existing lender and referencing the property address and lien being paid off is required

CHAPTER 7 BANKRUPTCIES

• Chapter 7 bankruptcies require mimimum of 2 years seasoning, with DU approve/eligible. • Borrowers with a previous bankruptcy must have re-established credit.

CHAPTER 13 BANKRUPTCIES

• Must document at least one year into the payout plan has elapsed • Must document satisfactory payment history

• Must obtain court permission to enter into new mortgage

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• If the borrower has satisfactorily completed the repayment, the borrower is considered to have re-established credit

CREDIT COUNSELING

• The following documentation is required if veteran entered credit counseling after becoming delinquent on one or more obligation. However, if borrower entered into credit counseling prior to incurring delinquent credit, credit counseling is treated as a neutral or positive factor.

o Must document at least one year into the payout plan has elapsed

o Must document satisfactory payment performance

o Must document the debts/trade lines included in the payment plan

o Must obtain counseling agency permission to enter into new mortgage

JUDGMENTS

• Judgments must be paid in full prior to closing unless the borrower is in a re-payment plan – Provide the following:

o Fully executed repayment agreement

o Evidence timely payments have been made (Evaluated on a case-by-case basis generally for a minimum of a 12-month period) - Payment must be included in ratios when qualifying borrower

• Judgments belonging to a non-purchasing spouse in a community property state are subject to all of the above requirements

DEFAULTED CAIVRS NUMBERS

• Credit Alert Interactive Voice Response System (CAIVRS) verification required for all borrowers

o If you do not have access to FHA’s CAIVR system, fax or e-mail VA CAIVRS

Authorization, to the number or address listed on the form

• If the borrower is currently delinquent on any federal debt, VA mortgage, Title I Loan, Federal student loan, SBA loan, Federal taxes or has a lien against the property for debt owed to the United States, the borrower is not eligible until the delinquent account is brought current or satisfactory payment arrangements have been made. If the debt owed to the federal government is a judgment lien against the property, it must be satisfied.

CREDIT REPORTS

AGE OF CREDIT REPORTS

• All credit reports must be tri-merge credit reports or Residential Mortgage Credit Reports

• Credit reports must be dated within 60 days of underwriting and must be dated within 120 days of the note

• To achieve Motive Lending and VA’s minimum credit requirements, a new credit report may be re-pulled after a borrower has repaired derogatory credit, and Motive Lending will honor the new credit score.

• The following credit report discrepancies require a new credit report:

o Social Security number is incorrect

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report unless the name variation appears in the AKA section of the credit report

DE CUSTOMERS ONLY

• Credit report must contain Office of Foreign Assets Control (OFAC) screening

CREDIT SCORES

DEBT-TO-

INCOME RATIO ≤ 60%

• All borrowers must have a minimum credit score of 620

• Purchases, and Cash-Out transactions through which the borrower does not receive cash back and/or consolidate non-mortgage debt:

o Attached/ detached SFRs, PUDs, Condo’s, and 2-4 units

• Cash-out refinance transactions through which the borrower receives cash back and/or consolidates non-mortgage debt:

o Single-family residences only

o 2-4 unit properties are ineligible

o LTV ≤ 100%

DECLINING MARKETS

At this time, there are no declining market restrictions

DISCLOSURES/FORMS

REQUIRED DISCLOSURES AND FORMS

• Refer to Government Forms and Disclosures,

• A fully-executed VA Origination Statement, itemizing all of the fees from lines 801 and 1101 and all of the credits in section 200 of the HUD-I Settlement Statement is required

DOWN PAYMENT

• No minimum down payment or cash investment required unless:

o veteran’s available entitlement is less than 25% of the total loan amount, including funding fee or

o Co-borrower is not a veteran or the spouse of the veteran borrower

DOWN PAYMENT ASSISTANCE

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government

• Private Entities – Regional Loan Center review and approval required. Submit the following documents to the Regional Loan Center having jurisdiction over the state in which the property is located:

o Program description

o Samples of all documents

• Regardless of source of down payment assistance, only grant funds may be used to pay the difference between purchase price and appraised value if the purchase price exceeds the appraised value – secondary financing, including a silent second is not permitted for the difference between sales price and appraised value

• Down payment assistance funds are typically wired to the closing agent – Wire transfer documentation must be included in the file prior to funding or purchase

• All community second and grant programs must be Motive Lending-eligible

DOWN PAYMENT ASSISTANCE RESOURCES

• VA Circular 26-08-14– VA Acceptance of Homebuyer Assistance Programs

ELECTRONIC SIGNATURES

ELIGIBLE DOCUMENTS

• Origination documents and disclosures • Appraisal

INELIGIBLE DOCUMENTS

• Purchase agreement • Power of attorney • Closing documents

EMPLOYMENT/INCOME

INCOME DOCUMENTATION

• Income documentation requirements for AUS “approve” or “accept” responses and for manually underwritten loans are listed in VA Pamplet 26-7, Section 8, Documentation for Automated Underwriting Cases

• If the property is located in a presidentially declared disaster area, and the disaster was declared by the President prior to the loan closing, the underwriter must determine the borrower remains

employed and income has not declined as a result of the disaster or any other factors

NON-MILITARY INCOME

• Borrowers with non-military employment must have a two-year history of employment prior to application

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CURRENT EMPLOYMENT < 12 MONTHS

• Current employment less than 12 months is generally not considered stable and reliable. The following must be evaluated:

• Employer’s written statement of the probability of continued employment, if provided • Applicant’s training and/or education related to the duties of the current position – This

generally applies to skilled positions: nurses, medical technicians, lawyers, paralegals, computer systems analysts, etc.

• Underwriter must provide justification in writing on the Loan Analysis, VA Form 26-6393 for use of income from a borrower employed by his or her current employer less than 12 months

JOB CHANGES

• Frequent job changes for career advancement in the same or related field are acceptable – Borrower should be employed by current employer for the most recent 12 months unless there is strong justification provided by the employer for use of income

• Frequent job changes from one field to another and/or that do not improve the borrower’s position are not acceptable without strong justification. Underwriter explanation must accompany the file

MATERNITY LEAVE

• A borrower’s regular, stable income may be considered as acceptable income when a maternity leave occurs. The employer must state in writing on their letterhead that the borrower’s

employment and wages will not be adversely affected and will be available when the borrower returns to work. The borrower must state in writing his or her intent to return to work.

ACTIVE-DUTY MILITARY INCOME

• Obtain borrower’s Leave and Earnings Statement (LES)

• ETS (Expiration of Term of Service) date must be at least 12 months after loan closing. If ETS date is within 12 months of closing date, one of the following is required:

o Documentation that active-duty service personnel has re-enlisted or extended period of active duty beyond 12 months after closing

o A written statement from active-duty service personnel that he or she intends to re-enlist or extend period of active duty 12 months beyond closing and a written statement from commanding officer stating active-duty service personnel is eligible to re-enlist and commanding officer has no reason to believe re-enlistment will not be granted

o Evidence of a valid offer of local civilian employment following release from active duty – Employer must document the following:

 Date employment will begin  Earnings, etc.

• If the ETS field on the Leave and Earnings Statement reflects “9999,” evidence of 12 months remaining enlistment must be obtained from the veteran’s commanding officer

• Leave and earnings statements for officers will not have a date in the ETS field. The ETS field will be blank or contain “XXXX” - No documentation of remaining length of service is required

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allowances and pays may be included in income calculation when they are expected to continue due to the military personnel’s duty assignment

o Allowances are non-taxable (clothing allowance is reflected on LES as an annual figure – divide by 12 to determine monthly amount)

o Pro-pay, combat pay, etc. are taxable

COMMISSION

• Averaged over two years

• Obtain the following documentation:

o Most recent two years’ signed and dated tax returns, including all schedules

 Borrower’s unreimbursed business expenses from Schedule A of IRS Form 1040 must be deducted from the gross commission before averaging the commission income

o Verification of employment or other written verification of YTD commissions, pay structure (salary plus commission, straight commission, or draws against commission), and when commissions are paid

• Commission income received less than two years may only be considered when the borrower has previous related employment and/or extensive training

• Commissions received less than one year are generally not allowable

EDUCATIONAL ASSISTANCE

•

May not be used as effective income

OVERTIME/BONUS/PART-TIME EMPLOYMENT/SECOND JOB

• Acceptable when received two years and income is regular and predictable – Income is calculated by averaging the income over the most recent two years

• If received between 12 and 24 months, may be used to offset debts with 10 to 24 months remaining

RECENTLY DISCHARGED VETERANS

• Employment Income

o If applicant is employed less than 12 months in current position and does not have related experience and/or education or training, obtain a statement from employer that verifies applicant is performing job duties satisfactorily and probability of continued employment is favorable

o Underwriter must provide justification for use of income from a borrower employed by his or her current employer less than 12 months

RESERVE/NATIONAL GUARD INCOME

• May be used when the expiration date of the applicant’s current contract indicates a strong probability that the reserve/guard income will continue

• Underwriters must consider whether income for Reserve/National Guard borrowers is subject to change due to activation

o If the income will be reduced, consideration must be given to applicant’s ability to repay the loan during activation

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SELF-EMPLOYMENT

• Averaged over two years

• Obtain the following documentation:

o Year-to-date profit and loss and balance sheet for the business – Required if an AUS “refer” response is received for a loan originated > seven months from the business’ fiscal year end

o Most recent two years’ signed and dated personal tax returns

o Most recent two years’ signed and dated business or corporate returns, including all applicable schedules and list of stockholders or partners showing percentage of ownership –

Refer to findings for AUS “approve” or “accept” response requirements

o Business credit report as needed

• Self-employment income received less than two years may be considered when borrower has previous related employment and/or extensive specialized training

• Self-employment income received less than one year is ineligible

ENERGY EFFICIENT MORTGAGES/IMPROVEMENTS

• Not allowed

ENTITLEMENT/GUARANTY

• Veteran’s available entitlement is the amount of the loan VA will guarantee • Investors require at least a 25% guaranty

o May consist of veteran’s available entitlement only, if available entitlement ≥ 25% of the loan

amount, including the financed funding fee and the co-borrower is the veteran’s spouse and/or a veteran

o For purchase transactions, may consist of combination of the veteran’s available entitlement and down payment, provided the sum of the veteran’s available entitlement plus down payment ≥ 25% of the loan amount, including the financed funding fee

o For refinance transactions, may consist of a combination of the veteran’s available entitlement, existing equity and/or down payment, provided the total is ≥ 25% of the loan amount, including the financed funding fee

o Veterans without any available entitlement are ineligible for VA loans, regardless of the amount of the down payment or equity in the property

BASIC ENTITLEMENT

• All veterans receive $36,000 basic entitlement

• Remaining basic entitlement is shown on veteran’s Certificate of Eligiblity – Will be $0 to $36,000, depending on the amount of outstanding un-restored entitlement used

• Provides veteran with VA guaranty for loan amounts ≤ $144,000 • May be used multiple times (see restoration of entitlement below) • May be combined with bonus entitlement for loan amounts > $144,000

ADITIONAL OR BONUS ENTITLEMENT

• Amount depends on VA County Loan Limits – For a list of high cost counties, refer to 2011 VA County Loan Limits for High Cost Counties

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o If the county in which the property is located is not listed on the High Cost Matrix, the county limit is $417,000

• Additional or bonus entitlement is calculated using the following formula: (County maximum limit X 25%) - $36,000 = additional or bonus entitlement (i.e. If the county maximum is $417,000 X 25% = $104,250. $104,250 minus $36,000 = $68,250. $68,250 is the additional or bonus entitlement) • May be combined with basic entitlement for loan amounts > $144,000

• May not be used for loan amounts ≤ $144,000

• May be used for loan amounts > $144,000, even when there is no basic entitlement remaining

RESTORATION OF ENTITLEMENT

• Previously used entitlement may be restored only when the VA loan is paid in full and title has been transferred to a new owner

o A one-time exception to the transfer of title requirement may be granted by VA when the VA loan is paid in full but the veteran still owns the property to which entitlement was charged • To obtain restoration of entitlement, submit the following documents to the VA Eligibility Center:

o Fully executed Request for Certificate of Eligibility, VA Form 26-1880

o Evidence prior loan was paid in full (HUD-I statement, etc.)

o Previous certificates of eligibility, if available

• Borrower who had a previous foreclosure must pay the foreclosure in full before entitlement may be restored

o A borrower who had a previous VA foreclosure may use remaining available entitlement, subject to meeting all underwriting guidelines, including clear CAIVR response

• Entitlement charged to the subject property is simultaneously restored and re-used for refinance transactions

• Simultaneous restoration of entitlement is permitted when a veteran is purchasing a new home and the sale of his or her existing VA guaranteed residence will close within seven days of the new purchase – A fully executed Request for Certificate of Eligibility, VA Form 26-1880 is required

ENTITLEMENT RESOURCES

• VA Pamphlet 26-7 – Chapter 2 • VA Guaranty Calculation Examples

ESCROWS

• Escrow waivers not allowed

• Property tax escrows for new construction properties may be calculated based on the fully assessed property value – Obtain actual tax amounts from the local assessor’s office

• For new construction properties and purchases of properties located in California only, property taxes may be calculated using the higher of 1.25% of the appraised value of the property or the actual tax rate

BANK-OWNED PROPERTIES

• Repair escrows not permitted – Refer to VA Circular 26-09-5 – VA Appraisal Requirements onForeclosed Properties

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FUNDING FEE

• Most veterans pay a VA funding fee – The amount of the funding fee is determined by the following veteran and/or loan characteristics:

o Type of military service (Regular Military or National Guard/Selected Reserve)

o Down payment amount, if any on purchase transactions – For the purposes of calculating the funding fee on purchases, the LTV is calculated by dividing the base loan amount by the purchase price, regardless of the appraised value. While this calculation includes transactions where the appraised value is less than the purchase price, the maximum base loan amount is 100% of the lesser of the purchase price or appraised value

o Loan purpose (purchase, cash-out refinance, IRRRL)

o First time or subsequent use of entitlement

• The following borrowers are exempt from paying the VA funding fee:

o Veterans currently receiving service-connected disability income

o Veterans who were in receipt of disability compensation or who received military retirement compensation instead of disability compensation but are now receiving active-duty pay due to re-enlistment or being recalled to active duty

o Veterans receiving pension in lieu of service-connected disability income

o Veterans who previously received service-connected disability income

o Un-remarried surviving spouses of veterans who died as the result of service-connected injuries  If the borrower indicates any of the statements above are true, and the Certificate of

Eligibility states “Contact RLC” in the “Funding Fee” field, the VA regional loan center having jurisdiction over the state in which the property is located makes the funding fee exemption determination upon review of Verification of VA Benefits, VA Form 26-8937  If the Certificate of Eligibility states “Exempt” or “Non-Exempt” in the “Funding Fee” field,

and the comments section instructs the lender fax a copy of Verification of VA Benefits, VA Form 26-8937, fax the fully-executed form to the Regional Loan Center having jurisdiction over the property location

• Funding fee is a percentage of the base loan amount

o For joint loans on which the co-borrower is not the veteran’s spouse, the funding fee is calculated using the veteran’s portion of the loan

o For joint loans on which two or more veterans use entitlement, each funding fee is calculated separately for each veteran’s portion of the loan

• Funding fee may be financed and must be included when calculating the 25% guaranty requirement

o If the veteran does not finance the funding fee, guaranty requirement is 25% of the loan amount, excluding the funding fee and the funding fee is not considered in the guaranty requirement • Funding fee is non-refundable

FUNDING FEE TABLES

Purchase Transactions

Type of Veteran Down Payment First-Time Use % Subsequent Use %

None to < 5% 2.15% 3.30% Regular Military 5% to < 10% 1.50% 1.50% ≥ 10% 1.25% 1.25% Reserves/National None to < 5% 2.40% 3.30% 5% to < 10% 1.75% 1.75% Guard ≥ 10% 1 50% 1 50%

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Disabled Veteran N/A Exempt Exempt

GEOGRAPHIC RESTRICTIONS

COMMUNITY PROPERTY STATES

•

The following states are community property states: • Alaska • Arizona • California • Idaho • Louisiana • Nevada • New Mexico • Texas • Washington • Wisconsin

• Debts of non-purchasing spouses must be counted in the borrower’s qualifying ratios

o Underwriters must base the credit decision, in part, on the non-borrowing spouse’s credit history

o Derogatory items on the non-borrowing spouse’s credit report are evaluated on a case-by-case basis

o VA permits consideration of the non-borrowing spouse’s income when debts are being included in the ratios and the property is located in a community property state – The income is not run through automated underwriting

ARIZONA

• Termite inspection required

• Attached new construction condominiums and PUDs are ineligible

CALIFORNIA

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COLORADO

• Termite inspection not required*

• Net Tangible Benefit Worksheet required – Community banks are exempt from State form requirement

• In Colorado, HOA Association Assessments have a “super-lien” position over the first mortgage. For both condominiums and PUDs, provide the following prior to closing:

o A copy of the HOA by-laws indicating HOA assessments are subordinate to the first lien or

o A subordination agreement executed by a representative of the HOA indicating that all current and future HOA assessments are subordinate to the first lien mortgage

GEORGIA

HAWAII

• Properties located in Lava Flow Zones 1 and 2 are not allowed • Properties located in Lava Flow Zone 3 are allowed

IDAHO

INDIANA

MARYLAND

• Net Tangible Benefit Worksheet required • Termite inspection required

MASSACHUSETTS

• Net Tangible Benefit Worksheet required • Termite inspection required

• If property has an individual sewage disposal system (septic tank, etc.), evidence the system meets the Massachusetts Department of Environmental Protection Title 5 standards must be provided by the local health authority

MICHIGAN

• Termite inspection required if property is located in one of the following counties: Allegan, Barry, Berrien, Branch, Calhoun, Cass, Hillsdale, Ionia, Jackson, Kalamazoo, Kent, Lenawee, Livingston, Macomb, Mason, Monroe, Muskegon, Oakland, Oceana, Ottawa, St. Clair, St. Joseph, VanBuren, Washtentaw, Wayne*

• Copy of the builder’s license is required for all proposed, under construction or new construction properties

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MONTANA

NEVADA

Nevada version of Net Tangible Benefit Worksheet required

Termite inspection required

OHIO

• Net Tangible Benefit Worksheet required

OREGON

TENNESSEE

TEXAS

• Primary Residences (“Homestead Properties”): Purchases and rate-term refinances only: Cash-out refinance transactions not allowed

• Borrower may not receive any cash back on an IRRRL transaction • Termite inspection required

• Manufactured homes not allowed

UTAH

WASHINGTON

• Termite inspection is generally not required, however, if the appraiser requires a termite inspection, Washington State requires the Washington State Pest Association form or an addendum to the NPMA-33 form that identifies rot and conditions conducive to rot*

*While rare, if local building codes require a termite inspection or the appraiser notices infestation, a termite inspection is required in states and/or counties where a termite inspection is generally not required.

GIFT FUNDS

ELIGIBLE GIFT DONORS

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condominiums located in Florida

INELIGIBLE GIFT DONORS

• Any person or entity with an interest in the sale of the property, such as the seller, real estate agent or broker, builder, or any entity associated with any of the above

GIFT DOCUMENTATION

• Fully executed gift letter – For an acceptable gift letter

• Evidence of donor’s withdrawal of funds (e.g. Copy of donor’s cancelled check, bank statement or bank-validated withdrawal slip)

• Cash-on-hand is not an acceptable source of donor’s gift funds • Evidence of deposit into borrower’s account

• Excess gift funds may not be considered as reserves but may be considered as a compensating factor

• All gift fund documentation must be satisfied prior-to-closing

GIFT OF EQUITY

• Only family members may provide equity credit as a gift on a property being sold to other family members

INSURANCE

CONDO FIDELITY INSURANCE

• For projects having 20 or more units, provide evidence of Fidelity (employee dishonesty) coverage in an amount that is at least three months of the project’s HOA assessments. The HOA must be named as the insured.

HO-6 POLICY

• Required for all attached units, including PUDs, unless the master condo policy includes interior unit coverage – Master policy must include replacement of improvements and betterment coverage to cover any improvements made to the unit

• HO-6 policy that covers fixtures, equipment, and other personal property inside individual units is required unless the master policy meets all guides stated above

• Must be ≥ 20% of the unit’s appraised value

• HO-6 Policy applies to PUDs that have any coverage maintained under a master policy

JOINT LOANS

• Veteran and veteran’s spouse who is not a veteran

o Funding fee is calculated by multiplying the applicable funding fee factor by the base loan amount

o No down payment is required, provided veteran has sufficient remaining entitlement to guaranty 25% or more of the total loan amount, including the financed funding fee

• Veteran and veteran’s spouse who is also a veteran

o Veterans may use one or both entitlements