The first part of Chapter 5 is dedicated to summarizing the basic process that a VA loan must go through from beginning to end in order to be closed. The second and third articles are written on Chapter 5 to cover in depth the Certificate of Commitment that is issued in the case of a prior-approval loan. They covered what the Certificate of Commitment means, what changes to a loan can be made after the Certificate is issued but before it is closed, and the conditions that might be placed on the Certificate depending on the situation of the borrower. In this article, we’ll be moving from prior-approval loans to automatically approved loans. The difference between prior-approved and automatically approved loans is that prior-approved loans must first be submitted to the VA for approval before the lender can close on the loan with the borrower. Automatically-approved loans do not. Most lenders have the authority to automatically approve most VA loans, but some loans require prior approval regardless of the lender’s status.
One of the differences between the two loan types is the document that gives the lender evidence that the VA has guaranteed the loan. For prior approval loans, the VA issues a Certificate of Commitment (COC), but for automatically approved loans, they issue a Loan Guaranty Certificate (LGC). While a COC is issued by the VA after approval, the lenders can obtain an electronic LGC from the VA’s web-based Loan Guaranty system (WebLGY). Lenders are strongly encouraged to use this method for several reasons. In most cases the LGC can be almost instantly generated, it removes the need to mail loan documents to the VA, a loan can be submitted for guaranty at any time – not just business hours, the Lender does not need to complete VA Form 26-0286, and the lender can deliver final documents to investors quickly, reducing their cost in carrying the loan.
With both prior approval and automatically approved loans, there may be a circumstance where the VA requires additional documentation. These are classified as “other necessary documents” and the following table outlines them very clearly:
|The loan includes funds for energy efficiency improvements.||Improvements of $3,000 to $6,000:Documentation of the lender’s determination that the increase in monthly mortgage payments does not exceed the likely reduction in monthly utility costs.
Improvements up to $6,000:
Evidence of the cost of improvements such as a copy of the bid(s) or contract itemizing the improvements and their cost.
Improvements over $6,000:
Documentation of the VA’s evaluation of the energy efficiency improvements.
Reference: See section 3 of chapter 7 for details, including special provisions for IRRRLs.
|Postponed completion of exterior improvements.||VA Form 26-1849, Escrow Agreement for Postponed Exterior Onsite Improvements.
Reference: See section 9 of chapter 9
|The loan involves the use of an attorney in fact.||Power of attorney requirements as described in section 7 of chapter 9, including written evidence of the veteran’s consent to the specific transaction, plus the lender certification found under the “Requirements” heading.|
|Veteran intended to sell a property on which he/she has an existing VA loan prior to closing on the new VA loan, in order to have entitlement restored.||
○ evidence that the veteran has fully repaid the prior loan, or
Note: A HUD-1, Settlement Statement, clearly showing the sale of the property by the veteran and pay-off of the prior VA loan, satisfies this requirement.
|Veteran intended to sell property in order to have sufficient income and/or assets to qualify for the loan.||Lender’s certification that the sale of the veteran’s property has been completed and the proceeds disbursed.
|The loan is to the unmarried surviving spouse of an eligible, deceased veteran.||The following affidavit obtained from the surviving spouse at the time of loan closing:
“I, ________, being first duly sworn, on oath, say, that, on the __ day of _____, 2___ (insert date loan was closed), I am (was) the unmarried surviving spouse of _________ and that I make this affidavit for the express purpose of inducing _______ to make a loan to me and/or for inducing the Department of Veterans Affairs to guarantee or insure such loan, knowing that it is a criminal offense to make a false statement for this purpose; and that the above and foregoing is true and correct.”
Notary’s jurat Signature of surviving spouse
|The loan is to the spouse of a MIA/POW.||Documentation that, at the time of loan closing, the lender asked the applicant and the applicant provided verbal assurance that:
|Supplemental loan for home improvements||See “Procedures” in section 5 of chapter 7|
|Graduated Payment Mortgage (GPM).||Veteran’s statement acknowledging payment increases.
Reference: See section 7 of chapter 7.
|Restrictions exist on the purchase or resale of the property the veteran is purchasing.||Veteran’s written consent to the restrictions (obtained at the time of loan application).
Reference: See section 2 of chapter 9.