In the previous article, we talked about the basic process that a lender must take a borrower through to get their loan approved. Part of that process is contingent on whether the loan must get prior approval from the VA or the lender can automatically approve it. For loans that require the VA to give prior approval, the VA will issue a Certificate of Commitment if they approve the loan. The Certificate of Commitment (COC) is what the lender can use as evidence of the VA’s approval of the loan. As such, if a COC has been issued, the lender will be entitled to the VA guaranty if the borrower defaults on the loan. However, there are two conditions that must be met in order for the guaranty to be granted in the event of a default.
First, the VA requires that the closed loan is completely and 100% identical to the loan that was submitted to the VA for prior approval. Nothing can differ. From the Handbook: “The closed loan is identical in all respects to that submitted to VA on the URLA and described on the Certificate of Commitment (or, if not identical, any required VA approval of changes was obtained prior to closing).” Second, the lender must have been fully compliant with all of the laws and regulations associated with the VA loan program. Any non-compliance can void the VA guaranty. From the Handbook: “The lender has complied with all applicable provisions of the law and loan guaranty regulations in making the loan.”
The COC has a validity period which does expire, and the VA may cancel a commitment is the validity period has expired and there is no reason to believe that the lender will need to cash in on the guaranty. Also, if either the lender or the VA has a reason to believe that the borrower’s qualification for the loan has changed, the lender can delay closing until verifying the facts that are in question. This does not happen often, but if it does, your best bet is to just cooperate with the lender and provide everything they ask for. They have the right to hold off on approving your loan as long as necessary to verify all the facts.
Just like everything else, there are exceptions to the VA’s no-change policy. The table below is taken directly out of the Handbook and covers a variety of situations and what happens in those situations. Remember, these instructions are addressed to the lender.
|An increase in the amount of down payment decreases the loan amount (with or without a reduction in the term of the loan) and there is no increase in the monthly mortgage payments,||No VA approval is needed.
Include an explanation of the change with the closing package
|The maturity of the loan is extended, but does not exceed the maximum of 30 years and 32 days or the remaining economic life of the property as provided by the NOV, and there is no increase in the monthly mortgage payments,||No VA approval is needed.
Include an explanation of the change with the closing package.
|The loan amount is increased to cover the cost of energy efficiency improvements up to $6,000.||No VA approval is needed.
See section 3 of chapter 7 for special underwriting requirements and documentation required with the closing package.
|Discount points to be paid by the applicant increase by any amount over the points indicated on the Certificate of Commitment||No VA approval is needed.
Include with closing package:
|The loan is to be closed at an interest rate more than 1% greater than the rate indicated on the Certificate of Commitment,||VA approval is needed.
Submit the Certificate of Commitment and a new URLA, signed and dated by the applicant, or the original URLA with the change initialed and dated by the applicant, to VA for re-underwriting.
In our next article, we will discuss Conditional Commitments – Certificates of Commitment that come with conditions that must be met in order to qualify.