VA Lender Approved
One thing you might not know about the VA loan program is that each and every lender that offers VA loans must be approved by the VA to do so. This adds another layer of vetting to ensure that only reputable, honest, and competent lenders are working with veterans on their VA loans. One might consider the approval process that lenders go through yet another benefit of the VA loan program. So this begs the question: what process do lenders need to go through to get approved? Are all VA lenders on the same level?
Not All Lenders are Created Equal
The VA wants to make sure that lenders are overseen as much as necessary and so classifies potential VA lenders into two categories: supervised and nonsupervised. Supervised lenders are lenders that are periodically inspected and audited by a government entity; these are lenders like banks, credit unions, and insurance companies. Nonsupervised lenders are any other lenders. Because supervised lenders already have a high level of accountability with a government agency, the VA grants them “automatic authority” immediately upon approval in most cases. Nonsupervised lenders have to go through an additional application process to be granted automatic authority.
Even after a lender has been approved to offer VA loans, they are still required to submit every single loan application to the VA for prior approval before loan closing unless they have the automatic authority mentioned above. Only supervised lenders and nonsupervised lenders that have gone through the extra application process are allowed to close on most VA loans without first sending the loan application to the VA. Even for a lender that has automatic authority, however, there are still many loan situations where the VA requires the loan packet to be sent to them first for prior approval. These mostly consist of loan situations that are not that common, but also include joint loans, refinances for delinquent loans, and supplemental loans.
The Application Process
Before a lender can start closing on VA loans, they need to send their application package to the VA. This packet must include specimen signatures of every single person working for the lender that will be signing any document in any loan packages, VA Form 26-8812, VA Equal Opportunity Lender Certification, and a letter identifying the lender’s corporate address, the owners, any personnel that either the VA or HUD has ever taken adverse action against, and a list of all the lender’s branches that will be doing VA lending. Additionally, the VA may require a credit report on the lender and interviews with the principal officers of the lender. Once all the information that the VA requires has been received, they will evaluate the application and make a determination of whether to accept that lender as a VA lender. The lender is then required to educate all of the personnel working on VA loans on the VA loan program using the VA Lender’s Handbook, which is a comprehensive guide to the VA loan program. This education must be done prior to the lender beginning to offer VA loans.
For nonsupervised lenders applying for automatic authority, they start by filling out VA Form 26-8736, Application for Authority to Close Loans on an Automatic Basis and submitting it along with all of the same documentation they submitted for approval to offer VA loans in the first place, the appropriate fees, and documentation that the lender has at least two years of active VA origination experience and closed at least 10 VA loans that were all properly submitted and documented within the past two years, or for a lender that has less than two years of experience, they need to have closed 25 VA loans. The lender must also provide documentation that their underwriters who will be working on VA loans have sufficient experience in doing so, as well as that they have sufficient working capital/net worth and lines of credit.
It’s not that easy to become a VA lender. While not difficult for legitimate and trustworthy lenders, it is virtually impossible for a fraudulent lender and very difficult for an unethical lender to become both VA approved and be granted automatic authority. For the most part, if you are working with a lender that is VA approved, you can do so with a certain level of confidence. Low VA Rates is a VA approved lender and we would be happy to help you in any way we can. Please contact us to take advantage of your hard earned VA benefits.