In the next five articles, we’ll be going over the VA lenders handbook chapter 3. This article will focus on explaining the basic elements of a VA-guaranteed loan.
In the Handbook, a large and long table is presented that explains VA loans subject-by-subject. The first subject it covers is “Maximum Loan Amount”. The maximum loan amount for a given property depends on two things: the reasonable value of the property indicated on the Notice of Value (NOV) given after the official VA appraisal, and the lender’s needs in terms of secondary market requirements. Next is Downpayment. The Handbook offers this explanation: “No downpayment is required by VA unless the purchase price exceeds the reasonable value of the property, or the loan is a Graduated Payment Mortgage (GPM). The lender may require a downpayment if necessary to meet secondary market requirements. “
The Handbook defines the “Amount of Guaranty” simply as the amount that the VA may pay a lender in the event of loss due to foreclosure. For most loans, this will amount to 25% of the loan value. While this doesn’t directly affect anything the buyer does, it is still good to know exactly how the VA loan program works. For example, a borrower who is under the impression that the VA guarantees 100% of the loan value will probably wonder why VA lenders charge more than a 1% interest rate since there’s practically no risk involved. Knowing that only 25% of the loan is guaranteed explains why VA loan rates are often lower than conventional, but still enough to cover any risk the lender is taking on the loan.
Another element of a VA-guaranteed loan is occupancy. In order to qualify for a VA loan, the borrower must certify that they intend to use the property being purchased as their primary residence. The purpose of the VA loan program is to enable veterans to purchase suitable housing on terms that they can afford, thus enabling them to become homeowners much sooner. On that note, the Purpose of Guaranty as described by the VA Lender’s Handbook is to encourage lenders to make VA loans on terms more favorable to borrowers, since the lender is guaranteed between 50% and 25% of the loan. This minimizes the risk the lender is taking on the loan and gives them an incentive to offer VA loans.
Another element of a VA loan is how the interest rate and points are calculated. They are actually negotiated between the lender and the veteran. Paying for points means giving cash up-front (at closing) in exchange for a lower interest rate. Points are involved enough to justify their own article, and we’ll be covering them more in-depth in future posts, but the table in Chapter 3 lists the following important points: the borrower and seller can negotiate for the seller to pay for some or all of the points, points must be “reasonable”, and points cannot be rolled into the loan amount except for an IRRRL (Interest Rate Reduction Refinance Loan).
The first thing that shows for “Underwriting” is “Flexible standards”. The VA knows that it cannot possibly write a rule or guideline for every possible scenario, and it encourages the underwriters to be flexible in working with borrowers to get them their house. The veteran must have satisfactory credit and a satisfactory ability to repay the loan. This definitely means a stable income and an acceptable debt-to-income ratio (41% or below), but can also include residual income.
We mentioned earlier a thing called an IRRRL. This is the VA’s streamline refinance option. IRRRLs are awesome because no appraisal or underwriting is required and closing costs can be rolled into the loan amount. IRRRLs won’t work for every refinance – generally only those that result in a lower interest rate. The last three elements of a VA loan covered in this table are the funding fee, closing costs, and security instruments. The funding fee is paid by the veteran, is calculated based on the veteran’s eligibility status and down payment, and can be financed into the loan. Closing costs are limited by VA regulations and will be covered more in-depth in future posts. Security instruments are notes or mortgage forms that lenders can use as long as they contain the VA-required clauses.
Eligible Loan Purposes, Chapter 3 Part 2
In our last article, we covered the basic elements of a VA loan and covered some important but basic points. here we’ll be going more in-depth on one of those basic points, which is eligible loan purposes. In other words, what kind of properties are allowed to be purchased with a VA loan and what purposes are those properties allowed to serve if they are to be financed with a VA loan? There are fairly strict rules on what properties can be purchased and why; this is in order to keep the VA loan program from being used contrary to its purpose. The purpose of the VA loan program is to enable veterans to obtain suitable housing on terms more favorable than they could otherwise receive.
The VA will only guarantee loans to eligible veterans for specific purposes. The first one is the most obvious: to purchase or construct a residence. This includes a condo that is going to be both owned and occupied by the borrowing veteran. The loan can also include the purchase of the land that the property is on, and can finance the construction of a home on land that the veteran already owns. The property cannot have more than four family units and one business unit. The exception to this rule is in the event of a joint VA-loan, if two VA-eligible borrowers apply for a loan together they may be allowed to purchase a larger property.
A VA loan can also be used to refinance an existing VA loan or a conventional loan in order to obtain a lower interest rate. A VA loan can be used to refinance any existing mortgage loan or any other indebtedness that is secured by a lien on the home that the veteran is occupying as their primary residence. Borrowers can also use a VA loan to finance repairs, alterations, or improvements to the home that they already own and occupy, and can even purchase a new home and get money for improvements at the same time. These improvements can include (but are certainly not limited to) energy-efficient upgrades such as a solar heating system, cooling system, or other energy-efficient improvements.
A single-family residential unit in a condo project can be purchased with a VA loan as long as the condo project is on the VA’s approved list. Many condos include agreements and contracts that conflict or don’t measure up to VA’s standards. If a condo project is not on the approved list, a borrower can submit it for approval. The VA will also approve loans to purchase a farm residence, as long as the veteran intends to occupy it. In addition, if the loan is also including the purchase of the farmland, the farmland is appraised at its residential value only.
There are plenty of purchases that are specifically outlined as ineligible. For example, land cannot be purchased with the intent of improving it or building upon it at some future date; the borrower must be intending to build and occupy a house on the land immediately after purchase. The VA will not approve the purchase or construction of a building for investment purposes, or the purchase or construction of a combined residential and business property unless it meets the following conditions:
- the property is primarily for residential purposes
- there is not more than one business unit
- the nonresidential area does not exceed 25% of the total floor area.
The VA will also not approve the purchase of more than one separate residential unit or lot unless the veteran will occupy one unit and there is evidence of the following:
- the residential units are unavailable separately
- the residential units have a common owner
- the residential units have been treated as one unit in the past
- the residential units are assessed as one unit
- partition is not practical, as when one unit serves the others in some respect; for example, common approaches or driveways
Generally speaking, the borrower is not able to receive any cash at closing a VA loan. There are two exceptions to this, however; for IRRRL’s, it can be possible to receive cash at closing, and for cash-out refinancing loans, as the name implies, a borrower can get cash-out, usually to improve the home or consolidate debt.
Maximum Loan Amounts For VA Loans, Chapter 3 Part 3
In the last article, we talked about eligible purchases for the VA loan program. We discussed that the borrower must be intending to occupy the home as his or her primary residence as well as many other requirements for a property to be purchased using the VA loan program. In this article, we’ll be covering an important topic for any VA borrower – the maximum loan amount you can get a VA loan. The VA loan program is unique among home loan programs for the way it addresses maximum loan amounts, and it can often confuse borrowers who are trying to learn about the VA loan program and see if it will work for their situation.
The VA loan program is unique because it actually has no stated maximum dollar amount for its loans. There are, of course, limitations on the size of the VA loan, but they are completely contextual in nature. There are two primary factors that will determine the maximum amount the VA loan can be made for. The first one is for lenders selling their VA loans through a secondary market. Secondary market loans are sold through a third party service, such as the Government National Mortgage Association, and those third party services often prescribe maximum loan amounts. VA loans are not granted an exception to those limits.
The second factor that determines the maximum loan amount is the reasonable value of the property shown on the Notice of Value (NOV) provided by the official VA appraisal. The loan will be limited to either the reasonable value on the NOV or the sale price of the home, whichever is lower, plus the cost of energy-efficient upgrades up to $6,000 and the VA funding fee. There are (of course) exceptions to this depending on the type of VA loan you’re getting. For IRRRLs, two interest rate discount points can be rolled into the loan, so the loan can add that on top of the $6,000 for upgrades, the VA funding fee, and any allowable fees and charges (closing costs). For a cash-out refinance, the limit is 100% of the VA reasonable value plus the upgrades and VA funding fee.
The Handbook goes on to talk about the exceptions relating to “loans to refinance”. These include construction loans, installment land sales contracts, and loans assumed by the borrower at an interest rate higher than that for proposed refinancing loan. All of these types of loans have basically the same limits as normal VA loans, but construction loans max out at the “balance of the loan”, which includes the balances of construction financing and lot liens. Graduated Payment Mortgages (GPM) on existing properties have the following stipulations:
● The VA reasonable value, minus
● the highest amount of negative amortization, plus
● the cost of any energy efficiency improvements up to $6,000, plus
● VA funding fee
GPM loans on new homes have a maximum of 97.5% of the NOV or purchase price (whichever is less), plus the energy efficient upgrades and VA funding fee. We’ll be going more into detail on what a GPM is and how the VA loan program handles them in a future article. The great majority of consumers have no interest in a GPM and many lenders do not even offer them.
Down payments can interact with the maximum loan amount for VA loans. Normally down payments aren’t required because the VA will guarantee the full reasonable value of the property. This is one of the best perks of the VA loan program because saving up for a 20% down payment on a home is one of the biggest obstacles to home ownership, especially for young families and first-time buyers. There are, however, two instances where the VA will require a down payment. First, if the sale price of the home is greater than the reasonable value as shown by the NOV, the seller won’t reduce the price, and the buyer still wishes to buy the house, the buyer must make a down payment to bring the loan amount down to the reasonable value of the property. This down payment must come out of the borrower’s own resources. Second, the VA requires a down payment on all GPMs.
Lenders may require a downpayment under certain circumstances, such as when a veteran has less than full entitlement available. Generally, for secondary market mortgages, the GNMA requires that a combination of the VA guaranty plus the down payment and/or any equity the borrower may already have in the home must cover 25% of the loan.
The VA Loan Occupancy, Requirement Chapter 3 Part 4
Chapter 3 of the VA Lender’s handbook is all about the VA loan and the Guaranty that goes with it. In the last article, we talked about the maximum loan amounts available for VA loans and established that usually the only restriction is the reasonable value of the home as determined by the official VA appraisal. However, there are plenty of other rules that determine whether a borrower can use a VA loan to purchase a property. In this article, we’ll be discussing the occupancy requirement of the VA loan program and how it can be fulfilled.
The first thing the Handbook has to say is this: “The law requires a veteran obtaining a VA-guaranteed loan to certify that he or she intends to personally occupy the property as his or her home.” In other words, the VA will not guarantee any loans that the veteran is not using to purchase a property that he or she will use as their primary residence. To fulfill this requirement, the veteran must either already live in the home (such as in a refinance), or certify his or her intent to move into the home within a reasonable time after closing. This requirement is in place for every single VA loan type except for IRRRLs. For IRRRLs, the veteran simply needs to certify that they previously occupied the home; they do not need to currently live in it. The Handbook provides an example of this. An active servicemember purchases a home with a VA loan then is transferred to a duty station overseas. The servicemember rents out the home then can refinance with an IRRRL because he previously occupied the home.
Above, we mentioned that the veteran must intend “…to move into the home within a reasonable time after closing.” The VA stipulates that a reasonable time is considered within 60 days. The only way a time frame longer than 60 days can be considered reasonable is if both of these conditions are met:
- the veteran certifies that he or she will personally occupy the property as his or her home at a specific date after loan closing, and
• there is a particular future event that will make it possible for the veteran to personally occupy the property as his or her home on a specific future date.
Even if the above conditions are met, dates further than 12 months in advance will generally not be considered reasonable by the VA. There are not many circumstances which warrant the purchasing of a home more than a year before you intend to move in. However, the veteran him or herself does not necessarily need to occupy the home within that time frame in order to satisfy the occupancy requirement. The servicemember’s spouse or dependent child can fulfill the requirement by occupying or certifying the intent to occupy the property in lieu of the veteran if the veteran is currently on active duty and cannot personally occupy the home within the required time frame. For dependent children, the veteran’s attorney or the child’s legal guardian must provide the certification. A spouse can satisfy the occupancy requirement if the veteran is unable to personally occupy the home due to any employment conflicts besides military service.
Servicemembers who are not married who are deployed are considered on temporary duty and can meet the occupancy requirement even if their deployment extends further than the “reasonable time”. Even if there is no spouse to occupy the home in the veteran’s absence, the occupancy requirement can still be considered fulfilled.
Often a veteran nearing retirement from the military will be looking to plan ahead and find a home to move to after retiring. In this case, as long as the veteran will be retiring in fewer than 12 months, there shouldn’t be a problem. The lender is instructed to verify that the veteran will be eligible for retirement on the date specified, and to carefully consider the veteran’s income after retirement. Retiring further than 12 months from the application date will not qualify.
Occupancy can also be delayed or interrupted if there are extensive renovations or improvements being made to the house as part of the loan. Veterans whose current work takes them away from their home a great deal or even the majority of the time will need to have a history of continuous residence in the community and there should be no indication that the veteran has established or intends to establish a primary residence elsewhere. Seasonal homes do not fulfill the occupancy requirement.
VA Loan Interest Rates and Discount Points, Chapter 3 Part 5
In this article, we will be discussing the how interest rates are calculated for VA loans and how VA policies surrounding discount points. Previously in Chapter 3 we talked in depth about the occupancy requirement and how it can be satisfied, as well as the maximum loan amounts a borrower can get a VA loan. We also gave a brief overview of the basic elements of a VA loan. All the information in these articles is taken directly out of the VA lender’s handbook to ensure that it is 100% accurate and to give you a comprehensive picture of the VA loan program, the benefits it offers you, and the requirements it has for you to participate.
In the past, the VA prescribed the interest rate for VA loans. They no longer do. Instead, the interest rate is negotiated between the borrower and the lender. The VA has found that this method allows the borrower and lender to agree on a generally more favorable interest rate than the VA would set in the past. The VA has also found that more lenders are willing to offer VA loans when they have the flexibility to set different interest rates. Once the rate has been locked-in, the borrower and lender are expected to honor it and any other agreements they have entered into which affect the interest rate. The interest rate can still be changed after that point, as long as it does not violate any existing lender/borrower agreements. The VA does have a process that needs to be followed for the interest rate to change, however.
If the increase is more than one percent, the loan needs to be re-underwritten to make sure the veteran still qualifies for the loan, the change must be documented, and a new (or corrected) Uniform Residential Loan Application (URLA), must be furnished. The borrower must initial and date next to any changes. Veterans can also pay for discount points on their interest rate. The Handbook specifies that veterans may only pay “reasonable” discount points on the loan. The borrower and lender agree upon a certain amount of discount points, and can be based on the principal of the loan before or after adding the VA funding fee, if the funding fee is being rolled into the loan amount.
Typically, discount points need to be paid upfront and cannot be included in the loan amount. The exception to this rule is for some refinances. For an Interest Rate Reduction Refinance Loan (IRRRL), two discount points can be rolled into the loan. No more than two can be rolled in, so if the borrower buys more than two, the remainder must be paid upfront. For refinancing a construction loan, installment land sales contract, or a loan assumed by an eligible veteran at a higher interest rate that what is being refinanced for, any “reasonable” amount of discount points may be rolled into the loan. The stipulation here is that the total loan amount, including discount points and allowable closing costs cannot exceed the VA’s determined reasonable value of the home. For cash-out refinancing loans, it’s all semantics – technically discount points cannot be included in the loan amount, but the cash can be given to the lender for any purpose that the lender finds acceptable, which includes paying discount points.
Once an agreement has been made concerning the discount points, both the lender and borrower are expected to honor the agreement. Any agreement that affects the discount points must not be violated. Changes can still be made to agreed-upon discount points, as long as all is in accordance with the agreements that the lender and borrower have signed relating to discount points. An increase in discount points requires verification that the borrower has sufficient assets to cover the increase, documentation of the change, and a new URLA that has the changes properly initialed and dated by the borrower.
A quick word on discount points. Discount points are a way of paying cash to get a lower interest rate. A “point” is usually something like .125% and may cost 1% of the loan amount. So for a $200,000 home and an interest rate of 4.50%, a discount point could cost $2,000 and drop the interest rate to 4.375%. This may not seem like much, but it adds up significantly over 30 years. Points can also knock as much as .25% off the interest rate, and could cost more or less than 1% of the loan amount.
VA Loan Maturity and Amortization, Chapter 3 Part 6
Normally we try to keep each chapter to only three articles covering the most relevant portions of the Handbook. But Chapter three is so full of great information that we’re giving it an extra three articles to make sure that you get all the information you need from it. Chapter three has covered the basic elements of a VA loan, all the eligible purposes for a VA loan, maximum loan and guaranty amounts, the occupancy requirement and how to satisfy it, how interest rates on a VA loan are calculated and how a borrower can buy discount points in the VA loan program. In this article, we’ll be talking about the maximum times for loan maturity and amortization for a VA loan. We’ll be going into detail on both maturity and amortization.
The first thing the Handbook puts here is the maximum length of time that a loan can take to mature. For an amortized loan, the maximum is 30 years and 32 days; for a nonamortized loan, the maximum length is much shorter at 5 years. Why the difference? Amortizing and non-amortizing loans are very different. In a non-amortizing loan, the monthly payments you are making are not going towards the principal of the loan; they are just covering interest, and the actual loan principal is due at the end of the loan term. In the case of VA loans, this is 5 years. Amortizing loans are the loans we are all familiar with; both interest and principal are included with every monthly payment with more principal and less interest being paid each month throughout the loan. As you can tell, there aren’t very many great use cases for the non-amortizing loan, and those few cases will be better served with a 5-year maturity rather than 7 or more.
Another restriction on the maximum maturity on a loan is the estimated economic life of the property that is being purchased. If the home isn’t expected to last longer than 15 more years, then the borrower will be unable to secure a loan with a maturity longer than 15 years. The Handbook specifies that the period of loan repayment begins from the date of the note or, in the absence of the note, any other evidence of indebtedness. The maturity date cannot be extended beyond the maximum (this is different from a refinance). Any amount of money that falls due beyond the maximum maturity automatically will be due on the maximum maturity date. This can happen if a lender either miscalculates the monthly payment or otherwise unintentionally makes a loan that exceeds the maximum maturity. The loan can still be subject to guaranty, but the amount remaining after maximum maturity will come due on the maturity date. Remember, though, that there are restrictions to this to prevent excessive ballooning. VA regulations limit the amount that can be due on the maturity date.
The VA requires that if the loan maturity date is beyond 5 years, the loan must be amortized. Anything 5 years or less is considered a ‘term’ loan and does not have to be amortized. For amortized loans, the VA generally requires that the monthly payments must be equal or approximately equal, the principal must be reduced at least once annually, and the final installment must not exceed two times the average of the preceding installments. There are two exceptions to these: GPMs and GEMs. These stand for Graduated Payment Mortgages and Growing-Equity Mortgages and will be discussed more in a future chapter. Construction loans can also have an exception made in this area, but the majority of VA-approved do not offer construction loans.
The VA also has guidelines for getting an alternative amortization plan approved even if it does not meet the requirements above. The plan must be approved in advance and must fulfill the following two criteria:
● It is generally recognized; that is, is used extensively by established lending institutions, but
● does not meet the requirements of approximately equal periodic payments and a reduction in principal not less often than annually.
There are two plans that are pre-approved by the VA: the Standard and Springfield plans, described below:
● The Standard plan provides for equal payments over the life of the loan. The amount applied to interest decreases, with a corresponding increase in the amount applied to principal.
● The Springfield plan provides for gradually decreasing payments over the life of the loan. The amount applied to interest decreases while the amount applied to principal remains constant.
What Does a VA Guaranty Mean to the Lender? Chapter 3 Part 7
In the last article, we discussed loan maturity and amortization. We established that the VA requires that the maturity date cannot be longer than 30 years and 32 days on an amortizing loan and no longer than 5 years on a non-amortizing loan. We talked about the difference between amortizing and non-amortizing, and the requirements for the monthly payments for each one. The VA has strict requirements on the loans that can be offered to VA borrowers in order to protect the borrower and make sure that they get the best deal they can. The VA also looks out for the lender and provides the lender an incentive to offer VA loans. The largest incentive is the VA guaranty, and in this article, we’re going to cover what the VA guaranty does for the lender.
The primary advantage that the VA guaranty offers the lender is protection against loss. The VA guarantees a portion of the loan amount (between 25-50%). This guaranty is identified on the VA Loan Guaranty Certificate as both a percentage of the loan and the dollar amount. In the event of a default on the loan, the VA will reimburse the lender for all of the loss. In certain cases, the VA will only be able to reimburse the lender for part of the loss. Those cases are when the loss is greater than the stated guaranty percentage or dollar amount, when the loss is greater than VA maximums for reasonable and customary foreclosure expenses, and when the lender is less-than-fully compliant with all applicable laws and regulations. Generally speaking, however, a 25-50% guaranty on the loan is a great deal of protection against loss and provides a powerful incentive.
The last point in the above paragraph mentions that the reimbursement of the lender is conditional on their compliance with VA laws and regulations. It is important to note that the lender is responsible to comply with all laws and regulations related to the VA loan program. Their compliance will prevent the VA from denying or reducing payments on any claims the lender may make. The Handbook advises the lender to do this by making sure that every single employee who works with VA loans understand and fully comply with all of the VA policies relating to their job, and that they direct question to the VA when any issues arise that are not addressed in the Handbook or other official materials.
The loan is automatically guaranteed upon closing as long as it was closed by either a supervised lender or a nonsupervised lender with automatic authority, and the lender complied with all of the applicable laws and regulations. Loans that required prior approval are also guaranteed immediately upon closing, which may be prior to the issuance of the Loan Guaranty Certificate (LGC), as long as the closed amount is the same as the proposed loan and (of course) the lender complied with all applicable laws and regulations. To any potential borrowers out there reading this, you can rest assured that a VA-approved lender is not going to cut any corners with your loan.
There are certain cases where the lender will experience total loss of the VA guaranty. “Willful fraud or material misrepresentation by the lender…” or any agent of the lender, will result in the VA refusing to pay any claim on the loan. The VA will also refuse to pay when there has been forgery on the note or any other loan documents, or a Certificate of Eligibility or discharge papers have been counterfeited. There are other cases where a VA lender may have a partial loss of Guaranty. Generally speaking, these cases are when there has been less-than-full compliance with VA laws and regulations. Below are examples of noncompliance that can lead to only partial guaranty:
• failure to obtain and retain the required lien on the property to secure the loan,
• failure to include the power to substitute trustees,
• failure to procure and maintain insurance coverage,
• failure to advise VA as to default,
• failure to provide notice of intention to begin foreclosure action,
• failure to provide notice to VA in any suit or action, or notice of sale,
• improper release, conveyance, substitution or exchange of security,
• lack of legal capacity of a party to the transaction,
• failure to assure that escrowed/earmarked funds are expended in accordance
with the agreement, and
• failure to take into consideration limitations upon the quantum or quality of
the estate or property.
Post-Guaranty Issues, Chapter 3 Part 8
In the last article, we talked about what the VA guaranty means to the lender, both the benefits and the responsibilities that come with it. The VA guaranty provides a great incentive for lenders to offer VA loans, but the guaranty is conditional upon the lender’s compliance with all of the VA rules, laws, policies, and regulations in regards to the VA loan program. In order for their claims to be reimbursed by the VA, the lender must be fully compliant with all VA laws and regulations. Any willful fraud or misrepresentation may result in total loss of the VA guaranty. In this article, we’re going to talk about what happens after the guaranty has been issued (closing of the loan).
After closing, the lender will work to obtain a Loan Guaranty Certificate (LGC) that shows both the percentage of the loan amount that’s being guaranteed and the dollar amount that it equals. LGCs are generated using data from several different sources. The primary one is the VA Funding Fee Payment System (VA FFPS). In the event that the lender discovers an error in some of the data, like the date of closing being off, or something similar, before the LGC has been generated, the lender makes the change in the VA FFPS. The borrower generally will not even be aware of this happening – it all happens on the lender’s end. In the event that the lender discovers an error after the LGC has been generated, the lender must work with their VA Regional Loan Center to make changes. Generally, an LGC with minor errors that do not affect the identification of the loan is still valid.
In the event that the lender loses the LGC or it is damaged, a duplicate LGC can be easily obtained by accessing the system and reprinting it. For the most part, borrowers do not even need to be aware of this process unless the lender has also lost some documentation that the borrower has in his or her possession. If the loan is transferred, there is no need to notify the VA after it has been closed on. For VA loan assumptions, the VA must approve them prior to the assumption unless the loan was originally closed before March 1, 1988. Some lenders may be permitted to approve the assumption on the VA’s behalf. These lenders will know who they are.
When a loan is fully paid off, or paid-in-full, the holder of the VA loan is required to report the date that the loan was paid-in-full via an electronic system called the VA Loan Electronic Reporting Interface (VALERI). Lenders report paid-in-full loans to the VA “…upon full satisfaction of the loan by payment or otherwise.” For those wondering, the difference between a lender and a loan holder is simply that the lender is the one who provides the funds for the loan, while the loan holder is the person who can legally seek and require repayment of the loan. Often, the lending entity and loan holder are the same entity, but loans can be transferred to a different loan holder after being closed on. Loans are often transferred to a different entity in the case of a default or foreclosure.
Previously, when a loan was paid in full, the lender was required to mail the LGC to the VA, but this is no longer the case. Since the LGC is generated electronically, and all reporting is done through VALERI, the physical copy or copies of the LGC that the lender retains do not need to be returned to the VA.
Lenders are required to maintain copies of all of the origination documents and records on any VA-guaranteed loans for at least 2 years from the date of closing. This is the case even if the loan was sold – the original lender must maintain the records for at least two years. These records include the following:
• the loan application (including any preliminary application),
• verifications of employment and deposit,
• all credit reports (including preliminary credit reports),
• copies of each sales contract and addendum,
• letters of explanation for adverse credit items, discrepancies and the like,
• direct references from creditors,
• correspondence with employers,
• appraisal and compliance inspection reports,
• reports on termite and other inspections of the property,
• builder change orders, and
• all closing papers and documents.
Lenders may be subject to VA audits and reviews and must make these records available to the auditors.