VA Underwriting Changes
VA has just revised Chapter 4 – Credit Underwriting and Chapter 11 – Appraisal Requirements (now named Appraisal Reports) of their underwriting guidelines. These changes will take effect for all VA loans beginning May 23rd, 2019. Major changes are as follows, but the documents have been revised throughout so it is recommended that everyone review them HERE.
- Borrowers using rental income from a non-subject property to qualify need to document a minimum 2 year rental history and 3 months reserves PITI for each rental property (excluding property being vacated and turned into a rental). When no mortgage exists on a rental property, 3 months reserves must still be provided that cover taxes, insurance, HOA dues, and any other fees documented for the property. These reserves cannot come from equity, gift funds, or any loan proceeds.
- Rental income from boarders can now be used as qualifying income provided
- A 2 year history of tax returns can be provided showing boarder income generated by the property; AND
- The use of the property for boarder rental cannot impair the residential nature of the property and cannot exceed 25% of the property’s total floor area
- Alimony, child support, and maintenance require at least 3 years continuance to be considered effective income.
- For payment plans after a judgment, VA will generally require 12 months of timely payments before credit is considered reestablished. A shorter repayment history may be considered if it can be determined that the borrower addressed the judgment responsibly and began a repayment plan immediately after it was filed. If borrower has missed payments within the last 12 months, they will be ineligible for financing even if the debt is paid in full.
- For voluntary short sales or deeds-in-lieu where the borrower was current on their payments at the time the property was surrendered, no minimum derogatory credit waiting period will be required.
- VA’s list of required Appraisal Report Contents has been updated and now includes specific photographs required on the appraisal (refer to VA Chapter 11: Topic 3: Appraisal Report Contents for full list).
- VA Chapter 11: Topic 4: Gross Living Area has been added to provide direction in determining the Gross Living Area of the property.
- Other sections have been updated to include guideline changes from previous VA Circulars.