VA Lenders Handbook (VA Pamphlet 26-7), Chapter 5, Topic 3 — Prior Approval Loan Procedures

VA Pamphlet 26-7, Chapter 5 (How to Process VA Loans and Submit them to VA), Topic 3 — Prior Approval Loan Procedures

Effective 2024-05-14 · publisher's stamp for this provision

Topic 3. Prior Approval Loan Procedures Change Date: May 14, 2024 This topic has been updated to replace references to the RLC with VA. References to processing requirements involving a VA-appointed fiduciary have also been removed from this Topic. Section a, Loans to be Submitted for Prior Approval, has been updated to remove the prior approval requirement for loans involving a VA-appointed fiduciary, and to further clarify which types of loans are required to be submitted for prior approval. Section c, How to Request Prior Approval, which previously provided the stacking order for prior approval requests for purchase/cash-out refinance loans, has been renamed and updated to refer lenders to the updated stacking orders provided in Appendix B, Topic 2. Previous section e, Documentation Required for an IRRRL Prior Approval Package, has been removed from this Topic and moved to Appendix B Topic 2. All subsequent sections were re-lettered and references updated. Previous section h, Changes Occurring After Issuance of the Certificate of Commitment, including Tables 3, has been updated. Previous section i, Conditional Certificates of Commitment, Table 4, has been updated to remove the conditional commitment condition for loans to be made to a Veteran and fiancé(e) who intend to marry prior to closing and who will hold title as Veteran and spouse. Previous section k, How to Report Loan Closing and Request Guaranty, which previously provided the stacking order for reporting a closed prior approval loan, has been updated to refer lenders to the updated stacking orders provided in Appendix B. Previous section k, How to Report Loan Closing and Request Guaranty, has been updated with additional information related to the late reporting certification required if the loan is not reported in a timely manner. Minor grammatical changes were also made throughout the topic. a. Loans to be Submitted for Prior Approval Lenders without automatic authority are strongly encouraged to enter into a sponsor/agent relationship with a VA-approved automatic lender to expedite VA loan processing and underwriting. If a lender does not have a sponsor, then they must submit an application to VA for prior approval lending. Those without sponsors or automatic authority must upload all loans into WebLGY for prior approval, except IRRRLs made to refinance loans that are not delinquent (see Chapter 1 of this handbook). Lenders must upload all prior approval documents into WebLGY, for VA review prior to closing the loan (see Appendix B Topic 2 for the prior approval stacking order). The loan may not close until VA issues a Certificate of Commitment. All lenders, whether or not they have automatic authority, must submit the following types of loans to VA for prior approval: Joint loans, to a Veteran and one or more non-spouse, non-Veterans (see Chapter 7) Joint loans, to a Veteran and one or more non-spouse Veterans who will not be using entitlement (see Chapter 7) Loans to Veterans in receipt of VA non-service-connected pension. This is not the same as VA service-connected disability compensation. IRRRLs made to refinance delinquent loans (See Chapter 6 of this handbook) Manufactured home loans (home is not titled as real-estate) Unsecured loans or loans not secured by a first lien; and Supplemental loans Note: COEs may indicate required submission of VA Form 26-8937, Verification of VA Benefits, if VA is unable to issue the COE with appropriate conditions. In these cases, the form should be submitted prior to close as it may indicate the loan requires prior approval. Lenders are not required to obtain prior approval for a loan where the application was taken for a Veteran and fiancé(e) who will marry prior to loan closing and who will hold title jointly as Veteran and spouse. A copy of the borrowers’ marriage certificate or other proof of marriage showing the marriage preceded loan closing must be retained in the loan file. A marriage license is inadequate. Prior approval is required if the marriage will not take place prior to loan closing. Lenders with automatic authority may also elect to submit a loan (of a type not on the above list) to VA for prior approval when issues or circumstances cannot be resolved by the lender’s own underwriting staff. This provision may not be used to shift the burden of loan denial to VA. Additionally, VA cannot address overlays established by a company or investor and the loan should not be submitted as a prior approval for the lender to overcome any company or investor requirements. Before submitting such a loan, the underwriter must first attempt to contact VA to discuss the circumstances with a Loan Specialist. While VA cannot make the final underwriting determination without reviewing the loan, VA can discuss VA guidelines to assist the underwriter in making a determination. If, after contacting VA, the underwriter is unable to make a determination, the loan may be submitted for prior approval. The submission must include a cover letter from the underwriter that states the reason(s) for the prior approval submission, explains the unique circumstances, and provides the underwriter’s phone number and e-mail address. b. Before Requesting Prior Approval The lender must perform the following steps prior to submitting a loan package for prior approval: obtain a COE, and, if the Veteran is an active-duty Service member who indicates they have a pre-discharge claim pending, complete and submit VA Form 26-8937, Verification of VA Benefits, (see Topic 1, section f), establish the reasonable value of the property with the issuance of an NOV, underwrite the loan and complete VA Form 26-6393, Loan Analysis, and ensure Service members receive counseling using VA Form 26-0592, Counseling Checklist for Military Homebuyers. The prior approval loan review will be suspended and processing will be delayed if all documents are not submitted with the original upload. c. How to Request Prior Approval The stacking order for requesting prior approval and reporting loan closing are provided in Appendix B, Topic 2. The files should be uploaded as a single-file Portable Document Format (PDF) into VA’s electronic loan system (WebLGY or subsequent system) to the correspondence section of the loan record as a ‘Prior Approval Loan Package’. If the file size exceeds VA’s limit, it is permissible to split the file, but it should still follow the stacking order. Failure to provide necessary documents or conditions may result in delays in issuing the Certificate of Commitment. A user’s guide for uploading prior approval loans is available online at: https://www.benefits.va.gov/HOMELOANS/documents/docs/prior_approval_LP_lenders.pdf d. Prior Approval on IRRRLs An IRRRL made to refinance a loan that will be 30 or more days past due as of the date of closing, must be submitted for prior approval. The lender must first obtain sufficient information and perform sufficient analysis to determine that: the cause of the delinquency has been resolved, and the Veteran is able to make the proposed loan payments. The stacking order for requesting prior approval and reporting loan closing are provided in Appendix B, Topic 2. e. VA Processing of a Prior Approval Application VA will review the documents submitted and complete one of the following: suspend processing and request additional information from the lender, or send a notice of denial to the lender and borrower, or issue VA’s certificate of commitment to the lender, which is evidence of VA’s approval of the loan to close and willingness to guaranty the loan. Loans submitted on the prior approval basis have a 10-business day timeliness requirement by VA. The processing time may be extended for loans involving the receipt of VA pension income. The VA Pension Management Center may need to complete a review of a loan file in addition to the Loan Guaranty review. f. Certificate of Commitment VA’s certificate of commitment must be obtained prior to closing and is the lender’s evidence of VA’s willingness to guaranty the loan. The lender is subsequently entitled to evidence of guaranty if: 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), and The lender has complied with all applicable provisions of the law and loan guaranty regulations in making the loan. Additionally, all conditions of the certificate of commitment must be met. If, at any time prior to closing, the lender or VA has reason to doubt the continued qualification of the loan, the lender will delay closing until all facts are determined and reviewed again by VA. VA may cancel a commitment if the validity period of the certificate of commitment has expired (after 180 days), and there is no reasonable expectation that the loan will be reported for guaranty. A commitment may be extended under certain circumstances. Contact VA for a review of the prior approval commitment. g. Changes Occurring After Issuance of the Certificate of Commitment Table 1: Changes Occurring After Issuance of the Certificate of Commitment If... Then... 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, VA approval is not 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, VA approval is not needed. Include an explanation of the change with the closing package. The maturity of the loan is decreased, and there is an increase in the monthly mortgage payment VA approval is needed. Upload a new Loan Estimate (LE), URLA signed and dated by the applicant, and an updated VA Loan Analysis, to WebLGY. The loan amount is increased to cover the cost of energy efficiency improvements up to $6,000, VA approval is needed. See Chapter 7 of the Lender’s Handbook for special underwriting requirements and documentation required with the updated prior approval package. A revised loan analysis must be provided to show the borrower still qualifies with the higher loan amount and payment. Any increase in the amount of discount points to be paid by the applicant above the points indicated on the certificate of commitment, VA approval is needed. Include with the updated prior approval package: An explanation of the change, The URLA with changes initialed and dated by the applicant, and If previously verified assets are not sufficient to cover the additional points, verification of sufficient additional assets. The loan is to be closed at an interest rate more than 0.25 percent greater than the rate indicated on the certificate of commitment, VA approval is needed. Upload a new LE, URLA signed and dated by the applicant, and an updated VA Loan Analysis, to WebLGY. A borrower changes jobs or suffers a reduction in income. VA approval is needed. Upload an updated VA Loan Analysis, income verification documentation, and an updated URLA to WebLGY There is an increase in liabilities that reduces the residual income by 5 percent or more, or increases the debt-to-income (DTI) ratio by 2 percent, or increases the DTI to a percentage above 45%. VA approval is needed. Upload an updated VA Loan Analysis, credit documentation, and an updated URLA to WebLGY. h. Conditional Certificates of Commitment There are circumstances when VA issues a prior approval commitment with special conditions. The table below lists circumstances and conditions that warrant special instructions and documentation before closing a loan that has been underwritten by VA. Table 2: Conditional Certificates of Commitment Case Condition/Notation on Certificate Loan is to the spouse of a serviceperson missing in action or prisoner of war (MIA/POW) Prior to closing the subject loan, the lender should obtain certification from the borrower that official notice of any change in the Service member’s status has not been received and that the applicant is still the spouse of the Service member. See Chapter 2 for required documentation. Loan is to an eligible surviving spouse of a deceased Veteran. "Conditioned on certification of status as a surviving spouse." What this means: Conditioned on the borrower’s certification that their status as an eligible surviving spouse has not changed since the COE was issued. See Chapter 2 for required documentation. Loan is to an active-duty service person who has not been discharged and must certify to continuous active duty. Certification of active-duty status as of date of note required. To ensure compliance, the active-duty Service member should check the active duty box in Section III, Veteran’s Certifications, on VA Form 26-1820, Report and Certification of Loan Disbursement. Ensure that the Veteran signs the form on the date of closing. Loan involves use of an attorney-in-fact. "Conditioned on proof Veteran was alive and not MIA." What this means: No evidence of guaranty with respect to the loan to which this commitment relates will be issued by the Secretary unless the lender makes the certification specified by the Department of Veterans Affairs at the time the lender requests a certificate of guaranty to the effect that the Veteran was alive and, if the Veteran is on active military duty, not in a "missing in action" status on the date the note and security instruments were executed on the Veteran’s behalf by the attorney-in-fact. Veteran intends to sell the property on which he/she has an existing VA loan prior to closing on the new VA loan, in order to have entitlement restored "Conditioned on restoration of entitlement." What this means: This commitment is conditioned upon submission of evidence of disposal of the property which the Veteran now owns and previously purchased using VA entitlement and evidence that the loan has been paid in full or that an eligible Veteran has substituted their entitlement for that used by the original Veteran. Veteran intends to sell property now owned in order to have sufficient income, eligibility and/or assets to qualify for the loan "Commitment conditioned on disposal of the property." What this means: This commitment is conditioned upon the completion of the sale of residential real property now owned by the Veteran, as proposed in the loan application. Notice of Value (NOV) conditions that were not satisfied prior to the commitment The commitment is conditioned upon the completion and all required NOV conditions. Failure to document these conditions with the closing package can result in a delay of the guaranty, affect the percentage of guaranty, and/or affect the ability of VA to issue the Loan Guaranty Certificate (LGC). i. Before Closing a Prior Approval Loan Complete all applicable procedures in Topics 1 and 2 of this chapter. j. How to Report Loan Closing and Request Guaranty A loan must be reported to VA within 60 calendar days of closing. A lender that fails to report the loan within 60 calendar days of closing must provide a written explanation signed by an officer of the company that includes the following: The reason for the delay in reporting the loan for guaranty, and Certification that the loan is not 30 or more days past due, and Certification that the loan otherwise conforms with standards established under chapter 37 of Title 38 U.S.C. and 38 C.F.R. part 36. The stacking order for reporting loan closing is provided in Appendix B, Topic 2. The file should be uploaded as a single-file Portable Document Format (PDF) into VA’s electronic loan system (WebLGY or subsequent system) to the correspondence section of the loan record as a ‘Prior Approval Loan Package’. If the file size exceeds VA’s limit, it is permissible to split the file, but it should still follow the stacking order. Failure to provide any of the necessary documents or conditions can result in a delaying of issuing the LGC, affect the percentage of guaranty, and/or affect the ability to issue the LGC.

Source: VA Pamphlet 26-7, Chapter 5 (How to Process VA Loans and Submit them to VA), Topic 3 — Prior Approval Loan Procedures · source URL · snapshot 5593fdab253e238c