Mitchell6024/quickb · Datasets at Hugging Face

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66bec0bd-c09e-4214-935e-65266bf848df	Continued on next page 7-7 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 1: Joint Loans, continued m.	VA_Guidelines.txt
40117d10-7109-46a1-a615-54b92255a72b	Examples of Two-Veteran Joint Loans Table 6: Examples of Two-Veteran Joint Loans Veterans and Total Loan Maximum Entitlement Charge Available Amount Potential Guaranty Per Veteran Entitlement Veteran 1 $36,000 $100,000 $36,000 $18,000 Veteran 2 $36,000 $18,000 Veteran 1 $25,500 $80,000 $32,000 $23,500 Veteran 2 $8,500 $8,500 Veteran 1 $36,000 $300,000 $75,000 $37,500 Veteran 2 $36,000 $37,500	VA_Guidelines.txt
6de18892-7dbf-4826-93b4-ffdd63bb6199	$75,000 $37,500 Veteran 2 $36,000 $37,500 Veteran 1 $15,000 $203,000 $50,750 $25,375 Veteran 2 $20,000 $25,375 Veteran 1 $0 $300,000 $75,000 $25,000 Veteran 2 $0 $25,000 Veteran 3 $6,500 $25,000 A written agreement from the Veterans is required whenever there is unequal entitlement usage	VA_Guidelines.txt
9ee3bf17-1191-4dcf-955c-1ace05c30e9b	. o.	VA_Guidelines.txt
aad8ce4e-c603-4ee2-a89e-168351f50866	Certificate of Commitment For joint loans involving one or more non-Veterans the: · loan amount shown on the commitment is limited to the Veteran’s portion of the loan, and · percentage of guaranty is based on the ratio of the amount of entitlement the Veteran has available to the Veteran’s portion of the loan.	VA_Guidelines.txt
b91cb5a4-04bd-4f8a-871b-38ce5ec2bedf	VA will issue the Certificate of Commitment with a reminder that: · no part of the guaranty applies to the portion of the loan allocated to the non-Veteran, and · in the event of the foreclosure where a loss is sustained, the holder must absorb any loss attributable to the non-Veteran’s portion of the loan.	VA_Guidelines.txt
7f0d343e-f065-4cbe-a7ed-436977fcbd23	Continued on next page 7-8 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 1: Joint Loans, continued p. Loan Guaranty Certificate (LGC) The “Amount of Loan” reflects only the Veteran’s portion of the loan. If more than one Veteran used entitlement on the loan, it will reflect the total of all portions allocable to those Veterans.	VA_Guidelines.txt
6db94c36-b203-464d-8ca4-bb3356656a0a	The lender must satisfy itself that the requirements of its investor or the secondary market can be met with this limited guaranty. Whereas the whole loan amount will appear on the mortgage security documents; that is, mortgage note or deed of trust, only the Veteran’s portion is shown on the Certificate of Commitment and the LGC. q.	VA_Guidelines.txt
8cd11ef5-f9be-4f46-b606-9c357a06f662	Equal Credit Opportunity Act Considerations (ECOA) The applicability of the guaranty to only a portion of the loan in the case of a Veteran/non- Veteran joint loan may cause a lender to refuse to accept an application for such loan.	VA_Guidelines.txt
96d7f7dd-4cb1-4a4e-99e7-a71584ff543b	This may appear to conflict with the ECOA prohibition against discrimination based on marital status; however, the lender may refuse the application under these circumstances without violating ECOA. This is based on an exemption for VA being a special purpose credit program. r.	VA_Guidelines.txt
637f2d49-93f2-440e-8b91-fe72ef2a592a	Calculation of the Funding Fee Apply the appropriate funding fee percentage to any portion of the loan allocable to a Veteran using his or her entitlement who is not exempt from the funding fee. Determine the appropriate percentage for the type of Veteran involved from the funding fee tables in Chapter 8. Example.	VA_Guidelines.txt
376f063f-8b64-4007-b518-aea3981851f4	Example. On a no-downpayment loan to two Veterans; on a first-time homebuyer; and on a subsequent user; the funding fee percentages of 2.15 percent and 3.3 percent respectively would each be applied to one-half of the loan amount.	VA_Guidelines.txt
538ba779-405b-4d35-956a-093c90b06ba8	No funding fee will be assessed on any portion of a joint loan allocable to a: · Non-Veteran · Veteran who did not use his or her entitlement, or · Veteran who used his or her entitlement, but is exempt from the funding fee. Downpayment.	VA_Guidelines.txt
aac8c56d-d267-470e-ac78-1d203a054094	Downpayment. The actual loan amount is allocated equally between the borrowers for purposes of calculating the funding fee, whether or not a downpayment is made, and regardless of where the funds for such a downpayment come from. Example.	VA_Guidelines.txt
9ba44d6e-9087-42f4-9d37-2a5cf426632a	Example. On a Veteran/non-Veteran loan, the non-Veteran makes a $5,000 (five percent) downpayment out of his cash resources, to purchase a $100,000 property, resulting in a $95,000 loan amount. The Veteran is a first-time homebuyer. The Veteran must pay a funding fee of $712.50, based on 1.5 percent of his/her $47,500 portion.	VA_Guidelines.txt
650551b1-b784-41fc-aa91-6e20b9eeca38	If situations arise which are not addressed here, contact 1-877-827-3702 for assistance. 7-9 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Loans Change Date: June 5, 2024 · This topic has been revised in its entirety. a.	VA_Guidelines.txt
e299100a-2703-4797-bf90-326ede0aadfe	The Basics VA may guarantee a loan for the construction¹ of a home to be owned and occupied by the Veteran. VA permits one-time and two-time construction loans. Construction loans (one-time or two-time) may also be refinanced under VA’s cash-out refinance guidelines.	VA_Guidelines.txt
d07dbe69-573e-4fe8-8c9c-9fcb7435e7ae	This section specifically addresses construction loans and does not apply to the purchase of a newly built home financed by a builder (such as those commonly found in Planned Unit Development communities) or cash-out refinances. All construction and cash-out refinancing loans are subject to VA’s underwriting requirements² outlined in Chapter 4.	VA_Guidelines.txt
dc5abea1-509c-4068-a8f2-b994fef8b0e8	Once the VA construction loan type, one-time or two-time, is closed it cannot be modified into another loan type. That is, a one-time close cannot be turned into (converted) a two- time close or vice versa.	VA_Guidelines.txt
c2c14737-6cc8-4f16-a76b-7ea9343ec7b6	One-time and two-time construction loans may be considered purchases in VA’s systems regardless of the category stated on the loan application, closing disclosure, or whether or not the borrower already owns the land. Note this is for VA purposes and may not match Real Estate Settlement Procedures Act requirements (RESPA). One-Time Close Construction or VA Construction to Permanent Loans.	VA_Guidelines.txt
3d01e5eb-076e-4817-b099-a4cb18144206	These types of loans are used to close the construction financing and permanent financing at the same time. The permanent financing is established prior to construction, and the final terms are modified to the permanent terms at the conclusion of construction. Two-Time Close Construction Loans.	VA_Guidelines.txt
23eb7d93-48e0-4c90-ba65-cdad2309046f	Two-Time Close Construction Loans. These types of loans involve an initial non-VA interim construction loan that closes prior to the commencement of construction and a second loan closing, where a VA-guaranteed loan is used to establish permanent financing by refinancing the interim construction loan.	VA_Guidelines.txt
c7991609-70da-4583-9fe8-7296f2a34cd4	Interim construction financing does not include Home Equity Lines of Credit (HELOCs) or loan vehicles that already provided for permanent financing such as a one-time construction loan. Cash-Out Refinance Loans. These types of loans involve the refinancing of any existing lien indebtedness. Unlike the one-time or two-time construction loan, the Veteran may obtain cash-out through the transaction.	VA_Guidelines.txt
30f7fde5-ff08-49d7-86b6-b5211de2e9b5	These loans are subject to VA’s Cash-Out Refinance Requirements³ and may not exceed 100% of the VA reasonable value. Note that satisfaction of an interim construction loan is considered a net tangible benefit for the purpose of a cash- out refinance.	VA_Guidelines.txt
1b55e102-e4ee-42bc-828e-5c5fd6c0cd88	Continued on next page 1 38 USC § 3710(a)(1)(3) 2 38 CFR § 36.4340 3 38 CFR § 36.4309 7-10 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued b.	VA_Guidelines.txt
1992d07f-6491-4ed1-9f4b-f3133a5724a9	Builder Identification (ID) Number The Veteran may choose their own builder and a VA Builder ID must be obtained prior to the issuance of the Notice of Value (NOV). The Veteran may act as their own contractor or builder, and VA Builder ID is not required in these cases. Refer to Chapter 10 for additional information.	VA_Guidelines.txt
a984ebf3-5eae-432f-9090-215b25aa1371	Refer to Chapter 10 for additional information. A list of registered VA builders is available for lenders in the VA LGY HUB https://lgy.va.gov/lgyhub/. Information on obtaining a VA Builder ID number is available on our website: https://www.benefits.va.gov/HOMELOANS/appraiser_cv_builder_info.asp. c.	VA_Guidelines.txt
c17b292f-8363-48c6-8c01-01663b84d64f	Property Eligibility and Appraisals One-time construction loans: appraisals should be ordered before the completion of the foundation as a purchase, specifying the loan use as “Construction to Permanent” and building status as “Proposed”.	VA_Guidelines.txt
b2086c8f-19b8-4b03-aab2-3a049eee5c4f	Construction exhibits, permitting, and materials specifications, should be provided to the appraiser at the time of the appraisal order for preparation of the appraisal report for valuation purposes. Appraisers will hold appraisal assignments until the appropriate exhibits are received. Two-time construction loans: (1) Appraisals should be ordered when the dwelling is 100% complete.	VA_Guidelines.txt
1f186840-2f41-4768-9c9e-250e1ac6b333	The appraisal should be ordered as a purchase, specifying the building status as “New Construction”. (2) While VA prefers for the appraisal to be ordered after the dwelling is 100% complete, if the appraisal is being ordered prior to completion, the lender will need to order the appraisal as a purchase, specifying the loan use as “Construction to Permanent” and the building status as “Proposed	VA_Guidelines.txt
4f88d04c-0b0a-41bf-ab46-7de26885bf78	.” Construction exhibits, permitting, and materials specifications, should be provided to the appraiser at the time of the appraisal order to be utilized in the preparation of the appraisal report for valuation purposes.	VA_Guidelines.txt
85e12244-47ea-4e33-89c0-0b787bc31abd	Appraisers will hold appraisal assignments until the appropriate exhibits are received. Cash-Out Refinances: Transactions in which construction was completed and at least one year has passed, as evidenced by a Certificate of Occupancy (CO) or other evidence by the taxing authority, are treated as cash-out refinances if the Veteran already owns the property.	VA_Guidelines.txt
81564c41-0f31-494b-8173-e4c0159e77fa	The appraisal should be ordered as a “VA Cash-Out Refinance” in WebLGY. Construction exhibits such as plans, specifications, and contracts are not required. d. Maximum Loan Amount The maximum loan amount for construction (one-time and two-time) loans is limited to: (1) the lesser of the VA reasonable value or the acquisition costs (described in section e), plus, (2) the applicable VA funding fee.	VA_Guidelines.txt
bc40185c-28cf-4380-a5c5-eab8911f1a9f	Cash-Out Refinance Loans may not exceed the VA reasonable value. See Chapter 3 for additional details on maximum loan amounts. Continued on next page 7-11 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued e.	VA_Guidelines.txt
0d2b1cf3-ece7-4923-9652-f73f75ffd1ca	Acquisition Costs One-Time Close: Acquisition costs on a one-time construction loan include the following, provided documentation is submitted to support the associated amount: (1) the contract to build (2) balance owed on the land (3) interest reserve, if not included in the contract to build (4) contingency reserve (5) permits, if not included in the contract to build If the Veteran acts as	VA_Guidelines.txt
3de559b7-53f8-441b-868e-98135aa4240d	in the contract to build If the Veteran acts as their own contractor, all labor and material costs must be documented by receipts, work orders, and/or contractual agreements to establish the contract price	VA_Guidelines.txt
2679e7d8-55d1-485e-aeb0-2b7733696f03	.	VA_Guidelines.txt
1a29b7f8-5ce5-42f5-a61f-0d865421007f	If no balance is owed on the land neither the original cost nor current value may be included in the acquisition cost.	VA_Guidelines.txt
a906aa0a-077e-4862-b0b8-38495a230dff	Two-Time Close: Acquisition costs on a two-time construction loan include the following, provided documentation is submitted to support the associated amount: (1) balance of the interim construction loan, and (2) balance owed on the land If no balance is owed on the land neither the original cost nor current value may be included in the acquisition cost. f.	VA_Guidelines.txt
9a837961-ca12-48d6-bc86-0a7139b8f6c5	Loan Guaranty Certificate and Maximum Guaranty Amount Although the loan will normally be considered guaranteed upon closing, the Loan Guaranty Certificate (LGC) on a construction/permanent home loan will not be issued until a clear post construction inspection report has been received by VA.	VA_Guidelines.txt
704e340d-87aa-4911-8fcc-467e4814f572	All NOV requirements, including the Post Construction Inspection by the appraiser must be met prior to the issuance of the LGC. VA construction loans are eligible to receive the same guaranty amount and percentage as VA purchase loans.⁴ See Chapter 3 for additional information.	VA_Guidelines.txt
ffd05573-1b6c-46c5-8cd9-a4ffeef0786e	Continued on next page 4 38 CFR 36.4302(a) 7-12 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued g. Funding Fee and Loan Reporting The funding fee is due and payable to VA within 15 days of loan closing⁵; this requirement is not tied to the commencement or completion of construction.	VA_Guidelines.txt
56cda7a4-31ed-48bc-bc50-a44a1eb9c4fd	Although evidence of guaranty is not issued until construction is complete, VA will not approve a funding fee refund if the lender fails to obtain evidence of guaranty or for the fact that the Veteran sold the property before the completion of construction.	VA_Guidelines.txt
55fa4fbc-9ea1-42a5-960a-fba27fc3c81b	The loan must be guaranteed in WebLGY within 60 days⁶ of receipt of the clear post construction inspection report and completion of all NOV requirements.	VA_Guidelines.txt
5f0f1ff4-002d-405d-913a-e2701e4b6475	For one-time and two-time construction loans: In some instances, equity in the subject property may be considered as a downpayment for the purpose of reducing the funding fee	VA_Guidelines.txt
fca7f0a4-cc69-4311-ad7b-36442316c64d	. (1) Equity in the secured property may be used as a down payment for calculating the funding fee, or (2) In cases where the Veteran purchased the land within one year of VA loan closing, the greater of the amount paid to acquire the land or the value of the land (if the appraiser assigned value to the land on the appraisal) may be considered as a downpayment for the purpose of calculating the	VA_Guidelines.txt
28728dc5-3f14-4854-87cb-e868967574dc	a downpayment for the purpose of calculating the funding fee, or (Section u, Table 8) (3) In cases where the Veteran purchased the land more than one year prior to the VA loan closing, the value of the land may be considered for the purpose of calculating the funding fee if the appraiser assigns value to the land on the appraisal	VA_Guidelines.txt
c2323d2e-1e90-4765-940d-5c5e9a864d23	.	VA_Guidelines.txt
af16ebc1-81c0-4d7b-ba66-8034519a3987	If the appraiser does not assign value to the land on the appraisal, equity in the subject property may be considered as a down payment for the purpose of calculating the funding fee, or (Section u, Table 9) (4) In cases where the Veteran obtained the land as a gift, only equity in the subject property may be counted as a downpayment for the purpose of calculating the funding fee	VA_Guidelines.txt
f81d492b-8ccf-4d40-bbe6-16dbc30b703c	. (Section u, Table 10) Detailed examples are provided in Section u.	VA_Guidelines.txt
3a820109-7bad-4e67-9dd7-f3017d0b54f2	Simple equity example: A borrower is using a VA (one-or two-time) construction loan to construct a dwelling on land owned for more than one year prior to the VA loan closing. The VA financing will close on March 15, 2023. The reasonable value is $400,000, and the loan amount is $350,000.	VA_Guidelines.txt
6002abfd-fbd1-467a-a80b-11ec85e8ef9b	The purchase price in the Funding Fee Payment System (FFPS) should be entered as $400,000 and the equity in the secured property, $50,000 ($400,000 - $350,000), should be entered as the down payment. FFPS will automatically calculate the required funding fee of $4,900 (1.40%). Note: Equity in the secured property cannot be used as a down payment for VA cash-out refinance transactions.	VA_Guidelines.txt
9ae309ed-a079-48ab-a225-2bb6519c1267	See Chapter 8 for additional details on the VA Funding Fee. Continued on next page 5 38 C. F. R. § 36.4313(e)(2) 6 38 C. F. R. §36.4303(a)(2) 7-13 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued g.	VA_Guidelines.txt
cf2c3967-85b1-443d-a713-be9936a6570c	Funding Fee and Loan Reporting The funding fee is due and payable to VA within 15 days of loan closing⁵; this requirement is not tied to the commencement or completion of construction.	VA_Guidelines.txt
386ae15f-5299-4ebe-bd89-f3a4284dc865	Although evidence of guaranty is not issued until construction is complete, VA will not approve a funding fee refund if the lender fails to obtain evidence of guaranty or for the fact that the Veteran sold the property before the completion of construction.	VA_Guidelines.txt
bc0ed61a-8024-414a-b15c-e3e6c4019811	The loan must be guaranteed in WebLGY within 60 days⁶ of receipt of the clear post construction inspection report and completion of all NOV requirements.	VA_Guidelines.txt
eac113e8-7597-4978-919c-85ebf14f75c6	For one-time and two-time construction loans: In some instances, equity in the subject property may be considered as a downpayment for the purpose of reducing the funding fee	VA_Guidelines.txt
fd4ddd35-14f2-4fd8-a03f-26cee6307784	. (1) Equity in the secured property may be used as a down payment for calculating the funding fee, or (2) In cases where the Veteran purchased the land within one year of VA loan closing, the greater of the amount paid to acquire the land or the value of the land (if the appraiser assigned value to the land on the appraisal) may be considered as a downpayment for the purpose of calculating the	VA_Guidelines.txt
13fa4e5d-fc46-41f8-89c0-c5c510d7d18c	a downpayment for the purpose of calculating the funding fee, or (Section u, Table 8) (3) In cases where the Veteran purchased the land more than one year prior to the VA loan closing, the value of the land may be considered for the purpose of calculating the funding fee if the appraiser assigns value to the land on the appraisal	VA_Guidelines.txt
96213ba9-da95-439b-bfed-4361ffc323f6	.	VA_Guidelines.txt
17a7bdc1-266c-4c7d-838e-677e6c5ade5a	If the appraiser does not assign value to the land on the appraisal, equity in the subject property may be considered as a down payment for the purpose of calculating the funding fee, or (Section u, Table 9) (4) In cases where the Veteran obtained the land as a gift, only equity in the subject property may be counted as a downpayment for the purpose of calculating the funding fee	VA_Guidelines.txt
448bff0e-6555-491e-9c9c-fdfb7c449dae	. (Section u, Table 10) Detailed examples are provided in Section u.	VA_Guidelines.txt
65687c7d-66c7-435d-87d6-b2d29293770b	Simple equity example: A borrower is using a VA (one-or two-time) construction loan to construct a dwelling on land owned for more than one year prior to the VA loan closing. The VA financing will close on March 15, 2023. The reasonable value is $400,000, and the loan amount is $350,000.	VA_Guidelines.txt
6abd52ca-4849-4010-a6bd-968e18fca016	The purchase price in the Funding Fee Payment System (FFPS) should be entered as $400,000 and the equity in the secured property, $50,000 ($400,000 - $350,000), should be entered as the down payment. FFPS will automatically calculate the required funding fee of $4,900 (1.40%). Note: Equity in the secured property cannot be used as a down payment for VA cash-out refinance transactions.	VA_Guidelines.txt
0723c21e-f2fe-4534-b5eb-979767ee9b3a	See Chapter 8 for additional details on the VA Funding Fee. Continued on next page 5 38 C. F. R. § 36.4313(e)(2) 6 38 C. F. R. §36.4303(a)(2) 7-13 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued h.	VA_Guidelines.txt
b465750a-3bff-435e-93d7-ce543691ab38	Fees and Charges the Veteran Can Pay Fees and charges the Veteran can pay are described in Chapter 8. Note that permissible fees differ for one-time and two-time construction loans, and that an increased flat fee may be charged on one-time construction loans where the lender supervised the progress of construction and/or makes advances to the Veteran during construction.	VA_Guidelines.txt
94d23a82-c594-4943-873f-5b1319b94847	On one-time close construction loans, the Veteran may not pay any fees or charges that are the builder’s responsibility. The Veteran may pay for interest not included in the interest reserve, and/or interest due after the initial interest reserve is depleted to prevent loan default. i.	VA_Guidelines.txt
58545dfc-04f1-45a6-b283-fca39658f553	One-Time Construction Loan Process This loan type may also be called a construction to permanent loan and closes prior to the start of construction simultaneously providing both the construction loan and permanent financing.	VA_Guidelines.txt
114ac2d4-d5cc-43a2-a066-6b98d1080b99	Loan proceeds may be disbursed to cover the cost of, or balance owed on the land, with the remaining balance deposited into an escrow account, commonly referred to as a Draw or Loan in Process (LIP) account. Escrowed funds are then paid out to the builder during construction. The lender must obtain written approval from the borrower before each draw payment is provided to the builder.	VA_Guidelines.txt
16616cf7-bed9-401e-9f0d-298819ff9571	The lender must also retain this in the loan file and provide to VA upon request. Lenders should have the specialized experience to originate, process, underwrite), close, service and administer such loans. These types of loans and projects inherently have uncertain elements that require careful examination.	VA_Guidelines.txt
81679c67-322d-4c3f-bce1-37e5a47bb919	The following provides a general guide for lenders to follow when processing a VA one-time construction loan. (1) Verify the Veteran’s eligibility and entitlement. (Chapter 2) (2) Order the appraisal as a purchase, specify the loan use as “Construction to Permanent” and the building status as “Proposed” and provide all necessary documentation. (Chapter 10) (3) Issue the NOV	VA_Guidelines.txt
99921b89-9d8c-4130-b5b1-ce7df233d9d8	. (Chapter 10) (3) Issue the NOV. (Chapter 13) (4) Underwrite the loan using VA’s underwriting guidelines. (Chapter 4) (5) Close the loan, disburse monies to cover the cost of the land and fund the construction escrow (LIP or Draw) account. (6) Pay the VA Funding Fee within 15 days of loan closing	VA_Guidelines.txt
1e7bb6d4-9295-4f7e-bc20-c2dd44eed97a	. (Chapter 8) (7) Construction takes place, disburse funds in accordance with any established draw schedule after obtaining the Veteran’s written approval before making such a payment. (8) The final inspection report signifies the end of the project. (9) Modify the loan in accordance with the terms of the loan. (10) Issue the Loan Guaranty Certificate after all NOV requirements are met	VA_Guidelines.txt
392565db-4b6c-4d64-8c89-da25c1138ed1	. (Chapter 5).	VA_Guidelines.txt
8498e578-c5a8-4053-8fa4-684b82a87a4c	Continued on next page 7-14 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued j. Account Management and Contingency Reserve (one-time close) Contingency reserve funds will be negotiated between the borrower and builder.	VA_Guidelines.txt
da26d132-3b4e-4145-a1f9-5aa790fa118e	The lender is responsible for all aspects of establishing the account containing the construction funds. The lender should ensure that funds are accounted for and disbursed according to the progress completed. Escrowed funds will be used for their stated purpose. Any funds remaining in the LIP account upon completion of construction should be disbursed according to the contract.	VA_Guidelines.txt
1f4d3f90-92cd-45f9-ae54-589cd25614bd	Excess construction or reserve funds may be returned to the borrower up to the verified amount that has been paid in advance, otherwise, the funds should be applied to the loan balance. Note: The application of excess funds to the loan balance does not impact calculation of the funding fee or final guaranty amount.	VA_Guidelines.txt
a937d356-66b5-4b8a-9d4c-2810592086e4	The lender should retain evidence of the principal balance reduction in the loan file. k. Amortization (one-time close) The Veteran begins making payments on a one-time construction loan when construction is complete. Therefore, the initial payment on the principal may be postponed up to one year, if necessary.	VA_Guidelines.txt
2d165a38-e38e-4837-98a7-7f9ebca90044	If construction cannot be completed within 12 months⁷, payments may be delayed, on a monthly basis for up to an additional six months. The loan must be amortized to achieve full repayment within its remaining term. The lender must provide evidence of the amortization in the loan file. The maximum term on a VA-guaranteed loan is 30 years and 32 days⁸. Example.	VA_Guidelines.txt
bc7fc907-392a-475e-8c38-d031b6bb5c22	Example. If it takes six months to complete construction, the payment schedule for the Veteran obtaining a 30-year mortgage must provide for full repayment of the loan in 29 years and six months. VA requires amortization with approximately equal payments and the principal must be reduced at least once annually, this includes construction loans.	VA_Guidelines.txt
aaddb4ce-bea9-4178-ba39-b59e363cc5c1	However, the final installment may be for an amount up to five percent of the original principal amount of the loan⁹. Rather than requiring a balloon payment, it may be preferable to set up equal payments (beginning after construction is complete) which are large enough to repay the loan within the original maturity without a balloon payment.	VA_Guidelines.txt
9d1f4eb6-12be-4e4b-8757-826893c07962	Continued on next page 7 38 CFR § 36.4300(b)(3) 8 38 USC § 3704(d)(1) 9 38 CFR § 36.4310(a) 7-15 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued l. Change Orders (one-time close) Change orders should be reviewed in advance by the appraiser to ensure no loss in value.	VA_Guidelines.txt
a00f01b7-aa5f-43e2-ac3d-1f75924f5ccd	Change orders/upgrades made after the appraisal cannot be mortgaged into the loan unless an updated appraisal is obtained. The additional appraisal fee may come out of available contingency reserve funds, or borrowers are permitted to pay for upgrades out of pocket.	VA_Guidelines.txt
422ad874-b79d-4900-96a5-a87fae5e0df6	If an updated appraisal is required, the lender is responsible for contacting VA Construction and Valuation for assistance and for providing the documented change order(s). Requests should be made through the ServiceNow portal accessible at https://www.benefits.va.gov/HOMELOANS/contact.asp. Note: lenders must maintain change orders and appraisal invoices in the loan file. m.	VA_Guidelines.txt
949bd132-6cc7-4e49-96e8-f6835d1bf5bf	Inspections (one-time close) NOV requirements for both Post Construction Inspections and Proposed Construction Inspections and Warranties must be met if conditioned on the NOV. Proposed Construction Inspections: Construction should be completed according to local building codes.	VA_Guidelines.txt
d34a06ab-cd1e-4c67-9fa2-442cf84a07c7	There are three options allowable to satisfy the proposed construction inspection requirement for cases ordered as “Proposed	VA_Guidelines.txt
55022dba-f0f8-472c-9e58-658484cc59e8	.” (1) If the local authority performs the required foundation, framing, and final inspections and issues a Certificate of Occupancy (CO) or equivalent, VA will accept the CO for the property as evidence of local authority inspections and satisfactory completion of construction.	VA_Guidelines.txt
05fd445f-36d7-48e4-9b2e-210d1ac072e4	Please note that framing inspection is not required on manufactured or modular homes	VA_Guidelines.txt
8f504205-922d-49ef-b944-b6066523569a	. (2) If the local authority performs the required foundation, framing, and final inspections but does not issue a CO or equivalent, VA will accept copies of the inspection reports, which verify full compliance with local building codes, or a written statement from the local authority confirming that the required inspections were performed satisfactorily	VA_Guidelines.txt
29200934-ce45-416f-a957-452c72bf7138	. (3) If the local authority does not perform the required inspections, the property should be covered by a 10-year insured protection plan that is acceptable to the Department of Housing and Urban Development (HUD) and a 1-year VA builder’s warranty.	VA_Guidelines.txt
f8427305-71c5-42e4-afee-b84399d54a5d	Post-Construction Inspection. When the property is 100 percent complete, the lender will contact the original VA fee appraiser to complete the VA final inspection.	VA_Guidelines.txt
929286e1-c0f8-440d-b17c-d54823eea960	If the original VA fee appraiser is not available, the lender must contact VA Construction and Valuation by submitting a request through the VA ServiceNow portal (link available in Appendix A) for another VA fee appraiser to complete the VA final inspection.	VA_Guidelines.txt
3fdd1aa4-3c99-4366-8b36-e606d5a57283	Continued on next page 7-16 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued m.	VA_Guidelines.txt
0e97acd9-b66f-4baf-819c-dc107d132770	Inspections (one-time close), continued The VA final inspection is to certify that all VA Minimum Property Requirements (MPR) are met, and the house was built to the original plans, specifications, and approved change orders, and that the as-completed value from the appraisal was maintained¹⁰.	VA_Guidelines.txt
1efef385-cf3f-40be-b818-5d4fe7d41ccc	It is the lender's responsibility to negotiate an inspection schedule with the general contractor, and it is the lender's responsibility to ensure the schedule is followed. Refer to Chapter 10 for additional information on post-construction inspection reports. n. Interest Rate (one-time close) Lender’s may offer a “ceiling-floor” where the Veteran “floats” the interest rate during construction.	VA_Guidelines.txt
b087f27f-2de6-45ff-b896-01c9ea94fa63	The agreement must provide that at lock-in, the permanent interest rate will not exceed a specific maximum interest rate and permit the borrower to lock-in at a lower rate based on market fluctuations. Lock-in agreements should be maintained in the loan file and provided to VA upon request. The borrower(s) must qualify for the mortgage at the maximum rate. o.	VA_Guidelines.txt
ca875bc7-ee57-4c9c-b1b5-c15de66b6dc5	Project Management (one-time close) The lender is responsible for evaluating, monitoring, and managing the project. It is the lender’s responsibility to ensure that the project is completed per the plans, specifications, and /or contract documents, so that the value of the home is preserved. p.	VA_Guidelines.txt
9faf4169-c964-4cec-9761-7d3e0cc7ccd2	Fees the Veteran Cannot Pay (one-time close) On a one-time construction home loan, the builder is responsible for all fees normally paid by a builder who obtains an interim construction loan including, but not limited to: (1) inspection fees (2) title updates, and (3) hazard insurance during construction.	VA_Guidelines.txt
6f1c64d3-a2d1-48a0-bb78-b8ec62601339	Note: In the case of a two-time construction loan, the VA loan is not established prior to the commencement of construction, therefore the terms of the initial construction loan, and the fees to be paid by the builder, are subject to negotiation. Continued on next page 10 38 U. S.	VA_Guidelines.txt
91a9e58e-f3c9-49b1-bb02-a4b40b512917	Continued on next page 10 38 U. S. C. § 3705(a) 7-17 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued q.	VA_Guidelines.txt

66bec0bd-c09e-4214-935e-65266bf848df

Continued on next page 7-7 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 1: Joint Loans, continued m.

VA_Guidelines.txt

40117d10-7109-46a1-a615-54b92255a72b

Examples of Two-Veteran Joint Loans Table 6: Examples of Two-Veteran Joint Loans Veterans and Total Loan Maximum Entitlement Charge Available Amount Potential Guaranty Per Veteran Entitlement Veteran 1 $36,000 $100,000 $36,000 $18,000 Veteran 2 $36,000 $18,000 Veteran 1 $25,500 $80,000 $32,000 $23,500 Veteran 2 $8,500 $8,500 Veteran 1 $36,000 $300,000 $75,000 $37,500 Veteran 2 $36,000 $37,500

VA_Guidelines.txt

6de18892-7dbf-4826-93b4-ffdd63bb6199

$75,000 $37,500 Veteran 2 $36,000 $37,500 Veteran 1 $15,000 $203,000 $50,750 $25,375 Veteran 2 $20,000 $25,375 Veteran 1 $0 $300,000 $75,000 $25,000 Veteran 2 $0 $25,000 Veteran 3 $6,500 $25,000 A written agreement from the Veterans is required whenever there is unequal entitlement usage

VA_Guidelines.txt

9ee3bf17-1191-4dcf-955c-1ace05c30e9b

. o.

VA_Guidelines.txt

aad8ce4e-c603-4ee2-a89e-168351f50866

Certificate of Commitment For joint loans involving one or more non-Veterans the: · loan amount shown on the commitment is limited to the Veteran’s portion of the loan, and · percentage of guaranty is based on the ratio of the amount of entitlement the Veteran has available to the Veteran’s portion of the loan.

VA_Guidelines.txt

b91cb5a4-04bd-4f8a-871b-38ce5ec2bedf

VA will issue the Certificate of Commitment with a reminder that: · no part of the guaranty applies to the portion of the loan allocated to the non-Veteran, and · in the event of the foreclosure where a loss is sustained, the holder must absorb any loss attributable to the non-Veteran’s portion of the loan.

VA_Guidelines.txt

7f0d343e-f065-4cbe-a7ed-436977fcbd23

Continued on next page 7-8 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 1: Joint Loans, continued p. Loan Guaranty Certificate (LGC) The “Amount of Loan” reflects only the Veteran’s portion of the loan. If more than one Veteran used entitlement on the loan, it will reflect the total of all portions allocable to those Veterans.

VA_Guidelines.txt

6db94c36-b203-464d-8ca4-bb3356656a0a

The lender must satisfy itself that the requirements of its investor or the secondary market can be met with this limited guaranty. Whereas the whole loan amount will appear on the mortgage security documents; that is, mortgage note or deed of trust, only the Veteran’s portion is shown on the Certificate of Commitment and the LGC. q.

VA_Guidelines.txt

8cd11ef5-f9be-4f46-b606-9c357a06f662

Equal Credit Opportunity Act Considerations (ECOA) The applicability of the guaranty to only a portion of the loan in the case of a Veteran/non- Veteran joint loan may cause a lender to refuse to accept an application for such loan.

VA_Guidelines.txt

96d7f7dd-4cb1-4a4e-99e7-a71584ff543b

This may appear to conflict with the ECOA prohibition against discrimination based on marital status; however, the lender may refuse the application under these circumstances without violating ECOA. This is based on an exemption for VA being a special purpose credit program. r.

VA_Guidelines.txt

637f2d49-93f2-440e-8b91-fe72ef2a592a

Calculation of the Funding Fee Apply the appropriate funding fee percentage to any portion of the loan allocable to a Veteran using his or her entitlement who is not exempt from the funding fee. Determine the appropriate percentage for the type of Veteran involved from the funding fee tables in Chapter 8. Example.

VA_Guidelines.txt

376f063f-8b64-4007-b518-aea3981851f4

Example. On a no-downpayment loan to two Veterans; on a first-time homebuyer; and on a subsequent user; the funding fee percentages of 2.15 percent and 3.3 percent respectively would each be applied to one-half of the loan amount.

VA_Guidelines.txt

538ba779-405b-4d35-956a-093c90b06ba8

No funding fee will be assessed on any portion of a joint loan allocable to a: · Non-Veteran · Veteran who did not use his or her entitlement, or · Veteran who used his or her entitlement, but is exempt from the funding fee. Downpayment.

VA_Guidelines.txt

aac8c56d-d267-470e-ac78-1d203a054094

Downpayment. The actual loan amount is allocated equally between the borrowers for purposes of calculating the funding fee, whether or not a downpayment is made, and regardless of where the funds for such a downpayment come from. Example.

VA_Guidelines.txt

9ba44d6e-9087-42f4-9d37-2a5cf426632a

Example. On a Veteran/non-Veteran loan, the non-Veteran makes a $5,000 (five percent) downpayment out of his cash resources, to purchase a $100,000 property, resulting in a $95,000 loan amount. The Veteran is a first-time homebuyer. The Veteran must pay a funding fee of $712.50, based on 1.5 percent of his/her $47,500 portion.

VA_Guidelines.txt

650551b1-b784-41fc-aa91-6e20b9eeca38

If situations arise which are not addressed here, contact 1-877-827-3702 for assistance. 7-9 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Loans Change Date: June 5, 2024 · This topic has been revised in its entirety. a.

VA_Guidelines.txt

e299100a-2703-4797-bf90-326ede0aadfe

The Basics VA may guarantee a loan for the construction¹ of a home to be owned and occupied by the Veteran. VA permits one-time and two-time construction loans. Construction loans (one-time or two-time) may also be refinanced under VA’s cash-out refinance guidelines.

VA_Guidelines.txt

d07dbe69-573e-4fe8-8c9c-9fcb7435e7ae

This section specifically addresses construction loans and does not apply to the purchase of a newly built home financed by a builder (such as those commonly found in Planned Unit Development communities) or cash-out refinances. All construction and cash-out refinancing loans are subject to VA’s underwriting requirements² outlined in Chapter 4.

VA_Guidelines.txt

dc5abea1-509c-4068-a8f2-b994fef8b0e8

Once the VA construction loan type, one-time or two-time, is closed it cannot be modified into another loan type. That is, a one-time close cannot be turned into (converted) a two- time close or vice versa.

VA_Guidelines.txt

c2c14737-6cc8-4f16-a76b-7ea9343ec7b6

One-time and two-time construction loans may be considered purchases in VA’s systems regardless of the category stated on the loan application, closing disclosure, or whether or not the borrower already owns the land. Note this is for VA purposes and may not match Real Estate Settlement Procedures Act requirements (RESPA). One-Time Close Construction or VA Construction to Permanent Loans.

VA_Guidelines.txt

3d01e5eb-076e-4817-b099-a4cb18144206

These types of loans are used to close the construction financing and permanent financing at the same time. The permanent financing is established prior to construction, and the final terms are modified to the permanent terms at the conclusion of construction. Two-Time Close Construction Loans.

VA_Guidelines.txt

23eb7d93-48e0-4c90-ba65-cdad2309046f

Two-Time Close Construction Loans. These types of loans involve an initial non-VA interim construction loan that closes prior to the commencement of construction and a second loan closing, where a VA-guaranteed loan is used to establish permanent financing by refinancing the interim construction loan.

VA_Guidelines.txt

c7991609-70da-4583-9fe8-7296f2a34cd4

Interim construction financing does not include Home Equity Lines of Credit (HELOCs) or loan vehicles that already provided for permanent financing such as a one-time construction loan. Cash-Out Refinance Loans. These types of loans involve the refinancing of any existing lien indebtedness. Unlike the one-time or two-time construction loan, the Veteran may obtain cash-out through the transaction.

VA_Guidelines.txt

30f7fde5-ff08-49d7-86b6-b5211de2e9b5

These loans are subject to VA’s Cash-Out Refinance Requirements³ and may not exceed 100% of the VA reasonable value. Note that satisfaction of an interim construction loan is considered a net tangible benefit for the purpose of a cash- out refinance.

VA_Guidelines.txt

1b55e102-e4ee-42bc-828e-5c5fd6c0cd88

Continued on next page 1 38 USC § 3710(a)(1)(3) 2 38 CFR § 36.4340 3 38 CFR § 36.4309 7-10 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued b.

VA_Guidelines.txt

1992d07f-6491-4ed1-9f4b-f3133a5724a9

Builder Identification (ID) Number The Veteran may choose their own builder and a VA Builder ID must be obtained prior to the issuance of the Notice of Value (NOV). The Veteran may act as their own contractor or builder, and VA Builder ID is not required in these cases. Refer to Chapter 10 for additional information.

VA_Guidelines.txt

a984ebf3-5eae-432f-9090-215b25aa1371

Refer to Chapter 10 for additional information. A list of registered VA builders is available for lenders in the VA LGY HUB https://lgy.va.gov/lgyhub/. Information on obtaining a VA Builder ID number is available on our website: https://www.benefits.va.gov/HOMELOANS/appraiser_cv_builder_info.asp. c.

VA_Guidelines.txt

c17b292f-8363-48c6-8c01-01663b84d64f

Property Eligibility and Appraisals One-time construction loans: appraisals should be ordered before the completion of the foundation as a purchase, specifying the loan use as “Construction to Permanent” and building status as “Proposed”.

VA_Guidelines.txt

b2086c8f-19b8-4b03-aab2-3a049eee5c4f

Construction exhibits, permitting, and materials specifications, should be provided to the appraiser at the time of the appraisal order for preparation of the appraisal report for valuation purposes. Appraisers will hold appraisal assignments until the appropriate exhibits are received. Two-time construction loans: (1) Appraisals should be ordered when the dwelling is 100% complete.

VA_Guidelines.txt

1f186840-2f41-4768-9c9e-250e1ac6b333

The appraisal should be ordered as a purchase, specifying the building status as “New Construction”. (2) While VA prefers for the appraisal to be ordered after the dwelling is 100% complete, if the appraisal is being ordered prior to completion, the lender will need to order the appraisal as a purchase, specifying the loan use as “Construction to Permanent” and the building status as “Proposed

VA_Guidelines.txt

4f88d04c-0b0a-41bf-ab46-7de26885bf78

.” Construction exhibits, permitting, and materials specifications, should be provided to the appraiser at the time of the appraisal order to be utilized in the preparation of the appraisal report for valuation purposes.

VA_Guidelines.txt

85e12244-47ea-4e33-89c0-0b787bc31abd

Appraisers will hold appraisal assignments until the appropriate exhibits are received. Cash-Out Refinances: Transactions in which construction was completed and at least one year has passed, as evidenced by a Certificate of Occupancy (CO) or other evidence by the taxing authority, are treated as cash-out refinances if the Veteran already owns the property.

VA_Guidelines.txt

81564c41-0f31-494b-8173-e4c0159e77fa

The appraisal should be ordered as a “VA Cash-Out Refinance” in WebLGY. Construction exhibits such as plans, specifications, and contracts are not required. d. Maximum Loan Amount The maximum loan amount for construction (one-time and two-time) loans is limited to: (1) the lesser of the VA reasonable value or the acquisition costs (described in section e), plus, (2) the applicable VA funding fee.

VA_Guidelines.txt

bc40185c-28cf-4380-a5c5-eab8911f1a9f

Cash-Out Refinance Loans may not exceed the VA reasonable value. See Chapter 3 for additional details on maximum loan amounts. Continued on next page 7-11 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued e.

VA_Guidelines.txt

0d2b1cf3-ece7-4923-9652-f73f75ffd1ca

Acquisition Costs One-Time Close: Acquisition costs on a one-time construction loan include the following, provided documentation is submitted to support the associated amount: (1) the contract to build (2) balance owed on the land (3) interest reserve, if not included in the contract to build (4) contingency reserve (5) permits, if not included in the contract to build If the Veteran acts as

VA_Guidelines.txt

3de559b7-53f8-441b-868e-98135aa4240d

in the contract to build If the Veteran acts as their own contractor, all labor and material costs must be documented by receipts, work orders, and/or contractual agreements to establish the contract price

VA_Guidelines.txt

2679e7d8-55d1-485e-aeb0-2b7733696f03

.

VA_Guidelines.txt

1a29b7f8-5ce5-42f5-a61f-0d865421007f

If no balance is owed on the land neither the original cost nor current value may be included in the acquisition cost.

VA_Guidelines.txt

a906aa0a-077e-4862-b0b8-38495a230dff

Two-Time Close: Acquisition costs on a two-time construction loan include the following, provided documentation is submitted to support the associated amount: (1) balance of the interim construction loan, and (2) balance owed on the land If no balance is owed on the land neither the original cost nor current value may be included in the acquisition cost. f.

VA_Guidelines.txt

9a837961-ca12-48d6-bc86-0a7139b8f6c5

Loan Guaranty Certificate and Maximum Guaranty Amount Although the loan will normally be considered guaranteed upon closing, the Loan Guaranty Certificate (LGC) on a construction/permanent home loan will not be issued until a clear post construction inspection report has been received by VA.

VA_Guidelines.txt

704e340d-87aa-4911-8fcc-467e4814f572

All NOV requirements, including the Post Construction Inspection by the appraiser must be met prior to the issuance of the LGC. VA construction loans are eligible to receive the same guaranty amount and percentage as VA purchase loans.⁴ See Chapter 3 for additional information.

VA_Guidelines.txt

ffd05573-1b6c-46c5-8cd9-a4ffeef0786e

Continued on next page 4 38 CFR 36.4302(a) 7-12 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued g. Funding Fee and Loan Reporting The funding fee is due and payable to VA within 15 days of loan closing⁵; this requirement is not tied to the commencement or completion of construction.

VA_Guidelines.txt

56cda7a4-31ed-48bc-bc50-a44a1eb9c4fd

Although evidence of guaranty is not issued until construction is complete, VA will not approve a funding fee refund if the lender fails to obtain evidence of guaranty or for the fact that the Veteran sold the property before the completion of construction.

VA_Guidelines.txt

55fa4fbc-9ea1-42a5-960a-fba27fc3c81b

The loan must be guaranteed in WebLGY within 60 days⁶ of receipt of the clear post construction inspection report and completion of all NOV requirements.

VA_Guidelines.txt

5f0f1ff4-002d-405d-913a-e2701e4b6475

For one-time and two-time construction loans: In some instances, equity in the subject property may be considered as a downpayment for the purpose of reducing the funding fee

VA_Guidelines.txt

fca7f0a4-cc69-4311-ad7b-36442316c64d

. (1) Equity in the secured property may be used as a down payment for calculating the funding fee, or (2) In cases where the Veteran purchased the land within one year of VA loan closing, the greater of the amount paid to acquire the land or the value of the land (if the appraiser assigned value to the land on the appraisal) may be considered as a downpayment for the purpose of calculating the

VA_Guidelines.txt

28728dc5-3f14-4854-87cb-e868967574dc

a downpayment for the purpose of calculating the funding fee, or (Section u, Table 8) (3) In cases where the Veteran purchased the land more than one year prior to the VA loan closing, the value of the land may be considered for the purpose of calculating the funding fee if the appraiser assigns value to the land on the appraisal

VA_Guidelines.txt

c2323d2e-1e90-4765-940d-5c5e9a864d23

.

VA_Guidelines.txt

af16ebc1-81c0-4d7b-ba66-8034519a3987

If the appraiser does not assign value to the land on the appraisal, equity in the subject property may be considered as a down payment for the purpose of calculating the funding fee, or (Section u, Table 9) (4) In cases where the Veteran obtained the land as a gift, only equity in the subject property may be counted as a downpayment for the purpose of calculating the funding fee

VA_Guidelines.txt

f81d492b-8ccf-4d40-bbe6-16dbc30b703c

. (Section u, Table 10) Detailed examples are provided in Section u.

VA_Guidelines.txt

3a820109-7bad-4e67-9dd7-f3017d0b54f2

Simple equity example: A borrower is using a VA (one-or two-time) construction loan to construct a dwelling on land owned for more than one year prior to the VA loan closing. The VA financing will close on March 15, 2023. The reasonable value is $400,000, and the loan amount is $350,000.

VA_Guidelines.txt

6002abfd-fbd1-467a-a80b-11ec85e8ef9b

The purchase price in the Funding Fee Payment System (FFPS) should be entered as $400,000 and the equity in the secured property, $50,000 ($400,000 - $350,000), should be entered as the down payment. FFPS will automatically calculate the required funding fee of $4,900 (1.40%). Note: Equity in the secured property cannot be used as a down payment for VA cash-out refinance transactions.

VA_Guidelines.txt

9ae309ed-a079-48ab-a225-2bb6519c1267

See Chapter 8 for additional details on the VA Funding Fee. Continued on next page 5 38 C. F. R. § 36.4313(e)(2) 6 38 C. F. R. §36.4303(a)(2) 7-13 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued g.

VA_Guidelines.txt

cf2c3967-85b1-443d-a713-be9936a6570c

Funding Fee and Loan Reporting The funding fee is due and payable to VA within 15 days of loan closing⁵; this requirement is not tied to the commencement or completion of construction.

VA_Guidelines.txt

386ae15f-5299-4ebe-bd89-f3a4284dc865

Although evidence of guaranty is not issued until construction is complete, VA will not approve a funding fee refund if the lender fails to obtain evidence of guaranty or for the fact that the Veteran sold the property before the completion of construction.

VA_Guidelines.txt

bc0ed61a-8024-414a-b15c-e3e6c4019811

The loan must be guaranteed in WebLGY within 60 days⁶ of receipt of the clear post construction inspection report and completion of all NOV requirements.

VA_Guidelines.txt

eac113e8-7597-4978-919c-85ebf14f75c6

For one-time and two-time construction loans: In some instances, equity in the subject property may be considered as a downpayment for the purpose of reducing the funding fee

VA_Guidelines.txt

fd4ddd35-14f2-4fd8-a03f-26cee6307784

. (1) Equity in the secured property may be used as a down payment for calculating the funding fee, or (2) In cases where the Veteran purchased the land within one year of VA loan closing, the greater of the amount paid to acquire the land or the value of the land (if the appraiser assigned value to the land on the appraisal) may be considered as a downpayment for the purpose of calculating the

VA_Guidelines.txt

13fa4e5d-fc46-41f8-89c0-c5c510d7d18c

a downpayment for the purpose of calculating the funding fee, or (Section u, Table 8) (3) In cases where the Veteran purchased the land more than one year prior to the VA loan closing, the value of the land may be considered for the purpose of calculating the funding fee if the appraiser assigns value to the land on the appraisal

VA_Guidelines.txt

96213ba9-da95-439b-bfed-4361ffc323f6

.

VA_Guidelines.txt

17a7bdc1-266c-4c7d-838e-677e6c5ade5a

If the appraiser does not assign value to the land on the appraisal, equity in the subject property may be considered as a down payment for the purpose of calculating the funding fee, or (Section u, Table 9) (4) In cases where the Veteran obtained the land as a gift, only equity in the subject property may be counted as a downpayment for the purpose of calculating the funding fee

VA_Guidelines.txt

448bff0e-6555-491e-9c9c-fdfb7c449dae

. (Section u, Table 10) Detailed examples are provided in Section u.

VA_Guidelines.txt

65687c7d-66c7-435d-87d6-b2d29293770b

Simple equity example: A borrower is using a VA (one-or two-time) construction loan to construct a dwelling on land owned for more than one year prior to the VA loan closing. The VA financing will close on March 15, 2023. The reasonable value is $400,000, and the loan amount is $350,000.

VA_Guidelines.txt

6abd52ca-4849-4010-a6bd-968e18fca016

The purchase price in the Funding Fee Payment System (FFPS) should be entered as $400,000 and the equity in the secured property, $50,000 ($400,000 - $350,000), should be entered as the down payment. FFPS will automatically calculate the required funding fee of $4,900 (1.40%). Note: Equity in the secured property cannot be used as a down payment for VA cash-out refinance transactions.

VA_Guidelines.txt

0723c21e-f2fe-4534-b5eb-979767ee9b3a

See Chapter 8 for additional details on the VA Funding Fee. Continued on next page 5 38 C. F. R. § 36.4313(e)(2) 6 38 C. F. R. §36.4303(a)(2) 7-13 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued h.

VA_Guidelines.txt

b465750a-3bff-435e-93d7-ce543691ab38

Fees and Charges the Veteran Can Pay Fees and charges the Veteran can pay are described in Chapter 8. Note that permissible fees differ for one-time and two-time construction loans, and that an increased flat fee may be charged on one-time construction loans where the lender supervised the progress of construction and/or makes advances to the Veteran during construction.

VA_Guidelines.txt

94d23a82-c594-4943-873f-5b1319b94847

On one-time close construction loans, the Veteran may not pay any fees or charges that are the builder’s responsibility. The Veteran may pay for interest not included in the interest reserve, and/or interest due after the initial interest reserve is depleted to prevent loan default. i.

VA_Guidelines.txt

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One-Time Construction Loan Process This loan type may also be called a construction to permanent loan and closes prior to the start of construction simultaneously providing both the construction loan and permanent financing.

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Loan proceeds may be disbursed to cover the cost of, or balance owed on the land, with the remaining balance deposited into an escrow account, commonly referred to as a Draw or Loan in Process (LIP) account. Escrowed funds are then paid out to the builder during construction. The lender must obtain written approval from the borrower before each draw payment is provided to the builder.

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The lender must also retain this in the loan file and provide to VA upon request. Lenders should have the specialized experience to originate, process, underwrite), close, service and administer such loans. These types of loans and projects inherently have uncertain elements that require careful examination.

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The following provides a general guide for lenders to follow when processing a VA one-time construction loan. (1) Verify the Veteran’s eligibility and entitlement. (Chapter 2) (2) Order the appraisal as a purchase, specify the loan use as “Construction to Permanent” and the building status as “Proposed” and provide all necessary documentation. (Chapter 10) (3) Issue the NOV

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. (Chapter 10) (3) Issue the NOV. (Chapter 13) (4) Underwrite the loan using VA’s underwriting guidelines. (Chapter 4) (5) Close the loan, disburse monies to cover the cost of the land and fund the construction escrow (LIP or Draw) account. (6) Pay the VA Funding Fee within 15 days of loan closing

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. (Chapter 8) (7) Construction takes place, disburse funds in accordance with any established draw schedule after obtaining the Veteran’s written approval before making such a payment. (8) The final inspection report signifies the end of the project. (9) Modify the loan in accordance with the terms of the loan. (10) Issue the Loan Guaranty Certificate after all NOV requirements are met

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. (Chapter 5).

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Continued on next page 7-14 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued j. Account Management and Contingency Reserve (one-time close) Contingency reserve funds will be negotiated between the borrower and builder.

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The lender is responsible for all aspects of establishing the account containing the construction funds. The lender should ensure that funds are accounted for and disbursed according to the progress completed. Escrowed funds will be used for their stated purpose. Any funds remaining in the LIP account upon completion of construction should be disbursed according to the contract.

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Excess construction or reserve funds may be returned to the borrower up to the verified amount that has been paid in advance, otherwise, the funds should be applied to the loan balance. Note: The application of excess funds to the loan balance does not impact calculation of the funding fee or final guaranty amount.

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The lender should retain evidence of the principal balance reduction in the loan file. k. Amortization (one-time close) The Veteran begins making payments on a one-time construction loan when construction is complete. Therefore, the initial payment on the principal may be postponed up to one year, if necessary.

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If construction cannot be completed within 12 months⁷, payments may be delayed, on a monthly basis for up to an additional six months. The loan must be amortized to achieve full repayment within its remaining term. The lender must provide evidence of the amortization in the loan file. The maximum term on a VA-guaranteed loan is 30 years and 32 days⁸. Example.

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Example. If it takes six months to complete construction, the payment schedule for the Veteran obtaining a 30-year mortgage must provide for full repayment of the loan in 29 years and six months. VA requires amortization with approximately equal payments and the principal must be reduced at least once annually, this includes construction loans.

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However, the final installment may be for an amount up to five percent of the original principal amount of the loan⁹. Rather than requiring a balloon payment, it may be preferable to set up equal payments (beginning after construction is complete) which are large enough to repay the loan within the original maturity without a balloon payment.

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Continued on next page 7 38 CFR § 36.4300(b)(3) 8 38 USC § 3704(d)(1) 9 38 CFR § 36.4310(a) 7-15 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued l. Change Orders (one-time close) Change orders should be reviewed in advance by the appraiser to ensure no loss in value.

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Change orders/upgrades made after the appraisal cannot be mortgaged into the loan unless an updated appraisal is obtained. The additional appraisal fee may come out of available contingency reserve funds, or borrowers are permitted to pay for upgrades out of pocket.

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If an updated appraisal is required, the lender is responsible for contacting VA Construction and Valuation for assistance and for providing the documented change order(s). Requests should be made through the ServiceNow portal accessible at https://www.benefits.va.gov/HOMELOANS/contact.asp. Note: lenders must maintain change orders and appraisal invoices in the loan file. m.

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Inspections (one-time close) NOV requirements for both Post Construction Inspections and Proposed Construction Inspections and Warranties must be met if conditioned on the NOV. Proposed Construction Inspections: Construction should be completed according to local building codes.

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There are three options allowable to satisfy the proposed construction inspection requirement for cases ordered as “Proposed

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.” (1) If the local authority performs the required foundation, framing, and final inspections and issues a Certificate of Occupancy (CO) or equivalent, VA will accept the CO for the property as evidence of local authority inspections and satisfactory completion of construction.

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Please note that framing inspection is not required on manufactured or modular homes

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. (2) If the local authority performs the required foundation, framing, and final inspections but does not issue a CO or equivalent, VA will accept copies of the inspection reports, which verify full compliance with local building codes, or a written statement from the local authority confirming that the required inspections were performed satisfactorily

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. (3) If the local authority does not perform the required inspections, the property should be covered by a 10-year insured protection plan that is acceptable to the Department of Housing and Urban Development (HUD) and a 1-year VA builder’s warranty.

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Post-Construction Inspection. When the property is 100 percent complete, the lender will contact the original VA fee appraiser to complete the VA final inspection.

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If the original VA fee appraiser is not available, the lender must contact VA Construction and Valuation by submitting a request through the VA ServiceNow portal (link available in Appendix A) for another VA fee appraiser to complete the VA final inspection.

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Continued on next page 7-16 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued m.

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Inspections (one-time close), continued The VA final inspection is to certify that all VA Minimum Property Requirements (MPR) are met, and the house was built to the original plans, specifications, and approved change orders, and that the as-completed value from the appraisal was maintained¹⁰.

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It is the lender's responsibility to negotiate an inspection schedule with the general contractor, and it is the lender's responsibility to ensure the schedule is followed. Refer to Chapter 10 for additional information on post-construction inspection reports. n. Interest Rate (one-time close) Lender’s may offer a “ceiling-floor” where the Veteran “floats” the interest rate during construction.

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The agreement must provide that at lock-in, the permanent interest rate will not exceed a specific maximum interest rate and permit the borrower to lock-in at a lower rate based on market fluctuations. Lock-in agreements should be maintained in the loan file and provided to VA upon request. The borrower(s) must qualify for the mortgage at the maximum rate. o.

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Project Management (one-time close) The lender is responsible for evaluating, monitoring, and managing the project. It is the lender’s responsibility to ensure that the project is completed per the plans, specifications, and /or contract documents, so that the value of the home is preserved. p.

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Fees the Veteran Cannot Pay (one-time close) On a one-time construction home loan, the builder is responsible for all fees normally paid by a builder who obtains an interim construction loan including, but not limited to: (1) inspection fees (2) title updates, and (3) hazard insurance during construction.

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Note: In the case of a two-time construction loan, the VA loan is not established prior to the commencement of construction, therefore the terms of the initial construction loan, and the fees to be paid by the builder, are subject to negotiation. Continued on next page 10 38 U. S.

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Continued on next page 10 38 U. S. C. § 3705(a) 7-17 VA Lenders Handbook 26-7 Chapter 7: Loans Requiring Special Underwriting, Guaranty, and Other Considerations Topic 2: Construction/Permanent Home Loans, continued q.

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