Liz is a veteran who recently moved from Maryland to Oregon and is looking to buy a home on the Oregon Coast to retire to. The home that Liz sold in Maryland had a Veterans Affairs (VA) mortgage loan that is reflecting a 30 day late payment in October 2019. This mortgage was paid off and closed through the sale of the home that was completed in March 2020.
Liz is retired from her government job after 30 years of service and is receiving a monthly pension, the gross amount (before taxes) of the pension is $4296/mo.
Liz has also just initiated retirement distributions from her TSP retirement account and is receiving $2000/mo in income.
Student Loans for Veterans
Upon retiring from her government job, Liz decided to go back to school because she just loves learning. She has taken out a sizeable amount of student loans – to the tune of about $230,000 – none of which are reporting a payment on her credit report due to COVID.
Liz came to us in June 2020 to look at her options for buying a home with a VA loan. She provided us her pension letter from her government job, proof of her request to start receiving distributions from her TSP retirement account, 2 months bank statements, the final settlement statement from the sale of her Virginia home, and permission to pull her credit.
There are a few things in the description above that will require lenders to dive a little deeper into the documentation provided and make a few manual calculations:
- The late payment on the closed mortgage needs to be addressed through a letter of explanation from the borrower stating why the late payment occurred and stating what they’ve done to prevent a late payment from happening again. This becomes vitally important since we’re looking at Liz’s ability to repay a mortgage on time and since there is recent history documented showing that she might not be able to pay a mortgage on time (in the form of a 30 day late payment within the last 12 months) this needs to be addressed and documented for the file.
- The student loans that are not showing a payment amount on the credit report: all lenders require that a payment amount for student loans be reflected in the loan file to qualify. Each agency and mortgage program type has their own specific calculation that they use to determine the payment amount needed to qualify the file – click here (link) to see each program’s calculations.
Upon reviewing the documentation Liz provided and updating the file accordingly, we ran her file through our Automated Underwriting System (AUS – all lenders have access to this. It’s a kind of 1st line of defense to make sure the borrower is qualified before sending the file to a human underwriter to review) and received a “Refer” decision (we’re looking for an “Approve” or “Accept” finding) due to the 30-day late reflecting on the closed mortgage from the Maryland home.
Each loan type has their own specific requirements for mortgage late payments. In this case, VA requires that 12 full months pass between the date of the reported late payment and the application date for the borrower – they don’t care that the mortgage reporting the late payment is no longer active. This means that we can’t offer them a VA loan until November 1, 2020 at the earliest since the late payment was reported in October 2019.
There are other loan programs that would have allowed us to move forward immediately, but Liz really liked the 0% down payment that she can take advantage of with a VA loan so she opted to wait.
Fast forward to November 2020. Liz has found the perfect home on the coast and is ready to put in an offer. We restart her file with the updated documentation she has provided and run her file through the AUS and get an “Approve” finding. We move forward with sending her initial loan disclosures and submitting her file to the underwriter for review upon receipt of the signed disclosures. We also order the appraisal on the home she’s buying at this time.
VA appraisals, and only VA appraisals, are ordered through a VA specific site and is randomly assigned to a VA certified appraiser in the general area of the home. VA appraisers usually have 10 business days (this means no weekends or holidays are counted in the 10 days and the allowable number of days to complete can vary from region to region) to inspect the property and complete the report.
Both VA and FHA appraisals have very specific requirements to ensure the borrower is moving into a home that is up to minimum health and safety standards – the main example of their specific requirements comes in the form of exterior paint. If there are parts of the outside of the home that have peeling paint, both VA and FHA will require the peeling paint be removed and the area re-primed and painted.
We received the appraisal “subject to” the correction of a LOT of peeling paint on the exterior of the property (it IS on the Oregon coast where there is a lot of inclement weather and homes tend to need a little more exterior maintenance as a result) and let the real estate agents know what needed to be corrected to move forward with the loan.
The Oregon coast is a fairly rural area and is subject to a lot of inclement weather, so finding the available contractors and a window of time where the weather is good enough to paint and let it cure appropriately, can be hard to coordinate especially in the winter, so we’re told it’s going to be 30 days before this can be completed. We cannot fund the home loan until this is completed. So everything is paused while we wait for this work to be finished.
Fast forward 30 days and we have confirmation from the real estate agents that the work is completed. We contact the appraiser and let them know that the property is ready for them to reinspect so they can provide us documentation that the work has been completed to VA standards.
We also take this opportunity to request updated documentation from Liz since, at this point, her loan has been in process for about 2.5 months and documentation (pension paystubs and bank statements) is only good for 60 days.
We receive the final inspection of the home from the appraiser, the underwriter reviews and clears the file to close and we proceed as normal to closing.
This story illustrates that there are factors that are under your own control as well as factors that are outside your control (and that of your lender) that can create delays in the process.
While we’re all excited to get you into a home, a good dose of patience and understanding throughout the process will only make the journey a little easier to handle.