Original message
| Dealmaker
Moderator
  |  "VA Loans - Wrap Your Way to Wealth"
, Fri 22 Dec 08:33 
In Wrap Your Way to Wealth, Joe Arlt discusses how he uses a Private Investor to qualify for Favorable Vendee Financing on VA repos.
Investors CAN qualify for this financing!!
Here the requirements for Vendee Financing. (Remember that these requirements may vary slightly from region to region)
QUALIFYING FOR A VENDEE LOAN
Qualification Requirements
VA Vendee loans are underwritten from the same credit guidelines as the guaranteed VA loans. There are three basic MINIMUM requirements that borrowers must meet:
- Income must be reliable and stable
- Income must be adequate
- Borrower must be an acceptable credit risk
A. Income must be reliable and stable.
(1) A minimum of two years employment must be verified for the borrower, and any co-borrower. Telephone verifications are now acceptable, provided a paystub and W-2s have also been provided. If the applicant has been employed by the present employer for less than two years, verification of prior employment covering a total of two years must be obtained, or an explanation provided.
In addition to the employment verifications, an original or certified copy of the most recent pay stub is required for full-time and part-time employment. Military personnel must provide two current Leave and Earnings Statements (LES).
(2) Generally, income from self-employment is considered stable when the applicant has been in business for at least two years. Less than two years of income from self-employment cannot usually be considered stable.
(3) Documentation required for all self employed borrowers:
a. Current financial statement, including a year-to-date profit and loss statement and current balance sheet prepared in a generally recognized format by an accountant and based on the applicant's financial records.
b. Signed and dated individual tax returns, including all applicable schedules for the previous two years.
c. If the business is a corporation or partnership, copies of signed federal business income tax returns for the previous two years plus all applicable schedules. A list of all stockholders or partners showing the interest each holds in the business is also required.
(4) Overtime income must be verified on the verification of employment as likely to continue if it is to be used for qualification. In most cases, a history of the overtime pay would also be required. Exact amounts of overtime must be verified by the employer.
(5) Rental income can be considered stable when the applicant has been receiving it for at least two years. The documentation required of a self employed applicant and evidence of cash reserves equaling three months PITI on the rental property should be obtained. Income from recently purchased rental property would not be considered until a two year history is established.
(6) Income from alimony, child support and maintenance payments may be considered as income if the applicant can provide evidence that this income is consistently received and likely to continue. Factors considered in determining the likelihood of consistent payments include, but are not limited to, whether the payments are received pursuant to a written agreement or court decree, the length of time the applicant has evidence of receipt, the regularity of receipt and the availability of procedures to compel payment. Income from these sources must continue for the first 5 years of the life of the loan to be used for qualification.
(7) Income from commissions must be verified and must have been received for a period of at least two years to determine average monthly income. Reported job related expenses must be deducted to determine the amount of income that can be used. Look closely at liquid assets for a pattern of savings, as the nature of the income is not consistent on a month to month basis.
(8) In using income from part-time positions, the applicant must have been working the additional job for a period of two years to establish job stability. If the applicant cannot establish two full years job stability for use in qualifying, properly verified income may be used to offset the payment of short term debts.
(9) Verified income may be considered reliable if it can be concluded that the income will continue during the foreseeable future. In cases in which the applicant has not been in the present job for two years or longer, the case must be reviewed very carefully to determine that income is stable and reliable and that average income can be determined. Prior employment must be in a related field. If the applicant is employed on a month to month contract, or if the verification indicates the probability of employment is poor, it would not meet VA stability requirements.
(10) Income from any other source that is considered as temporary (or cannot be substantiated as permanent) cannot be used for qualification. For example, income from educational allowances, unemployment compensation, etc. does not meet VA guidelines for income stability. Disability pension can be used for qualification only if evidence is provided that the pension has been awarded on a permanent basis.
(11) Income from bonuses cannot be used for qualification purposes. However, it will be considered in the overall analysis of the file.
(12) Active duty military personnel within one year of their date of release from active duty will be required to provide documentation of re enlistment or other documentation to establish job stability.
NOTE: Unreported income cannot be considered.
B. Income must be adequate.
There are two primary underwriting tools that will be used to determine if the borrower's income is adequate. These are the residual income, and debt-to-income ratio.
(1) Residual income is defined as the income left available for family support after taxes, shelter expense, and monthly debts/obligations are deducted from the gross income. Residual income guidelines are established by region. The required residual income is based on family size and loan amount and is continually evaluated based on figures compiled by the Department of Labor. The Prequalification Worksheet provided in this guide will assist you in computing the borrower's residual income.
Separated borrowers are considered married until they provide evidence of divorce. Debts for which they are jointly responsible will be considered as an obligation in the loan analysis. The spouse's income will not be used unless the spouse is on the Offer to Purchase and Contract of Sale, VA Form 26-6705.
(2) A debt-to-income ratio compares the borrower's anticipated monthly housing expense and total monthly debts and obligations to stable monthly gross income. The guideline standard is 41 percent or less. The Prequalification Worksheet provided in this guide will assist you in computing the ratio.
(3) In most cases, Contingent Liability will be considered as a monthly debt/obligation. If a property has been awarded to an ex-spouse in a divorce, the payment will be considered as an obligation if the applicant is still liable on the note and/or the debt shows on the credit report. If a loan has been assumed on a non-qualifying basis, the payment will be considered as an obligation.
Applications involving contingent liability property should provide a letter of explanation. The package should also include a statement from the applicants indicating they are aware of the contingent liability. A release of liability from the lender, or removal of the debt from the credit report will provide the necessary evidence that the borrower is no longer liable. Consideration will be given to the payment history since the time of title transfer and the amount of down payment or equity in the property.
C. Borrower must be an acceptable credit risk.
If the borrower meets both the residual income and the debt-to-income ratio standards, this does not mean the loan is automatically approved. The guidelines also require that the borrower be an acceptable credit risk.
(1) When the credit report shows a credit problem, a letter of full explanation must be provided from the applicant. The fact that past due accounts have been paid does not necessarily constitute a satisfactory payment history.
(2) Applications submitted with an open collection, judgment, or lien will in most cases be immediately denied. Credit problems attributed to divorce cannot be discounted unless they can be removed from a credit report. Consideration will be made for claim of bona fide or legal defenses.
(3) VA WILL NOT GRANT EXTENSIONS OF TIME TO ENABLE A PROSPECTIVE PURCHASER TO CORRECT A CREDIT PROBLEM. THIS SHOULD BE DONE PRIOR TO OFFER SUBMISSION DURING THE PREQUALIFYING PROCESS..
(4) When the credit information indicates that a borrower and/or spouse has been adjudicated bankrupt under the straight liquidation and discharge provisions of the bankruptcy law (Chapter #7), it is necessary to develop complete information as to the facts and circumstances of the bankruptcy. VA requires a 2-3 year period of reestablished credit after discharge of bankruptcy unless the bankruptcy was totally beyond the control of the applicant. To determine that a bankruptcy was caused by medical bills, a minimum of 75% of the debts should be identified as medical.
(5) In the case of Chapter #13 (Wage Earners Petition) bankruptcy, when the borrowers have made all payments in a satisfactory manner, they may be considered as having re-established satisfactory credit. If they apply for a Vendee loan prior to the completion of the pay out period, favorable consideration may be given if at least three-fourths of the payments have been made satisfactorily and the Trustee and Bankruptcy Judge approve of the new credit.
(6) For Consumer Credit Counseling debt, we require evidence that three-fourths of the debt has been paid. Also, a letter from the Consumer Credit Counseling Service indicating that they approve of the new credit must be provided.
(7) If there is outstanding debt owing on a previous foreclosure, the loan would not be approved until credit has been re-established and the debt paid. A Deed-In-Lieu of Foreclosure (voluntary conveyance) does not have to be considered as derogatory credit if it did not affect the remainder of the borrower's credit.
(8) Pending credit applications should be disclosed to VA.
28. Loan Denial
A. In the event of loan denial, a reconsideration request (in writing) may be made if the new information being presented was not previously submitted. However, the documentation must be received BEFORE the property is relisted (released to the print media). If the property is relisted, the purchaser will be required to submit a new offer in the new competitive bid period. Remember, the key is to fully develop the loan package by qualifying the purchaser prior to submitting an offer.
B. In the event of loan denial and the processing of a back up offer has been initiated, the reconsideration request will not be accepted.
29. Prequalification Guidelines
A. The prequalification process is the responsibility of the selling agent and should be done prior to offer submission. A prime factor in the approval/rejection process is the applicant's manner of meeting obligations. A poor credit history alone is a basis for loan disapproval. The decision to approve or deny is based on overall documentation presented in the file. With the information provided above and the prequalification worksheet, brokers should be able to determine whether an individual is likely to qualify for a Vendee loan.
B. If the buyers can meet or exceed the income and ratio requirements, show two years job stability, and have adequate evidence of a minimum of three years paid-as-agreed credit, it is likely they would meet VA guidelines.
C. If there is a co-buyer, be sure the initial contract submitted includes the co-buyer. The addition of a co-buyer after the fact may not be allowed.
D. A sizable down payment is an influencing factor; however, it does not qualify a borrower with unacceptable credit or one that does not have the ability to meet the monthly payment on the loan.
E. Investors, in addition to the above requirements, must provide evidence of six months of liquid assets to cover principal, interest, tax and insurance (PITI) for each property purchased.
F. VA will not sell a property to a corporation requesting Vendee financing unless an individual assumes personal liability. This restriction does not apply to cash sales.
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Enjoy!!
Dealmaker
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Replies:
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| Joe Arlt
|  "Re(1):VA Repos - Update"
, Mon 1 Jan 18:56
Just a quick update - I won all 6 bids, which is unusual. Cha-ching! I guess no one else felt like bidding due to the holiday season. Their loss.
Joe Arlt
Super Wrapper
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| Joe Arlt
| "Re(1):VA Loans - Wrap Your Way to Wealth" , Sat 23 Dec 09:35
Whew! That's more than I knew about it! And I've been buying them for some time. Thanks Dealmaker!
I know many of you out there take exception to both using partners and getting new loans. I also love buying properties on contract with no or little down myself. But you can do a lot more deals if you use partners. For one thing, you can qualify for loans. And you don't have to make everything no or very low down. So you can do lots more deals.
Whle we on the subject of VA repos, I just yesterday mailed off 6 VA repo offers. The financing is 10% down, 7.5% 30-year fixed - pretty darn good for investment property! And EASY qualifying if your credit, assets, and income are good. I mean it - we're talking probably no tax returns, bank statements, etc. So very little work on my investors' part.
I used 3 different money partners for those 6 bids. On the bids we win (which will likely be 3-5 of them), my typical investor will get annual ROIs of around 25-30% on his net invetment (gross investment less his half of buyer's move in money), and half of a $15-20K total backend someday down the road. From his perspective, that's fabulous! He's not a dealmaker! He's a passive investor. His options are the stock market (which scares the hell out of him right now) or bonds or CDs (whose returns won't impress anyone at the country club). And he has more than enough cash that he doesn't know what to do with, and that really bothers him. He wants it working hard.
So what do I get from these deals? We split everything 50-50. So I get half of the monthly spread (my real goal in doing these deals), so my end is about $150 per property per month. That's potentially for 30 years! And I get half the move in money, so that's another $1500 to 2500 per property up front. And as a real estate agent (which I do only to support my investing), the VA pays me a full 6% commission. On our houses, that's about $3,500 per house. And then there's that half of the back end someday. Some of my properties willnever cash out - we'll own them free and clear 30 years from now, and the "buyers" took care of all the repairs and maintenance along the way I didn't have to look that hard for these deals - the properties are listed in the paper. I just watch and track them, and make bids when their prices reach levels I'm willing to pay. We typically are buying at 90% or so of market value. Not stupendous by itself but combined with the financing, the cash flow and annual ROI is fabulous. When you have investor pattners you can have cash (theirs) tied up in deals for a long time without having to get it back. That's because they have lots of it and are getting a great ROI on it, which is what they want.
You may or may not have a great VA list where you are, so the above may or may not apply. And I'm hearing that the VA may be doing away with the VA vendee financing - a monumentally stupid decision if taken (the financing is the only reason I and many others buy them), but that's the government, so I'm buying with both fists before the window closes. But you certainly come across deals that you would do, deals that provide high annual ROIs, if only a lot of cash wouldn't be sunk in the deal. Using investors gets around that issue very nicely. And remember this - there are more rich people than dealmakers out there!
Joe Arlt
Super Wrapper
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