Announcement 20-0004: VA Guaranty Calculation Update – Blue Water Navy Vietnam Veteran’s Act of 2019

Overview

Effective for loans closed beginning January 1, 2020, VA will guaranty 25% of the loan amount for Veterans with full entitlement seeking a purchase or cash out refinance loan in excess of $144,000, regardless of the FHFA Conforming Loan Limit. Veterans with full entitlement seeking a purchase or cash out refinance loan that exceeds the FHFA Conforming Loan Limit for the subject’s county, but is less than the CMS maximum loan amount, will no longer require a down payment or equity to meet the 25% guaranty requirement.

Guaranty calculations remain unchanged for Veterans who have less than full entitlement available or are seeking a purchase or cash out refinance loan amount of $144,000 or less.

Vet-Vet Joint Loans

For loans above $144,000 to two veterans who are not married to each other (Vet-Vet Joint Loans), and

  • All Veterans have full entitlement: The maximum guaranty is 25% of the loan amount without regard to the FHFA Loan Limit for the subject’s county.
  • One or more Veteran has partial entitlement: The maximum guaranty is 25% of the lesser of the loan amount or FHFA Loan Limit for the subject’s county.

Married Veterans using Dual Entitlement

For loans above $144,000 to two Veterans who are married to each other and using dual entitlement, the maximum guaranty is 25% of the loan amount so long as one of the Veterans has full entitlement. If both Veterans have partial entitlement, then the maximum guaranty is 25% of the lesser of the loan amount or FHFA Loan Limit for the subject’s county.

Maximum Loan Amounts

As a reminder, the maximum VA loan amount for Carrington Mortgage Services is $765,600 for a 1-unit property, $980,325 for a 2-unit property, $1,184,925 for a 3-unit property, and $1,472,550 for a 4-unit property.

The maximum LTVs for VA transactions remain unchanged at:

  • 100% for Purchase transactions, plus any financed Funding Fee, or
  • 90% for Cash Out Refinance transactions, including any financed Funding Fee

Please Note: IRRRLs, which always receive a 25% guaranty, are subject to the CMS maximum loan amounts but are not impacted by the guaranty calculation guidance in this announcement. Refer to CMS VA Underwriting Guidelines for additional information.

Examples

Veterans with Full Entitlement

Loan Type

Scenario

Purchase

Veteran has full entitlement, and is purchasing a home for $650,000 in a county where the FHFA Loan Limit is $510,400.

The maximum guaranty available is $650,000 * 25% = $162,500. No down payment is required.

Cash Out
Refinance

The subject property already has a VA loan with $80,000 of entitlement tied to it. The Veteran is seeking a cash out refinance loan on a property appraised at $650,000 in a county where the FHFA Loan Limit is $510,400. There is no other previously used unrestored entitlement.

Since the $80,000 of outstanding entitlement will be restored for the purposes of the subject transaction, full entitlement will be available to the veteran.

The maximum guaranty is $650,000 * 25% = $162,500. No equity is required to meet the guaranty requirement, however the loan amount is limited to 90% LTV, so the maximum loan amount available is $650,000 * 90% = $585,000.

Concurrent
Closings

The veteran’s departing residence has $80,000 of entitlement tied to it, and is being sold. The veteran is purchasing a home for $650,000 in a county where the FHFA Loan Limit is $510,400. There is no other previously used unrestored entitlement.

  • Purchase transaction closes on the same day or after the sale of the departing residence: The entitlement tied to the departing residence may be restored and utilized towards the subject transaction, so the veteran will have full entitlement to guaranty the purchase transaction.
    The maximum guaranty available is $650,000 * 25% = $162,500. No down payment is required.
  • Purchase transaction closes prior to the sale of the departing residence by 1 day or more: The entitlement tied to the departing residence may not be restored for the purpose of calculating the available entitlement for the subject transaction.

The maximum guaranty available for the purchase transaction is 25% of the FHFA Loan Limit less the amount of entitlement tied to the departing residence: ($510,400 * 25%) – $80,000 = $47,600. A down payment of $114,900 is required, which is the difference between the required guaranty of $162,500 and the available guaranty of $47,600.

Examples (continued)

Veterans with Partial Entitlement

Loan Type

Scenario

Purchase

Veteran has $80,000 of entitlement not restored, and is purchasing a home for $650,000 in a county where the FHFA Loan Limit is $510,400.

The required guaranty is $650,000 * 25% = $162,500.

The maximum guaranty available is ($510,400 * 25%) – $80,000 = $47,600. A down payment of $162,500 – $47,600 = $114,900 is required.

Cash Out
Refinance

The Veteran has $80,000 of entitlement tied to the subject property, which will be restored for the purposes of a cash out refinance. The Veteran has $36,000 of entitlement previously charged off that will not be restored.

The subject’s appraised value is $650,000 in a county where the FHFA Loan Limit is $510,400, and the veteran is seeking the maximum loan amount available for a cash out refinance.

The guaranty required is $650,000 * 25% = $162,500.  The maximum guaranty available is ($510,400 * 25%) – $36,000 = $91,600. The required equity is the difference between the required guaranty and the available guaranty $162,500 – $91,600 = $70,900

The maximum available loan amount is $650,000 – $70,900 = $579,100. The LTV $579,100 / $650,000 = 89.1% complies with VA cash out lending restrictions.

Additional examples, including examples for Joint Loans and married Veterans using dual entitlement are available at Exhibit A of Circular 26-19-30.

Contacts

Please contact CorrespondentRM@carringtonms.com with any questions.

Carrington thanks you for your business.