VA Talking Points

1. VA Talking Points Angelo D. Rea, SVP Senior Government Credit Risk and TPO Manager area@flagstar.com 248-312-5158

2. Overview • Common Misconceptions • VA Philosophy for Advantage of the VA Home Loan • Seller Concerns on VA Purchase Loans • VA Appraisal Process and Minimum Property Requirements (MPR) • Allowable Fees • VA Eligibility • VA Highlights

3. Most Common Misconceptions About VA loans

4. Common Misconceptions • You need “great” credit to get a VA loan? • Homebuyers do not need “great” credit to get a VA loan. In fact, VA loans don’t require any particular credit score. • Lenders will generally look for a credit score of at least 620. Flagstar will accept VA borrowers with credit scores as low as 600.

5. Common Misconceptions • VA loans take longer and are more difficult than other loans to close? • The process has become much more automated and efficient with the guaranty program • There is no government involvement with a VA loan that could potentially slow down the process • With a knowledgeable lender, VA loans close just as fast and with much ease as traditional loans since the lender has complete control over the process • Our loans have closed in 30 days or less

6. Common Misconceptions • You can’t get a big enough loan for the house you want to buy? • Depending on the area, there is a loan limit for VA loans, However, there is a way to get approved for a larger loan amount • Larger loan amounts will require a specific down payment from the homebuyer, the required limit can be quite low. The veteran just has to put down 25% of the difference of the zero down payment and the purchase price

7. Common Misconceptions • VA loans aren’t as good as FHA loans? • VA loans don’t require a down payment while FHA requires 3.5 % down • VA loan types have some of the lowest mortgage rates available for a loan type • Loans available - Purchase, Cash-Out and Interest Rate Reduction Refinance Loan (IRRRL) • Guaranty allows lenders to offer more favorable financing terms – i.e. 100% LTV

8. Common Misconceptions • Military members who are serving away from their home or deployed overseas can’t get a home loan? • If the spouse is deployed you can still buy a home • With a VA home loan, all a military spouse needs is proper Power of Attorney to complete the process

9. VA Philosophy for Advantages of the VA Home Loan

10. About VA Home Loans • VA helps Servicemembers, Veterans and eligible surviving spouses become homeowners • Purchase loans helps the veteran purchase a home at a competitive interest rate often without requiring down payment • The VA home loan Program is more important today than ever before and is one of the most powerful loan options on the market for active military and veterans • The VA loan program advantages over other loan types are a big reason why VA loan volume has continually grown over the years

11. Benefits of a VA Loan • More favorable terms than conventional or FHA financing • No down payment as long as sales price does not exceed appraised value • No private mortgage insurance premium • No AMCs and/or rare appraisal issues • All closing costs may be paid by the seller

12. VA Home Loan Advantages • No prepayment penalty • VA provides excellent “loss mitigation” options to veterans having difficulty making payments • Veteran does not need to be a first time homebuyer • Entitlement may be reused • VA loan is assumable

13. Seller Concerns on VA Loans

14. Sellers Concerns • What can you except when your buyer is using a VA loan to buy or finance your property? • The first thing you should know is that VA is pretty much like any other loan type. • Today, you can expect a VA loan to be approved in as much time it takes to close a CONV or FHA mortgage • That means the seller won’t notice any difference at all because the buyers applies with a VA approved lender who has the authority to take the loan from start to finish without any outside interference • The lender accepts the application, documents the file, orders the appraisal and issues the final approval

15. Seller Concerns • How tough are VA appraisal guidelines? • It’s important to note that VA appraisal guidelines aren’t as different from modern conventional appraisal standards as they once were • The VA appraisal process requires the home to pass minimum property requirements, while the purpose is to protect they buyer and ensure the home is safe, structurally sound and sanitary • On average VA appraisals are coming back in just under 10 days nationwide • If your buyer is considering a VA loan, make sure you’re up to speed with VA Minimum Property Requirements

16. Seller Concessions • Sellers may pay all closing costs and discount points without limit • Seller-paid concessions of up to 4% of sales price are permitted for any combination of the following items: • Veteran’s funding fee • Pre-paid expenses • Gifts, such as a television or microwave oven • Buydowns • Payoff of veteran’s debt, including collections and judgments

17. VA Appraisal Process and Minimum Property Requirements

18. Basic VA Requirements-Appraisal • Must be ordered through WebLGY for all purchases and cash-out refinances – IRRRL appraisals may NOT be ordered through WebLGY • Valid for six months • Photos of kitchen, all bathrooms, main living area, defects, rehab, remodeling required • Staff Appraisal Reviewers must issue Notice of Value (NOV) within five business days of receipt of appraisal in WebLGY • NOV states value and lists required repairs, inspections and/or other requirements such as private road maintenance agreements • SARs must never revise the value reported by the VA appraiser • SARs must submit to VA for reconsideration of value

19. Minimum Property Standards • Property must meet the following requirements: • Must be habitable • Must be safe, sound, sanitary and secure for the occupants • Interior and exterior chipped, cracked or peeling paint must be repaired prior to closing if home was built prior to 1978 • No minimum property size – each unit must include all of the following: • Living space • Sleeping space • Cooking and dining space • Sanitary facilities

20. Property Eligibility • Eligible Properties • 1-4 unit owner occupied • Only IRRRLs do not require owner occupancy – Veteran must certify to previous occupancy • Condos, PUDs, modular homes, properties with shared wells and mixed use properties • Ineligible Properties • Second homes, B & Bs, group homes • Investment and non-owner occupied – Permitted for IRRRLs only • Condo projects denied by Flagstar • Single-wide manufactured homes and manufactured homes in condo projects • Properties having stick built and manufactured home on same parcel • Modular on-frame properties • Co-operatives • Working farms, ranches, orchards • Refer to on-line guidelines for additional details, overlays, etc. pertaining to any of the eligible • property types listed above

21. Minimum Property Standards, cont. • Mechanical systems such as heating and plumbing must meet the following standards: • Must be safe to operate • Must be protected from the elements • Must have reasonable future utility, durability and economy • Must have adequate capacity and quality – Wood stoves are acceptable when accompanied by a conventional heating method that maintains the heat at 50 degrees or greater in areas where plumbing is located

22. Inspections • Termite Inspection • Required in very heavy or moderate to heavy termite areas • Valid for 90 days but not required for IRRRLs • Refer to appraisal for low-rise or high-rise condo • Damage must be cured if noted on report • Must be signed by veteran prior to close • Wells & Water Tests • The water supply must meet the requirements of the local health authority • If the local health authority had not established specific requirements, then requirements by the State health authority will be used • In the case where there are no State requirements, then requirements established by the EPA will be used • Hook-up to available public water not required unless required by local authority

23. Septic Systems • Septic Requirements • Hook-up to available public sewer not required unless required by local authority • All septic systems must dispose of waste in a safe method that does not create public health issue

24. VA Loan – Allowable Fees

25. Allowable Closing Costs • 1% origination fee • Reasonable discount points • Appraisal fee and any inspector fee including well and septic inspection fees • Recording, taxes and stamps, credit report fee • Pre-paid items, hazard and flood insurance • Survey, title insurance, title policy, title search, etc. • Special Mailing fees for refinancing loans • MERS Fee • VA Funding Fee • Termite fee on cash out only

26. Unallowable Closing Costs • Attorney, trustee, closing, settlement, doc prep, underwriting, processing or any other third party fees • Loan application, admin, lock-in, commitment or marketing fees • Email, fax, copy, postage, telephone or other overhead fees • Notary fees or escrow charges • Tax service fees • Termite inspection on purchases • If the origination fee is less than 1% of the purchase price, the veteran can pay the above fees up to 1% of the purchase price • The following fees may NEVER be paid by the veteran, regardless of whether an origination fee is paid: Attorney fee that benefits the lender, broker fee, brokerage fees or commissions charged by real estate agents or brokers, inspection fees for builders (normal new construction inspections of the dwelling are permitted when required by the appraiser)

27. Funding Fees • The following Veterans are exempt from paying a funding fee: • Disabled Veterans (Certificate of Eligibility should state “exempt”) • If the Veteran’s disability questionnaire indicates the Veteran filed a claim while on active duty but the Veteran is not yet discharged, VA Form 26-8937 – Verification of VA Benefits must be completed by an RLC staff member • Eligible un-remarried surviving spouses of veterans who were totally disabled at the time of death or died as the result of service-connected injuries • Funding fee is a percentage of the loan and may be financed or paid in cash • Flagstar systems do not accommodate partial financing of the funding fee • Veterans having prior VA loans pay a subsequent use funding fee, regardless of entitlement code – Review C of E comments carefully

28. Funding Fees

29. VA Eligibility

30. VA Eligibility • The Veteran must have satisfactory credit, sufficient income and a valid Certificate of Eligibility (COE) to be eligible for a VA home loan • The requirements to obtain a Certificate of Eligibility is for Servicemembers and Veterans, spouses and other eligible beneficiaries • VA purchase home loans can be used to buy a home, condo in a VA approved project and build a home

31. VA Loan – Simple Buying Process • Find A Real Estate Agent • Find A lender (Flagstar Bank) • Get a Certificate of Eligibility – The (COE) verifies the lender you meet the eligibility requirements for a VA loan • Find A Home and Sign A Purchase Agreement • Apply for the VA loan • Loan Processing • Loan Closing

32. VA loans – Can the Veteran Buy and Sell at the Same Time • Yes. Eligibility is reusable • The veteran may have more than one VA loan at a time – Sufficient guaranty required and, except for IRRRLs, Veteran must occupy the subject property • If the loan is paid off and property is transferred to a new owner, eligibility can be restored • If the loan is paid off and retained, eligibility can be restored one time only. Subsequent entitlement restorations require both payoff and transfer of ownership • Evidence of payoff or Closing Disclosure may be used as proof

33. VA Highlights

34. VA Loans – Maximum Loan Amounts &Required Guaranty • Purchases • Maximum loan amount is 100% of lesser of purchase price or appraised value • Remaining entitlement plus down payment must be ≥ 25% of base loan amount, excluding financed funding fee • Maximum Mortgage Calculation Worksheets: • Doc. #9740 – Loan amounts ≤ $144,000 • Doc. #9741 – Loan amounts > $144,000

35. VA Loans – No Loan Amounts Limits • VA does not set a cap on how much a veteran can borrower to finance their home • However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend • The loan limits are the amount a qualified veteran with full entitlement may be able to borrower without making a down payment • These loan limits vary by county, since the value of a house depends in part on its location

36. VA Loan Limits - Example for California

37. Automated Underwriting System – (AUS) • VA lenders generally rely on “Automated Underwriting System,” or AUS, to determine a buyers preapproval status • Loans that received an approved (AUS) response are eligible at the ratios and residual income on the approved findings • For an approve response Flagstar limits the maximum DTI to 60% • Not every qualified borrower will obtain AUS approval. In those cases, lenders may consider “manual underwrite”

38. Manual Underwriting • Manual underwriting required for loans having any one or more of the following characteristics: • Refer response loans due to unacceptable credit • Refer response due to insufficient credit to generate a credit score • Non traditional credit may not be used to overcome or improve derogatory credit • Refer response due to ratio that exceeds 41% and/or insufficient residual income

39. Helpful VA Resources • VA Product Guidelines – Flagstar VA Underwriting Guidelines • Discusses many VA guides and shows Flagstar overlays • VA Lender’s Handbook • https://www.benefits.va.gov/warms/pam26_7.asp • Discusses VA underwriting guidelines and property/appraisal requirements • Government Forms and Disclosures – Flagstar document #9005 • Provides a list of required VA disclosures by loan purpose • VA Circulars – Announce VA guideline and policy revisions • https://www.benefits.va.gov/HOMELOANS/resources_circulars.asp • VA County Loan Limits • https://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp • VA Frequently Asked Questions (FAQ’s) • https://www.benefits.va.gov/homeloans/faq_eligibility.asp