Chapter 17 — Exercises

Work these with the chapter open. Items marked † have worked solutions in the answers appendix; the rest are for your own file notes and your study group. No answers appear in this file.

Every dollar figure below is a constructed teaching value. Where an exercise supplies a funding fee rate, a per-square-foot maintenance factor, a county loan limit, or a USDA figure, it is illustrative — the real ones are published by the VA and USDA and are revised. Part of the point of several of these exercises is that you notice.

Recall and definitions

1. In one sentence each, distinguish what FHA does from what the VA does with respect to a lender's exposure to loss. Then say, in one more sentence, exactly where that structural difference shows up on the borrower's monthly payment.

2. Name the categories of applicant who may establish VA eligibility. For each, name one document that typically supports a Certificate of Eligibility request.

3. What two questions does a Certificate of Eligibility answer? Now name three questions that loan officers frequently — and wrongly — believe it answers.

4. Define basic entitlement and bonus entitlement, and state the relationship between total available entitlement and the applicable county loan limit.

5. State the three dimensions along which the VA funding fee schedule varies. Then explain, in your own words, why this book does not print the schedule.

6. What is the difference between Tidewater and a reconsideration of value? State when each occurs relative to the Notice of Value, and who initiates each.

Applied reasoning

7. A borrower tells you they "used their VA loan back in 2003, so it's gone." List four different things that could actually be true about their entitlement, and name the single document that will tell you which.

8. Explain to a listing agent, in under sixty seconds, why the VA escape clause makes a VA offer more predictable rather than less. Write out what you would actually say, in the words you would use.

9. † Your employer's overlay requires a 640 minimum representative score on VA loans. Your borrower's representative score is 618. Explain what the statement "the VA has no minimum credit score" does and does not mean for this file, and name two concrete actions available to you.

10. Why does a larger down payment do less for a VA borrower's monthly payment than for a conventional borrower's? Answer structurally, without using any numbers.

11. A veteran sells a home carrying an assumable VA loan at 2.75% to a non-veteran buyer, and the assumption is approved. State what happens to (a) the veteran's entitlement, (b) the veteran's liability on the debt, and (c) the veteran's ability to use the benefit on their next purchase.

12. USDA: explain the difference between adjusted household income and repayment income to a borrower who has just asked, with some irritation, why you need to know what their adult son earns when he is not on the loan.

13. Name three property conditions that commonly appear on a VA Notice of Value's requirement list. For each, state what it actually is in operational terms — a document request, a contractor, or a negotiation — and how many days you would budget for it.

Qualify this borrower — calculate

14. † Assume an applicable county loan limit of \$766,550 (illustrative). The veteran has one outstanding VA loan of \$248,000** and is buying at **\$610,000. Compute, showing each step: total entitlement available, entitlement charged, remaining entitlement, the maximum zero-down loan, the required down payment, and the resulting loan amount. Then verify your answer two ways — with the §17.3 shortcut, and with the 25% guaranty check.

15. Same county limit. A veteran with full entitlement is buying at \$610,000. What down payment does the VA require? What, then, actually determines whether this loan can be made at that amount?

16. † A veteran's prior VA loan of \$412,000** ended in foreclosure. **\$103,000 of entitlement remains charged and has not been restored. The applicable county limit is \$766,550. They are buying at \$340,000. Can they buy with zero down? Show the arithmetic. Then write the two sentences you would actually say to this borrower, who opened the call by telling you they assume they are permanently disqualified.

17. † Compute residual income for a household of four:

Compute residual income, residual income per person, and the back-end ratio.

18. Take exercise 17's household and change exactly one fact: it is a household of seven, not four. Recompute the back-end ratio and the residual income per person. State precisely what changed and what did not — and explain why that single contrast is the argument of §17.5.

19. † Two files. File A: \$12,000.00 gross monthly income, \$4,800.00 of total monthly obligations. File B: \$3,600.00 gross monthly income, \$1,440.00 of total monthly obligations. Compute both back-end ratios. Then list, in priority order, the four additional facts you would need in order to say which household is more likely to still be making the payment in year three.

20. A \$412,000 VA purchase, zero down, at an illustrative first-use funding fee of 2.15% and a rate of 6.375% for 30 years. Use a monthly payment factor of 0.00623871 per dollar of loan amount. Compute the funding fee, the total loan amount, the portion of the monthly payment attributable to the financed fee, and what that portion comes to over 360 payments.

Structure the deal

21. Using the §17.4 table, compute the payback period for putting 5% down on the Linden Street VA counterfactual. Then write the two sentences you would say to a borrower who asks whether they should do it.

22. † A borrower is both VA-eligible and USDA-eligible: the property sits in an eligible area and the household is under the published income limit. Build the case for each program in three bullets each, state which you would recommend, and name the one circumstance that would reverse your answer.

23. A borrower qualifies for FHA at 96.5% and for VA at 100%, and tells you to "just run whichever one is faster." Write your response. Name the specific dollar figures from Chapter 13 and from this chapter that belong in it.

24. Your borrower is a veteran with partial entitlement whose required down payment, computed the §17.3 way, is \$22,000. They have \$14,000. List every structural option available to you, in the order you would actually raise them, and say which one you would lead with.

Clear the condition

25. The underwriter conditions the approval: "Provide evidence of the applicant's exempt status from the VA funding fee." The COE's fee status line says the applicant is not exempt. The applicant tells you their disability claim has been pending for eleven months. Write both the response to the underwriter and the message to the borrower.

26. † The Notice of Value issues with this requirement: "Deteriorated paint, exterior south and west elevations, to be scraped and repainted; property constructed 1961." Nine days remain on the contract and eleven on the rate lock. Write the action plan in order, with an owner and a date for each step, and identify the single step most likely to slip.

Read this document and find the problem

27. A Certificate of Eligibility shows eligibility established, one prior loan listed as "outstanding," and a remaining entitlement figure. Your processor writes in the file notes: "COE received — borrower approved for zero down up to the remaining entitlement amount." Identify every error in that sentence. There are at least three.

28. A pre-approval letter sitting in your pipeline reads: "The borrower is approved for a VA loan of up to \$450,000, with no mortgage insurance and no closing costs." Identify each statement that is wrong, misleading, or unsupportable, and then rewrite the letter so that every sentence in it is defensible.

Write the memo, the disclosure, or the letter

29. Write the §17.8 intake question in your own words, keeping every clause that does real work, and say what each clause is for. Then write the follow-up you would use if the answer is: "My husband was in the Navy. He passed in 2019."

30. † Write a 200-word note to a listing agent who has told your buyer's agent that "the sellers don't want to deal with a VA loan." Use the escape clause, correct the seller-concession misunderstanding, and include one honest concession about a friction that is genuinely real.

Judgment and ethics

31. A branch manager tells a first-year loan officer: "If they're VA-eligible but the file is tight, just run FHA — it's faster and we know those underwriters." Analyze the instruction. Name what is legitimate in it, name what is not, and say what you would do on Monday.

32. A borrower who is exempt from the funding fee asks you not to mention the disability rating that produced the exemption in front of their spouse, who is a co-borrower. What can you do, what must you do, and what is simply not your business? Identify which parts of this are compliance questions and which are judgment.

33. You are the only loan officer at your company who understands VA lending. Your employer is not an approved VA lender. A referral partner sends you an eligible veteran. State your options honestly, including what each one costs you, and defend your choice.

NMLS-style

34. † Under VA rules, an IRRRL requires which of the following: an appraisal, income documentation, a credit underwriting package, prior occupancy, current occupancy? Answer, then explain in two sentences why lender practice frequently differs from the answer.

35. A veteran receives VA compensation for a service-connected disability. State the effect on the funding fee, state where in the file that determination appears, and state what may be available if the rating is granted after closing with an effective date preceding the closing date.

36. Write an exam-style multiple-choice question that tests whether a candidate understands that USDA's household income limit is a ceiling while its ratio benchmarks function as a floor. Supply the correct answer and three plausible distractors, and say which distractor you expect to draw the most wrong answers and why.

The Loan File

37. Using only the frozen figures in this chapter's Loan File checkpoint, write the two-sentence answer you would give the Linden Street borrowers if they asked, "would a VA loan have been better for us?" One sentence must contain a number. Neither sentence may sound like an apology.

38. † Reconstruct the Linden Street VA counterfactual on the assumption that the veteran is exempt from the funding fee. Compute the loan amount, the P&I (use a factor of 0.00623871), the PITI, the back-end ratio, and the monthly difference against the conventional loan as it actually closed. Then state what the exemption is worth over the first sixty payments — and what that implies about the eleven-second question in §17.8.