VA Lending Practices

[Hugo Arce Hodgson]

Hello BP,

I have a question with regards to a scenario that I am facing with my VA loans. I'll provide some background info.

     I am currently working as an overseas contractor after finishing active duty I still serve as a reservist.

     I identified a quad that will serve as a great rental. The quad is in the same city as my unit (Gainesville, FL)

I own another investment property a SFR that is currently leased.

     In order to make up for my military training/drills my employer allows me to participate with units on the base I am at, I also take my R&R's to conduct additional training with my unit.

     Based on income both from employment and passive income, my debt to income ratio after financing is will within tolerable guidelines after financing for the quad without counting rental income from the three units I will be under 28% for my back end ratio.

     Inspections have been completed and the property has been approved. However currently my lender is providing some pushback on technicalities. I'm unsure as to whether or not this is legal as I am proficient on financing laws/regulations.

     The first issue that my lender identified was owning another investment property, and what they view as a better property to reside in than one of the quad units. I provided a letter of intent to occupy, as well as the current lease agreement for that property valid through Oct '16. The property has been leased for as long as I've owned it and I've never resided in it.

The second issue the lender identified is in regards to VA occupancy requirements. I currently work overseas on a military installation in Afghanistan, have done so for the past 3 years. The VA has a 60 day move-in requirement, that I am unable to fulfill the soonest I'll be in the states is in late February '16 to move-in. The VA has guidelines for situations where an individual may go beyond 60 days but less than 12 months for move-in. The requirements for approval beyond 60 days are

 "The veteran certifies that he or she will personally occupy the property as his or her home at a specific date after loan closing (I provided a date of February 26, 2016). There is a particular future event that will make it possible for the veteran to personally occupy the property as his or her home on a specific future date (I have provided my employment contract that defines my annual R&R schedule.)" VA Pamphlet 26-7, Revised Chapter 3 Section 5.b(this is known as the lenders handbook it provides potential lenders with guidelines on what is acceptable to the VA and what is required to successfully underwrite a VA loan)

     Additionally the lender identifying that I work overseas identified an issue with occupancy. The VA provides guidelines for intermittent occupancy for individuals who work overseas or for soldiers who are deployed.

     "The veteran must have a history of continuous resident in the community and there must be no indication that the veteran has established, intends to establish, or may be required to establish, a principal residence elsewhere" VA Pamphlet 26-7, Revised Chapter 3 Section 5.h

     In order to clarify this with the lender, I established that I attended the University of Florida from 2007-2010, '10-'12 I went to training and deployed but maintained residence in Gainesville. I subsequently became a reservist with a unit based out of Gainesville with a contractual commitment through 2018 and provided a documented history of my travels to Gainesville to conduct training on R&R's since I've been a contractor overseas. I've also provided a standing acceptance to return to the University of Florida to complete my degree upon completing my overseas work.

I've additionally conferred with the VA Regional Loan office in St. Petersburg, Fl to ensure that my scenario is within guidelines they have cited that it is and the VA would have no issue underwriting.

Given this information I have recently received a rejection from my lender citing that the VA would not underwrite, as I do not meet the requirements for occupancy noted in the VA lender's handbook. I subsequently called the VA and they indicated that they never provided that type of response to my lender.

Is this legal? Can a lender arbitrarily deny an application in such a manner? I have never been denied for a loan before but I've also never had a VA loan before, and despite my research I can't help but think that I am missing something, and if not I'm having trouble seeing how this rejection is ethical or founded. Any insight would be helpful. The lender that I am using is one of the largest in the nation and I'm almost certain that they've successfully completed loans under similar scenarios.

Respectfully,
Hugo