Virginia Law

A. In order to be considered eligible for an authority mortgage loan, an applicant must, among other things, meet all of the following criteria:

1. Each applicant must not have had a present ownership interest in his principal residence within the three years preceding the date of execution of the mortgage loan documents (see subsection B of this section);

2. Each applicant must agree to occupy and use the residential property to be purchased as his permanent, principal residence within 60 days, or such longer amount of time as the executive director determines is reasonable in the case of a purchase and rehabilitation loan, after the date of the closing of the mortgage loan (see subsection C of this section);

3. Each applicant must have contracted to purchase an eligible dwelling (see 13VAC10-40-60, Eligible dwellings);

4. Each applicant must execute an affidavit of borrower (Exhibit E2) at the time of loan application; and

5. No applicant may receive income in an amount in excess of the applicable federal income limit imposed by the tax code (see 13VAC10-40-100, Maximum gross income).

B. An eligible borrower does not include any borrower who, at any time during the three years preceding the date of execution of the mortgage loan documents, had a present ownership interest in his principal residence. Each borrower must certify on the affidavit of borrower that at no time during the three years preceding the execution of the mortgage loan documents has he had a present ownership interest in his principal residence. This requirement does not apply to residences located in "targeted areas" (see 13VAC10-40-70, Targeted areas).

1. The present ownership interest limitation applies to any person who will execute the mortgage document or note and will have a present ownership interest in the eligible dwelling.

2. To verify that each eligible borrower meets the three-year requirement, the originating lender must obtain: (i) the fully executed affidavit of borrower (Exhibit E2) signed by all borrowers and nonborrower occupants taking title; (ii) a completed Uniform Residential Loan Application, Freddie Mac Form 65/Fannie Mae Form 1003 (Form 1003); and (iii) the credit report. If the originating lender is unable to confirm from the affidavit of borrower, Form 1003, or the credit report that the borrowers or nonborrower occupants taking title meet the three-year requirement, additional documentation may be required, such as three years of federal tax returns or tax transcripts, rent verification, and other reports.

If reviewing tax returns or tax transcripts, the originating lender shall examine the tax returns or tax transcripts particularly for any evidence that an eligible borrower may have claimed deductions for property taxes or for interest on indebtedness with respect to real property constituting his principal residence.

3. The originating lender must, with due diligence, verify the representations in the affidavit of borrower (Exhibit E2) regarding each eligible borrower's prior residency by reviewing any information including the Form 1003, a credit report, tax returns or tax transcripts, rent verification, and other reports for consistency and make a determination that on the basis of its review each borrower has not had present ownership interest in a principal residence at any time during the three-year period prior to the anticipated date of the loan closing.

C. Each eligible borrower must intend at the time of closing to occupy the eligible dwelling as a principal residence within 60 days (or such longer amount of time as the executive director determines is reasonable in the case of a purchase and rehabilitation loan) after the closing of the mortgage loan. Unless the residence can reasonably be expected to become the principal residence of each eligible borrower within 60 days (or such longer amount of time as the executive director determines is reasonable in the case of a purchase and rehabilitation loan) of the mortgage loan closing date, the residence will not be considered an eligible dwelling and may not be financed with a mortgage loan from the authority. Each eligible borrower must covenant to intend to occupy the eligible dwelling as a principal residence within 60 days (or such longer amount of time as the executive director determines is reasonable in the case of a purchase and rehabilitation loan) after the closing of the mortgage loan on the affidavit of borrower (to be updated at the closing of the mortgage loan) and as part of the attachment to the deed of trust.

1. A principal residence does not include any residence that can reasonably be expected to be used: (i) primarily in a trade or business, (ii) as an investment property, or (iii) as a recreational or second home. A residence may not be used in a manner that would permit any portion of the costs of the eligible dwelling to be deducted as a trade or business expense for federal income tax purposes or under circumstances where more than 15% of the total living area is to be used primarily in a trade or business.

2. The land financed by the mortgage loan may not provide, other than incidentally, a source of income to an eligible borrower. Each eligible borrower must indicate on the affidavit of borrower that, among other things:

a. No portion of the land financed by the mortgage loan provides a source of income (other than incidental income);

b. He does not intend to farm any portion (other than as a garden for personal use) of the land financed by the mortgage loan; and

c. He does not intend to subdivide the property.

3. Only such land as is reasonably necessary to maintain the basic livability of the residence may be financed by a mortgage loan. The financed land must not exceed the customary or usual lot in the area. Generally, the financed land will not be permitted to exceed two acres, even in rural areas. However, exceptions may be made to permit lots larger than two acres, but in no event in excess of five acres: (i) if the land is owned free and clear and is not being financed by the loan, the lot may be as large as five acres, (ii) if difficulty is encountered locating a well or septic field, the lot may include the additional acreage needed, (iii) local city and county ordinances that require more acreage will be taken into consideration, or (iv) if the lot size is determined by the authority, based upon objective information provided by the borrower, to be usual and customary in the area for comparably priced homes. The executive director may modify or waive such requirements if he determines that it is reasonable or necessary to do so and that the financial interests of the authority are adequately protected.

4. The affidavit of borrower (Exhibit E2) must be reviewed by the originating lender for consistency with each eligible borrower's Form 1003, credit report, tax returns or tax transcripts, rent verifications, and other reports, and the originating lender must, based on such review, make a determination that each borrower has not used any previous residence or any portion thereof primarily in any trade or business.

5. The originating lender shall establish procedures to (i) review correspondence, checks, and other documents received from each borrower during the 120-day period following the loan closing for the purpose of ascertaining that the address of the residence and the address of each borrower are the same and (ii) notify the authority if such addresses are not the same. Subject to the authority's approval, the originating lender may establish different procedures to verify compliance with this requirement.

D. Any eligible borrower may not have more than one outstanding authority first mortgage loan.