Underwriting Guideline Matrix - NewLeafWholesale Matrices... · Underwriting Guideline Matrix ......

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Underwriting Guideline Matrix FHA Conforming and High Balance Program / Product Codes: FHA 30 Year Fixed (W201) FHA 20 Year Fixed (W202) FHA 15 Year Fixed (W213) FHA 10 Year Fixed (W214) FHA 30 Year Fixed High Balance (W207) FHA 20 Year Fixed High Balance (W208) FHA 15 Year Fixed High Balance (W219) FHA 10 Year Fixed High Balance (W220) FHA 5 Year ARM (W225) NewLeaf Wholesale FHA ID Number: SKYLINE FINANCIAL CORPORATION - 78601-0029-1 Subject to Change Without Notice – Valid as of: 1/31/2018 Copyright © 2017 Skyline Financial Corp. dba NewLeaf Wholesale, Nationwide Mortgage Licensing System (NMLS) Company ID# 12072. Arizona Mortgage Banker License #927740, Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act File No: 4130296, Colorado Registered with Colorado Division of Real Estate, Florida Mortgage Lender/Servicer License No. MLD947 issued by the Florida Office of Financial Regulation, Georgia Mortgage Lender License #42980, Hawaii Licensed by the Hawaii Division of Financial Institutions No. HI- 12072, Idaho Licensed by the Idaho Department of Finance MBL-7422, Illinois Residential Mortgage License # MB.6761108, Louisiana Residential Mortgage Lending License, Nebraska Mortgage Bank License, New Jersey Residential Mortgage Lender License, New Mexico Financial Institutions Division, Registered Mortgage Company License # 01653, Oregon Mortgage Lender License ML-2797, South Carolina Mortgage Lender / Servicer License MLS #12072, Tennessee Mortgage License #108815, Texas Registered with Texas Department of Savings and Mortgage Lending, Utah Licensed by the Division of Real Estate License # 5318719, Virginia Lender License MC-5861, Washington Consumer Loan Company License CL-12072. This is a business to business communication intended for Real Estate and Lending Professionals only. Refer to www.nmlsconsumer.org and input NMLS #12072 to see where Skyline Financial Corp. is a licensed lender.

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  • Underwriting Guideline Matrix

    FHA Conforming and High Balance

    Program / Product Codes:

    FHA 30 Year Fixed (W201) FHA 20 Year Fixed (W202) FHA 15 Year Fixed (W213) FHA 10 Year Fixed (W214)

    FHA 30 Year Fixed High Balance (W207) FHA 20 Year Fixed High Balance (W208) FHA 15 Year Fixed High Balance (W219) FHA 10 Year Fixed High Balance (W220) FHA 5 Year ARM (W225)

    NewLeaf Wholesale FHA ID Number: SKYLINE FINANCIAL CORPORATION - 78601-0029-1

    Subject to Change Without Notice Valid as of: 1/31/2018

    Copyright 2017 Skyline Financial Corp. dba NewLeaf Wholesale, Nationwide Mortgage Licensing System (NMLS) Company ID#

    12072. Arizona Mortgage Banker License #927740, Licensed by the Department of Business Oversight under the California Residential Mortgage Lending

    Act File No: 4130296, Colorado Registered with Colorado Division of Real Estate, Florida Mortgage Lender/Servicer License No. MLD947 issued by the

    Florida Office of Financial Regulation, Georgia Mortgage Lender License #42980, Hawaii Licensed by the Hawaii Division of Financial Institutions No. HI-

    12072, Idaho Licensed by the Idaho Department of Finance MBL-7422, Illinois Residential Mortgage License # MB.6761108, Louisiana Residential Mortgage

    Lending License, Nebraska Mortgage Bank License, New Jersey Residential Mortgage Lender License, New Mexico Financial Institutions Division, Registered

    Mortgage Company License # 01653, Oregon Mortgage Lender License ML-2797, South Carolina Mortgage Lender / Servicer License MLS #12072,

    Tennessee Mortgage License #108815, Texas Registered with Texas Department of Savings and Mortgage Lending, Utah Licensed by the Division of Real

    Estate License # 5318719, Virginia Lender License MC-5861, Washington Consumer Loan Company License CL-12072. This is a business to business

    communication intended for Real Estate and Lending Professionals only. Refer to www.nmlsconsumer.org and input NMLS #12072 to see where Skyline

    Financial Corp. is a licensed lender.

  • FHA Conforming and High Balance Page 1 of 14 Last Updated 1/31/2018

    Underwriting Guideline Matrix

    FHA Conforming and High Balance

    www.NewLeafWholesale.com

    NewLeaf Wholesale FHA ID Number: SKYLINE FINANCIAL CORPORATION - 78601-0029-1

    Please note that this matrix is intended as an aid to help determine whether a loan is eligible for FHA financing. This matrix is not intended as a replacement for FHA guidelines. Users are expected to know and comply with FHA requirements. Additionally, this matrix includes overlays, which may be more restrictive than FHA requirements. A thorough review of this matrix is highly recommended. For any circumstance that is not addressed in this matrix, refer to the HUD Handbook 4000.1.

    Transaction Parameters

    Owner Occupied: Purchase LTV /CLTV FICO

    96.50% / 100% 600

    Owner Occupied: Rate / Term Refinance

    LTV /CLTV FICO

    97.75% 600

    Owner Occupied: Cash Out LTV /CLTV FICO

    85.00% 600

    Mortgage Insurance: Purchase, Rate/Term, Cash Out 15 Year Term **Effective with case number assignments on or after June 3, 2013**

    General Guidelines

    Loan Limits FHA mortgage limits for all areas: https://entp.hud.gov/idapp/html/hicostlook.cfm

    Maximum Base Loan Amount cannot exceed the FHA Statutory Mortgage Limits for each county. The above limits are the maximum allowable loan amounts. See link above for specific FHA County Mortgage Limits.

    Maximum CLTV's

    Purchase: Max CLTV is 100.00%

    Non-Streamline Rate/Term Refinance: Max CLTV is 97.75%

    Cash Out: Max CLTV is 85.00%

    Refer to FHA Matrix for details

    Property Types

    Eligible: SFR, 2-4 Units, Condo's (Must be FHA Approved), PUDs, Manufactured Housing, Rural Properties in accordance with HUD guidelines & must be residential in nature

    Ineligible: Hotel/Resort Projects, Mobile Homes, Condo-hotels, Geodesic Domes, Income Producing Property, Unimproved Land and Co-ops, Lava Zones 1 & 2

    Ineligible Programs 203k, Hawaii Homelands, Construction Financing, Cash Out in Texas, Hope, Indian Reservation, GPM's, No Energy

    Efficient Homes (EEH), MCCs

    Eligible States AZ, CA, CO, FL, GA, HI, ID, IL, LA, NJ, NE, NM, OR, SC, TN, TX, UT, VA & WA

    Minimum Loan Amount

    $75,000

    Maximum Loans to One Borrower

    NewLeaf WholesaleSM, a division of Skyline Financial, maximum exposure per borrower is limited to the lesser of 4 properties or $2,000,000 in aggregate loans

    Purchases Purchase: Borrower must contribute 3.5% towards the transaction from their own funds or another acceptable source.

    See Assets section for details

    http://www.newleafwholesale.com/https://entp.hud.gov/idapp/html/hicostlook.cfm

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    Refinances

    Limited Cash Out/Rate & Term Refinance:

    Maximum LTV is 97.75%: o When borrower has occupied subject property for the previous 12 months, OR

    o When the borrower has acquired the subject property within the previous 12 months and has occupied the

    subject property since:

    Acquisition, and

    Case number assignment

    Maximum LTV is 85%:

    o When the borrower has occupied subject property for less than 12 months prior to the case number assignment

    date, OR

    o When the Borrower has acquired the subject property within the previous 12 months and has not occupied subject property for the entire period of ownership

    Proceeds can be used to pay off a first mortgage regardless of age

    Proceeds can be used to pay off any junior liens that are purchase money or any junior liens that have been seasoned at least 12 months. If the junior lien being paid off is a HELOC and any draws within the past 12 months have not exceeded $1000 besides documented repairs, the lien may be paid off with proceeds of the loan.

    Pay related Closing Costs and Prepaid items

    Disburse cash to the borrower in an amount not to exceed $500

    Non-FHA to FHA The LTV is based on the lesser of purchase price or appraised value if property is owned less than 12 months

    Non-Occupant co-borrowers are permitted

    If any mortgage tradeline including mortgage line of credit payments, during the most recent 12 months reflects the following

    below the loan must be downgraded to a manual underwrite:

    o three or more late payments of greater than 30 Days;

    o one or more late payments of 60 Days plus one or more 30-Day late payments; or

    o one payment greater than 90 Days late.

    Cash Out:

    Subject property must have been owned and occupied by the borrower as their principle residence for the 12 months prior to the date of the case assignment

    If subject property was inherited, the borrower is not required to occupy the property for a minimum period of time before applying for a cash-out refinance transaction provided that the borrower has not utilized the subject property as an investment property at any time since the inheritance of the property

    Borrower may not have any 30 day mortgage lates in the past 12 months on subject property. If Borrower has any 30 day mortgage lates in the past 12 months on subject property, the loan must be downgraded to a manual underwrite

    Non-occupant co-borrowers are only permitted if they were on the original loan and their income is not used for qualifying purposes

    Satisfactory six months of payment history is required for all cash out transactions

    See 3 to 4 Unit section below for further clarification

    Eligible Terms

    Fixed Rate (15, 20, 25 & 30 Year)

    Section 203(b) with ADP codes of 703 & 734 for Condominiums ARMs (5/1)

    Section 203(b) with ADP code of 729 & 731 for Condominiums

    Qualifying Rate Fixed Rate & ARM's - Note Rate

    Ratios Total Scorecard Approval Ratios determined by AUS

    HPML: Any loan that is determined to be HPML has a maximum DTI of 48%

    Total Scorecard Refer/Eligible: May be manually underwritten See Manual Underwriting Section Below

    Eligible Borrowers

    U.S. Citizens & Permanent Resident Aliens are allowed with proof of lawful permanent residence

    Inter Vivos Revocable Trusts: o The borrower(s) must be the settler and the beneficiary and the trustee.

    Non-permanent Resident Aliens with acceptable Visas per HUD guidelines and MUST have an EAD card

    All borrowers must have a valid social security number

    Ineligible Borrowers

    Corporations, LLC's, & Partnerships,

    Irrevocable Trusts,

    Non-US Citizen with no lawful residency status in the US,

    Individuals with diplomatic immunity,

    Borrowers with TIN numbers,

    Foreign Nationals,

    Land Trusts,

    Non-Resident Aliens (Foreign Nationals) are not allowed,

    Borrowers on public assistance, commonly known as section 8, are not permitted

    Escrow Holdbacks Permitted: See NewLeaf Broker Manual

    AUS Loans must have a Total Scorecard Approval

    Good Neighbor Program

    Property must be a HUD REO and has to be designated eligible by HUD SFR, PUDs and Condos only

    Eligible borrowers: Law Enforcement, Firefighters, EMTs and Teachers

    Borrower must agree to occupy the property as a primary residence for three years without interruption

    Minimum down payment is $100.00 AND closing costs may be included in the mortgage up to a maximum of 100% LTV based on the current value

    Required Documents: o Certificate of Law Enforcement Officer, Teacher, Firefighter or EMT (HUD-9549-A)

    http://portal.hud.gov/hudportal/documents/huddoc?id=9549a.pdf o Land Use Restrictions Addendum (HUD-9549-B)

    http://portal.hud.gov/hudportal/documents/huddoc?id=9549b.pdf o Assignment of Sales Contract (HUD-9549-C)

    http://portal.hud.gov/hudportal/documents/huddoc?id=9549c.pdf o Employer Verification of Participant Enrollment (HUD-9549-E)

    http://portal.hud.gov/hudportal/documents/huddoc?id=9549e.pdf

    http://www.newleafwholesale.com/http://portal.hud.gov/hudportal/documents/huddoc?id=9549a.pdfhttp://portal.hud.gov/hudportal/documents/huddoc?id=9549b.pdfhttp://portal.hud.gov/hudportal/documents/huddoc?id=9549c.pdfhttp://portal.hud.gov/hudportal/documents/huddoc?id=9549e.pdf

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    Mortgage Insurance Premium

    See Mortgage Insurance Premium Matrix in Tools section of website

    Must be entirely financed into the mortgage (rounded down to a whole dollar) or paid entirely in cash in full

    If paid entirely with cash - cash can be comprised of each or the aggregate of Borrowers own funds, Borrower cash out

    refinance proceeds, lenders credit, or sellers credit

    Not permissible to pay some in cash and finance the balance

    Financing Concessions

    Financing concessions cannot exceed 6% of the sales price.

    Non-Occupant Co-Borrower

    Non-occupying co-borrowers are permitted for purchase and rate/term transactions. The definition of a non-occupying co-borrower can be found in the HUD 4000.1 handbook, section

    The LTV is limited to 75% for Purchase and Rate/Term transactions when: o The non-occupant co-borrower is not a family member o A transaction for 2-4 unit properties o A family member selling to a family member who will be a non-occupying co-borrower (see Identify of Interest

    section below)

    When a non-occupying co-borrower is participating in a purchase or rate/term transaction, blended ratios are permitted

    For cash out transaction, non-occupant co-borrowers are only permitted if they were on the original loan being refinanced

    Identity of Interest

    Identity of Interest transactions are restricted to a maximum LTV of 85%. However, maximum financing above 85% LTV is permitted under the following circumstances:

    A family member purchasing another family member's principal residence

    A current tenant purchasing the property that the tenant has rented/occupied for at least six months prior to the date on the purchase contract. A lease or other written evidence must be submitted verifying occupancy

    Corporation transfers an employee to another location, purchases that employees home, and then sells the home to another employee

    Restricted Family Member Transactions:

    If the property being sold from one family member to another is the property seller's investment property, the maximum mortgage is the lesser of either 85% of the lesser of the sales price or appraised value or the current maximum mortgage calculation formula per ML 98-29

    Definition of Family Member Includes:

    Child, parent or grandparent (biological, foster or step)

    Spouse

    Legally adopted child or foster child

    Brother/stepbrother or sister/stepsister

    Aunt or Uncle

    Identity of Interest Additional Restrictions:

    "Flip" transactions are not permitted

    An "as is" appraisal is required

    Commission from the sale or listing of the property may not be used for the down payment

    An employee of a builder purchasing one of the builder's new homes or models as a principal residence - is limited to 85% LTV/CLTV

    CAIVRS & LDP/GSA NewLeaf will run CAIVRS & LDP/GSA, borrower(s) must obtain a clear rating

    Number of Financed Properties

    Maximum number of financed properties is four ( 1- 4 units)

    PACE If the property has a PACE lien, it must be paid off at closing. Paying off a PACE lien is allowed through a rate/term

    refinance

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    Multiple FHA Loans to one Borrower

    Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA mortgage insurance except under the situations described below: o Relocation:

    o A Borrower may be eligible to obtain another FHA-insured Mortgage without being required to sell an existing Property covered by an FHA-insured Mortgage if the Borrower is:

    Relocating or has relocated for an employment-related reason; and Establishing or has established a new Principal Residence in an area more than 100 miles from

    the Borrowers current Principal Residence. o If the Borrower moves back to the original area, the Borrower is not required to live in the original house

    and may obtain a new FHA-insured Mortgage on a new Principal Residence, provided the relocation meets the two requirements above.

    o Increase in Family Size: o A Borrower may be eligible for another house with an FHA-insured Mortgage if the Borrower provides

    satisfactory evidence that: the Borrower has had an increase in legal dependents and the Property now fails to meet family

    needs; and the Loan-to-Value (LTV) ratio on the current Principal Residence is equal to or less than 75% or

    is paid down to that amount, based on the outstanding Mortgage balance and a current residential appraisal

    Tax assessments, market analyses by real estate brokers, etc., are not acceptable as proof of LTV compliance.

    o Vacating a Jointly Owned Property: o A Borrower may be eligible for another FHA-insured Mortgage if the Borrower is vacating (with no intent to

    return) the Principal Residence which will remain occupied by an existing co-Borrower. o Acceptable situations include instances of divorce, after which the vacating ex-spouse will purchase a new

    home, or one of the co-borrowers will vacate the existing property.

    o Non-Occupying Co-Borrower: o A non-occupying co-Borrower on an existing FHA-insured Mortgage may qualify for an FHA-insured

    Mortgage on a new Property to be their own Principal Residence.

    Credit

    Credit Requirements Each borrower must have at least two valid credit scores to be eligible

    If the borrower does not have a credit score, Non-traditional credit is permitted. Please refer to the Non-Traditional Credit and the manual underwriting sections for additional requirements

    Disputed Accounts

    If Total Scorecard issues a referral to manual underwriting based on the presence of one or more disputed accounts on the credit report, the Total Scorecard finding may be ignored if any of the following circumstances are present:

    o The disputed account has a zero balance, or o The disputed account is marked as "paid in full" or "resolved" or o The disputed account is both less than $1000 AND more than 24 months old

    If Total Scorecard issues an approval and the total outstanding balance of all disputed derogatory accounts (excluding medical) is less than $1,000 then downgrade to a manual underwrite is not required. However, if the total outstanding balance of all disputed derogatory accounts (excluding medical) have an aggregate balance equal to or greater than $1,000 then downgrade to a manual underwrite is required (Disputed derogatory accounts of a non-purchasing / non-borrowing spouse in a community property state are not included in the cumulative balance for purposes of determining if the mortgage is downgraded to a manual underwrite.) Refer to ML 2013-24 & ML 2013-25 for complete requirements

    Contingent Liability

    If a borrower is co-obligated on a mortgage, car loan, student loan or any other obligation including credit cards - the monthly payments must be included in the DTI unless documentation is provided to prove that the other party that co-obligated on the account has been making payments during the most previous 12 month period and there have been no delinquencies. This must be documented by 12 months cancelled checks or other acceptable evidence including but not limited to a copy of the payment coupon and 12 months bank statements.

    Authorized Users

    Accounts for which the borrower is an authorized user must be included in the DTI unless the borrower can provide

    documentation that shows the primary account holder has made all the required payments on the account for the previous

    12 months. If less than three payments have been required on the account in the previous 12 months, the payment amount

    must be included in the DTI.

    Timeshare A loan secured by an interest in a timeshare must be considered an installment loan

    Deferred Obligations

    Deferred Obligations (excluding Student Loans)

    The actual monthly payment to be paid on a deferred liability must be used, whenever available. o If the actual monthly payment is not available for installment debt, must utilize the terms of the debt or 5

    percent of the outstanding balance to establish the monthly payment.

    Student Loans

    Regardless of the payment status, either one of the following must be used: o The greater of 1% percent of the outstanding balance on the loan or the monthly payment reported on the

    Borrowers credit report; or o The actual documented payment, provided the payment will fully amortize the loan over its term.

    Exclusion of Debts

    Installment loans not secured by real estate may be excluded from ratios IF: o The debt will be paid off within 10 months, AND o The remaining cumulative payments are less than or equal to 5% of the borrowers gross qualifying monthly

    income, AND o The borrower may not pay down debt to achieve this percentage

    Paying Off Debt Installment debt-allowed, payment excluded from qualifying ratios

    Revolving Debt may be paid off in order to qualify at NewLeaf underwriters discretion

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    Paying Down Debt Not allowed

    Revolving Accounts When the credit report does not indicate a monthly payment for the account, use the payment shown on the most current

    account statement or 5% of the outstanding balance

    Undisclosed Mortgage Debt

    When an existing debt or obligation that is secured by a Mortgage but is not listed on the credit report and not considered by the AUS is revealed during the application process, the Mortgagee must obtain a verification of Mortgage directly from the lender must be obtained. The loan must be downgraded to a Refer and manually underwritten if the mortgage history reflects:

    o A current delinquency o Any delinquency within 12 months of the case number assignment date; or o More than two 30 day late payments within 24 months of the case number assignment date

    o A Mortgage that has been modified must utilize the payment history in accordance with the modification agreement for the time period of modification in determining late mortgage payments

    30 day Accounts

    30 Day Accounts Are not included in the DTI if:

    o Documentation to show that the borrower paid the outstanding balance in full every month for the past 12

    months must be provided (i.e. credit card statements), AND

    o There have been no late payments on in the past 12 months, AND

    o Documentation is provided to show that funds are available to pay off the balance in excess of any fund to

    close and required reserves

    If the three requirements above cannot be met, 5% of the outstanding balance must be included in the DTI

    Business Paid Debt

    Definition Business Debt in Borrowers Name refers to liabilities reported on the Borrowers personal credit report, but payment for the debt is attributed to the Borrowers business.

    When business debt is reported on the Borrowers personal credit report, the debt must be included in the DTI calculation, unless it can be documented that the debt is being paid by the Borrowers business, and the debt was considered in the cash flow analysis of the Borrowers business. The debt is considered in the cash flow analysis where the Borrowers business tax returns reflect a business expense related to the obligation, equal to or greater than the amount of payments documented as paid out of company funds. Where the Borrowers business tax returns show an interest expense related to the obligation, only the interest portion of the debt is considered in the cash flow analysis.

    Required Documentation: When a self-employed Borrower states debt appearing on their personal credit report is being paid by their business documentation that the debt is paid out of company funds and that the debt was considered in the cash flow analysis of the Borrowers business must be obtained.

    Bankruptcy

    2 years must have elapsed since completion or discharge of Chapter 7 Bankruptcy. A period of less than two years, but not less than 12 months may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond control an has since financially recovered and re-established credit

    If there is less than 2 years seasoning since the Chapter 7 or 13 Bankruptcy, the loan must meet the requirements for extenuating circumstances and will be downgraded to a manual underwrite (see below manual underwriting section)

    2 years must have elapsed from the discharge date of a Chapter 13 Bankruptcy. o If the Chapter 13 has not been discharged, then a period of less than two years but not less than 12 months

    may be acceptable if all of the following circumstances are present: There must have been at least a one year pay-out period and All the payments must have been made on time and Borrower must receive written permission from the bankruptcy court to enter into the mortgage

    transaction o If the Chapter 13 has been discharged/completed less than a period of 2 years. There is no seasoning

    requirement and manual underwrite is required. See the manual underwriting section.

    See Extenuating Circumstances section for acceptable extenuating circumstances overlay for High Balance / Bankruptcy / Foreclosure

    Seasoning period begins from the date of discharge to the date of the case assignment

    Foreclosure

    3 years must have elapsed since completion of a Foreclosure or Deed-in- Lieu.

    Less than 3 years seasoning may be acceptable if the foreclosure was a result of documented extenuating circumstances that were beyond the control of the borrower and the loan must meet the requirements for extenuating circumstances and will be downgraded to a manual underwrite (see manual underwriting section below)

    Regardless of the circumstance, the minimum time that must have elapsed since the completion of the foreclosure or Deed-in-Lieu is 1 year

    Seasoning period begins on the date the property transferred ownership to the foreclosing lender through the date of the case assignment.

    Short Sale/Deed-in-lieu of foreclosure

    If the borrower was not in default at the time of the Short Sale, 3 years must have elapsed since completion of Short Sale; the wait period can be waived if all of the following conditions are met:

    o The loan was current at the time of the short sale o The loan was paid on time in the 12 months preceding the short sale o All other installment debts were paid on time in the preceding 12 months

    If the seasoning of the short sale is less than 3 years, the loan must meet the requirements for extenuating circumstances and will be downgraded to a manual underwrite (see manual underwriting section below)

    If the borrower was in default at the time of the Short Sale, 3 years must have elapsed since the completion of the Short Sale; the wait period can be waived if the default was due to circumstances beyond the borrower's control and the borrowers credit was satisfactory prior to the circumstances beyond the borrower's control that caused the default.

    If the borrower pursued a Short Sale to take advantage of declining market conditions and is purchasing a similar or superior property within a reasonable commuting distance, the 3 year waiting period may not be waived

    Seasoning period begins on the date the property was sold through the date of the case assignment.

    Modified Loans

    If the modification occurred within the past 3 years and is the subject property, the loan must be downgraded to a manual underwrite and must meet all manual underwriting requirements including mortgage history requirements

    If the modification occurred within the past 3 year and is not the subject property, the loan does not have to be manually downgraded. If the modification agreement prohibits the rental of the property, then rental income cannot be used to qualify.

    In all cases, all payments must have been made on time since the modification and meet all applicable mortgage payment history per transaction type

    Judgments/ Collections and Charge Offs

    All judgments must be paid

    Payment of Collection Accounts and Charge Offs are at the discretion of the underwriter

    If the cumulative outstanding balance of all collections of all borrowers (including a non-purchasing / non-borrowing spouse) is equal to or greater than $2,000 and the collection accounts will remain open after closing, the monthly payment must be included in the DTI using the payment arrangement or 5% of the outstanding balance of each collection (This does not include medical collections & medical charge offs)

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    Subordinate Financing

    Closed ended subordinate financing qualified using credit report payment

    For financing other than HELOCs, the maturity date or amortization basis of the junior lien must not be less than five years after the Note Date unless the junior lien is fully amortizing. If the junior lien contains a balloon or call provision within the five-year period, the First Lien Mortgage is ineligible.

    HELOCs qualified using the greater of 1% of max line amount or the credit report payment.

    Non-subject property qualified using credit report payment, unless draw made at closing -Then 1% of max line amount used for qualification

    Refer to HUD Handbook 4000.1 Section 4.d.J for Secondary financing details

    Modified Subordinate Liens: FHA understands that many subordinate lien holders have requested modification to the terms of the lien (typically a reduction in the amount of the lien) in exchange for remaining in subordinate position.

    Modifying subordinate liens often results in re-executing the legal documents at closing, which is acceptable and not considered a new subordinate lien.

    Existing or modified subordinate liens may remain in place

    Non-Traditional Credit

    All loans with Non-Traditional Credit must be manually underwritten. Please refer to the Manual Underwriting section

    Non-Purchasing Spouse / Non-Borrowing Spouse

    Except for obligations specifically excluded by state law, the debts of the non-purchasing / non-borrowing spouse must be included in the borrowers qualifying ratios, if the borrower resides in a community property state, or, property being insured is located in a community property state. The non-purchasing / non-borrowing spouses obligations must be considered in the debt-to-income (DTI) ratio unless excluded by state law. A credit report that complies with the requirements of HUD 4000.1 must be provided for the non-purchasing / non-borrowing spouse in order to determine the debts that must be counted in the DTI ratio. The non-purchasing / non-borrowing spouse must provide a signed / dated Borrowers Credit Authorization

    Non-borrowing spouses credit report must indicate the social security number and must be validated with the directly SSA

    Manual Underwriting

    In addition to meeting all standard FHA guidelines the following guidelines apply for Manual Underwriting in this section

    Manual Underwriting Regardless of AUS/Total Score Card

    Mortgages with Total Score Card approvals must be downgraded and Manually underwritten:

    When AUS/TOTAL Score Card conditions cannot be met

    When a borrower or co-borrower has less than 2 credit scores

    When a borrower is using non-traditional credit

    When a borrowers bankruptcy discharge is less than 2 years from the case number assignment date

    When a date of transfer of title by short sale or deed in lieu of foreclosure is less than 3 years from the date of the case number assignment TOTAL Score Card date

    When a foreclosure seasoning is less than 3 years from the case number assignment date

    When the Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts

    When the Borrower has undisclosed mortgage debt with any lates in the past 12 months

    When any mortgage rating does not appear on the credit report with a complete 12 month history

    When any mortgage trade line, including mortgage line of credit/HELOC payments, during the most recent 12 months reflects any of the of the following: o Purchase and Rate/Term Refinances:

    three or more late payments of greater than 30 Days;

    one or more late payments of 60 Days plus one or more 30-Day late payments; or

    one payment greater than 90 days late.

    o Cash-out transactions:

    A current delinquency, or

    Any delinquency within 12 months of the case number assignment date

    When the Borrowers self-employed business income shows greater than a 20% decline over the tax years being analyzed

    o If there has been a 20% or greater decline, the income is still deemed stable if:

    The reduction was a result of documented extenuating circumstances AND

    The income has been stable or increasing for at least the last 12 months AND

    o The borrower qualifies using the reduced income

    Credit Requirements for Manual Underwriting

    The Borrowers credit history may be acceptable IF: o The borrower has made all housing and installment debt payments on time for the previous 12 months, AND o Has no more than two 30-day late mortgage payments or installment payments in the previous 24 months,

    AND o The borrower has no major derogatory credit on revolving accounts in the previous 12 months. o Major derogatory credit on revolving accounts includes:

    Any payments made more than 90 days after the due date OR Three or more payments made more than 60 days after the due date

    Undisclosed Mortgage Debt

    When an existing debt or obligation that is secured by a Mortgage but is not listed on the credit report and not considered by the AUS is revealed during the application process, the Mortgagee must obtain a verification of Mortgage directly from the lender must be obtained. The loan must be downgraded to a Refer and manually underwritten if the mortgage history reflects:

    A current delinquency Any delinquency within 12 months of the case number assignment date; or More than two 30 day late payments within 24 months of the case number assignment date

    A Mortgage that has been modified must utilize the payment history in accordance with the modification agreement for the time period of modification in determining late mortgage payments.

    Collections/Charge Offs for Manual Underwriting

    The borrower must provide a letter of explanation with supporting documentation for each outstanding Charge Off or Collection account which must be consistent with other credit information in the file.

    Mortgage/Rental History for Manual Underwriting

    Borrowers housing obligation payment history for previous 12 months must be documented with the following: o The credit report OR o VOR from a licensed management company, OR o Verification of mortgage received directly from the mortgage servicer, OR o Review of cancelled checks (front & back) that cover the most recent 12 month period

    For borrowers who indicate that they are living rent free, the lender must obtain written verification from the property owner where they are residing that the borrower has been living rent free and the amount of time the borrower has been living rent free

    Mortgages that have been modified the payment history must be analyzed starting with the date of the modification agreement in determining late housing payments

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    Non-Traditional Credit Non-Traditional Credit (Cont.)

    Permitted for conforming loan limits only

    Borrowers with no credit score cannot exceed 31/43 DTI

    The credit history must include three credit references, with at least one of the following: o Rental payments via 12 months cancelled checks (front and back) or a VOR from a licensed management

    company, OR o Utility company reference (if not included in the rental payment), including gas, electricity, water, television

    service or internet service

    If all three credit references are not obtained from the previous list above, the following sources may be used: o Insurance premiums not payroll deducted (medical, auto, life, renters insurance, etc.) o Payment to child care providers made to licensed business that provide such services; school tuition o Retail store credit cards not reported to the credit bureaus (example: furniture stores, appliance stores,

    specialty stores, etc.) o Rent-to-own (furniture, appliances, etc.) o Payment of medical bills to providers that are not covered by insurance o A documented 12 month history of savings evidenced by regular deposits resulting in an increased balance to

    the account that were made at least quarterly, were not payroll deducted and caused no insufficient (NSF) checks

    o A personal loan from an individual with repayment terms in writing and supported by cancelled checks to document the payments

    o A documented 12 month history of payment by the borrower on an account for which the borrower is an authorized user.

    Non-Traditional and Insufficient Credit (Manual) For Borrowers without a credit score, a Non-Traditional Mortgage Credit Report (NTMCR) from a credit reporting company must be obtained or Skyline must independently develop the Borrowers credit history using the requirements outlined below.

    o Non-Traditional Mortgage Credit Report Definition- An NTMCR is designed to access the credit history of a Borrower who does not have the

    types of trade references that appear on a traditional credit report and used either as:

    a substitute for a TRMCR or an RMCR; or

    a supplement to a traditional credit report that has an insufficient number of trade items reported to generate a credit score.

    A NTMCR developed by a credit reporting agency may be used that verifies the following information for all non-traditional credit references:

    the existence of the credit providers; that the credit was actually extended to the Borrower; and the creditor has a published address or telephone number.

    The NTMCR must not include subjective statements such as satisfactory or acceptable, must be formatted in a similar fashion to traditional references, and provide the:

    creditors name; date of opening; high credit; current status of the account; required monthly payment; unpaid balance; and payment history in the delinquency categories (for example, 0x30 and 0x60).

    Independent Verification of Non-Traditional Credit Providers - Skyline may independently verify the Borrowers credit references by documenting the existence of the credit provider and that the provider extended credit to the Borrower.

    o To verify the existence of each credit provider, Skyline must review public records from the state, county, or city or other documents providing a similar level of objective information.

    o To verify credit information, the Mortgagee must: use a published address or telephone number for the credit provider and not rely solely on

    information provided by the applicant; and obtain the most recent 12 months of cancelled checks, or equivalent proof of payment,

    demonstrating the timing of payment to the credit provider. o To verify the Borrowers rental payment history, Skyline must obtain a rental reference from the appropriate

    rental management company, provided the Borrower is not renting from a Family Member, demonstrating the timing of payment of the most recent 12 months in lieu of 12 months of cancelled checks or equivalent proof of payment.

    Sufficiency of Credit References- To be sufficient to establish the Borrowers credit, the credit history must include three credit references, including at least one of the following:

    o rental housing payments (subject to independent verification if the Borrower is a renter); o telephone service; or o utility company reference (if not included in the rental housing payment), including:

    gas; electricity; water; television service; or Internet service.

    If all three credit references are not obtained from the previous list above, the following sources may be used: o Insurance premiums not payroll deducted (medical, auto, life, renters insurance, etc.) o Payment to child care providers made to licensed business that provide such services; school tuition o Retail store credit cards not reported to the credit bureaus (example: furniture stores, appliance stores,

    specialty stores, etc.) o Rent-to-own (furniture, appliances, etc.) o Payment of medical bills to providers that are not covered by insurance o A documented 12 month history of savings evidenced by regular deposits resulting in an increased balance to

    the account that were made at least quarterly, were not payroll deducted and caused no insufficient (NSF) checks

    o An automobile lease o A personal loan from an individual with repayment terms in writing and supported by cancelled checks to

    document the payments o A documented 12 month history of payment by the borrower on an account for which the borrower is an

    authorized user.

    Extenuating Circumstances

    The following are extenuating circumstances which may apply to requested seasoning exceptions for Bankruptcy, Foreclosure, Deed-in-Lieu and Short Sale:

    o Death of a wage earner o Serious illness o Divorce may be concerned an extenuating circumstance for Short Sale, Foreclosure or Deed-in-Lieu if the

    borrowers loan was current at the time of the divorce and the ex-spouse received the property and the loan later went into foreclosure, deed-in-lieu or was short sold

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    DTI requirements for Manual Underwriting

    Loans receiving a Total Scorecard Refer/Eligible or downgraded from an Approve/Eligible due to HUD guidelines may be manually underwritten and must meet the below requirements:

    o 31/43 DTI: Borrowers with no credit score cannot exceed 31/43 DTI

    o 37/47 DTI: The following is required:

    Verified and documented cash Reserves in addition to the reserve requirements listed below , AND

    Minimum increase in housing payment; OR

    Residual income as calculated per VA requirements

    o 40/40 DTI: The following requirements must be met:

    Borrower with established credit and open credit lines carries no discretionary debt.

    Monthly housing payment is only open installment account and revolving credit is paid off monthly

    o 40/50 DTI: Two of the following requirements must be met:

    Verified and documented liquid cash reserves of three months for one-to-two unit properties and six

    months for three-to-four units in addition to the reserve requirements listed below

    Minimum increase in housing payment;

    Significant additional income not reflected in effective income; and/or

    Residual income as calculated per VA requirements

    In ALL cases, the maximum DTI for manual underwriting is 50%. Also, an AUS is required in the file

    Reserve Requirements for Manual Underwriting

    Reserves equivalent to one months PITI after closing for one- to two-unit Properties.

    Reserves equivalent to three months PITI after closing for three- to four-unit Properties.

    Income/Employment

    Overtime and Bonus

    Overtime or bonus income, the income must be averaged over the previous two years However, if the overtime or bonus income from the current year decreases by 20% or more from the previous year, the current year must be used

    Less than two years may be considered if documentation is provided to show that overtime has been consistently earned over a period of not less than one year and is likely to continue

    This applies to both AUS approvals and manually underwritten loans

    Hourly Income

    For employees who are paid hourly and the hours do not vary, the borrowers current hourly rate is used to calculate the qualifying income

    For employees who are paid hourly and the hours vary, an average of the income over the previous two years is used to calculate the qualifying income. If there is a decline in the income between the previous and current year, the lower amount will be used

    If documentation is provided to show an increase in pay rate, income can be calculated using the most recent 12 months of average of hours at the current pay rate

    This applies to both AUS approvals and manually underwritten loans

    Part Time Employment

    Income may be used as qualifying income if the borrower has worked a part time job uninterrupted for the past two years and the current position is reasonably likely to continue

    If documentation is provided to show an increase in pay rate, income can be calculated using the most recent 12 months of average of hours at the current pay rate

    This applies to both AUS approvals and manually underwritten loans

    Commission Income

    May be used if the borrower earned the income for at least one year in the same or similar line of work and it is reasonably

    likely to continue

    Commission must be calculated by using the lesser of

    o The average net commission income earned over the previous two years, or the length of time the commission

    income has been earned if less than two years OR

    o The average net commission earned over the previous one year

    Unreimbursed business expenses (2106) as shown on Schedule A of tax returns must be subtracted from the gross

    commission income to calculate net commission income

    Frequent Job Changes

    If the borrower has changed jobs more than three times in the previous twelve months period to advance income or benefit or has changed their line of work the following is required:

    o Employment documentation evidencing continual increases in income and/or benefits, OR o Transcripts of training and education demonstrating qualification for a new position

    Gaps in Employment

    Borrowers with gaps in employment less than six months are not required to provide an explanation

    Borrowers with gaps of six months or more (an extended absence) may be considered if:

    o The borrower has been employed in the current job for at least six months at the time of the case assignment

    AND

    o A two year work history prior to the absence from employment can be documented

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    Temporary Reduction of Income

    For borrowers with a temporary reduction of income due to short term disability or similar temporary leave, the current

    disability income may be considered as effective income if it can be documented with the following requirements regardless

    if they are returning to work before or after the first payment due date:

    o A written statement from the borrowers employer confirming all of the following:

    Date of return to work

    Position and compensation will remain the same

    o A written statement from the borrower confirming their intent to return to work, and the intended date of return

    o The borrower qualifies for the mortgage using the reduced disability income

    If the borrower will be returning to work after the first mortgage payment due date, the borrowers current income plus

    available surplus liquid asset reserves, above and beyond any required reserves, as an income supplement up to the

    amount of the borrowers pre-leave income may be used to qualify

    o The amount of the monthly income supplement is the total amount of surplus reserves divided by the number of

    months between the first payment due date and the borrowers intended date of return to work.

    o Documentation of sufficient liquid assets, used to supplement the borrowers income through the intended date

    of return to work with current employer

    If the borrower will be returning to work before or at the time of the first payment due date, the borrowers pre-leave income

    may be used to qualify.

    Disability Income

    Social Security: o Most recent award letter to establish a minimum three year continuance and one of the following is required:

    Most recent federal tax returns, or Most recent bank statement, or Copy of the borrowers social security statement (form SSA-1099/1042S)

    VA Disability: o VA form 26-8937 (Verification of VA Benefits) showing the amount of the assistance and establishing a

    minimum of three year continuance and one of the following is required: Most recent federal tax returns, or Most recent bank statement

    Private Disability: o Documentation from the private disability insurance provider to verify the amount and a minimum of three year

    continuance of the benefit and one of the following is required: Most recent federal tax returns, or Most recent bank statement

    Child and Spousal Support Income

    A fully executed copy of the final divorce decree, legal separation agreement, court order, or voluntary payment

    agreement with documented receipt is required

    Required documentation:

    o When using a final divorce decree, legal separation agreement or court order, evidence of receipt using

    deposits on bank statements, canceled checks, or documentation from the child support agency for the most

    recent three months that supports the amount used in qualifying is required

    o If the payments are voluntary the agreement must be documented with 12 months of cancelled checks, bank

    statements or tax returns

    Calculation of effective income:

    o If the borrower has received consistent Alimony, Child Support and Maintenance Income for the most recent six

    months, the current payment may be used

    o When using a final divorce decree, legal separation agreement or court order, if the Borrower has received

    consistent Alimony, Child Support and Maintenance Income for the most recent three months, the current

    payment to calculate Effective Income may be used

    o If the Alimony, Child Support and Maintenance Income have not been consistently received for the most recent six months, the average of the income received over the previous two years must be used to calculate effective Income.

    If Alimony, Child Support and Maintenance Income have been received for less than two years, the average over the time of receipt must be used to calculated effective income

    Military Income If the borrowers Leave and Earnings Statement (LES) indicates that the borrower will be separating from the service within

    the first 12 months of the mortgage, military income may only be used if the borrower states their intent in writing to continue military service

    Retirement Income Social Security

    Documentation to verify the Borrowers receipt of income from the SSA and that it is likely to continue for at least a three

    year period from the date of case number assignment is required.

    The current amount of Social Security Income received must be used to calculate effective income.

    For SSI, one of the following documents is required:

    o federal tax returns;

    o Most recent bank statement evidencing receipt of income from the SSA;

    o Proof of Income Letter, also known as a Budget Letter or Benefits Letter that evidences income from the

    SSA; or

    o Copy of the Borrowers form SSA-1099/1042S, Social Security Benefit Statement.

    In addition to verification of income, the following documentation is required to support the continuance of SSI income:

    o a copy of the last Notice of Award letter which states the SSAs determination on the Borrowers eligibility for

    SSA income or

    o an equivalent document that establishes award benefits to the Borrower (equivalent document).

    o If any income from the SSA is due to expire within three years from the date of case number assignment, that income may not be used for qualifying.

    If the Notice of Award or equivalent document does not have a defined expiration date, the income will be considered of

    effective and reasonably likely to continue. No additional documentation from the Borrower to demonstrate continuance of

    Social Security Administration income is required

    If the Notice of Award letter or equivalent document specifies a future start date for receipt of income, this income may only be considered effective on the specified start date

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    Retirement Income - Pension

    Documentation to evidence the Borrowers receipt of periodic payments from the Borrowers Pension and that the payments

    are likely to continue for at least three years is required. A copy of the award letter documenting three years continuance

    AND any one of the following documents is required:

    o Federal tax returns;

    o The most recent bank statement evidencing receipt of income from the former employer; or

    o A copy of the Borrowers Pension/retirement letter from the former employer

    Retirement Income IRA/401K

    Documentation to verify the Borrowers receipt of recurring IRA/401(k) distribution Income and that it is reasonably likely to

    continue for three years is required. The most recent IRA/401(k) statement and any one of the following documents are

    required:

    o Federal tax returns;

    o The most recent bank statement evidencing receipt of income

    For borrowers with IRA/401(k) income that has been and will be consistently received, the current amount of IRA Income

    received must be used to calculate effective income.

    For borrowers with fluctuating IRA/401(k) income, the average of the IRA/401(k) income received over the previous two

    years must be used to calculate effective income.

    If IRA/401(k) income has been received for less than two years, the average over the time of receipt must be used to

    calculate effective income.

    Non-Taxable Income

    Non-taxable income may be grossed to the greater of 15% or the actual tax rate based on the borrowers tax rate of the previous year

    If the borrower was not required to file a federal tax return for the previous year, non-taxable income may be grossed up 15%. No additional adjustments or allowances based upon the number of dependents is allowed

    Future Income

    Future income may be considered as qualifying income except when the borrower is to be employed by a family owned business

    A copy of the fully executed non-contingent employment contract is required and must verify the borrowers employment start date to be within 60 days of the mortgages closing

    For retirement income to be used as future income documentation to verify the amount and that it is guaranteed to be begin within 60 days of the mortgage closing is required

    The borrower must have sufficient cash reserves to support the mortgage payment and any other obligations between the time the mortgage closes and the borrower starts to receive the income

    Rental Income

    History of Rental Income - Subject Property

    o When the borrower has a history of rental income from the subject since the previous tax filing, the rental

    income must be documented by the borrowers most recent two years tax returns, including Schedule E. For

    properties with less than two years of rental income history, documentation of the date of acquisition with either

    the deed, HUD or similar legal document is required

    Rental Income - Limited or No History of Rental Income Subject Property

    o When the borrower does not have a history of rental income from the subject since the previous tax filing, rental

    income must be documented by fair market rents obtained from the appraisal and, if available, the prospective

    leases

    o To calculate the effective rental income from the subject property when the borrower does not have a history of

    rental income from the subject property since the previous tax filing, rental income will be based on the lesser

    of:

    The monthly operating income reported on FNMA form 216/Freddie Mac form 998 OR

    75% of the lesser of:

    Fair market rent reported by the appraiser OR

    Rents reflected in the lease or rental agreement

    Rental Income - Limited or No History of Rental Income Other Properties

    o When the borrower does not have a history of rental income for the non-subject property since previous tax

    filing, including property being vacated by the borrower, an appraisal must be obtained evidencing market rent

    and that the borrower has at least 25% equity in the property. The appraisal is not required to be completed by

    an FHA Appraiser

    o Two to Four Units Rental income must be documented by obtaining an appraisal showing fair market rents

    and a FNMA Form 216/Freddie Mac Form 998 and, if available, the leases

    o One Unit Rental income must be documented by obtaining a FNMA Form 1007/Freddie Mac Form 70 and a

    FNMA Form 216/Freddie Mac Form 998 and, if available, the lease

    Rental Income - History of Rental Income Other Property

    o The borrowers last two years tax returns with Schedule E must be obtained

    o To calculate the net rental income the amount shown on the Schedule E for all properties still owned by the

    borrower must be averaged. Depreciation may be added back to the net income or loss

    o If the property has been owned for less than two years, the rental income must be annualized for the length of

    time the property has been owned

    o For properties with less than two years of rental income history, the date of acquisition must be documented by

    obtaining the deed, HUD or similar legal document

    o Positive net rental income must be added to the borrowers effective income. Negative net rental income must be included as a debt/liability

    Boarder Income

    Is acceptable if the borrower has a two year history of receiving this type of income with the following requirements: o Two years personal tax returns evidencing income from the boarders and the current lease o For purchase transactions a copy of an executed written agreement documenting the boarders intent to

    continue to reside with the borrower(s) o Income to be calculated by using the lesser of current lease or two year average

    Seasonal Employment

    Seasonal income is acceptable if: o Income must have been received for two years in same line of work, and o Income is likely to continue as document by VOE

    Unemployment income may be considered if borrower has received it for the most recent two years

    Income to be calculated by using the most recent two year average

    Employed by Family Owned Business

    When a borrower is employed by a family owned business the following is required: o Letter from business CPA to state borrower has no ownership in the business o Most recent two years tax returns

    Calculation of Effective Income: o Salary - For employees who are salaried and whose income has been and will likely continue to be

    consistently earned, the current salary must be used to calculate Effective Income. o Hourly - For employees who are paid hourly, and whose hours do not vary, Borrowers current hourly rate may

    be considered to be used to calculate Effective Income. For employees who are paid hourly and whose hours vary, the income over the previous two years must be averaged. If there is an increase in the borrowers pay rate, the most recent 12-month average of hours at the current pay rate can be used and must be documented.

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    Self Employed Borrowers

    If a borrower has been self employed for less than 2 years but not less than 1 year, income may be used to qualify if the borrower was employed in the same line of work or related occupation in the previous two years

    When a borrowers business income shows greater than a 20% decline over the tax years being analyzed, the loan must be downgraded to a manual underwrite. Refer.to the manual underwriting section.

    Must obtain a year to date P&L and balance sheet if more than a calendar quarter has elapsed since date of most recent calendar or fiscal year-end tax return was filed by the borrower. A balance sheet is not required for self employed borrowers who are filing a Schedule C

    If income used to qualify the borrower exceeds the two year average of tax returns, an audited P&L or signed quarterly tax return must be obtained form the IRS.

    Documentation Type/Tax Transcripts

    Validated IRS Tax transcripts are required for each borrower whose income is utilized as a source of repayment. The most recent two year tax transcripts are required.

    TOTAL Scorecard Accept Self-Employed Borrowers (ML2012-03): P & L and Balance Sheet required if more than a calendar quarter has elapsed since the date of most recent calendar or fiscal-year end tax return was filed by the borrower.

    Assets

    Cash on Hand Borrowers with cash on hand must meet the defined profile in the HUD Handbook 4000.1

    Earnest Money Deposit

    If the earnest money deposit exceeds 1% of the sales price, it must be verified and sourced.

    This applies to both AUS approvals and manually underwritten loans

    Down Payment Assistance Programs

    Seller funded down payment assistance programs are not permitted

    Use of Business Funds

    Borrower must file a Schedule C or be 100% owner of the corporation or LLC

    A cash flow analysis of the business and its capacity must be performed by the underwriter, broker must provide a minimum of three months complete business bank statements although the underwriter may request more if needed to determine eligibility

    Commission from Sale of Subject Property as Down Payment

    If the borrower is a licensed real estate agent entitled to a real estate commission from the sale of the property being purchased, those funds may be used as part of the down payment, a letter from the Real Estate Agency must state how much will be credited to the Sales Agent (after any commission split or deduction of other fees) at closing on the HUD-1. A family member entitled to the commission may also gift the funds to the borrower. There is no required adjustment to the maximum mortgage.

    Gifts

    Loans with gift funds must meet the following criteria (See HUD Handbook 4000.1 for complete guidelines):

    Gifts may be used for down payment, closing Purchase costs and prepaids

    Gifts may be provided by: o A close family member or a person having a long standing relationship with the borrower o The Borrowers employer or labor union o Charitable organization o A governmental agency or public Entity that has a program providing homeownership assistance to:

    low or moderate income families; or first-time homebuyers

    Gifts given in the form of cash are not acceptable

    Gifts are permitted to be used for reserves for AUS loans Requirements for Gift Transfer Documentation:

    If the gift funds are in the borrowers account, a copy of the withdrawal documents showing that the withdrawal was from the donors account and a copy of the deposit slip or a bank statement showing the deposit are required

    If the gift funds are not verified in the Borrowers account, obtain the certified check or money order or cashiers check or or other official check, and a bank statement showing the withdrawal from the donors account.

    If the gift funds are paid directly to the settlement agent by a wire transfer, verification that the settlement agent received the funds is required from the donor for the amount of the gift, and that the funds were from an acceptable source. Federal wire transfers are the only acceptable wire transfers and a copy of the Federal wire transfer indicating the donors name and bank account is required along with the corresponding settlement agent receipt.

    If the gift funds are being borrowed by the donor and documentation from the bank or other savings account is not available, the donor must provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction.

    Cash on Hand is not an acceptable source of donor gift funds.

    Reserves

    1-2 unit properties: No reserves are required

    3-4 unit properties: 3 months PITI are required

    Retirement accounts used for reserves must be accessible for liquidation

    Retirement accounts are given 60% of value reflected on the most recent statements for reserves

    Stocks, Bonds & Mutual Funds are given 70% of value reflected on most recent statement for reserves

    Large Deposits

    Source of funds are required for the following: o Recently opened accounts, and o Recent individual deposits that exceed 1% of the adjusted value (FHA defines the adjusted value as the lesser

    of the appraised value or the purchase price)

    Retirement Accounts

    60% of the vested value of the account may be used unless the borrower provides documentation that a higher percentage may be withdrawn after subtracting any federal income tax or penalties

    Terms and conditions for withdrawal must be provided

    If any portion of the account is required for funds to close, evidence of liquidation is required

    Stocks/Bonds/ Mutual Funds

    70% of the vested value of the account may be used

    If any portion of the account is required for funds to close, evidence of liquidation is required

    Collateral

    Appraisal Requirements

    A full appraisal (e.g. form 1004 or equivalent depending on property type, accompanied by form 1004MC is required

    HUD REO properties do not require a new appraisal unless one or more applies as follows:

    o The current "as is" appraisal is over 4 months old AND a valid HUD contract was not executed prior to the expiration date of the appraisal

    o The current "as is" appraisal is over 4 months old and the purchasers have not already been approved for the loan o A copy of the appraisal was ordered from the: Marketing and Management (M&M) contractor" but the M&M

    contractor is unable to provide the report

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    Deed Restrictions Not permitted, however, age-restricted communities may be considered and must be reviewed. Please provide By-Laws /

    Regulations of community.

    3-4 Unit Properties

    3 -4 unit properties must be self-sufficient.

    To determine if property meets self-sufficiency requirement, the following calculations are used: o Total of Fair Market Rents as reported by appraiser x vacancy factor must be equal or greater to PITI and o PITI divided by net rent as calculated in #1 cannot exceed 100% (Vacancy factor of 25% will apply)

    Reserves equivalent to three months PITI are required and gift funds are not permitted

    If there is a non-occupying co-borrower and the loan is a purchase, the LTV may not exceed 75%

    Borrower(s) must sign/date the FHA Hotel & Transient Form

    Condominiums

    Condominiums must be FHA approved

    Site condominiums do not require HUD project approval HUD REO's do not require FHA Condominium Project Approval

    HO6 Coverage is required

    HOA certs are required to verify that the project still meets HUD guidelines

    To look up a project to check if it is approved, go to https://entp.hud.gov/idapp/protect/condlook.cfm

    Unpermitted Additions

    Garage Conversions: o If the garage door is still attached: The appraiser must appraise it as a garage, assign a cost to cure, state

    whether it was done in a workmanlike manner and that the addition conforms to the original structure and meets HUD Minimum Property Requirements

    o If the garage door has been removed: The above requirements apply and the appraiser must include at least one comp that has an unpermitted garage conversion with the door removed in order to give it value as a garage. If the appraiser cannot find at least one comp to support that this is common for the area, no value may be given to the garage at all

    Additions and Converted Space: o The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided

    that the addition or conversion space meets the following requirements: is accessible from the interior of the main dwelling in a functional manner;

    has a permanent and sufficient heat source; and

    was built in keeping with the design, appeal, and quality of construction of the main dwelling. Room additions and garage conversions that do not meet the criteria listed above are to be addressed as a

    separate line item in the sales grid, not in the GLA. The Appraiser must address the impact of inferior quality garage conversions and room additions on marketability as well as Contributory Value, if any.

    The Appraiser must analyze and report differences in functional utility when selecting comparable properties of similar total GLA that do not include converted living space. If the Appraiser chooses to include converted living spaces as GLA, the Appraiser must include an explanation detailing the composition of the GLA reported for the comparable sales, functional utility of the subject and comparable properties, and market reaction.

    Alternatively, the Appraiser may consider and analyze converted living spaces on a separate line within the sales comparison grid including the functional utility line in order to demonstrate market reaction.

    The Appraiser must not add an ADU or secondary living area to the GLA.

    Unpermitted Room Additions: HUD allows unpermitted room additions, such as a bedroom, bathroom, etc. The appraiser must certify that it has been done in a workmanlike manner, conforms to the structure and meets HUD Minimum Property Requirements. If the appraiser gives the unpermitted room addition value, HUD requires at least one comparable closed sale to document market acceptance of the property. If no closed comparables are available, value may not be given to the room addition(s)

    Unpermitted Accessory Units: HUD allows unpermitted accessory units, also referred to as mother-in-law units or guest quarters. It is the appraisers responsibility to certify that the property complies with local zoning requirements. Additionally, the appraiser must comply with the same requirements as listed above for unpermitted room additions. A very important requirement is that the accessory unit may not be income producing.

    Unpermitted / Illegal Units: This type of unit differs from an accessory unit insofar that it is income producing and has separate electrical / gas meters and does not comply with local zoning requirements. This is not permitted under any circumstances.

    Properties Recently Listed for Sale

    Rate / Term Refinance: Listing must be cancelled at time of application and appraisal date

    Cash Out Refinance: 6 month seasoning is required. If expired/cancelled listing is less than 6 months old, LTV is limited to 70%

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  • FHA Conforming and High Balance Page 13 of 14 Last Updated 1/31/2018

    Underwriting Guideline Matrix

    FHA Conforming and High Balance

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    Prohibition of Property Flipping Rule

    FHA defines the sellers date of acquisition as the date the seller acquired legal ownership of that Property. FHA defines the resale date as the date of execution of the sales contract by all parties intending to finance the Property with an FHA-insured Mortgage. Properties sold

  • FHA Conforming and High Balance Page 14 of 14 Last Updated 1/31/2018

    Underwriting Guideline Matrix

    FHA Conforming and High Balance

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    Manufactured Housing (Cont.)

    Ineligible Property Types:

    Co-op manufactured housing

    Leasehold property

    New Construction manufactured home

    Single Wide Manufactured housing

    A Manufactured Home that was moved from its original site and was previously occupied or installed on a permanent

    foundation

    Property Requirements:

    The land must be fee simple

    The Manufactured Home must be a one unit dwelling legally classified as real property

    The towing hitch, wheels, and axles must be removed

    The Manufactured Home must have sufficient square footage, room dimension to be acceptable to purchasers in the subject market area

    The Manufactured Home must have been built in compliance with the Federal Manufactured Home Construction and Safety Standards that were established 6/15/1976 as well as additional requirements that appear in HUD regulation at 24 C.F.R Part 3280 evidence by:

    o HUD Data Plates/Compliance Certificate o HUD Certification Label

    The appraisal form 1004c must indicate evidence of the HUD Data Plate/Compliance Cert and the HUD Certification Label

    The Manufactured Home must be attached to a permanent foundation system

    Engineers Certificate for foundation system is required

    The Manufactured Home must be permanently connected to all necessary utilities

    Property cannot be located in flood zone Title Requirements:

    Endorsement ALTA 7,7.1 or 7.2 is required

    Confirm property is legally classified as real property. Any certificate of title to the manufactured home must be surrendered to the appropriate state government authority.

    Owner of the manufactured home must also own the land on which home is situated o A mortgage/deed of trust must be recorded in the land records and must identify the encumber property as

    including both the home and the land. It must also include the VIN,Serial numbers form the HUD Data Plate of the manufactured home along with the description of the land.

    Appraisal Requirements:

    Appraisal must be completed using the Manufactured Home Appraisal Report Form 1004C

    Appraiser must use a minimum of three comparable sales of similar manufactured home

    A detailed and supported cost approach to value is required on all MFH appraisals

    The following are ineligible: o If the site or manufacture home is substantially non-conforming with the neighborhood it is ineligible o Creating comparable sales by combining vacant land sales with the contract purchase price of the home is

    prohibited.

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