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HUD Handbook 4000.1 FAQ

Go Back - Home > HUD Handbook 4000.1 FAQ

Frequently asked questions on Sun West Underwriting policy per new FHA Handbook 4000.1

FAQ

Answer

Keyword

Categories

How do you calculate income for self employed Borrowers?

Self employed income is analyzed using the borrower's tax returns.
The gross self employment income to be used for qualification will be the lesser of:
• the average gross self-employment income earned over the previous 2 years; or
• the average gross self-employment income earned over the previous 1 year.

In case of loans approved using TOTAL scorecard if the income from businesses shows a greater than 20 percent decline in Effective Income over the analysis period, the loan file needs to be downgraded for manual underwriting and sufficient documents to verify the business is currently stable is required.

Self employment income can be used only if the requirements for minimum length of self employment as per Handbook are met.

References – 4000.1 II.A.4.c.x, 4000.1 II.A.5.b.x.

Income, self employment, eligibility

Income, Eligibility, Manual UW

Can overtime or bonus be used as income?

Overtime and bonus income refers to income that the borrower receives in addition to the borrower’s normal salary.

Overtime and bonus income received for less than 2 years may be considered effective income only if the income has been consistently earned over a period of not less than one year and is reasonably likely to continue.


Calculation of Overtime / Bonus Income:
For employees with overtime or bonus income, the income earned needs to be averaged over the previous two years to calculate effective income.
However, if the overtime or bonus income from the current year decreases by 20 percent or more from the previous year, the current year’s income will be used for qualification.
Reference – 4000.1 II.A.4.c.v, 4000.1 II.A.5.b.v

Income, eligibility, overtime, bonus

Income, Eligibility.

What are the documents required for employment verification for non-permanent resident aliens?

The Employment Authorization Document(EAD) issued by United States Citizenship and Immigration Services (USCIS) is required to substantiate work status for all non-permanent resident aliens.

If the Employment Authorization Document will expire within one year and a prior history of residency status renewals exists, then no additional documents for continuation of employment will be required.

However if there are no prior renewals, the eligibility for loan will be subject to confirmation from USCIS regarding renewal of authorization.

In case of borrowers residing in the U.S. by virtue of refugee or asylee status granted by the USCIS the EAD is not required, but documentation substantiating the refugee or asylee status is required.


While a borrower is required to have a valid Social Security Number, in no case is a Social Security card sufficient to prove immigration or work status.
Reference – 40001.II.A.1.b.ii.(A)(9)(b)

borrower eligibility, employment, non-permanent resident

Eligibility

What are the guidelines for using commissions as effective income?

Commission Income may be used as effective income 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.

Effective income for commission will be calculated by using the lesser of:
(a) the average net commission Income earned over the previous two years, or the length of time commission income has been earned if less than two years; or
(b) the average net commission Income* earned over the previous one year.

If commission income is greater than 25% of the total earnings, signed tax returns with all schedules are required for the past 2 years and 2106 expenses will be reduced from the gross commission income for qualification.

* The net Commission Income is calculated by subtracting the unreimbursed business expenses from the gross Commission Income.

Reference – 4000.1 II.A.4.c.ix, 4000.1 II.A.5.b.ix, Appendix 2.0 - Analyzing IRS Forms

Income, commission

Income, Eligibility

Are borrowers who change jobs frequently eligible for FHA mortgage?

If the Borrower has changed jobs more than 3 times in the previous 12 months, or changed line of work; then following documents are required for verifying the stability of income:

• Transcripts of training and education demonstrating qualifications for a new position; OR
• Employment documentation evidencing continual increase in income and/or benefit.

Reference: 4000.1 II.A.4.c.xi(A), 4000.1 II.A.5.b.xi (A)

Income, frequent changes in employment

Income, Eligibility

How are gaps in employment considered when analyzing income stability?

For Borrowers with gaps in employment of six months or more (an extended absence), the lender may consider the Borrower’s current income as Effective Income if documents are available to verify that:
• the Borrower has been employed in the current job for at least six months at the time of case number assignment; and
• a two year work history is present for borrower prior to the absence from employment.

Reference: 4000.1 II.A.4.c.xi.(B), 4000.1 II.A.5.b.xi (B)

Gaps in employment, income, absence from employment

Income

Are borrowers with temporary reduction in income eligible for FHA mortgage?

For borrowers with temporary reduction of income due to a short term disability or similar temporary leave the Borrower’s current income may be considered as Effective Income, if the following can be documented and verified:
• A written statement from the Borrower confirming the Borrower’s intent to return to work, and the intended date of return;
• Documentation from current employer confirming the Borrower’s eligibility to return; and
• Borrower qualifies with reduced income

If documents are available verifying that the borrower will not start receiving regular income before the first mortgage payment date then in such cases Supplemental income* can be used along with current income (earnings at the time of temporary leave) for qualification.

Documentation of sufficient liquid assets, in accordance with Handbook 4000.1 Sources of Funds requirements, used to supplement the borrower’s income through intended date of return to work with the current employer will be required.

*Supplemental income is the total amount of surplus Reserves divided by the number of months between the first payment due date and the Borrower’s intended date of return to work.
Reference - 4000.1 II.A.4.c.xi.(C), 4000.1 II.A.5.b.xi (C)

Temporary reduction, Income, Supplemental income

Income

For how long must the
borrower be employed for applying for an FHA forward mortgage?

For all employment related income, borrower must have recent two years history of employment and income. The effective Income must be reasonably likely to continue through at least the first three years of the mortgage

4000.1 II.A.4.c; 4000.1 II.A.5.b.

Employment History, income

Eligibility, Income

Can seasonal employment be used as income?

Seasonal employment refers to employment that is not year round, regardless of the number of hours per week the borrower works on the job.

Seasonal employment may be considered effective income if the borrower has worked the same line of work for the past two years and is reasonably likely to be rehired for the next season.

Unemployment income received by the borrower may be considered as effective income if the unemployment income must be documented for two full years and there must be reasonable assurance that the income will continue.

The effective income received needs to be determined by averaging the income earned over the previous two full years.

Reference – 4000.1 II.A.4.c.vi, 4000.1 II.A.5.b.vi

Seasonal employment, income, unemployment compensation / income

Income

What are the guidelines for borrowers who are employed by a family owned business?

Family-owned business income refers to employment income from a business owned by the borrower’s family, but in which the borrower is not an owner.

The income can be used for qualification if sufficient official documentation showing the ownership percentage are available to verify that the borrower is not an owner in the family-owned business.

Official business documents include corporate resolutions or other business organizational documents, business tax returns or Schedule K-1(IRS Form 1065), U.S. Return of Partnership Income, or an official letter from a certified public accountant on their business letterhead. In addition to traditional or alternative employment documentation requirements, copies of signed personal tax returns or tax transcripts of the borrower will be required.

In case of recent increase in income, the average income earned over the period of last two years will be considered for qualification instead of the increased income.

Reference – 4000.1 II.A.4.c.viii, 4000.1 II.A.5.b.viii.

Family owned business, family business,

Income

Can rent received from
boarders be used as
Income?

Boarder refers to an individual renting space inside the borrower’s dwelling unit.

Rental Income from boarders is acceptable in case of refinance transactions only if the borrower has a two-year history of receiving income from boarders that is shown on the tax return and the borrower is currently receiving boarder income.

Reference – 4000.1 II.A.4.c.xii.(I)(4), 4000.1 II.A.5.b.xii.(I)(4)

Boarder Income, individual renting space, additional income

Income

What is the definition
of self-employed borrower?

A borrower with a 25 percent or greater ownership interest in a business is considered self-employed for FHA mortgage loan underwriting purposes.

Reference – 4000.1 II.A.4.c.x, 4000.1 II.A.5.b.x

Self employed, eligibility

Income

What are the guidelines for calculating income for a person in the military?

Military income refers to income received by military personnel during their period of Active, Reserve, or National Guard service, including:
• Base pay;
• Basic Allowance for Housing;
• Clothing allowances;
• Flight or hazard pay;
• Basic Allowance for Subsistence; and
• Proficiency pay.

Education benefits cannot be used as effective income.

A copy of the borrower’s military Leave and Earnings Statement (LES) is required to verify the expiration term of service date on the LES. If the expiration term of service date is within the first 12 months of the mortgage, military income may only be considered effective income if the borrower represents their intent to continue military service.

Reference – 4000.1 II.A.4.c.xii.(C), 4000.1 II.A.5.b.xii.(C)

Military, active duty, reserve, military earnings

Income

Can a trust be used as
Income?

Trust income refers to income that is regularly distributed to a borrower from a trust account. Income from trust can be used if sufficient documents are available to verify:

• the existence of the Trust Agreement or other trustee statement.
• the frequency, duration, and amount of the distribution by obtaining a bank statement or transaction history from the bank.
• Regular payments will continue for at least the first three years of the mortgage term.

If the Borrower is withdrawing funds from the trust account to use for required cash investment then he/she has to provide adequate documentation that this withdrawal will not negatively affect amount of trust income the underwriter used to determine repayment ability.

Reference – 4000.1 II.A.4.c.xii.(M), 4000.1 II.A.5.b.xii.(M)

Trust, Agreement, trust account

Income

Can Mortgage Credit Certificates be used as Income?

Mortgage Credit Certificates refer to government mortgage payment subsidies other than Section 8 Homeownership Vouchers.

Mortgage Credit Certificate income that is not used to directly offset the mortgage payment before calculating the qualifying ratios can be used as effective income if documentation is available to verify that the governmental entity subsidizes the borrower’s mortgage payments either through direct payments or tax rebates.

Income will be calculated based on the current subsidy rate available.

Reference – 4000.1 II.A.4.c.xii.(D), 4000.1 II.A.5.b.xii.(D)

Mortgage Credit, MCC, subsidy

Income

How is residual income calculated for a manually underwritten
loan?

Residual income may be cited as an acceptable compensating factor for qualifying ratios as described in Handbook 4000.1 II.A.5.d.viii.

Residual income is calculated as total effective income of all occupying borrowers less:
• state income taxes;
• federal income taxes;
• municipal or other income taxes;
• retirement or Social Security;
• proposed total mortgage payment;
• estimated maintenance and utilities;
• job related expenses (e.g., child care); and
• the amount of the gross up of any non-taxable income.

Federal and state tax returns for the most recent tax year will be required for documenting the state and local taxes, retirement, Social Security and Medicare. If tax returns are not available, pay stubs documenting same will be required.
To use residual income as a compensating factor, the residual income received should equal or exceed the amount mentioned in the table provided in Lenders Handbook – VA Pamphlet 26-7 for the mortgage amount, region and house hold size*.

*House hold size includes all members of the household of the occupying borrower without regard to the nature of their relationship and whether they are joining on title or the Note. However any individuals who are fully supported from a source of verified income which is not included in effective income in the mortgage analysis can be omitted from the house hold size. These individuals must voluntarily provide sufficient documentation to verify their income to qualify for this exception.

Reference – 4000.1 II.A.5.d.viii, 4000.1 II.A.5.d.ix(F)

Residual Income, Manual UW, family size

Income and Manual UW

What is the Back to
Work Program?

The Back to Work – Extenuating Circumstances Policy guidance allows borrowers who have experienced an economic event resulting in loss of employment and household income to use an alternative manner for credit qualification for purchase money mortgages.

An economic event for the purposes of the Back to Work-Extenuating Circumstances program refers to any occurrence beyond the borrower’s control that results in loss of employment, loss of income, or both, which causes a reduction in the borrower’s household income of 20 percent or more for a period of at least six months.

Back to Work guidance is effective for purchase applications with case numbers assigned on or after August 15, 2013 through September 30, 2016.
Reference – 4000.1 II.A.5.d.xi

Back to work, extenuating circumstances, loss of employment, loss of income

Eligibility, Credit

How to document loss of employment for back to work?

It must be verified and documented, the loss of employment by obtaining a written Verification of Employment (VOE) evidencing the termination date. In cases where the prior employer is no longer in business, then a written termination notice or other publicly available documentation of the business closure must be obtained. They must also document receipt of unemployment income.
Reference: 4000.1 II.A.5.d.xi.

Back to work, extenuating circumstances, loss of employment, loss of income

Eligibility, Credit

How to determine the income of a Household Member for Back to Work?

The gross income of each household member must be determined according to the guidelines Sections II.A.4 and 5 of Handbook 4000.1.
Only the income of borrowers who were household members at the time of the economic event may be used as effective income for the purpose of establishing a 20 percent reduction in income.
Only the income from the borrower, not household income, may be used as effective income for the purpose of qualifying for the new loan.
Reference: 4000.1 II.A.5.d.xi

Back to work, extenuating circumstances, loss of employment, loss of income

Eligibility, Credit

Is a household member required to be a borrower on the application for Back to Work?

A household member does not need to be a borrower on the current application. However, the necessary authorization must be obtained to verify the loss of income of the household member that experienced the economic event, even if the household member is not an applicant on the current mortgage.

Reference: 4000.1 II.A.5.d.xi.

Back to work, extenuating circumstances, household member

Eligibility, Credit

What is the minimum down payment requirement for FHA?

The maximum mortgage amount that FHA will insure on a specific purchase is calculated by multiplying the appropriate Loan-to-Value (LTV) percentage by the adjusted value.

In order for FHA to insure this maximum mortgage amount, the borrower must make a Minimum Required Investment (MRI) of at least 3.5 percent of the adjusted value.

MRI refers to the borrower’s contribution in cash or its equivalent required by Section 203(b)(9) of the National Housing Act, which represents at least 3.5 percent of the adjusted value of the property.

Total required investment refers to the amount the borrower must contribute to the transaction including the borrower’s down payment and the borrower-paid transaction costs. The total required investment includes the MRI.
Reference: 4000.1 II.A.2.a.iv; II.A.2.c.i-ii

MRI, Down payment required

Allowable Mortgage Parameters b. Loan-to-Value Limits

How do I determine the loan amount when I have a non-occupant co-borrower?

A non-occupying borrower transaction refers to a transaction involving two or more borrowers in which one or more of the Borrower(s) will not occupy the property as their principal residence.

For non-occupying borrower transactions, the maximum Loan-to-Value (LTV) is 75 percent. The LTV can be increased to a maximum of 96.5 percent if the borrowers are family members, provided the transaction does not involve:
- A family member selling to a family member who will be a non-occupying co-borrower; or
- A transaction on a two- to four-unit property.

Family member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:
- child, parent, or grandparent;
- a child is defined as a son, stepson, daughter, or stepdaughter;
- a parent or grandparent includes a step-parent/grandparent or foster parent/grandparent;
- spouse or domestic partner;
- legally adopted son or daughter, including a child who is placed with the borrower by an authorized agency for legal adoption;
- foster child;
- brother, stepbrother;
- sister, stepsister;
- uncle;
- aunt; or
- son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the borrower.

To be eligible, all occupying and non-occupying borrowers and co-borrowers must take title to the property in their own name or a living trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments.
Reference: 4000.1 II.A.2.b.ii.(B)

LTV, Non Occupying Co Borrower

Allowable Mortgage Parameters b. Loan-to-Value Limits

How do I calculate an FHA loan for a property involving a land contract?

Properties to be acquired through an unrecorded land contact must be treated as a purchase.


When the purpose of the new mortgage is to pay off an outstanding recorded land contract, the transaction is treated as a Rate and Term Refinance. The unpaid principal balance shall be deemed to be the outstanding balance on the recorded land contract.
Reference: 4000.1 II.A.1.b.i.(A); II.A.8.d.vi.(A)(2)

LTV, Land Contract

Allowable Mortgage Parameters b. Loan-to-Value Limits

Do the requirements for 3-4 unit properties apply to both purchase and refinance transactions?

The requirements that apply to 3-4 unit property purchase transactions also apply to all refinance transactions of 3-4 unit properties.
Reference: 4000.1 II.A.1.b.iv.(B)(3); II.A.4.d.i.(C); II.A.5.c.i.(C)

3-4 unit property

Allowable Mortgage Parameters b. Loan-to-Value Limits

Which appraisal do I use to calculate the loan amount when there is a second appraisal?

It is prohibited from ordering an additional appraisal to achieve an increase in value for the property and/or the elimination or reduction of deficiencies and/or repairs required.

With the exception of property flipping requirements, a second appraisal may only be ordered and relied upon if the Direct Endorsement (DE) Underwriter determines the first appraisal is materially deficient and the appraiser is unable or uncooperative in resolving the deficiency.
On a transferred case, a second appraisal may only be ordered and relied on by the second lender under the following circumstances:
- the first appraisal contains material deficiencies as determined by the DE Underwriter for the second lender;
- the appraiser performing the first appraisal is prohibited from performing appraisals for the second lender;
- the first lender fails to provide a copy of the appraisal to the second lender in a timely manner, and the failure would cause a delay in closing and harm to the borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.

PROPERTY FLIPPING
A lender must obtain a second appraisal by another appraiser if:
- the resale date of a property is between 91 and 180 days following the acquisition of the property by the seller; and
- the resale price is 100 percent or more over the price paid by the seller to acquire the property. If the second appraisal supports a value of the property that is more than 5 percent lower than the value of the first appraisal, the lower value must be used to determine the adjusted value.

Reference: 24 CFR 203.37a (4) (iii) 4000.1 II.A.1.a.iii.(B)(8); II.A.1.b.iv.(A)(3)(b)(iii)

Property, Appraisal, Second, Loan amount

Eligibility, Property

Does FHA allow non occupying
co-borrowers
on a multi-unit
Property?

For non-occupying borrower purchase transactions, the maximum Loan-to-Value (LTV) is 75 percent. The LTV can be increased to a maximum of 96.5 percent if the borrowers are family members, provided the transaction does not involve:

- a family member selling to a family member who will be a non-occupying co-borrower; or
- a transaction on a two- to four-unit property.

Reference: 4000.1 II.A.2.b.ii.(B)(2)

Non occupying borrower

What rate do
borrowers qualify at
when using an ARM
Loan?

Borrower must qualify for the mortgage based on payments calculated using the initial interest rate.

For 1-year ARMs, if the Loan-to-Value (LTV) is 95 percent or more, the lender must underwrite the mortgage based on payments calculated using the initial interest rate plus 1 percent. If the LTV is less than 95 percent, the lender must underwrite the mortgage based on payments calculated using the initial interest rate.

Reference : 4000.1 II.A.8.f.vii

ARM

Eligibility

Does FHA specify the
length of the mortgage
term?

The maximum mortgage term may not exceed 30 years from the date that amortization begins. FHA does not require that mortgage terms be in five year multiples.

For Adjustable Rate Mortgages (ARM) the mortgage be fully amortizing over a period of no more than 30 years.

The maximum amortization period of a Streamline Refinance is limited to the lesser of:
· the remaining amortization period of the existing mortgage plus 12 years; or
· 30 years.

Reference : 4000.1 II.A.2.d; , II.A.8.f.viii; II.A.8.d.vi.(C)(4)(i)

Mortgage Terms

Eligibility

Are there any refinance
restrictions for borrowers who reoccupy
their former
investment property?

A cash-out refinance transaction is only permitted on owner-occupied principal residences. The property securing the cash-out refinance must have been owned and occupied by the borrower as their principal residence for the 12 months prior to the date of case number assignment.
The maximum Loan-to-Value (LTV) for a rate and term refinance is:
· 97.75 percent for principal residences that have been owner-occupied for previous 12 months, or owner occupied since acquisition if acquired within 12 months, at case number assignment.
· 85 percent for a borrower who has occupied the subject property as their principal residence for fewer than 12 months prior to the case number assignment date; or if owned less than 12 months, has not occupied the property for that entire period of ownership.

Reference- 4000.1 II.A.8.d

investment property

Eligibility

Can the cost of a solar
lease be prepaid or
financed through a Title II FHA-insured
mortgage?

The borrower must own, not lease, solar or wind energy systems for the systems to be considered eligible improvements. Leased equipment and Solar Power Purchase Agreements (SPPA) may not be financed under any FHA Title II programs.
The mortgagee must ensure that the value of an energy system that is not fully owned by the borrower, and part of the real property, is not included in the property value.

References : 4000.1 II.A.3.a.iv; II.A.8.a.m.iii

solar lease

Eligibility

What are the guidelines
for borrowers with a
previous mortgage
foreclosure or deed-in lieu of foreclosure for a manually underwritten
Mortgage?

A borrower is generally not eligible for a new FHA-insured mortgage if the borrower had a foreclosure or a deed-in-lieu of foreclosure in the three-year period prior to the date of case number assignment.

This three-year period begins on the date in which title transferred from the borrower.

If the credit report does not indicate the date of the foreclosure or deed-in-lieu of foreclosure, the lender must obtain the Settlement Statement, deed or other legal documents evidencing the date of property transfer.

If the foreclosure or deed-in-lieu of foreclosure was the result of a circumstance beyond the borrower’s control, the lender must obtain an explanation of the circumstance and document that the circumstance was beyond the borrower’s control. The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.

Divorce is not considered an extenuating circumstance, however, an exception may be granted where a borrower’s mortgage was current at the time of the borrower’s divorce, the ex-spouse received the property, and the mortgage was later foreclosed. The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.

Reference : 4000.1 II.A.5.a.iii.(I)

lieu of foreclosure

Eligibility, Credit, Manual UW

What are FHA's policies
regarding credit history
when manually
underwriting a
mortgage?

The underwriter must examine the borrower's overall pattern of credit behavior, not just isolated unsatisfactory or slow payments, to determine the borrower's creditworthiness.

The underwriter must evaluate the borrower's payment histories in the following order:
(1) previous housing expenses and related expenses, including utilities;
(2) installment debts; and
(3) revolving accounts.

The underwriter may consider a borrower to have an acceptable payment history if the borrower has made all housing and installment debt payments on time for the previous 12 months and no more than two 30-day late mortgage or installment payments in the previous 24 months.

The underwriter may approve the borrower with an acceptable payment history if the borrower has no major derogatory credit on revolving accounts in the previous 12 months.

Major derogatory credit on revolving accounts must include any payments made more than 90 days after the due date, or three or more payments more than 60 days after the due date.

If a borrower’s credit history does not reflect satisfactory credit as stated above, the borrower’s payment history requires additional analysis.

The lender must analyze the borrower’s delinquent accounts to determine whether late payments were based on a disregard for financial obligations, an inability to manage debt, or extenuating circumstances. The lender must document this analysis in the mortgage file. Any explanation or documentation of delinquent accounts must be consistent with other information in the file.

A borrower may only approve with a credit history not meeting the satisfactory credit history above if the underwriter has documented the delinquency was related to extenuating circumstances

Reference- 4000.1.II.A.5.a.iii

Manual Underwrite, Credit

Eligibility, Manual UW, Credit

How are judgments
considered for FHA
financing when
manually underwriting
a mortgage?

Judgment refers to any debt or monetary liability of the borrower, and the borrower’s spouse in a community property state unless excluded by state law, created by a court, or other adjudicating body.

The lender must verify that court-ordered judgments are resolved or paid off prior to or at closing. Judgments of a non-borrowing spouse in a community property state must be resolved or paid in full, with the exception of obligations excluded by state law.

Regardless of the amount of outstanding Judgments, the lender must also determine if the judgment was a result of:
· the borrower’s disregard for financial obligations;
· the borrower’s inability to manage debt; or
· extenuating circumstances.

EXCEPTION -A judgment is considered resolved if:

-the borrower has entered into a valid agreement with the creditor to make regular payments on the debt

-the borrower has made timely payments for at least three months of scheduled payments

-the judgment will not supersede the FHA-insured mortgage lien.

The borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments. The payment amount in the agreement must be included in the borrower’s monthly liabilities and debt. The lender must obtain a copy of the agreement and evidence that payments were made on time in accordance with the agreement.

The lender must provide the following documentation:
· evidence of payment in full, if paid prior to settlement;
· the payoff statement, if paid at settlement; or
· the payment arrangement with creditor, if not paid prior to or at settlement, and a subordination agreement for any liens existing on title.
Reference- 4000.1 II.A. 5.a. iii.(G)

Judgment, Manual Underwriting

Eligibility, Debt, Manual UW

How are disputed credit
accounts considered
when using the TOTAL
Scorecard?

Disputed derogatory credit account refers to disputed charge off accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months. If the credit report utilized by TOTAL Mortgage Scorecard indicates that the borrower has $1,000 or more collectively in disputed derogatory credit accounts, the mortgage must be downgraded to a Refer and manually underwritten.

Exclusions from the $1,000 cumulative balance include:
- disputed medical accounts; and
- disputed derogatory credit resulting from identity theft, credit card theft or unauthorized use. To exclude these balances, the lender must include a copy of the police report or other documentation from the creditor to support the status of the accounts.
- Accounts of a non-borrowing spouse in a community property state
- Non-derogatory disputed accounts

NON-DEROGATORY DISPUTED ACCOUNTS AND DISPUTED ACCOUNTS NOT INDICATED ON THE CREDIT REPORT
Non-derogatory disputed accounts include the following types of accounts:
- disputed accounts with zero balance;
- disputed accounts with late payments aged 24 months or greater; and
- disputed accounts that are current and paid as agreed.

If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the lender is not required to downgrade the application to a Refer.

However, the lender must analyze the effect of the disputed accounts on the borrower’s ability to repay the mortgage. If the dispute results in the borrower’s monthly debt payments used in computing the debt-to-income being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments.

Reference-4000.1 II.A.4.b.iii.(B)-(C)

disputed account, credit, TOTAL,

Eligibility, Credit

How are disputed credit
accounts considered for
manually underwritten
Loans?

Disputed derogatory credit account refers to disputed charge off accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.
If the credit report indicates that the borrower is disputing derogatory credit accounts, the borrower must provide a letter of explanation and documentation supporting the basis of the dispute.

If the disputed derogatory credit resulted from identity theft, credit card theft or unauthorized use balances, the mortgagee must obtain a copy of the police report or other documentation from the creditor to support the status of the accounts.

If the borrower has $1,000 or more collectively in disputed derogatory credit accounts, the lender must include a monthly payment in the borrower’s debt calculation.

The following items are excluded from the $1,000 cumulative balance:
- disputed medical accounts; and
- disputed derogatory credit resulting from identity theft, credit card theft or unauthorized use
- accounts of a non-borrowing spouse in a community property state.

If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the lender must analyze the effect of the disputed accounts on the borrower’s ability to repay the loan. If the dispute results in the borrower’s monthly debt payments utilized in computing the debt-to income (DTI) ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments.

Non-derogatory disputed accounts include the following types of accounts:
- disputed accounts with zero balance;
- disputed accounts with late payments aged 24 months or greater; or
- disputed accounts that are current and paid as agreed.

Reference- 4000.1 II.A.5.a.iii.(F); II.a.5.iv.(K)–(L)

disputed account, Manual Underwriting, Credit

Eligibility, Credit, Manual UW

Do I have to take into
account the credit and
debts of a non-purchasing
spouse in a
community property
State?

The lender must not consider the credit history of a non-borrowing spouse. The non-borrowing spouse’s credit history is not considered a reason to deny a mortgage application. If the borrower resides in a community property state or the property being insured is located in a community property state, debts of the non borrowing
spouse must be included in the borrower’s qualifying ratios, except for obligations specifically excluded by state law.

The lender must:
- verify and document the debt of the non-borrowing spouse.
- make a note in the file referencing the specific state law that justifies the exclusion of any debt from consideration.
- obtain a credit report for the non-borrowing spouse in order to determine the debts that must be included in the liabilities. The credit report for the non-borrowing spouse is for the purpose of establishing debt only, and is not submitted to TOTAL Mortgage Scorecard for the purpose of credit evaluation. The credit report for the non-borrowing spouse may be traditional or non-traditional.

Reference- 4000.1 II.A.4.b.iv.(F); II.A.5.b.i, II.A.5.a.iv.(E)

non-purchasing
Spouse, Community Property, Debt, Credit

Eligibility, Debt, Credit

Does FHA require
collections to be paid
off for a borrower to be
eligible for FHA
financing?

> A collection account refers to a borrower’s loan or debt that has been submitted to a collection agency by a Creditor.

If the credit reports used in the analysis show cumulative outstanding collection account balances of $2,000 or greater, the lender must:

- verify that the debt is paid in full at the time of or prior to settlement using an acceptable source of funds;
- verify that the borrower has made payment arrangements with the creditor and include the monthly payment in the borrower’s debt-to-income (DTI) ratio; or
-if a payment arrangement is not available, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the borrower’s DTI.

Collection accounts of a non-borrowing spouse in a community property state must be included in the $2,000 cumulative balance and analyzed as part of the borrower’s ability to pay all collection accounts, unless excluded by state law.

Unless the lender uses 5 percent of the outstanding balance, the lender must provide the following documentation:
- evidence of payment in full, if paid prior to settlement;
- the payoff statement, if paid at settlement; or
- the payment arrangement with creditor, if not paid prior to or at settlement.

For manually underwritten loans, the lender must determine if collection accounts were a result of:
- the borrower’s disregard for financial obligations;
- the borrower’s inability to manage debt; or
- extenuating circumstances.

The lender must document reasons for approving a mortgage when the borrower has any collection accounts.

The borrower must provide a letter of explanation, which is supported by documentation, for each outstanding collection account. The explanation and supporting documentation must be consistent with other credit information in the file.

Reference- 4000.1 II.A.4.b.iv.(L); II.A.5.a.iii.(D), II.A.5.a.iv.(N)

collection account, credit, debt, manual underwriting

Eligibility, Debt, Credit, Manual UW

Is a borrower eligible
for FHA insured
financing if he or she
does not have any
credit history?

Lack of traditional credit or a borrower’s decision to not use credit may not be used as the sole basis for rejecting the mortgage application.

For borrowers without a credit score, the lender must obtain a Non-Traditional Mortgage Credit Report (NTMCR) from a credit reporting company or independently develop the Borrower’s credit history.

A NTMCR is used to access the credit history of a borrower who does not have trade references that appear on traditional credit reports and is used as”
- a substitute for a Tri-Merged Credit Report (TRMCR) or a Residential Mortgage Credit Report (RMCR); or
- a supplement to a traditional credit report with an insufficient number of trade items.

To be sufficient to establish credit history, 3 credit references must be used, including at least 1 of the following:
- rental housing payments (requires independent verification if borrower is a renter);
- phone service; or
- utility company reference (if not included in rental housing payment), including gas, electricity, water, or television or internet service.

If 3 credit references from the list cannot be obtained, the following may be used:
- insurance premiums not payroll deducted (e.g., medical, auto, life, renter’s insurance);
- payment made to child care provider businesses that provide such services;
- school tuition;
- retail store credit cards (department, furniture, appliance stores);
- rent-to-own (e.g., furniture, appliances);
- medical bill payments not covered by insurance;
- personal loan from an individual with repayment terms in writing & canceled checks to document payments;
- automobile lease; or
- 12-month savings history 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 funds (NSF) checks

Reference : 4000.1 II.A.5.a.ii.(B) , II.A.5.d.iii

traditional credit report, credit, Non-traditional,

Eligibility, Credit

Is a foreclosure on a
timeshare considered a
mortgage foreclosure
or installment loan?

A loan secured by an interest in a timeshare must be considered an Installment Loan and not a housing obligation, even in the event of a foreclosure.

Reference : 4000.1 II.A.4.b.iv.(H); II.A.5.a.iv.(G)

Foreclosure , timeshare, installment, debt,

Eligibility, Debt

Must the borrower pay
off a judgment against a
non-purchasing spouse
in a community
property state?

Judgments of a non-borrowing spouse in a community property state must be resolved or paid in full, with the exception of obligations excluded by state law.

A judgment is considered resolved if:

• the borrower has entered into a valid agreement with the creditor to make regular payments on the debt

• the borrower has made timely payments for at least three months of scheduled payment; and

• the judgment will not supersede the FHA-insured mortgage lien.

The borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments. The payment amount in the agreement must be included in the borrower’s monthly liabilities and debt. The lender must obtain a copy of the agreement and evidence that payments were made on time in accordance with the agreement.

The lender must provide the following documentation:
- evidence of payment in full, if paid prior to settlement;
- the payoff statement, if paid at settlement; or
- the payment arrangement with creditor, if not paid prior to or at settlement, and a subordination agreement for any liens existing on title.

Reference : 4000.1 II.A.4.b.iii.(D); II.A.5.a.iii.(G)(2)

Judgment, pay off, spouse, community property state

Eligibility, Debt

Is a subordination
agreement required if
the borrower has an
outstanding tax lien?

Tax liens may remain unpaid if:
- the borrower has entered into a valid repayment agreement with the federal agency owed to make regular payments on the debt.
- the borrower has made timely payments for at least three months of scheduled payments. The borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments.
- the lien holder subordinates the tax lien to the FHA-insured mortgage.

The lender must:
- include the payment amount in the agreement in the calculation of the borrower’s Debt-to-Income (DTI) ratio.
- check public records and credit information to verify that the borrower is not presently delinquent on any federal debt and does not have a tax lien placed against their property for a debt owed to the federal government.
- include documentation from the IRS evidencing the repayment agreement and verification of payments made, if applicable.

Reference : 4000.1 II.A.1.b.ii.(A)(12)-(13)

subordination agreement, tax lien

Eligibility, Debt

Is a borrower eligible
for an FHA loan if the
borrower has
participated in
consumer credit
Counseling?

Participating in a consumer credit counseling program does not disqualify a borrower from obtaining an FHA insured mortgage.

For manually underwritten loans the lender must document that:
- one year of the pay-out period has elapsed under the plan;
- the borrower’s payment performance has been satisfactory and all required payments have been made on time; and
- the borrower has received written permission from the counseling agency to enter into the mortgage transaction.

Reference : 4000.1 II.A.4.b.iii.(J); II.A.5.a.iii.(K)

consumer credit
counseling, credit, eligibility, Manual Underwriting

Eligibility, Credit, Manual UW

Is a verification of rent
or mortgage required?

Where a loan underwritten using the TOTAL Scorecard receives an Accept recommendation no verification of rent or mortgage is required.

For manually underwritten loans, the lender must determine the borrower’s housing obligation payment history through:
- the credit report;
- verification of rent received directly from the landlord (for landlords with no Identity of Interest with the borrower);
- verification of mortgage received directly from the mortgage servicer; or
- a review of canceled checks that cover the most recent 12-month period.

The lender must verify and document the previous 12 months’ housing history. For borrowers who indicate they are living rent-free, the lender must obtain 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.

FOR NO CASH OUT REFINANCES
For manually underwritten mortgages with less than six months of mortgage payment history, the borrower must have made all payments within the month due.

For manually underwritten mortgages with greater than six months history, the borrower must have made all mortgage payments within the month due for the six months prior to case number assignment and have no more than one 30-day late payment for the previous six months for all mortgages.

If the mortgage on the subject property is not reported in the borrower’s credit report, the lender must obtain a verification of mortgage to evidence payment history for the previous 12 months.

FOR CASH OUT REFINANCES
The lender must verify that the borrower has made all payments for all their mortgages within the month due for the previous 12 months, or since the borrower obtained the mortgages, whichever is less.

If the mortgage on the subject property is not reported in the borrower’s credit report or is not in the name of the borrower, the lender must obtain a verification of mortgage, bank statements or other documentation to evidence that all payments have been made by the borrower in the month due for the previous 12 months.

Reference : 4000.1 II.A.5.a.iii.(C);, II.A.8.d.v.(A)(2); II.A.8.d.vi.(A)(1)(b); II.A.8.vi.(B)(1)(b)

verification of rent ,
verification of mortgage, VOR, VOM, Manual Underwriting

Eligibility, Manual UW

How long is credit
documentation valid?

Documents used in the origination and underwriting of a mortgage may not be more than 120 days old at the disbursement date.

Documents whose validity for underwriting purposes is not affected by the passage of time, such as divorce decrees or tax returns, may be more than 120 days old at the disbursement date.

For purposes of counting days for periods provided , day one is the day after the effective or issue date of the document, whichever is later.

Reference : 4000.1 II.A.1.a.i.(A)(1)(a)

document validity, documentation, valid, credit

Eligibility, Definition, Credit

Can I get a single credit
report for unmarried
co-borrowers?

The lender must obtain a credit report for each borrower who will be obligated on the mortgage Note. The lender may obtain a joint report for individuals with joint accounts.

Reference : 4000.1 II.A.4.b.i; II.A.5.a.i

Joint credit report, credit, unmarried co-borrowers

Eligibility, Credit

What is FHA’s policy
with regard to
Assumptions?

Assumption refers to the transfer of an existing mortgage obligation from an existing borrower to the assuming borrower.

If the original mortgage was closed on or after December 15, 1989, the assuming borrower must intend to occupy the property as a principal residence or HUD-approved secondary residence.

If the original mortgage was closed prior to December 15, 1989, the assuming borrower may assume the mortgage as a principal residence, HUD-approved secondary residence or investment property.

The maximum Loan-to-Value (LTV) for an investment property assumption is 75%. Either the original appraised value or new property value may be used to determine compliance with the 75% LTV limitation.

The maximum LTV for a HUD-approved secondary residence assumption is 85%. Either the original appraised value or new property value may be used to determine compliance with the 85% LTV limitation.

Mortgagees must complete form HUD 92210, Request for Credit Approval of Substitute Mortgagor, or equivalent form to document its processing of an assumption. The completion of such form does not formally release the original borrower from personal liability for the mortgage Note.

The mortgagee must prepare form HUD 92210.1, Approval of Purchaser and Release of Seller, thereby releasing the original owner when they sell by assumption to the assuming borrower who executes an agreement to assume the mortgage and to pay the debt.

Reference-4000.1 II.A.8.n

Assumptions, eligibiltiy

Eligibility

Does TOTAL Scorecard verify my loan data?

FHA’s Technology Open To Approved Lenders (TOTAL) Mortgage Scorecard is not an Automated Underwriting System (AUS) but a scorecard that must interface through a system-to-system connection with an AUS.

TOTAL Mortgage Scorecard evaluates the overall credit risk posed by the borrower, based on a number of credit variables, when combined with the functionality of an AUS.
The lender may not accept or deny an FHA-insured mortgage based solely on a risk assessment generated by TOTAL Mortgage Scorecard.

The lender must ensure full compliance with all FHA eligibility requirements, and all requirements. The lender must verify the information used to score the mortgage through TOTAL but does not need to analyze the credit history, unless otherwise stated in Handbook 4000.1 II.A.4, if an Accept or Approve recommendation is received.
Lenders using TOTAL remain solely responsible for prudent underwriting practices and the final underwriting decision.

Reference : 4000.1 II.A.4.a

Loan data, TOTAL, AUS, Eligibility

Eligibility

What data must be entered in FHA TOTAL to indicate that a loan is a Sponsored TPO Origination?

The lender must ensure the Employer Identification Number (EIN) of the sponsored third party originator (TPO) is entered into the Automated Underwriting System (AUS).

If the lender is using an AUS that is unable to transmit the TPO’s EIN, they must enter “6999609996” in the Lender ID field.

The lender may permit a sponsored TPO to enter data into the AUS. Both the lender and its TPO must ensure and verify all data entered into the AUS. The lender remains ultimately responsible for ensuring the data entered into the AUS is correct.

Reference : 4000.1 II.A.4.a.iii.(A)(2)

Employer Identification Number, Loan data, TOTAL, AUS, Eligibility

Eligibility

When must we
downgrade and
manually underwrite a
mortgage with an
Accept risk
classification?

Downgrade and manually underwrite any mortgage that received an Accept recommendation if:

• the mortgage file contains information or documentation that cannot be entered into or evaluated by TOTAL Mortgage Scorecard;
• additional information, not considered in the AUS recommendation affects the overall insurability of the mortgage;
• the borrower has $1,000 or more collectively in disputed derogatory credit accounts;
• the date of the borrower’s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of case number assignment;
• the case number assignment date is within three years of the date of the transfer of title through a preforeclosure sale (short sale);
• the case number assignment date is within three years of the date of the transfer of title through a foreclosure Sale;
• the case number assignment date is within three years of the date of the transfer of title through a Deed-inLieu (DIL) of foreclosure;
• only the non-occupying co-borrower has a credit score;
• the mortgage payment history requires a downgrade as defined in Handbook 4000.1 II. A. b.iii (K) – Housing Obligations/Mortgage Payment History;
• the borrower has undisclosed mortgage debt; or
• business income shows a greater than 20 percent decline over the analysis period.

If a determination is made that the mortgage must be manually downgraded, the lender must cease its use of the AUS and comply with all requirements for manual underwriting when underwriting a downgraded mortgage.

Reference : 4000.1 II.A.4.a.v – vi a

Downgrade, Manual underwrite

Eligibility, Manual UW

What are the TOTAL
Mortgage Scorecard
Tolerance Levels for
Rescoring?

We must rescore a mortgage when any data element of the mortgage change and/or new borrower information becomes available.

Rescoring a mortgage is NOT required if the following data elements change from the last scoring event within the described tolerance levels:
- Cash Reserves – verified case reserves are not less than 10% below the previously scored amount.
- Income – verified income is not less than 5% below the previously scored amount.
- Tax and Insurance Escrow – the cumulative monthly tax and insurance escrow does not result in more than a 2% increase in the total payment to effective income ratio (PTI).

Reference : 4000.1 II.A.4.a.vii

Rescore, Resubmission , tolerance, TOTAL, AUS

Eligibility

What is considered
secondary financing on
an FHA insured first
Mortgage?

Secondary Financing is any financing other than the first mortgage that creates a lien against the property. Any such financing that does create a lien against the property is not considered a gift or a grant even if it does not require regular payments or has other features forgiving the debt.
Requirements for Secondary Financing provided by:
- Government Entities and HOPE Grantees;
- HUD-Approved Nonprofits;
- Family Members; and
- Private Individuals and Other Organization

Reference- 4000.1 II.A.4.d.iii.(J) ; II.A.5.c.iii.(J)

secondary financing , DPA , grant

Eligibility

Do nonprofits assisting
with a government
entity's secondary
financing program
require HUD approval?

Nonprofits assisting a Governmental Entity in the operation of its secondary financing programs must have HUD approval and placement on the Nonprofit Organization Roster unless there is a documented agreement that:
- the functions performed are limited to the Governmental Entity’s secondary financing program; and
- the secondary financing legal documents (Note and Deed of Trust) name the Governmental Entity as the mortgagee.

Secondary financing that will close in the name of the nonprofit and be held by a Governmental Entity must be made by a HUD-approved Nonprofit as verified from FHA nonprofit roster

Reference : 4000.1 II.A.4.d.iii.(J)(1)(b);II.A.5.c.iii.(J)(1)

Non Profit, DPA , secondary financing

Eligibility

Who must be screened
through CAIVRS?

Obtain information on delinquent federal debts from public records, credit reports or equivalent, and must check all borrowers including nonprofits acting as a borrower, against the Credit Alert Verification Reporting System (CAIVRS) except on streamline refinances.

Reference : 4000.1 II.A.1.b.ii.(A)(10); II.A.5.d.xii.(B)(2); II.A.8.d.vi.(C)(1)

CAIVRS

Eligibility

Can FHA clear the CAIVRS if I have
evidence supporting the debt is paid off?

FHA cannot alter or delete Credit Alert Verification Reporting System (CAIVRS) information reported from other Federal agencies, such as the Department of Education, Veterans Affairs, etc.

If a delinquent federal debt is reflected in a public record, credit report or equivalent, or CAIVRS or an equivalent system, the lender must verify the validity and delinquency status of the debt by contacting the creditor agency to whom the debt is owed. If the debt was identified through CAIVRS, the lender must contact the creditor agency using the contact phone number and debt reference number reflected in the borrower’s CAIVRS report.

If the creditor agency confirms that the debt is valid and in delinquent status as defined by the Debt Collection Improvement Act, then the borrower is ineligible for an FHA-insured mortgage until the borrower resolves the debt with the creditor agency.

The lender may not deny a mortgage solely on the basis of CAIVRS information that has not been verified by the lender. If resolved either by determining that the information in CAIVRS is no longer valid or by resolving the delinquent status as stated above, the lender may continue to process the mortgage application.

The lender must include documentation from the creditor agency to support the verification and resolution of the debt. For debt reported through CAIVRS, the lender may obtain evidence of resolution by obtaining a clear CAIVRS report.

Reference : 4000.1 II.A.1.b.ii.(A)(10)

CAIVRS

Eligibility

How does the lender complete the LDP/GSA box on the HUD-92900-
LT form?

The lender must check the “Yes” box on form HUD-92900-LT if the Borrower appears on either the LDP or SAM list.

Reference : 4000.1 II.A.1.b.ii.(B)

HUD-92900-LT

Eligibility

Does FHA allow alternative
documentation if I'm
unable to get a Verification of Deposit?

The lender must obtain a written Verification of Deposit (VOD) and the borrower’s most recent statement for each account.

If a VOD is not obtained, a statement showing the previous month’s ending balance for the most recent month is required. If the previous month’s balance is not shown, the lender must obtain statement(s) for the most recent two months.

Reference : 4000.1 II.A.4.d.iii.(A)(3); II.A.5.c.iii.(A)(3)

Verification of Deposit, alternative, VOD

Eligibility, Assets

What information is required on the URLA Addendum (92900A)
for a sponsored origination (TPO)?

The HUD/VA Addendum to Uniform Residential Loan Application (form HUD-92900-A) captures necessary information for sponsored originators.

While common practice in the industry is for the interviewer to sign page 1 of the 92900-A, if a sponsored originator is involved, the sponsoring lender is required to sign and date page 1 of this form.

The following information must be provided on page 3:
• Loan Origination Company – Entity’s Legal Name of the originating FHA lender
• Loan Origination Company Tax ID - Employer Identification Number issued by the Internal Revenue Service (IRS)
• NMLS ID of the Loan Origination Company - The unique identifier of the company, if licensed with NMLS

For those loans originated by a sponsored originator, the sponsoring lender must enter its name and address in block 15 on pages 1 and 3.

Reference : 4000.1 II.A.1.a.i.(B)(1)

URLA Addendum (92900A)

Eligibility

Is the borrower required to provide a photo identification to
obtain an FHA mortgage?

The lender must include a statement that it has verified the borrower’s identity using valid government-issued photo identification prior to endorsement of the mortgage or the lender may choose to include a copy of such photo identification as documentation.

Reference : 4000.1 II.A.1.a.i.(B)(1)

photo identification, ID

Eligibility

Where must the underwriter record compensating factors used to support the underwriting decision?

Any Compensating factors used to support the underwriting decision must be recorded on form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary.

Reference : 4000.1 II.A.5.d.x.(B)(1)

Compensating factors, manual underwriting

Eligibility, Manual UW

Where can I obtain a list of FHA origination forms?

An all-inclusive list is not available as the requirements are different by loan type. Your lender’s underwriter should know what is required for your particular transaction including all additional loan origination documents required by other regulatory agencies.

HUD Forms are available on-line at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/forms

Forms

Eligibility

Does the sponsored originator or the sponsoring lender complete the Interviewer section on
the URLA?

The interviewer identified on the Uniform Residential Loan Application (URLA) must be the actual licensed interviewer regardless of whether the interviewer is employed by a sponsored Third-Party Originator (TPO) or the lender.

The URLA must contain the interviewer’s name, Nationwide Mortgage Licensing System and Registry (NMLS) identification number, telephone number, and signature.

Reference : 4000.1 II.A.1.a.i.(B)(1)

Residential Loan Application (URLA)

Eligibility

Are there any sellers exempt from the requirement that the
Mortgagee must ensure the sales contract includes a provision
that the Borrower has applied for Section 203(k) financing and
the Borrower's acceptance of
additional required Improvements as determined by the Mortgagee?

No. The Mortgagee must ensure the sales contract includes a provision that the Borrowers have applied for Section 203(k) financing, and that the contract is contingent upon the Borrower's acceptance of additional required improvements and mortgage approval regardless of seller of the property.

4000.1 II.A.8.a.vi.H.(4)

203K, sellers, contract, exemption

Eligibility

How is the "After
Improved Value" determined?

An appraisal by an FHA Roster Appraiser is always required to establish the After Improved Value of the Property.

Reference : 4000.1 II.A.8.a.viii.(A)(1

Improved Value, Appraisal

Eligibility, Property

What are the fees that can be included in the 203(k) maximum
mortgage calculation?
Is there a list?

Standard 203(k) and Limited 203(k) each have their own lists of financeable repair and improvement costs and fees associated with the new mortgage. Please refer to the following handbook sections for more information.

For the Standard 203(k) financeable costs and fees, see 4000.1:
- II A 8 vi D - Standard 203(k) Financeable Repair and Improvement Costs and Fees
- II A 8 vi E - Standard 203(k) Financeable Contingency Reserve
- II A 8 vi F - Standard 203(k) Financeable Mortgage Payment Reserves
- II A 8 vi G - Standard 203(k) Financeable Mortgage Fees

For the Limited 203(k) program, see 4000.1:
- II A 8 vii D - Limited 203(k) Financeable Repair and Improvement Costs and Fees
- II A 8 vii E - Limited 203(k) Financeable (E) Contingency Reserves
- II A 8 vii F - Limited 203(k) Financeable Mortgage Fees
- II A 8 vii G - Limited 203(k) Ineligible Fees and Costs

References : II.A.8.vi.(2)(D) , II.A.8.vi.(2)(E) , II.A.8.vi.(2)(F) , II.A.8.vi.(2)(G) , II.A.8.vii.(2)(D), II.A.8.vii.(2)(E), II.A.8.vii.(2)(F), II.A.8.vii.(2)(G)

203K, eligibility, mortgage amount, calculation, fees

Eligibility

The Building on Own Land section of the 4000.1 has removed allowances for the loan to be closed as a Purchase, was this
intentional?

A Building on Own Land Mortgage may be closed as a purchase or refinance. The Settlement Statement or similar legal document may be prepared as a refinance transaction.

Reference : 4000.1 II.A.8.k.iv

Build on own land, Purchase, allowances

Eligibility, Property

Do the payment history requirements in the Refinance section only apply to the subject property, or do they
apply to all other mortgages held by the Borrower? (i.e. Second
Home, Investment property, conventional loan, etc.)

Refinance program and product subsections contain payment history requirements specific to the type of refinance:
- Cash-Out 4000.1 II A.8.v.(2)(a);
- No Cash-Out 4000.1 II.A.8.vi.(b);
- Simple 4000.1 II.A.8.(B)(b)(i); and

- Streamline 4000.1 II.A.8.(C)(b)(i).

Also review TOTAL mortgage payment history requirements at 4000.1 II.A.4.b.iii.K.(2) and (3); and Manual Underwriting mortgage payment history requirements at 4000.1 II.A.5.a.iii.(C).

Reference : 4000.1 II.A.8.v.(2)(a) , II.A.8.vi.(b), II.A.8.(B)(b)(i) , II.A.8.(C)(b)(i) , II.A.4.b.iii.K.(2), II.A.4.b.iii.K.(3) , II.A.5.a.iii.(C) , II.A.5.iii.a.(B)(1)

Payment history, Refinance, manual underwriting

Eligibility, Manual UW

Do the satisfactory credit requirements apply only to purchase transactions?

The origination, underwriting, closing, post-closing, and endorsement standards and procedures are applicable to all Single Family (one- to four-units) Mortgages.

Program-specific standards or procedures are explicitly stated.

Reference : 4000.1 II.A.5.iii.a.(B)(1) II.A.8

Credit, Eligibility, requirements, purchase

Eligibility, Credit

On Annuities, what is the required Legal Agreement?

The legal agreement is the contract used to establish the annuity income and guaranteeing the continuation of the annuity for the first three years of the Mortgage.

Reference : 4000.1 II.A.4.c.viii(N)(2)

Legal, annuities

Eligibility

For a cash-out refinance, If a borrower
applies for a loan today, would they need to provide a 2013 and 2014 w-2 to verify 12 months of owner occupancy? If using
pay stubs, would the borrower have to
submit a pay stub from 12 months ago?

The Property securing the cash-out refinance must have been owned and occupied by the Borrower as their Principal Residence for the 12 months prior to the date of case number assignment.

The Mortgagee must review the Borrower’s employment documentation or obtain utility bills to evidence the Borrower has occupied the subject Property as their Principal Residence for the 12 months prior to case number assignment.

Reference : 4000.1 II.A.8.v.(A)(1)(b)

Cash out, refinance, owner-occupied, occupancy

Eligibility, Property, Income

For a rate and term refinance, if a borrower is self-employed or retired and needs to use the utility statements, would s/he have to provide 12 months’ worth of utility statements? Or would the borrower only provide a statement
from 12 months ago?

The Mortgagee must review the Borrower’s employment documentation or obtain utility bills to evidence the Borrower has occupied the subject Property as their Principal Residence for the 12 months prior to case number assignment.

For all income types, including self-employed or retired individuals, employment documentation could include copies of tax returns. 4000.1 II A 8 v A 1 b

For retired borrowers, Mortgagees would review the borrower's retirement income documentation or utility bills.

Reference : 4000.1 II. A. 8. v.(A)(1)(b), II. A.4.b.xii.(H)(b) , II. A.5.b.xii.(H)(b)

Rate and Term, Refinance, Utility, Occupancy,

Eligibility, Property, Income

What does it mean to resolve delinquent federal debt in compliance with the Debt Collection Improvement Act??

In order for a Borrower with verified delinquent Federal Debt to become eligible, the Borrower must resolve their federal non-tax debt in accordance with the Debt Collection Improvement Act.

The creditor agency that is owed the debt can verify that the debt has been resolved in accordance with the Debt Collection Improvement Act.

The Mortgagee must include documentation from the creditor agency to support the verification and resolution of the debt.

For debt reported through CAIVRS, the Mortgagee may obtain evidence of resolution by obtaining a clear CAIVRS report.

Reference : 4000.1 II.A.1.b.ii.A.(10)

Debt Collection Improvement Act, Federal Debt, Debt, Delinquent, CAIVRS

Eligibilty, Debt

Is a "cousin" considered a "family member" for the purpose of providing gifts and identity of interest transactions?

No- FHA has defined "family member" for the purposes of determining eligible sources of gift funds as well as identifying exceptions to prohibitions against identity of interest (non-arm’s length) transactions.

FHA defines Family Member as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:
• child, parent, or grandparent;
- a child is defined as a son, stepson, daughter, or stepdaughter;
- a parent or grandparent includes a step-parent/grandparent or foster parent/grandparent;
• spouse or domestic partner;
• legally adopted son or daughter, including a child who is placed with the Borrower by an authorized agency for legal adoption;
• foster child;
• brother, stepbrother;
• sister, stepsister;
• uncle;
• aunt; or
• son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the Borrower.

Family member, Family, cousin, Definition, gift, identity of interest

Eligibility, Definition

The Handbook does not speak to the issue of whether or not a Tax Service Fee may be charged to an FHA borrower. Handbook 4155.1 prohibited such charges for FHA borrowers. Are tax service fees going to be allowed once the new handbook goes into effect?

Handbook 4000.1 does not prohibit the charging of a Tax Service Fee. The Mortgagee or sponsored TPO may charge and collect from Borrowers those customary and reasonable closing costs necessary to close the Mortgage. Charges may not exceed the actual costs.

The Mortgagee must comply with HUD’s Qualified Mortgage Rule at 24 CFR § 203.19.

Reference : 4000.1 II.A.5.c.i.(B)(2)(a)

Tax service fee, fees

Eligibility

4000.1 II.A.4.b.ii.(A) says the credit report must include inquiries for past 90 days, but if a credit report has 120 days do we have to review all or just last 90 days?

The credit report requirement is for the inclusion of all credit report inquires within the last 90 days.

If an inquiry results in a debt, regardless of the amount of time passed since the inquiry was made, the payment must be included in the debt-to-income ratio.

All credit report inquiries need to be reviewed with due diligence to ensure that all debts, including any new debt payments resulting from material inquiries listed on the credit report, are used to calculate the debt ratios. If it has been determined that any recent debts were not incurred to obtain any part of the Borrower’s required funds to close on the Property being Purchased.

References: 4000.1 II.A.4.b.ii.(A) II.A.4.b.iv

Credit, inquires

Eligibility, Credit, Debt

For Business debt in the Borrower's name, can you clarify how many months need to be documented that the business has paid the
debt?

When business debt is reported on the Borrower’s 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 Borrower’s business, and the debt was considered in the cash flow analysis of the Borrower’s business.

The debt is considered in the cash flow analysis where the Borrower’s 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 Borrower’s 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.

Reference: 4000.1 II.A.4.b.iv.(O)(2) (TOTAL) II.A.5.a.j.(2) (Manual)

Business, Debt, Credit

Eligibility, Credit, Debt

Sometimes borrowers will show up on CAIVRS due to FHA claims being
paid out on a previous foreclosure. If a borrower with a foreclosure 3 or more years prior to case assignment shows up on CAIVRS due to an FHA claim being paid less than 3 years from case assignment, is that borrower really ineligible for a new FHA Loan?

It depends. If a delinquent Federal Debt is reflected in a public record, credit report or equivalent, or CAIVRS or an Equivalent System, then it must be verified that the validity and delinquency status of the debt by contacting the creditor agency to whom the debt is owed.

If the debt was identified through CAIVRS, then the creditor agency must be contacted using the contact phone number and debt reference number reflected in the Borrower’s CAIVRS report.

If the creditor agency confirms that the debt is valid and in delinquent status as defined by the Debt Collection Improvement Act, then the Borrower is ineligible for an FHA-insured Mortgage until the Borrower resolves the debt with the creditor agency.

Borrower will not be denied mortgage solely on the basis of CAIVRS information that has not been verified. If resolved either by determining that the information in CAIVRS is no longer valid or by resolving the delinquent status as stated above, then the mortgage application may be processed to continue.

Reference- 4000.1 II A 1 ii A 10 a-d, II A 4 b iii H-I (TOTAL), and 4000.1 II A 5 a iii I (Manual).

CAIVRS, debt, claim, foreclosure

Eligibility

Does the requirement for an appraisal when the borrower has limited or no history of rental income apply to any rental income derived from any investment property, or just on the subject property for the transaction?

Investment Properties are not eligible for FHA insurance except if the borrower is a HUD-approved Nonprofit Borrower, or a state and local government agency, or an Instrumentality of Government; or an individual purchasing a HUD REO property using the 203(b) program.

The requirement for an appraisal showing the borrower has at least 25% equity in a rental property applies to any investment property the borrower owns when they have little or no history or receiving rental income from that property.

This includes rental properties acquired since the previous tax filing and properties being vacated by the Borrower and converted to an investment property. In such circumstance, the Mortgagee must obtain an appraisal evidencing market rent and that the Borrower has at least 25 percent equity in the Property. The appraisal is not required to be completed by an FHA Roster Appraiser.

References: 4000.1 II.A.1.b.iii.(C ) 4000.1 II.A.4.c.xii.(I)(c)(i) (TOTAL) 4000.1 II.A.5.b.xii.(I)(3)(b)(i) (Manual)

Investment, appraisal, rental history, rental income

Eligibility, Property, Income

When calculating rental income for a borrower who has owned a property for less than two years, do you annualize the rent over the last 12 months or some other period?

If the property has been owned for less than two years, the mortgagee must annualize the Rental Income for the length of time the property has been owned.

Reference: 4000.1 II.A.4.c.xii.(I)(3)(c)(ii)

Rental income, calculation, less than 2 years

Eligibility, Income

When calculating residual income as a compensating factor is there any exception to using federal and state income tax returns to document state and local taxes, retirement, SS and Medicare? Can lenders continue to use other methods of calculating tax withholdings like “paycheckcity.com” instead of requesting the pay stubs and tax Returns?

Exceptions or alternative program requirements are explicitly stated or hyperlinked to the appropriate guidance. The handbook specifies that "if available, Mortgagees must use federal and state tax returns from the most recent tax year to document state and local taxes, retirement, Social Security and Medicare. If tax returns are not available, Mortgagees may rely upon current pay stubs."









Reference: 4000.1 II.A.5.d.ix.(F)(1)

Residual Income, Compensating Factor, tax returns

Eligibility, Income

Does the requirement to authenticate documents received electronically by examining the source identifiers or contacting the source of the document by telephone to verify the document’s validity apply to all documents or just when the fax header or email address conflicts with information in the file?

It must be authenticated all documents received electronically by examining the source identifiers (e.g., the fax banner header or the sender’s email address) or contacting the source of the document by telephone to verify the document’s validity. The Mortgagee must document the name and telephone number of the individual with whom the Mortgagee verified the validity of the document.

Reference- 4000.1 II.A.1.a.i.(A)(2)(a)

Authentication, Electronic documents

Eligibility

Does the requirement to authenticate documents obtained from the Internet apply just to borrower documents like bank statements, or does it apply to any documents in the case file, including third party.

It must be authenticated that documents obtained from an Internet website and examine portions of printouts downloaded from the Internet including the Uniform Resource Locator (URL) address, as well as the date and time the documents were printed. The URL or the main website listed in the URL must be visited to verify if the page is password protected to verify the website exists and print out evidence documenting the visit to the URL and website.

Documentation obtained through the Internet must contain the same information as would be found in an original hard copy of the document.

Reference- 4000.1 II.A.1.a.i.(A)(2)(b)

Authentication, Online documents

Eligibility

Are properties that are free and clear not eligible for refinancing?
The definition at 4000.1 II.A.1.b.i.(C) could be interpreted to mean that a lien must be paid off.

A Refinance Transaction is used to pay off the existing debt or to withdraw equity from the Property with the proceeds of a new Mortgage for a Borrower with legal title to the subject Property.

Free and clear, Refinance

Eligibility

Does the borrower need to be on the loan being refinanced?

No. At least one Borrower on the refinancing mortgage must hold title to the Property being refinanced prior to case number assignment.

Refinance

Eligibility

Can a non-occupant co-borrower can be added to a cash out refinance?

A non-occupant co-borrower may be added to a cash-out refinance; however, income from a non-occupant co-Borrower may not be used to qualify for a cash-out refinance.

Reference: 4000.1 II.A.8.d.v.(A)

Non-occupant Co-borrower, cash out, refinance

Eligibility

Previous guidance on cash out CLTV was dependent upon if the subordinate lien was new or existing?

Yes, this change was intentional. Maximum CLTV for a cash-out refinance is 85%.


Reference: 4000.1 II.A.8.d.v.(B)

CLTV, Cash Out Refinance

Eligibility

Is a net tangible benefit test required for a Simple Refinance?

No. Program-specific standards or procedures are explicitly stated on the programs and products section.

The net tangible benefit test is not a requirement on a Simple Refinance.

Reference: 4000.1 II.A.8.d.vi.(B)

Net Tangible benefit, Simple Refinance

Eligibility

Is a streamline refinance allowed on a condominium that has been withdrawn from the approved condominium list?

Yes Program-specific standards or procedures are explicitly stated on the product sheet.

The Property Eligibility and Acceptability Criteria section, including the requirements for Condominium Units in this section are exempt for streamline refinances.

Reference: 4000.1 II.A.8.d.vi.(C)(1)(a) II.A.8.d.vi.(C)(1)(b)

Condominium Approval, Condo, Streamline

Eligibility

Are no cost streamline refinances still allowed?

Yes. Premium Pricing may be used to pay a Borrower’s actual closing costs and/or prepaid items.



Reference: 4000.1 II.A.4.d.i.(B)(2)(h)

Premium Pricing, no cost, streamline, refinance

Eligibility

There are payment history requirements for manually underwritten Simple Refinance loans; but what are the payment history requirements
for Simple Refinance loans scored through TOTAL?

Origination through Post-Closing/Endorsement section in the 4000.1 provides the origination, underwriting, closing, post-closing, and endorsement standards and procedures applicable to all Single Family (one- to four-units) FHA-Insured Title II forward Mortgages. Program-specific standards or procedures are explicitly stated on the product sheet.



Reference: 4000.1 II.A.4.b,iii.(K)(1) II.A.4.b.iii.(K)(2)

Simple Refinance, Payment History, Total

Eligibility, Manual UW

Can you delete a borrower on an existing mortgage using a credit qualifying streamline?

Yes. A credit qualifying streamline refinance can be used to delete a borrower on an existing FHA mortgage.



Reference: 4000.1 II.A.8.d.ii.(B)

Deletion of Borrower, credit qualifying, streamline, refinance

Eligibility

Does completion of the URLA occupancy declaration (item l.) and/or standard occupancy affidavit satisfy the requirement to obtain the borrower's intent to occupy the property upon discharge from the military, for active duty military personnel who cannot physically reside in the property?

For Active Duty Military Personnel who cannot physically reside in the property, a copy of the Borrower’s military orders evidencing the Borrower’s Active Duty status and that the duty station is more than 100 miles from the subject property must be obtained.

A statement must be obtained from the Borrower that they intend to "occupy the subject property as their primary residence upon discharge from military service". FHA does not proscribe the use of a standard occupancy affidavit form for this purpose, however the occupancy declaration contained in the URLA does not indicate the borrowers intent to occupy upon discharge from the military, and alone would not satisfy this requirement.

If a Family Member will be occupying the subject property as their principal residence, a statement from the Borrower, stating their intent to occupy to the subject as their principal residence upon discharge, is not required.

Reference: 4000.1 II.A.1.b.ii.(A)(7)

Military Borrower, Active Duty Service member, Occupancy

Eligibility

If an Active Duty Service Member's Family Member will occupy the subject property as their Principal Residence, is it still required that the Active Duty Service Member provide a statement that they intend to occupy the subject property as their principal residence upon their discharge?

If a Family Member will be occupying the subject property as their principal residence, a statement from the Borrower, stating their intent to occupy to the subject as their principal residence upon discharge, is not required.


Reference: 4000.1 II.A.1.b.ii.(A)(7)

Military Borrower, Active Duty Service member, Occupancy

Eligibility

Does FHA require the final Uniform Residential Loan Application (URLA)
(Fannie Mae Form 1003/Freddie Mac Form 65) be signed by the
Interviewer?

If the final URLA is not signed by the Mortgagee, the initial application signed by the Mortgagee is acceptable.


Reference: 4000.1 II.A.7.b.vi

Final URLA

Eligibility

What is the maximum amount of Interested Party contributions Permitted?

FHA permits an Interested Party to contribute up to 6% of the sales price towards a borrower’s origination fees, other closing costs, and discount points.

Interested Party contributions that exceed 6% of the sales price or that exceed the actual origination fees, other closing costs or discount points are considered an inducement to purchase.

The inducements to purchase must be subtracted from the sales price when computing the Adjusted Value used to determine the Maximum Mortgage amount.

Reference: 4000.1 II.A.2.a II.A.4.d.iii.(G) II.A.5.c.iii.(G)

Interested Party Contribution, 3rd party, Maximum

Assets

What are the guidelines for borrowers with a short sale on a previous principal residence? A Borrower is generally not eligible for a new FHA-insured mortgage if they relinquished a property through a short sale within three years from the date of case number assignment.

This three-year period begins on the date of transfer of title by short sale.
If the credit report does not verify the date of the transfer of title by short sale, the lender must obtain the short sale documents.

If the short sale occurred within three years of the case number assignment date, the mortgage must be downgraded to a Refer and manually underwritten.

Exception for Borrower Current at Time of Short Sale
A Borrower is considered eligible for a new FHA-insured mortgage if, from the date of case number assignment for the new mortgage:
• all Mortgage Payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale; AND
• installment debt payments for the same time period were also made within the month due.

Exception for Extenuating Circumstances
The lender may grant an exception to the three-year requirement if the short sale was the result of documented extenuating circumstances

Reference - 4000.1 II.A.4.a.v , II.A.4.b.iii.(G), II.A.5.a.iii.(J)
Short Sale, Credit, Waiting Period Credit, Debt, Manual UW
Are loan amounts restricted when the purchase involves an
identity of interest?
The maximum LTV percentage for Identity-of-Interest transactions on Principal Residences, including transactions where a tenant-landlord relationship exists at the time of contract execution, is restricted to 85 percent.

Exceptions to the 85 percent maximum LTV include:

• Family member transactions
• Builder's Employee Purchase
• Corporate Transfer
• Tenant Purchase

Reference - 4000.1 II.A.2.b.ii.(A)
LTV, Loan Amount, Identity of Interest Property and Eligibility
How does FHA define
“Family Member”?
Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:

• child, parent, or grandparent
- a child is defined as a son, stepson, daughter, or stepdaughter
- a parent or grandparent includes a step-parent/grandparent or foster parent/grandparent
• spouse or domestic partner
• legally adopted son or daughter, including a child who is placed with the borrower by an authorized agency for legal adoption
• foster child
• brother, stepbrother
• sister, stepsister
• uncle
• aunt, or
• a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law of the borrower.

Reference- 4000.1 Glossary
Definition, Family Member Definition
Does FHA require a
minimum credit score
and how is it
Determined?
The borrower is not eligible for FHA-insured financing if the Minimum Decision Credit Score (MDCS) is less than 500.

• If the MDCS is between 500 and 579 the borrower is limited to a maximum LTV of 90%.
• If the MDCS is at or above 580 the borrower is eligible for maximum financing.

The lender must downgrade and manually underwrite a mortgage that received an Accept recommendation if only the non-occupying co-borrower has a credit score. Borrowers with non-traditional or insufficient credit histories are eligible for maximum financing

The MDCS refers to:
• the credit score reported on the borrower’s credit report when all reported scores are the same.
• the lowest score where two differing scores are reported.
• the middle score where three differing scores are reported.

An MDCS is determined for each borrower. Where the mortgage involves multiple borrowers, the lender must determine the MDCS for each borrower, and then select the lowest MDCS for all borrowers.

Where the mortgage involves multiple borrowers and one or more of the borrowers do not have a credit score (non-traditional or insufficient credit), the lender must select the lowest MDCS of the borrower(s) with credit score(s).

Reference- 4000.1 II.A.1.b.ii.(A)(3); II.A.2.b.i.(A); II.A.5.a.ii.(B)
Credit Score, Credit, MDCS, Decision Definition, Eligibility, and Credit
What are the guidelines for co-borrowers and Co-signers? To be eligible:

1) All occupying and non-occupying borrowers and co-borrowers must take title to the property in their own name or a living trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments.

In community property states, the borrower’s spouse is not required to be a borrower. However, the mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law.

2) Cosigners are liable for the debt and therefore, must sign the Note. Cosigners do not hold an ownership interest in the subject property and therefore, do not sign the security instrument.

3) Non-occupying co-borrowers or cosigners must either be United States (U.S.) citizens or have a principal residence in the U.S.

4) A party who has a financial interest in the mortgage transaction, such as the seller, builder or real estate agent, may not be a co-borrower or a cosigner. Exceptions may be granted when the party with the financial interest is a family member.

Reference- 4000.1 II.A.1.b.ii.(A)
Credit, Non-occupying co-borrower, Co-signer, US Citizen Eligibility
Do borrowers have to be U.S. citizens to qualify for FHA
Financing?
U.S. citizenship is not required for eligibility. However, in no case is a Social Security card sufficient to prove immigration or work status.

A borrower with lawful permanent resident alien status may be eligible provided the borrower satisfies the same requirements, terms and conditions as those for U.S. citizens.

The file must include evidence of the permanent residency and indicate that the borrower is a lawful permanent resident alien on the loan application

The U.S. Citizenship and Immigration Services (USCIS) provides evidence of lawful, permanent residency status. A borrower who is a non-permanent resident alien may be eligible provided:

• the property will be the borrower’s principal residence;
• the borrower has a valid SSN, except for those employed by the World Bank, a foreign embassy, or
equivalent employer identified by HUD;
• the borrower is eligible to work in the United States, as evidenced by the Employment Authorization
Document issued by the USCIS; and
• the borrower satisfies the same requirements, terms and conditions as those for U.S. citizens.

The Employment Authorization Document is required to substantiate work status. If the Employment
Authorization Document will expire within one year and a prior history of residency status renewals exists, the lender may assume that continuation will be granted.

If there are no prior renewals, the lender must determine the likelihood of renewal based on information from the USCIS.

A borrower residing in the U.S. by virtue of refugee or asylee status granted by the USCIS is automatically eligible to work in this country. The Employment Authorization Document is not required, but documentation substantiating the refugee or asylee status must be obtained.

Non-U.S. citizens without lawful residency in the U.S. are not eligible.

Reference- 4000.1 II.A.1.b.ii.(A)(8)-(9)
Credit, Eligibility, US Citizen, Citizenship Eligibility
Does FHA have cash reserve requirements? The lender must verify and document reserves equivalent to three months’ Principal, Interest, Taxes, and Insurance (PITI) after closing for all mortgages for three- to four-unit properties.

For manually underwritten mortgages, the lender must verify and document reserves equivalent to one month’s PITI after closing for one- to two-unit properties.

The lender must verify and document all assets submitted to the Automated Underwriting System (AUS).

Reserves refer to the sum of the borrower’s verified and documented liquid assets minus the total funds the borrower is required to pay at closing.

Reserves do not include:
• The amount of cash taken at settlement in cash-out transactions;
• incidental cash received at settlement in other loan transactions;
• gift funds (only for manually underwritten mortgages);
• equity in another property; or
• borrowed funds from any source.

Reference- 4000.1 II.A.4.d.i.(C); II.A.5.c.i.(C)
Reserves, Cash, Assets Assets
Is a borrower eligible if they have a delinquent Federal debt but have a clear CAIVRS? Delinquent Federal Tax Debt-
Borrowers with delinquent tax debt are ineligible for FHA mortgage unless borrower has entered into valid agreement with federal agency and made timely payment for at least three months.

Documentation from IRS evidencing the payment agreement and verification of payment proof must be submitted prior to approval of the loan.

Delinquent Federal Non-Tax Debt-
Borrower with previous federal non tax debt must provide documentation evidencing the federal tax debt has been successfully paid or borrower is in agreement with federal agency to pay the debt satisfying the requirement of agency.

Borrowers will be ineligible for FHA mortgage if federal non tax debts are verified as currently delinquent from CAIVRS, public records ,credit report any other public sources

Reference- 4000.1 II.A.1.b.ii.(A)(10)
Credit, CAIVRS, Debt, Delinquent Debt
How does FHA define owner occupant? At least one borrower must occupy the property as their principal residence within 60 Days of signing the security instrument and intend to continue occupancy for at least one year.

Reference- 4000.1 II.A.1.b.iii.(A)(2)(a)
Owner, Occupied, Definition, Occupant Definition
Which parties are required to be run against HUD's LDP List or GSA
List of Excluded Parties?
A mortgage is not eligible for FHA insurance if anyone participating in the mortgage transaction is listed on HUD’s LDP list or in SAM as being excluded from participation in HUD transactions. This may include but is not limited to:

• seller (except where selling the principal residence)
• listing and selling real estate agent
• loan officer
• loan processor
• underwriter
• appraiser
• 203(k) consultant

Reference- 4000.1 II.A.1.b.ii.(B)
LSP, GSA, Excluded parties, SAM Eligibility
Is a social security number required to obtain an FHA loan? In order to obtain FHA-insured financing each borrower must provide evidence of their Social Security Number (SSN) to the lender.

The lender must:

• Validate and document an SSN for each borrower, co-borrower, or cosigner on the mortgage by:
- entering the borrower’s name, date of birth, and SSN in the borrower/address validation screen through FHA Connection (FHAC); and
- examining the borrower’s original pay stubs, W-2 forms, valid tax returns obtained directly from the IRS, or other document relied upon to underwrite the mortgage; and
• Resolve any inconsistencies or multiple SSNs for individual borrowers that are revealed during mortgage processing and underwriting using a service provider to verify the SSN with the Social Security Administration(SSA).

Reference- 4000.1 II.A.1.b.ii.(A)
Social Security, SSN, Number, SSA Eligibility
Can I use FHA financing to acquire a second Home? Secondary residence refers to a dwelling that a borrower occupies, in addition to their principal residence, but less than a majority of the calendar year.

A secondary residence does not include a vacation home.

Secondary residences are only permitted with written approval from the Jurisdictional Homeownership Center (HOC) after a determination that:

• the borrower has no other secondary residence;
• the secondary residence will not be a vacation home or be otherwise used primarily for recreational
purposes;
• the commuting distance to the borrower’s workplace creates an undue hardship on the borrower and there is no affordable rental housing meeting the borrower’s needs within 100 miles of the borrower’s workplace; and
• the maximum mortgage amount is 85 percent of the lesser of the appraised value or sales price.

The lender must demonstrate the lack of affordable rental housing, and include:
• a satisfactory explanation of the need for a secondary residence and the lack of available rental housing; and
• written evidence from local real estate professionals who verify a lack of acceptable housing in the area.

Reference- 4000.1 II.A.1.b.iii.(B)
Financing, Second Home, Residency, Residence, Definition Property and Eligibility
Is there a minimum distance a borrower must relocate before a
second FHA loan can be obtained?
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:

1. Relocating or has relocated for an employment-related reason; and
2. Establishing or has established a new principal residence in an area more than 100 miles from the borrower’s current principal residence.

Reference- 4000.1 II.A.1.b.iii.(A)(2)(c)
Relocation, Second, Minimum Distance Property and Eligibility
Can a borrower with a portfolio of rental properties use FHA
financing if they have no other FHA loans?
FHA will not insure a mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be insured will be the only one owned using FHA mortgage insurance.

Reference-4000.1 II.A.1.b.iii.(A)(2)(b)
Rental, Property, Financing, Property and Eligibility
When should lenders apply the Back to Work underwriting guidance? Lenders must use the Back to Work – Extenuating Circumstances guidance when manually underwriting a purchase money mortgage application from a borrower who has experienced an economic event resulting in a foreclosure, short sale/pre-foreclosure sale, bankruptcy, or other negative impact on credit.

The Back to Work guidance is effective for purchase applications with case numbers assigned on or after August 15, 2013 through September 30, 2016.

Reference- 4000.1 II.A.5.d.xi.(B)
Back to Work Eligibility and Manual UW
Is housing counseling required for Back to Work borrowers? The borrower must receive homeownership counseling or a combination of homeownership education and counseling.

Housing counseling may be conducted in person, via telephone, Internet, or other methods approved by HUD, and mutually agreed upon by the borrower and housing counseling agency as provided for in the Housing Counseling Program Handbook.

All housing counseling and education must be completed a minimum of 30 days but no more than six months prior to the borrower submitting an application to a lender.

Each borrower must receive one hour of one-on-one counseling from a HUD-approved counseling agency. The counseling must address the cause of the economic event and the actions taken to overcome the economic event to reduce the likelihood of reoccurrence.

A list of HUD-approved housing counseling agencies can be obtained online at http://www.hud.gov/ or by calling 1-(800)-569-4287.

Reference- 4000.1 II.A.5.d.xi.( D)
Back to Work, Counseling Eligibility and Manual UW
How does FHA define principal residence? Principal residence refers to a dwelling where the borrower maintains or will maintain their permanent primary residence or will live in the house the majority of the calendar year.

A person may have only one principal residence at any one time.

At least one borrower must occupy the property within 60 days of signing the security instrument and intend to continue occupancy for at least one year.

A person in military service must meet:

Military personnel who are on active duty can be considered as Owner Occupied Borrower if a family member resides in principal residence or borrower intends to occupy subject property upon discharge from military services.

A copy of Borrower’s military orders evidencing the borrower’s active duty status and duty station is more than 100 miles from the subject property needs to be submitted prior to closing.

Reference- 4000.1 II.A.1.b.iii.(A)(1)-(2)
Definition, Principal, Residence Definition and Property
Who signs the identity of-interest certifications for 203(k)? All borrowers and consultants must sign certifications to ensure that there are no identity-of-interest issues between the parties participating in the 203(k) transaction.

Sales transactions between family members are permitted.

Note- If the borrower selected a 203(k) consultant to perform a feasibility study, the mortgagee may select the same 203(k) consultant for the project without creating an Identity of Interest.

Reference- 4000.1 II.A.8.a.xiv.(A)(1)
203K, Identity of Interest, Certification Eligibility
Can a person living outside the U.S. be a non-occupying co-borrower? Non-occupying co-borrowers or cosigners must either be United States (U.S.) citizens or have a principal residence in the U.S.

Reference- 4000.1 II.A.5.d.xii.(C)
US, Non-occupying Co- borrower, Co-signer Eligibility
What are the down
payment requirements
when purchasing a
property using FHA insured
Financing?
The borrower must make a Minimum Required Investment of at least 3.5 percent of the adjusted value of the property.

The lender is not permitted to use closing costs to help the borrower meet the MRI.

Premium pricing may be used to pay a borrower’s actual closing costs and/or prepaid items.

Reference- 4000.1 II.A.2.a.iv; II.A.2.c.ii; II.A.4.d.i.(B)(2)(h); II.A.5.c.i.(B)(2)(h); II.A.6.a.x
Requirements, Down payment, Financing, Purchasing Assets and Eligibility
What are the maximum
qualifying ratio
requirements for
manually underwritten
Loans?
Maximum qualifying ratios for manually underwritten loans are determined according to the lowest minimum decision credit score and compensating factors.

Lowest Minimum Decision Credit Score 500-579 or No Credit Score:

31/43 (Energy Efficient Homes may have stretch ratios of 33/45)

Lowest Minimum Decision Credit Score 580 and above:

1. 31/43 (Energy Efficient Homes may have stretch ratios of 33/45)

2. 37/47 - Requires 1 of the following Compensating Factors:
• Verified /documented cash reserves equal to or exceeding 3 (1-2 units) or 6 (3-4 units) total monthly mortgage payments.
• Minimal Increase in Housing Payment
- New total monthly mortgage payment doesn’t exceed current total monthly housing payment by more than $100 or 5% (whichever is less); and
- There is a documented 12 month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced were made within the month due for the previous 12 months.
- May not be used as a compensating factor if the borrower has no current housing payment.
• Residual income

3. 40/40 - No Discretionary Debt:
• The Borrower’s housing payment is the only open account with an outstanding balance not paid off monthly; And
• The credit report shows established credit lines in the Borrower’s name open for at least 6 months; and
•The Borrower can document these accounts have been paid off in full monthly for at least the past 6 months.

4. 40/50 – Requires 2 of the following Compensating Factors:
• Verified /documented cash reserves equal to or exceeding 3 (1-2 units) or 6 (3-4 units) total monthly mortgage payments.
• Minimal Increase in Housing Payment
- New total monthly mortgage payment doesn’t exceed current total monthly housing payment by more than $100 or 5% (whichever is less); and
- There is a documented 12 month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced were made within the month due for the previous 12 months.
- May not be used as a compensating factor if the borrower has no current housing payment.
• Significant Additional Income (Overtime, Bonuses, Part-Time or Seasonal Employment) Not Reflected in Effective Income
- Received for at least 1 year, and will likely continue; and
- If it were included in gross Effective Income, is sufficient to reduce the qualifying ratios to not more than 37/47.
• Residual income

Reference- 4000.1 II.A.5.d.viii – ix
Manually, Manual, Underwriting, Ratio, Ratios, Maximum Eligibility
Are non-occupant co-borrowers
allowed
under Back to Work
Guidelines?
The occupying borrower(s) must meet the eligibility requirements for Back to Work and the alternative guidance may be utilized to qualify the occupying borrower.

A non-occupant co-borrower (non-household member) is allowed; however, Back to Work alternative guidance may not be utilized to qualify the non-occupant co-borrower; standard underwriting guidelines must be applied to the non-occupant borrower.

Reference- Handbook 4000.1 II.A.5.d.xi
Back to Work, Non-occupant Co-borrower Eligibility
Can investors assume
FHA loans?
If the original mortgage was closed prior to December 15, 1989, the assuming borrower may assume the mortgage as a principal residence, HUD-approved secondary residence or investment property.

The maximum Loan-to-Value (LTV) for an investment property assumption is 75%. Either the original appraised value or new property value may be used to determine compliance with the 75% LTV limitation.

Reference- 4000.1 II.A.8.n.ii; II.A.8.n.iii.(A)
Assume, Assumption, Investor Eligibility and Manual UW
Are there age
requirements for
borrowers using FHA
Financing?
For forward mortgages , the borrower must be old enough to enter into a mortgage Note that can be legally enforced in the state, or other jurisdiction, where the property is located (“State Law”).

There is no maximum age limit for a borrower.

Reference- 4000.1 II.A.1.b.ii.(A)(2)
Financing, Age, Requirements, Borrowers Definition and Eligibility
Can a person get an
FHA insured loan in the
name of a business?
Except for streamline refinances in which the mortgage was originally insured in the name of a business, FHA will not insure loans made solely in the name of a business entity (such as a corporation, partnership, or sole proprietorship) or trust.

One or more individuals, along with the business entity or trust, must be analyzed for
creditworthiness.

- The individual(s) and the business entity or trust must appear on the mortgage note.
- The business entity, trust, or individual(s) may appear on the property deed or title.
- All parties appearing on the property deed or title must also appear on the security instrument (i.e. mortgage, deed of trust, security deed).

Streamline refinances by investors or for secondary residences may only be made without an appraisal and may be made solely in the business entity's name if previously insured in the business entity's name.

An assumption solely in the name of a corporation, partnership, sole proprietorship, trust, etc., is not acceptable if a creditworthiness review is required.

Reference- 4000.1 II.A.8.d.vi(C); II.A.8.n
Financing, Business, Insured, Loan, Assumption Eligibility and Property
When can "no
discretionary debt" be
used as a compensating factor on a manually
underwritten loan?
No discretionary debt may be cited as a compensating factor subject to the following requirements:

• the borrower’s housing payment is the only open account with an outstanding balance that is not paid off monthly;
• the credit report shows established credit lines in the borrower’s name open for at least six months; and
• the borrower can document that these accounts have been paid off in full monthly for at least the past six months.

Borrowers who have no established credit other than their housing payment, no other credit lines in their own name open for at least six months, or who cannot document that all other accounts are paid off in full monthly for at least the past six months, do not qualify under this criterion.

Credit lines not in the borrower’s name but for which he or she is an authorized user do not qualify under this criterion.

Reference- 4000.1 II.A.5.d.ix.(D)
Manually, Manual, Underwriting, Compensating Factors Eligibility and Manual UW
Does FHA allow
investor participation in
the 203(k) or
Streamline K programs?
FHA does not allow investor participation in the 203(k) or Limited 203(k) programs.

Reference- 4000.1 II.A.8.a
203K, Investor, Streamline, Property, Eligibility Eligibility and Property
required for a borrower
to obtain an FHA
Mortgage?
A borrower does not have to have housing counseling in order to obtain an FHA mortgage unless required under specific FHA programs (e.g. HECM, Back to Work).

However, housing counseling is still highly encouraged by FHA, particularly for first time buyers.

Lenders must ensure that borrowers receive all required counseling, and that all counseling is provided by HUD-approved housing counseling agencies.

Reference- 4000.1 II.A.1.a.iii.(A)(2); II.A.5.d.xi.(D)
Counseling, Mortgage, Financing Eligibility
What is the FHA
definition of a manually
underwritten loan?
A manually underwritten loan includes a loan that:

• Involves borrowers without a credit score that were not scored against FHA’s TOTAL Scorecard (TOTAL), or
• Received a Refer scoring recommendation from TOTAL, or
• Received an Accept scoring recommendation but was downgraded to a Refer by the underwriter.

When an Accept recommendation is downgraded to a Refer, the loan must be underwritten according to the policy guidance in Handbook

Reference- 4000.1 II.A.5
Manually, Manual, Underwriting, Definition Definition, Manual UW
What is considered a
minimal increase in
housing payment on a
manually underwritten
Loan?
A minimal increase in housing payment may be cited as a compensating factor subject to the following requirements:

• the new total monthly mortgage payment does not exceed the current total monthly housing payment by more than $100 or 5%, whichever is less; and
• there is a documented 12 month housing payment history with no more than one 30 day late payment. In cash-out refinance transactions all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months.
• If the borrower has no current housing payment lenders may not cite this compensating factor.

The current total monthly housing payment refers to the borrower’s current total mortgage payment or current total monthly rent obligation.

Reference- 4000.1 II.A.5.d.ix.(C)
Manually, Manual, Underwriting, Payment Eligibility and Manual UW
What costs can a seller
or other interested
party pay on behalf of
the borrower?
Interested parties refer to sellers, real estate agents, builders, developers or other parties with an interest in the transaction.

Interested parties may contribute up to 6 percent of the sales price toward the borrower’s
origination fees, other closing costs and discount points.

The 6 percent limit also includes:
• Payment for permanent and temporary interest rate buydowns, and other payment supplements;
• Payments of mortgage interest for fixed rate mortgages;
• Mortgage payment protection insurance; and
• Payment of the Upfront Mortgage Insurance Premium (UFMIP).

Interested party contributions may not be used for the borrower’s Minimum Required Investment (MRI) or 3.5% down payment.

Payment of real estate agent commissions or fees, typically paid by the seller under local or state law, or local custom, is not considered an interested party contribution.

The lender must document the total interested party contributions on form HUD-92900-LT, the Settlement Statement or similar legal document, and the sales contract.

Reference-4000.1 II.A.4.d.iii.(G)-(H); II.A.5.c.iii.(G)-(H)
Closing Costs, Costs, Fees, Seller, Third Party, Definition, Interested Party Eligibility, Definition
Can a person sell a
home to a family
member and remain a
co-borrower to help
them qualify?
A party who has a financial interest in the mortgage transaction, such as the seller, builder or real estate agent, may not be a co-borrower or a cosigner.

Exceptions may be granted when the party with the financial interest is a family member.

For non-occupying borrower transactions, the maximum LTV is 75 percent. The LTV can be increased to a maximum of 96.5 percent if the borrowers are family members, provided the transaction does not involve:
• a family member selling to a family member who will be a non-occupying co-borrower; or
• a transaction on a two- to four-unit property.

Reference- 4000.1 II.A.1.b.ii.(A); II.A.2.b.ii.(B); II.A.2.b.i.(C)
Property, Family, Co-borrower, Qualify, Definition Property , Definition, Eligibility
Does FHA allow cash-out
Refinances?
Yes, a Cash-Out Refinance is a refinance of any mortgage or a withdrawal of equity where no mortgage currently exists, in which the mortgage proceeds are not limited to specific purposes.

Cash-out refinance transactions must meet the following requirements:

• Are only permitted on owner-occupied Principal Residences.
• The property securing the cash-out refinance must have been owned and occupied by the Borrower as their Principal Residence for the 12 months prior to the date of case number assignment.
• At least one Borrower must hold title to the property being refinanced prior to case number assignment.
• Income from a non-occupant co-Borrower may not be used to qualify for a cash-out refinance.
• The lender must document that the Borrower has made all payments for all their mortgages within the month due for the previous 12 months or since the Borrower obtained the mortgages, whichever is less.
• The payments for all mortgages secured by the subject property must have been paid within the month due for the month prior to mortgage Disbursement. Properties with mortgages must have a minimum of 6 months of Mortgage Payments.
• Properties owned free and clear may be refinanced as cash-out transactions.

Exception:
In the case of inheritance, a Borrower is not required to occupy the property for a minimum period of time before applying for a cash-out refinance, provided the Borrower has not treated the subject property as an Investment Property at any point since inheritance of the property.

If the Borrower rents the property following inheritance, the Borrower is not eligible for cash-out refinance until the Borrower has occupied the property as a Principal Residence for at least 12 months.


Reference- 4000.1 II.A.8.d.i.(B)(1); II.A.8.d.ii.(B)-(C); II.A.8.d.v
Transaction, Cash Out, Refinance, Eligibility, Inheritance, Property Eligibility and Property
When can borrowers be
deleted from the loan
when doing a
Streamline Refinance?
When doing a Credit Qualifying Streamline Refinance at least one Borrower from the existing mortgage must remain as a Borrower on the new mortgage.

A Borrower is eligible for a Non-Credit Qualifying Streamline Refinance if all Borrowers on the existing mortgage remain as Borrowers on the new mortgage.

Mortgages that have been assumed are eligible provided the previous borrower was released from liability.

As an exception, a Borrower on the mortgage to be paid may be removed from title and mortgage on a new loan in cases of divorce, legal separation or death when:

• The divorce decree or legal separation agreement awarded the property and responsibility for payment to the remaining Borrower, if applicable; and
• The remaining Borrower can demonstrate/document that they have made the Mortgage Payments for a minimum of six months prior to case number assignment.

Individuals may be added to the title and mortgage on a non-credit qualifying Streamline Refinance without a creditworthiness review.

Reference- 4000.1 II.A.8.d.vi.(C)(4)(f); II.A.8.d.vi.(C)(5)(a); II.A.8.d.vi.(C)(6)(a)
Streamline, Qualifying, Refinance, Deletion, Assumption, Eligibility, Divorce, Separation, Death, Addition Eligibility
What must be
considered when doing
a credit qualifying
streamline refinance?
When doing a credit qualifying Streamline Refinance at least one Borrower from the existing mortgage must remain as a Borrower on the new mortgage.

Credit qualifying Streamline Refinances must meet all requirements of Manual Underwriting, except for any requirements for Appraisals or LTV Calculations.

Reference- 4000.1 II.A.8.d.vi.(C)(6)
Streamline, Qualifying, Refinance, Eligibility, Credit, Manual, Underwriting Eligibility, Manual UW
What are the Net
Tangible Benefit
requirements for an FHA Streamline
Refinance?
A Net Tangible Benefit is a reduced combined rate, a reduced term, and/or a change from an ARM to a fixed rate mortgage that results in a financial benefit to the borrower.

Combined rate refers to the interest rate on the mortgage plus the Mortgage Insurance Premium (MIP) rate.

The lender must determine that there is a net tangible benefit to the borrower outlined as follows:

• Fixed Rate to Fixed Rate - The new combined rate is at least 0.5 percentage points below the prior combined rate.
• Fixed Rate to One-Year ARM - The new combined rate is at least 2 percentage points below the prior
combined rate.
• Fixed to Hybrid ARM - The new combined rate is at least 2 percentage points below the prior combined rate.
• Any ARM (with less than 15 months to next payment change date) to Fixed Rate - New combined rate is no more than 2 percentage points above the prior combined rate.
• Any ARM (with less than 15 months to next payment change date) to a One Year ARM - New combined rate is at least 1 percentage point below the prior combined rate.
• Any ARM (with less than 15 months to next payment change date) to a Hybrid ARM - New combined rate is at least 1 percentage point below the prior combined rate.
• Any ARM (with greater than or equal to 15 months to next payment change date) to Fixed Rate - New
combined rate is no more than 2 percentage points above the prior combined rate.
• Any ARM (with greater than or equal to 15 months to next payment change date) to a One Year ARM – New combined rate is at least 2 percentage points below the prior combined rate.
• Any ARM (with greater than or equal to 15 months to next payment change date) to a Hybrid ARM – New combined rate is at least 1 percentage point below the prior combined rate.

REDUCTION IN TERM - If the mortgage term is reduced, the new interest rate does not exceed the current interest rate, and the payment does not increase by more than $50; this alone meets the net tangible benefit requirement.

Reference- 4000.1 II.A.8.d.vi.(C) (4)(c)
Streamline, Qualifying, Refinance, Eligibility, Net Tangible Benefit, NTB, Definition Eligibility and Definition
What is the difference
between an FHA cash-out
refinance and a rate
and term refinance?
A Cash-Out Refinance is a refinance of any mortgage or a withdrawal of equity where no mortgage currently exists, in which the mortgage proceeds are not limited to specific purposes.

A Rate and Term refers to a no cash-out refinance of any mortgage in which all proceeds are used to pay existing mortgage liens on the subject property and costs associated with the transaction.

The lender may utilize estimates of existing debts and costs in calculating the maximum mortgage amount to the extent that the actual debts and costs do not result in the borrower receiving greater than $500 cash back at mortgage disbursement.

Reference- 4000.1 II.A.8.d.i.(B); II.A.8.d.vi.(A)(2)(b)(i)
Cash Out, Rate and Term, Refinance, Definition Eligibility and Definition
Can I do an FHA
refinance if I own the
property, but am not named on the existing
Loan?
A refinance transaction is used to pay off the existing debt or to withdraw equity from the property with the proceeds of a new mortgage for a borrower with legal title to the subject property.

As long as the borrower has legal title (even though not originally on the loan) the borrower is eligible to refinance the loan

Reference-4000.1 II.A.8.d.i.(A)
Eligibility, Refinance, Property, Title, Mortgage, Eligibility and Property
Are there subordinate
financing restrictions
for FHA streamline
refinance transactions?
On a streamline refinance transaction any existing subordinate financing, in place at the time of case number assignment, must be re-subordinated to the streamline refinance.

New subordinate financing is permitted only where the proceeds of the subordinate financing are used to:
• Reduce the principal amount of the existing FHA-insured mortgage, or
• Finance the origination fees, other closing costs, or discount points associated with the refinance.

There is no maximum combined loan-to-value (CLTV).

Reference- 4000.1 II.A.8.d.vi.(C)(4)(k)
Streamline, Subordinate, Financing, Refinance, Restrictions Eligibility
Will FHA allow a
Streamline Refinance of
an existing FHA loan by
an investor?
Streamline Refinances may be used for Principal Residences, HUD-approved Secondary Residences, or non-owner occupied properties.

Non-owner occupied properties and HUD-approved Secondary Residences are only eligible for streamline refinancing into a fixed rate mortgage.

For Investment Properties, the maximum Base Loan Amount for Streamline Refinances is:
1. The lesser of:
- The outstanding principal balance of the existing mortgage as of the month prior to mortgage
Disbursement; or
- The original principal balance of the existing mortgage (including financed UFMIP);
2. Less any refund of UFMIP (if financed in original mortgage).

Reference- 4000.1 II.A.8.d.vi.(C)(2)(a)(i); II.A.8.d.vi.(C)(3)(a); II.A.8.d.vi.(C)(4)(j)
Streamline, Eligibility, Investor, Existing, Refinance Eligibility
Can the payment
increase if I reduce the
mortgage term on a
streamline refinance?
For all streamline refinance transactions the lender must determine that there is a net tangible benefit to the borrower.

If the mortgage term is reduced, the new interest rate does not exceed the current interest rate, and
the payment does not increase by more than $50; then that would meet the net tangible benefit.

Reference- 4000.1 II.A.8.d.vi.(C)(4)(c)
Streamline, Eligibility, Term, Payment Eligibility
Do subordinate liens
need to be paid off
when doing a cash out
Refinance?
Subordinate financing may remain in place, but must be subordinate to the FHA insured first mortgage.

The maximum Combined Loan-to-Value (CLTV) is 85 percent of the adjusted value.

Reference- 4000.1 II.A.8.d.v.(B)
Cash-Out, Eligibility, Refinance, Payoff, Subordinate, Lien Eligibility
Can repairs be included
in the loan amount
when calculating a Rate
and Term refinance?
The maximum mortgage amount for a rate and term refinance is:

The lesser of:
• the Nationwide Mortgage Limit;
• the maximum permissible Loan-to-Value (LTV); or
• the sum of existing debt and costs associated with the transaction as follows:

Existing debt includes:
‒ the unpaid principal balance of the first mortgage as of the month prior to mortgage disbursement;
‒ the unpaid principal balance of any purchase money junior mortgage as of the month prior to
mortgage disbursement;
‒ the unpaid principal balance of any junior liens over 12 months old as of the date of mortgage
disbursement. If the balance or any portion of an equity line of credit in excess of $1,000 was
advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the property, that portion above and beyond $1,000 of the line of credit is not eligible for inclusion in
the new mortgage;
‒ ex-spouse or co-borrower equity, as described in Handbook 4000.1 II.A.8.d.vi.(A)(2)(b)(i), “Refinancing to Buy out Title Holder Equity”;
‒ interest due on the existing mortgage(s);
‒ Mortgage Insurance Premium (MIP) due on existing mortgage;
‒ any prepayment penalties assessed;
‒ late charges; and
‒ escrow shortages.

Allowable costs include:
• all borrower paid costs associated with the new mortgage; and
• any borrower-paid repairs required by the appraisal.
• less any refund of the Upfront Mortgage Insurance Premium (UFMIP), if financed in the original mortgage.

Reference- 4000.1 II.A.8.d.vi.(A)(2)
Rate and Term, Refinance, Loan Amount, Repairs Eligibility and Property
Can a "no cash out"
refinance be used to
buy out the equity of an
Ex-spouse?
Yes, when the purpose of the new mortgage is to refinance an existing mortgage to buy out an existing title-holder’s equity, the specified equity to be paid is considered property-related indebtedness and eligible to be included in the new mortgage calculation.

The lender must obtain the divorce decree, settlement agreement, or other legally enforceable equity agreement to document the equity awarded to the title-holder.

Reference- 4000.1 II.A.8.d.vi.(A)(2)(b)(i)
No Cash Out, Refinance, Equity, Buy Out, Spouse, Ex-spouse Eligibility and Assets
Can I process a
streamline refinance
using FHA TOTAL
Scorecard?
All transactions must be scored through TOTAL Mortgage Scorecard, except Streamline Refinance transactions and assumptions.

Mortgagees must manually underwrite all Streamline Refinances

Reference- 4000.1 II.A.4.a.i; II.A.8.d.vi.(C)(1)(a)-(b); II.A.8.d.vi.(C)(4)(b); II.A.5
Streamline, Refinance, Eligibility, TOTAL, Scorecard, Manual, Underwriting Eligibility and Manual UW
Is a CAIVRS check
required for Streamline
Refinances?
Borrower ineligibility due to delinquent federal debt does not apply to streamline refinance transactions.

Lenders are not required to screen streamline refinance borrowers using CAIVRS.

Reference-4000.1 II.A.8.d.vi.(C)(1)
Streamline, Eligibility, CAIVRS, Refinance Eligibility
Can a Section 203(k)
loan be refinanced to a
different loan type?
A property with an existing 203(k) mortgage is not eligible to be refinanced until all repairs are completed and the case has been electronically closed out.

Reference- 4000.1 II.A.8.a.iii; II.A.8.d.vi.(C)(3)(b)
Refinance, 203K, Loan Type, Eligibility Eligibility and Definition
What is an FHA Simple
Refinance and what are
the requirements?
Simple Refinance refers to a no cash-out refinance of an existing FHA-insured mortgage in which all proceeds are used to pay the existing FHA-insured mortgage lien on the subject property and costs associated with the transaction.

Requirements:
1) Simple Refinance is only permissible for owner-occupied principal or HUD-approved secondary residences.
2) The mortgagee must review the borrower’s employment documentation or obtain utility bills to evidence the borrower currently occupies the property as their principal residence.

The mortgagee must obtain evidence that the secondary residence has been approved by the jurisdictional Homeownership Center (HOC):

• For manually underwritten mortgages with less than 6 months mortgage payment history, the borrower must have made all payments within the month due.
• For manually underwritten mortgages with greater than 6 months history, the borrower must have made all mortgage payments within the month due for the 6 months prior to case number assignment and have no more than one 30-day late payment for the previous 6 months for all mortgages secured by the subject property for the month prior to disbursement.

3) If the mortgage on the subject property is not reported in the borrower’s credit report, the mortgagee must obtain a verification of mortgage to evidence payment history for the previous 12 months.

4) The maximum loan-to-value (LTV) or combined loan-to-value (CLTV if applicable) is 97.75 percent for principal residences and 85% for HUD approved secondary residences.

5) The maximum mortgage amount for a Simple Refinance is the lesser of:
• the Nationwide Mortgage Limit;
• the Maximum LTV ratio from above; or
• the sum of existing debt and costs associated with the transaction as follows:

Existing debt includes:
-unpaid principal balance of the FHA-insured first mortgage as of the month prior to mortgage
disbursement;
-interest due on the existing mortgage;
-MIP due on existing mortgage; late charges;
-and escrow shortages;

Allowed costs include:
-all borrower paid costs associated with the new mortgage; and
-Borrower-paid repairs required by the appraisal;
-less any refund of UFMIP (if financed in original mortgage).

Reference-4000.1 II.A.8.d.vi.(B)
Simple, Refinance, Requirements, Eligibility Eligibility and Definition
Where can I find the
guidelines regarding gift
Funds?
Gifts refer to the contributions of cash or equity with no expectation of repayment.

Gift funds may be provided by:
• the borrower’s family member;
• the borrower’s employer or labor union;
• a charitable organization;
• a governmental agency or public entity that has a program providing homeownership assistance to low or moderate income families or first-time homebuyers.

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

Only family members may provide equity credit as a gift on property being sold to other family members.
Eligibility, Gift Funds, Gift, Guideline, Gift of Equity, Cash Eligibility and Definition
What are the documentation requirements for Gift funds? A signed and dated Gift letter by borrower and donor that includes following :
- the donor’s name, address, and telephone number;
- the donor’s name, address, and telephone number;
- the dollar amount of the gift; and
- a statement that no repayment is required.

Documenting the Transfer of Gifts :
If the gift funds have been verified in the Borrower’s account, obtain the donor’s bank statement showing the withdrawal and evidence of the deposit into the Borrower’s account.

If the gift funds are not verified in the Borrower’s account, obtain the certified check or money order or cashier’s check or wire transfer or other official check, and a bank statement showing the withdrawal from the donor’s account.

If the gift funds are paid directly to the settlement agent, then it must be verified that the settlement agent received the funds from the donor for the amount of the gift, and that the funds were from an acceptable source.

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

Regardless of when gift funds are made available to a Borrower; Donor bank statement is required to make a reasonable determination that the gift funds were not provided by an unacceptable source

Reference- 4000.1 II.A.4.d.iii.(F); II.A.5.c.iii.(F)
Eligibility, Gift Funds, Gift, Guideline, Gift of Equity, Cash, Documentation Eligibility and Definition
Can I receive a loan
from a family member
rather than a gift?
FHA will insure a first mortgage on a property that has a second mortgage or lien held by a Family Member, provided that all requirements are met below:

-the secondary financing is disclosed at the time of application;
-no costs associated with the secondary financing are financed into the FHA-insured first Mortgage;
-the secondary financing payments must be included in the total Mortgage Payment;
-the secondary financing must not result in cash back to the Borrower except for refund of earnest money deposit or other Borrower costs paid outside of closing;
-the secondary financing may be used to meet the Borrower’s MRI;
-the CLTV ratio of the Base Loan Amount and secondary financing amount must not exceed 100 percent of the Adjusted Value;
-the second lien may not provide for a balloon payment within 10 years from the date of execution;
any periodic payments are level and monthly;
-there is no prepayment penalty;

-If the Family Member providing the secondary financing borrows the funds, the lending source may not be an Entity with an Identity of Interest in the sale of the Property, such as the:

• seller;
• builder;
• loan originator; or
• real estate agent;
• mortgage companies with retail banking Affiliates may have the Affiliate lend the funds to the Family Member. However, the terms and conditions of the loan to the Family Member cannot be more favorable than they would be for any other Borrowers;

-If funds loaned by the Family Member are borrowed from an acceptable source, the Borrower may not be a co-Obligor on the Note;

-If the loan from the Family Member is secured by the subject Property, only the Family Member provider may be the Note holder; and the secondary financing provided by the Family Member must not be transferred to another Entity at or subsequent to closing.

Reference- 4000.1 II.A.4.d.iii.(J)(3) or II.A.5.c.iii.(J)(3)
Family, Loan, Gift, Member, Eligibility Eligibility and Assets
Can gift funds be
provided from a friend
or other unrelated party?
Gifts refer to the contributions of cash or equity with no expectation of repayment. Gifts may be provided by:

• the borrower’s family member;
• the borrower’s employer or labor union;
• a charitable organization;
• a governmental agency or public entity that has a program providing homeownership assistance to low or moderate income families or first-time homebuyers.

Reference- 4000.1 II.A.8.d.vi.(B)
Gift, Funds, Party, Eligibility Eligibility, Assets, and Definition
Does HUD allow gifts of
Equity?
Only family members may provide equity credit as a gift on property being sold to other family members.

The lender must obtain a gift letter signed and dated by the donor and borrower that includes the following:
• the donor’s name, address, telephone number;
• the donor’s relationship to the borrower;
• the dollar amount of the gift; and
• a statement that no repayment is required.

Reference- 4000.1 II.A.4.d.iii.(F)(4); II.A.5.c.iii.(F)(4)
Gift, Equity, Eligibility Eligibility and Assets
What is required to
verify assets in a bank
Account?
The lender must verify and document the existence of and amounts in the borrower’s checking and savings accounts.

For recently opened accounts and recent individual deposits of more than 1 percent of the adjusted value, the lender must obtain documentation of the deposits and verify that no debts were incurred to obtain part, or all, of the Minimum Required Investment (MRI).

If the borrower does not hold the deposit account solely, all non-borrower parties on the account must provide a written statement that the borrower has full access and use of the funds.

The lender must obtain a written Verification of Deposit (VOD) and the borrower’s most recent statement for each account.

If a VOD is not obtained, a statement showing the previous month’s ending balance for the most
recent month is required.

If the previous month’s balance is not shown, the lender must obtain statement(s) for the most recent two months.

Reference- 4000.1 II.A.4.d.iii.(A); II.A.5.c.iii.(A)
Bank Statement, Documentation, Asset, Assets Eligibility and Assets
Can gift funds come
from the seller, lender
or other interested
Party?
Gifts may be provided by:
• the borrower’s family member;
• the borrower’s employer or labor union;
• a charitable organization;
• a governmental agency or public entity that has a program providing homeownership assistance to low or moderate income families or first-time homebuyers.

The lender may only permit the borrower’s Minimum Required Investment (MRI) to be provided by a source permissible under Section 203(b)(9)(C) of the National Housing Act, which means the funds for the borrower’s MRI must not come from:
(1) the seller of the property;
(2) any other person or entity who financially benefits from the transaction (directly or indirectly); or
(3) anyone who is or will be reimbursed, directly or indirectly, by any party included in (1) or (2) above.


Reference-4000.1 II.A.4.d.iii.(F)(2); II.A.4.d.ii.(B); II.A.5.c.iii.(F)(2)(a); II.A.5.c.ii.(B)
Gift, Funds, Seller, Lender, Interested Party, Eligibility Eligibility and Assets
Can a realtor give a gift
of their commission for
the down payment?
Real Estate Commission from Sale of Subject Property refers to the Borrower’s (i.e., buyer’s) portion of a real estate commission earned from the sale of the property being purchased.

Lenders may consider Real Estate Commissions from the Sale of the Subject Property as part of the Borrower’s acceptable source of funds if the Borrower is a licensed real estate agent.

A Family Member entitled to the commission may also provide it as a gift, in compliance with standard gift requirements.

The Lender must verify and document that the Borrower, or Family Member giving the commission as a gift, is a licensed real estate agent, and is entitled to a real estate commission from the sale of the property being purchased.

Reference- 4000.1 II.A.4.d.iii.(Q); II.A.5.c.iii.(Q)
Gift, Down Payment, Realtor, Commission Eligibility and Assets
Is it acceptable to get a
loan for the down
Payment?
A collateralized loan is a loan that is fully secured by a financial asset of the borrower, such as deposit accounts, certificates of deposit, investment accounts, or real property. These assets may include stocks, bonds, and real estate other than the property being purchased.

Loans secured against deposited funds, where repayment may be obtained through extinguishing the asset, do not require consideration of repayment for qualifying purposes. The lender must reduce the amount of the corresponding asset by the amount of the collateralized loan.

Only an independent third party may provide the borrowed funds for collateralized loans. The seller, real estate agent or broker, lender, or other Interested party may not provide such funds.

Unacceptable borrowed funds include:
• unsecured signature loans;
• cash advances on credit cards;
• borrowing against household goods and furniture; and
• other similar unsecured financing.

Reference- 4000.1 II.A.4.d.iii.(K); II.A.5.c.iii.(K)
Gift, Down Payment, Loan, Eligibility Eligibility and Assets
Can gift funds come
from the employer?
Gift funds may be provided by the borrower’s employer or labor union.

The lender must obtain a gift letter signed and dated by the donor and borrower that includes the following:
• the donor’s name, address, and telephone number;
• the donor’s relationship to the borrower;
• the dollar amount of the gift; and
• a statement that no repayment is required.

The receipt of the gift funds must be documented in accordance with Handbook

A salary advance cannot be considered as assets to close.

Reference-4000.1 II.A.4.d.iii.(F); II.A.5.c.iii.(F); II.A.4.d.iii.(M); II.A.5.c.iii.(M)
Gift, Down Payment, Employer, Eligibility Eligibility and Assets
Can gift funds be used
to pay for prepaids and
closing costs?
The lender must document all funds that are used for the purpose of qualifying for or closing a mortgage, including those to satisfy debt or pay costs outside of closing.

The lender must verify and document that the borrower has sufficient funds from an acceptable source to facilitate the closing.

Gifts may be provided by:
• the borrower’s family member;
• the borrower’s employer or labor union;
• a charitable organization;
• a governmental agency or public entity that has a program providing homeownership assistance to low or moderate income families or first-time homebuyers.

Any gift of the borrower’s Minimum Required Investment (MRI) must also comply with the additional
requirements set forth in Handbook 4000.1 II.A.4.d.ii. or II.A.5.c.ii, Source Requirements for the Borrower’s MRI.

Closing costs, prepaid items and other fees may not be applied towards the Borrower’s MRI.

Reference- 4000.1 II.A.4.d.i; II.A.4.d.iii.(F); II.A.5.c.iii.(F)
Gift, Down Payment, Employer Eligibility and Assets
Where can I find policy
governing rent credit?
Rent credits refer to the amount of the rental payment that exceeds the appraiser’s estimate of fair market rent.

The lender may use the cumulative amount of rental payments that exceeds the appraiser’s estimate of fair market rent towards the borrower’s Minimum Required Investment (MRI).

The lender must obtain:
• the rent with option to purchase agreement,
• the appraiser’s estimate of market rent, and
• evidence of receipt of payments.

Rent may be an inducement to purchase when the sales agreement reveals that the borrower has been living in the property rent-free or has an agreement to occupy the property at a rental amount considerably below fair market value.

Rent below fair market value is not considered an inducement to purchase when:
• a builder fails to deliver a property at an agreed-upon time, and permits the borrower to occupy an existing or other unit for less than market rent until construction is complete; or
• for borrowers who meet the Identity-of-Interest exception for family members.

Reference- 4000.1 II.A.4.d.iii.(H)(3); II.A.4.d.iii.(T); II.A.5.c.iii.(H)(3); II.A.5.c.iii.(T)
Rent, Credit, Policy, Appraisal, Property, Assets Eligibility , Assets, and Property
How do I document
assets in a Retirement
Account?
Retirement accounts refer to assets accumulated by the borrower for the purpose of retirement.

The lender may include up to 60 percent of the value of assets, less any existing loans, from the borrower’s retirement accounts, such as IRAs, thrift savings plans, 401(k) plan, and Keogh accounts.

Unless the borrower provides conclusive evidence that a higher percentage may be withdrawn after subtracting any federal income tax and withdrawal penalties.

The portion of the assets not used to meet closing requirements, after adjusting for taxes and
penalties, may be counted as reserves.

The lender must obtain the most recent monthly or quarterly statement to verify and document the existence and amounts in the borrower’s retirement accounts, the borrower’s eligibility for withdrawals, and the terms and conditions for withdrawal from any retirement account.

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

Reference-4000.1 II.A.4.d.iii.(C); II.A.5.c.iii.(C)
Eligibility , Assets, Retirement, Documentation Eligibility , Assets
How do I document the
value of personal
property sold for funds
to close?
Borrowers may sell personal property to obtain cash for closing.

Personal property refers to tangible property, other than real property, such as cars, recreational vehicles, stamps, coins or other collectibles.

The lender must obtain the following:
• a satisfactory estimate of the value of the item
• a copy of the bill of sale
• evidence of receipt; and
• deposit of proceeds.

A value estimate may take the form of a published value estimate issued by organizations such as automobile dealers, philatelic or numismatic associations, or a separate written appraisal
by a qualified appraiser with no financial interest in the mortgage transaction

The lesser of the estimated value or actual sales price must be used when determining the sufficiency of assets to close.

Reference- 4000.1 II.A.4.d.iii.(N); II.A.5.c.iii.(N)
Eligibility , Assets, Personal Property, Documentation Eligibility , Assets and Definition
Does FHA allow
unsecured loans to be
used toward the down payment?
Funds obtained from unsecured loans cannot be used toward the down payment.

Unacceptable borrowed funds include:
• unsecured signature loans;
• cash advances on credit cards;
• borrowing against household goods and furniture; and
• other similar unsecured financing.

A collateralized loan that is fully secured by a financial asset of the borrower, such as deposit accounts, certificates of deposit, investment accounts, or real property is acceptable. These assets may include stocks, bonds, and real estate other than the property being purchased.

Reference- 4000.1 II.A.4.d.iii.(K)(1); II.A.5.c.iii.(K)(1)
Eligibility , Down Payment, Unsecured Loan Eligibility , Assets
Can an individual or
organization provide a
second mortgage for
the buyer's down
Payment?
Generally, only Federal, state, local government, and nonprofit agencies considered instrumentalities of government are considered an acceptable source of funds for the borrower’s required minimum cash investment, and may provide them as secondary financing.

FHA will insure a first mortgage on a property that has a second mortgage or lien held by private individuals and other organizations, provided that:
• the secondary financing is disclosed at the time of application;
• no costs associated with the secondary financing are financed into the FHA-insured first mortgage;
• the secondary financing payments must be included in the total mortgage payment;
• the secondary financing must not result in cash back to the borrower except for refund of earnest money deposit or other borrower costs paid outside of closing;
• the secondary financing may not be used to meet the borrower’s Minimum Required Investment (MRI);
• the Combined Loan-to Value (CLTV) ratio of the base loan amount and secondary financing amount must not exceed the applicable FHA Loan-to-Value (LTV) limit;
• the base loan amount and secondary financing amount must not exceed the Nationwide Mortgage Limits;
• the second lien may not provide for a balloon payment within 10 years from the date of execution;
• any periodic payments are level and monthly; and
• there is no prepayment penalty, after giving the mortgagee 30 days advance notice.

The lender must obtain from the provider of any secondary financing:
• documentation showing the amount of funds provided to the borrower for each transaction; and
• copies of the loan instruments.

Reference- 4000.1 II.A.4.d.iii.(J)(4); II.A.5.c.iii.(J)(4)
Eligibility, Down Payment, Assets, Second Mortgage, Second, Lien, Organization Eligibility , Assets
Can employers
contribute toward the
borrower's down payment?
Employer assistance refers to benefits provided by an employer to relocate the borrower or assist in the borrower’s housing purchase, including closing costs, Mortgage Insurance Premiums (MIP), or any portion of the borrower’s Minimum Required Investment (MRI).Employer assistance does not include benefits provided by an employer through secondary financing.

A salary advance cannot be considered as assets to close.

RELOCATION GUARANTEED PURCHASE
The lender may allow the net proceeds (relocation guaranteed purchase price minus the outstanding liens and expenses) to be used as cash to close. If the borrower is being transferred by their company under a guaranteed sales plan, the lender must obtain an executed buyout agreement signed by all parties and receipt of funds indicating that the employer or relocation service takes responsibility for the outstanding mortgage debt. The lender must verify and document the agreement guaranteeing employer purchase of the borrower’s previous residence and the net proceeds from sale.

EMPLOYER ASSISTANCE PLANS
The amount received under employer assistance plans may be used as cash to close. The lender must verify and document the borrower’s receipt of assistance. If the employer provides this benefit after settlement, the lender must verify and document that the borrower has sufficient cash for closing.

Reference- 4000.1 II.A.4.d.iii.(M); II.A.5.c.iii.(M)
Eligibility , Down Payment, Employers, Assets Eligibility , Assets
Can a Homeownership
Set Aside Program grant
be used for down
Payment?
The Federal Home Loan Bank’s (FHLB) Affordable Housing Program (AHP) Homeownership Set-Aside Grant Program is an acceptable source of down payment assistance and may be used in conjunction with FHA-insured financing.

Secondary financing that creates a lien against the property is not considered a gift or grant even if it
does not require regular payments or has other features forgiving the debt.

Any AHP Set-Aside funds used for the borrower’s Minimum Required Investment (MRI) must also comply with the additional requirements set forth in Handbook 4000.1:II.A.4.d.ii and II.A.5.c.ii.

The lender must:
• Verify and document the borrower’s receipt of the grant and terms of use.
• Verify and document that the retention agreement required by the FHLB is recorded against the property and results in a deed restriction, and not a second lien.

The retention agreement must:
• provide that the FHLB will have ultimate control over the AHP grant funds if the funds are repaid by the borrower;
• include language terminating the legal restrictions on conveyance if title to the property is transferred by foreclosure or deed-in lieu (DIL), or assigned to the Secretary of HUD; and
• comply with all other FHA regulations.

Reference- 4000.1 II.A.4.d.iii.(L)(2); II.A.5.c.iii.(L)(2)
Down Payment, Eligibility, Grant, FHLB, Federal Home Loan Bank, Assets, AHP, Affordable Housing Eligibility , Assets
Can a nonprofit or
government entity who is the seller of a
property provide gift
Funds?
The funds for the borrower’s MRI must not come from:
(1) the seller of the property;
(2) any other person or entity who financially benefits from the transaction; or
(3) anyone who is or will be reimbursed, directly or indirectly, by any party included in (1) or (2) above.
HUD does not interpret Section 203(b)(9)(C) of the National Housing Act to prohibit governmental entities from providing the borrower’s MRI where the governmental entity is originating the insured mortgage through one of its homeownership programs.

The lender must document that the governmental entity incurred prior to or at closing an enforceable legal liability or obligation to fund the borrower’s MRI. It is not sufficient to document that the governmental entity has agreed to reimburse the lender for the use of funds legally belonging to the lender to fund the Borrower’s MRI.

The lender must obtain:
• a canceled check, evidence of wire transfer or other draw request showing that prior to or at the time of closing the governmental entity had authorized a draw of the funds provided towards the borrower’s MRI from the governmental entity’s account; or
• a letter from the governmental entity, signed by an authorized official, establishing that the funds provided towards the borrower’s MRI were funds legally belonging to the governmental entity at or before closing.

Examples of acceptable language are available in Handbook 4000.1 II.A.4.d.ii.(C).

Reference- 4000.1 II.A.4.c.ii; II.A.5.c.ii
Down Payment, Eligibility,Assets, Nonprofit, Government Entity, Gift, Seller Eligibility , Assets
Are government
entities required to
provide a gift letter?
If a gift is provided by a governmental agency or public entity that has a program providing homeownership assistance to low or moderate income families or first-time homebuyers, a gift letter is required.
The gift letter must be signed and dated by the donor and borrower and includes the following:
• the donor’s name, address, and telephone number;
• the donor’s relationship to the Borrower;
• the dollar amount of the gift; and
• a statement that no repayment is required.

Reference- 4000.1 II.A.4.d.iii.(F); II.A.5.c.iii.(F)
Down Payment, Eligibility,Assets, Nonprofit, Government Entity, Gift, Seller Eligibility , Assets
What is the FHA
definition of borrower
Reserves?
Reserves refer to the sum of the borrower’s verified and documented liquid assets minus the total funds the borrower is required to pay at closing.

Reserves do not include:
• the amount of cash taken at settlement in cash out transactions
• incidental cash received at settlement in other loan transactions
• gift funds in excess of the amount required for the cash investment and other expenses
• equity in another property
• borrowed funds from any source

Reference- 4000.1 II.A.4.d.i.(C); II.A.5.c.i.(C)
Eligibility , Assets, Reserves Eligibility , Assets, and Definition
Are reserves required
for borrowers with
manually underwritten loans?
Yes, the lender must verify and document reserves equivalent to one month’s principal, interest, taxes, and insurance (PITI) after closing for one- to two-unit properties.

The lender must verify and document reserves equivalent to three months’ PITI after closing for three- to four unit properties.

Reference-4000.1 II.A.5.c.i.(C)
Eligibility , Assets, Reserves, Manual Underwriting Eligibility , Assets, Manual UW
When can borrower
cash reserves be used
as a compensating
factor for a manually
underwritten loan?
Compensating factors may be used to justify approval of manually underwritten mortgages with qualifying ratios

Verified and documented cash reserves may be cited as a compensating factor subject to the following requirements:
• Reserves are equal to or exceed 3 total monthly mortgage payments (1 and 2 units); or
• Reserves are equal to or exceed 6 total monthly mortgage payments (3 and 4 units).

Reserves are calculated as the borrower’s total assets less:
• the total funds required to close the mortgage;
• gifts;
• borrowed funds; and
• cash received at closing in a cash-out refinance transaction or incidental cash received at closing in the mortgage transaction.

Reference-4000.1 II.A.5.d.viii; II.A.5.d.ix.(B)
Eligibility , Assets, Reserves, Manual Underwriting, Compensating Factors Eligibility , Assets, Manual UW
What are the
requirements regarding
real estate tax credits
to be received by a borrower at closing?
Where real estate taxes are paid in arrears, the seller’s real estate tax credit may be used to meet the borrower’s Minimum Required Investment (MRI), if the lender documents that the borrower had sufficient assets to meet the MRI and the borrower paid closing costs at the time of underwriting.

This permits the borrower to bring a portion of their MRI to the closing and combine that portion with the real estate tax credit for their total MRI.

Reference-4000.1 II.A.4.d.i.(B)(2)(j); II.A.4.c.i.(B) (2)(j)
Eligibility , Assets, Credit, Closing, Real Estate, Requirements, Property Taxes Eligibility , Assets
How are debts paid by
another person
Considered?
A contingent liability refers to a liability that may result in the obligation to repay only when a specific event occurs.

For example, a contingent liability exists when an individual can be held responsible for the repayment of a debt if another legally obligated party defaults on the payment. Contingent liabilities may include cosigner liabilities and liabilities resulting from a mortgage assumption without release of liability.

The lender must include monthly payments on contingent liabilities in the calculation of the borrower’s monthly obligations unless the lender verifies and documents that there is no possibility that the debt holder will pursue debt collection against the Borrower should the other party default or the other legally obligated party has made 12 months of timely payments.

REQUIRED DOCUMENTATION
• Mortgage Assumptions - The lender must obtain the agreement creating the contingent liability or assumption agreement and deed showing transfer of title out of the borrower’s name.
• Cosigned Liabilities - If the cosigned liability is not included in the monthly obligation, the lender must obtain documentation to evidence that the other party to the debt has been making regular on-time payments during the previous 12 months, and does not have a history of delinquent payments on the loan.
• Court Ordered Divorce Decree - The lender must obtain a copy of the divorce decree ordering the spouse to make payments.

Reference- 4000.1 II.A.4.b.iv.(K); II.A.5.a.iv.(M)
Debts, Eligibility, Third Party, Paid, Contingent Liability Eligibility and Debt
Do I have to count a
debt that is almost paid
Off?
The lender must determine the borrower’s monthly liabilities by reviewing all debts listed on the credit report, Uniform Residential Loan Application (URLA), and required documentation.

All applicable monthly liabilities must be included in the qualifying ratio.

Closed-end debts do not have to be included if they will be paid off within 10 months and the cumulative payments of all such debts are less than or equal to 5 percent of the borrower’s gross
monthly income.

*The borrower may not pay down the balance in order to meet the 10-month requirement.

Reference-4000.1 II.A.4.b.iv.(A); II.A.5.a.iv.(A)
Debts, Eligibility, Paid Off Eligibility and Debt
Are child support and
alimony counted as a
liability for qualifying?
Alimony, Child Support, and Other Maintenance are court-ordered or otherwise agreed upon payments.

For alimony, if the borrower’s income was not reduced by the amount of the monthly alimony obligation in the calculation of the borrower’s gross income, the lender must include the monthly obligation in the calculation of the borrower’s debt.

Child support and other maintenance are to be treated as a recurring liability and the lender must include the monthly obligation in the borrower’s liabilities and debt.

The lender must verify and document the monthly obligation by obtaining the official signed divorce decree, separation agreement, maintenance agreement, or other legal order and must also obtain the borrower’s pay stubs covering no less than 28 consecutive days to verify whether the borrower is subject to any order of garnishment relating to the alimony, child support, or other maintenance.

The lender must calculate the borrower’s monthly obligation from the greater of:
• the amount shown on the most recent decree or agreement establishing the borrower’s payment obligation; or
• the monthly amount of the garnishment.

Reference- 4000.1 II.A.4.b.iv.(E); II.A.5.a.iv.(D)
Child Support, Alimony, Liability, Debt, Qualifying Eligibility and Debt
Can I exclude the cost
of utilities from the
analysis when they are
included in the HOA
Fees?
The portion of a condominium fee that is clearly attributable to utilities may be subtracted from the HOA fees before computing qualifying ratios, provided the Borrower provides proper documentation, such as statements from the utility company.

Reference- 4000.1 II.A.5.d.vii.(B)(2)
HOA, Utilities, Eligibility, Excluded, Ratio Eligibility and Debt
Must a monthly
obligation for a leased
energy system be
included in the
borrower's DTI?
An obligation for a home energy system need not be included as a debt in the borrower’s qualifying ratios.

Reference- HQ Policy
Ratio, Debt, Leased Energy System, DTI, Payment Eligibility and Debt
May non-taxable
income be “grossed
Up”?
Non-Taxable Income refers to types of income not subject to federal taxes, which includes, but is not limited to:
• some portion of Social Security Income;
• some federal government employee Retirement Income;
• Railroad Retirement benefits;
• some state government Retirement Income;
• certain types of disability and Public Assistance payments;
• Child Support;
• military allowances; and
• other income that is documented as being exempt from federal income taxes.

The lender must document and support the amount of income to be grossed up for any non-taxable income source and the current tax rate applicable to the borrower’s income that is being grossed up.

The amount of continuing tax savings attributed to non-taxable income may be added to the borrower’s gross income.

The percentage of non-taxable income that may be added cannot exceed the greater of 15 percent or the appropriate tax rate for the income amount, based on the borrower’s tax rate for the previous year. If the borrower was not required to file a federal tax return for the previous tax reporting period, the lender may gross up the non-taxable income by 15 percent.

The lender may not make any additional adjustments or allowances based on the number of the borrower’s dependents.

Reference- 4000.1 II.A.4.c.xii(P); II.A.5.b.xii(P)
Non-taxable, Income, Grossed up Eligibility, Definition and Income
How is rental income
for the subject property
calculated when
analyzing borrower
qualifying ratios?
To calculate the effective income from the subject property where the borrower does not have a history of rental income from the subject property since the previous tax filing, the lender must use the lesser of:
• the monthly operating income reported on Freddie Mac Form 998; or
• 75 percent of the lesser of:
- fair market rent reported by the appraiser; or
- rent reflected in the lease or other rental agreement.

To calculate effective income from the subject property where the borrower does have a history of rental income the lender must calculate the rental income by averaging the amount shown on Schedule E. Depreciation, mortgage interest, taxes, insurance and any HOA dues shown on Schedule E may be added back to the net income or loss.

If the property has been owned for less than two years, the lender must annualize the rental income for the length of time the property has been owned.

Reference- 4000.1 II.A.4.c.xii.(I); II.A.5.b.xii.(I)
Rental Income, Ratio, Calculation, Qualifying, Eligibility, Eligibility and Income
How is rental income
from other real estate
Calculated?
To calculate the effective net rental income from other real estate holdings, including a property being vacated by the borrower, where the borrower does not have a history of rental income since the previous tax filing, the lender must deduct the Principal, Interest, Taxes, and Insurance (PITI) from the lesser of:
• the monthly operating income reported on Freddie Mac Form 998; or
• 75 percent of the lesser of:
- fair market rent reported by the appraiser; or
- rent reflected in the lease or other rental agreement

To calculate effective income from other real estate where the borrower does have a history of rental income the lender must average the amount shown on the Schedule E provided the borrower continues to own all properties included on the Schedule E.

Depreciation shown on Schedule E may be added back to the net income or loss.

If the property has been owned for less than two years, the lender must annualize the rental income for the length of time the property has been owned. For properties with less than two years of rental income history, the lender must document the date of acquisition by providing the deed, Settlement Statement or similar legal document.

Positive net rental income must be added to the borrower’s effective income. Negative net rental income must be included as a debt/liability.

Reference- 4000.1 II.A.5.b.xii.(I)
Rental Income, Ratio, Calculation, Qualifying, Eligibility, Eligibility and Income
Can child support or
alimony be used as
Income?
The lender must obtain a fully executed copy of the borrower’s final divorce decree, legal separation agreement, court order, or voluntary payment agreement with documented receipt.

When using a final divorce decree, legal separation agreement or court order, the lender must obtain 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.

If the borrower has received consistent alimony, child support or other maintenance payments for the most recent three months, the lender may use the current payment to calculate effective income.

For a voluntary payment agreement, the lender must document receipt with 12 months of canceled checks, deposit slips, or tax returns. If the borrower has received consistent alimony, child support or other maintenance payments for the most recent six months, the lender may use the current payment to calculate effective income.

The lender must provide evidence that the claimed income will continue for at least three years. The lender may use the front and pertinent pages of the divorce decree/settlement agreement and/or court order showing the financial details.

If the alimony, child support or other maintenance payments have not been consistently received for the most recent six months, the lender must use the average of the income received over the previous two years to calculate effective Income. If alimony, child support or maintenance income has been received for less than two years, the lender must use the average over the time of receipt.

Reference- 4000.1 II.A.4.c.xii.(B); II.A.5.b.xii.(B)
Child Support, Alimony, Income, Qualifying Eligibility and Income
Can disability payments
be used as income?
The lender must verify and document the borrower’s receipt of benefits from the SSA, VA or private disability insurance provider.

The lender must obtain:
(1) a copy of the last Notice of Award letter which states the SSA's or private disability insurer’s determination on the borrower’s eligibility for disability benefits, or
(2) equivalent documentation that establishes the award of benefits to the borrower.

If the Notice of Award or equivalent document does not have a defined expiration date, the lender may consider the income effective and reasonably likely to continue. The lender may not rely upon a pending or current reevaluation of medical eligibility for benefit payments as evidence that the benefit payment is not reasonably likely to continue.

Under no circumstances may the lender inquire into or request documentation concerning the nature of the disability or the medical condition of the borrower.

For Social Security Disability income, including Supplemental Security Income (SSI), the lender must obtain one of the following documents:
• Federal tax returns;
• The most recent bank statement evidencing receipt of income from the SSA;
• A Proof of Income Letter, also known as a “Budget Letter” or “Benefits Letter” that evidences income from the SSA; or
• A copy of the Borrower’s FORM SSA-1099/1042S, Social Security Benefit Statement.
For VA disability benefits, the lender must obtain VA Form 26-8937, Verification of VA Benefits, showing the amount of the assistance and the expiration date of benefits, if any.

For private disability benefits, the lender must obtain documentation from the private disability insurance provider showing the amount of the assistance and the expiration date of the benefits, if any.

The lender must use the most recent amount of benefits received to calculate effective income.

Reference- 4000.1 II.A.4.c.xii.(A) (1); II.A.5.b.xii.(A)(1)
Disability, Income, Documentation, Qualifying, Eligibility, Eligibility and Income
Can public assistance be
used as income?
Public assistance refers to income received from government assistance programs.

Lenders must verify and document the income received from the government agency.

The lender must use the current rate of public assistance received to calculate effective income.

Reference- 4000.1 II.A.4.c.xii.(F); II.A.5.b.xii.(F)
Public Assistance, Income, Eligibility Eligibility and Income
Can income earned
from part-time
employment be used as
Income?
The lender may use part-time employment income as effective 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. The income must be averaged over the previous two years.

If the lender can document an increase in pay rate, a 12-month average of hours at the current pay rate may be used.

Reference- 4000.1 II.A.4.c.iv; II.A.5.b.iv
Part time, Employment, Income, Eligibility Eligibility and Income
Can income from
employment that has
not begun be used as
Income?
Expected income refers to income from cost-of-living adjustments, performance raises, a new job, or retirement that has not been, but will be received within 60 days of mortgage closing.

The lender must verify and document the existence and amount of expected income with the employer in writing and that it is guaranteed to begin within 60 days of mortgage closing.

For expected retirement income, the lender must verify the amount and that it is guaranteed to begin within 60 days of the mortgage closing.

The lender must also verify that the borrower will have sufficient income or cash reserves to support the mortgage payment and any other obligations between mortgage closing and the beginning of the receipt of the income.

Reference- 4000.1 II.A.4.c.xii.(L); II.A.5.b.xii.(L)
Employment, Income, Eligibility Eligibility and Income
How do I approach
transactions where we
know the income will
be changing?
Expected income refers to income from cost-of-living adjustments, performance raises, a new job, or retirement that has not been, but will be received within 60 days of mortgage closing.

The lender must verify and document the existence and amount of expected income with the employer in writing and that it is guaranteed to begin within 60 days of mortgage closing.

For expected retirement income, the lender must verify the amount and that it is guaranteed to begin within 60 days of the mortgage closing.
.
The lender must also verify that the borrower will have sufficient income or cash reserves to support the mortgage payment and any other obligations between mortgage closing and the beginning of receipt of the income.

For borrowers with a temporary reduction of income due to a short-term disability or similar temporary leave, the lender may consider the borrower’s current income as effective income, if it can verify and document the borrower:
• intends to return to work;
• has the right to return to work; and
• qualifies for the mortgage taking into account any reduction of income due to the circumstance.

For borrowers returning to work before or at the time of the first mortgage payment due date, the lender may use the borrower’s pre-leave income.

For borrowers returning to work after the first mortgage payment due date, the lender may use the borrower’s current income plus available surplus liquid asset reserves, above and beyond any required reserves, as an income supplement up to the amount of the borrower’s pre-leave income.

Reference- 4000.1 II.A.4.c.xi(C); II.A.5.b.xi.(C); II.A.4.c.xii.(L); II.A.5.b.xii.(L)
Employment, Income, Eligibility Eligibility and Income
Is sweat equity allowed? SWMC does not accept sweat equity as source of down payment Sweat equity, down payment, equity Eligibility, Assets
What is the maximum allowable DTI on an FHA transaction? SWMC will only allow a maximum DTI of 45/55 Ratio, DTI, maximum Eligibility, Income
On a HECM transaction if the borrower is using a fully funded life expectancy set-aside (LESA), is the borrower required to write LOE's for all delinquent accounts? Yes, borrower will be required to write LOE's (letter's of explanation) on all delinquent accounts. This is required so the underwriter and HUD can get a full picture of the file for borrowers financial obligations, we are required to make sure if this was a one time occurrence or borrower disregarded obligations completely, but regardless they are required even with fully funded LESA.

Reference- ML 14-22 attachment 2 section 2.16.
HECM, LESA, Fully Funded, Delinquent account, Life expectancy, LOE, letters of explanation Eligibility and Debt
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Consumer Home Loan Mortgages

Consumer Home Loan Mortgages

SWMC offers a wide range of residential home loan mortgage programs to suit different situations such as a purchase, refinance, a property rehabilitation loan or a reverse mortgage at the competitive interest rates.

FHA Purchase at 96.5% Financing, Streamline (Interest Rate Reduction) Refinance, and Cash-Out Refinance, 203(k) Rehabilitation Loan, 203(k) Streamlined Rehabilitation Loan, and the Home Equity Conversion Mortgage (Reverse Mortgage) and USDA Rural Housing mortgages.

If you are a Veteran, Sun West offers you VA guaranteed mortgages for Purchase Loans at 100% Financing, Cash-Out Refinance, and Streamline Interest Rate Reduction Refinance Loans (IRRRL).

You can use our simple mortgage calculator tools to find out your monthly payment, the house you can afford, your refinance options, or the home equity you may be able to access through a reverse mortgage (HECM).

As a full-service mortgage bank, Sun West is one of the few approved direct lenders to provide in-house origination, processing, underwriting, closing, funding, and servicing. Based in California with active presence across the country, Sun West is dedicated to offering exceptional service coupled with integrity, reliability, and experience.

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Mortgage Partner Services

Mortgage Partner Services

You can become a partner with Sun West as a Wholesale Mortgage Broker or a Correspondent Lender. If you are a mortgage banker, ask us about our Warehouse Lending program.

In addition to residential mortgage lending, Sun West also offers FHA multifamily,commercial and portfolio lending services.

As a partner you have access to SunSoft - Sun West's state-of-the-art mortgage loan origination and servicing software. Built on over 30 years of lending and mortgage technology experience, SunSoft is compliant with federal and state requirements.

Sun West is approved by Ginnie Mae as an Issuer, Servicer and Participation Agent. This rare approval enables us to issue securities backed by the full faith and credit of the United States. Consequently, Sun West is able to offer its partners and borrowers the competitive interest rates in the market.

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Loan Calculators

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Press Releases

Press Releases

  • 08/20/2015: Sun West Mortgage Company, Inc. Named Million Dollar Lender by USDA Rural Development Read More..
     
  • 07/15/2014: Ivan 'Pudge' Rodriguez to Make His Debut at the 25th Annual American Century Golf Championship, Sponsored by Sun West Mortgage Company, Inc. Read More..
     
  • 07/1/2014: USDA Rural Development Names Sun West Mortgage Company, Inc. Lender of the Year Read More..
     
  • 04/28/2014: FHA 203(k) and PowerSaver Loan Offerings From Sun West Mortgage Company, Inc. Extended With New FHA PowerSaver 203(k) Program as a Single Home Improvement Solution for Homebuyers Read More..
     
  • 02/24/2014: Sun West Mortgage Company, Inc. Continues National Expansion Read More..
     
  • 07/23/2013: Sun West Mortgage Company, Inc. Offers Homeowners Access to the Hardest Hit Fund Relief in All Eligible States and D.C. Read More..
     
  • 05/15/2012: Sun West Mortgage Company Partners with EGIA to Introduce the FHA PowerSaver Loan Program Read More..
     
  • 12/16/2011: Sun West Mortgage Company and the Cerritos Sheriff Station team up to supply little boys and girls toys this holiday Read More..
     
  • 10/03/2011: Sun West Mortgage Increases Its Reach in New Jersey Read More..
     
  • 4/22/2011: Variable Servicing Margins on Different Participations of the Same Loan for HMBS Issuers Announced by Sun West Mortgage Read More..
     
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Lender Alerts

Lender Alerts

  • 2/22/2017: Close more Loans: Reduced Overlay on Conventional Loans Read More..
     
  • 2/13/2017: Disaster reported by FEMA in the state of Louisiana Read More..
     
  • 2/13/2017: Presidents' Day Closing Notice 2017 Read More..
     
  • 2/1/2017: Disaster reported by FEMA in the states of Georgia and Mississippi Read More..
     
  • 1/10/2017: Martin Luther King Jr. Day Hours of Operation Read More..
     
  • 1/9/2017: Non-Agency Premium Loan Programs Read More..
     
  • 12/28/2016: Sun West’s Implementation of Truth in Lending (Regulation Z) ​Annual Threshold Adjustments Read More..
     
  • 12/23/2016: 2017 Loan Limits for Government Loan Programs Read More..
     
  • 12/23/2016: New Year's Holiday Hours of Operation Read More..
     
  • 12/20/2016: Holiday Season Hours of Operation Read More..
     
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