1. Product Description:
FHA Fixed Rate and ARM loans.

2. Program Codes:
FF30 - FHA 30 Year Fixed

FF15 - FHA 15 Year Fixed

FA30 - FHA ARM

FF30B - FHA 30 Year Buydown

3. Property Types:
SFR
2 Unit Properties
3-4 Unit Properties:
Property must be self-sufficient, i.e.; the maximum mortgage amount is limited so that the ratio of the monthly mortgage payment divided by the monthly net rental income does not exceed 100 percent.
Borrower must qualify at the Note Rate; no consideration for buydowns may be given.
The borrower must have a reserve of 3 months mortgage payments (PITI) after closing, on purchase transactions. (MAY NOT BE FROM GIFT)
PUD’s – PUD approval not required.
FHA approved Condo’s:
All projects must be FHA approved and meet FHA’s condo guidelines, or meet the guidelines for "Spot Approval". The website for approved Condos is http://hud.gov/groups/lenders.cfm
The following information is required to determine project eligibility for spot condo approval:
Appraisal
Checklist for Spot Loan approval
Evidence of hazard, liability, fidelity bond (if over 30 units), and flood insurance (if needed).
Copy of project Declarations and By-laws.
See FHA procedures for Spot Approval procedures.
Manufactured Housing (See section 41 for restrictions on Manufactured Homes)
Modular Homes (See section 41 for restrictions on Manufactured Homes)
Leaseholds (See section 23 for Leasehold requirements)
All properties must meet HUD’s Anti-Flipping Requirements. See section 23.

4. Occupancy:
FHA Owner Occupied

Streamline Refi – Owner Occupied or Non-owner (Not allowed on Manufactured Homes)

Non-Owner occupied not allowed on ARMS

5. Geographic Restrictions:
Montana – properties exceeding 40 acres are ineligible.

Texas – Cashout refinances are not permitted on Primary Residences.

6. Documentation Types:
Full/Alt Doc

Streamline Refinance

7. Minimum Loan Amount:
None.

8. Maximum LTV and Loan Amounts:
The maximum loan amount is limited to the local Statutory Mortgage Loan Limits as published by HUD Field Offices. The most current loan limits can be found at https://entp.hud.gov/idapp/html/hicostlook.cfm The maximum insurable mortgage is the lesser of:

The statutory loan limit for the area, or
The applicable loan-to-value factor applied to the lesser of the Sale Price or Appraised Value (exclusive of closing costs)
Low Closing Costs States

(Use lower of Sales Price/Appraised Value) LTV Factor

Sales Price/Appraised Value $50,000 or less 98.75%

Sales Price/Appraised Value $50,001 to $125,000 97.65%

Sales Price Appraised Value $125,001 or greater 97.15%

High Closing Costs States

(Use lower of Sales Price/Appraised Value) LTV Factor

Sales Price/Appraised Value $50,000 or less 98.75%

Sales Price/Appraised Value over $50,000 97.75%

The following is a list of Lender approved Low and High Closing Costs States to help determine which LTV factor applies to your transaction.

Low Closing Cost States
High Closing Cost States

Arizona

California

Colorado

Idaho

New Mexico
Nevada

Oregon

Utah

Washington

Wyoming
Alaska

Florida

Maryland

Montana

Oklahoma

Texas

9. MI Coverage:

The upfront MIP is determined by multiplying the base loan amount by the Upfront Premium factor.

UFMIP is not collected for 234C (Condos)

The annual MIP is determined by multiplying the base loan amount by the appropriate Annual Premium factor. Since the Annual MIP is collected in monthly installments, divide the resulting number by 12 to obtain the monthly premium. This figure is included in the proposed monthly housing expense and qualifying ratios.

Upfront MIP Factor: 1.50%

Annual MIP Factor:

.500% for all loans with a mortgage term >15 years.

.250% for all loans with a mortgage term of <=15 years and an LTV of 90% and up

There will be no Annual MIP for loans with mortgage terms of 15 year or less and LTV’s of 89.99% and under (excluding Condos).

For Condos, since there is no up front MIP, the Annual MIP is .500% and will be collected the entire length of the loan, regardless of term or LTV.

For mortgages >15 years, the annual MIP will be canceled when the LTV reaches 78%, provided the borrower has paid the annual MIP for at least 5 years.

For mortgages <=15 years, the annual MIP will be canceled when the LTV reaches 78%.

Streamline Refinances

Streamline refinances of mortgages closed before July 1, 1991 are subject to an Upfront MIP of 1.50%, but are not subject to the annual premium.

Streamline refinances of mortgages closed on or after July 1, 1991, are subject to the 1.50% Upfront MIP plus the appropriate Annual MIP.

The LTV on streamline refinances without an appraisal will be based on data regarding the mortgage being refinanced, including sales price and appraised value amounts residing in FHA’s Single Family Insurance System (SFIS). FHA will compute a new LTV by dividing the new loan amount, exclusive of any upfront MIP, by the lower of the sales price or appraised value amount. From this computed LTV, FHA will determine the 78% threshold is reached based on the scheduled amortization. If the computed LTV is not possible, due to missing data or previous refinancing without an appraisal, the new LTV will default 89.9 percent.

Cash-out refinances with a term of 30 years are subject to the 1.50% UFMIP and the .50% annual premium. For a 15-year term the UFMIP is 1.50% with no annual premium since the maximum LTV is 85%.

10. Index:
Weekly average yield on US Treasury securities adjusted to a constant maturity of 1 year as published by the Federal Reserve Board.

11. Margin:
Refer to rate sheet.

12. Initial/Annual Adjustment Cap:
1% interest rate cap at each interest rate adjustment period, which will not cause deferred interest.

13. Life Cap:
Life-of-loan cap of 5%.

14. Payment Cap:
N/A

15. Payment Adjustment:
ARM change date is determined by Lender at the time the docs are drawn.

16. Conversion Option:
None.

17. Conversion Fee:
N/A

18. Assumptions:
Permitted to credit qualified borrowers.

19. Prepayment Penalty:
Refer to Note and Deed.

20. Subordinate Financing:
Family members may lend 100% of the borrower’s required cash investment (on a secured or unsecured basis) which may include:

Down payment
Closing costs
Prepaid expenses
Discount points
The family member providing the secondary financing may not borrow the funds from a source with an interest in the sale of the property including, the seller, builder, loan officer or real estate agent. In addition, the borrower receiving the funds from a family member may not be the co-obligor on the note used to secure the funds. For example, a son and daughter-in-law may not be on the note for the funds borrowed by the parents, which in turn was lent for the down payment.

Federal, state and local governmental agencies may provide secondary financing for the borrower’s entire cash investment with the following conditions:

The first mortgage combined with the second mortgage, as well as any other mortgages, grants, etc. may not result in cash back to the borrower.
The sum of all financing may not exceed 100% of the cost to acquire the property, including any normal prepaid expenses.
The monthly payment under the first and second mortgage or lien, plus other housing expenses and recurring charges, cannot exceed the borrower’s reasonable ability to pay.
The source, amount and repayment terms must be disclosed in the mortgage application and the borrower must acknowledge that he/she understands and agrees to the terms.
Secondary financing from a non-profit agency is not allowed.

Institutional lenders and private individuals may provide secondary financing under the following conditions:

The combined amounts of the first and second mortgages do not exceed the applicable loan-to-value factor and the maximum mortgage limit for the area.
The repayment terms of the second mortgage must not provide for a balloon payment before ten years (or other such term acceptable to FHA), unless the property is sold or refinanced, and must permit prepayment by the borrower, without penalty, after giving the lender 30 days advance notice.
The required monthly payment under the insured mortgage and the second mortgage or lien, plus other housing expenses and all recurring charges, cannot exceed the borrower’s reasonable ability to pay. Any periodic payments due on the second mortgage are due monthly and are substantially the same in amount.
Borrower must make a cash investment of at least 3 percent of the cost to acquire the property.
The combined amount of the first and second mortgages may not exceed 100% of the lesser of the property’s value or sales price, plus normal closing costs, prepaid expenses, and discount points.

21. Temporary Buydowns:
(FF30B)

Fixed rate only.

Purchase transactions only.

Not permitted on Construction-Perm loans.

Maximum buydown is 2% below the note rate.

Maximum interest rate adjustment is 1% and the adjustment may occur only once annually.

Premium pricing may be used to fund the buydown.

Qualify at the Start Rate for 1-2 unit properties.

Qualify at the Note Rate for 3-4 unit properties.

22. Delegated U/W authority:
Delegated. Lender is delegated within FHA guidelines. The use of LP or DU is permitted on this product.

23. Underwriting:
Generally, all loans will be underwritten to FHA guidelines along with the underwriting parameters outlined in these guidelines.

Property ownership requirements (Anti-Flipping Rule): (ML 03-07)

Only owners of record can sell properties that will be financed using FHA mortgages. Underwriters must verify seller is owner of record. Examples of acceptable documentation are: property sales history report, a copy of the recorded deed from the seller, property tax bill, or title commitment binder.
An owner of record must have title to the property for 91 days or more before it can be re-sold to a buyer who wants FHA financing.
If the most recent sale of the property occurred at least one year previously per the appraiser, no additional documentation is required. Underwriters are still responsible to verify the owner of record as detailed above.
If the appraiser indicates property sold within past 12 months, a HUD-1 or other documentation must be obtained from the seller to document sales price.
If the re-sale is between 91-180 days following acquisition by the seller, a second appraisal must be obtained from a different appraisal company if the re-sale price is 100% or more over the price paid by the seller when the property was acquired. (The mortgage amount must be calculated using the lowest appraised value and the VC conditions from the appraisal with the lowest value must be followed.)
The seller’s date of acquisition is the date of settlement on the seller’s purchase of the property. The re-sale date is the date of execution of the sales contract by the FHA buyer.
This rule does not apply when a builder is selling a newly built home or is building a home for a homebuyer wishing to use FHA-insured financing.
This rule does not apply when there is a HUD REO foreclosure. All other types of foreclosure sales HUD considers as a prior sale and the necessary time period calculation falls under the anti-property flipping rules.

23. Underwriting cont.:
New Construction:

Option A – New construction (one year old or less), where the local jurisdiction issues building permits AND performs local inspections/issues Occupancy Certificates

All of the following are required to satisfy the requirements for obtaining a high ratio loan (LTV over 90%) and are effective for case numbers ordered on or after October 23, 2001:
An issuance of a building permit (or equivalent*) by a local jurisdiction prior to construction – this permit is acceptable evidence of "pre-approval", (a copy of the permit must be retained in the file).
An issuance of a Certificate of Occupancy (or equivalent*) – this certificate is evidence of the local inspections.
FHA will no longer approve local jurisdictions to perform these inspections since the Certificate of Occupancy will be accepted as verification of these inspections.
A Final Inspection, by the Appraiser – this is needed in order for the underwriter to certify the property is 100% complete AND the property meets HUD’s minimum property standards which is a requirement of the 92900-A
A 1-year Builder Warranty
Form HUD 92541 (Builder’s Certification of Plans, Specifications & Site)
All applicable construction documents from the builder.
Neither an Early Start Letter nor a HUD approved 10-year warranty plan is required
* A letter from the local jurisdiction, explaining what their "equivalent" is to a building permit or occupancy certificate, must be retained in the file along with a copy of the "equivalent"

Form HUD 92900-A, page 3, "Direct Endorsement Approval for a HUD/FHA Insured Mortgage:, has been revised to include a check box for the lender to certify that the property is 100% complete and that the property meets HUD’s Minimum Property Standards. This must be done whether the loan is using the "Alternative to Inspections" option or not.
Option B – New Construction (one year old or less), where the local jurisdiction does not issue a building permit AND a Certificate of Occupancy

All of the following are required to satisfy the requirements for obtaining a high ratio loan (LTV over 90%):
An Early Start Letter or Proof of enrollment in a warranty plan acceptable to HUD
For Proposed Construction, the Initial, Framing and Final inspections by the appraiser or fee inspector unless a 10 Year Warranty is obtained. If the 10-year warranty is obtained, only a Final inspection by the appraiser or fee inspection is required.
1-year builder warranty
Form HUD 92541 (Builder’s Certification of Plans, Specifications & Site)
All applicable construction documents from the builder
Construction Inspections as listed below

Type of Construction
Proposed Construction
Under Construction
Existing, Less Than One Year

Required Documents
Option A
Option B
Option A
Option B
Option A
Option B

Initial Inspection

X

Framing Inspection

X

Final Inspection
X
X
X
X
X
X

Building Permit
X

X

X

Occupancy Certificate
X

X

X

1-Yr Warranty
X
X
X
X
X
X

10-Yr Warranty

X*

X

X

* If a 10-Yr Warranty is obtained the Initial and Framing Inspections are not required.

23. Underwriting cont.:
New Construction Documentation requirements for high (over 90%) LTV loans

The following construction documents need to be collected for high (over 90%) LTV cases:
Builder’s Certification of Plans, Specification, & Site (Form HUD-92541)
Builder’s Warranty (Form HUD-92544)
10-Yr Warranty (when required)
Plot Plan
Plans and Specifications required by the local authority for building permit approval.
In addition, If the local authority does NOT approve plans and specifications to obtain a building permit, the following additional exhibits must also be collected:
Foundation or basement plans
Floor plans and exterior elevations
Description of Materials (Form HUD-92005)
Design and local authority approval of individual water supply and/or sewage disposal system
All other documents normally submitted, such as inspection reports, soil poisoning certifications, appraisal reports, etc., are to be collected as usual.

Leasehold Requirements:

Must have a term extending at least 10 years beyond the maturity date of the mortgage.
Ground rentals are established in the local market place, but in no case may the annual rental exceed the lesser of:
12% of the site value, OR
The mortgage interest rate at the time of underwriting, less 2%, times the site value.
Ground rentals may increase periodically, subject to the following:
Rental amounts may not be increased for the first three years of the lease term. Subsequent rental increases may occur no more frequently than once every 12 months.
Increases must be stated in the lease document in exact dollar amounts.
Establishment of future rentals by negotiation or by formula is not permitted.
Increases in any 12-month period may equal no more than 2% of HUD’s original site valuation, but at no time may annual ground rental exceed 12 percent of HUD’s original site valuation.
Leases may not contain restrictions of assignability such as assignment by way of mortgage or assignment to or by the Federal Housing Administration or Department of Veterans Affairs or upon foreclosure, nor withhold consent for assignment because of the assignee’s national origin, race, color or creed so long as the leasehold is covered by an insured mortgage or a mortgage held by the secretary or so long as the Secretary owns the leasehold.
Subject to the exceptions listed below, the lease must permit lessee or assigns to purchase fee simple title from lessor or assigns with 30 days written notice. The option price of the fee simple title is intended to reflect HUD’s recognition of value ascribed to the stream of income produced by the lease. Thus underwriting instructions require the lease to permit purchase at a price not to exceed HUD’s original valuation of the leased fee. Buyer and seller may agree that this right shall not be exercised during the first five years of the lease term. See below for exceptions:
Where the state, including any political subdivision thereof, of the United Stated, an Indian Tribe, an Indian, charitable institution, a church, university or similar public purpose institution, is the lessor and an option to purchase would not be permitted under existing laws or regulation.

23. Underwriting cont.:
Where the property is located in an area which the commissioner has determined that the option to purchase is not economically feasible or acceptable because of the custom and practices.
Mortgagee must have the right to correct lessee’s defaults within 120 days from receipt of notice of intent to terminate lease because of such default, or such further time as may be necessary to complete foreclosure.
The lease must provide that ownership of both the fee simple title and the leasehold estate by the same owner will not effect a merger of such estates while either estate is encumbered by a mortgage, without the written consent of the mortgagee.
The terms of the lease must not conflict with the terms of the mortgage.
Income Requirements

Stable monthly income is the borrower’s verified gross monthly income from all verifiable sources, which can reasonably be expected to continue.

Salaried Borrowers:

Evidence of a two-year history of employment is required.
Documentation required:
Written VOE with most recent paystub OR
Paystubs for the most recent 30 day period showing year-to-date income; and
W-2 forms for the past 2 years; and
Verbal VOE
Other Income: (i.e. bonuses, overtime, commissions, additional part-time employment or unemployment)

Sources of other income may be used to qualify the borrower, provided it has been received for the past two years and there are reasonable prospects of its continuance. A 12 to 24 month history may be considered if there are compensating factors that reasonably offset the shorter income history.
Commission Income
24 month average is required
Schedule A of the borrower’s tax returns must be obtained to document unreimbursed business expenses. A 24-month average of the expenses must be deducted from income.
Bonus and Overtime
24 month average is required
If received less than two years may be considered on a case-by-case basis. The earnings trend over that period of time of receipt must be established and analyzed; adequate documentation must be provided; the employer must state the bonus or overtime is likely to continue; and the reasoning for using this income must be justified.
Part-time Income
Defined as jobs taken in addition to the normal regular employment to supplement the borrower’s income. If a borrower’s regular employment is simply less than a typical 40 hour work week, the stability of that income should be evaluated as any other regular on-going primary employment (i.e. a registered nurse that has been working 24 hours per week for the last year. This is the borrower primary job, even though less than 40 hours, and it should be included as effective income).

23. Underwriting cont.:
Self-Employed Borrowers: A borrower who has an ownership interest of 25% or more in a business is considered to be self-employed.

Must have been established for a minimum of 2 years. A 12-24 months history will be considered provided the borrower has at least 2 years previous successful employment (or a combination of 1 year employment and 1 year formal education or training) in that occupation, or a related occupation.
Must have a signed 4506
Copies of the past two years’ signed individual federal income tax returns.
Copies of the past two years’ signed business income tax returns if the business is a corporation or an "S" corporation, or partnership.
A balance sheet and Profit and Loss statement are required.
A business credit report is required on corporations and "S" corporations.
Alimony, Child Support and Separate Maintenance Payments: If an applicant chooses to disclose the aforementioned items, proof evidencing the continuance of such payments for the next three (3) years is required.

The borrower must provide a copy of the divorce decree, legal separation agreement or voluntary payment agreement, and
Evidence that payments have been received during the last twelve months. Acceptable evidence includes cancelled checks, deposit slips, tax returns, court records, etc.
Periods of less than 12 months may be acceptable provided the payer’s ability and willingness to make timely payments is adequately documented.
Child support income may not be grossed up.
Non-Employed: This category includes may sources of passive income such as: social security, pension income, interest income, etc.

The underwriter must be confidant this income will continue for the next 3 years.
Documents provided can be any of the following as applicable: award letter, pension statement, IRS 1099, the most recent signed pages 1 and 2 of individual income tax returns, or other documents.
For all tax-exempt income, the income must be grossed up once its continuance for three years has been established.
Section 8 Income: If borrower is to receive subsidies under the housing choice voucher homeownership option program from a Public Housing Agency

Assume that the subsidy will continue for at least 3 years making the subsidy eligible to be considered as effective income for qualifying purposes.
Monthly subsidy may be treated as income in determining the homebuyer’s qualifying ratios.
This subsidy is non-taxable, therefore may also be "grossed up" by 25%.
Identify as a Section 8 subsidized mortgage loan by entering "88" as the program identification code in CHUMS.
Rental Income:

Subject 2-4 Unit Primary Residence:

The rent received from the additional units not occupied by the borrower may be used for qualifying purposes. The rent (after subtracting the local FHA offices estimate for vacancies and maintenance, or 25% if the local FHA has not established a separate allowance) may be added to the borrower’s gross income in calculating the qualifying ratios; it may not be used to off-set the monthly mortgage payment.

Investment Properties and 2-4 units Primary Residences other than the subject property:

Signed leases may be used to calculate gross rents only if the property was acquired since the last income tax filing and is not shown on the Schedule E. However, no more than 75% of the gross rental income can be used.
For properties listed on the Schedule E from the borrower’s 1040’s, depreciation may be added back to the net income or loss shown. Lender must make certain the borrower still owns each property listed on the Schedule E.
If six or more units are owned by the borrower in the same general area, a map disclosing the locations must be submitted evidencing compliance with HUD’s seven unit limitation.
Trailing Co-Borrower Income:

Not permitted to be used to qualify.

24. Age of Documents:
120 Days

180 Days on new construction

25. Qualifying Ratios:
Qualifying ratios are 29% / 41%. The ratios may be exceeded only when significant compensating factors are present.

DU Approve/LP Accept – Ratio’s evaluated by DU/LP.

ARM’s with LTV >= 95% qualify at the initial rate plus 1.00%.

ARM’s with LTV < 95% qualify at the start rate.

Temporary buydowns qualify at the start rate on 1-2 units.

Temporary buydowns qualify at the note rate on 3-4 units.

Installment debt obligations which extend ten (10) or more months must be included in the borrower’s debt-to-income ratios. Debts lasting less than ten (10) months must be counted if the amount of the debt affects the borrower’s ability to make the mortgage payment during the months immediately after the loan closing.

Childcare expense does not need to be included as a recurring debt.

Child support payments must be counted in the total debt to income ratios if they will continue for 10 or more months.

Debts not counted in ratios: Funds to cover the required investment may be obtained from certain types of loans secured against deposited funds, (such as signature loans, cash value of life insurance policies, loans secured by 401ks, etc.), in which repayment may be obtained through extinguishing the asset, do not have to be included in the qualifying ratios. However, these assets securing the loan may not be included as assets available to the borrower.

Contingent Liabilities:

Mortgage Assumptions: If the borrower is listed as a borrower on a mortgage that has been assumed by another, a copy of the documents transferring the property and any assumption agreement executed by the transferee are required. The debt must be counted against the borrower unless:

A prior 12 months satisfactory payment history from assumptor is provided;

An appraisal or closing statement from the sale of the property supporting a value that results in a 75% LTV ratio (i.e. the outstanding balance on the mortgage loan minus and UFMIP refund if applicable) can not exceed 75% of the lessor of appraised value or sales price.

Court-Ordered Assignments of Debt: If a secured debt or mortgage has been assigned by court order (i.e. divorce decree) to another person, the contingent liability must still be counted since borrower is still legally obligated to this debt.

Other Credit Liabilities: If the borrower is a co-signer on a debt for another person, the underwriter must determine who actually makes the payments on the debt when deciding whether the contingent liability needs to be included in the borrowers debts.

To disregard the liability, evidence must be obtained to show timely payments are being made by someone other than the borrower and document who makes the payments by obtaining copies of cancelled checks or a statement from the creditor. The documentation obtained must cover at least the most recent 12 months.

If the payments on the contingent liability have not been timely over the most recent 12 months, the liability must be included in the borrower’s qualifying ratios.

26. Credit Scores:
Streamlines refinances minimum FICO 600.

27. Borrower Eligibility:
U.S. Citizens

Standard guidelines
Borrower must have a social security number.
Borrower must demonstrate 2 years of employment
Permanent Resident Aliens Acceptable

FHA will insure mortgages made to lawful permanent resident aliens under the same terms and conditions as U.S. Citizens.
Borrower must have a social security number.
The lender must document the mortgage file with evidence of Permanent Residency and indicate on the application that the borrower is a lawful Permanent Resident Alien.
Non-Permanent Resident Aliens Acceptable

FHA will insure mortgages made to non-permanent resident aliens under the same terms and conditions as U.S. Citizens.
Borrower must have a social security number and be eligible to work in the U.S.
The loan file must contain an Employment Authorization Document (EAD) issued by Bureau of Citizenship and Immigration Services (BCIS). Follow FHA guidelines if the residency status expires within one year.

28. Co-Borrowers:
Non-occupant Co-borrowers are permitted with the following limitations:

Maximum financing is permitted for borrowers related by blood, or for unrelated individuals that can document evidence of a family-type, long-standing and substantial relationship not arising out of the loan transaction.
Properties are limited to one-unit single family if the LTV exceeds 75%
Transactions in which parents help their children buy their first home or assist a child who is a college student to purchase a house near campus is permitted as long as the non-occupant co-borrower is not developing a portfolio of rental properties. Therefore, the amount of financial contribution by the non-occupant co-borrower and the number of properties similarly owned must be looked at closely.
For loans where the non-occupant co-borrower is not related by blood, or evidence of a family-type long standing relationship, the maximum LTV will be limited to 75%.

29. Assets:
The borrower must make a minimum cash investment into the purchase transaction equal to 3% of the lesser of the Sales Price or Appraised Value. The 3% may be comprised of all down payment funds or a combination of down payment and closing costs. In no circumstances may prepaids or discount points be used to satisfy the 3% contribution requirement.

Asset Documentation:

Written VOD with the most current bank statement OR
Two months original bank statements covering the most recent three-month period.
The borrower may pay for their credit report and appraisal fee on a credit card. The source of the fees must be documented by copy of personal or visa check, visa slip, bank or visa statement, or written on the Good Faith Estimate. The new visa payment must be counted into the ratios for qualifying the borrower.
Loan from Family Members:

Family members are permitted to lend, on a secured or unsecured basis, 100% of the borrower’ required cash investment which may include down payment, closing costs, prepaids, and discount points.
Unacceptable Sources of Down Payment:

Proceeds of a personal or unsecured loan unless from family member.
A gift that must be repaid in full or in part
Cash advance on a revolving charge account or unsecured line of credit.
Cash Saved at Home:

Borrowers who have saved cash at home and are able to adequately demonstrate the ability to do so, are permitted to use this money as an acceptable source of funds to close.
Funds must be verified either on deposit in a financial institution or held by the escrow/title company.
Additional documentation must include evidence provided from the borrower showing ability to accumulate such a savings; and written explanation from the borrower on how such funds were accumulated and the amount of time taken to do so.
Special consideration will focus on the amount of the borrower’s income, the time period the funds were saved, spending habits, and the borrower’s history of using financial institutions in order to determine the reasonableness of the accumulation of the funds.
Homeownership Bridal Registry:

Provides couples planning to get married, and other individuals who are in a situation where gifts are typically received, the opportunity to establish a savings account in order to help them accumulate gift funds to be used towards the down payment on the purchase of a home.
In the situation of a couple planning to get married, the borrowers can distribute a letter to their family and friends.
When gift funds are being received for a situation other than a couple planning to get married, it will be up to the individual(s) to notify their family and friends of the program.
The borrowers are to open a new interest bearing savings account at the bank of their choice.
Funds may be deposited by family and friends directly in the Bridal Registry Account, or given by cash or check to the couples or individuals for deposit.
A copy of the bank statement and/or account ledger verifying the deposits and a fully executed Lender and Borrower Certification must be included in the HUD case binder.

29. Assets Cont.:
Down Payment Assistance:

Federal, state, and local government agencies may provide down payment assistance. In addition, Lender will accept loans in which down payment assistance has been provided by a FHA approved non-profit agency.

Approved Programs

AmeriDream Gift Program

HART – Housing Action Resource Trust

HOBE Foundation

Nehemiah Program

The Family Home Foundation, Inc. (a.k.a.: One Heart, Inc.)

30. Gifts:
Gift Fund Requirements:

An outright gift of the cash investment is acceptable if the donor is a relative of the borrower, the borrower’s employer or labor union, a charitable organization, a governmental agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or first-time homebuyers, or a close friend with a clearly defined interest in the borrower.
List donor’s name, address and phone number, relationship to borrower and dollar amount of gift on the gift letter, signed by the donor.
For gift funds already on deposit in the borrower’s account, obtain a copy of the donor’s withdrawal slip or cancelled check, along with the borrower’s deposit slip or bank statement showing the deposit.
If the gift funds are not deposited to the borrower’s account prior to closing, the following must be obtained:
Verification the closing agent received funds from the donor, including proof of withdrawal, for the amount of the gift.
The use of cashier checks, money order, official check or any other type of bank check will be acceptable provided the donor provides a withdrawal document for the amount of the gift showing the funds came from the donor’s own personal account. If the donor borrowed the gift funds, documentation must be provided that the funds were borrowed from an acceptable source, i.e., not from a party to the transaction including the mortgage lender.
Cash on hand is not an acceptable source of the donor’s gift funds.
Non-Profit Organizations such as Nehemiah, AmeriDream or any other program to which the seller contributes funds to the non-profit organization are acceptable as gifts and are NOT included in the 6% seller concession. These programs cannot be used to payoff borrower’s debt.
The transaction will appear on the HUD-1 in its entirety, reflecting the full seller contribution as a seller-debit, and the non-profit gift to the borrower as a credit. The non-profit should be providing a check to the Title Company for the gift. The Title Company will, "after closing", forward the seller contribution (including any processing fees) to the non-profit.

31. Reserves:
1 & 2 units - no reserve requirement

3 & 4 units - 3 months PITI

32. Refinances:
Cashout Refinances not allowed on Manufactured Homes.

Refer to FHA Handbook 4155.1 Rev 5 for further information on refinances.

It is not appropriate to include in the new mortgage amount the sum of any mortgage payments "skipped" by the homeowner. For example, a borrower whose mortgage is due November 1st and expected to close the refinance before the end of November is not permitted to roll the November payment into the new FHA loan amount. The borrower is to either make the payment when due or bring the monthly mortgage payment check to settlement.

No Cashout Refinance:

Loan amount is limited to:
Payoff of the first mortgage.
Payoff of subordinate liens that are more than one year old.
Paying related closing costs and discount points and prepaids.
The maximum mortgage may not exceed the lesser of the following three calculations:
Appraised Value plus closing costs (discount points may not be included) multiplied by the appropriate loan-to-value ratio (97%/95%/90%), OR
Amount >$125,000 = 97% of the first $25,000, plus 95% of the remainder up to $125,000, plus 90% of the loan amount over $125,000
Amount <=$125,000 = 97% of the first $25,000, plus 95% of the remainder
Amount <=$50,000 = 97% of the amount
Sum of the existing first lien and related settlement costs for the refinance, OR
Appraised value without the closing costs multiplied by 97.75% for values >$50,000 or by 98.75% for values <=$50,000.
Note: The maximum base loan amount cannot exceed the statutory limit for the area.

If the subordinate lien is an equity line, and there have been advances in excess of $1,000 within the past 12 months for purposes other than repairs and rehabilitation of the property then the line of credit is not eligible for inclusion in the new mortgage.
Subordinate liens may remain subordinate as long as they meet FHA guidelines on subordinate financing.
Payoff of an ex-spouse’s or other co-mortgagor’s equity is permitted and not considered cashout as long as the divorce decree, settlement agreement, or other bonafide equity agreement documents the equity awarded.
FHA will permit the interest charged since the first of the month to be included in the payoff.
Cashout Refinances:

For properties owned one year or more, a cashout refinance is limited to a combined LTV of 85% FHA insured first and any subordinate liens. Closing costs by no longer be included when calculating the maximum loan amount.
For properties owned less than one year, the lesser of the appraised value or the original sales price is multiplied by 85% to determine the combined LTV.
Properties owned free and clear may be refinanced in this manner.
Note: The maximum base loan amount cannot exceed the statutory limit for the area.
Cashout for debt consolidation represents considerable risk and must be carefully evaluated.

32. Refinances cont.:
Streamline Refinance Requirements:

Mortgage calculations with a new appraisal:

Owner occupied primary residence only.
A NEW appraisal is required. A re-certification of value is not acceptable.
The maximum base loan amount will be limited to the lesser of the following two calculations:
Multiply the property’s appraised value by the appropriate state factor.
The sum of the existing FHA insured first lien, (which by HUD;s definition includes payoff interest, but may not include delinquent interest, late charges or escrow shortages), plus closing costs, reasonable discount points and the prepaid expenses necessary to establish the escrow account (which includes per diem interest charges, as well), minus the lesser of the MIP refund or the new UFMIP.
Note: The maximum base loan amount cannot exceed the statutory limit for the area.
Re-warranting of Condo projects (based on current information) is required.
Mortgage calculations without a new appraisal:

At the time the case number is assigned, the "original value" must be obtained from the FHA Connection for a Streamline Refinance without an appraisal. If FHA does not provide the "original value," then the LTV ratio must be considered to be less than 90% for the purpose of determining the term of the annual premium.
The term of the new mortgage is the lesser of 30 years or the unexpired term of the current mortgage plus 12 years.
The LTV on streamline refinances without an appraisal will be based on data regarding the mortgage being refinanced, including sales price and appraised value amounts residing in FHA’s Single Family Insurance System (SFIS). FHA will compute a new LTV by dividing the new loan amount, exclusive of any upfront MIP, by the lower of the sales price or appraised value amount. If the computed LTV is not possible, due to missing data or previous refinancing without an appraisal, the new LTV will default 89.9 percent.
For Owner-Occupied properties only, the new base loan amount may not exceed the lesser of:
The original principal balance of the loan being refinanced (this is the actual original note amount) OR
The sum of the existing FHA insured first lien, (which by HUD;s definition includes payoff interest, but may not include delinquent interest, late charges or escrow shortages), plus closing costs, reasonable discount points and the prepaid expenses necessary to establish the escrow account (which includes per diem interest charges, as well), minus the MIP refund. This will be the new base loan amount before including the new MIP.
Note: The maximum base loan amount cannot exceed the statutory limit for the area.
Condo projects do not have to be re-warranted.
Second Homes and Non-occupant owner properties may only refinance the outstanding balance of the existing mortgage.

32. Refinances cont.:
Additional Requirements for All Streamline Refinances:

Loans must be current to be eligible.
No cashout to the borrower.
Borrowers are not required to provide evidence of cash to close.
No termite inspection is required.
Credit Report with minimum FICO 600 required.
No CAIVR number is required.
No verification of employment or paystubs is required.
No verifications of deposit or bank statements are required.
No face to face interview is required.
An investor may not have an interest in more than 7 contiguous rental units in an area.
Second mortgages may be subordinated.
Loans that are streamline refinancing to an ARM are limited to owner-occupied principal residences only.
A 30-year mortgage can be refinanced to a 15-year mortgage. The new P&I payment cannot increase more than $50. Owner occupied properties with increases more than $50 requires credit qualifying and may still be done as Streamline without appraisal. Document income, Credit report and calculate ratios. Mortgages on investment properties cannot incur any increase in payment.
If the loan being refinanced has undistributed buydown funds, the undistributed buydown funds must be subtracted from the principal balance (for streamline refinances without appraisals) before beginning the mortgage calculations. For all other refinances, the undistributed funds may be utilized to fund the closing costs but cannot be refunded to the borrower.
A borrower may be deleted provided the change in title occurred at least six (6) months previously, and the remaining borrower(s) can provide evidence they alone have made the mortgage payments during that period. This policy only applies to those loans that do not contain restrictions limiting assumptions only to credit worthy persons (typically, those mortgages made prior to December 15, 1989 are freely assumable) or where the transferability restrictions (due-on-sale clause) cannot be triggered, such as in a divorce where the property transfer results from the Divorce Decree.
HUD will require the mortgagors who assumed an FHA insured mortgage without the benefit of a credit review to have owned the property for at least six months before being eligible for the streamline refinance program. A HUD-1 from the assumption sale is required as evidence of closing date.
Those mortgages containing the restrictive clauses where the deletion of a borrower may result in mortgage acceleration, and for those situations where the six (6) months waiting period has not occurred, a "Credit Qualifying" procedure must be followed.
Income verification, credit report provided, and computation of qualifying ratios is required. All other aspects of a "Streamline" refinance are in place (i.e. no appraisal and possible exemption from the annual premium).
An ARM may be refinanced to another ARM on owner-occupied principal residences provided that an immediate payment reduction occurs and that the maximum interest rate of the new mortgage does not exceed the maximum interest rate of the old mortgage being refinanced.
Refinancing of a Fixed Rate to an ARM is allowed on owner-occupied principal residences when the initial interest rate of the new mortgage is at least 2% below the interest rate of the current mortgage.

32. Refinances cont.:
Additional Requirements for All Streamline Refinances cont.:

An ARM may be refinanced to a Fixed Rate mortgage provided the interest rate on the new fixed rate mortgage will be no greater than 2% above the current rate on the ARM. In addition, if the fixed rate would exceed that of the existing ARM rate, all mortgage payments must have been made within the month due for the past twelve- (12) months, or for the number of months the loan has been in existence. If the fixed rate does not exceed that of the current ARM rate, the "within the month due" rule does not apply.
A GPM may be refinanced to an ARM on owner-occupied principal residences provided the note rate results in a reduction to the current P&I payments. (If the streamline refinance is completed without an appraisal, the new mortgage amount may exceed the statutory limit by the accrued negative amortization amount and the new UFMIP).

A GPM may be refinanced to a Fixed Rate provided the new mortgage payment will not exceed the current payment. (If the streamline refinance is completed without an appraisal, the new mortgage amount may exceed the statutory limit by the accrued negative amortization amount and the new UFMIP).

33. Financed Properties:
To prevent circumvention of the restrictions on FHA-insured mortgages to investors, FHA will not insure more than one mortgage for any borrower except under certain conditions.

A borrower may not own more than one FHA insured property unless:

Borrower is relocating to another area not within reasonable commuting distance of present home; OR
Borrower had to vacate a residence that will remain occupied by a co-mortgagor due to new marriage or divorce; OR
Borrower is a non-occupying Co-borrower for a family member on another FHA mortgage. OR
An increase in family size, which has resulted in the present house being ill equipped to meet the family’s needs.
The borrower must provide satisfactory evidence of the increase in dependents and how the property no longer meets the family’s needs.
Borrower must also pay down the outstanding mortgage balance on the present property to 75%. A current appraisal must be used to determine loan-to-value compliance.
FHA Seven Unit Limitation:

Prohibits any borrower from obtaining FHA-insured financing for a property that may be rented if the borrower has or will have a financial interest in more than seven rental units (regardless of financing type) in a contiguous area, generally defined as within a two-block radius.

34. Mortgages to One Borrower:
No limit as long as they are not FHA.

35. Seller Contributions:
Interested parties include, but are not limited to, the builder, developer, seller of the property and the real estate agent. Contributions from interested parties are acceptable with the following limitations:

Maximum contribution is 6% of the property’s sales price towards the buyer’s actual closing costs, prepaid expenses, discount points and other financing concessions.
Included in the 6% limitation are buydown funds and payment of the UFMIP.

36. Appraiser Requirements:
Must meet all requirements as established by FHA.

37. Appraisals:
The information in the report must be accurate, internally consistent, written in clearly understandable language, fully supported, and sufficiently documented to FHA standards.

The appraisal report must be dated within 180 days of the note date for new construction or 120 days of the note for existing construction.

Operating Income Statement will be required on all 2-4 unit properties.

Properties appraised in "Fair Condition" are unacceptable. The property must be brought up to at least "Average Condition" prior to closing. A final inspection showing the work has been completed must be included in the file. Escrow holdbacks may be permitted.

On streamline refinances with an appraisal, a NEW appraisal is always required. A re-certification of value is not acceptable.

All minimum property requirements must be met prior to closing.

Inspection:

With the exception of streamline refinance transactions, all FHA loans will require a Termite inspection. Well inspections will be required, if applicable (not required on streamline refinance transactions). Septic or other inspections may be required at the discretion of the underwriter or appraiser.

38. Documents:
FHA Fixed Rate

Note - Fixed multistate FHA 99000

Deed of Trust FHA 94105

FHA ARM

Adjustable Rate Note - Form FHAARMNT #FHA27615

Deed of Trust - FHA94105

Rider - multistate Form FHAARMRD #FHA27612

39. Completion Escrows:
Typically, the type of work or repairs involve exterior painting, landscaping, swimming pool construction, or completion of new construction items delayed due to adverse weather conditions. An escrow holdback may be used only for the following reasons:

Construction items that need to be completed but do not affect the livability of the dwelling.
The dwelling is habitable, safe and essentially complete.
The deferred work cannot be acceptably completed prior to loan closing.
All other conditions for approval of the loan have been met.
The incomplete work cannot prevent the issuance of a Certificate of Occupancy, if applicable.
Escrow holdbacks are not permitted for the following reasons:

Structural repairs
Foundation work
Roofs

40. Construction to Permanent:
See D/E underwriter for guidance.

41. Special Requirements / Restrictions:
Section 32 loans are not allowed.

Manufactured Homes

Must meet all Lender Manufactured Homes guidelines.

Not allowed on Buydowns

Not allowed with Cashout

Owner Occupied properties only

Not allowed in Florida

Not allowed on Leased Land (leaseholds)

Non-Arms length transactions, or as FHA refers to them as Identity-of-Interest transactions on principal residences are restricted to a maximum loan-to-value of 85%. Identity-of-Interest is defined as a transaction between family members, business partners or other business affiliates. However, maximum financing above 85% LTV is permissible under the following circumstances:

A family member purchasing another family member’s principal residence.
An employee of a builder purchasing one of the builder’s new homes or models as a principal residence.
A current tenant purchasing the property that he or she has rented for at least 6 months predating the sales contract. A lease or other written evidence must be submitted verifying occupancy.
Sales by corporations that transfer employees out of an area, purchase the transferred employee’s home and then resell to another employee.
If a property being sold from one family member to another is the seller’s investment property, the maximum mortgage is the lesser of either:

85% of the appraised value OR
97/95/90% of the sales price plus or minus required adjustments.
The 85% limit may be waived if the family member has been a tenant in the property for at least 6 months predating the sales contract. A lease or other written evidence must be submitted verifying occupancy.

The following fees may be paid by the borrower:

1% origination fee (multiplied by the base loan amount)
Discount fee, financible on refinances only (multiplied by the total loan amount)
Appraisal fee. (Note: If paid by credit card, cannot be included in the base loan amount.)
Flood certification fee (actual charge only)
Title insurance
Property survey
Recording fee
Home inspection service (up to $300 maximum)
Inspection (including pest, septic and water test)
Credit report
Courier (refinance only) – Allowed only for delivery of the payoff to the lien holder and closing documents to the settlement agent. The borrower must agree to pay in writing
Document preparation (third party)
Settlement or closing
Deposit verification fee
Attorney’s fee
Transfer stamps and taxes
Test and certification fee
Other costs as permitted regionally by HOC office

41. Special Requirements / Restrictions cont.:
The following fees can never be charged to the borrower. The fees may be charged to the seller or used as an add-on to discount points to offset these costs. When there fees are paid by the seller do not include in the 6% seller credit limitation.:

Loan-tie in/bring down
Tax service
Photos
Underwriting
Processing
Document preparation
Sub-escrow
Wire transfer
Data processing
Warehouse
Packaging
Courier – Refer to Allowable Fees in this section for acceptable charges
Interim Interest Credits are permitted. Loan closing must be within the first seven- (7) days of the month to receive the credit.

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