FHA Standard Refinance Cash Out

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1 This matrix is intended as an aid to help determine whether a property/loan qualifies for certain financing. It is not intended as a replacement for FHA guidelines. Users are expected to know and comply with FHA requirements. NOTE: This matrix includes overlays, which may be more restrictive than FHA requirements. A thorough reading of this matrix is recommended. If a topic is not addressed below, refer to FHA Guidelines. These Guidelines are subject to change. Program Qualifications Fidelity s FHA Fixed Rate program is designed for the purchase of owner occupied single family residences using an FHA insured home loan. Eligibility Matrix Loan Amount & LTV Limitations FHA Equity Cash-Out Refinance Maximum base mortgage amount cannot exceed the statutory county limit for the area Credit Score Maximum 85% CLTV Units Max Base Loan Amount Length of Max LTV Total LTV Ownership 1 Including UFMIP All loan Amounts 12 mos 85% of Appraised Value All loan Amounts < 12 mos Lesser of: 85% of Appraised Value or Original Sales Price Footnote: 86.75% of Appraised Value Lesser of: 86.75% of Appraised Value or Original Sales Price Max CLTV (subordinated existing lien 85% of Appraised Value Lesser of: 85% of Appraised Value or Original Sales Price 1 Defined as number of months the borrower has owned the property as principal residence preceding the date of loan Maximum Loan Amount Continental US Units Max CLTV (new subordinate lien) 85% of Appraised Value Lesser of: 86.75% of Appraised Value or Original Sales Price e Highest Maximum (ceiling) Conforming Lowest Maximum Highest Maximum Lowest Maximum (floor) (ceiling) H (floor) 1 $271,050 $417,000 $417,001 $625,500 2 $347,000 $533,850 $533,851 $800,775 3 $ $645,300 $645,301 $967,950 4 $521,250 $801,950 $801,951 $1,202,925 Maximum Base Loan Amount cannot exceed the Statutory County Limits for each county and under no circumstances will a county s mortgage limit be less than the floor or greater than the ceiling as outlined in the matrix above. The lowest minimum floor loan amounts for the FHA High Balance products will be based on the Base Loan amount and not the Total Loan Amount that includes financed Up-Front Mortgage Insurance (UFMIP).

2 Product Description Fixed Rate 15, 20, 25 and 30 year term; fully amortized Product Codes FHA FHA 15 years FHA 15 Years HiBal FHA 20 Years FHA 25 Years FHA 30 Years FHA 30 Years HiBal Codes FHA15F FHA15HB FHA20F FHA25F FHA30F FHA30HB Eligibility Appraisal Appraiser Assets Calculating the New Mortgage Amount A new FHA appraisal is always required All property conditions must be satisfied prior to closing No termite certification is required unless appraiser notes a problem Termite related repairs are considered health and safety issues Appraisers must be on FHA s approved list on the FHA Connection with State Certification designation of Certified General or Certified Residential The assigned appraiser must perform the physical inspection of the property. He/she may not sign the appraisal performed by another appraiser Appraiser must comply with the FHA Appraisal Independence Policy Follow AUS Findings/TOTAL Scorecard Reserves Follow AUS Findings/TOTAL Scorecard Reserves cannot be derived from proceeds from transaction or gift The Maximum Base Mortgage Amount is calculated as the appraised value (or original sales price, if applicable) times the applicable LTV factor as described below. See FHA Mortgage Calculation Worksheet Cash Out Maximum Base Mortgage Calculation LTV Limitation Properties Owned As Borrower s Principal Residence > 1 Year Prior to Application Date Appraised Value times applicable LTV factor (85%) Properties Owned As Borrower s Principal Residence < 1 Year Prior to Application Date Lesser of Appraised Value (AV) OR the Original Sales Price (SP) of the property times the applicable LTV factor (85%) Additional Subordinate financing may remain in place but subordinate to the FHA first mortgage, provided the borrower qualifies for making payments on all liens Six-month seasoning requirement for all cash out refinances. The six-month time frame is from the note date of the current loan to the application date of the new loan. In addition, all Borrowers on the new loan must have been in title for at least six months. Co-borrowers or co-signors may be added provided they are occupants of the property and have been on title for at least 6 months. Non-occupant owners may not be added in order to meet credit underwriting guidelines. Refer to Special Restriction section for all program restrictions. FHA to FHA refinances - Refinance Authorization Information must be obtained at Case Number Assignment directly from FHA Connection The calculated mortgage amount may never exceed the statutory limit for the area. All borrowers must credit qualify Sales Price need not be considered if the property was acquired as the result of inheritance and is, or will become, the borrower s primary residence. Refer to Employment/Income, Credit and Appraisal sections for required documentation Rev Page 2

3 Credit Minimum credit score requirements 620, regardless of AUS Decision FHA High Balance minimum FICO is 620) for additional High Balance product information, review the Fidelity Bank FHA High Balance product guidelines Non-traditional credit is ineligible Borrowers who are currently in Consumer Credit Counseling Programs or Chapter 13, are not eligible Borrower with one credit score eligible as follows: o DU Approve/Eligible decision required o Credit data is available from one repository and credit score is obtained from that repository o A three in-file merged credit report was ordered Mortgage Payment History Loan must be current for the month due (payment due in the month of closing may be paid either in cash or financed) Mortgages with less than 6 months of payment history are not eligible Housing (Mortgage/Rental) Payment History (PITIA) is inclusive of all liens regardless of position, as well as all occupancy types. All TOTAL Scorecard recommendations - 0x30 late mortgage payments in the last 12 months or life of loan (if property is owned less than 12 months Employment/ Income Deferred Student Loans Verification of Employment Verbal Verification of Employment Most recent pay stubs covering 30 consecutive days Two years W2s IRS form 4506T Cash Out Refinance - Income from a non-occupant Co-Borrower MAY NOT be used to qualify for a cash-out refinance Reduced documentation eligible if an Approve recommendation is issued by Total Scorecard Form 4506-T must be processed prior to underwriting regardless of TOTAL Scorecard recommendation. A new IRS Form 4506 T is required to be signed with the closing package as well as at application even when the form has been processed Deferred Student Loans Deferred Obligations refer to liabilities that have been incurred but where payment is deferred or has not yet commenced, including accounts in forbearance. 1. The monthly payment may be verified via the credit report or account statement from the Student Loan Provider. 2. If the actual monthly payment is not available use 2% of the outstanding balance to calculate the payment. Income-Based Repayment Plans: MUST have a letter from the Student Loan provider verifying: 1. Balance Due 2. Monthly Payment 3. Date the loan will be out of deferment 4. Qualifying income (used to calculate the monthly payment by the Student Loan provider) 5. Number of dependents used to calculate the Income-Based Repayment Plan. 6. All information must match the 1003 submitted to the underwriter (i.e. income; dependents etc.). Escrow Holdback Escrow Waivers Ineligible Ineligible Rev Page 3

4 Financing Types Geographic Locations/ Restrictions Income Documentation for Self-Employed Borrowers Internet Links Mortgage Insurance Occupancy Prepayment Penalty Property Types FHA Standard Refinance Cash Out Six-month seasoning requirement for all cash out refinances. The six-month time frame is from the note date of the current loan to the application date of the new loan. In addition, all Borrowers on the new loan must have been in title for at least six months. If the subject property has been owned less than 12 months preceding the date of the loan application as the borrower s principal residence, the mortgage amount is limited to the lesser of 85% of appraised value or 85% of the sales price of the property when acquired. Obtain a copy of the HUD-1 to verify original sales price. Properties owned free and clear may be financed as cash-out transactions Obtain a copy of the Deed to verify date of ownership Term of new loan may be up to 30 years Payment may increase without restrictions May subordinate existing junior liens; refer to Loan Amount & LTV/CLTV Limitations provided the homeowner qualifies for making scheduled payments on all liens. Combined total loan amounts of first and subordinate liens can exceed statutory county loan limit subject to CLTV limits If the junior lien is a home equity line of credit, the maximum CLTV is based on the full credit line amount Modified Subordinate Lien: FHA understands that many subordinate lien holders have been requesting modifications to the terms of the lien (typically a reduction in the amount of the lien) in exchange for remaining in a subordinate position. Modifying the subordinate lien in this manner often results in reexecuting it at closing, which is acceptable and is not considered a new subordinate lien. Premium pricing permitted Closing costs, prepaid expenses and discount points are ineligible to be added to the appraised value or sales price to calculate the new maximum loan amount. Refer to the Out of State Lending Matrix A profit and Loss statement (P&L) and Balance sheet are required if more than a calendar quarter has elapsed since the Date of the most recent calendar or fiscal year-end tax return filed by the borrower- with no exceptions. Income used to Qualify the borrower may NOT exceed the two year average of returns. Fidelity does not accept audited P&L or signed Quarterly tax returns used to increase qualifying income. Question: If a loan application is dated May 1 st and the last tax filing was for the previous calendar year, do we need a YTD P&L statement for a self-employed borrower? Answer: Yes, no more than one calendar quarter may elapse without income documentation. To access Mortgagee Letters, National HOC Reference Guide, HOC Letters, Handbooks, go to: HUD Forms, Handbook & Mortgagee Letters Mortgage Insurance is required on all loans. Refer to Fidelity Bank FHA Mortgage Insurance Chart for details on UPMIP and monthly MIP) The section of the Act under which the loan will be insured determines the mortgage insurance to be used. Sections 203b, and 234c (Condos) Up Front MIP (UFMIP) is required Monthly MIP is required Refer to the Fidelity Bank FHA Mortgage Insurance Chart for details on UFMIP and monthly MIP Primary Residence Not permitted. However, if refinancing and the payoff check for the existing loan is not received by the servicing lender by the first day of the month, the lender may collect interest on the existing loan through the end of the month. Eligible 1-4 units PUDs Modular Pre-Cut/Panelized housing Condos o Must be on FHA approved list and meet the guidelines as determined by the Loan-level certification for Individual Unit Financing process o Subject project must be reviewed for project approval. See HUD Review and Approval Process (HRAP) and Direct Endorsement Lender Review and Approval Process (DELRAP), o If not approved, loan is only eligible for credit-qualifying streamline refinance without appraisal o Site Condos do not require condominium project approval Rev Page 4

5 Existing Construction Existing Private Well & Septic Tank FHA Standard Refinance Cash Out Refer to the Handbook for complete property guidelines A Water Test from the local (or state) health authority verifying that the water meets their standards. If there are no local (or state) water standards, then water quality must meet the standards set by the EPA. A certified Well Water Testing Lab should certify that the water quality meets current EPA standards. Existing Wells MUST deliver water flow of three to five gallons per minute. This should be verified by the local (or state) authority or by a certified Well Water Testing Lab. The appraiser MUST verify whether connection to a public or Community Water System is feasible and available at a reasonable cost. Minimum Distance between wells and sources of pollution are listed below. The appraiser is NOT required to include this information in their appraisal report. A survey or verification from the local (or state) health authority is acceptable. Must be recent. Property Line/10 feet Septic Tank/50 feet Drainfield/100 feet Septic Tank Drainfield reduced to 75 feet if allowed by local authority If the subject property is adjacent to residential Property then the local well distance requirements prevail. If the subject property is adjacent to non-residential property or roadway, there needs to be a separation distance of at least 10 feet from the property line. If the property has a Septic System, the Appraiser must examine it for any signs of failure or surface evidence of malfunction. If there are deficiencies, the Appraiser must require repair or further inspection. Existing Termite Inspection Existing Termite Form A Termite Inspection is required in the following circumstances: - Appraiser notes evidence of active or previous infestation - Appraiser requires an Inspection - Sales Contract notes prior Infestation as disclosed by the Seller - Sales Contract requires an Inspection - Termite Inspections are valid for 90 days from the date of the inspection to the date of closing. - Termite Bond/Protection Contract is not acceptable - If there is damage to structural components, an inspection will be required by a licensed contractor stating that the damage has no adverse impact on the structural integrity of the property. - Excessive Moisture noted by the Termite Inspector will require review by a qualified inspector stating control measures to reduce the moisture content. - Any mold noted by the Inspector/Appraiser may require additional inspections. - Form NPMA-33 Wood Destroying Insect Report or State Mandated Infestation Report. A. The following states have mandated Termite Infestation Reports: a) Alabama b) Florida c) Georgia d) Maryland, e) North Carolina f) South Carolina Rev Page 5

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7 Ineligible Condo Hotels Co-ops Manufactured Homes Properties located within designated Coastal Barrier Resource System (CBRS) areas Qualifyi ng Rate an d Qualify at the Note Rate AUS approved ratios evaluated by AUS and the maximum is 50% Ratios DTI Ratio > 50% Guideline for FHA/VA Loans: Effective March 1, 2013, Fidelity Bank Mortgage s maximum Debt-to-Income ratio policy is 50%. Fidelit y Bank will, on an exception basis, allow higher debt ratios. Fidelity Bank recognizes that debt ratios gre ater than 50% represent a significantly higher risk and therefore require additional scrutiny. In order to provide consistency in the granting of exceptions and the application of this policy, the following guidelines hav e been implemented as part of Fidelity Bank s underwriting criteria. All loans, regardless of AUS Findings, are still subject to underwriter s risk assessment of the overall cred t worthiness of the borrower(s). Every effort will be made to verify and validate the data entered into any AUS Finding not receiving a DU Approve/Eligible or LP Accept decision to insure the findings are accur ate. AUS Approval Credit Analysis Credit Score DTI Housing Payment History Verification Reserves Serious Derogatory Credit Any borrower(s) with a qualifying debt ratio >50% but =<55%, must meet ALL of the following guidelines: A FNMA DU Finding with an Approve/Eligible decision or an FHLMC LP Finding with an Accept is required. Refer Caution decisions are ineligible. For Approve/Ineligible or Refer/Eligible refer to the Fidelity Bank Guideline to Approving FHA/VA Refer Eligible Loans section below. Payment History No active revolving, installment or mortgage account may be presently past due and must be 0x30 in the last 12 months on all credit Medical collections are excluded. Tradeline Requirement Minimum of two traditional tradelines, each reporting the Tri-Merge Credit Report with at least 12 months of acceptable payment history. At least one tradeline must be open with date of last activity within the last 24 months. Authorized User Accounts and Deferred Student Loans with no payment history do not meet this criterion. Minimum score of 640 or greater Maximum DTI allowed not to exceed 55% - no Exception 0x30 in the last 12 months Not required if Borrower has been living on a military base prior to loan application. If the Borrower(s) rent, a VOR is required regardless of AUS Findings If the landlord is a private individual, twelve (12) months of cancelled checks are required If the borrower(s) has no verifiable housing payment history, then the DTI exception is not allowed and the maximum DTI ratios are 31%/43%. Minimum of two months of reserves Must be from borrower s own funds Borrowers with One Major Derogatory Derogatory Type FHA DTI >50% to <=55% FHA FICO => 620 to =<639 Bankruptcy 13 2 years Bankruptcy 7 3 years Short Sale 4 years Foreclosure 4 years NOTE: Borrowers with Multiple Major Derogatories have additional credit requirements. Refer to the Serious Derogatory Seasoning section below. Rev Page 7

8 Serious Derogatory Seasoning Special / Restrictions Borrowers with One Serious Derogatory Derogatory Type FHA Refinance Cash Out FHA for DTI>50% to <=55%) exception, OR FHA FICO 620 to 639 exception* Bankruptcy 13 2 years* 2 years Bankruptcy 7 2 years* 3 years Short Sale 3 years* 4 years Foreclosure 3 years* 4 years * Unless otherwise specified in the FHA/VA Product Guidelines for Credit Scores <640 to =>620 or DTI >50% to =<55%. Borrowers with multiple major derogatories are not eligible for the credit or DTI exceptions. Borrowers with Multiple Major Derogatories For borrowers that have experienced more than one serious derogatory and were not connected but rather two separate events there are additional overlays below: In addition to the required waiting period and guidelines, the loan will be reviewed to assess the overall risk and is subject to Underwriting s discretion. Minimum FICO required 660 Ratios: 33/45% for multiple major derogatories Two Months Reserves PITI Satisfactory explanation of the multiple events is required Approve/Eligible or Accept/Eligible AUS Findings required Open traditional tradelines within the last two years are required Payment History: o No more than 2 x 30 past due in the last 24 months or no more than 1 x 60 past due in the last 24 months o No history of NSF fees on the bank statement provided. o Medical collections are excluded. Examples: 1. Borrower filed Chapter 7 and included their Mortgage loans in the bankruptcy. The Discharge is completed and the borrower moves out of residence and rents another property. The lender doe s not complete the foreclosure until several months later. This would be treated as one event. 2. The same example above but the borrower owns multiple properties and all properties are included in the bankruptcy but again all of the lenders take several months to complete the foreclosures, this would be treated as one event. 3. The borrower files Chapter 7 and included the mortgage in bankruptcy and does not reaffirm the mortgage. However the borrower continues to reside in the property and continues to make their mortgage payment even though did not reaffirm the debt. The borrower continues to make payments on time for one year or more but then defaults and the bank then initiates and completes a foreclosure. This would be treated as separate events because the borrower chose to continue to make payments and later defaulted. 4. The borrower does a short sale on an investment property and several months or years later files bankruptcy and abandons their primary residence. This would be treated as two separate events 5. Multiple Bankruptcies would be treated as separate events. Properties owned free & clear are eligible for cash out refinance transactions. Properties encumbered by one or more mortgage transactions in the last 12 months are eligible for cash out refinance provided 12 months (or life of loan) satisfactory payment history is verified. If a mortgage refinance took place within the last 12 months and there is a skipped month due to the refinance, it will be necessary to review the payment history on the previous transaction in order to satisfy the 12 full months payment history Adding Co-borrowers All borrowers must occupy subject property May add a co-borrower or co-signer provided he/she occupies the subject property as his/her primary residence. The addition of an occupant-borrower is not limited to the original borrower s spouse. However, the additional borrower must occupy the property as his or her primary residence. (i.e. son/daughter of origina l borrower) The original borrower / property owner must be in title for a minimum of 6 months and must be on the original note and mortgage. There are no exceptions. An additional occupant-borrower who has been on title at least 6 months may be added at any time after the original borrower purchases the property, up to and including the closing of the new loan. (The original borrower must always meet the 6-month requirement for title and mortgage). Rev Page 8

9 Non-Occupying Co-borrowers Cash Out Refinance - Income from a non-occupant Co-Borrower MAY NOT be used to qualify for a cash-out refinance Permitted only if the non-occupant co-borrower has been on title and on the mortgage note as a nonoccupant co-borrower since the original financing of the purchase mortgage. Documents must be provided to evidence non-occupant co-borrower was on the purchase transaction (copy of purchase HUD-1 and copy of original note) Adding a non-occupant co-borrower or co-signer in order to meet credit underwriting guidelines is not allowed. Borrowers may be deleted provided that at least one original borrower who has been on title at least 6 months and is on the original note and mortgage remains. No non-profit organizations Underwriting Loans must be underwritten by a DE Underwriter employed by Fidelity May follow AUS Approve decision and documentation requirements. Refer to Credit for additional restrictions Rev Page 9

10 FHA MAXIMUM MORTGAGE CALCULATION WORKSHEET CASH-OUT REFINANCE TRANSACTIONS Borrower Name(s): Fidelity Loan #: FHA Case #: 1st CALCULATION LTV Limitation If Property is owned as borrower s primary residence for more than one year prior to loan application, regardless of # of units: 1. Appraised Value x (85%) $ If property is owned as borrower s primary residence for less than one year prior to the loan application, regardless of # units: 2. Lesser of Appraised Value or Original Sales Price $ Multiplied by (85%) 3. 1 st Calculation Maximum Base Mortgage: 1. $ *Closing Costs, Prepaid Expenses and Discount Points may not be included in this calculation. 2 nd CALCULATION (Using Statutory County Limit) 1. Statutory Limit for County $ 2. 2 nd Calculation Maximum Base Mortgage: 2 $ MAXIMUM BASE MORTGAGE $ Based on the lesser of calculations 1 or 2 Plus UFMIP (if financed) $ (Maximum Base mortgage x UFMIP factor based on when case # was ordered refer to UFMIP chart) TOTAL NEW MORTGAGE AMOUNT: $ Must be < = 100% of Appraised Value) Rev Page