FHA PRODUCT PROFILE. FHA - DU Approval LTV/CLTV 96.5/96.5. Rate/Term Refinances

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1 FHA PRODUCT PROFILE PROGRAM CODES: 15FHA, 30FHA, 5/1FHA, 15FHA-HB, 30FHA-HB, 5/1FHA- HB Agency Occupancy Finance Type Term FHA - DU Approval Owner Occupied Purchases Fixed Rate and Fixed Period ARM's FHA - DU Approval Owner Occupied Cash Out Refinances Fixed Rate and Fixed Period ARM's Property Type LTV/CLTV Min Credit Score Property Type LTV/CLTV Min Credit Score 1-4 Unit(s) 96.5/ (Manufactured & High Balance loans = 640) 1-4 Unit(s) 85/ (Manufactured & High Balance loans = 640) Matrix LTV Rate/Term Refinances 1-4 Unit(s) 97.75/ (Manufactured & High Balance loans = 640) Mortgage Insurance Premium for case numbers assigned on or after January 26, 2015 for base loan amounts <= $625, Year Terms Fixed Rate and Fixed Period ARM's Purchase, No Cash-Out Refinance, Cash-Out Refinance UFMIP Streamline Refinances See FHA Streamline Guidelines 15 Year Terms Fixed Rate and Fixed Period ARM's Annual LTV UFMIP Annual > 95% 1.75% 0.85% > 90% 1.75% 0.70% 95% 1.75% 0.80% 90% 1.75% 0.45% Full appraisal by an FHA approved appraiser. Expiration: Appraisals are valid for 120 days for existing, purposed and under construction properties. For existing homes this may be extended by a DE underwriter for 30 days to allow for closing if a sales contract is signed or the borrower is approved for a loan prior to the appraisal expiration date. Approval occurs when the underwriter signs the FHA Loan Underwriting Transmittal Summary, Form HUD LT. Appraisals Arms Assets If the appraisal has been updated with an Appraisal Update Report, the loan must close within 240 days (120 day validity period plus 120 day validity period for the Appraisal Update Report). The appraiser must include a Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71) reflecting market conditions as of the effective date of the Appraisal Update Report. The 30 day extension is not allowed when the original appraisal is updated with an Appraisal Update Report. The appraisal may only be updated one time via the Appraisal Update Report and may not be used by a lender who is not the intended user in the original appraisal report. Transferred Appraisals Allowed: When an appraisal is transferred in from another lender, the underwriter must check the "mortgage credit reject" screen in FHA Connection. If our borrower was rejected by another lender, the underwriter must be able to justify why they were able to approve the loan when the other lender was not able to. This must be written in detail on the 92900LT. For HUD-owned properties, a valid REO sales contract must be ratified within 120 days of the appraisal effective date, or the lender must order a new appraisal, or Appraisal Update Report. FHA ARMS are based off of the 1yr T-Bill index. 5/1 ARMS are qualified at the note rate. Margin = 2.00% Caps: 5/1 ARM: 1/1/5 (1% initial cap, 1% periodic cap, 5% lifetime cap). Large Deposits: Recent individual deposits that exceed 1% of the property value must be sourced and documented to verify that they are from an acceptable source. Multiple deposits of less than 1% with a large accumulative total may require further investigation and documentation if deemed necessary by the underwriter. If the funds are deemed unacceptable or cannot be fully documented, they may be able to be backed out of the account balance with an acceptable letter regarding the source of the funds signed and dated by the borrower. If the funds are backed out, they would not be considered for funds to close or reserves. This decision is based on underwriter discretion after thoroughly reviewing assets and explanation. Earnest Money Deposit: If the amount of the earnest money deposit exceeds 1% of the sales price or is excessive based on the borrower's history of accumulating savings, deposit must be documented, and the funds sourced. Stocks, Bonds and Mutual Funds: Stocks, government bonds and mutual funds are an acceptable source for the down payment, closing costs and reserves. Must verify: The borrower s ownership of the account, and Value of the account at the time of liquidation, and The borrowers receipt of the funds. When using for reserves, funds do not need to be liquidated however only enter 70% of value. Retirement Accounts: 401K/IRA/SEP/Keogh accounts are an acceptable source for the down payment, closing costs and reserves. Must verify: The borrower s ownership of the account, and Value of the account at the time of liquidation, and The borrowers receipt of the funds. Document terms of withdrawal for IRA, SEP and Keogh accounts o Accounts that only allow withdraw upon termination of employment or death is not an acceptable source for down payment or reserves. When using for reserves, funds do not need to be liquidated however only enter 60% of value.

2 Borrower Eligibility Condominiums/PUDs Credit U.S. citizens. Permanent resident aliens, with proof of lawful permanent residence. Non-Permanent resident aliens with appropriate documentation. Ineligible Borrowers: Foreign Nationals; Borrowers with diplomatic immunity; Borrowers with no SS#. Attached condominiums must be approved by FHA. The approved list can be located at: In addition underwriting must certify the following which requires a completed condo questionnaire: At least 50% of units must sold and be O/O. No more than 10% of the units may be owned by one investor. No more that 25% of floor space may be for commercial use. No more than 15% of the HOA may be 30 days or more in arrears. Max FHA concentration is 30% (will show on the HUD approved list). PUD s don t require any additional documentation or review. All borrowers on the loan must have a minimum of one credit score. Debts with less than 10 months remaining: Installment 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% of the borrower's gross monthly income. The borrower may not pay down the balance in order to meet the 10 months. All deferred obligations, regardless of when repayment will begin, must be included in the qualifying ratios. If the payment is not available, 5% of the outstanding balance will be used to qualify. Student Loans: Regardless of the payment status, the payment used must be the greater of: 1% of the outstanding balance on the loan; or The monthly payment reported on the borrower's credit report. Note: The actual documented payment can be used if it is less than 1%, provided the payment will fully amortize the loan over its term. Non-Purchasing Spouse in Community Property State (AZ, CA, ID, LA, NV, NM, TX, WA, WI): If the borrower resides in OR the subject property is located in a community property state AND only one spouse is the borrower, a credit report of the non-purchasing spouse must be pulled and all of the debts included in the qualifying ratios for the loan. The payment history is not factored into the loan decision, and CAIVRS, LDP & GSA checks are not completed for the non-purchasing spouse. However, all judgments will be paid. See collection section under derogatory credit for further guidance on collection accounts. Departing Residence Rental income is allowed from a property the borrower is vacating when all of the following can be met: Relocating 100 or more miles from current principal residence; and A copy of a fully executed 12 month lease agreement. (Cannot be with a family member); and Evidence of receipt of the security deposit or first month's rent; and Evidence of 25% equity, documented with an appraisal dated within 6 months of our application.

3 Mortgage Late: Derogatory Credit Loans with Approve or Accept AUS findings must be manually downgraded if the applicant has experienced mortgage, including HELOC, late payments in the most recent 12 months reflecting 3 x 30 days late, or one or more late payments of 60 days plus one or more 30-day late payments; or one payment greater than 90 days late. Bankruptcies: Chapter 7 & 11: 2 years elapsed since the completion or discharge of Bankruptcy, to case number assignment date. Chapter 13: No minimum time required, provided: One year of the pay-out period under the bankruptcy has elapsed, and 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 bankruptcy court to enter into the mortgage transaction. Foreclosure/Deed in Lieu/Short Sale: 3 years elapsed since completion of Foreclosure, Deed in Lieu or Short Sale to case number assignment date. o The wait period for short sales can be waived if all of the following conditions are met: - The loan was current at the time of the short sale, and - The loan was paid on time in the 12 months preceding the short sale, and - All other installment debts were paid on time in the preceding 12 months. Collections: If the total outstanding balance for all borrowers is less than $2,000, a capacity analysis is not required to be performed. If the total outstanding balance for all borrowers is equal to or greater than $2,000 at time of underwrite, lender must perform a capacity analysis. Capacity analysis includes: - Payment in full of collection accounts, prior to or at closing, along with documentation of acceptable source of funds, - Borrower has an existing payment arrangement, provides proof of arrangement & payment included in DTI, or - 5% of the outstanding balance of each collection account is included as monthly payment in DTI. Collections of a non-purchasing spouse in a community property state are included in the cumulative balance. Medical collections and charge offs are excluded. Charged off accounts do not need to be included in the borrowers liabilities or debt. Tax Liens: Tax Liens may remain unpaid if: The borrower has entered into a valid repayment with the federal agency owed to make regular payments on the debt; and The borrower has made timely payments for at least three months. The borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments: and The lien holder subordinates the tax lien to the FHA-insured mortgage. Borrowers must qualify with the payment amount in the agreement. Judgments: Judgments must be paid prior to or at closing. An exception may be made if the borrower has an agreement with the creditor to make regular payments. The agreement and proof of three months' payments must be made prior to credit approval. Modified Loans: If the current loan is FHA, a DE underwriter would need to call the HOC with the old case number to discuss if the loan would be eligible for a refinance and what conditions, if any, would be required. If the current modified loan is a conventional loan, we would need to view a copy of the modification papers to determine if the loan has any late fees and/ or delinquent amounts added to the back end of the loan. If they have, FHA considers that a delinquent mortgage and those fees would need to be brought current before the loan could be offered. Disputed Accounts: If the cumulative outstanding balance of disputed derogatory accounts are greater than or equal to $1,000, then the TOTAL Scorecard decision requires a manual downgrade if the disputed accounts contain derogatory information. Cumulative outstanding balance of disputed derogatory accounts less than $1,000: Manual downgrade NOT required. Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance. Disputed medical accounts, disputed derogatory accounts resulting from identity theft may be excluded from the $1,000 limit. Identity theft documentation must be provided. Disputed Derogatory Accounts defined as: - Disputed charge-off accounts, - Disputed collection accounts, and - Disputed accounts with late payments in the last 24 months The following disputed non-derogatory accounts are not included in the $1,000 limit: - Disputed accounts with $0 balance, - Disputed accounts with late payments 24 months or older, or - Disputed accounts that are current and paid as agreed.

4 Newly Employed: A borrower who has less than a two-year employment history may have their income considered on a case by case basis as qualifying income if the borrower was either attending college or in a training program immediately prior to their current employment. Supporting documentation must be provided. Re-entering the Workforce: For a borrower who is re-entering the work force after a six month or greater gap and has less than a current two year employment history, the borrower s income may be allowed as qualifying income if the file contains documentation to support that the borrower has been at their current employer for a minimum of six months and evidence of previous employment history to cover two years. Employment by a Relative: Full documentation is required when a borrower employed by a family member or employed by a family-held business. The business accountant must verify that the borrower is not self-employed by indicating his or her percentage of interest in the business. The accountant must be a disinterested third party. All of the following income documentation is required: Most recent paystub documenting 30 days of income. W-2 s covering the most recent 2 years. Complete signed individual federal tax returns for the most recent 2 years. If the borrower is newly hired, previous employment in the same or related field must be verified. Self Employment: Follow income documentation as required by DU. Additional documentation may be required if the underwriter deems it necessary to support the decision to use the income. Profit and loss with balance sheet required to 90 days past the last tax filing date. This is for trending purposes only and will not be used for determining the income. Employment/Income Verification Declining Income: Applicants who have 20% or greater decrease in self-employed income will require a manual downgrade. The underwriter will need to be able to determine that the income is now stable and can justify using this. The income should be based on the lowest income calculation. Nontaxable Income: Documented non-taxable income may be grossed up. The percentage of non-taxable income that may be added cannot exceed the greater of: 15%; or The appropriate tax rate for their income amount, based on the borrowers tax rate for the previous year. The lender may not make any additional adjustments or allowances based on the number of the borrowers dependents. If the applicant 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%. Hourly Employed: Applicants who are paid hourly: If hours do not vary, use current hourly rate. If hours vary, the income must be averaged over the previous two years. May use a 12 month average with a documented increase in pay rate. Frequent Job Changes: Applicants who have changed jobs more than three times in the previous 12 months period, or changed lines of work, must document the stability of employment by obtaining either: Transcripts of training or education to support qualifications for the new position; or Employment documentation evidencing continual increase in income and/ or benefits. Tax Returns: When tax returns are needed, follow documentation as required by DU. When the most recent tax filing date has past and the borrowers filed an extension the following is required: Two years most recent returns that have been filed and signed. A copy of the filed extension request. A tax transcript reflecting No record of return filed for the most recent tax period. Evidence that any taxes owned have been paid T: Signed and dated at application and closing, is required for all borrowers whose income is being used to qualify. Transcript General Requirements: Income Documentation Required per DU Findings or an Underwriter YTD paystub YTD paystub and most recent year W-2 YTD paystub and most recent 2 years W-2 s Personal 1040 s for most recent year Personal 1040 s for most recent 2 years Personal 1040 s and business returns for most recent 2 years When the most recent tax filing has pasted and the borrower has filed an extension the following is required: Number of Years Validated IRS 4506T Transcripts Required 1 year 1 year 2 years 1 year 2 years 2 years A copy of the filed extension request, and A tax transcript reflecting No record of return filed for the most recent filing period, and Evidence that any taxes owed have been paid, and A copy then of the previous year or two as required.

5 Exclusionary List Financing Concessions Gifts All borrowers must be screened by CAIVRS to determine there have been no late payments on Federal debt obligations. The HUD Limited Denial of Partnership (LDP) list and the General Services Administration (GSA) lists must be reviewed for all loans, if any party to the transaction, including the borrower(s), is reflected on these lists, the loan is not eligible. Maximum 6% interested party contributions allowed regardless of LTV. Interested party contribution limits are based on the lesser of the sales price or appraised value. Who can provide a gift: Borrower's relative A close friend with a clearly defined and documented interest in the borrower. Borrower s employer or labor union. Charitable organization (NOTE: These must be sent to underwriting for approval.) Governmental agency or public entity that has a program providing home ownership assistance to: low & moderate income families, or first-time homebuyers (NOTE: These must be sent to underwriting for approval.) Gift letter requirements: Show the donor s name, address, and telephone number. Donor s relationship to the borrower and that no repayment is required. The dollar amount of the gift on the application or in a gift letter for each cash gift received. Signed by all parties. Documenting the Transfer of Gifts: Must verify and document the transfer of gift funds from the donor to the Borrower in accordance with the requirements below: If the gift funds have been verified in the Borrowers account, obtain the donor's bank statement showing the withdrawal and evidence of the deposit into the Borrower's account. Obtain the certified check, money order, cashier's check, wire transfer, or other official check, and a bank statement showing the withdrawal from the donor's account. Good Neighbor Next Door If the gift funds are paid directly to the settlement agent, the mortgage lender must verify 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 mortgage lender must have the donor provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction. Must show a HUD owned home in a targeted area. Visit and click on 'Good Neighbor Next Door' for borrower type to bring up eligible properties. Eligible Borrowers: Law Enforcement Officer Firefighters Emergency Medical Technicians (EMTs) Private and public K-12 grade teachers (must be in same school district as the teacher works in) Must be full-time employees Borrowers may not own or have owned property in the 12 months preceding the offer date. Identity of Interest Transaction The borrower borrows 50% of the sale price, and HUD carries a silent second for the remaining 50%. No interest or payments are required on this silent second mortgage if the borrower lives in the home for the entire 30 month occupancy requirement of the program. The borrower may be required to pay a pro-rate portion of the discount to HUD should they not fulfill the 30 month occupancy requirement. Down payment requirement is $ Closing costs and prepaid can be financed into the loan amount. Identity-of-interest transactions on primary residences are restricted to a maximum LTV ratio of 85 percent. Identity-of-interest is defined as a sales transaction between parties with family relationships or business relationships. However, maximum financing above 85 percent LTV is permissible under the following circumstances: A family member purchases another family member's home as a primary residence. If a property is sold from one family member to another and is the seller's investment property, the maximum mortgage is the lesser of either: 85 percent of the appraised value, or The appropriate LTV ratio percentage applied to the sales price, plus or minus required adjustments. NOTE: The 85 percent limit may be waived if the family member has been a tenant in the property for at least six months immediately predating the sales contract. A lease or other written evidence must be submitted to verify occupancy. Loan Limits An employee of a builder purchases one of the builder's new homes or models as a principal residence. A current tenant purchases the property that he or she has rented for at least six months immediately predating the sales contract. A lease or or other written evidence must be submitted to verify occupancy. A corporation transfers an employee to another location, purchases that employee's home, and then sells the home to another employee.

6 Loan Purpose Purchase Refinance: When doing a refinance on a property acquired less than 12 months from the case number assignment date: Value is determined by the LESSER of the purchase price (plus any documented improvements) or current appraised value. Limited Cash-Out/Rate & Term Refinance: Proceeds can be used to Pay off a first mortgage regardless of age. Proceeds can be used to pay off any junior liens, regardless of when they were established. NOTE: If any portion of the funds of an equity line of credit in excess of $1000 was advanced within the past twelve months and was for purposes other than repairs and rehabilitation of the property, the line of credit is not eligible for inclusion in the new mortgage. Pay related Closing Costs and Prepaid items. Incidental cash out to the Borrower may not exceed $500. Cash-Out: The applicant must have owned and occupied the property as their Principal Residence for the 12 months prior to the date of case number assignment. In the case of inheritance, an applicant is not required to occupy the property for a minimum period of time before applying for a cash-out refinance, provided they have not rented the subject property at any point since inheriting the property. If the applicant has rented the property they are not eligible for cash-out refinance until they have occupied the property for at least 12 months. At least one Borrower must hold title to the property being refinanced prior to case number assignment. Must document that the applicant has made all payments for all their mortgages within the month due for the previous 12 months or since the borrower obtained the mortgages, if less than 12 months. Income from non-occupant co-borrower may not be used to qualify for a cash-out refinance. Simple Refinance: A no cash-out refinance of an existing FHA-insured mortgage. (Maximum cash back is $500). Owner-occupied principal residence only. If the underlying loan was endorsed prior to May 31, 2009, the UFMIP will be 0.01% and the annual MIP will be 0.55%. For loans that were endorsed after this date, the standard MIP requirements as shown on page one will apply. The file must contain evidence the borrower currently occupies the property as their primary residence, such as the borrowers employment documentation or a utility bill. The maximum base loan amount for a Simple Refinance is the lesser of: The current statutory mortgage limit; or 97.75% LTV/CLTV; or The sum of existing debt and costs associated with the new transaction which includes: Unpaid principal balance of the first mortgage as of the month prior to disbursement (including accrued interest, MIP due, late fees and escrow shortages, if applicable). Manual Underwriting Allowable borrower paid closing costs and prepaid expenses, including borrower paid repairs required by the appraisal. Minus MIP refund (if originally financed in the loan). Maximum mortgage amount calculation to be documented using FHA Maximum Refinance Calculation Worksheet to calculate final mortgage amount. Mortgage history: Manual down grade required if the mortgage reflects any of the following within 12 months of the new case number assignment: (see manual downgrade mortgage history requirements below): 3 x 30 late; or 1 x 60 plus 1 x 30; or 1 x 90 If a manual underwriting is applied the loan may not reflect any of the following prior to the new case number assignment date: 0 x 30 in months 1-6; or 1 x 30 in months 7-12 If the mortgage on the subject property is not reported in the Borrowers credit report, the mortgagee must obtain a verification of mortgage to evidence payment history for the previous 12 month, regardless of AUS findings. Reserves: 1 and 2 Unit Properties; Reserves must equal or exceed one mortgage payment. 3 and 4 Unit Properties; Reserves must equal or exceed three mortgage payments. (This is required for AUS loans as well, and is not new). Reserves must be the borrowers own funds and cannot come from cash out, gift funds or borrowed funds from any source. Consumer Credit Counseling: A borrower's decision to participate in consumer credit counseling does not trigger a requirement for additional documentation since the credit score already reflects the degradation in credit history. If they are currently participating in consumer credit counseling, it is acceptable with the following: 12 month satisfactory payment history in the plan, and Approval from the CCC allowing the borrower to enter into a new loan agreement, and The borrower qualifies with the payments as listed on the credit report. Ratios and Required Compensating Factors: Manually underwritten loans with ratios that exceed 31/43 will now be allowed providing the borrower(s) meet the required number of specific compensating factors as out lined below: Acceptable compensating factors are limited to the following: Verified cash reserves that equal or exceed three total monthly mortgage payments (one and two units) or that equal or exceed six total monthly mortgage payments (three and four units); New monthly mortgage payment is not more than $100 or 5% higher than previous monthly housing payment, whichever is less, and there is a documented twelve month housing payment history with no more than one 30 day late payment; and Verified and documented significant additional income that is not considered effective income. Residual income.** Ratios up to 37%/47% will be allowed when one of the first three compensating factors are met. Ratios up to 40%/50% will be allowed when two of the compensating factors are met.

7 Borrowers with No Monthly Debt: The maximum allowable qualifying ratios for borrowers with established credit lines who carry no discretionary debt (housing payment is the only account with an outstanding balance and borrower can document that revolving credit has been paid off in full monthly for at least the previous six months) are as follows: RaSos up to 40%/40% will be allowed. Manual Underwriting Manufactured Housing For borrowers meeting this criterion no other compensating factors are required. **Residual Income: FHA has modeled the calculation of residual income based on VA guidance. Residual income is calculated in accordance with the following: Calculate the total gross monthly income of all occupying borrowers. Deduct from gross monthly income the following items: State Income Taxes Federal Income Taxes Retirement of Social Security Proposed Total Monthly Fixed Payment Estimated Maintenance and Utilities Calculated at $0.14 per square foot Job Related Expenses (e.g., child care, union dues) Residual Income, Deductions From Gross Monthly Income Subtract the sum of the deductions from the table above from the total gross monthly income of all occupying borrowers. The balance is residual income. At least two comparable sales used in the appraisal must be similar permanently attached manufactured housing units. A Structural Engineer Report: Manufactured homes must meet all FHA/HUD codes including a foundation inspection by a licensed structural engineer. This report must be dated within 6 months of closing. If repairs are needed on a manufactured home, they must be completed on form HUD (Compliance Inspection Report). A 1004D is not allowed. All manufactured homes must comply with the following: Must have been attached to a permanent foundation and remain on a permanent chassis with the towing hitch, wheels and axles removed for at least 12 months prior to loan application. If located in a condo or PUD project, must be a detached unit. Be constructed after June 15, 1976, in conformance with the Federal manufactured home construction and safety standards, as evidenced by an affixed certification label in accordance with 24 CFR Section ; and Be at least a doublewide; and Any towing hitch or running gear must be removed, including tongues, axles, brakes, wheels and lights; and The property including the manufactured unit must be classified and taxed as real estate by the local taxing authority; and Be permanently connected to a septic tank or other sewer system, and to other utilities in accordance with local and state requirements. Be affixed to a permanent foundation built to FHA criteria; and The home must not have been installed or occupied previously at another site or location; and The manufactured unit must have a pitched roof and assume the characteristics of site-built housing including permanent utilities. Maximum Loan Amount Minimum Loan Amount Varies by county - see Loan Limits section for details $60, Borrower to acknowledge that they are paying over and above the sales price. Negotiation/Buyer Premium Fees Documentation that the borrower(s) have sufficient funds to cover the cost over and above what is needed to close our transaction. This type of fee is not allowed to be included in the sales price. The LTV would be calculated off the lower of appraised value or sales price. AUS would need to be run reducing the assets by the amount of the additional amount the borrower needs to pay. All parties must sign and agree to the appropriate fees on transactions involving short sales. For non-occupying borrower purchase transactions, the maximum Loan-to-Value (LTV) is 75%. The LTV can be increased to a maximum of 96.5% 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 Non Occupant Co-Borrower A two-to four-unit property. May not be added to a cash-out refinance loan. While we do not object to legitimate transactions in which non-occupant borrowers assist in the financing of the property-- such as when parents help their children buy a first home-- this arrangement may not be used by non-occupant borrowers to develop a portfolio of rental properties. The degree of financial contribution by the non-occupant borrower, and the number of properties similarly owned may indicate that an investor loan has become the practical reality and that, in effect, family members are acting as "straw buyers." Underwriters must judge each transaction on its own merits. Occupancy Paying off Land Contracts Primary Residence Only Properties 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.

8 Property; Eligible Types Property; Maximum Number of Properties 1-4 Units. PUD - Detached or Attached. Condos - FHA Approved Condo's USA Direct Funding will not insure a mortgage if we conclude that the transaction was designed to use FHA financing as a vehicle for obtaining investment properties, even if the property to be encumbered will be the only one owned using FHA financing. We do not object to homebuyers using FHA financing more than once if compatible with the homebuyer's needs and resources as follows: The maximum number of financed properties a borrower may have when obtaining a loan using FHA financing is four (4). Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA financing except under the situations described below. Relocations: A borrower may be eligible to obtain another FHA-insured mortgage without being required to sell an existing property covered by an FHA-insured mortgage if the borrower is: Relocating or has relocated for an employment-related reason; and Establishing or has established a new principal residence in an area more than 100 miles from the borrower's current principal residence. Increase in Family Size. The borrower may be permitted to obtain another home with an FHA-insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family's needs. The borrower must provide satisfactory evidence of the increase in dependents and the property's failure to meet the family's needs. The borrower also must pay down the outstanding mortgage balance on the present property to a 75 percent or lower loan-to-value (LTV) ratio. A current residential appraisal must be used to determine LTV compliance. Tax assessments, market analyses by real estate brokers, etc., are not acceptable as proof of LTV compliance. Vacating a Jointly Owned Property: If the borrower is vacating a residence that will remain occupied by a co-borrower, the borrower is permitted to obtain another FHA-insured mortgage. Acceptable situations include instances of divorce, after which the vacating ex-spouse will purchase a new home, or one of the co-borrowers will vacate the existing property. Properties Resold within 180 days of Purchase Ratios Reserves The Seller s date of acquisition is the date of settlement on the seller s purchase of that property. The re-sale date is the date of execution of the sales contract by the buyer that will result in a mortgage to be insured by FHA. Resale Less Than or equal to 90 Days (no longer allowed with sales contracts executed on or after 1/1/15, except for HUD REO properties): Transaction must be arms-length with no identity of interest between buyer and seller. Property seller must be in title. No pattern of previous flipping activity on the property as evidenced by multiple title transfers within the past 12 months. The property was marketed openly and fairly. The sales price may not exceed 20% or more above the sellers acquisition cost. Resale Between 91 and 180 Days: If the resale price is greater than or equal to 100% over the property seller s acquisition price, a second FHA appraisal (from a new appraiser) is required. The borrower may not pay for the second appraisal. As an example, if a property is re-sold for $80,000 within six months of the seller s acquisition of that property for $40,000, a second independent appraisal must be obtained supporting the $80,000 sales price. You may also provide documentation showing the costs and extent of rehabilitation that went into the property resulting in the increased value but must still obtain the second appraisal. The cost of the second appraisal may not be charged to the homebuyer. Follow DU finding for DU approve/eligible loans See manual underwriting section for requirement on manual underwritten loans. 1-2 units to follow DU findings for approve/eligible loans. Manually underwritten loans require 1 month PITI in reserves. 3-4 Unit Properties require 3 months' PITI reserves for both DU and manually underwritten loans. The property must be self-sufficient (i.e., the maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100 percent). The mortgage calculations described below are in addition to the standard calculations. The monthly payment is the principal, interest, taxes, and insurance (PITI), including mortgage insurance, plus any homeowners' association dues, computed at the note rate. Three To Four Unit Properties Net rental income is the appraiser's estimate of fair market rent from all units, including the unit chosen by the borrower for occupancy, less a 25% vacancy factor. This calculation is used only to determine the maximum loan amount. Borrowers must still qualify for the mortgage based on income, credit, cash to close, and the projected rents received from the remaining units. The projected rent may only be considered as gross income for qualifying purposes; it may not be used to offset the monthly mortgage payment. Underwriting Method Utilities The borrower must have reserves equivalent to three months' PITI after closing on purchase transactions. Reserves cannot be derived from a gift. DU findings with "Approve" recommendation or manual underwrite approved by an underwriter. The following instances may require a manual downgrade: - Paystub does not provide YTD earnings information. - Disputed Credit Accounts (if credit report reveals that the borrower is disputing any credit accounts or public records). - Recent college graduates that don't have a two year work history. - Credit issues not recognized by DU, such as a judgment on the prelim that's not on the credit report, NSF fees on a bank statement, etc. Septic System: FHA requires that a property be connected to a public sewer system if feasible. If connection to a public system is not feasible, the property may be served by an individual, shared or community system. Inspection only required if: The appraiser or purchase agreement calls for one or indicates a potential issue. Cisterns: Not Allowed. Wells: Purity test is only required if: There is any indication that the water might not be safe or is contaminated; or if the purchase agreement requires one. Tests must address: Nitrate, Arsenic, E Coli and coliform levels. Private Roads: Private streets must be protected by permanent easements and maintained by an HOA or joint maintenance agreement.