Conventional Non-Conforming Jumbo Underwriting Guidelines

Transcription

1 Conventional Underwriting Guidelines Contents Conventional Underwriting Guidelines... 1 Conventional Jumbo Guidelines... 4 All conventional conforming guidelines apply unless noted in the following documentation Transaction Types... 5 Construction to Permanent Financing Two Time Close... 5 Installment Land Contract... 6 Temporary Interest Rate Buy Downs... 6 Interest Only Transactions Non-Arm s Length Transaction... 6 Purchase Transaction... 6 First Time Home Buyer Transaction... 7 Conversion of Primary to Second Home or Investment Property... 7 Refinance Transaction Limited Cash-Out (FNMA terminology)/no Cash-Out (FHLMC terminology)... 7 Refinance Transaction Cash-Out... 8 Restructured Loans or Short Payoff Refinances... 8 Secondary Financing... 8 General... 8 Community Seconds FNMA... 9 Home Equity Line of Credit HELOC... 9 Occupancy... 9 Primary Residence... 9 Second Home... 9 Investment Property Property Eligibility to 4 Unit Properties Underwriting Guidelines 1 R e v i s e d

2 Soft Market/Declining Values Borrower Eligibility Maximum Number of Financed Properties per Loan First Time Homebuyer Illinois Land Trust Number of Borrowers per Loan File Qualifying Ratios Adjustable Rate Mortgages Waiver of Escrow for taxes and insurance Income Boarder Income Bonus and Overtime Income Commission Income Foreign Income Mortgage Credit Certificates Non-U.S. Citizen Borrowers Projected Income Trailing Secondary Wage Earner Liabilities and Qualifying Ratios Student Loans/Deferred Loans Credit Requirements Bankruptcy Consumer Credit Counseling Credit Score Requirements Foreclosure/Deed-in-Lieu of Foreclosure Major Adverse Credit Minimum Trade Line Requirements Mortgage/Rental Payment History Nontraditional Credit Report Requirements Pre-Foreclosure Sale (Short Sale) Underwriting Guidelines 2 R e v i s e d

3 Assets General Documentation Requirements Down Payment Requirements Cash Reserve Requirements Bridge Loans Business Accounts Cash On Hand Donations from Entities Gifts Retirement Funds Sale of Personal Assets Sweat Equity Trust Accounts Interested Party Contributions (IPC s) Mortgage Insurance Appraisal Requirements General Documentation Requirements Exterior-Only Inspection Residential Appraisal Report FNMA/FHLMC Form Exterior-Only Desktop Underwriter Property Inspection Report FNMA Form Exterior-Only Inspection Individual Condominium Unit Appraisal Report FNMA Form 1075/FHLMC Form Operating Income Statement FNMA Form 216/FHLMC Form Single Family Comparable Rent Schedule FNMA Form DU Property Inspection Waiver (PIW) AUS Recommendations and Underwriting Resubmissions Work Completion Escrow Procedures/Escrow Holdbacks Underwriting Guidelines 3 R e v i s e d

4 Conventional Jumbo Guidelines All conventional conforming guidelines apply unless noted in the following documentation. Underwriting Guidelines 4 R e v i s e d

5 Transaction Types Construction to Permanent Financing Two Time Close Conforming Guidelines apply Non Arms Length Transactions not eligible Arms Length Transactions o LTV/CLTV is based in appraised value of both lot and improvements regardless of length of time borrower has held title to the lot. Lot Acquired =/> than 12 months or if lot was inherited or gifted regardless of date of acquisition LTV/CLTV is based on lesser of: Current appraised value lot and improvements Total acquisition costs (sum of construction costs and lower of sales price or current appraised value of lot. Lot acquired within 12 months preceding application date for construction financing, LTV/CLTV is based on lesser of: Current appraised value (lot and improvements) OR Total acquisition costs ( sum of construction costs and lower of sales price or current appraised value of lot) Document sales price of lot with copy of purchase contract or related executed HUD-1. CASH OUT Arms Length Transaction LTV/CLTV is calculated as noted above. ( not allowed) CASH OUT Non Arms Length Transaction is not eligible Construction Costs: Includes material and labor for the completion of dwelling (hard costs) Soft costs may be included if they cover tangible products/services. Professional fees such as architectural fees, building permits, engineering fees and environmental impact fees are allowed to be included in loan amount calculation. Costs attributed to financing construction loan costs Rea estate taxes on subject Insurance In absence of construction contract construction costs must be verified by Invoices Lien waivers, Contract for services or materials provided by sub-contractors. Invoices must note subject address or lot number, builder or borrower name. All costs must be documented by cancelled checks, paid receipts or certified draw scheduled from construction lender itemizing specific work covered by each draw. Tearing down older dwelling to construct new home Purchase price of site Demolition cost of existing dwelling HOWEVER only true land value will be considered in value determination. Any cost paid from borrower s own funds must be documented by cancelled checks or paid receipts. Underwriting Guidelines 5 R e v i s e d

6 Installment Land Contract When the loan proceeds are used to pay off a recorded installment land contract (or contract or bond for deed) that was recorded or sent to the county for recording within the 12 months preceding the date of the loan application, the loan must be treated as a purchase. The LTV is determined by using the lesser of the total acquisition cost (original land contract purchase price plus documented costs for rehabilitation, renovation, or energy conservation improvements) or the current appraised value. Cash out not allowed. When the recorded installment land contract (or contract or bond for deed) was recorded or sent to the county for recording more than 12 months before the date of the loan application, the loan is treated as a limited cash-out refinance. The LTV is based on the current appraised value. When installment land contract (or contract or bond for deed) is not recorded value is determined by lesser of appraised value or purchase price. Cash out not allowed. LTV maximum 5% below program maximum. Pay History Documentation: cancelled checks, bank statements or money order receipts to verify payment history. The HUD-1 must reflect the applicable transaction (i.e., if purchase, seller issues should be addressed; if refinance, there should not be a reference to a seller seller is treated as an existing lien). The above guidelines apply regardless if title to the subject property has transferred to our borrowers. Temporary Interest Rate Buy Downs Interest Only Transactions. Non-Arm s Length Transaction Purchase Transaction Underwriting Guidelines 6 R e v i s e d

7 Purchase Agreements that have been assigned are not eligible. First Time Home Buyer Transaction for all transaction types Reserves 12 months PTIIA liquid reserves required Any Borrower living rent/mortgage free must have 12 months PITIA liquid reserves Conversion of Primary to Second Home or Investment Property Conversion of Primary to Second Home Qualify with PITIA of both retained property and new primary residence Six months reserves for the rained property Greater of six months PITIA liquid reserves or program requirements for subject property. Conversion of Primary to Investment Property regardless of # of units in the property. Rental Income Single Family Documented Equity is a least 30%, 75% of gross rental income may be used to quality If 30% Equity not documented no rental income can be used. Reserves: Six months liquid PITIA reserves for retained property Greater than six months PITIA liquid reserves or program requirements for subject property Documentation: Fully executed lease agreement and security deposit receipt deposited into borrower s bank account. Non-arms length lease (family member or individual with established relationship with those involved in the transaction or interested party) may not sign lease agreement as the renter. Documentation supporting equity position evidenced by at least 2055 exterior only inspection, dated no more than 60 days prior to Note. Report provided by borrower is not acceptable to establish value. Refinance Transaction Limited Cash-Out (FNMA terminology)/no Cash-Out (FHLMC terminology) Conforming Guidelines apply. Cash back not to exceed lesser of 1% or $2000 unless property is in Texas. See conforming guidelines. If property is owned less than 12 months and value has increased month than 15%, photos of improvements are required. Underwriting Guidelines 7 R e v i s e d

8 Prepaids may be financed in a refinance transaction except on Texas Rate/Term Refinance Transaction Cash-Out Conforming Guidelines apply Maximum Cash Out > 65% LTV/CLTV/HCLTV is $250,000 Maximum Cash Out </ 65% LTV/CLTV/HCLTV is $350,000. If property is owned less than 12 months and value has increased month than 15%, photos of improvements are required. See Texas A6 Guidelines Not Allowed Restructured Loans or Short Payoff Refinances Not Eligible for financing Secondary Financing General Refer to program matrix for maximum CLTV/HCLTV. When the total loan amount, including any subordinate financing, is greater than 10 times the subject property s county level median home price, the LTV/CTLV is limited to 70%. In this instance, if the product guideline s maximum LTV/CLTV is less than 70%, then the lower LTV ratio must be applied. HELOC Secondary Financing: o Existing Subordinate lien: If current balance is zero and no draws are to be used for the new transaction NO minimum payment is included in qualifying. o If balance on the line of credit or if advance will be part of new transaction, calculate the housing payment by multiplying the total usable line of credit by the interest rate in effect at the time the loan application is underwritten. Use the higher of the calculated payment or the payment reported on the credit report. If first mortgage is a rate term refinance in Texas and first lien is being renewed and extended, a subordination agreement for a second lien IS NOT required unless title company requires Underwriting Guidelines 8 R e v i s e d

9 subordination agreement to insure first lien will remain in first lien position. Community Seconds FNMA Not eligible. Home Equity Line of Credit HELOC. HELOC Secondary Financing: o Existing Subordinate lien: If current balance is zero and no draws are to be used for the new transaction NO minimum payment is included in qualifying. o If balance on the line of credit or if advance will be part of new transaction, calculate the housing payment by multiplying the total usable line of credit by the interest rate in effect at the time the loan application is underwritten. Use the higher of the calculated payment or the payment reported on the credit report. The HELOC must comply with all of the terms outlined in the above General section. Refer to the Program Matrix for maximum allowable LTV/CLTV/HCLTV ratios. When the total loan amount, including any subordinate financing, is greater than 10 times the subject property s county level median home price, the LTV/CTLV is limited to 70%. In this instance, if the product guideline s maximum LTV/CLTV is less than 70%, then the lower LTV ratio must be applied. Occupancy Primary Residence 3-4 unit properties are not eligible Second Home One Unit properties only Not allowed Underwriting Guidelines 9 R e v i s e d

10 Investment Property Investment Properties not eligible Property Eligibility 2 to 4 Unit Properties Only 1 to 2 unit properties allowed. Only 1 unit properties are allowed. Property listed for sale: Currently listed for sale, or Listed for sale within the six months prior to the loan application Soft Market/Declining Values Declining Market Maximum LTV/CLTV: B Market: Reduce Max LTV/CLTLVHCLTV by 5% C Market: Reduce Max LTV/CLTV/HCLTV by 10% D Market: Reduce Max LTV/LCLTV/HCLTV BY 15% Market Upgrade of 5% LTV/CLTV/HCLTV permitted passed on the credit guidelines below: Minimum Fico 740 Maximum DTI 35% SFR, PUD, Modular Home or Site Condo (Multi-Family not permitted) Purchase Rate/term Refi Only (no cashout) Two Full Appraisals Max combined loan amount $1, See Summary and Matrix for LTV/CLTV restrictions See Market Classification Underwriting Guidelines 10 R e v i s e d

11 Borrower Eligibility Maximum Number of Financed Properties per Loan Conforming guidelines apply except as noted below. Regardless of occupancy type for the new loan, borrower may not own more than four properties (including his or her principal residence) that are currently being financed. Maximum of four financed properties financed by GMAC Bank with a maximum aggregate dollar amount of financed properties not to exceed $2 million. First and second liens financed by GMAC are counted as one loan. Borrower who holds Limited Partnership in organized Limited Partnership formed for the purpose of real estate investment or development must include all properties owned and financed by that partnership. General Partner who has personal liability and whose primary income is thru the partnerships longterm investments must include all properties owned and financed by that partnership. First Time Homebuyer Acceptable verification of rent for most recent full 12 months is required. Cancelled checks or bank statements to evidence eligibility for mortgage/housing history is required. Written verification on the credit report is not allowed. Direct written verification from landlord that is a large professional management company is allowed. 12 months PITIA reserves are required. If all borrowers are living rent free12 months PITA reserves are required (excluding retirement accounts.) Illinois Land Trust Beneficiary must be an individual Beneficiary must execute Note and guarantee payment on the Mortgage Trustee executes Note solely in capacity as trustee of the land trust Trustee is not personally liable on the Note Borrower must be one of the beneficiaries of the trust Trustee must be a financial institution customarily engages in business of acting as Trustee under Illinois state law. Number of Borrowers per Loan File Limit of four borrowers per loan Underwriting Guidelines 11 R e v i s e d

12 Qualifying Ratios Adjustable Rate Mortgages Fixed Rate Qualify at Note rate using fully amortized payment of principal, interest, taxes and insurance (PITI) 5/1 Adjustable Rate Qualify using the greater of the fully indexed/fully amortized rate or the Note rate + 2.0% 7/1 Adjustable Rate Qualify using the greater of the fully indexed/fully amortized rate or Note rate. Waiver of Escrow for taxes and insurance Permitted on 1 unit properties only. Income Boarder Income Bonus and Overtime Income Bonus or OT Income received for less than 2 years and/or is not likely to continue is not acceptable income. Self Employed In addition to two years tax returns (and business if appropriate) borrower to also provide Year-to-date Income/Expense Statement and Balance Sheet are also required if more than 120 days have lapsed since the last fiscal year end. Underwriting Guidelines 12 R e v i s e d

13 Commission Income Two year history of receipt must be show on tax returns. Must be determined likely to continue. Foreign Income Mortgage Credit Certificates Non-U.S. Citizen Borrowers Refer to conventional guidelines Projected Income Restrictions All non-permanent resident aliens must have a minimum two-year history of credit and employment in the U.S. or another country. In addition, non-permanent resident aliens who meet at least one of the following requirements are generally eligible for the same financing terms as U.S. citizen: Minimum two-year history of residence, employment and credit in the U.S., or Borrowing with a U.S. citizen or permanent resident alien. May be permitted on a case-by-case basis. Must be reviewed and approved by the Senior Underwriting Manager. Underwriting Guidelines 13 R e v i s e d

14 Trailing Secondary Wage Earner. Liabilities and Qualifying Ratios Student Loans/Deferred Loans Deferred installment debt such as student loans and loans in forbearance must be included as part of the borrower s recurring monthly debt obligations. Credit Requirements Bankruptcy o o A minimum of seven years must have elapsed since date of discharge or dismissal of bankruptcy. Consumer Credit Counseling Treat like Bankruptcy 7 years must have elapsed before borrower is eligible. Credit Score Requirements See Conventional Non-Conforming Product Summary & Matrix Foreclosure/Deed-in-Lieu of Foreclosure Minimum of seven years must have elapsed since the date of foreclosure completion. Underwriting Guidelines 14 R e v i s e d

15 Major Adverse Credit Major Adverse Credit is collection accounts, charge-offs, judgments, liens, delinquent property taxes, repossessions, garnishments and non mortgage accounts currently 90 days or more delinquent Major Adverse accounts reported in past 24 months Not Allowed unless isolated accounts with less than $500 cumulative balance. These accounts may be left open if they don t affect title. Major Adverse accounts older than 24 months All State, IRS and property tax liens (subject property and other properties), regardless of seasoning, are required to be paid whether or not they currently affect title. No repayment plans or subordination is allowed. All other adverse accounts over 24 months old that do not affect title are not required to be paid. Minimum Trade Line Requirements 3 non-derogatory trade lines 3 trade line, each rated for at least 12 months 1 trade line with credit limit of at least $5,000 At least one active trade line (less than 30 days delinquent and non-collection) in the past 6 months. (Active trade line is defined by the date of last activity on the account and not current open balance.) Authorized User Accounts may not be used to satisfy trade line requirements unless joint account with co-borrower. Mortgage/Rental Payment History Verification of 12 months rental/housing payments is required. o 12 months canceled checks or banks statements evidencing no late payments o Direct verification of rent is acceptable in lieu of cancelled checks when landlord is a large professional management company. o Verification of Rent on credit report is not permitted. 0X30 in past 12 months 0X60 in past 24 months Nontraditional Credit Report Requirements Underwriting Guidelines 15 R e v i s e d

16 Pre-Foreclosure Sale (Short Sale) A minimum of 4 years is required to elapse after the completion of a pre-foreclosure (short sale) before the borrower is considered to have a re-established credit history. The following waiting period requirements apply. o 4 years lesser of 90% LTV or the maximum per the guideline eligibility matrix. o 7 years LTV ratios per the guideline eligibility matrix. A minimum of 2 years is required to elapse after the completion of a pre-foreclosure (short sale) due to extenuating circumstances. The maximum LTV is the lesser of 90% or the maximum per the guideline eligibility matrix. Assets General Documentation Requirements Unacceptable sources: o Donated Funds in any form, such as cash or bonds donated by seller, builder or selling agent outside of approved financing contributions in the Seller Concession o Funds from Community Second Mortgage/down Payment Assistance Program o Funds from unapproved non-profit organization o Proceeds from personal or unsecured loan o Cash advance on revolving charge account or unsecured line of credit o Gift that must be repaid in full or in part o Labor performed by the borrower (sweat equity) o Materials furnished by the Borrower that are not part of a pre-closing agreement with builder o Salary advances o Cash for which source can t be verified (e.g., garage sales, cash on hand) o Funds in a Custodial or in Trust For Account Down Payment Requirements Borrower must pay a minimum of 5% of the value from their own funds. The balance may be paid from any acceptable source (borrower funds, gift funds or secondary financing. For LTV less than or equal to 80 percent, full down payment may be gifted. Underwriting Guidelines 16 R e v i s e d

17 Cash Reserve Requirements DTI >/= 35%: 12 months liquid reserves o Minimum 12 months reserves(inclusive of HOA fee, if applicable, reserves remaining after closing, exclusive of closing costs, cash out funds, business assets (other than Schedule C) o Maximum of 6 months reserves permitted from 401K/SIP account at 50% of full vested amount. DTI<35% : 6 months reserves: o Minimum 6 months liquid reserves o Exclusive of 401K/SEP accounts, cash out funds, business assets (other than schedule C) Retirement Account Funds must be reduced by 50%. Ineligible Sources for Reserves: o Gift funds o Business Assets (other than Schedule C) o Cash out proceeds o Bridge Loans o Loans secured by other assets First time Homebuyers - see First Time Homebuyer section. See Primary residence not sold before Note date See Converting primary to second home or investment. Refer to Product Summary for detailed postclosing liquidity requirements. Liquid assets verified to meet the reserve (postclosing liquidity) requirements may be in the form of: Cash equivalents (checking, savings, or money market accounts) 100% of the vested value of Publicly Traded Stocks, Mutual Funds and Government Securities may be used. Cash surrender value of life insurance (less outstanding loans, if repayment not included in debt ratio calculation) For borrowers who have reached the required age for non-penalty withdrawal: 70 percent of vested pension, profit sharing, 401K, or Traditional IRA (less outstanding loans) 100% of Roth IRA (less outstanding loans) For borrowers who have not reached the required age for non-penalty withdrawal, 70 percent of vested pension, profit sharing, 401K and Traditional and Roth IRA (less outstanding loans) may be used to meet half of the required post-closing liquidity when: Required post-closing liquidity is 20% or more, or LTV/CLTV < 60%, or debt ratio < 24% and: Minimum Loan Score 720 Maximum loan amount $2,000,000 Equity proceeds from the sale of a residence. The following assets are ineligible for purposes of meeting the minimum reserve Underwriting Guidelines 17 R e v i s e d

18 requirement: For borrowers who have not reached the required age for non-penalty withdrawal: Retirement funds, including but not limited to vested pension, profit sharing, 401K, or IRA, except as noted in the eligible asset section above. Retirement funds may not be liquidated in order to be used to meet reserve (post-closing liquidity) requirements. Borrowed funds Stock in a closely held corporation Proceeds from the sale of assets other than the sale of a residence Bridge Loans for use as reserves Underwriting Guidelines 18 R e v i s e d

19 Business Accounts Cannot be used for reserves When a Borrower has insufficient personal liquid assets to qualify or close, but has sufficient verified funds in a 100 percent owned business, the business funds may represent an adequate source of down payment and reserves both of the following conditions are met: Business average annual cash flow is greater than the amount to be withdrawn/reserves. Cash on company year-end balance sheet for each of the previous three years is greater than the amount to be withdrawn/reserves. This information is found on line 1 of the schedule L for the Partnership, S-Corporation and the Corporation. A three-year history of a balance greater than or equal to the amount being considered for reserves or down payment is required. Two years of the schedule L will show three years of cash on hand for the company. Full analysis of the business must consider the effect of the withdrawal of the assets and how it will impact the strength and viability of the business in the future. The following questions need to be considered: Cash On Hand What is the pattern of company cash flows? Do we have declining gross or net income? Do we have concerns about the type of business? Is the business experiencing a downturn? Extreme care needs to be taken when considering business use of funds and in some cases even though a business is profitable, it may not be prudent to use the business assets in our transaction. Cash on hand is not an acceptable source of funds for the down payment or closing costs. Underwriting Guidelines 19 R e v i s e d

20 Donations from Entities Donations from interested parties are not allowed Community 2nds are not allowed Gifts Minimum borrower investment is waived on primary residences when gift funds reduce LTB</80% and borrower pays own closing costs and no secondary financing exists. Retirement Funds Retirement Accounts are reduced to 50% of the balance of the account. Sale of Personal Assets Must be able to document value of asset, actual sale of asset by written sales agreement, funds coming from buyer and deposited into borrower s account. Sweat Equity Sweat equity is not an acceptable source of funds for the down payment, closing costs, or financial reserves. Trust Accounts Funds from Trust account are NOT acceptable source of asset. Underwriting Guidelines 20 R e v i s e d

21 Interested Party Contributions (IPC s) 3% Maximum regardless of LTV/CLTV/HCLTV or occupancy Pre-paid HOA fees (dues) must be paid by the buyer. The seller may pay their pro-rated share of the dues. Mortgage Insurance. Max LTV is 80% Appraisal Requirements General Documentation Requirements One full appraisal for loan amounts <= $1,500,000 Loan Amounts <= $1,000,000 one full appraisal Two full appraisals for loan amounts > $1,500,000 Loan Amounts > $1,000,000 and < $1,500,000 one full appraisal and one of the following: o Field Review o Second full appraisal Must be ordered by the Jumbo Desk Only Exterior-Only Inspection Residential Appraisal Report FNMA/FHLMC Form 2055 Exterior-Only Desktop Underwriter Property Inspection Report FNMA Form 2075 Underwriting Guidelines 21 R e v i s e d

22 Exterior-Only Inspection Individual Condominium Unit Appraisal Report FNMA Form 1075/FHLMC Form 466 Operating Income Statement FNMA Form 216/FHLMC Form 998. Use for Owner Occupied 2 unit properties Single Family Comparable Rent Schedule FNMA Form 1007 Not required since only owner occupied properties are allowed for this program. DU Property Inspection Waiver (PIW) AUS Recommendations and Underwriting Resubmissions Work Completion Escrow Procedures/Escrow Holdbacks Underwriting Guidelines 22 R e v i s e d