Mtive Lending Last Updated: Octber 20 th, 2014 Cntents 4506-T... 9 APPRAISAL... 9 PROPERTY ADDRESSES... 9 AGE AND DATE OF APPRAISAL... 9 APPRAISER REQUIREMENTS... 10 FORM REQUIREMENTS... 10 APPRAISALS OF PROPERTIES LOCATED IN DECLINING MARKETS... 10 PHOTOGRAPHS... 11 HUD-OWNED PROPERTIES... 11 SECOND APPRAISAL REQUIREMENTS SALES WITHIN 180 DAYS OF SELLER ACQUISITION... 11 APPRAISAL PORTABILITY... 12 APPRAISAL RESOURCES... 12 ASSETS... 12 AGE OF ASSET STATEMENTS... 12 LARGE DEPOSITS... 12 CASH SAVED AT HOME... 12 CHECKING AND SAVINGS ACCOUNTS... 13 EARNEST MONEY DEPOSITS... 13 PROCEEDS FROM THE SALE OF A PERSONAL ASSET... 13 PROCEEDS FROM THE SALE OF REAL ESTATE... 13 REAL ESTATE COMMISSION FROM SUBJECT PROPERTY... 14 RENT CREDIT... 14 RETIREMENT SAVINGS... 14 SAVINGS BONDS... 14 SECURED LOANS... 14 STOCKS AND/OR BONDS... 15 SWEAT EQUITY... 15 HELPFUL LINKS ASSETS... 15 FHA Underwriting Guidelines Mtive Lending. Page 1 f 75
Last Updated: Octber 20 th, 2014 AUS TOTAL SCORECARD SYSTEM... 15 BORROWERS ELIGIBLE AND INELIGIBLE... 15 ELIGIBLE BORROWERS... 15 INELIGIBLE BORROWERS... 16 HELPFUL LINKS AUS... 16 BUY-DOWNS... 16 CASE NUMBER ASSIGNMENT/TRANSFER... 16 BORROWERS... 16 PROPERTY ADDRESSES... 16 ORDERING CASE NUMBERS... 17 CASE NUMBER TRANSFERS... 18 CASH RESERVES... 18 3 TO 4-UNIT PROPERTIES... 18 NON-TRADITIONAL CREDIT... 18 FEWER THAN TEN PAYMENTS REMAIN ON EXCLUDED DEBT... 18 CLOSING COSTS... 18 ALLOWABLE/NON-ALLOWABLE CLOSING COSTS... 18 CLOSING REQUIREMENTS... 19 PROPERTY ADDRESSES... 19 CLOSING REQUIREMENTS... 19 ESCROW STATES... 20 COMPENSATING FACTORS... 20 CONDOMINIUMS... 22 SITE CONDOMIUMS... 22 CONDOMINIUM RESOURCES... 23 CONFLICT OF INTEREST... 23 CREDIT HISTORY... 23 CREDIT INQUIRIES... 23 DEROGATORY CREDIT EXPLANATIONS... 23 NON-TRADITIONAL CREDIT REQUIREMENTS BORROWERS HAVE CREDIT SCORES... 23 RENT VERIFICATION... 23 FORECLOSURES... 24 FHA Underwriting Guidelines Mtive Lending. Page 2 f 75
Last Updated: Octber 20 th, 2014 CHAPTER 7 BANKRUPTCIES... 25 CHAPTER 13 BANKRUPTCIES... 25 JUDGMENTS... 25 TAX LIENS... 27 AUTHORIZED USER ACCOUNTS... 27 DISPUTED ACCOUNTS... 27 MORTGAGE LATE PAYMENTS... 29 SHORT SALES... 30 EXTENUTING CIRCUMSTANCES-STANDARD... 30 HUD S BACK TO WORK INITIATIVE- EXTENUATING CIRCUMSTANCES... 31 DEFAULTED CAIVR NUMBERS... 33 CREDIT HISTORY RESOURCES... 33 CREDIT REPORTS... 33 AGE OF CREDIT REPORTS... 33 CREDIT SCORES... 34 MEDIAN CREDIT SCORE (REPRESENTATIVE CREDIT SCORE)... 34 MINIMUM CREDIT SCORES... 34 DISCLOSURES/FORMS... 34 REQUIRED DISCLOSURES AND FORMS... 34 DOWN PAYMENT REQUIREMENTS... 34 PURCHASE TRANSACTIONS... 34 DOWN PAYMENT REQUIREMENT RESOURCES... 34 DOWN PAYMENT ASSISTANCE... 35 EMPLOYMENT HISTORY/VERIFICATION... 35 EMPLOYMENT HISTORY... 35 EMPLOYMENT GAPS... 35 MATERNITY LEAVE... 35 EMPLOYMENT RESOURCES... 35 ENERGY EFFICIENT MORTGAGES... 35 ESCROWS... 35 ESCROW HOLDBACKS... 36 BANK-OWNED PROPERTIES... 36 FHA Underwriting Guidelines Mtive Lending. Page 3 f 75
Last Updated: Octber 20 th, 2014 GEOGRAPHIC RESTRICTIONS... 36 ELIGIBLE LENDING AREAS... 36 COMMUNITY PROPERTY STATES... 36 ARIZONA... 36 CALIFORNIA... 37 COLORADO... 37 HAWAII... 37 MICHIGAN... 37 NEVADA... 37 OREGON... 37 TEXAS... 37 UTAH... 37 WASHINGTON... 38 GIFT FUNDS... 38 GIFT DONORS... 38 GIFT OF EQUITY... 38 INELIGIBLE SOURCES FOR DOWN PAYMENT... 38 GIFT DOCUMENTATION... 38 GIFT OR GRANT PROGRAMS... 39 INCOME... 39 ALIMONY AND CHILD SUPPORT... 39 AUTOMOBILE ALLOWANCES... 40 COMMISSION INCOME... 40 DISABILITY INCOME... 40 DIVIDEND AND INTEREST INCOME... 40 EMPLOYER SUBSIDIZED MORTGAGE PAYMENTS (EMPLOYER DIFFERENTIAL PAYMENTS)... 41 BORROWERS EMPLOYED BY A FAMILY-OWNED BUSINESS... 41 GOVERNMENT ASSISTANCE PROGRAMS... 41 MILITARY INCOME... 41 NOTES RECEIVABLE INCOME... 41 OVERTIME AND BONUS INCOME... 41 PART-TIME PRIMARY EMPLOYMENT... 42 FHA Underwriting Guidelines Mtive Lending. Page 4 f 75
Last Updated: Octber 20 th, 2014 PART-TIME INCOME FROM A SECOND JOB... 42 RENTAL INCOME... 42 RETIREMENT INCOME... 45 SEASONAL INCOME (SEASONAL COACHING, HOLIDAY EMPLOYMENT, ETC.)... 45 SELF-EMPLOYED BORROWERS... 45 SOCIAL SECURITY INCOME... 45 TRAILING SPOUSE INCOME... 46 TRUST INCOME... 46 UNEMPLOYMENT INCOME... 46 INCOME/EMPLOYMENT RESOURCES... 46 INDUCEMENTS TO PURCHASE... 46 INDUCEMENT TO PURCHASE RESOURCES... 47 INSURANCE... 47 HAZARD INSURANCE... 47 FLOOD INSURANCE... 47 CONDOMINIUM FIDELITY/LIABILITY INSURANCE... 47 HO-6 POLICY... 47 LAND CONTRACTS... 48 LAND CONTRACT RESOURCES... 48 LIABILITIES... 48 EXCLUDED LIABILITIES... 48 LOAN TERMS... 49 FIXED RATE MORTGAGES... 49 ARMS... 49 LTV/CLTV... 49 PURCHASES... 49 RATE AND TERM REFINANCE... 50 CASH-OUT REFINANCE... 50 STREAMLINE REFINANCE WITH OR WITHOUT AN APPRAISAL... 50 HUD REO WITH REPAIR ESCROW... 51 NON-OCCUPYING BORROWERS... 51 INCREASE IN FAMILY SIZE... 51 FHA Underwriting Guidelines Mtive Lending. Page 5 f 75
Last Updated: Octber 20 th, 2014 IDENTITY OF INTEREST TRANSACTIONS... 51 MAXIMUM/MINIMUM LOAN AMOUNTS... 52 MOTIVE LENDING MAXIMUM LOAN AMOUNTS... 52 MORTGAGE INSURANCE... 53 UP-FRONT MORTGAGE INSURANCE... 53 ANNUAL MORTGAGE INSURANCE... 54 UP-FRONT MORTGAGE INSURANCE PREMIUM REFUNDS... 54 MULTIPLE FHA LOANS... 55 MULTIPLE FHA LOAN RESOURCES... 55 MULTIPLE PROPERTIES... 55 NET TANGIBLE BENEFIT... 56 STREAMLINE REFINANCE TRANSACTIONS... 56 RATE AND TERM REFINANCE TRANSACTIONS... 56 STATE-REQUIRED NET TANGIBLE BENEFIT FORMS... 57 NEW CONSTRUCTION... 57 PROPERTY TAXES... 58 NEW CONSTRUCTION RESOURCES... 58 NON-OCCUPANT CO-BORROWERS... 58 OCCUPANCY... 59 POWER OF ATTORNEY... 59 PRIVATE ROADS... 59 PROPERTY ELIGIBILITY... 60 ELIGIBLE... 60 INELIGIBLE... 60 PROPERTY FLIPPING/SELLER SEASONING... 61 91 TO 180-DAYS SINCE SELLER ACQUISITION:... 61 12 MONTHS SINCE SELLER ACQUISITION... 62 PROPERTY FLIPPING RESOURCES... 62 PROPERTY INSPECTIONS... 62 INSPECTION REQUIREMENTS FOR REQUIRED REPAIRS... 62 HUD REO PROPERTIES... 62 TERMITE, WELL AND SEPTIC INSPECTIONS... 62 FHA Underwriting Guidelines Mtive Lending. Page 6 f 75
Last Updated: Octber 20 th, 2014 SNOW CLAD ROOF INSPECTIONS... 63 CHINESE DRYWALL... 63 FEMA-DECLARED DISASTER AREAS... 64 METHAMPHETAMINE CONTAMINATION... 64 PROPERTY INSPECTION RESOURCES... 64 PURCHASES/PURCHASE AGREEMENTS... 65 PURCHASES OF SHORT SALES... 65 PURCHASE/CONSTRUCTION AGREEMENTS... 65 QUALIFYING RATES... 65 FIXED RATE MORTGAGES... 65 ADJUSTABLE RATE MORTGAGES... 65 RATIOS... 65 MAXIMUM RATIOS... 65 PAYOFF LETTERS... 65 CASH-OUT REFINANCE TRANSACTIONS... 66 RATE AND TERM REFINANCE TRANSACTIONS... 66 STREAMLINE REFINANCE TRANSACTIONS... 68 ADDING OR DELETING BORROWERS/CREDIT QUALIFYING STREAMLINE REFINANCE... 70 STREAMLINE REFINANCE WITH APPRAISAL... 70 STREAMLINE REFINANCE WITHOUT APPRAISAL... 71 HELPFUL LINKS - REFINANCE TRANSACTIONS... 71 REO PROPERTIES... 71 SEASONING REQUIREMENTS... 72 PURCHASES... 72 CASH-OUT REFINANCES... 72 RATE AND TERM REFINANCES... 72 STREAMLINE REFINANCES... 72 SELLER CONTRIBUTIONS... 72 SELLER CONTRIBUTION RESOURCES... 72 SOCIAL SECURITY VERIFICATION... 73 SUBORDINATE FINANCING... 73 SUBORDINATE FINANCING RESOURCES... 74 FHA Underwriting Guidelines Mtive Lending. Page 7 f 75
Last Updated: Octber 20 th, 2014 TITLE... 74 MINERAL RIGHTS EXCEPTIONS TO TITLE... 74 DEED RESTRICTIONS... 74 UTILITIES... 75 WATER SYSTEMS/WELLS/SEPTIC SYSTEMS... 75 COMMUNITY WATER SYSTEMS... 75 SHARED WELLS... 75 FHA Underwriting Guidelines Mtive Lending. Page 8 f 75
Last Updated: Octber 20 th, 2014 4506-T 4506 1040 transcript results fr the mst recent available tax year must be rdered and btained frm IRS fr all incme surces. Fr brrwers emplyed by a family-wned business, must rder and btain the mst recent 2 years available 1040 transcripts frm the IRS. If the mst recent tax year transcript is nt available: Obtain the previus year s transcript and prf f extensin fr mst recent year. If the extensin is expired (lans clsing with a nte date n r after Octber 15 th ) must btain tax return and transcript fr mst recent year. Fr incme derived frm self-emplyment, ther business incme, r rentals, qualifying incme calculatins must include the amunts verified with the mst recent available tax transcript. If the lan is clsing with a nte date n r after Octber 15 th, qualifying incme must include mst recent year s figures, and a transcript fr that year must be rdered and btained APPRAISAL PROPERTY ADDRESSES The prperty addresses n the appraisal, case number assignment, fld certificatin, mrtgage, and nte must be identical. Hwever, abbreviatin f Street, Rad, etc. is acceptable, even if Street r Rad is fully spelled in anther dcument. This is the nly acceptable variance. Use the standardized USPS address. Cmpare the USPS address t the legal descriptin n the title cmmitment and use the city in the legal descriptin if that differs frm the USPS address AGE AND DATE OF APPRAISAL The appraisal effective date must be after the case received date unless ne f the fllwing applies: Appraisal was riginally rdered fr a cnventinal lan that subsequently cnverted t an FHA lan r Appraisal is fr a HUD REO prperty r Appraisal was rdered fr a gvernment guaranteed lan such as a VA lan that subsequently cnverted t an FHA lan Dcumentatin f prir nn-fha lan type required All appraisals are valid fr a perid f 120 days Refinance transactins require a new appraisal, regardless f the age f the appraisal used fr any recent purchase r refinance transactin(s) The lan apprval date is the date the DE underwriter signs the 92900-LT Lan Transmittal FHA Underwriting Guidelines Mtive Lending. Page 9 f 75
Last Updated: Octber 20 th, 2014 The validity perid f an appraisal may be extended fr up t 120 days, prvided all f the fllwing requirements are met: Fannie Mae frm 1004D The riginal appraiser must be an FHA rster appraiser in gd standing at the time f the update A new Fannie Mae frm 1004MC Market Cnditins Addendum must be prvided with the update frm If the update was rdered by any lender ther than the riginal lender indicated n the initial appraisal, the riginal appraisal must als be attached Only ne appraisal update is permitted The validity perid f the update is 120 days Summary updates are nt permitted fr lans having any ne r mre f the fllwing characteristics: The riginal appraisal expired prir t the effective date n the update An underwriter extended the riginal appraisal fr 30 days Prperty has declined in value Building imprvements t the prperty cannt be bserved frm the street r public way Exterir inspectin f the prperty reveals deficiencies r ther significant changes that did nt exist at the time f the riginal appraisal APPRAISER REQUIREMENTS - All appraisals must be rdered thrugh a Mtive Lending apprved management cmpany. FORM REQUIREMENTS 1-unit residences require Fannie Mae Frm 1004 2 t 4-unit residences require Fannie Mae Frm 1025 Cnds, including site cnds require Fannie Mae Frm 1073 Market Cnditins Addendum, Fannie Mae Frm 1004MC is required fr all appraisals APPRAISALS OF PROPERTIES LOCATED IN DECLINING MARKETS A prperty is lcated in a declining market if the Neighbrhd sectin f the appraisal indicates the neighbrhd is declining At least tw cmps must have clsed within 90 days prir t the appraisal date (if recent cmparable sales are nt available, the appraiser must prvide a detailed explanatin) The cmparable sales that clsed within 90 days prir t the appraisal date must be as similar as pssible t the subject prperty In additin t at least three sales cmparables, tw active listing r pending sale cmparables are required in cmp psitin 4-6 r higher The listing and/r pending sale cmparables must have typical marketing times fr the area and must be similar t the subject prperty in size and sales price Listing cmps must be adjusted t reflect list t sales price ratis fr the market Pending sale cmps must be adjusted t reflect the cntract purchase price If the sales price is nt available, pending sale cmps must be adjusted t reflect typical list t sales price ratis FHA Underwriting Guidelines Mtive Lending. Page 10 f 75
PHOTOGRAPHS Phtgraphs are required fr all f the fllwing rms: Living rms Kitchens Bathrms Last Updated: Octber 20 th, 2014 HUD-OWNED PROPERTIES Appraisals are btained by the Management and Marketing (M & M) cmpany cntracted by HUD T btain the appraisal, cntact the M & M cmpany designated as the asset manager fr the prperty Asset manager cntact infrmatin is lcated in the prperty listing n the HUD Hmes Website. Maximum financing is calculated using the lwer f the purchase price r appraised value If the purchase price is higher than the appraised value and the brrwer wishes t cntinue with the transactin, he r she must pay the difference with acceptable verified assets. A secnd appraisal supprting the purchase price may nt be btained. Appraisals are valid fr 120 days The riginal appraisal rdered by the cmpany marketing the prperty is used at n cst t the brrwer. If the appraisal is mre than 120 days ld, a new appraisal is required If the new appraised value is lwer than M & M appraisal, brrwers may prceed with the transactin with n adjustment t the sales price r may withdraw the ffer t purchase and receive a full refund f earnest mney depsit. Brrwers wh chse t prceed with the purchase must pay the difference between the sales price and appraised value plus the minimum dwn payment and required clsing csts and pre-paid expenses If the new appraised value is higher than the M & M appraisal, the sales price will nt be adjusted, and the LTV will be calculated using the lwer f the riginal appraised value r sales price SECOND APPRAISAL REQUIREMENTS SALES WITHIN 180 DAYS OF SELLER ACQUISITION A secnd appraisal is required if any f the fllwing are true, regardless f any prperty flipping exemptin that may apply: Resale f a prperty is between 91 and 180 days fllwing seller acquisitin and resale price is 100% r mre abve the seller acquisitin cst Secnd appraisal must be cmpleted n the apprpriate full appraisal frm If the value indicated n the secnd appraisal is mre than 5% lwer than the value indicated n the riginal appraisal, the lwer value f the secnd appraisal must be used t calculate maximum lan amunts and LTV/CLTV If the value indicated n the secnd appraisal is n mre than 5% less than the value indicated n the riginal appraisal r the value indicated n the secnd appraisal exceeds the value n the riginal appraisal, the value f the riginal appraisal is used t calculate maximum lan amunts and LTV/CLTV Fr additinal requirements and restrictins, refer t Prperty Flipping Brrwers are nt permitted t pay fr the secnd appraisal FHA Underwriting Guidelines Mtive Lending. Page 11 f 75
Last Updated: Octber 20 th, 2014 APPRAISAL PORTABILITY The riginal appraisal must be prvided t Mtive Lending and n new appraisal may be rdered unless ne f the fllwing is true: The underwriter determines the appraisal cntains material deficiencies and it des nt meet FHA s requirements and standards r The appraisal was perfrmed by an appraiser wh is n Mtive Lendings ineligible appraiser list r The riginal lender is nt transferring the appraisal in a timely manner, and the brrwer stands t suffer financial lss because the lan cannt clse in a timely manner Fr additinal appraisal prtability guidance, refer t the fllwing resurces: Instructins fr transferring a Mtive Lending appraisal t anther lender, refer t the Appraisal Prtability, FHA Mrtgagee Letter 2009-29 APPRAISAL RESOURCES FHA Residential Appraisal Requirements Appendix D, Attachment t FHA Mrtgagee Letter 2005-48 Revisins t Appraisal Prtcl Appraiser Independence, FHA Mrtgagee Letter 2009-28 Appraisal Prtability, FHA Mrtgagee Letter 2009-29 Appraisal Validity Perids, FHA Mrtgagee Letter 2009-30 Secnd Appraisal Reprting Requirements, FHA Mrtgagee Letter 2009-48 Appraisal Perfrmance Standards and Sanctins, FHA Mrtgagee Letter 2009-41 Adptin f the Appraisal Update and/r Cmpletin Reprt, FHA Mrtgagee Letter 2009-51 HUD REO Appraisal Validity Perid and Secnd Appraisals, FHA Mrtgagee Letter 2010-08 ASSETS Acceptable surces f funds t clse and dcumentatin requirements are described belw. Fr TOTAL Screcard Apprve r Accept respnses, refer t the findings fr the number f required statements. AGE OF ASSET STATEMENTS As cnditined fr by Ttal Screcard/DU findings. Fr manually apprved lans, mst recent 60 days wrth f statements. LARGE DEPOSITS Purchase Transactins: HUD requires verificatin f any ne depsit r aggregate f depsits (nt including payrll direct depsits) that exceeds 2% f the sales price Refinance Transactins: Mtive Lending des nt require verificatin f large depsits CASH SAVED AT HOME Brrwers wh d nt have bank accunts may use cash saved at hme Allwable amunt is determined n a case-by-case basis and decisin is based n brrwer s verall incme and bligatins and the length f time it tk the brrwer t save the mney Brrwer must explain in writing the length f time ver which the funds were saved and hw the funds were accumulated FHA Underwriting Guidelines Mtive Lending. Page 12 f 75
Last Updated: Octber 20 th, 2014 Brrwer must prvide evidence the funds were depsited int a bank accunt prir-t-clsing CHECKING AND SAVINGS ACCOUNTS All large depsits must be verified, regardless f whether the funds are required fr clsing. Large depsits are designated n a case-by-case basis and are nn-payrll depsits that are unusual and high fr the brrwer s incme and bligatins Manually underwritten lans require ne f the fllwing: A VOD and mst recent bank statement r Tw mst recent mnths bank statements (if the bank statements d nt shw the previus mnth s ending balance, three bank statements are required) When ne r mre f the bank accunt wners is nt a brrwer n the lan, the nn-brrwing jint accunt wner(s) must prvide a letter stating the brrwer has access t the funds. Hwever, if the accunt is jint with a nn-brrwing spuse and there are n additinal jint accunt wners, an access letter is nt required Nn-Sufficient Funds (NSFs) shwing n a brrwer s bank statement(s) are generally an indicatin f the brrwer s financial mismanagement and are cnsidered a negative layer f risk. Written explanatins are required. Overdraft prtectin withdrawals are generally cnsidered a neutral factr and are nt cnsidered negatively. Overdraft prtectin funds are frequently unsecured lans r lines f credit and may nt be used fr the brrwer s EMD r funds t clse unless they are transferred frm anther asset accunt held by the brrwer and d nt cnstitute an unsecured lan r line f credit. EARNEST MONEY DEPOSITS All earnest mney depsits must be verified in accrdance with the large depsit requirements Acceptable verificatin f EMD must be ne r mre f the fllwing: Cpy f the brrwer s canceled check A cpy f the bank statement r internet printut shwing the check cleared the brrwer s bank accunt Certificatin frm the EMD hlder and separate evidence f surce f funds If the EMD was a gift, it must be frm an acceptable surce and must be dcumented with bth f the fllwing: A fully executed gift letter and Evidence f the dnr s withdrawal f funds (Cpy f the canceled check, bank statement shwing check cleared r bank-validated withdrawal slip) PROCEEDS FROM THE SALE OF A PERSONAL ASSET The brrwer may sell a car, mtrcycle, recreatinal vehicle, jewelry, stamp, cin, r baseball card cllectin, etc. The fllwing dcumentatin is required: Evidence f brrwer s wnership f the asset and Estimate f the asset s value and Bill f sale and Cpy f purchaser s check and Evidence f depsit f purchaser s check int brrwer s bank accunt PROCEEDS FROM THE SALE OF REAL ESTATE HUD-I Settlement Statement required FHA Underwriting Guidelines Mtive Lending. Page 13 f 75
Last Updated: Octber 20 th, 2014 REAL ESTATE COMMISSION FROM SUBJECT PROPERTY Real estate cmmissin frm the subject prperty may be used as funds t clse when the brrwer is the licensed real estate agent fr the prperty A family member wh is a licensed real estate agent fr the subject prperty may give the brrwer cmmissin received frm the subject prperty. The fllwing dcumentatin is required: Fully executed gift letter HUD-I settlement statement reflecting credit f the family member/realtr s cmmissin Rati requirements are subject t Mtive Lendings discretin n brrwers whse funds t clse are derived frm a gift, grant r eligible dwn payment assistance prgram RENT CREDIT Prvide a cpy f the rent-with-ptin-t-buy agreement that clearly defines the terms and cnditins, including rent credit The prtin f rent credit that exceeds fair market rents fr the area may be credited tward brrwer s funds t clse (i.e. If the mnthly fair market rent fr the prperty is $750 and the ptin-t-buy agreement indicates a mnthly rent credit f $800, then $50 times the number f payments the brrwer has made may be credited t the brrwer) Fair market rents fr the area are estimated by the appraiser If the brrwer lived in the prperty rent-free r paid rent belw fair market value, the difference between rent paid and fair market rent must be treated as an inducement t purchase resulting in a dllar-fr-dllar reductin in the sales price befre calculating the maximum LTV (i.e. If the mnthly fair market rent is $500 and the brrwer paid $350 in mnthly rent, then $150 times the number f payments the brrwer made must be deducted frm the purchase price befre the maximum purchase LTV is calculated) RETIREMENT SAVINGS Dcument balances with the mst recent statement Dcument the terms and cnditins fr withdrawal and/r brrwing, regardless f whether the brrwer is using funds t clse When funds may nly be withdrawn in the event f the brrwer s retirement r death, the funds may nt be used as reserves When used as reserves, 60% f the vested accunt balance may be used When funds are used t clse n the subject lan, prf f liquidatin is required, regardless f TOTAL Screcard respnse SAVINGS BONDS Prvide cpies f bnds indicating wnership Prvide evidence f redemptin value Prvide evidence prceeds were depsited t brrwer s bank accunt SECURED LOANS Brrwed funds are acceptable, prvided they are fully secured by investment accunts r real prperty such as stcks, bnds, real estate, etc. FHA Underwriting Guidelines Mtive Lending. Page 14 f 75
Last Updated: Octber 20 th, 2014 The secured lan must be btained thrugh an independent third party lender. Interested parties (sellers, realtrs, etc.) may nt supply lans, even when the lan is secured by an asset Unacceptable brrwed funds include, but are nt limited t, signature lans, cash advances n credit cards, lans secured by husehld gds such as furniture, etc. STOCKS AND/OR BONDS Prvide mst recent tw mnths brkerage statements Prf f liquidatin is nt required with Ttal Screcard Apprve r Accept respnse Prf f liquidatin is required fr manual underwriting apprval SWEAT EQUITY Nt allwed HELPFUL LINKS ASSETS HUD Handbk 4155.1, 5.B AUS TOTAL SCORECARD SYSTEM A TOTAL Screcard respnse is required fr all lan purpses except Streamline Refinances. BORROWERS ELIGIBLE AND INELIGIBLE ELIGIBLE BORROWERS U.S. Citizens with a valid U.S. Scial Security Number Permanent Resident Aliens Cpy f permanent residency dcument issued by the Bureau f Citizenship and Immigratin Services within the Department f Hmeland Security required Evidence f a valid Scial Security Number required Nn-Permanent Resident Aliens, prvided they: Have a valid SSN and Occupy the prperty as a principal residence and Are eligible t wrk in the U.S. Cpy f Emplyment Authrizatin Dcument (EAD) issued by the Department f Hmeland Security required. There must be at least ne remaining year f authrizatin t wrk unless the brrwer has a previus histry f EAD renewal Only brrwers having refugee r asylee status granted by the USCIS are autmatically eligible t wrk in the United States. Therefre, refugee r asylee brrwers are nt required t prvide an EAD Inter vivs r living revcable trusts, prvided the individual brrwer fulfills all f the fllwing requirements: Remains a beneficiary f the trust Occupies the prperty as a principal residence The trust must appear n the mrtgage r deed f trust FHA Underwriting Guidelines Mtive Lending. Page 15 f 75
Last Updated: Octber 20 th, 2014 Individual brrwers are nt required t appear n the mrtgage, deed f trust, prperty deed r title unless state law requires it All brrwers must appear n the nte with the trust Attrney pinin letter required In Califrnia nly, in lieu f the attrney pinin letter, a Califrnia Trust Certificate, is permitted INELIGIBLE BORROWERS Any brrwer nt listed as eligible, including but nt limited t: Any individual withut a valid U.S. Scial Security Number Individuals with a U.S. Individual Taxpayer Identificatin Number (ITIN) - An ITIN is frmatted like a SSN but begins with 9. N valid SSN begins with 9 Investrs Freign natinals and brrwers with diplmatic immunity Illegal aliens HELPFUL LINKS AUS HUD Handbk 4155.1, 4.A.1-8 BUY-DOWNS Ineligible CASE NUMBER ASSIGNMENT/TRANSFER BORROWERS The brrwer s name n the case number assignment must match the brrwer s name n the nte and mrtgage The fllwing name discrepancies are the nly acceptable variatins: James Everett Brwn, James E. Brwn, James Brwn William Smith Jr., William Smith, William R. Smith, William Ryan Smith, Jr., William Ryan Smith, William R. Smith, Jr. The fllwing name discrepancies must be reslved prir t the lan clsing (this list is nt all-inclusive and name discrepancies are reviewed n a case-by-case basis): Name discrepancies due t marriage (Case number shws Mary Smith, but dcumentatin and/r the nte and mrtgage shws Mary Jnes) Hyphenated name discrepancies (Case number shws Bill Smith, but dcumentatin and/r the nte and mrtgage shws Bill Smith-Jnes) Middle name discrepancies (Case number shws Bill Jhn Smith, but dcumentatin and/r the nte and mrtgage shws Bill Rbert Smith) First name discrepancies (Case number shws Bill Smith, but dcumentatin and/r the nte and mrtgage shws William Smith) Last name prefix discrepancies (Case number shws Bill St. Pete, but dcumentatin and/r the nte and mrtgage shws Bill Stpete) PROPERTY ADDRESSES FHA case numbers are assigned t the prperty and remain with the prperty, regardless f brrwer changes after a prir sales transactin fr the prperty fails t FHA Underwriting Guidelines Mtive Lending. Page 16 f 75
Last Updated: Octber 20 th, 2014 clse. Fr additinal infrmatin, see Case Number Expiratin The prperty addresses n the appraisal, case number assignment, fld certificatin, mrtgage, and nte must be identical. Hwever, abbreviatin f Street, Rad, etc. is acceptable, even if Street r Rad is fully spelled in anther dcument. This is the nly acceptable variance Use the standardized USPS address. Cmpare the USPS address t the legal descriptin n the title cmmitment and use the city in the legal descriptin if that differs frm the USPS address ORDERING CASE NUMBERS Case numbers may nt be rdered unless the Mtive Lending has received a cmpleted applicatin, case # request frm, and the brrwer has a prperty Mtive Lending must certify in FHA Cnnectin that at the time f requesting a case number they have an active lan applicatin fr the subject brrwer and prperty Old case numbers may nt be used t circumvent new FHA requirements Duplicate case numbers may nt be rdered t circumvent using an appraisal already perfrmed fr the subject prperty Case numbers must be rdered and received prir t the appraisal effective date unless ne f the fllwing exceptins applies: Appraisal was riginally rdered fr a cnventinal lan that subsequently cnverted t an FHA lan r Appraisal is fr a HUD REO prperty r Appraisal was rdered fr a gvernment guaranteed lan such as a VA lan that subsequently cnverted t an FHA lan Dcumentatin f prir nn-fha lan type required Case validatin warnings must be reslved and duplicate case numbers may nt be rdered t reslve a duplicate address, circumvent the case transfer requirement r any ther case validatin warning HUD will nt assign a Streamline refinance case number until the lan being refinanced meets all f the fllwing seasning requirements: 210 days have passed since the clsing date f the FHA lan being refinanced and The brrwer has made at least six payments n the FHA lan being refinanced and At least six full mnths have passed since the first payment due date f the FHA lan being refinanced FHA des nt permit rdering a case number as a rate and term refi t circumvent these requirements and FHA will nt revise a case assigned as a rate and term r cash-ut t a Streamline refinance. Beginning April 18, 2011, FHA will begin aut-canceling case numbers fr which there has been n activity within the mst recent six mnths since the last actin in FHA Cnnectin. If there has been nt activity in the mst recent six mnths, the nly case numbers that will nt be cancelled are thse fr which the upfrnt mrtgage insurance premium has been paid r an appraisal update has been entered in FHA Cnnectin within the mst recent six mnths. The fllwing FHA Cnnectin activities are the nly items FHA cnsiders Last Activity : Case number assignment Appraisal lgging cmpleted FHA issued firm cmmitment FHA has received the insurance applicatin and subsequent updates FHA has issued a Ntice f Return (NOR) and/r received additinal insuring resubmissins FHA Underwriting Guidelines Mtive Lending. Page 17 f 75
CASE NUMBER TRANSFERS Case numbers are transferred thrugh FHA Cnnectin DE lender must perfrm case number transfer Cmplete the required infrmatin: FHA Case Number New Originatr ID New Spnsr/Agent ID, if applicable Date f Assignment Letter Last Updated: Octber 20 th, 2014 CASH RESERVES All reserves included in the TOTAL Screcard data must be dcumented Cash reserves may nt include funds received as a gift, regardless f the surce 60% f the vested balance f a 401k may be used - Must dcument terms and cnditins fr withdrawal and/r brrwing and that the brrwer is eligible fr withdrawals 3 TO 4-UNIT PROPERTIES 3 mnths PITI is required n all 3 t 4-unit transactins, regardless f TOTAL Screcard findings NON-TRADITIONAL CREDIT Is nt allwed FEWER THAN TEN PAYMENTS REMAIN ON EXCLUDED DEBT Substantial reserves are a majr cmpensating factr when excluding installment debts with fewer than ten remaining payments CLOSING COSTS ALLOWABLE/NON-ALLOWABLE CLOSING COSTS Brrwers may pay custmary and reasnable clsing csts, subject t the fllwing limitatins: Cmmitment and/r lck-in fees may nly be charged when the interest rate and discunt pints, if any, are guaranteed t the brrwer in writing fr a minimum f 15 days Fees and charges must be reasnable and custmary and cmply with all Federal, State and lcal regulatins and predatry lending rules Brker Fees: Lenders may nt charge bth an riginatin fee and a brker fee A brker fee may nly be charged if the brrwer pays the fee directly t a mrtgage brker and the brrwer independently engages a mrtgage brker exclusively t seek financing and pays the brker directly. The mrtgage brker cannt be the same as the riginating lender and the lending institutin may nt pay the brker fee Brkers may charge nly thse discunt pints required t buy dwn the lan s interest rate The discunt pints charged must be reasnable and custmary FHA Underwriting Guidelines Mtive Lending. Page 18 f 75
CLOSING REQUIREMENTS Last Updated: Octber 20 th, 2014 PROPERTY ADDRESSES The prperty addresses n the appraisal, case number assignment, mrtgage, and nte must be identical. Hwever, abbreviatin f Street, Rad, etc. is acceptable, even if Street r Rad is fully spelled in anther dcument. This is the nly acceptable variance Use the standardized USPS address. Cmpare the USPS address t the legal descriptin n the title cmmitment and use the city in the legal descriptin if that differs frm the USPS address. CLOSING REQUIREMENTS In additin t the underwriter-perfrmed VOE, a verbal VOE must be submitted with the Verbal business prbability verificatins, active vice VOEs days f funding mail cnfirm cntinued fr f hurly, bx. the request brrwer nte If emplyment. the salaried, and cmpany must is still r cmmissin cnfirm emplyed If the cmpany the via brrwer incme a receptinist, representative brrwers is currently phne must states emplyed extensin be they cmpleted d and nt directry must perfrm within address and/r 10 verbal the representative indicates they d nt cmment n prbability f cntinued emplyment, indicate that respnse n Verbal Verificatin f Emplyment, Verificatins fr active-duty military brrwers may be in the frm f a military Leave and Earnings Statement (LES) dated within 30 days f clsing Verificatins fr self-emplyed brrwers must be within the mst recent 30 days and must be btained frm a third party such as a CPA, regulatry agency r the applicable licensing bureau and verificatin f the business phne listing and address via phne bk, the internet r directry assistance is als required Verificatin f emplyment/certificatin f nn-emplyment incme is required fr all lans prir-t-funding and must be cmpleted n Verbal Verificatin f Emplyment, Interest credit allwed - Lan must clse by the 5th calendar day f the mnth preceding the first payment date Interest abatement nt allwed In states where prperty taxes are paid in arrears, the tax pr-ratins paid by the seller at clsing may be used t reduce the brrwer s required cash-t-clse, and the brrwer may bring less than 3.5% t clsing. Lenders must always verify the brrwer has assets frm an acceptable surce that are at least 3.5% f the purchase price, regardless f the amunt f tax pr-ratins credited fr taxes paid in arrears. Fr rate and term and streamline refinance transactins, the existing escrw balance f the lan being refinanced may be credited t the brrwer, prvided the amunt f the escrw balance is nt netted frm the ttal payff amunt n the payff statement. The current escrw balance must be stated in the escrw sectin f the payff statement N mre than the escrw balance may be credited t the brrwer and the credit must be listed in the 200 sectin f the HUD-I Settlement Statement If the brrwer s escrw balance is deducted frm the ttal payff amunt n the payff statement and/r HUD-I Settlement Statement r the escrw balance is credited in the 100 sectin f the HUD-I Settlement Statement, FHA requires the maximum lan amunt fr streamline and rate and term refis t be re-calculated using the reduced principal balance after netting ut the escrw balance. Fr cash-ut refinance transactins, the existing escrw balance f the lan being refinanced may be credited t the brrwer, prvided the escrw balance is included n the payff statement and the amunt f the escrw credit des nt exceed the actual escrw balance. Fr cash-ut refinance transactins nly, in lieu f crediting the existing escrw balance t the brrwer in sectin 100 r 200 f the HUD-I Settlement Statement, the escrw may be netted frm the final payff figure. Fr FHA t FHA refinance transactins, the up-frnt mrtgage insurance premium refund FHA Underwriting Guidelines Mtive Lending. Page 19 f 75
Last Updated: Octber 20 th, 2014 may be credited t the brrwer in the 200, 800 r 900 sectin f the HUD-I Settlement Statement All clsing/funding cnditins must be cllected and prvided in the clsing package Any changes t lan amunt, upfrnt MIP, cash-t-clse, interest rate, pints, PITI, etc. must be reviewed by underwriting prir t clsing and disbursing lan Principal reductins are required when the ttal f lender and/r seller credits reflected n the HUD-I Settlement Statement exceeds the ttal f the actual clsing csts, pre-paid expenses and discunt pints. Principal reductins are required when the brrwer receives any cash back at a purchase transactin clsing Dcumented funds paid by the brrwer utside f clsing fr items such as the EMD, appraisal r credit reprt may be refunded t the brrwer at clsing Dcument funds paid utside f clsing with ne f the fllwing: Cancelled checks Bank statement shwing transfer f funds Mney rder receipts and evidence f surce f funds Clsing dcuments must be signed and ntarized n r befre the clsing date indicated n the clsing dcuments, regardless f the state in which the prperty is lcated and/r whether it s an escrw state A fully executed Scial Security Number Validatin, must be included in the lan package fr all brrwers ESCROW STATES Arizna Califrnia Hawaii Idah Mntana Nevada Oregn Utah Washingtn COMPENSATING FACTORS Rati guidelines may be exceeded when cmpensating factr(s) that supprt lan apprval are dcumented in the file. The remarks sectin f HUD Frm 92900-LT must cntain the underwriter s list f cmpensating factrs that were used t justify apprval. The fllwing items are FHA-recgnized cmpensating factrs: The brrwer has successfully demnstrated the ability t pay husing expenses equal t r greater than the prpsed mnthly husing expense fr the new mrtgage in the mst recent 12-24 mnths The brrwer makes a dwn payment 10% f the purchase price r fr refinance transactins, there is a strng equity psitin The brrwer has demnstrated the ability t accumulate savings and demnstrates a cnservative attitude tward the use f credit FHA Underwriting Guidelines Mtive Lending. Page 20 f 75
Last Updated: Octber 20 th, 2014 The brrwer s previus credit histry indicates the brrwer is able t devte a greater prtin f incme t husing expenses The brrwer receives dcumented cmpensatin r incme nt reflected in the effective incme n HUD Frm 92900-LT but directly affecting the ability t pay the mrtgage, including fd stamps and similar public benefits There is nly a minimal increase in the brrwer s husing expense The brrwer has substantial cash reserves (at least three mnths PITI) after clsing The brrwer has substantial nn-taxable incme that was nt grssed up when calculating the effective incme The brrwer has a ptential fr increased earnings, as indicated by jb training r educatin in the brrwer s prfessin The hme is being purchased as a result f relcatin f the primary wage-earner, and the secndary wage-earner has an established histry f emplyment, is expected t return t wrk, and reasnable prspects exist fr securing emplyment in a similar ccupatin in the new area. Available emplyment must be dcumented in the file N incme fr the trailing spuse is included in the ratis FHA Underwriting Guidelines Mtive Lending. Page 21 f 75
Last Updated: Octber 20 th, 2014 CONDOMINIUMS Cnds must be lcated in HUD-apprved prjects and the cnd prject must be listed as apprved in FHA s Cndminium Search Engine. When searching fr apprved cnds, make certain HRAP/DELRAP is selected in the Apprval Methd drp dwn f the search engine. Only streamline refinance transactins withut appraisals and purchases f HUD REO prperties d nt require evidence f cndminium apprval. Fr all FHA lan purpses, Mtive Lending will nt apprve r permit clsing f any cndminium-unit lcated in a prject that is listed as denied r ineligible. Additinally, the cndminium prject may nt have any characteristics listed in the Ineligible Prjects sectin f Cnventinal Underwriting Guidelines HRAP refers t cnds apprved by HUD thrugh the HUD Review and Apprval prcess DELRAP refers t cnds apprved by a DE lender thrugh the DE Lender and Apprval prcess Mtive Lending will nt apprve cndminium prjects thrugh DELRAP. If a cndminium prject s apprval expires r FHA remves the prject apprval after a case number is received, the lan may clse, prvided the case number crrectly indicates the cndminium prject ID and all case expiratin requirements defined in the Case Number Assignment/Transfer sectin f this dcument are met. Underwriters must certify the cndminium-unit is lcated within an apprved prject and the prject cntinues t meet FHA s requirements. If the Dcument Status indicates unrecrded r nt n file, frward all recrded Declaratins, By-Laws and Amendments t the attentin f Cnd Prcessing at the apprpriate HOC. Turn time is generally ne week befre the Dcument Status field is revised by FHA. An HO-6 hmewner s plicy in an amunt 20% f the appraised value is required. The mnthly payment must be included in the rati calculatin, and escrws must be cllected fr the annual premium at clsing If fld insurance is required, an NFIP plicy must be btained by the hmewner s assciatin. Brrwer purchased fld insurance is nt permitted unless the prperty is a site cndminium. Lans must be denied if the HOA des nt maintain adequate fld insurance, regardless f FHA cndminium apprval status In Clrad, HOA Assciatin Assessments have a super-lien psitin ver the first mrtgage. Fr bth cndminiums and PUDs, prvide the fllwing prir t clsing: A cpy f the HOA by-laws indicating HOA assessments are subrdinate t the first lien r A subrdinatin agreement executed by a representative f the HOA indicating that all current and future HOA assessments are subrdinate t the first lien mrtgage Cnds are ineligible unless at least 30% f the units within the entire prject are sld and the hmewners have been in cntrl f the Hmewner s Assciatin at least 12 mnths. Cnds are ineligible unless at least 51% f the units within the entire prject are nn-fha insured lans. SITE CONDOMIUMS Site cnds d nt require FHA apprval, prvided the prperty is a fully detached single-family site cnd Appraisal must be cmpleted n Fannie Mae Frm 1073 Cndminium appraisal frm Cnd rider must be included FHA Underwriting Guidelines Mtive Lending. Page 22 f 75
Sectin f the Act is 203(b) ADP cde is 431 (ARMS) r 734 Last Updated: Octber 20 th, 2014 CONDOMINIUM RESOURCES Cndminium Apprval Prcess fr Single-Family Husing, FHA Mrtgagee Letter 2011-22 FHA s Cndminium Mrtgage Insurance Webpage CONFLICT OF INTEREST Transactins in which the realtr and the brker are the same individual are ineligible. CREDIT HISTORY CREDIT INQUIRIES Inquiries within the mst recent 90 days must be explained in writing, regardless f Ttal Screcard respnse DEROGATORY CREDIT EXPLANATIONS Accept r Apprve respnses d nt require credit explanatin letters All refer respnse lans fr brrwers having dergatry credit must cntain a credit explanatin letter at the time f initial submissin. All f the fllwing must be explained: Late payments within the mst recent tw years Cllectins, charge-ffs, judgments, and public recrds, regardless f time frame NON-TRADITIONAL CREDIT REQUIREMENTS BORROWERS HAVE CREDIT SCORES Each credit reference must have at least a 12 mnth histry A jint trade line reprted n each brrwer s individual credit reprt is ne trade line Trade lines n which the brrwer is an authrized user may nt be cunted as a traditinal r nn-traditinal trade line Nn-traditinal credit may nt be used t ffset a brrwer s pr credit, regardless f whether r nt a credit scre exists Brrwers having fewer than three traditinal trade lines are ineligible fr 3 t 4-unit purchase r rate and term refinance transactins. Hwever, Streamline refinances f 3 t 4-unit prperties are permitted NON-TRADITIONAL CREDIT REQUIREMENTS OCCUPANT BORROWERS DO NOT HAVE CREDIT SCORES Nn-traditinal credit cannt be used t ffset any brrwer s pr credit. RENT VERIFICATION Rent verificatin must be dcumented with ne f the fllwing: 12 mnths canceled checks Verificatin f rent frm an apartment cmplex r management cmpany Bank statements shwing direct payment t the management cmpany, apartment cmplex r management cmpany Brrwers having fewer than three traditinal trade lines are ineligible fr 3 t 4-unit purchase FHA Underwriting Guidelines Mtive Lending. Page 23 f 75
Last Updated: Octber 20 th, 2014 r rate and term refinance transactins. Hwever, Streamline refinances f 3 t 4-unit prperties are permitted Ttal Screcard Apprve r Accept respnses may be hnred when ne brrwer has a credit scre but the ther des nt, prvided the brrwer with the credit scre will ccupy the prperty. If nly nn-ccupant c-brrwers have credit scres, the Apprve r Accept respnse must be dwngraded t a refer, And is ineligible fr financing with Mtive Lending. Nn-ccupant c-brrwers are nly permitted when the ccupying brrwer has sufficient credit references utlined abve, including a 12 mnth rental histry If the nn-ccupant c-brrwers d nt have scres, but the ccupying brrwers have credit scres, Ttal Screcard respnse requirements are based n the ccupant brrwer s credit scres. If the nn-ccupant c-brrwer s scres are lwer than the ccupant brrwer s scres, the rati guidelines and Ttal Screcard respnse requirements are based n the lwest credit scre fr all brrwers FHA prvides the fllwing guidance in establishing that a brrwer has sufficient references fr evaluating bill paying habits: Credit references must be reprted n a credit vendr generated Mrtgage Credit Reprt, If the brrwer rents frm an individual, 12 mnths canceled are checks required, even if rental verificatin is als prvided. Brrwer may nt have any rental husing payments 30 days in the mst recent 12 mnths FORECLOSURES A brrwer with a freclsure r deed-in-lieu f freclsure within the mst recent *three years is ineligible fr FHA financing. An LOE dcumenting significant extenuating circumstances must exist and there must be evidence f re-established gd credit. If the freclsed lan was an FHA lan, the three year time frame is measured frm the date FHA paid the insurance claim. Defaulted time share lans are nt cnsidered freclsures. If the lan receives a Ttal Screcard Apprve r Accept respnse and the brrwer had a freclsure within the mst recent three years, the lan must be manually dwngraded t a refer respnse Full manual underwrite is required and the file must be dcumented accrding t manual underwriting requirements. If the brrwer s mrtgage was included in the Chapter 7 Bankruptcy, and the credit reprt reflects a freclsure but des nt indicate the freclsure cmpletin date, a letter frm the servicer is necessary t determine the freclsure date. FHA des nt permit lenders t use the bankruptcy discharge date. The brrwer is eligible fr FHA financing three years frm the date the servicer indicates the freclsure was financed. If the brrwer s mrtgage was included in the Chapter 7 Bankruptcy and the credit reprt des nt reflect a freclsure, a letter frm the servicer must indicate the mrtgage was paid in full, that n additinal liabilities exist and there was NO freclsure. The brrwer is eligible fr FHA financing tw years frm the date f the Chapter 7 Bankruptcy discharge, prvided all ther FHA requirements are met. 120+ day mrtgage late(s) and/r NOD reprting n credit are generally treated as freclsures. Hwever, exceptins will be cnsidered n a case by case basis, with AUS apprval and at underwriter discretin based upn past credit perfrmance and verall assessment f file. *Fr qualificatin requirements fr standard extenuating circumstance exceptins, see Extenuating Circumstance sectin. Exceptins with nly 12 mnths seasning may be FHA Underwriting Guidelines Mtive Lending. Page 24 f 75
Last Updated: Octber 20 th, 2014 cnsidered; See Back t Wrk Initiative-Extenuating Circumstance sectin fr requirements n case numbers assigned 8/15/2013 thrugh 9/30/2016. CHAPTER 7 BANKRUPTCIES A brrwer with a Chapter 7 Bankruptcy discharged less than *tw years is ineligible unless an Apprve r Accept respnse is received thrugh the Ttal Screcard System and significant extenuating circumstances exist. Lans fr brrwers with bankruptcies discharged less than ne year will nt be cnsidered, regardless f Ttal Screcard respnse If the lan receives a Ttal Screcard Apprve r Accept respnse and the brrwer had a bankruptcy discharged within the mst recent tw years, the lan must be manually dwngraded t a refer respnse Full manual underwrite is required and the file must be dcumented accrding t manual underwriting requirements. If the brrwer s mrtgage was included in the Chapter 7 Bankruptcy, and the credit reprt reflects a freclsure but des nt indicate the freclsure cmpletin date, a letter frm the servicer is necessary t determine the freclsure date. FHA des nt permit lenders t use the bankruptcy discharge date. The brrwer is eligible fr FHA financing three years frm the date the servicer indicates the freclsure was financed. If the brrwer s mrtgage was included in the Chapter 7 Bankruptcy and the credit reprt des nt reflect a freclsure, a letter frm the servicer must indicate the mrtgage was paid in full, that n additinal liabilities exist and there was NO freclsure. The brrwer is eligible fr FHA financing tw years frm the date f the Chapter 7 Bankruptcy discharge, prvided all ther FHA requirements are met. *Fr qualificatin requirements fr standard extenuating circumstance exceptins, see Extenuating Circumstance sectin. Exceptins with nly 12 mnths seasning may be cnsidered; See Back t Wrk Initiative-Extenuating Circumstance sectin fr requirements n case numbers assigned 8/15/2013 thrugh 9/30/2016. CHAPTER 13 BANKRUPTCIES Dcument at least ne year int the payut plan has elapsed. Dcument all required payments have been made n time If brrwer is still in repayment, btain curt permissin t enter int the new mrtgage If the brrwer is still in repayment, include the Chapter 13 payment in the debt rati If the lan receives a Ttal Screcard Apprve r Accept respnse and the brrwer had a bankruptcy discharged within the mst recent tw years, the lan must be manually dwngraded t a refer respnse Full manual underwrite is required and the file must be dcumented accrding t manual underwriting requirements. JUDGMENTS Judgments must be paid in full prir t clsing unless bth f the fllwing items are prvided: Fully executed repayment agreement. Evidence timely payments have been made (Evaluated n a case-by-case basis generally fr a minimum 12-mnth perid) The payment must be included in the debt-t-incme ratis when qualifying the brrwer Judgments belnging t a nn-brrwing spuse are subject t all f the abve requirements when the brrwers live in r purchase a prperty lcated in a cmmunity prperty state All utstanding judgments n title must be remved prir-t-clsing FHA Underwriting Guidelines Mtive Lending. Page 25 f 75
Last Updated: Octber 20 th, 2014 Fr cash-ut refinances, prceeds may be used t payff utstanding judgments at clsing. Underwriter exceptin apprval required and exceptins are granted n a caseby-case basis. COLLECTIONS AND JUDGMENTS FOR CASE NUMBERS ORDERED ON OR AFTER OCTOBER 15, 2013 This guidance applies t all FHA prgrams with the exceptin f nn-credit qualifying streamline refinances. Medical cllectins and charge ff accunts are excluded frm this guidance. Dcumentatin Requirements: Cllectin Accunts and Judgments Lans receiving Ttal Apprve/Eligible findings: Since Ttal Screcard takes all negative credit accunts int cnsideratin, there are n dcumentatin r letter f explanatin requirements fr lans with cllectin accunts r judgments. Manually underwritten lans: The lender must dcument reasns fr apprving a mrtgage when the brrwer has cllectin accunts f judgments. Regardless f the amunt f utstanding cllectin accunts r judgments, the lender must determine if the cllectin accunt r judgment was a result f: The brrwer s disregard fr financial bligatins; The brrwer s inability t manage debt; r Extenuating circumstances The brrwer must prvide a letter f explanatin with supprting dcumentatin fr each utstanding cllectin accunt and judgment. The letter and supprting dcumentatin must be cnsistent with ther credit infrmatin in the file. Capacity Analysis-Cllectins Cllectins accunts dn t have t be paid ff, but a capacity analysis fr brrwers with an aggregate balance f $2000 r mre is required as described belw. Unless prhibited by state law, cllectin accunts f a nn-brrwing spuse in a cmmunity prperty state are included in the cumulative balance. Medical cllectins and charge ff accunts are excluded frm this guidance and d nt require reslutin. Capacity analysis includes any f the fllwing actins: Accunts paid ff in full r at time f clse; funds used t payff must be verified as frm an acceptable surce Brrwer makes payment arrangements with the creditr. Terms f payment plan must be verified with letter frm creditr, r stated n credit bureau. The mnthly payment must be included in the debt rati. If evidence f a payment arrangement is nt available, calculate the payment using 5% f the utstanding balance f each cllectin and include in the debt rati. Regardless f the Ttal Screcard findings (Apprve/Eligible r Refer), the payment amunts must be included in the brrwer s debt rati. FHA Underwriting Guidelines Mtive Lending. Page 26 f 75