FHA 203(b) & 234(c) Introduction Eligible Products and Product Codes Maximum Loan Amount Minimum Loan Amount General Requirements This Product Guide outlines policies for Federal Housing Administration (FHA) programs with case numbers assigned on or after September 14, 2015, purchased by Fifth Third Mortgage Company in its Channel. An FHA loan allows for the refinance or purchase of a home with a low down payment and more flexibility than a conventional mortgage. FHA primarily serves people who cannot provide a conventional down payment or otherwise do not qualify for PMI. For any issues not specifically addressed in this Product Guide, refer to the FHA Credit Policy Overlays or the HUD 4000.1. UNIFI Product Codes Closing Doc Set Term Fixed 15 400 VMP 1R 15 years Fixed 30 401 VMP 1R 30 Years The maximum loan amount for an FHA Insured Mortgage is determined by individual county limits. The individual county limits can be accessed by clicking on the following link: HUD County Limits. Note: Refer to the FHA to FHA Refinances Exceeding Loan Limits section for additional guidance for loan amounts exceeding HUD County Limits. None Maximum LTV/CLTV and Minimum FICO Program Eligibility Purchase LTV CLTV With Secondary Financing FICO 1-4 Unit Primary 96.5% 1 Unlimited 2 620 Rate/Term Refinance LTV CLTV With New or Existing Secondary Financing FICO 1-4 Unit Primary 97.75% 1,3 97.75% 2,3 620 Simple Refinance LTV CLTV With Existing Secondary Financing FICO 1-4 Unit Primary 97.75% 3 97.75% 2,3 620 2 1 For Internal Use Only 09/14/2015
Program Eligibility Streamline Refinance without Appraisal LTV CLTV With Existing Secondary Financing FICO 1-4 Unit Primary Unlimited 125% 620 2 Cash Out LTV CLTV FICO With New Secondary Financing With Existing Secondary Financing 1-4 Unit Primary 85% 1 85% 85% 1 620 ¹Maximum LTV cannot exceed the FHA Mortgage Limits. Refer to: HUD County Limits for individual county limits. 2 Maximum CLTV permitted when secondary financing is an approved FTMC Community Second 3 Maximum 97.75% LTV/CLTV provided occupany requirements are met 4 There is no minimum FICO for non-credit qualifying streamline refinances where Fifth Third is the current Servicer Maximum LTV Calculation Note: Streamline Refinances without appraisals are exempt from the Maximum Statutory Loan Limits established by FHA. The maximum loan to value (LTV) is calculated by dividing the loan amount by the adjusted value. Adjusted value for purchase transactions is the lesser of the appraised value OR the adjusted sales price o Adjusted sales price is the sales price minus any inducements to purchase Repair costs may be added to the sales price before calculating the mortage provided all of the following is met: Repairs are required by the appraiser to meet HUD s MPR AND Repairs are paid for by the Borrower AND Sales contract or addendum reflects the Borrower as the responsiple party for payment and completion of the repairs The maximum amount of repair costs that may be added to the sales price is the lesser of the following: Amount by which the value of the Property exceeds the sales price OR Appraiser s estimate of repairs OR Amount of the contractor s bid Adjusted value for refinance transactions is determined by the property acquirisition date o For properties acquired less than 12 months from the case number assignment date, adjusted value is the lesser of Original sales price plus any documented improvements made since purchase OR Appraised value o For properties acquired more than 12 months from the case number assignment date, adjusted value is the appraised value Note: Properties acquired within 12 months through inheritance or gift by a family member may use the appraised value. Occupancy Primary Residence Investment Property Second Home Eligible Ineligible Ineligible 2 For Internal Use Only 09/14/2015
Program Eligibility Acceptable AUS Findings Purchase and Non-Streamline Refinances Manual Underwrite Total Scorecard Accept (LP or DU) File must be Manually Underwritten if: Total Scorecard returns a Refer OR Total Scorecard returns an Accept but loan requires manual downgrade OR Transaction is a Streamline Refinance Ineligible Transaction Texas cash-out 50(a)(6) Good Neighbor Next Door 203(h) Home Mortgage Insurance for Disaster Victims Program Home Equity Conversion Mortgage (Reverse Mortgage) Ennergy efficient Mortgages (EEMs) Energy Rehab Loan Section 247 Single Family Mortgage Insurance on Hawaiian Home Lands Section 248 Indian Reservations and other Restricted Lands Section 223(e) Mortgage Insurance Program for Properties Located in Older, Declining Urban Areas FHA Short Refinance (Refinance of Borrowers in Negative Equity Positions) Back to Work Extenuating Circumstances Deed Restrictions (excludes age restricted subdivisions or projects meeting the requirements under the Fair Housing Act and FTMC approved Community Seconds) Credit Requirements FHA Total Scorecard Accept Manual Underwrite Minimum Credit Score 620 If a credit score is present on the credit report, the minimum FICO must be 620 When none of the occupant borrowers have credit scores, and TOTAL Scorecard renders an Accept/Approve, the loan must be manually downgraded to a Refer and the borrower(s) must be underwritten using non- traditional credit Maximum Debt-to-Income Per Total Scorecard Feedback Certificate 31%/43% Ratio Maximum debt ratio 50% with compensating factors Minimum Cash Reserves 1-2 Unit Primary Reserves are not required, but TOTAL Scorecard may consider it a compensating factor All reserves listed on the loan application must be documented in the loan file 3-4 Unit Primary 3 months reserves required 6 months reserves required determined by the Seller 1 month reserves required All reserves listed on the loan application must be documented in the loan file 3 For Internal Use Only 09/14/2015
Living and Land Trusts Required Rental History Minimum Borrower Contribution and Downpayment Requirement for Purchase Maximum Financing and Sales Contributions Borrower Paid Closing Costs Existing Subordinate Financing Reserves cannot be derived from a gift All reserves listed on the loan application must be documented in the loan file Reserves cannot be derived from a gift All reserves listed on the loan application must be documented in the loan file Ineligible 12 months rental history required for loans receiving a TOTAL Scorecard Refer Recommendation 0 X 30 in the most recent twelve months required The borrower must have a minimum investment of 3.5 % of the adjusted value. Refer to Maximum LTV Calculation for additional information. Closing costs, prepaids and other fees are not considered mortgage amount/cash investment calculation for purchase money mortgages o Closing costs may NOT be used to help meet the minimum 3.5% required investment Up to 6% in sales contributions may be in the form of any of the following contributions given by the seller or any other party involved in a mortgage transaction: o Loan discount points o Loan origination fees o Interest rate buydowns o Closing cost assistance o Payment of condominium fees o Down payment assistance o Monetary gifts o Personal property o UFMIP (entire payment must be paid at the time of closing, a partial payment is not acceptable) Contributions from sellers or other interested third parties to the transaction that exceed 6% of the sales price or other financing concessions must be treated as inducements to purchase, thereby reducing the amount of the mortgage The borrower may be charged customary and reasonable fees and charges The cost for any item charged to the borrower must not exceed the actual cost paid by the Seller, or charged to the Seller by the service provider Borrower cannot be charged a Tax Service Fee These costs may be used to meet the borrower s minimum investment requirement excluding any discount paid by the borrower Subordinate financing may remain in place as long as the 2 nd lien will be clearly subordinated to the new mortgage subject to LTV/CLTV restrictions and guidelines. In addition: The entire lien must be subordinated at refinance The Combined Loan to Value (CLTV) ratio must be calculated using the maximum accessible credit limit of the existing subordinate lien A copy of the note must be obtained to determine TLTV prior to approval (this applies to ALL refinances) Note: Subordinate financing must follow FHA guidelines New Secondary Financing The following information must be placed in the loan file: Documentation showing the amount of funds provided to the borrower for each transaction AND 4 For Internal Use Only 09/14/2015
Collateral Requirements Copies of the loan instruments for the endorsement binder If at any time multiple valuation products are obtained, the most comprehensive valuation must be utilized. Under no circumstance should a valuation be deleted from a loan file. All loans requiring an appraisal must adhere to the CoreLogic Collateral Manager Cascade. Appraisal Transfer Appraisals prepared for another financial institution are acceptable provided all of the following conditions are met: Appraisal MUST come directly from the previous financial institution o Borrower CANNOT provide appraisal Obtain written assurance that other lending institution, not the AMC, follows Appraisal Independence Guidelines in connection with the loan being originated It is an unaltered, original report The Seller verifies the report is signed and dated by the appraiser For appraisals ordered by a correspondent, closing in the name of a broker and subsequently transferred to the Seller are considered ordered by a broker and are unacceptable for lending purposes o A new appraisal showing the Seller as the client is required Condominium Procedures FHA Approved Projects Site Condominiums All FHA Streamline Refinances and FHA/HUD REOs **Under USPAP requirements, the appraiser may not change the name from the original lender/client** Note: Due to the case number being assigned to the subject property, at the borrower s request, the case number must be assigned for the new transaction using the Case Transfer function in the FHA Connection. Seller is responsible for ensuring the condominium project meets FHA requirements Refer to the FHA Credit Policy Overlays for additional information Project approval is not required for Site Condominiums. Must meet FHA s definition of a site condo listed in FTMC FHA Lending Manual. o Condominium Rider is required o Site Condos must be appraised on Individual Condominium Unit Appraisal Report (Fannie Mae 1073/Freddie Mac 465) o The Section of the Act for a Site Condo is 203(b) Project approval is not required. Paying off a Land Contract If the new FHA loan is to complete payment on a installment land contract, in which the borrower does not have title to the property, the new mortgage may be processed as either a purchase or refinance with maximum insured financing if the the borrower receives no cash at closing 5 For Internal Use Only 09/14/2015
Purchase Rate/Term Refinance Cash-Out Refinance Simple Refinance Streamline Refinance Refer to the HUD 4000.1 for purchase or refinance transation determination and additional information. Purchase money transactions ( purchases ) are used to finance the purchase of the subject property, as defined in a sales contract and purchase agreement executed by the borrower and property seller. Refer to the HUD 4000.1 for additional information. Rate and Term refers to a no cash-out refinance of any mortgage in which all proceeds are used to pay existing mortgage liens on the subject property and costs associated with the transaction. Refer to the HUD 4000.1 for additional information Cash-Out refers to a refinance when there are proceeds in excess of $500 after paying off any existing mortgage liens on the subject property and costs associated with the transaction. Refer to the HUD 4000.1 for additional information. Simple Refinance refers to a no cash-out refinance of an existing FHA-insured Mortgage in which all proceeds are used to pay the existing FHA-insured mortgage lien on the subject Property and costs associated with the transaction. This refinance type requires an appraisal. Streamline Refinances are designed to lower the monthly principal and interest payments on a current FHA insured mortgage and must involve no cash back to the borrower except minor adjustments, not to exceed $500. This refinance type requires limited Borrower credit documentation and underwriting AND does NOT use an appraisal. There are two different streamline refinance options available - Credit Qualifying and Non-Credit Qualifying. Credit Qualifying requires the Underwriter to perform a credit and capacity analysis of the Borrower Non-Credit Qualifying does NOT require any credit or capacity analysis Refer to the HUD 4000.1 for additional information. All Non-Credit Qualifying Streamline Refinances Not permitted to be run through TOTAL except under the following circumstance: Loans inadvertently run through TOTAL Scorecard may be processed as non-credit qualifying streamlines requiring no documentation to verify values submitted If the loan is run through TOTAL, the following is required: o Underwriter must enter their Direct Endorsement (DE) designation in FHA Connection AND o Verify that ZFHA is NOT listed as the Underwriter in FHA Connection Streamline Refinance with or without Appraisal (Credit Qualifying Verbal Verification of Employment: A Verbal Verification of Employment is not required. For all streamline refinance transactions, the maximum mortgage amount of the new loan cannot exceed the lesser of the Original principal loan amount obtained from the Refinance Authorization when obtaining the Case Number Assignment OR 6 For Internal Use Only 09/14/2015
and Non-Credit Qualifying) Outstanding principal balance (including up to 2 months interest minus the applicable UFMIP refund PLUS the new financed UFMIP that will be charged on the new refinance o The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may not include delinquent interest, late charges or escrow shortages A FHA loan that has been previously modified is eligible for a streamline refinance provided it meets all the requirements for a streamline refinance transactions. The outstanding balance of a modified loan may reflect amounts that were previously added to the loan balance to facilitate loss mitigation. This is acceptable as long as the new loan amount is calculated as required for streamline refinance transactions (may not exceed the lesser of the original loan amount or outstanding principal) and all other streamline refinance requirements are met. Streamline Refinance Exceeding HUD County Limits CLTV is based on the original property value obtained from the Refinance Authorization when obtaining the Case Number Assignment for streamline refinance transactions without an appraisal. Credit Qualifying A Credit Qualifying Streamline Refinance must be considered when the monthly mortgage payment will increase > Streamline 20% Refinance Required Documentation: Minimum FICO 620 The Underwriter must certify that the borrower is employed and has income at the time of application o Refer to the FHA Lending Manual for complete guidance on employment verification for ALL types of income received Credit report must be verified Funds to close must be verified Streamline refinance transactions may exceed the loan limits, but the maximum loan amount for the new mortgage cannot exceed the original principal balance of the existing FHA mortgage. All the following must be met: The new mortgage must be a refinance of an existing FHA-insured mortgage The maximum loan amount of the new FHA-insured mortgage, including all fees, closing costs, mortgage insurance premiums (MIP), interest, etc., must not exceed the original principal amount of the existing FHA-insured mortgage. Should the maximum loan amount (based on the original principal balance of the existing FHA mortgage) be insufficient to cover allowable interest, MIP, closing costs, fees, etc., the borrower shall provide cash to cover the costs that exceed the allowable maximum loan amount. The new FHA-insured mortgage may not have a term of more than 12 years in excess of the unexpired term of the existing FHAinsured mortgage The monthly payment due under the new FHA-insured mortgage is less than that due under the existing FHA-insured mortgage for the month in which the new FHA-insured mortgage is executed The mortgagee cannot require a minimum principal amount to be outstanding on the existing FHA-insured loan 7 For Internal Use Only 09/14/2015
HUD $100 Down Payment Incentive Eligibility: This program is not available in all states. If the property is eligible, the sales contract will indicate the borrower is making a reduced down payment of $100: Sales contract must be ratified within 120 days of the effective date of the appraisal Borrower must qualify for FHA financing Borrower must not have purchased a HUD REO property within the last 24 months The subject property must be a HUD home Must be owner occupied and live in the property for at least 1 year Sales Contract Requirements Only a fully executed contract is acceptable (Form HUD-9548) and must be signed by the Asset Manager or the Seller must not process the loan Sales contract must indicate a down payment of $100, and if the box is checked for a 203K or 203KS with repair escrow, the the loan is ineligible for purchase by FTMC For Your Protection Get a Home Inspection is required If applicable condominiums section 203(b) must be checked The amount of the repair escrow must be entered on line 4 of the REO Sales Contract Seller contributions must be listed on line 5 of the REO Sales Contract Loan Amount Closing Cost and Prepaids may not be included in the mortgage amount Maximum Loan Amount varies by county. Refer to the FHA connection website to determine the geographic mortgage limits. The total loan amount, including financed UFMIP cannot exceed 100% of the lesser of FHA AS IS value or sales price UFMIP may be financed as long as the total loan amount (base + UFMIP)does not exceed 100% of the lesser of the FHA AS IS value or sales price (see examples below) o If the base loan amount + UFMIP exceeds 100% of the lesser of FHA AS IS value or sales price, the UFMIP cannot be financed and the borrower must bring the funds to closing When any required repair costs are included in the loan amount calculation, the maximum LTV is 110% of the appraised value o o Only the repairs that bring the home up to FHA minimum property standards are acceptable Repairs may not exceed $5000, and must be indicated on the purchase agreement and appraisal Homes needing more than $5000 in repairs would be considered a 203K rehabilitation loan Example A Appraised Value: $ 100,000 Purchase Price: $ 100,000 Down Payment: $ 100 Base Loan amt: $ 99,900 UFMIP: $ 1748.25 (1.75) 8 For Internal Use Only 09/14/2015
L/A plus UFMIP: $ 101,648.25 LTV Calculation: $99,900 (Loan amount) divided by $100,000 (appraised value) = 99% LTV LTV Calculation: $101,648 (loan amount + UFMIP)divided by $100,000 (appraised value) = 101%LTV In this example the UFMIP cannot be financed since including the UFMIP would exceed 100% LTV Example B Appraised Value: $ 100,000 Purchase Price: $ 95,000 Down Payment: $ 100 Base Loan amt: $ 94,900 UFMIP: $ 1660.75 (1.75) L/A plus UFMIP: $ 96,560.75 LTV Calculation: $94,900 (Loan amount) divided by $100,000 (appraised value) = 95% LTV LTV Calculation: $96,560 (loan amount + UFMIP)divided by $100,000 (appraised value) = 97%LTV In this example the UFMIP can be financed since the UFMIP would exceed 100% LTV Sales Incentives HUD may contribute up to 3% of the sales price towards borrowers allowable closing costs. Only the actual amount will be credited at closing. (Excess funds may not be used for prepaids) Borrower may not receive any cash back at closing. Assets Assets needed for closing must be verified and documented per AUS. The $100 down can come from any FHA eligible source, including gift funds. Appraisal/Property A HUD REO appraisal is provided by the Asset Manager and is used at no cost to the borrower. REO appraisals are good for 120 days from the effective date of the appraisal. The expiration date of an REO appraisal may be extended IF the contract is still valid, AND the original REO appraisal has not yet expired. The Underwriter may grant a 30 day extension to accommodate closing OR order an appraisal update report. The appraisal update must be received prior to the original appraisal expiring. If the underwriter is going to extend the appraisal expiration for an additional 30 days, closing must occur within 150 days of the effective date of the original report. This is done by adjusting the expiration date on the Conditional Commitment HUD form 92800.5b. The property inspection report should be provided by the Asset Manager confirming the systems check. Note: For guidance on when a new appraisal MUST be ordered see FHA Lending Manual. 9 For Internal Use Only 09/14/2015
If the appraisal requires repairs, an escrow must be established. Form HUD-92051 Compliance Inspection Report or FNMA 1004D Appraisal Update must be complete before the escrow funds will be disbursed. Generally all repairs are to be completed within 90 days of closing. Condominiums do not require Condo Desk approval. Ineligible Property Types: 3-4 unit properties Co-op s Working Farm, ranch or orchard FHA Amendatory Clause This addendum is not required and will not be executed on HUD sales. HUD homes are exempt from the clause. FHA Case Number A new case number must be ordered on all HUD REO transactions. When ordering a FHA case number through FHA Connection, Real Estate Owned without appraisal must be selected. Prior REO must be indicated and the prior case number included. Additional information on this program can be found at: $100 Down HUD Homes, FAQ and REO Webinar Upfront Mortgage Insurance Annual Mortgage Insurance Premium All (Except for Streamlines & Simple Refinances Specified Below) 1.75% All Streamline Refinances of Loans Previously Endorsed on or before May 31, 2009 (Regardless of the Base Loan Amount) 0.01% In addition to the UFMIP, certain mortgages require the payment of an annual premium. The percentage amount of the annual premium is based upon the LTV and the term of the mortgage as shown in the following chart: Loan Amounts $625,500 LTV Term > 15 years LTV Term 15 years 95% 80bps 78% 45bps > 95% 85bps 78.01-90% 45bps 10 For Internal Use Only 09/14/2015
> 90% 70bps Loan Amounts > $625,500 LTV Term > 15 years LTV Term 15 years 95% 100bps 78% 45bps > 95% 105bps 78.01-90% 70bps > 90% 95bps All Streamline and Simple Refinances of Loans Previously Endorsed on or before May 31, 2009 (Regardless of the Base Loan Amount) LTV Term > 15 years LTV Term 15 years All 55bps 78% None > 78% 55bps Pricing Fannie Mae (DU) Escrows Required on all LTV s Extended Lock Available up to 120 days Purchase transactions ONLY Temporary Buydowns 2-1 Temporary Interest Rate Buydowns are only allowable on: Fixed Rate Purchase The loan must be underwritten at the Note Rate Buydown funds may be paid from: The seller The borrower Any other interested party Funds from the seller or any other interested third party are considered seller contributions, and must be included in the 6% limit on seller contributions 11 For Internal Use Only 09/14/2015