The information contained in this section represents exceptions to the Standard Guidelines of Freddie Mac or Fannie Mae. In some instances, the Investor has also included a clarification of our interpretation of those Agency guidelines. Conventional loans should be underwritten to the standards and guidelines of Freddie Mac or Fannie Mae unless indicated otherwise in this section or the individual product.
All forms of title vesting acceptable to FNMA/FHLMC.
Living ("inter vivos") trusts must comply with local state regulations and the following requirements to be eligible for financing:
To be eligible the borrower must be:
The settlor, or the person who created the trust, and
The beneficiary, or the person who is designated to benefit from the trust, and
The trustee, or the person who will administer the trust for the benefit of the beneficiary, the borrower.
Eligible borrowers include:
One or more borrowers with one living trust, or
Two or more borrowers with separate living trusts, or
Multiple borrowers with one or more holding title as an individual and one or more holding title as a living trust.
Eligible property includes:
1-4 unit primary
1-2 unit second homes
The following documentation is required:
Attorney's Opinion letter from the borrower's attorney verifying all of the following:
The trust was validly created and is duly existing under applicable law,
The trust is revocable,
The borrower is the settlor of the trust and the beneficiary of the trust,
The trust assets may be used as collateral for a loan,
The trustee is:
Duly qualified under applicable law to serve as trustee,
Is the borrower,
Is the settler,
Is fully authorized under the trust documents and applicable law to pledge or otherwise encumber the trust assets
Complete copy of the trust documents certified by the borrower to be accurate, OR a copy of the abstract or summary for jurisdictions that require a lender to review and rely on an abstract or summary of trust documents instead of the trust agreements.
Exception: Trust Certification
In lieu of the Attorney's Opinion letter and copies of trust documents the title company Trust Certification is acceptable in some States. The same terms and conditions apply as shown above for the Attorney's Opinion.
Investor has expanded on the States eligible to provide a Trust Certification.
Click Here for the Geographic Restrictions page for a list of allowable the States.
Other title and closing requirements:
The title to the property is vested in the trustee on behalf of the trust (or such other customary practices),
Title binder may not contain any exceptions to coverage based on the mortgaged property being held by the living trust,
The Note must be executed individually by the settlor and by the trustee on behalf of the trust,
The Mortgage or Deed of Trust is executed by the trustee on behalf of the trust. The Revocable Trust Rider must be used with the mortgage or Deed of Trust.
The date of the Trust must be reflected on the note as part of the description below the Trustee's signature, e.g. Jane Doe, Trustee of the Jane Doe Trust dated April 1, 2000.
Blind trusts are not eligible for financing.
A blind trust is an arrangement where financial holdings of a person are placed in the control of a fiduciary, typically to avoid a conflict of interest. Therefore, someone other than the borrower has control over the trust assets.
Life estates are not eligible for financing.
A life estate is an estate whose duration is limited to the life of the party holding it, or some other person, upon whose death the right reverts to the grantor or his heirs.
FNMA/FHLMC guidelines
All non-permanent resident aliens must provide evidence of one of the following visas:
H-1, Temporary Worker. This is the most common visa given to foreign citizens who are temporarily working in the United States.
L-1, Intra-Company Transferee. An L-1 visa is given to professional employees, whose company's main office is in a foreign country.
E-1, Treaty Trader. This visa is essentially the same as an H-1 or L-1; the title refers to the foreign country's status in the United States.
G series (G-1, G-2, G-3, G-4). These visas are given to employees of international organizations that are located in the United States. Some examples of these organizations are the United Nations, Red Cross, World Bank, UNICEF and the International Monetary Fund. Verification that the applicant does not have diplomatic immunity must be obtained.
TN, NAFTA Visa. Used by Canadian or Mexican citizens for professional or business purposes.
TC, NAFTA Visa. Used by Canadian citizens for professional or business purposes.
All standards for determining stable monthly income, adequate credit history and sufficient liquid assets must be applied in the same manner to each Borrower including Borrowers who are non-permanent resident aliens.
Foreign nationals who have no lawful residency status in the U.S. are not considered to be non-permanent resident aliens.
Refer to specific product for any exceptions.
Due to the inability to compel payment or seek judgment, transactions with individuals who are not subject to United States jurisdiction are not eligible. This includes embassy personnel with diplomatic immunity.
Borrowers with diplomatic immunity are not allowed.
The following guidelines apply to the number of 1-4 unit properties financed with Investor and all other lenders.
All financed 1-4 unit properties for all Borrowers on the loan transaction must be included in the total.
There are no restrictions on the number of properties that the borrower owns free and clear.
|
Occupancy Type |
Total # Financed with Investor |
Total # Financed with all Lenders including Investor. |
|
Primary |
Unlimited |
Unlimited |
|
2nd Home |
6 (including primary) |
Unlimited |
|
Investment |
6 (including primary) |
10 |
There are no restrictions on the number of properties that the Borrower owns free and clear.
FNMA/FHLMC guidelines
A non-arm's length transaction is one where the parties to the loan and /or sale transaction are related , such as family members, employer/employee, or principal/agent. This relationship may influence the transaction.
For Second home and Investment property transactions, the Borrowers may not be affiliated in any way with the builder, developer or property seller.
This is a transaction where one family member is selling to another family member.
Often there is no real estate agent involved or the agent may also be a family member.
These transactions carry the potential for high risk as they may be bailout situations (e.g. the selling party has financial problems and is unable to refinance).
On a case-by-case basis, family sales may be considered when the Borrower is purchasing the property for primary occupancy.
The following are generally required to consider the Loan:
Full documentation of the Borrower’s income, employment, and assets.
Borrower must provide copies of canceled check(s) to verify that earnest money has been paid to the Seller.
5% of the sales price must be verified as being saved by the Borrowers (these funds do not have to be used toward the down payment).
Verification that the Borrower is not now, nor has previously been, in title to the property.
A payment history for the existing Mortgage (verification of Seller’s Mortgage) on the subject property must be obtained and show no pattern of delinquency within the past 12 months.
Borrower must provide a written explanation that states the relationship to the Seller and the reason for purchase.
The underwriter must be satisfied that the transaction makes sense and that the Borrower will occupy the property as a primary residence.
Gift Of Equity
Gift equity in the subject property is an acceptable source of down payment, as long as the amount of equity has been verified.
The donor must provide a gift letter. 5% of the sales price must be verified as being saved by the Borrowers (these funds do not have to be used toward the down payment).
Property In An Estate (and Borrower is a beneficiary)
Full/Sub Documentation of the Borrower’s income, employment and assets.
Verification of the Borrower as a beneficiary of the property.
The Borrower may not receive cash back at closing; however, the Borrower’s interest, as verified, can be considered as equity.
If a portion of the proceeds is to be used to buy out other beneficiaries’ interest, their interest must be verified. Payoffs to the beneficiaries must be a closing condition and shown on the HUD-1 Closing Statement.
The transaction is considered a rate/term refinance for LTV purposes.
Primary residence only.
Verification of Mortgage on any existing financing should be obtained to verify the outstanding balance; however, the payment history should be disregarded.
This is a transaction in which a builder or developer is selling a property to one of its employees who does not hold a principal ownership interest.
These Loans are not subject to any special requirements, and may be treated as normal purchase transactions if the Borrower intends to occupy the subject as his primary residence.
This scenario would not be acceptable for a Second home or Investment property.
A flip transaction is generally defined as a purchase transaction for a property that has recently been acquired by the Seller and is being sold
for a quick profit.
Flip transactions are ineligible, as there may be inflation of the sales price, a financial bailout, misrepresentation and/or straw buyers.
A flip transaction is evident if the title reveals several changes in ownership in the course of a few months.
If the Seller is not in title at the time the purchase contract is executed, the contract may not be valid.
FNMA/FHLMC guidelines
FNMA/FHLMC guidelines
FNMA/FHLMC guidelines
FNMA/FHLMC guidelines
FNMA/FHLMC guidelines
Investor has adopted the term Loan Score to refer to the overall credit score applicable to a specific loan as determined using the "middle/lower, then lowest" credit score selection methodology .Investor's Loan Score is equivalent to Freddie Mac’s Indicator Score and Fannie Mae’s Representative credit score.
Investor will require adoption of the Agencies’ preferred methodology of “middle/lower then lowest” for determination of the appropriate loan score to be considered in the loan decisional process.
The “middle/lower then lowest” method can be summarized as follows:
Determine the appropriate credit score for each borrower on the loan
the lower score when two credit scores are obtained, or
the middle score when three credit scores are obtained.
When there is only one borrower, the single score used to underwrite that borrower is the credit score for that mortgage and should be reported when the loan is delivered to Investor for purchase.
If more than one individual is applying for the mortgage, determine the single applicable credit score for each individual borrower, and then select the lowest applicable score among all borrowers. This single score should be used in the decisional process and reported when the loan is delivered to Investor for purchase.
Acceptable documentation for both mortgage and rentals included, but is not limited to:
Reference included in the credit report may be used for both mortgage and rent payment histories.
Direct written reference from the lender or servicing agent of the mortgage.
Rental payment may be verified with a direct written reference from a professional management company. A written reference from a private-party landlord is no longer acceptable.
For borrowers renting from a private-party landlord copies of 12-months cancelled checks or bank statements evidencing timely payments remains an acceptable alternative if that pay history is not documented on the credit report.
Any loan with a credit score below 620, unless the loan receives an "Accept" risk rating from LP.
Loans receiving a "Caution"risk rating from Loan Prospector, including those rated as eligible for delivery under Freddie Mac's "A-Minus"option
Any loan scoring a "Refer" or "refer with Caution" recommendation from DU.
Clients may want to consider submitting loans that receive either of these "Refer" recommendations to LP.
Investor will allow an LP "Accept"risk rating to override DU's recommendation.
Investor will not purchase "DU Approve" loan if the credit score is below 620 and /or if the borrower's total debt to income ratio exceeds 50%
Investor will not purchase Fannie Mae DU "Expanded Approval Levels"
Alternative Credit History profiles as options for borrowers with credit scores not meeting the published minimum requirements will no longer be available for either conforming or non-conforming conventional loans.
The criteria below must be applied in deciding whether inaccurate credit may be considered “significant”.
Bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short-sale not belonging to the borrower(s).
Judgment, tax lien, collection account or charge-off not belonging to the borrower (s), and was filed within the last 24 months and Is greater than $500
Housing related account(s) (mortgage or rent history) with delinquent payment(s) reported in error as follows:
Any payments that are 30 or more days late in the last 12 months, or
Two or more 30-day late payments in the last 24 months, or
Any payments that are 60 or more days late in the last 24 months
Non-housing related trade lines with delinquencies reported in error as follows:
Four or more 30-day late payments in the last 24 months, or
Two or more payments that are 60 or more days late in the last 24 months
One or more open trade lines with outstanding balance(s) that do not belong to the borrower when all of the following are present:
The credit report includes messages indicating either too many accounts or outstanding balances are too high, and
The credit report reflects no messages regarding delinquent accounts, and
The balance(s) on the trade line(s) that do not belong to the borrower exceeds 25% of the total balance of all trade lines on the credit report.
The credit report is for someone other than the borrower (s).
The above criteria may be applied only to information on the credit report.
Direct verifications reflecting inaccurate information must be corrected by the reporting party.
As most Investor's conventional programs require compliance with a minimum Loan Score of at least 620*, these guidelines are an important aspect of the risk decisioning process when the borrower disputes information on his credit report.
For the underwriter to make a determination that a credit score is significantly impacted by inaccurate credit, evidence of the inaccurate data must be provided by the borrower, or verified by the credit bureau, creditor or other third party. A borrower statement alone is not sufficient evidence.
An inaccurate credit score may not be used as the Loan Score. However, if there is a co-borrower whose credit score is valid, that score may be used to meet a minimum Loan Score requirement. The remaining – accurate – credit must represent an acceptable risk.
*Note: Investor's required minimum 620 Loan Score does not apply to conforming loans receiving an“Accept” risk class from Loan Prospector
When inaccurate information is corrected, the credit score does not immediately reflect the correct information.
Therefore, loans for Borrowers who do not meet the minimum credit score (of at least 620) requirement for program or guideline, may be approved under certain conditions when the credit score is impacted by significant inaccurate credit information.
The requirements vary depending on the minimum credit score required.
Borrowers whose Credit Scores are below 580 are not eligible for approval, even under the criteria for Significant Inaccurate Credit.
Applicants with credit scores below 580 who claim incorrect data is reflected on their credit report should be directed to the credit reporting agency to have that information corrected
Conclusive evidence supporting a determination of significant inaccurate credit must be included to override a borrower credit score below 620.
A Non-traditional credit history supporting the 620 credit score profile must be included in the loan file.
For loan programs or parameters that require a minimum credit score of 660 or higher, a loan will be considered for approval when there is evidence of inaccurate credit information and the accurate information indicates that the Borrower has established an acceptable credit reputation.
The accurate information must document the following:
Minimum three tradelines with at least one line having a 24 month history
These account must currently be active, or have been active in the last 12 months
No tradelines, including housing, installment and revolving debt, with late payments
No derogatory public records, collections, judgments, tax liens, etc.
For loan programs or parameters that require a minimum credit score of 620 a loan will be considered for approval when there is evidence of inaccurate credit information and the accurate information indicates that the Borrower has established an acceptable credit reputation.
The accurate information must document the following:
Minimum three to six tradelines, with at least one line having a 24 month history
These accounts must currently be active, or have been active in the last 12 months
For the most recent 24 months, must reflect:
No new public records, foreclosure, unpaid judgements or collections
No installment or revolving account payments 60 or more days past due
No more than two installment or revolving account payments 30 days past due
No housing payments 30 days past due
Any loan with a credit score below 620 is ineligible, unless the loan receives an "Accept" risk rating from LP.
A borrower's credit score is considered to be invalid if its below 300 or greater than 870.
Please refer to the individual products and Bankruptcy requirements.
FNMA/FHLMC guidelines for existing construction.
For new construction, credit documentation can be no older than 180 days.
The lowest score among all borrower's scores is the credit score for the loan.
Flexibility in offsetting an unacceptable credit history of one borrower with good credit history of the other borrower is no longer an option.
All borrowers on the loan must have acceptable credit, regardless of whether their income and /or assets are needed for qualifying.
Please refer to the individual products.
Borrowers with a previous bankruptcy and/or foreclosure will fall into one of two categories based upon the cause of the bankruptcy/foreclosure - either extenuating circumstances or financial mismanagement.
An extenuating circumstance is non-recurring or isolated circumstance, or set of circumstances, beyond the Borrowers control that significantly reduced income and/or increased expenses and rendered the Borrower unable to repay obligations as agreed
Examples of circumstances to support reductions of income include but are not limited to:
Death of a principal wage earner
Loss of employment due to factory closings or reductions in work force
Examples of circumstances to support increased expenses include but are not limited to:
Medical bills caused by a serious long term illness/medical emergency, increased expenses due to a natural disaster (such as a period of dual housing costs and increased living expenses or temporary housing after a flood).
Borrowers with a bankruptcy/foreclosure caused by extenuating circumstances represent less risk than Borrowers with a bankruptcy/foreclosure caused by financial mismanagement and should receive more favorable underwriting guidelines
Refer to the following guidelines for extenuating circumstances.
The following are examples of documentation to support extenuating circumstances:
Credit report with medical collection accounts.
Insurance claims (to support uninsured medical expenses or losses from natural disaster.
Workman’s compensation or disability insurance claims (to support illness or injury and inability to work
Court decree and court records (to support loss of income for stay-at-home parent).
Dismissal letter, unemployment compensation claim and corresponding market date (to support layoff and lack of employment opportunities).
May be the result of the use of too much credit or the inability to manage credit
Typically, the Borrower(s) previously continued to increase credit usage to the point that they were no longer willing or able to support the debt service
Any reason that does not meet the definition of extenuating circumstances will be considered financial mismanagement
Refer to financial mismanagement guidelines listed below.
The following requirements must be met for any Borrower with a previous bankruptcy (Chapter 7, 11, 13) or foreclosure, caused by extenuating circumstances:
At least 2 years must have elapsed since the bankruptcy discharge, completion of foreclosure proceeding or the date of a deed related action.
Borrower must provide supporting documentation to verify the extenuating circumstances.
The supporting documentation must confirm the events were an isolated occurrence which resulted in a sudden, significant and prolonged reduction in income or a catastrophic increase in financial obligations.
The Borrowers written statement must attribute the cause of the financial difficulties to factors beyond his control that are not ongoing and are unlikely to recur.
Obtain any other supporting documentation necessary to confirm that factors beyond the Borrowers control caused the bankruptcy/foreclosure and that the Borrower has reestablished and maintained acceptable credit.
Borrower must have opened new credit after the bankruptcy/foreclosure with at least 12 months acceptable history.
Borrower must provide copies of all bankruptcy papers and Notice of Discharge, or appropriate documents to establish the date of foreclosure or deed related action.
Evidence that all debts not satisfied by the bankruptcy have been paid.
The Borrower(s) must meet the /credit profile requirements in the following section.
The Borrower (s) must meet one of the following:
620 minimum Credit Score OR
Significant inaccurate credit (as previously outlined)
Credit report should show:
The middle credit score for the highest wage earner is > 620.
12 months credit history for at least 3 trade lines with at least one of the trade lines having a 24 month history,
A minimum 12-month housing payment history (Mortgage rating, rental rating or combination of the two) with no lates must be verified either by the credit bureau or by direct verification.
Documentation of extenuating circumstances is not required for Borrower(s) that meet all of the following requirements:
Minimum 660 Credit or 660 Profile (as subsequently defined in this section)
Chapter 13 bankruptcy only
Borrower must provide copies of all bankruptcy papers and Notice of Discharge.
When the borrower's credit history indicates there are debts that have not been paid as agreed, it must be determined whether the adverse credit is significant and if so, if the adverse credit is due to financial mismanagement.
To determine if adverse credit is significant, evaluate the number, severity, frequency, and types of accounts reporting delinquent in relation to the borrower's total credit history.
Significant adverse credit includes:
Multiple late payments over 30 or 60 days on revolving or installment accounts reported within the most recent 24 months
Any housing payment reported 30 or more days late within the last 24 months.
Public records such as foreclosure, bankruptcy, judgements, collections, and tax liens over the past seven years.
The pattern of credit usage and late payments, as well as the explanation and supporting documentation must be evaluated to determine whether the borrower is having difficulty managing finances. A pattern of late payments, heavy credit use and/or high balances compared to credit limits are indications of financial mismanagement.
The credit history since the significant adverse credit must be sufficient and acceptable.
Typically, at least 48 months of re-established, acceptable credit;
No derogatory credit should be reported since the bankruptcy or foreclosure
When the adverse credit does not include a bankruptcy or foreclosure, 24 months of re-established acceptable credit may be considered acceptable.
The Borrower(s) must meet the following credit score requirement for manually underwritten transactions when there is significant adverse credit due to financial mismanagement:
680 Credit Score OR
Significant Inaccurate Credit (as previously outlined)
Payoff of revolving accounts in order to qualify the Borrower is generally not allowed.
The monthly payment on every revolving, and open-end, account with balance regardless of the apparent number of payments remaining must be included in the borrower's long term debt and ratio calculation.
Accounts may not be paid down to 10 months or less to allow the Borrower to qualify. Installment or Mortgage accounts must be paid in full.
All installment debts have to be included in the borrower’s monthly debt payment if there are more than 10 months of payments remaining at the time of underwriting, including installment debts (e.g., education loans) that are in a period of deferment or forbearance.
When payments on an installment debt are not given on the credit report or are listed as deferred, the file must include documentation to support the payment amount included in the borrower’s monthly debt.
Examples of documentation supporting the required payment amount include:
A direct verification obtained from the creditor, or
A copy of the installment loan agreement provided by the borrower, or
If payments are currently deferred, the payment amount that will be required once the deferment or forbearance period has ended, as stated in a copy of a financial institution's student loan certification or the installment loan agreement
Payments on loans secured by the Borrowers 401(k) or SIP (Savings Investment Plan) are not included in long term debt because they are voluntary payments.
However, the underwriter should consider these payments in terms of their possible impact on cash flow and debt ratios
The Borrower should indicate plans for debt repayment if the inclusion of a 401(k) or SIP loan payment in the monthly debts results in very high total obligations to income ratio or negative cash flow.
Contingent liabilities are debts the Borrower is not currently required to pay but may be required to pay in the future (e.g. co-signed loans, court ordered payments, previous residence sold on assumption of Mortgage).
The monthly payment on a co-signed loan may be excluded from long term debt only with evidence of timely payments being made by someone other than the Borrowers.
Copies of canceled checks for the last six months or a statement from the creditor are acceptable documentation.
The debt on a previous residence may be excluded from long-term debt with evidence that the Borrower no longer owns the property. The following documents are required:
Copy of documents transferring ownership of the property.
The assumption agreement executed by the transferee.
If the obligation to make payments on a debt has been assigned to another person by court order, such as a divorce decree, the payment may be excluded from long-term debt. The following documents are required:
Copy of the court order or divorce decree
For Mortgage debt, a copy of the document (s) transferring ownership of the property
If a transfer of ownership has not taken place, any late payments associated with loan on the property should be taken into account when reviewing the Borrower's credit profile.
The monthly payment associated with a lease must be included in total monthly obligations regardless of the number of payments remaining until the end of the lease term. If the lease is near the end of its term the new lease payment should be determined and included in the total monthly debts.
There are several types of credit counseling.
One type of counseling is designed to help first time home buyers prepare for the financial responsibilities associated with home ownership
Another type of credit counseling is designed to assist Borrowers who have had problems managing their debts and may have delinquent accounts
In some instances, the Borrower makes monthly payments to the credit-counseling agency, which then pays the creditor
The underwriter must consider the type of credit counseling in conjunction with a thorough review of the credit report to determine whether the Borrower has demonstrated the ability to manage credit.
Standard FNMA/FHLMC guidelines
Standard FNMA/FHLMC guidelines
Standard FNMA/FHLMC guidelines
Full and Alternative documentation is allowed for all FNMA and FHLMC Loans.
Use standard FNMA/FHLMC guidelines for required documentation.
For both conforming and non-conforming conventional loans, Internet documents/downloads for credit reports, income, employment and asset verification are acceptable
This allowance for Internet docs does not change the required content or level of documentation needed.
The information must be easy to read, understandable, and have no evidence of alterations, erasures or white-outs, and must make sense based on the borrower profile and transaction terms.
The following Source Validation criteria applies to all documents obtained via the Internet:
Identify the employer or depository/investment firm's name and source of information
Headers, footers, and the banner portion of the printout of the downloaded web page (s) must reflect the appropriate firm.
Display the Internet uniform resource locator (URL) address and the date and time printed
If faxing an Internet download, make sure fax header does not cover URL information
Be accompanied by IRS Form 4506 whenever income/employment information is obtained from the internet (in addition to standard requirements for a 4506).
Allowed on Non-Conforming and Expanded Solutions Products.
Please refer to the individual product for required documentation.
Overtime and bonus income may be verified by substitute documentation provided that all of the following conditions are met:
Borrower has been receiving overtime or bonus income for at least one year, and
The income must be expected to continue for at least 3 years, and
W-2 forms and payroll earnings statements indicate an earnings level that is consistent with the total income that is being considered, and
Verification requirements are the same as salaried employees above.
Borrowers who receive commissions greater than 25% of their total income must provide:
Federal tax return for the most recent year to verify commissions earned and expenses incurred, and
Current paystub, and
Most recent W-2.
All self-employed Borrowers are required to provide:
Copies of signed individual (and business if appropriate) tax returns, including all applicable schedules, for the previous two years.
A year-to-date Income/Expense Statement and Balance Sheet are also required if the individual tax returns are more than 16 months old.
Standard FNMA/FHLMC guidelines
Required when tax returns are used in qualifying the borrower or internet documentation was used.
If a Borrower is employed by a relative, a closely held family business, the property seller, real estate agent, or any party to the real estate transaction, the following documentation must be obtained:
Borrowers signed and completed personal federal income tax returns for the most recent one-year period, and
Verification of Employment form (VOE) or
Pay stub(s) with W-2 form(s).
Current income reported on the VOE or pay stub may be used if it is consistent with W-2 earnings reported on the tax returns.
If the tax returns do not include W-2 earnings or income is substantially lower than the current VOE or pay stub, further investigation is needed to determine whether income is stable.
FNMA/FHLMC guidelines
FNMA/FHLMC guidelines
A trailing Co-borrower is the Co-borrower who is not the reason for the relocation (e.g., a wife is currently employed by a nationally based company and accepts a position requiring her transfer to a new location. The husband intends to look for a position when he arrives. In this instance, the husband is the trailing Co-borrower.
Trailing Co-borrower income will be accepted on a case-by-case basis with the following documentation:
Two year minimum recent employment history for Co-borrower;
Letter from the Co-borrower certifying his/her intent to seek employment, type of employment sought, and qualifications;
Assets remaining after closing represent at least six months PITI.
When the LTV is < 90%, Borrowers meeting these criteria are eligible for credit for 100% of working Co-borrower income earned in the previous location.
When the LTV is > 90% to 95%, Borrowers meeting these criteria are eligible for credit of 75% of working Co-borrower income earned in the previous location.
The underwriter should consider whether job opportunities for the trailing Co-borrowers profession and income level in the new location are similar to the opportunities in the old location.
Please refer to the Investor Manual for additional details regarding the Relocation Program.
The lump sum cash payment must be non-revocable;
The down payment must be made in after-tax dollars.
In order to be used as income, child support, alimony or maintenance payments must reasonable be expected to continue for at least a three-year period.
The following documentation is required:
Copy of the divorce decree, separation agreement or court order, and
Copies of court records, bank statements or canceled checks evidencing a minimum of three months receipt of payments.
FNMA/FHLMC guidelines
Acceptable only if income can be verified on U.S. personal tax returns.
Foreign income should be paid in U.S. currency.
However, income paid in foreign currency may be considered on a case-by-case basis if its converted into U.S. currency.
Secured
A copy of the note is required to verify the payment amount and remaining term.
Payments must continue for at least three years.
Unsecured
Evidence of receipt for the last 12 months
A copy of the note verifying payment amount and remaining term of at least three years.
Mortgage Credit Certificates (MCC) are payment subsidies issued by a government entity to qualifying homebuyers. It may be in the form of direct payments or tax rebates/credits. MCCs are permitted for use with Conforming Conventional products (unless specified otherwise within a specific product description). The following guidelines apply:
The MCC must be from an authorized state or local housing finance agency. The total monthly housing expense may be reduced by the amount of the Borrowers Mortgage interest tax credit. This applies to fixed and adjustable rate Mortgages subject to the following:
ARMs must be underwritten at the maximum second year rate
Fixed rate Mortgages with a buydown must be underwritten at the full Note rate
If the Borrower obtaining the MCC needs the monthly subsidy to qualify, the Mortgage file must contain all of the following:
Copy of the MCC
Copy of the W-4 and worksheet
MCC worksheet
The amount of the subsidy established in the MCC needs to be calculated on a monthly basis and then deducted from the actual monthly housing payment.
Example:
MCC of 20% times total annual Mortgage interest of $9,600 = $1,920 annual MCC credit.
The total MCC credit of $1,920 divided by 12 months = $160 per month MCC credit.
Actual monthly housing expense $975
Less monthly MCC credit -$160
Monthly Housing Expense to be used in qualifying =$815
The Seller is responsible for compliance with all requirements of the issuing authority.
In addition to standard liquid assets, the following are considered to be cash assets at 100% of the verified amounts:
A gift or grant from a municipality, nonprofit religious organization, nonprofit community organization, or the Borrowers employer
Group savings
Pooled funds
Saving cash to close
Proceeds from the sale of the Borrowers personal property
Individual Development Account
Cash value of life insurance
Publicly Traded Stocks, Bonds, Mutual Funds, U.S. Government Securities
Retirement Plans - IRA, SEP IRA, 401(k), KEOGH, 403(b) and other IRS qualified retirement plans
Savings Bonds
FNMA/FHLMC guidelines
For a Primary residence or Second home with an LTV > 80% gift funds are allowed only after a minimum down payment of at least 5% has been made from the Borrowers own funds.
Gift funds are not allowed on Investment property transactions.
A gift letter or the application must list the donors name, address (city, state and zip), relationship to the borrower, and the dollar amount of the gift. If a gift letter is used, it must be signed by the donor. If the information is included on the application, the donor's signature is not required.
The donor must be related to, fiancee, or domestic partner of the Borrower.
The loan file must contain the following documentation:
Verification of funds in the Borrowers account when funds are received prior to the initial verification of assets (bank statement balance includes gift funds), OR
Verification of the transfer of the gift funds from the Donor to the Borrower when the gift funds are received after the initial verification of assets.
One of the following is required to verify the transfer of the gift funds from the Donor to the Borrower:
Donors withdrawal slip and Borrowers deposit slip.
The Donors canceled check and evidence of deposit into borrower's account.
A copy of the certified check if the gift funds are transferred at closing. Certified funds must show the donor as remitter of the funds.
One line of the settlement statement clearly indicates the exact amount of gift funds received from the Donor at closing.
Gift equity in the subject property is an acceptable source of down payment, as long as the amount of equity has been verified.
The donor must provide a gift letter.
5% of the sales price must be verified as being saved by the Borrowers (these funds do not have to be used toward the down payment).
Allowed to be used towards down payment for second home and investment property purchases only with the following restrictions:
Reverse exchanges are not allowed because the Borrower is not in title to the property at the time of closing.
Product grade must allow second homes and investment properties.
No subordinate financing.
A qualified intermediary must handle the Loan closing
A qualified intermediary is an entity (usually a subsidiary of a title company) who enters into a written agreement with the taxpayer
The qualified intermediary cannot be an agent, attorney, accountant, investment banker or broker
This Exchange Agreement requires the qualified intermediary to acquire and transfer the relinquished property and to acquire and transfer the replacement property
The relinquished property is the property sold and the replacement property is the property acquired.
Copies of all closing documents and Purchase Agreement on the relinquished property must be obtained. Required documentation includes:
1031 Exchange Agreement
Settlement Statement
Title Transfer
Both Purchase Agreements (relinquished and replacement properties) must contain appropriate language to identify the 1031 exchange. An example of satisfactory language is:
Phase I (Sale): Buyer is aware that Seller is to perform a 1031 Tax Deferred Exchange. Seller requests Buyers cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, liabilities, costs or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract by the Seller.
Phase II (Buy): Seller is aware that Buyer is to perform a 1031 Tax Deferred Exchange. Buyer requests Sellers cooperation in such an exchange and agrees to hold Seller harmless from any and all claims, liabilities, costs or delays in time resulting from such an exchange. Seller agrees to an assignment of this contract by the Buyer.
Closed End subordinate financing is permitted for most programs, provided the following minimum criteria are met:
The subordinate financing must be recorded and clearly subordinate to the first Mortgage.
The LTV/TLTV may not exceed the guideline limits for the product.
A copy of the subordinate financing Mortgage Note must be obtained.
The repayment terms for any subordinate financing must provide for regular payments that cover at least the interest due so negative amortization will not occur. At minimum, the interest rate should be at market rate.
The payment for the subordinate financing must be included in the calculation of the Borrower's housing-expense to income ratio.
If the first Mortgage is an ARM or a fixed rate Mortgage with an interest rate buy down, the payment for the subordinate financing must be for a fixed amount.
If the first Mortgage is a Balloon, the maturity date of the subordinate financing must be at least 12 months prior to the balloon maturity date, or the security instrument for the subordinate financing must contain language that clearly subordinates the lien of the subordinate financing to the first mortgage before and after the balloon reset.
If the repayment terms for the subordinate financing (except for a home equity line of credit) provide for a variable interest rate, the monthly payment must remain constant for each 12 month period over the term of the Mortgage. Then, the change in the monthly payment at the end of each 12-month period cannot represent more than a 1% increase in the interest rate.
Equity share or shared appreciation is not allowed.
Subordinate financing from the Borrowers employer may not include a provision requiring repayment upon termination.
Must have a minimum original term of not less than five years, unless the financing fully amortizes prior to that time. If the subordinate financing will not fully amortize under a level monthly payment plan, it may not have a maturity or balloon payment date of less than five years.
The remaining term of existing subordinate financing that is being resubordinated in a rate/term refinance may be less than 5 years. If a balloon payment will be due within a few months of the closing on the refinance, the underwriter should consider the Borrowers ability to make that balloon payment.
Subordinate financing is permitted subject to the following restrictions:
The HELOC must be recorded and clearly subordinate to the first Mortgage.
The maximum LTV/TLTV/HTLTV may not exceed the guideline limits for the product.
The payment for the subordinate financing must be included in the calculation of the Borrower's housing-expense to income ratio.
A copy of the HELOC Mortgage Note must be obtained.
Repayment terms must provide for regular payments that cover at least the interest due so negative amortization does not occur.
Variable payments are allowed when the interest rate of the first Mortgage is fixed or, if adjustable, not subject to negative amortization
If the first Mortgage is a Balloon, the maturity date of the subordinate financing must be at least 12 months prior to the balloon maturity date or the security instrument for the subordinate financing must contain language that clearly subordinates the lien of the subordinate financing to the first mortgage before and after the balloon reset.
The terms of the HELOC may provide for a balloon or call option within the first five years after the Note date of the first Mortgage.
A gift or grant from a municipality, nonprofit religious organization, nonprofit community organization or the Borrowers employer must be evidenced by a copy of:
The award letter sent to the Borrower, or
The legal agreement that specifies the terms and conditions of the gift or grant.
If the gift or grant is from the Borrowers employer, the employers formal gift program must be verified. Examples of acceptable documentation include, but are not limited to:
Copy of gift program guidelines from employee handbook
Letter from employers human resources department
File must contain evidence of the transfer of the funds.
The award letter or the legal agreement must verify all of the following:
No repayment of the gift or grant is required
How the funds will be transferred (e.g., to Borrower, closing agent, Lender, etc.)
There will be no lien against the property.
The Borrower is not required to contribute 5% of the down payment from his own funds. The gift or grant can be used as the down payment.
For 2-4 unit primary home transaction, cash reserves equal to six months PITI for the subject property are require when rental income is used for qualifying.
For 1-4 unit investment property transactions, cash reserves equal to six months PITI for the subject property are required. The reserve requirement may not be waived.
The maximum allowable contributions from interested parties based upon the lesser of the purchase price or appraised value are:
|
Property Type |
LTV |
Contribution |
|
Primary Residence |
>90% |
3%* |
|
>75% <90% |
6% | |
|
<75% |
9% | |
|
Second Home |
>90% |
3% |
|
>75% < 90% |
6% | |
|
<75% |
9% | |
|
Investment Property |
All LTVs |
2% |
*Please refer to the Geographic Restrictions for Maryland and Virginia properties
For all conventional loan transactions: Seller contributions to be used towards the prepayment of condo or PUD HOA dues.
Up to 12 months HOA dues, provided:
Seller Contribution limits are not exceeded , and
The funds are paid directly to the Association by the title company/closing agent and reflected on the settlement statements.
FNMA/FHLMC guidelines
Investor will consider transactions meeting the following criteria to be Rate/Term (i.e. No Cash-out)refinances.
Pay-off of the current mortgage (principal balance plus accrued interest only; other costs such as late fees and past-due amounts may not be paid with the new loan)
If the first mortgage is a Home Equity Line of Credit (HELOC) a copy of the HUD-1 Settlement Statement from the borrower’s purchase of the subject property must be provided evidencing the proceeds were used in their entirety to acquire the subject property
Pay-off (as defined above) of any subordinate mortgage lien that was used in its entirety to acquire the subject property
A copy of the HUD-1 Settlement Statement from the borrower’s purchase of the subject property must be provided evidencing that any subordinate financing was used in its entirety to acquire the subject property
Standard loan fees (e.g., closing costs on the new mortgage; prepaids, such as interest, taxes, insurance, etc; and points)
Incidental cash to the borrower not to exceed the lesser of $2000 or 2% of the principal balance of the new loan amount.
The underwriter should analyze transactions involving the payoff of a first lien that has been seasoned for less than one year.
If the first lien being paid off was a purchase transaction, and the original purchase price, as stated on the application, is less than the new appraised value the file should contain documentation supporting the increase in value (e.g. appraisal indicates increasing values for the market, appraisal comparables support increasing values, documented home improvements, or a copy of the original appraisal showing the original appraised value higher than the original sales price)
If the increase in value is unsupported, the underwriter should use the lower of the original purchase price or the new appraised value to determine LTV/CLTV.
If the underwriter has knowledge that the first lien being paid off was a cash-out refinance transaction with an LTV greater than 80%, the new Loan will not be eligible for rate/term refinance parameters.
A subordinate Mortgage lien with less than 12 months seasoning may be paid off or paid down from the proceeds of a rate/term refinance if all of the following conditions are met:
Property is a 1 or 2 unit primary residence or a 1 unit second home
LTV/TLTV is the lesser of 90% or maximum LTV/TLTV for the Loan amount.
Home improvements were completed in the past 12 months as verified by paid receipts or other documentation of the improvements
Subordinate Lien is with an institutional lender
Proceeds of the secondary financing were used for home improvements.
Appraiser notes that improvements were made
Temporary buydowns are not allowed
May not be applied to Texas owner occupied homestead properties
The payoff of a HELOC that is in first lien position is allowed subject to evidence that the credit line is more than one year old.
HELOCs seasoned less than one year may not be paid off or paid down in a rate/term refinance except in compliance with the requirements for reimbursement for documented home improvements or verifying that the HELOC proceeds were used in their entirety to acquire the subject property.
Refer to "Reimbursement for Documented Home Improvements" section below.
The Borrower may receive reimbursement for documented home improvements under the no cash out refinance guidelines when all of the following requirements are met:
Property is a 1 or 2 unit primary residence or a 1 unit second home.
LTV/TLTV is the lesser of 90% or maximum LTV/TLTV for the Loan amount.
Home improvements were completed in the last 12 months as verified with paid receipts or other documentation of the improvements.
Appraiser must note the improvements were made.
Home improvement costs are documented with one of the following:
Executed construction contract
Lien waivers
Canceled checks with corresponding paid receipts for valid construction expenses.
Materials
Architectural fees
Supplies
Labor
Liability insurance on laborersInstallation costs (water, sewer, well, etc.)
Permits
Nonrecurring costs of obtaining financing including origination fees, discount points, title search, recording fees.
Temporary buydowns are not allowed
May not be applied to Texas owner occupied homestead properties
Pay-off of the current mortgage (principal balance plus accrued interest only; other costs such as late fees and past-due amounts may not be paid with the new loan)
If the first mortgage is a HELOC it must have been open for at least 12 months and total draws in the past 12 months may not exceed 2% of the new first mortgage amount
Pay-off (as defined above) of any subordinate mortgage lien that has been open for at least 12 months
Total draws in the past 12 months on subordinate liens being paid off or paid down may not exceed 2% of the new first mortgage amount
Standard loan fees (e.g., closing costs on the new mortgage prepaids, such as interest, taxes, insurance, etc; and points)
Incidental cash to the borrower not to exceed 1% of the principal balance of the new loan amount.
The following will be classified a Cash-out refinance transactions:
Reimbursement to borrower, or payoff of subordinate financing with less than 12 months seasoning, for documented home improvements.
Buy out the leasehold interest in a property
Pay off subordinate financing with less than 12 months seasoning that was used for the purchase of the subject property.
Only one and two unit primary residences and one-unit second homes are permitted under this transaction type.
For Non-Conforming loans this will result in an LTV limitation to 90% or the maximum allowed for the loan amount.
The following are eligible for streamline refinances with a maximum LTV/TLTV of ≤ 90%:
Property is a 1 - 2 family primary residence or a 1 unit second home
Loan is a rate /term refinance; cash-out refinances are not eligible
Original lien must be with a lending institution.
Payoff of subordinate financing is allowed.
For both FNMA and FHLMC, the total draws on a HELOC cannot exceed $2,000 in the past 12 months
Standard Investor LTV/TLTV (to a maximum of 90%) guidelines apply for new subordinate financing. Rate/term refinance guidelines apply.
A fixed rate or ARM product (no balloons).
Primary residence only for ARM products.
All documentation and underwriting requirements referenced throughout this Seller Guide are applicable.
Acceptable alternative documentation is as follows:
A new residential Loan application (FNMA 1003)
A new Mortgage payment history for the existing first Mortgage. The Mortgage payment history must show that the Borrower(s) did not have any payments that were 30 days or more late during the most recent 12 month period (or for the elapsed term of the Mortgage if the Mortgage is less than 12 months old) and must indicate that the Borrower(s) had a good payment record (no pattern of late charges paid) during that period.
A new “in-file” credit report. The report must establish that the Borrower(s) has an acceptable credit history and must identify the names of at least two national credit repositories from which the information was obtained.
A salaried Borrower’s current pay statement or a self-employed Borrower’s tax returns for the last year (individual and business).
Application must indicate sufficient assets to close; however, verification of the assets is not required.
Conforming Loans:
Appraisal requirement per the Freddie Mac Loan Prospector or Fannie Mae Desktop Underwriter, or
Form 2055 with an exterior inspection, or
An appraisal update (formerly known as a recertification of value) when the original appraisal report is more than 120 days old but less than 12 months old. If the appraisal update indicates declining values, Investor requires a new appraisal. The original appraisal must be in the name of Investor, or in the name of the refinance lender.
Nonconforming Loans:
A new full appraisal, or
An appraisal update when the original appraisal report is more than 120 days old but less than 12 months old. If the appraisal update indicates declining values, Investor requires a new appraisal. The original appraisal must be in the name of Investor, or in the name of the refinance lender. A photocopy of the original appraisal must be included in the loan file.
Conforming Loans:
Appraisal requirement per the Freddie Mac Loan Prospector or Fannie Mae Desktop Underwriter, or
The standard appraisal required per product line.
Nonconforming Loans:
A new full appraisal.
Standard FNMA/FHLMC guidelines
The appraised value can be used to determine the LTV/TLTV with one year seasoning on the contract.
Illinois land trusts are allowed subject to the following:
All beneficiaries are individuals;
The Mortgage applicant(s) must be one of the beneficiaries of the trust;
The trustee must be a corporation or financial institution customarily engaged in the business of acting as trustee under Illinois land trusts;
The beneficiaries have sole power of direction over the land trust and trustee;
All beneficiaries are obligated as individuals under the terms of the note;
The Mortgage applicants have been underwritten and are qualified Borrowers under the requirements of the product;
All such Land Trust Mortgages are secured by owner-occupied, 1-4 family properties; and
The term of the trust agreement is at least as long as the term of the security instrument.
May be treated as either a purchase money transaction (as long as the Borrower receives no cash from the settlement) or a refinance transaction (in which the Borrower may or may not receive cash from the settlement).
To be considered a construction-to-permanent financing transaction, one of the following must be met:
The Borrower is the primary obligor on the construction financing which is obtained through a legitimate financial institution; or
The Borrower is the owner of the lot on which the residence is constructed.
Investor considers long-term financing to make a single disbursement to a builder/contractor or other party for the purchase of a completed property to be a purchase transaction and subject to guidelines for purchase transactions.
The maximum LTV/TLTV is subject to purchase transaction LTV/TLTV limits;