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FHA SINGLE FAMILY POLICY – HUD HANDBOOK 4000.1

Effective with Case Assignments on or After 09/14/15

RHF Corp. Issued 09/30/15 Access Online Version of Handbook 4000.1 http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

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This overview does not include all changes to the FHA Single Family HUD Handbook 4000.1. Please access the handbook for additional guidance not covered herein. HUD’s Quick Links

• The SF 4000.1 Handbook Information Page on HUD.gov at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/handbook_4000-1 • FHA’s online and PDF SF Handbook accessible from HUDCLIPS at

http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh

• FHA’s Resource Center online frequently asked questions (FAQ) site now includes detailed FAQs on policies and requirements contained in SF Handbook sections. These FAQs include FHA’s set of preview FAQs made available in June and July 2015, as well as new content http://portal.hud.gov/hudportal/HUD?src=/FHAFAQ

Questions about FHA Policy?

Search by keyword at www.hud.gov/answers or send an email to [email protected] or call the FHA Resource Center at (800) CALL-FHA (225-5342).

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/handbook_4000-1

http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh

http://portal.hud.gov/hudportal/HUD?src=/FHAFAQ

http://www.hud.gov/answers

mailto:[email protected]




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Impound Escrows Mortgage Insurance Premium Age of Documents Receipt of Documents

Condos with HO6 will require the HO6 to be escrowed. The UFMIP must be entirely financed into the Mortgage or paid entirely in cash. However, if the UFMIP is financed into the Mortgage, the entire amount is to be financed except for any amount less than $1.00. Any amount less than $1.00 will be paid in cash at closing. The old $50 rounding has been eliminated. 120 days for existing and new constructions (New construction documents are no longer good for 180 days). Documents whose validity for underwriting purposes is not affected by the passage of time, such as divorce decree or tax returns, may be more than 120 Days old at disbursement. ***RHF guidelines for all FHA Refinances: All documents with an expiration date must use 115 days instead of 120.*** New guidelines prohibit use of documents transmitted through equipment of interested parties or unknown parties. Lender must identify source of ALL electronic transmission including fax transmission and e-mail transmission. The documents must be authenticated by examining the source identifiers (e.g., the fax banner header or the sender’s email address) or contacting the source of the document by telephone to verify the document’s validity. The lender must document the name and telephone number of the individual with whom the lender verified the validity of the document. Information obtained via the internet: The lender must authenticate by verifying the internet website and examining portions of printouts downloaded from the internet including the Uniform Resource Locator (URL) address, as well as the date and time the documents were printed. The lender must visit the URL or the main website listed in the URL if the page is password protected to verify the website exists and print out evidence documenting the Lender’s visit to the URL and website. Documentation obtained through the internet must contain the same information as would be found in an original hard copy of the document.




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HUD/VA Addendum Mortgage Insurance Premium Ordering Appraisal Appraisal Validity

The lender must obtain the Borrower’s initial complete, signed and dated HUD-92900-A before underwriting the mortgage application. The UFMIP must be entirely financed into the Mortgage or paid entirely in cash. However, if the UFMIP is financed into the Mortgage, the entire amount is to be financed except for any amount less than $1.00. Any amount less than $1.00 will be paid in cash at closing. The old $50 rounding has been eliminated. Lender must provide a point of contact to appraiser; must supply surveys and legal documents (along with currently required sales contract & addendums) The 120 Day validity period for an appraisal may be extended one time for 30 Days at the option of the Lender if: The lender approved the Borrower before the expiration of the original appraisal; or The Borrower signed the sales contract prior to the expiration date. Appraisal updates: Must be performed before the initial appraisal, with no extension, has expired. Where the initial appraisal is subsequently updated, the updated appraisal is valid for a period of 240 Days after the effective day of the initial appraisal report. Second Appraisals: The lender is prohibited from ordering an additional appraisal to achieve an increase in value for the Property and/or the elimination or reduction of deficiencies and/or repairs required. The lender may order a second appraisal for Mortgages that are in accordance with requirement on Property Flipping.




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FHA Case Assignment

Contract of Sale

Family Member

When and FHA Appraisal expired, a new case assignment is required prior to ordering a new appraisal.

The lender must ensure that:

• All purchasers listed on the sales contract are Borrowers, and • Only Borrowers sign the sales contract

Note: An addendum or modification may be used to remove or correct any provisions of the sales contract that do not conform to these requirements. The Family Member of a purchaser, who is not a borrower, may be listed on the sales contract without modification or removal. – Please refer to family member definition below. The following constitute a “family member,” regardless of sexual orientation, gender identity or marital status:

• Child, Parent or Grandparent: including “step” or “foster” • A child is defined as a son, stepson, daughter, or stepdaughter, legally adopted son or daughter • A parent or grandparent includes a step-parent/grandparent or foster parent/grandparent

• Spouse or Domestic Partner • Siblings: Including “step” or “in-law” • Aunts/Uncles: including “step” or “in-law” • Son-in-law, daughter-in-law, father-in-law, brother-in-law, or sister-in-law of the Borrower.

COUSINS have been REMOVED from definition IN-LAWS are now INCLUDED in the definition

Note: The definition of family member is applicable for several underwriting criteria, including “identity of interest,” “gift of equity,” and “non-occupant co-borrower” requirements.




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Receipt of Documents

Borrower Eligibility

New guidelines prohibit use of documents transmitted through equipment of interested parties or unknown parties. Lender must identify source of ALL electronic transmission including fax transmission and e-mail transmission. The documents must be authenticated by examining the source identifiers (e.g., the fax banner header or the sender’s email address) or contacting the source of the document by telephone to verify the document’s validity. The lender must document the name and telephone number of the individual with whom the lender verified the validity of the document. Information obtained via the internet: The lender must authenticate by verifying the internet website and examining portions of printouts downloaded from the internet including the Uniform Resource Locator (URL) address, as well as the date and time the documents were printed. The lender must visit the URL or the main website listed in the URL if the page is password protected to verify the website exists and print out evidence documenting the Lender’s visit to the URL and website. Documentation obtained through the internet must contain the same information as would be found in an original hard copy of the document. To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name at settlement, be obligated on the Note or credit instrument, and sign all security instruments.

In community property states, the Borrower’s spouse is not required to be a Borrower or a Cosigner. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law. Cosigner Requirements Cosigners are liable for the debt and therefore, must sign the Note. Cosigners do not hold an ownership interest in the subject Property and therefore, do not sign the security instrument. Principal Residence in the United States Non-occupying co-Borrowers or Cosigners must either be United States (U.S.) citizens or have a Principal Residence in the U.S.




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Borrower Eligibility

Citizenship and Immigration Status: U.S. citizenship is not required for Mortgage eligibility. Residency Requirements: The Mortgagee must determine the residency status of the Borrower based on information provided on the mortgage application and other applicable documentation. In no case is a Social Security card sufficient to prove immigration or work status. Non-Permanent Resident Aliens: A Borrower who is a non-permanent resident alien may be eligible for FHA-insured financing provided:

• The Property will be the Borrower’s Principal Residence; • The Borrower has a valid SSN, except for those employed by the World Bank, a foreign embassy, or equivalent employer

identified by HUD; • The Borrower is eligible to work in the United States, as evidenced by the Employment Authorization Document issued

by the USCIS; and • The Borrower satisfies the same requirements, terms and conditions as those for U.S. citizens.

Note: The Employment Authorization Document is required to substantiate work status. If the Employment Authorization Document will expire within one year and a prior history of residency status renewals exists, the lender may assume that continuation will be granted. If there are no prior renewals, the lender must determine the likelihood of renewal based on information from the USCIS. A Borrower residing in the U.S. by virtue of refugee or asylee status granted by the USCIS is automatically eligible to work in this country. The Employment Authorization Document is not required, but documentation substantiating the refugee or asylee status must be obtained. Non-U.S. Citizens without Lawful Residency Non-U.S. citizens without lawful residency in the U.S. are not eligible for FHA-insured Mortgages.




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Multiple FHA Mortgages & Occupancy Identity of Interest Maximum LTV for Non-Occupying Borrower Transaction

Only one FHA loan permitted. Exceptions are: • Relocation: for employment related reasons AND the new residence is at least 100 miles from the borrower ’s current

residence. • Increase in family size: must provide satisfactory explanation AND their existing primary residence has an LTV of 75% or less

based upon the current balance and a current appraisal. • Vacating a jointly owned property: provided the other borrower remains • Non-occupant co-borrower: Now purchasing their own primary residence • Investment Occupancy: Only permitted for streamline refinances LTV is restricted to 85% when sale is between parties with an existing business relationship or family member. This INCLUDES tenant-landlord relationships unless covered by allowable exception. (Please refer to 4000.1 page 153)

For Non-Occupying Borrower Transactions, the maximum LTV is 75 percent. The LTV can be increased to a maximum of 96.5 percent if the Borrowers are Family Members, provided the transaction does not involve:

• a Family Member selling to a Family Member who will be a non-occupying co-Borrower; or • a transaction on a two- to four-unit Property.




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Requirements to downgrade to “Manual” underwrite – regardless of DU findings

The file contains information or documentation that cannot be entered into or evaluated by TOTAL Mortgage Scorecard – OR - additional information, not considered in the AUS recommendation affects the overall insurability of the Mortgage;

• Disputed Derogatory Credit Accounts: $1,000 or more collectively. • Bankruptcy: Less than two years from discharge date to case number assignment date. • Foreclosure, Pre-Foreclosure Sale, Short Sale or Deed-in-Lieu: Less than three years from deed transfer to case • number assignment date (Now Measured by date of title transfer.)

• Mortgage Payment- Purchase or No cash out: If any mortgage trade line reflects the following in the most recent 12

months:

• 3 or more payments greater than 30 days • 1 or more payments of 60 days PLUS one or more 30 day • 1 payment greater than 90 days

• Mortgage Payment – Cash Out • A current delinquency or • Any delinquency within 12 months of case assignment (SPECIAL NOTE: MUST MEET EXTENUATING CIRCUMSTANCE TO

BE ELIGIBLE.)

• Privately held mortgage or land contract not reported on the credit report.

• Undisclosed mortgage debt. (HUD 4000.1II.A.4.a.) • Business income shows a greater than 20 percent decline over the analysis period.

*Note –there are a number of changes related to Manual Underwriting, if manual downgrade is required please refer to the Handbook for additional guidance.




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Leasehold Estate

Appraisal Requirements Appraisal Prior Sale

1. A Mortgage secured by real estate under Leasehold requires a renewable lease with a term of not less than 99 years, or

a lease that will extend not less than 10 years beyond the maturity date of the Mortgage. 2. Sub-Leasehold Estates are not eligible for FHA mortgage insurance. 3. The lease must be renewable 4. The lessee must have the right of redemption 5. A copy of the lease must also be provided to the Appraiser, and the Appraiser must analyze & report in the Appraisal

report the terms of the lease including: • The amount of the Ground Rent, • The term of the lease • If the lease is renewable • If the lessee has the right of redemption (the right to obtain in a Fee Simple title by paying the value of the

Leased Fee to the lessor, thereby cancelling the Ground Rent,) and • If the Ground Rent can increase or decrease over the life of the lease term.

Must observe attic spaces & crawl spaces and obtain photos (if unable to view must reschedule visit or complete appraisal may be subject to inspection by 3rdparty) –at a minimum must insert head & shoulders Time frame to report dates and prior sales has changed from 1 to 3 years




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General Guidelines

Cash-Out Refinances

REFINANCES

• Borrowers must document proof of residence at the subject property with utility bills or employment documents that have subject address printed. This applicable to all Primary Residence refinance transactions.

• The subject property must be owner‐occupied by the borrower for at least 12 months prior to the FHA Case number order date, except for the following: o Rate and Term refinances are limited to an 85% LTV if the borrower has occupied the property or less than 12

months. Cash Out:

• Borrower must be in ownership of the property for the 12 months prior to the date of the case assignment, unless acquired by inheritance.

• Business tax returns (and IRS Transcripts) are required on cash‐out refinance for self‐employed borrowers. • If the mortgage on the subject property is not on the borrower’s credit report or is not in the name of the borrower, the

borrower must provide bank statements or other documentation evidencing they have made all payments in the month due for the previous 12 months.

• No late payments on ANY mortgage obligations in the previous 12 months. – Payment must be current up to month prior to disbursement.

• Income from a non-occupant Co-Borrower may not be used to qualify • Max LTV/CLTV 85%. The combined mortgage amount of the first Mortgage and any subordinate liens cannot exceed the

Nationwide Mortgage Limit




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No-Cash-Out Refinances – Rate & Term, Simple and Streamline Refinance

REFINANCES a) Rate & Term Refinances: 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. Only permitted on owner occupied Principal Residences and HUD-approved Secondary Residences.

The maximum LTV for a Rate and Term refinance is:

• 97.75 percent for Principal Residences that have been owner-occupied for previous 12 months, or owner-occupied

since acquisition if acquired within 12 months, at case number assignment;

• 85 percent for a Borrower who has occupied the subject Property as their Principal Residence for fewer than 12 months

prior to the case number assignment date; or if owned less than 12 months, has not occupied the Property for that

entire period of ownership; or 85 percent for all HUD-approved Secondary Residences.




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REFINANCES b) 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. Only permitted on owner occupied Principal Residences and HUD-approved Secondary Residences. • FHA to FHA only. LTV/CLTV up to 97.75% LTV for Principal Residence, 85% for HUD-approved Secondary Residence

• No Special Terms (i.e. buy-out spouse, etc.)

• You cannot include the payoff of any junior liens in a “simple” refinance.

• The loan must be fully credit qualified with an appraisal. The only advantage is reduced MIP cost. See below – Mortgage

Insurance Premiums for assessing upfront and annual MIP.

Streamline Refinance, Simple Refinance: For refinance of previous

Mortgage endorsed on or before May 31, 2009 UFMIP: 1 (bps) (.01%) All Mortgages

All Mortgage Terms Base Loan Amount

LTV Annual MIP (bps) Duration

All ≤ 90.00% 55 11 years > 90.00% 55 Mortgage term

For Mortgages where FHA does not require an appraisal, the value from the previous Mortgage is used to calculate the LTV.

*** PER OUR INVESTORS, THIS PROGRAM IS SUBJECT TO ADDITIONAL CLARIFICATION – WILL PROVIDE WHEN RECEIVE***




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REFINANCES c) Streamline Refinance: Refers to the refinance of an existing FHA-insured Mortgage requiring limited

Borrower credit documentation and underwriting: • FHA to FHA only

• Appraisal is not required

• Loan limits do not apply

• No CLTV limit - The CTLV cap of 125% has been removed, there is no longer a cap on the CLTV.

• Credit qualified – or non-credit qualified. Credit qualified required if dropping a borrower, otherwise Non- credit qualified.

• Net Tangible Benefit requirements now include a reduction in term

• Eligible Property and Occupancy Types has been expanded:

1‐4 Family Primary Residences:

• Borrower must document proof of residence at the subject property (i.e. utility bills, employment docs with the

borrowers address printed on them, etc.)

1‐4 Family Investment Properties and Second Homes:

• The local HOC must approve all second home properties, and that approval must be in the loan file. If that approval is

not obtained, the loan must be processed and underwritten as a non-owner occupied (investment) property.




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REFINANCES • A “net tangible” benefit is:

• A reduced Combined Rate (Combined Rate refers to the interest rate on the mortgage plus the • MIP rate); • A reduced term (see below), and/or • A change from an ARM to a fixed rate mortgage that results in a financial benefit to the borrower.




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REFINANCES • Reduction in term – the net tangible benefit test is met if:

• The mortgage term is reduced; • The new interest rate does not exceed the current interest rate; and • The combined principal, interest and MIP payment of the new mortgage does not exceed the combined principal, interest and MIP of the refinanced mortgage by more than $50.

• Mortgage payment history has changed from 0x30 in the last 3 months to 0x30 in the last 6 months, and 1x30 in the last

4 to 12 months to 1x30 in the last 7 - 12 months.

• Maximum Mortgage Calculations for owner‐occupied properties now also is the same for HUD approved secondary residences. The max mortgage calculation for Investment properties remains different.

• Asset verification has changed: If assets are needed to close in excess of the total mortgage payment of the new

loan, the underwriter must verify, document, and determine the acceptability of the assets to be utilized of all assets needed for closing.

• The seasoning requirement has a new requirement: If the Borrower assumed the mortgage that is being

refinanced, they must have made six (6) payments since the time of assumption.




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REFINANCES • Subordinate Financing has been expanded:

• New simultaneous subordinate financing is only permitted where the proceeds of the subordinate

• financing are used to:

• Reduce the principal amount of the existing FHA‐insured mortgage, or

• Finance the origination fees, other closing costs or discount points associated with the refinance.

• Borrowers to document the terms and conditions of the new loan to be subordinated at closing.

• Credit Qualifying transaction have been mostly eliminated:

• The following transactions must be converted to credit‐qualifying: • Deletion of any borrower from note and title (at least one borrower from the existing mortgage must remain on the

new mortgage). • All other credit qualifying transactions must be switched to an FHA rate/term refinance.




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Authorized User Accounts Installment Debt Negative Income Alimony and/or Child Support

EVALUATING LIABILITIES AND DEBT Must consider payments unless documentation to show account holder has made ALL required payments for the 12 monthspreceding the case number issuance date. If documentation cannot be obtained, debt must be included in borrower ’s DTI ratio. Close-end installment debts does not have to be considered if it will be paid in 10 months PROVIDED:

• Cumulative payment of all such debt is less than or equal to 5% of the borrower ’s gross monthly income Note: Pay down the debt to achieve this amount is not permitted.

Subtracted from borrower ’s gross monthly income and not treated as a reoccurring debt, unless otherwise noted.

Alimony and/or child support paid

• Must obtain borrower ’s paystub covering no less than 28 consecutive days to verify not subject to any garnishment • Payment is greater of what is shown on legal documents or the amount of monthly garnishment




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Deferred Debt(s) Time Share Revolving Accounts

30-Day Accounts

Borrower with Delinquent Federal Tax Debts

EVALUATING LIABILITIES AND DEBT Deferred debt, including student loans regardless on when they will commence must be included in debt ratios.

• If loan is in deferment or in forbearance: 2% of outstanding balance. Example: $50,000 outstanding balance x 2% = $1,000. That is the payment used.

• If loan is in repayment: actual payment • If loan is in income-based repayment plan: if payment is zero use 0. Otherwise use actual payment. • If graduated payment plan: use current payment

A loan secured by a time-share is considered an installment debt. Revolving Accounts

• Used amount listed on credit report. If payment not on credit report, obtain current statement or use 5% of outstanding balance.

30-day account (payment in full required each month) • Do not need to reoccur PROVIDED:

• No late charges during preceding 12 months. If any late charges, loan must be qualified using 5% of the outstanding balance.

• Must use the credit report to document the balance, and must document that funds are available to pay off the balance in excess of the funds and reserves required to close the Mortgage (deduct balance from available assets)

Ineligible, unless they are in a valid repayment plan;

• Borrower must have made at least three payments and cannot pay in advance to satisfy this requirement. The lender must include the payment amount in the DTI.




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Contingent Liability

Business Debt

EVALUATING LIABILITIES AND DEBT An individual can be held responsible for repayment of a debt if another legally obligated party defaults. This can include co-signer liabilities and liabilities resulting from mortgage assumption. Must be reoccurred unless:

• Verification obtained that there is no possibility debt holder will pursue collection from the borrower if the other party defaults.

• Other legally obligated party has made 12 months of timely repayment. Documentation required in order not to reoccur debt:

• Co-signed debt: evidence other party has made 12 payments on time. Someone other than the borrower must also be on the Note. If someone else is making the payments for the borrower, but they are not obligated on the Note, this is not a co- signed debt and the debt must be considered in the borrower ’s DTI ratio.

• Court ordered due to divorce: decree ordering spouse to make payments. Definition: When a debt in the borrower ’s name is paid by the borrower ’s business. Available for any type of self-employed business (Schedule C; 1065; 1120) Qualification:

• When a business debt is reported on the Borrower’s personal credit report, the debts must be included in the DTI ratio unless the lender can document: o That debt is being paid by the Borrower’s business, and o The debt was considered in business cash flow. ***Copies of business cancelled checks along are not sufficient

documentation to exclude the debt. • The debt is considered in the cash flow analysis where the Borrower’s business tax returns reflect a business expense related

to the obligation, equal to or greater than the amount of payments documented as paid out of company funds. • Where the Borrower’s business tax returns show only an interest expense related to the obligation, only the interest portion

of the debt is considered in the cash flow analysis and may be reduced from payment for DTI.




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Obligations Not Considered Debt

EVALUATING LIABILITIES AND DEBT Obligations not considered debt include:

• Medical collection • Federal, state, and local taxes (i.e on borrower paystub), if not delinquent and no payments are required • Automatic deductions from savings, when not associated with another type of obligation • Federal Insurance Contribution Act (FICA) and other retirement contributions, such as 401(k) accounts • Collateralized loans secured by depository accounts • Utilities • Child care • Commuting Costs • Union Dues • Insurance, other that property insurance • Open accounts with zero balances • Voluntary deductions, when associated with another type of obligation




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WAIT PERIODS AND SCORE CARD

EVENT Chapter 7 or 11

WAIT PERIOD 2 years

WAIT PERIOD WITH EXTENUATING CIRCUMSTANCES Less than 2 years but greater than 1: downgrade to a manual Extenuating circumstances include death or serious illness of a wage earner Divorce is not an extenuating circumstance

Chapter 13 2 years At least 1 year since payout Extenuating circumstances include death or serious illness of a wage earner Divorce is not an extenuating circumstance

Foreclosure, Deed-in-Lieu, Pre-foreclosure and Short Sales that were delinquent at time of sale

3 years Less than 3 years downgrade to manual Extenuating circumstances include death or serious illness of a wage earner Divorce is not an extenuating circumstance, unless delinquency occurred after borrower was no longer awarded the property and mortgage was current prior to divorce. Inability to sell the property is not an extenuating circumstance.

Short Sale that was current at time of sale

No restriction provided all mortgage payments were made on time for the 12 months preceding the short sale. In additional all installment debt during the same period were made on time.




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Hourly Part-Time Overtime and Bonus Commission Income

INCOME AND EMPLOYMENT

• If hours do not vary, currently hourly rate used to calculate income. • If hours do vary, must average over past 2 years. If lender can document increase in pay, the mortgagee may use the

most recent 12 month average of hours at the current pay rate.

• Must be uninterrupted for the past 2 years in order to consider. • Average over the past 2 years. If lender can document increase in pay, the mortgagee may use the most recent 12

month average of hours at the current pay rate.

• Must be earned for 2 years. • Lender may consider if earned for 1 year if likely to continue. • If less than 1 year, cannot be considered.

• If less than 25%, use traditional documentation • If 25% or more, tax returns required • If earned less than 1 year, not eligible. This includes situations where change from salary to commission.

• If earned 1 year or more calculation of income is the lesser of:

• Average net earned over the previous 2 years or the length of time since commissioned provided at least 1 year – OR

• Average net earned over the previous 1 year

• Unreimbursed expenses must be deducted from commission income.




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Family Owned Business Self-Employed Borrowers

INCOME AND EMPLOYMENT

• Income earned by the borrower from a business owned by the borrower ’s family and the borrower is not an owner. • Must obtain business documents and/or tax returns to verify no-ownership.

• Must be self-employed 2 years.

• If the borrower has been self-employed between one and two years, the income may only be considered if the

borrower was previously employed in the same line of work. (Education training exception eliminated). If self-

employed less than 1 year, INELGIBLE.

• If there is a greater than 20% decline over the analysis period, the loan must be downgraded to a manual

underwrite.

• Year-to-date P&L and balance sheet required if more than one calendar quarter has elapsed since the most recent

tax return.

• Balance sheet not required if borrower files schedule c • If the income used to qualify exceeds the 2 year tax return average, the P&L must be audited.




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Temporary Income Reduction Gap of Employment Stability of Employment

INCOME AND EMPLOYMENT Short Term Disability, maternity leave, etc.

• Letter from borrower on intend to return including date

• Letter from employer confirming right to return and date Qualifying Income:

• If they will return on or before 1st payment: pre-leave salary.

• If they will return after 1st payment:

• CURRENT income, plus available surplus reserves (over and above required reserves) to supplement, up to the amount of the pre- leave income.

For Borrowers with gaps in employment of six months or more (an extended absence), may be considered as Effective income if it can be verify and document that:

• The Borrower has been employed in the current job for at least six months at the time of case number assignment; and

• A two year work history prior to the absence from employment using standard or alternative employment verification.

If borrower has changed jobs more than 3 times in prior 12 months or has changed line of work, lender must take additional steps to verify & document stability




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Alimony and Child Support Income VA Disability Income Military Income

INCOME AND EMPLOYMENT Length of receipt:

Divorce Decree, Legal Separation and/or Court Order:

• Must be receiving for at least 3 months

Voluntary Agreement:

• Must be receiving for at least 12 months Qualifying Income:

Income is paid in timely manner over past 6 months:

• Alimony/Child Support: Current Payment

• Voluntary can use most recent 6 month average

Income is not paid in timely manner:

• Average over the past 2 years (or since inception if less than 2 years)

VA Disability income requires VA form 26-8937 (Verification of Benefits (processed).)

Military income requires verification that borrower enlistment not expires less than 12 months after closing.




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Boarder Income Expected Income Increase Non-Taxable Income

INCOME AND EMPLOYMENT Boarder refers to an individual renting space inside the Borrower’s Dwelling Unit. Rental income is only acceptable if Borrower has a two-year history of receiving income. Lender must obtain two years tax returns and the current lease. Calculate the effective income by using the lesser of the two year average of the current lease. For purchase transactions, lender must obtain a copy of the executed written agreement documenting their intent to continue boarding with the borrower. Cost of living, performance raise, new job and/or retirement

• Now permitted to consider if received within 60 days of closing • Not eligible for individuals employed by family owned business

Non-taxable Income (grossing up), may include, but is not limited to:

• Some portion of Social Security • some federal government employee Retirement Income; • some state government Retirement Income; • Some retirement plans • Some disability plans • Child support • Certain types of disability and public assistance payments • Military Allowance; and other income that is documented as being exempt from federal income taxes.

• Cannot exceed the greater of 15% or the appropriate tax rate for the income, based upon the borrower ’s prior tax

return – if tax returns filed.

• Use 15% if the Borrower was not required to file a federal tax return for the previous tax reporting period.




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Rental Income from Subject Property

RENTAL INCOME

• Vacancy factor for all areas is 25% No history of rental income:

• Verify proposed rent via appraisal form 2-4 Units - document the fair market rent with Fannie Mae Form 1025 and if available prospective leases One Unit – document the proposed rent by obtaining an appraisal, A Single Comparable Rent Schedule(FNMA 1007), and an Operating Income Statement (FNMA 216), showing fair market rent and, if available, the prospective lease

• Income is the lesser of: • The monthly operating income statement – or • 75% of the lesser of fair market rent reported by appraiser; or lease.

History of rental income • 2 years tax returns • If owned less than 2 years, document acquisition date by providing the deed, Settlement Statement or similar legal

document • Income is the average of net Schedule E income • Depreciation, interest, taxes, insurance and HOA can be added back in




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Rental Income Other Real Estate Owned

RENTAL INCOME • If derived from the property being vacated, the borrower must be relocating to an area more than 100 miles, otherwise

income cannot be considered. In addition must have 25% equity, and lender must obtain a lease agreement of at least (1) year duration after the Mortgage is closed and evidence of the payment of the security deposit or first month’s rent.

• No history since previous tax filing: Where the borrower does not have a history of Rental Income for the property

since the previous tax filing, including property being vacated by the Borrower, the lender must obtain an appraisal evidencing market rent and that Borrower has at least 25% equity in the Property.

• One unit: Appraisal report plus rental schedule – Appraisal is not required to be completed by and FHA Roster

Appraiser • Two-four unit: Appraisal report plus income/operating statement - Appraisal is not required to be completed by and

FHA Roster Appraiser • Income determined by deducting the PITI from the lesser of:

• Monthly income from Operating Income Statement – OR • 75% of the lesser of fair market rent; or lease

History of rental income:

• 2 year tax return. If less than 2 years, document acquisition. • Income determined by adding back depreciation

• If positive result add to income • If negative result add to debt




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Minimum Cash Investment Earned Money Deposit Large Deposits

ASSETS

Minimum cash investment CANNOT come from:

• Seller

• Any interested party

• Anyone reimbursed by either the seller or an interested party Earnest Money Deposits on purchase contracts must be verified and documented when the amount is ≥ 1% of the sales price or excessive based upon borrower ’s savings history.

Require written explanation and supporting documentation is any deposit is more than 1% of the adjusted value of the subject property (adjusted value is the lesser of the appraised value or sales price.)




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Gift Funds

ASSETS

• Donor for cash gifts:

• “Family Member” (defined on page 1) • Employer • A close friend with clearly defined interest • Charitable organization • Government agency

• Donor for gift of equity: • “Family Member” (defined) are the only permitted individuals

• Gifts CANNOT be used for reserve requirements

• Regardless of when gift funds are available, the mortgagee must make a reasonable determination that it is not provided from an unacceptable source.

• Effectively this means the mortgagee has the right to “source” gift funds if large deposit into a donor ’s account.




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Gift Transfer

ASSETS

• Gift funds IN the borrower ’s account

• Gift letter • Donor ’s bank statement showing the withdrawal • Deposit slip to borrower ’s account

• Gift funds NOT in the borrower ’s account

• Gift letter • Evidence of certified check, money order, cashier ’s check or wire transfer • Donor ’s bank statement showing the withdrawal

• Gift funds paid directly to settlement agent • Gift letter • Verify agent received the funds from the donor ’s bank account • Evidence received from acceptable source (must see the donor ’s bank statement to effectively verify this)




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Interested Party Contribution Non-Profit Entities

ASSETS

• Seller, Real Estate Agents, Builders, Developers or any other party with an interest in the transaction.

• Up to 6% • Can include origination fees, other closing costs and discount points, permanent or temporary buy down costs,

UFMIP

• May NOT be used for borrower ’s minimum investment

• Items must be itemized either the HUD or Closing Disclosure

Non-profit entities may now provide secondary financing to FHA borrowers without CLTV cap.