procedural manual - ahfa manu… · revised 06/17 • page 4 introduction the alabama housing...

PROCEDURAL MANUALALABAMA HOUSING FINANCE AUTHORITY

Revised 06/17 •

CONTENTS

INTRODUCTION

SECTION I—DEFINITIONS .......................................................................................................................................................... 4

SECTION II—MORTGAGOR ELIGIBILITY EVALUATION ................................................................................................................ 6

A. IncomeRestrictions ..................................................................................................................................................... 6B. Occupancy ................................................................................................................................................................... 6C. ResidenceUsedasVacation,Seasonal,Rental,RecreationalorSecondHome .......................................................... 6D. LegalSeparation .......................................................................................................................................................... 6E. HomebuyerEducation ................................................................................................................................................. 6F. Credit Score Requirement ............................................................................................................................................ 7G. TotalDebt-to-IncomeRatio .......................................................................................................................................... 7H. AcceptableMIProviders .............................................................................................................................................. 7I. AUS Findings ................................................................................................................................................................ 7J. Tax Liens ....................................................................................................................................................................... 7K. FederalTaxReturnTranscripts ..................................................................................................................................... 7L. PreviousForeclosure .................................................................................................................................................... 8

SECTION III—LOAN ELIGIBILITY EVALUATION ............................................................................................................................ 8

A. PermittedEncumbrances ............................................................................................................................................ 8B. Types of Loans ............................................................................................................................................................. 8C. Amount of Mortgage Loan .......................................................................................................................................... 8D. New Mortgage Requirements ..................................................................................................................................... 8

SECTION IV—PROPERTY ELIGIBILITY EVALUATION .................................................................................................................... 8

A. EligibleLoanArea ........................................................................................................................................................ 8B. QualifyingResidences ................................................................................................................................................. 8C. Foreclosures ................................................................................................................................................................. 9D. AHFA Requirements for Repair Escrows ....................................................................................................................... 9

SECTION V—RESERVATION SECTION ......................................................................................................................................... 9

A. ReservationProcedures .............................................................................................................................................. 9B. Rate Commitment Form .............................................................................................................................................. 9C. ReservationDocumentDelivery ................................................................................................................................ 10D. ReservationExpirationDate ...................................................................................................................................... 10E. LockPolicy .................................................................................................................................................................. 10F. CancellationofReservation ....................................................................................................................................... 11G. TransferofReservation ............................................................................................................................................. 12

SECTION VI—LOAN PROCESSING AND UNDERWRITING PROCEDURES .................................................................................. 12

A. RequestforConditionalCommitmentPackage ........................................................................................................ 12B. RequestforConditionalCommitment ...................................................................................................................... 12

SECTION VII—INCOMEGUIDELINESFORSALARIEDANDSELF-EMPLOYEDMORTGAGORS ..................................................... 13

A. SalariedMortgagors .................................................................................................................................................. 13B. Self-EmployedMortgagors ........................................................................................................................................ 16C. Non-BorrowingSpouses,Partners,AllOtherOccupants18YearsorOlder ............................................................... 17D. CurrentlySeparatedorSeparatingSpouses ............................................................................................................... 17E. Co-Signer/Non-OccupantGuarantors ........................................................................................................................ 17

SECTION VIII—ISSUANCE OF THE CONDITIONAL COMMITMENT ............................................................................................ 18

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SECTION IX—CLOSED LOAN PROCEDURES .............................................................................................................................. 18

A. ConditionalCommitment .......................................................................................................................................... 18B. VerificationsofIncome.............................................................................................................................................. 19C. SettlementStatementFees ....................................................................................................................................... 19

SECTION X—LOAN PURCHASES AND TRANSFER OF SERVICING RIGHTS ................................................................................. 19

A. ReviewoftheMortgageLoan ................................................................................................................................... 19B. PenaltiesWithheldfromFunding .............................................................................................................................. 19C. FundingoftheMortgageLoan .................................................................................................................................. 20D. FinalDocumentation ................................................................................................................................................. 20E. TransferofLoanServicingRightsandBenefits .......................................................................................................... 20

SECTION XI—MODIFICATIONS ................................................................................................................................................ 21

SECTION XII—ASSUMPTIONS .................................................................................................................................................. 21

SECTION XIII—DOWN PAYMENT ASSISTANCE ......................................................................................................................... 21

A. Reservations .............................................................................................................................................................. 21B. Eligibility .................................................................................................................................................................... 21C. Types of Loans ........................................................................................................................................................... 21D. CalculationofAssistanceAmount ............................................................................................................................. 22E. RequiredDocumentation .......................................................................................................................................... 22F. Term and Repayment ................................................................................................................................................ 22G. Commitment Periods ................................................................................................................................................ 22H. Issuance of Funds ...................................................................................................................................................... 22I. FeesinOrigination .................................................................................................................................................... 22J. PurchaseandServicing ............................................................................................................................................. 22K. Assumptions .............................................................................................................................................................. 22

SECTION XIV—DELEGATED EXAMINER OPTION ...................................................................................................................... 22

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INTRODUCTIONTheAlabamaHousingFinanceAuthority(theAuthority),isapubliccorporationandaninstrumentalityoftheState.ItwasorganizedpursuanttoTitle24,Chapter1AoftheCodeofAlabama,asrevised.TheAuthority,anon-profitorganization,wasestablishedasthehousingentityforthestatein1980andcurrentlyadministersseveralhousingprogramssuchastheFirstStepMortgageRevenueBondProgram,theMortgageCreditCertificateProgram,theStepUpProgram,theDownPaymentAssistanceProgram,theHabitatforHumanityLoanPurchaseProgram,theLow-IncomeHousingTaxCredit“LIHTC”andtheHOMEProgram,aswellasseveralspecialtyhousingprogramswithinthestateofAlabama.

Thelenderdeterminesifthemortgagor,loan,andpropertyarewithinguidelinesasstatedinSectionsII,III,andIVoftheStepUpProceduralManualbaseduponinformationobtained.ThelendermustexplaintheProgramanditsrequirementstothebuyer.

ThelenderreservesfundsandsendstotheAuthoritythereservationpackageasstatedinSectionVoftheStepUpProceduralManual.

ThelenderprocessesandunderwritestheloanasstatedinSectionsVIandVIIoftheStepUpProceduralManual.ThelendersendstotheAuthoritytheRequestforConditionalCommitmentpackagebeforeclosingasstatedinSectionVIoftheStepUpProceduralManual.UponapprovaloftheloanthelenderwillreceivefromtheAuthorityaconditionalcommitment.Thelendermaythenclosetheloanwiththeconditionslistedontheconditionalcommitment.ThelendermusthavetheloanapprovedbytheAuthorityandclosetheloanbeforethereservationoffundsexpires.

AftertheloanclosingthelendersendstotheAuthoritytheclosedloanpackageasstatedinSectionVIIIoftheStepUpProceduralManual.Uponreceiptandapprovaloftheclosedloanpackage,theAuthoritywillfundthemortgageloanasstatedinSectionIXoftheStepUpProceduralManual.

ThepurposeofthismanualistoprovidepertinentinformationandtoenhanceanycurrentguidelinesestablishedbyAuthorityfortheStepUpProgram.ApplicableProgramGuidelinesandtheOriginationandSaleAgreementsupersedethismanual.Pleaseutilizetheappropriate,applicabledocuments.TheAuthorityreservestherighttoupdateorrevisetheStepUpProceduralManualatanytime.

SECTION I—DEFINITIONS

Agreement: TheOriginationandSaleAgreementbetweentheOriginatorsandtheAuthority,andallamendmentsorsupplementswhereappropriate,theInvitation,theNoticeofAcceptance,andallformsorreportsprescribedbytheAuthority.

Appraised Value: Anappraisers’opinionofvaluebasedonregulationsandguidelinesestablishedbythemortgageindustry.

Authority: AlabamaHousingFinanceAuthority,apubliccorporationandinstrumentalityoftheStateorganizedpursuanttotheAct,oranysuccessortoitsduties.

Co-Signer: Apersonwhowilloccupythepropertybeingpurchasedandwhowillbesecondarilyliableforthemortgageloan.

Commitment Fee: Apercentageamountoftherelatedmortgageloan,tobepaidtotheAuthoritythroughaLenderatthetimeofReservationofFunds.

Conventional Mortgage:AMortgageLoanotherthananFHA-InsuredMortgageLoanoraMortgageLoanwithaVAGuarantyoraRuralDevelopmentGuaranty.

Eligible Mortgagor: ApersonintendingtopurchaseaprincipalresidencetobefinancedwithaStepUploan,whocanmeetallqualificationsasestablished.

Eligible Loan Area: TheentiregeographicalareaoftheStateofAlabama.

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Equal Credit Opportunity Act (ECOA): Afederallawthatprohibitslendersfromdenyingmortgagesonthebasisoftheborrower’srace,color,religion,nationalorigin,age,sex,maritalstatus,orreceiptofincomefrompublicassistanceprograms.

Family Income: ThemeaninggiventosuchterminSectionIIofthisManual.

Fannie Mae: TheFederalNationalMortgageAssociation,oranysuccessorthereto.

Fee Simple: Thegreatestpossibleinterestapersoncanhaveinrealestate,includingtherighttodisposeofthepropertyorpassitontoone’sheirs.

FHA: TheFederalHousingAdministrationoftheDepartmentofHousingandUrbanDevelopmentoftheUnitedStatesofAmerica,oranysuccessorthereto.

Ginnie Mae: TheGovernmentNationalMortgageAssociation,aentirely-ownedcorporateinstrumentalityoftheUnitedStatesofAmericawithintheDepartmentofHousingandUrbanDevelopment,whosepowersareprescribedgenerallybyTitleIIIoftheNationalHousingActof1932,asamended.

Ground Rent: Theearningsofimprovedpropertyallocatedtothegrounditselfafterallowanceismadeforearningsoftheimprovements.Also,paymentfortheuseoflandinaccordancewiththetermsofagroundlease.

Guarantor: Apromisebyonepartytopaydebtorperformanobligationcontractedbyanotherintheeventthattheoriginalobligorfailstoperformascontracted.

Interest Held In Trust: Propertyheldintrustuntilfulfillmentofcertainconditionsaremet.

Joint Tenancy:Jointownershipbytwoormoreperson,givingeachtenantequalinterestandrightsintheproperty,includingtherightofsurvivorship.

Lease: Awrittendocumentcontainingtheconditionsunderwhichthepossessionanduseofrealand/orpersonalpropertyaregivenbytheownertoanotherforastatedperiodandforadatedconsideration.

Life Estate: Afreeholdestategivingabeneficiaryallpropertyrights,excepttherighttosell.Theestateisterminateduponthedeathofthebeneficiary.

Mortgage: TheinstrumentsecuringamortgageloanwhichcreatesalienonaResidencesubjectonlytoPermittedEncumbrances.

Mortgage Documents: ThedocumentsspecifiedfordeliverytotheAuthority.

Mortgage Loan: AnyloanevidencedbyaMortgageNotewhichissecuredbytherelatedMortgageforfinancingthepurchaseofaResidence.

Mortgage Note: Thepromissorynoteevidencingtheobligationtorepayamortgageloan,payabletotheorderofalender,executedbyamortgagortoevidenceobligationtorepaythemortgageloan.

Mortgagor: Thepurchaserofasingle-familyresidencewhoborrowsfundstoobtainaResidence.

New Construction: Single-Familyresidenceslessthanoneyearoldandneveroccupied.

Originators: LendinginstitutionsthatexecuteanAgreementwiththeAuthoritytoparticipateintheProgram.

Permitted Encumbrances: ThetitleencumbrancesonaResidencepermittedundertheProgramGuidelines.

Primary Wage Earner: Theoccupying,note-signingborrowerwhoreceivesthemostmonthlyincome.

Principal Residence: HousingwhichtheEligibleMortgagorintendstooccupyasaprimaryresidenceandwhichisnottobeusedinatradeorbusiness,orasaninvestmentproperty.

Profit and Loss: Astatementbyabusinessreflectingafinancialgainorlossforagivenperiod.

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Program Guidelines: GuidelinesestablishedbytheAuthoritytoadministertheStepUpProgramandanyrevisions,amendmentsandmodificationsthereof.

Program Participation Fee: AfeetobesetbytheAuthorityforeachseries.

Rate Commitment: Aninterestrateguaranteedtotheborrowerforeither15daysor30daysfromtheloanreservationdate.

RD (Rural Development): AU.S.agencyformerlyknownasFarmersHomeAdministration.

RD Guaranty: AguarantyofamortgageloanbyRDundertheprovisionsofSubchapterIII,Chapter8A,Title42,U.S.CodeAnnotated.

Remainder Interest: Thepropertyremainderofanestateaftertheterminationofapriorestate;canhaveeitheravestedorcontingentinterest.

Reservation Expiration Date: Aperiodof30daysor15daysfromthereservationdate.

Reservation of Funds: ReservedfundsequaltothemortgageloanamountforanEligibleMortgagor.

Residence: Asingle-familyowner-occupieddwellingunitlocatedwithintheEligibleLoanArea,includingdetachedandattachedunits,condominiums,plannedunitdevelopmentsandmanufacturedhomeswhichhaveaminimumof400squarefeetoflivingspaceandaminimumwidthof102inchesandwhichisofakindcustomarilyusedatafixedlocation,andmeetingapplicablelenderrequirements.

Servicer: AlabamaHousingFinanceAuthority.

State: TheStateofAlabama.

Survivorship: Thelegalrightofthesurvivororpersonshavingjointinterestinpropertytotaketheinterestofthepersonwhoisdeceased.

Take-Out Loan: Anymortgageloanmadeforthepurposeofpayingaconstructionperiodloan,bridgeloanorsimilartemporaryinitialfinancingwhichqualifiesassuchpursuanttoSectionII,oftheStepUpProceduralManual.

Transfer Date: AdatetobedesignatedinaccordancewiththeOriginationPeriodasdefinedintheProgramGuidelinesofanyseries.TheTransferDateisestablishedbytheAuthority.

SECTION II—MORTGAGOR ELIGIBILITY EVALUATION

A. IncomeRestrictions.TheAuthorityhasadoptedasingleincomerestrictionfortheprogram.Theannualfamilyincomeofthemortgagormaynotexceed200%ofthestatewidemedianincome—or$97,300asofOctober21,2005.Annualfamilyincomewillbecalculatedtoincludetheincomeofanyoneover18yearsofagewhowillresideinthehome.TheAuthoritymayrevisetheincomeeligibilitycriteriainthefuture.

B. Occupancy. MortgagormustoccupytheresidenceastheirPrincipalResidencewithin60daysaftertheclosingandthereafter,astheirprincipalandpermanentresidence.

C. ResidenceUsedasVacation,Seasonal,Rental,RecreationalorSecondHome.TheMortgagorcannotpurchasetheresidenceforuseasarental,recreational,seasonal,vacationorsecondresidence.

D. LegalSeparation.Legalseparationagreementsarenotacceptabledocumentationinthedeterminationofahousehold’seligibility.LendersmusttreatseparatedoccupantsasmarriedandtheseparatedspousemustmeetallStepUpguidelinesasestablishedinSectionsII,III,&IVofthismanual.

E. HomebuyerEducation.AlleligiblemortgagorsmustcompleteanAHFA-approvedhomeownershipeducationcoursepriortoloanclosing.TheOriginatormustsubmitthecertificateofcompletionwiththeclosedloanfile.CertificatesofcompletionmustbedatedwithinoneyearofloanreservationtoAHFA.Acceptableformsofcounselingincludeface-

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to-face,variousonlinecourses,andtheKeystoHomeownershipbookpublishedbytheNationalFoundationforCreditCounseling.

F. CreditScoreRequirement.UnderFHAStepUpandConventionalStepUp,theprimarywage-earning,occupyingborrowermusthaveamiddlecreditscoreofatleast620tobeeligiblefortheprogram.Inthecasetheprimarywage-earnerhasonlytwoscores,thelowerofthetwoscoresmustbeused.Inthecasetheprimarywage-earnerhasonlyonescoreordoesnothaveacreditscore,theborrowerwouldnotbeeligiblefortheprogram.Theprimarywage-earnerisdefinedastheoccupyingborrowerwiththehighestmonthlyincome.

AllotheroccupyingborrowersmustmeetFHAcreditscorerequirementsforFHAStepUp;orFannieMaeandtheapplicableMIcompanycreditscorerequirementsforConventionalStepUp.

G. TotalDebt-to-IncomeRatio.TheTDTIratiomaynotexceed45percentfortheStepUpprogram.Whenusingthe“HFAPreferred”conventionalproduct,thelenderwillalsoneedtoadheretocurrentFannieMaeTDTIrequirements,inadditiontotheapplicableMIcompanyTDTIrequirements.TDTIratioshouldbebasedonthelender’s qualifyingtotalincomeandtotaldebts.ToverifyTDTI,thefollowingdocumentationmustbesubmittedwiththecompliancepackage:

•DUFindingsorFHATotalScorecardFindings(FHA)

•DUFindingsonly(conventional)

AND

•HUDForm92900-LT(FHALoanUnderwritingandTransmittalSummary)forFHAloans

•1008forconventionalloans

Oncetheclosedfileisreceived,AHFA’sFundingandDeliveryDepartmentwillensurethefinalTDTImeetsprogramguidelinesbyreviewingthefinalAutomatedUnderwritingFindingsandfinalFHALoanUnderwritingandTransmittalSummary.Loansnotmeetingprogramrequirementswillnotbepurchased.

H. AcceptableMIProviders.Lendersmayusethefollowingproviders:1)Arch,2)Essent,3)Genworth,4)MGIC,5)NationalMI,or6)Radian.Thislistissubjecttochange.

I. AUSFindings.AHFAwillnotacceptmanualunderwritingforFHA/conventionalloanapprovals.WeacceptDUorFHATotalScorecardFindingsresultinginApprove/EligibleorAccept/AcceptthatisconsistentwithFHAguidelines,andDUFindingsresultinginApprove/Eligibleconsistentwithconventionalguidelines.DU/FHATotalScorecardsubmissionsforFHAloansresultinginaReferdecisionwillbeineligiblefordeliverytoAHFA.DUsubmissionsresultinginaReferdecisionwillbeineligiblefordeliverytoAHFA.

J. Tax Liens.Unpaid,unsatisfied,and/orunreleasedfederalorstatetaxliensarenotpermittedundertheStepUpProgram.Anyborrowerorspousewhowillholdtitlethathasataxliencannotutilizetheprogram.Wewillnotacceptrepaymentplansonfileswithanestablishedlien.Allliensmustbesatisfiedpriortoapprovalandevidencetosupportthereleaseincludedintheloanfile.

Furthermore,ifaborrowercurrentlyhasarepaymentplaninplacefortaxesowed(notyetataxlien)andshowsahistoryofprevioustaxlienspercreditdocuments,theywillnotbeeligiblefortheStepUpprogramaswell.

Asasidenote,shouldaborrowercurrentlyhavearepaymentplaninplacefortaxesowed(notataxlien)andthatcreditissueisreferencedinourcompliancepackage,forourpurposes,AHFAwillrequireverificationfromtheIRSthattheaccountiscurrent.Iftheaccountisnotcurrent,AHFAwillnotbeabletoapprovetheloanduetotheuncertaintythatataxliencouldbeimposedatanypoint-in-time.

K. FederalTaxReturnTranscripts.Thelendermustbeabletoprovidethemostrecentyear’sIRStaxtranscriptsforeachoccupyingborrowerandnon-borrower(s),18yearsofageandolder.Self-employedborrowersarestillrequiredtoprovidethemostrecenttwoyears’transcriptsandayear-to-dateprofitandlossstatement.AnylatefilersorIRSresponsesof“norecordoftaxreturnbeingfiled”wherereturnswereapplicablewillhavetobesatisfactorilyresolvedbeforetheloanwillbeeligibleforStepUp.ExtensionswillnotbeacceptedbyAHFA.

L. PreviousForeclosure.Anyborrowerwithapreviousforeclosureor“DeedinLieu”,byanyservicer,mustwaitthreeyears

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beforeapplyingforfinancingthroughAHFA’shomeownershipprograms.Inaddition,theymusthaveestablishedtwonewcreditlines(asreportedonthecreditreport)followingtheforeclosuresalewithanacceptablepayhistory,andtheymusthavea660minimumcreditscore(middlescore).Non-traditionalcreditaccountswillnotbeacceptableasnewaccounts.ThelendermustreceiveanApprove/Eligibleunderwritingdecision.Manuallyunderwrittenloanswillnotbeeligiblefortheprogram.

SECTION III—LOAN ELIGIBILITY EVALUATION

A. PermittedEncumbrances.AllMortgageLoansmustbesecuredbyafirstlienonthefeesimpletitleorleaseholdestatetotheResidence.PermittedEncumbrancesarethoseliens,covenants,conditionsandrestrictions,rightsofway,easementsandothermattersofpublicrecordasofthedateoftherecordingoftherelatedMortgage.TheseencumbrancesmustbepermittedunderFHAandGinnieMae,asapplicable.

B. TypesofLoans.Inordertoqualifyundertheprogram,eachmortgageloanmustbeinsuredbyFHA(203(k)loansarenoteligibleforinclusionintheStepUpprogram)orFannieMae.

C. AmountofMortgageLoan.ThemaximumamountofanymortgageloanmaynotexceedtheapplicablerequirementsofFHAandGinnieMaeasoftheclosingdateofthemortgageloan.

D. NewMortgageRequirements.Norefinancingofanyoutstandingindebtednessshallbepermittedexceptwithregardtotake-outloans.Atake-outloanmaybemadetopermitanEligibleMortgagortofinancearesidencewhichqualifiesasanewlyconstructedresidenceundertheProgramGuidelines.

Ifwarrantedbythecircumstances,anEligibleMortgagorshallbeconsideredasbothaMortgagorandasellerwithrespecttotake-outloans.Anewlyconstructedresidenceisconsideredaresidencewhichhasnotpreviouslybeenoccupied,andislessthanoneyearold.

SECTION IV—PROPERTY ELIGIBILITY EVALUATION

A. EligibleLoanArea.TheEligibleLoanAreashallbetheentiregeographicboundariesoftheState.

B. QualifyingResidences.Subjecttocertainlimitationsdescribedbelow,allResidencesfinancedbytheStepUpProgrammustmeetthefollowing:

1. TheResidencesmustbepermanentlyaffixed,andconsidered“RealProperty”;

2. Detachedsingle-familyhouses,consistingofnomorethanonedwellingunit;

3. Attachedsingle-familyhousesortownhouses,unitswhicharemanufacturedhousinginsuredunderSection203(b)oftheNationalHousingActof1934,asamended;and

4. Unitsofa“condominium”orunitswithina“plannedunitdevelopment”assuchtermsaredefinedintheFannieMae guide.

5. ManufacturedhomesusingFHAfinancingmustmeetthefollowingrequirements:

(a) Themanufacturedhomemustbeattachedtotheland.

(b) Themanufacturedhomemustbeclassifiedandtaxedasrealestate.

(c) Inaccordancewiththejurisdictionalrequirements,themanufacturedhometitlehastobesurrendered/cancelled(copyofcancellationmustbeprovidedatthetimeofloanpurchasebyAHFA).

Nomorethan5%oftheReservationsofFundsmaybeused,withoutthewrittenauthorizationoftheAuthority,tooriginatemortgageloanswhichconstitutemanufacturedhousing.Allproductguidelinesconcerningtheeligibilityof

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manufacturedhousingmustbemet.

C. Foreclosures.AllforeclosedpropertiesmusthaveaffirmativetitlecoveragewithnoexceptionforRightofRedemption.

D. AHFARequirementsforRepairEscrows.SincetheparticipatinglenderistheserviceruntiltheloanispurchasedbytheAuthority,thelenderwillapproveanyrepairescrow,followingapplicablecreditguidelines.

Furthermore,theAuthoritywillnotpurchaseaStepUploanwithanoutstandingrepairescrow.TheclosedloanpackagesubmittedtoourFundingDepartmentwillneedtoincludetheFinalInspection,verifyingrepairshavebeencompleted,inorderfortheloantobepurchasedbytheAuthority.Asaresult,thelenderneedstobemindfulthatanydelaysinthecompletionwillcauseadelayinthepurchaseoftheloan.

SECTION V—RESERVATION SECTION

A. ReservationProcedure.Subjecttothefundingrestrictionsandapplicablereservations,applicationsformortgageloanswillbeacceptedinallofthelendingofficesofeachParticipatingOriginatorintheState.Reservationswillbemadeonafirst-come,first-served,fairandequalbasisirrespectiveofrace,color,religion,nationalorigin,age,orsex.

Priortomakingareservationrequest,thelendermusthavetakenamortgageloanapplicationfromapotentialEligibleMortgagor.Themortgagorfurnishesthelenderanearnestmoneysalesagreementorconstructioncontractenteredintobytheseller/builderofaResidenceandtheEligibleMortgagor.LendersareresponsibleformakingapreliminarydeterminationtoseeifthepotentialEligibleMortgagorwillqualifyforthemortgageloan.TheProgramprocessingisdesignedtocomplimentthelender’sregularcreditandunderwritingprocedures.SincetheAuthorityisnotpartofthecreditapprovalprocess,noformalnoticeofrejectionoftheStepUploanisrequiredbytheAuthorityundertheEqualCreditOpportunityAct.TheAuthorityrecognizestheproceduralvariationsamongparticipatinglenders.

Thefollowingstepsareforthereservationandloanprocessingprocess:

1. TheEligibleMortgagorappliesformortgagefinancingfromaparticipatinglender.

2. ThelenderdeterminesiftheloanapplicantiseligiblefortheStepUpProgrambasedonpreliminaryinformationobtainedonannualincome.

3. Allmortgageloansmustbeoriginatedincompliancewith,andmustconformtotheprovisionsofallapplicablerules,regulationsandlimitationsofFHA,GinnieMae,andFannieMaeasappropriate.

EachlenderistoassignusernamesandpasswordstodesignatedemployeesresponsibleformakingrequestsforReservationsofFunds.AllreservationsmustbemadethroughtheAuthority’sonlinereservationsystem,https://lenders.ahfa.com. Telephonedrequestsforreservationswillbeacceptedifthewebsiteisunavailableformorethan24hours.Inthatevent,telephonereservationswillbeacceptedtemporarilyuntilthesiteresumesoperation.The Authority, at its sole discretion, may continue to accept reservation request in the manner specified even though the available funds may be fully reserved. Thesereservationrequestsmaybeeligibleforfundingonafirst-come,first-servedbasisunderanyfutureStepUpprograms.

B. Rate Commitment Form. BeginningonadatedesignatedbytheAuthority,theparticipatinglendersmayrequestReservationsofFundsonlineathttps://lenders.ahfa.com.ThelendercompletestheNewReservationFormwithintheonlinesystemtoreservefundsandsecurethecurrentinterestrate.Uponcompletionoftheform,theonlinesystemwillgenerateacommitmentnumberandexpirationdateofthecommitment.ThelenderthenprintstheReservationofFunds/RateCommitmentFormwithintheonlinesystemfortheborrower(s)’sexecution.ThelenderwillincludethisformandtheReservationAcceptanceinStep1oftheStepUppackage.

NOTE:Thelenderisresponsibleformakingthereservationinatimelymannerwhiletherateisstillavailable.TheStepUprateissubjecttochangewithmarketactivity.Undernocircumstancesshouldalenderpostponeordelaymakingareservation,duetothepossibilityofanincreaseintherate.AHFAcannothonoralender’sdisclosuretoaborrowerwithoutanactualloanreservationcommitmentissuedfromLenderOnLine.

(ProposedConstruction)ReservationofFundsCommitmentForm.WhiletheAuthorityofferstheAlabamaHomeBuyer

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InitiativeunderConventionalStepUp,lenderswillhavetheopportunitytoreservefundsonlyfora120-dayperiodonproposedconstruction.Thisoptionwillbeavailableforalimitedtime.ThelenderusesthesameNewReservationFormafterselectingtheproposedconstructionoptionwithintheonlinesystem.Uponcompletionoftheform,theonlinesystemwillgenerateacommitmentnumberandexpirationdateofthefunds.Thelenderthenprintsthe(ProposedConstruction)ReservationofFundsCommitmentFormwithintheonlinesystemfortheborrower(s)’sexecution.ThelenderwillincludethisformandtheReservationAcceptanceinStep1(a)oftheStepUppackage.

Thelenderwillthenberesponsibleforlockingtheinterestratebythecommitmentexpirationdate.ThiswillbeachievedbysubmittingtheRateLockRequestFormtotheAuthoritytolockthecurrentinterestrate.Oncethelenderreceivesconfirmationoftheratelock,theywillprinttheReservationofFunds/RateCommitmentFormtoconfirmtherateandrevisedcommitmentexpirationdate.Theborrower(s)willexecutetheform,anditwillbeincludedinStep1oftheStepUppackage.ThestandardStepUpnon-refundablecommitmentfeewillbedueatthistimewhichis0.50%fora15-dayreservationand0.75%fora30-dayreservation.

C. ReservationDocumentDelivery.UponcompletionoftheLoanReservationFormandreservationprocedure,eachlendermustfurnishtheAuthoritywiththeReservationPackageasstatedontheStepUpTransmittalChecklist(Step1),Appendix1.TheAuthoritymustreceivethesedocumentswithin72hours(threeworkingdays)ofreceiptofacommitmentnumber.FailuretodelivertherequesteddocumentationtotheAuthoritywithinthetimespecifiedmayresultincancellationoftheReservationofFundsandRateCommitment.Documentationshouldbemailedto7460HalcyonPointeDrive,Suite200,Montgomery,AL36117.

D. ReservationExpirationDate.Therewillbetwoavailable“lockin”commitments:

1. A30-dayreservationexpirationrequiringanon-refundablecommitmentfeeof0.75%ofthetotalloanamountforFHAandconventionalloans.

2. A15-dayreservationexpirationrequiringanon-refundablecommitmentfeeof0.50%ofthetotalloanamountforFHAandconventionalloans.

E. LockPolicy.ThepurposeofthispolicyistoenhancetheAuthority’sStepUpprogrambyofferingspecificrulesandguidelinesinareasthatwerepreviouslyhandledonacase-by-casebasis.

1. Extensions

(a) Fifteen-dayextensionsareavailableon15-dayor30-dayreservations.

(b) Thecostperextensionis0.25percent.

(c) Extensions must be requested on or before the reservation expiration date.

(d) Amaximumoftwoextensionsareavailableona15-dayreservation,oneona30-dayreservation.

(e) Theextensionfeemustbereceivedwithin72hoursoftheextensionrequestorthereservationwillexpireandtheextensionopportunitywillbelost.

2. Re-locks

(a) Re-locksareavailableatworst-casepricingforexpiredreservationsorreservationsthathavebeenextendedthemaximumamountoftimeallowed.

(b) Re-lockedloansmustpayanadditionalcommitmentfee.

(c) Reservationsthatarenotexpiredmaynotre-lock.

(d) Areservationto the borrowermustbeexpiredfor60daystogetcurrentmarket(betterrate).

(e) Reservationsthatarecancelledduetononpaymentofthecommitmentfeemayre-lockatworst-casepricing.

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(f) Borrowersthatchangelendersmustre-lockduetosystemlimitations,butwillretaintheoriginalreservation.

(g) Borrowersthatchangeproperty,providedthattheloanamountiswithin10percentoftheoriginalloanamount,willretaintheoriginalreservation.

3. Expiredreservations

(a) Loansnotclosedonorbeforethereservationexpirationdatewillbechargeda0.25percentpenalty.

(b) Thepenaltywillbenettedfromtheloanfundingproceeds.

4. LateDelivery

(a) Loansthatarenotdeliveredinfundableformatwithin10daysofthecommitmentexpirationwillnotbepaidper-dieminterestfromthe10thdayuntilthefundingdate.

(b) Loansthatarenotdeliveredinfundableformatwithin10daysofthecommitmentexpirationwillbesubjecttoworst-casepricing.

(c) Loansthatarenotdeliveredinfundableformatwithin15daysofthecommitmentexpirationwillbesubjecttoanadditional0.25percentlatedeliverypenaltyforeach15dayspastthecommitmentexpiration.

(d) Loansthatarenotdeliveredinfundableformatwithin15daysofthecommitmentexpirationwillbesubjecttoafundingadjustmentequaltothegreaterofworst-casepricingoralatedeliverypenalty,asdetermined by AHFA.

(e) Latedeliverypenaltieswillbenettedfromtheloanfundingproceeds.

(f) Loansthatarenotdeliveredinfundableformatwithin30daysofthecommitmentexpirationwillnotbepurchasedandwillbereturnedtotheoriginatinglender.

5. Definitions

(a) Worst-casepricing:Thehigherofeithertheoriginallockrateorthecurrentmarketrateatthetimeoftherequestoratthetimeofthefunding,ifnorequestismade.Alternatively,iftheratecannotbechanged,thelowerofeithertheoriginallockpriceorcurrentmarketpriceatthetimeoftherequestoratthetimeofthefunding,ifnorequestismade.

(b) Days:Allreferencestodaysshallbecalendardays.

F. CancellationofReservation.Ifitisdeterminedthattheproposedmortgagordoesnotqualifyfortheprogram,thereservationwillbecanceled.IftheAuthoritydeterminesthatamortgageloanapplicationwastakenbyalenderafterthedatethelendersubmitteditsrequestforReservationofFunds,thereservationwillbecanceled.Thecommitmentfeeisnon-refundable.

WrittennotificationmustbesenttotheAuthoritywithin24hoursofreservationifitisdeterminedthatthemortgagorsdonotmeetStepUpProgramguidelines.Otherwise,thecommitmentfeewillhavetoberemittedtoAHFAregardless.

LenderswhorepeatedlymakeStepUpreservations,butfailtofollowthroughwiththeloanprocessanddonotremitthecommitmentfee,willbebilled.Furthercontinuedabusemayresultinexpulsionfromtheprogram.

G. TransferofReservation.TheAuthoritywillallowatransferofanyReservationofFundsfromoneEligibleMortgagortoanother,withAuthorityapproval.AnewRateCommitmentFormisrequired.TheAuthorityalsomayallowaloantransferfromoneapprovedlendertoanother.TheCommitmentFeewillbetransferreduponapprovalbytheAuthority.ReservationsofFundsmaybetransferredonetimeonly.

TheReservationofFundsandRateCommitmentcommittedtoanEligibleMortgagormaybetransferredfromonepropertytoanotherwiththepriorapprovaloftheAuthority.Loan amount changes may affect your commitment.

Revised 06/17 •

Notify the Authority of any changes immediately.

SECTION VI—LOAN PROCESSING & UNDERWRITING PROCEDURES

A. RequestforConditionalCommitmentPackage.TheOriginatorperformsthecustomaryverificationsforloanunderwritingasrequiredbytheOriginationandSaleAgreement.TheOriginatorcompletestheremainderofthemortgageapplicationprocessandsendstotheAuthoritytheRequestforConditionalCommitmentPackageasstatedontheTransmittalChecklist(Step2).Uponreceiptoftherequireddocumentation,thepackageisplacedinafirst-comefirstservedorderandprocessedwithin72hours(threebusinessdays)beginningthenextbusinessday.

Delegated Examiners only: TheOriginatorcompletestheremainderofthemortgageapplicationprocessandsendstotheDelegatedExaminertheRequestforConditionalCommitmentPackageasstatedontheDelegatedExaminers’TransmittalChecklist(Step2).Uponreceiptoftherequireddocumentation,theDelegatedExaminerwillreviewthepackageandmakeacompliancedetermination.TheDelegatedExaminerwille-mailadecisiontocompliance@ahfa.com usingtheDelegatedConditionalCommitmentform.

B. RequestforConditionalCommitment.TheRequestforConditionalCommitmentpackageandthereservationpackagewillbecomparedatthetimetheRequestforConditionalCommitmentpackageisreceived.

Delegated Examiners only: TheRequestforDelegatedConditionalCommitmentpackageandacopyofthereservationpackagewillbecomparedatthetimetheRequestforDelegatedConditionalCommitmentpackageisreceivedbytheDelegatedExaminer.

Thefollowingcriteriawillhelpensureaccuracyandconsistencyinfileswhenreviewed:

1. Commitment Fee. Thenon-refundablecommitmentfeeistobecheckedtoensuretheamountreservediscovered.Thecommitmentfeeshouldbepaidwithin72hoursofloanreservationandshouldagreewiththeamountshownontheRateCommitmentForm.Iftheamountsdonotagree,arequestinwritingforadecreaseorincreaseisneeded.(Amountsthatincreasewillrequireadditionalfundstocoverthecommitmentfee,andaresubjecttotheavailabilityoffunds.)SeeSectionX,Modifications,formoreinformation.

2. RequestforConditionalCommitment.TheTransmittalChecklistmustbecompletedthoroughly.TheAuthoritywillchecktheincomereflectedontheIncomeCalculationWorksheettoensurecompliancewithapplicablelimits.InformationprovidedontheworksheetshouldagreewiththeRateCommitmentForm,handwrittenapplicationandthesalescontract(name,propertystatus,etc.).

2. Delegated Conditional Commitment (Delegated Examiners only). TheDelegatedExaminers’TransmittalChecklistmustbecompletedthoroughly.TheDelegatedExaminerwillchecktheincometoensurecompliancewithapplicablelimits.InformationprovidedshouldagreewiththeRateCommitmentForm,handwrittenapplicationandthesalescontract(name,propertystatus,etc.).

3. Handwritten/InitialApplication.Thehandwritten/initialapplicationshouldbecompleted,signed,anddatedbythemortgagorsandlender.AllinformationshouldagreewithallapplicableareasoftheRateCommitmentFormandsalescontractasfollows:

(a) Namesofthemortgagors.

(b) Propertyinformationsection.

(c) Numberofdependents.

(d) Maritalstatus.

(e) Residencyhistory.

(f) Employment(incomepurposes).

(g) Otherincomesection(toensureallincomehasbeenincluded).

Revised 06/17 •

(h) Scheduleofrealestateownedsection(toestablishwhethertheborrowershaverentalproperty,ownsalotorpresentlyownsahome.Additionalincomemaybereceivedfromthesesources).

(i) Assetssectiontoensureallfundswhicharenotapartofclosingareincludedintheannualfamilyincome,i.e.,interestanddividendsearnings.

(j) Declarationsectionreflectsthemortgagorsintenttooccupythepropertyastheirprimaryprincipalresidence.

4. FullyExecutedSalesContract.AnychangesoraddendumstothesalescontractmustbereviewedbytheAuthoritypriortoclosing.

Changesinthesalespricewillrequireanamendedsalescontract.Allchangesaretobeinitialedbyallpartiesinvolved.

Allareasofthesalescontractaretobecompletedandproperlyexecutedbythemortgagorandsellerwhereapplicable.ThefollowingareasshouldbeconsistentwithallapplicableareasoftheRateCommitmentFormandhandwrittenapplication.

(a) Namesofthemortgagors.

(b) SalesPrice.

(c) Propertyaddress.

(d) LoanType:FHAorConventional.

(e) Realestateagency’snameandaddress.

(f) Numberofdaysforthesellertosurrenderpossessionis60daysorlessafterloanclosing.

(g) Signaturesofthesellersandbuyerswithdates.

SECTION VII—INCOME GUIDELINES FOR SALARIED & SELF-EMPLOYED MORTGAGORS

A. SalariedMortgagors

1. GrossMonthlyIncome.Grossmonthlyincomeincludes:grossmonthlypay,anyadditionalincomefromovertime,part-timeemployment,bonuses,dividends,interest,royalties,pensions,VeteransAdministration(VA)compensation,netrentalincome,etc.;andotherincome(suchasalimony,childsupport,publicassistance,sickpay,socialsecuritybenefits,unemploymentcompensation,incomereceivedfromtrusts,andincomereceivedfrombusinessactivitiesandinvestments,etc.)Overtimepayandbonusesaretobeprojectedinanamountconsistentwiththeearningshistoryofeachhouseholdmember.

Theincometobetakenintoaccountindeterminingthegrossmonthlyincomeistheincomeofanypersonwhoisexpectedtoliveintheresidencebeingfinanced.Theincomeofapersonwhoisunder18yearsofageandafull-timestudent(excludingthemortgagors)willnotbeincludedinthegrossmonthlyincome.

Personsover18yearsofagewhoarenotemployedanddonotintendtoseekemploymentwithinthenext12monthswillberequiredtosignastatementtosuch,seeAppendix5,EmploymentStatement.

2. VerificationsofEmployment.Whencheckingverificationsofemployment,allareasoftheverificationshouldbecompletedandexecutedbytheemployer.Makesureallincomehasbeenderived(i.e.,raises,bonuses,commissions,carallowance,etc.).Verifythatpaystubsandverificationsareconsistentwithoneanother.Iftheydiffer,anexplanationmustbeprovided.Previousyearearnings(overtime,etc.)shouldbeconsistentwithcurrentyearearnings.Ifnot,itmaybenecessarytouseonlyyear-to-datefiguresdependingupontheincreasesthemortgagorhasreceived(overtime,raise,etc.).VerificationsofEmploymentmustbeupdatediftheyaremorethanfourmonthsoldatthetimeofclosing.

Revised 06/17 •

Whenreviewingverifications,watchforcertaintypesofemployment,i.e.,ministers,nurses,etc.,whichhaveunusualincome.Forexample,aminister’sincomeusuallyconsistsofabaseincome,utilitiesallowance,housingallowance,insuranceallowanceandcarallowance.Anurse’sincomeusuallyconsistsofabaseincome,overtime,andshiftdifferentialsfornightandweekendpay,whichinmostcasesdiffer.Beverycautiouswhencalculatingincomeforthesetypesofemploymenttoensureallincomehasbeenincludedinthecalculations.

Ifaletterisusedinlieuoftheoriginalverificationform,itmustcontainallitemscoveredintheoriginalverification.

3. Paystubs.Paystubscoveringthemostrecent30-dayperiodarerequiredonallloansandincomemustbeconsistentwiththeVerificationofEmploymentorW-2form.Paystubsmustbedatedwithin30daysofsubmission.

4. IncomeHistory.Iftheprospectivemortgagorhasadditionalearnedincomeandhasahistoryofsuchearnings,thentheincomeistobeincludedinthegrossmonthlyincome.Iftheincomeisearnedonlywithinthecurrentyearwithnopriorhistory,andwillnotcontinueafterclosingthenastatementfromtheemployerstatingtheearnedincome,(i.e.,overtime,etc.)willnotcontinueisrequired.

5. AlternativeDocumentation.AHFAallowsdocumentationfortheverificationofemploymentwiththefollowingrequirements:

(a) Paystubscoveringthemostrecent30-dayperiodwhichreflectthemortgagor’sname,SocialSecuritynumber,hourlyrateofpay,numberofhoursworkedperpayperiod,andyear-to-dateearnings.

(b) Copyofthepasttwo-years’W-2formsor1099whichincludesthemortgagor’sname,SocialSecuritynumber,companyname,andtotalcompensation,orastandardVerificationofEmployment(VOE)completedandsignedbytheemployer.

(c) Telephonecertification.

6. Averaging Income. Incomeisaveragedforovertime,commissions,andanyotherincome(exceptbaseearnings)overaperiodofnolessthan15months,butnomorethan27months.However,ifincomeoverbaseearningsisnotconsistentwithpastyears’earnings,ortheincomehistoryislessthan15months,theAuthoritywilldeterminetheperiodforincomecalculations.

7. OvertimeEarnings.Incomeearnedfromovertimewillbeincludediftheborrowerhasahistoryofsuchincomeortheincomewasearnedduringthecurrentyear.Theverificationofemploymentformfromtheemployermustexplainhowmuchovertimeisexpectedifany,andatwhatrateofpay.

8. Bonus. Thegrossamountofrecurringbonusesistobeincludedintheincomecalculationsif:

(a) Thebonusispartofacollectivebargainingagreementandmustbepaid;or

(b) Thebonusisincludedinthecomputationofincomebytheemployer;or

(c) Thereisahistoryofbonuses.

Ifthereisahistoryofbonusesbuttheapplicantdoesnotknowifabonusisplanned,nordoestheemployerdivulgeitsplansforabonusortheprojectedamount,anaverageofpastyears’bonuseswillbecalculatedasincome.AbonushistoryforStepUppurposesistobeconsideredforoneyearormore.

Thebonusisnottobeincludedintheannualfamilyincomeifthereisnohistoryofabonusandthebonusistotallydiscretionarybytheemployerandwagesoftheapplicantarethebasicsourceofincome.Thefilemustbedocumentedwithastatementfromtheemployer.

9. RentalPropertiesorContractIncome.Rentalincomeandcontractincomeisdeterminedbysubtractingthemonthlymortgagepaymentfromthegrossrentalincome.Depreciationshouldbeaddedbacktonetrentalincomewhereapplicable.Contractincome(incomederivedfromthemortgagorsellingpropertywithownerfinancing)istobeusedincalculatingannualfamilyincome.

Theuseofstandardunderwritingcriteriatodocumentthisincomeisacceptable(i.e.copiesofleases&mortgageverifications).

Revised 06/17 •

10. ChildSupport/Alimony.Childsupportandalimonymustbeincludedintheannualfamilyincomeandacopyofthefinaldivorcedecreeisrequired.Ifthemortgagorshavenotreceivedchildsupportoralimonyforthepast24monthsandtotheirknowledge,noneisforthcoming,astatementfromthemortgagorsisrequired,seeChildSupport Statement.

11. EducationGrants.Theportionoftheincomefromgrantsthatisusedforlivingexpensesistobeaddedtotheannualfamilyincomeifthisincomewillcontinueforthenext12months.

12. EmployeeBenefitsProgram.Somecompaniesofferanemployeebenefitsprogramdesignedtoletemployeescreatetheirowninsurancepackage.Themonthlyamountisusuallyshownseparatelyonthepaystub,yetincludedinyear-to-dateearnings.Thepaystubusuallyshowsthemonthlyamountactuallyspentonthisplan.Aletterfromtheemployerisneededtoverifytheactualcostofthisplanyear-to-date,inordertodeterminediftheemployeesreceivedfundsovertheactualcost.Inthiscasetheadditionalunusedportionwouldbeincludedintheannualfamilyincome.

Ifthemortgagorreceivesmonthlyincomefortheemployeebenefitprogramandelectsnottopurchasebenefitsofferedbytheprogram,thenthefullamountwillbeaddedtotheannualfamilyincome.

13. PermanentSeasonal,Seasonal&TemporaryIncome.Includeallpermanentseasonal,seasonalandtemporaryearningswhencalculatingannualfamilyincome.

14. SocialSecurity/VABenefits.SocialSecurityincomeshouldbeverifiedwithanAwardsletterobtainedfromtheSocialSecurityoffice.VAbenefitsshouldbeverifiedwithabenefitsletterfromtheVeteransAffairsOffice.

15. LumpSumPayments.Lumpsumpayments,includingbutnotlimitedto,inheritance,reenlistmentbonuses,anddisbursementsfrominsurancepoliciesdonothavetobeincludedintheannualfamilyincome.However,interestincomeoninvestmentsmustbeincludedandcalculatedatthecurrentpassbookratesovera12-monthperiod.Iftheincomeisreceivedinanyotherformotherthanlumpsum(i.e.monthlyorannual),thenitmustbetreatedaspermanentincomeandaddedtotheannualfamilyincome.

16. CapitalGains/Loss.Bothtaxableandnon-taxableportionsofcapitalgainsaretobeincludedasincomeifahistoryofthisincomeexists.Ifthetwo-yearaverageresultsfromthetaxreturnsisagain,thenitmustbeaddedtoannualfamilyincome(lossescannotbeusedtoreduceannualfamilyincome).

17. PensionandStockWithdrawals.Withdrawalsofprincipalfundsfrompensionorstocksourcesisnotconsideredincome.However,annuityorinterestpaymentsunderapensionorstockinvestmentprogramareconsideredincome.Verificationofbenefitswillberequired,i.e.,federaltaxreturns,statementofbenefits,etc.

18. Interest,DividendandRoyaltyIncome.Interest,dividendandroyaltyearningsareconsideredincome.Currentinterestanddividendearningsarecalculatedatcurrentpassbookratesovera12-monthperiod.Incomecalculationsforroyaltiesarecalculatedbynetearningsandinterest.EarningsfromIRAsand401Ksarenotincluded.Documentationwillberequiredtoverifythesessourcesofincome,i.e.,federaltaxreturns,statementofbenefitsandcontractagreementsforroyaltiesincome.

19. ExclusionfromGrossMonthlyIncome.Grossmonthlyincomeshallnotincludecasual,sporadicorirregulargifts;amountsthatarespecificallyfororinreimbursementofmedicalexpenses;inheritances;insurancepayments(includingpaymentsunderhealthandaccidentinsuranceandworkmen’scompensation,otherthanpaymentsinlieuofearnings);settlementforpersonalorpropertylosses;amountsofeducationscholarshipspaiddirectlytothestudentortheeducationalinstitutionandamountspaidbythegovernmenttoaveteranforuseinmeetingthecostsoftuition,fees,booksandequipment,butineithercaseonlytotheextentusedforsuchpurpose;specialpaytoactivemilitarypersonnelexposedtohostilefire;andfosterchildcarepayments.

B. Self-EmployedMortgagors

1. AnnualFamilyIncome.Theproceduretocalculateannualfamilyincomeforself-employedmortgagorsrequiresthefollowing:

(a) Depreciationanddepletionistobeaddedbacktotheadjustedgrossincome(AGI)onallself-employedmortgagors.

Revised 06/17 •

(b) Twoyears’currentsignedindividualfederalincometaxreturnswithallapplicableschedules.

(c) Year-to-dateProfit&Loss.Ifasoleproprietorship,P&Lcancomedirectlyfromsoleproprietorhimself/herself.Ifapartnership,S-corp.,orcorporation,P&Lmustbeprovidedbyanaccountant.

(d) U.S.PartnershipReturnsandU.S.CorporatefederalincometaxreturnswithallschedulesandW-2form(whereapplicable),withindividualfederalincometaxreturns(form1040)

Incomemustbeaveragedoveraperiodofnolessthan15months,butnomorethan27months.Self-EmployedmortgagorsmayneedtwoyearsoffederalincometaxreturnswithacurrentProfitandLoss.AfterApril15eachyear,themost“currentyear”federalincometaxreturnsarerequired.

2. SoleProprietorship.SoleProprietorshipisabusinessownedbyoneperson.IRSform1040—ScheduleCorScheduleC-EZisrequired.SoleProprietorshipincomeisdetailedonForm1040(ScheduleC)ofU.S.incometaxreturns.Thisformwilllistallincome,depreciation,anddepletionwhichisaddedbacktotheAGI.

3. GeneralPartnership.AGeneralPartnershipisabusinessownedbytwoormorepartners.Eachpartnerispersonallyliableforalldebtsofthebusiness.Eachpartnerisresponsibleforallotherpartners.Thefollowingdocumentsarerequired:

(a) IRSform1065—ScheduleK-1&ScheduleE,PartII.

(b) U.S.PartnershipReturnswithallapplicableschedules.

GeneralPartnershipsrequireincometobecalculatedonform1065ofU.S.PartnershipReturns,todeterminetheshareofnetincomedistributabletoeachpartner.ThisisreportedonScheduleK-1ofform1065andontheindividual’sScheduleE,PartII;thisamountisincludedintheAGIonform1040.Note:Thetotaldepreciationanddepletionwillbedeterminedbythenumberofthepartners,andshouldbedividedtodeterminewhatpercentageortotaldollaramounttobeaddedbackforeachpartner.

4. LimitedPartnerships.LimitedPartnershipsareusuallyformedforinvestingmoney.Limitedpartnersoftentakealossontheirinvestment,whichreducestheirtaxableincome.Liabilityislimitedtotheamountinvested.Thefollowingdocumentsarerequired:

(a) IRSform1065—ScheduleK-1&ScheduleE,PartII.

(b) U.S.PartnershipReturnswithallapplicableschedules.

LimitedPartnershipsrequireincometobetakenfromScheduleK-1(form1065),andtheindividual’sScheduleE,PartII;thisamountisincludedintheAGIonform1040.

5. S-Corp.Usuallyasmallstart-upbusinessrequiringthefollowingdocumentation:

(a) IRSforms1120/1120S—ScheduleK-1,ScheduleE,II.

(b) VerificationofW-2earnings.

SCorporation’sincomeisdetailedonform1120S(USfederalincometaxreturnforanSCorporation).ScheduleK-1willlistborrower’spercentageofownershipandordinaryincome,depreciationanddepletionfromtheSCorporation(thisinformationistransferredtoScheduleE,SectionIIoftheindividualtaxreturns).Thisincomemustbeproportionatelyaddedbackasdeterminedbythepercentageofownershiptotheordinaryincomesincedepreciationanddepletionareactuallynon-cashexpenses.TheprimarysourceofincomeforanownercomesfromW-2wages,whichmustbeincludedinearningsinadditiontocorporateearnings.

6. Corporation.ACorporationrequiresastatecharterandisaseparatelegalentityfromitsowners(stockholders).Thecorporation’sprofits(retainedearnings)areputbackintothebusinessoraredistributedtostockholdersintheformofdividends.Stockholdersarenotresponsibleforthedebtsofthecorporation.Thefollowingdocumentationisrequiredtodetermineeligibility:

(a) U.S.CorporationIncomeTaxReturns,form1120&ScheduleL,(ifapplicable).

Revised 06/17 •

(b) W-2form.

CorporationsrequireincometobetakenfromtheIRSform1120,andScheduleLwillshowthecurrentyearcorporatebalancesheet.IncometotheofficersandstockholdersisreportedbyW-2formsandreflectedontheirindividualform1040.

Dividendearningsarereportedon1099formsandreflectedontheirindividualreturns.

C. Non-BorrowingSpouses,Partners,AllOtherOccupants18YearsorOlder

AHFAprogramsrequiretheincometobedocumentedforthetotalhousehold.Totalhouseholdincomeisdefinedastheindividuals18yearsofageorolderwhointendtooccupythepropertywithinthenext12calendarmonths,eveniftheyarenotapartytotheloan.

DocumentationrequiredforsubmissioninStep2:

1. SignedNon-BorrowerStatement

2. Eitherfullincomeverificationoraltdocincomeverificationasrequiredforallsalariedorself-employedborrowers,orasignedEmployment/IncomeStatement,iftheoccupantdoesnothaveANYsourceofincome.

3. DocumentationofSocialSecuritybenefits,pensions,annuities,ifapplicable

4. Most recent year’s IRS tax return transcripts

D. CurrentlySeparatedorSeparatingSpouses

Allseparatedspouses’incomedocumentationmustalsobesubmittedtoAHFAcomplianceinStep2.Thisisregardlessofwhethertheseparatedspouseisapartytotheloan,orevenintendstooccupytheproperty.TheStateofAlabama,forAHFApurposes,doesnotrecognize“separated.”Thepartiesareconsideredeithermarriedordivorced.

DocumentationrequiredforsubmissioninStep2:

1. SignedNon-BorrowerStatement

2. Fullincomedocumentationoraltdocdocumentation

3. SeparationAgreement,includinganyPropertySettlementAgreement

4. Most recent year’s IRS tax return transcripts

E. Co-Signer/Non-OccupantGuarantors

Co-Signer/Non-OccupantsandGuarantorsareallowed,providedthatthefollowingconditionsaremet:

1. TheCo-Signer/Non-OccupantorGuarantorisactinginsuchacapacitysolelyforthepurposesofprovidingadditionalsecurityforthemortgageloan,andwillnottaketitletothepropertyorbeapurchaseronthesalescontract.

2. Theprimaryoccupyingborrower(s)mustbeabletomeetaminimumof40percentofthePITIbyverifiableanddocumentedincome,ORmusthavedocumentedincomerepresentingfull-timeemploymentatnolessthan30hoursperweek.

3. TheCo-Signer/Non-OccupantorGuarantorwillnotoccupytheresidenceashisprimary/permanentresidence.

4. TheCo-Signer/Non-OccupantorGuarantorisarelativeofthemortgagor.

Revised 06/17 •

5. TheCo-Signer/Non-OccupantorGuarantorispermittedbyapplicableFHAandGinnieMaeguidelines.

6. TheCo-Signer/Non-OccupantorGuarantorwillberequiredtosignastatementcertifyingtotheaboveconditions(seeAppendix6,Co-Signer/Non-OccupantStatement).Taxreturnsandincomeverificationsarenotapplicable.TheseCo-Signer/Non-OccupantsorGuarantorswillbetreatedasnon-occupantCo-Signersforqualifyingpurposes.

Pleasenote:ForallpartiessigningtheEmployment/IncomeStatement,AHFAwithholdstherighttorequiredocumentationfromtheIRSsupportingthesignedstatement.

SECTION VIII—ISSUANCE OF THE CONDITIONAL COMMITMENT

Pleasenote:LendersareresponsibleformonitoringthestatusoftheirloansonLenderOnline,whichincludescheckingforthepostingofconditionalcommitmentsasshownbelow.

Delegated Examiners only: TheDelegatedExaminermustreviewthecompliancepackagepriortoissuingtheDelegatedConditionalCommitment.Oncethepackagehasbeenreviewedandapproved,theDelegatedExaminerisrequiredtoissuetheDelegatedConditionalCommitmentande-mailtheformtotheAuthorityatcompliance@ahfa.comorfaxtheformto(334)244-9213.FailuretocomplywiththisprocessmayresultinremovaloftheOriginator’sDelegatedauthority.OriginatingbranchesmayviewloanconditionsonLenderOnline.

SECTION IX—CLOSED LOAN PROCEDURES

A. ConditionalCommitment.UponissuanceoftheConditionalCommitmentaspostedontheLoanStatusscreen,thelendermayclosetheloaninaccordancetotheconditionsstatedontheConditionalCommitment.Theloanistoclose

Revised 06/17 •

beforethereservationexpirationdatestatedontheConditionalCommitment.Themortgagor,address,interestrate,loanamount,andtermofloanmustagreewithallclosingdocuments.ChangesoftheseitemsaretobeapprovedbytheAuthoritybeforeclosing.Failuretodosocouldresultinrejectionoftheloan.

Delegated Examiners only: UponissuanceoftheDelegatedConditionalCommitmentaspostedontheLoanStatusscreen,thelendermayclosetheloaninaccordancetotheconditionsstatedontheDelegatedConditionalCommitment.TheloanistoclosebeforethereservationexpirationdatestatedontheDelegatedConditionalCommitment.Themortgagor,address,interestrate,loanamount,andtermofloanmustagreewithallclosingdocuments.ChangesoftheseitemsaretobeapprovedbytheAuthoritybeforeclosing.Failuretodosocouldresultinrejectionoftheloan.

B. VerificationsofCreditDocuments.Allverificationsshouldbelessthanthreemonths(90days)oldatthetimeofclosingorcurrentinformationwillberequired.Creditdocumentsmorethan90daysolduponsubmissionoftheclosedloanpackagecouldresultinrejectionoftheloan.

C. SettlementStatementFees.Inconnectionwitheachmortgageloan,alendermaychargeandcollectfromanEligibleMortgagororselleratclosing,reasonableandcustomarycharges.Alllendersmustchargea1%originationfee.Otherchargesmaynotexceedtheusualandreasonable“settlementandfinancingcost”thatarecustomaryasfollows:

1. “SettlementCosts”includetitleandtransfercosts,titleinsurance,surveyfeesandothersimilarcosts;and

2. “Financingcosts”includecreditreportfees,legalfees,appraisalexpenses,pointswhicharepaidbytheborrowers,orothercostsoffinancingtheResidence.

SECTION X—LOAN PURCHASES AND TRANSFER OF SERVICING RIGHTS

A. ReviewoftheMortgageLoan.TheclosedmortgageloanpackageistobereceivedbyAlabamaHousingFinanceAuthority(AHFA),within10daysofloanclosing.

1. LendersmustchecktheclosedloanpackagetoconfirmallitemslistedontheFundingChecklistareincludedinthepackageLoanswillnotbefundedifanyoftheitemsonthechecklistaremissingorincorrect.

2. AllloanspurchasedbyAHFAwillrequiremandatoryregistrationwithMERS.Noassignmentswillbeacceptedforfirstorsecondmortgages.LendersmusttransferallapplicablerightsinMERStoAHFAimmediatelyafterpurchase.

Uponcompletionoftheclosedloanfilecompliancereview,themortgageloan(s)willbefundedifthefileiscompleteandisincompliancewithallrequirements.Closedloanpackageswillnotbefundeduntilallrequiredfundabledocumentationhasbeenreceivedandallcomplianceissuescleared.

B. PenaltiesWithheldFromFunding.Lendershave10daysfromclosingtodeliverthecompleteclosedloanpackagetoAHFA.Aloanisconsideredtobeinafundableconditionwhenacompleteclosedloanpackageisdeliveredwithouterrorsormissingdocuments.Also,loanswithdelinquentpaymentswillnotbepurchased.Lenderswillhave40daysfromthedateofclosingtocleartheloanexceptionwithnopenalty.Iftheloanisnotcleareduntil41daysfromthedateofclosing,thelenderwillbechargedalatedeliveryfeeof50basispoints(0.50%)oftheprincipalpurchased.Ifthefileisnotclearedbythe71stdayfromthedateofclosing,originalNoteswillbereturnedtothelenderandtheloan(s)willnotbepurchased.Thissectiondoesnotoverrideanyapplicablelockexpirationperiod.ExtensionfeesmayberequiredbyAHFAiftheloanisnotfundedbytheapplicableexpirationdate.Theamountsofallfeesandpenaltiesaresubjecttochange.PleaserefertothecurrentscheduleofpenaltiesandfeeslocatedintheBulletinBoardSectionoftheLenderOnlineportalathttps://lenders.ahfa.com/Bin/Display.exe/ShowSectionforthemostcurrentinformation.

C. FundingoftheMortgageLoan.AHFAwillissueanACHorwireonsingleandmultiplefundingseachWednesdayandFridayforeachlender.Abreakdownofthemultiplelender’sfundingswillbeincludedwiththeACHorwire.AnydiscrepanciesshouldbedirectedtotheFundingandDeliveryDepartment.OnlyonesetofACH/wiringinstructionswillbeacceptedfromeachlender.Lendersareallowedonechangetothewiringinstructionspercalendaryear.SubsequentchangestoACH/wiringinstructionswillresultina$500feepertransaction.

LendersareresponsibleforservicingtheloanuntilpurchasedbyAHFAtoincludethepaymentofallrequiredescrow

Revised 06/17 •

disbursementsforeachloanduringtheperiodfromclosingtopurchase.

Ingeneral,fundableclosedmortgageloanpackagesreceivedbythecloseofthebusinessdayonMondayofeachweekwillbefundedonFridayandthosereceivedbythecloseofbusinessonThursdaywillbefundedonWednesdayofthenextweekonceapprovedbyAHFA.

Thefundingamountforbothfirstandsecondmortgageswillconsistof:

1. Scheduledunpaidprincipalbalance

2. ServicingReleasePremiumpertheProgramGuidelines(firstmortgagesonly)

3. Interestfromtheclosingdatethroughthepurchasedateorinterestfromthelastpaidinstallmentdatetopurchasedateattheloan’sperdiemrate

Amountstobedeductedfromfundingofbothfirstandsecondmortgageswillconsistof:

1. PenaltiesorfeesassessedinSectionX,BorC

2. Floodnotificationtransferfeeof$10(notrequiredforfloodcertificationfromCoreLogic).

3. Prepaidinterest(Loanspurchasedbythe10thofthemonthpriortothefirstpaymentduedateonly).

4. Prepaidescrow(unlessafterfirstpayment)orcurrentamortizedescrowbalanceontheloanlessanddisbursements

5. Taxservicefeeof$65

6. LoanLevelPriceAdjustments(FannieMaeStandardloansonly).

7. Wirefeeof$20(pertransaction(ifapplicable)

D. FinalDocumentation.ThelenderistosubmitthefinalmortgageloandocumentationconsistingofthefollowingoriginaldocumentstoAHFAwithin120daysofclosing:

• Recorded First Mortgage

• TitlePolicy

• MortgageInsurancedocumentation(FHAMortgageInsuranceCertificate,PMICertificateofCoverage,LoanGuarantyCertificate)

• RecordedSecondMortgage(ifapplicable)

E. TransferofLoanServicingRightsandBenefits.TheoriginatinglenderretainstheloanservicingrightsandbenefitsuntilAHFApurchasestheloan.Theoriginatinglenderwillperformallservicingdutiesuntilthattime.ServicingandbenefitsrightstransfertoAHFAatthetimeofloanpurchase.Lenderwillbesentareminderalongwiththepurchasepaymentadvicetosendouttheirgoodbyelettertotheborrower.AHFAwillsendtheborroweraNoticeofSale,AssignmentorTransferandtwotemporarypaymentcouponsatthetimeofloanpurchase.(ThefirstpaymentduetoAHFAwillbedeterminedbaseduponwhentheNoticeofSale,AssignmentorTransferissent.)Iftheloanispurchased(purchasedate)onorbeforethe10thofthemonth,thefirstpaymentduetoAHFAwillbethenextscheduledmonthlypaymentduedate.Afterthe10th,theeffectivedatewillrolltothefollowingscheduledmonthlypaymentduedate.ThelendermusttransfertheloantoAHFAthroughtheMERSsystemimmediatelyafterpurchase.

Examples:

• Aloanthatclosedon06/02/16isreceivedinouroffice06/8/16andisbeingfundedon06/10/16.Thisloanwillbepurchasedattheoriginalnoteamountwithnolatedeliverypenalty.

• Aloanthatclosedon06/24/16isnotreceivedinourofficeuntil7/28/16andisreadytobefundedon08/11/16.Theinitialpaymentonthisloanisdueon08/01/16.Sincethisloanisbeingpurchasedafterthe10thofthemonth,

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theloanwillbepurchasedeffectivewiththepaymentscheduledfor10/01/16.Thelenderwouldbechargedalatedeliveryfeeof50basispoints(0.50%)oftheprincipalpurchased.

SECTION XI—MODIFICATIONS

Itisthelender’sresponsibilitytonotifytheAuthorityofanymodifications.Expirationdates,penaltiesandextensionsareaddressedinSectionVI.

1. MortgageDecrease.MortgageamountdecreaseswillrequireapprovalbytheAuthority.

2. MortgageIncrease.MortgageamountincreaseswillrequireapprovalbytheAuthorityandwillbesubjecttotheavailabilityoffunds.

3. PropertyAddress.PropertyaddresschangesrequireapprovaloftheAuthority.

4. Marriage.Ifthemortgagormarriespriortoloanclosing,thespouse’sincomewillbeincludedinthetotalannualfamilyincome.ThelendermustobtainthisinformationpriortoclosingandsubmitthesedocumentstotheAuthority.Theannualfamilyincomemaynotexceedtheincomelimitation.ThespousewillalsohavetomeetallStepUprequirementsasestablishedinSectionII,IIIandIVofthismanual.

SECTION XII—ASSUMPTIONS

AssumptionloansrequirethesamequalifyingprocessasthecurrentStepUpProgramGuidelines(refertoSectionII,IIIandIVoftheStepUpmanual).IncomeguidelinesarethemostcurrentincomeguidelinesprovidedbytheAuthority.Investorguidelinesmustbefollowed.

The down payment assistance second mortgage is not assumable.

SECTION XIII—DOWN PAYMENT ASSISTANCE

Thepurposeofthisprogramistoprovidedownpaymentandentrycostassistancetohomebuyerswithlowtomoderateincomes.DownpaymentassistanceisusedinconjunctionwiththeStepUpProgramonlyasasecondmortgage.Onlyborrowerswhoseprimarywageearnerhasamiddlecreditscoreofatleast620willbeeligibleforDownPaymentAssistance.

A. Reservations.Ifneeded,reservationsforDownPaymentAssistancewillbemadethroughtheAuthority’sreservationwebsite,https://lenders.ahfa.com,andistiedtothefirstmortgagereservation.

B. Eligibility.AllhomebuyersmustmeetthequalificationsstatedontheDownPaymentAssistanceApplication,Appendix11.ThemaximumincomeisstatedontheDownPaymentAssistanceApplicationandiscalculatedasstatedinSectionIIofthisStepUpProceduralManual.

C. TypesofLoans.ThisprogramwillbeavailableinconjunctionwithhomesfinancedundertheFHA203(b)mortgageproductortheHFAPreferredconventionalloanprogram.ThisprogramcannotbeusedinconjunctionwithanyotherdownpaymentassistanceprogramorgrantprogramwithoutpriorapprovalfromtheAuthority.AllFHAguidelinesmustalsobemet.

D. CalculationofAssistanceAmount.Themaximumdownpaymentassistanceavailabletoahomebuyeristhelesserof$7,500or3%ofthesalesprice.

E. RequiredDocumentation.Thelendermustprovide:

1. Theexecuted,completedDownPaymentAssistanceApplication;

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2. Acopyoftheprimarywageearner’screditreport(occupyingborrower);

3. AcopyoftheHUD92900-LTworksheetoftheFannieMae1008,reflectingtheDPAassecondaryfinancing;and

TheAuthoritywillissuealegallybindingobligationletterforthesecondmortgageDPAonallFHAfirstmortgageloansusingtheAuthority’sDPAprogram.Thelendermustbeinpossessionofthelegallybindingobligationletterbeforetheyclosetheloans.

TheDownPaymentAssistanceNoteandMortgagearetobeexecutedatclosing.Thelenderwillovernighttheoriginalexecutedsecondnote,endorsedtotheAuthority,alongwiththefirstmortgagenote.

If the lender’s first mortgage loan is using FHA financing with the DPA second, the lender must transfer the loans in MERS to the Authority PRIOR to submitting for MIC. The lender should include a copy of the legally binding obligation letter and executed second note and mortgage in the case binder file.

F. Term and Repayment. Asecondmortgagewillberecordedagainstthepropertybeingpurchased.Thetermofthesecondmortgagewillrunfor10years.Thesecondmortgagewillbearinterestatthefirstmortgagenoterate.Thesecondmortgagewillamortizein120equalmonthlypaymentsofprincipalandinterest.Repaymentwillberequireduponsaleoftheproperty,refinanceofthefirstmortgage,and/orpayoffofthefirstmortgage,aswellastheassumptionofthefirstmortgage.

G. CommitmentPeriods.TheCommitmentperiodsofthisprogramwillrunconcurrentwiththeStepUpProgramasdefinedintheProgramGuidelines.

H. IssuanceofFunds.TheAuthoritywillpurchasetheDownPaymentAssistancesecondmortgagewiththepurchaseoftheStepUpfirstmortgageforconventionalloans.

I. FeesinOrigination.Alendermaynotchargeanyadditionalfeesinconjunctionwiththisprogram.Therecordingcostsofthesecondmortgageloanaretobebornebytheborrowerorseller.

J. PurchaseandServicing.Lenderswillsellthesecondmortgageloanswhichitoriginates,accordingtoconventionalguidelines,totheAuthority.ThepricetobepaidbytheAuthoritywillbetheamountequalto100%oftheprincipalamountofthesecondmortgage,plusperdieminterestinaccordancewithSectionIX,LoanDelivery.

K. Assumptions.TheDownPaymentAssistancesecondmortgageloanisnotassumable.

SECTION XIV—DELEGATED EXAMINER OPTION

DelegatedExaminershavetheopportunitytoacceleratetheStepUploanapprovalprocessbyperformingthecompliancereviewfunctionsinhouse.AHFAwouldonlyreviewloanfilesatthetimeofpurchase. Toqualify:

A. LendersarerequiredtobeanApprovedParticipatingLenderforaminimumofone(1)year.

B. AHFAcanatitsowndiscretionrescindtheprivilegeofDelegatedExaminersforanyreason(latedeliveryofclosedfiles,QCissues,oranyotherissuesregardinglenderperformance).

C. LendersmustbeingoodstandingwithAHFA’sFundingandDeliveryDepartmentandAHFA’sQualityControlDepartment

D. LendersmustbeapprovedfortheprogramasanOriginatorI,OriginatorII,oranOriginatorwhohascreditunderwritersonstaff.

E. Lendersarerequiredtosubmitaminimumoftenqualityfileswithina12-monthperiod:

F. EachpersonnominatedbythelenderasaDelegatedExaminerisrequiredtometthetenqualityfileminimum.

G. Testfileswithmajorcomplianceconditionswillnotbeconsideredinthetenqualityfilecount.(Majorconditionsincludebutarenotlimitedtoincomeissues,contractissues…)

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H. IncomecalculationsontestfilesmaynotexceedtheincomecalculationsofAHFAexaminersbymorethan$500.

I. Alltestfilesmustclosewithinreservationexpirationdates.

TheAuthorityreservestherighttomakerevisionsasitdeemsnecessarytoprovideforasuccessfulprogram.