FHA Program Guide

October, 2011

Meet Our DE Underwriters

Jeannette DeMartini

SherryBarnes

DianeShugrue

Susie Berry

Marianne Seltenrich

Erin Murphy

Tammie Bohannan

Maria Ignacio

Lori Mathews

JoyBean

Julie Riccio

Clare Lavino

Helen Smith

Be a G-Man! Talk the talk…

FHASECRETS

• HUD/FHA• Direct Endorsement (DE)• CAIVRs• LDP• GSA• MIP (Upfront & Annual)• Base Loan Amount• Total Loan Amount• URLA vs. 1003• 92900 A (Addendum to the URLA)• 92900 LT vs. 1008• Case #• FHAC (FHA Connection)• HOC (Home Ownership Center)• DELRAP/HRAP Condo Approvals• HECM (Forward vs. Reverse)• Mortgagee Letter

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History of FHA FHA was formed in 1934, to bring back the

housing market after post 1929 stock market crash, by assisting homebuyers with low down payment

The Federal Housing Administration is a Federal Agency within the Department of Housing and Urban Development (HUD)

FHA does not provide the funds to borrowers for home loans

FHA provides mortgage insurance on loans made by FHA-Approved lenders throughout the US, as protection against default by borrowers

Doesn’t FHA make me jump through hoops?

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FHA– Swiss Army Knife of Qualifying• FHA will be fulfilling their “mission” to stabilize

housing for many years to come

• Permanently approved to $625,500 for high cost

• Down Payment 3.5%

• Up to 85% cash out refinance

• All funds may come from a gift

• Seller can pay up to 6% toward all closing costs

• Non-Occupant Co-Borrowers are allowed with true blended ratios

• No Cash Reserves (1 and 2 unit properties)

• Credit Leniency – BK 2 years, Foreclosures 3 years, Short Sales 3 years (sometimes less)

• Streamline Refis & Fully Assumable

• Finance Up Front MIP in Loan Amount

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FHA Products

Purchase or Refi of 1-4 unit primary residence - FHA 203b

• Fixed Products - 15 and 30 Years, Regular and High Balance

• Arm Products - 1 Year Arm, 3/1 and 5/1 ARMs, 1/1/5 caps, 2.25% Margin

• Temporary Buydown (built in pricing on rate sheet)• Funds may come from lender, seller, borrower or other party

• Funds from seller must be included in max seller contribution of 6%

• May not be more than 2% below Note Rate

• Qualifying rate is the Note Rate

Well Designed Arms“No Payment Shock”

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Case Numbers – requested on-line at our website www.pcmloan.com

As a sponsored broker you will not have access to the FHAC (FHA Connection)

Upon submitting your online request for Case #• PCM will email you the new case number and Refinance

Authorization (if applicable)

All FHA loans must have a case # assignment to be insured• Case numbers are ordered in FHA Connection by PCM• Case numbers are assigned to the subject property• Case number must be reflected on all HUD documents• Case number printout is required with loan submission• Streamline Refinances need previously assigned case number• Case #s automatically cancelled by HUD after 6 months of inactivity (can be reinstated

under certain circumstances) New ML 11-10• You must have active loan application & property to request Case # New (ML-11-10)

Case #?

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CAIVRs Credit Alert Interactive Voice Response System checks for delinquent federal debt, should be on Case Number Printout• PCM will access CAIVRS through the FHAC

• This is informational only to you as a sponsored broker

• Must be ordered on all borrowers

• Any delinquency must be cleared, or not eligible for FHA loan

• Should a delinquency or issued be uncovered by PCM you will be promptly notified

CAIVRs through FHA Connection-PCM will do this piece of processing

CAIVRs: Not a Spelunking Term!

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All parties to the transaction must be cleared in both databases (Government lists of bad players)

LDP (Limited Denial of Participation• Database can be accessed at

http://portal.hud.gov/portal/page/portal/HUD/topics/limited_denials_of_participation

GSA (Excluded Parties List Service)• Database can be accessed at https://www.epls.gov/

Use PCM Job Aid and Participants List

LDP & GSA Databases

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Maximum LTV’s

Effective 10/1/2011

Purchase No Cash Out/Streamline Refi Cash Out Refinance

96.50% 97.75% 85%

FHA Mortgage Limits

Region 1 Unit 2 Units 3 Units 4 Units

Low Cost Areas $271,050 $347,000 $419,425 $521,250

High Cost Areas $625,500 $800,775 $967,950 $1,202,925

Alaska & Hawaii $938,250 $1,201,162 $1,451,925 $1,804,387

A complete schedule of FHA mortgage limits for all areas is available at: https://entp.hud.gov/idapp/html/hicostlook.cfm

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Maximum Loan Amount High Balance Loan Amounts PCM High Balance pricing applies when base

loan amount is over $417,000 Maximum Mortgage Calculation - Purchase

• 96.5% of the lesser of sales price or appraised value• Does not include Up Front MIP (UFMIP)• Borrower must have minimum of 3.5% down payment (Can be gift)• Closing costs may not be used in minimum 3.5% calculation• Seller Concessions maximum 6%

Maximum Mortgage Calculation – Refinance• No Cash Out and Streamline Refinances 97.75% of appraised value• Cash out Refinances - 85% of appraised value

FHA loan limits are set by HUD, and vary from county to county. Current loan amount limits can be found online at

https://entp.hud.gov/idapp/html/hicostlook.cfm

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Up Front MIP (UFMIP) the FHA mortgage insurance premium is paid at closing in the form of cash, or financed in the loan amount.

UFMIP must be 100% financed or 100% paid in cash, no partial financing

Annual MIP is collected in monthly payments and calculated in ratios

FHA Mortgage Insurance Premium (MIP)

Upfront and Annual MIP-For Case numbers as of 4-18-2011

Purchase and Full-Credit Qualifying Refinance

Greater than 15 year terms 15 year or less terms

LTV UFMIP Annual LTV UFMIP Annual

> 95% 1.00% 1.15% > 90% 1.00% 0.50%

<= 95% 1.00% 1.10% < 90% 1.00% 0.25%

<=78% 1.00% none

Streamline Refinance

UFMIP = 1.00%; Annual MIP follows the above grids.LTV is based on the existing mortgage or a new LTV based on a new FHA appraisal

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Upfront MIP in Box #3on 2010 GFE

Upfront MIP $6,750

$6,750

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Upfront Premiums are refunded ONLY to borrowers refinancing to another FHA insured mortgage within a 3 year time period. The refund will be calculated in FHA connection when case number is ordered.

The annual MIP will be automatically cancelled with the following conditions:

• Loan terms over 15 years the MIP will be cancelled when the LTV ratio reaches 78%, as long as the Borrower has paid MIP for at least 5 years

• Loan terms 15 years and less and with LTV ratios 78% and greater, the annual MIP will be cancelled when the LTV ratio reaches 78%, irrespective of the length of time the Borrower has paid the MIP

• Loan terms 15 years and less and with LTV ratios of 78% or less will not be charged an annual MIP

FHA Mortgage Insurance Premium (MIP)

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FHA Purchases

The Borrower may not receive any cash back through a purchase, other than an amount representing:

• A reimbursement for the Borrower’s overpayment of fees

• Costs paid by the Borrower in advance; earnest money deposit, appraisal or credit report fees; or

• A legitimate real estate tax credit in locales where real estate taxes are paid in arrears

• If the Borrower receives an allowable amount of cash back, the minimum Borrower contribution must be met and verified

See Loan Amount Calculation Worksheet

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FHA Purchase Loan Calculation

Base Loan Amount

A $ X 96.5% = Lesser of Sales Price or

Appraised Value Max LTV Base Loan Amount

Minimum Down Payment

B $ - $ = $ Sales Price Max Base Loan Amount Min Down Payment

Up Front MIP

C $ X 1.00% = $ Base Loan Amount Up Front MIP

Total Loan Amount

D $ + $ = $ Base Loan Amount Up Front MIP Total Loan Amount

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No Cash Out Refinance – Regular Refinance Current mortgage must be a NON-FHA fixed rate or ARM Single Family, Owner Occupied Primary Residence Maximum mortgage is the LOWER of 97.75% of appraised value or Existing Debt

Calculation• Existing Debt includes payoff of existing 1st, PM 2nd, jr. lien over 12 months, closing

costs, prepaid expenses, borrower paid repairs, and discount pts• If any portion of funds of equity line in excess of $1000 in last 12 months, for purposes

other than repairs and rehab. of property the line of credit may not be included. Property owned less than 12 months, must use lesser of original purchase price +

expenditures for repairs, or current appraised value Proceeds to buy out ex-spouse are okay Borrower may not receive more than $500 at closing Non-Occupant Co-Borrower may be added 2nd Liens may subordinate, up to 97.75% (case numbers as of 9/7/2010)

• Terms of subordinate lien must not have a balloon, • No prepayment penalty (with 30 days notice)• Payments are calculated in qualifying

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No Cash Out Refinance WorksheetLTV Factor Method

A $ X 97.75% = Appraised Value Max Mortgage #1

Existing Debt Method

B $ + $ = $ Payoff 1st , PM 2nd or

seasoned Jr. Lien Closing Costs -non-

recurring, prepaids and discount points

Max Mortgage #2

Up Front MIP

C $ X 1.00% = $ Lower of Max #1 and Max #2 Up Front MIP

Total Loan Amount

D $ + $ = $ Lower of Max #1 and Max #2 Up Front MIP

And EEM upgrades if any Total Loan Amount

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Cash Out Refinance FHA will insure a cash out refinance, up to 85% of

appraised value with the following requirements:• Properties owned 12 months or more, use current appraised value

• Properties owned less than 12 months use lesser of purchase price or appraised value

• All Borrowers must hold title to property for at least six months and minimum 6 payments must be made on existing loan

• Borrowers whose loans are delinquent or in arrears are not eligible

• Non-Occupant Borrowers may be not be added to qualify.

• Existing or new subordinate financing to a maximum CLTV of 85%

• Modified subordinate financing is acceptable to a maximum CLTV of 85%

• 1 -4 units, 3-4 unit properties must pass self-sufficiency test

• Properties owned Free and clear may be financed as cash-out transactions

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Cash Out Refinance Worksheet

Max LTV Calculation

A $ X 85% = Appraised Value Base Loan Amount

Up Front MIP

C $ X 1.00% = $ Base Loan Amount Up Front MIP

Total Loan Amount

D $ + $ = $ Base Loan Amount Up Front MIP Total Loan Amount

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Current loan must be an FHA insured mortgage Mortgage must be current, not delinquent Must result in lowering monthly Principal and Interest

Payments-Must meet Net Tangible Benefit test Order new case number on PCM website, select Streamline

Refinance MIP refund will be disclosed on Refinance Authorization LDP/GSA is required Manual Underwrite, do not run through AUS Credit report is now required - minimum credit score is 640 Max cash back $500

FHA Streamline Refinance

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FHA Streamline Refinance (cont.) Verification of Mortgage is required, no lates in past 12 months Seasoning: 6 payments must have been made AND 6 mos. must have passed

since 1st payment was due AND 210 days from closing of first Credit Report (tri-merge or mortgage only) used to validate credit score and

mortgage history Employment and Income must be stated on 1003 and 92900LT-some types of

income require documentation-see PCM guidelines Funds to close (if needed) must be verified Subordinate financing may remain in place to a maximum CLTV of 125% Investment properties may be streamlined without Appraisal Deleting individuals from title/original loan must credit qualify Premium Pricing okay to cover closing costs Tax impounds, use amount from prelim unless proof of new taxes from county Condo Project Approval-not required

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Net Tangible Benefit (Streamline Refis) Part I:

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Net Tangible Benefit-Streamline Refis: Part II

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FHA Streamline Refi Maximum Mortgage Calculation WITHOUT Appraisal

$_____________ Unpaid principal balance* of existing FHA loan

- _____________Lesser of Refund credit of UFMIP or 1% of principal balance

=______________Base Loan Amount before UFMIP

+ _____________ New UFMIP

= _____________ New Loan Amount including UFMIP

*May include interest charged when payoff is not received on the first day of the month up to 60 days

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FHA Streamline Refinance without Appraisal-from our worksheet

Maximum Insurable Mortgage Amount              

   

   

    Outstanding Principal Balance (The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month but may not include delinquent interest, late charges or escrow shortages)

  UFMIP Refund* $0.00 1% of Outstanding Principal Balance

MINUS- $0.00 New UFMIP (the lesser of 1% of the Outstanding Principal Balance or UFMIP Refund)

 

   

  $0.00

Base loan amount before UFMIP (subtotal of Outstanding Principal Balance and UFMIP refund)

   

PLUS+ $0.00 New UFMIP  

   

  $0.00Maximum Insurable Mortgage cannot exceed this amount. (Note: Cannot exceed the regulatory county limit where property is located)  

      

*Any additional UFMIP refund due the borrower to be refunded directly to borrower by HUD post closing

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The maximum insurable mortgage is the lower of:

Outstanding principal balance* minus the lesser of refund of UFMIP or 1% of principal balance, plus closing costs, prepaid items to establish the escrow account and the new UFMIP

OR

97.75% of the appraised value of the property plus the new UFMIP

*May include interest charged when payoff is not received on the first day of the month up to 60 days

Streamline Refinance with Appraisal

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FHA Streamline Refi Maximum Mortgage Calculation WITH Appraisal-from our worksheet

Please note: Any additional UFMIP refund due the borrower will be refunded directly to borrower by HUD post closing

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Eligible Borrowers

U.S. Citizen

Permanent Resident Aliens

Non-Permanent Resident Aliens

All Borrowers must have a valid Social Security Number

Title must be held in individual names only

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Occupancy

Owner Occupied Principle Residence

Investment Properties are available on Streamline refis without an appraisal only

FHA limits borrowers to one FHA loan at a time. The following are potential exceptions:• Borrower relocated a reasonable distance away from prior home• Family size increased/decrease• Vacating jointly-owned property (Divorce)• Non-occupant Co-Borrower

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Transactions Affecting Maximum Mortgage Identity of Interest– Family or business relationships -

Limited to 85% LTV with the following exceptions:• Family member purchases another family member’s home as

primary residenceNote: If property is seller’s investment property, max mortgage is lesser of either 85% of appraised value or the appropriate LTV ratio percentage applied to sales price, plus or minus required adjustments. The 85% limit may be waived if family member has been tenant in subject property for at least 6 months

• An employee of builder purchasing builder’s new home as primary

• A tenant purchases rented property, evidencing at least 6 months as tenant immediately predating the sales contract

• A corporation transfers an employee, purchases that employee’s home, then sells home to another employee

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Transactions Affecting Maximum Mortgage

Non-Occupant Co-Borrowers• Permitted for purchases, no cash out refinances - all LTVs

• Not allowed on Cash Out Transactions

• 2-4 units max LTV is 75%

• Must be immediate family member (others, case by case) or max LTV is 75%

• Housing and obligations are included in the DTI ratios. Credit, income and assets must be verified

• Must sign Note and Security Instrument and all other closing documents

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Transactions Affecting Maximum Mortgage 3 and 4 unit properties The maximum mortgage is limited so that

the ratio of the monthly mortgage payment divided by the monthly net rental income does not exceed 100%

• Monthly payment is principal, interest, taxes, insurance, mortgage insurance and any HOA dues.

• Net rental income is appraiser’s estimate of fair market rent from ALL units, incl. borrower’s own unit, less the appraiser’s estimate for vacancies, or 15%*, whichever is greater (Santa Ana HOC)

• The above calculations are only to determine max loan amount, borrower must still qualify as usual, and projected rent may only be used as gross income and not to offset mortgage payment

• Borrower must have 3 months PITI reserves, cannot be a gift

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Transactions Affecting Maximum Mortgage Properties under Construction or Existing less

than one Year Limited to 90% LTV, with the following exceptions:• Construction completed more than one year

preceding borrower’s signature on HUD92900-A

• The dwelling’s site plans and materials were approved by VA, an eligible DE Underwriter, or an FHA certified builder prior to construction

• Local jurisdiction issued BOTH a building permit AND a Certificate of Occupancy or equivalent

• The dwelling is covered by a builder’s ten-year warranty plan acceptable to HUD

New Construction?Call us…

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Condo Project Approvals: HRAP (HUD Review Approval Process)

• Submit direct to HUD for Project Approval

• http://www.hud.gov/offices/hsg/sfh/condo/

• Use a third party Project Approval Company

• http://www.projectapprovals.com/

DELRAP (DE Lender Review Approval Process)

• DE (Direct Endorsement) lender reviews the Condo Documents

• PCM does not process DELRAP approvals but we lend behind them

Recertification Process (for expiring projects approved on/after January 1, 2000)

• PCM does not process Recertifications at present time

• Submit direct to HUD for Recertifications

• http://www.hud.gov/offices/hsg/sfh/condo/

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For HRAP and DELRAP approved projects-PCM will need:• FHA Condo Review Form completed by HOA• PCM must warrant the following items:

• Owner Occupancy ratio• HOA delinquencies-generally not to exceed 15% (if > 15% we will need

to review the Budget• FHA Concentration in project• Presale ratio

Project Approval Not Required on Site Condos

HO-6 (Walls in) required on ALL Condos

2 Million Liability per occurrence required on ALL Condos

Condo Project Approvals-continued

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50% presold

50% owner occupied

No more than 10% owned by any one investor

No more than 15% of units more than 30 days delinquent (including REO)

Any pending litigation or special assessments must be reviewed carefully and may/may not be acceptable

No more than 25% of floor space can be commercial use.

Need budget to show that at least 10% is allocated to reserves

Master insurance must show 100% cost replacement and liability coverage for all common elements, commercial space and public ways of project.

HO-6 walls in coverage (if not included in master policy) required with 20% of appraised value and maximum of 5% deductible. This must be impounded.

Fidelity coverage for any projects over 20 units is required (HOA dues x 3 x #units + reserves)

FHA concentration 30% or less

Condo projects must the following criteria:

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Condominium project must be either HRAP/DELRAP approved in FHA connection.

HOA Questionnaire completed in full (link to PCM HOA form)

Master insurance and HO-6 coverage policy

Last two meetings minutes

Budget

Documentation to show FHA concentration

Documentation Required on Condo Projects

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FHA Property Flipping

Property flipping is when properties are purchased and resold in a short period of time for a considerable profit

FHA requires that• Only owners of record may sell properties that will be financed

using FHA insured mortgages. No sales or assignment of contract.

• Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for financing-Exemptions to be discussed in subsequent slide

• Resales between 91 and 180 days where the new sales price exceeds previous price by 100% or more, additional documentation will be required

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FHA Property Flipping (cont.)Resales Occurring 90 days or less If the owner sells a property within 90 days after the date of acquisition,

it is not eligible, unless it falls into one of the following exceptions:• Sales by HUD of REO’s• Sales by other US Government entities• Sales by nonprofits approved by HUD• Sales acquired by inheritance• Sales by employers or relocation agencies• Sales by mortgage companies, their subsidiaries and any vendors hired by these

exempt entities• Sales by State and Federally chartered financial institutions and Government

sponsored enterprises (Fannie Mae and Freddie Mac)• Sales by local and state government agencies

Please Note: Properties acquired by individuals, investment groups, REO property-re-sellers or others whose intent is the purchase, repair and reselling of the property are not exempt from the 90-day resale restriction-This is a PCM guideline based on investor overlays. HUD issued a waiver.

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FHA Property Flipping (cont.)

Resales Occurring between 91 and 180 days from acquisition

• If resale price is 100% or more over seller’s acquisition price, a second appraisal will be required. Properties with close to a 100% increase in value may be subject to a second appraisal, and/or documentation to substantiate increase.

• Additional documentation showing the costs and details of improvements

• The cost of the second appraisal may not be charged to the homebuyer

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Appraisals/Property Requirements

Must be completed by an FHA approved appraiser

CASE NUMBER Must be ordered PRIOR to appraisal being complete

Termite Reports/Clearances no longer mandatory

Well/Septic not mandatory

The appraisal report must be dated within 90 days prior to receipt of the credit package, and dated within 120 days of the Note date

NOTE: Need at least 2 comps dated within 90 days of appraisal, and two current pending sales or active listings. 1004 MC addendum required.

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Appraisals/Property Requirements (cont.)

Appraisals may not be reused after the mortgage for which the appraisal was ordered has closed.

An operating income stmt must be provided for all 2-4 unit properties

The appraisal must state that the property is average or above condition

Appraiser must follow HUD standards

Mechanical Certifications must be made by appraiser, including ; electrical, plumbing and heating certifications

FHA Case number must be on all pages of appraisal

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Second Appraisal Requirements:

Resale date is between 91 and 180 days following acquisition of property by the seller AND

The resale price is 100% or more over the price paid by the seller

Note: Borrower cannot pay for the second appraisal.

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Effective with Case numbers ordered on or after September 19, 2008,ML 2008-25, rental income on current primary residence being vacated, may not be considered, with the following exclusions:

• Relocations – Homebuyer is relocating with new employer or transferring with current employer

• Properly executed lease agreement of at least one year

• Evidence of security deposit and/or

• Evidence of first month’s rent paid to homeowner

• Sufficient Equity in Vacated property

• LTV of 75% or less, determined by a current appraisal, less than 6 months old or by comparing the unpaid principal balance to original sales price

• PCM will require a signed lease agreement

Conversion of Primary Residence to Rental

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Occupancy of Former Investment PropertyNew from ML 11-11 (effective April 14th, 2011)

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Qualifying Ratios

Automated Approval (DO/LP) ratios per findings

• Note: we generally don’t see ratios over 46 on top or 57 on bottom get approved.

Manual underwrite

• Maximum ratios are 31%/43%

• Higher ratios may be acceptable only if the borrower has at least 3 very strong compensating factors and at underwriter’s discretion

• Minimum Credit Score is 640

Housing ratio is computed as PITI plus MI, HOA fees, ground rent, special assessments and payments on secondary financing to income.

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Credit Evaluation Minimum Decision Credit Score 640 (regardless of AUS

findings)

All borrowers must have credit score

Non-purchasing spouse’s credit must be pulled separately, in community property states (CALIFORNIA), negative credit is not to be considered, but debts will be considered in payments.

Credit will be closely examined over past 12 – 24 months, with greater emphasis on past 12 months

Borrower’s housing payment history is very important

Student loans deferred over 12 months are not considered

Note: Get credit authorization before pulling credit on NPS!

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Credit Evaluation (cont.) CAIVRS

• All Borrower’s need to be checked through FHA’s CAIVRs system• The system checks for delinquent federal debt• Any issues will need to be cleared

Verify previous/current housing obligations-Can be waived with AU approval

• Rental verification: Credit report, management service or 12 months cancelled checks. Note: if the borrower is renting from a private party PCM will require 12 months cancelled checks.

• Mortgage Verification Credit Report, Verification of Mortgage or 12 months cancelled checks. Note: if the borrower has privately held mortgage, PCM will require 12 months cancelled checks.

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Credit Evaluation (cont.)

Collections

• FHA does not require collections to be paid, the PCM underwriter will consider entire credit history and may require certain collections to be paid as a condition of loan approval

• The borrower must explain all collections in writing

• Medical collections do not have to be paid off

Judgments• Court-ordered judgments must be paid

• Documented re-payment plans are the exception

• The borrower must explain in writing all judgments

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Credit Evaluation (cont.) Foreclosure/Short Sale/Deed in Lieu

• 3 years must have elapsed – can be less than 3 years under certain circumstances-see PCM guidelines

Bankruptcy

• Chapter 7 must have been discharged for at least 2 years

• Chapter 13 acceptable with minimum 12 payments made on time, and court approval for new purchase

Credit Counseling

• Acceptable with 12 months payments made on time

• Need approval of CCC organization

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Employment and Income Verification of Borrower’s employment history for previous 2 years

required. Gaps of over 30 days must be explained.

Salaried borrowers,

• VOE covering 2 year period and most recent paystub; or

• 2 years W2’s, plus paystub, plus verbal VOE

• Back to Work Force, with 6 months on current job, and prior 2 year work history (example: someone who took time off to raise children)

• Part time, second job, seasonal, overtime and bonus income may be used for qualification if the income has been received for at least 2 years, and it’s continuance is likely. Income is averaged for 2 years.

• Commission income must have 2 year history, document with 2 years tax returns (subtract 2106 expense)

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Employment and Income (cont.)

Self-employment income:

• Borrower with a 25 percent or greater ownership interest in a business is considered self-employed

• Signed and dated individual tax returns (1040’s), plus all applicable schedules, for the most recent two years.

• Signed copies of federal business income tax returns for the last two years, with all applicable schedules, if the business is a corporation, an "S" corporation, or a partnership.

• A business showing a significant decline in income over the period analyzed is not acceptable and will not qualify for FHA financing

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Self Employed Income (continued)

Tax Return and Financial Documentation Requirements

Commission income

• Commission income must be averaged over the previous two years, based upon signed tax returns and a recent paystub• Unreimbursed business expenses must be subtracted from gross income • Individuals whose commission income shows a decrease from one year to the next require significant compensating factors to

allow for loan approval • Borrowers with commission income received between one and two years may be considered favorably provided the underwriter

is able to make a sound rationalization for acceptance and can document the likelihood of continuance• If it is sufficient, base salary without commission may be used to qualify.• Commissions earned less than one year are not considered effective income• Exceptions may be made in those situations where the borrower's compensation was changed from a salary to commission

within a similar position with the same employer

All transactions require a signed 4506-T by all parties on the loan

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Employment and Income (cont.)

Other Types of Income

Alimony and Child Support, must have proof receipt of payment for 12 months, with 3 years remaining.

Retirement, disability, social security income must have evidence that 3 years continuance is likely. Document with awards letters or other documentation.

Disability income, public assistance income, military allowances and social security income are not subject to federal income taxes, and may be “grossed up” by 25%

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Employment and Income (cont.)

Rental Income received for properties owned is acceptable if the borrower can document rental income is stable.

The following documentation may be considered:

• Current lease if property obtained since last tax period ONLY

• Tax returns indicating 12 month rental history

• 12 months rental history must be free of unexplained gaps greater than three months

• 85% of rental income is used to qualify borrower (Santa Ana HOC)

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Closing Costs

Broker may charge and collect from borrowers those customary and reasonable local fees necessary to close the mortgage.

Broker Compensation maximum is 3.5%

Broker may not charge fees for services not performed (underwriting, funding, etc.)

Impounds are mandatory-At all LTVs

Borrowers may not pay a tax service fee

Borrower may pay all other closing costs

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Assets Borrower’s own funds

• Checking and Savings• Cash saved at home, adequately demonstrated ability to do so, and must fit

cash type borrower• Loans secured by 401K• Sale of personal asset, etc

Gifts are acceptable from: • Relatives, including gifts of equity, close friend with defined interest in

borrower, borrower's employer or labor union, charitable organization, real estate agents who are relatives

• Government agency or public entity program that provides homeownership assistance to low and moderate-income families or first-time homebuyers.

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Asset Verification Funds in bank account

• Most recent 2 months bank statements or• One month bank statement with prior and current balance or• Computer generated VOD, with 2 month average balance• Any recent large increase and new accounts must be explained and

documented

Cash saved at home is verified by the following:• Satisfactory evidence of the ability to accumulate such savings and must

be cash type borrower• Satisfactory written explanation as to how such funds were accumulated

and the amount of time taken to do so.• Required funds to close must be deposited in a financial institution or held

by the escrow/title company• Borrower must meet profile: No checking or savings Accts., Limited credit

Grant funds from an organization that meets HUD’s guidelines.

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Gift Funds

Gift Funds – Gift Letter should contain:• The dollar amount• The donor’s name, address, telephone number• The Borrower must be named• The donor’s relationship to the Borrower• The donor’s signature• A statement that no repayment is required• Must contain language asserting that the funds given

were not made to the donor from any person with an interest in the sale of the property.

See PCM Gift Letter sample.

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Evidence of the source and transfer of funds is also required

• If the funds are in the Borrower’s account, a copy of the cancelled check or withdrawal slip showing that withdrawal is from the donor’s account. A copy of the deposit slip or bank statement showing the deposit of the funds into the Borrower’s account is also required.

• If the funds are to be provided at closing, documentation must be provided to verify that the funds were withdrawn from the donor’s account. (i.e. cashiers check must have name and account number of donor, and bank statement or other documentation to show the donors’ account number, etc).

Document source of Gift Funds

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Down Payment AssistanceDown payment assistance from interested parties, i.e. sellerfunded DPA are no longer acceptable to FHA

Some programs have been deemed ineligible, check with your account executive for eligibility, by providing the name and details of the DAP

Nonprofit and Non-profit Instrumentality of Government DAPs: DAP in the form of a lien • Must be approved by FHA and PCM. Please check with your Account

Executive for PCM approval, and on HUD’s website: http://www.hud.gov/offices/hsg/sfh/np/sfhdap01.cfm

Government entities (grants not funded by seller or builder contributions) offering secondary financing in the form of a lien, must meet FHA guidelines, as outlined in ML94-2, ML02-22 and in 4155.1 Rev-5, paragraph 1-13A.

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Seller/Interested Party Contribution A transaction with an interested party contribution has the following

(additional) appraisal requirements. • The appraisal must indicate the amount of the contribution• The appraiser must comment on the impact the contribution has to

the final value of the property • The appraiser must demonstrate the effect this has on final value• The comparable sales must be adjusted by the value of the

contributions as recognized by the market, in the appraiser’s opinion, not just dollar for dollar amount of the contribution

• Any comparables sold with financing and/or sales concessions must reflect the difference between what the comparables actually sold for with and without concessions

• Positive adjustments for sales or financing concessions are not acceptable

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FHA and more Links

Easy to navigate FHA Site: www.fha.gov

4155 Online NOW!: http://www.fhaoutreach.gov/FHAHandbook/prod/contents.asp?address=4155-1

HUD FAQs http://www.fhaoutreach.gov/FHAFAQ/

HUD Lenders Page http://www.hud.gov/groups/lenders.cfm

HUD Condo Lookup https://entp.hud.gov/idapp/html/condlook.cfm

HUD Condo Mortgage Insurance (Project Approval Guidance) http://www.hud.gov/offices/hsg/sfh/condo/

HUD Loan Limits https://entp.hud.gov/idapp/html/hicostlook.cfm

HUD Mortgagee Letters http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

FHA Wikipedia: http://portal.hud.gov/portal/page?_pageid=73,1829262&_dad=portal&_schema=PORTAL

Santa Ana HOC Center http://www.hud.gov/offices/hsg/sfh/talk/addr_sna.cfm

FHA DAP Approved List http://www.hud.gov/offices/hsg/sfh/np/sfhdap01.cfm

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