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FHA Basics for Success

Index

Introduction to FHA Helpful FHA Links Types of Assets Appraisals

Partnership Types Calculating Cash to Close Liabilities Property Inspections

Program Benefits Pre-Paid Closing Costs Employment & Income Refinance Transactions

Glossary of Terms UFMIP / Annual MIP FHA Qualifying Ratios New Construction

Required Disclosures Max Loan Amounts Manual Downgrade of AUS MSF FHA Guidelines

CAIVRS & Delinquent Debt Restrictions to Max Loan Amounts

Credit Requirements HUD 4000.1

LDP & GSA (SAM) Borrower Eligibility Property Eligibility HUD Mortgagee Letters

Resources & Technology Funds to Close Manufactured Homes Non-Traditional Credit

http://www.msofco.info/Guidelines/MSF FHA GUIDELINES.pdf

https://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

https://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee

Introduction to FHA

• The Federal Housing Administration (FHA) is a division of the U.S. Department of Housing and Urban Development (HUD).

• The goals of this division are to insure FHA mortgage loans (also known as government mortgages), expand homeownership opportunities, increase minority homeownership, make the home buying process less complicated and expensive, and assist existing homeowners in avoiding foreclosure.

• FHA-insured mortgages can be used to purchase homes and to refinance existing mortgages.

• FHA loans are designed for low to moderate income borrowers who are unable to make a large down

• payment.

• The most popular FHA loan has a minimum cash investment requirement of 3.5 percent but permits 100 percent of the money needed at closing to be a gift from an acceptable source or an acceptable secondary financing source.

FHA Partnership Types

MSF Approval Type FHA Approval Types FHA Case # Ordered by FHA Appraisal Close in own name

Wholesale “W” Byte profile

SO – Sponsored Originator

SOFA – Sponsored Originator FHA

Approved

Principal – Unconditional DE

Lender

SO – MSF

SOFA – MSF or BP (transferred

to MSF)

Principal – MSF or BP

(transferred to MSF)

MSF AMC –Mercury Networks

Transferred Case # - Ordered by

FHA lender assigned at the time of appraisal order

No

Correspondent“N” or “C” Byte profile

SOFA – Sponsored Originator FHA

Approved

Principal – Unconditional DE

Lender

Non-Del – MSF or BP

(transferred to MSF for insuring)

Delegated – BP

BP AMC –Ordered by FHA lender assigned at the time of

appraisal order

Yes

FHA Program Benefits

• Lower down payment at competitiverates

• Total cash investment may be as low as 3.5%

• Loan(s) to 100% of total investment with gift from an eligible source

• Seller may pay pre-paids & closing costs up to 6% (or may be paid by broker through "premiumpricing")

• Cash reserves as required by AUS (except for 3 & 4 units, then 3-month PITI needed or as required per Manual

underwriting requirements)

• No credit score requirement for FHA Streamline refinance transactions

• Higher and flexible qualifying ratios

• Non-occupyingco-borrowers allowed on purchase and rate/term refinance loans

• Upfront MIP may be financed

• Borrower may request "Streamline Refinance" (to reduce rate andpayment)

• FHA Loans are assumable (and requirequalifying)

• No pre-payment penalties

• 500-579 credit score – max 90% LTV

• 580+ credit score - up to max LTV allowed for program

• 85% LTV max for cash out

FHA Glossary of Terms

Glossary of FHA Terms

FHA

• The Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD), administers various single-family mortgage insurance programs. These programs operate through FHA approved lending institutions which submit applications to have the property appraised and the buyer's credit approved. These lenders fund the mortgage loans, and HUD insures the total loan amount. HUD does not make direct loans to help people buy homes.

HUD• U. S. Department of Housing and Urban Development, a governmental agency with varied housing-related duties, including – administration of the FHA loan program, supervision of the governmental agency Ginnie Mae (GNMA), and public oversight of the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. HUD is also charged with enforcing the Real Estate Settlement Procedures Act (RESPA) and Federal Fair Housing Laws.

Agency• A governmental entity with which we do lending business. In this case, HUD (also known as FHA).

FHA Glossary of Terms

Glossary of FHA Terms, Continued

Government National Mortgage Association(GNMA)• Popularly called "Ginnie Mae", this governmental agency is supervised by HUD.• Ginnie Mae's primary role is to guarantee investors the timely payment of principal and interest on mortgage backed securities (MBS) backed by federally insured or guaranteed loans — mainly FHA and VA loans. GNMA is known as one of the "Big Three" in the "Secondary Market".

Conditional Commitment

• Form used to indicate approval of the FHA appraisal. When completed by HUD this form is properly calleda “Conditional Commitment”, but when completed by a Direct Endorsement (DE) lender, this form isproperly called a "DE Statement of Appraised Value". Form HUD-92800.5B (9/2004).

Direct Endorsement

• Established in 1983, Direct Endorsement is the process that enables DE-approved lenders to consider

single family mortgage applications without first submitting paperwork to HUD.

FHA Required Disclosures

Required Disclosures – In addition to RESPA required disclosures MSF FHA requires

MSF Submission form

• Required at submission along with all minimum items to disclose

• Available at the MSF websiteLead Based Paint Disclosure

• Included in the MSF disclosure package to borrower

Real Estate Certification and AmendatoryClause

• Executed on or before real estate contract date – Typically part of the sales contract

• See HUD Handbook

Initial HUD/VA Addendum to Uniform Residential Loan Application - HUD 92900-A

• Executed at application

• Pages 1 and 2 signed at initial application disclosure (MSF to disclose)

• Pages 1 through 4 signed at closing


Required Disclosures, Continued

Important Notice to Homebuyers – HUD 92900-B• Executed at application (Disclosed by MSF)

Informed Consumer Choice Disclosure Notice• Executed at application (Disclosed by MSF)

FHA ARM disclosure (if applicable)• Provide to borrower within 3 days of application (Disclosed by MSF)

GET FHA FORMS HERE:• http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/forms

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


Mortgage Solutions Submission Form

FHA Required DisclosuresLead-Based Paint Disclosure

Purchase Only – properties built prior to 1978


Important Notice to Homebuyers


Informed Consumer Choice Disclosure Notice

CAIVRS and Delinquent Debt

CAIVRSAll borrowers must be screened using CAIVRS (Credit Alert Interactive Voice Response System), except for Streamline refinances.

CAIVRS is a Federal government-wide repository of information on those individuals

with delinquent or defaulted federal debt, or who have had an FHA or VA insurance claim paid on a previous mortgage loan.

Delinquent Federal Debts

Delinquent Federal Non-Tax Debt

Borrowers are ineligible for an FHA insured mortgage with delinquent federal non-tax debt, including deficiency

judgements and other debt associated with past FHA-insured mortgages.

• Any debt that is confirmed as valid and in delinquent status must be resolved in order for a borrower to become eligible

• Documentation must be included in the file from the creditor agency to support the verification and resolution of the

debt. A clear CAIVRS report is required for all debt reported through CAIVRS.

If a borrower is currently delinquent on an FHA-insured mortgage, they are ineligible for a new FHA-insured

mortgage unless the delinquency is resolved.

CAIVRS and Delinquent Debt

Delinquent Federal Tax Debt

Borrowers with delinquent federal tax debt and no valid repayment agreement in place are ineligible. Tax liens

may remain unpaid if:

• The Borrower has entered into a valid repayment agreement with the federal agency owned to make

regular payments, AND

• The Borrower has made at least three of the scheduled payments on time. The borrower cannot prepay scheduled

payments in order to meet the required minimum of three months of payments.

• Verification that the Borrower does not have a lien against their property for a debt owed to the federal

government. If a lien is in place, the lien holder must subordinate the tax lien to the new FHA-insured mortgage.

• Documentation from the IRS evidencing the repayment agreement and verification of payments made must be

included in the file.

• The payment amount must be included in the DTI ratio

LDP / SAM (GSA)

LDP/SAM

Suspended and DebarredIndividuals

The following entities must be checked against HUD's Limited Denial of Participation (LDP) list at

http://portal.hud.gov/hudportal/HUD?src=/topics/limited_denials_of_participation or the System for Award Management

(SAM) Excluded Party List https://www.sam.gov/. Any entity noted on either of the LDP or SAM lists will cause the loan to be

ineligible.

• Borrower(s)

• Seller(s)

• Loan Officer

• Loan Processor

• Loan Underwriter

• Listing Agent

• Selling Agent

• Appraiser

• Settlement Agent

NOTE: Mortgage Solutions Financial is responsible for checking the LDP/SAM list on all entities.

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

https://www.sam.gov/

Resources and Technology

Automated Underwriting

TOTAL is HUD’s proprietary credit evaluation system, used within an Automated Underwriting System (AUS) to evaluate the

borrower’s credit history and other application variables, and return either an accept/approve recommendation or refer the loan

for manual underwriting. TOTAL is automatically accessed when an FHA loan is submitted for underwriting via previously-

approved AUS products, including Freddie Mac's Loan Product Advisor (LPA) and Fannie Mae’s Desktop Underwriter (DU) system.

All FHA loans must be scored through TOTAL with the exception of Streamline Refinance Transactions.

On-line Resources:

HUD's "Home Page" links to a broad variety of HUD-related topics. HUD’s “Lenders Page” links to specific FHA lending

information, including mortgagee letters, mortgage limits, program descriptions, HUD contacts, phone numbers, e-mail

addresses, etc.

HUD Home Page: http://www.hud.gov/

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

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

http://www.hud.gov/

http://www.hud.gov/groups/lenders.cfm

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



The best way to stay up to date with FHA requirements is to sign up for HUD’s Housing E-mail list:

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

FHA Resource Center: Search online knowledge base: http://portal.hud.gov/hudportal/HUD?src=/library

HUD Handbook 4000.1 is a consolidated, consistent, and comprehensive single source for FHA Single Family Housing

Policy.

Handbook is accessible via HUD Clips:

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

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

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


Helpful FHA Links

Helpful Links

Please refer to the Mortgage Solutions website under Resources for more information.

http://www.hud.gov/ – HUD web address http://portal.hud.gov/hudportal/HUD?src=/FHAFAQ - FHA

Frequently Asked Questions Site

http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips – HUD clips where to find handbooks,Mortgagee letters, and other processing and underwriting guidance

https://www5.hud.gov/Ecpcis/main/ECPCIS_List – HUD LDP list (must be checked for all parties totransaction including real estate agents, buyer, seller, appraiser,etc.)

https://entp.hud.gov/idapp/html/condlook.cfm – FHA approved condominium search (All condominiums must be approved and listed on FHA’s list of approvedcondos)

https://entp.hud.gov/idapp/html/hicostlook.cfm – FHA maximum mortgage limits (check maximum mortgage limit for are in which you are lending. Limits are set based on state and countylocation)

http://www.hud.gov/

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

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

https://www5.hud.gov/Ecpcis/main/ECPCIS_List

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

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

Helpful FHA Links

Helpful Links, Continued

http://www.hud.gov/localoffices.cfm – List of HUD fieldoffices

http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm – Additional RESPA information (completing HUD

settlement sheet/CD and addendum, Affiliated Business Arrangement Formatetc.)

http://portal.hud.gov/hudportal/documents/huddoc?id=92900-lt.pdf

FORMS: FHA Loan Underwriting and TransmittalSummary

http://portal.hud.gov/hudportal/documents/huddoc?id=92800-5b.pdf

FORMS: Conditional Commitment.

http://www.hud.gov/localoffices.cfm

http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm

http://portal.hud.gov/hudportal/documents/huddoc?id=92900-lt.pdf

http://portal.hud.gov/hudportal/documents/huddoc?id=92800-5b.pdf

Calculating Cash to Close

Calculating Cash-to Close

The three items that make up a buyer’s cash-to-close are: Down

payment

+ Closing Costs and Fees Paid by the Borrower

+ Pre-paid Closing Costs Paid by the Borrower

_

= Total Cash-To-Close

TOTAL: For the purpose of verifying sufficient cash-to-close, Cash Reserves (after closing) are not required

for 1-2 unit properties except as requiredby total scorecard.

Manual (except non-credit qualifying streamline refinance transactions)

• 1 – 2 Unit Properties: Verify and document one (1) month’s PITIA**

• 3 – 4 Unit Properties: Verify and document three (3) month’s PITIA**

** PITIA = Principal, Interest, Taxes, Insurance and other Assessments (special assessments , HOA dues, etc.).

Estimating Pre-Paid Closing Costs

Upfront MIP / Annual MIP

Upfront Mortgage Insurance PremiumAn Upfront Mortgage Insurance Premium (UFMIP) is required on all FHA mortgage programs offered by

Mortgage Solutions Financial. The maximum mortgage may never exceed the statutory limits,

except by the amount of financed UFMIP.

Monthly Mortgage Insurance PremiumFHA mortgages require an additional Mortgage Insurance Premium (MIP) that is collected monthly. The

percentage amount of the monthly premium varies by program, LTV, and loan term.

FHA Simple and Streamline submissions MUST include a copy of the “Refinance Authorization/Credit

Query” documenting the original endorsement date (see below).

Upfront MIP / Annual MIP

Max Loan Amount Worksheet

Restrictions to FHA Max Loan Amounts

Restrictions to Maximum FHA Amounts

Certain types of loan transactions affect the amount of financing available and the calculation of the

maximum mortgage amount.

These include: Identity-of-Interest, Non-Occupying Co-Borrowers, and additional FHA loans.

Identity of InterestTransactions

Identity-of-Interest is defined by HUD as a sales transaction between parties with a family or business relationship. These

transactions are usually restricted to a maximum loan-to-value of 85%. However, maximum financing is permissible under the

following circumstances:

• A family member purchasing another family member's home as a principal residence. The home must be the Seller’s primary

residence.

• An employee of a builder purchasing one of the builder's new homes as a principal residence.

• A corporation transferring an employee out of an area, purchasing the transferred employee's home, and reselling to another

employee.

• A current tenant purchasing the property that he or she has rented for at least six (6) months immediately

predating the sales contract. A lease or other written evidence must be submitted to verify occupancy.


Restrictions to Maximum FHA Loan Amounts, Continued


Restrictions to Maximum FHA Loan Amounts, Continued

Family Member is defined as follows:

Child, parent, or grandparent;

• Child is defined as son, stepson, daughter, or stepdaughter;

• Parent or grandparent includes a step-parent/grandparent or foster parent/grandparent

Spouse or domestic partner

Legally adopted son or daughter, including a child who is placed with the borrower by an authorized agency for legal

adoption

Foster child

Brother, stepbrother Sister,

stepsister Uncle

Aunt

Son-in-law, daughter-in-law, farther-in-law, mother-in-law, brother-in-law, or sister-in-law of the borrower

Note: This applies to identity-of-interest and gift funds

Borrower Eligibility

Borrower EligibilityCo-Borrowers:

A co-borrower is an individual applying for a mortgage loan other than the primary borrower, who occupies the

property, whose name appears on the mortgage note, and who is jointly and severally liable for the mortgage

debt.

Non-Occupant Co-Borrowers:

A non-occupant co-borrower is an individual applying for the loan that has an ownership interest in the property, but the

subject property is not their principal residence. Non-occupant co-borrowers take title to the property at

settlement, and must execute the note and security instruments as required by state law. Additionally, a non occupant co-

borrower may not be added to the loan transaction to meet qualifying requirements for a cash-out refinance.

Non-occupant co-borrowers are allowed provided they meet the guidelines in the Product Description and the following

criteria:

• Must have a principal residence in the U.S., unless exempted due to military service with overseas assignments,

or as a U.S. citizen living abroad.

• Must not have an interest in the financial transaction, including but not limited to a seller, broker, real estate

agent, or builder.

Borrower Eligibility

Borrower Eligibility, continuedNon-Occupant Co-Borrowers, Continued:

For non-occupying co-borrower transactions, the maximum LTV is limited to 75% LTV.

The LTV can be increased to a maximum of 96.5% if the borrowers are family members, provided the transaction does not

involve the following:

• A family member selling to a family member who will be a non-occupying co-borrower.

• A transaction on a two- to four- unit property; 1-Unit maximum allowed.

Non-Borrowing Spouse or Domestic Partner:

A non-borrowing spouse or domestic partner is a person who has an ownership interest in the security property.

Non-borrowing spouses or domestic partners are required to sign the security instrument and other applicable documentation in order

to perfect a lien in accordance with the governing state law. The option to waive any property right by virtue of being the owner’s

spouse or domestic partner must be in accordance with applicable state law. CAIVRS is not required for Non-borrowing spouses or

domestic partners in

community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and

Wisconsin).

The following guidelines apply for non-borrowing spouses or domestic partners in community property states:

• Debts of a non-borrowing spouse must be counted in the borrower’s qualifying ratios.

• The non-borrowing spouse or domestic partner’s credit performance and credit score is generally not a consideration.

Note: There are additional requirements for a Non-Borrowing Spouse/Domestic Partner; please refer to the Lending Guide for complete

guidelines.

Funds to Close

Borrower's Cash Investment

The cash investment in the property must equal the difference between the amount of the insured mortgage, excluding any upfront

MIP, and the total cost to acquire the property including pre-paid expenses and closing costs. All funds for the borrower's investment

in the property must be verified and documented from acceptable sources.

Minimum DownpaymentRequirements

A downpayment is the difference between the sale price of real estate and the base loan amount which is paid by the borrower.

On purchase transactions, a minimum downpayment of 3.5% (Minimum Required Investment (MRI), based on the lesser of the sales

price or appraised value is required. The MRI must be clearly documented and may

come from the following sources:

• From the borrower’s own funds:

• An acceptable gift source (refer to Gifts), or

• An acceptable secondary financing source, refer to Secondary/Subordinate Financing.

• When the borrower’s minimum required investment is provided by a source other than the borrower, clear documentation must

be obtained to support the permissible nature of those funds.

Closing costs paid by the borrower are not permitted to be used as a source of funds towards the 3.5% minimum required

investment (MRI).

Seller’s real estate tax proration to be received or credited at closing may not be considered at the time of

underwriting as the source of the applicant’s required funds to close.

Funds to Close

Minimum Cash ReserveRequirements

Reserves are a predetermined amount of cash the borrower is required to have available after the downpayment, closing costs and pre-paid expenses are paid at loan closing. Reserve requirements are specific to property type and how the transaction was underwritten (TOTAL or Manual). This requirement assures that the borrower has resources available in case an unforeseen financial problem arises that might impede the borrower's ability to make monthly mortgage payments on time.

(TOTAL) Three (3) month’s PITIA is required on all 3-4 unit purchase and refinance transactions, regardless of AUS Findings.

Reserve Requirements (TOTAL)Document reserves per AUS. All assets submitted to AUS must be verified and documented.

Reserves do not include:• The amount of cash taken at closing in a cash-out transaction• Any incidental cash received at closing• Equity in another property• Borrowed funds from any source

Refer to FHA guidelines for any specific reserve reqirements

Funds to Close

Reserve Requirements (Manual) except non-credit qualifying streamline refinance transactions

•1-2 Unit Properties: Verify and document one (1) month’s PITIA

•3-4 Unit Properties: Verify and document three (3) month’s PITIA

•For manually underwritten transactions, these funds may NOT be considered as cash reserves:

o Gift funds

o Equity in another propertyo Borrowed funds from any sourceo The amount of cash taken at closing in a cash-out transaction.o Any incidental cash received at closing.

Refer to FHA Product Descriptions for specific reserve requirements

Reserves include cash and other liquid assets that borrowers can easily convert to cash by:•Drafting or withdrawing funds from an account,•Liquidating a cash-equivalent asset,•Redeeming vested funds, or•Obtaining a loan secured by assets from a fund administrator or an insurance company.

Unacceptable sources of reserves include:•Proceeds from a cash-out refinance•Equity in real property•Funds that can only be accessed upon retirement or job termination•Gift funds, except on 1 or 2-unit properties under limited circumstances (refer to Gifts)

Types of Assets

Types of Assets

Assets are reviewed to determine if the

borrower(s) will meet the requirements for

closing costs, downpayments, and reserves,

refer to Validation and Evaluation Large

Deposits and New Accounts.

When assets are used for the

downpayment or closing costs,

documentation must be provided to

evidence and verify the sale or liquidation

of the funds.

The borrower’s credit card may be used to

pay fees outside of closing; refer to

Wholesale Lending Guide for full

requirements.

Types of Assets

Types of Assets,Continued

Checking and Saving Accounts• Funds from checking and saving accounts are permitted to be used for reserves, downpayment, and closing costs.

• The funds must be verified with a VOD or a current bank statement. If a VOD is not obtained, a statementshowing the previous month’s ending balance for the most recent month is required.

• All large deposits must be documented. Any single deposit in excess of 1% of the property sales price is considered a large deposit.

• If the borrower is not the sole owner of the account, all non-borrower parties on the account must verify in writing that the borrower has full access and use of the funds.

• For additional information on documentation guidelines, refer to ValidationRequirements.

Sale of Personal Property

•Utilize the lesser of the estimated value or actual sales price when determining funds to close•Obtain all of the following:

• Satisfactory estimate of the value of the item (i.e. auto dealers, philatelic or numismatic association, writtenappraiser by a qualified appraiser with no financial interest in transaction),

• Copy of the bill ofsale• Evidence of receipt• Deposit of proceeds

Note: Proof of sale is not required

Types of Assets

Types of Assets, continued

Earnest Money Deposit

Earnest Money Deposit (Sale contract deposits) for the purchase of the secured property is an acceptable source of funds for the down payment and closing costs. If the amount of the earnest money deposit exceeds 1% of the sales price or appears excessive based on borrower’s history of accumulating savings, the deposit amount and source of funds must be documented.

Verify earnest money with one of the following:• Copy of borrower’s cancelled check

• Bank statement showing the earnest money check clearing• Documentation from the deposit-holder showing receipt and deposit of earnest money funds Verify the source of funds with one of the following:

• Bank statement showing no undocumented recent large deposits, or• VOD with an average balance sufficient to cover the amount of the earnest money deposit• If the source of the earnest money deposit was a gift, it must be verified and documented in

accordance with gift fund requirements

Source of Funds• Only one-month bank statement is required if previous months balance is reported on bank statement• Document funds for recently opened accounts and individual deposits of more than 1% of adjusted value• Salary advance cannot be considered as an asset for funds to close

Types of Assets


Gift Funds Overlay – All Loans with a credit score below 640 require 2 months reserves, verification of rent, max 150% payment shock and be 0x30 over the last 12 months for all obligations.

Eligible Donors include: Borrower’s family member – reference Identity of Interest section for definition Close friend with a clearly defined and documented interest in the borrower Charitable origination that does not replenish available gift funds with seller contributions. Governmental agency or public entity that has a program providing homeownership assistance to low or moderate income

families; or first-time homebuyers Family members entitled to real estate commission from subject property provided they are a licensed real estate agent Only family members may provide gift of equity The borrower’s employer or labor union

Ineligible donors include: Any person or entity with an interest in the sales of the property, including by not limited to:

The builder The seller (except gift of equity for relative) The developer The real estate agent The mortgage broker Other interested party to the transaction

Any gift or down payment assistance source where the provider is reimbursed either directly or indirectly by the seller or any interested third party, commonly known as “seller-funded” DPA.

Types of Assets


Gift Letter and Source ofFundsThe following documentation is required regardless of when the gift is provided:

Gift LetterA gift letter is required to validate the gift from the donor. The gift letter must contain all of the following:

Indicate the donor’s name, address, phone number Indicate donor’s relationship to the borrower Match the exact amount of the gift A statement that no repayment is required Be signed by the donor and borrower

Source of Funds Regardless of when gift funds are made available to a borrower, the Underwriter must be able to determine that the gift funds

were not provided by an unacceptable source and were the donor’s

own funds.

If the gift funds are being borrowed by the donor and documentation from the bank or other savings account is not available,

the donor must provide written evidence that the funds were

borrowed from an acceptable source and not from a party to the transaction

At the underwriter’s discretion, additional documentation may be required to substantiate that the gift was derived from an

acceptable source by the donor including but not limited to a sourced and

seasoned bank statement. Donor’s cash-on-hand is not an acceptable source.

Types of Assets

Types of Assets, continuedGift Funds, cont.

Gifts as Cash Reserves (TOTAL)Deposited Prior To Closing

• Excess gift funds in the borrower’s account may be used as cash reserves (1- and 2-unit properties only) and may be included inthe borrower’s account balance when submitting to TOTAL. The gift should be identified separately as gift funds on the FHALoan Transmittal and 1003.

Provided At Closing• Excess funds from gifts remaining after loan closing may NOT be used as cash reserves. Gift must be submitted to

TOTAL as “gift funds” and not included in borrower’s account balance.

Gifts as Cash Reserves (Manually Underwritten Loans)• Gifts may not be counted as part of the borrower’s reserves under any circumstances for manually underwritten transactions

Refer Reserve Requirements-Manually underwritten loans.

Gifts of EquityOnly eligible family members may provide equity credit as a gift on a property being sold to other family members.

- Refer to Identity of Interest and Family Member definitionA gift letter signed and dated by the donor and the borrower that includes all the following is required:

- The donor’s name. address, and telephone number;- The donor’s relationship to the borrower- The amount of the equity gift; and- A statement that no repayment is required

Types of Assets


Gift Transfer Documentation

Liabilities

Introduction to FHA 41

Installment Accounts:Closed-end installment debts do not have to be included if: They will be paid off within 10 months; and The cumulative payments are less than or equal to 5% of the borrower’s gross monthly income. The borrower may not pay down the balance in order to meet the 10-month requirement

Student Loans

•

• All student loans must be included in the borrower’s DTI, regardless of the status of the loan or payment type.− Loans in deferment or forbearance may not be excluded.

One of the following two options are required for determining the qualifying payment.• Utilize the greater of:

− 1% of the outstanding loan balance, OR− The monthly payment reflected on the credit report.

• The actual payment only if it is fixed and fully amortized.‒

Example 1:Credit report reflects a $25,000 balance and a payment of $100.00.Written documentation indicates non-fixed plan.Qualifying payment must be $250.00.

Written documentation from the student loan provider is required.

Example 2:Credit report reflects a balance of $30,000 and a payment of zero. Written documentation indicates a fixed and fully amortized payment of $200.00 to begin in 18 months.Qualifying payment is $200.00.

Liabilities

Liabilities, continued

Revolving Accounts: The monthly payment shown on the credit report must be used for qualifying.

If the credit report does not include a monthly payment, 5% of the current outstanding balance mustbe used for qualifying.

Open accounts with zero balances are not included in debts.

Business Debt in Borrower’s Name Business debt reported on the Borrower’s personal credit report must be included in the DTI

calculation, unless it is can documented that the debt is being paid by the Borrower’s business, and thedebt was considered in the cash flow analysis of the Borrower’s business.

The debt is considered in the cash flow analysis when the Borrower’s business tax returns reflect abusiness expenses related to the obligation, equal to or greater than the amount of paymentsdocumented as paid out of company funds. When the Borrower’s business tax returns show an interestexpense related to the obligation, only the interest portion of the debt is considered in the cash flowanalysis.

When a self-employed Borrower states debt appearing on their personal credit report is being paid bytheir business, documentation that the debt is paid out of company funds is required and

The debt must be considered in the Underwriter’s cash flow analysis of the Borrower’s business.

Liabilities

Alimony and Child Support Since there are tax consequences of alimony payments, the monthly alimony obligation may

be treated as a reduction from the borrower's gross income when calculating qualifying ratios, rather than as a monthly obligation. If the borrower’s income was not reduced by the monthly amount of the monthly alimony obligation in the calculation of the borrower’s income, it must be included as a monthly obligation in the calculation of the borrower’s debt.

Child support must be treated as a recurring liability and the monthly obligation must be included in the borrower’s liabilities and debt.

Verification and documentation of the monthly obligation must be obtained. (Divorcedecree, separation agreement, maintenance agreement or other legal order.)

Borrower’s paystubs covering no less than 28 consecutive days are required to verify whether the borrower is subject to any order of garnishment relating to the alimony, child support or maintenance.

Calculation is based on the greater of:- The amount shown on the most recent decree or agreement establishing the

borrower’s payment obligations; or- The monthly amount of the garnishment

Liabilities

Contingent Liabilities:A contingent liability exists when an individual is held responsible for payment of a debt if anotherparty, jointly or severally obligated, defaults on the payment.A monthly payment must be included in the calculation of the borrower’s monthly obligations:

Unless documentation is provided that there is no possibility that the debt holder will pursue debt collection against the borrower should default occur, OR

The other legally responsible obligated party has made the most recent 12 months ofpayments on time. Satisfactory evidence of these payments is required.

If the debt must be included, it must be calculated based upon the terms of the contingentliability agreement.

Co-signed Obligations:The monthly payment on a co-signed loan may be excluded from the long term debt if:

Satisfactory documentation is provided to evidence that the other party to the debt hasbeen making regular on-time payments during the most recent 12 months, AND

There is no history of delinquent payments on the loan.

Liabilities

Mortgage Assumptions and/or Transfer through DivorceThe obligation is considered a contingent liability unless the following documentation requirementsare met: Divorce Agreement:

- A copy of the divorce decree requiring ex-spouse to make the payments, if applicable Assumption (not through a divorce agreement)

- A copy of the Loan Assumption Agreement- A copy of the deed showing title transfer out of the borrower’s name- Payment history on the mortgage showing the most recent 12 payments have been made

on time unless proof is provided that the borrower is legally released from liability throughthe assumption.

Authorized User AccountsAccounts in which the borrower is an authorized user must be included in the Borrower’s DTI: Unless documentation is provided to evidence that the primary account holder has made all

required payments on the account for the previous twelve (12) months.

If less than three (3) payments have been required on the account in the previous 12 months, then the payment must be included in the borrower’s DTI.

Liabilities

Open Ended/30-Day AccountsA 30-Day account refers to a credit arrangement that requires the Borrower to pay the outstandingbalance in full on the account in full each month. In order for the debt to be excluded, the followingrequirements must be met:

It must be verified that the borrower paid the outstanding balance in full on the account each month for the past 12 months.

The credit report cannot reflect any late payments in the past 12 months. Sufficient funds must be verified to pay the balance in full (in addition to those funds

required for closing, including reserves)If the above requirements cannot be met, 5% of the outstanding balance must be included forqualifying.

Deferred Obligations Must be included in DTI regardless of length of deferment Required documentation: obtain written documentation to evidence of outstanding

balance, terms of the deferred liability, including evidence of anticipated monthly payment, if available

Installment debt calculation: include actual monthly payment or 5% of outstanding balance

Liabilities

Non-Borrowing Spouse• Obtain SSA-89 for non-borrowing spouse and validate social security number (required if the subject property

is in a community property state or the non-borrowing spouse currently resides in a community propertystate.)

• If non-borrowing spouse does not have SSN• Verify lack of SSN with the Social Security Administration or one of their authorized service

providers• Where an SSN does not exist for a non-borrowing spouse, a manual credit report must be provided and

contain, at a minimum, the non-borrowing spouse’s full name, date of birth, and previous addresses for the last two years.

• Apply all of the following when a community property state applies:• Community property state applies when:

• Subject property is located in a community property state; or• Borrowers current residence is located in a community property state (Arizona, California, Idaho,

Louisiana, Nevada, New Mexico, Texas, Washington andWisconsin).• Obtain credit report for non-borrowing spouse

• Except non-credit qualifying streamline refinance• Debts must be included in borrower’s qualifying ratios, except for obligations excluded by state law• Credit performance and credit score is generally not a consideration.

Liabilities

Obligations not to be considered:

Medical collections Federal, state, and local taxes, if not delinquent and no payments are

required Automatic deductions from savings, when not associated with another type

of obligation Federal Insurance Contributions Act (FICA) and other retirement

contributions, such as 401(k) accounts Collateralized loans secured by depository accounts Utilities Child care Commuting costs Union dues Insurance, other than property insurance Open accounts with zero balances Voluntary deductions when not associated with another type of obligation

Employment & Income

Employment History and ContinuanceEstablishing stable monthly income is based on the type of income received, the length of time received, and whether

or not the income is likely to continue.• The borrower's employment must be documented for the most recent two (2) years.• Gaps of employment:

o Two year work history must be documented prior to gap in employmento Gaps of six (6) months or more (1 month or more for AUS Refer loans) must be fully explained by the

borrower• Borrower must be employed on the current job for at least six (6) months as of the case number

assignment date.• Documentation of time spent in college or military service can be included to make up the two (2) year

period. Time spent in high school cannot be used as part of borrower’s 2-year employment history• Frequent Changes in Employment

• If borrower has changed jobs more than 3 times in the previous 12 months, or has changed lines of work, the following additional steps to verify and document the stability of employment income is required:

– Transcripts of training or education demonstrating qualification for a new position; or– Employment documentation evidencing continual increases in income and/or benefits– Additional analysis is not required for types of employment that regularly require a borrower to

work for various employers (Temporary Companies or Union Trades).

Employment & Income


Employment History and Continuance, continued

Only employment and income used for qualification must be verified, except self-employment income, which must always be verified and analyzed to determine whether a loss or reduction to income must be considered.

The income of each borrower must be analyzed to determine whether it can reasonably be expected to continue at least three (3) years.

Reduced employment and income requirements apply to FHA streamlines; however, reduceddocumentation for Streamlines does not apply to credit-qualifying Streamlines.

Employment Related Documentation

• A completed and signed IRS Form 4506-T is required for all borrowers at application and closing and must be included in the loan

file, excluding non-credit qualifying FHA streamlines. For additional information, refer to 4506-T Requirements.

TOTAL:

•Full Documentation - Unless otherwise specified by AUS:

– The most recent paystub and one of the following:

•

•

A written Verification of Employment (VOE) covering two full years; or An

acceptable electronic verification covering the same information

Employment & Income

Employment Related Documentation, continued

Manual:

•Full Documentation – Obtain the following:

- The most recent pay stubs covering a minimum of 30 consecutive days(if paid weekly or bi-weekly, paystubs covering

a minimum of 28 consecutive days) that show year-to-date earnings, and one of the following:

Written Verification of Employment (VOE) covering two years; or

An acceptable electronic verification

- Re-verification of income is required; refer to Verbal Verification of Employment

•Alternative Documentation – Obtain the following:

- Copies of the pay stubs covering the most recent 30 consecutive days (if paid weekly or

bi-weekly), pay stubs must cover a minimum of 28 consecutive days showing year-to-

date earnings;

- Copies of IRS W-2 forms from the previous two years; and

- Document current employment and include the name, title and telephone number of the individual that verified

the employment. Must be obtained by Broker/EMB Lender.

- Re- verification of income is required (See MSF Guidelines)

FHA Qualifying Ratios

"Top Ratio": The total mortgage payment to effective income-to-income (also known as “front”) ratio is calculated

by dividing total monthly housing expenses for the financed property by the effective monthly income.

"Bottom Ratio”: The total fixed payment ratio (also known as DTI or “back”) ratio is calculated by dividing the total

of all monthly obligations by the effective monthly income.

TOTAL Max DTI:o Per AUS (Accept or Approve / Eligible)

Manual Max DTI:o 31/43 (Standard) / 40/50 (Max with eligible credit score and required compensating factors)o Refer to max ratio and compensating factors matrix from the HUD 4000.1 on the next page, to determine

eligibility and maximum ratios

For new construction properties, borrowers must be qualified using the estimated real estate taxes based upon the completed property improvements, not the unimproved lot taxes. See MSF FHA guidelines for details.


** Criteria below for manual approval of ratios ** Residual Income per FHA/VA residual income calculation requirement on next page


FHA/VA Residual Income Requirements

Manual Downgrade of AUS

Manual Downgrades

HUD requires the underwriter to manually downgrade an AUS-Accept or Approve / Eligible

recommendation to “Refer” and perform a complete manual underwrite based on standard FHA

guidelines if any of the following conditions exist:

• Delinquent Federal Debt: As revealed by public records, credit information or CAIVRS, including:

– Federally-guaranteed student loans.

– Federal taxes (If in accepted repayment agreement, must be current and have no history of

late payments).

– FHA and VA loans.

– Small Business Administration (SBA) loans.

– Liens placed against borrower’s property for a debt owed to the

US Government.

• Foreclosure: Foreclosure, Deed-In-Lieu of Foreclosure or Pre-Foreclosure Sale, Short Sale

completed within three years of the case number assignment date. The three-year period begins

on the date of the transfer of title.

• Bankruptcy: The date of the borrower’s bankruptcy discharge as reflected on bankruptcy

documents is within two (2) years from the date of the case number assignment.

Manual Downgrade of AUS

Manual Downgrades, continued

• The borrower has undisclosed mortgage debt (only has to be downgraded if all requirements

for this topic in the Lending Guide are notmet).

• The mortgage payment history by transaction type requires a manual downgrade (Refer to

Credit History section in the applicable ProductDescription)

• Additional information not considered in the AUS recommendation that effects the overall

insurability of the loan (Refer to Inaccuracy in Debt Consideration)

• Business Income shows a greater than 20% decline over the analysisperiod

• The Borrower has disputed derogatory accounts with a cumulative balance of $1000 ormore

• The file contains information or documentation that cannot be entered into or evaluatedby

TOTAL Mortgage Scorecard

Evaluating Manual Underwrites

• The underwriter must examine the Borrower’s overall pattern of credit behavior

• The Mortgagee must not consider the credit history of a non-borrowing spouse

• The underwriter must evaluate the borrower’s payment histories in the following order:

1. Previous housing expenses and related expenses, including utilities

2. Installment Debt

3. Revolving Accounts

• Acceptable payment history considered to be 0x30 last 12 months on housing / installment debt and no more than two 30 day lates in the last 24 months on mortgage or installment

Credit

Inquiries

All inquiries within the past 90 days must be reviewed to ensure that all debts, including any new payments

resulting from material inquiries listed on the credit report are used to calculate the debt ratios. If an inquiry

results in a debt, regardless of the amount of time passed since the inquiry was made, the payment must be

included and the debt must be considered in the AUS results.

The Underwriter must also determine that any recent debts were not incurred to obtain any

part of the Borrower’s required funds to close on the subject property.

Credit History and Credit Scores

• Min credit score is a 500 • Non-traditional credit builds are permitted per the HUD 4000.1. Manual approval only.• No score permitted for FHA Streamline (No AUS)• 580+ credit score required to exceed 90% LTV

Non-Traditional Credit Build

**Not intended to overcome derogatory credit. For borrowers lacking a history of credit that reports through traditional methods.

For additional information see Handbook 4000.1 II.A.1.b.ii.(A)(3); II.A.2.b.i; II.A.5.a.ii.(B) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh

References, including at least one of the following: – rental housing payments (subject to independent verification if the Borrower is a renter); – telephone service; or – utility company reference (if not included in the rental housing payment), including: – gas; – electricity; – water; – television service; or – Internet service.

If the Mortgagee cannot obtain all three credit references from the list above, the Mortgagee may use the following sources of unreported recurring debt:

– insurance premiums not payroll deducted (for example, medical, auto, life, renter’s insurance); – payment to child care providers made to businesses that provide such services; – school tuition; – retail store credit cards (for example, from department, furniture, appliance stores, or specialty stores); – rent-to-own (for example, furniture, appliances); – payment of that part of medical bills not covered by insurance; – a documented 12-month history of savings evidenced by regular deposits resulting in an increased balance to the account

that: o were made at least quarterly; o we’re not payroll deducted, and; o caused no insufficient funds (NSF) checks;

– an automobile lease; – a personal loan from an individual with repayment terms in writing and supported by cancelled checks to document the

payments; or – a documented 12-month history of payment by the Borrower on an account for which the Borrower is an authorized user.


Property Eligibility

Eligible Properties• 1-4 unit attached or detached primary residence including

condominiums and PUDs.

• Condominiums must be FHA-approved (No

DELRAP or HRAP assistance)

• 3-4 unit properties are subject to an additional

“self- sufficiency” test. See the

Maximum/Minimum Loan Amount section of

the product description.

• REO Properties. These include properties owned by HUD,

Fannie Mae, Freddie Mac, VA, USDA, and banking

institutions.

• Log homes.

• Modular Homes

• Manufactured Homes (Doublewide)

• Mixed use properties.

• New Construction – refer to New Construction.

• Ineligible Properties• Any property where the seller is not the owner of record.• Properties being re-sold within 90 days of the seller's acquisition

date • Manufactured home in a flood zone • Leasehold condominium, Spot condominium, Multi-unit

condominium. • Condominium requiring DELRAP approval • Properties with new of existing PACE liens• Ranches, orchards, working or hobby farms, commercial operations• Co-ops• Dome homes, Geothermal, Earth Berm• Builder Trade Equity• Any property that does not meet HUD’s minimum property

requirements and minimum propertystandards.• Properties that do not meet HUD minimum property requirements

and standards• Singlewide Manufactured homes


Property Eligibility

Condominium and PUD Projects• Site condominiums are single-family detached dwellings encumbered by a declaration of condominium covenants or

condominium form of ownership. Condominium project approval is not required for site condominiums; however, the condominium rider must be included in the FHA case binder submitted for insurance endorsement, and the loan closed under Section 203(b).

• Condominiums must be FHA-approved. The project must be listed on FHA's approved condominiumproject list at https://entp.hud.gov/idapp/protect/condlook.cfm

• If a project is no longer approved or does not meet Lender Certification Criteria, then only an FHA- to-FHA streamline refinance without an appraisal is permitted (this does not apply when the subject property is a HUDREO).

• PUDs do not require FHA approval• MSF does not offer DELRAP or sponsor HRAP approval requests

Leasehold Estates• A leasehold estate is a way of holding title to real estate in which the mortgagor does not actually own the property

and instead has a recorded long-term lease. Generally, leasehold estates are eligible. The appraisal must indicatemarket acceptance of leasehold estates as well as meet all HUD documentation requirements for leasehold estates.

• For 1-4 unit properties, including a one (1) family unit in a condominium project, the mortgage must bea real estate held on leasehold under:

• A lease having a term of not less than 10 years beyond the maturity date of the mortgage OR

• A lease of not less than 99 years which is renewable.

https://entp.hud.gov/idapp/protect/condlook.cfm

Manufactured Homes

• No Single-Wide

• One unit only

• Manufactured Homes in a Flood Zone are ineligible

• At least 3 manufactured sold comps must support value– Sale dates may exceed 6 months but never 12 months – Appraiser to make acceptable comments on all comps exceeding 6 months

• Affidavit of affixture signed by borrower at closing

• Collateral to be titled as real property at or prior to closing (Title of personal property surrender)

• Appraiser to verify permeant attachment of home

• Engineers inspection of foundation required (Certify attachment)

• Title policy must have a manufacture home endorsement to coverage

Appraisal

FHA AppraisalsAll appraisals must be ordered with strict adherence to Mortgage Solutions Financial company guidelinesfor Appraiser Independence Requirements (AIR).

The appraiser’s status must be verified within FHA Connection under Single Family FHA/Single Family Origination/FHA Approval Lists/Appraisers.

The effective date of the appraisal cannot be before the case number assignment date. Requirements in the Product Description must be followed.

Second AppraisalsMortgage Solutions Financial must order all second appraisals required for wholesale transactions. A second case number is not to be used.

Appraisal, value, and payment requirements: The value from the second appraisal must be used for LTV calculation if it exceeds 5% less than

the value from the first appraisal. (only applies for Property Flipping) If the second appraisal value is higher than the initial appraisal, the value from the second appraisal

may not be used. The borrower may not be charged for the second appraisal.

Appraisal

• FHA appraisals expire 120 days from the effective date

• 30 day extension of expiration date can be approved if:– Borrower was approved prior to the original expiration date of the

appraisal or– If the borrower signed a valid purchase contract prior to the original

date of expiration

• 120 day extension (Maximum 240 days from the effective date)

– 1004D completed by the original FHA appraiser if in good standing– Extension must be ordered prior to the original 120 day expiration

date of the appraisal – If an appraisal has expired a new case assignment should be created

Property Inspections


Termite, Well, and Septic Inspections

•A copy of the termite/pest inspection is required to be included in the file on any FHA loan if evidence exists that atermite/pest inspection was ordered, requested, required and/or completed, even if the borrower elected to have atermite/pest inspection completed.

•For existing properties over one (1) year old, inspection is only required if:–

–

The appraisal indicates there may be a problem or that problems are common in the area.

Required by the sales contract

•Properties under one (1) year old require mandatory inspection, treatment, and testing, even if previously occupied. Refer to FHA New Construction.

Well and Septic Inspections

•An inspection of a water purification system is required if the appraiser observes any deficiencies.

•When an individual water system is present, the water quality must meet the requirements of the health authority with jurisdiction.

•Water samples used for water tests analysis may not be provided by an individual with any financial interest in the transaction

•Properties with water purification systems are not eligible for FHA financing if the system is required to make the water safe.

•Systems installed to improve the taste or softness of the water are acceptable.

•The appraiser must visually inspect the onsite sewage.

•Refer to FHA Property Eligibility.

•Refer to FHA Handbook 4000.1 Chapter 3 for specific inspection requirements for water supply systems and septic systems.

Refinance Transactions


A refinance transaction is a mortgage loan used to payoff an existing real estate obligation on the same property for

borrower(s) with legal title to the subject property. Not all borrowers have to be obligated on the loan being paid off.

The types of refinance transactions available are:

• Rate/termrefinances

• Simple Refinance

• Streamline refinances without appraisals

• Cash-out refinances

A rate/term refinance (Limited Cash-Out) is a transaction in which the proceeds from the new loan are used to repay

the unpaid principal balance and current interest due on the existing first mortgage, closing costs, pre-paid items,

points, and any subordinate financing used solely to acquire the property or any junior lien over 12-months-old. Any

cash-back to the borrower must not exceed $500 ($0 in Texas), and must be due to minor changes at closing and/or

fees. For additional requirements and guidelines, refer to Rate/Term Refinances.


A simple refinance permitted for owner-occupied principal or HUD approved secondary residences with an existing FHA-

Insured mortgage. The underwriter must review the borrower’s employment documentation or obtain utility bills to

evidence the borrower currently occupies the property as their principal residence.

•Maximum LTV/CLTV

• 97.75% for principal residence

• 85% for HUD approved secondary residence

•Utilize “Simple Refinance Worksheet” to calculate max mortgage

•Maximum mortgage amount is lesser of:

• Nationwide mortgage limit

• Maximum LTV based on adjusted value, and program

• Cash back to the borrower at closing may not exceed $500 (Must be zero in Texas)

• Sum of existing debts and costs associated with the transaction

• Unpaid principal balance of the 1st mortgage as of the month prior to disbursement

• Interest due on the existing mortgage

• MIP due on the existing mortgage

• Late charges

• Escrow shortages

• Allowable costs including borrower-paid costs associated with new mortgage

• Borrower-paid repairs required by appraisal

• Less any UFMIP refund


A streamline refinance is designed to lower the monthly principal and interest payments on an existing FHA mortgage. Cash- back is

limited to $500 ($0 in Texas), and must be due to changes in the payoff at closing.

• Streamline Refinance transactions are permitted for 1 unit owner-occupied principal or HUD approved secondary

residences with an existing FHA-insured mortgage.

• All Streamline Refinance transactions do not require an appraisal.

• At the time the case number is assigned the original value from FHAC for the loan being refinanced must be obtained and

used as the appraised value. If the original value is not provided, the LTV ratio must be considered to be less than 90% for the

purpose of determining the term of the annual premium.

• Streamline transactions are either credit qualifying or non-credit qualifying.

• All streamline refinance transactions are not subject to the National Housing Act’s statutory loan limits or

Nationwide mortgage limits.

• CAIVRS not required.

• No minimum credit score requirement

• Streamlines require manual underwriting

• Loans seasoned less than 6 months since the first payment due date or 210 days from note date to case number assignment are not permitted. Minimum of 6 consecutive payments required.


A cash-out refinance is a transaction in which the loan amount exceeds the amount necessary to repay any

existing mortgage liens and closing costs. A refinance transaction is considered a cash-out refinance if the

borrower receives “cash back” in an amount exceeding $500, as evidenced on the Closing Disclosure. For

additional information, refer to Cash-Out Refinance.

• Cash-out is permitted for owner-occupied principal residences only.• Cash-out refinances are not allowed in the state of Texas• Income from a non-occupant co-borrower may not be used to qualify.• The subject property must have been owned and occupied by one borrower as their principal

residence for the twelve (12) months prior to the date of case number assignment. All borrowers must have occupied the subject as a principal residence for 12 months prior. o Exception for inheritance: borrower is not required to occupy for minimum period of time,

provided borrower has not treated the subject property as an investment property at any point since inheritance of the property

• Payment history requirements:o Borrower must have 0 x 30 late mortgage payments in last 12 months on the subject

property o Properties with a mortgage must have a minimum of 6 months mortgage paymentso Properties owned free and clear may be refinanced as cash-out transactions

• The underwriter must review the borrower’s employment documentation, OR obtain utility bills to evidence the borrower has occupied the subject property as their principal residence.

• Maximum LTV/CLTV 85%


Building on Own Land• Underwritten and processed as purchase, but closed as refinance:

• AUS records to reflect purchase• Byte to reflect refinance and construction-to-permanent• Settlement statement or similar legal documents must be prepared as a refinance

transaction• Payoff of an interim loan is permitted• One time construction-to-permanent loans are not permitted• Eligible if land is already owned by borrower for greater than 6 months from case number

assignment date• Borrower must have contracted with a general contractor or builder to construct improvements:

• Builder must be a licensed contractor• Copy of license must be uploaded to Imaging as “Property Valuation”

• Borrower may act as a general contractor only if the borrower is a licensed contractor (No sweat equity)

• Borrower’s funds to close must met TOTAL or manual underwriting guidelines• If land was given as a gift to borrower, donor cannot be a prohibited source – standard gift

guidelines to be followed and documentation required• Borrower cannot receive cash-back from additional equity in property but may replenish own cash

expenditures for any borrower-paid extras over and above contract and out-of-pocket expenses not included in builder’s price – itemization is required


Building on Own Land, cont.• Minimum required investment:

• Mortgage is calculated using the purchase LTV limits (96.5%)• Maximum mortgage amount calculated using lesser of the property value or the

documented acquisition cost• Document acquisition costs include:

• Builder’s price or sum of all subcontractor bids and materials• Value of the land as shown in the site value of the appraisal; and• Interest and other costs associated with a construction loan obtained by borrower-

to-fund construction

New Construction

New Construction

New Construction Categories

The first step in determining the correct documentation for FHA new construction cases is to determine the constructioncategory. The category is determined by the stage of construction at the time the appraisal is performed and noted under“General Description” in the “Improvements” section of the appraisal. The categories are:

Existing Less Than 1-Year Old: Property is 100% complete the issuance of the Certificate of Occupancy orequivalent was less than one year prior to the date of the appraisal. The property must have never beenoccupied.

Under Construction: The period from the first placement of permanent material through 100% completion withno Certificate of Occupancy or equivalent.

Proposed Construction: Property where no concrete or permanent material has been placed. Digging of footingand placement of rebar is not considered permanent.

The beginning date for the term “less than 1- year old” is the earliest of: Date of Certificate of Occupancy, or Date of completion on building inspection card, or Date of letter from local (or state) authority showing acceptable completion of construction.

If the above dates are not available, sufficient documentation must be provided to establish finalcompletion of construction.

New Construction

Documentation Requirements by Construction CategoryIn all cases, the documentation required as detailed below must be sufficient to enable the underwriter tomake the following certification on page 3 of the HUD-92900-A: “If this is new construction, the lendercertifies that the property is 100% complete (both on-site and off-site improvements) and the propertymeets HUD’s minimum property standards and local building codes.”

EXISTING LESS THAN 1-YEAR OLD:

Appraisal performed after the home is 100% complete but prior to one year following

completion of construction.

Appraisal should be marked “as is” or may be marked “subject to required inspections” for

properties which require termite inspections. Either is acceptable as long as the house was 100%

complete at the time of the appraisal and not subject to any further conditions or inspections

other than evidence of termite inspection/treatment.

If early start letter is in the file, treat as proposed construction.

New Construction

The following table contains the construction documentation requirements forEXISTING LESS THAN 1-YEAR OLD:

New Construction

UNDER CONSTRUCTION: Appraisal performed after

concrete or other permanentmaterials are placed but beforehome is 100% complete.

Marked “subject to completionper plans and specs” if home is <90% complete.

Marked “subject to repairs oralterations” if home is > 90%complete (only buyer preferenceitem remain – floor coverings,appliances, landscaping, etc.).

If early start letter is in file, treatas proposed construction.

The following table contains the constructiondocumentation requirements for

UNDER CONSTRUCTION:

New Construction

PROPOSED CONSTRUCTION: Approved prior to the beginning

of construction by a ConditionalCommitment/DE Statement ofAppraised Value (HUD-92800.5B)or Early Start Letter.

Appraisal performed beforeconcrete or other permanentmaterials are placed.

Initial pictures show theunimproved property.

Marked “subject to completion per plans and specs”

The following table contains the construction documentation requirements for

PROPOSED CONSTRUCTION:

New Construction

PROPOSED CONSTRUCTION, cont.:

Certificate of Occupancy EquivalentRequirements:

• Inspection card reflecting all inspectionsAND

• Certification from the DE Underwriterthat the inspection card is equivalent toa CO and that the city/county or localjurisdiction does not issue a CO.

NOTE: Certification from DE Underwriter should be done on letterhead, reference the FHA case number, borrower name, and property address, include a statement that local jurisdiction does not issue Certificate of Occupancy, and be signed and dated by the DE Underwriter and include CHUMS ID number.

Equal Housing Lender; Mortgage, Mortgage Solutions of Colorado, LLC dba Mortgage Solutions Financial. Company NMLS #61602. For mortgage banking professionals only; not authorized for distribution

to consumers or third-parties. All information herein is current as of 02/07/17 and subject to change without notice.

This presentation is made available to trusted partners of Mortgage Solutions Financial and is intended for sales enhancement purposes only. The material present herein is not intended as legal advice nor

does it represent the counsel or opinion of Mortgage Solutions Financial or its employees. Borrowers must qualify in accordance with current Mortgage Solutions Financial product and program guidelines (visit

www.mortgagesolutions.net to view). All attendees should consult their company’s policies, procedures, and/or internal compliance/legal guidelines regarding all regulatory or compliance matters.

http://www.mortgagesolutions.net/

Equal Housing Lender; Mortgage Solutions of Colorado, LLC dba Mortgage Solutions Financial, 5455 North Union Blvd, Colorado Springs, Colorado 80918. NMLS# 61602. For mortgage banking professionals only; not authorized for distribution to consumers or third-parties. All info herein is current as of 07/19/2017 and subject to change without notice.

This presentation is made available to trusted partners of Mortgage Solutions Financial and is intended for sales enhancement purposes only. The material present herein is not intended as legal advice nor does it represent the counsel or opinion of Mortgage Solutions Mortgage or its employees. Borrowers must qualify in accordance with current Mortgage Solutions Mortgage product and program guidelines (www.mortgagesolutions.net to view). All attendees should consult their company’s policies, procedures, and/or internal compliance/legal guidelines regarding all regulatory orcompliancematters.

http://www.mortgagesolutions.net/

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