FHA Loan Program Guide

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FHA Loan Program Guide

Fixed Rate and 5/1 Hybrid ARM

Wholesale Lending August 17, 2015

Program Overview

This FHA Program Guide provides an overview of the FHA products and policies eligible for delivery to Pacific Union Financial for financing consideration. The details are based on the policies outlined in the HUD Handbooks and applicable Mortgagee Letters. This document also identifies overlay restrictions specific to Pacific Union Financial.

Credit Philosophy

The Pacific Union Financial philosophy is to offer the Program with minimal overlays to our clients. All loans are evaluated in accordance with the following principles:

 All loans must be submitted to TOTAL Scorecard except as follows:  Streamline Refinances

 Loans for borrowers without a credit score  Manual underwriting is required on the following:

 Loans that receive a Refer recommendation through TOTAL Scorecard.  Loans in which the borrower does not have a credit score.

 Manual underwriting is required when the loan decision score is <620 and

the borrower’s DTI is >43%.

 Loans that received an Accept recommendation, but were downgraded to

a Refer by the underwriter.

 Streamline Refinance transactions.  Each loan is evaluated in accordance with:

 FHA policies (collectively defined in the 4155.1, Mortgage Credit Analysis

for Mortgage Insurance Handbook and subsequent Mortgagee Letters) and all applicable HUD Handbooks.

 Desktop Underwriter (DU) or Loan Prospector (LP) recommendations.  Loans that do not receive a TOTAL Scorecard approval via DU or LP may

not be resubmitted to the other automated underwriting system.

 Policies as outlined within this Program Guide.

 Each loan applicant is underwritten individually, and all credit standards are

applied consistently to each borrower.

 All factors are weighed in when evaluating a loan file. The underwriting

decision is not based on any single item or factor. Ability to Repay and Qualified Mortgages

Pacific Union is committed to complying with Ability-to-Repay and Qualified Mortgage rules (ATR/QM) by making a reasonable, good-faith determination that borrowers have a reasonable ability to repay the loan in accordance with the polices set forth within The Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) guidelines. Factors considered in making this determination include the borrower’s income, assets and employment status (if relied on) against the mortgage loan payment, ongoing expenses related to the mortgage loan or the

subject property, payments on simultaneous loans secured by the subject property, other debt obligations, and alimony and child-support payments as required by the

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HUD/FHA. A borrower’s credit history is also considered in the evaluation and must comply with HUD/FHA policies. Pacific Union will utilize reasonably reliable third party sources of information.

Program Parameters

Eligible Programs

 Standard

 15 year Fixed Rate – Conforming Balance only

 20, 25 and 30 year Fixed Rate – Conforming and High Balance  5/1 fully amortizing 30 year Hybrid ARM with 1/1/5 caps

 Specialty

 15 Fixed Rate – Conforming balance

 20, 25 and 30 year Fixed Rate – Conforming and High Balance  ARMs are not allowed

Program Details

 All programs are fully amortizing loans.

 Loans are assumable by a qualified borrower during the life of the loan.  Temporary Buydowns are not permitted.

ARM Program Information  5/1 Hybrid ARM loans:

 Index used to calculate interest rate adjustments is the weekly average

yield of U.S. Treasury securities adjusted to a constant maturity of one year, commonly referred to as the 1-Year Constant Maturity Treasury (CMT) index.

 2% margin – see daily rate sheet.

 Interest rate cannot increase or decrease more than 1% per year or more

than 5% over the life of the loan.

 The interest rate is fixed for the first 60 months and will adjust on the

following Jan 1, April 1, July 1 or October 1. Adjustments will occur annually thereafter.

 Payment adjustments will occur one month after the interest rate

adjustment.

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FHA ARM Adjustment Date Matrix

The first interest rate adjustment and payment adjustments for the 5/1 CMT ARM will be as follows:

Closing First Pymt Date 5/1 ARM First Interest Rate Change Date

Number of Months Until 1st_change

09/02 - 10/01 11/01 01/01 63

10/02 - 11/01 12/01 01/01 62

11/02 - 12/01 01/01 01/01 61

12/02 – 01/01 02/01 04/01 63

01/02/2015 – 01/09/2015 03/01 07/01 65

01/10/2015 – 02/01/2015 03/01 07/01 64

02/02 – 03/01 04/01 04/01 61

03/02 – 04/01 05/01 07/01 63

04/02 – 05/01 06/01 07/01 62

05/02 – 06/01 07/01 07/01 61

06/02 – 07/01 08/01 10/01 63

07/02 - 08/01 09/01 10/01 62

08/02 - 09/01 10/01 10/01 61

Eligible Section of the ACT

Eligible Section of the Act DE ADP Code Brief Description

203(b) 703 Fixed Rate

203(b) 729 Adjustable Rate Mortgage

203(b) 734 Fixed Rate Site Condominium

203(b) 731 Adjustable Rate Mortgage Condominium

203 (b) 821 Refinance of Borrower in Negative Equity Position (Non-condo)

234(c) 734 Fixed Rate Attached Condos

234(c) 831 Refinance of Borrower in Negative Equity Position (Condo)

Loan Limits

 The maximum base loan amount (excluding UFMIP) cannot exceed the FHA

Statutory Mortgage Limits for the applicable county.

 Conforming Balance and High Balance loan amounts are available.

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

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All Eligible States

Units Conforming Balance (Maximum)

High Balance (Minimum to Maximum)

1 $417,000 $417,001 to FHA county limit

Loan to Value (LTV) Matrices

The loan to value is the base loan amount divided by the lesser of the appraised value or the purchase price.

Occupancy

Purpose Units Base LTV CLTV

Primary Residence

Purchase 1-4 96.5%5,6 _96.5%1,5,6

Rate/Term 1-4 97.75% 97.75%

Cash Out 1-4 85%2 _85%2

Streamline with Appraisal 1-4 97.75%3 _125%

All7 _{Streamline without Appraisal} _1-4 _100%3,4 _125%4

1. In some circumstances (subordinate financing provided by a family member, private individuals, other organizations/non-government agencies, a borrower >60 years of age, etc.) subordinate financing may be as high as 100%. Subordinate financing provided by a government entity may exceed 100% CLTV by the “cost to acquire the property”, see Government Entity for additional details.

2. Maximum LTV/CLTV is 80% if Conforming Balance Specialty or 75% if High Balance Specialty 3. Non-credit qualifying streamlines: New base loan amount may not exceed the current outstanding

principal balance.

4. Streamline without appraisal: The original appraised value must be used to calculate the maximum LTV/CLTV.

5. Maximum 110% LTV/CLTV for HUD REO with escrow repair transactions.

6. Maximum 100% LTV/CLTV for HUD REO $100 Down Payment program transactions. 7. ARMs not allowed for Second Homes and Investment properties.

Assets

Borrowers must have sufficient cash to cover the required 3.5% minimum down

payment from their own funds. The seller, any entity that may financially benefit from the transaction or any person who is reimbursed by a prohibited source may not

provide funds for the required minimum down payment. However, under certain conditions, the minimum down payment may be provided by a Government Entity. See Government Entity topic below for more details.

Refer to Chapter 5 of the HUD 4155.1 for guidelines not addressed in this section. Asset Documentation

 For TOTAL Scorecard Approve/Eligible or Accept/Eligible recommendations,

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are manually underwritten or downgraded to a manual underwrite must be documented as follows:

 Written VOD and the borrower’s most recent asset statements; or

 Original asset statements covering the most recent three-month period. If

the asset statement shows the previous month’s balance, this requirement is met by obtaining the two most recent, consecutive statements.

Verification of Deposit (VOD)

 VODs must be on a standard verification form and must be sent directly from

the loan originator to the financial institution and returned directly from that entity.

 Faxed verification forms are acceptable if it is clear from the document that

the information was sent by fax transmission directly from the source to the originator.

 The original documents must not contain any alterations, erasures, correction

fluid or correction tape.

 The loan file must include legible copies of the originals.

 The VOD form must identify all of the following, when applicable:  The name of the financial institution

 Account number

 Account owner(s)  Type of account  Account open date  Current account balance

 Average balance for the previous two months  Outstanding loans

 If a securities account, the specific stocks/securities

 The title, signature, and phone number of the individual completing the

VOD.

 Funds must be properly sourced when an account is opened within 90 days

of the VOD and/or when the current account balance is significantly greater than the average balance.

 If a portion of the borrower’s funds were to be saved by the borrower

between the date of the loan application and the date of the loan closing, the loan file documents must show that funds were accumulated and deposited prior to closing.

Cash Deposit on Sales Contract (Earnest Money)

Must be verified if the earnest money deposit exceeds 2% of the sales price OR appears excessive based on the borrower’s income and savings history. Cash Reserves

 Excess gift funds may be used as cash reserves on loans that receive an

Accept recommendation through TOTAL Scorecard.

 For manually underwritten loans, reserves are defined as:

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 The sum the borrower is required to pay at closing (down payment,

closing cost, prepaid expenses, any payoffs that are a condition of loan approval, and any other expense required to close the loans); but may not include the following:

 The amount of cash taken at settlement in cash-out transactions; or  Incidental cash reserved at settlement in other loan transactions, or  Gift funds in excess of the amount required for the cash investment

and other expenses; or

 Equity in another property; or  Borrowed funds from any source.

 Credit qualifying manually underwritten loans must meet the following

reserve requirements, with the exception of transaction for borrowers with 2-4 unit properties located in New Jersey:

 1-2 unit properties – 1 month PITI required.  3-4 unit properties – 3 months PITI required.

 AUS approved and credit qualifying manually underwritten loans for 2-4 unit

properties located in New Jersey:

 2 units: 3 months PITI required  3-4 units: 6 months PITI required Cash Saved at Home

 Borrowers who have saved cash at home and are able to adequately

demonstrate the ability to do so, are permitted to have this money included as an acceptable source of funds to close the mortgage, subject to the following;

 The funds must be verified, whether deposited in a financial institution, or

held by the escrow/title company.

 The borrower must provide satisfactory evidence of the ability to

accumulate the savings.

 The borrower must explain in writing:  How the funds were accumulated, and

 The amount of time it took to accumulate the funds.

 It must be determined that the accumulation of cash is reasonable, based on

the time period during which the funds were saved, and the borrower’s income stream, spending habits, documented expenses, and the borrower’s history of using financial institutions.

 Borrowers with checking or savings accounts are less likely to save money at

home than individuals with no history of using bank accounts. Commission from Sale

 If the borrower is a licensed real estate agent and is entitled to a commission

from the sale of the subject property, the commission funds may be credited towards borrower's minimum down payment and/or closing costs.

 A family member entitled to a commission from the sale of the subject

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Gift Funds

 Gift funds from an acceptable source may be used to pay closing costs and

the borrower’s minimum down payment.

 See Cash Reserves for excess gift fund usage allowance.

 Gifts may be obtained from the following acceptable sources:

 Family member/relative, defined as a parent, grandparent, spouse, child

(including son, daughter, stepson, stepdaughter, legally adopted child, and foster child) or other related individual (including relation by blood, marriage, adoption, legal guardianship, domestic partnership, fiancé, or fiancée).

 The borrower’s employer or credit union

 A close friend with a clearly defined and documented interest in the

borrower

 A charitable organization

 A government agency or public entity that has a program providing home

ownership assistance to low and moderate income families and first time homebuyers

 Federal, State, local government agencies and approved non-profit

agencies considered by to be an instrumentality of the government may provide funds for down payment, closing costs and prepaid expenses.

 Gifts may not be obtained from the following sources:  The seller

 The real estate agent or broker  The builder

 An associated entity

 Gifts given in the form of cash are not acceptable.

 Generally, FHA Is not concerned with the source of the donor funds, provided

that the funds are not derived in any manner from a party to the transaction. Donors may borrow the gift funds as long as the borrower is not obligated on the note(s) acquired to secure the borrowed funds.

 Brokersare encouraged, but not required to use the Pacific Union Financial

Gift Letter.

 A gift letter must be signed by the donor and the borrower. DONOR(S)

MUST PROVIDE EVIDENCE OF THEIR ABILITY TO DONATE GIFT FUNDS AND EVIDENCE OF RECEIPT OF THOSE GIFT FUNDS FROM THE DONOR’S

ACCOUNT MUST BE PROVIDED PER THE FOLLOWING.

If the gift funds ... Then the required documentation is ...

 Are in the borrower’s account  A copy of the cancelled check (both sides) or other withdrawal document showing that the withdrawal was from the donor’s account, AND

 Borrower’s deposit slip and bank statement showing the deposit.

 Note: The donor’s bank statements are not required.

 Are to be provided at closing AND

 In the form of a certified check from donor’s account

 Bank statement showing the withdrawal from the donor’s account disclosed in the gift letter, AND

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 Are in the form of a cashier’s check, money order, official check, or other type of bank check

 Have the donor provide a withdrawal document or cancelled check (both sides) for the amount of the gift, evidencing that the funds came from the donor’s personal account disclosed in the gift letter, AND

 A copy of the check, AND

 Borrower’s deposit slip or bank statement that shows the deposit and new balance OR the check may be given directly to the Title Company or Realtor who must provide written acknowledgment identifying the specific check received & being held in escrow by the Title Company

 Are in the form of an electronic wire transfer to /or cashier’s check deposited with the closing agent

 Have the donor provide documentation of the wire transfer from donor’s account disclosed in gift letter, AND

 Written acknowledgement that the specific check or wire transfer was received and is being held in escrow by the Title Company

 Are being borrowed by the donor, AND

 Documentation from the bank or other savings account is not available

 Written evidence provided by the donor to evidence that the funds were borrowed from an acceptable source. Funds may not be provided by an interested party to the transaction, including the lender.

 Borrower’s deposit slip or bank statement showing the deposit and new balance OR

 Written acknowledgment that the specific check was received and is being held in escrow by the Title Company

Large Deposits

If there is a large increase in the borrower’s account or if the account was recently opened, the borrower must provide a credible explanation and documentation to source large deposits for all transactions. A large deposit is considered the lesser of:

 A deposit that resulted in an increase greater than 25% of the borrower’s

gross monthly income; or

 A deposit that is more than 2% of the sales price. Retirement Accounts

 Up to 60% of the value of assets such as Individual Retirement Accounts

(IRA), thrift savings plans, 401(k) and Keogh accounts may be included in the underwriting analysis, unless the borrower provides conclusive evidence that a higher percentage may be withdrawn, after subtracting any Federal income tax and withdrawal penalties.

 Redemption evidence is required.

 Evidence of liquidation is not required, unless more than 60% of the amount

in the account is used

 The portion of the assets not used to meet closing requirements, after

adjusting for taxes and penalties may be counted as reserves. Sale of Personal Property

 Borrower may sell personal property such as cars, recreational vehicles,

stamp or coin collections, or baseball collections subject to the following:

 Borrower must provide a satisfactory estimate of the value of the items

and evidence that the items were sold.

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 Published value estimates issued by organizations such as automobile dealers

or associations related to the asset type, or

 A separate written appraisal by a qualified appraiser with no financial interest

in the transaction.

 The lower of the estimated value or the actual sales price may be used as

assets to close. Secured/Unsecured Loans

Loan from a Family Member

A secured or unsecured loan from a family member covering 100% of borrower’s down payment and closing costs is allowed subject to the following:

 “Family Member” is defined as a child, parent, grandparent, (biological, foster

or step), sister, step-sister, brother, step-brother, legally adopted son or daughter, a child who is a member of the borrower’s household due to placement by an authorized agency for legal adoption, aunt, and uncle.

 Borrower may not receive cash back at closing (except for documented

earnest money).

 Loan payment (if applicable) must be included in debt to income ratio.  Loan terms cannot require a balloon payment within the first 5 years.  If the family member borrowed the funds, the initial source of the funds

cannot be a party with an interest in the transaction. The family member may borrower from a banking affiliate of the lender provided the loan is made under the same terms and conditions available to all customers. Secured Loans

Proceeds from a loan secured by financial assets such as stocks, bonds, Certificates of Deposits, or real property may be used for the total required investment. The assets securing the loan may not also be used an asset for qualifying purposes.

Unacceptable Sources  Unsecured loans

 Cash advances on credit cards

 Borrowing against household goods and furniture  Other unsecured financing

Borrowers

Age of Borrower

All borrowers must have reached the age at which the mortgage note can be legally enforced in the jurisdiction where the property is located. There is no maximum age limit for borrowers. All applicants are evaluated on their ability to meet underwriting guidelines.

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Borrower Eligibility

 Pacific Union Financial makes mortgages to natural persons only. Borrowers are ineligible for a mortgage if they are a different type of legal entity or hold title as a different type of legal entity. These legal entities include, but are not limited to, the following:

 Corporations  S corporations

 Borrowers with diplomatic immunity  Inter vivos trusts

 Life estates  Land trusts

 General partnerships  Real estate syndications

 Additionally, loans where a custodian, agent, conservator, or guardian is signing on behalf of the borrower, non-borrowing spouse, or a vested owner are not allowed.

 A CAIVRS screening must be performed on all loan obligors. Screening is not required on a non-borrowing spouse or on a streamline refinance. Refer to Credit section for additional information regarding CAIVRS.

 First time homebuyers are eligible. Employee Loan Policy

Loans to the originating Broker and/or their employees are allowed, subject to a Second Level Risk Review and approval by a Credit Risk Underwriter.

Identity of Interest Transactions

 Identity of Interest Transactions are transactions between family members,

business partners or other business affiliates. Identity-of-interest

transactions are restricted to a maximum LTV of 85%. However, maximum financing above 85% is permissible under the following circumstances:

 Family member purchasing another family member’s principal residence.

“Family member” is defined as a child, parent, grandparent, (biological, foster or step), sister, step-sister, brother, step-brother, legally adopted son or daughter, a child who is a member of the borrower’s household due to placement by an authorized agency for legal adoption, aunt, and uncle.

 Employee of builder purchasing home from builder.

 Current tenant purchasing home he/she has rented for at least six (6)

months predating the sales contract (with lease or other written evidence).

 Sales by corporations purchasing an employee’s home and reselling to

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Non-Borrowing Spouse

 In community property states, a credit report is required and the debts of the

non-borrowing spouse must be included when determining qualifying ratios.

 Community property states are: Arizona, California, Idaho, Louisiana,

Nevada, New Mexico, Texas, Washington and Wisconsin.

 The non-borrowing spouse’s credit history is not taken into consideration. Non-Occupying Co-Borrowers

 Non-occupying co-borrowers may not be added on cash-out refinance

transactions.

 Maximum 75% LTV except as stated below.

 For one unit properties only, maximum financing is allowed if:  Non-occupying co-borrower is related to the borrower by blood,

marriage, or law, or

 Non-occupying co-borrower can document a family-type, long-standing

relationship with the borrower unrelated to the loan transaction.

 Occupying borrower must meet FHA minimum credit requirements.  If a parent is selling to a child, the parent may be a non-occupying

co-borrower only if LTV is ≤75%.

 All borrowers, including non-occupying co-borrowers must sign the note and

security instrument. Non-U.S. Citizens

Borrowers with Diplomatic Immunity Not allowed.

Non-Permanent Resident Aliens  Primary Residence only.

 Borrower must be eligible to work in the U.S.  Evidence of valid Social Security number required

 Evidence of residency and work status to be obtained through documentation

from US Bureau of Citizenship and Immigration Services (BCIS), formerly INS. Documentation requirement(s):

 Copy of the Employment Authorization Card, I-688B. This card carries an

expiration date.

 A social security card is not acceptable as evidence of work status.  If the card expires in less than one year, a legible copy of the previously

expired card(s) is required to evidence a history of regular renewals. Permanent Resident Aliens

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 Evidence of lawful, permanent residency issued by the Bureau of Citizenship

and Immigration Services (BCIS), formerly INS. Documentation requirement(s):

 Copy of the valid Alien Registration Receipt Card (Resident Alien card),

I-551

Social Security Number (SSN) Validation

 All borrowers must have a valid social security number as evidenced by one

of the following:

 Pay stub  W2

 Valid tax returns

Case Numbers

 The loan officer’s name and NMLS number must be provided when requesting an FHA case number. FHA Connection will not issue a case number if the loan originator’s name or NMLS number is not provided.

Cancelling and Reinstating Case Numbers

 Case number cancellation request must be emailed to the FHA Resource Center

at answers@hud.gov using the Case Cancellation Request Form.

 FHA systems will automatically cancel any uninsured FHA case number after six months, if one of the following actions is not performed as a last action:

 Entry of appraisal information;

 FHA issuance of a Firm Commitment;

 FHA receipt of the insurance application and subsequent updates; or

 A Notice of Return (NOR) has been issued and resubmissions have occurred.

 Note: Last action does not include updates to borrower names and/or

property addresses.

 Reinstatement of cancelled case numbers must be emailed to the FHA Resource Center at answers@hud.gov using the Case Reinstatement Request Form. Case numbers that are automatically cancelled will only be reinstated if the one of the following is provided:

 Evidence that the subject loan was closed prior to the case number

cancellation, such as a Settlement Statement or similar legal document; or  Evidence that not reinstating the case number will cause the borrower undue

hardship based on recent changes to mortgage insurance premiums and underwriting requirements.

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Credit / Underwriting

Loans must comply with FHA policies and the policies outlined within this document. Refer to Chapter 4 of the HUD 4155.1 for additional guidelines not addressed within this section.

Back to Work – Extenuating Circumstances due to an “Economic Event”

An “Economic Event” is when a borrowers has experienced an occurrence beyond their control that resulted in a loss of income, loss of employment, or a combination of both. TOTAL Scorecard “Refer” recommendations or the manual downgrade of an “Accept/Approve” recommendation, may be eligible for FHA purchase transaction financing provided all the following requirements are met:

 The “Economic Event” lasted at least 6 months; and

 The “Economic Event” resulted in a 20% or more reduction in the borrower’s

household income;

 Documented evidence that the delinquencies were due to the “Economic

Event” must be provided;

 Borrower must have reestablished a “Satisfactory Credit” history for at least

12 months;

 Borrower must have fully recovered from the “Economic Event”;  Housing counseling is required, as follows:

 The borrower must attended an approved housing counseling program at

least 30 days, but no more than 180 days prior to initial application. Counseling must be performed by a HUD approved housing counseling agency, state housing finance agency, approved intermediaries or their sub-grantees.

 Counseling may be conducted in person, via telephone, via internet, or

other methods approved by HUD.

 Upon completion of the required counseling, the borrower will be given a

Counseling Certificate of Completion that must include the counselor’s handwritten signature. In instances that the counseling certificate is received electronically or via other means and does not include a counselor’s handwritten signature, the borrower must obtain the

counselors signature. This may be accomplished by faxing or emailing the certificate to the counselor to obtain their handwritten signature.

 All other HUD requirements must be met, per Mortgagee Letter 2013-26 and

the HUD 4155.1. Bankruptcy (BK)

Chapter 7

 Requires at least two years from the discharge date, and the borrower must

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 Seasoning of less than two years but no less than 12 months may be

acceptable if the borrower:

 Can show that the bankruptcy was caused by extenuating circumstances

beyond the borrower’s control (defined as death or long-term disability of the primary wage earner) and

 Has since exhibited a documented ability to manage his/her financial

affairs in a responsible manner.

 Documentation must be provided to evidence that the borrower’s current

situation indicates that the events which led to the BK are not likely to recur.

 Exceptions to the two year seasoning requirements may be permitted based

on “Back to Work – Extenuating Circumstances”, see guidelines below for additional details.

Chapter 13

 Borrower may be eligible provided that:

 At least 12 payments have been made under the BK plan, and  All payments have been made on time, and

 The borrower has written permission from the BK court to enter into the

mortgage transaction.

 Refer to Manual Downgrade topic.

CAIVRS (Credit Alert Verification Reporting System)

A CAIVRS screening must be performed on all obligors on the loan. Screening is not required on a non-borrowing spouse. If CAIVRS screening indicates an applicant is delinquent on a Federal debt or has had a claim paid on an FHA insured loan within the previous three years, the borrower is NOT eligible for a new FHA loan. The CAIVRS confirmation code must be entered on the 92900-LT.

Exceptions are allowed only under the following circumstances:

 The borrower sold the property, with or without a release of liability, to an

individual who subsequently defaulted. The borrower must prove that the loan was current at the time of the assumption.

 A divorce decree or legal separation agreement awarded the property and

responsibility for payment to the former spouse. The borrower is not eligible if FHA paid a claim on his/her mortgage in default prior to the divorce.

 The borrower may be eligible for an FHA-insured mortgage if:

 The property was included in a bankruptcy caused by circumstances

beyond the borrower’s control, such as the death of the principal wage earner, or a serious long-term uninsured illness, and,

 The borrower meets the requirements for previous bankruptcy described

in Chapter 4 of the HUD 4155.1.

 Eligible Back to Work - Extenuating Circumstances, see guidelines below for

additional details.

 Refer to Chapter 4 of the HUD 4155.1 for additional information on

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Collection Accounts

 FHA does not require outstanding collection accounts to be paid off as a

condition of loan approval.

 TOTAL Scorecard approved loans:

 The presence of collection accounts has been considered in the borrower’s

credit history. A letter of explanation or supporting documentation is not required.

 TOTAL Scorecard “Refer” recommendations and manually underwritten loans:  Collection accounts must be considered when underwriting the loan. The

borrower must provide a letter of explanation and supporting

documentation consistent with the explanation, for all collection accounts.

 Collection accounts with an aggregate balance equal to or greater than

$2,000, excluding medical collections and charge off accounts, must meet the following capacity analysis:

Collection Account(s) Status:

Capacity Analysis Requirement: Paid in full at closing or prior to

closing The funds used for payment must be verified and sourced Approved payment

arrangements The monthly payment amount must be verified and included in the borrower’s debt-to-income ratio for all transactions, regardless of the TOTAL Scorecard recommendation

No payment arrangements 5% of each outstanding collection account balance must be

included in the borrower’s debt-to-income ratio for all transactions, regardless of the TOTAL Scorecard recommendation

Consumer Credit Counseling Services (CCCS)

These guidelines apply only to manually underwritten loans. For loans that receive an approval through TOTAL Scorecard, no further documentation/evaluation is required.

 Borrowers that are participating in a consumer credit counseling program

may be eligible with documentation of the following:

 One year of the pay-out period has elapsed under the plan.

 The borrower’s payment history has been satisfactory and all required

payments have been made on time, and

 The borrower has received written permission from the counseling agency

to enter into the mortgage transaction. Credit Analysis

 Loans submitted to TOTAL Scorecard must receive an Approve/Eligible or

Accept/Eligible recommendation.

 Loans that receive a Refer/Eligible must be manually downgraded and

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Credit Report and Scores

A tri-merge credit report is required on all loans. For Streamline Refinance transactions, it is used solely to validate the credit score.

Credit Score Methodology

The following criteria may be used to determine each individual borrower's credit score using the "middle/lower" method.

 If there are three valid credit scores for a borrower, the middle score

(numerical middle of the three scores) is used.

 If there are three valid scores for a borrower but two of the scores are the

same, the duplicate score is used.

 If there are two valid scores for a borrower, the lower of the two scores is

used.

 If there is one valid score for a borrower, that score is used. Loan Decision Score Selection

 After selecting the appropriate credit score for each borrower, the loan

decision score must be determined as follows:

 One borrower: The selected credit score is also the loan decision score.  More than one borrower: The lowest selected credit score among all

borrowers is the loan decision score.

 More than one borrower and one or more of the borrowers does not have

a credit score (non-traditional or insufficient credit): The lowest credit score of the borrower(s) must be used as the minimum loan decision score.

Disputed Accounts

 Borrower(s) disputing derogatory credit account(s) must provide a letter of

explanation and documentation to support the reason for the dispute. If the borrower is disputing a medical accounts, a letter of explanation and

supporting documentation are not required.

 Disputed accounts include non-medical:  Derogatory charge-off accounts, and  Disputed collections; and

 Disputed accounts with late payments with in the most recent 24 months.  Disputed account(s) analysis requirements are as follows:

Disputed Account: Disputed Accounts Analysis Requirement: Cumulative outstanding balance

of all borrower account(s) is greater than or equal to $1,000

The mortgage application must be downgraded to a “Refer” and a Direct Endorsement underwriter is required to manually underwrite the loan

Cumulative outstanding balance of all borrower account(s) is less than $1,000

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Disputed Account: Disputed Accounts Analysis Requirement: Excluded Accounts, regardless

of the amount

 Disputed medical accounts are excluded from the $1,000 limit and do not require documentation

 Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized uses are excluded from the $1,000 limit. Documentation, such as a police report disputing the fraudulent charges, must be provided.

 If the original or updated credit report indicates that a disputed account

meets any one of the following requirements, a manual downgrade is not required:

 The disputed account(s) are non-derogatory; or  The disputed account(s) have a zero balance; or

 The disputed account(s) indicate “paid in full” or “resolved”; or  The disputed account(s) are less than $1,000; or

 The disputed account(s) with late payments aged 24 months or more; or  The disputed account(s) is current and paid as agreed.

 If the dispute results in the borrower’s monthly debt payment being less than

indicated on the credit report, the borrower must provide documentation to support the lower payment.

Foreclosure

 If the borrower has had past delinquencies or has defaulted on an FHA

insured loan, there is a three-year waiting period before the borrower can regain eligibility for another FHA-insured mortgage. The three-year waiting period begins when FHA pays the initial claim to the lender. This includes deed-in-lieu of foreclosure, as well as judicial and other forms of

foreclosures.

 Foreclosure or deed-in lieu of foreclosure on a non-FHA loan requires three

years seasoning.

 Exceptions are possible if the foreclosure was the result of documented

extenuating circumstances that were beyond the borrower’s control, such as a serious illness or death of a wage earner, and the borrower has

re-established good credit since the foreclosure. Exceptions may be permitted based on “Back to Work – Extenuating Circumstances”, see guidelines below for additional details.

 Divorce is not considered an extenuating circumstance; however an

exception may be granted where a borrower’s loan was current at the time of the divorce, the ex-spouse received the property, and the loan was later foreclosed.

 The inability to sell the property due to a job transfer or relocation to another

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Judgments

Judgments must be paid in full prior to loan approval, with the exception of a court ordered judgment with payment arrangements. If payment arrangements have been made with the creditor of a court ordered judgment and three months scheduled payments were made prior to loan approval, payment in full is not required. The following requirements must be met:

 The verified payment must be included in the DTI.

 The borrower must provide a copy of the payment agreement and evidence

that the payments were made in accordance with the agreement.

 Prepayment of the scheduled payments in order to meet the minimum three

month requirement, are not allowed.

Note: In a community property state, non-purchasing spouse judgments must be

paid in full, or meet the payment arrangement requirements detailed above. Manual Downgrades

 Loans that are manually downgraded from a TOTAL Scorecard Approve or

Accept recommendation to a “Refer” recommendation are subject to FHA’s standard documentation requirements for manually underwritten loans and are not eligible for documentation relief indicated in the AUS findings. The underwriter may not rely on the TOTAL Scorecard recommendations for creditworthiness or eligibility. The loan must be reviewed for compliance with FHA manual underwriting guidelines.

 All manually underwritten loans require Cash Reserves.

 HUD requires the underwriter to manually downgrade a TOTAL Scorecard

Approve or Accept recommendation to a “Refer” recommendation and perform a complete manual underwrite based on standard FHA guidelines if any of the following credit characteristics exist:

 Loans with a decision credit score <620 and DTI ratio >43%.  Additional derogatory credit references are received that were not

included on the credit report evaluated by TOTAL Scorecard.

 Suspended and debarred individuals may not be approved, even though

manual underwriting, if any party (borrower, seller, loan officer, listing or selling agent, appraiser) is included on the LDP or GSA list.

 Loans in which borrower(s) have disputed accounts with a cumulative

outstanding balance equal to or greater than $1,000. See Disputed Accounts for additional guidelines.

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Minimum Loan Decision Scores

Feature Standard Specialty

Purchase and Rate/Term 620

 580 if LTV >90% - Conforming Balance

 600 if LTV >90% - High Balance

 560 if LTV ≤90% - Conforming Balance and High Balance

Credit Qualifying

Streamline Refinance 620

 560 – Conforming Balance

 600 if LTV >90% - High Balance

 560 if LTV ≤90% - High Balance Non-Credit Qualifying

Streamline 620 for pricing purposes only

 A credit report is not required, but may be used if the score will improve pricing.

 Loans with a credit score will be priced to the lowest pricing tier.

Non-Traditional Credit Not eligible

 If a decision score is not provided, assume the following for pricing purposes only:

 580 - Conforming Balance

 600 - High Balance

Cash Out Refinance 620

 Conforming Balance:

 600 if LTV >75% but ≤80%

 560 if LTV≤75%

 High Balance:

 600 if LTV ≤75% Modified Mortgages

 A modified mortgages is one in which a permanent change has been made to

the original loan terms without forgiveness of any principal or accrued interest. This may include, but is not limited to:

 A change in amortization term  A reduction in interest rate

 A reduction in the scheduled monthly payment amount

 Non-Pacific Union Financial serviced loans must meet the 6-12 month agency

payment history requirements and must have a minimum 24 month mortgage payment history under the new terms.

 In addition to meeting the agency payment history requirements during

the most recent 6-12 month payment period, no late payments are allowed during the 13-24 month period post modification.

 Pacific Union to Pacific Union refinance transaction must only meet the

agency 6-12 month payment history requirements. A 24 month payment history is not required.

 A copy of the modified note must be in the loan file.

 See Restructured Mortgages, if applicable.

Mortgage/Rental History

 New Jersey borrowers securing a 2-4 unit dwelling must provide 12 months

cancelled checks if mortgage/rental history is not provided on the credit report. Borrower’s living rent-free during the most recent 12 months are not allowed.

(23)

 See Streamline Refinance and Back to Work Extenuating Circumstances

topics for additional requirements. Multiple FHA Loans

 A borrower may have more than one FHA loan only under the following

circumstances:

 Borrower is relocating and establishing residency in an area outside

reasonable commuting distance. In this case, the relocation is not required to be employment related.

 The borrower must provide evidence of the increase in number of

dependents and the property’s failure to meet current needs. Borrower must have 25% equity in the current property as evidenced by an appraisal. Tax assessments and broker market analysis are not acceptable.

 Borrower is vacating a jointly owned home.

 Borrower was or will be a non-occupying co-borrower with a joint interest

in a property purchased by other family members as their primary residence.

 Qualified investor entities are limited to a financial interest (this includes any

type of ownership, regardless of the type of financing) in seven rental dwelling units, when the subject property is part of, adjacent to, or

contiguous to, a property, subdivision or group of properties owned by the investor. The units that count toward this limitation include:

 Each dwelling unit in a two, three, and four family property, and

 The rental units in an owner-occupied two, three, or four unit property. Non-Traditional Credit

 Non-traditional credit must be documented using a Non-Traditional Mortgage

Credit Report (NTMCR). Direct verifications may be obtained only when a NTMCR is impractical or the service is not available.

 Non-traditional credit may be used when the borrower does not have the

type of credit that appears on a traditional credit report or to supplement an insufficient number of tradelines.

 Ratios may not exceed 31%/43% DTI.

 Increases based on compensating factors are not allowed.

 Income from non-occupant co-borrowers may be included in the DTI

ratios.

 Non-traditional credit may not be used to:  Offset derogatory credit; or

 Create a credit report for a borrower without a verifiable credit history; or  Enhance a poor payment history

 Non-traditional credit must:

 Include three credit references, including at least one from Group I, and  Exhaust all Group I references prior to considering Group II references  Group I references include rental housing payments or utility company

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 Eligible Group II references include:

 Medical, life, auto or renters insurance coverage that is not payroll

deducted.

 Payment to child care providers – made to a business providing such

services.

 School tuition

 Retail stores – department, furniture, appliance stores, specialty stores;

rent to own – i.e., furniture, appliances

 Payment of medical bills not covered by insurance  Internet/cell phone services

 Documented 12 month history of saving by regular, non-payroll deducted

deposits resulting in an increasing balance to the account. No NSF activity reported.

 Automobile leases

 Personal loan from an individual with repayment terms in writing and

supported by cancelled checks to document the payments.

 Non-traditional credit references must include a minimum of 12 months

history with:

 No history of delinquency on rental housing payments.

 No more than one 30-day late payment on all other references.  No collection accounts / court records reporting (other than medical)

within the last 12 months. Insufficient Non-Traditional Credit

For borrowers with no credit references or only Group II references:

 A satisfactory credit history with at least 12 months of history must include

no more than one 30-day delinquency on any Group II reference, and no collection accounts/court records (other than medical) filed within the last 12 months, and

 Ratios may not exceed 31%/43% and must be computed only on those

borrowers occupying the property and obligated on the loan.

 Ratio increases based on compensating factors are not allowed.

 See Cash Reserves for additional requirements.

Restructured Mortgages/Short Payoff

 A restructured mortgage is one in which the original terms have been

changed, including through the origination of a new mortgage, resulting in any of the following:

 Forgiveness of principal and/or interest on either the first or second

mortgage.

 Application of a principal curtailment by or on behalf of the investor to

stimulate principal forgiveness.

 Conversion of any portion of the original mortgage debt to a mortgage

that is fully forgiven over a period of time or due upon the sale of the subject property (a “soft” subordinate mortgage).

(25)

 Conversion of any portion of the original mortgage debt from secured to

unsecured.

 A restructured mortgage may be identified as follows:

 The borrowers tax return (if obtained) reflects income from a 1099C from

the mortgage lender, mortgage insurance company or third party investor, or

 The payoff amount is significantly less than the credit report balance or

the current monthly payment disclosed on the 1003 varies from the payment reported on the credit report, or

 The borrower’s credit report reflects verbiage such as “Settled for less

than amount owed,” or “Paid In Full –not as agreed.”

 Non-Pacific Union Financial serviced loans must meet agency requirements

and must have a 24 month mortgage payment history immediately after the loan was restructured.

 In addition to meeting the agency requirements during the 6-12 month

payment period, no late payments are allowed during the 13-24 month period immediately after the loan was restructured.

 Note: A 24 month payment history is not required if Pacific Union to

Pacific Union refinance transaction.

 A restructured mortgage may not be accurately reflected on the borrower’s

credit report. If it is known or suspected that the borrower had a previous restructure, the credit report must be updated and the loan rescored and resubmitted to TOTAL Scorecard.

 A restructured mortgage is sometimes referred to as a “short pay loan”, a

“short pay refinance” or a “short refinance”.

 A copy of the restructured note must be in the loan file.

 See Modified Mortgages, if applicable.

Short Sale / Pre-Foreclosure

 A borrower is not eligible for a new FHA-insured mortgage if he/she pursued

a short sale agreement on his/her principal residence to take advantage of declining market conditions and purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value.

 A borrower is considered eligible for a new FHA-insured mortgage if from the

date of loan application for the new mortgage, all the following applied:

 Mortgage payments on the prior mortgage were made within the month

due for the 12-month period preceding the short sale, and

 All installment debt payments for the same time period were also made

within the month due.

 A borrower in default on his/her mortgage at the time of the short sale or

pre-foreclosure sale is not eligible for a new FHA-insured mortgage for three years from the date of the short sale or pre-foreclosure sale.

 A borrower who sold his/her property under FHA’s pre-foreclosure sales

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FHA paid the claim associated with the pre-foreclosure sale. Exceptions to the three year seasoning requirements may be made if the:

 Default was due to circumstances beyond the borrower’s control, such as

the death of a primary wage earner, long-term uninsured illness or a Back

to Work - Extenuating Circumstance; and

 The credit report indicates satisfactory credit prior to the event that

caused the default. Tax Liens

 Failure to make payments on a delinquent federal debt must be considered

when analyzing the borrower’s creditworthiness. The underwriter must provide justification as to why the previous failure does not represent a risk of mortgage default.

 The borrower is not eligible for a mortgage loan until the delinquent account

is brought current, paid, otherwise satisfied, or a satisfactory repayment plan is made between the borrower and the Federal agency owed and is verified in writing.

 If a tax lien has NOT been recorded, the taxes may remain unpaid if the

borrower has a written repayment agreement in place.

 A minimum of three months repayment history is required and the

payment amount must be included in the DTI ratios.

 If a tax lien has been recorded and the borrower has entered into a

repayment arrangement, the lien is not required to be paid off subject to the following:

 A minimum of three months repayment history with no late payments

is required and the payment amount must be included in the DTI ratios. No exceptions allowed.

 Late payments made prior to the most recent three month period must

be due to documented extenuating circumstances.

 If no payment arrangements have been made the tax lien must be paid in

full.

 Tax liens may remain unpaid provided the lien holder subordinates the tax

lien to the FHA insured mortgage.

 IRS tax liens do not require a subordination agreement unless there is

evidence that the IRS has demanded a first lien position.

Collateral

Appraisal

 An FHA Appraisal may be transferred from another lender to Pacific Union

Financial. Only the appraisal is assignable. The appraisal must be evaluated by a Pacific Union Financial underwriter. The transferred appraisal:

 May not be expired.

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Borrower Acknowledgement

All files must include one of the following acknowledgements from the borrower:

 Receipt of the appraisal at least three days prior to closing.

 Waiver of right to receive appraisal within three days prior to closing. Escrow Holdbacks

 Non-HUD REO: An escrow repair is allowed for repairs that cannot be

completed due to weather related delays, but do not affect the livability, safety or structural integrity of the property or affect the ability to obtain a Certificate of Occupancy on new or proposed construction.

 Refer to the Escrow Holdback Policy for detailed guidelines.  HUD REO: Refer to the HUD REO Loan Program Guide for detailed

requirements. Flip Properties

Property flipping is a practice whereby a recently acquired property is resold for a considerable profit. These type transactions are allowed if the property is not

misrepresented and/or the value of it is not artificially inflated. In an effort to prevent illegal property flipping, FHA implemented the following property flipping policy:

 Only owners of record may sell properties that will be financed using

FHA-insured mortgages; and.

 Any re-sale of a property may not occur 90 or fewer days from the last sale

to be eligible for FHA financing, and

 For sales that occur between 91 and 180 days, where the new sales price

exceeds the previous sales price by one hundred percent (100%) or more, FHA will require additional documentation validating the property’s value. Sale by the Owner of Record

 FHA considers the re-sale date as, the date of execution of a sales contract

by the buyer.

 The property must be purchased from the owner of record and the

transaction may not involve any sale or assignment of the sales contract. This applies to all FHA purchase money mortgages regardless of the time between re-sales.

 The file must include documentation verifying that the seller is the owner of

record. This documentation may include, but is not limited to a property sales history report, a copy of the recorded deed from the seller, or other documentation such as a copy of a property tax bill, title commitment or binder, demonstrating the seller’s ownership of the property and the date it was acquired.

(28)

Exceptions to the 90-Day Restriction

 Sales by HUD of its own Real Estate Owned (REO) properties. Properties

that were HUD REOs and then rehabilitated and resold are not eligible under this exemption.

 Sales by other US Government agencies of single family properties pursuant

to programs operated by these agencies.

 Sales of properties by non-profits approved to purchase HUD-owned

single-family properties at a discount with resale restrictions.

 Sales of properties that are acquired by the sellers by inheritance.  Sales of properties purchased by employers or relocation agencies in

connection with relocations of employees.

 Sales of properties by state and federally charted financial institutions and

Government Sponsored Enterprises.

 Sales of foreclosed properties by state licensed mortgage lenders.

 Any entity that sells foreclosed properties on behalf of an exempt lender or

financial institution.

 Sales of properties by local and state government agencies.  Sales of a previously foreclosed or abandoned property acquired,

rehabilitated and resold by an entity using funds from and performing under agreements with state and local government agencies under a Neighborhood Stabilization Program (NSP).

 Notes:

 Documentation proving a seller is exempt from any of the property

flipping guidelines is required in the endorsement file prior to approving the loan transaction.

 Re-sales that occur under this exemption within 90 days of last acquisition

with a sales price increase of 100% or more require a second appraisal ordered from a Pacific Union Financial Appraisal Vendor service.

Re-sales Occurring Between 91 and 180 Days Following Acquisition  A second appraisal made by another appraiser ordered through Pacific Union

Appraisal service is required if the re-sale price is one hundred percent (100%) or more over the price paid by the seller when the property was acquired. Example: If a property is re-sold for $80,000 within six (6) months of the seller’s acquisition of that property for $40,000, a second appraisal supporting the $80,000 sales price is required.

 Documentation showing the costs and extent of rehabilitation that went into

the property resulting in the increased value may be provided, but the second appraisal is still required.

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

however may be paid by the seller.

 Both appraisals must be FHA appraisals prepared by independent appraisers.  Both appraisers must be on HUD’s roster list of Approved Appraisers and be

state certified with an unexpired license.

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 If there is a difference in value of more than five percent (5%) between the

two appraisals, the appraisal with the lowest value must be used.

 The Conditional Commitment is issued based on the appraisal used by

underwriting.

Re-Sales Occurring Between 91 Days and 12 Months Following Acquisition  FHA reserves the right to require additional documentation to support the

re-sale value if the re-re-sale price is five percent (5.00%) or greater than the lowest sales price of the property during the preceding twelve (12) months.

 Documentation may include, but is not limited to, an appraisal from another

appraiser.

Date of Property Acquisition Determined by the Appraiser

 Information provided by the appraiser in compliance with the USPAP rules

may be relied on to determine the seller’s acquisition date. Appraisers are responsible for considering and analyzing any prior sales of the property being appraised within three years of the date of the appraisal.

 If the most recent sale of the property occurred at least one year previously,

no additional documentation is required.

 Any conflicts in information must be resolved and the file must be

documented accordingly. Leaseholds

Leaseholds are allowed for all transaction types, with the exception of FHA streamline refinances. Leaseholds must meet all applicable FHA requirements.

Manufactured Homes

 Permitted. Refer to the Manufactured Home Loan Program Guide for applicable guidelines and state restrictions.

 Note: Modular homes are eligible for financing and must follow standard site built housing requirements.

Mixed Use Properties

 Mixed use properties are eligible provided the non-residential use does not

impair the residential character and does not exceed 25% of the total square footage.

Property Listed for Sale

 Eligible for Rate/Term or Streamline Refinance if listing was expired or

cancelled prior to application date.

 Eligible for Cash-Out Refinance if listing was expired or canceled >90 days

(30)

Property Overlays

 Condo project must be on FHA’s approved list.

 Properties located on an Indian Reservation are not eligible. Reminders for Minimum Property Requirements

 Property must be free of any health, safety or structural hazard that may

impair the customary use and enjoyment of dwelling.

 All mechanical, heating and electrical supplies must be adequate for the

dwelling.

 All properties must have safe potable drinking water and sanitary facilities for

safe disposal of sewage. Connection to public or community water/sewage is required whenever feasible.

 Individual water systems:

 Systems must meet all requirements of the local and/or State Health

Authority having jurisdiction. If the local authority does not have specific requirements, the maximum contaminant levels established by the EPA will apply.

 A water test or inspection is required if:  Deficiencies are noted by the appraiser;  There are observable signs of system failure;  Required by the State or local jurisdiction;

 There is knowledge that the water may be contaminated;

 The water supply relies on a water purification system due to the

presence of contaminants;

 The water has an unusual taste, smell or appearance;  There is evidence of corrosion of the pipes (plumbing); or

 Any of the following are present within ¼ mile: Intensive agricultural

operations, coal mining or gas drilling operations, dump, junkyard, landfill, factory, gas station or dry cleaning operations.

 Note: In some states County Health Authorities are required to collect

the test samples; however, it they are unable or are not required to collect the samples, an individual/company acceptable to the State and the laboratory may collect the samples.

 Individual sewage inspections by a local health authority may be required

when appraiser indicates a problem with either the septic system, indicates the subject is located in an area with soil percolation problems or is a condition of the appraisal.

 If roof is defective and has three or more layers of shingles, it must be

corrected.

 Site must be graded to provide positive, rapid drainage form perimeter of will

and prevent ponding on the site.

 Property may not be located in a high pressure gas, liquid petroleum or high

voltage electric transmission line easement.

 Any defective paint condition in a dwelling build prior to 1978 will be

(31)

 Property must be free of wood destroying insect infestation, dry rot and

fungus growth. A termite inspection is required when:

 The appraiser recommends an inspection or marks the “evidence of

infestation” box on the appraisal report; or

 It is requested in the sales agreement; or

 It is mandated by the state or local jurisdiction; or

 At the Underwriter’s discretion, if the property is located in a “Termite

Infestation Probability” (TIP) zone per the CABO TIP Map, which can be located via the National Pest Management Association Inc. website at http://www.npmapestworld.org/techresources/hud.cfm.

Debt to Income Ratios / Qualifying

Debt to Income (DTI) Ratio Matrix

TOTAL Scorecard Approve/Accept Eligible Transactions Lowest Minimum

Loan Decision Score Maximum DTI Compensating Factors Acceptable

≥620  55%

 50% - 2-4 unit properties located in New Jersey

 If a manual downgrade is required, follow Manual Underwriting requirements below.

Not required

Manually Underwritten Transactions

(Refer/Eligible, Manually Downgraded Loans or Credit Qualifying Streamlines) Effective For Case Numbers Assigned On or After April 21, 2014

Lowest Minimum Loan Decision Score

Maximum DTI

Acceptable Compensating Factors

≥580 with 2 comp factors 40% / 50% Two of the followingCompensating Factorsare require:

 Verified and documented cash reserves; or

 Minimal increase in housing payment; or

 Significant additional income not reflected in the gross effective income; or

 Residual Income

≥580 with no other debt 40% / 40% The borrower must meet all the following requirements:

 Monthly housing payment must be the only open installment account and must have a minimum 6 month payment history; and

 Revolving credit must have been paid in full each month during the most recent 6 month period.

 Note: Other debts and additional compensating factors are not allowed.

≥580 with one comp factor 37% / 47% One of theCompensating Factorsare required:

 Verified and documented cash reserves;

 Minimal increase in housing payment; or

 Residual Income

FHA Loan Program Guide