FHA Program Guide
February 2015
•
Down Payment 3.5%
•
Up to 85% cash out refinance
•
All funds may come from a gift
•
Seller can pay up to 6% toward all closing costs
•
Non-Occupant Co-Borrowers are allowed with
true blended ratios
•
No Cash Reserves (1 and 2 unit properties)
•
Credit Leniency – BK 2 years, Foreclosures 3 years,
Short Sales 3 years
•
Streamline Refinances
•
Fully Assumable
February 2015
Purchase or Refinance of 1-4 unit primary residence - FHA 203b
•
Fixed Products
• 15 and 30 Year for standard loan amounts and
• 30 year only on high balance loan amounts
•
Arm Products
• 5/1 ARMs on standard loan amounts
• 5/1 ARMs on high balance loan amounts
• 1/1/5 caps, 2.00% Margin, Index is one year US Treasury
• Not available for streamline refinances
February 2015
Each FHA loan is assigned an individual 10 digit loan number, called a Case Number.
PCM will obtain this through the FHAC
As a sponsored broker you will not have access to the FHAC (FHA Connection)
Upon submitting your online request for case number
• PCM will email you the new case number and Refinance Authorization (if applicable)
All FHA loans must have a case number assignment to be insured
• Case numbers are ordered in FHA Connection by PCM
• Case numbers are assigned to the subject property
• Case number must be reflected on all HUD documents
• Case number printout is required with loan submission
• Streamline Refinances need previously assigned case number
• Must be ordered PRIOR to ordering an FHA Appraisal
February 2015
CAIVRs Credit Alert Interactive Voice Response System checks for
delinquent federal debt, should be on Case Number Printout
•
PCM will access CAIVRS through the FHAC
•
This is informational only to you as a sponsored broker
•
Must be ordered on all borrowers
•
Any delinquency must be cleared, or not eligible for FHA loan
•
Should a delinquency or issued be uncovered by PCM you will be promptly
notified
CAIVRs through FHA Connection
February 2015
All parties to the transaction must be cleared in both
databases (Government lists of bad players)
LDP Limited Denial of Participation
•
Database can be accessed at
http://portal.hud.gov/portal/page/portal/HUD/topics/limited_denials_of_participation
GSA
(Excluded Parties List Service, General Services Admin)
•
Database can be accessed at
https://www.epls.gov/
Use
PCM LDP/GSA Workflow
and
Participants List
February 2015
For Case Number Assignments on or after 1/1/2009
Purchase No Cash Out/Streamline Refi Cash Out Refinance
96.50% 97.75% 85%
FHA Mortgage Limits
Region 1 Unit 2 Units 3 Units 4 Units
Low Cost Areas $271,050 $347,000 $419,400 $521,250
High Cost Areas $625,500 $800,775 $967,950 $1,202,925
Alaska & Hawaii $938,250 $1,201,150 $1,451,925 $1,804,375
A complete schedule of FHA mortgage limits for all areas is available at:
https://entp.hud.gov/idapp/html/hicostlook.cfm
February 2015
Maximum Loan Amount
High Balance Loan Amounts - PCM High Balance pricing applies when base loan
amount is over $417,000
Continental USor $625,500
in Hawaii
Maximum Mortgage Calculation - Purchase
•
96.5%
of the lesser of sales price or appraised value (base loan amount)• Does not include Up Front MIP (UFMIP)
• Borrower must have minimum of 3.5% down payment (Can be gift)
• Closing costs may not be used in minimum 3.5% calculation
• Seller Concessions maximum 6%
Maximum Mortgage Calculation – Refinance
• No Cash Out and Streamline Refinances with appraisal
97.75%
of appraised value (base loan amount)• Cash out Refinances - 85% of appraised value
FHA loan limits are set by HUD, and vary from county to county. Current loan
amount limits can be found online at
February 2015
In addition to standard guidelines:
Appraisal Requirements
• Loan amounts > $1,000,000 require 1 FHA appraisal w/ data verification or enhanced desk review w/data certification
• The lesser of the appraised value, review value or PP will be used
Credit
• High Balance Cash Out transactions: Foreclosure or BK not allowed in most recent 7 years
Credit Score
• Cash Out FHA High Balance require minimum 660 score
• All other loan amounts require 640
• Borrowers with NO credit scores are ineligible
DTI
50% max DTI if score is < 680 or subordinate financing exists
55% max DTI if score is >=680 and no subordinate financing exists
February 2015
Up Front MIP (UFMIP) the FHA mortgage insurance premium is paid at closing in
the form of cash, or financed in the loan amount.
UFMIP must be 100% financed or 100% paid in cash, no partial financing
Annual MIP is collected in monthly payments and calculated in ratios
Upfront Premiums are refunded ONLY to borrowers refinancing to another FHA
insured mortgage within a 3 year time period. The refund will be calculated in
FHA connection when case number is ordered.
Premiums vary, see next two pages for factors.
Cancellation of MIP:
Refer to Mortgage Insurance Amounts grid for MIP cancellation info
For case # assignments prior to June 3:
• The annual MIP may be cancelled by HUD once unpaid principal balance reaches 78% of the lower of the initial sales price or the appraised value based on the initial amortization schedule.
• FHA’s calculation of the 78% threshold is based on the
Loan amount, excluding the UPFIP
Initial sales price or ori9ginal appraised value, whichever is less
MIP cancellation of a Streamline refinance without an appraisal is determined based on the “original appraised value” provided by HUD
NOTE: regardless of the computed loan-to-value ratio, all but 15 year term mortgages will have annual
February 2015
February 2015
February 2015
FHA Mortgage Insurance Premium (MIP)
Upfront MIP
in Box #3
on 2010 GFE
February 2015
The Borrower may not receive any cash back through a
purchase, other than an amount representing:
•
A reimbursement for the Borrower’s overpayment of fees
•
Costs paid by the Borrower in advance; earnest money deposit,
appraisal or credit report fees; or
•
A legitimate real estate tax credit in locales where real estate taxes
are paid in arrears
•
If the Borrower receives an allowable amount of cash back, the
minimum Borrower contribution must be met and verified
See Loan Amount Calculation Worksheet
February 2015
FHA Purchase Loan Calculation
Base Loan AmountA $
X
96.5%
=
Lesser of Sales Price or Appraised Value
Max LTV Base Loan Amount
Minimum Down Payment
B $
- $
= $
Sales Price Max Base Loan Amount Min Down Payment
Up Front MIP
C $
X
1.75*
= $
Base Loan Amount (*older case # vary, see charts) Up Front MIP
Total Loan Amount
D $
+ $
= $
February 2015
Current mortgage must be a NON-FHA fixed rate or ARM
Single Family, Owner Occupied Primary Residence
Maximum mortgage is the LOWER of 97.75% of appraisal or Existing Debt Calculation
• Existing Debt includes payoff of existing 1st, PM 2nd, jr. lien over 12 months, closing costs,
prepaid expenses, borrower paid repairs, and discount points.
• If any portion of funds of equity line in excess of $1000 in last 12 months, for purposes other than repairs and rehab. of property the line of credit may not be included.
Property owned less than 12 months, must use lesser of original purchase price + expenditures for repairs, or current appraised value
Modified/Restructured loans are okay to be paid off, as long as the loan is not delinquent and no late payments in past 12 months, unless AUS decision is Approve/Eligible. Current lender must supply letter that they will not file deficiency
Proceeds to buy out ex-spouse are okay
Borrower may not receive more than $500 at closing
Non-Occupant Co-Borrower may be added
2
ndLiens may subordinate, up to 97.75% (case numbers as of 9/7/2010)
• Terms of subordinate lien must not have a balloon or prepayment penalty
• Payments are calculated in qualifying
February 2015
LTV Factor Method
A $
X
97.75%
=
Appraised Value Max Mortgage #1
Existing Debt Method
B $
+ $
= $
Payoff 1st , PM 2nd or
seasoned Jr. Lien
Closing Costs -non-recurring, prepaids and
discount points
Max Mortgage #2
Up Front MIP
C $
X
1.75*
= $
Lower of Max #1 and Max #2 (*older case # vary, see charts) Up Front MIP Total Loan Amount
D $
+ $
= $
Lower of Max #1 and Max #2 Up Front MIP
And EEM upgrades if any
Total Loan Amount
February 2015
FHA will insure a cash out refinance, up to 85% of appraised value
with the following requirements:
• Properties owned 12 months or more, use current appraised value
• Properties owned less than 12 months use lesser of purchase price or appraised value
• All Borrowers must hold title to property for at least six months
• Modified/Restructured loans are not eligible for a cash out refinance
• Borrowers whose loans are delinquent or in arrears are not eligible
• Non-Occupant Borrowers may not be added to qualify.
• Existing or new subordinate financing to a maximum CLTV of 85%
• Modified subordinate financing is acceptable to a maximum CLTV of 85%
• 1 -4 units, 3-4 unit properties must pass self-sufficiency test
• Properties owned free and clear may be financed as cash-out transactions
• Listing agreements on subject property must have been cancelled 6 mos. prior to loan application or subject to max 70% LTV/CLTV
February 2015
Max LTV Calculation
A $
X
85%
=
Appraised Value Base Loan Amount
Up Front MIP
C $
X
1.75*
= $
Base Loan Amount (*older case # vary, see charts) Up Front MIP
Total Loan Amount
D $
+ $
= $
Base Loan Amount Up Front MIP Total Loan Amount
February 2015
About Prepayment (excerpt from Important Notice to Homebuyers Disclosure):
This notice is to advise you of the requirements that must be followed to accomplish a prepayment of your mortgage, and to prevent accrual of any interest after the date of prepayment. You may prepay any or all of the outstanding indebtedness due under your mortgage at any time, without penalty. However, to avoid the accrual of interest on any prepayment, the prepayment must be received on the installment due date (the first day of the month) if the mortgagee stated this policy in its response to a request for a payoff figure. Otherwise, you may be required to pay interest on the amount prepaid through the end of the month. The mortgagee can refuse to accept prepayment on any date other than the installment due date.
For all FHA mortgages closed on or after January 21, 2015, mortgagees may only charge interest through the date the mortgage is paid in full.
Best Practice when refinancing an existing FHA loan that was originated prior to January 21st,
2015: Assume interest will be charged through the end of the month payoff is received until or
unless your payoff demand states otherwise.
February 2015
Loan must be an FHA insured loan, not delinquent, 6 months old (212 days)
or case number will not be assigned
Fixed Rate Only, no new ARM loans
Net Tangible Benefit - The refinance must result in an immediate payment
reduction
(Reducing the term of the mortgage is NOT a net tangible benefit, by itself)• Lowering the borrower’s monthly P&I payment, plus the annual MIP, by at least 5% OR
• Refinancing from an ARM to a Fixed
• The table below defines permissible minimum thresholds:
FHA Streamline Refinance
From To Fixed
Fixed Rate Reduction of at least 5% of P&I and MIP
One-Year ARM New interest rate no greater than 2% above the current interest rate of the ARM
Hybrid ARM, during fixed period Reduction of at least 5% of P&I and MIP
February 2015
LTV/CLTV – Regardless of property state or value
FHA Streamline Refinance
Type of Transaction Max LTV1 Max CLTV2
Credit Qualifying w/Appraisal 97.75% 125%
Credit Qualifying w/out Appraisal See Note 3 125%
Non-Credit Qualifying w/Appraisal 97.75% 125%
Non-Credit Qualifying w/out Appraisal See Note 3 125%
1 - The loan must meet maximum insurable mortgage guides
2 - The max CLTV may vary depending on the type of subordinate financing
February 2015
Maximum Insurable Mortgage Amount - Streamline Refinance WITH
Appraisal
•
Credit Qualifying – Max insurable mortgage is the lower of
The outstanding principal balance minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and the new UFMIP. OR
97.75% of appraised value of the property, plus the new UFMIP
•
Non-Credit Qualifying – Max insurable mortgage cannot exceed:
The outstanding principal balance minus the applicable refund of the UFMIP, PLUS the new UFMIP
An appraisal may not be used to increase the insurable mortgage balance beyond the sum of the outstanding principal balance and the new UFMIP. The new loan balance may NOT include closing costs, prepaid items or other financing
The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may NOT include delinquent interest, late charges or escrow shortages.
Discount points may not be included the new mortgage.
February 2015
LTV/CLTV – Regardless of property state or value
FHA Streamline Refinance
Type of Transaction Max LTV1 Max CLTV2
Credit Qualifying w/Appraisal4 97.75%3 100%
Credit Qualifying w/out Appraisal5 115%3 100%
Non-Credit Qualifying w/Appraisal4 115%3 100%
Non-Credit Qualifying w/out Appraisal5 115%3 100%
1 - The loan must meet maximum insurable mortgage guides
2 - The max CLTV may vary depending on the type of subordinate financing 3 - Refer to the AVM notes coming up.
4 - Streamlines with appraisals, CLTV is based on the new appraised value
February 2015
Maximum Insurable Mortgage - Streamline Refinance WITHOUT Appraisal
•
At the time of case number, the “original value” must be obtained from FHA
Connection
•
The maximum insurable mortgage cannot exceed:
The outstanding principal bal. minus the applicable refund of the UFMIP, plus the new UFMIP
The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may not include delinquent interest, late charges or escrow shortages
Condo project approval is not required
Recently listed properties
• Listing must be cancelled at least 1 day prior to the date of the loan application
• A letter of intent to occupy from the borrower is required
February 2015
Maximum Insurable Mortgage Amount - Streamline Refinance WITH
Appraisal
•
Credit Qualifying – Max insurable mortgage is the lower of
The outstanding principal balance minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and the new UFMIP. OR
97.75% of appraised value of the property, plus the new UFMIP
•
Non-Credit Qualifying – Max insurable mortgage cannot exceed:
The outstanding principal balance minus the applicable refund of the UFMIP, PLUS the new UFMIP
An appraisal may not be used to increase the insurable mortgage balance beyond the sum of the outstanding principal balance and the new UFMIP. The new loan balance may NOT include closing costs, prepaid items or other financing
The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may NOT include delinquent interest, late charges or escrow shortages.
Discount points may not be included the new mortgage.
February 2015
Maximum Insurable Mortgage - Streamline Refinance WITHOUT Appraisal
•
At the time of case number, the “original value” must be obtained from FHA
Connection
•
The maximum insurable mortgage cannot exceed:
The outstanding principal bal. minus the applicable refund of the UFMIP, plus the new UFMIP
The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may not include delinquent interest, late charges or escrow shortages
Condo project approval is not required
Recently listed properties
• Listing must be cancelled at least 1 day prior to the date of the loan application
• A letter of intent to occupy from the borrower is required
February 2015
Order new case number on our website, will need old case number, select
streamline refinance.
Need LDP and GSA run for all parties to transaction, include in submission
CAIVRS NOT required on streamlines
Minimum Credit Score is 640
Credit Report – Score Only, Mortgage Rating Only Report.
Mortgage lates in past 12 months on subject or ANY other property is unacceptable. Please submit credentials for THIS type of report in order for PCM to import it properly. The incorrect credentials may result in a FULL report.
1003 application to be complete in its entirety, No INCOME is to be listed
Income/Employment documentation:
• Salaried – all employment info on 1003, including phone number
• Self Employed – Business license, CPA letter or other 3rd party verification of business. (411.com or
similar does not meet requirement) DO NOT submit tax returns
• Other income types, see PCM guidelines (retirement, SSI, etc.)
PCM will perform Lender Certification for Employment/Income
Do not run AUS – Manual underwrite only
February 2015
Assets -
2 months bank statements, if assets needed to close
Copy of Hazard Insurance is required at submission
Unused MIP refinance authorization is calculated in FHA Connection
No cash may be taken out $500 max at closing
Subordinate financing may remain in place subject to re-subordination,
MAX CLTV is 100%
New individuals may be added to title without credit review
Removing individuals from title - original loan must credit qualify, with
employment, income and assets
Partial Claims, modified loans, are NOT allowed in Streamline Program
Tax Impounds: Use amount shown on Prelim or proof from county of new
tax amount.
Refer to FHA MIP / Case Number Chart for appropriate MIP
February 2015
PCM Submission Form
Case Number Assignment Printout
92900-LT Loan Transmittal
FHA Refinance Worksheet
Net Tangible Benefit Worksheet
1003 – Initial and typed, all sections
to be completed
HUD 92900-A , pages 1 and 2
completed and signed by borrower
LDP/GSA Worksheet and Printouts for
all parties verified
Credit Report, score only (min 640),
plus mortgage rating no mortgage lates
Copy of Social Security Card and/or SS
Authorization Form signed by borrower
Hazard Insurance, coverage at least at
or above loan amount
Copy of Original Note, reflecting old
case number
Copy of current Pay off Demand, good
through end of month
Secondary financing documentation,
if applicable (Max CLTV 125%)
Employment/Income documentation,
if applicable
Asset documentation if needed to
close, 2 months bank statements, and
source of all non-payroll deposits
Preliminary Title Report
Appraisal, if applicable
Good Faith Estimate
Borrower’s Signed Credit Auth
Important Notice to Homebuyer
FHA Disclosure/Notice to
Homeowner/Assumption Notice
Informed Consumer Choice Disclosure
ARM Disclosure if applicable
February 2015
$ _____________ Unpaid principal balance* of existing FHA loan
- _____________ The LESSER of:
$ ____________ Unearned UFMIP
(from FHA Refinance Authorization or appropriate MIP Refund Schedule)
OR
$ ____________ New Estimated UFMIP
= _____________ Maximum Base Loan Amount before UFMIP
+ _____________ New UFMIP
= _____________ Total New Loan Amount including UFMIP
*
May include interest charged when payoff is not received on the first day of the month. Cannot include delinquent interest, late charges or escrow shortages or MIP.FHA Streamline Refinance
February 2015
Calculation A:
$ ______________ Outstanding Principal Balance* - (______________) The LESSER of:
$ ____________ Unearned UFMIP (from FHA Refinance Auth. or appropriate MIP Refund Schedule)
OR $ ____________ New Estimated UFMIP
+ ______________ Closing costs**
+ ______________ Prepaids (includes per diem interest to end of month on new loan,
hazard insurance and real estate tax deposits needed to establish escrow account)
- _______________ Lender Credit for Closing Costs and Prepaid Items = _______________ Total A
Calculation B:
$ _______________ Total B = Appraised Value x 97.75%
Calculation C:
$ _______________ Total C = Max County Limit
New Mortgage Amount:
$ _______________ Maximum Base Mortgage (Lowest of Totals A, B and C) + _______________ New UFMIP (If financed)
$ _______________ Total New Mortgage Amount
*Outstanding Principal Balance May include Interest, but not delinquent interest, late charges or escrow shortages
**Discount points may not be included in the loan amount, must be paid from borrowers funds.
FHA Streamline Refinance
February 2015
U.S. Citizen
Permanent Resident Aliens
Non-Permanent Resident Aliens
All Borrowers must have a valid Social Security Number
Title must be held in individual names only
February 2015
Owner Occupied Principal Residence
FHA limits borrowers to one FHA loan at a time. The
following are potential exceptions:
•
Borrower relocating a reasonable distance away from prior home
•
Family size increased/decreased
•
Vacating jointly-owned property (Divorce)
•
Non-occupant Co-Borrower
February 2015
Identity of Interest– Family or business relationships -
Limited to 85% LTV with the following exceptions:
•
Family member purchases another family member’s primary
residence
Note: If property is seller’s investment property, max mortgage is lesser of either 85% of appraised value or the appropriate LTV ratio percentage applied to sales price, plus or minus required adjustments. The 85% limit may be waived if family member has been tenant in subject property for at least 6 months
•
An employee of builder purchasing builder’s new home as primary
•
A tenant purchases rented property, evidencing at least 6 months as
tenant immediately predating the sales contract
•
A corporation transfers an employee, purchases that employee’s
home, then sells home to another employee
February 2015
Non-Occupant Co-Borrowers
•
Permitted for purchases, no cash out refinances - all LTVs, and
cash out refinances (must be on title, cannot add) up to 85%
•
2-4 units max LTV is 75%
•
Must be immediate family member (others, case by case) or max
LTV is 75%
•
Housing and obligations are included in the DTI ratios. Credit,
income and assets must be verified
•
Must sign Note and Security Instrument and all other closing
documents
February 2015
3 and 4 unit properties The maximum mortgage is limited so that
the ratio of the monthly mortgage payment divided by the monthly net
rental income does not exceed 100%
•
Monthly payment is principal, interest, taxes, insurance, mortgage
insurance and any HOA dues.
•
Net rental income is appraiser’s estimate of fair market rent from
ALL units, incl. borrower’s own unit, less the appraiser’s estimate for
vacancies, or 15%*, whichever is greater (Santa Ana HOC)
•
The above calculations are only to determine max loan amount,
borrower must still qualify as usual, and projected rent may only be
used as gross income and not to offset mortgage payment
•
Borrower must have 3 months PITI reserves, cannot be a gift
February 2015
Properties under Construction or Existing less
than one Year Limited to 90% LTV, with the
following exceptions:
•
Construction completed more than one year
preceding borrower’s signature on HUD92900-A
•
The dwelling’s site plans and materials were
approved by VA, an eligible DE Underwriter, or an
FHA certified builder prior to construction
•
Local jurisdiction issued BOTH a building permit AND
a Certificate of Occupancy or equivalent
•
The dwelling is covered by a builder’s ten-year
warranty plan acceptable to HUD
February 2015
At this time, Condo projects must be approved projects, and
will either appear under the HRAP/DELRAP (HUD Review
Approval Process)
DELRAP (DE Lender Review Approval Process)
•
DE (Direct Endorsement) lender reviews the Condo Documents
•
Not available through PCM at present time
Pre-HRAP/DELRAP Project Approvals
•
These are any project approvals approved prior to the inception of
the HRAP/DELRAP process (December 7
th2009)
HO-6 or “Walls In” insurance is required on all Condos
$2 Million Liability per occurrence insurance required
February 2015
Must be completed by an FHA approved appraiser
CASE NUMBER Must be ordered PRIOR to appraisal being ordered
Termite Reports/Clearances not mandatory, but may be required if on
contract or with underwriter’s discretion
Well/Septic not mandatory
Appraisals are valid up to 120 days. If appraisal expires, the case # must
be canceled and a new case # assigned
NOTE: Need at least 2 comps dated within 90 days of appraisal, and two
current pending sales or active listings. 1004 MC addendum required.
February 2015
Appraisals may not be reused after the mortgage for which
the appraisal was ordered has closed.
An operating income stmt must be provided for all 2-4 unit properties
The appraisal must state that the property is average or above condition
Appraiser must follow HUD standards
Mechanical Certifications must be made by appraiser, including ;
electrical, plumbing and heating certifications
Head and Shoulder inspections must be made on all attics
FHA Case number must be on all pages of appraisal
February 2015
Effective with Case numbers ordered on or after September 19, 2008,
ML 2008-25, rental income on current primary residence being vacated,
may not be considered, with the following exclusions
(this applies solely to a principal residence being vacated in favor of another principal residence):
•
Relocations – Homebuyer is relocating with new employer or
transferring with current employer
Properly executed lease agreement of at least one year
Evidence of security deposit and/or
Evidence of first month’s rent paid to homeowner
•
Sufficient Equity in Vacated property
25% equity, determined by a current appraisal, less than 6 months old
•
Rental income may NOT be derived from a family member
February 2015
Automated Approval (DO/LP) ratios per findings (see DTI restrictions
under high balance loan amount section)
Manual underwrite
•
Maximum ratios are 31%/43%
•
Higher ratios may be acceptable only if the borrower has at least 3
very strong compensating factors and at underwriter’s discretion
Housing ratio is computed as PITI plus MI, HOA fees, ground rent, special
assessments and payments on secondary financing to income.
February 2015
Verification of Borrower’s employment history for previous 2 years
required. Gaps of over 30 days must be explained. If borrower has a gap
of employment for more than 6 months in past 2 yrs the loan must be
manually downgraded (regardless of AUS findings)
Salaried borrowers,
•
VOE covering 2 year period and most recent paystub; or
•
2 years W2’s, plus paystub, plus verbal VOE
•
Back to Work Force, with 6 months on current job, and prior 2 year
work history (ex, someone who took time off to raise children)
•
Part time, second job, seasonal, overtime and bonus income may be
used for qualification if the income has been received for at least 2
years, and it’s continuance is likely. Income is averaged for 2 years.
Commission income must have 2 year history, document with 2 years tax
February 2015
Self-employment income:
•
Borrower with a 25 percent or greater ownership interest in a
business is considered self-employed
•
Signed and dated individual tax returns (1040’s), plus all applicable
schedules, for the most recent two years.
•
Signed copies of federal business income tax returns for the last two
years, with all applicable schedules, if the business is a corporation,
an "S" corporation, or a partnership.
•
A business showing a significant decline in income over the period
analyzed is not acceptable and will not qualify for FHA financing
February 2015
Other Types of Income
Alimony and Child Support AUS loans may follow automated
underwriting and documentation requirements
Retirement, disability, social security income must have evidence
that 3 years continuance is likely. Document with awards letters or
other documentation.
Disability income, public assistance income, military allowances and
social security income are not subject to federal income taxes, and
may be “grossed up” by 25%
Any Non Taxable Income may be grossed up by 25%
February 2015
Rental Income received for properties owned is acceptable if the
borrower can document rental income is stable.
The following documentation may be considered:
•
Current lease or rental agreement if property obtained since last tax
period ONLY. 85% of rental income is used to qualify borrower
•
Tax returns for previous 2 years
Boarder income is acceptable only if the parties are related by blood,
marriage or law, and income is on filed previous year’s tax returns
February 2015
Borrower’s own funds
•
Checking and Savings
Most recent 2 months bank statements OR
Computer generated VOD, with 2 month average balance AND
One month bank statement with prior and current balance
ANY recent large increase (non payroll deposits) and new accounts must be explained and documented
•
Loans secured by 401K
•
Sale of personal asset, etc
Gifts are acceptable from:
• Relatives, including gifts of equity, close friend with defined interest in borrower, borrower's employer or labor union, charitable organization, real estate agents who are relatives
• Government agency or public entity program that provides homeownership assistance to low and moderate-income families or first-time homebuyers.
Grant funds from HUD approved entity
February 2015
Gift Funds – The following is required
• The dollar amount
• The donor’s name, address, telephone number
• The Borrower must be named
• The donor’s relationship to the Borrower
• The donor’s signature
• A statement that no repayment is required
• Must contain language asserting that the funds given were not made to the donor from any person with an interest in the sale of the property.
See PCM Gift Letter sample.
February 2015
Evidence of the source and transfer of funds is also required
•
If the funds are in the Borrower’s account,
a copy of the cancelled
check or withdrawal slip showing that withdrawal is from the donor’s
account. A copy of the deposit slip or bank statement showing the
deposit of the funds into the Borrower’s account is also required.
•
If the funds are to be provided at closing,
documentation must be
provided to verify that the funds were withdrawn from the donor’s
account. (i.e. cashiers check, or bank wire must have name and account
number of donor, and bank statement or other documentation to show
the donors’ account number, etc).
February 2015