BelievableBanking
MortgageProduct
Training
DavidNoble
CommunityDevelopment&CRAOfficer
MidlandStatesBank
PurposeofTraining
•  ExplainBelievableBankingMortgageProductGuidelines
•  ReviewFHAManualUnderwriIng
BBHMAgenda
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Uses
InformaIonQualificaIon
Affordability
PaymentHistory
Debts
Income
Rental
AssetQualificaIon
BelievableBankingMortgageProduct
Uses
Believable Banking
Affordable Mortgage
PurchaseMoneyMortgage
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•  Purchase/RenovaIon
•  Rate/TermRefinance
•  Refinance&RenovaIon
The Believable Banking Affordable Mortgage
is a home loan designed to assist people
on the pathway to affordable, successful
home ownership, while helping revitalize
neighborhoods. The unique mortgage structure
and flexible underwriting guidelines are essential
in our effort to empower people to overcome
some of the challenges in mortgage qualification.
The pre-purchase and post-purchase counseling
requirements help educate new and existing
homeowners. The “Emergency Reserve Fund”
helps empower them to face life’s challenges that
can potentially threaten their homeownership.
The Believable Banking Affordable Mortgage is
available for Purchases, Purchase/Renovation,
Rate & Term Refinance, and Refinance &
Renovation.
þ Up to 100% Loan to Value
þ Not Credit Score Driven
þ Single Family Resident (SFR), 1-4 Unit,
Attached and Detached, and Condos
þ Mortgage Insurance Not Required
þ Most Down Payment Assistance
Programs Allowed
þ Emergency Reserve Fund Required*
þ $1,000 Minimum Contribution from Borrower**
Midland States Bank is working to create “Successful Homeowners”
by providing the opportunity to achieve affordable home ownership.
Karlyn Brasselmon
Community Development Mortgage Consultant
NMLS# 1197605
(314) 512-8550
[email protected]
Equal Housing Lender. Loans subject to credit approval and eligibility requirements. Homeownership counseling required. *1% of loan amount plus monthly deposits. **May be applied
to down payment or closing costs and is in addition to initial contribution to Emergency Reserve Fund. Additional fees and charges may apply (e.g. appraisal, inspection, title, and recording
fees.) Please contact us for details. Bank NMLS #411141
BelievableBankingMortgageProduct
Goals
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Believable Banking
Affordable Mortgage
RebuildNeighborhoods
The Believable Banking Affordable Mortgage
is a home loan designed to assist people
on the pathway to affordable, successful
home ownership, while helping revitalize
neighborhoods. The unique mortgage structure
and flexible underwriting guidelines are essential
in our effort to empower people to overcome
some of the challenges in mortgage qualification.
•  Helpfamiliesbuildwealth
•  Createsafetyandsecurity
The pre-purchase and post-purchase counseling
requirements help educate new and existing
homeowners. The “Emergency Reserve Fund”
helps empower them to face life’s challenges that
can potentially threaten their homeownership.
The Believable Banking Affordable Mortgage is
available for Purchases, Purchase/Renovation,
Rate & Term Refinance, and Refinance &
Renovation.
þ Up to 100% Loan to Value
þ Not Credit Score Driven
þ Single Family Resident (SFR), 1-4 Unit,
Attached and Detached, and Condos
þ Mortgage Insurance Not Required
þ Most Down Payment Assistance
Programs Allowed
þ Emergency Reserve Fund Required*
þ $1,000 Minimum Contribution from Borrower**
Midland States Bank is working to create “Successful Homeowners”
by providing the opportunity to achieve affordable home ownership.
Karlyn Brasselmon
Community Development Mortgage Consultant
NMLS# 1197605
(314) 512-8550
[email protected]
Equal Housing Lender. Loans subject to credit approval and eligibility requirements. Homeownership counseling required. *1% of loan amount plus monthly deposits. **May be applied
to down payment or closing costs and is in addition to initial contribution to Emergency Reserve Fund. Additional fees and charges may apply (e.g. appraisal, inspection, title, and recording
fees.) Please contact us for details. Bank NMLS #411141
BelievableBankingAffordableMortgageProduct
Features
•  Upto100%LTV
•  NotCreditScoreDriven
•  MInotrequired
•  $1,000minimumcontribuIonfromBorrower
•  Condominiumsareeligible
•  MulIunitproperIesalsopermiYed
•  ApplicantmaynotownanotherpropertyattheImeofBBHMclosing
BelievableBankingAffordableMortgageProduct
Features,con?nued
•  15-or30-yearfixedrateproduct
•  Interest
MinimumRequiredandEmergencyReserveFunds
WhatisPaymentShock?
ReserveRequirements
OneMonthreserveofPITIifthepaymentdifferenIalis$0-$300greaterthancurrent
rent.
Twomonth’sreserveofPITIifthepaymentdifferenIalisover$300greaterthancurrent
rent
EmergencyReserveFund
Fundestablishedatclosingwithmonthlypaymentsincludedinescrowthroughyear7.
Fundcanbeusedtoassistmortgagorifmortgagorhasdifficultymakingmortgage
payments
MortgagormustparIcipateinpre-defaultcounselingwithhousingcounselingagencyin
ordertoaccessEmergencyReserveFund.
PaymentHistoryQualifica?on
ApplicantsshouldhaveanonImepaymenthistory
overthepast12months
HouseholdMembers
Acredithistoryshouldbedeterminedforall
householdmembersintendedtobeonthe
mortgage.
Alterna?veCredit
MSBconsidersnocredittobegoodcredit
Alterna?veCreditTriggers
•  ApplicanthasanITIN
•  Allaccountsreportedonthecreditreportareclosedandhigh%ofaccountsshow
alatepaymenthistory
•  Applicanthasfiledbankruptcyandhasnotreestablishedlinesofcredit
•  Therearelatepaymentsinthepast12monthsononeofthefewopenaccounts
Bankruptcy
NoteligibleforBBHMapprovalifoneofthefollowinghasoccurred:
•  Abusedthebankruptcyprocess
•  Bankruptcywasforthepurposeofdischargingdebtthatwasnotprovided
onabusiveterms
•  Bankruptcyincludedaforeclosure
MedicalDebt
MidlandStatesBankwillnotautomaIcallydisqualifyanapplicantbecauseofmedical
debt.
PayDayLoans
ApplicantsmaynothaveapaydayloanbalanceattheImeofapplicaIon.Anypayday
loantakenoutaderqualificaIonwillbegroundsforrevocaIonofloanapproval.
FHAManualUnderwri?ng
TheRoleoftheUnderwriter
DutyofCare/DueDiligence
SpecificUnderwriterResponsibili?es
•  Reviewappraisalreports,complianceinspecIons,andcreditanalysestoensure
reasonableconclusions,soundreports,andcompliancewithHUDrequirements
•  Determinetheacceptabilityoftheappraisal,inspecIons,theBorrower’scapacityto
repaythemortgage,andtheoverallacceptabilityofthemortgageforFHAinsurance.
•  IdenIfyanyinconsistenciesininformaIonobtainedbytheMortgageeinthecourse
ofreviewingtheBorrower’sapplicaIonregardlessofthematerialityofsuch
informaIontotheoriginaIonandunderwriIngofthemortgage
•  ResolveanyinconsistenciesidenIfiedbeforeapprovingtheBorrower’sapplicaIon
anddocumenttheinconsistenciesandtheirresoluIonsoftheinconsistenciesinthe
file.
FinalUnderwri?ngDecision
DutyofCare/DueDiligence
SpecificUnderwriterResponsibili?es
Underwri?ngofCreditandDebt
Underwritermustdeterminecreditworthinessoftheborrower,whichincludesanalyzing
theborrower’soverallpaYernofcreditbehaviorandthecreditreport.
ThelackoftradiIonalcredithistoryortheborrower’sdecisionnottousecreditmayNOT
beusedasthesolebasisforrejecIngthemortgageapplicaIon
CompensaIngfactorscannotbeusedtocompensateforanyderogatorycredit
FinalUnderwri?ngDecision
DutyofCare/DueDiligence
SpecificUnderwriterResponsibili?es
Underwri?ngofCreditandDebt
UnderwritermustensurethattherearenootherunpaidobligaIonsincurredin
connecIonwiththemortgagetransacIonorthepurchaseoftheproperty
UnderwriIngofIncome
Underwritermustreviewincomeofaborrowerandverifythatithasbeensupported
withtheproperdocumentaIon
FinalUnderwri?ngDecision
DutyofCare/DueDiligence
SpecificUnderwriterResponsibili?es
Underwri?ngofassets
UnderwritermustreviewtheassetsofaBorrowerandverifythattheyhave
beensupportedwiththeproperdocumentaIon
FinalUnderwri?ngDecision
DutyofCare/DueDiligence
SpecificUnderwriterResponsibili?es
Calcula?ngQualifyingRa?os
ForalltransacIonsexceptnon-creditqualifyingStreamlineRefinances,theunderwriter
mustcalculatetheBorrower’stotalmortgagepaymenttoEffecIveIncomeRaIoandthe
totalfixedpaymenttoEffecIveIncomeraIo,orDTI,andverifycompliancewiththeraIo
requirementslistedintheapprovableraIorequirementschart.
TheMortgageemustexcludeanyobligaIonthatiswhollysecuredbyexisIngassetsof
theBorrowerfromthecalculaIonoftheBorrower’sdebts,providedtheassetssecuring
thedebtarealsonotconsideredinqualifyingtheborrower.
FinalUnderwri?ngDecision
DutyofCare/DueDiligence
SpecificUnderwriterResponsibili?es
Calcula?ngtotalmortgagepayment
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P&I
RealEstateTaxes
Hazardinsurance
Floodinsurance,asapplicable
MIP
HOAorcondoassociaIonfeesorexpenses
Groundrent
Specialassessments
Paymentsforanyacceptablesecondaryfinancing
Anyotherescrowpayments
FinalUnderwri?ngDecision
DutyofCare/DueDiligence
SpecificUnderwriterResponsibili?es
Es?ma?ngRealEstateTaxes
MortgageemustuseaccurateesImatesofmonthlytaxescrowswhen
calculaIngthetotalmortgagepayment.
CondoUIlityExpenses
TheporIonofthecondominiumfeethatisclearlyaYributabletouIliIesmay
besubtractedfromtheHOAfeesbeforecompuIngqualifyingraIos,provided
theBorrowerprovidesproperdocumentaIon,suchasstatementsfromthe
uIlitycompany.
FinalUnderwri?ngDecision
DutyofCare/DueDiligence
SpecificUnderwriterResponsibili?es
TemporaryInterestRatebuydowns
ThemortgageemustusethenoteratewhencalculaIngP&IforMortgagesthat
involveatemporaryinterestratebuydown.
CalculaIngTotalFixedPayment
CreditRequirements
GeneralCreditRequirements
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MortgageemusteitherobtainaTri-MergedCreditReportoraResidenIal
MortgageCreditReportfromanindependentconsumerreporIngagency.
QuesIon:WhatisthedifferencebetweenaTri-MergedCreditReportandaResidenIal
MortgageCreditReport?
GeneralCreditRequirements
CreditReportRequirements
Thecreditreportmustinclude:
•  NameofMortgageeorderingthereport
•  Name,addressandtelephonenumberoftheconsumer-reporIngagency
•  NameandSSNofeachborrower;and
•  PrimaryrepositoryfromwhichanyparIcularinformaIonwaspulled,foreachaccountlisted
•  Allinquiriesmadewithinthelast90days
•  AllcreditandlegalinformaIonnotconsideredobsoleteundertheFairCreditReporIngAct(FCRA),including
informaIonforthelastsevenyearsregarding:
•  Bankruptcies
•  Judgment
•  Lawsuits
•  Foreclosurestaxliens
Foreachborrowerdebtlisted:
•  Thedatetheaccountwasopened;
•  Highcreditamount
•  Requiredmonthlypaymentamount
•  Unpaidbalance
•  Paymenthistory
UpdatedCreditReportorSupplementtotheCreditReport
GeneralCreditRequirements
CreditReportRequirements
UpdatedCreditReportorSupplementtotheCreditReport
Mortgageemustobtainanupdatedcreditreportorsupplementiftheunderwriter
idenIfiesinconsistenciesbetweenanyinformaIoninthemortgagefileandtheoriginal
creditreport.
AnyopendebtlistedonthemortgageapplicaIonbutnotreferencedinthecreditreport
mustbeverifiedusingtheproceduresforIndependentVerificaIonofNon-TradiIonal
CreditProviders.
GeneralCreditRequirements
CreditReportRequirements
RequirementsforResiden?alMortgageCreditReport
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DetailedaccountofBorrower’semploymenthistory;
VerifyeachBorrower’scurrentemploymentandincomethroughaninterviewwith
theBorrower’semployerorexplainwhysuchaninterviewwasnotcompleted;
ContainastatementaYesIngtothecerIficaIonofemploymentforeachBorrower
andthedatetheinformaIonwasverified;and
Reportacredithistoryforeachtradelinewithin90Daysofthecreditreportforeach
accountwithabalance
GeneralCreditRequirements
CreditReportRequirements
Non-Tradi?onalandInsufficientCredit
MortgageemustobtaineitheraNon-TradiIonalMortgageCreditReport(NTMCR)from
acreditreporIngcompanyorindependentlydeveloptheborrower’scredithistoryifthe
Borrowerdoesnothaveacreditscore.
NTMCRprovidedbyacreditreporIngagencymustinclude:
•  theexistenceofallcreditproviders
•  ProofthatthecreditwasextendedtotheBorrower
•  Creditorhasapublishedaddressortelephonenumber
•  Highcreditlimit
•  Currentstatusoftheaccount
•  12-monthhistoryoftheaccount
HowdoesoneobtainaNTMCR?
GeneralCreditRequirements
CreditReportRequirements
Non-Tradi?onalandInsufficientCredit
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Requiredmonthlypayment
Unpaidbalance
Paymenthistoryinthedelinquencycategories(forexample,0x30and0x60)
Mortgageemayindependentlyverifytheborrower’screditreferencesbydocumenIng
theexistenceofthecreditproviderandthattheproviderextendedcredittothe
Borrower
GeneralCreditRequirements
CreditReportRequirements
SufficiencyofCreditReferences
ABorrower’scredithistorymustincludethreeCreditreferences,includingat
leastoneofthefollowing:
•  Rentalhousingpayments(subjecttoindependentverificaIonifthe
Borrowerisarenter)
•  Telephone service
•  PaymentstoFingerhut
•  UIlitycompanyreference(gas,electric,water,televisionserviceorinternet
service)
TypesofCreditHistory
Alterna?veunreportedrecurringdebt
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Insurancepremiumsthatarenotpayrolldeducted
Paymentstochildcareprovidersmadetobusinessesthatprovidesuchservices
SchoolTuiIon(whatdoesthismean)
RetailStorecreditcards
Rent-to-own
Paymentofmedicalbillsnotcoveredbyinsurance
Adocumented12-monthhistoryofsavingsevidencedbyregulardepositsresulIngin
anincreasedbalancetotheaccount
TypesofCreditHistory
Alterna?veunreportedrecurringdebt
•  Anautomobilelease
•  ApersonalloanfromanindividualwithrepaymenttermsinwriIngand
supportedbycancelledcheckstodocumentpayments
•  Documented12-monthhistoryofpaymentbytheBorroweronanaccount
forwhichtheBorrowerisanauthorizeduser
Evalua?ngCreditHistory
TheunderwritermustexaminetheBorrower’soverallpaYernofcreditbehavior,
includinghistoryofpayingprevioushousingandrelatedexpenses,includinguIliIes;
installmentdebts;andrevolvingaccounts
Evalua?ngCreditHistory
Defini?onofSa?sfactoryCredit:
BorrowerhasmadeallhousingandinstallmentdebtpaymentsonImefortheprevious
12monthsandhasnomorethantwo30-daylatemortgagepaymentsorinstallment
paymentsintheprevious24months.
Evalua?ngLiabili?esandDebts
GeneralLiabili?esandDebts
MortgageemustdeterminetheBorrower’smonthlyliabiliIesbyreviewingalldebtslisted
onthecreditreport,URLAandrequireddocumentaIon.
AllapplicablemonthlyliabiliIesmustbeincludedinthequalifyingraIo.
Closed-enddebtsdonothavetoincludediftheywillbepaidoffwithin10monthsand
thecumulaIvepaymentsofallsuchdebtsarelessthanequalto5percentofthe
Borrower’sgrossmonthlyincome.
QuesIon:IftheBorrowerisoverthe5percentfigure,whatcantheBorrowerdotobe
withintheguidelines?
IfBorrowerchoosestodothis,whatdoestheBorrowerneedtokeepinmind?
Evalua?ngLiabili?esandDebts
UndisclosedDebtandInquiries
AnydebtsrevealedduringtheapplicaIonprocessthatwasnotlistedonthemortgage
applicaIonand/orcreditreportmustbeverifiedbythemortgagee.Themortgageemust:
•  Verifytheactualmonthlypaymentamount
•  IncludethepaymentamountintheagreementintheBorrower’smonthlyliabiliIes
anddebt
•  Determinethatanyunsecuredfundsborrowedwerenot/willnotbeusedforthe
Borrower’sMinimumRequiredInvestment
•  BorrowermustprovideawriYenexplanaIonfromtheBorrowerforallinquiries
shownonthecreditreportthatweremadeinthepreceding90days.
Evalua?ngLiabili?esandDebts
UndisclosedDebtandInquiries
FederalDebt
Anydebtowedtothefederalgovernmentforwhichregularpaymentsarebeingmade.
TheMortgageeisrequiredtoincludethedebt.Theamountofthepaymentmustbe
includedinthecalculaIonoftheBorrower’sDTI.
Evalua?ngLiabili?esandDebts
Alimony,ChildSupportandMaintenance
ForAlimony,iftheBorrower’sincomewasnotreducedbytheamountofthemonthly
alimonyobligaIonintheMortgagee’scalculaIonoftheBorrower’sgrossincome,the
MortgageemustverifyandincludethemonthlyobligaIoninitscalculaIonofthe
monthlydebt.
ChildSupportandMaintenancearetobetreatedasarecurringliabilityandthe
MortgageemustincludethemonthlyobligaIonintheBorrower’sliabiliIesanddebt.
Mortgageemustobtainofficialsigneddivorcedecree,separaIonagreement,
maintenanceagreementorotherlegalorderandMortgageemustobtaintheBorrower’s
paystubscoveringnolessthan28consecuIvedaystoverifywhethertheBorroweris
subjecttoanyorderofgarnishmentrelaIngtoAlimony,ChildSupport,and/or
Maintenance.
Evalua?ngLiabili?esandDebts
Alimony,ChildSupportandMaintenance
TheMortgageemustcalculatetheBorrower’smonthlyobligaIonfromthegreaterof:
•  Theamountshownonthemostrecentdecreeoragreementestablishingthe
Borrower’spaymentobligaIon;or
•  Themonthlyamountofthegarnishment.
(Illinoisisnotacommunitypropertystate)
DeferredObliga?ons
DeferredObligaIonsrefertoliabiliIesthathavebeenincurredbutwherepaymentis
deferredorhasnotyetcommenced,includingaccountsinforbearance.
QuesIon:WhocanidenIfyadeferredobligaIonabuyermighthave?
Evalua?ngLiabili?esandDebts
DeferredObliga?ons
Calcula?onofMonthlyObliga?on
Mortgageemustusetheactualmonthlypaymenttobepaidonadeferredliability,
wheneveravailable.
Ifactualmonthlypaymentisnotavailableforinstallmentdebt,theMortgageemust
uIlizethetermsofthedebtor5%oftheoutstandingbalancetoestablishthemonthly
payment.
Forastudentloan,iftheactualmonthlypaymentiszeroornotavailable,theMortgagee
mustuIlize2%oftheoutstandingbalancetoestablishthemonthlypayment
Evalua?ngLiabili?esandDebts
InstallmentLoans
TheMortgageemustincludethemonthlypaymentshownonthecreditreport,loan
agreementorpaymentstatementtocalculatetheBorrower’sdebts.
QuesIon:Ifthecreditreportdoesnotshowamonthlypaymentamount,howshouldthe
Mortgageedeterminethemonthlypayment?
30-DayAccounts
TheMortgageemustusethecreditreporttodocumentthattheBorrowerhas
paidthebalanceontheaccountmonthlyfortheprevious12months.The
Mortgageemustusethecreditreporttodocumentthebalance,andmust
documentthatfundsareavailabletopayoffthebalance,inexcessofthefunds
andReservesrequiredtoclosetheMortgage.
Evalua?ngLiabili?esandDebts
BusinessDebtinBorrower’sName
BusinessDebtinBorrower’sNamereferstoliabiliIesreportedonthe
Borrower’spersonalcreditreport,butpaymentforthedebtisaYributedtothe
Borrower’sbusiness.
Evalua?ngLiabili?esandDebts
BusinessDebtinBorrower’sName
BusinessdebtisreportedontheBorrower’spersonalcreditreportmustbeincludedin
theDTIcalculaIonunlesstheMortgageecandocumentthatthedebtisbeingpaidbythe
Borrower’sbusinessandthedebtwasconsideredinthecashflowanalysisofthe
Borrower’sbusiness.
DisputedDerogatoryCreditAccounts
DisputedChargeOff,collecIonandaccountswithlatepaymentsinthelast24months.
IfBorrowerhas$1,000ormorecollecIvelyinDisputedDerogatoryCreditAccounts,the
MortgageemustincludeamonthlypaymentintheBorrower’sdebtcalculaIon.
Evalua?ngLiabili?esandDebts
DisputedDerogatoryCreditAccounts
ExcludedfromthecumulaIvebalance:
•  Disputedmedicalaccounts
•  DisputedderogatorycreditresulIngfromidenIfythed,creditcardthedor
unauthorizeduse
(CommunitypropertyissuesarenotincludedbecauseIllinoisisnotacommunity
propertystate)
Evalua?ngLiabili?esandDebts
Non-derogatoryDisputedAccountandDisputedAccountsNotIndicatedontheCreditReport
•  Disputedaccountswithzerobalance
•  Disputedaccountswithlatepaymentsaged24monthsorgreater
•  Disputedpaymentsthatarecurrentandpaidasagreed
IfBorrowerisdispuIngnon-derogatoryaccounts,orisdispuIngaccountswhicharenotindicatedon
thecreditreportasbeingdisputed,theMortgageemustanalyzetheeffectofthedisputedaccounts
ontheBorrower’sabilitytorepaytheloan.IfthedisputeresultsintheBorrower'smonthlydebt
paymentsuIlizedincompuIngtheDTIraIonbeinglessthantheamountindicatedonthecredit
report,theBorrowermustprovidedocumentaIonofthelowerpayments.
Con?ngentLiabili?es
QuesIon:WhatisthedefiniIonofConIngentLiabiliIes?
Evalua?ngLiabili?esandDebts
Con?ngentLiabili?es
QuesIon:WhatisthedefiniIonofConIngentLiabiliIes?
AConIngentLiabilityisaliabilitythatmayresultintheobligaIontorepayonlywherea
specificeventoccurs.Forexample,aconIngentliabilityexistswhenanindividualcanbe
heldresponsiblefortherepaymentofadebtifanotherlegallyobligatedpartydefaultson
thepayment.ConIngentliabiliIesmayincludeCosignerliabiliIesandliabiliIesresulIng
fromamortgageassumpIonwithoutreleaseofliability.
Evalua?ngLiabili?esandDebts
TheMortgageemustincludemonthlypaymentsonconIngentliabiliIesinthecalculaIon
oftheBorrower’smonthlyobligaIonsunlesstheMortgageeverifiesthatthereisno
possibilitythatthedebtholderwillpursuedebtcollecIonagainsttheBorrowershould
theotherpartydefaultorthelegallyobligatedpartyhasmade12monthsofImely
payments.
MortgageemustobtaintheagreementcreaIngtheconIngentliabilityorassumpIon
agreementanddeedshowingtransferofItleoutoftheBorrower’sname.
CosignedLiabiliIes–MortgageemustobtaindocumentaIontoevidencethattheother
partytothedebthasmadeon-Imepaymentsfortheprevious12monthsandhasno
historyofdelinquentpaymentsontheloan.
CourtOrderedDivorceDecree–Mortgageemustobtainacopyofthedivorcedecree
orderingthespousetomakepayments
Evalua?ngLiabili?esandDebts
Collec?onAccounts
IfthecreditreportsusedintheanalysisshowcumulaIveoutstandingcollecIonaccount
balancesof$2,000orgreater,theMortgageemust:
•  VerifythatthedebtispaidinfullattheImeoforpriortoseYlementusingan
acceptablesourceoffunds;
•  VerifytheBorrowerhasmadepaymentarrangementswiththecreditor;or
•  Ifapaymentarrangementisnotavailable,calculatethemonthlypaymentusing5%of
theoutstandingbalanceofeachcollecIonandincludethemonthlypaymentinthe
Borrower’sDTIraIo.
(LeavingoutcommunitypropertybecauseIllinoisisnotacommunitypropertystate)
Mortgageemustprovidethefollowing:
•  Evidenceofpaymentinfull,ifpaidpriortoseYlement
•  Thepayoffstatement,ifpaidatseYlement;or
•  Thepaymentarrangementwithcreditor,ifnotpaidpriortooratseYlement
NodocumentaIonrequirediftheMortgageeuses%5oftheoutstandingbalance
Evalua?ngLiabili?esandDebts
ChargeOffAccounts
WhatisthedefiniIonofaChargeOffaccount?
ChargeOffAccountreferstoaBorrower’sloanordebtthathasbeenwriYenoff
bythecreditor.
ChargeoffaccountsdonotneedtobeincludedintheBorrower’sliabilityordebt
Evalua?ngLiabili?esandDebts
PrivateSavingsClubs
DefiniIon
PrivateSavingsClubreferstoanon-tradiIonalmethodofsavingbymakingdepositsinto
amember-managedresourcepool.
IftheBorrowerisobligatedtoconInuemakingongoingcontribuIons,underthepooled
savingsagreementthenobligaIonmustbeincludedinBorrower’stotaldebt.
Evalua?ngLiabili?esandDebts
Obliga?onsNotConsideredDebt
•  MedicalcollecIons
•  Federal,stateandlocaltaxes,ifnotdelinquentandnopaymentsrequired
•  AutomaIcdeducIonsfromsavings,whennotassociatedwithanothertypeof
obligaIon
•  FICAandotherreIrementcontribuIons,suchas401(k)accounts
•  Collateralizedloanssecuredbydepositoryaccounts
•  UIliIes
•  Childcare
•  CommuIngcosts
•  Uniondues
•  Insurance,otherthanpropertyinsurance
•  Openaccountswithzerobalances
•  VoluntarydeducIons,whennotassociatedwithanothertypeofobligaIon
IncomeRequirements
IncomeRequirements
GeneralIncomeRequirements
MortgageemustdocumenttheBorrower’sincomeandemploymenthistory,verifythe
accuracytheamountsofincomebeingreportedanddetermineiftheincomecanbe
consideredasEffecIveIncomeinaccordancewiththerequirementslistedbelow.
Mortgageemayonlyconsiderincomeifitislegallyderivedand,whenrequired,properly
reportedasincomeontheBorrower’staxreturns.
NegaIveincomemustbesubtractedfromtheBorrower’sgrossmonthlyincomeandnot
treatedasarecurringmonthlyliabilityunlessotherwisenoted.
IncomeRequirements
EmploymentRelatedIncome
IncomethatisreportedonIRSFormW-2
MortgageemustdocumentandverifytheBorrower’smostrecenttwoyearsof
employmentandincomeusingoneofthefollowingmethods:
•  Obtainmostrecentpaystubscoveringaminimumof30consecuIvedays(weeklyor
bi-weekly,28days)
•  AwriYenVerificaIonofEmployment(VOE)coveringtwoyears
•  AnelectronicverificaIonacceptabletoFHA
•  Re-verificaIonmustbecompletedwithin10Dayspriortotheclosingdate
IncomeRequirements
Alterna?veCurrentEmploymentDocumenta?on
Mortgageemust:
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Obtaincopiesofthepaystubscoveringthemostrecent30consecuIveDaysthat
showtheBorrower’sY-T-Dearnings
ObtaincopiesoftheOriginalIRSW-2formsfromtheprevioustwoyears
Documentcurrentemploymentbytelephone,signanddatetheverificaIon
documentaIonandnotename,Itleandtelephone#ofpersonwithwhom
employmentwasverified.
IncomeRequirements
PrimaryEmployment
Mortgageecanusethecurrentsalarytocalculateincome
Foremployeeswhoarepaidhourlyandwhosehoursdonotvary,themortgageemust
considertheBorrower’scurrenthourlyratetocalculateEffecIveIncome.
Foremployeeswhosehoursvary,theMortgageemustaveragetheincomeoverthe
previoustwoyears.
IncomeRequirements
Part-TimeEmployment
NottheBorrower’sprimaryemploymentandisperformedforlessthan40hoursper
week.
Mortgageemayusepart-ImeemploymentasEffecIveIncomeiftheBorrowerhasa
part-ImejobuninterruptedforthepasttwoyearsandthecurrentposiIonislikelyto
conInue.
Mortgageemustaveragetheincomeovertheprevioustwoyears.Mortgageecanuse
12-monthaverageifMortgageecandocumentanincreaseinpay
IncomeRequirements
Over?meandBonusIncome
MortgageemayuseOverImeandBonusIncomeasEffecIveincomeiftheBorrowerhas
receivedthisincomeforthepasttwoYearsanditisreasonablyexpectedtoconInue.
TocalculateBonus/OverImeEffecIveIncome,Mortgageemustaveragetheincome
earnedovertheprevioustwoyears.IftheOverImeorBonusincomedecreasesby20%
ormorefromthepreviousyear,theMortgageemustusetheCurrentyear’sincome.
IncomeRequirements
SeasonalEmployment
MortgageemayconsiderEmploymentIncomefromSeasonalEmploymentuse
OverImeandBonusIncomeasEffecIveincomeiftheBorrowerhasreceivedthis
incomeforthepasttwoYearsanditisreasonablyexpectedtoconInue.
Mortgageemustaveragetheincomeearnedovertheprevioustwofullyearsto
calculateEffecIveIncome
EmployerHousingSubsidy
Mortgageemustverifyanddocumentexistenceandtheamountofthehousingsubsidy.
Thesubsidymaynotbeusedtooffsetthemortgagepayment.
IncomeRequirements
EmployedbyFamily-OwnedBusiness
EmploymentincomeearnedfromabusinessownedbytheBorrower’sfamily,butin
whichtheBorrowerisnotanowner.
MortgageemustverifyanddocumentthattheBorrowerisnotanownerinthefamilyownedbusinessbyusingofficialdocumentsshowingtheownershippercentage.
Mortgageemustalsoobtaincopiesofsignedpersonaltaxreturnsortaxtranscripts.
EffecIveIncomeiscalculatedthesameasasalariedorhourlyemployee.
IncomeRequirements
CommissionIncome
CommissionIncomereferstoincomethatispaidconIngentupontheconducIngofa
businesstransacIonortheperformanceofaservice.
MortgageemayusecommissionincomeasEffecIveIncomeiftheBorrowerearnedthe
incomeforatleastoneYearinthesameorsimilarlineofworkverifyanddocumentthat
theBorrowerisnotanownerinthefamily-ownedbusinessbyusingofficialdocuments
showingtheownershippercentage.Mortgageemustalsoobtaincopiesofsigned
personaltaxreturnsortaxtranscripts.
EffecIveIncomeiscalculatedthesameasasalariedorhourlyemployee.
IncomeRequirements
Self-EmploymentIncome
Self-EmploymentIncomereferstoincomegeneratedbyabusinessinwhichtheBorrowerhasa
25%orgreaterownershipinterest.
MortgageemayconsiderSelf-EmploymentIncomeiftheBorrowerhasbeenself-employedforat
leasttwoyears.IftheBorrowerhasbeenself-employedbetweenoneandtwoyears,the
MortgageemayconsidertheincomeasEffecIveIncomeiftheBorrowerwaspreviouslyemployed
inthesamelineofworkorarelatedoccupaIonforatleasttwoyears
Incomeshouldbeobtainedfromabusinesswithstableorincreasingearnings.
Ifincomefrombusinessesshowsagreaterthan20%declineinEffecIveIncomeovertheanalysis
period,theMortgageemustdocumentthatbusinessincomeisnowstable.Mortgageecan
documentthereducIoninincomewasduetoanextenuaIngcircumstance,theBorrowercan
demonstratetheincomehasbeenstableorincreasingforaminimumof12months,andthe
Borrowerqualifiesusingthereducedincome.
IncomeRequirements
Self-EmploymentIncome
RequiredDocumentaIon
• 
Signed,completedIndividualandBusinessfederaltaxreturnsfortwoyears
• 
Inlieuoftaxreturns,theMortgageemayobtainasignedIRSForm4506,Form4506T
orForm8821
• 
YTDProfitandLoss(P&L)andbalancesheetifmorethanaquarterhaselapsedsince
dateofmostrecentcalendarorfiscalyear-endtaxreturn
• 
BusinesscreditreportforallcorporaIonsand“S”corporaIons
IncomeRequirements
Self-EmploymentIncome
Calcula?onofEffec?veIncome
TheMortgageemustcalculategrossSelf-EmploymentIncomebyusingthelesserof:
•  TheaveragegrossSelf-EmploymentIncomeearnedovertheprevioustwoyears;or
•  TheaveragegrossSelf-EmploymentIncomeearnedoverthepreviousoneyear
IncomeRequirements
Addi?onalRequiredAnalysisofStabilityofEmploymentIncome
FrequentChangesinEmployment
IftheBorrowerhaschangedemployersmorethanthreeImesintheprevious
12-months,Mortgageemust:
•  ObtaintranscriptsoftrainingandeducaIondemonstraIngqualificaIonfor
anewposiIon;or
•  EmploymentdocumentaIonevidencingconInualincreasesinincomeand/
orbenefits
IncomeRequirements
Addi?onalRequiredAnalysisofStabilityofEmploymentIncome
AddressingGapsinEmployment
ForBorrowerswithasixmonthorlongergapofemployment,theMortgageemay
considertheBorrower’scurrentincomeaseffecIveIncomeifitcanverifyand
documentthat:
•  TheBorrowerhasbeenemployedinthecurrentjobforatleasesixmonthsatthe
Imeofcasenumberassignment;and
•  Atwoyearworkhistorypriortotheabsencefromemploymentusingstandardor
alternaIveemploymentverificaIon
IncomeRequirements
Addi?onalRequiredAnalysisofStabilityofEmploymentIncome
AddressingTemporaryReduc?oninIncome
ForBorrowerswithatemporaryreducIonofincomeduetoashort-termdisabilityor
similartemporaryleave,theMortgageemayconsidertheBorrower’scurrentincomeas
EffecIveIncome,ifitcanverifyanddocumentthat:
•  TheBorrowerintendstoreturntowork;
•  TheBorrowerhastherighttoreturntowork;and
•  TheBorrowerqualifiesfortheMortgagetakingintoaccountanyreducIonofincome
duetothecircumstance
ForBorrowersreturningtoworkbeforeorattheImeofthefirstmortgagepayment
duedate,theMortgageemayusetheBorrower’spre-leaveincome
IncomeRequirements
Addi?onalRequiredAnalysisofStabilityofEmploymentIncome
AddressingTemporaryReduc?oninIncome
ForBorrowersreturningtoworkadertheImeofthefirstmortgagepaymentduedate,the
MortgageemayusetheBorrower’scurrentincomeplusavailablesurplusliquidassetReserves,
aboveandbeyondanyrequiredreserves,asanincomesupplementuptotheamountofthe
Borrower’spre-leaveincome.Theamountofthemonthlyincomesupplementisthetotalamount
ofsurplusreservesdividedbythenumberofmonthsbetweenthefirstpaymentduedateandthe
Borrower’sintendedduedatetoreturntowork.
RequiredDocumentaIon
• 
AwriYenstatementfromtheBorrowerconfirmingtheBorrower’sintenttoreturntowork
andtheintendeddateofreturn;
• 
DocumentaIongeneratedbycurrentemployerconfirmingtheBorrower’seligibilitytoreturn
tocurrentemployeradertemporaryleave;and
• 
DocumentaIonofsufficientliquidassetsusedtosupplementtheBorrower’sincomethrough
intendeddateofreturntoworkwithcurrentemployer.
IncomeRequirements
OtherSourcesofEffec?veIncome
DisabilityBenefits
BenefitsreceivedfromtheSocialSecurityAdministraIon,VeteransAffairsoraprivate
disabilityprovider.
MortgageemustverifyanddocumenttheBorrower’sreceiptofbenefitsfromtheSSA,
VAorprivatedisabilityinsuranceprovider.MortgageemustobtaindocumentaIonthat
establishedawardbenefitstotheBorrower.
ForSSA,obtainacopyofthelastNoIceofAwardandoneofthefollowing:
• 
Federaltaxreturn
• 
ThemostrecentbankstatementevidencingreceiptofincomefromtheSSA
• 
ProofofIncomeor“Budget”leYer
• 
CopyoftheBorrower’sformSSA-1099/1042S
IncomeRequirements
OtherSourcesofEffec?veIncome
DisabilityBenefits
VADisability
ForVA,obtainacopyoftheVeteran’slastbenefitsleYerandoneofthe
following:
•  Federaltaxreturns
•  ThemostrecentbankstatementevidencingreceiptofincomefromtheVA
IncomeRequirements
OtherSourcesofEffec?veIncome
DisabilityBenefits
BenefitsreceivedfromtheSocialSecurityAdministraIon,VeteransAffairsoraprivate
disabilityprovider.
Forprivatedisabilitybenefits,obtaindocumentaIonfromtheprivatedisability
insuranceprovidershowingtheamountoftheassistanceandtheexpiraIonofbenefits,
ifany,andoneofthefollowing:
• 
Federaltaxreturn
• 
Themostrecentbankstatementevidencingreceiptofincomefromtheinsurance
provider
IncomeRequirements
OtherSourcesofEffec?veIncome
Alimony,ChildSupportandMaintenanceIncome
RequiredDocumentaIon
MortgageemustobtainafullyexecutedcopyoftheBorrower’sfinaldivorcedecree,
legalseparaIonagreement,courtorder,orvoluntarypaymentagreementwith
documentedreceipt.
IncomeRequirements
OtherSourcesofEffec?veIncome
MilitaryIncome
• 
• 
• 
• 
• 
• 
Basepay
Basicallowanceforhousing
Clothingallowances
Flightorhazardpay
Basicallowanceforsubsistence
Proficiencypay
Educa?onbenefitsmaynotbeusedasEffec?veIncome
RequiredDocumentaIon
MortgageemustobtainacopyoftheBorrower’smilitaryLeaveandEarningsStatement(LES).
MortgageemustverifytheexpiraIontermofservicedateontheLES.IftheexpiraIondatesis
withinthefirst12monthsofthemortgage,MilitaryIncomemayonlybeusediftheBorrower
representstheirintenttoconInuemilitaryservice
IncomeRequirements
OtherSourcesofEffec?veIncome
MortgageCreditCer?ficates
MortgageCreditCerIficatesrefertogovernmentmortgagepaymentsubsidiesother
thanSecIon8.
MortgageemustverifyanddocumentthattheGovernmentalEnItysubsidizesthe
Borrower’smortgagepaymentseitherthroughdirectpaymentsortaxrebates.
MCCincomethatisnotusedtodirectlyoffsetthemortgagepaymentbeforecalculaIng
thequalifyingraIosmaybeincludedasEffecIveIncome.Currentsubsidyratemustbe
used.
IncomeRequirements
OtherSourcesofEffec?veIncome
Sec?on8HomeownershipVouchers
RequiredDocumentaIon
MortgageemustverifyanddocumenttheBorrower’sreceiptofthehousingchoice
vouchersubsidy.Themortgageemayconsiderthatthisincomeisreasonablylikelyto
conInueforthreeyears.
SecIon8subsidycanonlybeusedasEffecIveIncomeifitisnotusedtooffsetthe
monthlymortgagepayment.TheMortgageemustusethecurrentsubsidyrateto
calculatetheEffecIveIncome.
IncomeRequirements
OtherSourcesofEffec?veIncome
OtherPublicAssistance
RequiredDocumentaIon
Mortgageemustverifyanddocumenttheincomereceivedfromthe
governmentagency.PublicassistancecannotbeusedasEffecIveIncomeif
subsidyisduetoexpirewithinthreeyearsofthedateontheMortgage
applicaIon.
IfthedocumentaIondoesnothaveanexpiraIondate,theMortgageemay
considertheincomeeffecIveandreasonablylikelytoconInue.
IncomeRequirements
OtherSourcesofEffec?veIncome
AutomobileAllowances
RequiredDocumentaIon
Mortgageemustverifyanddocumenttheautomobileallowancereceivedfromthe
employerforthelasttwoyears
MortgageemustalsoobtainIRSForm2106,EmployeeBusinessExpenses,forthelast
twoyears
IncomeRequirements
OtherSourcesofEffec?veIncome
MortgageemustdeterminetheporIonoftheallowancethatcanbeconsidered
EffecIveIncome.
Re?rementIncome
SocialSecurity
MortgageemustverifyanddocumenttheBorrower’sreceiptofincomeandthatisis
likelytoconInueforathreeYearperiodfromthedateofthecasenumberassignment
IncomeRequirements
OtherSourcesofEffec?veIncome
RequiredDocumentaIon
Obtainanyoneofthefollowing:
• 
federaltaxreturns
• 
MostrecentbankstatementevidencingreceiptofincomefromtheSSA
• 
ProofofIncomeleYer
• 
CopyofBorrower’sSSAForm-1099/1042S,SocialSecurityBenefitStatement
InaddiIontoVOI,MortgageemustdocumenttheconInuanceofthisincomeby
obtainingfromtheBorrower:
• 
AcopyoftheNoIceofAwardLeYer
• 
EquivalentdocumentaIonthatestablishedawardsbenefitedtotheBorrower.
AnyincomefromtheSSAsettoexpirewithinthreeyearsmaynotbeusedas
EffecIveIncome
IncomeRequirements
OtherSourcesofEffec?veIncome
Pension
MortgageemustverifyanddocumenttheBorrowersreceiptofperiodicpaymentsfrom
theBorrower’spensionandthatthepaymentsarelikelytoconInueforatleastthree
years.
Mortgageemustalsoobtainoneofthefollowing:
• 
Federaltaxreturns
• 
Themostrecentbankstatementevidencingreceiptofincomefromtheformer
employer
• 
AcopyoftheBorrower’spension/reIrementleYerfromtheformeremployer
IncomeRequirements
OtherSourcesofEffec?veIncome
IndividualRe?rementAccountand401(k)
MortgageemustverifyanddocumenttheBorrowersreceiptofrecurringpaymentsfrom
theBorrower’sIRA/401kdistribuIonandthatthepaymentsarelikelytoconInueforat
leastthreeyears.
MortgageemustalsoobtainthemostrecentIRA/401(k)statementandoneofthe
following:
• 
Federaltaxreturns
• 
Themostrecentbankstatementevidencingreceiptofincome
IncomeRequirements
OtherSourcesofEffec?veIncome
RentalIncome
RentalIncomeReceivedfromtheSubjectProperty
TheMortgageemayconsiderRentalIncomefromexisIngandprospecIvetenantsif
documentedinaccordancewiththefollowingrequirements
RentalIncomefromthesubjectPropertymaybeconsideredEffecIveIncomewhenthe
Propertyisatwo-tofour-unitdwelling,oranacceptableone-tofour-unitInvestment
property.
IncomeRequirements
OtherSourcesofEffec?veIncome
RentalIncome,con?nued
RentalIncomefromthesubjectPropertymaybeconsideredEffecIveIncomewhenthe
Propertyisatwo-tofour-unitdwelling,oranacceptableone-tofour-unitInvestment
property.
RequiredDocumentaIon
LimitedorNoHistoryofRentalIncome
TwotoFourUnits
MortgageemustverifyanddocumenttheproposedRentalIncomebyobtainingan
appraisalshowingfairmarketrent(useFannieMaeForm1025/FreddieMacForm72)
andtheprospecIveleases,ifavailable
IncomeRequirements
OtherSourcesofEffec?veIncome
RentalIncome,con?nued
OneUnit
TheMortgageemustverifyanddocumenttheproposedrentalincomebyobtaininga
FNMA1004/FHLMC70,UniformResidenIalAppraisalReport,FNMA1007/FHLMC
IncomeRequirements
OtherSourcesofEffec?veIncome
RentalIncome,con?nued
OneUnit
TheMortgageemustverifyanddocumenttheproposedrentalincomebyobtaininga
FNMA1004/FHLMC70,UniformResidenIalAppraisalReport,FNMA1007/FHLMC1000,
SingleFamilyComparableRentScheduleandFNMA216/FHLMC998,OperaIngIncome
Statement,showingfairmarketrentand,ifavailable,theprospecIvelease.
HistoryofRentalIncome
IfBorrowerhasahistoryofRentalIncomefromthesubjectpropertysincetheprevious
taxfiling,theMortgageemustverifyanddocumenttheexisIngrentalincomeby
obtainingtheexisInglease,rentalhistoryovertheprevious24monthsthatisfreeof
unexplainedgapsgreaterthanthreemonthsandtheBorrower'smostrecenttax
returns,includingScheduleE,fromtheprevioustwoyears.
IncomeRequirements
OtherSourcesofEffec?veIncome
RentalIncome,con?nued
Calcula?onofEffec?veIncome
LimitedofNoHistoryofRentalIncome
Mortgageemustusethelesserof:
• 
ThemonthlyoperaIngincomereportedonFHLMC998;
or
• 
75%percentofthelesserof:
• 
Fairmarketrentreportedbytheappraiser
• 
Therentreflectedintheleaseorotheragreement
IncomeRequirements
OtherSourcesofEffec?veIncome
RentalIncome,con?nued
HistoryofRentalIncome
MortgageemustcalculatetheRentalIncomebyaveragingtheamountshownonthe
ScheduleE
IncomeRequirements
OtherSourcesofEffec?veIncome
RentalIncomefromOtherEstateHoldings
Ifrentalincomeisbeingderivedfromthepropertythatisbeingvacatedbythe
Borrower,theBorrowermustberelocaIngtoanareamorethan100milesfromthe
Borrower’scurrentPrincipalResidence.TheMortgageemustobtainaleaseagreement
ofatleastoneyearaderthemortgageisclosedandevidenceofthepaymentofthe
securitydepartmentorfirstmonth’srent.
LimitedorNoHistoryofRentalIncome
MortgageemustobtainanappraisalevidencingmarketrentandthattheBorrowerhas
atleast25%equityintheproperty.
Two-toFour-Units
MortgageemustverifyanddocumenttheproposedRentalIncomebyobtainingan
appraisalshowingfairmarketrent(useFNMA1025/FHLMC72,SmallResidenIalIncome
PropertyAppraisalReport)andtheprospecIveleasesifavailable.
IncomeRequirements
OtherSourcesofEffec?veIncome
RentalIncomefromOtherEstateHoldings,con?nued
OneUnit
MortgageemustverifyanddocumenttheproposedrentalincomebyobtainingaFNMA
1004/FHLMC70,UniformResidenIalAppraisalReport,FNMA1007/FHLMC1000,single
familycomparableRentScheduleandFNMA216/FHLMC998,OperaIngIncome
Statement,showingfairmarketrentand,ifavailabletheprospecIvelease.
HistoryofRentalIncome
TheMortgageemustobtaintheBorrower’slasttwoyearsoftaxreturnswithscheduleE.
IncomeRequirements
OtherSourcesofEffec?veIncome
BoardersoftheSubjectProperty
RentalincomefromboardersisonlyacceptableiftheBorrowerhasatwoyearhistoryof
receivingincomefromboardersthatisshownonthetaxreturnandtheBorroweris
currentlyreceivingBoarderincome.
InvestmentIncome
CapitalGainsandLosses
ExpectedIncome
ExpectedIncomereferstoincomefromcost-of-livingadjustments,perfomanceraises,a
newjob,orreIrementthathasnotbeen,butwillbereceivedwithin60daysof
mortgageclosing.
MortgageemayconsiderExpectedIncomeasEffecIveIncomeexceptwhenExpected
Incomeistobederivedfromafamily-ownedbusiness
IncomeRequirements
OtherSourcesofEffec?veIncome
MortgageemustverifyanddocumenttheexistenceandamountofExpectedIncome
withtheemployerinwriIngandthatitisguaranteedtobeginwithin60daysof
mortgageclosing.ReIrementincomeshouldverifiedandassuredtostartwithin60
daysofthemortgageclosing.
TrustAccounts
Annui?esorSimilar
Mortgageemustverifyanddocumentthelegalagreementestablishingtheannuityand
guaranteeingtheconInuaIonoftheannuityforthefirstthreeyearsoftheMortgage.
MortgageemustobtainabankstatementortransacIonhistorythatdocumentsthe
frequency,duraIonandamountofthedistribuIon.
NotesReceivable
IncomeRequirements
OtherSourcesofEffec?veIncome
Non-TaxableIncome
• 
• 
• 
• 
• 
• 
• 
• 
SomeporIonofSSAincome
SomefederalgovernmentreIrementincome
RailroadreIrementbenefits
SomestategovernmentreIrementincome
Certaintypesofdisabilityandpublicassistancepayments
Childsupport
Militaryallowances
Otherincomethatisdocumentedasbeingexemptfromfederalincometaxes
RequiredDocumentaIon
CalculaIonofEffecIveIncome
AssetRequirements
GeneralAssetRequirements
EarnestMoneyDeposit
Mortgageemustverifyanddocumenttheamountandsourceoffundsiftheamount
oftheearnestmoneydepositexceeds1%ofthesalespriceorisexcessivebasedon
theBorrower’shistoryofaccumulaIngsavings,byobtainingthefollowing:
•  AcopyoftheBorrower’scancelledcheck;
•  CerIficaIonfromthedeposit-holderacknowledgingreceiptoffund;or
•  VODorbankstatementthattheaveragebalancewassufficienttocoverthe
amountofearnestmoneydepositattheImeofthedeposit
AssetRequirements
GeneralAssetRequirements
Ifthesourceoftheearnestmoneywasagid,theMortgageemustverifythatthegidis
incompliancewithGidspolicies.
CashtoClose
Mortgageemustdocumentallfundsthatareusedforthepurposeofqualifyingfora
closingormortgage,includingthosetosaIsfydebtorpaycostsoutsideofclosing.
MortgageemustverifyanddocumentthattheBorrowerhassufficientfundsfroman
acceptablesourcetofacilitateclosing.
AssetRequirements
GeneralAssetRequirements
Determiningtheamountneededforclosing
Reserves
MortgageemustverifyanddocumentReservesequivalenttoonemonth’sPITIader
closingforone-totwo-unitproperIes
MortgageemustverifyanddocumentReservesequivalenttothreemonth’sPITIader
closingforthree-tofour-unitproperIes.
AssetRequirements
GeneralAssetRequirements
SourceRequirementsfortheBorrower’sMinimumRequiredInvestment
MortgageemayonlypermittheBorrower’sMRItobeprovidedbyasource
permissibleundersecIon203(b)(9)oftheNaIonalHousingAct,whichrequiresat
least3.5%oftheadjustedvalueoftheproperty.
FundsfortheMRImustNOTcomefrom:
•  TheSelleroftheproperty
•  AnyotherpersonorenItywhofinanciallybenefitsfromthetransacIondirectlyor
indirectly;
•  Anyonewhoisorwillbereimbursed,directlyorindirectly,byanypartyincludedin
(1)or(2)above.
AssetRequirements
GeneralAssetRequirements
SourceRequirementsfortheBorrower’sMinimumRequiredInvestment
WhatistheexcepIontotheabove?
WhentheMRIisprovidedbysomeoneotherthantheBorrower,theMortgageemust
documentthenatureandsourceofthosefunds.
WhatcantheMortgageeusetodocumenttheprovisionofwiredfunds?
AssetRequirements
GeneralAssetRequirements
CheckingandSavingsAccounts
MortgageemustverifyanddocumenttheexistenceofandamountsintheBorrower’s
checkingandsavingsaccounts.
RequiredDocumentaIon
VODandtheBorrower’smostrecentstatementforeachaccount.IfVODisnot
obtained,astatementshowingthepreviousmonth’sendingbalanceforthemost
recentmonthisrequired.Ifthepreviousmonth’sbalanceisnotshown,the
mortgageemustobtainstatements(s)forthemostrecenttwomonths.
AssetRequirements
GeneralAssetRequirements
CashonHand
MortgageemustverifythattheBorrower’sCashonHandisdepositedinafinancial
insItuIonorheldbytheescrow/Itlecompany.
RequiredDocumentaIon
MortgageemustobtainanexplanaIonfromtheBorrowerdescribinghowthefunds
wereaccumulatedandtheamountofImeittooktoaccumulatethefunds.
AssetRequirements
GeneralAssetRequirements
Re?rementAccounts
Mortgageemayincludeupto60%ofthevalueofassets,lessanyexisIngloans,from
theBorrower’sreIrementaccounts,suchasIRAs,thridsavingsplans,401(k)planand
Keoghaccounts,unlesstheBorrowerprovidesconclusiveevidencethatahigher
percentagemaybewithdrawnadersubtracInganyfederalincometaxand
withdrawalpenalIes.
RequiredDocumentaIon
Mortgageemustobtainthemostrecentmonthlyorquarterlystatementtoverifyand
documenttheexistenceandamountsintheBorrower’sreIrementaccounts,the
Borrower’seligibilityforwithdrawals,andthetermsandcondiIonsfrowithdrawal
fromanyreIrementaccount.
AssetRequirements
GeneralAssetRequirements
StocksandBonds
Mortgageemustdeterminethevalueofthestocksandbondsfromthemostrecentmonthlyor
quarterlystatement.Ifstocksandbondsarenotheldinabrokerageaccount,thecurrentvalue
ofthestocksandbondsmustbedeterminedthroughthirdpartyverificaIon.SavingsBonds
RequiredDocumentaIon
MortgageemustverifyanddocumenttheexistenceoftheBorrower’sstocksandbondsby
obtainingthebrokeragestatement(s)foreachaccountforthemostrecenttwomonths.For
stocksandbondsnotheldinabrokerageaccount,Mortgageemustobtainacopyofeachstockor
bondcerIficate.
AssetRequirements
GeneralAssetRequirements
PrivateSavingsClubs
MortgageemayconsiderPrivateSavingsClubfundsthataredistributedtoand
receivedbytheBorrowerasanacceptablesourceoffunds.Mortgageemustverify
anddocumenttheestablishmentandduraIonoftheclubandtheBorrower’sreceipt
offundsfromtheclub.
RequiredDocumentaIon
Mortgageemustobtaintheclub’saccountledgersandreceipts,andaverificaIonfrom
theclubtreasurerthattheclubissIllacIve.
AssetRequirements
GeneralAssetRequirements
Gi_s(PersonalandEquity)
AcceptablesourcesofGidsfunds
•  Borrower’sFamilymember
•  Borrower’semployerorlaborunion
•  AclosefriendwithaclearlydefinedanddocumentedinterestintheBorrower
•  AcharitableorganizaIon
•  AgovernmentalagencyorpublicenItythathasaprogramproviding
homeownershipassistancetolow-ormoderate-incomefamiliesorfirst-Ime
homebuyers.
AssetRequirements
GeneralAssetRequirements
Reserves
Surplusgidfundsmaynotbeconsideredascashreserves
Donor’sSourceofFunds
CashonHandisnotanacceptablesourceofdonorgidfunds
RequiredDocumentaIon
MortgageemustobtainagidleYersignedanddatedbythedonorandBorrowerthatincludes
thefollowing:
•  Donor’sname,addressandtelephonenumber
AssetRequirements
GeneralAssetRequirements
Gi_s(PersonalandEquity),con?nued
• 
• 
• 
Thedonor’srelaIonshiptotheborrower
Thedollaramountofthegid
Astatementthatnorepaymentisrequired
DocumenIngtheTransferofGids
IfthegidfundshavebeenverifiedintheBorrower’saccount,obtaintheBorrower’sbank
statementshowingthewithdrawalandevidenceofthedepositintheBorrower’saccount.
IfthegidfundsarenotverifiedintheBorrower’saccount,obtainthecerIfiedcheckormoney
orderorcashier’scheckorwiretransferorotherofficialcheck,andabankstatementshowing
withdrawalfromthedonor’saccount.
IfthegidfundsarepaiddirectlytotheSeYlementagent,theMortgageemustverifythatthe
seYlementagentreceivedthefundsfromthedonorfortheamountofthegid,andthatthefunds
werefromanacceptablesource.
AssetRequirements
GeneralAssetRequirements
StandardsforGi_sforEquity
WhomayprovideGidsofEquity
OnlyFamilymembersmayprovideequitycreditasagidonpropertybeingsoldtootherfamily
members.
RequiredDocumentaIon
AgidleYerwhichincludesthefollowing:
•  Donor’snameaddressandtelephone
•  Donor’srelaIonshiptotheBorrower
•  Thedollaramountofthegid
•  Astatementthatnorepaymentisrequired
AssetRequirements
GeneralAssetRequirements
InterestedPartyContribu?ons
Sellers,realestateagents,builders,developersorotherparIeswithaninterestinthe
transacIon
InterestedparIesmaycontributeupto6%ofthesalespricetowardstheBorrower’s
originaIonfees,otherclosingcostsanddiscountpoints.
Alsoincludes:
•  InterestedPartypaymentforpermanentandtemporaryinterestratebuydowns
andotherpaymentsupplements
•  Paymentsofmortgageinterestforfixedratemortgages
•  MortgagepaymentprotecIoninsurance
•  PaymentoftheUFMIP
AssetRequirements
GeneralAssetRequirements
InterestedPartyContribu?ons,con?nued
InterestedpartycontribuIonsabove6%areconsideredaninducementtopurchase.
Paymentofrealestatecommissionsorfees,typicallypaidbytheSellerunderlocalor
statelaworlocalcustom,isnotconsideredaninterestedpartycontribuIon.
RequiredDocumentaIon
MortgageemustdocumentthetotalinterestedpartycontribuIonsonform
HUD-92900-LT,closingdisclosureorsimilarlegaldocument,andthesalescontract.
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase
Inducementstopurchaserefertocertainexpensespaidbythesellerand/oranotherinterested
partyonbehalfoftheBorrowerandresultinadollar-for-dollarreducIontothepurchaseprice
whencompuIngtheAdjustedValueofthePropertybeforeapplyingtheappropriateLTV
percentage
Inducementsinclude,butarenotlimitedto:
•  ContribuIonsexceeding6%ofthepurchaseprice
•  ContribuIonsexceedingtheoriginaIonfees,otherclosingcostsanddiscountpoints
•  DecoraIngallowances
•  Repairallowances
•  Excessrentcredit
•  Payingoffconsumerdebt
•  Personalproperty
•  SalescommissionontheBorrower’spresentresidence
•  BelowmarketrentexceptforBorrowerswhomeettheIdenItyofInterestexcepIonfor
FamilyMembers
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
ReplacementofexisIngpersonalpropertyitemslistedbelowarenotconsideredan
inducement,providedthereplacementismadepriortoclosingandnocashallowance
isgiventotheBorrower.
PersonalProperty
•  Range
•  Refrigerator
•  Dishwasher
•  Washer
•  Dryer
•  CarpeIng
•  windowtreatment
•  OtheritemsdeterminedappropriatebyHOC
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
SalesCommission
Aninducementtopurchaseexistswhenthesellerand/orinterestedpartyagreesto
payanyporIonoftheBorrower’ssalecommissiononthesaleoftheBorrower’s
presentresidence.
AninducementalsoexistswhenaBorrowerisnotpayingarealestatecommissionon
thesaleoftheirpresentresidenceandthesamerealestatebrokeroragentisinvolved
withbothtransacIonsandtheSellerispayingarealestatecommissionthatexceeds
whatistypicalforthearea.
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
RentBelowFairMarket
Rentmaybeaninducementtopurchasewhenthesalesagreementrevealsthatthe
BorrowerhasbeenlivinginthePropertyrentfreeofhasanagreementtooccupythe
propertyatarentalamountconsiderablybelowfairmarketrent.
Whenmightabelowmarketpaymentnotbeconsideredaninducementtopurchase?
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
DownpaymentAssistancePrograms
NonprofitenIIesmaynotprovidegidstopayoff:
•  Installmentloans
•  Creditcards
•  CollecIons
•  Judgments
•  Liens
•  Similardebts
MortgageemustensurethatgidprovidedbyacharitableorganizaIonmeetsits
appropriateFHArequirements,andthetransferoffundsisproperlydocumented.
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
SecondaryFinancing
SecondaryfinancingprovidedbygovernmentalenIIesandHOPEgrantees
FHAwillinsuremortgageprovided:
•  SecondaryfinancingdisclosedattheImeofapplicaIon
•  NocostsassociatedwiththesecondaryfinancingarefinancedintotheFHA-insured
mortgage
•  TheinsuredfirstmortgagedoesnotexceedtheFHAnaIonwideMortgageLimitfor
theareainwhichthepropertyislocated
•  Thesecondaryfinancingpaymentsareincludedinthetotalmortgagepayments
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,conInued
•  AnysecondaryfinancingoftheBorrower’sMRIfullycomplieswiththe
addiIonalrequirementssetforthinsourcerequirementsforthe
Borrower’sMRI
•  ThesecondaryfinancingdoesnotresultincashbacktotheBorrower
exceptfortherefundofEarnestmoneydepositorotherBorrowercosts
paidoutsideofclosing
•  Thesecondliendoesnotprovideaballoonpaymentwithin10yearsfrom
thedateofexecuIon
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
RequiredDocumentaIon
•  DocumentaIonshowingtheamountoffundsprovidedtotheBorrowerforeach
transacIon
•  Copiesoftheloaninstruments
•  AleYerfromthegovernmentalenItyontheirleYerheadevidencingthe
relaIonshipbetweenthemand
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
SecondaryFinancingprovidedbyHUD-ApprovedNonprofits
AHUD-ApprovedNonprofitisanagencyapprovedbyHUDtoactasamortgagorusingFHA
mortgageinsurance,purchasetheDepartment’sREOproperIesatadiscount,andprovide
secondaryfinancing.
FHAwillinsurefirstmortgageonapropertythathasasecondmortgageorlienheldbyaHUDapprovednonprofitprovidedthat:
•  ThesecondaryfinancingisdisclosedattheImeofapplicaIon
•  NocostsassociatedwiththesecondaryfinancingarefinancedintotheFHA-insuredfirst
mortgage
•  Thesecondaryfinancingpaymentsmustbeincludedinthetotalmortgagepayment
•  ThesecondaryfinancingmustnotresultincashbacktotheBorrowerexceptfortherefundof
earnestmoneydepositorotherBorrowercostspaidoutsideofclosing
•  ThesecondaryfinancingmaynotbeusedtomeettheBorrower’sMRI
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
SecondaryFinancingprovidedbyHUD-ApprovedNonprofits
• 
• 
ThereisnomaximumCLTVforsecondaryfinancingloansprovidedbyHUD-Approved
nonprofits
Thesecondlienmaynotprovideforaballoonpaymentwithin10yearsfromthedateof
execuIon
RequireddocumentaIon
Mortgageemustobtainfromtheproviderofanysecondaryfinancing:
•  DocumentaIonshowingtheamountoffundsprovidedtotheBorrowerforeachtransacIon
•  Copiesoftheloaninstruments
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
FamilyMembers
RequiredDocumentaIon
Mortgageemustobtainfromtheproviderofanysecondaryfinancing:
•  DocumentaIonshowingtheamountoffundsprovidedtotheBorrowerandthe
sourceoffunds
•  Copiesoftheloaninstruments
AssetRequirements
GeneralAssetRequirements
InducementstoPurchase,con?nued
PrivateIndividualsandOtherOrganiza?ons
RequiredDocumentaIon
•  DocumentaIonshowingtheamountoffundsprovidedtotheBorrowerforeach
transacIon;and
•  Copiesoftheloaninstruments
AssetRequirements
GeneralAssetRequirements
Loans
Aloanreferstoanarrangementinwhichalendergivesmoneyorpropertytoaborrowerandthe
borroweragreestoreturnthepropertyorrepaythemoney.
CollateralizedLoans
Loanssecuredagainstdepositedfunds,whererepaymentmaybeobtainedthroughexInguishing
theasset,donotrequireconsideraIonofrepaymentforqualifyingpurposes.TheMortgagee
mustreducetheamountofthecorrespondingassetbytheamountofthecollateralizedloan.
Onlyanindependentthirdpartymayprovidetheborrowedfundsforcollateralizedloans.Seller,
realestateagentorbroker,lenderorotherinterestedpartymaynotprovidesuchfunds.
AssetRequirements
GeneralAssetRequirements
Loans
Unacceptableborrowedfundsinclude
• 
• 
• 
• 
Unsecuredsignatureloans
Cashadvancesoncreditcards
Borrowingagainsthouseholdgoods/furniture
Othersimilarunsecuredfinancing
AnyloanoftheBorrowersMRImustalsocomplywiththeaddiIonalrequirements
discussedinSourceRequirementsfortheBorrower’sMRI
RequiredDocumentaIon
TheMortgageemustverifyanddocumenttheexistenceoftheBorrower’sassetsused
tocollateralizetheloan,thepromissorynotesecuringtheasset,andtheloan
proceeds.
AssetRequirements
GeneralAssetRequirements
Loans
Re?rementAccountLoans
RequiredDocumentaIon
TheMortgageemustverifyanddocumenttheexistenceandamountsinthe
Borrower’sreIrementaccountsandoutstandingloanbalance.
AssetRequirements
GeneralAssetRequirements
Loans,Con?nued
DisasterReliefLoans
LoansfromagovernmentalenItythatprovideimmediatehousingassistancetoindividuals
displacedduetonaturaldisaster.
SecuredorunsecureddisasterreliefloansadministeredbythesmallbusinessadministraIonmay
alsobeused.SBAloanmustsubordinatetoFHAloanifsubjectpropertyusedtosecureloan.
Monthlypayment?
RequiredDocumentaIon
TheMortgageemustverifyanddocumentthepromissorynote
AssetRequirements
GeneralAssetRequirements
Grants
DisasterReliefGrants
DisasterreliefgrantsmaybeusedfortheBorrower’sMRI.
RequiredDocumentaIon
MortgageemustverifyanddocumenttheBorrower’sreceiptofthegrantandtermsof
use.
FederalHomeLoanBankHomeownershipSet-AsideGrantProgram(AHP)
AHPset-asidefundsusedfortheBorrower’sMRImustcomplywiththesource
requirementsfortheBorrower’sMRI.
AssetRequirements
GeneralAssetRequirements
Grants
DisasterReliefGrants
DisasterreliefgrantsmaybeusedfortheBorrower’sMRI.
RequiredDocumentaIon
MortgageemustverifyanddocumenttheBorrower’sreceiptofthegrantandtermsof
use.
AssetRequirements
GeneralAssetRequirements
Grants
FederalHomeLoanBankHomeownershipSet-AsideGrantProgram(AHP)
AHPset-asidefundsusedfortheBorrower’sMRImustcomplywiththesource
requirementsfortheBorrower’sMRI.
RequiredDocumentaIon
MortgageemustverifyanddocumenttheBorrower’sreceiptofthegrantandtermsof
use.
MortgageemustverifyanddocumentthattheretenIonagreementrequiredbythe
FHLBisrecordedagainstthepropertyandresultsinadeedrestricIon,andnota
secondlien.
AssetRequirements
GeneralAssetRequirements
EmployerAssistance
SaleofPersonalProperty
Trade-InofManufacturedHousing
SaleofRealProperty
RealEstateCommissionfromthesaleofasubjectproperty
SweatEquity
TradeEquity