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FHA SECURE CHANGES JULY 2008
June 2nd, 2008 5:46 PM

FHA Secure Changes July 14, 2008 (edit/delete)

 

Criteria

FHASecure  

FHA  95% Cash-out Refinance

FHA to FHA Refinance*

Eligible Loan Types

•·       Current conventional fixed-rate or ARM loan.

•·       Delinquent conventional ARM loan.

•o         Delinquency was caused by rate reset (recast) or extenuating circumstance but does not affect borrower's overall capacity to repay the FHA loan.

•·        Acceptable loan features include interest only, payment option and negative amortization.

•·      FHA or conventional loan that is seasoned at least 12 months with last 12 payments made within the month due.  Otherwise, limited to 85% LTV.

•·          FHA

Ineligible Loan Types

•·      FHA 

FHA or conventional loans seasoned less than 12 months.  Otherwise limited to 85% LTV.

•·      Conventional

LTV

•·          Standard LTV on FHA first mortgage.

•·          In addition to standard rate and term maximum mortgage calculation may include arrearages (PITI) incurred after reset or extenuating circumstance.

•·          Current appraised value is used to determine maximum loan amount.

•·          No seasoning requirement for purchase money seconds.

•·          Equity line in excess of $1000 advanced in last 12 months is not eligible for inclusion (unless documented for repair/renovation of subject property).

•·      Up to 95% LTV on FHA first mortgage that does not exceed $417,000.  Otherwise limited to 85% LTV.

•·      Standard cash-out maximum mortgage calculation up to 95%.

•·      Current appraised value is used in determining maximum loan amount.

•·      There are no seasoning requirements for subordinate liens.

•·      Standard LTV on FHA first mortgage.

•·      Standard rate and term maximum mortgage calculation.

•·      Current appraised value is used in determining maximum loan amount.

•·      No seasoning requirement for purchase money seconds.

•·      Equity line in excess of $1000 advanced in last 12 months is not eligible for inclusion (unless documented for repairs/renovation of subject property).

CLTV

•·          Unlimited CLTV for new subordinate financing.

•·          Unlimited CLTV for re-subordination or modification of existing subordinate financing.

•·      Unlimited CLTV for re-subordination and/or modification of existing subordinate financing. Also applicable for FHA first mortgages limited to 85% LTV.

 

•·      Standard FHA CLTV ratio on new subordinate financing: the combined 1st and 2nd liens do not exceed the applicable FHA LTV and maximum mortgage limit for the area.

•·      Unlimited CLTV for re-subordination or modification of existing subordinate financing.

 


Criteria

FHASecure

FHA 95% Cash-out Refinance

FHA to FHA Refinance*

Underwriting

  

FHA First Mortgage

•·     Borrower is delinquent but mortgage payment history shows that:

•o   during the 6 months prior to reset or extenuating circumstance there are no instances of making mortgage payments outside the month due; or

•o   during the 12 months prior to reset or extenuating circumstance there are no more than 1x60 late payment or 2x30 late payments; or

•o   no more than 1x90 or 3x30 during the 12 months prior to reset or extenuating circumstance provided the LTV on the FHA first does not exceed 90%.

•·Delinquency was caused by rate reset or extenuating circumstance but does not affect borrower's overall capacity to repay the FHA loan.

•·Borrower delinquent on IO and/or payment option ARMs must demonstrate that they were making their monthly mortgage payments within the month due during the 6 months prior to rate reset.

•·      Standard 31/43 ratios may be exceeded with compensating factor(s), except for loans limited to 90% LTV mortgage payment history.

•·       Non-occupant co-borrowers may be added.

FHA First Mortgage

•·      Borrower must have owned property for 12 months AND if encumbered by a mortgage made payments for the last 12 months within the month due.  Otherwise limited to 85% LTV.

•·      Standard 31/43 ratios, may be exceeded with compensating factor(s).

•·      Non-occupant co-borrowers may not be added for 95% cash-out refinance transactions but are permissible for those limited to 85% LTV.

FHA First Mortgage

•·      Borrower must be current and have an acceptable mortgage payment history.

•·      Standard 31/43 ratios, may be exceeded with compensating factor(s).

•·      Non-occupant co-borrowers may be added.

Secondary Financing

•·     If payments on the second are required, they must be included in the qualifying borrower unless deferred for a period of at least 36 months. 

•·      Secondary financing must meet the following requirements:

•ü  No prepayment penalty

•ü  No balloon payments less than 10 years

•ü  Payments on FHA 1st and subordinate liens, plus other housing expenses, cannot exceed borrower's capacity to repay.

•ü  Any periodic payments due on the second mortgage are due monthly and are essentially the same in dollar amount.

Secondary Financing

•·      If payments on the second are required, they must be included in qualifying the borrower.

•·      Secondary financing must meet the following requirements:

•ü  No prepayment penalty

•ü  No balloon payments less than 10 years

•ü  Payments on FHA 1st and subordinate liens, plus other housing expenses, cannot exceed borrower's capacity to repay.

•ü  Any periodic payments due on the second mortgage are due monthly and are essentially the same in dollar amount.

Secondary Financing

•·      If payments on the second are required, they must be included in qualifying the borrower.

•·      Secondary financing must meet the following requirements:

•ü  No prepayment penalty

•ü  No balloon payments less than 10 years

•ü  Payments on FHA 1st and subordinate liens, plus other housing expenses, cannot exceed borrower's capacity to repay.

•ü  Any periodic payments due on the second mortgage are due monthly and are essentially the same in dollar amount.

FHA Identifier

•·     Conventional not delinquent

•·     Conventional delinquent

Conventional not delinquent

FHA  to FHA Refinance, use appropriate identifier

New Mortgage

FHA Fixed, 1-year ARM or hybrid ARM

FHA Fixed, 1-year ARM or hybrid ARM

FHA Fixed, 1-year ARM or hybrid ARM

Mortgage Insurance

Delinquent

Current

1.5% UFMIP and .50% Annual Premium

1.5% UFMIP and .50% Annual Premium

2.25% UFMIP and .55% Annual Premium when LTV > 95%

1.5% UFMIP and .50% Annual Premium

 


Criteria

FHASecure

FHA 95% Cash-out  Refinance

FHA to FHA Refinance*

Expiration

Delinquency and/or > Std FHA CLTV Ratio:

Current and =/< Std FHA CLTV Ratio:

Permanent

Permanent

Applications on/or before 12/31/08

Permanent

Documentation Requirements

In addition to standard FHA documentation requirements, the following documents are needed for FHASecure:

•·          Evidence of the current loan type and reset date such as the current ARM Mortgage Note or Rider, if applicable.

•·          Evidence of occurrence of extenuating circumstance(s), if applicable.

•·          Explanation letter from borrower for delinquency and/or missed payments.

•·          Evidence that the payment history for the 6 months prior to reset had no payments outside the month due (credit report, payment history, etc); OR

•·          Evidence that the payment history has no more than 1x60 late payment or 2x30 late payments in the last 12 months (credit report, payment history, etc); OR

•·          Evidence that the payment history has no more than 1x90 or 3x30 late payments in the last 12 months.

•·          Include evidence of partial forbearance, if applicable.

•·          Evidence of terms and conditions of secondary financing, if applicable.

•·          MCAW (LT) with comments from the underwriter in the Remarks section to document decision that reset or temporary financial setback caused the loan to become delinquent.

Standard FHA documentation requirements

Standard FHA documentation requirements

Other

All other standard FHA requirements apply

All other standard FHA requirements apply

All other standard FHA requirements apply

Posted by Ronell Moore on June 2nd, 2008 5:46 PMPost a Comment (0)

A Life-Changing Procedure
June 2nd, 2008 5:44 PM

A Life-Changing Procedure

The eyes are the windows of the soul. So, to the person you are capable of

becoming, each evening, just before you go to bed, stand in front of a mirror

alone and in the first-person, present tense, look yourself in the eye and repeat

with passion and enthusiasm paragraphs A, B, C and D. Repeat this process

every morning and every evening from this day forward. Within one week you

will notice remarkable changes in your life. After thirty days add the procedure

at the bottom of this card.

“I, ___________, am an honest, intelligent, organized, responsible, committed,

teachable person who is sober, loyal, and clearly understands that regardless of

who signs my paycheck I am self-employed. I am an optimistic, punctual,

enthusiastic, goal-setting, smart working self-starter who is a

disciplined, focused, dependable, persistent positive thinker with

great self-control, and am an energetic and diligent team player and

hard worker who appreciates the opportunity my company and the

free enterprise system offer me. I am thrifty with my resources and

apply common sense to my daily tasks. I take honest pride in my competence,

appearance and manners, and am motivated to be and do my best so that my

healthy self-image will remain on solid ground. These are the qualities which

enable me to manage myself and help give me employment security in a nojob-

security world.

“I, ____________, am a compassionate, respectful encourager who is a

considerate, generous, gentle, patient, caring, sensitive, personable, attentive,

fun-loving person. I am a supportive, giving and forgiving, clean, kind,

unselfish, affectionate, loving, family-oriented human being and I am a

sincere and open-minded good listener and a good-finder who is

trustworthy. These are the qualities which enable me to build good

relationships with my associates, neighbors, mate and family.

“I, ____________, am a person of integrity, with the faith and wisdom

to know what I should do and the courage and convictions to follow through.

I have the vision to manage myself and to lead others. I am authoritative,

confident, and humbly grateful for the opportunity life offers me. I am

fair, flexible, resourceful, creative, knowledgeable, decisive and an

extra-miler with a servant’s attitude who communicates well with

others. I am a consistent, pragmatic teacher with character and a

finely-tuned sense of humor. I am an honorable person and am

balanced in my personal, family and business life, and have a passion for

being, doing and learning more today so I can be, do and have more tomorrow.

“These are the qualities of the winner I was born to be and I am fully committed

to developing these marvelous qualities with which I have been entrusted.

Tonight I’m going to sleep wonderfully well. I will dream powerful, positive

dreams. I will awaken energized and refreshed; tomorrow’s going to be

magnificent and my future is unlimited. Recognizing, claiming and

developing these qualities which I already have gives me a

legitimate chance to be happier, healthier, more prosperous, more

secure, have more friends, greater peace of mind, better family

relationships and legitimate hope that the future will be even better.”

Repeat the process the next morning and close by saying, “These are

the qualities of the winner I was born to be and I will develop and use these

qualities to achieve my worthy objectives. Today is a brand new day and it’s

mine to use in a marvelously productive way.”

After 30 days, add the next step:

Choose your strongest quality and the one you feel needs the most work.

Example: Strongest—honest. Needs most work—organized. On a separate

3x5 card, print “I, ___________, am a completely honest person and every day

I am getting better and better organized.” Keep this 3x5 card handy and read

it out loud at every opportunity for one week. Repeat this process with the

second strongest quality and the second one which needs the most work. Do

this until you’ve completed the entire list. Use this self-talk procedure as long

as you want to get more of the things money will buy and all of the things

money won’t buy.

Note: Because of some painful experiences in the past (betrayal, abuse, etc.), there might be a word

or two that brings back unpleasant memories (example: discipline). Eliminate the word or

substitute another word.

Posted by Ronell Moore on June 2nd, 2008 5:44 PMPost a Comment (0)

FHA Credit Policy Manual
May 15th, 2008 5:58 PM

FHA Credit Policy Manual

Page 1 of 139 Revision 5.6.2008

THIS INFORMATION IS TO BE PROVIDED EXCLUSIVELY TO MORTGAGE PROFESSIONALS/REFERRAL SOURCES AND IS NOT INTENDED FOR PUBLIC USE. THIS IS NOT AN ADVERTISEMENT TO EXTEND CONSUMER CREDIT AS DEFINED IN REGULATION Z,

§226.2. ALL LOANS ARE SUBJECT TO CREDIT AND PROPERTY APPROVAL. PROGRAMS, RATES, TERMS AND CONDITIONS ARE SUBJECT TO CHANGE WITHOUT NOTICE. NOT ALL PRODUCTS ARE AVAILABLE IN ALL STATES OR FOR ALL LOAN AMOUNTS.

OTHER RESTRICTIONS APPLY. ALL RIGHTS RESERVED. 01/09/08

The Credit Policy Manual makes reference to “The Lender”. The Lender shall at all times refer to the institution or

business which is to ultimately fund or purchase the mortgage loan. Any outside business or entity involved, at

any time, in the process of the originating, processing, underwriting, or closing of the mortgage must comply with

The Lender’s credit policy as set forth in this manual.

Any discrepancies between this Credit Policy Manual and published Product Profiles will defer to whichever has

the most recent revision date. This manual was last revised REVISION 5.6.2008.

To Search this manual, Click Edit on your menu bar, and then Click Find; or type CTRL F. Enter a

simple keyword to search for. Adobe Acrobat will only search for the phrase exactly as you type it.

You may also click the Binoculars Icon in Adobe Acrobat, which will provide more search

options.

CHAPTER 1 – ELIGIBILITY REQUIREMENTS ....................................................................................................... 9

INTRODUCTION........................................................................................................................................................ 9

UNDERWRITING PHILOSOPHY .................................................................................................................................. 9

IMPLEMENTING CREDIT POLICY................................................................................................................................ 9

REGULATORY ISSUES............................................................................................................................................ 10

GUIDELINE CHANGES ............................................................................................................................................ 10

PRODUCT AVAILABILITY......................................................................................................................................... 10

SECTION 100.00 – GENERAL ELIGIBILITY ISSUES .................................................................................................... 10

100.01 - Applicant’s Age................................................................................................................................ 10

100.02 - Co-Borrower/Co-Signer.................................................................................................................... 11

100.03 - Foreign Documentation .................................................................................................................... 11

100.04 - Non-Borrowing/Non-Purchasing Spouse ......................................................................................... 11

100.05 - Residency Status............................................................................................................................. 11

100.06 - Trust Eligibility Criteria...................................................................................................................... 12

Checklist for Inter Vivos Revocable Trusts...................................................................................................... 12

SECTION 101.00 – OCCUPANCY ............................................................................................................................. 13

101.01 – Owner Occupied Principle Residence.............................................................................................. 13

CHAPTER 2 - FHA FINANCING........................................................................................................................... 14

SECTION 200.00 – INTRODUCTION......................................................................................................................... 14

SECTION 201.00 – BASIC ELIGIBILITY GUIDELINES................................................................................................... 14

201.01 - Case Number Assignment ............................................................................................................... 14

201.02 - Credit Alert Interactive Voice Response System (CAIVRS)............................................................. 14

201.03 - LDP and Federal Procurement / Non-Procurement ......................................................................... 15

201.04 - Citizenship and Residency Status.................................................................................................... 15

SECTION 202.00 – MAXIMUM LOAN LIMITS.............................................................................................................. 16

202.01 - Statutory Loan Limits........................................................................................................................ 16

202.02 - Loan-to-Value Limitations................................................................................................................. 16

SECTION 203.00 – TRANSACTIONS AFFECTING MORTGAGE CALCULATIONS ............................................................. 17

203.01 - Identity of Interest Transactions ....................................................................................................... 17

203.02 - Non-Occupying Co-Applicants ......................................................................................................... 17

203.03 - Three and Four Unit Properties........................................................................................................ 17

203.04 - Building on Own Land ...................................................................................................................... 18

203.05 - Military Impact Areas........................................................................................................................ 19

SECTION 204.00 – HUD OWNED PROPERTIES (PROPERTY DISPOSITION SALES)...................................................... 20

204.01 - Appraisal Requirements ................................................................................................................... 20

204.02 - HUD REO Marketing Approaches.................................................................................................... 21

204.03 - Sales Contract Requirements .......................................................................................................... 21

204.04 - Case Number Processing ................................................................................................................ 22

FHA Credit Policy Manual

Revision 5.6.2008 Page 2 of 139

204.05 - Mortgagee Appraisal and Property Review Requirements .............................................................. 22

204.06 - Maximum Mortgage Amount and Minimum Cash Investment ......................................................... 23

204.07 - Valuation of Real Estate Owned Properties..................................................................................... 23

SECTION 205.00 – ACQUISITION............................................................................................................................ 26

205.01 - Closing Cost Adjustments to Loan to Value..................................................................................... 26

205.02 - Closing Costs Guidelines ................................................................................................................. 26

205.03 - Seller Contributions .......................................................................................................................... 27

205.04 - Sales Concessions/Inducements to Purchase................................................................................. 27

SECTION 206.00 – PURCHASE TRANSACTIONS........................................................................................................ 28

206.01 - Owner Occupied Principal Residence.............................................................................................. 28

206.02 - Second Home/Secondary Residences............................................................................................. 28

206.03 - Non-Owner Occupied/Investment Properties................................................................................... 29

206.04 - FHA Refinance Transactions ........................................................................................................... 29

206.05 - Property Flipping .............................................................................................................................. 30

206.06 – Recently Listed Properties................................................................................................................ 32

206.07 – Good Neighbor Next Door ................................................................................................................ 32

SECTION 207.00 – NO CASH OUT REFINANCES ...................................................................................................... 33

207.01 - Purchasing Ex-Spouse’s/Co-Borrower Equity.................................................................................. 34

SECTION 208.00 – CASH OUT REGULAR REFINANCE............................................................................................... 34

SECTION 209.00 – STREAMLINE REFINANCES ......................................................................................................... 35

209.01 - Streamline Refinances Without Appraisals ...................................................................................... 35

209.02 - Streamline Refinances With Appraisals (No Credit Qualifying) ....................................................... 36

209.03 - Credit Qualifying Streamline Refinances.......................................................................................... 36

209.04 - MIP Refund for FHA-to-FHA Refinances ......................................................................................... 37

209.05 - Subordinate Financing for Streamline Refinances........................................................................... 37

209.06 - Adding or Deleting Individuals to Title on Streamline Refinance ..................................................... 37

209.07 - Streamline Refinance ARM-to-ARM Rate........................................................................................ 37

209.08 - Streamline Refinance ARM-to-Fixed Rate ....................................................................................... 38

209.09 - Streamline Refinance FHA Hybrid ARM-to-Fixed Rate ................................................................... 38

209.10 - Streamline Refinance Fixed Rate-to-ARM Rate .............................................................................. 38

209.11 - Appraisals for Streamline Refinance ................................................................................................ 38

SECTION 210.00 – NEW CONSTRUCTION ................................................................................................................ 38

210.01 - Construction Definitions ................................................................................................................... 38

210.02 - Requirements for New Properties .................................................................................................... 39

210.03 - Checklist for New Properties – Stick Built ........................................................................................ 40

210.04 - Checklist for Manufactured Housing ................................................................................................ 42

SECTION 211.00 – SUBORDINATE FINANCING ......................................................................................................... 43

211.01 - Secondary Financing from Federal, State and Local Government Agencies .................................. 43

211.02 - Secondary Financing from Non-Profit Agencies Considered Instrumentality’s ............................... 43

211.03 - Secondary Financing from Other Organizations and Private Individuals......................................... 44

211.04 - Grants.............................................................................................................................................. 44

SECTION 212.00 – TEMPORARY INTEREST RATE BUY DOWN ................................................................................... 44

SECTION 213.00 – 203(H) DISASTER RELIEF .......................................................................................................... 45

213.01 - Mortgage Insurance for Disaster Victims ......................................................................................... 45

213.02 - Program and Underwriting Requirements........................................................................................ 45

213.03 - Underwriting Guidance..................................................................................................................... 45

213.04 - Borrower Eligibility ............................................................................................................................ 46

213.05 - Credit ............................................................................................................................................... 46

213.06 - Income............................................................................................................................................. 46

213.07 - Qualifying Ratios .............................................................................................................................. 46

213.08 - Assets.............................................................................................................................................. 46

213.09 - Liabilities.......................................................................................................................................... 46

SECTION 214.00 – MORTGAGE INSURANCE PREMIUMS (MIP) .................................................................................. 47

214.01 - Upfront and Annual MIP Chart Mortgage Term More Than 15 Yrs ................................................. 47

214.02 - Upfront and Annual MIP Chart Mortgage Term 15 Years or Less ................................................... 47

SECTION 215.00 – UNDERWRITING DOCUMENTATION.............................................................................................. 47

215.01 – Face to Face Interview ..................................................................................................................... 47

FHA Credit Policy Manual

Page 3 of 139 Revision 5.6.2008

215.02 - Home Inspection/Lead Paint Hazard Notice .................................................................................... 47

215.03 - Social Security Number Validation ................................................................................................... 48

215.04 - Pay stubs/Verification of Employment.............................................................................................. 48

215.05 - Current Bank Statement/Verification of Deposit............................................................................... 48

215.06 - Real Estate Certification.................................................................................................................. 48

215.07 - Notice to Homebuyer....................................................................................................................... 48

215.08 - Amendatory Clause......................................................................................................................... 48

215.09 - FHA Sales Contract/Purchase Agreement....................................................................................... 48

215.10 - Hotel and Transient Use Certification............................................................................................... 49

215.11 - Mortgage Credit Analysis Worksheet (MCAW)................................................................................ 49

215.12 - Changes to Approved FHA Loans.................................................................................................... 49

215.13 - Use of More Than One DE Underwriter ........................................................................................... 49

215.14 - Qualifying the FHA Loan .................................................................................................................. 49

215.15 - Adjustable Rate Mortgages .............................................................................................................. 50

SECTION 216.00 – ASSUMABILITY OF FHA LOANS................................................................................................... 50

CHAPTER 3 - CREDIT.......................................................................................................................................... 51

SECTION 300.00 – INTRODUCTION......................................................................................................................... 51

SECTION 301.00 – DOCUMENTING CREDIT.............................................................................................................. 51

SECTION 302.00 – CREDIT HISTORY....................................................................................................................... 51

SECTION 303.00 – PREVIOUS RHCDS LOAN.......................................................................................................... 52

SECTION 304.00 – OTHER FEDERAL DEBTS............................................................................................................ 52

SECTION 305.00 – RESIDENTIAL MORTGAGE CREDIT REPORT................................................................................. 52

305.01 - Three Repository Merged Credit Report .......................................................................................... 53

305.02 - Unacceptable Credit Reporting Practices ........................................................................................ 53

305.03 - Credit Reports on Non-Borrowing Spouses ..................................................................................... 54

305.04 - Separate Verifications of Credit........................................................................................................ 54

305.05 - Non-Traditional Forms of Credit ....................................................................................................... 54

305.06 - Document Expiration Dates.............................................................................................................. 55

305.07 - Credit Explanation Letters ................................................................................................................ 55

SECTION 306.00 – REVIEWING CREDIT HISTORY / ANALYSIS OF RISK ...................................................................... 56

306.01 – Non-Traditional Credit Verification and Evaluation........................................................................... 56

306.02 - Applicant’s Willingness to Repay Debt/Manual Underwriting........................................................... 57

306.03 - Debt Payoff/Pay Down ..................................................................................................................... 58

306.04 - Paying Down Debt to Qualify ........................................................................................................... 58

SECTION 307.00 – CREDIT AND LIABILITY DOCUMENTATION..................................................................................... 58

307.01 - Alimony/Separate Maintenance ....................................................................................................... 58

307.02 - Automobile Leases.......................................................................................................................... 59

307.03 - Bankruptcy....................................................................................................................................... 59

307.04 - Business Debts (Self-employed Applicant) Corporations ................................................................ 60

307.05 - Child Care........................................................................................................................................ 60

307.06 - Child Support................................................................................................................................... 60

307.07 - Collection Accounts......................................................................................................................... 60

307.08 - Consumer Credit Counseling Services (CCCS)............................................................................... 60

307.09 - Contingent Liability/Co-Signed-Debts .............................................................................................. 61

307.10 - Deed in Lieu of Foreclosure ............................................................................................................. 61

307.11 - Delinquent Housing (Mortgage or Rental)........................................................................................ 61

307.12 - Delinquencies – Installment ............................................................................................................. 62

307.13 - Delinquencies - Revolving................................................................................................................ 62

307.14 - Delinquent Federal Debt-FHA .......................................................................................................... 62

307.15 - Defaulted Student Loans.................................................................................................................. 63

307.16 – Deferred Loans................................................................................................................................ 63

307.17 - Employee Savings Plan Loans (401K, etc.)..................................................................................... 63

307.18 – Foreclosure/Primary Residence ....................................................................................................... 63

307.19 - Foreclosures on Second Homes or Investment Property ................................................................ 63

307.20 - Garnishment.................................................................................................................................... 63

307.21 - Judgments ....................................................................................................................................... 64

FHA Credit Policy Manual

Revision 5.6.2008 Page 4 of 139

307.22 - Lawsuits........................................................................................................................................... 64

307.23 - Military Allotments ............................................................................................................................ 64

307.24 - Military Advance Pay........................................................................................................................ 64

307.25 - Mortgage History .............................................................................................................................. 64

307.26 - Mortgages........................................................................................................................................ 65

307.27 - Mortgages - Relocating Applicant .................................................................................................... 65

307.28 - Non-Borrowing Spouse/Non-Purchasing Spouse............................................................................ 65

307.29 - Projected Liabilities.......................................................................................................................... 66

307.30 - Real Estate Expense........................................................................................................................ 66

307.31 - Rental Loss...................................................................................................................................... 66

307.32 - Revolving Accounts......................................................................................................................... 66

307.33 - Installment Accounts ........................................................................................................................ 66

307.34 - Tax Liens ......................................................................................................................................... 66

307.35 - Term Notes...................................................................................................................................... 67

307.36 - Debts Owed to Relatives.................................................................................................................. 67

307.37 - Margin Loans/Stock Accounts.......................................................................................................... 67

307.38 - Repossessions ................................................................................................................................ 67

307.39 - Employment/Job Related Expense .................................................................................................. 68

307.40 - Short Pays at Loan Payoff................................................................................................................ 68

307.41 - Rent Payments ................................................................................................................................ 68

307.42 - NSF / Non-Sufficient Funds.............................................................................................................. 68

SECTION 308.00 – EXTENUATING CIRCUMSTANCES ................................................................................................ 68

308.01 - Examples of Extenuating Circumstances......................................................................................... 69

308.02 - Situations That Do Not Qualify as Extenuating Circumstances ....................................................... 69

308.03 - Financial Mismanagement ............................................................................................................... 69

SECTION 309.00 – RE-ESTABLISHING CREDIT......................................................................................................... 69

SECTION 310.00 – REVIEWING QUALIFYING............................................................................................................ 70

310.01 - Applicant’s Qualifying Ratios............................................................................................................ 70

310.02 - An Increase in Obligations ............................................................................................................... 70

SECTION 311.00 – QUALIFYING THE APPLICANT...................................................................................................... 70

311.01 - Monthly Housing Expense................................................................................................................ 70

311.02 - Total Monthly Obligations................................................................................................................. 71

311.03 - Long Term Obligations ..................................................................................................................... 71

311.04 - Qualifying Ratios .............................................................................................................................. 71

CHAPTER 4 - INCOME......................................................................................................................................... 72

SECTION 400.00 – INTRODUCTION......................................................................................................................... 72

400.01 - Income History................................................................................................................................. 72

400.02 - Stable Earnings ............................................................................................................................... 72

400.03 - Continuance of Income .................................................................................................................... 72

SECTION 401.00 – DOCUMENTING INCOME ............................................................................................................. 72

401.01 - Alternative Documentation ............................................................................................................... 73

401.02 - Written Verification of Employment .................................................................................................. 73

401.03 - Income Tax Returns ......................................................................................................................... 73

401.04 - Reviewing Employment Documentation........................................................................................... 74

SECTION 402.00 – CALCULATING INCOME............................................................................................................... 74

402.01 - Calculating Variable Forms of Income ............................................................................................. 74

402.02 - Source of Income ............................................................................................................................. 75

402.03 - Non-Taxable Income ........................................................................................................................ 75

SECTION 403.00 – TYPES OF INCOME..................................................................................................................... 76

403.01 – Alimony / Separate Maintenance ..................................................................................................... 76

403.02 – Auto Allowance................................................................................................................................ 76

403.03 - Bonus .............................................................................................................................................. 76

403.04 – Capital Gains ................................................................................................................................... 76

403.05 - Child Support................................................................................................................................... 77

403.06 - Clergy .............................................................................................................................................. 77

403.07 - Commission..................................................................................................................................... 77

FHA Credit Policy Manual

Page 5 of 139 Revision 5.6.2008

403.08 - Contractor/Consultant...................................................................................................................... 77

403.09 - Disability .......................................................................................................................................... 78

403.10 - Dividends and Interest...................................................................................................................... 78

403.11 - Family Owned Business................................................................................................................... 78

403.12 - Foster Care Income/Court Ordered Custody ................................................................................... 78

403.13 - Foreign Income................................................................................................................................ 78

403.14 - Government Assistance Programs................................................................................................... 79

403.15 - IRA/KEOGH Distributions................................................................................................................. 79

403.16 - Military (Active Duty)......................................................................................................................... 79

403.17 - Mortgage Differential Payments ....................................................................................................... 79

403.18 - Notes Receivable ............................................................................................................................. 79

403.19 - Overtime .......................................................................................................................................... 80

403.20 - Partnership Income .......................................................................................................................... 80

403.21 - Pension/Retirement .......................................................................................................................... 80

403.22 – W2 Professional Salaried Income .................................................................................................... 81

403.23 - Projected Income............................................................................................................................. 81

403.24 - Rental Income ................................................................................................................................. 81

403.25 - Reservist/National Guard ................................................................................................................. 82

403.26 - Room and Board .............................................................................................................................. 82

403.27 - Seasonal Employment..................................................................................................................... 82

403.28 - Second Job...................................................................................................................................... 82

403.29 - Shift Differential ............................................................................................................................... 83

403.30 - Social Security - Retirement............................................................................................................. 83

403.31 - Social Security -- Surviving Spouse and Child or Payments to Family Members............................ 83

403.32 - Temporary Employment ................................................................................................................... 83

403.33 - Tips.................................................................................................................................................. 83

403.34 - Trailing Spouse................................................................................................................................ 83

403.35 - Truck Drivers ................................................................................................................................... 84

403.36 - Trust Income.................................................................................................................................... 84

403.37 - Unemployment Compensation ......................................................................................................... 84

403.38 - Union Member................................................................................................................................. 84

403.39 - VA Benefits...................................................................................................................................... 84

403.40 - Workers Compensation................................................................................................................... 85

403.41 - Lottery Income................................................................................................................................. 85

SECTION 404.00 – SPECIAL INCOME CRITERIA ........................................................................................................ 85

404.01 - Maternity Leave............................................................................................................................... 85

404.02 - Payroll/Leasing Company Employees.............................................................................................. 85

404.03 - Unacceptable Forms of Income ....................................................................................................... 86

SECTION 405.00 – SELF-EMPLOYED APPLICANT ..................................................................................................... 86

405.01 - Length of Self-Employment .............................................................................................................. 86

SECTION 406.00 – SELF-EMPLOYED BUSINESS STRUCTURES.................................................................................. 86

406.01 - Sole Proprietorship ........................................................................................................................... 86

406.02 - Partnership ...................................................................................................................................... 87

406.03 - Corporation...................................................................................................................................... 87

406.04 - S Corporation .................................................................................................................................. 87

SECTION 407.00 – SELF-EMPLOYED BORROWERS.................................................................................................. 87

CHAPTER 5 - ASSETS......................................................................................................................................... 90

SECTION 500.00 – INTRODUCTION......................................................................................................................... 90

500.01 - Required Funds ............................................................................................................................... 90

SECTION 501.00 – DOCUMENTING ASSETS............................................................................................................. 90

501.01 - Alternative Documentation ............................................................................................................... 90

501.02 - Written Verification of Deposit (VOD)............................................................................................... 90

SECTION 502.00 – ACCESS TO FUNDS.................................................................................................................... 91

SECTION 503.00 – DETAILS OF THE TRANSACTION (URLA) ..................................................................................... 91

503.01 - Applicants Minimum Investment....................................................................................................... 91

503.02 - Required Reserves.......................................................................................................................... 91

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503.03 - Seller Contributions (Financing Concessions) ................................................................................. 92

503.04 - Sales Concessions.......................................................................................................................... 92

503.05 - Non-Arms Length Transactions........................................................................................................ 92

SECTION 504.00 – SOURCE OF FUNDS / ASSETS TO CLOSE..................................................................................... 93

504.01 - 1031 Exchange................................................................................................................................ 93

504.02 - Bank Account .................................................................................................................................. 93

504.03 - Bridge Loan ..................................................................................................................................... 93

504.04 - Cash ................................................................................................................................................ 94

504.05 - Cash Advance on Credit Card.......................................................................................................... 94

504.06 - Cash Saved at Home ....................................................................................................................... 95

504.07 – Collateralized/Secured Loans........................................................................................................... 95

504.08 - Commission From Sale of Subject Property .................................................................................... 95

504.09 - Corporate Funds.............................................................................................................................. 95

504.10 - Currency Conversions..................................................................................................................... 95

504.11 - Earnest Money Deposit .................................................................................................................... 96

504.12 - Employee Savings Plans (401K)..................................................................................................... 96

504.13 - Gambling or Lottery Winnings .......................................................................................................... 96

504.14 - Gifts ................................................................................................................................................. 96

504.15 - Gift of Equity .................................................................................................................................... 97

504.16 - Gift From a Relative......................................................................................................................... 97

504.17 - Gift from an Employer, Church, Municipality or Non-Profit .............................................................. 98

504.18 - Gift of Equity .................................................................................................................................... 98

504.19 - Government Bonds.......................................................................................................................... 99

504.20 - Grant................................................................................................................................................ 99

504.21 - Inheritance....................................................................................................................................... 99

504.22 - Lawsuit or Insurance Settlement ...................................................................................................... 99

504.23 - Relocation Benefits.......................................................................................................................... 99

504.24 - Relocation Equity Buyout ............................................................................................................... 100

504.25 - Rent Credit (Equity) ........................................................................................................................ 100

504.26 - Pension Plan ................................................................................................................................. 100

504.27 - Salary Advance .............................................................................................................................. 100

504.28 - Sale of Assets................................................................................................................................ 100

504.29 - Sale of Real Estate......................................................................................................................... 101

504.30 - Sale of Real Estate – Joint Ownership........................................................................................... 101

504.31 - Savings as a Source of Funds ....................................................................................................... 101

504.32 - Savings Bonds............................................................................................................................... 102

504.33 - Stocks............................................................................................................................................ 102

504.34 - Sweat Equity.................................................................................................................................. 102

504.35 - Tax Refunds .................................................................................................................................. 102

504.36 - Trade Equity .................................................................................................................................. 103

504.37 - Unsecured Loan ............................................................................................................................. 103

504.38 - Unverifiable Source of Funds ......................................................................................................... 104

504.39 - Life Insurance Cash Value ............................................................................................................. 104

CHAPTER 6 - APPRAISALS.............................................................................................................................. 105

SECTION 600.00 – PROPERTY AND APPRAISAL OVERVIEW .................................................................................... 105

600.01 - Ineligible Properties ........................................................................................................................ 105

600.02 - Types of Appraisals & Requirements............................................................................................. 105

600.03 - Appraisal and Inspection Report Forms......................................................................................... 106

600.04 - HUD Form 92051 – Compliance / Repair Inspection Report ......................................................... 106

600.05 - As Is Appraisals............................................................................................................................. 107

SECTION 601.00 – UNIQUE PROPERTIES............................................................................................................... 107

601.01 - Dome Homes................................................................................................................................. 107

601.02 - Earth Sheltered Homes .................................................................................................................. 107

601.03 - Leasehold Estates .......................................................................................................................... 107

601.04 - Log Homes .................................................................................................................................... 108

601.05 - Manufactured Homes ..................................................................................................................... 108

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601.06 - Mixed Use Property....................................................................................................................... 109

601.07 - Modular Homes .............................................................................................................................. 109

601.08 - Rural Property/ Excess Land.......................................................................................................... 109

601.09 - Limited Access Properties (Flag Lots)............................................................................................ 110

SECTION 602.00 – THE APPRAISER ...................................................................................................................... 110

602.01 - FHA Appraisers .............................................................................................................................. 110

602.02 - Responsibilities of the Appraiser .................................................................................................... 111

602.03 - Unacceptable Appraisal Practices.................................................................................................. 111

SECTION 603.00 – APPRAISAL REQUESTS AND DOCUMENTATION .......................................................................... 112

603.01 - Converting a VA Appraisal to FHA................................................................................................. 112

603.02 - Appraisal Extension / Reuse .......................................................................................................... 112

603.03 - Appraisal Expiration Dates ............................................................................................................. 113

603.04 - Statement of Limiting Conditions.................................................................................................... 113

603.05 - Required Appraisal Documents...................................................................................................... 113

603.06 - Owner of Record ............................................................................................................................ 113

603.07 - Electronic Imaging/Appraisal Software........................................................................................... 113

603.08 - Photographs .................................................................................................................................. 113

603.09 - Inspections Required By Underwriter............................................................................................. 114

603.10 - Inspections for New Construction................................................................................................... 114

603.11 - Repairs .......................................................................................................................................... 114

603.12 - Lender Certified Repairs ................................................................................................................ 115

SECTION 604.00 – APPRAISAL AND PROPERTY STANDARDS .................................................................................. 115

604.01 - Appraisal Description, Analysis and Adjustments .......................................................................... 116

604.02 - General Requirements ................................................................................................................... 124

604.03 - Negative Time Adjustments ........................................................................................................... 125

604.04 - Comparables ................................................................................................................................. 126

604.05 - Property Located in Areas Affected by Natural Disasters .............................................................. 126

604.06