LANCASTER HOUSING OPPORTUNITY PARTNERSHIP HOME BUYER LOAN PROGRAM POLICIES & PROCEDURES September 2014

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1 123 East King Street Lancaster, PA Phone: (717) Fax: (717) Home Buyer Education: LANCASTER HOUSING OPPORTUNITY PARTNERSHIP HOME BUYER LOAN PROGRAM POLICIES & PROCEDURES All prospective buyers are encouraged to complete the LHOP Home Buyer Education Program before looking for a home. There is a $25.00 fee to complete the course and the course is open to anyone interested in learning about homeownership. The non-refundable $25.00 tuition fee is due at registration for each person expecting to complete the course. The goal of the Education Program is to prepare buyers to make better financial decisions by expanding their understanding of both the requirements and process for purchasing a home. Lenders should encourage prospective buyers to complete training prior to applying for their primary mortgage. Courses are offered in both English and Spanish. Prospective buyers are to contact LHOP to register at or may register on-line at Classes are generally available within 4 weeks of request. To qualify for a Home Buyer Loan, the borrower, co-borrowers, and anyone else intending to have an ownership interest in the property must complete the course. All classes must be completed within a period of no more than 2 months. Borrowers wishing to be considered for a Home Buyer Loan must be complete the course prior to signing a Sales Agreement. Borrowers who completed the training more than two (2) years prior of the full execution of the Sales Agreement must repeat the course. After completing the eight hour course, the prospective buyer will receive a Completion Certificate. 2. Housing Search and Lender Selection: Prospective buyers who complete the LHOP Education Program are encouraged to work with a Realtor to locate a home that meets their needs and price range. Training participants will also be made aware of homes available for purchase through non-profit community development organizations. Participants wishing to be considered for a Home Buyer Loan are encouraged to contact Partnership Lenders as soon as possible to discuss approval and qualification criteria. At minimum a perspective borrower must meet with a Lender within ten (10) days of fully executing a Sales Agreement to complete the Home Buyer Loan Application. Only owner occupied properties, as evidenced by the Seller Declaration, within the County of Lancaster will be considered for a Home Buyer Loan. In the case of two-unit properties this requirement will apply to the specific unit to be occupied by the Borrower. Please contact LHOP with any questions. Previously or currently tenant occupied properties are not eligible for the Home Buyer Loan.

2 Page 2 of 10 Sales Agreements must utilize an LHOP ADDENDUM to the Standard Agreement for the Sale of Real Estate and should be structured to allow at least sixty (60) days to close and be made contingent upon (1) qualification for a first mortgage from a Lender, (2) qualification for the Home Buyer Loan and availability of funds, (3) completion of a satisfactory whole house inspection by a qualified home inspector, a wood destroying insect infestation inspection, a Deteriorated Paint Visual Assessment (for dwellings built prior to 1978), and (4) completion of a satisfactory property appraisal certifying compliance with HUD Handbook Properties built prior to 1978 must comply with 24 C.F.R. Part 35 (Lead Based Poisoning Prevention in Certain Residential Structures). Therefore, a visual assessment of deteriorated paint must be performed by the inspector to determine the existence of deteriorated paint and the possible need for additional evaluation. The buyer must be present for the whole house inspection and the deteriorated paint visual assessment. A complete Home Buyer Loan Application, including all required documentation related to borrower s income, household members, and funds available for closing, must be received by LHOP to be considered for a loan. The Lender must submit a complete application along with supporting documentation to LHOP within twenty (20) days of the full execution of the Agreement of Sale to be considered for funding. LHOP will not accept incomplete applications. Agreements of Sale must also, at minimum, include (1) buyer acknowledgement of receipt of notice regarding the hazards of Lead Paint, (2) seller disclosure of any known Lead Paint and Lead Paint hazards; (3) seller s property disclosure statement (if applicable), (4) identification of the party responsible for the cost of inspections and for any required repairs; and (5) provisions, if any, for seller assistance for closing costs. 3. Home Buyer Loan Requirements: Home Buyer Loans are available to qualified buyers to fund a portion of their cost to purchase a home, including down payment, closing costs and pre-paid expenses. Home Buyer Loan proceeds may not be used for repairs or to pay off borrower s current debt obligations as may be required to qualify for the primary loan. Please note: cash back at settlement is not allowed on LHOP transactions under any circumstances. Qualification for a Home Buyer Loan is based primarily on the income and financial need of the buyer. The home to be purchased must also meet certain criteria. Program requirements are subject to change with reasonable prior notice. Please refer to the most recent Home Buyer Loan Program Eligibility Requirements for additional information regarding eligibility requirements. Procedures for determining eligibility income for Home Buyer Loans differ significantly from those typically used by a lender to determine qualifying income for a primary mortgage. For a primary mortgage, the lender considers the income of the borrower/co-borrowers typically received in the past. For a Home Buyer Loan, LHOP considers the income not just of the borrower, but of all adult household members expected to reside in the home, and determines income based on what is expected to be received over the next year, not what was actually received in the prior year.

3 Page 3 of 10 Home Buyer Loans are available only for the purchase of homes located within the County of Lancaster (including Lancaster City), and to borrowers having a most recent permanent address within the County of Lancaster, utilizing qualified loan products offered by an LHOP Partner Lender of their choice. Please see Eligibility Requirements for a list of LHOP s Partner Lenders. Generally, qualified loan products must offer a competitive, fixed interest rate, charge no more than 3 points, and require A credit. CHB loans may also be used in combination with FHA, PHFA, VA and USDA Rural Development loan products offered by Lenders. Temporary buy-downs and adjustable rate loans are not permitted. Lenders must obtain prior approval of all loan products they desire to use in combination with CHB loans. The amount of the CHB loan will be based on an assessment of the borrower s funds required to close. The Lender will complete a CHB Needs Assessment to determine the specific loan amount, as described in detail below. 4. Home Buyer Loan Application: Home Buyers will be encouraged to meet with a Lender as early as possible, but they will be required to do so within ten (10) days of the full execution of the Agreement of Sale. The Lender will submit a complete application along with supporting documentation to LHOP within twenty (20) days of the full execution of the Agreement of Sale. A complete Home Buyer Loan Application, including all required documentation related to Buyer s income, household members, and funds available for closing, must be received by LHOP to be considered for a loan. LHOP will not accept incomplete applications. Buyer shall cooperate in a timely manner with his or her Lender in providing the necessary documentation to complete the Home Buyer Loan Application. To complete the Home Buyer Loan application, the buyer must provide the following information: a. Household Composition Declaration: 1) The name, current address, social security number, and current employer(s) of all adult household members, defined as the borrower, any co-borrowers, the spouse of borrower or any co-borrowers, and all other adults over the age of eighteen (18) intending to reside in the home. 2) The name, age, and social security number for all other household members, defined as persons related to the adult household members by birth, marriage, or adoption and who are expected to live in the home as their primary residence. To be included as a household member, the dependent must be listed on the prior year Federal tax return of an adult household member. 3) A self-declaration that the borrower and any co-borrowers are either United States citizens or permanent resident aliens. Permanent resident aliens must provide a copy of their green card as evidence of legal residency status. LHOP will allow participants with Non-permanent residency status to utilize the Community Home Buyer program based on the following criteria; The property will become the borrower s primary residence, the borrower has a valid Social Security Number and the borrower is eligible to work in the US which may be evidenced by an Employment Authorization Document issued by the Bureau of Citizenship and Immigration

4 Page 4 of 10 Services (BCIS). If the authorization for temporary residency status will expire within one year and a prior history of residency status renewal exists, LHOP will assume continuation will be granted. If there are no prior renewals, LHOP must determine the likelihood of renewal based on information from the BCIS. b. Household Income Declaration: 1) The current gross monthly income of all adult household members, as defined above. Income of full time students over the age of eighteen (18) expected to reside in the home may be excluded upon submission of evidence that the student is currently enrolled in a post-secondary educational institution and attending classes on a full-time basis. If a borrower or any coborrower is married but separated, the income of the spouse may also be excluded if: a) the separation can be clearly documented by a filing for divorce, a spousal support order, or convincing evidence that the borrower has maintained a separate residence for the past 12 months; and b) the borrower has no continuing ownership interest or debt obligation (i.e. is no longer be on the deed and has been released from the note and mortgage) for any real estate previously jointly owned. 2) Two months of pay stubs or other source documentation for all sources of income for all adult household members, indicating earnings for the current period and year to date for the 4-week period immediately prior to submission of the primary loan application. Income includes child support, social security, and other payments or benefits received by adult household members on behalf of dependents included as household members. 3) A copy of the Federal tax return for the most recent year for all adult household members. The most recent two years tax returns and all schedules will be required for self employed borrowers. 4) Copies of W-2 s for all sources of income received by all adult household members for the prior tax year. LHOP reserves the right to request evidence of termination of employment if a household member represents that they no longer receive compensation from a source for which a W-2 was issued in the prior tax year. 5) A self-declaration signed by any adult household member who receives no income. 6) A self-declaration signed by any adult household member who has dependent children for whom no support is being received. c. Household Asset Information: 1) A copy of all adult household members most recent three months of checking, savings, or other investment account statements; evidence of good faith deposits or other costs already paid for with borrower funds; and/or evidence of other assets available to fund closing. Money orders or other representations of cash on hand may not be included. 2) Evidence of gifts or grants to be provided by other sources.

5 Page 5 of 10 Annual household income for eligibility shall be calculated using the gross income received by all adult household members for the four (4) week period immediately prior to the primary loan application. This income will be averaged and multiplied by the number pay periods projected for the coming year. A fully written Verification of Employment will also be considered for calculating income. d. Credit/Budget/Asset Requirements: A minimum credit score of 620 is required. Only on a case by case basis, LHOP may consider at its discretion, applications from borrowers who may have less than a 620 credit score which have strong, compensating factors. If a borrower has less than three opened (traditional) trade lines, LHOP may require additional satisfactory non-traditional trade line documentation. Contact LHOP at for more specific information. A minimum asset reserve of $500 is required after borrower s contribution. And a $7,500 maximum asset reserve is allowed after borrower s contribution. No Credit Score- A minimum of three open trade lines with a satisfactory 12 month payment history is required in the event that the borrower doesn t have a traditional credit score. Rent payment history, utilities, cell phone, car insurance (if paid in monthly installments), are acceptable examples of these required trade lines. Budget Counseling A private budget counseling session is required prior to settlement for LHOP borrowers through TABOR Community Services. Borrowers need to contact TABOR directly at to schedule the appointment at least two weeks prior to their settlement date. e. Debt to Income Ratios: LHOP will allow a maximum PITI (FRONT) debt to income ratio of up to 33% of the borrower s monthly gross income and a maximum TOTAL (BACK) debt to income ratio of up to 43% of the borrower s monthly gross income. Debt to income ratios will be based on LHOP s Income Calculation Method. If borrower exceeds the 33/43 ratios, please contact LHOP right away before taking a CHB Loan application. On a case by case basis, LHOP at its sole discretion, may consider higher debt to income ratios if the borrower has at least two of the following compensating factors: 2 month s reserves of their own funds which can be documented at the time of their CHB Loan Application. Credit Score of 660 or higher Housing payment savings (PITI vs RENT) Stable employment history (At least 2 yrs at the same employer) Additional verifiable household income not listed on the mortgage application (1003). i.e. a spouse who will not be on the mortgage application but has verifiable income. In this case, we would ask for a copy of the other household member s credit report in order to calculate correct debt to income ratios.

6 Page 6 of 10 Lenders are encouraged to contact LHOP if there should be any questions or concerns on the debt to income ratio calculations. f. Borrower s minimum contribution: The minimum contribution as outlined on the current Home Buyer Loan Eligibility Requirements, must be verifiable funds on deposit and must be the borrower s own funds. No gifts permitted for the minimum LHOP required contribution. LHOP may consider alternative methods of determining annual eligibility income if it can be demonstrated that the above procedure would result in an unfair representation based upon demonstrated earning patterns over the preceding twelve (12) months. For example, where it can be clearly documented that the number of hours worked in the most recent period is not representative of the applicant s typical work history, LHOP shall calculate annual household income based on the current hourly earnings rate times the average number of hours worked per pay period over the preceding twelve (12) months (or from date of employment, if less than twelve (12) months). Alternative methods of calculating eligibility income may be used only if specifically authorized in writing by LHOP. LHOP reserves the right to request additional information from the buyer as necessary to: 1) support income determinations and/or to explain significant changes in income received from prior periods; 2) document or explain significant changes in borrower assets available/required for closing; 3) verify residency and/or dependent status of prospective household members. Income shall include: 1) full amount, before any deductions, of all wages, salaries, overtime, commissions, fees, tips, bonuses, and/or other compensation received; 2) net income (before depreciation and home-use expenses) from business operations; 3) interest or dividend income from savings or investments; 4) periodic payments from social security, annuities, insurance policies, retirement funds, pensions, VA compensation, disability or death benefits; 5) payments in lieu of earnings such as unemployment and disability compensation, sick pay, worker s compensation and severance pay; 6) public assistance, including SSI and DPA; 7) periodic and determinable allowances such as alimony and child support, and regular contributions or gifts from other persons not residing in the household. Income shall not include: 1) casual, sporadic, or irregular gifts; 2) medical expense reimbursements; 3) lump sum additions to family assets, such as inheritances and insurance payments; 4) educational scholarships; 5) foster child care payments. Prior to submission of the primary mortgage application for processing, the loan originator shall:

7 Page 7 of 10 1) Review the Home Buyer loan application with the borrower, including the Household Composition and Income Declarations, obtain the borrower s signature(s), and determine whether or not the borrower appears eligible for a Home Buyer loan. If the loan originator has any questions regarding eligibility, they should call the LHOP Program Director immediately to request clarification. 2) If an applicant does not appear to qualify, the loan originator shall advise the borrower accordingly and suggest they contact LHOP directly for further review and/or clarification. The loan originator should not continue processing of the applicant s primary mortgage application until or unless an alternative source of funds to close is identified. 3) If the borrower appears eligible for a Home Buyer loan, the loan originator shall: a) Prepare the Home Buyer Needs Assessment to estimate the amount of the Home Buyer loan request. b) Confirm that the borrower has verifiable funds available to meet the minimum borrower contribution required by either the lender or LHOP, whichever is greater. c) Review the Home Buyer Loan Disclosure Statement with the borrower, obtain the borrower s signature acknowledging receipt, and submit the original with the Home Buyer loan application. 5. CHB Loan Processing: Upon determining the borrower appears eligible for a Home Buyer loan, the loan originator shall proceed to submit the primary mortgage application and the Home Buyer Loan application for processing. Please note that LHOP applications must be submitted by Lenders within twenty (20) days of the full execution of the Agreement of Sale to be considered for funding. The loan processor shall proceed to verify all borrower information and to obtain all other information required by the lender to approve the primary mortgage. This includes verification of borrower funds as required by either the lender or LHOP. The loan processor should also review income documentation for other adult household members for compliance with Home Buyer Loan requirements, and work with the loan originator and/or the borrower to obtain any additional information required to complete the Home Buyer loan application. The loan processor must insure that the property appraisal is completed by an FHA certified appraiser and that the appraisal report includes either a statement of compliance with FHA standards as required by HUD Handbook or a listing of repairs that need to be completed to comply with said standards. If repairs are required, the appraiser should be advised they will need to complete a follow-up inspection prior to closing to verify that all repairs required to meet FHA standards have been satisfactorily completed.

8 Page 8 of Home Buyer Loan Submission The loan underwriter shall take the following actions prior to submission of the Home Buyer loan application to LHOP: 1) Prepare a final Needs Assessment to determine the Home Buyer loan amount for which the borrower qualifies based on the sales price; the primary loan amount; the required down payment; minimum borrower funds required by either the lender or LHOP; projected settlement costs; borrower s liquid assets; deposits or other costs previously paid by the borrower; gifts or grants available from other sources; and seller contributions. 2) Verify the availability of borrower funds for the greater of (1) the minimum borrower contribution required by either the lender or LHOP, or (2) the amount actually required to close. 3) Review the Household Composition and Income Declarations for consistency with the lender s information as reported in the primary mortgage application. Any discrepancies between the primary mortgage application and the Home Buyer Loan application must be resolved. If necessary, a revised Household Composition and Income Declaration must be prepared and signed by the borrower. 4) Advise the borrower to proceed immediately with the whole house inspection, wood destroying insect infestation inspection and Deteriorated Paint Visual Assessment (for dwellings built prior to 1978), if these inspections have not already been completed. The borrower is required to attend the inspections which must be completed and all documentation forwarded to LHOP within fifteen (15) days of the full execution of the Sales Agreement. The borrower must also complete a Borrower Declaration. 5) Complete the Home Buyer loan application checklist to insure that all required documents are available for submission to LHOP. Upon determination that all documentation required for the Home Buyer loan application have been received, the lender may proceed to submit the CHB loan application to LHOP, to include: 1) Home Buyer Loan Application, including Needs Assessment, Household Composition and Income Declaration, and Loan Disclosure Statement. 2) The following income documentation: a) Pay receipts and/or other documentation for all sources of income received by all adult household members and reported on the Household Income Declaration, covering the two months period immediately prior to the primary loan application. b) A full, written, verification of employment for all employers. c) Copy of the most recent Federal tax returns for all adult household members, listing dependents to be included as household members, and including W-2 s for all sources of income received in the prior tax year. 3) Account statements covering a period of at least 90 days prior to the date of submission of the primary loan application evidencing borrower liquid assets. Additional statements from the

9 Page 9 of 10 time of primary loan application to the date of Home Buyer loan application submission may also be included if needed to document borrower funds required/available for closing. Gift letters should also be included for any amounts being contributed by others. 4) Sales Agreement with all executed Addenda including the LHOP Addendum and Lead Based Paint Disclosure. 5) A satisfactorily completed Seller Declaration. Only owner occupied properties within the County of Lancaster, will be considered for a Home Buyer Loan. In the case of two-unit properties this requirement will apply to the specific unit to be occupied by the borrower. Please contact LHOP with any questions. Previously or currently tenant occupied properties are not eligible for the Home Buyer Loan. If the buyer is the current tenant, contact LHOP s Program Director. 6) Primary mortgage loan application. 7) Good faith estimate of settlement costs. 8) Satisfactory whole house inspection, wood destroying insect infestation inspection and completed Deteriorated Paint Visual Assessment Form (for dwellings built prior to 1978) including signed Borrower Self-Declaration and evidence of completion of any required repairs. City properties require an inspection by the City Code Inspector as well. LHOP encourages submission of the following additional items with the initial Home Buyer loan application or as soon as available: a) Primary mortgage loan commitment. b) Satisfactory property appraisal completed by an FHA certified appraiser certifying that the property complies with HUD Handbook LHOP Home Buyer Loan Processing: Complete Home Buyer loan applications must be submitted by Lenders to LHOP within twenty (20) days of the full execution of the Agreement of Sale to be considered for funding. A complete Home Buyer Loan Application, including all required documentation related to Buyer s income, household members, and funds available for closing, must be received by LHOP to be considered for a loan. LHOP will not accept incomplete applications. To be considered complete, the Home Buyer Loan application must at least include items #1-8 above. LHOP assumes no liability or responsibility for delays caused by the failure of either the lender or the borrower to meet established submission deadlines. Within no less then fifteen (15) days of receipt of a complete application, LHOP will complete its review and forward a Commitment or Denial Letter to the Lender. Only transactions receiving an LHOP Commitment Letter will be funded.

10 Page 10 of 10 In our review of the inspection reports including the deteriorated paint visual assessment, LHOP reserves the right to require correction of major defects, defined as any existing condition considered by LHOP to adversely affect the health and safety of the borrower or a major system or structural component in immediate need of repair or replacement, regardless of whether these repairs are required for HUD Handbook compliance. Conditional Home Buyer loan approvals may be issued subject to completion of repairs. However, checks and loan documents will not be prepared for closing until evidence of completion of repairs and/or code compliance has been received. This evidence must be received by LHOP no later than five 5 days prior to closing. If repairs cannot reasonably be completed prior to closing, LHOP, in consultation with the Partnership Lender, will consider a request to establish an escrow account to fund completion of repairs after closing provided (1) a proposal has been obtained and accepted from a qualified contractor to complete the work within sixty (60) days of closing and (2) an escrow account is established and held by either the lender or the settlement agent for at least 150% of the LHOP expected repair cost. Written confirmation of completion of repairs must be received by LHOP prior to release of escrow funds. 8. CHB Loan Closing: Upon final approval of the Home Buyer Loan application, LHOP will issue a final letter of approval to borrower, with a copy to the lender, and will prepare documents and checks for closing as necessary. LHOP will notify settlement agent when the check, Home Buyer loan documents, and appropriate instructions are available. Please provide settlement agent contact information to LHOP at the time of application. The settlement package will include a borrower s release authorizing the lender to share information with LHOP regarding the borrower s payment history. In the event the borrower falls behind with their payments, this release will serve to facilitate an early counseling intervention by LHOP or its designated representative. A copy of this release will be forwarded to the lender by the settlement agent. At least one hour prior to closing, the settlement agent shall fax a copy of the settlement sheet (HUD-1) to LHOP for LHOP review and approval. No cash back to borrower is allowed with an LHOP transaction. Any surplus funds available to borrower at closing must be returned to LHOP as a principal prepayment. No proceeds from closing may be released to the borrower under any circumstances. At closing, the settlement agent shall review all loan documents with the borrower(s), insure that all loan conditions have been met, obtain necessary signatures, disburse funds, and record the LHOP mortgage. All original executed Home Buyer loan documents are to be returned to LHOP immediately after closing. 9. Subordination of CHB Loans: LHOP will consider requests to subordinate CHB loans to a new primary mortgage on a case-by-case basis. Please refer to the LHOP Subordination Policy by visiting or contact us at info@lhop.org or call us at