Standard Balance. High Balance

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1 These program guidelines provide a general overview of the FHA products and policies eligible for delivery to Endeavor America Loan Services (EA) for financing consideration. The details are based on the policies outlined in the applicable HUD handbooks and Underwriter letters. This document should be used solely as a reference to EA s interpretation of the HUD/FHA guidelines and does not constitute a commitment to lend. 30-year Fixed 15-year Fixed Standard Balance Occupancy Loan Purpose Units FICO LTV CLTV Primary Purchase 96.50% 96.50% R/T Refi 97.75% 97.75% Cash-Out 85% 85% Simple Refi 1-4* % 97.75% All Streamline Refi; Mortgage Rating Only 97.75% unlimited High Balance Occupancy Loan Purpose Units FICO LTV CLTV Primary Purchase 96.50% 96.50% R/T Refi 97.75% 97.75% Cash-Out 85% 85% Simple Refi % 97.75% All Standard 620 minimum FICO AUS Approve/Eligible; AUS Refer/Eligible; manual underwrites 1-4 units* Streamline Refi; Mortgage Rating Only Minimum Loan Amounts Minimum loan amount $75, (k) minimum loan amount $125, % unlimited FHA Loan Limits Mortgage Insurance Factors for Case Assignments on/after January 26, % UFMIP 0.55% Annual MIP Base Loan >15-Year Term <15-Year Term Region 1 Unit Amount LTV UFMIP Annual LTV UFMIP Annual <78% 0.80% <78% 0.45% Low Cost $271,050 High Cost $625,500 >78% and AK and HI $938,250 <$625,500 < 95% Check FHA mortgage limits per subject property county here. NOTES Geographic restrictions: 2-4 Unit Properties in Illinois or New Jersey are ineligible; Texas cash-out is ineligible; EA does not lend in Missouri >$625, % >78% and <90% 0.45% >95% 0.85% >90% 0.70% 1.75% 1.75% <78% 1.00% >78% 0.45% >78% and 1.00% >78% and 0.70% <95% <90% >95% 1.05% >90% 0.95% Endeavor America Loan Services November 22, 2017 Page 1 of 183

2 Endeavor America s Credit Philosophy General Requirements Maximum Age of Mortgage Documents General Document Age Appraisal Validity Initial Appraisal Validity Appraisal Update Handling of Documents Information Sent Electronically Information Obtained via Internet Signature Requirements for all Application Forms Policy on Use of Electronic Signatures Definition Use of Electronic Signatures Third-Party Documents Mortgage Application and Initial Supporting Documentation URLA and HUD/VA Addendum to URLA Mortgage Application Name Requirements Standard Required Documentation Borrower s Authorization for Verification Information Borrower s Authorization Standard Required Documentation HUD Form A Part IV: Borrower Consent for Social Security Number Verification Endeavor America Loan Services November 22, 2017 Page 2 of 183

3 Tax Verification Form or Equivalent Sales Contract and Supporting Documentation Standard Amendatory Clause Amendatory Clause Real Estate Certification Program Eligibility Purchase Refinance Types of Refinances Rehabilitation Loans (Purchases and Refinances) (k) Standard and Streamlined Rehabilitation Mortgages Borrower Eligibility General Eligibility Requirements Social Security Number Borrower Age Limits Borrower Minimum Decision Credit Score Borrower and Co-Borrower Ownership and Obligation Requirements Principal Residence in the United States Military Personnel Eligibility Citizenship and Immigration Status Residency Requirements Lawful Permanent Resident Aliens Permanent Resident Aliens Non-Permanent Resident Aliens Non-U.S. Citizens without Lawful Residency Endeavor America Loan Services November 22, 2017 Page 3 of 183

4 Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt Verification of Delinquent Federal Non-Tax Debt Eligibility Period for Borrowers Delinquent on FHA-Insured Mortgages Excluded Parties Borrowers Other Parties to the Transaction Occupancy Types Principal Residence FHA-Insured Mortgages on Principal Residences Exceptions to the FHA Policy Limiting the Number of Mortgages per Borrower Second Homes Investment Property Property Eligibility and Acceptability Criteria Special Flood Hazard Areas Seller Must Be Owner of Record Appraisal General Information Appraisal Order Documents Appraisal Form Requirements Acreage Appraisal Accessory Dwelling (ADU) Age-Restricted Properties (55+ Senior Communities) Condominiums Declining Market Electronic Appraisal Delivery (EAD) Endeavor America Loan Services November 22, 2017 Page 4 of 183

5 Mixed Use Minimum Property Requirements (MPRs) New Construction New Construction Exhibits Properties Listed for Sale Property Flipping Time Restriction on Transfers of Title Restrictions on Resales Occurring 90 Days or Fewer After Acquisition Restrictions on Resales Occurring Between 91 Days and 180 Days After Acquisition Exceptions to Time Restrictions on Resale Required documentation Termite Inspections Existing homes may require soil or termite treatment Well and Septic General Requirements Exception Requirements Well Tests New Construction Existing Construction Dug Wells, Cisterns, Holding Tanks Assets Bank Statements Checking and Savings Large Deposits Large Deposits Tax Refunds Insufficient Funds (NSF) on Borrower Endeavor America Loan Services November 22, 2017 Page 5 of 183

6 Business Funds Cash Saved at Home Down Payment and Closing Costs Earnest Money Employer Assistance/ Relocation Guaranteed Purchase Relocation Guaranteed Purchase Employer Assistance Plans Gift Funds Gift Letter Donors Family Close Friends Organizations Gift Funds Acceptable Gift Funds Source Gift Transfer DU/LSC Data Integrity Gift of Equity Consumer Debts Paid with Gift Funds Joint Accounts Real Estate Commission Rent Credit Reserves Retirement Accounts Required Documentation Sale of Home Proceeds Sale of Personal Property Stocks and Bonds Endeavor America Loan Services November 22, 2017 Page 6 of 183

7 Sweat Equity Requirement(s) Unacceptable Assets CAIVRS Verification Resolution Required Documentation Eligibility Period for Borrowers Delinquent on FHA-Insured Mortgages LDP/SAM Credit and Liabilities Credit Report and Loan Decision Score Satisfactory Credit Payment History Requiring Additional Analysis Authorized User Accounts Non-Traditional Credit Day Charge Accounts Adverse Credit Alimony/Child Support Bankruptcy Chapter Chapter Collections Consumer Credit Counseling Contingent Liability Mortgage Assumption Co-Signed Loan Endeavor America Loan Services November 22, 2017 Page 7 of 183

8 Business Debt Student Loans Required Documentation Calculating the Student Loan Obligation Disputed Accounts Delinquent Federal Tax Liens State and/or Local Tax Liens Foreclosures/Deed-in-Lieu Second Mortgage Foreclosure Housing History TOTAL DU/LSC Approve Manual Underwrite Inquiries and Undisclosed Debt(s) TOTAL DU/LSC Approve Manual Underwrite Judgments Modified/Restructured Loans Debt Payoff to Qualify Recurring Debts Short Sale/Pre-Foreclosure Mortgage Current at the Time of Short Sale Defaulted Mortgage at the Time of Short Sale Community Property States Community Property States Disaster Re-Inspections Disaster Re-inspections Endeavor America Loan Services November 22, 2017 Page 8 of 183

9 Eligible/Ineligible Property Types Eligible Properties Ineligible Properties Eligible/ineligible Transaction Types Eligible Transactions Purchase Refinance Ineligible Products or Transactions Employment and Income Documentation General Information and Requirements Current Employment Employment History Employment Gaps Alimony/Child Support Auto Allowance Bonus and Overtime Calculation of Effective Income Capital Gains/Losses Commission Income Required Documentation Calculation of Effective Income Disability Income Family Employer Farm Income/Loss Interest and Dividend Primary Employment Endeavor America Loan Services November 22, 2017 Page 9 of 183

10 Calculation of Effective Income Salary Hourly Military Income Active Duty Reserve/National Guard VA Benefits Non-Taxable Income Section 8 Homeownership Vouchers (TOTAL) (E) Required documentation Calculation of Required Income Other Public Assistance (TOTAL) (F) Required documentation Calculation of Effective Income Part-Time and Seasonal Calculation of Effective Income Required Documentation Parsonage Housing Allowance Rental Income Limited or No History of Rental Income Two to Four Units One Unit History of Rental Income Limited or No History of Rental Income History of Net Rental Income Self-Employed Borrower Endeavor America Loan Services November 22, 2017 Page 10 of 183

11 Stability of Self-Employment Income Self-Employed Income Documentation Requirements Business Tax Returns Borrower s Earnings Trend Business Financial Strength Social Security Benefits Tip Income Escrows/Insurance Hazard Insurance General Requirements Manufactured Homes Coverage Requirements Deductibles Refinance Flood Insurance Wind Insurance Property Assessed Clean Energy (PACE) Property Assessed Clean Energy (PACE) Real Estate Taxes Property Tax Calculation States with Taxes Paid in Arrears Homestead exemptions Escrow Holdbacks Identity of Interest Maximum LTV for Identity of Interest/Landlord Transactions Maximum LTV Exceptions Endeavor America Loan Services November 22, 2017 Page 11 of 183

12 Interested Party Concessions Maximum Loan Amount Maximum Loan Term Qualifying AUS TOTAL Scorecard Approvals Manual Underwrites Purchases Refinances General Eligibility FHA-Insured to FHA-Insured (A) Refinances (FHA-to-FHA) General Borrower Eligibility General Property Eligibility General Mortgage Eligibility Required Documentation Cash-Out Refinances Borrower Eligibility Occupancy Requirements Exception Required Documentation Payment History Requirements Required Documentation Maximum Mortgage Amounts Maximum Loan-to-Value Maximum Combined Loan-to-Value Nationwide Mortgage Limit No Cash-Out Refinances Endeavor America Loan Services November 22, 2017 Page 12 of 183

13 Borrower Eligibility Occupancy Requirements Required Documentation Payment History Requirements (Manually Underwritten) Required Documentation Maximum Mortgage Amount Maximum Loan-to-Value Ratio Calculating Maximum Mortgage Amount Simple Refinance Short Payoff Short Payoffs Refinancing to Buy Out Title-Holder Equity Refinancing to Pay off Recorded Land Contracts Use of Estimates in Calculating Maximum Mortgage Amount Excess Cash Back Required Documentation Maximum Combined Loan-to-Value Ratio Streamline Refinance Streamline Refinance Exemptions Non-Credit Qualifying Exemptions Credit Qualifying Exemptions Borrower Eligibility Required Documentation Payment History Requirements Required Documentation Non-Owner Occupied Properties Endeavor America Loan Services November 22, 2017 Page 13 of 183

14 General Information Applicable to All Streamline Refinances Mortgage Seasoning Requirements Use of TOTAL Mortgage Scorecard on Streamline Refinances Net Tangible Benefit of Streamline Refinances Reduction in Term Reviewing Limited Denial Participation and SAM Exclusion Lists Borrower Additions to Title Borrower Credit Reports Funds to Close Streamline Refinance Maximum Mortgage Amortization Period Maximum Mortgage Calculation for Streamline Refinances Use of Estimates in Calculating Maximum Mortgage Amount Excess Cash Back Required Documentation Maximum CLTV Ratio and Subordinate Financing Appraisal and Inspection Requirements on Streamline Refinances Assessing Upfront and Annual MIP Streamline Refinance Non-Credit Qualifying Borrower Eligibility Exception Special Documentation and Procedures for No Credit Streamline Refinances Streamline Refinance Credit Qualifying Borrower Eligibility Credit Underwriting Qualifying Endeavor America Loan Services November 22, 2017 Page 14 of 183

15 Streamline Refinance with Appraisal Streamline Refinance with NO Appraisal Secondary Financing Down Payment Assistance Program (DAP) Cash Back Purchases CLTV Purchase Refinances Grace Period Loan Purposes Purchases Refinances Qualifying Simultaneous Closing Soft/Silent Liens Secondary Financing Sources and Terms Secondary Financing Underwriting Automated Underwriting System (AUS) Manual Underwriting/Downgrades Manual Underwriting Compensating Factors Compensating Factors Documentation Residual Income Endeavor America Loan Services November 22, 2017 Page 15 of 183

16 Residual Income Table HUD REO Purchases Program Overview Insured Section 203(b) Case Assignment Appraisal Down Payment Eligible Transactions Loan Amount, LTV/CLTV Section 203(b) with repair escrow $100 Down $100 Down with Repair Escrow HUD REO Purchases Sales Contract General Contract Sales Terms Closing Costs and Sales Commission Paid by HUD Program Overview Title II Eligibility Requirements Additions/Modifications (State Requirements) Manufactured Homes Appraisal Requirements Credit Score Elevation Certificate Flood Zones A & V Eligibility for Manufactured Housing in SFHAs Engineer s Certification of Foundation Endeavor America Loan Services November 22, 2017 Page 16 of 183

17 FHA Connection Appraisal Logging screen: Y for Yes to Manufactured Housing indicator (source document appraisal) Hazard Insurance HUD Label Red Tags HUD Data Plate Ineligible Manufactured Homes Modular Homes Manufactured Homes New Construction Proposed Construction Under Construction or Existing <1 Year Title Binder Trade-In (k) Loan Program Ineligible Property Types Ineligible Programs Standard 203(k) Transactions Standard 203(k) Eligible Improvements Types of Improvements General Improvement Standards Specific Improvement Standards Standard 203(k) Ineligible Improvements/Repairs Standard 203(k) Establishing Repairs and Improvements Exception for Borrowers Doing Own Work Standard 203(k) Financeable Repair and Improvement Costs and Fees Standard 203(k) Financeable Contingency Reserve Endeavor America Loan Services November 22, 2017 Page 17 of 183

18 Standard 203(k) Financeable Mortgage Payment Reserves Standard 203(k) Financeable Mortgage Fees Origination Fee Discount Points Standard 203(k) Required Documentation and Review Review of Contractor Qualifications Consultant s Work Write-Up and Cost Estimate Architectural Exhibits Sales Contract Limited 203(k) Transactions Limited 203(k) Eligible Improvements Types of Improvements Improvements Standards General Improvement Standards Specific Improvement Standards Limited 203(k) Ineligible Improvements/Repairs Limited 203(k) Establishing Repair and Improvement Costs Exception for Borrowers Doing Own Work Limited 203(k) Financeable Repair and Improvement Costs and Fees Limited 203(k) Financeable Contingency Reserves Limited 203(k) Financeable Mortgage Fees Origination Fee Discount Points Limited 203(k) Ineligible Fees and Costs Payments & Draws 203(k) Limited Limited 203(k) Required Documentation Endeavor America Loan Services November 22, 2017 Page 18 of 183

19 Work Plan Sales Contract Required Documentation for Limited 203(k) Only Contractor s Cost Estimate Appraisals for Standard 203(k) and Limited 203(k) Establishing Value Appraisal Reports Adjusted As-Is Value Purchase Transactions Refinance Transactions After Improved Value Documents to be Provided to the Appraiser at Assignment Maximum Mortgage Amount for Purchase Maximum Mortgage Amount for Refinance Loan-to-Value Ratios for Refinance Required Documentation Combined Loan-to-Value Secondary Financing Provided by Family Members Secondary Financing Provided by Private Individuals and Other (C)Organizations Mortgage Insurance Premium Underwriting Required Documentation Standard 203(k) and Limited 203(k) Identity-of-Interest Certification Borrower s Certification (k) Consultant s Certification Borrower Acting as General Contractor or Doing Own Work (Self-Help) Endeavor America Loan Services November 22, 2017 Page 19 of 183

20 Repairs Noted by the Appraiser (k) Borrower s Acknowledgment (Form HUD A) Feasibility Study Borrower Contractor Agreement Required Documentation for Standard 203(k) Only Consultant Final Work Write-Up and Cost Estimate Architectural Exhibits Consultant/Borrower Agreement Consultants Overview Consultant Duties Feasibility Study Consultant Inspection Draw Request Inspection Change Order Work Stoppages or Deviations from the Approved Write-Up Consultant Fee Schedule Feasibility Study Work Write-up Draw Inspection Fee Change Order Fee Re-inspection Fee Mileage Fee Endeavor America Loan Services November 22, 2017 Page 20 of 183

21 Endeavor America s Credit Philosophy Endeavor America s credit philosophy is to offer loan programs with minimal overlays to our clients. EA evaluates each loan individually based solely on the Borrower(s) creditworthiness and in accordance with the following principles: All loans must be submitted to DU/LSC TOTAL Scorecard and receive an Approve rating with the exception of FHA Streamline Refinances. Some loans that receive DU/LSC Refer may be manually underwritten. Please refer to the Manual Underwriting section of this guide for details. All FHA policies as outlined in the HUD handbooks and subsequent, applicable Underwriter letters have been met. All requirements of the DU/LSC Approve/Eligible recommendation have been met for AUS approvals. All prudent factors have been weighed and evaluated on the loan file and no reasonable doubt remains about the Borrower s ability to meet the terms of the loan. Topic General Requirements Guidelines Maximum Age of Mortgage Documents General Document Age Documents used in the origination and underwriting of a Mortgage may not be more than 120 days old on the disbursement date. Documents whose validity for underwriting purposes is not affected by the passage of time, such as divorce decrees or tax returns, may be more than 120 days old at the time of disbursement. For purposes of counting days for periods provided in these guidelines, day one is the day after the effective or issue date of the document, whichever is later. Appraisal Validity Initial Appraisal Validity The 120-day validity period for an appraisal may be extended for 30 days at the option of the DE Underwriter if (1) the Underwriter approved the Borrower before the expiration of the original appraisal; or (2) the Borrower signed a valid Sales Contract prior to the expiration date of the appraisal. Appraisal Update An appraisal update must be performed before the initial appraisal, with no extension, has expired. Where the initial appraisal is subsequently updated, the updated appraisal is valid for a period of 240 days after the effective date of the initial appraisal report that is being updated. Endeavor America Loan Services November 22, 2017 Page 21 of 183

22 General Requirements Handling of Documents Underwriters must not accept or use documents relating to the employment, income, assets, or credit of Borrowers that have been handled by, or transmitted from or through the equipment of unknown parties, or interested parties. Underwriters may not accept or use any third-party verifications that have been handled by, or transmitted from or through any interested party, or the Borrower. Information Sent Electronically The Underwriter must authenticate all documents received electronically by examining the source identifiers (e.g., the fax banner header or the sender s address) or contacting the source of the document by telephone to verify the document s validity. The Underwriter must document the name and telephone number of the individual with whom they verified the validity of the document with. Information Obtained via Internet The Underwriter must authenticate documents obtained from an Internet website and examine portions of printouts downloaded from the Internet including the Uniform Resource Locator (URL) address, as well as the date and time the documents were printed. The Underwriter must visit the URL or the main website listed in the URL if the page is password protected to verify the website exists and print out evidence documenting the visit to the URL and website. Documentation obtained through the Internet must contain the same information as would be found in an original hard copy of the document. Signature Requirements for all Application Forms All Borrowers must sign and date the Initial and Final Fannie Mae Form 1003/Freddie Mac Form 65, Uniform Residential Loan Application (URLA). All Borrowers must sign and date page two of the Initial HUD A form, HUD/VA Addendum to Uniform Residential Loan Application (Application), and sign and date the complete Final HUD A form. The Application may not be signed by any party who will not be on the Mortgage Note. NOTE: Initial 1003 must be signed by the borrower(s) prior to underwrite. Endeavor America Loan Services November 22, 2017 Page 22 of 183

23 General Requirements Power of Attorney A Power of Attorney (POA) may not be used unless the Underwriter verifies and documents all of the following requirements have been satisfied: For military personnel, a POA may only be used for one of the Applications (Initial or Final), but not both: when the service member is on overseas duty or on an unaccompanied tour; when the Underwriter is unable to obtain the absent Borrower s signature on the Application by mail or via fax; and where the attorney-in-fact has specific authority to encumber the Property and to obligate the Borrower. Acceptable evidence includes a durable POA specifically designed to survive incapacity and avoid the need for court proceedings. For incapacitated Borrowers, a POA may only be used where: the Borrower is incapacitated and unable to sign the Mortgage Application; the incapacitated individual will occupy the Property to be insured, or the Property is being underwritten as an eligible Investment Property; and the attorney-in-fact has specific authority to encumber the Property and to obligate the Borrower. Acceptable evidence includes a durable POA specifically designed to survive incapacity and avoid the need for court proceedings. Policy on Use of Electronic Signatures Definition An electronic signature refers to any electronic sound, symbol, or process attached to or logically associated with a contract or record and executed or adopted by a person with the intent to sign the record. EA does not accept an electronic signature that is solely voice or audio. Digital signatures are a subset of electronic signatures. Use of Electronic Signatures An electronic signature conducted in accordance with the Electronic Signature Performance Standards (Performance Standards) is accepted on documents requiring signatures to be included in the Case Binder for Mortgage Insurance, unless otherwise prohibited by law. Electronic signatures meeting the Performance Standards are treated as equivalent to handwritten signatures. Third-Party Documents Third-party documents are those documents originated and signed outside of the control of EA, such as the Sales Contract. EA will accept electronic signatures on Third-party documents included in the Case Binder for mortgage insurance endorsement in accordance with the E-Sign Act and the Uniform Electronic Transactions Act (UETA). An indication of the electronic signature and date should be clearly visible when viewed electronically and in a paper copy of the electronically signed document. Endeavor America Loan Services November 22, 2017 Page 23 of 183

24 General Requirements Mortgage Application and Initial Supporting Documentation URLA and HUD/VA Addendum to URLA Unless otherwise noted, URLA and HUD/VA Addendum to the URLA refer to both Initial and Final Applications. The Underwriter must obtain the Borrower s Initial complete, signed URLA (Fannie Mae Form 1003/Freddie Mac Form 65) and page two of the HUD A form before underwriting the Mortgage Application. The Underwriter must also include the debt of a Non-Borrowing spouse on the URLA if the Borrower resides in or the Property to be purchased is located in a community property state. The Loan Originator identified on the URLA must be the actual licensed loan originator even if the Loan Originator is employed by a sponsored third-party originator (TPO). The URLA must contain the Loan Originator s name, Nationwide Mortgage Licensing System and Registry (NMLS) identification number, telephone number, and signature. Mortgage Application Name Requirements Standard All mortgage applications must be executed in the legal names of all Parties. All mortgage applications must be executed in the name of one or more individuals. Required Documentation The Underwriter must include a statement that it has verified the Borrower s identity using valid government-issued photo identification prior to endorsement of the Mortgage and may choose to include a copy of such photo identification as documentation. Borrower s Authorization for Verification Information Borrower s Authorization Standard The Underwriter must obtain the Borrower s authorization to verify the information needed to process the Mortgage Application. The Underwriter must obtain a Non-Borrowing Spouse s consent and authorization where necessary to verify specific information required to process the Mortgage Application, including the Non-Borrowing Spouse s consent to verify their SSN with the Social Security Administration (SSA). Required Documentation For each individual, Borrower authorization may be accomplished through a blanket authorization form. Endeavor America Loan Services November 22, 2017 Page 24 of 183

25 General Requirements HUD Form A Part IV: Borrower Consent for Social Security Number Verification The Underwriter must obtain the Borrower s signature on Part IV of form HUD A to verify the Borrower s SSN with the Social Security Administration (SSA). Tax Verification Form or Equivalent The Underwriter must obtain the Borrower s signature on the appropriate Internal Revenue Service (IRS) form to obtain tax returns directly from the IRS for all credit-qualifying Mortgages at the time the Final URLA is executed. Sales Contract and Supporting Documentation Standard The Underwriter must ensure that (1) all purchasers listed on the Sales Contract are Borrowers and (2) Only Borrowers sign the Sales Contract. A family member of a purchaser, who is not a Borrower, may be listed on the sales contract without modifications or removal. An addendum or modification may be used to remove or correct any provisions of the Sales Contract that do not conform to these requirements. Amendatory Clause If the Borrower does not receive the HUD B form, Conditional Commitment Direct Endorsement Statement of Appraised Value, before signing the sales contract, the sales contract must be amended before closing to include an amendatory clause that contains the following language: It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise, unless the purchaser has been given, in accordance with HUD/FHA or VA requirements, a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement Underwriter setting forth the appraised value of the property of not less than $.* The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable. *The Underwriter must ensure the actual dollar amount of the Sales Price stated in the Contract has been inserted in the Amendatory Clause. Increases to the Sales Price require a revised Amendatory Clause. Endeavor America Loan Services November 22, 2017 Page 25 of 183

26 General Requirements Amendatory Clause The Amendatory Clause is not required in connection with: HUD REO sales; FHA s 203(k) mortgage program; Sales in which the seller is: Fannie Mae; Freddie Mac; U.S. Department of Veterans Affairs (VA); United States Department of Agriculture (USDA) Rural Housing Services; other federal, state, and local government agencies; an Underwriter disposing of REO assets; or a Seller at a foreclosure sale Real Estate Certification The Borrower, Seller, and the Real Estate Agent or Broker involved in the sales transaction must certify, to the best of their knowledge and belief, that (1) the terms and conditions of the Sales Contract are true and (2) any other agreement entered into by any Parties in connection with the real estate transaction is part of, or attached to, the Sales Agreement. A separate certification is not needed if the Sales Contract contains a statement that (1) there are no other agreements between Parties and the terms constitute the entire agreement between the Parties, and (2) all Parties are signatories to the Sales Contract submitted at the time of underwriting. Required Disclosures The Underwriter must provide or ensure the Borrower is provided with any disclosure required by FHA, including the following disclosures: Informed Consumer Choice Disclosure The Underwriter must provide the Borrower with an Informed Consumer Choice Disclosure in accordance with the requirements of 24 CFR if the Borrower may qualify for similar non FHA-insured mortgage products offered by the Underwriter. Form HUD B, Important Notice to Homebuyers The Underwriter must provide the Borrower with a copy of form HUD B, Important Notice to Homebuyers, signed by the Borrower and provide the Borrower with a copy to keep for the Borrower s records when the Borrower applies for the mortgage. The Underwriter must retain the original form HUD92900-B signed by the Borrower. Endeavor America Loan Services November 22, 2017 Page 26 of 183

27 General Requirements Lead-Based Paint If the property was built before 1978, the seller must disclose any information known about lead-based paint and lead-based paint hazards before selling the house, in accordance with the HUD-EPA Lead Disclosure Rule (24 CFR 35, subpart A, and the identical 40 CFR 745, subpart F). For such properties, the Underwriter must ensure that: the Borrower has been provided the EPA-approved information pamphlet on identifying and controlling lead-based paint hazards ( Protect Your Family from Lead in Your Home ); the Borrower was given a 10-day period before becoming obligated to purchase the home to conduct a lead-based paint inspection or risk assessment to determine the presence of lead-based paint or lead-based paint hazards, or waived the opportunity; the sales contract contains an attachment in the language of the contract (e.g., English, Spanish), signed and dated by both the seller and purchaser: containing a lead warning statement as set forth in 24 CFR 35.92(a)(1). providing the seller s disclosure of the presence of any known lead-based paint and/or lead-based paint hazards in the target housing being sold, or indication of no knowledge of such presence; listing any records or reports available to the seller pertaining to lead-based paint and/or lead-based paint hazards in property housing being sold, or indication by the seller that no such records or reports exist; and affirming that the Borrower received the pamphlet, disclosure, and records or reports, above; and when any Agent is involved in the transaction on behalf of the seller, the sales contract includes a statement that the agent has informed the seller of the seller s Lead Disclosure Rule obligations, the Agent is aware of his/her duty to ensure compliance with the requirements of the Rule, and the agent has signed and dated the contract. Form HUD CN, For Your Protection: Get a Home Inspection Underwriters are required to provide Form HUD CN, For Your Protection: Get a Home Inspection, to prospective homebuyers at first contact, be it for pre-qualification, pre-approval, or initial application. Endeavor America Loan Services November 22, 2017 Page 27 of 183

28 General Requirements Statement of Appraised Value The Borrower must receive a copy of Form HUD B. A statement of appraised value is not required in connection with: HUD REO sales; FHA s 203(k) mortgage program; Sales in which the seller is: Fannie Mae; Freddie Mac; VA; USDA Rural Housing Services; Other federal, state, and local government agencies; A Underwriter disposing of REO assets; or A seller at a foreclosure sale. Program Eligibility Purchase The Borrower may finance the purchase of an existing one to four-unit residence. Properties to be acquired through an unrecorded land contract must be treated as a purchase. Refinance A refinance transaction is used to pay off the existing debt or to withdraw equity from the Property with the proceeds of a new mortgage for a Borrower with legal title to the subject property. Types of Refinances 1. Non-Cash-Out Refinances of FHA-insured and non-fha-insured Mortgages are designed to pay existing liens. These include: Rate and Term and Streamline Refinances. 2. Cash-Out Refinances are designed to pull equity out of the Property. 3. Refinances of non-fha-insured Mortgages are available for qualified Borrowers in negative equity positions (referred to as a Short Refinance). 4. Refinances for rehabilitation or repair Section 203(k). 5. Simple Refinances. Endeavor America Loan Services November 22, 2017 Page 28 of 183

29 General Requirements Rehabilitation Loans (Purchases and Refinances) 203(k) Standard and Streamlined Rehabilitation Mortgages The Section 203(k) Rehabilitation is used to: Rehabilitate an existing one to four-unit structure, which will be used primarily for residential purposes; Rehabilitate such a structure and refinance the outstanding indebtedness on the structure and the Real Property on which the structure is located; or Purchase and rehabilitate the structure and purchase the Real Property on which the structure is located. Borrower Eligibility General Eligibility Requirements In order to obtain FHA financing with EA, all borrowers must meet the eligibility criteria in this section. A Party who has a financial interest in the mortgage transaction, such as the Seller, Builder or Real Estate Agent, may not be a Co- Borrower or a Co-Signer. Exceptions may be granted when the Party with the financial interest is a family member. Social Security Number Each Borrower must provide evidence of their valid SSN. The Underwriter must: validate and document an SSN for each Borrower, Co-Borrower (or Co-Signer) on the Mortgage by: entering the Borrower s name, date of birth, and SSN in the Borrower/address validation screen through FHAC; and examining the Borrower s original pay stubs, W-2 forms, valid tax returns obtained directly from the IRS, or another document relied upon to underwrite the Mortgage; and Resolve any inconsistencies or multiple SSNs for individual Borrowers that are revealed during Mortgage processing and underwriting using a service provider to verify the SSN with the SSA. Borrower Age Limits The Borrower must be old enough to enter into a Mortgage Note that can be legally enforced in the state, or other jurisdiction, where the Property is located ( State Law ). There is no maximum age limit for a Borrower. Endeavor America Loan Services November 22, 2017 Page 29 of 183

30 General Requirements Borrower Minimum Decision Credit Score The Minimum Decision Credit Score (MDCS) refers to the credit score reported on the Borrower s credit report when all reported scores are the same; where three differing scores are reported, the middle score is the MDCS; where two differing scores are reported, the MDCS is the lowest score; where only one score is reported, that score is the MDCS. An MDCS is determined for each Borrower. Where the Mortgage involves multiple Borrowers, the Underwriter must determine the MDCS for each Borrower, and then select the lowest MDCS for all Borrowers. Where the Mortgage involves multiple Borrowers and one or more of the Borrowers do not have a credit score (non-traditional or insufficient credit), the Underwriter must select the lowest MDCS of the Borrower with credit score(s). NOTE: Borrower without a FICO is only permitted if the borrower is the spouse of an occupying borrower with a FICO. Borrower and Co-Borrower Ownership and Obligation Requirements Co-Borrowers Co-Borrowers will have/already have, ownership rights, are obligated, and must sign the Note and all security instruments. Co-Borrowers must still meet FHA basic eligibility requirements, regardless of occupancy. Co-Borrowers may not have a financial interest in the transaction such as Seller, Builder, Realtor, etc. Refer to Identity-of-Interest section of this guide for additional requirements. Co-Borrowers must have a Principal Residence in the U.S. unless due to either: Military service with overseas assignment as verified with a Certificate of Veteran Status/VA Form ; or U.S. citizen living abroad. Endeavor America Loan Services November 22, 2017 Page 30 of 183

31 General Requirements Non-Occupant Co-Borrower Additional requirements apply when the Co-Borrower does not/will not reside in the subject property. Maximum financing is permitted only for a1-unit residence if: o Borrowers are qualifying family members (see identity of interest section for full list) o Parents helping children buy their first home are permitted as long as non-occupant Co-Borrower is not developing a portfolio of rental properties. The Underwriter must carefully review the financial contribution by non-occupant Co- Borrower and the number of real estate owned. Non-Occupying co-borrowers may not be added in a Cash-Out Refinance. Non-occupying Co-Borrower s primary housing expense must be included in combined qualifying ratios. o EA requires consecutive, canceled rent checks for the most recent 12 months if the Co-Borrower rents from a private landlord. o EA does not accept a non-occupying Co-Borrower who has no housing history (living rent-free) Occupant Borrower(s), with insufficient/non-traditional credit, must meet FHA standard guidelines. Such cases are manually underwritten. Income from a non-occupant co borrower may not be used to qualify for a cash out mortgage. Principal Residence in the United States Non-occupying Co-Borrowers must either be a United States citizen or have a principle residence in the U.S. Military Personnel Eligibility Borrowers who are military personnel, who cannot physically reside in the Property because they are on Active Duty, are still considered owner occupants and are eligible for maximum financing if a family member of the Borrower will occupy the Subject Property as their Principal Residence, or the Borrower intends to occupy the Subject Property upon discharge from military service. The following additional guidance applies to owner occupancy for Military personnel: The Borrower intends to occupy the Subject Property upon discharge from military service. Underwriter must: 1) Obtain copy of the Borrower s military orders evidencing the Borrower s Active Duty status. 2) Document that the Borrower s duty station is more than 100 miles from Subject Property; and 3) Obtain the Borrower s intent to occupy the Subject Property upon discharge from military service, if a family member will not occupy the Subject Property as their Principal Residence. FHA Single Family Housing Policy II.b.ii.7.a-b Endeavor America Loan Services November 22, 2017 Page 31 of 183

32 General Requirements Citizenship and Immigration Status U.S. citizenship is not required for Mortgage eligibility. Residency Requirements The DE Underwriter must determine the residency status of the Borrower based on information provided on the Mortgage Application and other applicable documentation. In no case is a Social Security card sufficient to prove immigration or work status. Lawful Permanent Resident Aliens A Borrower with lawful permanent resident alien status may be eligible for FHA financing with EA provided the Borrower satisfies the same requirements, terms, and conditions as those for U.S. Citizens. Each loan must include evidence of the permanent residency and indicate the Borrower is a lawful permanent resident alien on the URLA. The U.S. Citizenship and Immigration Services (USCIS) within the Department of Homeland Security provides evidence of lawful, permanent residency status. Permanent Resident Aliens Borrower eligibility for permanent resident aliens are the same as with U.S. citizens. Evidence lawful, permanent residence provided by U.S. Citizenship and Immigration Services (USCIS). Non-Permanent Resident Aliens Non-permanent resident aliens are considered eligible Borrowers provided all of the following are met: Property will be the Borrower s Principal Residence. Borrower has a valid SSN (social security card cannot be used as evidence of work status). Borrower is eligible to work in the U.S., as evidenced by an unexpired Employment Authorization Document (EAD) issued by USCIS. o EAD will expire within one (1) year, /then document prior history of renewals as acceptable evidence of continued/ residency status. o EAD is not required with documentation from USCIS that the Borrower has refugee or asylum status. Non-U.S. citizens who do not have lawful residency in the U.S. are not eligible for FHA financing. Endeavor America Loan Services November 22, 2017 Page 32 of 183

33 General Requirements Non-Permanent Resident Aliens (continued) The Employment Authorization Document is required to substantiate work status. If the Employment Authorization Document will expire within one year and a prior history of residency status renewals exists, the DE Underwriter may assume that continuation will be granted. If there are no prior renewals, the DE Underwriter must determine the likelihood of renewal based on information from the USCIS. Non-U.S. Citizens without Lawful Residency Non-U.S. citizens without lawful residency in the U.S. are not eligible. Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt DE Underwriters are prohibited from approving an Application for an FHA loan for Borrowers with delinquent federal non-tax debt, including deficiencies and other debt associated with past FHA-insured Mortgages. The DE Underwriter is required to determine if the Borrower has delinquent federal non-tax debt. DE Underwriters may obtain information on delinquent federal debts from public records, credit reports or equivalent, and must check all Borrowers against the Credit Alert Verification Reporting System (CAIVRS). Verification of Delinquent Federal Non-Tax Debt If a delinquent federal debt is reflected in a public record, credit report or equivalent, or CAIVRS or an Equivalent System, the DE Underwriter must verify the validity and delinquency status of the debt. If the debt was identified through CAIVRS, the Creditor agency using the contact phone number and debt reference number reflected in the Borrower s CAIVRS report must be contacted to verify the debt. If the Creditor confirms the debt is valid and in delinquent status, then the Borrower is ineligible for an FHA-insured Mortgage until the Borrower resolves the debt with the Creditor. The DE Underwriter may not deny a Mortgage solely on the basis of CAIVRS information that has not been verified by contacting the Creditor. If resolved either by determining that the information in CAIVRS is no longer valid or by resolving the delinquent status as stated above, the DE Underwriter may continue with the Mortgage Application. Eligibility Period for Borrowers Delinquent on FHA-Insured Mortgages If a Borrower is currently delinquent on an FHA-insured Mortgage, they are ineligible for a new FHA-insured Mortgage unless the delinquency is resolved. Endeavor America Loan Services November 22, 2017 Page 33 of 183

34 General Requirements Excluded Parties Borrowers The DE Underwriter must establish that no participants are Excluded Parties and document the determination on Form HUD LT, FHA Loan Underwriting and Transmittal Summary. A Borrower is not eligible to participate in FHA-insured Mortgage transactions if they are suspended, debarred, or otherwise excluded from participating in HUD programs. The DE Underwriter must check the HUD Limited Denial of Participation (LDP) list to confirm the Borrower s eligibility to participate in an FHA-insured Mortgage transaction. The DE Underwriter must check System for Award Management (SAM) and follow appropriate procedures defined by that system to confirm eligibility for participation. The DE Underwriter must check the Yes box on Form HUD LT if the Borrower appears on either the LDP or SAM list. Other Parties to the Transaction Mortgage is not eligible for FHA insurance if anyone participating in the Mortgage transaction is listed on HUD s LDP list or in SAM as being excluded from participation in HUD transactions. This may include, but is not limited to: Seller (except where selling the Principal Residence) Listing and selling Real Estate Agent Loan Originator Loan Processor Underwriter Appraiser 203(k) Consultant The DE Underwriter must check the HUD LDP list and SAM and follow appropriate procedures defined by that system to confirm eligibility for all participants involved in the transaction. Endeavor America Loan Services November 22, 2017 Page 34 of 183

35 Occupancy Types Principal Residence A Principal Residence refers to a dwelling where the Borrower maintains or will maintain their permanent place of abode, and which the Borrower typically occupies or will occupy for the majority of the calendar year. A person may have only one Principal Residence at any one time. At least one Borrower must occupy the property within 60 days of signing the Security Instrument and intend to continue occupancy for at least one year. FHA-Insured Mortgages on Principal Residences FHA will not insure more than one Property as a Principal Residence for any Borrower, except as noted below. EA will not allow FHA financing as a vehicle for obtaining Investment Properties, even if the Property to be insured will be the only one owned using FHA Mortgage Insurance. Properties previously acquired as Investment Properties are not subject to these restrictions. Endeavor America Loan Services November 22, 2017 Page 35 of 183

36 Occupancy Types Exceptions to the FHA Policy Limiting the Number of Mortgages per Borrower The table below describes the only circumstances in which a Borrower with an existing FHA-insured Mortgage for a Principal Residence may obtain an additional FHA-insured Mortgage on a new Principal Residence. Policy Exceptions Relocation Vacating a jointly-owned Property Non-occupying Co-Borrower Increase in family size Eligibility Requirements A Borrower may be eligible to obtain another FHA-insured Mortgage without being required to sell an existing Property covered by an FHA-insured Mortgage if the Borrower is: Relocating or has relocated for an employment-related reason; and Establishing or established a new Principal Residence in an area more than 100 miles from the Borrower s current Principal Residence. If the Borrower moves back to the original area, the Borrower is not required to live in the original house and may obtain a new FHA-insured Mortgage on a new Principal Residence, provided the relocation meets the two requirements above. A Borrower may be eligible for another FHA-insured Mortgage if the Borrower is vacating (with no intent to return) the Principal Residence which will remain occupied by an existing Co-Borrower. A non-occupying Co-Borrower on an existing FHA-insured Mortgage may qualify for an FHA-insured Mortgage on a new Property to be their Principal Residence. A Borrower may be eligible for another house with an FHAinsured Mortgage if the Borrower provides satisfactory evidence that: The Borrower has had an increase in legal dependents and the Property now fails to meet the family s needs; and The loan-to-value (LTV) ratio on the current Principal Residence is equal to or lesser than 75% or is paid down to that amount, based on the outstanding Mortgage balance and the current residential appraisal. Endeavor America Loan Services November 22, 2017 Page 36 of 183