7/12/2013. The guideline either doesn t exist or isn t clear.

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1 The guideline either doesn t exist or isn t clear. Discussions with HOC personnel PETR findings Applying 3 year and ability to pay logic. When do I use market rent and when do I use actual rent when qualifying a borrower to purchase a 3-4 unit property? 1

2 1. Qualifying rental income 2. Self-sufficiency income test Use current income supported by lease agreements on the remaining units not occupied by borrower, unless units are vacant, then market rent could be used. May also be allowed to use market rent if leases have expired or are expiring very soon and current rent is below market. 1. Designed for HUD s use to be sure rental income can support payment if they have to take the property back. 2. Requires market rents of ALL units less the HOC vacancy factor (or the appraiser s vacancy factor if higher) are not less than the total mortgage payment B.4.c. 2

3 For qualifying purposes, you use whichever amount will most likely be considered stable over the next 3 years, with close scrutiny on any remaining lease terms that allow for lower rents. Must a tenant have rented from the landlord for six months prior to the sales contract in order to qualify for maximum FHA financing? NO The 6 months rental period is only required IF there is an additional identity-of-interest relationship between the two parties, ie family member, employer etc. Handbook : 2.B.2.a-c 3

4 When a mortgage is included in a Bankruptcy and the borrower has not made payments on the loan can I start the clock on the wait period based on the Chapter 7 dismissal date? NO While the court may release the debtor from liability the court does not release the lien nor does it alter title on the home. There is still a foreclosure event that is pending and until that event is complete a clock cannot be started for the wait period. If my borrower is purchasing a HUD REO with no repair escrow, but the third party home inspection report shows property deficiencies that affect the health and/or safety of the occupants, can they ask for a repair escrow? 4

5 Yes A copy of the report can be submitted to the marketing and management contractor (the Realtor will have the contact information) along with estimates for the repairs for their consideration. If my borrower works seasonally do they have to be on the job to count their income for qualifying? No But if the borrower is not back at work beware that you will not have a current paystub for the file, will not be able to meet the AUS requirements and will have to manually downgrade the file. This will limit you to ratios of 31/43 and require all the other increased documentation of manual underwriting. 5

6 Seasonal employment (e.g., umpiring baseball games in the summer, working at a department store during the holiday season, etc.) is considered uninterrupted employment and may be used in qualifying if the lender documents that the borrower has worked the same type of job for the past two years and expects to be rehired during the next season. Handbook : 4.D.2.e If a public water and/or septic connection is available and FHA says the hookup is mandatory if feasible, what does that mean? It depends. The now retired HOC Single Family Reference Guide was the only place that offered a definition. They suggested 3% of the sales price as a benchmark. That definition was developed decades ago and not practical with today s home prices. Which means that an underwriter gets to decide what feasible means. 6

7 If a student loan isn t in deferment but shows a $0 or very low payment due to an Income Based Repayment plan, can I use that payment for qualifying? Probably not. You have to apply 3 year and ability to repay logic when determining a qualifying payment. IRB s are reviewed every 12 months and payment could be vastly different in months. Provide the underwriter with documentation regarding the payment agreement and possible payment increases over the next 3 years. (Not easy, I know. But until FHA comes out with guidance like USDA has done, this is our method.) A borrower is generally not eligible for a new FHA insured mortgage if, during the previous three years his/her previous principal residence or other real property was foreclosed, or he/she gave a deed in lieu of foreclosure. Previous three years from WHAT? 7

8 Credit approval date unless otherwise specified. The rule on short sales specifically states application date when it explains wait periods. Most other derogatory credit wait periods do not. In several discussions with HOC personnel they ve indicated that the underwriter credit approval date is the date you must work within when determining fulfillment of wait periods, but I can t provide you that in writing. FYI: Fannie Mae just came out with a clarification on this subject and stated that using application date was not efficient for measuring wait periods. They determined that the credit report date should be used. MORTGAGE CURRENTCY Because getting a loan closed IS Rocket Science! 8