6016 Program Guideline. FHA Traditional Purchase

Transcription

1 6016 Program Guideline FHA Traditional Purchase

2 FHA Traditional Purchase 6016 Program Highlights These are government approved loan programs which operate through FHA-approved lending institutions, which fund the mortgage loans and HUD insures the total loan amount. The loan program offers a Fixed Rate, 1-, 3- and 5-year ARM loan products. Borrowers who choose the 1-year ARM must qualify for payments based on the initial interest rate plus 1% when the LTV is 95% or greater. If the LTV is less than 95% then the borrower qualify at the initial note rate. All other ARM and Fixed Rate loan qualify at the note rate. Eligible Loan Purpose Purchase transactions. Documentation types allowed for these Loan Programs Full Documentation Minimum Loan Amount The minimum loan amount is $30, Base Loan Amount The maximum mortgage amount is calculated by using the loan-to-value percentages provide by HUD. Direct Mortgage Corporation s underwriting system has the maximum base loan amount allowed for each state and county programmed in the system. The loan approval will reflect what the maximum base loan amount is allowed for the subject properties state and county. The base mortgage loan amount can not exceed each States County-to-County statutory limits. Maximum Loan-to-Value Percentages LTV ratio applied to the lesser of either the sales price or appraised value: multiple the lesser of the sales price or appraised value of the property by the appropriate factor, as shown below, for the property s value and the state where it is located. The following are the States to determine which percentage factor to use: 1

3 States with average closing costs at or below 2.1% of sales price are: Arizona, California, Colorado, Idaho, Illinois, Indiana, New Mexico, Nevada, Oregon, Utah, Washington, Wisconsin, Wyoming. States with average closing costs above 2.1% of sales price are: Alabama, Alaska, Arkansas, Connecticut, Dist. Of Columbia, Delaware, Florida, Georgia, Hawaii, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Maryland, Maine, Michigan, Minnesota, Missouri, Mississippi, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, So. Carolina, So. Dakota, Tennessee, Texas, Virginia, Vermont, W. Virginia. Maximum Loan-to-Value Percentages (Purchase Transactions Only on Proposed and Existing Construction) States with Average Closing Costs At or Below 2.1% of Sales Price: 98.75%: For properties with values/sales price equal to or less than $50, %: For properties with values/sales price in excess of $50,000 up to $125, %: For properties with values/sales price in excess of $125,000 States with Average Closing Costs Above 2.1% of Sales Price: 98.75%: For properties with values/sales price equal to or less than $50, %: For properties with values/sales price in excess of $50,000 Maximum CLTV Maximum CLTV 100% (based on combined loan amount of base loan amount & second mortgage full loan amount) from an acceptable secondary financing source as stated below: Government Agencies: Federal, state, and local government agencies an agency that has received prior HUD approval on their program Non-profit Agencies: Non-profit agencies that meet HUD approval Allowable from a family member (secured or unsecured) Not allowed from seller or real estate agent Subordinate Financing The FHA-insured mortgage amount is calculated by applying the maximum loan-tovalue multipliers based on location of the property and value, to the lesser of the sales price or appraised value and making certain that there is at least a 3 percent cash investment (which may be met with proceeds from the second lien). The combined loanto-value (CLTV) is limited to the amount to acquire the property, which may include the 2

4 sales price, closing costs, prepaid expenses, and discount points, and in some cases, the costs for property rehabilitation; this may not, however, result in any cash back to the borrower. As an example, a $100,000 sales price would yield a $97,000 FHA mortgage amount. Combined with $3,500 for closing costs and prepaid expenses being paid by the nonprofit, the combined indebtedness could equal $103,500 with secondary financing equaling $6,500. Eligible Borrowers U.S. Citizens, Permanent Resident Aliens, Non-permanent Resident Aliens. Foreign Nationals are not allowed for this loan program. Non-Occupying Co-borrowers When there are two or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is limited to a 75% LTV. However, maximum financing is available for borrowers related by blood, marriage or law (spouses, parent-child, siblings, stepchildren, aunts-uncles/nieces-nephews, etc.), or for unrelated individuals that can document evidence of a family type, longstanding, and substantial relationship not arising out of the loan transaction. Non-ARM s Length Transactions Identity-of-interest transactions on principal residences are restricted to a maximum LTV ratio of 85 percent. Identity-of-interest is defined as a sales transaction between parties with family relationships or business relationships. However, maximum financing above 85 percent LTV is permissible under the following circumstances: 1. A family member purchases another family member's home as a principal residence. If a property is sold from one family member to another and is the seller's investment property, the maximum mortgage is the lesser of either: 85 percent of the appraised value, or The appropriate LTV ratio percentage applied to the sales price, plus or minus required adjustments. (The 85 percent limit may be waived if the family member has been a tenant in the property for at least six months immediately predating the sales contract. A lease or other written evidence must be submitted to verify occupancy) 2. An employee of a builder purchases one of the builder's new homes or models as a principal residence. 3. A current tenant purchases the property that he or she has rented for at least six months immediately predating the sales contract. (A lease or other written evidence must be submitted to verify occupancy.) 3

5 4. A corporation transfers an employee to another location, purchases that employee's home, and then sells the home to another employee. Credit History Requirements Traditional Credit Report minimum credit report required by FHA is three repository merged credit report. 0 x 30 day lates on mortgage, 0 x 30 day lates on installment loans, and 1 x 30 day lates on revolving accounts. Loan is required to have a verification of mortgage payment history or landlord rental rating in the last 12 months. Non-Traditional Credit History for borrowers who do not have sufficient credit ratings on a credit report. Provide 4 alternative credit ratings from utility companies, personal loans, jewelry stores, tire stores, car insurance and must have a landlord rental rating for a minimum period of most recent 12 months. Adverse Credit Bankruptcies: - Chapter 7- minimum 2 years since discharge date with re-established credit. - Chapter 13 minimum 1 year into the payout period, with satisfactory payments and must have Court approval. Foreclosures: Must have been paid/satisfied for a minimum of 3 years. Judgments/Tax liens/repossessions: Must not have been filed in the last 12 months and must be paid in full prior to closing. Past due accounts: Must be brought current prior to closing. Collections: Must not have been filed in the last 12 months. Generally collection accounts do not need to be paid off. However, all collection accounts will be reviewed by the underwriter and considered in the analysis of creditworthiness for the loan. 4

6 Minimum Cash Investment For purchase transactions the borrower s minimum cash investment is 3% of the sales price. The minimum cash investment will include the following: down payment exclusively, or down payment and allowable closing costs (exclusive of pre-paids expenses and discount points). Minimum Down Payment For purchase transactions, FHA loan programs require a minimum down payment; however, there is no maximum down payment that a borrower can make. The minimum down payment will range (as a percentage of value/sales price) from a low of 1.25% to a high of 2.85%. Seller Financing Concessions/Contributions Seller paid closing costs or prepaid up to 6% of the sales price. Seller may pay all of the buyer s allow closing costs and prepaids up to the 6% allowable contributions. Allowable Closing Costs HUD "Allowable" Non-recurring closing costs Allowable Allowable, but Non-Allowable May be paid by borrower and included in 3% minimum cash investment 1% Origination Fee (Base Loan Amount) Borrower may pay, but not to be included in 3% minimum cash investment Discount Points Lock-in Fee May not be paid by borrower in a FHA transaction Doc Prep Fees (if lender prepared) Underwriting Fee Credit Report/Verification Fees MIP paid in cash Attorney's Fees Processing Fee Tax Service Fee Appraisal Fee Title Insurance Recording and Home Finder's Fee Protection/Warranty Administration Fee Buyer-Broker 5

7 Endorsement Fees Escrow/Settlement Fee Attorney's Fees (if normal part of Settlement) Flood Cert. Fee Home Inspection Fee EEM Rating Fee Doc Prep Fees (if prepared by a 3rd party) Termite Inspection Fee (if required by FHA or lender) Repair Inspection Fee (if required by FHA or lender) Survey Fee (if required by FHA or lender) Fed-X / Courier Fees (only allowed for refinance and only if cost effective) Notary Fee Mortgage Registration Tax (aka: Intangible Mortgage Tax) Commitment or Commission Mortgage Credit Certificate (MCC) Warehousing Fee Application Fee Reconveyance Fee (purchase transactions) Broker Administration/Processing/Transaction/Coordinator Fees Funding Review Fee 6

8 Application Fee (By Nonprofits & Gov't Agencies Only) Cash Reserves Cash reserves are not required except for 3 & 4 unit properties which require 3-months PITI needed. Gift Funds Gift funds can be used up to 100% of the total cash-to-close requirements. Gift funds can come from the following sources: borrower's relative, the borrower's employer or labor union, a charitable organization, a governmental agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or first-time homebuyers, or a close friend with a clearly defined and documented interest in the borrower. IRS-approved Charitable Non-Profit Corporations may provide funds to the buyer, to be applied towards total cash-to-close needs, including the down payment. Some nationally know non-profits include: Nehemiah, Hart, Neighborhood Gold, AmeriDream, Genesis, Partners in Charity. For additional list of HUD approved nonprofits go to HUD's web site at The gift donor may not be a person or entity with an interest in the sale of the property, such as the seller, real estate agent or broker, builder, or any entity associated with them. Gifts from these sources are considered inducements to purchase and must be subtracted from the sales price. Down Payment Assistance Program Funds (DAP) Gifts from down payment assistance by nonprofit organizations or other third parties that receive contributions from sellers or other parties with interests in the transactions are allowed, provided that such contributions are made after closing. Mortgagees must verify that nonprofits providing secondary financing are approved by HUD for that activity specifically by consulting the Nonprofit Organization Roster, a listing of nonprofits that HUD has determined are qualified to participate in certain specified FHA single family activities, including providing secondary financing. HUD recently (June 6, 2002) published final regulations governing roster placement and removal of nonprofit entities. Approved Down Payment Assistance Programs are listed on the HUD Roster and can be accessed on HUD's web site at 7

9 Qualifying Ratios Housing 29% (can allow up to 31% for energy efficient home) However, the underwriter may allow a higher housing ratio when significant compensating factors are presented (i.e., current housing payment equal to or greater than new PITI, larger down payment 10% or more, demonstrated savings pattern, etc.). Debt 41% (can allow up to 43% for energy efficient home) Borrower Qualifies at the note rate. The only exception is when the loan product is a 1- Year ARM and the LTV is greater than 95% than the borrower qualifies at 1% above the initial note rate. Temporary Interest Rate Buy down 2/1 buy down allowed on fixed-rate loan on an owner-occupied principal residence. Eligible Property Types Single Family Residence 1-4 units Appraisal Appraiser is assigned by FHA when the case number is ordered. Full FHA appraisal is required and completed by an approved FHA appraiser. Eligible Property Characteristics FHA Appraiser determines that the subject property meets all of FHA s collateral requirements and conditions the appraisal accordingly. Escrow Account The following hazard insurance requirements apply: For hazard insurance, the amount of coverage must be equal to at least the principal balance of the new loan or replacement cost. All loans require a flood certification from an approved flood insurance vendor. Flood insurance is required on all properties located in a flood zone. Property taxes on subject property Monthly MIP (when applicable) 8

10 FHA Mortgage Insurance UPFRONT and ANNUAL MIP Premium Chart Loan Terms More Than 15-Years Upfront Premium LTV Ratio Renewal Premium Years 1.50% 95.01% and Over.50% * 1.50% %.50% * 1.50% 89.99% and Under.50% * Loan Terms 15-Years and Less Upfront Premium LTV Ratio Renewal Premium Years 1.50% 95.01% and Over.25% ** 1.50% %.25% ** 1.50% 89.99% and Under None N/A * Loans with terms more than 15 years, regardless of the initial loan-to-value ratio, will have annual premiums for the greater of 5-years or until the amortized loan-to-value ratio reaches 78% - based on the lower of the sales price or appraised value at origination. New appraised values will not be considered. If a computed loan-to-value ratio is not possible, due to missing data or previous refinancing without an appraisal, the new loan-to-value will default to 89.99%. The 78 percent threshold is calculated on the loan amount excluding the UFMIP. ** Loans with terms 15 years or less, and with loan-to-value ratios 90% and greater, the annual mortgage insurance premiums will be canceled when the loan-to-value ratio reaches 78%, irrespective of the length of time the mortgagor has paid the annual mortgage premiums (no 5-years minimum). Loans with terms 15-years and less and with loan-to-value ratios of 89.99% and less will not be charged annual mortgage insurance premiums. Note: 1. Upfront MIP premiums may be financed. 2. Annual MMI premiums are collected with the monthly payments. 3. Streamline Refinances of FHA loans closed before July 1, 1991, will require an Upfront MIP premium of 1.5% and No MMI will be required. 4. Sections 203(k) and 234(c) will have monthly MMI for the life of the loan, regardless of the LTV but no Upfront MIP premium. 5. MMI premiums for Condos vary with the interest rate - see Table of Factors in guidelines. 9

11 Product Description FHA General Description: Follow published FHA guidelines if item not addressed below. APPRAISAL 1 unit residence requires Form unit residence requires Form Condo requires Form A second FHA appraisal may be required to meet FHA s anti-flipping rules under ML See Closing Requirements. BORROWERS (ELIGIBLE / INELIGIBLE) Eligible ( REV-5 Par 2-2-B, 3-1-C) Individuals with a valid U.S. Social Security Number (SSN). Permanent and non-permanent Resident Aliens, provided they: - have a valid SSN. - are eligible to work in the U.S. - occupy the property as a principal residence. Ineligible Any type of borrower not listed as eligible, including but not limited to: Any individual without a valid U.S. SSN. Individuals with a U.S. Individual Taxpayer Identification Number (ITIN). An ITIN is formatted like a SSN but begins with 9. No valid SSN begins with a 9. Investors, except for streamline refinance without appraisal. Foreign nationals and borrowers with diplomatic immunity. CASH RESERVES AUS loans follow DU/LP guidelines. CLOSING COSTS Borrowers may pay customary and reasonable closing costs, subject to these limitations: (ML 06-04) Tax service fee not allowed. Origination fee may not exceed 1%. Third-party fees may not be marked up. Fees and charges must comply with all Federal, State and local regulations and predatory lending rules. CLOSING REQUIREMENTS CONDOS/PUDS Termite, Well and Septic Inspections/Certifications are required as noted on appraisal and/or sales agreement. A minimum of 12 months chain of title as evidenced by the title commitment satisfactory to DMC review and meeting FHA anti-flipping requirements as published in ML Eligible Condos must be FHA-approved or meet FHA guidelines for Spot Approval. (ML 96-41). Spot Approvals on exception case by case and may be subject to a pricing adjustment. Ineligible Multiple unit condos. Leasehold condos not allowed. CREDIT As determined by Underwriter or DU/LP, except < 580 indicator score is not eligible for approval, regardless of AUS findings. The indicator score is the lowest of each borrower s middle score. DOCUMENTATION As determined by DU/LP, or for manually underwritten loans the most current FHA Credit Handbook, currently REV-5. DOWN PAYMENT The borrower must make a minimum cash investment of 3% (Statutory Investment Requirement), based on lesser of Sales Price or Appraised Value. Allowable closing costs paid by the borrower may count towards the 3% cash investment. See Gift Funds section for additional direction and requirements. ESCROWS Escrow waivers not allowed under any circumstances. No exceptions. DW1108 Page 1 of 10

12 Product Description FHA ESCROW HOLDBACKS GEOGRAPHIC RESTRICTIONS GIFT FUNDS Allowed for property repairs that cannot be completed due to inclement weather, subject to the following conditions: Purchase transactions. Owner-occupied single-family detached residence. Typically involves exterior painting or landscaping. Not allowed for structural repairs, foundation work, roofs or pools. Settlement agent to hold escrow funds (2 times cost to cure unless otherwise specified by a particular program). If charged by the settlement agent, the escrow administration fee must be reasonable and customary and paid by the party providing the escrow funds. Escrow Agreement (signed by all parties at closing). HUD Mortgagee s Assurance of Completion. U.S. Territories not allowed (e.g. Puerto Rico, American Samoa, Guam, etc.) Community Property States (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin): - Debts of a non-purchasing spouse must be counted in the borrower s qualifying ratios. - The non-purchasing spouse s credit performance is not a consideration. Gift Donors Eligible: Borrower s relative, spouse, domestic partner, or close friend with a clearly defined and documented interest in the borrower. Borrower s employer or labor union. A charitable organization that does not replenish available gift funds with seller contributions. A governmental agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or firsttime homebuyers, ( REV-5 Par 2-10-C) Ineligible: Any person or entity with an interest in the sale of the property, such as the seller, real estate agent or broker, builder, or any entity associated with them. ( REV-5 Par 2-10-C) Seller-funded Down Payment Assistance (DPA) Providers DMC does not underwrite or purchase loans with seller funded DPA s. AUS-underwritten loans Gift deposited prior to closing If sufficient funds to close (including the gift funds) are not already verified on the bank statement or VOD submitted with the initial underwriting file, a gift letter and full documentation of the gift transfer is required, including: evidence of donor s account ownership and ability to give the gift, copy of donor s cancelled check or bank-validated withdrawal slip, and evidence of deposit into borrower s account. Donor s cash-on-hand is not an acceptable source. Gift letter must contain donor s name, address, phone, and relationship to borrower; match the exact amount of gift, state that gift is not repayable, and be signed by donor and borrower. Gifts deposited prior to closing and documented in this manner may be included in the borrower s account balance when submitting to TOTAL, but should be identified separately as gift funds on the MCAW and Gift received at closing Full gift letter required. Gift must be submitted to TOTAL as gift funds and not included in borrower s account balance. Excess gift funds may NOT be used as cash reserves. By check: Copy of cashier s check or other bank check purchased by donor, and evidence that funds used to purchase check were withdrawn from donor s own account. Donor s personal check or cash-on-hand is not acceptable. NOTE: To avoid funding delays, copies of these documents must be provided and cleared prior to docs. By wire: Copy of incoming wire evidencing deposit into settlement agent s account on or before the day of closing. DW1108 Page 2 of 10

13 Product Description FHA GIFT FUNDS (CONTINUED) INVESTMENT PROPERTIES Manually-underwritten loans Full gift letter always required: Must contain donor s name, address, phone, and relationship to borrower; match the exact amount of gift, state that gift is not repayable, and be signed by donor and borrower. Excess gift funds may NOT be used as reserves. Streamline refinance without appraisal only. Term is limited to the lesser of 30 years or the unexpired term of the existing mortgage plus 12 years. ( REV-5 Par 1-12-A). See REFINANCE TRANSACTIONS STREAMLINE (without appraisal). LEGAL DOCUMENTATION FHA Multi-state Fixed Rate Note or the appropriate FHA Fixed Rate Note for the state in which the property is located. Standard Security Instrument. LOAN TERM MAXIMUM / MINIMUM LOAN AMOUNT 15, 20, 25 and 30 years. ALL TRANSACTIONS: In addition to the appropriate calculation below, the base loan amount may not exceed the lesser of (a) the local Statutory Mortgage Loan Limit as published by HUD, or (b) the applicable limit set for this product (the FHA ceilings that existed before passage of the Stimulus Package): 1-unit $362,790 2-unit $464,449 3-unit $561,411 4-unit $697,696 UFMIP may be added to the calculated base loan amount. All loans must be submitted in whole dollar amounts. Purchase LTV Calculation: Base loan amount exceeding $417,000, regardless of the number of units, is limited to 94.99% LTV/CLTV in addition to any further calculations below. HIGH CLOSING COST STATES 1 LOW CLOSING COST STATES % + UFMIP (AV/SP < $50K) 98.75% + UFMIP (AV/SP < 50K) 97.75% + UFMIP (av/sp > $50K) 97.65% + UFMIP (AV/SP > $50K < $125K) 97.15% + UFMIP (AV/SP > $125K) ¹ HIGH CLOSING COST STATES Alabama Kentucky Nebraska South Carolina Arkansas Louisiana New Hampshire South Dakota Connecticut Maine New Jersey Tennessee Delaware Maryland New York Texas District of Columbia Michigan North Carolina Virginia Florida Minnesota North Dakota West Virginia Georgia Mississippi Ohio Iowa Missouri Oklahoma Kansas Montana Pennsylvania DW1108 Page 3 of 10

14 Product Description FHA 2 LOW CLOSING COST STATES Arizona Illinois Oregon Wyoming California Indiana Utah Colorado Nevada Washington Idaho New Mexico Wisconsin No-Cash-Out Rate and Term Refinance (Worksheet #1: (Full Credit Qualifying) Base loan amount exceeding $417,000, regardless of the number of units, is limited to 94.99% LTV/CLTV in addition to any further calculations below Owned 1 year: LESSER OF: (A) LTV Calculation (same as PURCHASE) OR (B) Existing Liens Calculation * Payoff on Existing Liens (including purchase money 2nd & junior liens > 12 months) + Appraiser-Required Repairs + Allowable Borrower-Paid Closing Costs + Prepaids + Reasonable Discount Points MIP refund (if any) + UFMIP * Payoff May Include: The entire payment due for the month in which the loan closes & funds (including interest-in-arrears) plus Prepayment Penalties Escrow Shortages Late Charges (if allowed by the program see REFINANCE TRANSACTIONS and UNDERWRITING) and Up to 1 month of MIP & 30 days of interest charged for the month in which the loan closes. Owned < 1 year and not already FHA-insured: LESSER OF: (A) LTV Calculation (same as PURCHASE) OR (B) Existing Liens Calculation (same as above) OR (C) Acquisition Cost Calculation Original Sales Price + Repairs (paid after purchase and documented in the file) x appropriate LTV calculation (same as PURCHASE) + UFMIP Cash-Out Refinance (Worksheet #2: AV x 95% + UFMIP if ALL of the following apply: Owned 1 year 0 x 30 on mortgage history within the last 12 months 1-2 unit property only Base loan amount <=$417,000 DW1108 Page 4 of 10

15 AV/SP x 85% + UFMIP if ANY of the following apply: Owned < 1 year > 0 x 30 on mortgage history within the last 12 months 3-4 unit property Base loan amount > $417,000 Product Description FHA Streamline Refinance without Appraisal (Worksheet #3: (No cash out; FHA to FHA only) Base loan amount exceeding $417,000, regardless of the number of units, is limited to 94.99% LTV/CLTV in addition to any further calculations below Owner-occupied: LESSER OF: (A) Original Balance Calculation Original Principal Balance (from the Refinance Authorization Screen in the FHA Connection) + UFMIP OR (B) Existing 1st Lien Calculation Existing 1st Lien Payoff * (only) + Allowable Borrower-Paid Closing Costs + Prepaids + Reasonable Discount Points MIP refund (if any) + UFMIP * Payoff May Include: The entire payment due for the month in which the loan closes & funds (including interest-in-arrears) plus Prepayment Penalties Escrow Shortages Late Charges (if allowed by the program see REFINANCE TRANSACTIONS and UNDERWRITING) and Up to 1 month of MIP & 30 days of interest charged for the month in which the loan closes. OR (C) Excess UFMIP Refund Calculation If the lower of the above calculations is B and the UFMIP refund is greater than the new UFMIP, the following calculation may be used to allow the borrower to bring less money to closing. Existing 1st Lien (only) Principal Balance + Up to 1 month monthly MIP + Up to 30 days accrued interest on the old loan (C) Excess UFMIP Refund Calculation (Continued) + Late Charges (if allowed by the program see REFINANCE TRANSACTIONS and UNDERWRITING) + Escrow Shortages + Allowable Borrower-Paid Closing Costs + Prepaids + Reasonable Discount Points + UFMIP Non-owner-occupied / Unapproved condominiums: This is the only FHA transaction that is allowed on a non-owner-occupied property or any condominium located in a project that is no longer FHA-approved. Existing 1st Lien (only) Principal Balance MIP refund (if any) + UFMIP DW1108 Page 5 of 10

16 Product Description FHA Streamline Refinance with Appraisal (Worksheet #4: (No cash out; FHA to FHA only) Base loan amount exceeding $417,000, regardless of the number of units, is limited to 94.99% LTV/CLTV in addition to any further calculations below LESSER OF: (A) LTV Calculation (same as PURCHASE) OR (B) Existing 1 st Lien Calculation (same as above) OR (C) Excess UFMIP Refund Calculation (same as above) Minimum Loan Amount: None MORTGAGE INSURANCE (UP-FRONT AND MONTHLY MORTGAGE INSURANCE PREMIUM) LOAN TERM > 15 YEARS UFMIP LTV MONTHLY MIP Years 1.500% All%.500% * 1.500% 90.00% %.500% * 1.500% < 89.99%.500% * LOAN TERM < 15 YEARS UFMIP LTV MONTHLY MIP Years 1.500% > 95%.250% * 1.500% 90.00% %.250% * 1.500% < 89.99% N/A N/A * Years will be determined when the loan balance equals 78%, provided the mortgagor has paid the mortgage insurance premium for at least five years (scheduled or actual, refer to Mortgagee Letter ). FHA UFMIP & MIP Payment Process Detailed information for this process can be found on the Internet at NON-OCCUPANT CO- BORROWERS/ CO- OCCUPANCY PROPERTY ELIGIBILITY Allowed per FHA published guidelines. May not be added to meet qualifying requirements for a cash-out refinance. Owner-occupied primary residence only on all transactions except streamline refinance without appraisal. Eligible 1-4 unit attached or detached primary residence including condos and PUDs. Condos must be FHA-approved or meet FHA guidelines for Spot Approval. See Condos/Puds section of this guide. 95% cash-out refinances limited to 1- or 2-unit properties and loan amounts <=$417,000. HUD or VA Repo properties See the Appraisal Standards & Guidelines chapter of this manual for additional guidelines and requirements. Ineligible Any property where the seller is not the owner of record. Any property being re-sold within 90 days of the seller s acquisition date unless exempt under All non-owner occupied properties (except streamline refinance without appraisal). Properties that are not primarily residential in nature and use. Manufactured or mobile housing. Leasehold condos. Co-ops. DW1108 Page 6 of 10

17 PROPERTY INSPECTIONS RATIOS REFINANCE TRANSATIONS REFINANCE TRANSATIONS (CONTINUED) Product Description FHA Termite, Well and Septic Inspections Properties under one year old require mandatory inspection, treatment and testing, even if previously occupied. For existing properties over one year old, inspection and/or testing is only required if: - The appraisal indicates there may be a problem or that problems are common in the area. - Mandated by the state or local jurisdiction (see below). - Required by the sales contract. - A water purification system is present. If the water supply does not test safe without the purification system, then the requirements in ML must be met. Wells and Other Water Systems: FHA Single Family Reference Guide Ch 1, Pg 1-21 Septic Systems: FHA Single Family Reference Guide Ch 1, Pg 1-20 Qualifying ratios are 31% / 43%, unless there are significant compensating factors or an AUS approval is received. (ML 05-16). The maximum qualifying DTI on any AUS Refer (manually underwritten) loan are 43%. Lenders are expected to exercise sound judgment and due diligence in the underwriting of loans to be insured by FHA. In order to comply with HUD s directive, refinance transactions should make sense and be in the borrower s best interest. In states with predatory lending laws, the state-specific refinance or Tangible Net Benefit worksheet will supersede guidelines. Cash Out Refinance Transactions: Allowed Owner-occupied primary residence only New simultaneous subordinate liens not allowed. > 85% and 95% LTV (ML 05-43) Base loan amount cannot exceed $417,000 Must have owned property 1 year (payments under a land contract do not qualify as ownership ) DMC requires AUS approval A mortgage payment history of 11 months reviewed on the credit report is acceptable if the borrower has owned right at one year and only 11 payments have become due. Existing subordinate financing can remain in place provided the CLTV does not exceed the maximum allowable LTV for the transaction, and borrower qualifies with all payments counted. No new subordinate financing is allowed on any refinance transaction other than a streamline refinance. Rate/Term Refinance Transactions: Allowed. Owner-occupied primary residence only. Base loan amount exceeding $417,000, regardless of the number of units, is limited to 94.99% LTV/CLTV. Cash back at closing limited to $500, and must be due to changes in the payoff and/or closing costs and prepaids. At time of origination and loan approval, the 1003, GFE and MCAW must show no cash back. (ML 05-43) Cash back at closing limited to $500. (ML 05-43) No holding period but acquisition cost must be considered if owned < 1 year and not already FHAinsured (see MAXIMUM LOAN AMOUNT). Existing subordinate financing may remain in place provided the CLTV does not exceed the maximum allowable LTV for the transaction, and borrower qualifies with all payments counted. No new subordinate financing is allowed on any refinance transaction. Streamline Refinance Transactions: Prohibited in some states. 12 month mortgage history reported from all 3 repositories must be submitted with the file. History from a mortgage held immediately prior (subject property or previous residence) may be combined to meet the 12-month period. Owner-occupied primary residence only except streamline refinance without appraisal Cash back at closing limited to $500, and must be due to changes in the payoff and/or closing costs and prepaids. At time of origination and loan approval, the 1003, GFE and MCAW must show no cash back. DW1108 Page 7 of 10

18 Product Description FHA REFINANCE TRANSATIONS (CONTINUED) SELLER CONTRIBUTION SUBORDINATE FINANCING Streamline refinance without appraisal: - Term of the new mortgage is the lesser of 30 years or the un-expired term of the existing mortgage plus 12 years. ( REV-5 Par 1-12-A). - Use the Original Principal Balance from the Refinance Authorization screen in the FHA Connection. This will reflect the true loan amount after any principal reductions. - Calculate the LTV by using the Original Property Value from the Refinance Authorization screen in the FHA Connection. Any streamline refinance of a 30-year mortgage on a principal residence may be refinanced to a shorter term mortgage; however, the new monthly principal and interest may not increase more than 20%. (ML 05-43) Fixed-to-Fixed streamline refinances must lower the monthly P&I and/or decrease the term of the mortgage. A Hybrid ARM may be streamline refinanced to a fixed rate mortgage, with or without appraisal, provided that the payment will not increase more than 20% and all mortgage payments have been made within the month due for at least the last 12 months or the period the mortgage has been in force, if shorter. (ML 05-43) Existing subordinate financing may remain in place without regard to CLTV. ( REV-5 Par D-11) No new subordinate financing is allowed on any refinance transaction. A holding period of six months applies when: (1) the borrower obtained the loan via non-qualifying assumption; or (2) when a borrower is deleted due to devise or descent of law (e.g., divorce, death, etc.) and a quit-claim of interest has been executed. Full credit qualifying is required if held less than six months and/or if due-on-sale clause is triggered. ( REV-5 Par 1-12-C) Credit reports and scores are not required and should not be submitted. If submitted when not required, DMC has approval or purchase discretion based on the overall merits of the file, and applicable FICO-based price adjustments will apply. If the indicator score is < 580, the loan is not eligible for approval or purchase. Property seller contributions must not exceed 6% of the sales price. Included in the 6% limitation is the payment of the UFMIP. Subordinate financing includes any financing that creates a subordinate lien against the subject property, even if it is a soft, silent, or forgivable second. Borrower must be qualified with any required payment unless repayment is deferred at least three years. (ML 07-11) Subordinate financing for the borrower s required 3% investment may only be provided by a valid city, county, state or Federal governmental agency, or a HUD-approved non-profit that is also considered an instrumentality of government. Additionally, the actual lien must be held by and the Note must be payable to: the governmental agency or HUD-approved non-profit that provided the funds, or, another approved governmental agency or HUD-approved non-profit appointed as Agent for the entity that provided the funds. In other words, no entity that is not either a valid governmental agency or a HUD-approved non-profit may be involved in the providing or lending of funds for financing that will subordinate to an FHA loan. Underwriter must examine a sample of the note and deed to verify that the allowable governmental agency or the HUD-approved non-profit is the actual lien holder. HUD-approved non-profits that are not also considered an instrumentality of government may provide secondary financing for closing cost assistance only. The borrower must make a 3% cash investment and the combined 1st and 2nd liens may not exceed the FHA statutory limit. Subordinate financing that requires a special designated servicer for the first lien or imposes any servicing or resale restrictions on the first lien is not allowed. DW1108 Page 8 of 10

19 Product Description FHA SUBORDINATE FINANCING (CONTINUED) No Bond Programs. Must meet all additional requirements for subordinate financing as stated in HUD Handbook REV-5, Par 1-13-A and -B. See REFINANCE TRANSACTIONS for additional rules applicable to refinance transactions. May be subject to a pricing adjustment - contact the Pricing Desk. Other subordinate financing providers may be allowed on an exception basis subject to additional LTV/CLTV restrictions and statutory loan limits as stated in the REV-5, Par 1-13-C. Subordinate financing may not be combined with DPA unless AUS approval is received. PROGRAMS & SPECIAL FEATURES Energy Efficient Mortgage (EEM) Program (New Section) ML Standard FHA guidelines apply except for the following: DMC exception processing is required due to LTV and county loan limit issues; pricing adjustment may apply. This program allows qualified borrowers to finance up to 100% of the eligible expense of a costeffective Energy-Efficient (EE) package. Borrower does not have to qualify for the additional financing or provide additional downpayment. The appraisal does not need to reflect the EE package value for either new or existing construction. Purchase and refinance transactions, including streamlines, are eligible. New and existing 1-4 family properties, including 1-unit condos, are eligible. The allowable EEM dollar amount is for the entire property and not based on a per unit basis for multiple unit properties. The EEM may be used with Sections 203(b), 234(c) Condos, and 203(h) Disaster loans. Underwriter will determine how much of the EE cost may be added to the loan amount by using the Home Energy Rating System (HERS) report and the EEM Worksheet. The amount added for the EE package cannot exceed $8,000. The allowable EE amount is added to the base loan amount before UFMIP. The FHA county loan limit may be exceeded by the amount added for the EE package. In the Remarks section of the MCAW, underwriter must indicate that the loan is for an EEM, list borrower qualifying ratios prior to adding the EE cost, and show the final loan amount calculations. For a streamline refinance, the borrower s P&I on the new loan including the EE package can exceed the P&I payment on the current loan, provided the estimated monthly energy savings shown on the HERS report exceeds the P&I increase. For a streamline refinance without appraisal, the Original Principal Balance substitutes for an appraised value for the EEM calculations only. The LTV on a streamline refi w/o appraisal continues to be determined by the Original Property Value. Both of these figures must be taken from the FHA Connection Case Number Assignment or Refinance Authorization. Documentation, Fees, Escrow Requirements: - Home Energy Rating System (HERS) report, copy to borrower and lender. - DMC Escrow Agreement (prepared by DMC). - HUD Mortgagee s Assurance of Completion (prepared by DMC). 90 days allowed for completion, no extensions or exceptions. After 90 days, unused funds must be applied to reduce the principal balance. - EE packages on new construction must be complete prior to funding (no escrows). - The borrower cannot be paid for his/her own labor nor receive cash back, except for documented material costs. - Fees charged to the borrower for the HERS report must be reasonable and customary for the area. These fees may be financed as part of the EE package if the eligible amount allows for inclusion. If not, such fees are considered allowable closing costs. - Follow standard DMC escrow requirements except required holdback is only 1.0 times the cost of the EE package. (see ESCROW HOLDBACKS) Manual underwriting (where allowed by DMC guidelines-see UNDERWRITING): Borrower and property are qualified as if the EE package did not exist, but the MCAW needs to show the final loan calculations including the EE package (note qualifying ratios in the Remarks section). Stretch ratios of 33% and 45% may be used for new construction or for homes built to the 2000 IECC or being retrofitted to that standard. DW1108 Page 9 of 10

20 Product Description FHA PROGRAMS & SPECIAL FEATURES (CONTINUED) TEMPORARY BUYDOWNS UNDERWRITING Automated underwriting: Submit loan amount including the EE package to the FHA Total Scorecard. An AUS-Refer rating for the loan amount including the EE costs is acceptable only if the loan receives an AUS-Accept rating for the loan amount prior to adding the EE costs, or if the loan otherwise qualifies for manual override approval of an AUS-Refer (see UNDERWRITING). Ineligible ratings are acceptable if the ineligible determination is strictly due to exceeding the county loan limit by the amount of the EE package. Allowed on purchases only 2-1 only Buydown only Direct Mortgage generally requires all FHA loans to be run through an automated system that accesses TOTAL Scorecard. We will purchase loans that receive an Approve/Accept or Refer. The Refer must be approved by a DE Underwriter and comply with FHA and DMC guidelines and regulations. See exceptions for automated and manual underwriting noted below and elsewhere in this product guide. Effective for loans purchased September 1, 2008 and forward ALL loan files except non-qualifying streamline refinances must include an IRS Form 4506T executed by each borrower at the time of closing. - Additionally, all loans submitted to DMC for prior-approval underwriting must contain a 4506T in the loan submission package regardless if a 4506T has all ready been processed and tax transcripts are included in the loan file. Manual Underwriting Please see Credit Scored / Non-Traditional Credit section of this product guide. Streamline refinance transactions should be manually underwritten. If however, a streamline is submitted to AUS, documentation supporting the values that were entered (income, assets, etc.) must be provided with the file. Automated Underwriting System (AUS) All FHA loans must be submitted through DU or LP or comply with Manual Underwriting criteria noted above. Loans using DPA must receive AUS approval or qualify for manual underwriting approval under DMC s DPA underwriting guidelines. Manual Downgrades HUD requires the underwriter to manually downgrade an AUS Approve/Accept recommendation to Refer and perform a complete manual underwrite based on standard FHA guidelines. Please see the Government Lending chapter of this manual for additional guidance. DW1108 Page 10 of 10