123 East King Street Lancaster, PA 17602 Phone: (717) 291-9945 Fax: (717) 291-9850 1. Home Buyer Education: LANCASTER HOUSING OPPORTUNITY PARTNERSHIP HOME BUYER LOAN PROGRAM POLICIES & PROCEDURES January 2016 The goal of the Education Program is to prepare prospective buyers to make better financial decisions by expanding their understanding of both the requirements and process for purchasing a home before they begin their search. The course is open to anyone interested in learning about homeownership. Courses are offered in both English and Spanish. The non-refundable $25.00 tuition fee is due at registration for each person expecting to complete the course. Contact LHOP to register at 717.291.9945 or register on-line at www.lhop.org. Classes are generally available within 4 weeks of request. All segments of the class must be completed within a period of no more than 2 months. After completing the 8-hour course, the prospective buyer will receive a Completion Certificate. To qualify for a Home Buyer Loan, the borrower, co-borrowers, and anyone else intending to have an ownership interest in the property must complete the course. Borrowers wishing to be considered for a Home Buyer Loan are encouraged to complete the course prior to applying for their primary mortgage and signing a Agreement of Sale. Borrowers who completed the training more than two (2) years prior to the full execution of the Agreement of Sale must repeat the course. 2. Housing Search and Lender Selection: Potential buyers will work with a Realtor to locate a home that meets their needs and price range. Training participants will also be made aware of homes available for purchase through non-profit community development organizations. Prospective buyers must contact one of LHOP s Partner Lenders as soon as possible to obtain a pre-approval and review loan qualification criteria. A perspective borrower must meet with a Lender within ten (10) days of fully executing an Agreement of Sale to complete the Home Buyer Loan Application. Only owner-occupied properties, as evidenced by the LHOP Seller Declaration, within the County of Lancaster, will be considered for a Home Buyer Loan. Previously or currently tenant-occupied properties are not eligible for the Home Buyer Loan, unless the existing tenant is purchasing the property. In the case of two-unit properties, this requirement will apply to the specific unit to be occupied by the Borrower.
Page 2 of 10 The Agreement of Sale must utilize an LHOP ADDENDUM to the Standard Agreement for the Sale of Real Estate and should be structured to allow sixty (60) days to close, with the following contingencies: 1) Financing for a first mortgage from a Partner Lender; 2) Qualification for the Home Buyer Loan and availability of funds; 3) Completion of a satisfactory whole house inspection by a qualified home inspector, including a wooddestroying insect infestation inspection (The borrower is required to attend the inspections which must be completed and all documentation forwarded to LHOP within fifteen (15) days of the full execution of the Agreement of Sale. The borrower must also complete the LHOP Property Inspection Borrower Declaration form.); 4) Completion of a property appraisal that meets lender specifications. For properties built prior to 1978, the whole house inspector must record any evidence of deteriorated paint and the possible need for additional evaluation. The buyer must be present for the whole house inspection. Upon review of the inspection reports, LHOP reserves the right to require correction of major defects, defined as any existing condition considered by LHOP to adversely affect the health and safety of the borrower or a major system or structural component in immediate need of repair or replacement. The Agreement of Sale must also, at minimum, include: 1) Buyer acknowledgement of receipt of notice, Protect Your Family From Lead in Your Home (ONLY for homes built prior to 1978); 2) Seller disclosure of any known Lead Paint and Lead Paint Hazards(if applicable); 3) Seller s property disclosure statement; 4) Identification of the party responsible for the cost of inspections and for any required repairs; 5) Provisions, if any, for seller assistance for closing costs. The Realtor will deliver a copy of the completed Agreement of Sale with all the appropriate addenda to LHOP, including the signed Realtor Timeline/Checklist, within 5 business days. 3. Home Buyer Loan Requirements: Home Buyer Loans are available to qualified buyers to fund a portion of their cost to purchase a home, including down payment, closing costs and pre-paid expenses. Home Buyer Loan proceeds may not be used for repairs or to pay off borrower s current debt obligations as may be required to qualify for the primary loan. PLEASE NOTE: Cash back at settlement is not allowed on LHOP transactions under any circumstances.
Page 3 of 10 LHOP will charge an Origination Fee of $250.00, effective for all contracts submitted after 1/15/2016. Qualification for a Home Buyer Loan is based primarily on the income and financial need of the buyer. The home to be purchased must also meet certain criteria. Program requirements are subject to change with reasonable prior notice. Please refer to the most recent Home Buyer Loan Program Eligibility Requirements for additional information regarding eligibility requirements. In determining eligibility income for a Home Buyer Loan, LHOP considers the income not just of the borrower, but of all adult household members (over 18 years old) expected to reside in the home, and determines income based on what is expected to be received over the next year, not only what was actually received in the prior year. Home Buyer Loans are available only for the purchase of homes located within the County of Lancaster (including Lancaster City), and to borrowers having a most recent permanent address within the County of Lancaster, utilizing qualified loan products offered by an LHOP Partner Lender of their choice. Please see the most recent Home Buyer Loan Eligibility Requirements for a list of LHOP s Partner Lenders. Generally, qualified loan products must offer competitive, fixed interest rates, charge no more than 3 points, and require A credit. Homebuyer loans may also be used in combination with FHA, PHFA, VA and USDA Rural Development loan products offered by Lenders. Temporary buy-downs and adjustable rate loans are not permitted. Lenders must obtain prior approval of all loan products they desire to use in combination with LHOP Home Buyer loans. The amount of the home buyer loan will be based on an assessment of the borrower s funds required to close. The Lender will complete the Needs Assessment (form) to determine the specific loan amount, as described in detail below. 4. Home Buyer Loan Application (Form): A complete Home Buyer Loan Application, including all required documentation related to borrower s income, household members, and funds available for closing, must be received by LHOP to be considered for a loan. The Lender must submit a complete application along with supporting documentation to LHOP within twenty (20) days of the full execution of the Agreement of Sale to be considered for funding. Home Buyers will be encouraged to meet with a Lender as early as possible, but they will be required to begin the loan application within ten (10) days of the full execution of the Agreement of Sale. The Lender will submit a complete application along with supporting documentation to LHOP within twenty (20) days of the full execution of the Agreement of Sale. A complete Home Buyer Loan Application, including all required documentation related to Buyer s income, household members, and funds available for closing, must be received by LHOP to be considered for a loan. Buyer shall cooperate in a timely manner with his or her Lender in providing the necessary documentation to complete the Home Buyer Loan Application. LHOP will not accept incomplete applications.
Page 4 of 10 To complete the Home Buyer Loan application, the buyer must provide the following information to the lender: A. Part 1: Household Composition (Form): 1) The name, current address, social security number, and current employer(s) of all adult household members, defined as the borrower, any co-borrowers, the spouse of borrower or any co-borrowers, and all other adults over the age of eighteen (18) intending to reside in the home. 2) The name, age, and social security number for all other household members, defined as persons related to the adult household members by birth, marriage, or adoption and who are expected to live in the home as their primary residence. To be included as a household member, any dependent, except newborns, must be listed on the prior year Federal tax return of an adult household member. 3) Evidence that the borrower and any co-borrowers are either United States citizens or permanent resident aliens. Permanent resident aliens must provide a copy of their green card as evidence of legal residency status. LHOP will allow participants with Non-Permanent Residency Status to utilize the Home Buyer program based on the following criteria: The property will become the borrower s primary residence, The borrower has a valid Social Security Number The borrower is eligible to work in the US which may be evidenced by an Employment Authorization Document issued by the Bureau of Citizenship and Immigration Services (BCIS). (If the authorization for temporary residency status will expire within one year and a prior history of residency status renewal exists, LHOP will assume continuation will be granted. If there are no prior renewals, LHOP must determine the likelihood of renewal based on information from the BCIS.) A. Part 2: Annual Household Income Declaration (Form): 1) The current gross monthly income of all adult household members, as defined above. Income of full time students over the age of eighteen (18) expected to reside in the home may be excluded upon submission of evidence that the student is currently enrolled in a post-secondary educational institution and attending classes on a full-time basis. If a borrower or any co-borrower is married but separated, the income of the spouse may also be excluded if: a) the separation can be clearly documented by a filing for divorce, a spousal support order, or convincing evidence that the borrower has maintained a separate residence for the past 12 months; and b) the borrower has no continuing ownership interest or debt obligation (i.e. is no longer be on the deed and has been released from the note and mortgage) for any real estate previously jointly owned. 2) Two months of pay stubs or other source documentation for all sources of income for all adult household members, indicating earnings for the current period and year to date for the 4-week period immediately prior to submission of the primary loan application.
Page 5 of 10 3) Income includes child support, social security, and other payments or benefits received by adult household members on behalf of dependents included as household members. 4) A copy of the Federal tax return for the most recent year for all adult household members. The most recent two years tax returns and all schedules will be required for self employed borrowers. 5) Copies of W-2 s for all sources of income received by all adult household members for the prior tax year. LHOP reserves the right to request evidence of termination of employment if a household member represents that they no longer receive compensation from a source for which a W-2 was issued in the prior tax year. 6) Annual household income for eligibility shall be calculated using the gross income received by all adult household members for the four (4) week period immediately prior to the primary loan application. This income will be averaged and multiplied by the number pay periods projected for the coming year. Lender s assurance that they have received a written Verification of Employment is sufficient documentation for the loan. 7) LHOP may consider alternative methods of determining annual eligibility income if it can be determined that the above procedure would result in an unfair representation based upon demonstrated earning patterns over the preceding twelve (12) months. For example, where it can be clearly documented that the number of hours worked in the most recent period is not representative of the applicant s typical work history, LHOP shall calculate annual household income based on the current hourly earnings rate times the average number of hours worked per pay period over the preceding 12 months (or from date of employment, if less than 12 months). Alternative methods of calculating eligibility income may be used only if specifically authorized in writing by LHOP. 8) LHOP reserves the right to request additional information from the buyer as necessary to: a) Support income determinations and/or to explain significant changes in income received from prior periods; b) Document or explain significant changes in borrower assets available/required for closing; c) Verify residency and/or dependent status of prospective household members. 9) Income shall include: a) Full amount, before any deductions, of all wages, salaries, overtime, commissions, fees, tips, bonuses, and/or other compensation received; b) Net income (before depreciation and home-use expenses) from business operations; c) Interest or dividend income from savings or investments; d) Periodic payments from social security, annuities, insurance policies, retirement funds, pensions, VA compensation, disability or death benefits; e) Payments in lieu of earnings such as unemployment and disability compensation, sick pay, worker s compensation and severance pay; f) Public assistance, including SSI and DPA; g) Periodic and determinable allowances, such as alimony and child support, and regular contributions or gifts from other persons not residing in the household.
Page 6 of 10 10) Income shall not include: a) Casual, sporadic, or irregular gifts; b) Medical expense reimbursements; c) Lump sum additions to family assets, such as inheritances and insurance payments; d) Educational scholarships; e) Foster child care payments. B. Household Asset Information: 1) A copy of all adult household members most recent three months of checking, savings, or other reasonably-liquid investment account statements; evidence of good faith deposits or other costs already paid for with borrower funds; and/or evidence of other assets available to fund closing. Money orders or other representations of cash on hand may not be included. 2) Evidence of gifts or grants to be provided by other sources. C. Credit/Budget/Asset Requirements: 1) A minimum middle credit score of 620 is required. Only on a case-by-case basis, LHOP may consider at its discretion, applications from borrowers who may have less than a 620 credit score which have strong, compensating factors. If a borrower has less than three opened (traditional) trade lines, LHOP may require additional satisfactory non-traditional trade line documentation. Contact LHOP for more specific information. 2) A minimum asset reserve of one month s payment of PITI is required after borrower s contribution. A maximum asset reserve of $7,500 is allowed after borrower s contribution. 3) No Credit Score A minimum of three open trade lines with a satisfactory 12-month payment history is required in the event that the borrower doesn t have a traditional credit score. Rent payment history, utilities, cell phone, car insurance (if paid in monthly installments), are acceptable examples of these required trade lines. 4) Budget Counseling A private budget counseling session is required prior to settlement for LHOP borrowers through TABOR Community Services. Borrowers need to contact TABOR directly at 717-358-9364 to schedule the appointment at least three weeks prior to their settlement date. D. Debt to Income Ratios: 1) LHOP will allow a maximum PITI ( FRONT END ) debt-to-income ratio of up to 33% of the borrower s monthly gross income and a maximum ( BACK END ) total debt-to-income ratio of up to 43% of the borrower s monthly gross income. Debt-to-income ratios are based on LHOP s Income Calculation Method.
Page 7 of 10 2) If borrower exceeds the 33/43 ratios, please contact LHOP immediately before taking a Home Buyer Loan application. On a case by case basis, LHOP at its sole discretion, may consider higher debt-to-income ratios if the borrower has at least two of the following compensating factors: a) Three months reserves of PITI payments from their own funds documented at the time of their loan application. b) Credit Score of 700 or higher; c) Monthly housing payment savings (PITI vs RENT) of greater than $100; d) Stable employment history (i.e., at least 2 years at the same employer); e) Additional verifiable household income not listed on the mortgage application. (i.e., a spouse who will not be on the mortgage application, but has verifiable income. In this case, a copy of the spouse s credit report will be required in order to calculate the appropriate back end ratio for the household.) E. Borrower s minimum contribution: 1) The minimum contribution as outlined on the current Home Buyer Loan Eligibility Requirements, must be verifiable funds on deposit and must be the borrower s own funds. No gifts permitted for the minimum LHOP required contribution. 5. Partner Lender Loan Processing: 1) Prior to submission of the primary mortgage application for processing, the loan originator: a) Reviews the Home Buyer Loan Application with the borrower, including the Household Composition and Annual Household Income Declaration (form), b) Obtains the borrower s signature(s), and c) Determines whether or not the borrower appears to be eligible for a Home Buyer Loan. If the loan originator has any questions regarding eligibility, call the Home Ownership Center Director immediately to request clarification. 2) If an applicant does not appear to qualify, the loan originator shall advise the borrower accordingly and suggest they contact LHOP directly for further review and/or clarification. The loan originator should not continue processing of the applicant s primary mortgage application until or unless an alternative source of funds to close is identified. 3) If the borrower appears eligible for a Home Buyer Loan, the loan originator: a) Prepares the Needs Assessment to estimate the amount of the Home Buyer loan request. b) Confirms that the borrower has verifiable funds available to meet the minimum borrower contribution required by either the lender or LHOP, whichever is greater. c) Reviews the LHOP Addendum to the Standard Agreement of Sale with the borrower, verifies the borrower s signature, and submits a copy with the Home Buyer Loan Application.
Page 8 of 10 4) Upon determining the borrower appears eligible for a Home Buyer loan, the loan originator shall proceed to submit the primary mortgage application and the Home Buyer Loan Application for processing. PLEASE NOTE: LHOP applications must be submitted by Lenders within twenty (20) days of the full execution of the Agreement of Sale to be considered for funding. 5) The loan processor shall proceed to verify all borrower information and to obtain all other information required by the lender to approve the primary mortgage. This includes verification of borrower funds as required by either the lender or LHOP. 6) The loan processor should also review income documentation for other adult household members for compliance with Home Buyer Loan requirements, and work with the loan originator and/or the borrower to obtain any additional information required to complete the Home Buyer Loan Application. 7) The loan processor must insure that the property appraisal is completed by a lender-approved certified appraiser. 8) If repairs are required as a result of the home inspection, a follow-up inspection must be completed prior to closing to verify that all required repairs have been satisfactorily completed. 6. Home Buyer Loan Submission The loan underwriter shall take the following actions prior to submission of the Home Buyer Loan Application to LHOP: 1) Prepare a final Needs Assessment to determine the Home Buyer Loan amount for which the borrower qualifies based on the sales price; the primary loan amount; the required down payment; minimum borrower funds required by either the lender or LHOP; projected settlement costs; borrower s liquid assets; deposits or other costs prepaid by the borrower; gifts or grants available from other sources; and seller contributions. 2) Verify the availability of borrower funds for the greater of (1) the minimum borrower contribution required by either the lender or LHOP, or (2) the amount actually required to close. 3) Review the Household Composition and Annual Household Income Declaration for consistency with the lender s information as reported in the primary mortgage application. Any discrepancies between the primary mortgage application and the Home Buyer Loan Application must be resolved. If necessary, a revised Household Composition and Income Declaration must be prepared and signed by the borrower. 4) Advise the borrower to proceed immediately with the whole house inspection and wood destroying insect infestation (termite) inspection, if these inspections have not already been completed. 5) Review the Lender Timeline/Checklist to insure that all required documents are available for submission to LHOP.
Page 9 of 10 Upon determination that all documentation required for the Home Buyer loan application have been received, the lender may proceed to submit the following documentation to LHOP: 1) The Lender Timeline/Checklist, signed by the Lender and initialed by the Borrower; 2) Primary mortgage loan application. 3) Home Buyer Loan Application, including Needs Assessment, Household Composition and Annual Household Income Declaration. 4) Income documentation: a) Pay receipts and/or other documentation for all sources of income received by all adult household members and reported on the Household Income Declaration, covering the two months period immediately prior to the primary loan application. b) Assurance that the lender has received a full, written, verification of employment from all employers. (If the lender does not require a VOE, LHOP will accept w2 s and paystub documentation received during the application process.) c) Copy of the most recent Federal tax returns for all adult household members, listing dependents to be included as household members, and including W-2 s for all sources of income received in the prior tax year. 5) Account statements covering a period of at least 90 days prior to the date of submission of the primary loan application evidencing the borrower s liquid assets. Additional updated statements as of the date of Home Buyer Loan application submission may also be included, if needed, to document borrower funds required/available for closing. Gift letters that meet the Lender s requirements should also be included for any amounts being contributed by others. 6) Copy of the Credit Report 7) Loan Estimate of settlement costs. 8) LHOP encourages submission of the following additional items with the initial Home Buyer Loan application or as soon as available: a) Primary mortgage loan commitment. b) Property appraisal 7. Home Buyer Loan Processing by LHOP: A complete Home Buyer Loan Application must be submitted by Lenders to LHOP within twenty (20) days of the full execution of the Agreement of Sale to be considered for funding. A complete Home Buyer Loan Application, including all required documentation related to Buyer s income, household members, and funds available for closing, must be received by LHOP to be considered for a loan. LHOP will not accept incomplete applications. To be considered complete, the Home Buyer Loan application must at least include items #1-7 above.
Page 10 of 10 LHOP assumes no liability or responsibility for delays caused by the failure of either the lender or the borrower to meet established submission deadlines. Within no less then fifteen (15) days of receipt of a complete application, LHOP will complete its review and forward a Commitment or Denial Letter to the Lender. Only transactions receiving an LHOP Commitment Letter will be funded. Conditional Home Buyer Loan approvals may be issued subject to completion of repairs. However, checks and loan documents will not be prepared for closing until evidence of completion of repairs and/or code compliance has been received. This evidence must be received by LHOP no later than seven (7) days prior to closing. If repairs cannot reasonably be completed prior to closing, LHOP, in consultation with the Partner Lender, will consider a request to establish an escrow account to fund completion of repairs after closing provided (1) a proposal has been obtained and accepted from a qualified contractor to complete the work within sixty (60) days of closing and (2) an escrow account is established and held by either the lender or the settlement agent for at least 115% of the LHOP expected repair cost. Written confirmation of completion of repairs must be received by LHOP prior to release of escrow funds. 8. Home Buyer Loan Closing: Upon final approval of the Home Buyer Loan Application, LHOP will issue a final letter of approval to borrower, with a copy to the lender, and will prepare documents and checks for closing as necessary. LHOP will notify settlement agent when the check, Home Buyer Loan documents, and appropriate instructions are available. Please provide settlement agent contact information to LHOP at the time of application. The settlement package will include a borrower s release authorizing the lender to share information with LHOP regarding the borrower s payment history. In the event the borrower falls behind with their payments, this release will serve to facilitate an early counseling intervention by LHOP or its designated representative. A copy of this release will be forwarded to the lender by the settlement agent. At least one week prior to closing, the settlement agent shall fax a copy of the Closing Disclosure to LHOP for review and approval. A separate Closing Disclosure is required for the LHOP Loan. Any surplus funds available to borrower at closing must be returned to LHOP as a principal prepayment. No proceeds from closing may be released to the borrower under any circumstances. At closing, the settlement agent shall review all loan documents with the borrower(s), insure that all loan conditions have been met, obtain necessary signatures, disburse funds, and record the LHOP mortgage. All original executed Home Buyer Loan documents are to be returned to LHOP immediately after closing. 9. Subordination of Home Buyer Loans: LHOP will consider requests to subordinate Home Buyer Loans to a new primary mortgage on a case-by-case basis. Please refer to the LHOP Subordination Policy by visiting www.lhop.org or contact us at info@lhop.org or call us at 717-291-9945.