FHA Fixed Rate/Adjustable Rate FHA Streamline Refinances Underwriting Guidelines GFF3000/GFF2000/GFF1500 GAF3115/GAF5115 BSM Direct FHA guidelines have been created to provide guidance and consistency in determining credit decisions. The guides are not all inclusive of different situations that may arise on any given transac tion. BSM Direct reserves the right to apply additional underwriting criteria depending on the overall risk or uniqueness of the file. Amortization: Product is available on 15, 20, 25, and 30 year terms. All arms are 30yr term only. Appraisals and Case Numbers: Appraisals must be completed by approved FHA roster appraisers (General Certified or Certified Residential Only) and include the assigned FHA case number. Appraisers must confirm the subject property meets all HUD minimum property standards. Appraisals must be ordered thru Novo Appraisal Management. Appraisals are valid for 120 days. All case number requests must include certification of an active loan application and accepted, fully executed sales contract as of the date of the case number request. Orders will not be accepted until this certification can be made. Appraisal date cannot precede the date of the c ase number assignment.
Assets: Documentation of assets will be based on AUS findings with the following additional requirements. All online or other activity printouts must clearly identify the borrower, the bank name and account number. Verification of full account numbers will be required if not found on full statements or printouts. Mutual funds, Stocks, and Bonds must be discounted by 30% of the available balance. Retirement accounts must be discounted by 40% of the vested balance after any outstanding loans. Deposits that are not verified from payroll, retirement, SSA, disability sources and are deemed to be excessive must be documented with a satisfactory letter of explanation and supporting documentation. Factors in determining if a deposit is deemed to be excessive may include: The borrower s income stream. The borrower s recent history of cash withdrawals. The borrower s typical history and spending habits. The percentage of the deposits in relation to the borrower s overall asset portfolio. If credited at closing, all earnest money deposits must be documented with a copy of the cancelled check and the bank statement reflecting the funds drawn from the borrower s account. Any large/non payroll deposits must be documented in accordance with HUD guides. Self employed borrowers wishing to use assets held in the business name may be subject to additional documentation requirements in order to consider the funds acceptable for closing. Cash on Hand: Not allowed Condominiums: Allowed only if currently on the FHA Condo HRAP/DELRAP approval list (found at https://e ntp.hud.gov/idapp/html/condlook.cfm). A copy of the HUD approval must be in the file at the time of submission and will be required in order to place a case number/appraisal request. In addition to HUD approval, the following must be provided to comply with FHA loan level certification requirements: 1. Fully completed Condo Questionnaire.
Construction Perm Refinance: 2. Projects completed or converted in last 5 years and/or the builder is still in control of the complex, a fully executed pre sale certification with acceptable supporting documentation must be provided by the builder. 3. For projects with a CO issues date within the last 12 months, new FHA construction documents will be required. 4. Copy of Current Homeowners Insurance and Master Policy meeting FHA requirements: A. 100% coverage required the borrower MAY NOT obtain gap coverage to meet this requirement. B. Flood Insurance provided by the HOA (if located within a special flood hazard area. Flood Insurance must protect the interests of the unit owners as well as the common areas. C. HO 6/Walls in policy when the master policy does not include interior coverage. The cost of any additional coverage must be included in monthly escrows. Used for payoff of a construction note on a newly constructed dwelling only. Transactions will be treated as a refinance only and borrower must be the current owner of record. Acceptable documentation of acquisition cost is required on all properties. LTV calculation as follows: Hud 1 settlement statement and recorded deed from purchase of land (if owned greater than 6 months or received as gift/inheritance then current value from appraisal cost breakdown will be used). Hud 1 settlement statement from construction loan closing, if separate from land transaction. Construction contract from builder/contractor or construction statement with breakdown of costs signed by the borrower or builder. Appraisals cannot be performed prior to the home being at least 90% complete. FHA new construction exhibits will be required (Building permit, fully executed builders certification, HUD 1 year Builder Warranty). A certificate of occupancy will be required at closing. A three day right of rescission will be required when the property is appraised as owner occupied rather than vacant or photos reflect the home is already being occupied.
Credit Report: Credit Reports are valid for 90 days. Credit Score and Credit Requirements: All borrowers must have a minimum 620 credit score. Streamline refinances have a minimum 640 credit score. Borrowers with no credit scores are not eligible under any circumstance. In addition to credit score requirements, every borrower must meet the following requirements on transactions with an AUS approval: Trade Lines *3 trade lines required reporting for a minimum of 12 months during the past 3 years Mortgage/Housing 0 x 30 in last 12 months Chapter 7 Bankruptcy Discharged for at least 2 years Chapter 13 Bankruptcy 1 year in repayment plan, 12 months timely payments and CCCS required with court approval to enter new mortgage Foreclosure None in last 3 years. *Authorized User and Deferred Student loan cannot be used meet trade line requirement. In addition to credit score requirements, every borrower must meet the following on transactions that receive a Caution/Refer: Trade Lines *3 trade lines required reporting for a minimum of 12 months during the past 3 years Mortgage/Housing 0 x 30 Revolving 3 x 30 in past 12 months 5 x 30 and 2 x 60 in past 13 24 months Installment 0 x 30 in past 12 months 1 x 30 and 0 x 60 in past 13 24 months Chapter 7 Bankruptcy Discharged for at least 2 years Chapter 13 Bankruptcy 1 year in repayment plan, 12 months timely payments and CCCS required with court approval to enter new mortgage Foreclosure None in last 3 years. *Authorized User and Deferred Student loan cannot be used meet trade line requirement. Borrowers with a Bankruptcy, Foreclosure, or Short Sale not meeting the above seasoning requirements may still be considered acceptable if all requirements of HUD Mortgagee letter 2013 26 ( Back to work Extenuating Circumstances) can be met.
Collections, judgments, and liens are an indication of a borrowers willingness and ability to repay and will be considered in the overall credit evaluation outside the AUS review. Effective for case numbers assigned after 10/15,2013, the handling of collections and disputed accounts must meet the criteria set forth in Mortgagee Letters 2013 24 and 2013 25 AUS Manual Downgrade Policy In the event that credit terms or other loan information was not considered in the AUS decision, an Approve/Eligible decision must be downgraded to a refer and manually underwritten. Circumstances requiring a downgrade, if not considered in the AUS decision include but are not limited to: Delinquent federal debt, CAIVRS, and individuals on the LDP and/or GSA list. If the files meets criteria in Mortgagee Letters 2013 24 and 2013 25 that mandate a downgrade to a manual u/w. Loans manually downgraded must meet credit requirements on caution/refer grid above. Documentation: On accept/eligible transactions, AUS findings will determine asset and income documentation. Paystubs meeting DU documentation requirements will be required on all transactions. Manually down graded loans or loans receiving a refer or caution will require last 2 years W 2s, 2 months bank statements along with paystubs c overing a 30 day period. Down Payment Assistance: Seller funded down payment assistance gifts are not allowed. Hud approved grant and community second programs are eligible if they are approved with BSM. Please contact Secondary Marketing for approved companies. The maximum CLTV allowable is 108%.
Eligible Borrowers: U.S. Citizens and permanent resident aliens are allowed under standard underwriting guidelines. All borrowers must have a valid social security number and a minimum of 2 years residency and employment in the United States. Permanent resident aliens must provide evidence of lawful residency form the Bureau of Citizenship and Immigration Services. Non permanent resident aliens are eligible for financing under the following conditions: Must have valid SSN and acceptable Visa classification or EAD Card (see Underwriting Evidence of eligibility to work in the US issued by the BCIS. Eligible for Government Financing: A clear CAIVR number will be required for all borrowers on all transaction types with the exception of streamline refinances. Defaulted government loans require a 3 year waiting period from the date paid which must be verified by an FHA approved Underwriter. All parties to the transaction (purchaser, seller, realtors, closing agent, Loan Officer, Loan Processor, Appraiser) must be checked against the FHA, LDP, and GSA list for eligibility. These lists must be checked on all loans including streamline refinances. Employment/Income: All borrowers must be on their job a minimum of 30 days and have a paystub that reflects a minimum of 30 days earnings documented in loan file prior to loan closing. Income documentation will be determined by AUS system on accept/eligible transactions. Manually downgraded and refer/caution transactions will require 2yrs W 2s along with paystubs covering a 30 day period. A verbal verification of employment will be conducted within 10 business days prior to closing on all loans.
A 4506T will be executed for the most recent year for all borrowers, unless selfemployed which will require 2 years. Escrows: Escrow accounts are required on all FHA transactions. Gifts: Gifts are allowed. A fully executed gift letter confirming no repayment will be required. The gift letter must include name, address, and relationship of the donor, both borrower and donor signatures and confirm the funds were not made available from any party to the transaction. The file must also contain proof of the donor s withdrawal of the gift funds in the form of a cancelled check, withdrawal or other evidence of withdrawal prior to closing. Transfer of gift funds must be documented. Donor s with large deposits prior to the gift being transferred will be required to source the funds gifts cannot be given by any interested party to the transaction. Eligible donors include: Relative by blood, marriage, or law. Borrower s employer Charitable organization Government agency providing homeownership assistance Unrelated individual that can document a longstanding and substantial relationship that did not arise out of the transaction. Hazard Insurance: Hazard policy deductibles are not to exceed 1% Identity of Interest: Identity of interest transactions are restricted to a maximum LTV of 85% except under the following circumstances: A family member purchases another family member s current home as a principal residence. An employee of a builder purchases one of the builder s new homes or model homes as a principal residence. A current tenant who has a business or family type relationship with the landlord, purchases the property that he or she has rented for at least
six months preceding the sales contract. Evidence of occupancy must be provided. A corporation transfers an employee to another location purchases that employee s home and then sells the home to another employee. Interest Credit: Interest credits up to a maximum of 5 days will be allowed provided it is in the best interest of the borrower. Maximum Loan Amount and LTV: The maximum insurable loan amount is the lesser of the published statutory loan limits for the area, or the LTV as outlined below. Current FHA statutory loan limits can be found on line at https://entp.hud.gov.idapp/html/hicostlook.cfm Loan Purpose # Units Maximum LTV/CLTV Lesser of Sales Price or Appraised Value Purchase 1 4 Unit 96.5%**/105% Based on Lesser of Sales Price or Appraised Value No Cash Out 1 4 Unit 97.75%/105% Use Appraised Value Refinance (or Acquisition if owned less than 12 months) Construction to 1 Unit 96.50%/96.50% Based on Lesser of Permanent Refi Documented Acquisition cost or Appraised value Cash Out 1 4 Unit 85%/85% Use Appraised Value (or Acquisition if owned less than 12 months) **Please note HUD REO properties with as little as $100 down are available see specific guidelines for details.
Mortgage Insurance: FHA charges an upfront premium of 1.75% on all transactions regardless of credit score or down payment. Note: MIP for streamline refinances may vary depending on original insuring date. Please check for specifics. Annual premiums (monthly mortgage insurance) are also charged and listed below: LTV Annual for Loans>15 Years LTV Annual for Loans<15 Years <78 None <95.80 78.01 90.45* >95.85 >90.70 Effective with case numbers assigned on or after June 3, 2013, monthly MI will be terminated according to the following guides regardless of amortization term: Mortgage involving an original principal obligation (before UFMIP) less than or equal to 90%, the annual MIP will be assessed until the end of the original mortgage term, or for the first 11 years of the term, whichever occurs first. Mortgages involving an original principal obligation (before UFMIP) greater than 90%, annual MIP will assessed until the end of the mortgage term. Multiple Property Ownership: A borrower owning a home with a FHA mortgage may not purchase another principal residence using FHA financing, except under the following circumstances: Policy Exception Relocation Increase in Family Size Eligibility Requirements A borrower may be eligible to obtain another FHAinsured mortgage without being required to sell an existing property covered by an FHA insured mortgage if the borrower is: Relocating, and Establishing residency in an area outside reasonable commuting distance from his/her current principal residence A borrower may be eligible for another home with an FHA insured mortgage if the number of his/her dependents increases to the point that the present house no longer meets the family s needs.
Vacating a jointly owned property The borrower must provide satisfactory evidence: Of the increase in dependents and property s failure to meet family needs and That the LTV ratio equals 75% or less, based on the outstanding mortgage balance and current appraisal. If not, the borrower must pay the loan down to 75% LTV or less. A borrower may be eligible for another FHA insured mortgage if he/she is vacating a residence that will remain occupied by a co borrower. Non Occupant Co Borrower: Non occupying co A borrower may be qualified for an FHA insured borrower mortgage on his/her own principal residence ev he/she is a non occupying co borrower with a If applicants do not meet interest any of the in criteria a property above, being the current purchased FHA by loan other must fa be paid down to 75.00% in members order to obtain as their a new principal FHA loan. residence with an F insured mortgage. Non occupant co borrowers are allowed on purchases and rate/term refinances only. Mortgages with non occupying borrowers are limited to one unit properties if the LTV exceeds 75%. Occupancy: Primary residence only. Borrowers must occupy property within 60 days of closing. Principal Residence Conversion: Rental Income from recently vacated primary residences may NOT be used for qualifying unless one of the two following exceptions can be met: Employer relocation to an area not within a reasonable commuting distance. Verified sufficient equity in the present home equal to 25% or more as determined by current appraisal.
Property Flipping: For properties where title has transferred in the last 12 months, there are additional financing restrictions and/or additional documentation requirements: If the transfer was 90 days or less, the property is only eligible for financing if the current property owner (seller) is HUD, government or state agency, federal or state bank, FNMA, FHMLC or properties located in a federally declared disaster area, two appraisals are required. FHA loan submitted to underwriting, however contract was written < 90 days. Remember the 90 day count is between Seller s acquisition date per hud 1 and the sales contract date. Please be mindful if the loan has been fully underwritten then it should be denied and the following steps must take place: FHA Case # cancelled Appraisal order Cancelled ASAP. If already completed, then appraiser will have to re inspect for new loan and add l fees incurred. (Same if 2 nd appraisal ordered) New contract rewritten after 90 day time frame New loan application New Case # ordered Effective date of new appraisal (and 2 nd appraisal is required due to sales price/value increase) must be after FHA new case # ordered. UW to make notes to file why previous loan was denied since both the case # will show the prior loan and fraud services, REALQUEST, will show prior loan application with us If the transfer was 91 to 180 days, a second appraisal is required if the current sales price is 100% higher than seller s original
acquisition cost. A Hud 1 from that transaction is required. Property Requirements: If the transfer was 181 365 days, the HUD 1 from the original purchase must be provided. Value must be reasonable. The following documents and/or inspections will be required as determined by the appraisal and age of the property. New/Never occupied (less than year): Fully completed and executed Builders Certification HUD Builders Warranty ( HUD 92544) Building Permit and Certificate of Occupancy or 10 year warranty issued by a HUD approved Warranty Company. Wood infestation report/soil Treatment Guarantee (HUD,NPCA, or NPMA 99A & B) Local Health Authority Approval of individual water supply and/or sewage disposal system ( if applicable) Existing (Previously occupied or New over 1 year old evidenced by CO) Well Test and/or Septic Inspection by local authority or acceptable third party as required by appraiser or sale contract. Wood infestation report/termite letter as required by appraiser and/or sales contract. Property Type: Eligible properties include single family attached and detached, 2 4 units, modular homes, FHA approved Condos and PUDs. HUD REO properties are eligible, with as little as $100 down payment. See specific product description for details. Ineligible properties include manufactured homes, condo hotels, log homes, leaseholds, mixed use properties, unique properties, and working farms. Qualifying Ratios: Standard guideline is 50%. DTI s up to 55% will be allowed if the follow criteria are met: AUS Approval Payment shock cannot exceed 100% VOR required for min 12 months is required
For manually underwritten loans including those manually downgraded by the underwriter, qualifying ratios are 31/43. Newly constructed properties meeting energy efficient standards may be underwritten to expanded ratios of 33/45. Refinances: Eligible refinances include credit qualifying no cash out, cash out, and stream line refinances without an appraisal. No cash out transactions and streamline refinances may not receive more than $500 cash back at closing. HELOC s may be included in payoff in no cash out transaction as long as the following two conditions can be met: The HELOC has been open for a minimum of 12 months. Documented draws over the most recent 12 month period total less than $1000. Proceeds from cash out refinances cannot be used to buy out or pay off a Chapter 13 bankruptcy. If a property is owned less than 12 months (for rate/term and cash out) the LTV will be based on the lesser of the current appraised value or the original acquisition cost. Properties currently listed for sale are not eligible for refinancing. If the listing was withdrawn or expired 1 day prior to application, the property is eligible for rate/term transactions. Cash out refinances on recently listed properties will be limited to 70% of the lesser of the last list price or current value unless a minimum of 6 months has passed from the withdrawal or expiration date. A copy of the withdrawn/expired listing will be required. Negative interest reflected on a payoff that is the result of a prior loan modification MAY NOT be included in the new loan amount financed. All borrowers on cash out refinances must be occupants. A non occupant may NOT be added to assist with qualifying on a cash out transaction regardless of LTV. Cash out transactions, with the exception of homes owned free and clear, require a minimum of 6 months payment history with the current servicer to be eligible for cash out. Cash out refinances for the payoff of land contacts are subject to payment seasoning and LTV limitations. Refer to the Streamline Refinance section for additional guidelines related to FHA Streamlines.
Real Estate Commission: Real estate commission is limited to total of 8%. Re negotiated Sales Contrac ts: BSM will not accept re negotiated sales contracts that increase the sales price after the original appraisal has been completed if: The appraised value is higher than the contracted sales provided to the appraiser, AND The new purchase agreement and/or addendum used to modify the sales price is dated after the appraisal is received, AND The only change to the purchase agreement is an increase to sale price. If the purchase agreement is re negotiated following the completion of the appraisal, the loan to value will be based on the lower of the original purchase price or the appraised value, UNLESS: Re negotiation of only seller paid closing costs and/or pre paids when seller paid closing costs/pre paids are common and customary for the market and supported by the comparables, OR An amended sales contract for new construction is obtained due to improvements that have been made that impact the tangible value of the property. In the event of such changes, an updated appraisal must be obtained to verify the value of the modifications/changes. Reserves: For 1 2 unit properties, reserves are not required unless required by AUS approval. For 3 4 unit properties, 3 months reserves are required regardless of AUS approval. Retirement funds that can be liquidated upon retirement or termination may not be used for reserves. Only 60% of vested balance may be used once account is confirmed acceptable for use. Right of Redemption: Properties subject to a right of redemption are eligible for financing with proper title coverage and redemption bond.
Seller Contribution: Seller contributions up to 6% are allowed. Streamline Refinance For all Streamline Refinances, the following guide lines apply: A credit report with at least 2 scores will be required. Minimum credit score is 640 for all borrowers. The current mortgage account must reflect a 0 x 30 history for the last 12 months (minimum 6 months with current servicer as of the date of application or case number assignment or must be submitted as credit qualifying). Self employed borrower must be able to document selfemployment history for minimum of 2 years with business license or CPA confirmation. Borrowers who receive income from retirement, pension, social security or disability must provide awards letter, 1099 or retirement letter to document source of income. If assets are required for closing, they must be documented according to standard asset verification requirements with 2 months bank statements. Maximum base loan amounts for Streamline refinances without an appraisal will be limited to the outstanding principal balance, the current interest charged by the servicing lender on the payoff ( maximum 60 days), monthly MIP collected by the servicing lender (maximum 60 days) less any applicable UFMIP refund. Late charges, delinquent interest, escrow shortages, fax/deed fees and all new closing costs, prepaid escrows, and interim interest must be paid by the borrower. The maximum loan term on a streamline refinance without an appraisal is limited to the lesser of 30 years or the remaining loan term plus 12 years. The value for streamline refinances without an appraisal will be based on the original appraised value as verified on the FHA refinance authorization.
Only Single Family residences are eligible All borrowers must meet FHA s net tangible benefit as outlined on the following chart. Reducing the term of the mortgage, in and of itself, is not a net tangible benefit. To: From: Fixed Rate One Year Arm Hybrid Arm During Fixed Period Hybrid Arm During Adjustable Fixed Rate One Year Arm Hybrid Arm Reduction of at least 5% of P&I New interest rate at least 2% below Reduction of at least 5% of P&I and MIP the current and MIP interest rate of the fixed rate mortgage. New interest rate Reduction of at New interest no greater than least 5% of P&I rate at least 2% 2% above the and MIP below the current interest current interest rate of the ARM rate of the arm. Reduction of at least 5% of P&I and MIP New interest rate no greater than 2% above the New interest rate at least 2% below the current interest rate of the arm. Reduction of at least 5% of P&I and MIP Reduction of at least 5% of P&I and MIP New interest rate at least 2% below the Period current interest current interest rate of the ARM rate of the arm. MIP rates: **Please follow FHA MIP chart Example: If the FHA loan we are refinancing was endorsed by FHA on or before May 31 2009, then the factors are.10/.55. If the loan we are refinancing was endorsed by FHA after May 2009, then it follows the standard MIP rates for all purchases/streamlines. When the FHA Case # and ReFi Authorization is ordered FHA Connection will extend the appropriate MIP factor. *Any loan not meeting the above criteria must be submitted, underwritten, and closed as full documentation rate/term refinance.
Subordinate Financing: Subordinate financing on a purchase is acceptable provided the source meets both FHA and LSM investor guidelines. A copy of all grant or loan documents must be provided with the submission package. Verification of borrower approval, meeting all terms of subordinate lender or grant organization will also be required as a condition of first mortgage approval. The borrower must be qualified with any required payments on the subordinate lien. Terms of the subordinate lien must meet all applicable FHA guidelines as set forth in the 4155.1 Rev 5. Permissible subordinate lending arrangements include: Government Agencies as described by HUD. Max CLTV 105% Non Profit Agencies as described by HUD. Max CLTV 105% Federally regulated financial institutions. Max CLTV 105% On rate/term refinances, subordinate financing can remain in place. The borrower must qualify with all payments. A subordination agreement will be required along with the copy of the note to verify the terms are acceptable to FHA. Qualifying payments on subject property equity lines will be based on the current payment reported on the credit report. Title Commitments: Full commitment with 24 month chain of title will be required. Seller name on the contract must match owner of record, as of the date of the buyer s offer. Any discrepancy may require additional documentation. Properties held in corporation names, LLC s, and Relocation companies will require documentation to show authorized signor for contract and closing.
Underwriting: All loans with the exception of streamline refinances must be scored using FHA Total Scorecard through DU. Loans receiving Refer/Caution will be manually underwritten to BSM Direct guidelines. Please refer to the 4000.1 handbook for any question(s) not addressed in this guideline.