FHA Guidelines
Introduction
These program guidelines provide a general overview of the FHA products and policies eligible for delivery to Endeavor America (EALS) for financing consideration. The details
are based on the policies outlined in the applicable HUD handbooks and mortgagee letters. This document should be used solely as a reference to EALS’ interpretation of the
HUD/FHA guidelines and does not constitute a commitment to lend.
STAR
 30 year Fixed
 15 year Fixed
680 minimum FICO
AUS Approve/Eligible
1 unit only
$150,000 minimum loan
Max DTI 50%
Standard
 30 year Fixed
 15 year Fixed
640 minimum FICO
AUS Approve/Eligible
1 – 4 unit family
Advantage
 30 year Fixed
 15 year Fixed
580 minimum FICO
AUS Approve/Eligible;
AUS Refer/Eligible; manual underwrites
1-4 unit family
Standard Balance
Loan Purpose
Units
FICO1
LTV
CLTV
Purchase
1-4
580
96.50%2,3
96.50%2,3,4
Primary
Rate/Term Refinance
1-4
580
97.75%
97.75%
Cash-out Refinance
1-4
580
85%
85%
6,7
6,7
Streamline
Refinance
1
4
580
97.75%
125%
All5
6,7
Streamline Refis, Mortgage Rating Only
1-4
580
97.75%
125%6,7
High Balance
Occupancy
Loan Purpose
Units
FICO2
LTV
CLTV
Purchase
1-4
580
96.50%2,3
96.50%2,3,4
Primary
Rate/Term Refinance
1-4
580
97.75%
97.75%
Cash-out Refinance
1-4
580
85%
85%
Streamline Refinance4
1-4
580
97.75%6,7
125%6,7
1
All
Streamline Refis, Mortgage Rating Only
1-4
580
97.75%6,7
125%6,7
8
Mortgage Insurance Factors for case assignments on/after June 3, 2013
Base Loan
>15 years Term
≤15 years Term
LTV
UFMIP
Annual 9
LTV
UFMIP
Annual 9
≤ 78%
1.30%
≤ 78%
0.45%
≤ $625,000
> 78% and ≤ 95%
1.30%
> 78% and ≤ 95%
0.45%
> 95%
1.35%
> 95%
0.70%
1.75%
1.75%
≤ 78%
1.30%
≤ 78%
0.45%
> $625,000
> 78% and ≤ 95%
1.50%
> 78% and ≤ 95%
0.70%
> 95%
1.55%
> 95%
0.95%
Streamline Refinance endorsed on/before 5/31/2009
1.75% UFMIP
0.01% annual MIP
Maximum Loan Limits10
Region
1 unit
2 units
3 units
4 units
Low Cost Area
$271,050
$347,000
$419,425
$521,250
High Cost Area
$625,500
$800,775
$967,425
$1,202,925
AK
$938,350
$1,201,150
$1,451,925
$1,804,375
Occupancy
Endeavor America Loan Services
HA Guidelines
11-18-2014
Notes
1. The lowest FICO is shown per FHA Advantage program. Please refer
to the specific loan program for the minimum FICO required: 680
for STAR; 640 for Standard; 580 for Advantage, as well as the
underwriting options (AUS Approve/Eligible or AUS Refer/Eligible
or manual underwrites).
2. For HUD REO with repair escrow, the max LTV/CLTV is 110%.
3. For HUD REO $100 Down Payment purchase, the max LTV/CLTV is
100%.
4. CLTV may be exceeded if secondary financing is provided by a
government agency. However, the total of all liens cannot exceed
100% of the acquisition costs.
5. All occupancy types including primary, second home and
investment are permitted for streamline refinances. Second
homes and investment properties may only refinance the
outstanding principal balance.
6. For Streamline Refinance with NO appraisal, the max LTV/CLTV is
based on the original property value entered into FHA Connection
as verified with the FHA Refinance Authorization Results.
7. For Streamline Refinance with an appraisal, the max CTLV cannot
exceed 125% based on an updated exterior appraisal (Forms 2055
for SFD/PUD or 1075 for condo) completed by state licensed
appraiser.
8. The mortgage insurance factors apply to purchases, rate/term
refinances, cash-out refinances, and streamline refinances in which
the existing FHA loan was endorsed after 5/31/2009.
9. Annual MIP assessment period is as follows:
> 90% LTV: Life of the loan;
≤ 90% LTV: 11 years
10. Refer to HUD website for the FHA statutory loan limit per county
11. FICO <620 max cash in hand $2000,
12. FICO <620 may not own another property (see page 40)
13. FICO <620 recent installment lates in the last six months are not
eligible
14. FICO <620 NSF fee/charges are not eligible
15. FICO<620 must have min three active trade lines reporting
satisfactorily/OR verified housing history with 0x30
16. FICO 620-639 must have one satisfactory tradeline rated 0x30 for
the most recent 12 months, otherwise, VOR required.
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FHA Guidelines
Endeavor America’s Credit Philosophy .................................................................................................................................................................................................. 13
Ability to Repay/ Qualified Mortgage .................................................................................................................................................................................................... 13
Age of Documents .................................................................................................................................................................................................................................. 13
Credit Documents .............................................................................................................................................................................................................................. 13
Appraisal ............................................................................................................................................................................................................................................ 13
Title Binder ......................................................................................................................................................................................................................................... 14
Well Test/Septic Certification ............................................................................................................................................................................................................ 14
Appraisal ................................................................................................................................................................................................................................................ 14
General Information .......................................................................................................................................................................................................................... 14
Appraisal Form Requirements ........................................................................................................................................................................................................... 14
Acreage .............................................................................................................................................................................................................................................. 15
Accessory Dwelling (ADU) .................................................................................................................................................................................................................. 15
Age Restricted Properties (55+ Senior Communities) ....................................................................................................................................................................... 15
Condominiums ................................................................................................................................................................................................................................... 16
Declining Market ................................................................................................................................................................................................................................ 16
Mixed Use .......................................................................................................................................................................................................................................... 16
Minimum Property Requirements (MPRs) ........................................................................................................................................................................................ 17
Multi-Unit (2-4 Unit) Subject Property .............................................................................................................................................................................................. 17
New Construction .............................................................................................................................................................................................................................. 17
New Construction Exhibits ................................................................................................................................................................................................................. 19
Properties Listed for Sale ................................................................................................................................................................................................................... 20
Property Flipping ................................................................................................................................................................................................................................ 21
Exceptions to 90-Day Restriction ................................................................................................................................................................................................... 21
Temporary Flip Waiver................................................................................................................................................................................................................... 22
Resales Occurring Between 91 and 180 Days After Acquisition .................................................................................................................................................... 22
Resales Occurring Between 91 and 12 Months After Acquisition ................................................................................................................................................. 22
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HA Guidelines
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Well Test and Septic Certification ...................................................................................................................................................................................................... 23
Private Well .................................................................................................................................................................................................................................... 23
Individual Septic System ................................................................................................................................................................................................................ 23
Assets ..................................................................................................................................................................................................................................................... 24
Bank Statements ................................................................................................................................................................................................................................ 24
Checking and Savings ..................................................................................................................................................................................................................... 24
Large Deposits ................................................................................................................................................................................................................................ 24
Insufficient Funds (NSF) ................................................................................................................................................................................................................. 24
Business Funds ................................................................................................................................................................................................................................... 24
Cash Saved at Home .......................................................................................................................................................................................................................... 25
Down Payment and Closing Costs...................................................................................................................................................................................................... 25
Earnest Money ................................................................................................................................................................................................................................... 25
Employer Assistance/ Relocation Guaranteed Purchase ................................................................................................................................................................... 26
Relocation Guaranteed Purchase .................................................................................................................................................................................................. 26
Employer Assistance Plans ............................................................................................................................................................................................................. 26
Gift Funds ........................................................................................................................................................................................................................................... 26
Gift Letter ....................................................................................................................................................................................................................................... 26
Donors ............................................................................................................................................................................................................................................ 26
Acceptable Gift Funds Source ........................................................................................................................................................................................................ 27
Gift Transfer ................................................................................................................................................................................................................................... 27
DU Data Integrity ........................................................................................................................................................................................................................... 28
Gift of Equity .................................................................................................................................................................................................................................. 29
Consumer Debts Paid with Gift Funds ........................................................................................................................................................................................... 29
Real Estate Commission ..................................................................................................................................................................................................................... 29
Rent Credit ......................................................................................................................................................................................................................................... 29
Reserves ............................................................................................................................................................................................................................................. 30
Retirement Accounts ......................................................................................................................................................................................................................... 30
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HA Guidelines
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FHA Guidelines
Sale of Home Proceeds ...................................................................................................................................................................................................................... 31
Sale of Personal Property................................................................................................................................................................................................................... 31
Stocks and Bonds ............................................................................................................................................................................................................................... 31
Sweat Equity ...................................................................................................................................................................................................................................... 31
Sweat Equity Category ....................................................................................................................................................................................................................... 32
Requirement(s) .................................................................................................................................................................................................................................. 32
Unacceptable Assets .......................................................................................................................................................................................................................... 32
Assumability ........................................................................................................................................................................................................................................... 33
Borrower Eligibility ................................................................................................................................................................................................................................. 33
All Borrowers...................................................................................................................................................................................................................................... 33
Permanent Resident Aliens ................................................................................................................................................................................................................ 33
Non-Permanent Resident Aliens ........................................................................................................................................................................................................ 33
Co-Borrowers ..................................................................................................................................................................................................................................... 34
Non-Occupant Co-Borrower .............................................................................................................................................................................................................. 34
Non-Borrowing Spouse ...................................................................................................................................................................................................................... 35
Military Personnel .............................................................................................................................................................................................................................. 35
Multiple FHA Loans ............................................................................................................................................................................................................................ 35
FHA 7-Unit Limitation......................................................................................................................................................................................................................... 36
CAIVRS .................................................................................................................................................................................................................................................... 36
CAIVRS .................................................................................................................................................................................................................................................... 37
LDP/SAM ................................................................................................................................................................................................................................................ 37
Credit and Liabilities............................................................................................................................................................................................................................... 37
Credit Report and Loan Decision Score ............................................................................................................................................................................................. 37
Analysis of Credit ............................................................................................................................................................................................................................... 38
Authorized User Accounts ................................................................................................................................................................................................................. 38
Insufficient Credit............................................................................................................................................................................................................................... 39
Non-Traditional Credit ....................................................................................................................................................................................................................... 39
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HA Guidelines
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FHA Guidelines
30-Day Charge Accounts .................................................................................................................................................................................................................... 40
Adverse Credit.................................................................................................................................................................................................................................... 40
Alimony/Child Support....................................................................................................................................................................................................................... 41
Bankruptcy ......................................................................................................................................................................................................................................... 41
Chapter 7........................................................................................................................................................................................................................................ 41
Chapter 13...................................................................................................................................................................................................................................... 41
Collections .......................................................................................................................................................................................................................................... 41
Capacity Analysis ................................................................................................................................................................................................................................ 42
Consumer Credit Counseling.............................................................................................................................................................................................................. 43
Contingent Liability ............................................................................................................................................................................................................................ 43
Mortgage Assumption ....................................................................................................................................................................................................................... 43
Co-Signed Loan.................................................................................................................................................................................................................................. 44
Business Loan ..................................................................................................................................................................................................................................... 44
Sole Proprietorship and Partnership.............................................................................................................................................................................................. 44
Corporation Including S-Corp. and Most LLCs ............................................................................................................................................................................... 44
Deferred Student Loans ..................................................................................................................................................................................................................... 44
Disputed Accounts ............................................................................................................................................................................................................................. 44
Disputed Accounts (continued) ......................................................................................................................................................................................................... 45
Delinquent Federal Debt .................................................................................................................................................................................................................... 45
Foreclosures/Deed-in-Lieu ................................................................................................................................................................................................................. 46
Second Mortgage Foreclosure ....................................................................................................................................................................................................... 46
Housing History .................................................................................................................................................................................................................................. 47
Inquiries and Undisclosed Debt(s) ..................................................................................................................................................................................................... 47
Judgments .......................................................................................................................................................................................................................................... 48
Modified/Restructured Loans ............................................................................................................................................................................................................ 48
Debt Payoff to Qualify ........................................................................................................................................................................................................................ 48
Recurring Debts.................................................................................................................................................................................................................................. 48
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HA Guidelines
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FHA Guidelines
Short Sale/Pre-Foreclosure ................................................................................................................................................................................................................ 49
Mortgage Current at the Time of Short Sale.................................................................................................................................................................................. 49
Defaulted Mortgage at the Time of Short Sale .............................................................................................................................................................................. 49
Tax Liens ............................................................................................................................................................................................................................................. 49
Community Property States ............................................................................................................................................................................................................... 50
Disaster Re-inspections ...................................................................................................................................................................................................................... 50
Eligible Properties .............................................................................................................................................................................................................................. 51
Ineligible Properties ........................................................................................................................................................................................................................... 51
Eligible Transactions........................................................................................................................................................................................................................... 52
Purchase ......................................................................................................................................................................................................................................... 52
Refinance ....................................................................................................................................................................................................................................... 52
Ineligible Products or Transactions .................................................................................................................................................................................................... 52
Employment and Income Documentation ............................................................................................................................................................................................. 52
General Information and Requirements ............................................................................................................................................................................................ 52
Current Employment.......................................................................................................................................................................................................................... 53
Employment History .......................................................................................................................................................................................................................... 53
Employment Gaps .............................................................................................................................................................................................................................. 53
Alimony/Child Support....................................................................................................................................................................................................................... 54
Auto Allowance .................................................................................................................................................................................................................................. 54
Bonus and Overtime .......................................................................................................................................................................................................................... 54
Capital Gains/Losses .......................................................................................................................................................................................................................... 55
Commission Income ........................................................................................................................................................................................................................... 55
Disability Income ................................................................................................................................................................................................................................ 56
Family Employer................................................................................................................................................................................................................................. 56
Farm Income/Loss .............................................................................................................................................................................................................................. 56
Interest and Dividend......................................................................................................................................................................................................................... 57
Military Income .................................................................................................................................................................................................................................. 57
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HA Guidelines
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Active Duty ..................................................................................................................................................................................................................................... 57
Reserve/National Guard ................................................................................................................................................................................................................ 57
VA Benefits ..................................................................................................................................................................................................................................... 58
Non-Taxable Income .......................................................................................................................................................................................................................... 58
Part-Time and Seasonal ..................................................................................................................................................................................................................... 58
Parsonage Housing Allowance ........................................................................................................................................................................................................... 59
Projected Income ............................................................................................................................................................................................................................... 59
Rental Income .................................................................................................................................................................................................................................... 59
2-4 Unit Subject Property............................................................................................................................................................................................................... 59
Conversion of Primary Residence into Rental.................................................................................................................................................................................... 60
Other Investment Properties ............................................................................................................................................................................................................. 61
Retirement Income ............................................................................................................................................................................................................................ 61
Self-Employed Borrower .................................................................................................................................................................................................................... 62
Self-Employed Documentation Requirements .............................................................................................................................................................................. 62
Business Tax Returns...................................................................................................................................................................................................................... 62
Self-Employed Borrower Profit and Loss; Balance Sheet .............................................................................................................................................................. 63
Social Security Benefits ...................................................................................................................................................................................................................... 63
Tip Income.......................................................................................................................................................................................................................................... 64
Escrows/Insurance ................................................................................................................................................................................................................................. 65
Hazard Insurance ............................................................................................................................................................................................................................... 65
General Requirements ................................................................................................................................................................................................................... 65
Manufactured Homes .................................................................................................................................................................................................................... 65
Coverage Requirements................................................................................................................................................................................................................. 65
Deductibles .................................................................................................................................................................................................................................... 65
Refinance ....................................................................................................................................................................................................................................... 65
Flood Insurance .................................................................................................................................................................................................................................. 65
Wind Insurance .................................................................................................................................................................................................................................. 66
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HA Guidelines
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FHA Guidelines
Real Estate Taxes.................................................................................................................................................................................................................................... 66
Property Tax Calculation .................................................................................................................................................................................................................... 66
States with Taxes Paid in Arrears ................................................................................................................................................................................................... 66
Escrow Holdbacks .................................................................................................................................................................................................................................. 67
Identity-of-Interest ................................................................................................................................................................................................................................ 67
Interested Party Concessions ................................................................................................................................................................................................................. 67
Maximum Loan Amount ........................................................................................................................................................................................................................ 67
Maximum Loan Term ............................................................................................................................................................................................................................. 68
Mortgage Insurance UFMIP/Monthly MIP ............................................................................................................................................................................................ 68
Occupancy .............................................................................................................................................................................................................................................. 69
Power of Attorney.................................................................................................................................................................................................................................. 69
Qualifying ............................................................................................................................................................................................................................................... 69
AUS TOTAL Scorecard Approvals ....................................................................................................................................................................................................... 69
Manual Underwrites .......................................................................................................................................................................................................................... 69
Purchases ............................................................................................................................................................................................................................................... 70
Refinances .............................................................................................................................................................................................................................................. 70
Cash-Out Refinances .......................................................................................................................................................................................................................... 70
Rate and Term Refinances ................................................................................................................................................................................................................. 71
Short Payoff........................................................................................................................................................................................................................................ 73
Streamline Refinance (Non-Credit Qualifying)................................................................................................................................................................................... 73
Borrower Eligibility and Occupancy ............................................................................................................................................................................................... 73
Cashback ........................................................................................................................................................................................................................................ 73
Matrix (LTV, Score, Units) .............................................................................................................................................................................................................. 73
Conforming Loans .......................................................................................................................................................................................................................... 73
Streamline Refinance1 .................................................................................................................................................................................................................... 73
Units ............................................................................................................................................................................................................................................... 73
LTV.................................................................................................................................................................................................................................................. 73
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HA Guidelines
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FHA Guidelines
CLTV................................................................................................................................................................................................................................................ 73
No FICO Mortgage Rating Only ...................................................................................................................................................................................................... 73
Minimum FICO Score ..................................................................................................................................................................................................................... 73
Non-credit qualifying with no appraisal......................................................................................................................................................................................... 73
Credit qualifying with no appraisal ................................................................................................................................................................................................ 73
Credit qualifying with appraisal ..................................................................................................................................................................................................... 73
Matrix (LTV, Score, Units) .............................................................................................................................................................................................................. 74
Maximum Mortgage ...................................................................................................................................................................................................................... 74
Maximum Term .............................................................................................................................................................................................................................. 74
Mortgage Verification .................................................................................................................................................................................................................... 75
Net Tangible Benefit ...................................................................................................................................................................................................................... 75
Subordinate Financing ................................................................................................................................................................................................................... 75
Streamline Refinance (Credit Qualifying)........................................................................................................................................................................................... 76
Credit Report .................................................................................................................................................................................................................................. 76
Income ........................................................................................................................................................................................................................................... 76
Assets ............................................................................................................................................................................................................................................. 76
Qualifying ....................................................................................................................................................................................................................................... 76
Streamline Refinance with Appraisal ............................................................................................................................................................................................. 76
Streamline Refinance with NO Appraisal ....................................................................................................................................................................................... 76
Secondary Financing .......................................................................................................................................................................................................................... 77
Down Payment Assistance Program (DAP) .................................................................................................................................................................................... 77
Cash Back ....................................................................................................................................................................................................................................... 77
CLTV................................................................................................................................................................................................................................................ 77
Documentation .............................................................................................................................................................................................................................. 78
Grace Period................................................................................................................................................................................................................................... 78
Loan Purposes ................................................................................................................................................................................................................................ 79
Qualifying ....................................................................................................................................................................................................................................... 79
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HA Guidelines
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FHA Guidelines
Simultaneous Closing ..................................................................................................................................................................................................................... 79
Soft/Silent Liens ............................................................................................................................................................................................................................. 79
Sources and Terms ......................................................................................................................................................................................................................... 79
Underwriting .......................................................................................................................................................................................................................................... 80
Automated Underwriting System (AUS) ............................................................................................................................................................................................ 80
Manual Underwriting/Downgrades ................................................................................................................................................................................................... 81
Manual Downgrades ...................................................................................................................................................................................................................... 81
Manual Underwriting ..................................................................................................................................................................................................................... 81
Compensating Factors ....................................................................................................................................................................................................................... 83
Compensating Factors – Documentation .......................................................................................................................................................................................... 83
Residual Income ............................................................................................................................................................................................................................. 84
Back to Work – Extenuating Circumstances .......................................................................................................................................................................................... 86
General Information .......................................................................................................................................................................................................................... 86
Applicability........................................................................................................................................................................................................................................ 86
Definitions .......................................................................................................................................................................................................................................... 86
Economic Event .............................................................................................................................................................................................................................. 86
Economic Event Onset ................................................................................................................................................................................................................... 86
Economic Recovery ........................................................................................................................................................................................................................ 86
Household Income ......................................................................................................................................................................................................................... 86
Household Member ....................................................................................................................................................................................................................... 87
Housing Counseling ........................................................................................................................................................................................................................ 87
Satisfactory Credit .......................................................................................................................................................................................................................... 87
Underwriting Criteria ......................................................................................................................................................................................................................... 87
Economic Event .................................................................................................................................................................................................................................. 88
Loss of Employment ....................................................................................................................................................................................................................... 88
Loss of Employment ....................................................................................................................................................................................................................... 88
Post-Economic Event Income......................................................................................................................................................................................................... 88
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HA Guidelines
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FHA Guidelines
Derogatory Credit .............................................................................................................................................................................................................................. 89
Bankruptcy ..................................................................................................................................................................................................................................... 89
Collections and Judgments ............................................................................................................................................................................................................ 89
Foreclosure .................................................................................................................................................................................................................................... 89
Pre-Foreclosure/Short Sale ............................................................................................................................................................................................................ 89
Non-Traditional Credit ................................................................................................................................................................................................................... 90
CAIVRS: Request for Waiver or Resolution ........................................................................................................................................................................................ 90
Housing Counseling ............................................................................................................................................................................................................................ 90
HUD REO Purchases ............................................................................................................................................................................................................................... 91
Program Overview ............................................................................................................................................................................................................................. 91
REO Appraisal Statement of Insurability ............................................................................................................................................................................................ 92
Insurable ........................................................................................................................................................................................................................................ 92
Insurable with Repair Escrow......................................................................................................................................................................................................... 92
Uninsurable .................................................................................................................................................................................................................................... 92
203(b) with NO Repair Escrow ........................................................................................................................................................................................................... 92
203(b) Repair Escrow ......................................................................................................................................................................................................................... 93
Case Assignment ................................................................................................................................................................................................................................ 94
Comparables ...................................................................................................................................................................................................................................... 94
Down Payment ................................................................................................................................................................................................................................... 94
Eligible Transactions........................................................................................................................................................................................................................... 94
Loan Amount, LTV/CLTV .................................................................................................................................................................................................................... 94
Qualifying ........................................................................................................................................................................................................................................... 95
Repair Completion ............................................................................................................................................................................................................................. 95
REO Appraisal ..................................................................................................................................................................................................................................... 95
Second “As-Is” Appraisal .................................................................................................................................................................................................................... 95
Sales Contract .................................................................................................................................................................................................................................... 97
Manufactured Homes ............................................................................................................................................................................................................................ 97
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HA Guidelines
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Program Overview ............................................................................................................................................................................................................................. 97
Title II Eligibility Requirements .......................................................................................................................................................................................................... 97
Additions/Modifications (State Requirements) ................................................................................................................................................................................. 98
Appraisal Requirements ..................................................................................................................................................................................................................... 98
Credit Score ........................................................................................................................................................................................................................................ 99
Elevation Certificate – Flood Zones A & V ....................................................................................................................................................................................... 100
Engineer’s Certification of Foundation ............................................................................................................................................................................................ 100
FHA Connection ............................................................................................................................................................................................................................... 100
Hazard Insurance ............................................................................................................................................................................................................................. 101
HUD Label “Red Tags” ...................................................................................................................................................................................................................... 101
HUD Data Plate ................................................................................................................................................................................................................................ 101
Ineligible MHs .................................................................................................................................................................................................................................. 101
Maximum Mortgage ........................................................................................................................................................................................................................ 101
Modular Homes ............................................................................................................................................................................................................................... 102
New Construction ............................................................................................................................................................................................................................ 102
Proposed Construction ................................................................................................................................................................................................................ 102
Under Construction and Existing New (less than one-year-old) .................................................................................................................................................. 103
Site ................................................................................................................................................................................................................................................... 103
Termite Inspections ......................................................................................................................................................................................................................... 103
New Homes .................................................................................................................................................................................................................................. 103
Existing Homes ............................................................................................................................................................................................................................. 103
Title Binder ....................................................................................................................................................................................................................................... 103
Trade-In ............................................................................................................................................................................................................................................ 104
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HA Guidelines
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Endeavor America’s Credit Philosophy
Endeavor America’s credit philosophy is to offer loan programs with minimal overlays to our clients. EA evaluates each loan individually based solely
on the borrower(s) creditworthiness and in accordance with the following principles:
 All loans must be submitted to DU TOTAL Scorecard and receive an Approve rating with the exception of FHA Streamline Refinances. Some
loans that receive DU Refer may be manually underwritten. Please refer to the Manual Underwriting section of this guide for details.
 All FHA policies as outlined in the HUD handbooks and subsequent, applicable mortgagee letters have been met.
 All requirements of the DU Approve/Eligible recommendation have been met for AUS approvals.
 All prudent factors have been weighed and evaluated on the loan file and no reasonable doubt remains about the borrower’s ability to meet the terms
of the loan.
Topic
Ability to Repay/
Qualified
Mortgage
Age of Documents
Endeavor America Loan Services
HA Guidelines
Guidelines
HUD provided its Qualified Mortgage (HUD QM) definition and requirements to satisfy the Dodd-Frank Wall Street Reform and Consumer
Protection Act. HUD’s final rule is available at http://www.gpo.gov/fdsys/pkg/FR-2013-12-11/pdf/2013-29482.pdf
Endeavor America will verify the borrower’s income, employment, assets, credit, recurring expenses, and other aspects of the loan
to ensure the borrower can reasonable repay the loan in accordance to FHA guidelines.


All FHA loans must comply with HUD’s QM rule.
The borrower must meet HUD/FHA’s Ability-to-Repay (ATR) criteria unless the transaction qualifies as a HUD defined
exemption(s).
The EALS underwriter must complete EA’s ATR Form which will be retained in the loan file.
Credit Documents (credit report, employment, income, assets and preliminary title report) must be no more than:
 Existing Property: 120 days from the date the Note is signed.
 New Construction: 180 days from the date the Note is signed.
Appraisal
 For existing, proposed, or under construction, the appraisal is valid for 120 days from the date of the initial property
inspection by a FHA roster appraiser.
 Appraisal validity may be extended for an additional 30 days only one time at EALS’ option. ALL of the following must be
met:
 Loan must close and fund within 150 days of the initial property inspection date.
 The sales contract is singed or the FHA loan is approved prior to the expiration date of the initial 120 days appraisal
validity.
 AUS findings and 92900-LT signed by the EALS underwriter for the initial and final loan approvals must be retained
in the loan file.
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Age of Documents
Appraisal
Appraisal (continued)
 Appraisal validity may also be extended and additional 120 days one time provided ALL of the following has been met:
 Loan must close and fund within 240 days of the initial property inspection date.
 Appraisal Update (form 1004D) is completed within 120 days of the first property inspection date (before the initial
120 days appraisal validity period expires).
 Appraiser must provide an updated Market Conditions Addendum (form 1004MC) to verify the neighborhood value
trends are not declining since the original appraisal was issued.
 Appraiser must also provide the original full appraisal report.
Title Binder
 90 days from the Note date
Well Test/Septic Certification
 Valid within 90 days
General Information
For purchase transactions, the borrower(s) must acknowledge in writing of his/her/their intent to proceed when the purchase price
exceeds the appraised value.
Appraisal Form Requirements
 must be UAD compliant
 Form 1004 is for 1-unit single family property and the appraisal report must include:
 Interior photos of the
 Kitchen
 Examples of physical
deterioration, if present
 All bathrooms
 Examples of recent updates
 Main living area
such as restoration, remodeling
and renovation, if present


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HA Guidelines
Clear, original photos of the front and rear at opposite angles to show all sides of the subject and subject street
views. Additional photos are required for any improvement/site feature with contributory market value that are not
clearly seen in the subject front and rear photos.
Comparable photos must include the front view of each comparable. Multiple Listing Service (MLS) photos can be
used to supplement the appraiser’s photos to evidence the comparable condition at the time of sale. Appraiser to
comment if MLS photos are used (e.g. gated community).
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Appraisal
Appraisal Form Requirements (continued)
 Form 1004C for manufactured housing
 Form 1073 is required for condominiums including site condos.
 Form 1025 is required on 2-4 unit properties.
 1004MC Market Conditions Addendum is required on all appraisal reports.
 Cost approach is required for new construction, manufactured homes, unique properties, and if requested by EALS
underwriter.
Acreage
 Acreage must be typical for the area and supported by the sales comparables.
 Excess land must be described by the appraiser but given no value.
 “Excess” refers to land area portion that is larger than what is typical in the neighborhood and capable of separate
use.
 Excess portion can generally be subdivided and marketed as an individual parcel.
 A legal description of the portion being appraised is required.
 Maximum loan is calculated only on that portion that represents a readily marketable real estate entity and does
not reflect any additional value provided by the excess land, however, the mortgage is secured on the entire
property including excess land.
Accessory Dwelling (ADU)
 An accessory dwelling unit (ADU) is defined as a subordinate additional living unit, including a separate kitchen, sleeping and
bathroom facilities, attached or detached from the primary single family dwelling.
 ADUs may not have separate ownership from the primary dwelling or may not be subdivided.
 ADUs may not have separate utilities from the primary residence.
 ADUs must be verified as a legal or legal non-conforming units by the local zoning ordinance.
 2-4 unit dwellings with an ADU is NOT eligible for FHA financing.
 Property should be used with appraisal form 1004 and identified as “One with Accessory Unit” in the General Description.
 Appraisal must reflect the impact that the restrictions have on the property’s value and marketability.
 Appraisals must provide comparables with similar restrictions.
Reference: 4150.2, Appendix D
Age Restricted Properties (55+ Senior Communities)
For age restricted properties, such as 55+ senior communities, the following must be met:
 The appraisal must reflect the impact that the restrictions have on the property’s value and marketability.
 The appraisal must be supported by comparables with similar restrictions.
 Borrower(s) must acknowledge the restriction terms by signing a Resale Restriction Notice at closing.
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Condominiums
 EALS only accepts condominiums located in HRAP approved projects.
Reference: ML 2011-22 and attachments
 Case assignment must include the HUD issued condo project ID number. Search HUD weblink for approved condos here.
 The EALS FHA condo questionnaire must be completed for purchases, rate/term and cash-out refinances.
 EALS underwriter must complete and sign the “Certification for Individual Unit Financing” for attached
condominiums, except for streamline refinances.
Reference: Top portion of Appendix B, ML 2011-22 attachment
 For new construction, the builder/developer must also complete the “Pre-Sale Certification.”
Reference: Bottom part of Appendix B, ML 2011-22 attachment
 For site condominiums, full project approval is required unless ALL of the following requirements are met:
 All units are single family detached dwellings (no shared garages or any other attached buildings such as archways,
breezeways;
 Encumbered by a declaration of condominium covenants or condominium form of ownership;
 The condo unit consists of the entire structure, as well as the site and air space, and is not considered to be
common areas or limited common areas;
 Insurance and maintenance costs are totally the responsibility of the unit owner;
 Any common assessments collected will be for amenities outside of the footprint of the individual site.
Reference: HUD’s FHA Condominium Mortgage Insurance website for more information regarding condominium projects.
Declining Market
A declining market is any neighborhood, market area, or region that demonstrates a decline in prices or an oversupply of existing
inventory or extended marketing times. The following appraisal requirements apply to properties located in a declining market.
 Appraiser must provide at least two (2) comparable sales that closed within 90 days in the subject’s neighborhood.
 Appraiser must provide at least two (2) active listings or pending sales within the subject’s neighborhood/market.
Reference: ML 2009-09; 08-40; 08-09; 07-11; 05-06; 05-02; 4150.2 Section 2; FNMA Ann. 08-30; 4155.2 4.1.e, 4.9
Mixed Use
Properties zoned for commercial use are acceptable if:
 < 25% of the total floor space is for non-residential use
 Use of the property as a residence is legal or legal non-conforming
 The appraiser must address the effect of the applicable zoning ordinances on the value and marketability of the property
 The appraiser site analysis must accurately reflect the attitude of the typical purchaser
 EALS may reject properties located in predominantly commercial or business locations, or locations subject to noise or other
influence(s) that adversely affect the use and enjoyment of the typical owner
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Minimum Property Requirements (MPRs)
 Subject property’s overall condition on safety, sanitation, and soundness must meet HUD’s Minimum Property
Requirements set forth for new or existing properties, as applicable.
 All readily observable repairs recommended by the FHA appraiser must be satisfied prior to closing.
Reference: HUD Handbooks: 4150.2 and Appendix D; 4905.1 for existing construction; 4145.1 and 4910.1 for new construction and subsequent
mortgagee letters.
Multi-Unit (2-4 Unit) Subject Property
 Appraiser must establish fair market rent.
 Refer to subtopic 2-4 Unit Subject Property of the Employment and Income section of this guide for additional
requirements.
New Construction
 FHA defines three (3) stages of new construction as follows:
 Proposed construction
o No concrete or permanent material has been placed at the property site.
o Digging of footing and placement of rebar are not considered permanent.
 Under Construction
o First placement of concrete (other permanent material) to 100% completion or 90% completed with only
customer preferences (e.g. interior wall finishes, floor coverings, appliances, counter tops and fixtures,
minor trim work, sodding/seeding, etc.)
 Existing Construction
o Existing construction applies when the appraisal is completed within one (1) year of the issuance of the
Certificate of Occupancy and the property is 100% complete (e.g. model home; resale within first year of
completion).
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HA Guidelines
New Construction
(continued)
 Appraiser to provide the following comment for an “as-is” appraisal: “Property was built in accordance with submitted plans
and specifications.” All new construction properties must comply with the following requirements, regardless of LTV:
 2000 International Energy Conservation Code (fka Model Energy Code by CABO) that can be accessed at the U.S.
Department of Energy’s website for Building Energy Codes Program.
Reference: ML 2005-21 and HUD 4150.25, Section 3-6.B.7
 FHA minimum property standards for new construction as described in HUD HB 4145.1 and 4910.1 and applicable
subsequent mortgagee letters.
 Property location cannot be within Runway Clear Zones (aka Runway Protection Zones) at civil airports or within
Clear Zones at military airfields.
o Accident Potential Zone 1 at military airfield may be eligible if the property is compatible with DOD
guidelines. Refer to 24 CFR 51.303(b) for more information.
o Buyer(s) must acknowledge notification that property is located in a Runway Clear Zone and the
implications associated with this site.
 Appraiser must provide the following for all new construction properties:
 Two (2) comparable sales from competing builders and at least one (1) comparable sale outside the subject
subdivision/project.
 Completed cost approach and gross rent multiplier for 3-4 unit properties, if applicable.
 Comment grading and drainage are adequate.
 Comment the utilities were on and functional at the time of final inspection when not noted on the original
appraisal report.
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New Construction Exhibits
The table below identifies the required construction exhibits depending on the stage of construction
Required Construction Exhibit
1) Builder’s Certification Form HUD-92541
a) HUD-92541, fully completed and signed should be furnished to the
appraiser prior to property inspection.
b) Appraiser must comment any inconsistencies or discrepancies
c) Underwriter must resolve all inconsistencies/discrepancies
2) 1 Year Builder’s Warranty Form HUD-92544
3) Building Permit and Certificate of Occupancy
4) Ten-Year HUD Approved Protection Plan/Warranty
a) Required for maximum financing if property was not approved prior to
beginning of construction or was not built in compliance to ML 2001-27
b) List of acceptable Ten-Year Protection Plans/warranties may be accessed
here.
5) Clear Final Inspection with photos using 1004D with “subject to” original appraisal
report.
6) Subterranean Termite Soil Treatment Builder (NPMA-99-A and NPMA-99-B).
a) Both NPMA-99-A and NPMA-99-B are required if treated with soil
termiticide or bait systems.
b) NPMA-99-A is required if chemically treated wood is used, or physical
barrier system is installed.
c) Builder must also provide one (1) year warranty against termites
7) Well Water Analysis and Septic Report, if applicable
8) Description of Materials Form HUD-92005 were approved by VA or DE before
construction began.
9) Complete set of Plans and Specifications were approved by VA or DE construction
began:
a) Plot, identifying locations of well/septic systems (if applicable)
b) Foundation or basement plan
c) All exterior building elevations, sections, and details
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HA Guidelines
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Existing
Under
Proposed

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
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Required if
<90%
complete
Required if
<90%
complete
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Appraisal
New Construction Exhibits
(continued)
Required Construction Exhibit
10) Final Inspection required if original appraisal made “subject to” with:
a) Form HUD-92051 Compliance Inspection Report (CIR) by FHA roster
appraiser (preferably the original appraiser) is required when:
 The property was <90% complete on initial inspection
date
 The local jurisdiction does NOT issue a final certificate
of occupancy or its equivalent. Appraiser must provide
following comment “This is a newly completed dwelling
that was not completed under HUD/VA inspections. The
dwelling appears to be in conformance with submitted
construction exhibits.”
b) Form 1004D may be used if the property was > 90% complete on initial
inspection date.
11) Flood Certificate reflects property is located within a SFHA zone
a) FEMA state the property is not in a flood plain with a LOMA (Letter of Map
Amendment) or LOMR (Letter of Map Revision)
 Flood insurance is not required
b) Elevation Certificate (FEMA Form 81-31)
 Must be prepared by a state license surveyor or engineer
 Must document the lowest floor including basement and all related
improvements are built at/above 100-year flood elevation in
compliance with NFIP criteria.
 Flood insurance is required
Existing

Under
Proposed
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Properties Listed for Sale
 Properties that were previously listed for sale are eligible for refinance provided the listing was expired or cancelled prior to
the loan application date.
 Borrower(s) must certify intent to continue to reside in the subject property as a principal residence.
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Property Flipping
 Property flipping is a practice whereby a recently acquired property resold for a considerable profit.
 HUD/FHA guidelines allow for property flipping if ALL of the following requirements are met:
 Only the owner(s) of record may sell the property
o Property must have been purchased by the owner(s) of record.
o Our transaction may not involve any sale or assignment of the sales contract.
 All sales must be arms-length-transactions. Subject transfer history is reviewed to ensure no identity of interest.
 The property is not misrepresented and/or the value is not artificially inflated. A significant increase in value should
be commensurate with the documented repairs/rehab/renovation that is substantiated by the appraiser(s).
 HUD’s flipping restrictions do NOT apply to a builder selling a newly built home or building a home for a borrower.
 Any resale of the property within 90 days or fewer from the date of the seller’s acquisition is NOT permitted.
Exceptions to this time restrictions are identified in the Property Flipping Exception or the Temporary Flip Waiver
section of this guide. NOTE: HUD considers the resale date as the execution of the sales contract by the buyer(s).
 For a resale that occurs between 91 and 180 days following the seller’s acquisition AND the resale price is 100% or
more than the seller’s purchase price, HUD/FHA requires additional documentation to validate the property value.
See the Resales Occurring Between 91 and 180 Days After Acquisition section of this guide for details.
Exceptions to 90-Day Restriction
 The following sales are exempt from the 90-day flipping period:
 HUD REO sales
 Sales by U.S. government agencies
 Sales by local or state government agencies
 Sales by state or federally charted financial institutions and government sponsored enterprises (Fannie Mae;
Freddie Mac)
 Sales of properties purchased by employers or relocation agencies in connection with the relocation of employees
 Sales of properties located in Presidentially Declared Disaster Areas upon FHA’s announcement of eligibility
(mortgagee letter) of said disaster
 Sales of properties acquired by the seller through inheritance
 Sales by nonprofits approved by HUD to purchase HUD REOs at a discount with resale restrictions
 Sale of a previously foreclosed/abandoned property by its lienholder, a state licensed mortgage lender
 Sales of previously foreclosed/abandoned property that was acquired and rehabilitated by an entity using funds
from state or local government agencies under Neighborhood Stabilization Program
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HA Guidelines
Temporary Flip Waiver
 HUD’s Flip Waiver has been extended through December 31st, 2014. Resale transactions that do not qualify for exceptions
to the 90-day flip rule as previously described, are also eligible for FHA financing. The HUD Flip Waiver may be viewed here.
 The resale must be arms-length with no identity of interest between buyer(s) and seller(s) or other parties participating in
the sales transaction.
 When the resale price exceeds the seller’s acquisition costs by 20% or more, the following requirements apply:
 A second appraisal by another FHA roster appraiser must be ordered by Endeavor America.
 Both appraisers must provide a detailed list of property improvements completed since the seller’s acquisition.
o Repairs, recommended by either appraiser to meet FHA minimum property standards, must be completed
prior to closing.
 The seller provides evidence of the increase in value through sufficient renovation, repair and/or rehabilitation. If no repairs
were made, then each appraiser must comment on the justification for the increase in sales price.
 Document the property was marketed openly and fairly (e.g. MLS, auction, FSBO, developer marketing, or public website).
 A home inspection report is ordered by the broker and completed by a state licensed home inspector which should address
the property structure, as well as all systems (insulation, roof, etc.).
o Repairs, recommended by the home inspector that related to health and safety, must be completed prior to
closing.
Resales Occurring Between 91 and 180 Days After Acquisition
 When the resale price exceeds the seller’s purchase price by > 100%, a second FHA appraisal is required and may be ordered
by the broker.
 The appraisal fee for the second appraisal may be paid by the seller or broker, NOT the homebuyer.
 Both FHA appraisals must be completed by independent FHA roster appraisers who are currently state licensed.
 Repairs, recommended by either appraiser to meet FHA minimum property standards, must be completed prior to
closing.
 If the difference in appraised values > 5% or greater between the two appraisals, the maximum loan will be
calculated on the lower value.
o If the difference is appraised values < 5%, then the maximum loan may be based off of the first appraisal.
Underwriter should comment in the 92900-LT on selected appraisal.
o Both the conditional commitment and the appraisal logging in FHA Connection should reflect the appraisal
selected by the underwriter.
Resales Occurring Between 91 and 12 Months After Acquisition
 If the resale is more than 90 days from the seller’s acquisition, HUD/FHA and Endeavor America reserves the right to require
additional documentation to support the resale value that is 5% or greater that the lowest sales price of the property during
the preceding 12 months. Documentation may include, but is not limited to, an appraisal from another FHA roster appraiser.
Reference: HUD 4155.2; 4-7; ML 2006-14; 24 CFR 203.37a
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Well Test and Septic Certification
Individual water and/or septic systems must meet local health standards or EPA standards in absence of local standards.
Reference: MLs 95-34; 92-18; 05-48 Appendix D
Appraiser must provide the following:
 If private well and septic systems, comment the distances meet FHA requirements.
 The availability of connection to public and/or community water/sewer systems; and provide hook-up fees. The underwriter
will determine the feasibility for requiring the connection(s).
Private Well – Satisfactory well water test is required under any of the following circumstances:
 If mandated by the jurisdictional state and/or local health authority;
 If knowledge the well water may be contaminated,
 If water supply relies upon a water purification system due to the presence of contaminants;
 When the water has an usual taste, smell, or appearance;
 When there is evidence of pipe corrosion;
 If property location is within ¼ mile of: an intensive agricultural operations, coal mining or gas drilling operations,
dump, junkyard, landfill, factory, gas station, or cleaning operations.
 The water samples may be collected by the state or county health authorities, or a qualified licensed
individual/company/commercial lab.
 The well water test results must meet the latest local and state drinking water regulations for private wells.
Individual Septic System – Septic system inspection is required under the following circumstances:
 Appraiser observes evidence of system failure or suspects a problem with the system;
 Subject is located in an area with soil percolation problems;
 It is customary to obtain inspections in the area;
 Inspections are mandated by state or local jurisdiction;
 If property is vacant more than 30 days (and does not meet one of the conditions noted above) the underwriter will
determine if an inspection of the system is necessary.
 The local health authority, a licensed sanitarian, or a qualified professional inspection will inspect the system and provide a
certification stating the system appears to be operating properly.
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HA Guidelines
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Assets
Endeavor America requires the borrower(s) have sufficient assets to meet the down payment, closing costs not financed into the
loan and the difference between the purchase and sales price (if higher), and cash reserves.
 AUS DU findings will be followed with the exception of Verification of Deposits, which are not accepted by EALS.
 AUS Approve Loans: Obtain most recent bank statement for each account.
 Manual Underwrites: Obtain most recent two months consecutive statements for each account
 NSF fees/charges to borrower by banking institutions on any statement with a FICO <620 are ineligible for financing (no
exceptions)
Bank Statements
Checking and Savings
 Provide most recent bank statement (all pages) covering a full month with beginning and ending account balance.
o VODs are not an acceptable asset verification by Endeavor America
o Provide an additional consecutive month’s bank statement if beginning and ending balances are not shown.
 Refer to the following Large Deposits section of this guide for additional requirements.
Large Deposits
For account(s) with large increase or recently opened account(s) must be satisfactory addressed as follows:
 Purchase transactions with cumulative large deposits > 2% of the sales price:
o Borrower(s) to provide a credible explanation and satisfactory document source of funds, AND
o Verify that any recent debts were not incurred for part or all of the required cash investment on the subject
purchase.
 Refinance transactions with cumulative deposits > 10% of the borrower’s gross income or $1,000:
o Borrower(s) to satisfactorily explain the source of funds in order to back out the deposit(s) from the available assets,
AND
o Source of funds documentation is also required if assets are being used for closing and/or to support the AUS
Approve Risk Assessment.
Insufficient Funds (NSF)
 Significant number of insufficient funds fees and/or overdraft charges should be satisfactorily explained by the borrower(s).
 Underwriter should analyze NSF fees which may indicate that the borrower is unable to manage his/her current obligations
or he/she is currently experiencing hardship.
Business Funds
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HA Guidelines
Document borrower’s ownership (e.g. business license, corporate/partnership status).
Used for down payment and closing costs (cannot be used for reserves).
CPA provides letter stating:
o Borrower has full use of the business funds.
o No repayment is required and funds are not an advancement against future earnings/cash distributions.
o The withdrawal of funds does not have a negative impact on the business and a comment on future tax
implications.
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Assets
Cash Saved at Home
To consider cash saved at home as an acceptable source of funds, ALL of the following must be met:
 The funds must be verified as either:
 Deposited in a financial institution, or
 Held by the escrow/title company prior to closing
 The borrower must provide a detailed explanation of how the funds were accumulated and the amount of time it took to save
these funds.
 The underwriter must determine the reasonableness of the borrower’s ability to accumulate such savings based on:
 Time period during which the funds were save, and
 Borrower’s income stream, and
 Borrower’s spending habits, and
 Documented expenses, and
 History of using financial institutions
NOTE: Borrowers with checking and/or savings accounts are less likely to save money at home than individuals with no bank
depository history.
Down Payment and Closing Costs
 The minimum cash investment is typically 3.5% of the lesser of the appraised value or the sales price unless:
 EALS offered HUD/FHA program specifies otherwise in this FHA guide (e.g. HUD REO $100 down).
 Borrower wants to make a larger down payment that results in the AUS Approve/Accept recommendation.
 Allowable fees charged to the must be reasonable and customary with the following limitations:
 Tax service fee is NOT allowed
 Origination may exceed 1% of the base loan, as per ML 2009-53.
 3rd party fees must be the actual costs charged by each service provider (credit reporting agency, appraiser, etc.)
 Fees and charges must comply with ALL local, state, and federal regulations and predatory lending rules.
Consulting fees are permitted under the 203k program. Refer to EALS 203k Loan Program Guide for specific program criteria.
Earnest Money
 Verify earnest money deposit (EMD) if:
 EMD will be credited back to the borrower at closing, or
 EMD exceeds 2% of the sales price, or
 Appears excessive based on the borrower’s accumulated savings history.
 Document as follows:
 Copy of the cancelled check and deposit holder’s acknowledgement of receipt.
 Bank statements to source the deposit check as determined by AUS findings.
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Assets
Employer Assistance/ Relocation Guaranteed Purchase
Employer assistance refers to benefits provided by an employer to relocate the borrower or financial assistance with the borrower’s
housing purchase.
Relocation Guaranteed Purchase
 If the employer guarantees to purchase the borrower’s previous residence as a result of relocation, obtain the executed buyout
agreement.
 Document receipt of net proceeds based on guaranteed sales price minus the outstanding liens and expenses.
 Verify employer/relocation services firm takes responsibility for the outstanding mortgage debt.
Employer Assistance Plans
 A salary advance cannot be considered as assets to close.
 Employer may provide financial assistance as employee compensation toward the subject purchase:
 Verify the assistance will be applied toward closing costs, MIP, and/or the minimum required cash investment.
 If received at closing, document borrower’s receipt.
 If received after closing, document borrower has sufficient cash for closing.
Gift Funds
Gift Letter
 The gift letter must:
 Identify the gift amount
 Identify the relationship, donor’s name and address, date gift given, donor’s source account.
 States no portion of the gift funds must be repaid.
 Executed by the donor and recipient(s).
Donors
Acceptable donors are:
Family
 Family members, as defined in ML 2012-03, are considered:
 Spouse, child, stepchild, foster child, parent, grandparent, sibling, aunt, uncle, whose relationship with the borrower is by
blood, marriage, adoption, legal guardianship, domestic partnership.
Close Friends, Cousins, Family Friends, Fiancé
 Close friend with a clearly defined and documented interest in the borrower
 For cousins, relatives of the non-purchasing spouse, fiancé, and close family friends
o Borrower’s relationship must be satisfactorily documented:
 Birth certificates
 Marriage license, etc.
Note: A signed explanation alone does not document a relationship.
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Assets
Gift Funds (continued)
Donors (continued)
Organizations
 Government (federal, state, or local) agencies or instrumentalities of governments that have programs providing homeownership
assistance to low/moderate income families or first-time homebuyers.
 Government agency may not be the gift donor when the agency is also selling the subject property (VA or USDA RHS
foreclosures). FHA considers this an inducement to purchase and must be subtracted from the sales price.
 Borrower’s employer or labor union if gift is not paid from a personal account.
 Charitable organizations
 Charities – IRS Publication 78 is a list of charities which can be checked online to see if the 501(a) tax exempt status has been
revoked.
 Nonprofits – HUD’s approved roster of nonprofits and nonprofit instrumentalities of government secondary financing providers
may be accessed here.
Acceptable Gift Funds Source
 Donor’s ability must be documented from an acceptable source.
 Cash on hand is not acceptable.
 Large deposits on the donor’s bank statement must be sourced to document gift funds are not from a person or entity with an
interest in the subject’s sale.
Gift Transfer
Document the gift transfer according to the documentation requirements below
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HA Guidelines
If the gift funds…
Then document gift transfer by…
 Are already deposited in the borrower’s
account
 Obtain bank statement showing gift funds
withdrawn from the donor’s account that was
noted on the gift letter, and
 Borrower’s deposit slip and bank statement
showing gift funds available.
 Will be provided at closing via certified check,
cashier’s check, money order, official check, or
other type of bank check
 Bank statement showing the gift funds
withdrawn from the donor’s account that was
noted on the gift letter, and
 Copy of certified check; closing agent’s
acknowledgement of gift receipt if check was
payable to the escrow agent.
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Assets
Gift Funds (continued)
Gift Transfer (continued)
If the gift funds…
Then document gift transfer by…
 Are being borrowed by the donor, and
 Documentation from the bank or other savings
account is not available
 Having the donor provide written evidence that
the funds were borrowed from an acceptable
source, not an interested party to the
transaction.
NOTE: Cash on hand is not an acceptable source
of donor gift funds.
DU Data Integrity
 In DU Section II, Source of Down Payment, the full gift amount* must be entered from the source (relative, government agency,
nonprofit) regardless if:
* the amount has been partially spent and is not being used for down payment, or
* the gift amount exceeds the down payment amount
[This will accurately reflect in the “Source of Down Payment, Settlement Charges, and/or Subordinate Financing” section found
on page 1 of the URLA/1003.]
 In DU Section VI, Assets, the available gift amount* must be separately entered as follows:
 If the gift has been deposited into the borrower’s account, then separate the total gift amount from the checking/savings
account balance and identify as “Gifts Not Deposited” for account type.
o If the original gift has been partially spent to pay off/pay down debts to qualify or used for the earnest money, then separate
the remaining gift amount as “Gifts Not Deposited” and subtract this amount from the updated account balance.
 Note the Holder in the Asset section as “Asset balance lower than Gift Amount”.
 Note the 92900-LT: “Gifts total: $_____; AUS ran with remaining gift of $ _____ available after receipt of gift funds.”
 If the gift has not been deposited, then enter the full gift that will be given at closing.
 Multiple Gifts: Multiple gifts should be listed individually in both sections, “Section II, Source of Down Payment” and “Section VI
Assets”
 Reference: DU for Government Loans Reminder July 2014
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Assets
Gift Funds (continued)
Gift of Equity
 Only family members, as defined by HUD/FHA, per ML 2012-03, may provide a gift of equity.
 Gift of equity must be noted on the fully executed sales contract and Final HUD-1
 Obtain existing mortgage payoff to verify this family transfer is not a distress sale.
 Evidence the seller will not continue to reside in the subject property that HUD may construe as a circumvention of the cashout refinance LTV/CLTV restrictions.
 Exception: The HOC can waive this restriction provided the seller is contributing to or operating an acceptable affordable housing
program. Obtain written approval from the appropriate HOC with jurisdiction for the subject location.
Consumer Debts Paid with Gift Funds
 Only family members, as defined by HUD/FHA, per ML 2012-03, may provide gift funds to pay off/pay down the borrower’s
consumer debts.
 Any other donor is considered a third party by HUD.
 HUD/FHA regards payment of a borrower’s consumer debts with gift funds from third parties as an inducement to purchase and
 A dollar-for-dollar reduction to the sales price is required when calculating the maximum mortgage.
Real Estate Commission
 If the borrower is a licensed realtor, then he/she may use the entitled real estate commission from the sale of the subject
property toward the required cash investment and/or closing costs, with no adjustments to the maximum mortgage.
 A family member whom is a realtor may provide a gift to the borrower that is sourced from the entitled commission from the sale
or listing of the subject property.
If there is an identity of interest between the buyer and seller, then the real estate commission from the sale or listing of the subject
property cannot be used for down payment.
Rent Credit
 The cumulative amount of rental payments that exceed the appraiser’s estimate of fair market rent may be considered as
accumulation of the borrower’s cash investment with the following documentation:
 Rent with Option to Purchase Agreement, and
 Appraiser’s estimate of fair market rent, and
 Documented rent payments.
 Inducement to Purchase: Underwriter must treat the excess rent as an inducement to purchase with a dollar-for-dollar reduction
to the lesser of the sales price/appraised value for the maximum mortgage calculation IF the sales agreement reveals the
borrower:
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HA Guidelines
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Assets
Rent Credit (continued)
 Has been living rent free in the subject property, or
 Has an agreement with the seller to rent the subject or another property at an agreed time and then permits the borrower to
occupy that or another unit for less than market rent, in anticipation of an eventual purchase.
 Exception may be considered when a builder fails to deliver a property at an agreed time and then permits the borrower to
occupy that or another unit for less than market rent temporarily until construction is complete.
Reserves
 Verify ALL assets submitted to TOTAL DU that support the resulting DU Approve/Eligible overall risk recommendation.
 All manually underwritten loans must meet or exceed the following:
 Minimum Reserves
o 1-2 units: One (1) total monthly mortgage payment.
o 3-4 unites: Three (3) total monthly mortgage payments.
 To be cited as a compensating factor:
o 1-2 units: Three (3) total monthly mortgage payments.
o 3-4 unites: Six (6) total monthly mortgage payments.
 Reserves are defined as the borrower’s liquid assets minus funds required to pay: minimum cash investment, cash to close
(including closing costs and prepaids), any payoffs as conditioned in the Loan Approval, and any other expense(s) required to
close the loan.
 The following assets cannot be considered as reserves on manual underwrites:
o Gift funds
o Equity from another property
o Borrowed funds
o Cash received from cash-out refinance loan proceeds or incidental adjustments made at closing
Reference: 4155.1 2.B.4; 4155.1 5.B; ML 2014-02
Retirement Accounts
 Both DU Approve and Manual Approvals:
 Document with the most recent depository or brokerage account statement and redemption evidence
 TOTAL DU Approve:
 60% of the vested balance for the retirement account(s) less any amount used for loan closing may be considered as reserves.
o Verify the withdrawal terms are not conditioned upon employment termination, retirement, or death.
 < 60%, evidence of liquidation is not required
 > 60%, evidence liquidation is required to show actual receipt after taxes and penalties.
 Manual Approvals: evidence liquidation is required to show actual receipt after taxes and penalties.
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HA Guidelines
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Assets
Sale of Home Proceeds
 For arms-length real estate sale, obtain an executed Final HUD-1 (or equivalent closing statement) and deposited receipt of
borrower’s share of the net proceeds.
 Loan Approval is conditioned upon receipt of executed HUD-1 if the property will close simultaneously to our subject
transaction.
 If property settlement will occur after our subject transaction, then the borrower must qualify with the mortgage payment(s),
taxes, insurance, and HOA/condo dues. Refer to the Conversion of Primary Residence into Rental section of this guide for
qualifying exceptions.
Sale of Personal Property
When the borrower sells his/her personal property (e.g. cars, recreational vehicles, stamps, coins, baseball card collections, etc.),
document as follows:
 Evidence of receipt and deposit of proceeds from the sale of personal property items; and
 Satisfactory recent estimated valuation of the personal property (prior to sale date) by using:
 Published value estimates issued by organizations such as auto dealers (N.A.D.A Guide or Kelly Blue Book); or
 Professional associations related to the assets; or
 A written appraisal by a qualified appraiser with no financial interest in the loan transaction.
 Assets to close considered from this source of funds will be only the lesser of the estimated value or actual sales price.
Stocks and Bonds
 Most recent monthly/quarterly statement(s) provided by the stockholder or financial institution managing the portfolio to verify
the value of the stocks and bonds.
 Proof of liquidation:
 TOTAL DU Approve/Eligible: Evidence of liquidation is not required.
 Manual Approval: Borrower’s actual receipt of the funds must be verified and documented.
Sweat Equity
 Sweat equity refers to labor performed, or materials furnished, by or on behalf of the borrower before closing on the property
being purchased.
 A reasonable estimated cost of the work or materials may be considered the equivalent of a cash investment.
 Sweat equity may also be “gifted.”
 Sweat equity for labor or work performed by the borrower may not be escrowed at closing.
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HA Guidelines
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Assets
Sweat Equity (continued)
Sweat Equity Category
Existing Construction
Proposed Construction
Borrower’s Labor
Delayed Work
Cash Back
Sweat Equity on Other
Properties
Source of Funds
Requirement(s)
 Only repairs or improvements to make the property meet FHA MPRs and listed on the appraisal
are eligible for sweat equity.
NOTE: Any work completed or materials provided before the appraisal are not eligible.
 The sales contract must indicate the tasks to be performed by the borrower during construction
related to make the property meet FHA MPRs
 The borrower must demonstrate his/her ability to complete the work in a satisfactory manner.
 The lender must document the contributory value of the labor either through:
 The appraiser’s estimate, or
 A cost-estimating service.
 The following cannot be include as sweat equity:
 Delayed work (on-site escrow)
 Clean up
 Debris removal, and
 Other general maintenance.
 Cash back to the borrower is not permitted in sweat equity transactions.
 Sweat equity is not acceptable on properties other than the subject property being purchased.
 Compensation for work performed on other properties must be in cash and properly
documented.
 If the borrower furnishes funds or materials, provide evidence of:
 Source of funds, and
 Market value of the materials.
Unacceptable Assets
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HA Guidelines
Unsecured financing or unsecured loans (e.g. signature loan)
Cash advances or credit cards
Loans secured against household goods and furniture
Gift funds with repayment or from an unacceptable donor/source
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Assumability
Borrower
Eligibility
A FHA mortgage is assumable by a qualified borrower(s) during the life of the loan who should inquire with the existing mortgage
servicer.
All Borrowers
 All borrowers must provide evidence of a valid social security number (SSN). Tax ID Number (TIN) does not satisfy this
requirement.
 Validated with paystub, W-2, valid tax returns
 SSN issues must be resolved prior to closing
All borrowers must on the loan must be a natural person. Borrowers are not eligible if holding/will take title as a different legal
entity such as:
 Corporation, including C-corp., S-corp., LLC
 Partnership
 Trusts: Irrevocable, Life/Estate, or Land
 Real Estate Syndication
 Foreign Nationals
 Applicant with Diplomatic Immunity
 Custodian/Agent/Conservator/Guardian who signs on
behalf of the borrower, non-borrowing spouse, or
vested owner
Permanent Resident Aliens
 Borrower eligibility for permanent resident aliens are
the same as with U.S. citizens
 Evidence lawful, permanent residence
provided by U.S. Citizenship and Immigration
Services (USCIS)
Non-Permanent Resident Aliens
 Non-permanent resident aliens are considered eligible
borrowers provided all of the following are met:
 Property will be the borrower’s principal
residence.
 Borrower has a valid SSN (social security card
cannot be used as evidence of work status).
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HA Guidelines
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Borrower
Eligibility
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HA Guidelines
Non-Permanent Resident Aliens (continued)
 Borrower is eligible to work in the U.S., as evidenced by an unexpired Employment Authorization Document (EAD)
issued by USCIS.
o EAD will expire within one (1) year, then document prior history of renewals as acceptable evidence of
continued residency status.
o EAD is not required with documentation from USCIS that the borrower has refugee or asylum status
 Non-U.S. citizens who do not have lawful residency in the U.S. are not eligible for FHA financing.
Co-Borrowers
 Co-borrowers will have/already have, ownership rights, are obligated, and must sign the Note and all security instruments.
 Co-borrowers must still meet FHA basic eligibility requirements as described in 4155.1 4.C and subsequent MLs, regardless
of occupancy.
 Co-borrowers may not have a financial interest in the transaction such as seller, builder, realtor, etc.
 Refer to Identity-of-Interest section of this guide and 4155.1 2.B.2 for additional requirements.
 Co-borrowers must have a principal residence in the U.S. unless due to either:
 Military service with overseas assignment as verified with a Certificate of Veteran Status/VA Form 26-8261; or
 U.S. citizen living abroad.
Non-Occupant Co-Borrower
 Additional requirements apply when the co-borrower does not/will not reside in the subject property.
 Maximum financing is permitted only for a1-unit residence IF:
o Borrowers are related by blood, marriage, or law, or
 Parents helping children buy their first home are permitted as long as non-occupant co-borrower is
not developing a portfolio of rental properties. The underwriter must carefully review the financial
contribution by non-occupant co-borrower and the number of real estate owned.
 Non-Occupying co-borrowers may not be added in a cash-out refinance
 Non-occupying co-borrower’s primary housing expense must be included in combined qualifying ratios.
o EALS requires consecutive, cancelled rent checks for the most recent 12 months if the co-borrower rents
from a private landlord.
o EAS does not accept a non-occupying co-borrower who has no housing history (live rent-free)
 Occupant borrower(s), with insufficient/non-traditional credit, must meet FHA standard guidelines. Such cases are
manually underwritten.
Reference: 4155.1 4.C.3 and 4.A.1.f
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Borrower
Eligibility
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HA Guidelines
Non-Borrowing Spouse
 A credit report is required to include the debts of the non-borrowing spouse in community property states in the qualifying
ratios. See the Community Property States section of this guide for additional requirements.
 Non-borrowing spouse must execute only the security instrument (not the Note) as per the applicable state laws in order to
ensure a valid and enforceable lien.
Military Personnel
 Military personnel are considered occupant-owners and eligible for maximum financing provided a member of the
immediate family will occupy the property as his/her principal residence.
Multiple FHA Loans
 Generally, HUD will not allow a borrower to own more than one FHA-insured property with sole or joint ownership (NOTE:
properties previously acquired as investment properties are not subject to these restrictions).
 Borrowers may purchase another principal residence with FHA financing only under the situations described below: (NOTE:
Borrowers with a FICO <620 that currently own another property, regardless of type of financing (FHA, VA, CONV, or
private), are not eligible for financing unless current home is selling concurrently, or the subject property is a rental
property that can be documented on the most recent two years tax returns Schedule E)
Exception
Eligibility
Increase in family size
 Borrower must satisfactorily documents his/her legal dependents increase and how the
present home fails to meet the family’s current needs.
 Establish > 25% equity in the departing home:
 A current appraisal completed by a state licensed appraiser, and/or
 Paying down the outstanding FHA mortgage to < 75% LTV (excluding existing
secondary liens); LTV is based on a current full appraisal.
Vacating jointly owned
 Borrower is vacating a residence that will remain occupied by the existing co-borrower.
property
 Borrower is vacating a co-owned property as a result of divorce terms.
Non-Occupying co Borrower, who is a non-occupying co-borrower on an existing FHA mortgage, may qualify for
borrower
a new principal residence.
Relocation
 Borrower is not required to sell his/her previous property that also has FHA financing if:
 Borrower is relocating/relocated for an employment related reason; and
 Borrower is establishing/established a new principal residence in another area not
within a reasonable commuting distance from his/her principal residence.
o If the borrower returns to the original area where he/she owns a FHA-insured
property, it is not required that the borrower re-establish principal residency
in that property.
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Borrower
Eligibility
Multiple FHA Loans (continued)
 Under no circumstances may investors use the exceptions described above to acquire rental properties through purportedly
purchasing “principal residences,” even if the purchase property will be the only one owned by the borrower.
 EALS will not accept any transaction deemed to be a circumvention of FHA’s ban on loans to private investors to
acquire rental properties.
 Eligibility for one of these exceptions will be determined with consideration of the borrower’s length of ownership
on the previous FHA-insured property AND the purchase motivation for the new FHA loan.
 If subject transaction does not qualify for any of these exceptions, then the borrower must either:
 Pay off the existing FHA loan on the previous residence; or
 Terminate ownership in the previous residence.
FHA 7-Unit Limitation
 HUD prohibits FHA financing on a property that may be rented and is part of, adjacent to, or contiguous to property,
subdivision, or group of properties that the borrower has/will have a financial interest in which total or more than seven
dwellings units (regardless of financing type) within a two block radius.
 A map must be provided identifying the properties owned by the borrower. The limitation counts
detached/attached properties as well as each dwelling unit in a multi-unit owned by the borrower, including the
rental units in an owner-occupied multi-unit.
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CAIVRS
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HA Guidelines
HUD’s Credit Alert Verification Reporting Systems (CAIVRS) screening is required on each borrower and any co-obligor.
 CAIVRS is not required for non-borrowing spouses.
 All negative alert must be satisfactorily resolved before the application can proceed.
If the borrower is currently delinquent or defaulted on any federal debt(s), then he/she is not eligible for FHA financing until
 The account has been brought current, paid/settled; or
 A satisfactory repayment arrangement was made with the federal agency (such as HUD, VA, DOE, USDA, SBA, FIDIC,
DOJ, etc.)
If the borrower defaulted on a prior FHA-insured loan (foreclosure, deed-in-lieu-of), he/she is not eligible for a new FHA loan
until three (3) years have elapsed from the date the claim paid to the new application date.
 Underwriter must comment how the borrower’s previous failure to pay federal debt does not represent a risk of
mortgage default.
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CAIVRS
LDP/SAM
Credit and
Liabilities
The federal government lists must also be checked for all parties involved in the transaction.
 Any matching results must be immediately escalated to the underwriting team lead for resolution.
 System for Award Management (SAM) list must be checked to determine if the U.S. General Services Administration
has barred a party from doing business with the federal government.
 Exception may be made if the seller is on the SAM list but property being sold is the seller’s principal residence.
 Limited Denial of Participation (LDP) must be checked to determine if an individual has been barred from doing business
with the federal government.
Credit Report and Loan Decision Score
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HA Guidelines
Exceptions are allowed if any of the following applies:
 CAIVRS does NOT belong to the borrower.
 Bona fide legal assumption (with or without release of liability) to an individual who subsequently defaulted.
o Borrower must also provide evidence the loan was current at the time of assumption sale.
 Divorce decree/legal separation agreement awarded the property and payment responsibility to the former spouse
o If FHA-insured loan, then three (3) years wait period from the claim
 Bankruptcy for documented circumstances beyond the borrower’s control
o Borrower must also meet prior bankruptcy wait period and re-established credit as described in HUD 4155.1
Chapter 4.
 Property delinquency related directly to a presidentially-declared disaster area(s).
 Borrower is eligible for Back to Work – Extenuating Circumstances Program.
A tri-merged credit reported dated within 120 days of the funding date is required on all loans. For Streamline Refinance
transactions, it is used solely to validate the credit score.
Each borrower’s respective credit score is determined by using the middle/lower method.
 If there are three (3) valid credit scores, then the middle of the three is used.
 If there are three (3) valid credit scores and two (2) of the scores are the same, then the duplicate score is used.
 If there are two (2) valid credit scores, then the lower of the two scores is used.
 If there is one (1) valid credit score, then that score is used.
Loan decision score is determined as follows:
 When there is no co-borrower, the borrower’s representative credit score is the decision credit score.
 When there are multiple borrowers, the lowest representative credit score amongst all borrowers is the loan
decision score.
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Credit and
Liabilities
Analysis of Credit
Total Scorecard DU Approve/Eligible
FHA’s TOTAL Scorecard evaluates the overall creditworthiness of the applicants and their ability to repay. Based on TOTAL’s credit
risk assessment, the DU findings also indicate a recommended level of underwriting and documentation to determine loan
eligibility. DE underwriter to review the loan file to validate the accuracy and completeness of the data integrity that resulted in DU
TOTAL’s recommendation, underwrite all appraisals to standard FHA requirements, and satisfy all the requirements of the AUS
findings.
Manual Underwrites
Past credit performance is the most useful guide to determine a borrower’s attitude toward credit obligations and predict a
borrower’s future actions. Borrowers who have made payments on previous and current obligations in a timely manner to
represent a reduced risk. Conversely, if a borrower’s credit history, despite adequate income to support obligations, reflects
continuous slow payments, judgments, and delinquent accounts, significant compensating factors will be necessary to approve the
loan.
When analyzing a borrower’s credit history, the underwriter must examine the overall pattern of credit behavior, not just isolated
occurrences of unsatisfactory or slow payments. A period of past financial difficulty does not necessarily make the risk
unacceptable, if the borrower has maintained a good payment record for a considerable time period since the financial difficulty
occurred.
 Underwriter must analyze the borrower’s derogatory credit and determine whether the late payments were due to:
 Compliance within FHA eligibility requirements;
 Disregard for financial obligations; or
 Inability to manage debt; or
 Factors beyond the borrower’s control
Minor derogatory information occurring over two years ago does not require explanation. Major indications of derogatory credit
(such as judgments, collections, and other recent problems) requires an adequate written explanation from the borrower with
sufficient supporting documentation. The credit explanation should make sense and be consistent with other credit information in
the loan file.
Authorized User Accounts
When the credit report contains authorized user accounts, with no accounts established in the borrower’s name, the loan is
ineligible for financing.
FICO >640 must have a minimal one open tradeline with a satisfactory payment history for one month
FICO<640 must have a minimal one open tradeline with a 12 month satisfactory payment history
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HA Guidelines
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Credit and
Liabilities
Insufficient Credit
DU/Eligible
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Manual Underwrite
For AU Approve/Accept, additional development of
credit is not required for borrower/co-borrower
lacking credit history tradeline requirements were
deemed acceptable by TOTAL.
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Borrower with sufficient credit must qualify with 31/43
maximum ratios based on only owner-occupant borrower. See
Non-Traditional Credit section to establish alternative credit
history.
Two months PITI reserves from borrower’s own funds (gift
funds not allowed); and
Compensating factors do not apply to insufficient credit
borrowers.
Non-Traditional Credit
The lack of credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan
application. Some prospective borrowers may not have an established credit history.
EALS requires most loans to receive a DU Approve/Eligible and the non-traditional credit criteria applies when a co-borrower or
borrower’s spouse does not have a FICO score.
 A non-traditional merged credit report (NTMCR) from a credit reporting company is used to supplement an insufficient
number of tradelines for a borrower, or to develop alternative credit history for co-borrowers who do not use traditional
credit.
 Payment histories are reviewed in the following cascading priority order which HUD/FHA considers indicative of a
borrower’s future payment performance:
 First – previous housing expenses, including utilities;
 Second – installment debts;
 Third – revolving accounts.
 Non-traditional credit may not be used to
 Offset derogatory credit, or
 Enhance poor payment history, or
 Manufacture a credit report for a borrower without verifiable credit history.
 For each borrower, sufficient credit history includes a minimum of three credit references from Groups I and II in the table
below to evaluate his/her paying habits. While it is preferred that all credit references from Group I, at least one of the
three references must be from Group I (page 40).
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HA Guidelines
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Credit and
Liabilities
Non-Traditional Credit (continued)
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Group I
Rental housing payments (subject to independent
verification)
 Rental verification from a professional property
management company
 12 months consecutive cancelled checks for
private landlord including a family member
Utility company reference (if not included in current
rent)
 Gas
 Electricity
 Water
 Land-line home telephone service
 Cable TV
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Group II
Insurance premiums not payroll deducted (medical, auto,
life, renter’s insurance)
Payment for child care providers (made to the business)
School tuition
Retail store credit cards (department, etc.)
Rent-to-Own (furniture or appliances)
Payment of medical bills not covered by insurance
Internet/Cell phone services
12 months savings history evidenced by:
 Non-payroll deducted regular deposits which
occurred at least quarterly with an increasing
account balance and no insufficient funds fees
 Automobile leases
 Personal loan with documented written
repayment terms with 12 months cancelled
checks to document payments
30-Day Charge Accounts

Open 30-day charge accounts (monthly payment reported as equal to outstanding balance or as $0) requires the balance to
be paid in full every month. If additional liquid assets are verified to sufficiently cover the unpaid balance, the debts may be
excluded from the DTI. Otherwise, the entire outstanding balance must be included in the DTI.
Adverse Credit
Total DU Approve
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HA Guidelines
Manual Underwrite
Credit explanation is required from the borrower
for adverse credit or other derogatory information
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Borrower must provide an explanation for all derogatory
credit in the past two years including judgments and
collections
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Credit and
Liabilities
Alimony/Child Support
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Verify the payment amount and the current status of the account.
Delinquent child support must be considered in the overall creditworthiness.
If the account is > 90 days past due and there is no repayment arrangement, downgrade to a Refer.
Bankruptcy
Chapter 7
 DU Approve: Chapter 7 bankruptcy must be disregarded if discharged more than two years ago.
 Manual underwrites allow a Chapter 7 that was discharged within one-two years provided both requirements are met:
 Obtain complete and thorough documentation trail of the circumstances that led up to the bankruptcy were beyond
the borrower’s control (e.g. unemployment, prolonged strikes, medical bills not covered by insurance).
 Document reestablished credit with four consumer debts opened after the bankruptcy with satisfactory 12 month
pay history.
 Bankruptcy is discharged within the past 12 months is not permitted.
Chapter 13
 Documentation of debt restructure.
 Most recent 12 months acceptable payment history in accordance to the Chapter 13 Approved Plan.
 If borrower converts a Chapter 13 into a Chapter 7 that was subsequently discharged within the past 12 months, the refer to
Chapter 7 guidance above.
Collections
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HA Guidelines
Underwriter must calculate the cumulative balance of all non-medical derogatory collections (including any collections
accounts of a non-purchasing spouse in community property states unless excluded by law). The underwriter may need to
apply the capacity analysis test to consider the impact of the outstanding collections on borrower’s ability to repay the
mortgage.
All medical collections and all charge-offs accounts (medical and non-medical) are excluded in calculating the $2,000
cumulative limit.
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Credit and
Liabilities
Collections (continued)
TOTAL Scorecard
DU Approve/Eligible
Manual Underwrites
Cumulative Derogatory Collections
 No explanation or documentation is required. The presence of the collections have already
been taken into consideration in the borrower’s credit score
 < $2,000 cumulative balance, the underwriter is not required to consider or evaluate the
collections accounts.
 > $2,000 cumulative balance the underwriter must include monthly payments in the DTI as
stated in 4155.14.C.2e for accounts that will remain open after closing.
 Underwriter must consider unpaid collections in the creditworthiness analysis and
document reasons for loan approval.
 Regardless of the outstanding collection amount, the underwriter must determine if the
collection resulted from:
 Disregard for financial obligations; or
 Inability to manage debt; or
 Extenuating circumstances beyond the borrower’s control
 Borrower must provide a written explanation and provide supporting documentation for
each collection, which must be consistent with other credit information in the loan file.
Capacity Analysis
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HA Guidelines
Capacity Analysis is required with > $2,000 cumulative balance of all outstanding collections (excluding medical and charge
offs), and includes any of the following actions:
 Payment in full of the unpaid collection with verified funds from an acceptable source; or
 Documented payment arrangement with the creditor with evidence of scheduled monthly payments made and
include in the DTI ratio; or
 If no payment arrangement can be documented, then calculate the monthly payment of 5% of each unpaid
collection balance in the DTI ratio.
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Credit and
Liabilities
Consumer Credit Counseling
Voluntary participation in Consumer Credit Counseling Services (CCCS) does not disqualify a borrower from obtaining a FHA loan.
DU Approve
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Manual Underwrite
Obtain the CCCS approved debt restructure plan
to verify an accurate debt ratio
No explanation or additional documentation is
required if the credit report shows consumer
credit counseling. Borrower’s credit scores already
reflect any degradation in credit history
All of the following documentation is required:
 Document the debt restructure and one year of the pay-out
period has elapsed under the plan
 Borrower’s payment performance has been satisfactory and all
required payments have been made on time.
 Borrower has received written permission from the counseling
agency to proceed with a new FHA loan.
Contingent Liability
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A contingent liability exists when an individual is held responsible for payment of a debt if another party, jointly, or severally
obligated, defaults on the payment.
Co-signed obligations must be listed as borrower’s debt and included in the DTI ratio, unless the borrower provides
conclusive evidence there is no possibility the debt holder will pursue debt collection against the borrower should the other
party default.
Mortgage Assumption
TOTAL DU Approve
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Manual Underwrite
Obtain a copy of the divorce decree ordering the
spouse to make payments, or
Assumption agreement and deed showing transfer
of title out of the borrower’s name
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HA Guidelines
11-18-2014
The contingent mortgage liability must be included in the DTI
on a property the borrower sold within the last 12 months, or
will sell as an assumption without release of liability, unless
Payment history from mortgage servicer verifying the
assumed mortgage is current and paid on time in the past 12
months.
< 75% LTV established based on lesser of appraisal or HUD-1
from the sale and the assumed mortgage loan (minus UFMIP).
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Credit and
Liabilities
Co-Signed Loan
Borrower has contingent liability on co-signed debts such as an auto loan, student loan, mortgage, or any other obligation unless
 Documents the primary obligor has been making regular loan payments; and
 Verification that the loan is current and being paid on time in the previous 12 months.
 Late payments reported on debts assigned to the ex-spouse in a divorce do not need to be charged to the borrower if the
delinquencies occurred after the divorce.
Business Loan
Sole Proprietorship and Partnership
 Business is not an entity that can borrower and any debt used by the business is a personal obligation regardless of whether
payment is made with business funds.
 Must include in the DTI but may add back same debt(s) expensed on the business tax filings to not be counted twice.
Corporation Including S-Corp. and Most LLCs
 Corporation is a legal entity that can be obligated for debt even though corporate officers/LLC members may be required to
sign as guarantors.
 Debts may be excluded from DTI provided:
 12 months consecutive cancelled checks to evidence corporation/LLC made the payments;
 Document the corporation/LLC is a borrower on the loan
Deferred Student Loans
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Qualify with the monthly payments for all student loan due within 12 months of closing.
Education loans with > 12 months verified deferment may be excluded in the DTI.
Disputed Accounts
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FHA revised its policy regarding manual downgrades for TOTAL Approve/Accept loans to reflect the risk associated with
derogatory disputed accounts for factors such as age and outstanding balance amount. Accounts that appear as disputed on
the borrower’s credit report are not considered in the credit score utilized by TOTAL Mortgage Scorecard in rating the
application.
To determine if a manual downgrade is required, collection accounts for non-purchasing spouse in a community property
state are not included in the cumulative balance.
Disputed derogatory credit accounts include:
 Disputed charge-offs,
 Disputed collections, and
 Disputed accounts with late payments < 24 months.
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HA Guidelines
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Credit and
Liabilities
Disputed Accounts (continued)
If AUS…
TOTAL DU
Approve/Eligible
Manual
Underwrite
And…
Then…
 < $1,000 cumulative balance all disputed
 Manual downgrade is not required.
derogatory accounts (excluding medical)
 > $1,000 cumulative balance all outstanding
 Downgrade to a Refer and manually
disputed accounts (excluding medical)
underwrite the loan.
Disputed accounts excluded in $11,000 limit:
 Medical accounts do not require documentation;
 Identity theft, credit card theft, unauthorized use, etc., must be documented (police report disputing
fraudulent charges);
 Non-derogatory disputed accounts;
 Not indicated on the credit report as “disputed” including non-derogatory disputed and derogatory
disputed accounts:
 Non-derogatory disputed accounts include: zero balance, late payments > 24 months, or
disputed accounts that are current and paid as agreed, paid in full, resolved.
FHA requires the lender to consider them in the Underwriting Analysis as described below:
 Borrower must provide a written explanation and supporting documentation for the basis of dispute.
 Underwriter must analyze the effect of all disputed accounts on the borrower’s ability to repay whether
or not indicated as “disputed” on the credit report.
 Document if dispute results in a lower payment than shown on the credit report.
Delinquent Federal Debt
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Endeavor America Loan Services
HA Guidelines
Any delinquent federal debt (e.g. student loans, tax liens, etc.) must be brought current, paid in full, or resolved with a
satisfactory repayment plan between the federal agency and the borrower
If the tax returns or transcripts show the borrower owed taxes, provide evidence the taxes were paid or in a repayment plan
Written verification is required from the federal agency to document the delinquency has been paid in full or repayment
arrangements have been established
Even though a debt may be satisfied, it doesn’t take away from the fact the delinquency occurred and must be considered in
the credit risk
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Credit and
Liabilities
Foreclosures/Deed-in-Lieu
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Three years minimum seasoning from the case assignment date is required for prior foreclosure (FC) and deed-in-lieu (DIL)
on both AUS Approved and manually underwritten loans.
If prior FHA foreclosure, three years seasoning is based on the date that HUD paid a claim on the prior FHA loan. FHA
Resource Center (800-225-5342) can provide the FHA claim paid date and initial default date.
If < three years seasoning, borrower must provide a detailed explanation with documentation to support the extenuating
circumstances (serious uninsured illness or death of a wage earner) that caused the foreclosure or deed-in-lieu were beyond
the borrower’s control and unlikely to recur.
 Extenuating circumstance is not an inability to sell the house because of a job transfer or relocation to another area.
 Divorce is not considered an extenuating circumstance.
 Exceptions:
o Divorce: Former spouse defaulted on previous mortgage after marital property transferred per divorce
terms and was current at time of divorce.
o Borrower may also be eligible for Back-to-Work – Extenuating Circumstances section of this guide.
Must have reestablished credit with no housing or installment late payments after foreclosure.
Second Mortgage Foreclosure
 A second mortgage may continue to show derogatory on the credit report after the title has been transferred back to the
lender.
 If the second mortgage was secured against the property that was foreclosed, the outstanding lien may be excluded with
three years seasoning based on the date when the first lienholder completed the foreclosure and title was transferred back.
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HA Guidelines
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Credit and
Liabilities
Housing History
TOTAL DU Approve
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Manual Underwrite
Rental verifications are typically not required on
a DU Approve. Follow the DU Findings unless
Downgrade to a Refer and manually underwrite
the loan when any mortgage tradeline during
the last 12 months reflects:
3x30 days late; or
1x60 days late plus 1x30 days late; or
1x90 days late
FICO’s 620-639 must have a housing history if
credit contains derogatory items and there is not
at least one re-established credit (re-established
credit must contain at least one tradeline rated
0x30 for the last twelve months). In lieu of a
tradeline on credit, a VOR’s may be provided to
satisfy this requirement. VOR can be obtained
from a property management company; credit
supplements/canceled checks may be used for
private landlords borrowers renting from family
members or non-arms-length transaction will
require canceled checks to verify housing history
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All borrowers’ housing history must be verified for the previous 12
months with no late payments.

Satisfactorily explain all inquiries within the past 120 days listed on
the credit report and address the reason and disposition of each
inquiry.
Other requirements same as DU Approve/Eligible.
Inquiries and Undisclosed Debt(s)
TOTAL DU Approve
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Endeavor America Loan Services
HA Guidelines
Manual Underwrite
No explanation is required
Undisclosed debt(s) may be revealed in borrower’s asset
statements, paystubs, or as a result of a credit inquiry:
 Verify the monthly payment amount of any, and
 Update the DTI ratio with additional obligations,
and
 Resubmit into DU.
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Credit and
Liabilities
Judgments
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TOTAL DU Approve
No explanation or documentation is required. The
presence of the judgments have already been taken
into consideration in the borrower’s credit score.
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Manual Underwrite
Judgments may indicate a borrower’s disregard for credit
obligations and must be considered in the creditworthiness
analysis.
For both AU Approve and manual underwrites, pay off all outstanding judgments, including non-borrowing spouse’s in a
community property state, shown on the credit report, unless
 Documented borrower’s payment agreement with the creditor to make regular scheduled payments, and
 Evidence at least three months consecutive payments were made on time prior to loan approval. Borrower may not
prepay the scheduled payments simply to meet this requirement.
 Payments must be included in the DTI ratio.
Judgments on title must be paid if they will impair EALS/FHA’s first lien position.
Modified/Restructured Loans
 Purchase and refinance transactions where the borrower has had a modified/restructured mortgage may be acceptable as
follows:
 No principal forgiveness or reduction has occurred.
 The modification/restructure adjusted the terms and/or payment only.
 The mortgage must be current with no late payments within the most recent 12 months.
 Three years from the subject’s transaction Note date.
Debt Payoff to Qualify

Payoff revolving debt to qualify is allowed if the account is paid in full prior to closing with:
 Credit supplement verifying a zero balance and the account has been closed.
 Gift funds for debt payoff is acceptable only with a family member donor as defined in ML 2012-03.
Recurring Debts
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Endeavor America Loan Services
HA Guidelines
Monthly payments on revolving or open-ended accounts, regardless of their balances, are counted as liabilities for
qualifying purposes even if the accounts appear likely to be paid off within ten months or less.
Monthly payments > $100 must be included in the DTI even if there is less than ten payments remaining. The debt(s) will
affect the borrower’s ability to pay the mortgage during the months immediately after the loan closing, especially if the
borrower will have limited or no cash assets.
Installment lates within the last 6 months on FICO’s <620 are not eligible for financing
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Credit and
Liabilities
Short Sale/Pre-Foreclosure
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A borrower is not eligible for a new FHA loan if he/she has pursued a short sale or pre-foreclosure with the past three years
to:
 Take advantage of the declining market conditions, and
 Purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to
the current market value.
Mortgage Current at the Time of Short Sale
 A borrower is considered eligible for a new FHA loan if, from application date, all criteria is met:
 No late payments on the prior mortgage for 12 months preceding the short sale, and
 No late payments on any installment debts for the same period of time.
Defaulted Mortgage at the Time of Short Sale
 A borrower must wait three years from the date of the short sale/pre-foreclosure if he/she defaulted on the prior mortgage
 If the property was sold under FHA’s pre-foreclosure sale program, the three year wait period begins from the date
FHA paid the claim.
 Exception to three year wait period may be considered if the:
 Default was due to circumstances beyond the borrower’s control (death of primary wage earner, long-term
uninsured illness, etc.), and
 The credit report indicates satisfactory credit prior to the circumstances that caused the default.
 Exceptions must be manually underwritten. Refer to Manual Underwriting, Manual Underwriting Matrix and
Compensating Factors sections for further information.
Tax Liens
 Verify and document state or local unpaid tax liens will subordinate the tax lien to the FHA-insured mortgage.
 If no, then tax liens must be satisfied prior to closing.
 If yes, then document repayment plan with at least two scheduled payments made prior to loan application.
 Federal tax liens do require a subordination agreement unless there is evidence the IRS demanded a first lien position.
 Borrower must qualify with monthly tax payments on the repayment plans, whether or not reduced to a lien or judgment, and:
 If repayment plan was approved after loan submission and first payment is not due until after the FHA loan closing, no
evidence of payment is required.
 If repayment plan in effect prior to loan submission, evidence the payments have been made on time for a minimum of 12
months (or all payments due if < 12 months in effect) and borrower must be paid current on the repayment plan.
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HA Guidelines
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Credit and
Liabilities
Community Property States
Community property states are: Alaska (optional), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington,
Wisconsin.
 If the borrower resides in a community property state OR if the subject property is located in a community property state:
 Debts of the non-purchasing spouse must be considered in the DTI ratio and in the residual income calculation.
o Obligations specifically excluded by state law need not be counted with satisfactory documentation to support the
exempted debts.
o Collection accounts for non-purchasing spouse in a community property state are included in the $2,000 cumulative limit.
Monthly payments may be included in the DTI to analyze the impact of borrower’s ability as per MLs 2013-24 & 13-25.
o Disputed debts need not be counted if there is satisfactory evidence to support the validity of the dispute.
 The greater of the reported monthly payment or 5% of the outstanding balance must be counted as the monthly obligation.
 Judgments, liens, and any other delinquent credit that would compromise Endeavor America’s first lien position must be paid off
prior to closing. Other delinquent debts would only be required to be paid off at the EALS underwriter’s discretion.
 If the non-purchasing spouse doesn’t have a SSN, a credit report is still required with public records search.
Disaster Re-inspections
 Appraisal inspected on/before a FEMA declared disaster incident period end date:
 Property must be re-inspected by the original appraiser or acceptable inspection source (e.g. a nationally recognized field
company or local professional licensed inspector). The appraiser/property inspector must provide the following
commentary/evidence: “Property is free from damage and the disaster had no effect on the value or marketability.”
 If the re-inspection indicates damage, the extent of the damage must be addressed. Completion of repairs is required prior to
funding as evidenced by Form 1004D with photos.
 Appraisal inspected after a FEMA declared disaster incident period end date:
 An interior inspection is required in all FEMA declared disaster areas for one year from the date of the disaster declaration.
 The appraiser must provide current photos of the subject property and comparable sales. Photos from MLS or the appraiser’s
database are not acceptable.
 Property Valuation Update, PIW, Exterior Appraisals (Forms 2055, 1075)
 Not allowed until one year after the disaster declaration date.
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HA Guidelines
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Credit and
Liabilities
Eligible Properties
The following properties are permitted under the EALS FHA Loan Program:
 1-unit single family
 2-4 multi-unit residential properties
 HRAP approved condominium (HUD website)
 Manufactured homes classified as real estate and meets FHA requirements (single or doublewide)
New construction, proposed construction and under construction.
NOTE: EALS only provides the permanent financing, not construction draws
Ineligible Properties
A property is ineligible if any of the following conditions are present:
 Commercial properties (bed & breakfast, condotel, motel, orchards/working farms)
 Condominium is NOT HRAP approved
 Condominium or manufactured home with less than 400 square feet
 Cooperatives
 Manufactured homes which are:
 All condos (including site condos), Co-op, Parks
 Located in ground lease communities
 Multi-unit
 Not permanently affixed to the lot and is not considered real estate under state law;
 Native American Leaseholds
 Property that cannot meet FHA’s minimum property standards
 Property has Chinese drywall
 Property located in any of the following:
 a Special Flood Hazard Area (S) and flood insurance is not available
 a designated Coastal Barrier Resources System area
 an airport Noise Zone 3, if proposed or under construction
 a transmission line easement involving high-pressure gas or liquid petroleum or high voltage electricity, if any part of the
residential structure is located within the easement
 an area susceptible to geological or soil instability (earthquakes, landslide or other history of unstable soils) if
proposed/under/new construction and the builder cannot provide evidence that either the site is not affected or the problem
has been adequately addressed in the engineering design.
 Transient housing or timeshares (boarding house, private club, tourist house)
 Unique properties
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HA Guidelines
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Credit and
Liabilities
Eligible Transactions
Purchase
 Principal residence only.
Refinance
 Cash-out refinance on principal residence only
 Rate/term refinance on principal residence only.
 Streamline Refinance (Credit-Qualifying and Non-credit Qualifying) may be principal, second home or investment property.
Ineligible Products or Transactions
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Employment and
Income
Documentation
Non-occupying co-borrower who is not a family member.
Energy Efficient Mortgages (EEMs)
HECM
Living and Land Trust
Non-arms-length transaction on a short sale when the seller and buyer are related.
Temporary buydowns
Unsecured loans or loans secured by less than a first lien
FHA ARMs
Loans made to borrowers rated incompetent
Streamline refinance currently delinquent within the past three (3) months or at the time of closing.
General Information and Requirements
Sources of effective income used to qualify for FHA loans must be verifiable, stable and reasonably expected to continue through
the at least the first three years of the mortgage loan.
For credit qualifying FHA loans, an IRS 4506T must be executed by each borrower. If the borrower only receives W-2 income, then
W-2 transcripts can be ordered. Otherwise, tax transcripts for the most recent two (2) years filings are required. Refer to the
income type below for additional documentation requirements.
Income stability takes precedence over job stability when analyzing the borrower’s employment record to determine probability of
continued employment. An underwriter would likely consider favorably a borrower who had frequent job changes within the same
line of work, but continued to advance in income or benefits, if there was no significant negative impact to borrower’s credit from
the frequent job changes.
Below are the documentation requirements for the acceptable sources of income as well as the income stability, organized in two
parts.
NOTE: A loan must be downgraded to a manual underwrite if the borrower(s) is/are unable to fully satisfy the employment history
and documentation requirements of the AUS TOTAL recommendation.
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HA Guidelines
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Employment and
Income
Documentation
Current Employment
TOTAL DU Approve
 Written VOE or Verbal VOE with 3rd party employer
validation
 Most recent paystub that covers at least one (1) full
month of employment including:
 Year-to-date information
 Bonus information
 Overtime information
Manual Underwrite
 Same as DU
Employment History
TOTAL DU Approve
 Borrower’s previous two years employment history must
be verified and documented.
 Direct verification is not required if ALL the following
conditions are met:
 Current employer confirms two (2) year history; or a
paystub reflects the hiring date;
 Base pay only is used to qualify (no overtime or
bonuses); and
Manual Underwrite
 Borrower’s previous two (2) years employment history must be
verified with:
 Written VOEs
 W-2s
 W-2 transcripts or tax transcripts
 4506T
Employment Gaps
TOTAL DU Approve
 No explanation for employment gap is required if both
conditions are met:
 Gap ≤ 60 days employment gap during past two years.
 > Six (6) months at new employment
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HA Guidelines
11-18-2014
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Manual Underwrite
An explanation is required for each employment gap ≥ 30
days.
Allowances for seasonal employment (construction) with
documentation.
Extended Absence of six plus months such as a borrower
returning to work force after taking several years off to raise
children is acceptable if.
 ≥ Six (6) months at current job
 Two (2) year work history prior to absence verified
with written VOE and/or documented with W-2s &
paystubs
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Employment and
Income
Documentation
Alimony/Child Support
TOTAL DU Approve
Manual Underwrite
 Most recent three (3) months cancelled checks or bank
statements to document receipt and deposit
 Divorce decree (front page and applicable pages)
providing details of support payments and prove three
(3) years continuance.
 12 months receipt for manual approval
 Divorce decree (front page and applicable pages) providing details of
support payments and prove three (3) years continuance.
Auto Allowance
Auto allowance refers to the funds provided by the employer for car related expenses. Only the amount that an auto allowance
and/or expense account payments exceed the actual expenditures can be considered income.
 Required documentation:
 Employer must verify in writing that the auto allowance will continue;
 Verify auto allowance received from the employer for the previous two years.
 Tax returns for the most recent two (2) years, with all schedules including IRS Form 2106 – Employee Business Expenses.
 To calculate the amount of auto allowance that may be considered as effective income:
 Average the auto expenses in the past two (2) years filed under IRS Form 2106, and
o If the borrower uses standard per-mile rate in calculating auto expenses, as opposed to “actual cost” method, the portion
that IRS considers depreciation may be added back to income.
 Subtract the averaged expenses from the current amount of the auto allowance received; and
 Add as qualifying income if positive amount.
 Expenses that must be treated as recurring debt for DTI calculation:
 Borrower’s monthly car payment which cannot be offset by the car allowance;
 If there is a loss between the car allowance and actual expenditures.
Bonus and Overtime
Overtime and bonus may be considered stable and used to qualify when:
 two years history and verified likely to continue, and
 Underwriter should analyze bonus/overtime earnings trend and provide qualifying income calculation on 92900-LT.
 Average over past two years through YTD if trend has been consistent or increasing;
 Average over three (3) plus years if income inconsistent, varying significantly from year to year;
 If there has been a decline in income, the underwriter should provide justification with supporting documentation for using this
income source to qualify.
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HA Guidelines
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Employment and
Income
Documentation
Capital Gains/Losses
Generally, capital gains or losses are one time occurrences from the disposition of an asset (stock, bond, or real estate), and should
not be considered as effective income.
However, this type of income may be considered when a borrower has a constant turnover of assets based on the following
requirements:
 At least three years tax returns are required to evaluate the earnings trend; and
 If the trend results in a gain, it may be added as effective income; or
 If the trend consistently shows a loss, it must be deducted from the total qualifying income.
 The borrower must document anticipated continuation of income through verified assets.
Commission Income
A commissioned borrower earns more than 25% of their annual income in paid commission
 Document minimum of two years history:
 Written VOE, fully completed including the following:
 verified continuance and when commissions are paid;
 breakdown history of commission for past two years and YTD; and
 Most recent two years federal tax returns, including all schedules and referenced statements.
 Qualifying income is calculated as follows:
 If consistent/increasing commission history, then average income based on two years tax returns;
 If commission decreased in past two (2) years, significant compensating factors are required for loan approval
 Deduct unreimbursed business expenses (IRS Schedule A/Form 2106) from averaged commission.
 Between one and two years commission history may be favorably considered if the underwriter can:
 Document the likelihood the income will continue, and
 Provide a sound rationalization for acceptance of commission income.
 Less than one year history of commission is NOT considered effective income, unless:
 Borrower’s compensation changed from salary to commission within similar position with the same employer. Earned
commissions should be consistent or more than previous salary.
 Borrower qualifies with a portion of earnings NOT attributed to commission.
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HA Guidelines
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Employment and
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Documentation
Disability Income
 Long-term disability income (such as worker’s compensation or private insurance) may be considered qualifying income with a
reasonable expectation of continuance for three (3) years.
 Temporary/short-term disability income is not considered consistent or stable income source and may not be used to qualify.
 Required documentation:
 Current disability income verified with most recent check or bank statement with direct deposit;
 Last Notice of Award (or its equivalent document) that establishes the award of benefits to the borrower.
 Continuance may be documented with:
 Social Security Disability Income with last Notice of Award. Refer to Social Security Benefits section for additional
documentation requirements.
 Verification of VA Benefits (form VA Form 26-8937) verifies the borrower’s benefit amount for VA disability compensation or
non-service connected pension.
 Private disability provider must verify or document the amount of assistance and the expiration date of benefits, if any.
 If no defined expiration date, the disability income may be considered likely to continue.
NOTE: Under no circumstance may the borrower be asked to document the nature of his/her disability or medical condition.
 Pending or current re-evaluation of medical eligibility for benefit payments is not considered an indication that the benefit
payment is not likely to continue.
 If disability income will expire within three years of the mortgage application, it may only be considered as a compensating
factor.
 If non-taxable, disability income may be grossed up and used to qualify.
Family Employer
 The borrower must provide the standard income documentation; and
 Evidence of the borrower is not an owner of the family-owned business with one of the following:
 Signed personal tax returns for most recent two years;
 Signed federal business returns for most recent two years, showing ownership percentages (usually shown on Schedule K-1), if
applicable
Farm Income/Loss
 In reviewing tax returns or tax transcripts, farm income/loss filed on IRS Form Schedule F must be included in borrower’s income
analysis.
 Depreciation may be added back for most recent two years;
 If the farm income/loss is derived from the subject property, the property is considered as ineligible by EALS.
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HA Guidelines
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Employment and
Income
Documentation
Interest and Dividend
 Interest and dividend income may be considered for qualifying if:
 Consistent history of receipt for the past two years and year-to-date interest earned/dividend distributions;
 Three years continuance documented by the most recent statement of the underlying asset(s) that is the source of the income.
o If the interest-bearing asset will be liquidated for minimum required cash investment and/or loan closing, then deduct
this amount and determine impact before calculating continuance.
Military Income
Active Duty
 Most recent Leave and Earnings Statement (LES) and past two years W-2s verifies base pay and allowances.
 Basic allowances: quarters (BAH), subsistence (BAS) and clothing
o non-taxable and may be grossed up as effective income
 Additional allowances: flight or hazard pay, pro-pay, overseas pay and combat pay, voluntary separation (VSI):
o may not be grossed up if taxable; and
o verified continuance to use as effective income.
 If the borrower’s active duty release date or the end of the contract term is within 12 months of the closing date, obtain ANY of
the following:
 Document re-enlistment to a date beyond the 12-month period from the closing.
 A statement from the service member that he/she intends to re-enlist or extend his/her period of active duty to date beyond
the 12 month period plus a statement from his/her commanding officer confirming the service member is eligible to re-enlist or
extend his/her active duty and that there is no reason re-enlistment or extension of active duty will not be granted.
 Verification of a valid offer of local civilian employment following the release from active duty.
Reserve/National Guard
 Borrower must indicate whether his/her income will change in any part due to his/her participation in the Reserve/National
Guard, and
 If Reserve/National Guard income will probably continue based on total length of service, then this income may be used to
qualify.
 If continuance is not likely, the income may be considered compensating factor.
 For recently activated Reserve/National Guard, document the borrower’s income upon unit activation and duration of the
temporary assignment.
 If income will be reduced by leaving current job, carefully evaluate the impact to the borrower’s ability to repay the loan as well
as manage their current expenses.
 Borrower must certify property will continue to be their primary residence if temporary assignment will be completed within
the first year of the FHA mortgage servicing.
 If income will increase, then consider if the likelihood the income will continue beyond a 12-month period.
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HA Guidelines
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Employment and
Income
Documentation
Military Income (continued)
VA Benefits
 VA benefits must be documented by a letter or distribution form from the Veterans Administration
 Verification of VA Benefits (form VA Form 26-8937) verifies the borrower’s VA disability compensation or non-service
connected pension.
 The income must continue for at least three years.
 VA Education Benefits is for education expenses. This benefit may not be used to qualify nor used to offset student loan
payments.
Non-Taxable Income
 Certain types of regular income may be federal tax-exempt including:
 Portion of social security benefits
 Some military allowances
 Child support
 Railroad retirement benefits
 Some Federal or state government employee retirement income
 Non-taxable income may be “grossed up” based on the appropriate tax rate percentage for the income amount reflected on the
borrower’s tax returns.
 25% gross up rate may be used if borrower(s) is/are not required to file Federal tax returns.
NOTE: Do NOT include the non-taxable portion in the residual income calculation for consideration as a compensating factor.
Part-Time and Seasonal
Part-time income, including seasonal work, refers to jobs taken to supplement the borrower’s primary regular employment. As
many low/moderate income families rely upon part-time and seasonal income, HUD/FHA permits borrowers to qualify with such
income sources provided the following requirements are met:
 Part-time (second job) income may be used to qualify if borrower has worked the part-time job uninterrupted for the past two
years (in addition to primary job) with verified continuance for current job.
 < two years history of part-time employment may be used to qualify the income continuance is likely;
 Otherwise, part-time income may be considered as compensating factor only.
 Seasonal employment can be used to qualify if borrower has worked the same job for past two years and expects to be rehired
during the next season.
Examples: umpiring baseball games in summer; working at department stores during the holiday season
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HA Guidelines
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Employment and
Income
Documentation
Parsonage Housing Allowance
 When the employer subsidizes a borrower’s mortgage through direct payments, this housing allowance may only be considered
in borrower’s gross income.
 Employer to verify the current subsidy amount and that borrower will continue to be eligible to receive this compensation
 Document the receipt history of mortgage assistance.
 The subsidy may not be used to offset the mortgage payment directly, even if the employer pays servicing lender directly.
Projected Income
 Projected or hypothetical income may NOT be used to qualify unless for the following exceptions.
 Current Job: document cost-of-living adjustments, bonus, performance raises, etc. with:
o Written VOE verifying most recent two years receipt and effective date of the projected income increase.
o Projected income may not be considered from family employer.
o Most recent paystub with YTD earnings
 New job income may be used to qualify if ALL the following have been met:
o Guaranteed, non-revocable contract for employment to verify start date will be within 60 days of loan closing, and
o Borrower has sufficient income or cash reserves to support the total debts (proposed mortgage and other recurring
obligations) during the interim period between the loan closing and the employment start date
o If more than 60 days, provide pay stub or other acceptable evidence borrower’s employment has begun before loan can
close.
Examples: teacher whose contract will begin with the new school year; physician who will begin residency.
 Lenders must not ask the borrower about possible future maternity leave.
Refer to Retirement Income section below if the borrower plans to retire during the first three years of the mortgage servicing.
Rental Income
2-4 Unit Subject Property
 For purchases, subject gross rent is added to borrower’s qualifying income and calculated as follows:
 Fair market rent, established by the appraiser, for tenant-occupied units only
o Borrower must identify which unit will be owner-occupied
 Subtract the applicable vacancy factor set by the jurisdictional HOC.
 For credit qualifying refinances,
 Subject’s adjusted gross rent used as qualify income is based on the lesser of appraiser’s fair market rent or the actual rent filed
on schedule E and subtract the actual non-mortgage expenses.
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HA Guidelines
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Employment and
Income
Documentation
Rental Income (continued)
 For 3-4 unit properties, the Self-Sufficiency Rental Income calculation is required on both purchases and refinances.
1) Take the appraiser’s estimate of fair market rent for all subject units including owner-occupied unit
2) Subtract the greater of the jurisdictional HOC vacancy factor or the appraiser’s estimate for vacancies; and
3) Subtotal of subject net rent must equal or exceed the proposed FHA mortgage payment.
Reserves:
 AUS Approve/Accept: three months PITI required for 3-4 unit subject property
 Manual Underwrites1:
o 1 month PITI minimum required on 2-unit subject with standard ratios2 of 31%/43%
3 months PITI as compensating factor on 2-unit with extended ratios
o 3 months PITI minimum required on 3-4 unit with standard ratios* of 31%/43%
6 months PITI as compensating factor on 2-unit with extended ratios
NOTE: 1 Refer to the Manual Underwriting – Compensating Factors for additional requirements.
2 Ratios may go up to 33%/45% on an energy efficient home.
 Form HUD-92561, Hotel and Transient Use disclosure must be completed and signed by the borrower(s).
 FHA 7-unit limitation compliance is required if borrower owns other properties.
Conversion of Primary Residence into Rental
HUD/FHA does not allow the underwriting analysis to include any rental income from the property being vacated except under the
circumstances described below.
 Borrower must qualify with the full debt service of both mortgages for the current and new homes without any rental income
even if a lease is signed.
 This guidance also applies when the borrower has a pending sale that will close after to our subject transaction.
 Exception #1 – Conversion into Rental: Rent income may be used if BOTH requirements are met.
 Document a minimum of 25% equity in the departing home as determined by either:
o Current residential appraisal (full or exterior-only) no older than 180 days completed by state licensed appraiser; or
o Comparing the unpaid principal balance to the original sales price (current mortgage statement and purchase HUD-1/deed).
 Obtain an executed one year lease agreement with documented security deposit.
 Rental income on departing home is reduced by the appropriate vacancy factor per the jurisdictional HOC, and then used to
offset the mortgage payment(s) and HOA dues.
o EALS does not allow positive net rent to be used as qualifying income
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HA Guidelines
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Employment and
Income
Documentation
Conversion of Primary Residence into Rental (continued)
 Exception #2 – Relocation
 If the departing home is to be rented, document the borrower is relocating with a new employer, or being transferred by
current employer to an area outside a reasonable commuting distance.
 Obtain an executed one year lease agreement with documented security deposit to use the rent income to offset the
existing mortgage payment.
Other Investment Properties
 If owned > 12 months, net rental income is verified with filed Schedule E to IRS 1040
 Depreciation may be added back
 Gaps of rent > three months (seasonal, students, military renters, or property rehabilitation) should be explained and
documented.
 If owned < 12 months, acquired after the most recent tax filings (not shown on schedule E), then net rental income is determined
as follows:
 Current one-year executed lease may be used to establish gross rent; and
 Subtract the applicable HOC vacancy factor, and
 Subtract the rental property’s current total PITI and HOA/condo dues.
 If net rental income is:
 Positive rental income is considered gross income for qualifying purposes;
 Negative rental income must be treated as a recurring monthly liability and included in the DTI.
 Confirm borrower still owns each rental property listed by comparing the Schedule E with REO section of the 1003.
 If borrower owns > six units in the same general area, a map must be included disclosing the location of the units for verify
compliance with FHA’s 7-unit limitation
Retirement Income
 Borrower’s retirement income may be documented with
 Retirement benefits letter from former employer; and/or
 Copy of current retirement check or bank statement with direct deposited pension;
 1099-R or tax returns for previous two years.
o For tax returns/IRS Form 1040, lines 15a and 16a on page 1 for total IRA distribution, pension, or annuity.
 If borrower is planning to retire during the first three year period, then the effective income will be the:
 Documented retirement benefits, and/or
 Social security payments, or
 Other payments expected to be received in retirement.
 Retirement income must continue for at least three years, otherwise it can be considered as a compensating factor
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HA Guidelines
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Employment and
Income
Documentation
Self-Employed Borrower
 A borrower is considered self-employed with 25% or greater ownership interest in a business.
 FHA requires a minimum length of filed self-employment for the income to be considered stable and effective:
 > 2 years self-employed: income is considered stable and effective if consistent/increasing income trend.
 1-2 years self-employed: borrower must have at least two years employment in the same line of work.
o Combination of one year work and formal education/training in same line of work is also acceptable.
 <1 year self-employed: income is not considered effective and may not be used to qualify.
Refer to the TOTAL Scorecard (if applicable) for the specific documentation requirements and HUD 41551.1 Chapter 4.D.
Self-Employed Documentation Requirements
AUS Approve/Accept
 Two years most recent federal personal tax returns with
all schedules and referenced statements.
 No business tax returns required if all are met:
 personal tax returns show increasing self-employed
income;
 Business accounts are not the source of funds to close;
 FHA insured mortgage transaction is not a cash-out
refinance.
 YTD P&L and Balance Sheet
 Tax transcripts are still required;
 Resolve any discrepancies prior to final loan approval.
AUS Refer/Manual Underwrite
 two years most federal personal tax returns with all schedules and referenced
statements.
 two years most federal business tax returns with all schedules and referenced
statements if business structure is partnership or S-corporation.
 YTD P&L and Balance Sheet
 Tax transcripts are still required;
 Resolve any discrepancies prior to final loan approval.
 Business credit report for a corporation or S-corporation
Business Tax Returns
AUS Approve/Accept
AUS Refer/Manual Underwrite
 Business tax returns are not required if the borrower
meets all of the following:
 two years most recent personal federal tax returns
including all schedules, reflecting increasing selfemployed income; and
 Business accounts are not the source of funds to close;
and
 FHA insured mortgage transaction is not a cash-out
refinance.
 Tax transcripts are still required and any discrepancies
must be resolved prior to final loan approval.
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HA Guidelines
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 two years most recent personal tax returns with all schedules and referenced
statements.
 two years most recent business tax returns with all schedules and referenced
statements.
 Tax transcripts
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Employment and
Income
Documentation
Self-Employed Borrower (continued)
Self-Employed Profit and Loss; Balance Sheet
Borrower’s Earnings Trend
 When qualifying a self-employed borrower, the earning trend must be established from the previous two years using the tax
returns.
 If the borrower provides quarterly tax returns, the income analysis may include income through the period covered by the tax
filings.
 If the borrower is not subject to quarterly tax returns, or does not file them, the income analysis shown on the P&L may be
included in analysis, provided the income stream based on the P&L is consistent with previous years’ earnings.
 If the P&L statements submitted for the current year show an income stream considerably greater than what was supported by
the previous year’s tax returns, the lender must base the income analysis solely on the income verified through the tax returns. If
the borrower’s earnings trend for the previous two years is downward, and the most recent tax return or P&L is less than the
prior year’s tax return, the borrower’s most recent tax return or P&L must be used to calculate his/her income.
Business Financial Strength
 The business income should be analyzed to determine if the borrower’s business is expected to generate sufficient income for
his/her needs, the lender must carefully analyze the business financial strength including the:
 Source of the business income
 General economic outlook for similar businesses in the area.
 Annual earnings that are stable or increasing are acceptable, while businesses that show a significant decline in income over the
analysis period are not acceptable, even if the current income and debt ratio meet FHA guidelines.
HUD 4155.1 4.D.4.g
Social Security Benefits
 All income from the Social Security Administration (SSA) may be used as qualifying income if verified and likely to continue for at
least three years from the application date.
 SSA pays retirement benefits and disability benefits – Social Security Disability Insurance (SSDI) for the borrower and
Supplemental Security Income (SSI) for the dependent.
 SSA benefits may be verified with:
 Federal tax returns;
 Most recent bank statement evidencing SSA direct deposit;
 “Budget Letter” or “Benefits Letter” that evidences income from the SSA;
 Social Security Benefit Statement, SSA-1099/1042S
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HA Guidelines
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Employment and
Income
Documentation
Social Security Benefits (continued)
 Benefits continuance may be documented with:
 SSA’s last issued Notice of Award letter (or its equivalent document) in which SSA determined borrower’s eligibility and
benefits benefit income.
 If no defined expiration date, benefits shall be considered likely to continue without additional borrower documentation.
NOTE: Under no circumstance may the underwriter inquire into or request documentation concerning the nature of the disability or
the medical condition of the borrower.
Pending or current re-evaluation of medical eligibility for benefit payments is not considered an indication that the benefit payment
is not likely to continue.
 If benefits will expire within three years of the mortgage application, it may only be considered as a compensating factor.
 If SSA’s Notice of Award specifies a start date in future, this amount may be considered as effective income.
 The borrower must have other income to qualify for the mortgage until the start date for receipt of income.
Reference: ML 2012-15 clarified the documentation requirements for different types of SSA income and replaced HUD 4155.1
4.D.2.k in its entirety.
Tip Income
 Tip income must have been received for at least the most recent two years.
 Tip income should be averaged over the past two years and documented as follows:
Tip income is included in the W-2, then obtain:



Tip income is not included in W-2, then document with:
Only W-2 transcripts may be requested; and
Written VOE with verified continuance and
breakdown of tip income history for past two
years and YTD; and
Most recent paystub and past two years W-2s




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HA Guidelines
11-18-2014
Tax transcripts are required; and
Tax returns for past two years, complete with all schedules and
referenced statements;
 Subtract any unreimbursed employee expenses
Written VOE with verified continuance and breakdown of tip
income history for past two years and YTD;
Most recent paystub and past two years W-2s
Page 64 of 104
Escrows/Insurance
Hazard Insurance
General Requirements
 Hazard insurance provides coverage for property damage caused by fire, wind or other natural
disasters.
 Special coverage (or an endorsement to the homeowners policy) is typically required for damage
caused by other types of localized hazards such as flood, earthquake, high winds, hurricane, sinkhole,
mine subsidence and/or volcanic eruption.
Manufactured Homes
 The minimum coverage is determined by the insurer.
Coverage Requirements
 At a minimum, the mortgage premises must be protected against loss/damage from fire and other
dangers within the scope of standard extended coverage.
 The coverage should provide for claims to be settled on a replacement costs basis.
 The policy must contain the standard clause that the insurer will notify the named mortgagee at least
10 days before a reduction in coverage or a cancellation of the policy.
Deductibles
 The maximum deductible may be up to $2,500 for single family and multiple-unit properties.
Refinance
 Minimum of two months remaining coverage from the first payment of the Note.
Flood Insurance
 A Standard Flood Hazard Determination (flood certificate) is required on all loans.
 For 1-4 unit properties, if any part of the property improvements are located in a designated Special
Flood Hazard Area (SFHA), the coverage must be the lowest of the following:
 100% of the replacement costs of the dwelling, based on the hazard insurance policy (Dwelling
Coverage A)
 The maximum insurance available under the appropriate National Flood Insurance Program (NFIP)
 The greater than or equal to the unpaid principal balance of the loan.
 Below are the SFHA zones which require flood insurance:
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HA Guidelines
A
AE
A1-A30
A99
AH
AO
AR
AR/A
AR/AE
AR/A1-30
AR/AH
AR/AO
V or E
V1-V30
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Flood Insurance
 Flood insurance is required even if the mortgaged premises are above the 100-year flood boundary.
 If “none” is shown in the Flood Designation Area because FEMA has not yet mapped the subject area,
EALS does not require flood insurance.
 $250,000 per unit is the maximum insurance available under the appropriate NFIP. The maximum
available also applies to PUD projects.
 $5,000 maximum deductibles for 1-4 unit properties and PUD policies. PUD mast policy may not
exceed $25,000 maximum deductible.
Wind Insurance
 Windstorm coverage is required and is usually included under the standard extended hazard coverage
policy.
 If windstorm coverage is excluded/limited, then the borrower must obtain a separate policy or an
endorsement from another commercial insurer that, with the existing policy, provides adequate total
coverage.
 Max deductible may not exceed 5% of the limited maintained for dwelling coverage, or the maximum
allowed under state law.
Escrows/Insurance (continued)
Real Estate Taxes
Property Tax
Calculation
CA Properties
All Other States
Purchase
Use the higher of the actual amount
on the title report or 1.25% of the
sales price.
Use the amount on the title report
unless the tax information sheet
completed by the title company
shows a higher amount.
Refinance
Use the amount on the title report unless
the property was purchased in the last 12
months. Then use the higher of the amount
on the title report or 1.25% of the previous
sales price.
Use the amount on the title report or tax
certification.
States with Taxes Paid in Arrears
 If subject property is located in a state where the real estate taxes are paid in arrears, the county/city
tax and assessment adjustments (usually shown on the HUD-1, page 1, the 200 series section) may be
used towards the borrower’s closing costs.
 The tax credit may not be applied towards the required FHA minimum cash investment.
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HA Guidelines
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Escrow Holdbacks
Identity-of-Interest
Interested Party
Concessions
Maximum Loan
Amount
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HA Guidelines
Escrow holdbacks due to adverse weather conditions, are permitted for completion of repairs to the subject to meet HUD
minimum property standards. ALL of the following requirements must be met:
 The subject property is currently habitable and free of any health and safety issues.
 There is legitimate cause on why deferred repairs cannot be completed prior to the loan closing AND will be completed within 6
months.
 The appraiser comments that there is a minimum of $500 worth of repairs but no more than $5,000.
 Estimate(s) is/are provided from a licensed contractor or other qualified professional.
 Escrow holdback is funded at 150% of the repair estimate(s).
 Refer to HUD REO Purchase section for specific program requirements.
 Identity-of-interest transaction is defined as a sale between family members, business partners or other business affiliates.
 Identity-of-interest transactions on principal residences are restricted to 85% maximum LTV/CLTV.
 Maximum mortgage calculation is not affected by a sales transaction between a tenant and a landlord with no identity-ofinterest relationship.
 FHA limits 6% maximum contributions paid by the seller (or any party involved in the transaction) towards the buyer’s closing
costs and/or prepaids on purchases.
 Inducement(s) to purchase require a dollar-for-dollar reduction to sales price and include:
 Contribution exceeding 6% of the sales price
 Contribution exceeding actual closing costs and prepaids
 Payment to provide temporary or permanent interest rate buydowns
 Payoff of a buyer’s credit balances or judgments, collections, charge-offs, etc.
 Prepayment of buyer’s property taxes, insurance or association dues
 Gifts to entice buyers to purchase (new appliance packages, swimming pools/spas, television, etc.)
 Allowances for decorating or repairs
 Moving costs
 Excess rent credit or paying significantly below market rent as per 4155.1 5.B.6.f.
 Gift funds not meeting 4155.1 5.B.5 and subsequent mortgagee letters.
The maximum loan amount on a purchase is calculated by taking the maximum loan-to-value (LTV) for the selected program and
multiplying it by the lesser of the sales price or appraised value, and not to exceed FHA Statutory Loan Limit for the applicable
county.
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Maximum Loan
Term
Mortgage
Insurance
UFMIP/Monthly
MIP
The maximum loan term for the FHA mortgage is limited as follows:
 Purchases, rate/term and cash-out refinances: never be longer than the remaining economic life of the property as verified by
the appraisal
 Streamline refinances without an appraisal: lesser of the remaining term of the existing mortgage plus 12 years, OR 30 years.
The following chart provide the current upfront MIP and annual MIP factors for standard and high balance loan amounts.
Mortgage insurance factors for case assignments on/after June 3, 2013
For purchases, refinances, and streamline refinances endorsed after May 31, 2009*
Base Loan
LTV
<$625,000
<78%
>78% & <95%
>95%
Base Loan
>$625,000
>15 Years
UFMIP
Annual MIP
1.75%
LTV
1.30%
<78%
1.30%
>78% & <90%
1.30%
>90%
<15 Years
UFMIP Annual MIP
0.45%
1.75%
0.45%
Annual MIP
Assessment
Period
>90% LTV: Life of
Loan
<90% LTV: 11
Years
.045%
Mortgage insurance factors for case assignments on/after June 3, 2013
For purchases, refinances, and streamline refinances endorsed after May 31, 2009*
>15 Years
<15 Years
LTV
UFMIP
Annual MIP
LTV
UFMIP Annual MIP
Annual MIP
Assessment
Period
1.30%
<78%
0.45%
1.50%
>78% & <90%
0.70%
1.55%
>90%
0.95%
*Streamline refinances endorsed on or before May 31, 2009 1.75% UFMIP
0.01% Annual MIP
Loan Limits
Region
1 Unit
2 Unit
3 Unit
4 Unit
Low Cost Areas
$271,050
$347,000
$419,425
$521,250
High Cost Areas
$625,500
$800,775
$967,425
$1,202,925
AK
$938,250
$1,201,150
$1,451,925
$1,804,375
Check FHA mortgage limits per subject property county https://entp.hud.gov/idapp/html/hicostlook.cfm
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HA Guidelines
<78%
>78% & <98%
11-18-2014
Page 68 of 104
 Primary residence for purchases, rate/term and cash-out refinances.
Occupancy
 Owner occupancy is generally required within 60 days of closing.
 Second homes and investment properties are eligible for streamline refinances transactions ONLY.
ONLY the unpaid principal balance may be included in the new FHA base loan amount.
 Occupancy of Former Investment Property
The table below provides FHA guidance when borrower(s) re-occupy an investment property (as their principal residence), secured
with the mortgage being refinanced.
Occupancy of Former Investment Property
>12 months prior to the loan application date of refinancing the
mortgage
<12 months prior to the loan application date of refinancing the
mortgage
Power of Attorney
Qualifying
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HA Guidelines
Eligible Financing
Maximum financing at the same level as owner-occupant
Rate/term refinancing ONLY with 85% maximum LTV
(Streamline refinance is now allowed)
Endeavor America allows for borrowers to sign power of attorney (POA), provided they meet the following requirements:
 POA may not be used to execute the initial loan application.
 POA signatures and typed names must match exactly.
 The POA be legally enforceable and compliant with all state regulations and not include a clause that would prevent a clear title
being conveyed in cases of foreclosures.
 The POA include the specifics of the loan transaction (no general power of attorney).
 If POA is for a military service member, an Alive and Well statement is also required at the time of closing for an active duty
borrower to confirm he/she is not missing in action.
AUS TOTAL Scorecard Approvals
 Qualifying ratios and credit trade line requirements as per valid DU Approve or LP Accept recommendation
 FICO <620 must have a minimum of three active tradelines rated satisfactory for last 12 months, OR verification of housing
history is required to be eligible for financing; manual downgrades are not acceptable for loans not meeting this
requirement (recently closed tradeline (last 30 days) with 12 month satisfactory rating is considered an active tradeline)
 Borrowers with individual credit must meet minimum trade line requirement. Spouse with no FICO/ limited credit is not
required to meet tradeline requirements so long as primary borrower meets requirements; Student loans in forbearance
with derogatory credit history are not acceptable.
 Interest only accounts, and deferred student loans are acceptable to meet tradeline requirements
 Refer Manual Downgrades of this guide to determine when AUS Approve/Accept must be downgraded.
Manual Underwrites
 FHA benchmark ratios are 31%/43% and may be stretched to 33%/45% for an energy efficient home.
 Maximum qualifying ratios are tiered based on the decision credit score and compensating factors. Refer to Manual
Underwriting Matrix of this guide to determine when a loan needs to be manually underwritten.
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Purchases
Refinances
 Principal Residence purchases only.
 Primary borrower must occupy the subject property within 60 days of Note date and continue principal residency for next year.
 Borrower must not own a superior property in regards to size and proximity to work.
 96.5% LTV/CLTV on purchase.
 The following specific programs may exceed 96.5% LTV/CLTV.
o 110% LTV/CLTV for HUD REO purchase with 203(b) with escrow. Refer to HUD REO Property topic in the Appraisal section for
additional requirements.
o 100% LTV/CLTV for HUD REO $100 Incentive Purchase
o 100% maximum CLTV is manually calculated by underwriter and based on the acquisitions costs for some down payment
assistance programs from government agencies and some HUD approved nonprofits (CLTV reflected in AUS and LOS may
seem to exceed 100%). Refer to Down Payment Assistance Program (DAP) topic in the Secondary Financing section of this
guide for additional requirements.
 Maximum mortgage is calculated based on the lesser of the sales price or the appraised value.
 Borrower’s required minimum cash investment is 3.5% from FHA acceptable sources.
Cash-Out Refinances
 Cash-out refinances are only permitted on owner-occupied principal residences
 85% maximum LTV/CLTV based on the current, full appraisal
 The maximum mortgage is calculated based on the length of ownership
 <620 FICO maximum cash in hand after existing lien/debt consolidation is $2000; if paying off revolving debt, the housing
payment cannot increase. if borrower qualifies with revolving debt to be paid off, housing payment may increase
Length of ownership…
>12 months prior to the loan application date
>6 months and <12 months prior to the loan application
date
Note: Borrower with less than six months on title is not
eligible for cash-out refinance.
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HA Guidelines
11-18-2014
85% maximum mortgage is…
Based on current appraised value.
Limited to the lesser of:
o Current appraised value, or
o Sales price when property was acquired.
 Exception to use the appraised value when both requirements
are met:
 Borrower acquired the property from an inheritance, AND
 The property is/will be their heir’s principal residence.


Page 70 of 104
Refinances
Cash-Out Refinances (continued)
 Cash-out refinances may be used for any purpose including pay off any existing lien, debt, judgment and in instances where the
borrower(s) receive more than $500 cash back.
 Borrowers must meet ALL the following requirements to be eligible for cash-out refinance.
 All existing mortgage(s) on the subject property must be current at the time the refinance funds; and
 At least six months payment history on the existing mortgage(s) is required; and
 ALL the mortgages with activity in the most recent 12 months must be current when the subject refinance funds and there
have been no late payments on ANY mortgage within the most recent 12 months.
 All borrowers must hold title to the property for at least six months.
 Occupant co-borrowers may be added to the cash-out refinance with six months primary residency at the subject property. New
non-occupant co-borrower may not be added in the FHA cash-out refinance.
 Cash-out refinance pays must comply with any state or local net tangible benefits regulations.is calculated based on the length of
ownership
Rate and Term Refinances
 97.75% max LTV/CLTV. The maximum mortgage will be calculated based on length of ownership.
Length of ownership…
>12 months prior to the loan application
date
<12 months prior to the loan application
date
Endeavor America Loan Services
HA Guidelines





Maximum mortgage will be based on the lesser of…
Total of all mortgage liens; or
Current appraised value
Total of all mortgage liens; or
Appraised value; or
Sum of documented acquisition costs which includes:
o Original sales price, plus
o Closing costs and reasonable discount point, plus
o Costs after purchase for repair/rehab/renovation/weatherization.
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Refinances
Rate and Term Refinances (continued)




Endeavor America Loan Services
HA Guidelines
Rate/term refinance may include the following:
 Existing first mortgage paid current the month due. Payoff amount may NOT include any delinquent interest.
o For existing FHA loan, subtract the MIP refund shown on the FHA Connection current refinance netting
authorization.
 Interest charged by servicing lender when payoff will not likely be received by the first day of the month as with FHA
loans.
o 60 days interest maximum: 30 days interest for the month preceding closing plus 30 days for the closing
month.
 Accrued late charges and escrow shortages
 Borrower-paid repairs required by the appraisal
 Purchase money second mortgage or junior lien with >12 months old
o HELOC draws <$1,000 within the most recent 12 months may be included
o HELOC draws > $1,000 in the past 12 months, must be documented property repairs/rehab costs for inclusion
in FHA loan.
 Any prepayment penalties assessed (such as with a conventional loan or FHA Title loan)
 Equity buyout of former spouse or co-borrower
o This equity buyout purpose is considered property-related indebtedness
o Document the specified equity awarded to the former spouse with divorce decree, recorded separation
agreement; or other bona fide equity agreement to the co-borrower.
$500 maximum cash back to borrower(s) at close of escrow.
Principal reduction
 $1,000 maximum permitted if the borrower will receive excess cash back per program guidelines and/or for excess
credit for rate chosen.
 Under no circumstances may the proceeds from a principal reduction be used to offset the minimum required funds a
borrower must bring in to close escrow.
Rate/term refinances must provide a net tangible benefit to the borrower when required by any state or local regulations.
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Refinances
Streamline
Refinance (NonCredit Qualifying)
Short Payoff
 Borrower must be current on the existing mortgage(s) to be eligible for rate/term refinance with a short payoff.
 A Short Payoff refers to where the existing note holder(s) write off the amount of the indebtedness that cannot be refinanced
into the new FHA loan due to:
 Insufficient equity in the home based on its current appraised value; and/or
 Borrower experienced a reduction in income and does not have the capacity to repay the existing indebtedness against the
property.
 A new subordinate lien may also executed for the short payoff amount when the existing note holder(s) are reluctant to write
down the indebtedness.
 The qualifying ratios must include subordinate financing payment, unless payments are deferred for at least 36 months.
 Payment terms must meet all other requirements noted in the Subordinate Financing section of this guide.
 Short payoff refinance must also meet all other requirements in the above section Rate/term Refinance.
Reference: 4155.1 3.B.1.f, 4155.1 3.B.1.c, 4155.1 4.C.2.1
Streamline refinance designed to lower the monthly principal & interest and monthly mortgage insurance payment (PIMI) on the
current FHA mortgage.
All streamline refinances must be manually underwritten (do not run AUS)
Borrower Eligibility and Occupancy
 Individuals may be added to title on streamline refinance without creditworthiness review and without triggering due-on-sale
clauses.
 Owner-occupied are eligible for maximum mortgage
 Second Homes/Investment may only include the unpaid principal balance (less any MIP refund) in the new FHA loan.
 Streamline refinance may be made solely in the name of the business IF previously insured in the business entity’s name.
Cashback
$500 is the maximum cash back to borrower from adjustments made at closing.
Matrix (LTV, Score, Units)
Conforming Loans
1
Streamline Refinance
Units
LTV
CLTV
Endeavor America Loan Services
HA Guidelines
Non-credit qualifying with no appraisal
1-4
97.75%2
125%2
No FICO Mortgage Rating
Only
Eligible
Credit qualifying with no appraisal
1-4
97.75%2
125%2
Not eligible
Credit qualifying with appraisal
1-4
97.75%3
125%3
Not eligible
11-18-2014
Minimum FICO
Score
580 Advantage
640 Standard
580 Advantage
640 Standard
580 Advantage
640 Standard
Page 73 of 104
Streamline
Refinance (NonCredit Qualifying)
Matrix (LTV, Score, Units)
Streamline Refinance
1
High Balance
LTV
CLTV
Units
Non-credit Qualifying with No Appraisal
1-4
97.75%2
125%2
No FICO Mortgage Rating
Only
Eligible
Credit-qualifying with No Appraisal
1-4
97.75%2
125%2
Not eligible
Credit-qualifying with Appraisal
1-4
97.75%3
125%3
Not eligible
Minimum Credit
Score
580 Advantage
640 Standard
580 Advantage
640 Standard
580 Advantage
640 Standard
1
Second homes and investment properties may only refinance the outstanding principal balance.
LTV/CLTV is based on the original property value entered into FHA Connection as verified with the FHA Refinance Authorization
Results.
3
LTV/CLTV is based on current exterior appraisal (Forms 2055 for SFR/PUD or 1075 for condo) completed by state licensed
appraiser.
2
Maximum Mortgage
Owner-occupied: The maximum loan is based on the lesser of (1) or (2) below:
(1) Outstanding principal balance of existing FHA loan, as verified on the current payoff statement as of the funding month;
plus up to two months interest for the month preceding closing and the month of closing;
plus up to two months monthly MIP;
subtract any MIP refund on the existing FHA loan;
OR (2) Original loan balance
Second Home/Investment: The maximum mortgage may include
 Outstanding principal balance of existing FHA loan, as verified on current payoff statement as of the funding month.
 Less any MIP refund on the existing FHA loan.
Maximum Term
 Lesser of the remaining term of the existing loan plus 12 or 30 years.
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HA Guidelines
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Page 74 of 104
Streamline
Refinance (NonCredit Qualifying)
Mortgage Verification
 Evidence the existing FHA loan was 0 x 30-days late in the most recent 3 months and the mortgage is current at closing.
 Verify the most recent 12 months mortgage payment history through the month of funding on the existing FHA loan.
 Verify with either mortgage only credit report (NOTE: Credit score is optional. If no score provided, 580 FICO will be used for
pricing), or
 Tri-merged credit report
Net Tangible Benefit
The table below provide the minimum net tangible benefit requirements for ALL streamline refinances.
 Term reduction (30 year to 15 year amortization) must also meet the minimum net tangible benefits described above.
 If a term reduction does not meet the net tangible benefits noted below, then the refinance must be underwritten and
closed as a rate/term refinance.
Fixed Existing FHA
To New FHA Fixed Rate
Fixed rate
5% minimum reduction between the existing PIMI* and the proposed PIMI
(*PIMI refers to principal and interest plus monthly MIP).
One year ARM
New fixed rate cannot be more than 2% points above the current ARM rate.
Hybrid ARM during fixed period
5% minimum reduction between the existing PIMI and the proposed PIMI.
Hybrid ARM during adjustable period
New fixed rate cannot be more than 2% points above the current ARM rate.
Subordinate Financing
 Regardless of seasoning, the entire balance of the existing junior lien(s), including HELOAN, must subordinate to the new FHA
streamline loan.
 For HELOC, the CLTV is based on the maximum accessible credit limit, not outstanding balance.
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HA Guidelines
11-18-2014
Page 75 of 104
Streamline
Refinance (Credit
Qualifying)
In addition to meeting the Streamline Refinance requirements above, a Credit Qualifying Streamline Refinance is required when
removing an individual from title on an existing FHA loan:
 Deletion of borrower(s) from title that will trigger a due-on-sale clause
 < six months on title and mortgage payments following a FHA assumption by creditworthy borrower(s) prior to application date.
 < six months on title and mortgage payments following property transfer resulting from a divorce or by devise/descent.
Credit Report
 Provide a tri-merged in-file credit report for all borrowers.
 Minimum score of 580 for FHA Advantage program or 640 for FHA Standard Program
 Tri-merged credit report is also required for non-borrowing spouse in community property states.
Income
 Determine that the borrower has stable and reliable income to support the increased housing payment along with other
recurring monthly obligations.
 Document income and employment according to standard FHA guidelines per 4155.1 and applicable mortgagee letters.
Assets
 Obtain the most recent bank statement (all pages) for all liquid assets that will be used to close.
 Obtain most recent two months consecutive bank statements or quarterly statement for all liquid assets when qualifying ratios
exceed benchmark ratios 31/43 and cash reserves will a cited compensating factor.
 Large deposits must be explained and sourced to determine if newly obtained or increased debt for accurate qualifying rations.
Qualifying
 Credit qualifying streamline must meet the manual underwriting guidelines as described in ML 2014-02. Refer to Manual
Underwriting Matrix and Compensating Factors sections of this guide.
Streamline Refinance with Appraisal
 An appraisal may be used to determine 125% CLTV based on subject’s current value for subordinating junior liens.
 Properties listed for sale are permitted if the listing was cancelled at least one day prior to the loan application date. A copy of
the cancelled/expired listing should be included in the loan file.
Streamline Refinance with NO Appraisal
 LTV/CLTV is based on the original appraised value reported into FHA Connection as verified with a current FHA Refinance Netting
Authorization.
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HA Guidelines
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Page 76 of 104
Secondary
Financing
HUD/FHA and Endeavor America reserves the right to reject any secondary financing where the participation costs outweigh the
benefits to the borrower.
FHA mortgage may not exceed the FHA statutory limit regardless of the secondary financing source. The junior lien(s) must be
subordinate to the FHA first mortgage.
Requirements
Down Payment Assistance Program (DAP)
Down payment assistance programs (DAPs) may be provided by government agency or an eligible nonprofit agency considered an
instrumentality of the government.
 DAPs are considered secondary financing if a lien is created against the subject property.
 100% maximum CLTV is based on the acquisitions costs
 Cost to acquire includes the sales price plus closing costs and prepaids, discount points, repairs/rehabilitation expenses paid
by the borrower).
 Acquisitions costs may exceed the appraised value under these types of government assistance.
 Borrower cannot receive any cash back from DAP funds.
 FHA loan cannot exceed the FHA statutory limit for the area where the property is located.
 Government Entity DAP providers must meet all appropriate FHA requirements, including HUD HB 4155.1 and 2013-14, 1994-2,
2002-22.
 Check Nonprofit status:
 IRS tax exempt status – IRS Publication 78 to see if the 501(a) tax exempt status has been revoked:
 HUD’s Non-Profit Organization Roster – HUD approved secondary financing providers
 Nonprofit DAP providers must meet all appropriate FHA requirements, including HUD HB 4155.1 and 2014-08, 2013-14, 2011-38,
1994-2, 2002-22.
Cash Back
Purchases:
 No cash back to the borrower from either the first or second mortgage when obtained simultaneously.
 Any remaining loan proceeds after closing should be applied as a principal reduction to the FHA mortgage.
CLTV
 Purchase:
 100% CLTV
 Acquisitions costs may exceed the appraised value with certain government assistance programs.
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HA Guidelines
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Page 77 of 104
Secondary
Financing
CLTV (continued)
 Refinances:
 97.75% Rate/Term
 85% Cash-out
 125% Streamline
 Existing junior liens, regardless of seasoning may be paid down so that the combined outstanding liens comply with the CLTVs
noted above.
Documentation
All secondary financing require the following:
 For loan approval, document the source, amount and repayment terms with the borrower and co-borrower’s agreement to such
terms for all junior liens.
 Prior to or at closing, document the amount of funds provided to the borrower for each secondary financing source.
 At closing, obtain copies of the executed loan instruments (note, deed of trust/mortgage). HUD-1 should reflect each junior lien
source separately.
 Section 115 Entity’s secondary financing program to be acceptable for FHA financing and be considered an instrumentality of
government by HUD, verify the IRS Section 115 status as follows:
 Letter Ruling issued by the IRS, or
 Letter from the organization’s auditor, or the general counsel, as an official of the organization, that states: the organization’s
income is excluded from federal taxation through Section 115 of the Internal Revenue Code.
ML 2012-24:
 For Nonprofits and Nonprofit Instrumentalities of Governments, obtain secondary financing documentation as required in ML
2014-08 ML 2013-14
Grace Period
The secondary financing must provide for a reasonable grade period before:
 A late charge becomes due, or
 Commencement of foreclosure proceedings in the event of default.
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HA Guidelines
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Page 78 of 104
Secondary
Financing
Loan Purposes
Purchases
 Proceeds from the second mortgage may be used for: closing costs, prepaids and/or down payment.
 Secondary financing may not be used to pay any portion of the excess of the purchase price over the appraised value.
 Closing costs related to the down payment assistance secondary financing program(s) may only be included in the second lien.
Refinances
 A new second mortgage on a cash-out refinance may be used to cover closing costs, prepaids and/or pay down the outstanding
existing mortgage(s) to LTV/CLTV maximum.
 Existing junior liens, regardless of seasoning, may re-subordinate to the FHA loan provide the total indebtedness does not exceed
the applicable CLTV permitted for the type of refinance.
 New second mortgages are NOT allowed on rate/term and streamline refinance.
Qualifying
Borrower must qualify with all junior lien payment(s) which cannot exceed borrower’s reasonable ability to repay.
Simultaneous Closing
Soft or silent liens that are secured against the property must be entered as secondary financing (not as gift funds). Such secondary
financing has no scheduled repayments and the debt is forgiven over a period of time under the program guidelines.
Soft/Silent Liens
Soft or silent liens that are secured against the property must be entered as secondary financing (not as gift funds). Such secondary
financing has no scheduled repayments and the debt is forgiven over a period of time under the program guidelines.
Sources and Terms
Subordinate financing can be obtained from the following sources:
 Government Agency
 The subordinate lien must be made in the eligible government unit: state, county, city unit, regardless if source of funds were
from an instrumentality of government (nonprofit or for-profit enterprise).
 Nonprofit Agency considered instrumentality of government
 The subordinate lien must be made in the eligible nonprofit name if the funds were originally sourced from the nonprofit.
[NOTE: The jurisdictional HOC approves the nonprofit to provide secondary financing as well as the specific the down payment
assistance programs offered by the nonprofit.]
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HA Guidelines
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Secondary
Financing
Underwriting
Endeavor America Loan Services
HA Guidelines
Sources and Terms (continued)
 Family Member
 A family member may lend 100% of the borrower’s required funds to close, secured or unsecured, which may can be used for
the following costs:
 Family member must related to the borrower/co-borrower by blood, marriage or law meet FHA’s definition as described in
4155.1 9.1.f and ML 2012-03
 Family member’s lending capability
o may not be sourced from an interested party to the transaction (e.g. seller, builder, loan officer, mortgage broker, real
estate agent, realty broker, attorneys for the buyer/seller, etc.)
o borrower(s) cannot be co-obligor if family member borrowed funds.
o Note cannot be assigned to another entity at closing or during the mortgage term.
 The second mortgage cannot be subject to deed restrictions or equity sharing.
 100% CLTV with NO cash back to the borrower except refund of earnest money
 No balloon within first five years unless the property is to be sold/refinanced.
 Periodic payments are level and monthly.
 Private Individuals (Family Member) or Other Organizations (not an instrumentality of government)
 The required minimum cash investment cannot be financed from private individual secondary financing.
 96.5% CLTV on purchases and 85% CLTV on cash-out refinances
 No prepayment penalty
 No balloon within first 10 years unless the property is to be sold/refinanced.
 Periodic payments are level and monthly.
 The second mortgage cannot be subject to deed restrictions or equity sharing.
Reference: 4155.1 5.B.4.h-j; 4155.1 5.C; MLs 2013-14; 2014-08; 2012-24
Automated Underwriting System (AUS)
 The use of AUS DU or LP is mandatory for all loans with exception of Non-credit Qualifying Streamline Refinance and transactions
involving all borrowers with no credit scores.
 A loan may be processed and approved with reduced documentation as described in the recommendation results with the
following AUS risk classifications:
 LP Accept/ Eligible
 DU Approve/Eligible
 100% data integrity is required to prevent the AUS risk classification from being invalidated and/or affecting the mortgage
insurance. It is imperative that the data entered into the AUS be accurately verified and documented according to HUD/FHA
guidelines.
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Underwriting
Manual Underwriting/Downgrades
Endeavor America requires most loans to receive an AUS Approve/Eligible finding to DO/DU. Manual underwrites are allowed under
the “Advantage” program only for the following reasons:
NOTE: All manual approvals are subject to risk-based pricing adjustments.
Manual underwriting is required for the following transactions:
 Short sales in default at the time of the short sale with extenuating circumstances (e.g. death, severe documented illness, forced
job relocation, etc.)
 Chapter 13 bankruptcy with 12 months timely payments made with court approval
 Chapter 7 and Chapter 13 bankruptcy discharged within one-two years of application date due to extenuating circumstances
 Back-to-Work Initiative
 Borrower’s former spouse defaulted on joint mortgage subsequently after being awarded a property in the divorce.
 Seasonal worker/teachers currently unemployed
 Handwritten paystubs or those not reflecting year-to-date earnings
 Borrower’s with spouses without a FICO score
 Foreclosures due to Extenuating circumstances who have re-stablished good credit since the foreclosure for at least 12 months
Manual Downgrades
Additionally, TOTAL Scorecard requires a manual downgrade with any of the following situations which may make the transaction
ineligible for financing with EALS:
 Borrowers with handwritten paystubs or those not reflecting year to date earnings
 Seasonal worker/teachers currently unemployed
Manual Underwriting
Effective with case assignments 4/21/2014, HUD revised their manual underwriting guidelines with respect to the maximum
qualifying ratios, reserves and compensating factors.
Refer to ML 2014-02 for details on which portions of the 4155.1 were replaced with this revision.
The Manual Underwriting Matrix specifies the minimum required the compensating factor(s) which are based on the loan decision
score and qualifying ratios.
NOTE: The compensating factors noted in HUD 4155.1 4.F.3.b. were revised with ML 2014-02.
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HA Guidelines
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Underwriting
Manual Underwriting (continued)
 EALS underwriter is required to:
 Cite the applicable compensating factor(s) used to determine borrower’s creditworthiness assessment on HUD-92900-LT
 Underwrite the loan file in accordance to FHA standard underwriting guidelines as described in the HUD Handbook 4155.1 and
all applicable mortgagee letters.
NOTE: The loan file must be documented according to FHA standard documentation requirements. AUS documentation relief no
longer applies as a consequence of the manual downgrade.
Minimum Loan
Decision Score
Non-Traditional, or
Insufficient Credit
>580 Advantage
>580 Advantage
>580 Advantage
>580 Advantage
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HA Guidelines
Maximum Acceptable Compensating Factors
Ratios
31/43
 Borrowers with non-traditional or insufficient credit may NOT exceed FHA benchmark
ratios of 31/43. Compensating factors do not apply.
 Non-occupant co-borrowers may be added for borrowers with non-traditional credit;
 Non-occupant co-borrowers may NOT be added for borrowers with insufficient credit.
Refer to Non-traditional Credit section for additional guidelines.
31/43
 NO compensating factors required.
 Energy Efficient Homes may have a stretch ratios of 33/45.
37/47
 ONE of the following compensating factors is required.
 Verified and documented cash reserves
 Minimal housing expense increase
 Residual income
40/40
 No discretionary debt.
40/50
 TWO of the following compensating factors are required.
 Verified and documented cash reserves
 Minimal housing expense increase
 Significant additional income not reflected in gross effective income
 Residual income
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Underwriting
Compensating Factors
Compensating factors are required on all manually underwritten loans when the benchmark ratios of 31%/43%. The following table
described the documentation requirements for each acceptable factor in order to cite these compensating factors in justifying
manual approvals.
Compensating Factors – Documentation
Compensating Factor
Verified and Documented Cash
Reserves
Documentation
 Reserves for the total monthly mortgage payments
≥ 3 months for 1-2 units
≥ 6 months for 3-4 units
 Following “assets” cannot be considered as cash reserves:
 Gift funds;
 Equity from another property;
 Borrowed funds;
 Cash received from cash-out refinance loan proceeds,
Cash Reserves
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HA Guidelines
 Incidental cash received at closing
 Retirement accounts (IRA, Thrift Savings Plan, 401k and Keogh) accessible only upon
employment termination, retirement or death.
Minimal Housing Expense Increase
 The housing increase is the lesser of $100 or 5% of the current total monthly housing
payment as compared to the proposed total monthly mortgage payment; and
 12 months most recent housing history with no more than 1 x 30 days late payment.
 No late mortgage payments are allowed on a cash-out refinance.
 If borrower has no current housing payment, this compensating factor cannot be cited.
Refer to 4155.1 1.B.2.a for documenting previous housing payment.
No Discretionary Debt
 Borrower’s housing payment is the only open account with an outstanding balance that is
not paid off monthly; and
 The credit report shows established tradelines (revolving or installment) in borrower’s name
open for at least 6six months; and
 Account not in the borrower’s name including authorized user accounts do not qualify
 Non-traditional credit is not considered.
 Document borrower has paid off all open account balances for at least the past six months
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Underwriting
Compensating Factors – Documentation (continued)
Compensating Factor
Significant Additional Income Not
Reflected in Effective Income
Documentation
 Borrower’s housing payment is the only open account with an outstanding balance that is
not paid off monthly; and
 The credit report shows established tradelines (revolving or installment) in borrower’s
name open for at least 6six months; and
 Account not in the borrower’s name including authorized user accounts do not qualify
 Non-traditional credit is not considered.
 Document borrower has paid off all open account balances for at least the past six
months.
Residual Income
The table below “Residual Income Table by Region” shows the minimum residual income according to the loan size, household size
and geographic region of the country for the property location.
 Residual income should equal or exceeds the corresponding amounts on the table below for the applicable household size and
geographic region.
 Residual income calculation: Total gross monthly income of occupant borrowers and subtract the following: income taxes for
federal, state and municipal, retirement & social security, proposed total fixed payment, estimated maintenance and utilities and
any job related expenses
 Bonus, part-time or seasonal income may not be used to calculate the residual if the income source does not meet HUD/FHA
effective income requirements noted in 4155.1 4.D.2.b-e.
 Non-taxable income may not be grossed up for the residual income calculation
 Maintenance is based on 0.14¢ of the gross living area square footage
 Job related expenses include:
o Child care letter is required for all children 13-years-old or younger (state specific requirement supersedes) and must include:
child care costs, name & address of the provider. If there is no child care expense, obtain an explanation.
o IRS 2106 unreimbursed expenses
 All members of the household are considered in the family size, regardless of the nature of their relationship or whether they will
be on the Note or take title to the property.
 Household member(s) may be omitted from the family size if he/she can sufficiently document verifying that he/she is fully
supported by an income source not included as effective income.
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HA Guidelines
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Underwriting
Residual Income Table
Loan Amount <$80,000
Family Size
1
Loan Amounts >$80,000
Northwest
Midwest
South
West
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HA Guidelines
2
3
4
5
5+
1
2
3
4
5
5+
Connecticut
Maine
Massachusetts
Illinois
Indiana
Iowa
Alabama
Arkansas
Delaware
District of Columbia
Florida
Alaska
Arizona
California
Colorado
Residual Incomes by Region
Northeast
Midwest
South
$390
$382
$382
$654
$641
$641
$788
$772
$772
$888
$868
$868
$921
$902
$902
Add $75 for each additional family member
$450
$441
$441
$755
$738
$738
$909
$889
$889
$1,025
$1,003
$1,003
$1,062
$1,039
$1,039
Add additional $75 for each additional family member
Geographic Regions
New Hampshire
New York
New Jersey
Pennsylvania
Kansas
Michigan
Minnesota
Georgia
Kentucky
Louisiana
Maryland
Mississippi
Hawaii
Idaho
Montana
11-18-2014
West
$425
$713
$859
$967
$1,004
$491
$823
$990
$1,117
$1,158
Rhode Island
Vermont
Missouri
Nebraska
North Dakota
North Carolina
Oklahoma
Puerto Rico
South Carolina
Ohio
South Dakota
Wisconsin
Tennessee
Texas
Virginia
West Virginia
Nevada
New Mexico
Oregon
Utah
Washington
Wyoming
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Back to Work –
Extenuating
Circumstances
General Information
EALS currently participates in the FHA “Back to Work – Extenuating Circumstances” policy implemented by HUD. This alternative
guidance provides the underwriting standards and criteria to evaluate borrowers who have experienced periods of financial
difficulty due to extenuating circumstances of loss of employment or other severe reductions in income, or combination of both
during the recent U.S. “Great Recession.”
In addition to meeting the guidelines set forth in this ML 2013-26, all borrowers must meet all other applicable HUD/FHA eligibility
and policy criteria requirements.
Reference: http://portal.hud.gov/hudportal/documents/huddoc?id=13-26ml.pdf
Applicability
 For purchase applications with case numbers assigned on/after 8/15/2013 through 9/30/2016.
 Back to Work underwriting guidance applies to only purchase transactions that receive a TOTAL Scorecard “Refer”
recommendation or a manual downgrade of an “Accept/Approve” in which the borrower was affected by extenuating
circumstances related to an Economic Event.
Definitions
Economic Event
 Any occurrence beyond the borrower’s control that results in a 20 percent or more reduction in the borrower’s Household
Income for a minimum period of 6 months due to Loss of Employment, Loss of Income, or a combination of both
Economic Event Onset
 Refers to the month when loss of employment/income began.
Economic Recovery
 Refers to the re-establishment of Satisfactory Credit for a minimum of 12 months.
Household Income
 Refers to the gross income of the borrower and all household members for the purpose of evaluating Loss of Income to define
and Economic Event.
 Household income may NOT be used as effective income. Only the income from the borrower(s) may be used to qualify for the
new loan.
 The gross income of each household member is determined and documented based on standard FHA income requirements.
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HA Guidelines
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Back to Work –
Extenuating
Circumstances
Definitions (continued)
Household Member
 Refers to the borrower and any individual residing at the borrower’s Principal Residence at the time of the Economic Event AND
was a co-borrower on the borrower’s previous mortgage for assessing Loss of Income.
 Household Member does NOT refer to a renter or boarder that resided at the borrower’s residence.
Housing Counseling
 Refers to a HUD-approved housing counseling agency related to the homeownership and residential mortgage loans that is
provided in accordance to 24 CFR, part 214 “Housing Counseling Program” and satisfies the requirements identified “Satisfactory
Housing Counseling.”
Satisfactory Credit
 Verify and document borrower has re-established credit for a minimum period of 12 months as of the date of the FHA case
assignment with:
 No late housing payments; and
o Any open mortgages must be current with a 12 months satisfactory payment history.
o Mortgages may have been brought current through a Loan Modification (temporary or permanent) as long as all payments
are documented as being received in accordance with modification agreement.
 No late installment payments; and
 No major derogatory credit issues on revolving accounts.
Underwriting Criteria
To qualify for FHA’s Back to Work program, ALL the following criteria must be met:
 Borrower experienced an Economic Event that lasted at least six months and caused a reduction to his/her household income of
20% or more.
 Borrower’s credit history prior to the Economic Event Onset was satisfactory with no late payments on housing obligation or
installment debt, and no major derogatory issues on revolving accounts.
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HA Guidelines
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Back to Work –
Extenuating
Circumstances
Underwriting Criteria (continued)
 Borrower’s delinquent and derogatory credit* after the Economic Event Onset is analyzed to determine:
(*includes collections, judgments, bankruptcies, foreclosures, deeds-in-lieu, short sales, and other credit problems)
 Eligible for Back to Work alternative guidance if late payments on the accounts resulted from the Economic Event
 NOT eligible for Back to Work guidance if the underwriter determines the derogatory credit resulted from his/her inability to
manage debt, and/or a general disregard for managing financial obligations.
 Borrower meets the Satisfactory Credit definition above or Non-Traditional Credit described below.
 Borrower has demonstrated full recovery from the Economic Event.
 Borrower has completed housing counseling as described below.
 A non-occupant co-borrower (non-household member) may be added to the application.
 The non-occupant co-borrower’s credit history is NOT eligible FHA Back to Work alternative guidance.
 Determine borrower meets all applicable requirements of ML 2013-26.
Economic Event
Loss of Employment
 Obtain written VOE evidencing termination date.
 If prior employer is out of business, then
 Obtain written termination notice from borrower or other publicly available documentation of business closure;
and
 Document receipt of unemployment benefits
Loss of Employment
 Document borrower’s household income prior to Economic Event Onset with :
 Written VOE verifying prior income; or
 Signed tax returns or tax transcripts, or W-2s
 may also be used to verify household members’ residency
 Seasonal Job: verify two year history in the same field immediately prior to the loss of income.
 Part-time Job: verify two year continuous history part-time employment just prior to the income loss.
 Provide authorization to verify the loss of income for any household member during the Economic Event who is not a coborrower on the new FHA loan.
Post-Economic Event Income
 In determining the 20% reduction, only the income of the household members at the time of Economic Event, can be
considered.
 Document borrower’s household income according to 4155.1 Chapter 4 sections D-E and ML 2012-03.
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HA Guidelines
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Back to Work –
Extenuating
Circumstances
Derogatory Credit
Borrowers should provide detailed explanation for the timeline of the Economic Event and the credit impairment. Below are the
documentation requirements.
Bankruptcy
Chapter 7 bankruptcy:
 Verify and document the bankruptcy was the result of an Economic Event
 Document a minimum of 12 months have elapsed since the bankruptcy discharge date.
 Borrower has met the re-established credit standard as described in Satisfactory Credit.
Chapter 13 bankruptcy:
 Verify and document the bankruptcy was the result of an Economic Event
 If Chapter 13 discharged prior to loan application, document all required bankruptcy payments were made on time, or
 If Chapter was not discharged prior to the application date, then document
 Borrower received the bankruptcy court’s approval to obtain FHA financing; and
A minimum of 12 months of the pay-out period under the bankruptcy has elapsed at the time of the case assignment and all
required payments were made on time.
Collections and Judgments
 Collections and judgments must be verified and documented to be related to the Economic Event.
 For open aggregate collections ≥ $2,000, borrower must qualify with the capacity analysis as described in ML 2013-24.
 FHA requires judgments to be paid off unless
 a minimum of three months scheduled payments were made prior to loan approval according to the terms of the creditor
approved repayment agreement. Borrowers may not prepay scheduled payments.
 The DTI must include the judgment monthly repayment.
 Borrower has met the re-established credit standard as described in Satisfactory Credit.
Reference: ML 2013-24 and 4155.1 4.C.2.e.
Foreclosure
 Verify and document the foreclosure or DIL was the result of the Economic Event
 Document a minimum of 12 months have elapsed since the date of the sale and re-established credit.
Pre-Foreclosure/Short Sale
 Verify and document the short sale was the result of the Economic Event
 Document a minimum of 12 months have elapsed since the date of the sale and re-established credit.
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HA Guidelines
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Back to Work –
Extenuating
Circumstances
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HA Guidelines
Derogatory Credit (continued)
Non-Traditional Credit
 Document non-traditional credit from 12 months preceding the case assignment through the month of closing, verifying ALL of
the following have been met:
 No delinquency on rental housing payments; and
 No more than 1x30-days late on payments to other creditors; and
 No collection accounts or court records reporting (other than medical and/or identity theft)
CAIVRS: Request for Waiver or Resolution
 When an application qualifies for the Back to Work policy and the CAIVRS screening indicates a paid claim on the borrower’s prior
FHA loan, a lender may submit a request to HUD for
 Waiver of three year wait period; or
 Resolution of the unresolved CAIVRS indicator.
 Before submitting the HUD request, the EALS underwriter must:
 fully underwrite the application to determine all other eligibility requirements of ML 2013-26 have been met; and
 approve the loan subject to additional conditions.
 Send HUD request to the address below and include both:
 A cover sheet noting: CAIVRS clearance request for “Back to Work”, FHA case number, borrower(s) name(s) with CAIVRS
indicators, lender contact;
 Page 3 of HUD 92900-A, signed by the DE underwriter with “Other:” selected under the Additional Conditions section and the
notation, “Subject to CAIVRS indicator resolution by HUD.”
US Department of Housing and Urban Development
Attn: Division Director, Home Mortgage Insurance Division
451 7th St. SW, Room 9266
Washington, DC 20410
Housing Counseling
 All borrowers must receive homeownership counseling or a combination of homeownership education and counseling, at least
30 days but no more than 180 days, prior to the initial application date.
 Each borrower must receive one hour of one-on-one counseling from a HUD-approved counseling agency. The counseling must
address the cause of the Economic Event and actions taken to overcome the Economic Event to reduce the likelihood of
recurrence.
 The housing counseling agency must provide the borrower information on alternative service programs and products that
available.
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Back to Work –
Extenuating
Circumstances
HUD REO
Purchases
Housing Counseling (continued)
 A list of HUD-approved counseling agencies may be accessed online or by calling (800) 569-4287. The housing counseling may be
conducted in person, via telephone, via internet, or other methods approved by HUD.
 The housing education may be provided by a HUD approved housing counseling agency, state housing finance agency, approved
intermediaries or their sub-grantees.
 Borrowers will receive a letter/certificate from the agency upon completion of the required the pre-purchase housing counseling.
 The confirmation of completion must contain be on the agency’s letterhead and contain: the agency’s Tax ID number,
counseling completion date, signed by the Borrower and counseling agency’s authorized official. The confirmation must state
the counseling was delivered to the borrower in accordance with ML 2013-26 requirements for HUD/FHA Back to Work policy.
 If the counseling completion letter/certificate was received electronically or missing the counselor’s signature, the borrower
must fax/email request and obtain the counselor’s handwritten signature.
Housing Counseling Disclosures
 The housing counseling agency must provide borrowers ALL the following disclosures which must be included in the case binder.
 Explicit description of any financial relationship between the agency and any lender.
 Statement that the borrower is not obligated to pursue a loan with a lender.
 Statement that “Completion of this housing counseling program and receipt of a letter of completion of counseling do not qualify
{you/the borrower} for a FHA loan. A lender will have to determine if {you/the borrower} qualify for a loan. You understand that
you may not be approved for a mortgage.”
Program Overview
 The HUD REO Purchase section includes information for maximum financing on HUD REO properties with required repairs, and
HUD REO appraisal requirements.
 The underwriting criteria for borrowers’ assets, credit, debts, employment and income remain the same as previously described
in this Guide. Borrowers must meet all other FHA requirements described in HUD 4155.1 and subsequent mortgagee letters.
HUD Homes use its Management and Marketing (M&M) contractors to dispose of its foreclosed single-family properties. The
Statement of Insurability in the REO appraisal determines which FHA-insured financing program is eligible for the purchase.
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HA Guidelines
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HUD REO
Purchases
REO Appraisal Statement of Insurability
HUD Homes use its Management and Marketing (M&M) contractors to dispose of its foreclosed single-family properties. The
Statement of Insurability in the REO appraisal determines which FHA-insured financing program is eligible for the purchase.
Insurable
 Properties marketed as "insurable" meet FHA's Minimum Property Requirements (MPR) for existing homes or Minimum Property
Standards (MPS) for new construction in their “as-is” condition without repairs being necessary based on the REO appraisal.
 Insurable REO properties may be financed as 203(b) cases without repairs.
 Health and safety issues must be corrected prior to closing.
Insurable with Repair Escrow
 A property that requires no more than $5,000 for repairs to meet FHA's MPR or MPS as estimated by the Property Condition
Report (PCR) as determined to be reasonable by the appraiser.
 The property is marketed in its “as-is” condition with FHA mortgage insurance available, provided the purchaser(s) establishes a
cash escrow to ensure the completion of the required repairs.
 Insurable with Repair Escrow properties may be financed as a 203(b) Repair Escrow cases.
 Purchaser(s) are permitted to include in the mortgage an amount equal to 110% of the estimated cost of the repairs up to $5,500
maximum.
 All health and safety issues can be included in the escrow holdback except mold remediation.
 Subject property will meet FHA MPR or MPS upon completion of all escrowed repairs required by the appraiser or DE
underwriter.
Uninsurable
 Properties offered for sale as "Uninsured" do not meet, in their “as-is” condition, FHA's MPR or MPS, and require significant
repairs that exceed $5,000 as per the appraiser’s estimate.
 Uninsurable properties can qualify for FHA’s Section 203(k) rehabilitation program and, depending upon the scope and extent of
repairs needed, the Streamlined (k) Limited Repair Program.
 All health and safety issues can be included in the escrow holdback.
 Subject property will meet FHA MPR or MPS upon completion of all escrowed repairs required by the appraiser.
 Refer to EALS 203K Loan Program guide for program requirements.
203(b) with NO Repair Escrow
 96.5% LTV/CLTV for
 100% LTV/C LTV for the “$100 Down Program” (when approved by HUD)
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HA Guidelines
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HUD REO
Purchases
203(b) Repair Escrow
For uninsurable properties requiring $5,000 or less worth of repairs to meet FHA MPRs, a cash escrow will be established to ensure
the completion of repairs.
 Up to 110% of the estimated cost of repairs up to $5,500 maximum, may be included in the loan amount calculation.
 The repairs cost that may be added to the sales price before calculating the maximum mortgage amount is the lowest of:
 Amount the value of the property exceeds the sales price; or
 Appraiser's estimate of repairs and improvements; or
 Amount of licensed contractor's bid(s) itemized for each repair.
 Appraiser’s recommended repairs must be at least $500 up to $5,000 for property eligibility to meet FHA MPR.
 DE underwriter may require additional repairs (roofing) that are recommended in the Home Inspection Report.
 All health and safety issues can be included in the holdback except mold remediation.
 Any borrower completed repairs prior the appraisal is completed is CANNOT be included in calculating the maximum loan.
 Borrower’s documented repair costs that were completed prior to closing, may be applied towards the FHA required minimum
cash investment.
NOTE: If borrower enters the property prior to closing, it is considered an illegal entry. HUD may cancel the sale and forfeit the EMD
and borrower may be required to reimburse HUD for costs to restore the property to its original condition.
Below is a list of some repairs that would be considered minor/cosmetic and may be included in the 203(b) Repair Escrow and the
loan calculation. Conversely, those repairs that are noted as major/significant (> $5,000 repair costs or affect the livability of the
property) are ineligible for inclusion in the 203(b) Repair Escrow.
Eligible for 203(b) Repair Escrow
– refers to minor or cosmetic repairs that will can be
completed within 60 days of closing.






Roof, gutters, downspouts
Repair/Replace HVAC system
Repair/Upgrade plumbing and electrical systems
Replace flooring
Painting (interior/exterior)
Weatherization: storm windows/doors, insulation,
weather stripping, etc.
 Purchase & install appliances
 Replace windows/doors
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HA Guidelines
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Ineligible for 203(b) Repair Escrow
– refers to major/ significant repairs that affect the livability
and prevent the borrower from occupying the property > 30
days.
 Major rehabilitation/remodeling
 Major repair of termite damage
 Health and safety hazard mitigation;
 Landscaping repairs for drainage or erosion issues;
 Repair structural damage
 Roof replacement
 Foundation repairs
 Replace septic system
Repairs that require permits (property addition, finished
basement)
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HUD REO
Purchases
Case Assignment
 Obtain a new FHA case number for the 203(b) purchase loan.
 The complete 10-digit prior case number is required and may be obtained from the M&M contractor (HUD Asset Manager).
 FHA Connection Processing Type for new case assignment
 Select “Real Estate Owned w/o Appraisal” when using the REO appraisal that is still valid.
 Select “Real Estate Owned with Appraisal” if using a new 2nd appraisal.
Comparables
 To ensure HUD REO properties are sold at/near market value, FHA requires the “market value” price should reflect the
appropriate price for a property sold in an open and competitive market as characterized by:
 typically motivated buyer and seller who are knowledgeable and acting in their own best interest;
 the property is marketed openly for a reasonable time;
 the payment is made in cash or a mortgage loan;
 the price represents normal consideration for the property sold, unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
 HUD prefers that REO sales and pre-foreclosure (PFS)/short sales are not automatically chosen to develop the subject market
value. If these types of sales are used, the appraiser must explain their use and analyze the effect REO/PFS sales have on the
market and subject marketability.
 Appraiser may NOT use the following as comparable sale under any circumstance: transfers to a mortgagee/entity owning the
mortgage loan by deed of trust through foreclosure or sheriff’s sale.
Down Payment
 Borrower(s) must have sufficient liquid funds from acceptable sources for the required 3.5% minimum cash investment based on
the lesser of the sales price or appraised value.
 Exception: if the sale involves a $100 down payment HUD REO purchase. [Cross ref. w/Government Entity in 4155.1]
 Source of down payment may not come from an interested party to the transaction or an unacceptable source.
 Exception: if the sale involves a $100 down payment HUD REO purchase. [Cross ref. w/Government Entity in 4155.1]
Eligible Transactions
 Purchase transactions only.
 Property must be occupied by the borrower as his/her principal residence.
 Occupancy must take place within 60 days after signing the security instrument, with continued occupancy for one year.
Loan Amount, LTV/CLTV
 Maximum base loan cannot exceed FHA Statutory Mortgage Limits for the applicable county.
 The total loan amount may include the UFMIP and escrow repairs (if applicable) but cannot include the closing costs and
prepaids.
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HA Guidelines
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HUD REO
Purchases
Qualifying
 All loan applications on HUD REO sales should be submitted to TOTAL Scorecard. Satisfy all the specific conditions and
documentation requirements as described in AU Approve/Accept risk recommendations.
 For Refer, manual downgrades or manual underwrites, comply with standard FHA guidelines as described in the 4155.1
Repair Completion
 All repairs must be completed within 90 days of closing. Incomplete external repairs due to weather-related delays may be
extended by EALS on case-by-case basis.
 Conditional Commitment/ HUD-92800.5B issued with following conditions selected under “Specific Commitment Conditions”
 “Assurance of Completion” with repairs escrow amount completed;
 “See the following additional conditions on the back” with applicable items selected such as “M. Repairs” and “R. Final
Inspection”.
 Completed HUD-92300/Mortgagee’s Assurance of Completion including the repair escrow amount
 Completed HUD-92051/Compliance Inspection Report or 1004D/Fannie Mae Appraisal Update and/or Completion Report.
 Borrower must provide purchase receipts for reimbursement of minor repairs performed prior to ordering 1004D.
 Borrower’s acknowledgment of satisfactory completion of the required repairs and approval to pay the contractor/vendor.
REO Appraisal
 HUD REO “as-is” appraisal is valid for 120 days from the effective date and should be obtained from the HUD’s Asset Manager
 If the utilities are not turned on, the appraiser must include the Property Condition Report (PCR) information in the applicable
sections of the appraisal report. PCR can be obtained from the M&M Contractor
Second “As-Is” Appraisal


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HA Guidelines
Condition
Appraisal is older than 120 days at the time of closing
and the REO contract was NOT ratified within 120 days
of the HUD REO appraisal’s effective date.
Appraisal is greater than 150 days old at the time of
closing.
11-18-2014
Maximum FHA Mortgage*
Based on the value of the property as determined by the new
appraisal.
Page 95 of 104
HUD REO
Purchases
Second “As-Is” Appraisal (continued)
Condition
Maximum FHA Mortgage*
 The sales price is greater than the HUD ordered
appraisal and/or the “as-is” appraised value is not
available because:
 The Asset Manager did not provide the HUD REO
appraisal.
 The “as-is” appraisal is not available (appraised value is
not disclosed) on HUD’s listing website
Limited to the lesser of:
 The contract sales price, or
 The new appraised value, or
 The initial list price of the HUD REO property, as available on the
Multiple Listing Services (MLS) listing and/or through the listing
broker.
 If a new FHA appraisal is ordered due any of the above noted condition, then the following applies:
 The original appraisal ordered by HUD may not be used to underwrite the loan.
 The second appraisal fee may be charged and paid by the homebuyer(s).
 Underwriter must include written justification for ordering a new appraisal.
 All appraisals must be included in the loan file.
 When the second appraisal has a lower value than the initial HUD REO appraisal, the borrower is responsible for the additional
cash, OR the borrower may withdraw his/her offer to purchase with full refund of the earnest money.
 When the second appraisal has a higher value than the initial HUD REO appraisal, HUD will not increase the sales price. The FHA
loan is based on the lesser of the sales price or the initial MLS list price.
Sales Contract
 HUD REO contract (Form HUD-9548) should be ratified within the 120 days validity period of the REO appraisal.
 For the cost of repairs to be eligible for inclusion in the mortgage amount, the sales contract or addendum must identify the
borrower as responsible for paying for or otherwise completing the repairs or improvements.
 HUD contract (or HUD letter) may authorize sales incentives or lower down payment such as:
 $100 Down Payment: when approved by HUD to owner-occupied buyers who have not purchased a HUD REO in the past 24
months.
o UFMIP may be financed provided total loan does not exceed 100% of the “as-is” appraised value.
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HA Guidelines
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HUD REO
Purchases
Manufactured
Homes
Sales Contract (continued)
 HUD may pay up to 3% of the sales price towards buyer’s closing costs.
o Closing costs and prepaids cannot be included in the mortgage calculation.
 Broker (realtor) bonuses for owner-occupied sales.
 The eligible FHA insured financing type* is reflected on contract line item#4. [*HUD Section of the Act: 203(b), 203(b) Repair
Escrow, or 203(k)]
 If a discounted sales price is being provided, the mortgage amount will be based on the lesser of the “as-is” value of the
discounted sales price, not the contract sales price.
 Discount percentage, if any, is shown on contract line item #8 of HUD-9548 and will be applied at closing.
 Properties sold with discounts are not eligible for closing costs assistance.
Program Overview
Endeavor America will lend on manufactured homes on purchase, rate & term, cash out and streamline refinance transactions that
comply with applicable requirements detailed below.
Except for the requirements noted below that are specific for HUD REO sales, the underwriting criteria for borrowers’ assets, credit,
debts, employment and income remain the same as previously described in this Guide. Borrowers must meet all other FHA
guidelines as described in HUD 4155.1 and subsequent mortgagee letters.
Title II Eligibility Requirements
A Manufactured Home (MH) is constructed to the Federal Code, Model Manufactured Home Installation and Safety Standards. The
dwelling is built on a steel chassis, assembled in units at the factory and then transported in one or more sections to the property
site.
To be eligible for financing, all manufactured homes must comply with the following:
 Minimum floor area of 400 square feet
 Constructed after June 15, 1976, in conformance with the Federal Manufactured Home Construction and Safety Standards (HUD
Code), as evidenced by an affixed certification label in accordance with 24 CFR.
 Be classified and treated as real estate the by local authority (but need not be treated as real estate for purposes of state
taxation)
 Mortgage must cover both the manufactured home and its site
 Built and remains on a permanent chassis
 Designed for occupancy as a principal residence and installed with a permanent foundation
 Fee simple title with Alta 7 endorsement
 Manufactured units must not have been installed or occupied previously at any other location or site
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HA Guidelines
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Manufactured
Homes
Additions/Modifications (State Requirements)
Additions or structural modifications may put the home at risk if the changes were not performed in accordance with the HUD Code.
 Additions/Modifications must comply with the:
 HUD Manufactured Home Construction Safety Standards, aka “HUD Code”
 Permanent Foundation Guidelines for Manufactured Housing (PFGMH). An Engineer’s Certification is required.
 Some states require an inspection of any addition/modification (ex. Washington State). The appraiser and underwriter are
responsible for knowing the local regulations.
 Obtain a certification from the local authority that the addition or modification complies with the applicable local/state building
codes that governs manufactured housing.
 If there is no local authority, then a licensed engineer within the subject state may certify the addition to the property does not
affect the subject’s structural integrity.
Appraisal Requirements
MH appraisals must be completed on form 1004C and satisfy ALL the following requirements:
 Appraisal validity is 120 days from the date of the appraiser’s initial property inspection.
 Appraisal report is made “subject to” engineer’s certification of foundation compliance with HUD's PFGMH.
 Market Conditions Addendum/Form 1004MC is included in appraisal
 MH land ownership rights must be bundled with the unit as security, and may be:
 Fee simple, or
 Leasehold estate must comply with applicable FHA’s leasehold guidelines including:
 minimum term of > 10 years more than the mortgage term, and
 must not have assignability restrictions
Perimeter Enclosure shall be a continuous wall that separates the crawl space from backfill, and keeps out vermin and water.
 The enclosure must be adequately secured to the perimeter of the unit and allow for proper ventilation of the crawl space.
 Skirting describes a non-structural enclosure of a foundation crawl space.
 Typically, skirting is a lightweight material (vinyl, metal), attached to the side of the structure, extending to the ground
(generally not installed below frost depth)
New Construction Perimeters:
 The space beneath the home shall be enclosed by a continuous foundation-type construction designed to resist all forces to
which it is subject without transmitting forces to the building superstructure.
 Enclosure shall be adequately secured to the perimeter of the home and be constructed of materials that conform,
accordingly to HUD’s Minimum Property Standards for foundations (e.g. concrete, masonry, treated wood) and the PFGMH.
Existing Construction Non-load bearing Skirting: there must be adequate backing (e.g. concrete, masonry, treated wood) to
permanently attach and support or reinforce the skirting.
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Appraisal Requirements (continued)
 Subject photos must reflect running gear has been removed and subject is attached to a permanent foundation so that is no
longer capable of being removed.
 Comparable Selection
 At least two of the comps must be manufactured.
 Combining of Land and Home Sales is NOT acceptable.
 Appraiser must describe any additions/modification made to the MH since its initial site placement.
 Appraiser must notify the lender if it is suspected that an addition/modification poses a risk to the structural integrity of the
home.
 Appraiser must notify the lender and condition the appraisal for documentation verifying the HUD labels were issued to the
manufactured home.
 Appraiser should provide a legible photo of the data plate. Appraiser should report if data plate is missing but need not reject the
property.
 Appraiser should also check the data plate to see if the MH was constructed for the geographic area for which it was installed. If
not, the appraiser must report to the lender who make the borrower aware of this fact.
 Home-site must meets local standards for site suitability and has adequate water supply and sewage disposal facilities.
 For new construction MH, the appraiser must complete the Cost Approach section (less than 1 year old, initial sale form
manufacturer/dealer)
 Appraiser may also include in the report, if available, the invoices for the total costs: the retail purchase price, delivery,
installation and set-up costs.
 Appraiser must analyze the manufacturer’s invoice and any other documents that pertains to what the sale included such as
 Payoff of personal debt;
 Land included in the contract;
 Personal property was included in sale
 If well and/or septic, appraiser must comment that distances meet with HUD/FHA requirements.
References: MLs 09-16, 09-09, 06-33, 05-48, 05-02, 02-25; HB 4150.1; HB 4150.2 Ch 8 & Appx D; HB 4145.1; HB 4905.1; HB 4910.1
Appx. K
Credit Score
Endeavor America requires a minimum qualifying decision scores:
 580 with a double-wide
 620 with a single-wide
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Elevation Certificate – Flood Zones A & V
 An elevation certificate is required if the subject manufactured home is located in a flood hazard area.
 If property is located in flood zones A and V, and
 MH without basement, the finished grade level beneath must be at or above the FEMA Special Flood Hazard Area (S) 100-year
return frequency elevation.
 MH with basement, the grade beneath the basement floor shall be at or above the S.
 FEMA form 81-31 “Elevation Certificate” must be dated and executed after the appraisal date.
Engineer’s Certification of Foundation
MH appraisals should be completed on form 1004C and be made “subject to” a required inspection by a Licensed Engineer or a
Registered Architect certifying the foundation is in compliance with the HUD handbook 4930.3G, Permanent Foundations Guide for
Manufactured Housing (PFGMH), dated Sept. 1996.
Foundation certification attesting compliance with HUD's PFGMH
 The engineer’s certification of the foundation must site specific and:
 verify the subject foundation meets local municipality’s permanent foundation guidelines
 verify the manufactured home has not been moved from another location
 verify no alterations to the original structure and/or observable damage to the foundation
 The certification may be completed by a Licensed Engineer or a Registered Architect, who is licensed/registered in the state
where the manufactured home is located.
 The certification must contain the engineer's or architect's signature, stamp/seal, and/or valid state license/certification number.
In states where seals are issued, the seal must be on the certification.
 Certification must cover any additions added to the MH.
 Lender may accept an existing engineer’s certification from the current owner in a purchase transaction:
 Certification that permanent foundation meets HUD requirements; and
 There have been no alterations/additions to the home since the certification was issued when the home was initially set in its
original foundation, and/or no observable damage to the foundation.
Reference: PFGMH HUD HB 4930.3G; ML 09-16; HUD HB 4150.2, Ch. 2; 4155.2 Ch. 4
Certification on Foundation Compliance is NOT required for:
 FHA to FHA refinance transactions provided that no modifications have been made to the foundation or structure from the date
of the effective certification.
 HUD REO transaction made by the original purchaser from HUD.
FHA Connection
Correctly enter the following manufactured housing data into FHA Connection:
 Case Assignment screen: “77” should be entered as the two-digit Program ID Code when the loan is NOT processed as a
construction-permanent loan.
 Appraisal Logging screen: “Y” for Yes to Manufactured Housing indicator (source document –appraisal).
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Hazard Insurance
The minimum amount of coverage is determined by the insurer.
HUD Label “Red Tags”
 All MHs must have a HUD label (commonly known as the “Red Tag”), a metal tag affixed on outside of each transportable unit.
 A multi-wide unit has multiple HUD tags – one for each transported section/unit.
 When the HUD labels are missing,
 Institute for Building Technology (IBTS) maintains data regarding HUD certification labels and data plates. IBTS can provide the
following verifications:
o HUD Label Verification letter includes: label number, serial number, date of manufacture, manufacturer name and plant
location, location of the first destination (usually the retailer)
o HUD Data Plate/Compliance Certificate
HUD Data Plate
 There is only one data plate that is made of paper. It is typically be found inside the home in one of three locations:
 adjacent to the electric service panel in the utility room, or
 in a kitchen cabinet, or
 in a bedroom closet.
 Data plate contains the HUD Certification Label number to assist in ordering the HUD Label verification letter from IBTS.
 It also contains useful information: manufacturer name, serial number, model and date of manufacture as well as wind, roof load
and thermal zones.
Ineligible MHs
The following property types are ineligible for delivery to Endeavor America:
 Condo, Co-Op, Parks
 Leasehold
 Multiple manufactured units on the same lot
 Single family with an accessory manufactured home (unless storage only use)
 Missing HUD Label (Red Tags) and HUD certification cannot be verified
Maximum Mortgage
Maximum loan amount is the county limits.
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Modular Homes
 Modular homes are also factory built in sections in compliance with the local codes (state codes) and Uniform Building Codes
(UBC) or International Residential Code (IRC).
 Modular homes are treated the same as a stick-built home and appraisal forms 1004 and 1004MC are used. Appraiser must
address marketability of the property.
 Modular receive a state certification label as confirmation its construction and assemblage comply with local code. IBTS has
compiled samples of states’ modular labels and state program contact information and can be viewed on IBTS’ website.
 Modular homes may have a steel undercarriage or wooden floor structure.
New Construction
 A property delivered to the site within the last 12 months is considered new construction.
 For newly constructed MH, the appraiser must analyze the manufacturer’s invoice and any other documents that pertains to
what the sale included such as:
 Payoff of personal debt,
 Land included in the contract
 Personal property was included
Proposed Construction
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HA Guidelines
> 90% LTV
 Engineer’s Certification of Foundation
 HUD-92541/Builder’s Certification of
Plans & Specs
 HUD-92544/Builder’s 1-Year
Warranty
 First & Final Inspection by FHA Fee
Inspector; or
 10-year warranty & Final Inspection
by Fee Inspector; or
 Early Start Letter, First & Final by
Fee Inspector
 Pest soil treatment (NPMA-99A and
NPMA-99B)
 Well & Septic, if applicable
 Flood Zone Cert. and if applicable
 LOMA or LOMR or Elevation
Certificate
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≤ 90% LTV
 Engineer’s Certification of Foundation
 HUD-92541/Builder’s Certification of Plans
& Specs
 HUD-92051/ Final Inspection by Fee
Inspector
 Pest soil treatment (NPMA-99A and NPMA99B)
 Well & Septic, if applicable
 Flood Zone Cert. and if applicable
 LOMA or LOMR or Elevation Certificate
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Manufactured
Homes
Under Construction and Existing New (less
than one-year-old)
90% LTV
≤ 90% LTV
 Engineer’s Certification of Foundation
 HUD-92541/Builder’s Certification of
 Engineer’s Certification of Foundation
 HUD-92541/Builder’s Certification of Plans
Plans & Specs
& Specs
 HUD-92544/Builder’s 1-Year
 HUD-92051/ Final Inspection by Fee
Warranty
 10-year warranty
 HUD-92051/Final Inspection by Fee
Inspector
 Pest soil treatment (NPMA-99A and
NPMA-99B )
 Well & Septic, if applicable
 Flood Zone Cert. and if applicable
LOMA or LOMR or Elevation Certificate
Inspector
 Pest soil treatment (NPMA-99A and NPMA99B)
 Well & Septic, if applicable
 Flood Zone Cert. and if applicable
LOMA or LOMR or Elevation Certificate
Site
 The manufactured unit must not have been installed or occupied previously at any other site or location.
 Manufactured units may be moved only from the manufacturer's or dealer's lot to the site on which the unit will be insured.
 If a permanent foundation is to be constructed under an existing eligible unit, the unit may be jacked up in order to install a new
foundation.
Termite Inspections
New Homes: must have foundation and features that resist termites (e.g. pressure treated wood, naturally termite resistant wood, termite
and soil treatments, etc.).
Existing Homes: may require soil or termite treatment.
Title Binder
 Preliminary title binder must reference an Alta 7 endorsement will be included in the final policy.
 Title binder for manufactured homes must include:
 Title to the manufactured home has been surrendered or purged in accordance with the jurisdictional requirements
(relinquished Department of Motor Vehicles).
 Title binder reflects the manufactured home will be recorded as real property.
 “Improvement Tax” shows what taxes will be once the manufactured home is classified and taxed as real estate.
 If the above three title binder requirements are met, then the survey requirement* is to be removed from the final title.
[*Survey to show the manufactured home is attached to the land.]
 Borrowers to execute an Affidavit of Affixation at closing.
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Manufactured
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HA Guidelines
Trade-In
 Sale or trade-ins of MHs that are personal property (not real property) is an acceptable source for borrower’s down payment
 Trade-ins for cash funds are considered a seller inducement and are NOT permitted.
Reference: 4155.1 5.B.6.i
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