Section 2.90 – The FHA 203(b) Loan Program
In This Product This product description contains the following topics.
Description
Overview ........................................................................................................... 2
Features & Benefits ..................................................................................... 2
Product Summary ........................................................................................ 3
HUD Home Ownership Centers ................................................................... 5
HUD Section of the Act And ADP Codes ..................................................... 5
Related Bulletins ............................................................................................... 6
Loan Terms ....................................................................................................... 7
Assumptions................................................................................................. 7
Loan Term .................................................................................................... 8
Maximum Loan Amount and LTV ................................................................ 8
Minimum Loan Amount ................................................................................ 9
Transactions Affecting Maximum Mortgage Calculations .......................... 10
Minimum Down Payment ........................................................................... 14
Maximum # of FHA Loans per Borrower ................................................... 14
Maximum Number of Financed Properties and Borrower Exposure ......... 15
Prepayment ................................................................................................ 16
ARM Change Dates ................................................................................... 16
ARM Parameters........................................................................................ 17
Truth-in-Lending ARM Disclosure .............................................................. 18
FHA Jumbo ..................................................................................................... 19
Eligible Transactions ....................................................................................... 23
New Construction ............................................................................................ 25
Ease-In Payment Reduction Feature .............................................................. 40
Energy Efficient Mortgage (EEM) Program ..................................................... 44
Refinances ...................................................................................................... 45
Cash-Out Refinances ...................................................................................... 47
No Cash-Out with an Appraisal (Rate/Term Refinance) ................................. 49
Streamline Refinances .................................................................................... 51
Secondary Financing ...................................................................................... 58
Geographic Restrictions .................................................................................. 65
Occupancy/Property Types ............................................................................. 66
Eligible Borrowers ........................................................................................... 77
Income............................................................................................................. 84
Liabilities and Qualifying Ratios .................................................................... 104
Credit Requirements ..................................................................................... 113
FHA Social Security Number Validation ....................................................... 129
Cash Requirements ...................................................................................... 131
Contributions by Interested Parties ............................................................... 145
HUD Allowable Closing Costs ....................................................................... 148
Mortgage Insurance ...................................................................................... 150
Appraisal Requirements ................................................................................ 156
Prohibition of Property Flipping ..................................................................... 178
Automated Underwriting System (AUS) Issues ............................................ 182
Rate, Points & Lock-Ins ................................................................................. 205
Application, Disclosures and Consumer Compliance ................................... 205
MLCS Loan Setup and Processing ............................................................... 209
Workflow........................................................................................................210
Closing and Loan Settlement Documentation............................................... 213
Section 2.90 November 10, 2011
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Broker Seller Guide
Overview
Features & Features and benefits of the FHA mortgage include the following:
Benefits
Features Benefits
Fixed Rate or 5 and 7 Year non- Greater flexibility in accommodating a
convertible ARMS are available. borrower’s needs or preferences.
FHA Jumbo loans available. The surge in higher conforming loan
amounts is a great opportunity to help
make homeownership more affordable
for the borrower.
Seller can pay up to 6% of sales price Borrower needs less cash for the
toward closing costs, prepaids, and transaction.
interest buydowns.
Ratios of 31/43% for loans requiring More borrowers can qualify for an FHA
traditional underwriting. loan.
100% gift allowed for down payment Gift funds are considered as borrowers
with no money from buyer required. own funds to apply toward the required
3.5% investment.
AUS Underwriting is permitted on FHA AUS allows for less documentation and
loans. easier borrower qualification.
No reserves are required on 1-2 unit Borrowers need less cash to qualify.
properties.
100% FHA financing through Allows more borrowers to purchase
FHA/SunTrust Approved Non-Profits. home without having established
savings.
No income limit restrictions in Borrowers are not limited to wages
qualifying. under a set amount for their area.
Cash out refinances may be permitted Borrowers may use FHA’s easier
up to a 85% LTV. qualifying guidelines with less equity
remaining in their homes.
Streamlined Refinances with and Less cost to borrowers.
without appraisals.
FHA loans are assumable by credit- More attractive for future resale if the
qualified buyers. borrower plans to relocate or move up
to a larger home in the future.
Continued on next page
Section 2.90 November 10, 2011
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Broker Seller Guide
Overview, Continued
Product General Information
Summary This product description describes SunTrust’s Federal Housing Administration’s
(FHA’s) mortgage programs for Section 203(b), basic 1-4 family, adjustable rate
mortgages, and Condominiums. FHA 203(b) mortgages are insured by the
Department of Housing and Urban Development (HUD). This offers borrowers the
opportunity to obtain a mortgage when they may not qualify under conventional
guidelines.
Reference: See the topic Seller-Paid Interest Payment Reduction / Ease-In
Payment Reduction Feature subsequently presented in this product description for
additional information concerning the Seller Paid Interest Payment Reduction
Feature.
AUS Guidelines
• Fannie Mae DU and Freddie Mac LP information can be found under the
appropriate topic and subtopic when applicable. AUS System setup and
Processing is located in the AUS section of this product description.
• If “Approve/Ineligible” or “Refer,” reduced documentation may be used if allowed
by the findings report and approved by the DE Underwriter.
Reference: See “FHA TOTAL Scorecard” in the topic “AUS Issues” for additional
information.
HUD Handbooks & Mortgagee Information
This product description contains only a portion of HUD’s various lending Handbooks
and Mortgagee Letters. It is the responsibility of the SunTrust Wholesale Branch
Office to ensure that mortgages processed for 203(b) loans meet HUD’s guidelines.
Ineligible • FHA 203(b) with repair escrow
Programs • FHA 203(k) loans
• Energy Efficient Mortgages (EEMs)
• FHA Refinance Program for borrowers in negative equity positions.
Note: These programs have been evaluated by SunTrust but have not been
embraced.
Continued on next page
Section 2.90 November 10, 2011
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Broker Seller Guide
Overview, Continued
Helpful The following list provides links to helpful HUD web sites.
Websites • Circular Letters for each Home Ownership Center:
http://www.hud.gov/offices/hsg/sfh/hoc/hsghocs.cfm
• FHA Connection: https://entp.hud.gov/clas/index.cfm
• Housing Keyword Index: http://www.hud.gov/offices/hsg/keywords.cfm
• This Index allows you to search HUD’s web site using "keywords." From this site
you can also access the sites listed below.
• Letter "A" - Atlanta Home Ownership Center (lists addresses, phone
numbers, etc.)
• Letter "D" - Denver Home Ownership Center (lists addresses, phone
numbers, etc.)
• Letter "P" - Philadelphia Home Ownership Center (lists addresses, phone
numbers, etc.)
• Letter "S" - Santa Anna Home Ownership Center (lists addresses, phone
numbers, etc.)
• Letter "M"- Mortgagee Letters
• HUD Clips (Handbooks & Forms): http://www.hud.gov/offices/adm/hudclips/
• HUD website: http://www.hud.gov/
• FHA Maximum Mortgage Limits: https://entp.hud.gov/idapp/html/hicostlook.cfm
• FHA.gov: www.FHA.gov
Continued on next page
Section 2.90 November 10, 2011
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Broker Seller Guide
Overview, Continued
HUD Home • HUD has consolidated the various local HUD Field Offices into four (4) Home
Ownership Ownership Centers (HOCs). These HOCs are responsible for the policies and
Centers procedures that lenders are responsible for applying to the origination,
processing, underwriting, closing and insuring of FHA loans.
• The following table shows states that are served by the HOCs:
Atlanta, Philadelphia, Denver, Santa Ana,
Georgia Pennsylvania Colorado California
Alabama Connecticut Arkansas Alaska
Florida Delaware Colorado Arizona
Georgia District of Columbia Iowa California
Illinois Maine Kansas Guam
Indiana Maryland Louisiana Hawaii
Kentucky Massachusetts Minnesota Idaho
Mississippi Michigan Missouri Nevada
North Carolina New Hampshire Montana Oregon
Puerto Rico New Jersey Nebraska Washington
South Carolina New York New Mexico
Tennessee Ohio North Dakota
Virgin Islands Pennsylvania Oklahoma
Rhode Island South Dakota
Vermont Texas
Virginia Utah
West Virginia Wisconsin
Wyoming
• All communication from the HOCs can be accessed through the Internet.
Reference: See the subtopic “Helpful Web Sites” within this topic for internet
links to individual HOCs.
• The information provided in this product description MAY NOT include all HOC
policies that may vary from standard FHA guidelines. It is the responsibility of
the Wholesale Broker to determine the guidelines specific to their location.
HUD Section of The table below provides the HUD codes for the Section of the Act and the
the Act and applicable ADP code for each product.
ADP Codes
Section of the Description ADP Code
Act for DE
203(b) Basic Home Mortgage Insurance 703
203(b) ARM 729
203(b) Interest Rate Buydown 796
203(b) / 238(c) MIA (Military Impact Area) 774
203(b) Condominium 734
203(b) Condominium ARM 731
203(b) Condominium Interest Rate Buydown 797
Section 2.90 November 10, 2011
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Related Bulletins
General Related bulletins are provided below in PDF format. To view the list of published
bulletins, select the applicable year below.
• 2011
• 2010
• 2009
Section 2.90 November 10, 2011
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Broker Seller Guide
Loan Terms
Assumptions Loan Origination Dates
A loan that is financed by HUD may be assumed provided it meets HUD’s
requirements. The primary consideration for assumptions is the date of the original
FHA loan. If the original loan was originated:
• on or after December 15, 1989 the following guidelines must be met:
• any person assuming an FHA insured mortgage must be found creditworthy
by HUD or a DE lender,
• the credit worthiness review requirement extends for the life of the mortgage.
• the assumptor must be an owner occupant, and
• private investors are prohibited from assuming insured mortgages that are
subject to the restrictions of the 1989 Act.
• between December 1, 1986 through December 15, 1989 the following guidelines
must be met:
• credit qualification is not required, unless the seller requests release of
liability, and
• seller can usually request release of liability if five (5) years have lapsed
since the date of transfer (assumption), providing the assumptor has
maintained a satisfactory payment history.
• originated prior to December 1, 1986, HUD has no restrictions.
Investment Property
• An investor that assumes a high ratio mortgage originated by an owner-occupant
pursuant to a HUD Conditional Commitment (or VA CRV), or an appraisal signed
by a DE underwriter on or after February 5, 1988 but prior to December 15,
1989, must bring the outstanding mortgage balance down to a 75% LTV ratio if
the borrower wants to be released from personal liability on the mortgage note.
• The original appraised value or current appraised value may be used to
determine LTV.
• Commitments issued after December 15, 1989 may not be assumed as
investment property except under certain conditions.
Second Homes
• HUD conditional commitments issued on or after February 5, 1988 but before
January 27, 1991 must bring the outstanding mortgage down to 85% LTV.
• Commitments issued after January 27, 1991 may not be assumed as second
homes, except under the hardship provisions.
• The original appraised value or current appraised value may be used to
determine LTV.
Release From Liability
The lender is required to release all parties from liability when the assuming
borrower is found creditworthy. The following two (2) forms are utilized for an FHA
assumption:
• Request for Credit Approval of Substitute Mortgagor (HUD form 92210), or
similar form used by the lender, which does not formally release the original
borrower from personal liability on the mortgage note, and.
• Approval of Purchaser and Release of Seller (HUD form 92210.1), or other
similar form used by the lender, which constitutes a formal release of liability.
Continued on next page
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Loan Terms, Continued
Assumptions, Secondary Financing
(continued) The repayment terms must be clearly defined and included in the underwriting
analysis.
Cash Contributions
• Cash contributions from the seller to facilitate an assumption are not acceptable.
• The existing mortgage balance must be reduced by the amount of the
contribution.
• The seller, however, may pay the assumptor’s normal closing costs (processing
fee and credit report) with no reduction to the mortgage.
Loan Term Fixed Rate
10, 15, 20, 25 or 30 years
ARMs
30 years only
Maximum Loan General Information
Amount and • Generally, the maximum insurable mortgage is the lesser of:
LTV • FHA’s statutory loan limit for the area (typically a county or metropolitan
statistical area, MSA), or
• the applicable loan-to-value limit.
• Loan amount limits vary by program, property location and the number of units
within the dwelling. They apply to both purchase transactions and refinances.
• A percentage of the Fannie Mae/Freddie Mac maximum loan limits are used to
establish the FHA loan limits.
• FHA’s “floor” loan limits for 1-4 unit properties is based on 65% of the conforming
loan limits as established by the Federal Government.
2011 FHA Mortgage Limits
Units Floor Limits Maximum Ceiling Limits
1 Unit $271,050 $625,500
2 Units $347,000 $800,775
3 Units $419,425 $967,950
4 Units $521,250 $1,202,925
• FHA uses its own data to set the maximum limit in each area. Loan amounts
exceeding the “floor” limits are accepted for those counties where FHA has
published higher loan limits.
• A complete listing of FHA mortgage limits for all areas is available through the
HUD website on the FHA Mortgage Limits web page.
Note: The FHA Mortgage Limits web page may be used to determine the
maximum loan amount allowed for the location of a specific property. It can also
be used to look up FHA mortgage limits for your area or several areas, and then
list them by state, county, or Metropolitan Statistical Area.
Continued on next page
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Loan Terms, Continued
Maximum Loan Base Loan
Amount and • Maximum LTVs are determined using the “base” loan amount.
LTV, (continued) • The “base loan” is the maximum loan amount prior to adding any financed
mortgage insurance premium. The type of transaction will determine the
calculation of the base loan amount.
• The table below reflects the allowable LTV/TLTV or other methods used in the
maximum mortgage calculations.
Occupancy Stage of Construction LTV / TLTV
Purchases Owner Occupied Proposed and Existing 96.5% / 105%
Owner Occupied Under Construction or Less 90% / 105%
than 1 Year Maximum financing allowed
if Pre-approved*
*See “New Construction”
for acceptable pre-approval
documentation.
Second Homes ** 85% / 105%
Investment ** 75% / 105% 1 Unit
85% / 105% 2–4 Units
** Note: Second Homes and Investment properties are eligible for FHA financing only under limited
circumstances. Refer to each subtopic within the “Occupancy/Property Types” topic for additional
information before offering FHA financing for these property types.
Type of Refinance 1 LTV / TLTV
Refinances Credit Qualifying Streamline Refinance STM to STM Transactions
with an Appraisal 97.75% / 105%
Non-STM to STM Transactions
97.75% / 100%
Credit Qualifying Streamline Refinance STM to STM Transactions
without an Appraisal 97.75% / 105%
Non-STM to STM Transactions
97.75% / 100%
Rate/Term Refinance 97.75% / 97.75%
Cash Out Refinance 85% 2,3 / 85%2,3 1-4 unit properties
1
See the topic “Refinances” for further information.
2
Other limitations may apply; see the subtopic “Cash-Out Refinances” in the topic “Refinances” for additional
information.
3
Cash-out refinance transactions for properties located in the state of Florida are limited to a LTV/TLTV
of 80.00%.
Minimum Loan None.
Amount
Continued on next page
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Loan Terms, Continued
Transactions Various transaction types or relationships may affect the allowable LTV or other
Affecting methods used in the maximum mortgage calculations.
Maximum
Mortgage Identity of Interest Transactions
Calculations • Identity of Interest Transactions are transactions between family members,
business partners or other business affiliates. Identity-of-interest transactions
are restricted to a maximum LTV of 85%. However, maximum financing above
85% is permissible under the following circumstances:
• family member purchasing another family member’s principal residence,
• employee of builder purchasing home from builder,
• current tenant purchasing home she has rented for at least six (6) months
predating the sales contract, (with lease or other written evidence), and
• sales by corporations purchasing an employee’s home and reselling to another
employee.
Note: For identity of interest transactions, a full appraisal is required and must
include verification of the purchase price, last sale date, and recent listing of the
subject property regardless of the feedback provided in the AUS messaging.
Non Occupying Co-Borrowers
• Non-occupant co-borrower transactions are restricted to a maximum LTV of
75%. However, maximum financing above 75% is permissible under the
following circumstances:
• borrowers are related by blood, marriage, or law, or
• unrelated individuals that can document evidence of a family-type,
longstanding and substantial relationship not arising out of the loan
transaction, and
• the property is a one (1) unit dwelling.
• Below are other requirements for a non-occupying co-borrower.
• All borrowers, regardless of occupancy status, must sign the security
instrument and the mortgage note.
• If a parent is selling to a child, the parent cannot be the co-borrower with the
child on the new mortgage, unless the LTV is 75% of less.
• Non-occupant co-borrowers are not permitted on any cash-out transaction.
References:
• See “Maximum # of FHA Loans per Borrower” subtopic subsequently presented
in this topic for additional information.
• See the topic “Eligible Borrowers” for additional information.
Continued on next page
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Loan Terms, Continued
Transactions Three and Four Unit Properties
That Affect • The maximum mortgage is limited so that the ratio of the monthly mortgage
Maximum payment (PITI plus Homeowners association dues, if applicable) divided by the
Mortgage monthly net rental income does not exceed 100%.
Calculations, • The monthly payment includes principal, interest, taxes, insurance, monthly
(continued) mortgage insurance, and homeowner’s association dues computed at the note
rate. No considerations for buydowns may be given.
• Net rental is the appraiser’s estimate of fair market rent from all units, including
the unit the borrower will occupy, less the FHA allowance for vacancies and
maintenance (or 25% if the local FHA has not established a separate allowance).
• The projected rent may be considered only as gross income for qualifying
purposes, and not used to offset the monthly mortgage payment.
• Three (3) months reserves (PITI) after closing are required on all transactions.
The LTV/TLTV may not exceed 85% on a cash-out refinance transaction.
Building on Own Land
• Maximum financing is available if the borrower receives no cash from the
settlement. LTV limits are applied to the lesser of
• the appraised value, or
• the documented acquisition cost, which includes the following:
• builder’s price, or the sum of all subcontractor’s bids, materials, etc.,
• cost of the land (value may be used if land was owned more than 6
months or was received as an acceptable gift),
• interest and costs from the construction loan obtained by the borrower
to fund construction of the property, and
• closing costs and reasonable discount points paid by the borrower.
• Equity in the land may be used for the borrower’s entire down payment.
• If the borrower receives cash at closing exceeding $250, the loan is limited to
85% of the sum of the appraised value plus closing costs.
Paying Off Land Contracts or Refinance Properties Subject to Ground Rent
• If the borrower will use the loan to complete payment on a land contract, contract
for deed, or other similar type financing arrangement where the borrower does
not have title to the property, the new mortgage may be processed as either a
purchase or a refinance transaction with maximum insured financing if the
borrower receives no cash at closing.
• If all loan proceeds are used to pay the outstanding balance on the land contract
and eligible repairs, renovations, etc., the appropriate loan-to-value ratio is
applied to the lesser of:
• the appraised value, or
• the total cost to acquire the property plus allowable closing costs and, if
treated
• Equity in the property may be used for the borrower’s entire down payment.
• If the borrower receives cash at closing exceeding $500, the loan is limited to
85% of the sum of the appraised value.
Treat cash-out refinances that pay off land contracts or refinance properties
subject to ground rents in the same manner as cash-out refinance transactions
on properties held in fee simple ownership.
Continued on next page
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Loan Terms, Continued
Transactions Occupancy of Former Investment Property
That Affect The maximum mortgage amount available for borrowers who reoccupy their former
Maximum investment property as their primary residence and wish to refinance are subject to
Mortgage the following restrictions:
Calculations, • If occupancy of the former investment property was 12 months or more prior to
(continued) the loan application date, then maximum financing as an owner-occupant is
allowed (97.75% for rate/term refinances; 85% for cash-out refinances)
• If occupancy of the former investment property was less than 12 months prior to
the loan application date, then the loan is eligible as a rate/term refinance only
with a maximum LTV of 85%.
HUD Single-Family REO $100 Down Payment
Reference: See the HUD REO Properties subtopic in the Occupancy/Property
Types topic subsequently presented for additional information on the maximum
mortgage amount and minimum down payment calculation.
Continued on next page
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Loan Terms, Continued
Transactions Additions to the Mortgage Amount
That Affect • An increase in the maximum mortgage amount is permitted only when the
Maximum appraised value exceeds the sales price; any remaining costs become part of
Mortgage the borrower’s settlement requirements.
Calculations, • The increase may not exceed HUD’s basic mortgage limits for the area where
(continued) the property is located, except for solar energy systems.
• Allowable additions to the mortgage amount are discussed under the headings:
• energy-related weatherization items, and
• solar energy systems.
Repairs and Improvements
The table below provides the requirements necessary to add the amount of repairs
and improvements in the loan amount.
IF the… THEN the…
• repairs are required by the • amount that may be added to the
appraiser and the value reflects sales price before calculating the
these requirements, maximum mortgage is the lowest of:
• repairs were not completed prior to • the amount the value of the
the appraisal, and property exceeds the sales price,
• sales contract or addendum • the appraiser’s estimate of repairs
identifies the borrower as and improvements, or
responsible for paying for the • the amount of the contractor’s bid,
repairs, if available.
Energy-Related Weatherization Items
If weatherization items are to be added to the property and paid for by the borrower,
the cost may be added to both the sales price and the value before determining the
maximum mortgage amount. Examples of weatherization items are shown below.
• Thermostats
• Insulation
• Storm windows and doors
• Weather stripping and caulking, etc.
Solar Energy Systems
The cost of the solar energy systems may be added directly to the mortgage amount
(before adding the UFMIP) after applying the LTV ratio limits. Important facts to
remember when considering adding the solar energy system are listed below.
• The statutory mortgage limit for the area also may be exceeded by 20% to
accommodate the cost of the system.
• The amount that may be added to the mortgage is limited to the lesser of the
solar energy systems replacement cost or its effect on the property’s market value.
• Both active and passive solar systems are acceptable as are wind-driven
systems.
Continued on next page
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Loan Terms, Continued
Minimum Down HUD’s Requirement
Payment • The minimum down payment is 3.50%.
• The minimum down payment must come from the borrower’s down payment and
may not include closing costs paid by the borrower.
Maximum # of General Information
FHA Loans per FHA will generally not insure more than one mortgage per borrower. Circumstances
Borrower in which a borrower may keep his current FHA-insured mortgage are provided
below.
Relocating
The borrower is relocating and re-establishing residency to another area that is not
within reasonable commuting distance from the current HUD insured home. There is
no need to reduce the principal balance or sell the current home. Other items of
clarification are shown below.
• The relocation need not be employer mandated.
• If the borrower returns to an area where he/she owns a property with an FHA
Mortgage, it is not required that the borrower re-establish primary residency in
that property in order to obtain another FHA mortgage.
Family Size Increase
The borrower’s family has increased in the number of legal dependents and the
present home no longer meets the family needs and the following applies.
• Satisfactory evidence must be provided of the increase in dependents and an
explanation of why the property no longer meets the family needs,
• The outstanding mortgage balance on the present home is paid down to a
maximum LTV of 75% (excluding financed MIP).
• A current residential appraisal must be used to determine LTV compliance.
Note: Tax assessments, market analysis by real estate brokers, etc., are not
acceptable to determine LTV.
Continued on next page
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Loan Terms, Continued
Maximum # of Co-Borrower for Family Member
FHA Loans per The borrower will be a non-occupying co-borrower on property being purchased as a
Borrower, primary residence by other family members, may have a joint interest in that property
(continued) as well as his own primary residence, which is a FHA-insured mortgage too.
Vacating a Jointly Owned Property
The borrower is vacating a residence that will remain occupied by a co-mortgagor.
Acceptable situations include following a divorce where the borrower is purchasing a
new home or where the borrower is vacating the property.
Maximum Reference: See Section 1.20: Maximum Number of Financed Properties and
Number of Borrower Exposure, of the Broker Seller Guide, for additional information.
Financed
Properties and
Borrower
Exposure
Continued on next page
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Loan Terms, Continued
Prepayment There is no prepayment penalty on FHA loans.
ARM Change The FHA ARM first interest rate change dates are calculated on a “quarterly” basis,
Dates unlike the conventional ARM programs. The first interest rate change date
information is found in the following ARM change date chart.
The following table shows the FHA 5/1 ARM change dates.
Closing Interest First Payment First Interest Maturity Date Number of
Starts Date Change Date 30 Yr Term Months Until
Accruing 1st change
12/02-01/01/11 01/01/11 02/01/11 04/01/16 01/01/41 63
01/02-02/01/11 02/01/11 03/01/11 04/01/16 02/01/41 62
02/02-03/01/11 03/01/11 04/01/11 04/01/16 03/01/41 61
03/02-04/01/11 04/01/11 05/01/11 07/01/16 04/01/41 63
04/02-05/01/11 05/01/11 06/01/11 07/01/16 05/01/41 62
05/02-06/01/11 06/01/11 07/01/11 07/01/16 06/01/41 61
06/02-07/01/11 07/01/11 08/01/11 10/01/16 07/01/41 63
07/02-08/01/11 08/01/11 09/01/11 10/01/16 08/01/41 62
08/02-09/01/11 09/01/11 10/01/11 10/01/16 09/01/41 61
09/02-10/01/11 10/01/11 11/01/11 01/01/17 10/01/41 63
10/02-11/01/11 11/01/11 12/01/11 01/01/17 11/01/41 62
11/02-12/01/11 12/01/11 01/01/12 01/01/17 12/01/41 61
12/02-01/01/12 01/01/12 02/01/12 04/01/17 01/01/42 63
01/02-02/01/12 02/01/12 03/01/12 04/01/17 02/01/42 62
The following table shows FHA 7/1 ARM change dates.
Closing Interest First Payment First Interest Maturity Date Number of
Starts Date Change Date 30 Yr Term Months Until
Accruing 1st change
12/02-01/01/11 01/01/11 02/01/11 04/01/18 01/01/41 87
01/02-02/01/11 02/01/11 03/01/11 04/01/18 02/01/41 86
02/02-03/01/11 03/01/11 04/01/11 04/01/18 03/01/41 85
03/02-04/01/11 04/01/11 05/01/11 07/01/18 04/01/41 87
04/02-05/01/11 05/01/11 06/01/11 07/01/18 05/01/41 86
05/02-06/01/11 06/01/11 07/01/11 07/01/18 06/01/41 85
06/02-07/01/11 07/01/11 08/01/11 10/01/18 07/01/41 87
07/02-08/01/11 08/01/11 09/01/11 10/01/18 08/01/41 86
08/02-09/01/11 09/01/11 10/01/11 10/01/18 09/01/41 85
09/02-10/01/11 10/01/11 11/01/11 01/01/19 10/01/41 87
10/02-11/01/11 11/01/11 12/01/11 01/01/19 11/01/41 86
11/02-12/01/11 12/01/11 01/01/12 01/01/19 12/01/41 85
12/02-01/01/12 01/01/12 02/01/12 04/01/19 01/01/42 87
01/02-02/01/12 02/01/12 03/01/12 04/01/19 02/01/42 86
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 16 of 222
Broker Seller Guide
Loan Terms, Continued
ARM HUD offers FHA 5-Year and 7-Year ARM loans under the same requirements as the
Parameters fixed rate loan with the exceptions as provided in this section. The ARM is offered
under the FHA 203(b) program.
Index
Weekly average yield on U.S. Treasury Securities, adjusted to a constant maturity of
one (1) year.
Margin
5 Year ARMs: 2.25%
Seven Year ARMs: 2.25%
Note: Other margins may be offered. Refer to the Rate Sheet for additional
information.
First Adjustment Dates
• The first adjustment for the Five (5) Year ARM will be 60 to 66 months after the
first installment payment is due in order to permit pooling the mortgage for sale
in the secondary market.
• The first adjustment for the Seven (7) Year ARM will be 84 to 90 months after
the first installment payment is due in order to permit pooling the mortgage for
sale in the secondary market.
Note: GNMA allows four (4) adjustment dates (January 1, April 1, July 1 and
October 1).
Interest Rate Changes
• After the initial interest rate change, the interest rate will be adjusted every 12
months on the Change Date by adding the Margin to the Index. The result is
rounded to the nearest one eighth percent (1/8%).
• The date of the each interest rate adjustment (change date) is shown on the note
and security instrument.
• Payments cannot change earlier than one (1) month after the change date.
Interest Rate Caps
• Five (5) Year ARMs
• Annual: 1.0%, up or down, from the rate in effect during the preceding year.
• Lifetime: 5.0%, up or down, from the rate on the note.
• Seven (7) Year ARMS
• Annual: 2.0%, up or down, from the rate in effect during the preceding year.
• Lifetime: 6.0%, up or down, from the rate on the note.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 17 of 222
Broker Seller Guide
Loan Terms, Continued
Massachusetts • SunTrust will not originate, close or purchase any loans that are secured by
ARM property located in the state of Massachusetts that are deemed to be “subprime
Parameters mortgage loans.”
• The “subprime mortgage loan” provisions apply to the purchase of a primary
residence with a first-time home loan borrower(s) who is obtaining an adjustable
or variable rate loan.
• The regulation applies to both first and simultaneous second lien mortgages,
used as purchase money.
• A loan subject to the regulation will be prohibited if any of the following
conditions are true:
• For First Lien Mortgages with a loan amount less than or equal to the
conforming loan limit set by Fannie Mae or Freddie Mac, the loan’s fully
indexed rate exceeds the yield on Treasury securities having comparable
period of maturity by more than 3%.
• For First Lien Mortgages with a loan amount greater than the conforming
loan limit set by Fannie Mae or Freddie Mac, the loan’s fully indexed rate
exceeds the yield on Treasury securities having comparable period of
maturity by more than 4%.
• For simultaneous Second Lien Mortgages, the loan’s fully indexed rate
exceeds the yield on Treasury securities having comparable period of
maturity by more than 5%.
Note: The fully indexed rate is defined as the index rate prevailing at
origination plus the margin that will apply after the introductory interest rate.
Truth-in- • FHA/VA Five Year ARM: 30 Year Loan Term (BRO 0404)
Lending ARM • FHA/VA Seven Year ARM: 30 Year Loan Term (BRO 0405)
Disclosure
Note: All FHA ARMS are non-convertible.
DU ARM Plan The DU ARM Plan ID# is as follows:
ID#
DO/DU Direct
FHA 5 Year and 7 Year ARMs: FHA HYBRID ARM
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 18 of 222
Broker Seller Guide
FHA Jumbo
General • Only 30 year fixed rate, 5/1, and 7/1 ARM mortgages are eligible.
• The SunTrust FHA Jumbo Loan Program Eligibility Checklist (BRO 0330) is
required on all FHA Jumbo Loans.
Jumbo • The FHA Jumbo Loan Program code (F30JFX) must be used when the base
Eligibility loan amount meets or exceeds the loan amounts in the table below.
If you have a: Jumbo Program Code begins at:
1 Unit Property $417,001
2 Unit Property $533,851
3 Unit Property $645,301
4 Unit Property $801,951
Maximum • On purchase transactions, the maximum LTV/TLTV is 96.5%.
LTV/TLTV • On Rate/Term refinance transactions, the maximum LTV/TLTV is 97.75%.
• On Streamline Refinance, credit qualifying transactions, the maximum LTV/TLTV
is:
• 97.75% / 105% for STM to STM transactions, and
• 97.75% / 100% for non-STM to STM transactions.
• On cash-out refinance transactions, the maximum LTV/TLTV is 85.00%.
Note: Cash-out refinance transactions for properties located in the state of
Florida are limited to a LTV/TLTV of 80.00%.
Minimum • The minimum credit score is 680 for purchase, rate/term refinance, and
Credit Score streamline refinance transactions.
Requirement • The minimum credit score is 700 for cash-out refinance transactions.
for All
Borrowers
Underwriting • All transactions are eligible for Traditional or Automated Underwriting through
Method DU/DO and LP.
• All streamline refinances must be traditionally underwritten.
Qualifying
Ratios AUS Traditional
• Maximum DTI 45% regardless Maximum Ratios 31%/43%
of AUS Findings for fixed rate
mortgage transactions. New Construction 33%/45%
• Maximum ratios of 31%/45%,
for Jumbo ARM transactions,
regardless of AUS findings.
Continued on next page
Section 2.90 November 10, 2011
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Broker Seller Guide
FHA Jumbo, Continued
Non-Occupying • Non-Occupant Co-Borrowers and Co-Signers are not permitted.
Co-Borrowers
and Co-Signers
Loan Purpose • Purchase
• Rate/Term Refinance
• Credit Qualifying Streamline Refinance with or without an appraisal
• Cash-out Refinance
• Max 85% LTV
Note: Cash-out refinance transactions for properties located in the state of
Florida are limited to a LTV/TLTV of 80.00%.
Maximum Reference: See Section 1.20: Maximum Number of Financed Properties and
Number of Borrower Exposure, of the Broker Seller Guide, for additional information.
Financed
Properties and
Borrower
Exposure
Refinance • Six (6) months seasoning [i.e., six (6) permanent mortgage payments made] is
Guidelines required for the existing mortgage, and
• A twelve (12) month mortgage and/or rental verification is required.
• All subordinated liens must be paid in full, no re-subordinations are permitted.
Payment • First-Time Homebuyers (applies to AUS and non-AUS loans)
History • The borrower must have an established credit history.
Note: An established credit history is defined as a minimum of three (3) active
traditional credit references that have been opened for at least 24 months and
have been active at some time during that period.
• Closed accounts with balances are acceptable.
• A full twelve (12) month satisfactory payment/rental history (0x30) must be
documented through a third party or credit bureau.
Note: Private references are not acceptable.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 20 of 222
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FHA Jumbo, Continued
Payment • Borrower Not a First Time Homebuyer
History, • If DU “Approve/Eligible” or LP “Accept,” follow FHA AUS guidelines and
(continued) findings.
• If traditionally underwritten, no housing late payments within the last 12
months (all mortgages), and
• Within the last 24 months no more than 2x30 late payments and acceptable
to the DE Underwriter.
Note: Isolated late payments may be acceptable.
Minimum • Borrower(s) are required to contribute three and one-half percent (3.50%) from
Downpayment his/her own funds towards the down payment for purchase transactions.
from the • Funds must be seasoned for a minimum of sixty (60) days and verified.
Borrower • Gift funds are only acceptable if received from a family member, and
• Gift funds may only be applied to closing cost and prepaids only after the
borrower has made the required 3.5% investment into the transaction from
their own funds.
• Gift funds must meet the sixty (60) day seasoning requirement, either in the
donor’s account or a combination of both donor’s and borrower’s accounts.
Cash Reserves • Two (2) months cash reserves are required.
Secondary • New secondary financing is eligible, including Community Seconds, on purchase
Financing transactions.
• Existing secondary financing is eligible for subordination on refinance
transactions.
Down Payment • Down Payment Assistance programs are not eligible.
Assistance
Programs
Ineligible • The following programs listed below may not be used.
Programs • Buyers’ Bonus Mortgage Program
• Temporary Interest Buydown on 5/1 and 7/1 ARM transactions
• Ease-In Payment Reduction Feature
Note: A temporary interest buydown is eligible on a 30 year fixed rate
transaction.
Reference: See the “Temporary Buydowns” subtopic in the “Eligible
Transactions” topic subsequently presented for additional information.
Continued on next page
Section 2.90 November 10, 2011
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FHA Jumbo, Continued
Ineligible • The following property types are ineligible:
Property Types • Investment property
• Second/vacation homes.
Reference: See “Ineligible Property Types” in the “Occupancy/Property Types” topic
for additional information.The property may not have more than ten (10) acres.
Appraisal • The property may not have more than ten (10) acres.
Requirements • The FHA Roster appraiser must also be state certified to meet Title XI
requirements of the Federal Institutions Reform, Recovery and Enforcement Act
(FIRREA).
Declining Reference: See the “Properties Located in Declining Market Areas” subtopic in the
Markets “Appraisal Requirements” topic for additional information.
Bankruptcy / • No bankruptcy (Chapter 7 or 13), foreclosure or short sales in the last three (3)
Foreclosure / years based on discharge date, for purchase money, rate/term refinance
Short Sales transactions, and Credit-Qualifying Streamline Refinance transactions.
• No bankruptcy (Chapter 7 or 13), foreclosure or short sales in the last seven (7)
years based on discharge date, for cash-out refinances.
Reference: See Section 1.24: Short Sales and Restructured Mortgage Loans of the
Broker Seller Guide for additional information.
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 22 of 222
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Eligible Transactions
ARM • The ARM Alternative is a lender funded buydown, not an Adjustable Rate
Alternative Mortgage (ARM).
• The feature is called the ARM Alternative because it is an alternative for
borrowers who like the low initial interest rate of an ARM but want the interest
rate protection of a fixed rate mortgage.
• The ARM Alternative is a lender funded buydown where the cost of the buydown
is built into the pricing and therefore no buydown funds are required at closing.
Reference: See Section 2.02: ARM Alternative, of the Broker Seller Guide, for
additional information.
Construction to Not eligible for SunTrust Construction/Permanent financing.
Permanent
Loans
Refinances Reference: See the topic “Refinances” in this product description for information.
Temporary General Requirements
Buydowns • Borrower paid temporary interest rate buydowns are not eligible.
• Interest buydowns are permitted on purchase transactions only.
• The loan must be a fixed rate mortgage on an owner occupied principal
residence.
• Builders and sellers may still offer buydowns on the fixed-rate loans; however,
the borrower must qualify at the note rate.
• No adjustment is required to the acquisition cost unless the seller, mortgagee or
other third party contributes cash to the transaction that exceeds the 6% limit
established by HUD.
• The following requirements must be met for all temporary buydowns:
• an agreement must be executed in which the seller, lender or other third
party places funds in escrow with monthly releases to be made to the lender
to subsidize the borrower’s monthly payment during the first years of the
mortgage,
• the buydown is limited to 2% below the note rate,
• the borrower is qualified at the note rate,
• the payment increase during the buydown period cannot be greater than 1%
per year and can only occur once each year,
• payments are to be made by the escrow agent to the mortgagee, who is the
holder of the mortgage, or to its servicing agent,
• the FHA case number must have a special suffix code if the loan is a
buydown, and
• the seller or mortgagee may provide the buydown funds subject to the seller
contribution limits.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 23 of 222
Broker Seller Guide
Eligible Transactions, Continued
Temporary Underwriting Requirements
Buydowns, • A copy of the escrow agreement, signed by the borrower and provider of the
(continued) funds, must accompany the loan application. (The underwriter may condition for
the executed buydown agreement at closing.)
• It must be established that the eventual increase in mortgage payments will not
affect the borrower adversely and likely lead to default.
Escrow Agreement Requirements
• Must provide that any escrow funds not distributed at time the mortgage loan is
prepaid be applied to the outstanding balance due on the mortgage. In the event
of foreclosure, the claim for mortgage insurance benefits must be reduced by the
amount remaining in the buydown escrow account.
• Must not permit reversion of undistributed escrow funds to the provider if the
property is sold or the mortgage is prepaid in full unless the borrower establishes
the escrow account.
• May continue to buyers who assume the mortgage.
• The escrow funds must be held in an escrow account by a financial institution
supervised by a federal or state agency.
Note: An FHA/VA Buydown and Escrow Agreement (BRO 0012a) is available under
“Forms” in the SunTrust Broker Seller Guide.
Seller-Paid Reference: See “Ease-In Payment Reduction Feature” topic for more information
Interest regarding seller-paid interest buydowns.
Buydowns
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 24 of 222
Broker Seller Guide
New Construction
Construction Proposed Construction
Definitions Property is considered “proposed construction” when no concrete or permanent
material has been placed. Digging of footing and placement of rebar is not
considered permanent.
Under Construction
Property is considered “under construction” from the first placement of concrete
(permanent material) to 100% completion or to 90% with only customer preference
items remaining.
Existing Construction less than One (1) Year Old
Property is considered “existing construction” when the appraisal was performed less
than one year since receipt of final occupancy permit issued. The home is 100%
complete if the Certificate of Occupancy (or its equivalent) was issued prior to the
appraisal and is less than 12 months old.
Note: A re-sale property (sold from builder to owner-occupant and sold again) is
NOT exempt from the new construction exhibits when the Certificate of Occupancy
(or its equivalent) is less than 12 months old.
Reference: See “Appraiser’s Architectural Exhibits” in the subtopic “Architectural
Exhibits/Properties Not Complying with ML 2001-27” subsequently presented in this
topic for additional information.
MLCS Information (SunTrust Internal Information Only)
See the “MLCS Loan Set Up and Processing” topic for more information regarding
the required fields to complete.
General • The new construction requirements remain unchanged except for the clarification
Requirements that the appraiser may appraise a home that is under construction and is 90% or
more complete, with only minor finish items remaining, without benefits of plans
and specifications.
• The minor finish items include floor coverings, appliances, fixtures, landscaping,
etc.). Grading, drainage and functional utilities must be completed.
• The appraisal can be completed at any time during construction.
• If a borrower wants to obtain maximum FHA financing on new construction, ONE
(1) of the following documentation options is required:
• construction was completed more than one (1) year preceding the borrower’s
signature on the Addendum to Uniform Residential Loan Application (HUD-
92900-A page 2),
• the site plans and materials were approved by Department of Veterans
Affairs, a DE underwriter, or a builder under the FHA’s Builder certification
procedures (see HUD Handbook 4145.1 Rev.2) before construction began
(this does not apply to condominiums),
• the local jurisdiction has issued both a building permit (prior to construction)
and a Certificate of Occupancy or equivalent,
• the dwelling is covered by an approved 10-Year Protection Plan that is
acceptable to HUD, or
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 25 of 222
Broker Seller Guide
New Construction, Continued
General • the dwelling will be moved to a new location and the property is eligible at
Requirements, the new location by having the site plans and materials pre-approved before
(continued) construction began.
Note: Lenders are not responsible for establishing an approved locality list (i.e.,
it is not SunTrust’s responsibility to verify with each county that we lend in to
determine if they issue a building permit prior to the start of construction).
Lenders are to assume that if the county issues a building permit, then it is prior
to construction.
Reference: See the subtopic “Lender Required Documents” subsequently
presented in this topic for additional information.
• Loan files should contain a copy of the building permit (or a HUD Accepted
Insured Ten-Year Protection Plan), the final Certificate of Occupancy, and the
final inspection by the appraiser or HUD fee inspector, if applicable, prior to
closing.
• The loan file must be documented as to whether there will be a building permit or
a HUD Accepted Insured Ten-Year Protection Plan at the time the appraisal is
being underwritten to permit the underwriter to make the appropriate conditions.
• Localities that do not issue building permits prior to the start of construction must
follow the "Early Start Letter" guidelines in order to avoid the ten (10) year
warranty requirement, all three initial compliance inspections, and final
compliance inspection.
• This new definition of "pre-approval" process does not apply to Condominiums.
Reference: See “HUD Specifications for Pre-Approval, Inspections and
Documentation” subsequently presented in this topic for additional information.
• All new construction must meet the Council of American Building Officials
(CABO) 1992 Model Energy Code (MEC), regardless of LTV.
• The following information applies to issues concerning flood zones:
• A property (dwelling and related structures/equipment essential to the
property value and subject to flood damage) cannot be built in a special
flood zone (floodplain) unless FEMA has issued a “Letter of Map
Amendment” (LOMA), or a “Letter of Map Revision (LOMR) stating that the
property is not in a flood plain,
• The builder can use an “Elevation Certificate” as an alternative document if it
is submitted with the Builder’s Certification of Plans, Specifications and Site
(Form HUD-92541), and
• If an “Elevation Certificate” is used in lieu of a LOMA or LOMR, flood
insurance is required, however, if a LOMA or LOMR are provided, flood
insurance is not required.
Reference: See Section 1.07: Property Insurance of the Broker Seller Guide for
additional information regarding properties located in a Special Flood Hazard
Area (SFHA).
• Properties built in an airport runway clear zone are not eligible for new
construction FHA loans.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 26 of 222
Broker Seller Guide
New Construction, Continued
General • A certification must be provided on form HUD-92900-A, page 3, which states that
Requirements, the property is 100% complete at the time of loan closing (both on site and off
(continued) site improvements) and the property meets HUD’s minimum property standards.
Documentation must be provided to verify completion of the property (i.e.,
appraisal, Certificate of Occupancy, and final inspection from the original
appraiser – as applicable for the type of new construction).
• SunTrust requires a final inspection from the original appraiser on
proposed or under construction properties, even with a Building Permit and a
Certificate of Occupancy issued prior to closing. If a Certificate of Occupancy, or
its equivalent, was not issued, then a HUD fee inspector must issue the final
inspection.
• When a property is considered “existing construction” and there are no repairs or
corrections conditions noted by the appraiser, the appraisal serves as final
inspection. For new construction “existing” appraisals to serve as a final
inspection, the following requirements apply:
• the appraisal states that the property was built in accordance with the
submitted plans and specs, grading and drainage are adequate, and
• the appraisal may not be made “subject to completion per plans and
specifications.”
• In all cases, without exception, the builder must provide a one (1) year builder’s
warranty as provided on Form HUD-92544.
References:
• See “Comprehensive Valuation Package (CVP) Requirements” in the topic
“Appraisal Requirements” for additional information.
• See “Closing Documents” under the topic “Workflow” for additional information.
Inspection See “Repair and Inspection Requirements” in the “Appraisal Requirements” topic for
Requirements information regarding when an appraisal is made “As Is” or “Subject to” one of the
following categories:
• Completion per Plans and Specifications,
• Repairs and Alterations, or
• Required Inspections.
Builder HUD no longer approves builders nor maintains a list of approved builders.
Approval
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 27 of 222
Broker Seller Guide
New Construction, Continued
HUD HUD specifications for pre-approval, inspections and documentation as provided in
Specifications HUD Mortgage Letter 2001-27are shown below.
for Pre- • The local jurisdiction is allowed to perform the inspections when evidenced by a
Approval, Certificate of Occupancy.
Inspections and • Additionally, if a local jurisdiction issues a Building Permit (or its equivalent), prior
Documentation to construction, it is acceptable as evidence of "Pre-Approval".
• In such cases where both a Building Permit and Certificate of Occupancy are
issued by a local jurisdiction, neither an Early Start Letter nor a HUD approved
10-year Protection Plan is required.
• This new definition of “Pre-Approval” does NOT apply to condominiums due to
special requirements applicable to this housing type.
• In lieu of providing the Early Start Letter or proof of coverage by an acceptable
protection plan, a copy of the Building Permit (or equivalent) and a copy of the
Certificate of Occupancy (or equivalent) MUST be included in the endorsement
binder.
• The alternative to local inspections described above does not eliminate the
requirement for a One-Year Builder Warranty (HUD Form 92544) as required by
Section 801 of the National Housing Act.
• In addition to the One-Year Builder's Warranty and the Builder's Certification of
Plans, Specifications and Site (Form HUD 92541) the lender is still responsible
for obtaining all the applicable construction documents from the builder for the
appraiser.
Notes:
• FHA no longer requires mortgagees to retain architectural plans and
specification for high ratio loans on construction of single-family properties, one
year old or less, that have been processed and closed under the specifications
of Mortgagee Letter 2001-27
• Mortgagee Letter 2005-09 only allows for the elimination of the retention of plans
and specs after the case is endorsed, NOT the elimination of obtaining plans and
specs for processing a new construction case. The lender is still required to
obtain the documents for the appraiser.
• If the case is a condominium unit approved by FHA, the lender is not required to
obtain the plans and specs.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 28 of 222
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New Construction, Continued
Architectural General
Exhibits / • Local jurisdictions that do NOT issue a Building Permit (or its equivalent) prior to
Properties Not construction and a Certificate of Occupancy (or its equivalent), for a property one
Complying with year old or less must have one of the following to be eligible for a high-ratio
ML 2001-27 insured mortgage:
• Early Start Letter, OR
• 10 Year Protection Plan acceptable to HUD.
• Properties NOT processed and closed in accordance with the specifications in
Mortgagee Letter 2001-27 must meet the requirements shown below.
• If the property is proposed or under construction and NOT 90% complete at
time of appraisal. HUD expects the lender to obtain the architectural exhibits
for the appraiser.
• These exhibits must be adequate and accurate to determine compliance with
applicable HUD standards, for the accurate basis for HUD commitments,
determine acceptability of the physical improvements, and provide the basis
for conclusions. Lenders are not expected to review or approve these
documents.
• Additionally, appraisers must receive a fully executed Builder’s Certification
of Plans, Specifications, & Site (Form HUD-92541) before performing the
appraisal on proposed, under construction or less than one year old
properties.
• Appraisers must review Item 1 on the Builder’s Certification and note in the
Appraisal Report any discrepancies between the information in Item 1 and the
actual conditions observed on site. The appraisal and lender are responsible for
addressing any yes answers in Item 1.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 29 of 222
Broker Seller Guide
New Construction, Continued
Architectural Lender’s Architectural Exhibits
Exhibits / For all proposed construction properties NOT processed under Mortgagee Letter
Properties Not 2001-27 that are less than 90% completed at time of appraisal, HUD requires the
Complying with lender to retain the appropriate architectural exhibit(s) in the origination file for
ML 2001-27, resolving any future construction complaints and Section 518(a) complaints for
(continued) structural defects. Therefore, the lender’s file must continue to retain the following
documents for new or proposed construction and high ratios loans:
• One Year Builder’s Warranty (Form HUD-92544)
• Builder’s Certification (Form HUD-92541)
• Design and local authority approval of individual water supply and/or sewage
disposal system.
• Any additional exhibits made necessary when the mortgage risk could be
affected by unstable soil or other differential ground movement, ground water
problems and other site or toxic hazards (i.e., engineers’ reports on soil
exploration and testing, earthwork specifications, special foundation and related
designs, slope or other stability evaluations, evaluations of underground
sewage effluent disposal and waste disposal sites, etc.).
• Pest Inspection forms from the National Pest Control Association, HUD-NPCA-
99-A and HUD-NPCA-99-B (where applicable).
• The following documents, as applicable:
• an executed Early Start Letter, or
• a 10-year Warranty, and
• a final inspection from the HUD inspector.
• Evidence of an approved Affirmative Fair Housing Marketing Plan or Voluntary
Affirmative Marketing Agreement OR checked block “d” (part 11) on the
Builder’s Certification (Form HUD-92541)
• Applicable inspections and/or certifications.
• Any other additional/appropriate documents required in satisfying FHA
requirements which may include, but are not limited to the LOMA/LOMR or
elevation certificate regarding flood plains, well water tests, local health
authority approval for individual water and sewer systems, etc. This is not
applicable for condominium projects.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 30 of 222
Broker Seller Guide
New Construction, Continued
Architectural Lender’s Architectural Exhibits, Continued
Exhibits, • Final Inspection Requirements as shown below:
Properties Not • Final inspection report by a HUD fee inspector is required, if property is
Complying with “proposed or under construction” and the LOCAL JURISDICTION DOES
ML 2001-27 NOT ISSUE A FINAL CERTIFICATE OF OCCUPANCY or its equivalent.
(continued) • When the final inspection is completed by a fee inspector on under
construction and less than 90% complete properties, the inspection will
include photographs along with a statement on the HUD-92051 as follows:
"This is a newly completed dwelling that was not completed under HUD or
VA inspections. The dwelling appears to be in conformance with the
submitted construction exhibits."
• Final inspections performed by a fee inspector must include a notation that
all utilities were on and functional when the inspection was conducted.
• The appraiser may complete the final inspection if the local jurisdiction
issues a Certificate of Occupancy (or its equivalent) with the exception of
condominiums.
Appraiser’s Architectural Exhibits
• HUD’s itemization of architectural exhibits includes those listed below:
• plot plan (including dwelling and accessory buildings, finish grade elevations
direction of drainage, location of well and septic, if applicable),
• floor plan (separate foundation plan and plan of each floor and basement, if
any),
• kitchen cabinet details,
• electrical layout,
• heat layout (ductwork and location of all vents),
• heat loss calculations,
• cooling system layout,
• exterior elevations (front, side and rear),
• sections (exterior wall sections, stairwells, and stairs),
• fireplace section and elevations, if applicable,
• roof truss details,
• water supply plans and specifications,
• sewage system plans and specifications,
• individual water supply and sewage disposal systems, if applicable, and
Description of Materials Form HUD-92005,
• completed Builder's Certification of Plans, Specifications, & Site Form HUD-
92541, signed and dated no more than 30 days prior to the date the
appraisal was ordered, and
• all reports and available information (i.e., sales agreement, title report,
environmental reports or studies and inspection reports).
Note: HUD requires that all utilities be turned on and fully functional during a final
inspection otherwise, the property is not considered 100% complete.
Continued on next page
Section 2.90 November 10, 2011
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New Construction, Continued
Architectural Appraiser’s Architectural Exhibits, Continued
Exhibits, • HUD’s itemization of architectural exhibits – Continued:
Properties Not • For “under construction” properties that will be insured at 90% LOAN TO
Complying with VALUE OR LESS, the lender is to RETAIN a copy of the architectural
ML 2001-27 exhibits in its origination binder; however, the Builder’s Certification and
(continued) Builder’s Warranty are not required.
• For “existing” properties GREATER than one-year old (100% complete) at
the time of the appraisal, architectural exhibits are not required.
Homes 100% Complete Less Than One Year Old
• If the home is 100% complete at time of the appraisal and the appraisal is to
serve as the final inspection, the procedures below must be followed.
• The appraisal serves as the final inspection and Form HUD-92051 is not
required.
• The appraiser must notate that the utilities were turned on at the time of
inspection.
• The appraiser is to inspect for health and safety violations.
• If no health and safety problems are noted, there are no repairs, alterations,
or inspection conditions, and the property is ready for occupancy, the
appraiser is to mark the appraisal “As Is.”
• The appraiser must take a clear photograph (in addition to the standard
appraisal photos) of each diagonally opposite front and rear corner of the
house to record adequate grading and drainage of the site; and make a
statement on the appraisal report of the acceptance of the grading and
drainage.
Lender General
Required • Complete appraisal package or Master Appraisal Report (MAR) is always
Documents required, including the information listed below, if the property is “under
construction” or “existing.”
• Verification that the property conforms with plans and specs.
• Notation that there are no health and safety issues.
• Clear photographs of each diagonally opposite front and rear corner of the
house to record adequate grading and drainage of the site with the
appraiser’s statement that grading and drainage is acceptable.
• Notation of a final inspection if the property is “proposed construction” or
“under construction” less than 90% completed.
• Notation that all utilities were on and functional when the appraisal was
completed (if the property is complete).
Continued on next page
Section 2.90 November 10, 2011
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New Construction, Continued
Lender Properties Built in Accordance with Mortgagee Letter 2001-27
Required The lender’s files must continue to retain the following documents for new or
Documents, proposed construction and high ratio loans:
(continued) • Builders Certification of Plans, Specs, & Site (Form HUD-92541)
• Building Permit
• National Pest Association Form NPCA-99-A and HUD-NPCA-99-B,
• Builder’s One Year Warranty (Form HUD-92544)
• Certificate of Occupancy
• Carpet ID
• Manufacturers Warranties
• Insulation Certificate
• Final Inspection by the appraiser with utilities on and functional (required by
SunTrust).
Reference: See “HUD Specifications For Pre-Approval, Inspections and
Documentation” previously presented in this topic for information concerning
Mortgagee Letter 2001-27.
• Regardless of the process used, the lender must certify that the property is
100% complete (both on site and off site improvements) and that the property
meets HUD's minimum property standards. This certification is on the Addendum
to the Uniform Residential Loan Application (Form HUD 92900-A) on page 3.
Pre-Approval/ • Builders that wish to begin construction before the appraisal is completed or the
Early Start lender issues the Statement of Appraised Value must have “Pre-Approval” in
Letters order to permit a borrower to obtain greater than 90% financing in areas not
issuing Building Permits (or their equivalent).
• Pre-Approval is defined as either a lender issued “Early Start Letter” (BRO 0036), or
a Building Permit (or its equivalent) issued by a local jurisdiction prior to construction.
• Early Start Letters are typically issued by a lender’s DE Underwriter upon review
and analysis of the plans and specs.
• If a builder is providing a HUD approved ten (10) year warranty on the subject
property an Early Start Letter is not required.
• If the local jurisdiction issues both a Building Permit and a Certificate of
Occupancy, then neither an Early Start Letter (BRO 0036) or a HUD approved
ten (10) year warranty is required.
Note: This definition of pre-approval does not apply to condominiums.
Reference: See “10 Year Warranties” subsequently presented within this topic
for additional information.
Continued on next page
Section 2.90 November 10, 2011
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New Construction, Continued
Builder • The builder must complete the applicable sections of the Builder Certification of
Certification Plans, Specs and Site (Form HUD-92541) for all new construction, regardless of
whether or not a 10-year warranty is offered.
• The Builder Certification of Plans, Specs and Site form must be completed and
signed within 30 days of the lender’s request for an appraisal.
• The form must be provided to the appraiser who must review the form and note
on the appraisal that he/she has seen the certification. In addition, the appraiser
must comment on the appraisal as to whether or not he/she agrees with the builder’s
findings.
• If the form is not provided to the appraiser, HUD requires the appraiser to return
the appraisal request. If the form is not complete, HUD requires the appraiser to
return the form for completion prior to releasing the appraisal.
• The Builder’s Certification of Plans, Specifications, & Site (form HUD-92541)
must be reviewed by the DE Underwriter when reviewing and approving the
appraisal.
• If the Builder’s Certification of Plans, Specifications, & Site (form HUD-
92541) is missing at time of appraisal review, the underwriter will pend the
file until the document is received.
Reference: See “Builder Certification Procedure” subsequently presented in this
topic for additional information.
10 Year • A ten (10) year warranty is required if the borrower wants maximum FHA
Warranties financing, an Early Start Letter is not available and the local jurisdiction does
not issue a building permit.
• If a ten (10) year warranty is required, a copy of the actual warranty or letter from
the warranty company specifically stating acceptance of the property must be
provided.
• Letters from the warranty companies should include the subject address,
effective date of coverage, type of warranty and the warranty company’s name.
The letter must be signed by an official of the company.
• If a 10 Year Warranty is a condition on the loan, the loan cannot close until
actual confirmation of the warranty approval has been received in writing. Verbal
confirmation is not sufficient.
• HUD issues periodic updates for approved warranty companies. Click here for
the current list of HUD Accepted Insured 10 Year Protection Plans or access the
HUD website at: http://www.hud.gov/offices/hsg/sfh/ins/hoctenyr.pdf.
Required Construction exhibits required to be submitted to HUD in the endorsement package
Exhibits for for high LTV (above 90%) cases are as follows:
HUD • Builder’s Certification (Form HUD-92541),
Endorsement • Builder’s Warranty (Form HUD-92544),
• a HUD Accepted Insured Ten-Year Protection Plan, (when required), and
• all other documents normally submitted, such as inspection reports, soil
poisoning certifications, appraisal reports, Square Foot Cost Appraisal form, if
applicable, etc.
Continued on next page
Section 2.90 November 10, 2011
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New Construction, Continued
Builder General Information
Certification • The Builder Certification procedure is used to obtain mortgage insurance for
Procedure most new construction in new subdivisions.
• If the local HUD Field Office determines that local subdivision standards do not
exist, or are inadequate to protect HUD’s underwriting risk or the health and
safety of the of the intended occupants, it may require builders and lenders to
use only the Improved Area procedure (IAP) and the Appraiser/Review Checklist
(HUD-54891).
• Local HUD offices will periodically publish a list of those jurisdictions where
subdivision standards do not exist or are considered ineffective or inadequate.
• THE BUILDER CERTIFICATION PROCEDURE IS NOT APPLICABLE TO
CONDOMINIUM PROJECT APPROVAL.
Builder Certification Procedure (Local Standards Are Acceptable)
• The Builder Certification procedure is used where HUD determines that local
subdivision standards adequately protect the health and safety of the borrower.
• The builder must complete the Builder Certification of Plans, Specifications, and
Site form (HUD-92541). If there are flood hazards, runway clear zones/clear
zones or foreseeable hazards/adverse conditions noted on the certification, the
DE underwriter has the responsibility to determine if the health and safety of the
borrower or the underwriting risk is affected. The builder can use the certification
for more than one (1) property by attaching it to a list of properties with matching
FHA case numbers and entering “See Attached List” into the FHA case number
block on the form.
• The Builder Certification of Plans, Specifications, and Site form (HUD-92541) is
sent to the appraiser with the appraisal request. The appraiser will indicate any
discrepancies noted, use it as a source to assist in determining the property
value and return the form with the appraisal report to the lender.
• The builder’s compliance with the Affirmative Fair Housing Marketing Plan
requirements must be noted on the Builder Certification of Plans, Specifications,
and Site Form (HUD-92541).
Affirmative Fair • Mortgagee Letter 01-09 states to “streamline the process and assure better
Housing compliance to HUD’s affirmative fair housing marketing requirements”, a fourth
Marketing Plan option is now available to builders that sold 5 or more units in the past 12 month
(AFHMP) period or plan to sell 5 or more units in the next 12 month period with FHA
insured financing.
• This new option-block “d”, paragraph 11, of the Builder Certification of Plans,
Specifications, and Site form (HUD-92541), allows the builder to self certify
compliance with HUD’s affirmative fair housing marketing regulations. Builders
must also maintain records of their affirmative fair housing marketing activities
and make them available to the Department upon request. If a builder opts to
check block “d”. They no longer need to submit an individual Affirmative Fair
Housing Marketing Plan (AFHMP) to the department for approval, sign a
Voluntary Affirmative Marketing Agreement (VAMA), or contract with another
entity that has a VAMA or AFHMP.
Continued on next page
Section 2.90 November 10, 2011
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New Construction, Continued
Affirmative Fair • To obtain approval of an AFHMP, the builder or developer must complete and
Housing file Form HUD-935.2 with the Fair Housing and Equal Opportunity (FHEO)
Marketing Plan Division of the local HUD Field Office or the FHEO Program Operations
(AFHMP), Divisions in HUD Regional Offices.
(continued) • THE AFHMP MUST BE APPROVED BY THE FHEO DIVISION BEFORE THE
BUILDER OR DEVELOPER BEGINS TO MARKET PROPERTIES.
• For new subdivisions being built in phases, an AFHMP must be filed for the first
phase. Builders or developers that are planning large phased subdivisions must
consult with the FHEO Division of the local HUD Field Office for further
guidance. The FHEO Division can request the submission of new or amended
AFHMPs for subsequent phases.
• A builder or developer may be exempt from obtaining HUD approval of an
AFHMP if the following conditions are met:
• the builder/developer is in good standing to a Voluntary Affirmative
Marketing Agreement (VAMA) between the Department and a State, local
home builders association, or Board of Realtors associated with their
national organizations (signatory promises that marketing activities
connected with HUD-insured mortgages will be conducted in a non-
discriminatory manner), AND
• the builder/developer submits to HUD written proof of its status as a
signatory to such an agreement.
• Case numbers should not be ordered on new properties until it has been verified
that the builder is in compliance with HUD’s AFHMP requirements (i.e., have an
approved AFHMP or documentation that builder is in good standing to a VAMA).
Reference: See “Case Number Assignment and Cancellation” in the “Workflow”
topic for additional information.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 36 of 222
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New Construction, Continued
Land Contracts • If the borrower will use the loan to complete payment on a land contract, contract
for deed, or other similar type financing arrangement where the borrower does
not have title to the property, the new mortgage may be processed as either a
purchase or a refinance transaction with maximum insured financing if the
borrower receives no cash at closing.
• If all loan proceeds are used to pay the outstanding balance on the land contract
and eligible repairs, renovations, etc., the appropriate loan-to-value ratio is
applied to the lesser of:
• the appraised value plus the allowable closing costs, or
• the total cost to acquire the property (the original purchase price, plus any
documented costs the purchaser incurs for rehabilitation, repairs, renovation,
or weatherization), plus allowable closing costs and, if treated as a refinance,
reasonable discount points.
• Equity in the property (original sales price minus the amount owed) may be used
for the borrower’s entire down payment. However, if the borrower receives cash
at closing exceeding $500, the loan is limited to 85 percent of the sum of the
appraised value and allowable closing costs.
• Replenishment of the borrower’s own cash expended for repairs, improvements,
renovation, etc., is not considered as “cash back”, provided the borrower can
substantiate, with cancelled checks and paid receipts, all out-of-pocket funds
spent for these purposes.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 37 of 222
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New Construction, Continued
Building on • Borrowers who are building homes on land they already own are still required to
Own Land have a 3.5% down payment (or its equivalent in land equity) into the transaction.
All mortgage transactions must be calculated using the documented acquisition
cost.
Note: A manual verification of the calculation is necessary to determine that the
maximum loan amount is accurate. Do not rely on computer-generated
calculations during the processing and underwriting of the loan as an accurate
loan amount.
• The documented acquisition cost is entered in the Sales Price line, of the FHA
Loan Underwriting and Transmittal Summary (HUD-92900-LT) and includes the
sum total of the following items:
• builder’s price or sum of all subcontractors’ bids, materials, etc.,
• cost of the land (if owned more than six [6] months or received as an
acceptable gift, the appraised value of the land may be used instead of its
cost), and
• interest and other costs associated with any construction loan obtained by
the borrower to fund construction of the property.
• The calculated Loan-to-Value Ratio shown will reflect the lesser of the sales
price or the appraiser’s value estimate, as it does on other purchase
transactions, and is the same value used for TOTAL Scorecard.
• If the borrower receives cash at closing to replenish his/her own cash funds
spent during construction, it is not cash-out if documentation (i.e., canceled
checks and paid receipts) is provided that the funds were paid out of pocket.
• If the borrower receives cash-back of more than $250 at closing, the maximum
LTV is limited to 85%.
Property Tax Tax Estimate Used for Qualifying
Estimates • Borrower(s) must qualify with the monthly payment based on improved property
taxes, not on the vacant land.
• In those states where it is customary for a borrower to pay property taxes in
arrears, (and he/she may not pay property taxes on the improvements until a
year or more after closing), FHA still expects the borrower to qualify based on
accurate and realistic property tax estimates that include the improvements.
• Realistic estimates of value for improved property must be obtained from reliable
sources such as those listed below.
• The appraiser
• Comparable sales data
• The assessor’s office
Continued on next page
Section 2.90 November 10, 2011
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New Construction, Continued
Property Tax Tax Estimates for Escrow Accounts
Estimates, • The borrower’s monthly escrow payments must be based on the accurate and
(continued) realistic “improved” property estimate when tax authority reassessments are
likely to occur within 12 months of mortgage loan closing.
• RESPA permits lenders to project the disbursements for real estate taxes for the
ensuing twelve months and collect funds based on this projection. When the
annual escrow analysis is completed, refunds are issued or shortages collected
based on the results of that analysis.
Re-Sale of New • FHA will treat most re-sales of properties that are less than one (1) year old and
Construction 100% complete, as an existing property for documentation purposes, and the
Properties new construction exhibits normally submitted will not be required.
• For re-sales of properties that are existing construction less than a year old, the
new construction exhibits are required when the following scenarios apply:
• the new FHA loan is an non-arms length transaction, or
• documentation to identify the transaction as a re-sale to a second or
subsequent purchaser cannot be provided.
Notes:
• The property must be 100% complete (including all on and offsite
improvements).
• The FHA case binder file must clearly identify the transaction as a re-sale to
a second or subsequent purchaser.
• A lender selling a newly built home is currently exempt from the ninety (90)
day property flipping guidelines.
• A builder selling a newly built home, where the current builder completed the
home and obtained the Certificate of Occupancy, is currently exempt from
the ninety (90) day property flipping guidelines.
• A builder selling a newly built home, where the current builder did not
actually complete the construction of the property and the Certificate of
Occupancy was issued prior to the current owner, is subject to all property
flipping guidelines.
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 39 of 222
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Ease-In Payment Reduction Feature
General Introduction
• The “Ease-In” is a payment reduction feature where the seller / builder
contributes interest up to the first six (6) months allowing the borrower to “ease-
in” into a new home and to “ease-in” to the monthly payments.
• The maximum interest subsidy may not exceed the six percent (6%) seller
contribution.
• The builder or seller may pay the interest portion beginning with the first payment
up to the 6th month payment.
Requirements
• This feature is only available for a 30-year fixed rate FHA purchase transaction.
• Borrower must qualify at the note rate.
• The maximum contribution of 6% of the sales price may be used towards the
borrower’s interest, closing costs and/or prepaids.
• Any dollar amount over the 6% seller contribution limit must be subtracted dollar-
for-dollar from the sales price.
• Care must be taken to ensure the borrower’s 3.5% down payment is not reduced
as a result of the seller contributions.
• The seller / builder contribution which is disbursed monthly must be a fixed
amount (i.e., payments applied to the monthly interest cannot fluctuate from
month to month).
• No portion of the funds may be applied to the principal balance.
Ineligible Transactions
The following transactions are not eligible for use with the Ease-In Payment
Reduction Feature:
• Adjustable Rate Mortgages,
• Temporary buydowns,
• Base loan amounts greater than $417,000, and
• Housing Finance Agency loans.
Amortization • An amortization schedule may be obtained on the SunTrust website at
Schedule http://www.suntrustmortgage.com/amortcalc.asp, or similar loan amortization
programs can be used.
• The following items are determined by running an amortization schedule:
• Total Seller Paid Contribution: the dollar amount of the seller paid interest,
• Reduced Payment Period: the number of months during which interest
payments are made, a minimum of one (1) month and no more than six (6)
months, and
• Interest Payment: a fixed dollar amount being paid monthly toward borrower
interest from the seller / builder contribution.
Continued on next page
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Ease-In Payment Reduction Feature, Continued
Interest • An example of a 5-month payment reduction on a loan amount of $97,000 at 6%
Payment interest is shown in the following table.
Reduction • The seller’s interest contribution for the payment reduction is a fixed amount that
Calculation cannot exceed the last month of the subsidy period.
• The maximum monthly interest contribution amount in the example below is
$483.00.
Monthly Principal Interest Total P&I Seller/Builder Borrower
Payment Owed Contribution Contribution
#1 $96.56 $485.00 $581.56 $483.00 $98.56
#2 $97.04 $484.52 $581.56 $483.00 $98.56
#3 $97.53 $484.03 $581.56 $483.00 $98.56
#4 $98.02 $483.54 $581.56 $483.00 $98.56
#5 $98.51 $483.05 $581.56 $483.00 $98.56
Calyx Point DU The table below shows the data input instructions for DU submission of the Ease-In
Submission Payment Reduction Feature in Calyx Point.
Fannie Mae’s Desktop Underwriter (DU)
Interfaces/Fannie Mae/Loan App Pg 1
Section I. Type of Mortgage and Terms of Loan
• Note Rate – enter the Note Rate
• Qual Rate – enter the Note Rate
Interfaces/Fannie Mae/Loan App Pg 4
Section VII. Details of Transaction
• Line f. Est. closing costs – Add Ease-In amount to closing costs.
• Line k. CC paid by seller – if an Ease-In Payment Reduction Feature is
involved, add the Ease-In Payment Reduction Feature amount to other
seller paid closing costs
Interfaces/Fannie Mae/Addendum
Transmittal Summary Information
• Buydown – check the box marked “Buydown.”
• Rate(%) – enter “0.000” in Line 1
• Term (mth) – enter “12” in Line 1
Continued on next page
Section 2.90 November 10, 2011
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Ease-In Payment Reduction Feature, Continued
DU Direct The table below shows the data input instructions for DU submission of the Ease-In
Submission Payment Reduction Feature in DU Direct.
Fannie Mae’s Desktop Underwriter (DU)
Types, Terms and Property
Type of Mortgage and Terms of Loan
• Interest Rate (%) – enter the Note Rate
Details of Transaction
• Line f. Est. closing costs – Add Ease-In amount to closing costs.
• Line k. Closing Costs Paid By Seller – if an Ease-In Payment Reduction
Feature is involved, add the Ease-In Payment Reduction feature amount to
other seller paid closing costs
Other Credits
• Description of Other Credits – enter “Other”
• Amount – if an Ease-In Payment Reduction feature is involved, enter the
dollar amount of the Ease-In Payment Reduction Feature
Additional Data
Loan Information
• First Year Buydown Rate – enter the Note Rate
LP Submission The table below shows the data input instructions for LP submission of the Ease-In
Payment Reduction Feature.
Freddie Mac’s Loan Prospector (LP)
Note: At this time, the Ease-In Payment Reduction Feature is NOT eligible for
LP submission.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 42 of 222
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Ease-In Payment Reduction Feature, Continued
MLCS Loan MLCS Program Code and Investor Code
Set-Up • The following program and investor codes are applicable for MLCS. Additionally,
they apply to Non-AUS and Fannie Mae DU Loans.
• Program Code = F30SPI
• Investor Code = 000
MLCS Data Input
• The table below shows MLCS procedures for data input.
MLCS Screen Field Input
MOM Program Code F30SPI
MOB Target Investor 000 (should prefill)
Buydown Code SPI
Z74 Type D (for dollar buydown)
Who Pays S (for seller)
Buydown
Amount $ Amount of monthly fixed interest payment
fund
MOS # of months seller will pay toward the
interest portion of PITI payment
Closing • The Seller-Paid Interest Rate Buydown Agreement (BRO 0030) must be
completed by the Loan Closer and signed by the borrower and sellers.
• The Ease-In Contribution must be show on a line within the 800 series of the
HUD 1 settlement statement as a seller credit and be labeled “Seller-Paid
Interest Contribution”, 4 months @ $483.54” with $1,934.16 (per example above)
under the seller’s column.
• Additional funds paid by the seller over and above the cumulative interest
calculation must be shown as a closing cost credit to the borrower on the HUD-1
settlement statement.
• HUD does not require or permit the presentation or disclosure of “seller-paid
credits” on the Good Faith Estimate (GFE).
• Seller credits must be entered as a “lump sum credit” on the HUD-1.
Note: When the seller makes a contribution to more than one expense for the
borrower, the seller credits shown on the HUD-1 MUST reflect the “lump sum
payment”.
• The servicing department will disburse the Ease-In seller-paid interest
contribution shown on the HUD-1 on a monthly basis and bill the borrower for the
difference.
• As far as IRS reporting is concerned, servicing will back out the seller-paid
interest contribution for year-end reporting purposes on Form1098.
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 43 of 222
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Energy Efficient Mortgage (EEM) Program
General • SunTrust has temporarily suspended the FHA Energy Efficient Mortgage (EEM)
program.
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 44 of 222
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Refinances
Types of SunTrust Mortgage offers the following types of refinance transactions:
Refinance • Cash-Out Refinance (85% LTV),
Transactions • Rate/Term Refinance, and
• Streamline Refinances (FHA loan to FHA loan)
• Credit Qualifying with an appraisal
• Credit Qualifying without an appraisal
General • A new “FHA” appraisal is required for each refinance transaction requiring an
appraisal. An appraisal used for the purchase of the property cannot be used
again for a subsequent refinance, even if 120 days has not passed.
• All Rate/Term and Streamline refinances must have a payoff statement in the
file.
• The payment due in the month the loan is closing must be paid either prior to
closing or included in the payoff amount at closing. (I.e., if the borrower closes
and funds on a refinance in the month of December, the borrower does not need
to have made the December payment. However, if the loan doesn’t close/fund
until January, the December payment cannot be included in the loan amount and
the borrower will need to pay the December payment from his/her own cash.)
• All subordinated financing, whether it will be subordinated to the new SunTrust
mortgage or will be paid off by the new SunTrust mortgage (unless FHA’s more
restrictive twelve (12) month period applies), must be seasoned for at least six
(6) months with 0x30 late payments (i.e., six (6) permanent mortgage payments
made) prior to application for the new SunTrust mortgage.
• Confirm the borrower is current on the mortgage being refinanced for:
• The month prior to the month in which they close, and
• The month they close.
Note: The borrower has the option to make the current payment at the
beginning of the month or include it in the payoff amount at closing, when closing
within the month the payment is due.
Continued on next page
Section 2.90 November 10, 2011
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Refinances, Continued
FHA Refinance • If the existing loan is an FHA loan, there could be a refund of a portion of the
Credit Query Upfront MIP. If the new loan will also be an FHA loan, this refund is applied as a
credit in determining the new loan amount. FHA provides Refinance Credit
Query to use in determining this amount “upfront.”
• The Refinance Credit Query is used to determine the amount of the MIP credit
available for an active FHA-insured loan that is being refinanced.
• It provides 30-day and 60-day calculations based on the projected closing date
of the new loan.
• This feature can be used to determine the credit or refund on either FHA or
conventional new financing without ordering a new case number.
Reference: See “Case Number Assignment and Cancellation” in the “Workflow”
topic for additional information.
• This enables lenders to know the amount of the MIP credit or refund at the pre-
application stage.
• The instructions to utilize the Refinance Credit Query feature are shown below.
Step Action
1 Go to FHA Connection – Single Family FHA - Single Family Origination -
Case Processing, Refinance Credit Query (last menu item).
2 Enter the case number for the existing active FHA-insured loan and a
projected closing date.
3 The system will return the amount of refinance credit due the borrower based
on the projected closing date.
FHA-to-FHA SunTrust Mortgage currently does not permit FHA-to-FHA refinance transaction to
Refinance exceed the new county loan limits.
Transactions
May Not
Exceed County
Loan Limits
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 46 of 222
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Cash-Out Refinances
General • HUD considers cash out refinances for debt consolidation a high risk, especially
if borrowers have not demonstrated a significant increase in income and appear
to be heavy credit users.
• These transactions should be scrutinized more carefully.
Delinquent • Borrowers who are delinquent or in arrears with their existing mortgage, or had a
Mortgages late payment in the last 12 months (no payment may have been more than thirty
[30] days late) are NOT eligible for cash-out financing.
• Verification of a satisfactory mortgage payment history must be provided
through the month prior to closing, ensuring that all payments have been
made within the month due for the previous 12 months.
• An updated credit report or Verification of Mortgage (VOM) is required, if the
mortgage payment history provided in the loan file is not reporting through
the month prior to loan closing.
• STM Internal Information: A prior to closing condition, code CLS54, will be
issued requiring evidence that the existing mortgage is less than 30 days
past due at closing with 0 x 30 day late payment in the last 12 months.
• Brokers must inform their clients that all mortgage payments must be made
within the month due on their current mortgage, until the date of closing for
their new transaction.
Notes:
• Payoff statements are not an acceptable means to document a mortgage
payment history.
• Cancelled checks may be an acceptable source of documentation for a
mortgage payment history, at the underwriter’s discretion, on a case-by-case
basis.
Eligible • Any co-borrower or co-signer being added to the Note must be an occupant of
Borrowers the subject property.
• Non-occupant co-borrowers or co-signers are not permitted.
Occupancy • Cash-out refinances are eligible only for primary residences.
• Primary residences owned free and clear must be refinanced as cash-out
transactions.
• One-to-four (1-4) unit dwellings are eligible.
Continued on next page
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Cash-Out Refinances, Continued
Maximum • If the borrower has owned and occupied the subject property as their primary
LTV/TLTV residence for less than one (1) year prior to loan application, the maximum loan
is limited to a combined TLTV of 85% of the lesser of:
• appraised value (no closing costs, discount points or prepaid items), or
• original sales price of property (no closing costs, discount points or prepaid
items).
Notes:
• A sales price need not be considered if the property was acquired as the
result of inheritance and is or will become the borrower’s primary residence.
• Cash-out refinance transactions for properties located in the state of Florida
are limited to a LTV/TLTV of 80.00%.
• A combined TLTV of 85% of the appraised value may be used if the borrower
has owned and occupied the subject property as their primary residence for at
least one (1) year prior to loan application.
Note: Cash-out refinance transactions for properties located in the state of
Florida are limited to a LTV/TLTV of 80.00%.
Reference: See the TLTV Calculation subtopic in the Secondary Financing topic
subsequently presented in this product description for additional information
when secondary financing exists.
Acceptable • Mortgages with less than 6 months of payment history are not eligible for a cash-
Payment out refinance.
History • Free and clear properties are eligible for cash-out refinances.
Secondary • New subordinated financing is not allowed on any cash-out transaction.
Financing • If the secondary financing is an equity line, the maximum amount of the equity
line is used in the calculation.
• All existing liens (to be paid off or remain subordinate to the new first mortgage)
must be seasoned for at least six (6) months (i.e., six (6) permanent mortgage
payments made), with an acceptable payment history (i.e., no late payments of
30 days or beyond.
• When the LTV of the proposed first mortgage is 85%, no subordinate financing
may remain on the loan regardless of the length of ownership.
• Discount points, prepaid expenses and closing costs may not be included nor
added to the properties appraised value.
Reference: See “Lender Credit” in the topic “Contributions by Interested Parties”
for additional information.
Section 2.90 November 10, 2011
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No Cash-Out with an Appraisal (Rate/Term Refinance)
General • The existing mortgage being refinanced can be either a current FHA,
conventional or VA loan.
• Requires an appraisal, full processing documentation and underwriting.
Occupancy Owner-occupied only.
The Maximum • The maximum insurable mortgage is based on the lesser of one(1) of the
Insurable following two (2) calculations:
Mortgage • multiply the appraised value of the property by 97.75%, or
Note: If the property was acquired less than one year before the loan
application and is not already FHA-insured, the lesser of the current
appraised value or original sales price of the property must be used.
• the sum of the existing first lien, Pro Rata MIP (if paying off an FHA mortgage,
up to two [2] months) closing costs, prepaid expenses, borrower paid discount
points, purchase money seconds, junior liens (not used to acquire the
property) over 12 months old (i.e., 12 permanent mortgage payments made),
prepayment penalties, accrued late charged, escrow shortages, borrower paid
repairs required by the appraisal minus any refund of UFMIP (prepaid
expenses are limited to per diem interest and hazard/flood property taxes and
mortgage insurance impound), regardless of whether the lender refinancing
the existing loan is also the servicing lender for that mortgage, and
• the base loan amount may not exceed the maximum county loan limits for the
property.
Note: Any appraisal requirements, including, repairs, must be complied with
before the mortgage is eligible for insurance endorsement.
Reference: See the FHA Refinance Maximum Total Loan Amount Worksheet (BRO
0397a) for assistance in calculating the loan amount.
Maximum Cash • The borrower may NOT receive cash back in excess of $500 at closing.
Back to the • Delinquent interest may NOT be included. The refinance does not permit a
Borrower borrower to obtain cash back by not making a mortgage payment when due.
Reference: See “Lender Credit” in the topic “Contributions by Interested Parties”
for additional information.
Continued on next page
Section 2.90 November 10, 2011
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No Cash-Out with an Appraisal (Rate/Term Refinance), Continued
Mortgage and • The mortgage being refinanced must be current for the month due.
Payoff • The payment does not need to be paid for the month in which the loan
Requirements closes/funds.
Note: If the closing/funding rolls over to the following month, the prior month’s
payment cannot be included in the loan amount.
• The amount of the existing first mortgage may include the interest charged by the
servicing lender when the payoff will not likely be received on the first day of the
month (as is typically assessed on FHA-insured mortgages).
Subordinate • Subordinate liens, including credit lines, with six (6) months seasoning (i.e., six (6)
Liens permanent mortgage payments made), may remain outstanding provided the FHA
loan and subordinate lien meets the criteria outlined in the topic “Secondary
Financing” of this product description.
• • If disbursements from an equity line exceed a total of $1,000 within the past
12 month period and the funds were used for purposes other than repairs and
rehabilitation of the subject property, the line of credit cannot be included in the
new mortgage.
• Subordinate financing, except purchase money seconds, must be seasoned 12
months (i.e., 12 permanent mortgage payments made) to be included in the loan
amount.
• New and existing subordinate financing is permitted up to a maximum TLTV of
97.75%.
Reference: See the TLTV Calculation subtopic in the Secondary Financing topic
subsequently presented in this product description for additional information when
secondary financing exists.
Spousal Buy- • The amount of “specified equity” in a spousal buy-out is considered property
Outs related indebtedness and can be included in the new mortgage.
• The “specified equity” must be documented in a recorded property settlement
agreement or divorce decree.
• If the borrower is newly separated and no property settlement agreement has
been prepared, a legally recorded document prepared by an attorney specifically
outlining the division of equity is acceptable to HUD.
Seasoning • If the subject property was purchased less than one (1) year prior to loan
Requirement application and is not already FHA-insured, the maximum loan will be determined
by using the lesser of the appraised value or the original sales price (plus the cost
of any repairs or rehabilitation, with proper documentation).
• If the subject property was purchased more than one (1) year prior to loan
application, the maximum loan will be determined from the appraised value.
Section 2.90 November 10, 2011
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Streamline Refinances
General • Streamline refinances are designed to lower the monthly principal and interest
(P&I) on a current FHA mortgage and must involve no cash back to the
borrower, except for minor adjustments at closing not to exceed $500.
• SunTrust Mortgage offers the following types of streamline refinance
transactions:
• Credit Qualifying Streamline Refinance with an appraisal, and
• Credit Qualifying Streamline Refinance without an appraisal.
• For credit qualifying transactions, SunTrust to SunTrust and non-SunTrust to
SunTrust FHA streamline refinances are eligible for conforming and jumbo loan
amounts. Unless otherwise stated, the guidelines below apply for both
conforming and jumbo loan amounts.
Loan Terms Streamline Refinance without an Appraisal:
• Term is lesser of 30 years or remaining term plus 12 years.
Streamline Refinance with an Appraisal:
• 10, 15, 20, 25, and 30 year fixed rate, or 5/1 and 7/1 ARMs – 30 year only.
Note: A reduction in the loan term must be processed, underwritten, and closed as
a no cash-out (rate/term) refinance.
Continued on next page
Section 2.90 November 10, 2011
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Streamline Refinances, Continued
Maximum Loan Streamline Refinance without an Appraisal
Amount • The maximum total loan amount may not exceed the outstanding principal
balance, plus interest due on the current mortgage, minus the applicable refund
of the UFMIP, plus the new UFMIP.
Notes:
• Discount points may not be included in the new mortgage. If the borrower
has agreed to pay discount points, document in the file that the borrower has
the assets to pay the discount points, along with any other financing costs
that are not included in the new loan amount.
• Delinquent interest, late charges, or escrow shortages may not be included
in the outstanding principal balance of the mortgage being paid off for the
maximum mortgage calculation.
• If the lender being paid off is netting escrows (i.e., payoff is reduced by
escrow account balance), the unpaid principal balance must be reduced by
the amount of the escrow credit. If escrows will be refunded to the borrower
at a later date, no reduction to the unpaid principal balance is required.
• The base loan amount may not exceed the maximum county loan limits for
the property.
• The borrower(s) for a non-owner occupied property, even if originally acquired as
principal residences by the current mortgagors, may only refinance the
outstanding balance of the existing mortgage.
• FHA will compute the new LTV by dividing the new loan amount, exclusive of
any UFMIP, by the lower of the sales price or appraised value that is in their
Single Family Insurance System (SFIS) database for the existing loan being
refinanced. If there is missing information in the database and a computed value
is not possible, only then will the new LTV default to 89.99%.
Continued on next page
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Streamline Refinances, Continued
Maximum Loan Streamline Refinance with an Appraisal
Amount, • The maximum total loan amount may not exceed the lower of;
(continued) • The outstanding principal balance, plus interest due on the current
mortgage, minus the applicable refund of the UFMIP, plus closing costs, plus
prepaid items to establish the escrow account, plus the new UFMIP, or
• 97.75% of the appraised value of the property, plus the new UFMIP.
Notes:
• Discount points may not be included in the new mortgage. If the borrower
has agreed to pay discount points, document in the file that the borrower has
the assets to pay the discount points, along with any other financing costs
that are not included in the new loan amount.
• Delinquent interest, late charges, or escrow shortages may not be included
in the outstanding principal balance of the mortgage being paid off for the
maximum mortgage calculation.
• If the lender being paid off is netting escrows (i.e., payoff is reduced by the
escrow account balance), the unpaid principal balance must be reduced by
the amount of the escrow credit. If escrows will be refunded to the borrower
at a later date, no reduction to the unpaid principal balance is required.
• The base loan amount may not exceed the maximum county loan limits for
the property.
• Any refund of UFMIP on the old mortgage (if originally financed) must be
subtracted from the existing first lien (i.e., current loan payoff) in calculating the
new mortgage amount.
Continued on next page
Section 2.90 November 10, 2011
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Streamline Refinances, Continued
Net Tangible The borrower must receive one of the following net tangible benefits from the new
Benefit transaction:
• a 5% reduction to the principal and interest (P&I) of the mortgage payment plus
the annual MIP, or
• refinancing from an ARM to a fixed rate mortgage.
Reducing the term of the mortgage alone is not a net tangible benefit. The table
below illustrates the net tangible benefit requirements for streamline refinances.
Refinancing …to a Fixed Rate …to a Hybrid ARM
Reduction of at least 5%
… from a Fixed Reduction of at least 5 percent
percent of P&I and MIP
Rate of P&I and MIP
New interest rate no greater
than two percentage points New interest rate at least 2
… from a One-Year
above the current interest rate percentage points below the
ARM
of the ARM current interest rate of the ARM
… from a Hybrid Reduction of at least 5%
Reduction of at least 5 percent
ARM During Fixed percent of P&I and MIP
of P&I and MIP
Period
New interest rate no greater
than two percentage points New interest rate at least 2
… from a Hybrid
above the current interest rate percentage points below the
ARM During
of the current interest rate of the
Adjustable Period
Hybrid ARM Hybrid ARM
Notes:
• Mortgage payment includes principal, interest, and monthly MIP.
• A reduction in loan term requires the loan to be underwritten and closed as a
rate and term (no cash-out) refinance.
Continued on next page
Section 2.90 November 10, 2011
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Streamline Refinances, Continued
Seasoning • On the date of the new FHA case number assignment, the existing loan and
Requirement subordinate financing must be seasoned for six (6) months and six (6)
permanent mortgage payments must have been made, and
• At least 210 days must have passed from the closing date of the mortgage being
refinanced.
Maximum Cash Streamline refinances are designed to lower the monthly principal and interest (P&I)
Back to on a current FHA mortgage and must involve no cash back to the borrower except
Borrower for minor adjustments at closing not to exceed $500.
Secondary • New subordinated financing is not allowed on any Streamline refinance
Financing transactions
• Existing secondary financing may be subordinated, but it must be seasoned six
(6) months (i.e., six (6) permanent mortgage payments made) prior to the date of
the new FHA case number assignment with 0x30 day late payments.
• The maximum TLTV is as follows:
• 105% for STM to STM transactions, and
• 100% for non-STM to STM transactions.
Eligible • Eligible for owner occupied, secondary, and investment properties.
Occupancy/ • Investment properties and second homes are only eligible for conforming
Property Types streamline refinances without an appraisal.
Note: Condominium Projects where the approval has been withdrawn must be a
refinance without an appraisal.
Employment/ Standard employment/income documentation requirements must be met as outlined
Income in the Income topic subsequently presented in this product description.
Verification
Qualifying • The maximum upfront ratio is 31%.
Ratios • The maximum back-end ratio is 43%.
Note: Streamline refinances are not eligible for TOTAL Scorecard, they must be
traditionally underwritten.
Continued on next page
Section 2.90 November 10, 2011
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Streamline Refinances, Continued
Credit • Minimum credit scores for all borrowers on streamline refinances are:
Requirements • 660 for loan amounts =/ $417,000.
Note: Credit scores must be entered into FHA Connection.
Mortgage • The borrower must have a payment history of 0x30 day lates over the most
Payment recent 12 month history for the first mortgage.
History • Less than 12 month payment history is acceptable as long as there are no late
payments for the life of the loan.
Note: 6 month seasoning is required from the date of loan application with 0x30 on
any existing subordinate financing as well as the existing first mortgage.
Asset Standard asset documentation requirements must be met as outlined in the Case
Documentation Requirements and Cash Reserves topics subsequently presented in this product
Requirements description.
Buydowns Buydowns are not eligible with streamline refinances.
Continued on next page
Section 2.90 November 10, 2011
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Streamline Refinances, Continued
Appraisal Streamline refinances may be done with or without an appraisal.
Requirements
Loan A full application is required.
Application
CAIVRS • Streamline refinances can be insured with or without an appraisal, and without
HUD’s Credit Voice Alert Interactive Response System (CAIVRS).
• Documentation of CAIVRS codes is not required.
LDP/GSA List • Copies of the LDP/GSA computer printouts must be in the file and the
underwriter comments section of the FHA Loan Underwriting and Transmittal
Summary must reflect this information.
TOTAL • Streamline Refinance transactions are eligible for traditional underwriting only.
Scorecard • A Streamline Refinance must NOT be run through TOTAL Scorecard (DU) or it
will no longer be considered a Streamline Refinance transaction.
• If a Streamline Refinance transaction is run through TOTAL Scorecard (DU), the
transaction must be processed, underwritten, and closed as a no cash-out
(rate/term) refinance.
Section 2.90 November 10, 2011
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Secondary Financing
General • Any financing other than the FHA first mortgage that creates a lien against the
property is considered secondary financing, even those with “soft” or “silent”
seconds (i.e., has no monthly repayment provisions or other features forgiving
the debt).
• Documentation from the provider of the secondary financing must show the
amount of funds provided to the borrower and copies of the loan instruments are
to be made part of the case binder file.
• Costs incurred for participating in a downpayment assistance secondary
financing program may only be included in the amount of the second lien.
• FHA reserves the right to reject any secondary financing that does not serve the
needs of the intended borrower or where it believes the costs to the participants
outweigh the benefits derived by the homebuyer.
• All existing subordinated financing, whether it will be subordinated to the new
SunTrust mortgage or will be paid off by the new SunTrust mortgage (unless
FHA’s more restrictive twelve (12) month period applies), must be seasoned for
at least six (6) months (i.e., six (6) permanent mortgage payments made) prior to
application for the new SunTrust mortgage.
• If new subordinated financing is being provided by a nonprofit, government entity
or other business entity, the following is required:
• employer identification number (EIN) must be noted on the appropriate
line(s) of the “Mortgage Information” section of the FHA Loan Underwriting
and Transmittal Summary (HUD-92900-LT), and
• the correct provider must be marked in the box below the EIN.
• When the “Other” box is marked as the provider of secondary financing,
the type of provider (i.e., employer, labor union, etc.) must also be
identified.
• Secondary financing subject to negative amortization is not acceptable.
TLTV • A combined TLTV for a Purchase, Streamline Refinance, and Rate/Term
Calculation Refinance transactions includes the proposed FHA first mortgage total loan
amount (including any financed UFMIP) and any secondary financing, when
secondary financing exists.
• A combined TLTV for a Cash-out Refinance transaction includes the proposed
FHA first mortgage base loan amount (excluding any financed UFMIP) and any
secondary financing.
Continued on next page
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Secondary Financing, Continued
Equity Line • Obtain one of the following forms of documentation to show a modified line
Amount amount for a HELOC:
Modifications • A recorded modification agreement,
• An unrecorded modification agreement reflecting a signature from the
company representative in the event the recorded document is not back from
recordation
• A subordination agreement that specified that modified line amount, or
• A letter from the HELOC lender, on company letterhead, reflecting a
signature from the appropriate company representative indicating that the
line of credit has been modified to a specific amount as of a specific date.
Notes:
• SunTrust always records our modification and subordination agreements.
• If you cannot obtain one of the above forms of documentation, use the
original line amount of the HELOC to calculate the TLTV for the new first
mortgage
Automated • In all cases, the first mortgage data must include secondary financing data so
Underwriting that the TLTV is accurate.
Systems (AUS) • SunTrust Wholesale Branches/Lenders must determine, outside of DO/DU or
Information LP, the open date of any existing secondary financing to determine if it is eligible
for inclusion in the new loan for rate/term refinances.
• If secondary financing is a HELOC, the TLTV is based on the total available
credit line, regardless of the balance.
Continued on next page
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Secondary Financing, Continued
Federal, State • Secondary financing may be provided for the borrower’s full amount of down
and Local payment.
Governmental • The second lien must be made or held by the eligible governmental body or
Agencies instrumentality.
• The first and second mortgages cannot result in cash back to the borrower at
closing.
• The sum of all financing cannot exceed 100% of the “cost to acquire” the
property. “Cost to acquire” is defined as the sales price plus allowable borrower
paid closing costs, discount points, prepaids, repair and rehabilitation expenses.
It does not include buydown funds, funds to pay off personal debts, or
unallowable closing costs, such as tax service fees.
• The maximum TLTV for SunTrust is 105%.
• The “cost to acquire” may exceed the appraised value of the property under
these types of government assistance programs.
• The FHA insured first mortgage cannot exceed the FHA statutory limit for the
area where the property is located. The combined indebtedness, however, may
exceed the FHA statutory limit.
• The source, amount, and repayment terms of the secondary financing must be
disclosed in the mortgage loan application and the borrower must acknowledge
that he/she understands and agrees to the terms.
• The payment of the second mortgage is included in both the housing and debt
ratios.
Non-Profit • A non-profit agency that meets the criteria and is considered an instrumentality
Agencies of the government may provide secondary financing when certain conditions are
met.
• If the non-profit agency is considered an instrumentality of government, the
guidelines indicated in the above section (Federal, State and Local
Governmental agencies) must be followed.
• Non-profit agencies not meeting either of the preceding criteria may provide
secondary financing only after the borrower has met the normal down payment
requirement of 3.5% and the combined dollar amount of the first and second
mortgages do not exceed the statutory limit for the area where the property is
located.
• The maximum TLTV for SunTrust is 105%.
• The local FHA office must approve the non-profit agency which must meet the
following guidelines:
• must be type described in Section 501(c)(3) as exempt from taxation under
Section 501(a) of the IRS code of 1986, and
• have two(2) years’ experience as a provider of housing for low and
moderate income persons, and
• have a voluntary board with not part of the net earnings of the organization
benefiting any member, founder, contributor, or individual.
Continued on next page
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Secondary Financing, Continued
Non-Profit • All SunTrust Wholesale Branch Offices must follow procedures as shown in the
Agencies, table below in order to obtain secondary financing from a non-profit agency.
(continued)
Step Action
1 Determine if the non-profit has received FHA approval by checking the
appropriate HOC web site for a list of all approved non-profit
agencies.
Note: HUD may add or remove nonprofit entities from this list, it is
important to view the most current list at all times.
2 Access the HUD website below for a roster of HUD approved
nonprofits providing secondary financing.
http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm
3 Include a copy of the FHA approval letter or HUD’s roster showing the
approval information for the non-profit in the loan file when submitting
to the Underwriting Department.
• If the non-profit agency is not listed on the HOC website, the non-profit agency is
not eligible at this time. Approval must be granted from the local HOC. The non-
profit may submit an application for approval following instructions established by
the local HOC.
• Additional guidelines are as follows:
• the approval is effective for two (2) years, after which time the non-profit
must submit updated program information to HUD for renewal, and
• the non-profit organization must furnish HUD’s approval or re-certification
letter to include in the loan submission package to underwriting if they are
not already listed on HUD’s roster.
References:
• See the non-profit organization’s website for specific procedures and forms.
• See the “Gift/Grant Funds” subtopic within the “Cash Requirements” topic for
down payment assistance programs and additional guidelines.
• See FHA Mortgagee Letter 2002-22 for additional information on down
payment assistance programs operated by Governmental Agencies and
Nonprofits using subordinate financing.
Continued on next page
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Secondary Financing, Continued
Other • The repayment terms of the second mortgage must meet the following
Organizations requirements:
and Private • it cannot provide for a balloon payment before ten (10) years unless the
Individuals property is sold or refinanced, and
• it must permit prepayment by the borrower, without penalty, after giving the
lender 30 days advance notice, and
• the required monthly payment under both the insured mortgage and the
second mortgage or lien, plus other housing expenses and all recurring
charges, cannot exceed the borrower’s reasonable ability to pay. Any
periodic payments due on the second mortgage are due monthly and are
substantially the same in amount.
• The combined first and second mortgages cannot exceed the applicable LTV
based on type of transaction or the maximum mortgage limit for the area.
Reference: See the topic “Refinances” for additional information.
Borrowers 60 Reference: See the “Borrowers 60 Years of Age” subtopic in the “Eligible Borrowers”
Years of Age topic for additional information.
Family Member • Family members may lend up to 100% of the required down payment on a
Loans secured or unsecured basis to the borrower to assist with the costs of acquiring
a home (i.e., down payment, closing costs, prepaid expenses, and discount
points). HUD defines family member for this purpose as only those listed below:
• child, stepchild, parent, or grandparent of the borrower or borrower’s spouse,
• legally adopted sons or daughters (and a child who is a member of
borrower’s household, if placed by an authorized agency for legal adoption
by the borrower), or
• foster children.
• The following terms and conditions apply when the borrower is obtaining a loan
from a family member.
• If the loan from the family member is secured by the subject property,
whether borrowed from an acceptable source or the family member’s own
savings, only the family member provider may be the note holder (i.e, cannot
be parent and brother). Additionally, the homebuyer (our borrower) cannot
be a co-obligor on that note.
• The combined amount of financing may not exceed 100% of the lesser of
the property’s value or sales price, plus normal closing costs, prepaid
expenses, and discount points.
• The maximum TLTV for SunTrust is 105%.
• Although the family member may lend 100% of the cash requirements, cash
back to the homebuyer (except for refund of earnest money deposit) at
closing is unacceptable.
• The secondary financing payments are included in the total debt-to-income
ratio (i.e., the back-end ratio) for qualifying purposes.
Continued on next page
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Secondary Financing, Continued
Family Member • The second lien may not have a balloon payment within five years from the
Loans, date of execution.
(continued) • If the family member providing the secondary financing borrowers those
funds, the source may not be any entity with an identity of interest in the sale
of the property. This includes the seller, builder, loan officer, real estate
agent, etc.
• Mortgage companies that have retail banking affiliates may have that entity
make a loan to the family member providing the secondary financing to the
homebuyer (our borrower). However, the loan may not have more favorable
terms and conditions than to other borrowers.
• An executed copy of the document outlining the terms of secondary
financing must be maintained in the lender’s file and also provided in the
FHA case binder file.
Documentation The following items need to be indicated on the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT):
• 2nd mortgage proceeds,
• 2nd mortgage monthly payment, and
• Underwriter comments - provide details on 2nd mortgage (i.e., lender, term,
payment).
Tracking For all loans where secondary financing , including community seconds, is present,
Secondary the following information must be appropriately identified in MLCS for tracking
Financing in purposes:
MLCS • Process Flow 05-12
• MOB Screen - “Other Lien Indictor” as “1” second lien (not combo); FTHB
(SunTrust field (Y) if applicable; and input amount of secondary financing in “Loan
Internal Amount” under “Other Financing Info,” and
Information • M81 Screen - complete “amount of secondary financing” input amount of
Only) secondary financing; “NP/Gov’t EIN field” - input EIN of secondary financing
provider; “source secondary financing” field with one of the following source
codes from the table below:
Code Secondary Financing Source
01 Originating Lender
02 Other Financial Institution
03 Federal Government Program
04 State Government Program
05 Local Government Program
06 Employer
08 Not Applicable
09 Property Seller
10 Other
11 Non Profit Organization
12 Relative
Section 2.90 November 10, 2011
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Secondary Financing, Continued
Documenting a The following table shows information regarding the modification of Home Equity
Modified Lines of Credit (HELOCs).
HELOC
Non-AUS Loans Fannie Mae DU Freddie Mac LP
“Approve/Eligible” “Accept/Eligible”
Loans Loans
• Lenders in some cases must reduce the available • Non-AUS • Non-AUS
line of credit on a HELOC to meet the new first guidelines apply. guidelines
mortgage’s TLTV and HTLTV requirements. apply.
Obtain one of the following forms of documentation
to show a modified line amount for a HELOC:
1. A complete and recorded Modification
Agreement (fully executed by the HELOC
lender and all borrowers under the HELOC).
2. In the event the recorded modification
agreement is not back from recordation, an
unrecorded modification agreement fully
executed reflecting the instrument number or
other evidence of submission for recordation
stamped by the recorders’ office (certified by
the clerk of court).
3. A written agreement between the HELOC
lender and the borrower agreeing to the
reduction in the credit line amount to a specific
amount as of a particular date. All borrowers
must sign the written agreement.
4. A cover letter from the HELOC lender on
company letterhead reflecting a signature from
the appropriate company representative that
includes confirmation of the reduced credit line
to a specific as of a specific date, along with
evidence of the borrower’s request/consent to
the reduction (preferably in writing).
Note: Obtain items 1 or 2 for the best evidence of
documenting this change whenever possible.
Items 3 and 4 are acceptable when the first two are
not available. In this case, it is mandatory to
maintain appropriately signed documentation.
• If you cannot obtain one of the above forms of
documentation, use the original line amount of the
HELOC to calculate the TLTV/HTLTV for the new
first mortgage.
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 64 of 222
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Geographic Restrictions
Introduction The following table shows applicable geographic restrictions.
State Restriction
Florida • Condominium conversions are NOT eligible, unless the
condominium project meets the definition of an established
project AND the control of the homeowners’ association has
been turned over to the unit owners for no less than twelve
(12) months.
• New condominium projects located in the state of Florida are
not eligible.
• Cash-out refinance transactions are limited to a LTV/TLTV of
80.00%.
Georgia Properties containing Georgia Power Company leasehold
agreements are not eligible for financing with SunTrust.
Massachusetts • As a result of state legislation, SunTrust has additional
provisions that apply to any first-time home loan borrower(s)
who is obtaining an adjustable or variable rate loan.
Reference: See “Massachusetts ARM Parameters” located under
the “Loan Terms” topic for additional information.
New Mexico As a result of state legislation, borrowers must be qualified on all
adjustable rate mortgages based on a fully indexed (index +
margin), fully amortizing rate.
New York As a result of state legislation, primary residences are not eligible
if the transaction is determined to be a “subprime home loan”.
Texas Cash-out refinances are not eligible.
Reference: See Section 1.11: Geographic State Restrictions, of the Broker Seller Guide
for SunTrust specific geographic restrictions and state specific predatory lending
restrictions that may apply.
Section 2.90 November 10, 2011
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Occupancy/Property Types
General HUD will accept 1-4 family units. The mortgaged premises must be a detached or
semi-detached dwelling, row dwelling, townhouse, or unit within a condominium or
PUD.
Primary • The property must be occupied by the primary borrowers for the majority of the
Residences calendar year.
• Occupancy must take place within 60 days after signing the security instrument,
with continued occupancy for one (1) year.
Reference: See the “Transactions Affecting Maximum Mortgage Calculations”
subtopic in the “Loan Terms” topic for additional information.
Three and Four • Three and four-unit properties, regardless of occupancy status, must be self-
Unit Properties sufficient, i.e., the maximum mortgage is limited so that the ratio of the monthly
mortgage payment divided by the monthly net rental income does not exceed
100 percent.
• The monthly payment is defined as principal, interest, taxes, and insurance,
including mortgage insurance (PITI), as well as any homeowner’s association
dues, computed at the note rate (no consideration for buydowns may be given).
• Net rental income is the appraiser’s estimate of fair market rent from all units,
including the unit chosen by the borrower for occupancy, less the FHA office’s
allowance for vacancies and maintenance (or 25% if the local FHA has not
established a separate allowance).
• The above calculation is used only to determine the maximum loan amount.
Borrowers must still qualify for the mortgage based on income, credit, cash to
close, and the projected rents received from the remaining units. The projected
rent may only be considered as gross income for qualifying purposes; it may not
be used to offset the monthly mortgage payment.
• The borrower must have a reserve of three (3) months’ mortgage payments
(PITI) after closing on all transactions. The following assets are not considered
cash reserves:
• equity in other properties,
• proceeds from a cash-out refinance (if this is the subject transaction),
• gift funds, and
• funds that are borrowed against a liquid account (i.e., 401k loan).
• FHA’s Hotel and Transient Use Certification (Form HUD 92561) must be signed
by the borrower and included in the case binder file
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 66 of 222
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Occupancy/Property Types, Continued
Second Homes • Second homes are not eligible for HUD financing; however, HUD will grant a
hardship exception on a case-by-case basis. The maximum LTV for such cases
is limited to 85%. Such an exception must be requested through the local HOC
in writing and must meet the conditions listed below.
• The secondary residence must not be a vacation home or otherwise used
primarily for recreational purposes.
• The borrower must require the secondary residence due to seasonal
employment, or employment relocation, or other circumstances not related to
recreational use.
• There must be a demonstrated lack of affordable rental housing in the area to
meet the needs of the borrower or to be within a reasonable commuting distance
of the borrower’s employment. Documentation to support this must include:
• satisfactory explanation from the borrower of his/her need and that rental
housing meeting these needs is not available, and
• written evidence from local real estate professionals showing a lack of rental
housing.
• HUD conditional commitments issued on or after February 5, 1988 but before
January 27, 1991 must bring the outstanding mortgage down to 85% LTV.
• Commitments issued after January 27, 1991 may NOT be assumed as second
homes.
• The original appraised value or current appraised value may be used to
determine LTV.
Automated Underwriting System (AUS) Information
Second homes are NOT eligible for DO/DU or LP.
Continued on next page
Section 2.90 November 10, 2011
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Occupancy/Property Types, Continued
Investment • Investment properties are eligible for HUD-insured mortgages under the
Properties following programs or circumstances:
• purchases of HUD owned (REO properties, when permitted by the local FHA
office selling the property (the max LTV is 75% for one-family dwellings and
85% for 2-4 family dwellings), and/or
• streamline refinances without an appraisal.
• SunTrust requires that borrowers financing an investment property MUST reside
in the state where the subject investment property is located, EXCEPT when the
property is located within a 100 mile radius of the borrower’s primary residence.
• If the subject property is located within a 100 mile radius of the borrower’s
primary residence, it remains acceptable for the subject property to be
located outside of the state where the borrower resides.
• Investors who meet the credit guidelines may assume mortgages on properties
purchased under these programs. This includes those mortgages on investment
properties that were purchased prior to 1989 that have since been streamline
refinanced.
• Investment properties are NOT eligible for ARM loans.
References:
• See the Streamline Refinance topic previously presented for additional
information.
• See “HUD Property Disposition (PD) properties” in the “Occupancy/Property
Types” topic for additional information.
Automated Underwriting System (AUS) Information
Investment properties are NOT eligible for DO/DU or LP.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 68 of 222
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Occupancy/Property Types, Continued
Condominiums • SunTrust requires a minimum square footage of 600 square feet for
condominiums.
• The accurate Condominium ID is required to order the FHA case number or
appraisal.
Note: Condominium units less than the 600 square foot minimum will be
considered on a case by case basis in urban areas where similar units are
readily marketable. The appraisal must include comparables supporting market
acceptance.
• Condominium units must include a kitchen serviced by full-sized appliances, and
cannot include any form of built-in sleeping accommodations.
Reference: See Section 1.13: SunTrust Condominium and PUD Approval
Requirements of the Broker Seller Guide for a complete overview of FHA
condominium guidelines and project approval requirements.
Planned Unit • PUDs do not require pre-approval by FHA or the underwriter.
Developments
(PUDs) • Note: PUDS with “Rights of First Refusal” are not eligible for FHA financing, per
SunTrust guidelines.
• A PUD is defined as a mixed-use residential development of single-family
dwellings in conjunction with rental, condominium, cooperative or town house
properties. A residential development should be processed as a PUD if it has
the following minimum characteristics:
• a homeowner association that holds either title in fee or a lease of
prescribed length on the common area,
• mandatory membership of all unit owners (or units) in the association,
• the right of all unit owners to participate by vote in the operation of the
association,
• lien supported assessment of the members to meet the association’s
budgeted operating costs (special assessments may be handled
differently), and
• the appraisal for a detached PUD must be ordered as a detached PUD, not
as a single family residence.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 69 of 222
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Occupancy/Property Types, Continued
HUD REO Although FHA allows repairs on HUD REO properties to be financed into the
Properties loan amount, 203(k) loans and 203(b) loans with repair escrows are NOT
eligible for financing through SunTrust Mortgage, Inc.
General Information
• HUD REO properties are parcels of U.S. government-owned real estate typically
located in urban or suburban areas.
• HUD sells properties on a competitive basis with HUD awarding the contract to
the offer that realizes the highest net return to the government.
• HUD has entered into contracts for the management and marketing of its
acquired family properties (HUD REO properties). Contractors are assigned
specific geographic locations for the properties they are managing. Contact your
local HUD office to determine which contractor manages your geographic
location.
• PD sales are often eligible for HUD insured financing; however, the overall
condition of the property is usually the determining factor that may make
properties ineligible for HUD financing. Because of this, the property condition
should be determined prior to processing the application.
• PD properties are purchased “as is” with no assurance as to the property’s
condition nor does HUD provide any type of government warranty.
• Investors are eligible for financing under Section 203(b) only.
• If a home inspection identifies required repairs, the property is no longer eligible
for FHA financing under Section 203(b) with SunTrust.
Sales Contract Requirements
• A fully executed copy of the HUD-9548 (Sales contract) must be provided.
• A fully executed “Individual Owner-Occupant Certification” Addendum to the
sales contract (HUD-9548D) is required. If an individual owner-occupant does
not submit the required addendum, the sales offer is to be considered as an
investor offer.
• The For Your Protection: Get a Home Inspection (HUD 92564-CN) form must
also be submitted through the broker to the purchaser. HUD has eliminated the
requirements that the form be signed by the purchaser and included in the case
binder.
• The contract will specify the number of days (normally 45 or 60) in which the
borrower is required to close the sale (on line 9).
• If the contract is not complete, there are questions concerning terms or
conditions, and/or the contract must be amended as a condition loan approval,
the M&M contractor must be contacted.
• The first block on Line 4 of the contract must be checked, as well as the
applicable block for the FHA 203(b) program.
Note: If the sales contract lists the property as “insurable with repair escrow” in
order to meet FHA’s minimum property standards (MPRS) or if the property is
offered for sale “uninsured,” the loan is NOT eligible for FHA financing
through SunTrust Mortgage. SunTrust Mortgage does NOT offer financing for
203(b) with repair escrow or 203(k) transactions.
Continued on next page
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Occupancy/Property Types, Continued
HUD REO Sales Contract Requirements, Continued
Properties, • The mortgage amount and down payment amounts on the sales contract, as
(continued) typically identified on Line 4 of the contract, will be blank, as instructed by HUD.
• The amount identified on Line 5 of the contract represents actual borrower
financing and closing costs to be paid on the borrower’s behalf by HUD from
sales proceeds. It does not represent the amount that the borrower can finance
into the mortgage.
• HUD may contribute up to three percent (3.00%) of the property’s gross
purchase price towards the borrower’s allowable closing costs, including up to
one percent (1.00%) of the loan origination fee.
• If the borrower’s total closing costs reflected on the HUD-1 Settlement Statement
are less than the amount indicated as being paid by HUD on the sales contract,
HUD will credit ONLY the actual costs charged and will not credit the purchaser
with any difference, either in cash or through a reduced purchase price.
• The percentage discount that is applied to the sales price at closing is identified
on Line 8 of the contract. If there is a discount, the mortgage amount will be
based on the discounted sales price, not the contract sales price. The sales
price is calculated as follows when a “discount” is offered:
Contract Sales Price (Line 3 of the contract)
-- (minus) Discount (Line 8 of the contract)
+ (plus) HUD-Paid Closing Costs (Line 5 of the contract)
+ (plus) HUD-Paid Sales Commission (Line 6a of the contract)
= (equals) Discounted Sales Price
• If a home inspection identifies required repairs, the property is no longer eligible
for FHA financing under Section 203(b). These properties are NOT eligible for
FHA financing with SunTrust Mortgage, Inc.
Maximum Mortgage Amount and Minimum Down Payment
• In some cases, HUD may authorize sales incentives to be offered on a property.
Note: HUD single-family REO Properties that are approved for the reduced
down payment feature (HUD REO $100 Down Payment feature) may not be
registered on STMPartners and must be manually registered.
• If such authorization is absent, maximum mortgages and minimum down
payments are calculated in accordance with standard requirements under the
Section 203(b) HUD Program.
• The UFMIP can be financed into the total loan amount. The total loan
amount may never exceed 100% of the “as is” appraised value.
• Closing costs and prepaids may NOT be included in the mortgage.
• Investors are only eligible for financing under Section 203(b) to a maximum 75%
LTV for 1 unit properties and 85% LTV for 2-4 unit properties.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 71 of 222
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Occupancy/Property Types, Continued
HUD REO Allowable Closing Costs Paid by HUD
Properties, • HUD issued Notice H 2005-12 to distinguish between closing costs that are
(continued) automatically paid by HUD and those costs which may be paid if the amounts
are indicated on Lines 5 and/or 6a and 6b of the Sales Contract.
• The following table lists the costs and information that are automatically paid by
HUD.
Closing Costs “Automatically” Notes
Paid by HUD
Broker’s Sales Commission for Broad Amount stated on Lines 5 and/or 6a or
Listing Broker 6b of form HUD 9548, Sales Contract.
Pro-ration of property taxes and any No comments.
special assessments such as
Homeowner’s Association (HOA) fees
and utility bills
Condominium or HOA Transfer Fee, No comments.
if applicable
Cost to provide condominium No comments.
documents to purchaser
Settlement or Closing Fee The Department will only pay HUD’s
contracted closing agent. This is the
purchaser’s cost if another agent is
chosen.
Recording Fees HUD will automatically pay recording
fees and charges for the deed only
(i.e., nominal amount charged per page
for recordation).
• Purchasers may specify a dollar amount of Line 5 of for HUD-9548, Sales
Contract that they expect HUD to pay toward the financing and closing costs.
Each HOC REO decides the maximum amount of closing costs HUD will pay
and notifies the M&M contractors. These costs typically range from three (3) to
five (5) percent. Any changes to these amounts are identified on the M&M
contractors website. HUD will pay the lesser of the amount requested in Line 5
or the actual cost of the items specified. Any funds remaining will NOT be
credited to the purchaser at closing.
Processing Case Number
• A new FHA case number is required for all applications and can be requested
through the FHA Connection. “Real Estate Owned” should be selected in FHA
Connection for the processing type.
• When answering the question, “Was this case previously sold as a HUD REO
property?” in FHA Connection, lenders should always answer “Yes”. The
“Previous Case Number” field should also be completed.
• If an appraisal is not being ordered, the appraiser fields should be left blank.
• Condominium project approval is not required for FHA/HUD REO transactions.
Reference: See “Case Number Assignment and Cancellation” in the “Workflow”
topic for additional information.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 72 of 222
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Occupancy/Property Types, Continued
HUD REO Appraisal Requirements
Properties • Appraisals should be ordered by the M&M contractor prior to marketing the
(continued) subject property and must be performed by an appraiser listed on the FHA
Appraiser Roster. The appraiser MUST be state certified with an unexpired
license. The borrower cannot be charged for the appraisal. The appraisal must
be ordered “as is” (not “as repaired”).
• Utilities should be turned on at the time of the appraisal, as indicated by the
appraiser on the appraisal unless there are extenuating circumstances noted on
the appraisal.
• In all cases, with few exceptions, the lender must obtain a complete copy of the
original appraisal from the M&M contractor.
• A new appraisal or an Appraisal Update and/or Completion Report (Fannie Mae
form 1004D/Freddie Mac form 442) may be ordered by the Wholesale Regional
Branch Office ONLY if the following applies:
Reference: See the “Fannie Mae Form 1004D/Freddie Mac Form 442
(Appraisal Update and/or Completion Report)” subtopic in the “Appraisal
Requirements” topic subsequently presented for additional information regarding
appraisal updates.
• the appraisal obtained by the M&M contractor is more than 120 days old
and a valid HUD sales contract was not executed prior to the expiration date
of the appraisal – the appraisal should be ordered “as is”, or
• there are material deficiencies with the current appraisal.
• The DE Underwriter is responsible for determining if there are material
deficiencies in the current HUD REO appraisal.
Note: The DU Underwriter must document why a second appraisal was ordered
and retain both appraisal copies in the loan file.
• Updated appraisals cannot be ordered simply due to situations where the sales
price exceeds the “as is” value. In this situation, the borrower is responsible for
paying the difference from his/her own funds.
• Ordering an appraisal in hopes of obtaining a higher value is not permissible.
• In all cases, the lender is responsible for reviewing the property description,
comparables and adjustments specified on the appraisal, and for ensuring that
the stated value is accurate. The lender must also ensure that the properties
financed meet FHA’s minimum property standards.
• If the borrower’s home inspection reveals a need for repairs that were not
identified on the appraisal, the underwriter must address such issues.
• FHA financing should not be approved based on the terms of the sales contract.
Any discrepancies should be discussed with the M&M contractor for resolution.
Note: SunTrust Mortgage does not offer financing for 203(b) with repair
escrow or 203(k) transactions.
Continued on next page
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Occupancy/Property Types, Continued
HUD REO Inspection Requirements
Properties • A free copy of the termite & pest control inspection report can be obtained from
(continued) the M&M Contractor.
• If the property has a well and/or septic tank, contact the M&M contractor to
determine if an inspection has been performed. If not, the lender is responsible
for ensuring that state or local jurisdiction requirements have been met and there
are no adverse conditions noted.
• The property must be inspected with the utilities turned on. If the utilities were
not on at the time of the appraisal, the M&M contractor shall permit entry during
the contract period to activate the utilities and for the inspection.
• As a rule, the M&M contractor will not make repairs to HUD REO properties that
are necessary to bring them up to FHA’s MPRs. When repairs are determined to
be necessary, they will generally have to be accommodated through either
Section 203(b) with repair escrow or Section 203(k), which SunTrust does not
currently participate in.
• The M&M contractor is required to determine any lead paint deficiencies.
Note: HUD may reduce the purchase price by the amount of a credit equal to
HUD’s contribution toward the cost of lead-based paint stabilization. Any lead-
based paint stabilization costs in excess of this credit become the responsibility
of the purchaser.
• A completed form HUD-92300, Mortgagee’s Assurance of Completion should be
included in the case binder submitted for insurance endorsement.
• A completed form HUD-92051, Compliance Inspection Report must be submitted
after the completion of repairs.
Maximum Loan Amount
• The maximum loan amount and minimum down payments are calculated as
specified in the topic “Loan Terms” in this product description.
• The appraisal must be obtained to calculate the maximum loan amount. The
loan amount is no longer based solely on the sales price. The lesser of the sales
price or the “as-is” value specified in the Contractor’s appraisal is used to
calculate the maximum loan amount.
• For purposes of determining the term of the annual premium, the contract sales
price is used.
• Each HOC establishes marketing incentives for PD properties. Because these
incentives vary, it is imperative that the appropriate incentives be clarified prior to
processing. HUD will specify the down payment, the loan amount and the
incentives in the sales contract. Incentives not clearly stated in the sales
contract may be clarified by the HUD PD representative who signed the sales
contract.
Automated Underwriting System (AUS) Information
HUD REO properties are eligible for processing through DO/DU or LP. The
underwriter will need to overcome the “Ineligibilty” due to the down payment
calculation by noting on the Loan Underwriting Transmittal Summary (HUD 9200-LT)
that the borrower was eligible for the $100 Down HUD REO down payment feature,
as indicated by the HUD sales contract.
Continued on next page
Section 2.90 November 10, 2011
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Occupancy/Property Types, Continued
Leasehold Reference: See Section 1.26: Leasehold Estate Guidelines of the Broker Seller
Estates Guide for a complete overview of leasehold estate requirements.
Manufactured Manufactured housing (mobile homes) are NOT eligible for financing with SunTrust
Housing Mortgage, Inc.
Properties Reference: See Section 1.22: Properties Purchased at Auction, of the Broker Seller
Purchased at guide, for additional information.
Auction
Properties • The appraiser must note on the appraisal if a property was listed for sale in the
Recently Listed last 12 months.
For Sale • If the property is currently listed for sale when the appraisal is completed, the
appraiser must note that it is currently listed for sale.
• If a property was listed for sale in the last 12 months and the borrower was the
owner of the property at the time it was listed for sale, the following applies:
• for rate/term refinances,
• the property must be taken off the market on or prior to the application
(i.e., 1003) date,
Note: If the property is currently listed for sale, documentation must be
provided that the listing agreement is terminated (it is NOT okay just to
take the “For Sale” sign down).
• when the subject property is the borrower’s primary residence, the
borrower must confirm in writing their intent to occupy the subject
property by signing an occupancy affidavit at closing, and
• the current maximum LTV/TLTV ratios for the transaction apply.
• for cash-out refinances,
• the property must have been taken off the market for at least 90 days
prior to loan application, and
• if the property was listed for sale within the six (6) months preceding the
application (i.e., 1003) date, the maximum LTV/TLTV is limited to 70%.
Short Sale Reference: See Section 1.24: Short Sales and Restructured Mortgage Loans of the
Property Broker Seller Guide for additional information.
Properties with • All properties must meet city or county restrictions (i.e., a restriction that requires
City or County all city/county employees to live within the city/county limits).
Restrictions • It is the lender’s responsibility to verify that any restrictions are met to assure
HUD’s issuance of the Mortgage Insurance Certificate (MIC).
Continued on next page
Section 2.90 November 10, 2011
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Occupancy/Property Types, Continued
Ineligible The property types listed below are ineligible for HUD financing.
Property Types • Commercial enterprises
• Boarding houses
• Hotels and motels
• Tourist houses
• Private clubs
• Bed and breakfast establishments
• Fraternity or sorority houses
• Sinkhole Homes (even if repaired)
• Co-ops
• Manufactured Housing
Section 2.90 November 10, 2011
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Eligible Borrowers
Number of The following table shows information specific to AUS.
Borrowers on
One (1) Loan Fannie Mae DO/DU Freddie Mac LP
The number of borrowers on a loan is The number of borrowers is limited to 5.
limited to 4.
Borrowers 60 Borrowers 60 years of age or older may borrow the required down payment for
Years of Age purchasing a principal residence, provided the guidelines listed below are met.
• The donor or lender is a relative of the borrower, a close friend with clearly
defined interest in the borrower, the borrower’s employer, or an institution
established for humanitarian or welfare purposes.
• The donor or lender is not one whose interest is solely in the sale of the property,
such as a builder or seller, or any person or organization associated with them.
• The principal amount of the insured mortgage loan, plus the note or other
evidence of indebtedness in connections with the property, may not exceed 100
percent of the value plus prepaid expenses.
• The note or other evidence of indebtedness may not bear interest exceeding that
of the insured mortgage.
• Evidence that these conditions are met must accompany the application.
Continued on next page
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Eligible Borrowers, Continued
Co-Borrowers • A co-borrower is eligible under the following conditions:
• must be on the title, note and security instrument,
• the co-borrower’s income, liabilities, assets and credit history is used to
determine creditworthiness,
• the co-borrower does not have an interest in the transaction (i.e., seller,
builder or real estate agent), exceptions may be granted if seller and co-
borrower/co-signer are related to the owner by blood, marriage or law),
• if the parent is selling to a child, the parent cannot be co-borrower with the
child on the new mortgage unless the loan-to-value is 75% or less, and
• the co-borrower must be eligible for participation (not suspended or debarred
or owe any delinquent Federal debts).
• Non-occupant co-borrowers must have a principal residence in the U.S. unless
otherwise exempted (i.e., military service with overseas assignments, U.S.
citizens living abroad). While FHA does not object to legitimate transactions
where non-occupant borrowers assist in the financing of the property, this
arrangement may not be used by non-occupant borrowers to develop a portfolio
of rental properties. A non-occupant co-borrower is only eligible on a one (1)
unit property.
• Non-occupant co-borrowers or co-signers are not permitted on any cash-out
transaction.
• When there are two (2) or more borrowers, but one or more will not occupy the
property as a principal residence, the maximum mortgage is usually limited to
75% LTV. However, maximum financing is available for borrowers related by
blood, marriage or law that meet the requirements under the topic “Maximum
Loan Amount and LTV.”
Note: All references to co-borrowers, including the 75% LTV limits, apply
equally to co-signers (except co-signers do not take title or sign the security
instrument).
References:
• See the “Co-signers” subtopic subsequently presented in this topic for additional
information.
• See the “Maximum Loan Amount” subtopic within the topic “Loan Terms” for
additional information on non-occupying co-borrowers and Identity of Interest
transactions.
Continued on next page
Section 2.90 November 10, 2011
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Eligible Borrowers, Continued
Co-Signers • A co-signer does not have an ownership interest in the property (does not take
title) but is liable for repaying the obligation and must sign all documents with the
exception of the security instruments.
• The co-signer’s income, assets, liabilities, and credit history are considered in
determining creditworthiness for the mortgage.
• The co-signer must complete and sign the application.
• All other items applicable to co-borrowers also apply to co-signers.
• Non-occupant co-signers are not permitted on any cash-out transactions.
First Time Definition
Homebuyers • An individual who has had no ownership in a principal residence in the three (3)
years prior to the closing date of the loan.
• An individual who, though having owned a home in the previous three (3) years,
owned a home with a former spouse while married and is no longer living in the
property (as evidenced by the divorce decree and/or separation agreement).
Counseling Requirement
• HUD still recommends housing counseling for the purchase of a property.
However there is no reduction in UFMIP for attending housing counseling.
• The FHA Lender Homebuyer Education Certification (BRO 0611) may be used
to document the loan file.
HUD • Loan applications for HUD employees may be processed and underwritten by
Employees the lender; however, they must be submitted to the attention of the Processing
and Underwriting Division Direction at the jurisdictional HOC for final signoff and
approval PRIOR to closing.
• SunTrust will accept a Purchase, Streamline Refinance, Rate/Term or Cash Out
Refinance transaction.
Note: Streamline refinance applications do not require final HUD sign-off prior to
closing.
Continued on next page
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Eligible Borrowers, Continued
Living Trusts Living trusts are eligible for HUD financing under the following conditions:
• the borrower must remain the beneficiary,
• the borrower must occupy the subject property as a primary residence,
• the trust must provide reasonable means to assure the lender that it will be
notified of any subsequent change of occupancy or transfer of beneficial interest,
• the trust must appear on the security instrument (i.e., mortgage, deed of trust, or
security deed),
• the individual borrower must appear on the security instrument when required to
create a valid lien under state law (otherwise, he/she is not required to appear),
and
• the owner-occupant, if any, and other borrower(s) must appear on the note along
with the trust; however, the individual borrower is not required to appear on the
property deed or title.
Reference: See Section 1.15: Living Trusts in the Broker Seller Guide for additional
information.
Military Military personnel are eligible for maximum financing if a member of the immediate
Personnel family will occupy the subject property as a principal residence, even if the active
duty borrower is stationed elsewhere.
Non-Permanent Reference: See Section 1.19: Non-Permanent Resident Alien of the Broker Seller
Resident Aliens Guide for additional information.
Continued on next page
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Eligible Borrowers, Continued
Non-Permanent • If authorization for temporary residency status will expire within one (1) year from
Resident Aliens, the date of closing, the conditions for borrower eligibility are as follows:
(continued) • if it can be established that the borrowers have a history of prior renewals of
their temporary employment/residency status granted by the EAD of the
BCIS, it may be assumed that the continuation of the authorization for
residency/employment status will be granted, and
• if there is no evidence that the borrowers had a prior renewal of their
authorization for temporary residency/employment status, the lender must
develop the likelihood of renewal based on current information obtained from
the BCIS.
Note: Non-U.S. Citizens with no lawful residency in the U.S. are not eligible for
FHA mortgages.
Non- • If it is required by state law in order to perfect a valid and enforceable first lien,
Purchasing the non-purchasing spouse may be required to sign either the security
Spouses instrument or documentation evidencing that he/she is relinquishing all rights to
the property.
• If the non-purchasing spouse executes the security for such reasons, he/she is
not considered a borrower for HUD’s purposes and does not need to sign the
loan application.
• Except for those obligations specifically excluded by state law, the debts of the
non-purchasing spouse must be considered in the qualifying ratios if the
borrower resides in a community property state or the property to be insured is
located in a community property state.
• If the borrower resides in a community property state or the property is located in
a community property state, a credit report must be obtained. The non-
purchasing spouse’s credit history is not to be considered a reason for credit
denial.
• HUD requires that DE underwriters know the state laws concerning community
property and apply them appropriately to ensure that there is no increased risk to
HUD.
Continued on next page
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Eligible Borrowers, Continued
Ownership in • If the borrower owns any type of financial interest (any type of ownership
Unit Limitation regardless of type of financing) in seven (7) or more rental dwelling units when
the property is part of, adjacent to or contiguous to a property, subdivision, or
group of properties owned by the borrower, he/she is not eligible for FHA
financing on a property located within the contiguous area.
• A contiguous area is typically defined as an area with a two (2) block radius (i.e.,
condo project or PUD).
• Each dwelling unit in two-, three-, and four-family properties counts towards the
seven-unit limitation. The rental units in an owner-occupied two-, three-, or four-
unit property also count toward this limitation.
• Hotel and Transient Use Certification (Form HUD 92561) signed by the borrower
must be obtained for every application on a two, three and four family dwelling,
OR a single family dwelling which is one of a group of five or more dwellings held
by the same borrower.
Reference: Click here to access the Hotel and Transient Use Certification (Form
HUD 92561)
Parties in Title • Non-borrowing spouses or other non-borrowing parties may hold title to an FHA
insured property; however, a valid and enforceable first lien on the property
under state law is still required.
• All parties appearing on the property deed or title must also appear on the
security instrument (i.e., mortgage, deed of trust, security deed).
• The only exception would be in the event of a Living Trust. The Trust must
appear on the security instrument (i.e., mortgage, deed of trust, security deed).
The individual borrower(s) is not required to appear on the property deed or title.
Reference: See “Living Trusts” within this topic for additional information.
Continued on next page
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Eligible Borrowers, Continued
Permanent • Lawful Permanent Resident aliens are given the same consideration as United
Resident Aliens States citizens.
• The borrower must have a valid social security number (a taxpayer ID number is
unacceptable).
• The borrower must have evidence of permanent residency and indicate on the
Uniform Residential Loan Application (URLA) that he/she is a lawful permanent
resident alien.
• The United States Citizenship and Immigration Services (USCIS) within the
Department of Homeland Security issues evidence of lawful permanent
residency.
• The following documentation is acceptable proof of permanent resident status:
• USCIS Form I-551 Alien Registration Receipt (green card), with an
unexpired date on the front,
• USCIS Form I-551 Conditional Alien Registration Receipt, with an unexpired
USCIS I-751 Petition to Remove Conditions of Residence (green card by
marriage), or
• An unexpired passport with an unexpired stamp reading “Processed for I-
551. Temporary Evidence of Lawful Admission for Permanent Residence.
Valid until [date]. Employment Authorized.”
• SunTrust Mortgage will accept a green card issued between March of 1977 and
January of 1987 with no exception date.
• If a green card will expire within six months after closing:
• A copy of the filed USCIS I-90 Application to Replace Permanent Resident
Card,
• A copy of the USCIS I-797 Notice of Action for the I-90, and
• An unexpired passport with an unexpired stamp reading “Processed for I-
551. Temporary Evidence of Lawful Admission for Permanent Residence.
Valid until [date]. Employment Authorized.”
• Borrowers with a conditional green card (issued for two years) cannot apply for
renewal earlier than three months prior to the expiration date. SunTrust
Mortgage requires the borrower to file one of the following forms prior to loan
application:
• I-751 Petition to Remove Conditions of Residence (green card by marriage),
or
• I-829 Petition by Entrepreneur to Remove Conditions.
Ineligible Ineligible borrowers for FHA financing through SunTrust Mortgage include:
Borrowers • Corporations
• Partnerships
• Sole proprietorships
• Non-profit organizations
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Income
Income The following table shows information regarding the Income Calculator Tool.
Calculator
Tool* References:
• See General Section 1.31: Income Analysis document of the Broker Seller Guide
*STM Internal for additional information.
Information • See the STM Internal “Income Calculator Tool Guidelines” document for
ONLY
additional information.
Non-AUS Loans Fannie Mae DU Loans Freddie Mac LP
“Accept/Eligible” Loans
• Use of the Income Calculator Non-AUS guidelines apply, in Non-AUS guidelines apply, in
Tool is mandatory for all addition to the following: addition to the following:
income. • Loans should not close until • Loans should not close until
• In all cases, without the final loan application the final loan application and
exception, every eligible loan and DU findings reflect the LP findings reflect the
file must include a copy of the income as determined on income as determined on the
“Borrower Total Income” the Income Calculator Income Calculator
summary screen, each Worksheet and used by the Worksheet and used by the
income screen where income underwriter to approve the underwriter to approve the
calculations were performed loan. loan.
and the “Notes/Sign-Off”
screen completed by the
underwriter in determining
income for loan approval.
• Loans should not close until
the final loan application
reflect the income as
determined on the Income
Calculator Worksheet and
used by the underwriter to
approve the loan.
Continued on next page
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Income, Continued
General Income
• HUD generally requires all income to continue through, at a minimum, the first
three (3) years of the mortgage loan. If the borrower intends to retire during this
period, the effective income must be the amount of documented retirement
benefits, social security payments, etc.
• Borrowers that change jobs frequently within the same line of work, who continue
to advance in income or benefits, should be considered favorably. In this instance,
income stability takes precedence over job stability.
Documentation
• Faxed documentation may be used if the following applies:
• the employer’s name and source of information is clearly identified on the form,
• the document includes a name and telephone number of the individual with the
employer who can verify the accuracy of the data, and
• the lender verifies the document’s authenticity by reviewing, among other
things, the information included in the banner of the fax and conducting a
telephone verification.
• Employment documentation downloaded from an Internet website may be used if
the following applies:
• The Verbal Verification of Employment (BRO 0050) form must include the
name and title of the SunTrust employee performing the verification of
employment for all FHA loan programs.
Reference: See the “Verbal Verification of Employment Requirements and
Workflow Procedures” topic in Section 1.05: Closing Information of the Broker
Seller Guide for additional documentation requirements for employed, self-
employed and military borrowers.
• The employer’ name and source of information is clearly identified.
• The printed pages of the document reflect the URL address with the date and
time it was printed.
• The lender verifies the document’s authenticity by reviewing, among other
things, the information included on any header, footer and banner of the
printout and verifies the existence of the website from which the document was
derived.
• The documents must be identifiable as belonging to the borrower.
Continued on next page
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Income, Continued
General, Automated Underwriting Systems (AUS) Information
continued The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• The DO/DU Findings Report will provide • The LP Feedback Certificate
specific messages on the following income will provide specific
types when identified correctly: messages on base salary for
• base salary for salaried borrower, salaried and self-employed
• base salary for self-employed borrower, borrowers.
• commission, bonus, and overtime • For all other income types,
income, standard FHA guidelines
• positive net rental income, apply.
• social security and disability income,
• alimony and child support, and
• pension or retirement income.
Continued on next page
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Income, Continued
Salaried or All of the following documentation is required:
Hourly Wage • paystubs for the most recent 30 day period,
Income • W-2’s for the previous two (2) years,
• telephone verification of employment from the current employer, and
• signed IRS Form 4506-T.
Reference: See the “IRS 4506-T” subtopic in Section 1.05: Closing Information of
the Broker Seller Guide for additional information regarding IRS Form 4506-T
requirements at application and at closing.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” all of the • If “Accept” all of the following
following documentation is documentation is required:
required: • paystub(s) for one (1) month’s
• one (1) paystub with YTD income with YTD information,
information, including bonus including bonus and/or overtime
and/or overtime income, income, and
and • telephone verification of
• telephone verification of employment from the current
employment from the employer.
current employer. • If “Accept,” W-2’s for two (2) years are
generally required unless all of the
following applies:
• the borrower has been with
his/her employer for at least two
(2) years (as confirmed with a
verbal VOE),
• only base income is used to
qualify, and
• the borrower signed an IRS Form
4506-T.
Continued on next page
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Income, Continued
Alimony, Child • Income received from alimony, child support or maintenance payments must
Support or continue the first three (3) years after closing.
Maintenance • A copy of the divorce decree, legal separation agreement, voluntary agreement,
Payments or court order specifying the amount of support and the period of time over which
it will be received is required.
• Evidence (i.e., deposit slips, bank statements, front and back of canceled
checks, court records or Federal tax returns) must be provided to reflect that the
funds have been received for the last 12 months.
• Period of less than 12 months may be acceptable provided the payer’s ability
and willingness to make timely payments is adequately documented.
• Properly documented child support income may be grossed up under the same
terms and conditions as other non-taxable sources.
Reference: See the subtopic “Non-Taxable Income” subsequently presented in
this topic for additional information.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” the following is • If “Accept,” the following is required:
required: • a copy of the front page of the
• a copy of the front page of the divorce decree,
divorce decree, • copies of applicable pages
• copies of applicable pages from the divorce decree that
from the divorce decree that provide details of support
provide details of support payments, including
payments, including verification that the income will
verification that the income will continue for at least three (3)
continue for at least three (3) years after loan closing, and
years after loan closing, and • verification of receipt of
• verification of receipt of income for the last three (3)
income for the last three (3) months.
months. Bank statements or
cancelled checks are
acceptable.
Continued on next page
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Income, Continued
Automobile • Only the amount that an auto allowance and/or expense account exceeds actual
Allowances and expenditures can be considered as income.
Expense • Income is documented with the most recent two (2) years’ tax returns (IRS Form
Account 2106 - Employee Business Expenses).
Payments • The employer must verify that the allowance/account will continue.
• The borrower’s car payment is treated as a recurring debt and cannot be offset
by the car allowance.
• If there is a loss between the allowance and actual expenditures, that amount is
considered a recurring debt and counted in the total debt ratio.
• If the borrower uses the standard per-mile rate in calculating auto expenses, as
opposed to the “actual cost” method, the portion that the IRS considers
depreciation may be added back to income.
Capital Gains • Capital gains (or loss) as shown on Schedule D of the Individual Tax Returns
(IRS form 1040) generally occurs only one (1) time and should not be considered
in determining effective income.
• If the borrower has a constant turn over of assets resulting in gains or losses, the
capital gain or loss may be considered in determining the income, provided the
borrower has at least three (3) years’ tax returns evidencing capital gains.
Example: An individual who purchases old houses, remodels them and sells
them for a profit.
Commission Commission income can be used to qualify the borrower if the following guidelines
Income are met.
• The borrower must furnish the most recent two (2) years’ Federal tax returns,
along with his/her most recent paystub.
• The commission income is averaged over the two (2) year period.
• Commission income showing a decrease requires significant compensating
factors to justify loan approval.
• Any unreimbursed business expenses (Schedule A of tax returns) must be
deducted from the borrower’s income.
• Income received between one (1) and two (2) years may be considered if the
underwriter is able to make a sound rationalization for acceptance and can
document the likelihood of continuance.
Employer If the employer subsidizes the mortgage payment, the amount of the payments is
Differential considered gross income. It may NOT be used to offset the mortgage payment
Payments directly, even if the employer pays the servicing lender directly.
Continued on next page
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Income, Continued
Employment by The borrower must provide the normal documentation for employment, income pay
Family-Owned stub(s) and evidence of not being an owner of the business. This evidence may
Business include one of the following:
• a signed copy Federal personal tax returns, and/or
• a signed copy of the Federal corporate tax return showing ownership
percentages (usually evidenced on the Schedule K-1).
Gaps in If a borrower has a gap of employment spanning one (1) month or more, an
Employment explanation from the borrower is required. Allowances for seasonal employment
such as is typical in the building trades, etc. may be documented by the lender.
Automatic Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” an explanation • If “Accept,” an explanation is
of employment gaps greater than six required if the gap was more than
months that have occurred in the 60 days.
last two years is required.
Government • Government assistance in the form of workman’s compensation, welfare
Assistance programs, payments for foster children, unemployment income, etc. may be
Programs used to qualify the borrower.
• Documentation must be provided from the agency paying benefits to verify that
the benefits are likely to continue for at least three (3) years after closing. If
continuance of such income is not expected for three (3) years, it may be
considered as a compensating factor.
• Unemployment income must be documented for two (2) years. Reasonable
assurance of its continuance is also required. This applies to individuals
employed on a seasonal basis, such as farm workers, resort employees, etc.
Continued on next page
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Income, Continued
Section 8 Home Procedures for loan applications where the homebuyer receives a monthly
Ownership homeownership assistance payment under the housing choice voucher
Vouchers homeownership program (Section 8) are shown below.
• All Section 8 subsidized mortgage loans must have “88” entered as the program
identification code in the FHA Connection or its functional equivalent.
• FHA will assume that the subsidy will continue for at least three (3) years so that
it may be considered effective income.
• The methods for qualifying the borrower are shown below.
• The homeownership assistance payment must be paid directly to the
homeowner/borrower.
• The amount of the monthly subsidy may only be considered as income in
determining the borrower’s qualifying ratios.
• Qualifying instructions for this scenario are shown below.
• The amount of the non-taxable subsidy that is received directly by the
homeowner may be grossed up by 25%.
• The amount of the subsidy plus 25% of that subsidy may be added to the
borrower’s income from employment and/or other sources in calculating
the qualifying ratios.
Note: Although HUD allows the homeownership assistance payments to be
made directly to the servicing lender to offset the mortgage payment, SunTrust
servicing is unable to facilitate the procedure for receiving or allocating these
funds. Therefore, the requirements shown above must be adhered to for
eligibility purposes, without exception.
• All other FHA requirements (i.e., employment stability, credit history, down
payments, etc.) as shown in this product description apply.
Interest and • Evidence required to show borrower still owns the assets generating the income
Dividend used to qualify.
Income • Interest and dividend income must be documented as received for the past two
(2) years.
• A two (2) year average is required to use such income to qualify for the
mortgage.
• Two (2) years signed Federal tax returns or account statements must be
provided. Funds used for down payment and/or closing costs must be
subtracted before the interest is calculated.
Continued on next page
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Income, Continued
Military Income In addition to base pay, military personnel may be entitled to additional forms of pay
provided its continuance is verified in writing:
• flight or hazard pay,
• BAS, Basic Allowance for subsistence (rations),
• clothing allowance,
• proficiency pay, and
• BAH, Basic Allowance for housing.
Mortgage • If a government entity subsidizes a mortgage payment, either through direct
Credit payments or tax rebates, these payments are considered as acceptable income
Certificates if verified in writing.
• Either type of subsidy may be added to gross income or used to offset the
mortgage payment before calculating the qualifying ratios.
New • If a borrower is about to begin a new job, there must be a guaranteed, non-
Employment revocable contract, fully executed by employee and employer, to begin the new
position within 60 days of closing, and the income is acceptable for qualifying
purposes.
• If the loan will close more than 60 days before the employment begins, the loan
is not eligible for endorsement until the lender provides a paystub or other
acceptable evidence has actually begun the new job.
• There must be sufficient, verified income/cash reserves to support debt during
the interim between closing and start of employment.
Non-Taxable Non-taxable income may be “grossed-up” by using the published IRS tax tables or
Income 15%. If the borrower is not required to file a federal income tax return, the tax rate to
use is 25%.
Note • Income received from the repayment of a note must be verified by a copy of the
Receivable note to establish the amount and length of payments.
Income • Payments must continue for the first three (3) years after closing.
• Evidence (i.e., front and back of canceled checks, deposit slips or Federal tax
returns) must be provided evidencing that the funds have been received
consistently for the past 12 months.
Continued on next page
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Income, Continued
Overtime / • Overtime and bonus income is treated as salaried income.
Bonus Income
Reference: See “Salaried or Hourly Wage Income” previously presented in this
topic for additional information.
• Overtime or bonus income may be used to qualify the borrower if it meets the
following guidelines:
• There must be a two (2) year history.
• The likelihood that the overtime or bonus income will continue must be
verified on the written verification of employment or telephone certification
of employment.
• The income is averaged over the most recent two (2) year period. If there is
a decline in income, there must be justification for using it as qualifying
income. If the income is not consistent from year to year, more than two (2)
years’ income must be averaged to calculate an acceptable qualifying
income.
• If received less than two (2) years, the income may be acceptable if it can be
documented that it will continue. The VOE must show likelihood of
continuance. A trend must be established and analyzed. The reason for
using the income for qualifying purposes must be justified and documented
in writing.
Part-Time • HUD defines part-time income (second job income) as income from a job taken
Income in addition to a borrower’s regular employment that supplements the borrower’s
(Second Job income. If a borrower’s regular employment is less than the typical 40 hour work
Income) week, the stability of that income should be evaluated as any other regular, on-
going primary employment.
• Part-time income from second job may be used if it can be verified as having
been uninterrupted for the previous two (2) years and if it has a strong likelihood
of continuation.
• A seasonal part-time or second job (such as that received by a person who
works part-time at a department store during the Christmas shopping period) can
be considered as uninterrupted if the borrower has worked in the same job “in
season” for the past two years and expects to be rehired for the next season
(i.e., umpiring baseball games in summer).
• Income from a part-time position that has been received for less than two (2)
years may be included as effective income provided that the continuance of such
income can be verified, and use of this income is justified and documented in the
file.
• Income that does not meet these requirements may be considered as a
compensating factor.
Continued on next page
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Income, Continued
Projected • Projected or hypothetical income is not acceptable for qualifying purposes.
Income However, exceptions to this rule are permitted as shown below.
• Income from bonuses, cost-of-living adjustments, or performance raises
(must be well documented with verification from the borrower’s employer)
may be used if documentation verifies that it will be received within 60 days
after closing.
• Income from an accepted (but not yet started) job with a guaranteed, non-
revocable contract for employment beginning within 60 days of loan closing
may be used in qualifying. However, it must be verified that there will be
sufficient income or cash reserves to support the mortgage payment and
other obligations during the interim period between loan closing and start of
employment. (i.e., teachers whose contracts begin with the new school year,
or physicians who will begin residency after the loan is scheduled to close.)
• If the loan will close more than 60 days before the borrower’s employment
begins, the loan is NOT eligible for insuring until receipt of a pay stub or
other acceptable evidence that the borrower has begun the new job.
Recent Return Borrowers who have been out of the work force for a significant period of time may use
to Work Force income they receive from returning to work provided the following guidelines are met:
• the borrower must be employed in his/her current job for at least six (6) months,
• a two-year work history prior to the absence from the work force (i.e., written
verification of employment or W-2’s) must be documented, and
• income from employment may only be considered as a compensating factor if
these requirements cannot be met.
Rental Income • Rent received for other properties owned by the borrower is acceptable if
documented that the rental income is stable.
• Rent received from additional units in the subject property (if a 2-4 unit property)
may be used for qualifying purposes.
References:
• See the subtopic “Rent Loss Insurance” subsequently presented for additional
information and requirements when using rental income.
• See “Conversion of Existing Primary Residence to Rental Property or Second
Home” within the topic “Workflow” for additional information.
• Net rental income is calculated by taking the gross rents minus the 25% reduction
(or local office’s percentage reduction for vacancies and repairs) then subtract the
monthly payment of PITI. If this yields a positive number, add it to the borrower’s
monthly gross income; if negative, consider it a recurring monthly obligation.
Continued on next page
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Income, Continued
Rental Income, • Rental income is verified using one (1) of the following documentation methods:
(continued) • Schedule E of IRS Form 1040 (any depreciation is added back to the net
income or loss reflected on the Schedule and the current ownership of the
properties listed on Schedule E must be compared to the real estate owned
section of the loan application), or
Note: To be considered stable income, when tax returns are used to
calculate the rental income and a current lease (or agreement to lease) is
not provided, the 24-month rental history must be free of any unexplained
gaps greater than three (3) months.
• current leases (if the property was acquired since the last income tax year
and is not listed on Schedule E, a current signed lease or other rental
agreement must be provided and the gross rental is reduced by 25%* to
allow for vacancies and maintenance before calculating net rental income).
Note: *Please check the HOC for their specific vacancy factor.
• Income from “boarders” is acceptable when it is received from a relative and can
be shown on the borrower’s Federal tax returns. Otherwise, it may be used as a
compensating factor.
• If six (6) or more units are owned in the same general area, a map disclosing the
locations must be submitted evidencing compliance with FHA’s seven (7) unit
limitation.
Reference: See “Ownership in Unit Limitation” within in the topic “Eligible
Borrowers” for additional information.
Continued on next page
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Income, Continued
Rent Loss When rental income is being used to qualify AND the subject property is secured by
Insurance a 2-4 unit primary residence or 1-4 unit investment property, SunTrust will require the
borrower to obtain rent loss insurance to cover at least six (6) months of gross
monthly rent.
Notes:
• Rent loss insurance is not required if rental income from the subject property is
not being used to qualify.
• Rent loss coverage must be included as a part of the hazard insurance policy as
an endorsement. The yearly hazard insurance premium must include the
additional premium the borrower must pay for this coverage. The rent loss
coverage provided in the hazard insurance policy must cover a minimum of six
(6) months of gross monthly rent.
Note: If the insurance company will not issue an endorsement to the hazard
insurance policy for the rent loss coverage, the acceptance of a separate
insurance policy will be considered on a case-by-case basis. Current published
hazard insurance policy requirements (i.e., policy term, policy prepayment,
escrow collection, etc.) will apply for the separate policy.
• Rent loss insurance covers rental losses that are incurred during the period that
a property is being rehabilitated following a casualty.
Continued on next page
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Income, Continued
Retirement and • Retirement and Social Security income must be verified from the third-party
Social Security source (Social Security Administration and former employer) or from the most
Income recent two (2) years’ Federal tax returns.
• The income must continue for at least three (3) years after closing; otherwise, it
will be used only as a compensating factor.
Self-Employed General Information
Borrowers Individuals who own 25% or more interest in a business are considered self-
employed.
Effective Income
• The total net profit of the business if a sole proprietorship with depreciation or
depletion added back to the adjusted gross.
• The amount of the draw or bonus taken from the capital account if the business
is a partnership plus the borrower’s share of the net profit.
• The amount of wages or salary as shown on the W-2 if the business is a
corporation, plus any bonus or other compensation, deducting any spousal
income.
Income Analysis
• Establish an earnings trend over the previous two (2) years. Three (3) years
may be used if all three (3) years tax returns are provided.
• Quarterly tax return income may be included through the period covered by the
tax filings. If no quarterly returns, the income shown on the P&L statement may
be included provided the income stream is consistent with the previous years’
earnings. If the P&L shows an income stream considerably greater than
previous years, the analysis must be based solely on the income verified through
the tax returns.
• Careful analysis of the business’ financial strength, the source of its income, and
the general economic outlook for similar businesses in the area.
• A borrower whose business shows a significant decline in income over the
period analyzed is not acceptable, even if current income and debt ratios meet
HUD guidelines.
• A borrower’s withdrawal of cash from the business may have a severe negative
impact on the ability of the business to continue operating and must be carefully
considered in the analysis.
Length of Time in Business
• If the borrower has been in business for at least two (2) years, income may be
considered stable and effective.
• If the borrower has been in business between one (1) and two (2) years, he/she
must have at least two (2) years previous employment or a combination of one
(1) year employment and formal schooling or training in the occupation.
• If the borrower has been in business less than one year, income is not eligible
due to lack of earnings history.
Continued on next page
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Income, Continued
Self-Employed Documentation
Borrowers, Signed and dated Federal individual income tax returns with all schedules for the two
(continued) (2) most recent previous years (if current year taxes have been filed, proof of filing
may be required (i.e., canceled checks or IRS stamp on the tax return).
• Signed and dated current financial statement, including a year-to-date balance
sheet and income statement.
• If the business is a corporation or partnership signed and dated Federal
business tax returns for the most recent two (2) years with all schedules (if
current year taxes have been filed, proof of filing may be required, i.e., canceled
checks or IRS stamp on the tax return).
• Business credit report on corporations and “S” corporations.
Reference: See HUD Handbook 4155.1, Chapter 4, Section D for additional
information on analyzing Individual, Corporate, “S” Corporation, and Partnership tax
returns.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• Generally, standard FHA guidelines • Generally, standard FHA guidelines
apply with some exceptions on apply with some exceptions on
documentation requirements. documentation requirements.
• If “Approve/Eligible,” the borrower • If “Accept,” business tax returns are
must provide two (2) years of not required if the following applies:
individual federal tax returns and • Borrower’s income from the
corporate partnership federal tax business represents 5% or less
returns (if applicable to business). of the total stable monthly
• If “Approve/Eligible,” profit and loss income used to qualify, or
statements or balance sheets are not • Borrower’s individual Federal tax
required. returns reflect increasing self-
• If one borrower is self-employed employment income for the last
while another on the same loan is two (2) years, funds required to
salaried, the DO/DU Findings Report close are not coming from
will provide an employment message business accounts and borrower
for the self- employed borrower has been self-employed in the
(ignore the employment message for business for at least five (5)
the self-employed borrower and years.
provide self-employed • If “Accept,” profit and loss
documentation as identified in the statements or balance sheets are
rest of the message). not required.
Continued on next page
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Income, Continued
Foreign Income • Borrower must be US citizens receiving foreign employment income generated
from a non-US source.
• Non-US source of income may not include sanctioned countries
administered by OFAC.
• Foreign income (income generated from non-US sources) may be used only if its
stability and continuance for three (3) years can be verified.
• Foreign income must be supported by:
• the most recent two (2) years signed federal tax returns, and
• standard income documentation (i.e., year-to-date paystub and W-2 forms
for prior years).
• If the income is paid in a foreign currency, the income must be translated into US
dollars.
Note: AUS is not able to recognize foreign income, therefore, these changes will
need to be applied outside of AUS.
Tip Income • Must have been received for at least the most recent two (2) years.
• Documentation that the current employer expects the tip income to continue is
required.
• Tip income should be averaged over the past two (2) years to determine the
amount of income that may be considered in qualifying the borrower.
Note: Tip income must be entered in DU as “Other Types of Income.”
Trailing Spouse The use of trailing co-borrower income is not permitted.
Trust Income • A copy of the Trust Agreement or the Trustee’s statement confirming the
amount, frequency and duration of payments must be provided.
• The income must continue for at least three (3) years after closing.
• Lump sum distributions made before loan closing may be used for down
payment or closing costs if they are verified by a copy of the check or the
Trustee’s letter that shows the distribution amount. If a distribution was made
that reduces the Trust income, the reduction must be taken into consideration in
computing the income.
VA Benefits • Income received in the form of VA benefits must be documented by a letter or
distribution form from the Veterans Administration.
• The income must continue for at least three (3) years after closing.
• Education benefits are not acceptable income, as it offsets education expenses.
Continued on next page
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Income, Continued
Borrowers on The guidelines below apply to a borrower who is currently out of work due to a strike
Strike at his/her place of employment.
• The file must contain evidence that the borrower has returned to work.
• The branch must be sure that the information obtained is from a reliable source.
• One of the following methods may be used for confirmation:
• a written verification from the employer confirming the borrower is back to
work, or
• a verbal verification with either the Human Resources Department, Payroll
Department or the borrower’s supervisor.
Note: The SunTrust Wholesale Branch Office must verify and obtain the
information directly with the employer (no third party documentation).
Continued on next page
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Income, Continued
Layoffs and • Borrowers may be considered on a case-by-case basis if the borrower has a
Plant Closings minimum of one (1) year guaranteed employment remaining when he/she has
been notified of a pending layoff or closing.
• Underwriters are to use caution when approving these loans and document each
file justifying why an approval was issued. WHEN THE PLANT CLOSING OR
LAYOFFS ARE EFFECTIVE IN LESS THAN ONE (1) YEAR, FHA RECOMMENDS
THAT THE LOAN NOT BE APPROVED.
• The guidelines shown in the following table are provided to assist in reviewing
the applications from a borrower who is affected by job eliminations.
Note: Marginal loans are not acceptable under these circumstances.
Guidelines for Reviewing Examples
Borrower Applications Affected
by Job Eliminations
Analyze the overall strengths of the • Are the ratios low enough to support
file (i.e., credit, assets, ratios), the loan if the borrower had to take a
including, but not limited to, the items lesser paying job?
shown in the example. • Has the borrower exhibited a savings
pattern? This is of particular interest if
the borrower’s current income is
unlikely to be equaled by a new
employer.
• Will the borrower have cash reserves
available as a cushion for any period of
unemployment following closing?
• Has the borrower established a
satisfactory credit history?
• What has been the borrower’s
employment history?
• What is the remaining length of time of
guaranteed employment?
Note: The SunTrust Wholesale Branch
Office will need to monitor the time frame
for sections of the business that are laying-
off (or closing) first.
Continued on next page
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Income, Continued
Layoffs and Plant Closings, (continued)
Guidelines for Reviewing Examples
Borrower Applications Affected
by Job Eliminations
Consideration of what other income • Does borrower have second job?
is coming into the household that is • Does borrower receive income from
verifiable. rental properties?
• Does borrower have any undisclosed
stable income?
• Does a non-applicant spouse have
stable income?
• Does the co-borrower have additional
stable income not disclosed?
Obtain statements from the • Alternative plans,
borrower addressing the concerns • Job skills,
due to the pending layoff including • What prospects are available for those
but not limited to those shown in the skills in the area with other employers,
example. • How does borrower plan to repay the
mortgage, and
• Other employment possibilities in the
area, salary prospects within commuting
distance.
Continued on next page
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Income, Continued
Documentation An IRS form 4506-T must be executed (at application and again at closing) by the
borrower(s) for all loans.
Reference: See the “IRS 4506-T” subtopic in Section 1.05: Closing Information of
the Broker Seller Guide for additional information regarding IRS Form 4506-T
requirements at application and at closing.
Written Verifications
• If written verification forms are used, the lender’s file must contain the original
form (or a faxed form) with an original signature of the party completing the form.
• Verification forms must pass directly between the lender and creditor without
being handled by a third party.
• When using a written verification of employment, the file must also contain a
most recent (at time of application) paystub. This must be provided at the time
of underwriting.
Alternate Documentation of Employment
• Paystub(s) covering the most recent 30 day period. The paystub must show the
borrower’s name, social security number and year-to-date earnings.
• W-2’s for the most recent two (2) years.
• Telephone certification of current employment.
• Certification that original documents were examined and the name, title, and
telephone number of the person with whom employment was verified.
• Standard employment documentation must be used if the employer will not give
telephone confirmation of employment or if the W-2 indicates inconsistencies.
Note: Paystubs are required before FHA will guarantee the loan.
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Liabilities and Qualifying Ratios
Alimony and • The lender can choose to treat the payment of alimony one (1) of two (2) ways:
Child Support • as a reduction from the borrower’s gross income, or
• as a monthly obligation.
• The lender should choose whichever method benefits the borrower the most.
• Child support must be treated as a monthly obligation.
Authorized Credit report tradelines that list a borrower as an “authorized user” are not required
User Accounts to be considered in the underwriting decision or the debt-to-income (DTI) ratios.
Compensating Compensating factors may be used if a borrower’s debt ratios exceed the guidelines
Factors if an approval is granted. Underwriters must state in the “underwriter comments”
section of the FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT)
the compensating factors used to justify their loan approval. Some common
examples of compensating factors listed below.
• Borrower has substantial documented cash reserves after closing. (At least three
(3) months’ worth of liquid or readily convertible to cash without retirement or job
termination. Other exclusions are gift funds, funds borrowed against IRAs, thrift
savings plans, 401(k)s, etc., equity in other properties or proceeds from a cash-
out refinance).
• Borrower has demonstrated the ability to accumulate savings.
• Borrower makes a large down payment (ten percent (10%) or more.).
• Borrower has demonstrated a “conservative” use of credit.
• Borrower has demonstrated the ability to pay housing expenses equal to or
greater than the proposed monthly housing expense for the new mortgage over
the past 12-24 months.
• Previous credit history shows that the borrower has the ability to devote a
greater portion of income to housing expenses.
• The borrower receives documented compensation or income not reflected in
effective income, but directly affecting the ability to pay the mortgage, including
food stamps and similar public benefits.
• There is only a minimal increase in the borrower’s housing expense.
• The borrower has substantial non-taxable income (if no adjustment made
previously in the ratio computations).
• The borrower has potential for increased earnings, as indicated by job training or
education in the borrower’s profession.
• The home is being purchased as the result of relocation of the primary wage-
earner and the secondary wage-earner has an established history of
employment, is expected to return to work, and there is reasonable prospects for
securing employment in a similar occupation in the new area. The Underwriter
must address the availability of such possible employment.
Note: It is not permissible to require the borrower to make advance payments
on his mortgage for consideration as a compensating factor.
Condominium With proper verification, that portion of the condo fee that clearly covers the utilities
Fees may be subtracted from the mortgage payment before computing ratios.
Continued on next page
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Liabilities and Qualifying Ratios, Continued
Contingent • A contingent liability exists when a borrower holds a joint obligation with another
Liability person or persons.
• Obligations where the borrower is a co-signer must be listed as the borrower’s
debt, unless the borrower can provide conclusive evidence from the debt holder
that there is no possibility the debt holder will pursue debt collection against
him/her should the other party default.
• The information listed below applies to contingent liabilities.
• Mortgage Debt: If a borrower is obligated on an outstanding HUD, VA or
conventional mortgage secured by a property which has been sold by
assumption, contract for Deed or traded within the last twelve months without
a release of liability, or a property was transferred because of divorce,
contingent liability must be considered a recurring liability unless the
following circumstances apply:
• the Servicer of the assumed loan provides a payment history showing
that the mortgage has been current during the previous twelve months, or
• an appraisal or closing statement from the sale of the property supports
a value that results in a 75% LTV ratio (i.e., the outstanding balance on
the mortgage loan, minus any UFMIP, cannot exceed 75% of the
appraised value or sales price).
Note: A copy of the divorce decree ordering the former/separated spouse to
make payments or the assumption agreement and the deed showing transfer
of title out of the borrower’s name is required.
• Co-Signed Obligations: If the borrower is a co-signer, or otherwise co-
obligated on a car loan, student loan, mortgage, or any other obligation,
contingent liability applies unless the lender obtains documented proof that
the primary obligor has been making payments during the previous 12
months on a regular basis and does not have a history of delinquent
payments on the loan.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS for Contingent Liabilities on
Mortgage Debt.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” the following is • If “Accept,” the following is required:
required: • obtain a copy of the divorce
• obtain a copy of the divorce decree ordering the other
decree ordering the other spouse spouse to make payments, or
to make payments, or • The assumption agreement and
• the assumption agreement and the deed showing transfer of title
the deed showing transfer of title out of the borrower’s name.
out of the borrower’s name.
Note: There is no twelve (12) month
Note: There is no twelve (12) month payment history requirement.
payment history requirement.
Continued on next page
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Liabilities and Qualifying Ratios, Continued
Conversion of • This guidance applies solely to a principal residence being vacated in favor of
Existing another principal residence.
Primary • The housing payments for the current primary residence and the new proposed
Residence to primary residence must be included in the debt to income calculation.
Rental Property • Underwriters are not permitted to include rental income from a primary residence
or Second being vacated in favor of another principal residence unless one of the following
Home applies:
• the homebuyer has a 75% LTV/TLTV or less, as determined by a current
(dated within sixty [60] days of the Note date for the new transaction)
residential appraisal (may be exterior-only) on the current primary residence,
OR
Note: SunTrust requires borrowers with a current 2-4 unit primary residence
that will be converted to an investment property to meet the 25% required equity
position to utilize the rental income from ANY of the property’s units, regardless
if the units were previously occupied by the borrower or not.
• the homebuyer is relocating with a new employer, or being transferred by the
current employer to an area that is not within a reasonable commuting
distance.
• Evidence of a properly executed lease agreement of at least one year in
term after the loan closing date and evidence of the security deposit
and/or the first month’s rent was paid to the homeowner must be in the
loan file.
• Traditionally underwritten loans must document the following reserve
requirements:
• three (3) months reserves on BOTH properties, if the homebuyer cannot
provide evidence of a 75% LTV/TLTV or less on the current primary
residence,
• two (2) months reserves on BOTH properties, if the homebuyer can provide
evidence of a 75% LTV/TLTV or less on the current primary residence.
Note: TOTAL Scorecard will determine reserve requirements for AUS approved
transactions.
Energy Ratios may be exceeded by up to 2% (becoming 33/45% respectively) if the property
Efficient is an Energy Efficient home and the following conditions apply:
Properties • the property is identified as an Energy Efficient Home (EEH) by the HUD Field
(EEH) Office, and
• evidence of the EEH designation must be provided to the buyer for eligibility to
be passed to subsequent owners.
Note: All properties meeting the 2000 International Energy Conservation Code
(IECC) are considered energy efficient and eligible for the two percentage points
increase in qualifying ratios.
Continued on next page
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Liabilities and Qualifying Ratios, Continued
Installment • Generally, installment debt with less than ten (10) remaining payments is not
Debt considered in the qualifying ratios. If the debt is other than a fixed installment,
the underwriter must verify that the monthly installments plus interest are equal
to an amount that can be paid off within ten (10) months. Reliance solely on the
credit report is insufficient. Thus, it will be necessary to obtain a copy of the
borrower’s pay statement, or other documentation, to determine the interest rate
and number of payments required to satisfy the debt.
• If the monthly payment on debts with less than ten (10) remaining payments is
large enough to seriously affect the borrower’s ability to make the mortgage
payment in the months immediately following closing, the monthly payment must
be included in the debt ratios. An exception may be granted if the borrower has
sufficient cash reserves after loan closing to supplement his/her income for
payment of the debt.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If a liability has less than ten (10) All liabilities listed on the 1003 will be
remaining payments and the payment considered in the borrower’s ratio.
is less than $100, it is not counted in
the borrower’s debt ratio.
• All other liabilities listed on the 1003
will be considered in the borrower’s
ratio.
Obligations Not • Federal/state/local taxes,
Considered as • FICA or other retirement contributions such as 401Ks (including repayment of
Debt debt secured by these funds),
• Commuting costs,
• Union dues,
• 401(k) payments,
• Automatic deductions to savings accounts,
• Child care, and
• Other voluntary deductions.
Projected Debt If a debt, such as a student loan or balloon note, is scheduled to begin repayment or
to become due within the first 12 months of loan closing, the lender must include the
monthly obligation or take into consideration the note when qualifying the borrower.
Continued on next page
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Liabilities and Qualifying Ratios, Continued
Property Taxes, • The taxes, insurance and HOA assessments, if applicable, due on a property
Insurance and owned by a borrower must always be considered in the borrower’s debt to
HOA income ratios, including properties that are currently owned free and clear.
Assessments • Generally, it is assumed that, if the mortgage has been reported to the credit
repositories, the payment includes taxes and insurance. This assumption also
includes mortgages that are not on the credit report and other verification has
been provided.
• If the mortgage is with a private individual, it is assumed that the payment does
NOT include taxes and insurance.
Reference: See the “Privately Held Mortgages” subtopic subsequently
presented in the “Credit Requirements” topic for additional information regarding
payment verification requirements for privately held mortgages.
• If the borrower discloses that the mortgage payment does not include taxes
and/or insurance or the mortgage is with a private individual, the following
applies:
• the borrower must provide the amount of taxes and/or insurance (translated
into a monthly figure),
• the monthly taxes and/or insurance must be treated as a liability, and
• documentation of the taxes and/or insurance is determined by underwriter
discretion based on the borrower’s cash reserves.
Qualifying Rate Fixed Rate Mortgages
• Fixed rate loans-qualify at the Note rate.
• Temporary buydowns qualify at the Note rate.
Adjustable Rate Mortgages
• The 5 Year and 7 Year ARMs qualify at the Note rate.
Note: The LTV is calculated by dividing the base loan amount by the lesser of
the appraised value or sales price.
Continued on next page
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Liabilities and Qualifying Ratios, Continued
Qualifying • The housing ratio includes the PITI of the new mortgage, mortgage insurance,
Ratios homeowner’s association dues, and payments on secondary financing.
• Taxes included in the PITI for proposed/new construction properties must be
based on “improved” property taxes.
• The debt ratio includes housing ratio items, installment loans, revolving credit,
other mortgage payments, and any other monthly debt.
• Housing ratios exceeding 31% and debt ratios exceeding 43% may be
acceptable ONLY if significant compensating factors are documented and
recorded on the FHA Loan Underwriting and Transmittal Summary (HUD-92900-
LT).
• Compensating factors, used to support the loan approval, must be listed in the
underwriter comments section of the FHA Loan Underwriting and Transmittal
Summary (HUD-92900-LT) for non-AUS approved loans exceeding 31/43%
ratios.
• The maximum DTI for SunTrust on any AUS approved transaction is
50.00%, regardless of AUS findings.
• Traditionally underwritten loans are not subject to this restriction; however,
must continue to meet all other requirements, including credit scores,
published by SunTrust and current FHA guidelines.
• Victims of a Presidentially-Declared Major Disaster Area may have a debt ratio
up to 45% without compensating factors. This debt ratio may be exceeded with
appropriate compensating factors. Evidence that the borrower resided in the
disaster area during the occurrence must be provided. This remains in effect for
up to one-year from the date of the President’s declaration. Check the FEMA
website to obtain specific affected counties and corresponding declaration dates
for the Major Disaster Areas.
Reference: See the subtopic “Compensating Factors” previously presented in
this topic for additional information.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” no explanation • If “Accept,” no explanation is
is required for qualifying the required for qualifying the borrower
borrower at ratios above FHA at ratios above FHA guidelines
guidelines when this occurs. when this occurs.
• The maximum DTI for SunTrust • The maximum DTI for SunTrust
on any AUS approved on any AUS approved
transaction is 50.00%, transaction is 50.00%,
regardless of AUS findings. regardless of AUS findings.
Continued on next page
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Liabilities and Qualifying Ratios, Continued
Undisclosed • Information disclosed on the loan application must be accurate and current
Debt through loan closing. This information includes (but is not limited to) any
additional credit applied for or incurred during the application process and
through loan closing.
• If the borrower indicates new debt has been incurred which is not present on the
initial application or on the credit report, documentation must be obtained from
the borrower which indicates the balance and payment of the debt. This
information must be included as a liability on the 1003 and the borrower must be
requalified and/or the loan re-priced based on this new information.
Note: At this time, SunTrust will NOT be pulling a new credit report prior to
closing to validate if the borrower has incurred any additional liabilities.
• The Additional Credit and Debt Disclosure must be provided to ALL borrowers at
application and must be signed by ALL borrowers to acknowledge receipt of the
disclosure. The signed Additional Credit and Debt Disclosure must be present in
the mortgage loan file at the time of underwriting. If not present, the underwriter
must condition for the required disclosure.
Notes:
• An Additional Credit and Debt Disclosure must be provided by the Broker
and must contain the following disclosure information:
• the lender confirms and validates the information on the loan application
• the information provided must be accurate and current when the client
originally submits the application and at the time of loan closing
• loan approval (or denial) is based on the information disclosed on the
loan application, the client’s credit report, and other sources of
information used by the lender
• the client must immediately notify the lender of any new or additional
credit applied for, or any debt/liabilities incurred after the submission of
the original loan application
• prior to closing, if the lender discovers the client incurred any new credit
accounts or new debt/liabilities, their loan application will be requalified
based on this new information, which could result in an increase in
interest rate and/or a possible loan denial
• the client’s failure to report any new application for credit or new
debts/liabilities after submission of the original mortgage loan application
could be considered mortgage fraud.
• STM Internal Information ONLY:
• The Additional Credit and Debt Disclosure is available through Digital
Docs. This application disclosure automatically prints in the initial
disclosure package.
• If the above referenced disclosure is not present in the loan file at the
time of underwriting, the underwriter must utilize one of the
miscellaneous MISF underwriting codes to condition for the application
disclosure form. The underwriting level permitted to clear the
underwriting condition is Level 5.
Continued on next page
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Liabilities and Qualifying Ratios, Continued
Undisclosed • The Notice to Borrower Additional Credit and Debt Not Disclosed must be
debt, provided to ALL borrowers at closing. All borrowers must sign the disclosure to
(continued) acknowledge they read, understand and received a copy of the disclosure. This
disclosure reminds borrowers that they must disclose all debts incurred during
the application process and through closing. These debts are included in the
qualification for the subject mortgage.
STM Internal Information ONLY:: The Notice to Borrower Additional Credit Not
Disclosed is available through Digital Docs. This closing disclosure
automatically prints in the SunTrust Mortgage closing package.
Reference: See the “Inquiries” subtopic subsequently presented in the “Credit
Requirements” topic for additional information.
Revolving • Monthly payments on revolving or open-end accounts, regardless of balance,
and/or Open- must be included in the borrower’s monthly debt payment. If there is no balance,
End Debt there is no monthly payment.
• In the absence of a stated payment, the greater of 5% of the outstanding
balance or $10 will be used as the required monthly payment.
Continued on next page
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Liabilities and Qualifying Ratios, Continued
Student Loans If the debt repayment is scheduled to begin within twelve months from the date of the
mortgage loan closing, the anticipated monthly obligation must be included in the
debt ratio unless written evidence that the debt will be deferred to a period outside of
this timeframe is provided.
Notes:
• Student loans cannot be used towards the transaction as either income or
assets.
• If the RMCR or Infile Credit Report does not reflect a monthly payment amount,
a copy of the Note or a letter from the lender must be used to determine the
monthly payment amount.
Unverified • If there are liabilities disclosed by the borrower but not on the credit report,
Liabilities independent verification is required.
• Verification of such liabilities is based on underwriting discretion upon full
analysis of the loan file. The underwriter must determine if verification is
necessary to support an approval (if not verified, an explanation is required as to
why the liability is immaterial).
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible” and • If “Accept” and liabilities disclosed by the
liabilities disclosed by borrower are not on the credit report, the liability
the borrower are not on must be verified according to non-AUS
the credit report, the guidelines.
liability must be verified • If the verification reflects that the account is
according to non-AUS currently more than 90 days past due, the loan
guidelines. must be downgraded to a “Refer”.
Section 2.90 November 10, 2011
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Credit Requirements
General • The overall analysis of a borrower’s credit should be performed using the
following “hierarchy” order:
• payment history for current and previous housing payments,
• payment history for installment debts, and then
• payment history for revolving accounts.
• Generally, an individual with no late housing or installment debt payments should
be considered as having an acceptable credit history unless there is derogatory
credit on revolving accounts.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
If a borrower’s current address is outside If a borrower’s current address is
of the United States, DO/DU will not outside of the United States, LP will not
issue a recommendation. The loan must issue a recommendation. The loan
then be traditionally underwritten. must then be traditionally underwritten.
Continued on next page
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Credit Requirements, Continued
Bankruptcy Documentation
• Copy of the bankruptcy petition,
• Schedule of Debts and Discharge, and
• Written explanation from borrower.
Note: Documentation of the bankruptcy is not required if, TOTAL Scorecard
approves the transaction and the findings do not need to be manually downgraded to
a “Refer” and traditionally underwritten.
Chapter 7 [liquidation] Bankruptcy
• Bankruptcy must have been discharged for at least two (2) years.
• If bankruptcy is discharged for at least one year (but not less than 12 months), it
may be acceptable if it occurred due to extenuating circumstances beyond the
borrower’s control (i.e., death of principal wage earner, or serious long-term
illness) and are not likely to reoccur.
• Provide documentation that the borrower’s current situation indicates that the
events that led to the bankruptcy are not likely to reoccur.
• The borrower must have re-established good credit, or has chosen not to incur
new credit obligations.
• In lieu of an established credit history, credit letters covering the past 12 months
from two of the following are acceptable: telephone, cable, gas or electric
companies, etc.
• There cannot be any new derogatory credit information, unless TOTAL
Scorecard approves the transaction and the credit report accurately reflects the
derogatory credit information.
• Note: If the bankruptcy included a foreclosure, the more restrictive three (3)
year wait still remains in effect. This three (3) year waiting period is based on
the date the claim is paid.
Reference: See “Foreclosures” subsequently presented within this topic for
additional information.
Continued on next page
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Credit Requirements, Continued
Bankruptcy, Chapter 13 Bankruptcy
(continued) • A borrower paying off debts under a court approved wage earner’s plan pursuant
to Chapter 13 of the Bankruptcy Act may be eligible if he/she is:
• otherwise acceptable,
• bankruptcy payments are included in the ratios,
• one (1) year of the pay-out period has elapsed,
• the performance under the plan has been satisfactory, and
• the borrower receives court approval to enter into the mortgage transaction.
• The borrower must have re-established good credit, or has chosen not to incur
new credit obligations.
• In lieu of an established credit history, credit letters covering the past 12 months
from two of the following are acceptable: telephone, cable, gas or electric
companies, etc.
• There cannot be any new derogatory credit information.
Note: Bankruptcy information through the Public Access to Court Electronic
Records (PACER) service that matches the credit report is acceptable to FHA.
However, if the borrower does not meet the standard requirement of two years (three
years if part or a foreclosure), additional documentation may be required.
Reference: See the “PACER” website at http://www.PACER.psc.uscourts.gov/ for
more information.
Automated Underwriting Systems (AUS) Information
• The following table shows information specific to AUS.
• To be eligible for AUS submission, the Chapter 13 Bankruptcy must have been
discharged for at least two years.
Fannie Mae DO/DU Freddie Mac LP
• Typically, the loan will receive an Standard FHA guidelines apply.
“Approve/Ineligible” in DO/DU if there is
a bankruptcy less than two (2) years or
foreclosure less than three (3) years on
the credit report.
• If “Approve/Eligible”, the loan must be
manually downgraded to a “Refer” and
traditionally underwritten if the following
applies:
• the information was reported
incorrectly on the credit report, or
• the information was not reflected on
the credit report but disclosed by the
borrower, or
• the credit report (or other
documentation) does not show a
Chapter 13 Bankruptcy has been
discharged for at least two (2) years.
Continued on next page
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Credit Requirements, Continued
Collections • SunTrust requires for all AUS (DU and LP) processed loans, that collection and
charge off account(s) that total more than $5,000 must be paid off prior to
closing. Funds sufficient to settle the account(s) must be verified and
documented. It is not acceptable to pay down the aggregate balance of these
account(s) to $5,000 and allow them to remain open. Underwriter discretion will
be used on accounts under the $5,000 limit.
• Account balances reduced to a judgment by a court must be paid in full or
subject to a repayment plan with a history of timely payments.
• The following criteria apply to loans that do not receive an “Approve/Eligible”
through the TOTAL Scorecard:
• collections will be reviewed on a case-by-case basis depending on the
overall loan quality,
• major indications of derogatory credit require sufficient written explanation
from the borrower (i.e., collections judgments, and any other recent credit
problems) – the explanation must make sense and be consistent with other
credit information in the file,
• the collections may be required to be paid off by closing based upon
underwriter discretion after full review of the file, and
• the underwriter must provide comments on the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT) regarding his/her analysis of the
collections and the borrower’s willingness to repay obligations.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” explanations of • If “Accept/Eligible,” explanations of
late payments are not required. late payments are not required.
• If “Approve/Eligible,” a hypothetical
monthly payment does not need to
be used in qualifying the borrower.
Disputed If the borrower is disputing any credit accounts or public records that appear on their
Accounts credit report, submit the file to a direct endorsement underwriter for review unless:
• the disputed account has a zero balance, is marked as “paid in full” or “resolved”
on the credit report, or
• has both a balance less than $500 and the date of the dispute is more than 24
months old.
Continued on next page
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Credit Requirements, Continued
Consumer • If a borrower is in a Consumer Credit Counseling Program, HUD views such a
Credit borrower in the same terms as a borrower who has gone through a Chapter 13
Counseling bankruptcy.
• If the borrower has been paying at least 12 months satisfactorily and the
borrower receives written permission from the counseling agency to enter into
the mortgage transaction, the borrower may be acceptable.
• Since some creditors may still report the borrower as delinquent, even though
they have agreed to accept a lower payment, this must be considered in the
analysis of the borrower’s overall credit.
• These cases should be analyzed on a case-by-case basis. It is a judgment call
on the part of the DE underwriter after analyzing all the factors. The borrower
being in a Consumer Credit Counseling program is viewed as neither a positive
nor a negative.
Note: TOTAL Scorecard will not recognize the borrower being in a Consumer
Credit Counseling program. The underwriter should ensure HUD/FHA
requirements are met.
Credit Alert General Information
Interactive • The CAIVRS code is required on all FHA loans except streamline refinances.
Voice • The CAIVRS system will verify if the borrower(s) has had an insurance claim
Response paid in the three (3) years prior to loan application on a previous HUD-insured
(CAIVRS) mortgage or if there is a current delinquency on a HUD-insured mortgage.
System • If CAIVRS results show a claim delinquency, the borrower is generally not
eligible for a FHA-insured mortgage. (see “Eligibility Exceptions” below.)
• The CAIVRS system may be accessed by electronic response when ordering the
FHA Case Number in FHA Connection.
• The authorization code and message provided for each borrower by the CAIVR
system must be written on the FHA Loan Underwriting and Transmittal Summary
(HUD-92900-LT).
• HUD does not allow credit bureaus to obtain the CAIVRS numbers.
• Lenders may not rely on a clear CAIVRS approval when in possession of
independent evidence of delinquent federal obligations and must document the
resolution of any conflicting information.
• If there is a delinquency code, the lender must contact the appropriate HUD
HOC in order to obtain the necessary information to determine if the borrower
qualifies for the FHA mortgage:
HOC Phone Number
Philadelphia HOC 1-215-656-0578, ext. 3059
Atlanta HOC 1-888-696-4687 (select an option)
Denver HOC 1-800-543-9378
Santa Ana HOC 1-888-827-5605, ext. 3171
Continued on next page
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Credit Requirements, Continued
CAIVRS Eligibility Exceptions
System, If the default or claim was caused by one of the following, the borrower(s) is eligible
(continued) to receive another HUD-insured mortgage providing the appropriate documentation
supporting the borrower(s) eligibility is attached to the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT):
• Assumption: if the borrower sold the property with or without a release of liability,
to an individual who subsequently defaulted, the borrower is eligible provided
he/she can prove the loan was not in default at the time of the assumption,
• Divorce: if there was a default on a mortgage awarded to a former spouse and
the divorce decree or legal separation agreement awarded the property to that
spouse (if a claim was paid, the mortgage must have been in default after the
divorce decree or separation agreement was signed), or
• Bankruptcy: if the property was included in a bankruptcy that was caused by
circumstances beyond the borrower’s control.
Alpha Code Definitions
• A = No activity
• B = Title I claim and/or Title II default
• C = Title I and/or claim
• D = One or more Title II defaults
• E = One or more Title I claims
Steps to Cure Problems
If the code is “B-E” the borrower must contact the HUD Field Office for direction.
Instructions given by the HUD Field Office must be provided by the borrower and
must be followed to “cure” the problem.
Credit Inquiries • Documentation of inquires is based on underwriting discretion upon full analysis
of the loan file.
• All inquiries within the last 90 days must be indicated on the credit report and
explained in writing by the borrower. Any new debt must be verified and
included in the debt ratio.
• If the credit report reflects credit inquiries from lenders (including SunTrust Bank,
Inc.) within 120 days of the credit report date, explanation for all inquiries
referenced, except for the inquiry made by the originating lender that is directly
related to the subject mortgage loan application, is required.
Note: An explanation for the credit inquiry made by the originating lender that is
directly related to the subject mortgage loan application is not required.
• If the explanation reveals that new debt has been incurred which is not present
on the initial application or on the credit report, documentation must be obtained
from the borrower which indicates the balance and payment of the debt. This
information must be included as a liability on the 1003 and the borrower must be
requalified and/or the loan re-priced based on this new information.
Note: At this time, SunTrust will NOT be pulling a new credit report prior to purchase
to validate if the borrower has incurred any additional liabilities.
Continued on next page
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Credit Requirements, Continued
Credit • The Credit Inquiry Information Form (BRO 1418) must be provided to ALL
Inquiries, borrowers to address each inquiry appearing on the credit report EXCEPT for
(continued) the inquiry made by the originating lender that is directly related to the subject
mortgage loan application. An explanation for the credit inquiry made by the
originating lender that is directly related to the subject mortgage loan application
is not required.
• This form must be completed and signed by ALL borrowers to certify that the
information provided is true and accurate. The completed Credit Inquiry
Information Form (BRO 1418) must be present in the mortgage loan file at the
time of underwriting. If not present, the underwriter must condition for the
processing form.
Notes:
• A Credit Inquiry Information Form provided by the Broker or a letter from the
borrower is acceptable in lieu of SunTrust’s form, provided the Broker’s form
and borrower’s explanation letter contains the SAME information as
SunTrust’s form.
• If a Credit Inquiry Information Form is used, prior to sending the form to the
borrower for completion, the Loan Officer must complete the “Name of the
Inquiring Lender” field on the Credit Inquiry Information Form (BRO 1418) for
each creditor/lender reflected in the inquiries section of the initial credit
report.
• STM Internal Information ONLY: If credit inquiries are present on the initial
credit report and the above referenced form or borrower explanation letter is
not present in the loan file at the time of underwriting, the underwriter must
utilize one of the miscellaneous MISF underwriting codes to condition for the
form/letter. The underwriting level permitted to clear the underwriting
condition is Level 5.
Reference: See the “Undisclosed Debts” subtopic previously presented in the
“Liabilities and Qualifying Ratios” topic for additional information.
Credit Reports • A merged in-file credit report from three (3) repositories is acceptable in lieu of a
full Residential Mortgage Credit Report (RMCR) on all FHA loan transactions.
• Credit Reports with truncated SSN’s (Example: xxx-xx-1234) are acceptable
under the following guidelines:
• the credit report must reflect a minimum of the last four digits of the
borrower’s full social security number,
• the mortgage application (1003) must have the complete 9 digit social
security number,
• the borrower’s name, social security number and date of birth must be
validated through the FHA connection or its equivalent, and
• lenders are responsible for verifying each borrower’s social security number
as well as each borrower’s identity.
Continued on next page
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Credit Requirements, Continued
Credit Reports, • An RMCR is required under the following circumstances:
(continued on • the borrower disputes the ownership of accounts on the TRMCR,
next page) • the borrower claims that collections, judgments, or liens listed as open on
the TRMCR have been paid and cannot provide separate documentation
supporting this claim,
• the borrower claims that certain debts shown on the TRMCR have different
balances and/or payments and cannot provide current statements (less than
30 days old) attesting to this claim, or
• the underwriter determines that it would be prudent to use an RMCR in lieu
of a TRMCR to underwrite the loan properly.
• All copies of all credit report must be retained along with a written analysis of the
reasons for any discrepancies between the credit reports. If any information is
received that is inconsistent with the information on the credit report, the
inconsistency must be reconciled.
• A non-traditional credit report (NTMCR) may not be used to offset derogatory
references found in the borrower’s traditional credit, such as collections and
judgments.
Reference: See the HUD Handbook 4155.1, Chapter 1 for additional information on
TRMCRs, RMCRs and NTMCRs.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• Joint credit reports may be ordered for • LP will automatically order
borrowers who are married to each other. credit reports, as
• If there are two (2) or more borrowers who applicable, based on the
are not married to each other, individual data input.
credit reports must be ordered for each
borrower, even if they live together and co-
mingle accounts.
• A merged in-file credit report from three
repositories is obtained through DO/DU.
Continued on next page
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Credit Requirements, Continued
Credit Reports, Automated Underwriting Systems (AUS) Information, Continued
(continued)
Fannie Mae DO/DU Freddie Mac LP
• If the subject property is located in a See previous page for
community property state and the borrower information.
has a non-purchasing spouse, individual
credit reports are required. The non-
purchasing spouse’s report should be
ordered outside of DO/DU.
• Credit Report Expiration Date: The credit
documents may be up to 120 days old at the
time the loan closes unless the transaction is
for new construction, in which case the
documents can be 180 days old.
• DU will return a message identifying the final
date the loan can close based on the date
the credit report will expire.
Continued on next page
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Credit Requirements, Continued
Minimum • A minimum 660 credit score is required. This applies to traditionally underwritten
Credit Score and AUS (DU and LP) processed loans.
Requirements • ALL borrowers are required to meet the minimum credit score requirement of
660.
Reference: See the “Credit Requirements” subtopic previously presented in the
“Streamline Refinance” topic for additional information.
Notes:
• All data that has been input into the AUS engine MUST be validated and
deemed accurate.
• If the FHA product description includes a minimum credit score HIGHER
than the minimums outlined above, the HIGHER restriction still applies.
• If a borrower does not have traditional credit references with which to generate a
credit score, the borrower is considered “unscoreable” and is not eligible for
financing with SunTrust.
• The credit scores must be entered into FHA Connection (or its functional
equivalent).
Notes:
• HUD’s policy for credit scores has not changed. HUD does not require credit
scores.
• Loans that are risk scored by FHA’s TOTAL Scorecard will already have the
credit bureau scores entered and no additional credit score entries are
necessary.
• Credit scores not entered by TOTAL scorecard are entered during the Insurance
Application process by the Post-Closing Department at SunTrust.
• Only one credit score is required for an occupant borrower for the loan to be
eligible for the FHA TOTAL Scorecard.
Note: Once a mortgage loan is scored through TOTAL Scorecard, the scores
remain permanent (unless re-scored through TOTAL) and cannot be changed with
manual input.
Continued on next page
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Credit Requirements, Continued
Debts Omitted The lender must obtain a separate written verification (this includes accounts listed
or Not Verified as “will rate by mail only” or “need written authorization”).
on Credit
Report
Delinquent • A borrower is not eligible for a HUD insured loan if he/she has any outstanding
Federal Debt Federal debt (this includes debt of borrower sponsor, general contractor, and all
principal of these entities), until the delinquent account is brought current, paid,
or satisfied.
• Federal debts include direct loans, HUD-insured mortgage loans, VA-insured
mortgages, student loans, Small Business Administration loans, or
judgments/liens against property for a debt owed the Federal Government.
• A borrower with prior Federal defaults or claims must submit an explanation of
the circumstances surrounding the delinquency with the following documents:
• detailed explanation of how delinquent debt was incurred,
• letterhead advice from affected agency, signed by an officer and stating that
the delinquent debt is current or that satisfactory arrangement for repayment
has been made, and
• lender’s reason(s) for recommendation of the borrower (can include
worksheets and remark sections from processing documents or a cover
letter).
Exception: A tax lien may remain unpaid if the lien holder subordinates the lien
to the HUD insured mortgage and payment on the lien is included in the
qualifying ratios. If the lender has evidence that the IRS has demanded a first-
lien position, the lien must be satisfied prior to closing. The IRS routinely takes a
second lien position on a principal residence without the necessity of
independent documentation. Eligibility for FHA mortgage insurance will not be
jeopardized by outstanding IRS tax liens remaining on the property UNLESS
there is information that the IRS has demanded a first-lien position.
Note: Although eligibility for an FHA mortgage may be established by the
actions described above, the overall analysis of the creditworthiness must
include consideration of a borrower’s previous failure to make payments to the
Federal agency in the agreed to manner and must document its analysis of how
the previous failure does not represent a risk of mortgage default.
• Delinquent payments must be explained in writing by the borrower to the
satisfaction of the underwriter. Supporting documentation may be required.
• Documentation of late payments is based on underwriting discretion upon full
analysis of the loan file.
Continued on next page
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Credit Requirements, Continued
Duplicate If it is unclear from the credit report that an item is duplicated, each item should be
Public Records treated individually and appropriate documentation must be obtained.
Foreclosure / • A foreclosure, deed-in-lieu of foreclosure, or short sale within the three (3) year
Deed in Lieu of period prior to loan application is not acceptable on a HUD insured loan. If the
Foreclosure / foreclosure was part of a bankruptcy, the more restrictive three (3) year wait
Short Sale remains in effect.
• There is an exception if the foreclosure was on the borrower’s principal
residence and was the result of extenuating circumstances beyond borrower’s
control (i.e., death of the principal wage earner, or serious long-term illness).
• In the case of an exception, the borrower must have re-established new credit
with no derogatory credit since the foreclosure and he/she provide a letter from
the lender who held the lien showing no outstanding liability.
• Inability of a borrower to sell his/her home when transferred from one area to
another is not an acceptable reason for foreclosure or deed-in lieu.
Reference: See Section 1.24: Short Sales and Restructured Mortgage Loans of the
Broker Seller Guide for additional information.
Judgments, • Judgments, garnishments and/or liens must be paid in full at or prior to closing.
Garnishments, • A letter of explanation written by the borrower is required.
and Liens • Borrower must provide documentation of payoff.
• The borrower must have reestablished credit, as reflected on the credit report in
the file.
• An exception may be made if the borrower has been making regular and timely
payments on the judgment and the creditor is willing to subordinate that
judgment to the insured first lien mortgage.
• Standard FHA guidelines apply on all AUS loans.
Continued on next page
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Credit Requirements, Continued
Mortgage/Rental • The borrower’s housing payment history is significant when evaluating credit.
Payment • The lender must determine the borrower’s housing payment history through a:
Histories • credit report,
• verification of rent directly from the landlord (for landlords with no identity-of-
interest with the borrower),
• verification of the mortgage directly from the mortgage servicer, or
• the review of canceled checks that cover the most recent 12 month period.
Note: The lender must verify/document the previous 12 months housing history
even if the borrower states they are living rent free.
• Mortgages with less than 6 months of payment history are not eligible for a cash-
out refinance.
• Properties owned free and clear are eligible for cash-out refinances.
Reference: See “Privately Held Mortgages” subsequently presented for additional
information regarding payment verification requirements for privately held
mortgages.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• Typically, the loan will receive an • If “Accept,” no verification
“Approve/Ineligible” if there are any 30/60/90 of mortgage or rent is
day late payments in the last 12 months on the required.
credit report.
• If “Approve/Eligible,” rental payment history Reference: See “Privately
verification is not required. Held Mortgages”
• If “Approve/Eligible,” the loan must be manually subsequently presented for
downgraded to a “Refer” and traditionally additional information
underwritten if the following applies: regarding payment
• The information was reported incorrectly verification requirements for
on the credit report; or privately held mortgages.
• The account was not reflected on the credit
report but direct verification outside of DU
reflects more than 1x30 day late in the last
12 months.
Reference: See “Privately Held Mortgages”
subsequently presented for additional information
regarding payment verification requirements for
privately held mortgages.
Non-Traditional Borrowers who do not have a credit score are not eligible for financing with
Credit SunTrust.
Continued on next page
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Credit Requirements, Continued
Privately Held A “privately held mortgage” is a mortgage or trust deed which is granted to a
Mortgages borrower with private monies and is between an individual investor, partnership,
LLC, trust, etc., who has interest in the property and/or the person who purchased
the property.
If a borrower is refinancing a privately held mortgage, the following payment
verification requirements apply:
• A mortgage payment history of 12 months must be met.
• At a minimum at least six (6) months mortgage payments on the current
privately held mortgage must be verified. The remaining six (6) months can
come from a previous mortgage or rental verifications.
• The privately held mortgage payments must be verified, with either cancelled
checks or bank statements (if the payment is automatically withdrawn from
the borrower’s account).
• If less than the minimum six (6) months mortgage payments on the current
privately held mortgage are verified and the property is a 1 unit primary
residence, then the following applies:
• The borrower’s previous mortgage or rental payments may be used to
supplement the required twelve (12) month payment history, but may not
be used solely to satisfy the required payment history.
• If previous mortgage or rental payments are used to supplement the
required twelve (12) month payment history, then the previous mortgage
or rental history must reflect no more than 1x30 late in the supplemental
history.
• The borrower’s previous rental payment history may be used to
supplement the twelve (12) month history only if the rental payments are
consistent with or within 20% of the total proposed PITIA mortgage
payment.
• If a mortgage payment is not required for the current privately held
mortgage, then non-AUS guidelines apply for ratio and reserve
requirements.
• If the property is a 2-4 unit primary residence, the minimum six (6) month
mortgage payment history on the current privately held mortgage must be
verified, no exceptions.
• Evidence must be included in the loan file that the lien being paid off is a current
recorded lien against the subject property.
• All other FHA credit history requirements apply.
Note: These guidelines apply for all traditionally underwritten AND AUS
processed FHA loans.
Recent and • The purpose of any recent debts must be determined as the indebtedness may
Undisclosed have been incurred to obtain part of the required down payment on the property
Debts being purchased. Unsecured debt may not be used for downpayment.
• The borrower must also provide a satisfactory explanation for any significant
debt that is shown on the credit report but not listed on the loan application.
Continued on next page
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Credit Requirements, Continued
Suspensions • A borrower who is suspended, debarred, or otherwise excluded from
and participation in HUD’s programs is not eligible for a HUD insured mortgage.
Debarments • This is verified on HUD’s “Limited Denial of Participation (LDP) List” and the
government wide General Services Administration’s (GSA) “List of Parties
Excluded from Federal Procurement or Non-procurement Programs”. The results
of reviewing these two lists must be documented in the file* with a copy of the
LDP/GSA computer printouts to be in the underwriting package BEFORE
submitting the loan to underwriting.
• The listing/selling Realtors, Builder, seller, and loan officer must also be verified
on the LDP/GSA lists.
Note: A company does not need to be verified on the LDP/GSA list, only the
agent that signs on behalf of the company.
• LDP/GSA lists can be accessed via FHA Connection or the Internet website.
Note: *LDP/GSA results must be noted on the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT) that the LDP/GSA lists have been
checked and the underwriter must write “Cleared” under the LDP/GSA check
boxes.
Exception: If the seller(s) is on the GSA list but the property being sold is the seller’s
principal residence, the transaction is eligible for HUD financing (assuming that all
other parties are eligible).
Continued on next page
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Credit Requirements, Continued
Documentation Age of Credit Documents
• If the property is existing, credit documents (credit reports, employment, income
and asset documentation) cannot be older than 120 days from the Note date.
• If the property is new construction, credit documents (credit reports,
employment, income and asset documentation) cannot be older than 180 days
from the Note date.
• The expiration date for the documents is based on the origination date on the
document and not on the underwriting date.
• All accounts with a balance must have been checked with the creditor within 90
days of the credit report. All inquiries made within the last 90 days must also be
included on the credit report.
Written, Faxed, or Internet Verifications of Employment and Assets
• If written verification forms are used, the lender’s file must contain the original
form (or a faxed form) with an original signature of the party completing the form.
• Verification forms must pass directly between the lender and creditor without
being handled by a third party.
• Internet downloads may be used but must be placed in the file in paper form.
The documents must clearly identify the firm’s name and source of information.
The lender is accountable for ascertaining the authenticity of the document by
examining that information included on any headers, footers, and the banner
portion of the print outs of the downloaded web pages(s). The printed web
page(s) must also show the Uniform Resource Locator (URL) address and the
date and time printed. The lender is to verify the existence of the web site from
which the documents were derived.
• The internet downloaded documents must be identifiable as belonging to the
borrower.
• Documents relating to credit, employment or income of the borrowers that are
handled by, transmitted from or through interested third parties (i.e., real estate
agents, builders, sellers) or by using their equipment are not acceptable and may
not be used as documentation.
Alternate Verification of Mortgage/Rental
Documentation One (1) of the following is acceptable:
• most recent 12 month history as reflected on the credit bureau report,
• most recent 12 months canceled checks (front and back),
• previous year end statement and canceled checks year-to-date (front and back),
or
• written verification of mortgage or rental.
Credit Report
• An in-file credit report is acceptable, as long as it provides information from three
(3) repositories.
• If an in-file cannot meet HUD’s requirements, a full RMCR is required.
Section 2.90 November 10, 2011
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FHA Social Security Number Validation
Social Security General
Number • FHA will validate social security numbers (SSN) for consistency with borrower
Validation and names and dates of birth as a further means of reducing identity theft and fraud
Effect on Case to protect the insurance funds managed by FHA.
Number • This service is only for FHA loans, and may not be used to verify SSNs for other
Assignments financing types.
Reference: See “Case Number Assignment and Cancellation” in the “Workflow”
topic for additional information.
Lender’s Responsibilities
• The modified Addendum to Uniform Residential Loan Application (HUD-92900-
A), pages 1 and 2 must be used for all new loan applications to provide
disclosure to and consent by the borrower to verify his/her SSN, as well as each
borrower’s identity.
• The borrower’s name, SSN and birth date are entered by the lender at the
borrower/address screen through the FHA Connection (FHAC) on all loans
except proposed new construction.
• It remains the lender’s responsibility to verify each borrower’s SSN and identity.
• Loans may not be closed or endorsed without an approved validation by FHA.
Reference: See “Social Security Numbers” in the “Application, Disclosures and
Consumer Compliance” topic for additional information.
FHA’s Online Validation System
• FHA’s on-line system provides an overall confidence rating. An acceptable
confidence rating allows a case number to be assigned and the lender may
continue to process the loan.
• Validation will also be performed when the borrower name, date of birth or SSN
is changed after the case number has been assigned. If the validation fails, a
case warning will remain on the loan and the lender will need to resolve the
inconsistency before the mortgage may be endorsed.
• If an acceptable confidence rating is NOT received, one of the following actions
may be taken by the lender:
• correct any or all of the three data fields to trigger additional verification
attempts, if incorrect data, or
• if it is believed the data is correct, override the online validation, continue
with all other data entries into FHA Connection. The results of this action are
shown below.
• The application is placed in the “holds tracking” mode resulting in an
overnight validation attempt with the SSA’s database.
• If successful, a case number is normally assigned the next day following
successful verification by SSA; however, a two-day case number
assignment may occur.
• If the overnight matching with SSA fails, FHA will communicate the
information regarding mismatched data fields, including transposed
numbers, date of birth inconsistency, complete failure to match, etc. No
case number will be issued.
Continued on next page
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FHA Social Security Number Validation, Continued
Social Security Evidence System is in Error
Number • The lender may provide documentation to the jurisdictional Homeownership
Validation and Center (HOC) if the borrower produces conclusive documentation that the SSA
Effect on Case database is in error (i.e., borrower name change following recent marriage).
Number • If the HOC staff believes the documentation to be valid, it will manually issue a
Assignments, case number.
(continued)
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Cash Requirements
General In all cases, the source of funds for closing must be verified with acceptable
documentation, including Fannie Mae DU “Approve/Eligible” and Freddie Mac LP
“Accept” loans.
Advance FHA does not permit a lender, as a condition for making a FHA mortgage, to collect
Mortgage advance payments of the mortgage. Borrowers are not to be required to write post-
Payments dated checks, give cash, or otherwise make mortgage payments in advance of the
Prohibited borrowers mortgage payment requirements under the security instrument.
Bridal Registry The intent of the Bridal registry program is to give couples planning to get married
the opportunity to amass monetary gifts from friends and family for the specific
purpose of making the down payment on a home. This initiative is not limited just to
couples that intend to get married, but is available for other situations where such
gifts are typically received by an individual or individuals.
• Only “first-time” homebuyers are eligible for this program.
• Borrowers must open an account with a supervised institution (FDIC or NCUSIF-
insured) in which funds may be deposited.
• The account may be set up by the borrower or by the lender on behalf of the
borrower.
• Funds may be deposited by friends and relatives directly into the Bridal Registry
Account, or given by cash or check to the couples or individuals for deposit.
• The lender must document the occasion and the receipt of these gift funds.
• The Bridal Registry Account Certification (BRO 0276) must be completed and
signed by the borrower(s) and the lender in lieu of gift letters and other gift
documentation.
• The borrower must also provide a copy of a bank statement(s) reflecting all
deposits into the account that represent the cash for closing.
• If deposits into the Bridal Registry account were made more than two (2) months
prior to loan application, normal verification procedures apply.
Borrowers at Reference: See the subtopic “Borrowers 60 Years of Age” in the “Eligible Borrowers”
Least 60 Years topic for additional information.
Old
Continued on next page
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Cash Requirements, Continued
Cash Reserve General
Requirements • Assets, other than those necessary to cover closing funds, must be liquid or
readily converted to cash (absent requirement or job termination) in order to be
considered as cash reserves).
• If funds not considered for cash reserves are used for closing, they should be
considered assets only for the amount that is required for closing. Additional
funds would not be considered “cash reserves.”
Cash Reserve Requirements
There are no cash reserve requirements except under the following conditions:
• three (3) months PITI reserves are required on all transactions for 3-4 unit
properties, or
• cash reserves may be needed for a compensating factor if debt ratios exceed
the guidelines.
Assets Not Considered Cash Reserves
The following assets are not considered “cash reserves”:
• equity in other properties (not including a primary residence being sold with
proceeds applied to the purchase of the subject property),
• proceeds from a cash-out refinance (if this is the subject transaction),
• gift funds, and
• funds that are borrowed against a liquid account (i.e., 401k loan).
Note: Any gift funds that remain in the borrower’s account following closing,
subject to proper documentation, may be considered as cash reserves when
scoring the mortgage application through TOTAL Scorecard.
Cash Reserves from Retirement Accounts
A portion of the borrower’s retirement account may be used as cash reserves when
scoring a mortgage application through TOTAL Scorecard subject to the conditions
listed below.
• Only 60% of the VESTED amount of the account may be used to account for
withdrawal penalties and taxes.
• The lender must document the existence of the account with the most recent
depository or brokerage account statement.
• Evidence must be provided that the retirement account allows for withdrawals for
conditions other than in connection with the borrower’s employment termination,
retirement, or death.
• Retirement funds that can only be withdrawn under the conditions noted above
may not be used as cash reserves.
• Any retirement funds that are also used for loan settlement must be subtracted
from the amount included in cash reserves.
Continued on next page
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Cash Requirements, Continued
Cash-on-Hand Cash at Home
• Borrowers must be able to demonstrate the ability to save such funds.
• The cash must be verified as deposited in a financial institution or held by the
escrow/title company.
• The borrower is responsible for providing satisfactory evidence of the ability to
accumulate such savings (i.e., explanation of how funds were accumulated and
over what period of time and a completed budget plan).
• The reasonableness of the accumulation of the funds based on the borrower’s
income stream, the time period during which the funds were saved, the
borrower’s spending habits, documented expenses and history of using financial
institutions. (Individuals with checking and/or savings accounts are less likely to
save money at home than those with no history of such accounts.)
• Income that is not reported to the IRS cannot be used for source of cash saved
at home.
Cash From Private Savings Clubs
• Private savings clubs include those used by numerous ethnic groups.
• The borrower must be able to adequately document the accumulation of his/her
assets held with the club.
• There must exist, at minimum, account ledgers, receipts from the club, to enable
a lender to a verification from the club treasurer, as well as identification of the
club that would permit you to re-verify the information provided.
• The underwriter must be able to determine that it was reasonable for the
borrower to save the money claimed and that there is no evidence that these
funds are borrowed funds with an expectation of repayment.
Checking & Automated Underwriting Systems (AUS) Information
Savings The following table shows information specific to AUS.
Accounts and
Certificates of Fannie Mae DO/DU Freddie Mac LP
Deposit • If “Approve/Eligible,” the borrower • If “Accept,” the borrower must
must provide one of the following: provide one of the following:
• 1 month of bank statements, if • 1 month of bank statements if
received monthly (in some received monthly (in some cases
cases, the DO/DU Findings the LP Feedback Certificate may
Report may require 2 months), or require 2 months), or
• most recent quarterly bank • most recent quarterly bank
statement, if received quarterly. statement, if received quarterly.
• Explanations are required for large • Explanations are required for large
deposits on bank statements that deposits on bank statements that
may require additional may require additional
documentation. documentation.
Continued on next page
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Cash Requirements, Continued
Commission • If the borrower is a licensed real estate agent entitled to a real estate
from Sale commission from the sale of the property being purchased, those funds may be
used as part of the down payment, however a letter from the Real Estate Agency
must state how much will be credited to the Sales Agent (after any commission
split or deduction of other fees) at closing on the HUD-1.
• A family member entitled to the commission may also gift the funds to the
borrower.
• There is no required adjustment to the maximum mortgage.
Credit Card • The actual cost of a credit report and appraisal may be charged on a credit card
Financing when these cost are paid outside of closing under then following conditions:
• a payment for the amount charged is included in the total debt ratio, and
• the borrower has sufficient assets (documentation in file) to pay charged
fees, in addition to funds needed for other closing costs and the down
payment.
Disaster Relief • Eligible grants and loans that may be used for the down payment with no
Grants and adjustment to the maximum mortgage include the following:
Loans • grants or loans from state and federal agencies that provide immediate
housing assistance to individuals displaced due to natural disaster, and
• secured or unsecured disaster relief loans administered by the Small
Business Administration (SBA).
• If the SBA loan is secured by the subject property, it must be subordinate to the
HUD insured first mortgage lien and the monthly payment must be included in
the debt ratios.
Down Payment • HUD requires a minimum down payment of 3.5%.
• The minimum down payment is based on the lesser of the appraised value or
sales price (without considering closing costs) minus any required adjustments.
• The minimum down payment must be provided from borrower’s own cash funds
(“own cash” is defined as inclusive of gifts, loans from family members, or loans
from a governmental agency or instrumentality).
Earnest Money • The earnest money deposit (EMD) amount and source of funds must be verified
Deposit if it is 2% or more of the sales price, if it appears excessive based on the
borrower’s previous savings pattern or if the borrower is “tight” on closing funds.
• A copy of the canceled check (front and back) must be provided and the source
of the funds must be verified.
• A certification from the deposit holder acknowledging receipt of funds is
acceptable as long as it accompanies separate evidence of the source of funds.
• Evidence of source of funds includes a verification of deposit or bank statement
showing at the time the deposit was made the average balance was sufficient to
cover the amount of the EMD.
Continued on next page
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Cash Requirements, Continued
Employer • If the employer, in order to entice or keep a valuable employee, pays the
Assistance borrower’s closing costs, mortgage insurance premium, or any part of the down
Plans payment, no adjustment to the maximum mortgage amount is required.
• If the employer does this as a reimbursement after closing the borrower must
show evidence of sufficient funds to close.
• Salary advances are not allowed as these are considered an unsecured loan.
Employer If the employer guarantees to purchase the borrower’s previous residence as the
Guarantee result of relocation, the borrower must submit evidence of a relocation agreement
Plans and the net proceeds guaranteed.
Gift/Grant General Information
Funds • A gift may be used for 100% of the borrower’s closing costs and down payment.
• Gift funds cannot be used as reserves. If the borrower is receiving a gift for
more than the amount to close, the “excess” cannot be used as reserves. Only
the amount of funds that will be used for closing should be shown as gift funds
not received, or as an asset.
Note: Any gift funds that remain in the borrower’s account following closing,
subject to proper documentation, may be considered as cash reserves when
scoring the mortgage application through TOTAL Scorecard.
• Eligible donors include the following:
• Federal/State/Local government agency or instrumentality,
Note: Federal Home Loan Bank (FHLB) funds are eligible, as they are
considered an instrumentality of the government, and may be used towards the
borrower’s required down payment.
• close relative of the borrower,
• close friend with a clearly defined and documented interest in the borrower,
• a corporation established for humanitarian, welfare, or charitable purposes, or
• borrower’s employer or labor union.
• The donor of the gift cannot be a person or entity whose interest is in the sale of
the property (i.e., builder or seller, real estate broker, marketing agent, or any
person/corporation/organization associated with them). Gifts or credits from
these sources are considered inducements to purchase and must be subtracted
from the contract sales price.
• Only family members may provide equity credit as a gift on a property being sold
to other family members. This must be reflected on the HUD-1.
Continued on next page
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Cash Requirements, Continued
Gift/Grant General Information, Continued
Funds, • If a gift is being provided by a nonprofit, government entity or other business
(continued) entity, the following is required:
• employer identification number (EIN) must be noted in the appropriate line(s)
of the “Mortgage Information” section of the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT), and
• mark the correct provider box below the space where the EIN is entered.
• When the “Other” box is marked as the provider of secondary financing,
the type of provider (i.e., employer, labor union, etc.) must also be
identified.
Notes:
• Nonprofit entities are not allowed to provide gifts to homebuyers for the purpose
of paying off installment loans, credit cards, collections, judgments, and similar
debts.
• Soft seconds are shown as second mortgages and not as a gift.
Documentation Requirements
• Documentation of gift funds must include the following:
• a gift letter (BRO 0373) with donor’s and borrower’s signature that
specifically states the following information:
• dollar amount given,
• no repayment is necessary,
• the donor’s name, address, telephone number and relationship to
borrower,
• the address of the property being purchased/refinanced, and
• donor’s signature.
Note: It is not acceptable to notate the loan file/application with the above gift
donor information in lieu of a gift letter.
• If the gift funds transfer before closing, the following documentation is required:
• a copy of the donor’s canceled check or withdrawal document showing that
the withdrawal is from the donor’s account, and
• the borrower’s deposit receipt and bank statement showing the deposit.
• When gift funds are transferred at closing, the lender is responsible for obtaining
the following verifications:
• the closing agent’s receipt of the gift funds from the donor for the amount of
the gift, and
• evidence that those funds came from an acceptable source.
• If the gift funds transfer at closing and the transfer of funds is by certified check
from the donor’s account, the donor must provide the following documentation:
• a bank statement reflecting the withdrawal from the donor’s personal
account, and
• a copy of the certified check.
Continued on next page
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Cash Requirements, Continued
Gift/Grant Documentation Requirements, continued
Funds, • If the gift funds transfer at closing and the donor purchased a cashier’s check,
(continued) money order, or other official bank check, the donor must provide a withdrawal
document or canceled check for the amount of the gift to verify that the funds
came from the donor’s personal account.
• If the donor borrowed the gift funds and cannot provide the documentation from
his/her bank or other savings account, the donor must provide evidence that
those funds were borrowed from an acceptable source (i.e., not from a party to
the transaction including the mortgage lender). Donors may borrow gift funds
from any other acceptable source provided that the borrowers are not obligors to
any note to secure money borrowed to give the gift.
• “Cash on hand” or “mattress money” is NOT an acceptable source of the donor’s
gift funds. The source of funds must be verifiable.
Note: Gift letters do not need to be redone if the gift amount is less than stated.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” a gift letter and • If “Accept,” a gift letter and
documentation of the transfer of documentation of the transfer of
funds is not required if all of the funds is not required if all of the
following applies: following applies:
• gift funds were deposited into • gift funds were deposited in the
the borrower’s account by no borrower’s account by no later
later than the first time of than the first time of LP
DO/DU submission; and submission; and
• the loan application lists the • the loan application lists the
donor’s name, address, phone donor’s name, address, phone
number and relationship to the number and relationship to the
borrower, as well as the amount borrower, as well as the amount
of the gift. of the gift.
• If “Approve/Eligible” and gift funds • If “Accept” and gift funds were not
were not deposited into the deposited into the borrower’s
borrower’s account by the first time account by the first time of LP
of DO/DU submission, standard submission, standard FHA
FHA guidelines apply. guidelines apply.
• If the borrower is receiving a gift for • If the borrower is receiving a gift for
more than the amount to close, the more than the amount to close, the
“excess” may be considered as cash “excess” may be considered as
reserves when scoring the mortgage cash reserves when scoring the
application through TOTAL. mortgage application through
TOTAL.
Continued on next page
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Cash Requirements, Continued
Seller Funded The Seller Funded down payment assistance programs are not eligible.
Non-Profit
Down Payment
Assistance
Programs
Loans from • HUD will allow family member to make loans to borrowers for 100% of the funds
Family required for closing.
Members • The loans may be secured or unsecured.
• A family member includes a child (biological or step), parent, grandparent, legally
adopted son or daughter, or a child who is a member of the borrower’s
household due to placement by an authorized agency in anticipation of legal
adoption and foster children.
• The following conditions must be met:
• the borrower cannot receive any cash back at closing (beyond the refund of
any earnest money deposit),
• if period payments are required, the borrower must still qualify with the
payment added to the total debt ratio (not housing ratio),
• the financing cannot provide for balloon payments within five (5) years from
the date of the note,
• if the family member borrows the funds, the initial source of loan funds
cannot be any party with an identity of interest in the sale of the property
(i.e., seller, builder, loan officer, or real estate agent), and
• a family member can borrow the loan funds from the retail banking affiliate of
a mortgage company as long as the financing made available is made under
the terms and conditions that are available to all other borrowers (special
considerations are not allowed).
Continued on next page
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Cash Requirements, Continued
Loans Secured General Information
by an Asset • Funds may be borrowed for the total required investment as long as satisfactory
evidence is provided that the funds are fully secured (collateralized) by
investment accounts or real property.
• Sources of acceptable and unacceptable collateral (asset) for loans used to
assist in the required downpayment or closing costs include, but are not limited
to, those shown below.
HUD Acceptable Sources of Collateralized Loans
• HUD will accept collateralized loans for the total required investment as long as
satisfactory evidence is provided that the funds are fully secured by investment
accounts or real property and the borrower can qualify with the repayment. The
payment is included in the total debt ratio.
• Such assets include those listed below.
• Investment Accounts
• Real Property (i.e., cars, trucks, boats)
• Real Estate (other than the property being purchased)
• Stocks and Bonds
• Certain types of loans that are secured against deposited funds in which
repayment may be obtained through extinguishing the asset do not require
consideration of a repayment for qualifying purposes. The asset securing the
loan may not be included as assets to close or otherwise be considered as
available to the borrower. The assets listed below are included in this category.
• Cash value of life insurance policies
• Loans secured by 401(k)s
• Loans secured by a Certificate of Deposit
• Verification of the loan terms (i.e., copy of the note) must be provided. If the loan
was made after verification of deposit was completed, a copy of the check and
the borrower’s deposit receipt or bank statement must be furnished.
• The real estate agent or broker, lender, seller or other party to the transaction
may not provide these funds.
HUD Unacceptable Sources of Collateralized Loans
• Signature loans
• Cash advances on credit cards
• Borrowing against household goods and furniture
• Other similar unsecured financing (i.e., jewelry, tools)
Continued on next page
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Cash Requirements, Continued
Mutual Funds • The borrower must provide one of the following:
• two (2) months of account statements if received monthly, or
• most recent quarterly account statement, if received quarterly.
• Proof of liquidation is required.
• Explanations (with additional documentation) are required for large deposits.
Automated Underwriting Systems (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” the borrower • If “Accept,” the borrower must
must provide one of the following: provide one of the following:
• 1 month of account statements, • 1 month of account statements,
if received monthly (in some if received monthly (in some
cases, the DO/DU Findings cases the LP Feedback
Report may require 2 months), Certificate may require 2
or months), or
• most recent quarterly account • most recent quarterly account
statement, if received quarterly. statement, if received quarterly.
• If “Approve/Eligible,” proof of • If “Accept,” proof of liquidation is not
liquidation is not required. required.
• Explanations (with additional • Explanations (with additional
documentation) are required for documentation) are required for
large deposits. large deposits.
Real Estate • The net proceeds from the sale of a currently owned property may be used for
Proceeds the down payment requirement.
• A fully executed HUD-1 Settlement Statement must be provided as satisfactory
evidence of the proceeds to the borrower.
• If the borrower has not settled on the property prior to the underwriting of the
loan, it must be a condition of the loan approval.
Continued on next page
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Cash Requirements, Continued
Real Estate Tax In some states it is customary for a borrower to pay property taxes in arrears, (and
Credit he/she may not pay property taxes on the improvements until a year or more after
closing). The credit from the seller at closing for the seller’s portion of those taxes
may be used to reduce the actual amount of cash that needs to be brought to the
closing table. It may not be used to offset minimum investment or cash to close
requirements.
The use of the tax credit only facilitates the exchange of cash. All cash to close
documentation requirements must be met such (i.e., the mortgage amount is
calculated the same, down payment requirements are the same, the verification of
the money is the same.)
Sufficient assets to close must be verified from the borrower’s own funds without
consideration to the tax credit. However, the borrower only needs to bring funds to
the closing for the amount of the bottom line on the HUD-1 Settlement Statement,
after the tax credit has been applied.
Rent Credit • The cumulative amount of the rental payments that exceed the appraiser’s
estimate of fair market rent may be considered towards the borrower’s down
payment.
• Both the rent-with-option to purchase agreement and the appraiser’s estimate of
market rent must be included in the case binder file.
• If the sales agreement provides for a rent credit or a reduced rent and states that
the credit is to apply toward the down payment requirement, one of the following
applies:
• if the rent paid prior to the sale is less than the appraiser’s estimate of rental
value, the difference between the rent paid and the appraiser’s estimate
(multiplied by the number of months the borrower was living in the property)
is deducted from the contract sales price,
• if the rent paid prior to the sale exceeds the appraiser’s estimate of rental
value, the amount paid in excess of the appraiser’s estimate (multiplied by
the number of months the borrower was living in the property) is applied
towards closing funds, or
• if the borrower occupied the property (or one owned by the seller) “rent free”
as an inducement prior to the sale, the appraiser’s estimate of rental value
(multiplied by the number of months the borrower was living in the property)
is deducted from the sales price.
Note: Exceptions may be granted in a situation whereby a builder fails to deliver a
property at an agreed-to-time and then permits the borrower to occupy that or
another unit for less-than-market rent “temporarily” until construction is complete.
Continued on next page
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Cash Requirements, Continued
Retirement • If non-AUS underwriting, the borrower must provide all of the following:
Funds • copy of the most current retirement account statement,
• copy of the check representing account funds, and
• copy of the deposit receipt where funds were deposited into the borrower’s
account) or copy of the bank statement reflecting the deposit).
• If TOTAL, documentation of terms and conditions to include the following:
• copy of the most current retirement account statement,
• evidence that the account allows for withdrawals for conditions other than
that related to the borrower’s employment or death, and that the borrower
qualifies for withdrawal and/or borrowing, and
• evidence of liquidation is not required.
• When utilizing retirement accounts as assets (even if not using for closing), 60%
of the borrower’s vested interest may be used unless the borrower provides
documentation that a higher percentage may be withdrawn after subtracting any
federal income tax and withdrawal penalties.
• If the fund is a 401(k) and there is an outstanding loan, the account value must
be reduced by the principal balance on the loan BEFORE using as an asset.
• Funds from retirement accounts may be used as cash reserves.
Reference: See the subtopic “Cash Reserve Requirements” previously
presented in this topic for additional information.
• If using funds for closing, applicable withdrawal or income tax penalties must be
deducted from the account balance to determine value.
• Proof of liquidation is required.
Automated Underwriting System (AUS) Information
The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
Proof of liquidation is not required if Proof of liquidation is required in LP.
“Approve/Eligible” on DO/DU.
Sale of • If a borrower sells personal property for funds to close (i.e., cars, recreational
Personal vehicles, stamp or coin collections), conclusive evidence of the sale and an
Property estimate of the value of the item being sold must be obtained.
• Value must be established through the Blue Book for cars, Philatelic Association
for stamps, Numismatic Association for coins, or a qualified appraiser with no
financial interest in the transaction who could provide a written appraisal of the
item. The lesser of the estimate of value or actual sales price is used as assets
to close.
Savings Bonds • Government issued bonds are given to the value at the original purchase price.
• Exceptions may be made if eligibility for redemption and the redemption value
are confirmed.
• The borrower’s receipt of the funds at redemption must be verified.
Continued on next page
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Cash Requirements, Continued
Stocks and • The value of securities must be verified through the borrower’s stockbroker or
Bonds financial institution.
• If statements are available, the borrower must provide one of the following:
• two (2) months of account statements, if received monthly, or
• most recent quarterly account statement if received quarterly.
• Evidence of liquidation and borrower’s receipt of the funds must be documented.
Automated Underwriting Systems (AUS) Information
• The following table shows information specific to AUS.
Fannie Mae DO/DU Freddie Mac LP
• If “Approve/Eligible,” the borrower must Standard FHA guidelines apply.
provide one of the following:
• 1 month of account statements, if
received monthly (in some cases, the
DO/DU Findings Report may require 2
months), or
• most recent quarterly account
statement, if received quarterly.
• If “Approve/Eligible,” proof of liquidation is
not required.
Sweat Equity • Labor performed or materials furnished by the borrower prior to closing are
considered the equivalent of a down payment to the extent of the estimated cost
of the work or materials.
• Work completed prior to the appraisal or after closing is not eligible for sweat
equity.
• Sweat equity may be “gifted” subject to both the gift requirements and the sweat
equity requirements.
• The following requirements apply to sweat equity:
• on existing construction, only the repairs and/or improvements listed on the
appraisal are eligible (work or materials provided before the appraisal are not
eligible),
• on proposed construction, the tasks the borrower will perform during
construction are indicated in the sales contract,
• the borrower must demonstrate his/her ability to complete the work in a
satisfactory manner and the contributory value of the labor is documented
through either an appraiser’s cost estimate or through a cost estimating
service such as “Marshall and Swift” or through the local HUD office,
• the work does not include delayed work (on-site escrow), clean up, debris
removal and other general maintenance (these are not sweat equity items),
Continued on next page
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Cash Requirements, Continued
Sweat Equity, • Requirements that apply to sweat equity (continued from previous page):
(continued) • the borrower does not receive any cash back at closing,
• sweat equity is provided only on the subject property (work performed on
other properties must be in cash and properly documented), and
• if the borrower furnishes materials, verification of the source of funds used to
purchase and the market value of the materials is provided.
Trade Equity • The borrower may agree to trade his or her real property to the seller as part of
the down payment.
• The amount of the borrower’s equity contribution is determined by subtracting all
liens against the property being traded (including real estate commission) from
the lesser of that property’s appraised value or sales/trade price.
• An appraisal on the trade property is required as well as evidence of ownership.
• The appraisal must be a residential appraisal (conventional, FHA, or VA) and
cannot be more than six (6) months old.
• If the property being traded has an FHA mortgage, assumption processing
requirements and restrictions apply.
Reference: See “Assumptions” in the topic “Loan Terms” for additional
information.
Documentation Verification of Deposit
• A written verification of deposit and a most recent bank statement are used to
verify savings and checking accounts.
• Credible explanations (and/or documentation) are required for large deposits on
bank statements and recently opened accounts for the source of those funds.
Alternate Documentation
• Bank statements for the most recent two (2) month consecutive period if
received monthly, or most recent quarterly bank statement, if received quarterly.
• ATM slips cannot be used as verification of assets.
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Contributions by Interested Parties
Lender Credit Lender credit resulting from premium pricing is allowable by HUD under the
requirements shown below.
• Lender credit may be applied to closing costs, prepaid items and discount points,
however, it may not exceed the allowable fee permitted by the jurisdictional FHA
Home Ownership Center (HOC).
• Lender credit cannot be applied to down payment nor to outstanding obligations
of the borrower, including missed (delinquent) mortgage payments.
• Lender credit is not considered a seller concession and is not subject to any
limitations.
• If lender credit is applied to closing costs that are being financed into the loan in
a refinance transaction, the amount of these closing costs must be deducted
from the total acquisition before calculating the maximum base loan amount.
• Lender credit must be used to reduce the principal balance if the premium
pricing agreement establishes a specific dollar amount for closing costs and
prepaid expenses with any remaining funds, in excess of actual costs, reverting
to the borrower.
• If the premium pricing agreement establishes a specific dollar amount for closing
costs and prepaid expenses, any remaining funds must be used to reduce the
principal balance. These excess funds are applied as a principal curtailment
after closing and are not used to reduce the loan amount prior to loan closing.
Continued on next page
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Contributions by Interested Parties, Continued
Seller • Sellers (or other interested third parties such as real estate agents, builders, or
Contributions developers) may contribute up to 6% of the sales price towards actual closing
costs, prepaid expenses, discount points and other financing concessions
allowable by HUD.
• HUD does not require or permit the presentation or disclosure of “seller-paid
credits” on the Good Faith Estimate (GFE).
• Seller credits must be entered as a “lump sum credit” on the HUD-1.
Note: When the seller makes a contribution to more than one expense for the
borrower, the seller credits shown on the HUD-1 MUST reflect the “lump sum
payment.”
• Seller contributions may not be used toward borrower’s outstanding obligations.
• Contributions from sellers or other interested third parties to the transaction that
exceed 6% of the sales price, or other financing concessions, are to be treated as
inducements to purchase, thereby reducing the amount of the mortgage. Each
dollar exceeding the six (6) percent limit must be subtracted from the property’s
sales price before applying the appropriate loan-to-value (LTV) ratio.
• Job Loss Insurance is considered a “sales concession,” but does not require a
dollar-for-dollar reduction from the sales price when calculating the LTV and TLTV
ratios.
• The dollar-for-dollar reduction to the sales price also applies when gift funds do
not meet FHA requirements.
• All DU loans submitted to SunTrust Mortgage must reflect zero in the new
interested party contribution field and underwriters will manually calculate the
limits.
• Items typically paid by the seller (i.e., real estate commissions, charges for pest
inspections, fees paid to release a deed of trust) are not considered contributions.
• If a seller (builder) is paying HOA dues or taxes that come due during the first
year of the mortgage, the borrower must qualify on the full PITI (including the
monthly tax escrow and HOA fee). In addition, when determining the borrower’s
3.5% investment, these “advance” payments cannot lower the borrower’s cash to
close.
• Real estate broker fees paid to a buyer-broker by the seller on behalf of the
borrower are not considered a seller concession as long as the seller is paying the
sales commission that is typical for that market. The HUD-1 Settlement
Statement must be reviewed to ensure that the seller did not pay a sales
commission separately inclusive of the buyer-broker fee.
• If the seller is charged for closing costs that are “unallowable” to the borrower by
HUD (i.e., tax service fee), the payment on such costs must be OUTSIDE of seller
contributions listed on the contract. In addition, these “unallowable” costs should
not be reflected on the GFE.
• Unacceptable fees for seller contributions:
• one (1) year golf course fees,
• initiation fees into a club, etc.
Continued on next page
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Contributions by Interested Parties, Continued
Seller-Paid • The seller-paid interest payment reductions are also known as “Ease-In Payment
Interest Reduction” feature for SunTrust marketing purposes.
Payment • Seller-paid interest payment reductions are available only on fixed rate loans.
Reduction/ The FHA 5 Year and 7 Year ARMs are not eligible, nor are temporary buydowns
Ease-In eligible, when the seller-paid interest payment reduction is utilized.
Payment • It is similar to a buydown and must be in a fixed amount (amount of interest
Reduction applied to the PITI cannot change from month to month).
Feature • The borrower(s) qualify at the note rate using the full PITI.
Reference: See the “Ease-In Payment Reduction Feature” topic for more
information regarding seller-paid interest payment reductions.
Section 2.90 November 10, 2011
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HUD Allowable Closing Costs
General • The homebuyer may pay customary and reasonable costs that are necessary to
close the mortgage loan.
Note: Discount points may be acquisitioned on some refinances, BUT NEVER
ON PURCHASE LOANS. Discount points may not be used to meet the buyer’s
minimum investment requirements.
• All closing costs, including any costs paid outside of closing (POC), lender credit,
or seller construction items, must be itemized on the HUD-1.
• FHA will not allow “mark-up’s” (i.e., charging a fee to the mortgagor for an
amount greater than that charged by the service provider). Only the actual cost
for a service may be charged to the mortgagor.
• It is expected that “Actual Costs” will not exceed what is reasonable and
customary for the area.
Notes:
• All fees and charges must comply with Federal and State disclosure laws and
other applicable laws and regulations.
• The Lock-in Confirmation must be executed by the borrower(s) at least 15 DAYS
prior to the date of the Note, if a commitment fee is collected.
Allowable Closing costs and related information, pertaining to some of the fees that may be
Costs/ Not charged to the borrower and NOT included in the acquisition cost, are shown in
Included in the table below
Acquisition
Allowable Fees/Costs Related Information
Not Included in Acquisition
Appraisal Fees The fee for the actual completion of an FHA appraisal
may not include a fee for management of the appraisal
process, or any other activity other than the
performance of completing the appraisal report.
Appraisal Management • Any management fees charged by an AMC or other
Company (AMC) Fees third party must be for actual services related to
ordering, processing or reviewing of appraisals
performed for FHA financing.
• AMC and other third party fees must not exceed
what is customary and reasonable for such services
provided in the market area of the property being
appraised.
Reasonable Discount Points (May be financed in the mortgage on some refinance
transactions, but may never be part of the minimum
3.5% down payment on a purchase transaction.)
Escrow Deposit (Property Taxes Buyer may pay a maximum of two (2) months.
and Assessments, and
Insurance Premium) (May be financed in the mortgage on a refinance, but
may not be part of the minimum 3.5% down payment on
a purchase transaction.)
Continued on next page
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HUD Allowable Closing Costs, Continued
Allowable Costs/ Not Included in Acquisition, (continued)
Allowable Fees/Costs Related Information
Not Included in Acquisition
Hazard Insurance Premium Actual cost for first year only (plus 2 months, subject to
aggregate adjustment requirements.)
Note: May be financed in the mortgage on refinances.
Interest Actual cost.
Calculated on 360 days per year basis. Interest may
only be collected from the mortgagor from the date the
mortgage proceeds are actually disbursed by the
mortgagee.
Interest may be paid by the borrower, or financed in the
mortgage on refinances.
Unallowable Below is a list of unallowable closing costs and fees, which may not be charged to
Costs the borrower.
Unallowable Fees/Costs Related Information
Finders fees & kickback UNALLOWED in transaction
payments
Commitment Fee Unallowed if the loan has not been locked at least 15
days prior to the date on the Note.
Tax service fee Buyer cannot be charged.
Fees Charged by Non-approved FHA does not permit loan origination services to be
Mortgage Brokers performed by non-approved mortgage brokers.
Note: FHA considers a mortgage broker as “a person
(not employee or exclusive agent of a lender) who
brings a borrower and lender together to obtain an FHA
loan, and who provides settlement or closing services.”
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Mortgage Insurance
General An annual Mortgage Insurance Premium (MIP) is charged and collected in monthly
installments on most FHA loans. The percentage amount of the annual premium is
based upon the LTV and the term of the mortgage.
There is also an initial Upfront Mortgage Insurance Premium (UFMIP) required on
certain FHA loans which can be financed in the loan amount or paid in cash at
closing. If any of the UFMIP is paid in cash, then the entire amount must be paid in
cash.
Reference: See the “Determining UFMIP” subtopic subsequently presented in this
topic for additional information on the rounding of the UFMIP.
Note: There is no UFMIP charged on loans in Military Impact Areas (MIAs) Section
238(c), but there is a monthly premium for the life of the loan, depending on the
new loan’s term and LTV.
Mortgage • Military Impact Areas (MIAs/Section 238c) insures mortgagees against losses on
Insurance in mortgage loan financing for the construction, purchase, or refinance of properties
Military Impact near any military installation in a federally impacted area.
Areas • Area eligibility is established when the Secretary of Defense has certified that
there is a need for additional housing in the area and that thre are no plans to
close or relocate the military base during the five (5) years following the
certification.
• There is no UFMIP; however, the monthly MIP, where the percentage amount of
the annual premium is based upon the LTV and term, will continue for the life of
the loan.
• MIA loans must be correctly identified within FHA Connection and SunTrust
Mortgage Systems as 238(c) in order to be exempt from the UFMIP fee.
• The designated MIAs are in the areas listed below.
• Camden County, Georgia,
• Liberty County, Georgia,
• Bryan County, Georgia,
• Jefferson County, New York,
• St. Lawrence County, New York, and
• Lewis County, New York.
Notes:
• Individuals do not have the option of originating properties located in a Military
Impact Area as a standard 203(b) loan transaction.
• Loans in Military Impact Areas are not eligible for submission to TOTAL
Scorecard and MUST be manually underwritten.
• ARM loans in a Military Impact Area must use ADP Code 774 in order to be
properly insured.
Continued on next page
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Mortgage Insurance, Continued
Mortgage When making changes to the loan amount, appraised value, processing type, or any
Insurance other data affecting either the UFMIP or the monthly MIP, it is extremely important to
Verification validate the M25 screen in MLCS to ensure the mortgage insurance factors are
Prior to Closing correct. The FHA UFMIP section on M25, the Default UFMIP is systematically
calculated and must match the Final UFMIP exactly.
(STM Internal
Information For STMPartners loans, the Override UFMIP flag on M25 is checked. For
Only) STMPartners loans that were taken offline and where changes were made to the
loan parameters, the Override UFMIP flag may cause issues with the Default UFMIP
and Final UFMIP matching. Contact your Regional Underwriting Manager to remove
the Override UFMIP flag.
Determining • UFMIP is determined by multiplying the initial premium percentage by the base
UFMIP loan amount. The total FHA-insured mortgage amount is limited to 100% of the
appraised value, and the UFMIP is required to be included within that limit.
• The UFMIP must be either:
• entirely financed into the mortgage, with the mortgage amount rounded
down to a while dollar (with the exception of instances in which the borrower
chooses to pay up to $49.99 of the UFMIP in cash, in which case it would
not then be reflected in the total mortgage amount), or
• paid entirely in cash and all mortgage amounts must be rounded down to a
multiple of $1.00.
• The mortgage amount must be rounded down to a multiple of $1.00, regardless
of whether the UFMIP is financed or paid in cash. The UFMIP amount, that is
part of the total mortgage amount, is not considered when determining
compliance with statutory loan limits or LTV limits. The base mortgage amount
must comply with the requirements. The total mortgage amount may exceed this
limit by the financed UFMIP amount.
Note: Any UFMIP amounts paid in cash are added to the total cash settlement
amount.
Continued on next page
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Mortgage Insurance, Continued
MIP Premiums The following table shows Upfront Mortgage Insurance Premiums and Annual
Monthly (UFMIP and Monthly), for FHA Case Numbers assigned on or after April
18, 2011.
FHA Single Family Mortgage Insurance
Upfront and Annual Mortgage Insurance Premiums
(All Loan Terms)
Effective with case number assignments as of April 18, 2011
LTV Loan Term Purchase & Purchase & Refinance
Refinance Transactions
Transactions FHA 238(c) Loan Program
FHA 203(b) Military Impact Areas
Loan Program
> 95% Greater than 15 Years 1.00% / 1.15% No Upfront / .55%
90% Less than or equal to
1.00% / .50% No Upfront / .25%
15 Years
78.01 Less than or equal to
1.00% / .25% No Upfront / No Monthly
to 90% 15 Years
95% Greater than 15 Years 1.00% / .90% No Upfront / .55%
90% Less than or equal to
1.00% / .25% No Upfront / .25%
15 Years
95% Greater than 15 Years 2.25% / .55%
90% Less than or equal to 15 Years 2.25% / .25%
< 90% Less than or equal to 15 Years 2.25% / None
Notes:
• The upfront premiums apply to the FHA 203(b) loan program, but do not apply
to the 238(c) (military impact areas) loan program.
• FHA is not authorized, and will not, insure any mortgages for which new FHA
case number assignments are made on or after April 5, 2010 but prior to October
4 2010, where the above premium structure has not been utilized.
• All loans (with the exception of loans in military impact areas) must be run
through TOTAL Scorecard.
DU Messaging • Users may receive the following DU messaging in their DU findings on FHA
for FHA Case loans:
Numbers
Assigned on or “The FHA Upfront Mortgage Insurance Premium cannot exceed 2.00
after April 5, percent for first time homebuyers with HUD approved pre-purchase
2010 but prior housing counseling. The UFMIP for this loan is based on the
to October 4, borrower not having pre-purchase counseling.”
2010
• This is a hard coded message in DU that will be removed in the next release of
DU for government loans.
• Until that time, users should ignore this messaging and follow currently published
FHA guidelines regarding FHA Upfront Mortgage Insurance Premium (UFMIP)
percentages.
• See the table above for Upfront and Annual Mortgage Insurance Premiums
effective with FHA case number assignments as of April 5, 2010.
• There is no reduction in UFMIP for first time homebuyers attending housing
counseling.
Continued on next page
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Mortgage Insurance, Continued
UFMIP Refunds All refunds for FHA upfront mortgage insurance premiums have been eliminated,
except for FHA-to-FHA refinance transactions.
If the borrower is refinancing their current FHA loan to another FHA loan within three
(3) years from the date of closing, a refund credit may be applied to the new loan
transaction. The amount of the refund cannot exceed the new UFMIP being charged
on the new loan transaction.
The following table shows the three (3) year UFMIP refund schedule.
Upfront Mortgage Insurance Premium Refund Percentages
Month of Year
Year 1 2 3 4 5 6 7 8 9 10 11 12
1 80 78 76 74 72 70 68 66 64 62 60 58
2 56 54 52 50 48 46 44 42 40 38 36 34
3 32 30 28 26 24 22 20 18 16 14 12 10
STM Internal Information
• MLCS Screen Input – Closing Issues
• On the Z43 screen in the 05/14 process flow, enter the full amount of the
UFMIP refund in the “FHA Refund Cr” field.
Note: SunTrust will not credit the borrower with a UFMIP refund in excess
of the UFMIP being charged on the new transaction.
• HUD-1 Settlement Statement – Closing Issues
• Page one – show the amount of the UFMIP refund credit as a FHA Refund
Credit in the 200 Series, and
• Page two – show the amount of the amount of the New UFMIP on line 902.
Streamline • For loans without an appraisal, use FHA’s computed value from the existing loan
Refinance to calculate the LTV.
• If FHA does not have a computed value, only then may 89.99% be considered
as the LTV.
Reference: See the “Streamline Refinance” topic previously presented for additional
information.
Continued on next page
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Mortgage Insurance, Continued
Annual • With the exception of FHA loans where the property is in a military impact area
Mortgage (MIA), FHA’s annual mortgage insurance premiums will be automatically
Insurance canceled under the following conditions:
Premium • For mortgages with terms greater than 15 years, the annual mortgage insurance
Cancellation premiums will be canceled when the LTV ratio reaches 78% provided the
mortgagor has paid the annual MIPs for at least 5 years.
• For mortgages with terms of 15 years or less the annual MIPs will be canceled
when the LTV ratio reaches 78%, regardless of the length of time the borrower
has paid the annual mortgage premiums.
• FHA determines when the 78% LTV ratio is reached based on the lesser of the
sales price or appraised value at origination (new appraised values will not be
considered).
• Cancellation of the annual MIP is normally based on scheduled amortization of
the loan. However, in cases where the loan payments have been accelerated or
modified, cancellation can be based on the actual amortization of the loan.
Under this circumstance a borrower may request cancellation from their loan
servicer.
Note: The borrower cannot order a new appraisal to meet the 78% threshold.
HUD will only base the LTV calculation off of the lesser of the sales price or
appraised value that is in their data-base when the loan is closed.
Condominiums Condominium loans are subject to the same upfront and monthly premium charge
and termination schedule as reflected in this topic for all other 203(b) loans.
Gross Loan When UFMIP is financed into the loan amount, the total loan may exceed HUD’s
Amount maximum loan limit for the area by the amount of UFMIP.
Special • The origination fee is calculated on the base loan amount only.
Considerations • The discount points are calculated on the gross loan amount.
• The entire UFMIP premium may be paid by a person other than the borrower.
However, if any part is paid by a non-borrower, the entire UFMIP must be paid in
cash. If the non-borrower is the seller, the amount paid must be considered a
sales concession subject to FHA limits.
• If the borrower is paying UFMIP, it must be 100% financed or 100% paid in cash.
• The UFMIP is a pre-paid finance charge to be disclosed on the Good Faith Estimate
and in the Truth-In-Lending Disclosure whether it is financed or paid in cash.
Section 2.90 November 10, 2011
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Appraisal Requirements
General • The following appraisal forms are mandatory for FHA loans.
• Uniform Residential Appraisal Report (Fannie Mae Form 1004) for all 1 unit
single family dwellings.
• Manufactured Home Appraisal Report (Fannie Mae Form 1004C) for all
manufactured homes.
Note: Manufactured homes are NOT eligible for financing with SunTrust
Mortgage.
• Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) for all
individual condominium units.
• Small Residential Income Property Appraisal Report (Fannie Mae Form 1025)
for all 2-4 unit single family dwellings.
• All property conditions, including repairs, alterations and/or required inspections
must be reported within the appropriate section of the applicable Fannie Mae
appraisal reporting form.
Note: FHA does not require any home to have any appliances to be eligible for
FHA financing.
• Upon receipt of a completed appraisal report prepared on one of the revised
Fannie Mae forms, the underwriter/processor must note any physical deficiency or
adverse condition requiring repair, alteration or further inspection on Conditional
Commitment Direct Endorsement Statement of Appraised Value (form HUD-
92800.5B).
• All loans must have a FHA case number assigned to the subject property. Case
numbers are assigned by HUD through the FHA Connection.
Reference: See the topic “FHA Social Security Number Validation” subsequently
presented in this product description for information relating to the assigning of
FHA case numbers.
• The accurate Condominium ID is required to order the FHA case number or
appraisal.
• New FHA case numbers are required if the borrower changes properties.
• The FHA case number must be provided to the appraiser before the appraiser
may release the appraisal to the lender.
• HUD allows for the lender selection of the appraiser, however, the appraiser must
be on FHA’s most current approved appraiser list and must perform the inspection
of the subject property as well as all comparables. This same appraiser’s
signature is required as “appraiser” on the left side of page 2 of the appraisal
report (URAR). A supervisory signature is not permitted. Reference can be made
in the “Comments” section of the URAR regarding a trainee’s assistance with the
appraisal.
• Underwriters (or other members of lender’s staff) are not to mark on the URAR.
The Direct Endorsement Underwriter/HUD Reviewer Analysis of Appraisal Report
(Form HUD 54114) is used for comments.
Continued on next page
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Appraisal Requirements, Continued
General, • HUD requires that the DE lender notify the borrower of the property’s appraised
(continued) value before the credit file is underwritten. HUD will accept a simultaneous
review of the appraisal and mortgage credit application if the DE lender discloses
to the borrower that the DE underwriter may adjust the appraised value.
• The simultaneous review notification requirement is met by one of the following
forms:
• the Appraised Value Adjustment Disclosure (Form LGEN0067L1-which prints
off with HUD/VA Addendum to Uniform Residential Loan Application), or
• an initial URLA Addendum (HUD 92900-A) if completed and fully executed
prior to the underwriting of the loan.
• New construction properties must have at least one comparable from outside the
subdivision. All builder sales must not be used in the same subdivision.
• New construction properties that are 90% complete, with only minor finish work
remaining, may be appraised without the appraiser having plans and
specifications.
• For new construction where the house is 100% complete at the time of the
appraisal, the appraiser must take a clear photograph (in addition to the standard
appraisal photos) of each diagonally opposite front and rear corner of the house
to record adequate grading and drainage of the site.
Note: "Complete" means everything is complete including the installation of
buyer preferences (flooring, appliances, etc.), utilities are on and fully functioning
and all site improvements completed at the time of appraisal (Ready for
Occupancy). If no repair or correction conditions are made by the appraiser, the
appraisal serves as the final inspection.
• If the appraisal is ordered as “proposed construction” and is fully completed, a
final inspection is still required regardless if property is 100% complete.
• If the appraisal is ordered as “new construction, existing” and is 100% complete,
a final inspection is not required providing the appraiser states that “the dwelling
was built in accordance with the submitted plans and specifications and drainage
and grading are adequate.”
Note: For identity of interest transactions, a full appraisal is required and must
include verification of the purchase price, last sale date, and recent listing of the
subject property regardless of the feedback provided in the AUS messaging.
Appraisal Reference: See Section 1.06: Appraisal Guidelines of the Broker Seller Guide for
Ordering additional information on the appraisal ordering process.
Process
Continued on next page
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Appraisal Requirements, Continued
Appraisal • The FHA Appraisal Logging screen in FHA Connection must be completed prior
Logging to approving the FHA appraisal and issuing the Conditional Commitment Direct
Endorsement Statement of Appraised Value form (HUD-92800.5B).
• A print-out of the completed FHA Appraisal Logging screen must be placed in
the file prior to submission for underwriting.
Note: It is the underwriter’s responsibility to review the FHA Case Number
Assignment, Social Security Number Validation and Appraisal Logging document
that generates off of FHA Connection at the time of underwriting. The
underwriter is responsible for making any property, borrower and/or appraisal
logging corrections in FHA connection prior to closing.
Appraiser FHA has established the requirements listed below for the appraiser regarding Seller
Requirements Concessions and Verification of Sales.
• Report the total dollar amount of the loan charges and/or concessions to be paid
by any party on behalf of the borrower and describe which party provided the
concession in the “Subject Section” of the appraisal report. Use of an addendum
with the heading “Loan Charges /Sales Concessions” may be required due to
limited space on the report.
• Verify all sales transactions for seller concessions and report those findings in
the appraisal. If the sales cannot be verified with someone having first-hand
knowledge of the transaction (i.e., seller, buyer, or one of their representatives),
the appraiser must state how and to what extent the sale was verified.
• Provide the appraiser with a complete copy of the ratified sales contract,
including all addenda, for the subject property that is to be appraised.
• Provide the appraiser with all financing data and sales concessions for the
subject property granted by anyone associated with the transaction. Sales
concessions information must include gifts and/or down payment assistance,
which may or may not be included in the contract of sale.
• Report the type and the amount of sales or financing concessions for each
comparable sale listed in the “Sales Comparison Analysis, Sales or Concession
Section” for each comparable listed. If no concessions exist, the appraiser must
state “none.”
• Make market-based adjustments to the comparable sales for any sales or
financing concessions that may have affected the sales price. Adjustment for
each comparable sale must reflect the difference between the sales price with
the sales concessions and what the property would have sold for without the
concessions.
• Provide an analysis of the current agreement of sale, contract, option or listing
for the subject property and an analysis of all prior transfers that occurred within
three (3) years prior to the effective date of the appraisal. If the contract is not
provided to the appraiser, he/she must report the steps or efforts taken to obtain
the current agreement of sale.
• Provide analysis of all prior transfers of the comparable sales that occurred with
one (1) year prior to the effective date of the appraisal in the “Sales Comparison
Analysis, Sales or Financing Concessions” section. If the data is unavailable,
the appraiser must note what steps were taken during the normal course of
business to obtain and report the information.
Continued on next page
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Appraisal Requirements, Continued
Mortgagee FHA has established mortgagee requirements relating to appraisals. These
Requirements requirements are listed below.
• Provide the appraiser with a complete copy of the ratified sales contract,
including all addenda, for the subject property that is to be appraised.
• Provide the appraiser with all financing data and sales concessions for the
subject property granted by anyone associated with the transaction. Sales
concessions information must include gifts which may or may not be included in
the contract of sale.
• If a reconsideration of value is requested, the appraiser must be provided with
any amendments to the contract that occurred after the effective date of the
appraisal.
• For proposed/under construction loans with less than a 90% LTV, the lender
should provide a complete set of the approved plans and specifications the
builder submitted to the local building authority to obtain the building permits. In
the event the property is located in a jurisdiction that does not approve plans
then the plans and specifications are required.
• Appraisers must receive a fully executed, Builder’s Certification of Plans,
Specifications, and Site (HUD form 92541) before performing the appraisal on
proposed, under construction or less than one year old properties. Appraisers
must review Item 1 on the form and note in the Appraisal Report any
discrepancies between the information in Item 1 and the actual conditions
observed on site. The lender is responsible to address any yes answer in Item 1.
Market Reference: See the “Market Conditions Addendum to the Appraisal Report (Freddie
Conditions Mac 71/Fannie Mae 1004MC)” subtopic in the “Appraisal Reports and Exhibits” topic
Addendum to within Section 1.06: Appraisal Guidelines of the Broker Seller Guide for additional
the Appraisal information.
Report (Freddie
Mac 71/Fannie
Mae 1004MC)
Continued on next page
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Appraisal Requirements, Continued
Properties in Reference: See Section 1.12: SunTrust Disaster Area Procedures for additional
Disaster Areas information.
Properties • The subject property is considered to be in a declining area when the SunTrust
Located in Mortgage Declining Market Index list indicates a severely declining or declining
Declining market, or the appraiser has marked the appraisal that property values are
Market Areas declining or referenced that values are declining in the appraisal comments,
including the Market Conditions Addendum to the Appraisal Report.
• At least two (2) comparable sales, as similar as possible to the subject property,
that have closed within ninety (90) days prior to the effective date of the
appraisal.
• In some areas this may not be possible due to lack of market information
and, in these cases, a detailed explanation is required.
• At least two (2) comparable listing and/or pending sales, as similar as possible to
the subject property, are required.
• Listings and pending sales must be reported on the appraisal grid of the
applicable appraisal form in comparable position four (4) or higher.
• Listings and pending sales should bracket the listing, using both dwelling
size and sales price whenever possible to insure that these comparables are
market tested and have reasonable market exposure to avoid the use of
over priced properties as comparables.
Note: Reasonable market exposure is reflected by typical marketing times
for the neighborhood.
• Active listings must be adjusted to reflect list to sale price ratios for the
market.
• Pending sales must be adjusted to reflect the contract purchase price
whenever possible or adjust pending sales to reflect list to sale price ratios.
Continued on next page
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Appraisal Requirements, Continued
Properties • Original list price, any revised list prices, and total days on the market
Located in (DOM), must be included.
Declining • An explanation is required for DOM that do not approximate time frames
Market Areas, reported in the Neighborhood section of the appraisal reporting form or
(continued) that do not coincide with the DOM noted in the Market Conditions
Addendum to the Appraisal Report.
• Reconcile the adjusted values of active listings or pending sales with the
adjusted values of the settled sales provided.
• If the adjusted values of the settled comparables are higher than the
adjusted values of the active listings or pending sales, the appraiser
must determine if a market condition adjustment is appropriate.
• The final value conclusion should not be based solely on the comparable
listing or pending sales data.
• Data regarding market trends is available from multiple local and nationwide
sources. Appraisers must be diligent in using only impartial sources of data.
• The appraiser must verify data via local parties to the transaction: agents,
buyers, sellers, lenders, etc.
• If a sale cannot be verified by a party then public records or other
impartial data source that can be replicated may be used.
• A Multiple Listing Service (MLS) by itself is not considered a verification
source.
• Unacceptable data sources include media and other sources considered not
readily verifiable and should be able to be replicated.
• Known or reported incentives or sales concessions must be noted in the
financing section of the grid for any active or pending comparable used.
Construction Proposed
Status Types No concrete or permanent material has been placed. Digging of footing and
placement of re-bar is not considered permanent.
Under Construction
From the first placement of concrete (permanent material) to 100% completion.
(Finalized and ready to occupy.)
Existing
100% complete and has an occupancy permit.
Existing less than one (1) year
Appraisal performed less than one (1) year since final occupancy permit was issued.
For model homes, age begins with issuing of permit to use as a model.
Note: Any home built less than two (2) years must list the month and year
completed in the age box on the Uniform Residential Appraisal Report (URAR).
Complete is defined as 100% complete and nothing remains to be done.
Continued on next page
Section 2.90 November 10, 2011
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Appraisal Requirements, Continued
Comprehensive The table below shows the CVP (appraisal package) requirements for various
Valuation property or loan types.
Package (CVP)
Requirements
URAR For Your Protection:
(Fannie Mae Get a Home Inspection
1004, 1073, and (HUD 92564-CN)
1025)
Proposed/Under Yes No
Construction
Existing Construction Yes • Yes (for a previously
< 12 months old occupied home < 12 mos.
old.)
• No (for a home that has
never been occupied.)
Existing Property Yes Yes
Streamline Refinance with Yes No
an Appraisal
Streamline Refinance No No
without an Appraisal
HUD Real Estate Owned Yes Yes
Excess Land • Excess land occurs when the subject lot is considerably larger than typical lots in
the neighborhood, and the excess is capable of separate use.
• In small communities and outlying areas different criteria must be used since the
market may readily accept a wide variance in lot sizes due to wide differences in
lot use by this segment of the market.
• SunTrust requires the property to be legally subdivided, with separate tax
identification numbers, prior to the appraisal being completed.
• SunTrust will not finance the purchase of excess land.
• When it has been determined that the plot contains excess land, the area of the
readily marketable real estate entity, together with the existing or proposed
improvements, is delineated and is appraised in the prescribed manner. The
excess land is described but is not appraised. A requirement is made that the
excess land be excluded from the mortgage security.
• The highest and best use of the site must also be given close evaluation.
Continued on next page
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Appraisal Requirements, Continued
Appraisal Date • Appraisals are valid for 120 days on existing, proposed or under construction
properties and cannot be “re-used” during this period once the mortgage for
which the appraisal was ordered has closed.
• The effective date of an FHA appraisal cannot be before the FHA case number
assignment date, unless:
• the appraisal was originally ordered for conventional lending, HUD REO or
government guaranteed loan purposes, but was performed by a FHA Roster
Appraiser and is being converted to a FHA insured mortgage, and
• when applicable, the certification field in the Appraisal Logging Screen in
FHA Connection is completed.
Notes:
• The certification field in the Appraisal Logging Screen will only appear
when the appraisal effective date is more than ten (10) days prior to the
case number assignment date and the appraisal must have been originally
ordered for conventional lending, HUD REO or government guaranteed loan
purposes.
• For transactions where the original appraisal was not ordered for an FHA
transaction, documentation must be retained in the loan file to evidence
conversion of mortgage programs.
• The lender is responsible for ensuring that the appraisal was performed in
accordance with FHA appraisal reporting requirements. Validating this
requirement may entail a re-inspection of the property by the appraiser.
• If the original appraisal was not performed by a FHA Roster Appraiser, then
a new FHA appraisal must be ordered, and the effective date may not be
before the case number assignment date.
• A new appraisal is required for each refinance transaction requiring an appraisal.
• MCRVs are valid for 12 months from the issue date.
• Extensions may be granted for 30 days, at the option of the lender, to allow for
approval of the borrower and closing of the loan subject to the items listed below.
• The borrower signs a valid sales contract or is approved for a loan prior to
the expiration date of the appraisal.
• The approval of the borrower occurs when the DE underwriter signs the FHA
Loan Underwriting Transmittal Summary (HUD-92900-LT) or the loan is
approved by TOTAL.
• 30 day extensions are not eligible on transactions that receive a “Summary
Appraisal Update Report.”
References:
• See the “Fannie Mae Form 1004D/Freddie Mac Form 442 (Appraisal Update
and/or Completion Report)” subtopic subsequently presented in this topic for
additional information on updating an existing appraisal.
• See the HUD REO Properties subtopic previously presented in the
“Occupancy/Property Types” topic for additional information regarding HUD REO
properties.
Continued on next page
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Appraisal Requirements, Continued
Assignments of General Information
Appraisals Upon written request from the borrower or the seller (if the borrower is not involved),
(Commitments) appraisal reports and/or mortgage credit packages may be assigned to another lender,
and/or Cases but does not need to include lender processing documents.
Procedures
• HUD must be notified when a transfer occurs in order to avoid problems with the
issuance of MIC. An FHA case number is assigned to a specific lender and
property. Such notification must be made on FHA Connection.
• The receiving mortgagee must also place in the case binder to HUD, evidence of
the CHUMS system reassignment.
• If the receiving mortgagee approves the application and submits the case for
endorsement, the case file does not need to include a copy of the original
mortgagee’s FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT)
from the transferring lender, but does need to include explanatory comments
from the receiving (approving) mortgagee’s underwriter.
• FAILURE TO COOPERATE IN THE TRANSFER/ASSIGNMENT OF CASES
JEOPARDIZES THE MORTGAGEE’S HUD APPROVAL AS WELL AS ITS
DIRECT ENDORSEMENT APPROVAL.
• FHA does not require a change in either the lender’s name or the borrower’s
name when an appraisal is transferred.
References:
• See the subtopic, “FHA Appraisals Transferred to SunTrust from Another
Lender” within the “Home Valuation Code of Conduct” topic in Section 1.06:
Appraisal Guidelines of the Broker Seller Guide for specific guidelines on
transferring appraisals to SunTrust.
• See the subtopic, “FHA Appraisals Transferred from SunTrust to Another
Lender” within the “Home Valuation Code of Conduct” topic in Section 1.06:
Appraisal Guidelines of the Broker Seller Guide for specific guidelines on
transferring appraisals from SunTrust.
Maximum Compensation to Mortgagee
• Any lock-in fee collected from the borrower at the time of application.
• Any out-of-pocket expenses, appraised fees, credit reports, surveys, etc.
• A pro-rated portion of the origination fee for reasonable costs incurred for the
work performed:
• if the DE underwriter has issued the 92800.5B only - 1/2 of original fee.
• if the DE underwriter has issued the 92800.5B and a firm commitment
(approval of property/borrower) - 1% origination fee.
Continued on next page
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Appraisal Requirements, Continued
Fannie Mae • The Appraisal Update and/or Completion Report (Fannie Mae form
Form 1004D/Freddie Mac form 442), may be used in the following circumstances:
1004D/Freddie • to extend the validity period of an existing appraisal that is due to expire,
Mac Form 442 • to extend the validity period of an existing appraisal for new construction that
(Appraisal is incomplete, and
Update and/or • as an additional option to report completion of a repair and/or the satisfaction
Completion of requirements and conditions noted in the original appraisal report.
Report)
Notes:
• Only the FHA appraiser that performed the original appraisal, if currently in good
standing on the FHA Appraiser Roster, is permitted to complete a “Summary
Appraisal Update Report.”
• Any FHA appraiser that is currently in good standing on the FHA Appraiser
Roster may complete a “Certification of Completion.”
• Other methods used (i.e., contractor, home inspector and mortgagee
certifications) may continue to be used as applicable.
• Only one (1) “Summary Appraisal Update Report” may be completed per
appraisal report received.
• The effective date of the “Summary Appraisal Update Report” must be on or
before the original expiration date of the original appraisal report.
• A “Summary Appraisal Update Report” extends the original appraisal expiration
date by up to 120 days. Therefore, a loan must be closed within 120 days of the
effective date of the “Summary Appraisal Update Report.”
• The Appraisal Update and/or Completion Report (Fannie Mae form
1004D/Freddie Mac form 442) may only be used when ordered by a lender who
is identified as an intended user in the original appraisal report, unless the
appraiser incorporates the original report being updated as an attachment, rather
than as a reference.
• When a “Summary Appraisal Update Report” is issued, the appraiser must
include a completed Market Conditions Addendum (Fannie Mae form
1004MC/Freddie Mac form 71) for the subject property that is reflective of the
current market conditions as of the effective date of the Appraisal Update and/or
Completion Report (Fannie Mae form 1004D/Freddie Mac form 442).
• The Appraisal Update and/or Completion Report (Fannie Mae form
1004D/Freddie Mac form 442), may NOT be used in the following
circumstances:
• the property value has declined,
• building improvements that contribute value to the property cannot be
observed from the street or a public way,
Note: FHA requires that all improvements must be observable from a street or
public way to utilize the Appraisal Update and/or Completion Report (Fannie
Mae form 1004D/Freddie Mac form 442).
• the exterior inspection of the property reveals deficiencies or other significant
changes that did not exist as of the effective date of the appraisal report
being updated, or
• as a substitute for the Compliance Inspection Report (HUD 92051), when
required, for new construction
Continued on next page
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Appraisal Requirements, Continued
Second • In instances where the first appraisal was ordered by another lender, a second
Appraisal appraisal may be ordered under the following circumstances:
Options • the first appraisal contains material deficiencies as determined by the D.E.
Underwriter,
• the appraiser performing the first appraisal is on the SunTrust Mortgage
Ineligible Appraiser and Appraisal Company List,
• failure of the first lender, including cases where the first lender has since
gone out of business, to provide a copy of the appraisal to SunTrust in a
timely manner which would cause a delay in closing, posing a potential harm
to the borrower.
• Potential harm includes events outside the control of the borrower such
as loss of interest rate lock, purchase contract deadline, foreclosure
proceedings, late fees.
• Both appraisals must be retained in the case binder; however, the first
appraisal may be added to the case binder when it is received.
Notes:
• The loan file must be documented with why a second appraisal was
obtained AND both appraisals must be retained in the loan file.
• The cost of the second appraisal may be charged to the borrower.
• The lender name does not need to be changed on appraisals being
transferred from one lender to another.
• A second appraisal may NOT be ordered in an attempt to obtain a higher
property value or lesser number of deficiencies/repair requirements.
Reference: See the subtopic, “FHA Appraisals Transferred from SunTrust to Another
Lender” within the “Home Valuation Code of Conduct” topic in Section 1.06:
Appraisal Guidelines of the Broker Seller Guide for more information and workflows
for ordering second appraisals for FHA loans.
Converting VA General
Appraisals to • HUD will accept single family (excluding condominiums), existing construction,
an FHA proposed construction, under construction, and newly constructed properties one
Appraisal year old or less which were pre-approved by VA (this includes CRVs,
LNOV/LAPPs), and these properties are eligible for high ratio (greater than 90%)
loans using FHA mortgage insurance.
• The appraiser must be on the FHA Roster of Approved Appraisers and be state
certified with an unexpired license.
• A HUD case number must be obtained through FHA Connection. The VA CRV
(or LAPP appraisal) is sent to underwriting at loan submission and the DE
underwriter processes the conversion and completes the 92800.5B conditional
commitment. The conditions of the VA appraisal will become conditions of the
FHA appraisal with the addition of the Lead Based Paint Hazard, when
applicable.
Reference: See the subtopic, “Property Requirements” under the topic, “Appraisal
Requirements” subsequently presented in this product description for additional
requirements for lead based paint repairs and inspections.
Continued on next page
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Appraisal Requirements, Continued
Converting VA General, (continued)
Appraisals to • Circumstances under which a CRV/MCRV may not be converted include those
an FHA listed below.
Appraisal, • Property has an outstanding FHA Conditional Commitment issued by HUD.
(continued) Conditional Commitments are no longer issued by HUD except for HUD
employees only, others are issued by the DE underwriter.
• Property or site is known to be unacceptable (i.e., subject to periodic
flooding).
• FHA previously rejected property or site.
• The VA-MCRV or NOV expired before the sales contract was signed.
• Case is processed under the DE program and property does not qualify as
proposed construction.
Reference: See HUD Handbook 4000.4, Chapter 1, paragraph 1-2 for additional
information on using a VA-MCRV in the DE program.
• Property is a unit in a condominium project that does not meet FHA criteria.
Extension of Validity Period
FHA will not get involved in extending a VA appraisal. Generally, extension requests
are sent to the VA office of jurisdiction, which will contact the fee appraiser involved,
if appropriate, and issue an endorsement to the notice of value, if justified. The
borrower must have signed the purchase agreement during the validity period for the
extension to be considered “New Construction Properties”.
New Construction Properties
• If the appraisal is for new construction, whoever is shown on the LAPP NOV as
the inspector will perform the final inspection.
• The builder must complete the Builders Certification (HUD-92541).The
information must be reviewed by the DE Underwriter who is responsible for
resolving discrepancies and inconsistencies, if any.
• The conditions of the VA appraisal will become conditions of the FHA appraisal.
• The builder must be a VA approved builder.
• Subdivisions, PUDs, and builders do not need HUD approval.
VA Master CRV’s
• A VA master CRV may be converted to FHA; however, each case must have an
individual and separate case number.
• The builder does not need HUD approval, however, the builder must be VA
approved.
• A Builders Certification form (HUD 92541) is required.
Continued on next page
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Appraisal Requirements, Continued
Converting a General
VA MCRV for MCRVs are valid for 12 months from the date of issue. If a loan is submitted with an
an FHA Loan expired MCRV, the sales contract and FHA case number assignment must predate
the MCRV expiration date.
Reference: See “Extension of Validity Period” shown previously within this subtopic
for additional information.
Reciprocity – Proposed Construction
Condos
• VA MCRVs are acceptable as long as a HUD Approval letter of the project is
provided and current.
• All conditions of the HUD approval letter must be met prior to or at closing, in
addition to all of the MCRV conditions.
Subdivisions
• VA MCRVs are acceptable provided that they have not expired and a
satisfactorily completed Builder Certification form is obtained at the time of loan
submission to the DE underwriter.
• All MCRV conditions are to be met prior to closing.
Conversion of MCV
To convert an MCRV for use on an FHA loan, the following documentation must be
in the loan file for the DE underwriter to arrive at a final valuation:
• A complete copy of the sales contract including an itemization of options and
charges to the borrower for those options.
• A current and complete MCRV (if not sure of what “complete” refers to, contact
underwriting for definition).
• A MCRV option sheet completed by processor listing MCRV number, property
address, lot number, block number, name of subdivision, model name/type, base
value of model, list of all options from sales contract and MCRV values, total of
options, total value of MCRV, sales price and maximum loan.
• Square footage measurements for areas in each model type where upgrades for
competing, resilient flooring and padding are options with additional values. This
should be provided by the builder.
• Evidence of HUD project approval if a condominium, must be current and reflect
all conditions.
• A Builder Certification form (HUD 92541) for property types other than a
condominium.
• WSSC letter (applicable only in Prince George and Montgomery Counties in MD).
Continued on next page
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Appraisal Requirements, Continued
FHA Appraised • The FHA Appraised Value Adjustment Disclosure is signed by the borrower(s) at
Value the same time the HUD/VA Addendum to Uniform Residential Loan Application
Adjustment (URLA) is signed.
Disclosure • The form must be signed and dated prior to submission to underwriting and
included in the guaranty submission package sent to HUD.
• This form is not required if the initial URLA Addendum (HUD 92900-a) is
completed and signed before the loan is underwritten.
Property General
Requirements • HUD requires the approved appraiser to determine whether the property meets
HUD Guidelines as specified in HUD Handbook 4150.2 and Appendix D. To
perform this analysis, the appraiser must have full access to all property
improvements, including crawl space and attic.
References:
• See the HUD Handbook for specific property requirements established by
HUD.
• See the “Streamline Refinance” topic for additional information regarding
streamlines with an appraisal.
• FHA requires that appraisers be provided with all financing data and sales
concessions for properties to be a security for an FHA-insured loan.
• The appraiser must provide a meaningful explanation to support any “Best comp
available” statement.
• Current owner space must contain name of actual owner and cannot just state
“Owner of record.”
• Time adjustments are considered a “red flag;” however are allowed if the
rationale is documented and supported with a paired sales analysis.
• Appraiser needs to inspect the exterior of all comparable sales. If the
comparables are located in a gated community and the appraiser is unable to
gain entry, other comparables need to be provided. MLS pictures are not
acceptable.
• Appraisers are required to identify and report sales concessions and properly
address and/or adjust the comparable sale transactions to account for sales
concessions in the appraisal of all properties.
Unacceptable • The appraiser must consider factors such as location requirements,
Locations neighborhood hazards and nuisances, site analysis, condition of physical
improvements, economic life, code enforcements, and any other criteria HUD
requires.
• A site is required to be rejected if the property being appraised is subject to
hazards, environmental contaminants, noxious odors, offensive sights or
excessive noises to the point of endangering the physical improvements or
affecting the livability of the property, its marketability, or the health and safety of
its occupants. Rejections may also be appropriate if the future economic life of
the property is shortened by obvious and compelling pressure to a higher use,
making a long-term mortgage impractical.
Continued on next page
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Appraisal Requirements, Continued
Site Hazards • The appraiser must indicate all hazards and nuisances affecting the subject
and Nuisances property that may endanger the health and safety of the occupants and/or the
structural integrity or marketability of the property in the applicable section of the
appraisal form.
• If hazards or nuisances are observed, the appraiser must describe the conditions
and make a requirement for repair and/or for further inspection, and prepare the
appraisal “subject to repairs” and/or “subject to inspection” in the site section of
the report. These hazards or nuisances may include the following:
• subsidence, operating and abandoned gas wells, abandoned wells, slush
pits,
• heavy traffic, airport noise and hazards, runway clear zones/clear zones,
• proximity to high pressure gas, liquid petroleum pipelines or other volatile
and explosive products,
• residential structures located within the fall distance of a high-voltage
transmission line, radio/TV transmission tower, etc.,
• excessive hazard from smoke fumes, odors, and stationary storage tanks
containing flammable or explosive material.
Soil • The appraiser must notate the proximity to dumps, landfills, industrial sites or
Contamination other sites that could contain hazardous wastes. Additionally to notate any
readily observable evidence of hazardous substances in the soil (on-site
contamination) and make a requirement for further inspection in the site section.
• Conditions that could indicate soil contamination include pools or liquid, pits,
ponds, lagoons, stressed vegetation, stained soils or pavement, drums or odors.
If any of these conditions exist, further analysis or testing is required.
Grading and • Proper drainage control measures may include gutters and downspouts or
Drainage appropriate grading or landscaping to divert the flow of water away from the
foundation.
• If the grading does not provide positive drainage from the improvements, the
appraiser should make a repair requirement.
• Any readily observable evidence of standing water near the property could
indicate improper drainage. IF the standing water is problematic, a repair
requirement is made in the site section of the report.
Continued on next page
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Appraisal Requirements, Continued
Individual • When water and sewer are private, well and septic testing is governed by state
Water Supply or local requirements; however, the appraiser must note any observable
and Sewage deficiencies.
System • The appraiser must also report on the availability of connection to public and/or
community water/sewer systems. The lender is responsible for the
determination of the feasibility for requiring connection.
Distances • The appraiser should request a copy of a survey from the homeowner, if
Between available, that would show the distances between well/septic drainfield,
Well/Septic/Etc. well/foundation and well/property line.
• The appraiser is not required to sketch the distances but should note in the
appraisal if the distances appear to be met and note any adverse site conditions
that might warrant further inspections or due diligence.
•
rd
It is the lender’s decision as to whether a qualified third (3 ) party should map
out these distances. In cases where the lot is particularly small and depending
on the location of the well, the lender may want to require the survey to reflect
these distances.
Lead Based • For all FHA insured properties, correction is required for all defective paint
Paint Hazards surfaces in or on structures and/or property improvements built before January
1, 1978.
• The appraiser must provide a detailed description and identify the exact location
of any deficiency under physical deficiencies affecting livability.
• For HUD REO properties, HUD will only order a lead-based paint evaluation for
properties constructed before 1978 and purchased with FHA-insured financing.
Notes:
• If the appraiser observes defective paint in a home that was built before
1978, then the appraiser must enter an “X” in the “Yes” box and note all
areas affected in the physical deficiencies or adverse conditions section of
the appraisal report.
• If the appraiser does not observe defective paint in a home that was built
before 1978, an explanation is not required in the physical deficiencies or
adverse conditions section of the appraisal report.
Continued on next page
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Appraisal Requirements, Continued
Lead Based • For all FHA loans secured by properties built prior to 1978 where lead-based
Paint Hazards, paint is present and the appraiser noted defective paint in the home, SunTrust
(continued) will require the following:
• homeowners performing renovation, repair, or painting on their primary
residence must provide a letter stating they made the repairs.
• Any firm, renovator, contractor, or investment property owner completing the
repairs must provide a copy of the EPA or State-Lead Training Certificate in
the name of the party who performed the renovation, repair, and painting of
defective paint surfaces to be reviewed by the Underwriter.
• an inspection must be completed by an FHA Roster Appraiser or Inspector,
verifying the repairs have been completed as required by the appraiser.
Note: Inspections verifying completion of required repairs may also be
performed by an independent third party.
• For all other FHA transactions on properties built prior to 1978, all currently
published lead-based paint guidelines continue to apply.
Private Road • Each property must have vehicular or pedestrian access.
Access and • The property must have an all-weather road surface. (An all-weather surface is
Maintenance a road surface over which emergency vehicles can pass in all types of weather.)
• Private streets or shared driveways are addressed under “offsite improvements”
and must be protected by permanent recorded easements or be owned and
maintained by a HOA.
Reference: See the “Private Roads” subtopic under the “Closing and Loan
Settlement Documentation” for additional requirements.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 172 of 222
Broker Seller Guide
Appraisal Requirements, Continued
Minimum • New construction properties must comply with HUD’s Minimum Property
Property Standards (MPS).
Requirements/ • Existing construction must comply with HUD’s Minimum Property Requirements
Minimum (MPR).
Property
Standards Note: FHA does not require any home to have any appliances to be eligible for
FHA financing.
• The appraiser must denote any deficiency in the appropriate section(s) (i.e., site
issues in site sections, improvement issues in improvement section) of the
appraisal report. The appraiser is to note those repairs necessary to make the
property comply with FHA’s MPR or MPS together with the estimated cost to
cure. The lender will determine which repairs for existing properties must be
made for the property to be eligible for FHA-insured financing.
• Cosmetic repairs are not required; however, they are to be considered in the
overall condition rating and valuation of the property. (I.e., surface treatments,
beautification or adornment not required for the preservation of the property such
as worn floor finishes, carpeting, holes in window screens, small crack in a
windowpane are examples of deferred maintenance that do not require repairs
but must be reported by the appraiser.)
• The physical condition of existing building improvements is examined at the time
of the appraisal to determine whether repairs, alterations or inspections are
necessary. This is essential to eliminate conditions threatening the continued
physical security of the property.
• Required repairs are limited to the necessary requirements for the following:
• protect the health and safety of the occupants (Safety),
• protect the security of the property (Security), and
• correct physical deficiencies or conditions affecting structural integrity
(Soundness).
• A property with defective conditions is unacceptable until the defects or
conditions have been remedied and the probability of further damage eliminated.
Defective conditions include those listed below.
• Defective construction.
• Other readily observable conditions that impair the safety, sanitation or
structural soundness of the dwelling.
• The appraiser must provide the reason or an indication of a particular problem
when requiring an inspection of any mechanical system, structural system, etc.
Typical conditions that require further inspection or testing by qualified
individuals or entities include those shown below:
• infestation – evidence of termites
• inoperative or inadequate plumbing, heating or electrical systems
• structural failure in framing members
• leaking or worn-out roofs
• cracked masonry or foundation damage
• drainage problems
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 173 of 222
Broker Seller Guide
Appraisal Requirements, Continued
Repair and FHA now permits “as-is” appraisals and “subject to” appraisals. The table below
Inspection shows the conditions under which each category is selected in the reconciliation
Requirements section of the appraisal report.
Reconciliation – How the appraisal is made
The FHA appraisal Under the following conditions…
is made
As Is • There is/are no repairs, alterations or inspection
conditions noted by the appraiser.
• The property is recommended for rejection.
Subject to • Proposed construction where constructions has not
Completion per started.
Plans and • Under construction but not yet complete and less than
Specifications 90% LTV.
Subject to the • Repair or alteration condition(s) noted by the appraiser.
following repairs or • Under construction, more than 90% complete with only
alternations minor finish work remaining (buyer preference items, i.e.,
floor, coverings, appliances, fixtures, landscaping, etc.).
Note: This eliminates the need for construction exhibits.
Subject to the • Required inspection(s) noted by the appraiser.
following required
inspection
• Minor property conditions NOT requiring automatic repairs for existing
properties include but are not limited to those listed below.
• Missing hand rails
• Cracked or damaged exit doors that are otherwise operable
• Cracked window glass
• Defective paint surfaces in homes constructed post-1978
• Minor plumbing leaks (i.e., leaky faucets)
• Defective floor finish or covering (worn through the finish, badly soiled carpeting)
• Evidence of previous (non-active) Wood Destroying Insect/Organism
damage where there is no evidence of unrepaired structural damage
• Rotten or worn-out counter tops
• Damaged plaster, sheetrock or other wall and ceiling materials in homes
(constructed pre-1978)
• Poor workmanship
• Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
• Crawl space with debris and trash
• Lack of an all weather driveway surface
• Property conditions that may represent a risk to the health and safety of
the occupants or the soundness of the property that will require automatic
repair conditions include, but are not limited to those listed below.
• Inadequate access/egress from bedrooms to exterior of home.
• Leaking or worn out roofs (if three or more layers of shingles on leaking or
worn out roof, all existing shingles must be removed before re-roofing).
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 174 of 222
Broker Seller Guide
Appraisal Requirements, Continued
Repair and • Property conditions that may represent a risk to the health and safety of
Inspection the occupants or the soundness of the property that will require automatic
Requirements, repair conditions: (Continued)
(continued) • Evidence of structural problems (such as foundation damage caused by
excessive settlement).
• Defective paint surfaces in homes constructed pre-1978.
• Defective exterior paint surfaces in homes constructed post-1978 where the
finish is otherwise unprotected.
• Inspections for the following items and/or conditions are no longer
mandated in existing properties:
• Wood Destroying Insect/Organisms: required if evidence of active
infestation, if mandated by state or local jurisdiction, if customary to the area
or if a condition of the contract.
Reference: See the topic “Wood Destroying Insects” in Section 1.05:
Closing Information of the Broker Seller Guide for additional information.
• Well (individual water system): test or inspection required only if there is
knowledge that well water may be contaminated, if mandated by state or
local jurisdiction, when the water system relies on a purification system due
to presence of contaminants, or when there is evidence of corrosion of
pipes/plumbing, areas of intensive agricultural within ¼ mile, coal mining or
gas drilling operations within ¼ mile, or dump, junkyard, landfill, factory gas
station, or dry cleaning operation within ¼ mile; unusually objectionable
taste, smell or appearance of the well water.
• Septic: test or inspection required only if evidence of system failure, if
mandated by state or local jurisdiction, if customary to the area, or at lender’s
discretion.
• Roof: Flat or unobservable roof inspections not required.
• Conditions that DO require automatic inspections include the following
items and/or conditions in existing properties:
• Standing water against foundation and/or excessively damp basements.
• Hazardous materials on the site or within the improvements.
• Faulty or defective mechanical systems (electrical, plumbing, or heating).
• Evidence of possible structural failure (i.e., settlement or bulging foundation
wall).
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 175 of 222
Broker Seller Guide
Appraisal Requirements, Continued
Required Use FHA requires the lender to select an inspector listed on the FHA Inspector Roster
of FHA Roster under the circumstances shown below. Lenders may access an FHA Inspector for
Inspector or their area through HUD’s website using the web link listed below:
Other https://entp.hud.gov//idapp/html/insplook.cfm?in_fha=No
Authorized
Parties New Construction
• If the mortgagee elects not to have inspections performed by the local
jurisdiction in accordance with HUD Mortgagee Letter 01-27, or the local
jurisdiction does not issue a Certificate of Occupancy (or its equivalent), FHA
requires inspections by a FHA Roster Inspector.
• FHA requires inspections by a FHA Roster Inspector when the subject property
is new construction or manufactured housing.
• When a Mortgagee Certification is used to clear minor conditions, the
Compliance Inspection Report (HUD-92051) must be used by the FHA Roster
Compliance Inspector.
• The FHA compliance inspector that performed the inspection must complete the
Compliance Inspection Report (HUD-92051).
• In addition to the signature of the inspector, the DE Underwriter would sign the
form in Section III when and where appropriate.
Existing Construction
Other parties eligible to perform inspections are shown below.
• An FHA Roster Inspector must conduct an inspection, when structural or basic
system repairs require architectural expertise, and complete a Compliance
Inspection Report (HUD-92051).
• Inspection reports that are conducted by the FHA appraiser are completed using
the Appraisal Update and/or Completion Report (Fannie Mae Form
1004D/Freddie Mac Form 442/March 2005) in accordance with Mortgagee Letter
09-51.
• The same appraiser, who placed a repair requirement not requiring architectural
expertise, may determine satisfactory completion of the repair.
• A licensed bonded and registered engineer, a licensed home inspector, or other
person specifically registered or licensed may provide documentation to support
that all deficiencies noted by the FHA appraiser have been acceptably corrected.
These professionals may use their company’s forms and letterhead to make the
certification. The report must be reviewed by the either FHA or the DE
underwriter, as appropriate.
• When a Mortgagee Certification is used to clear minor conditions, the
Compliance Inspection Report (HUD-92051) must be used.
• The FHA compliance inspector that performed the inspection must complete the
Compliance Inspection Report (HUD-92051). In addition to the signature of the
inspector, the DE Underwriter would sign the form in Section III when and where
appropriate.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 176 of 222
Broker Seller Guide
Appraisal Requirements, Continued
Re- • The decision for a reconsideration of value must be made by the HUD staff
consideration review appraiser or the DE underwriter.
of Appraised • Before a request for reconsideration of value is accepted, the appraisal report
Value and evidence to support a higher value must be reviewed by the DE underwriter.
Three (3) new comparables (no more than six [6] months old) must be submitted
before sending the request back to the appraiser.
• A request for reconsideration of value can be submitted after receipt of the
official Conditional Commitment/Statement of Appraised Value. Submission to
the DE underwriter must be accompanied by original photographs of each
comparable used to support the higher value.
• If the new comparables are not similar or acceptable to support the increase, the
reviewer will reject the request for reconsideration. If the reviewer does not
reject the request but the appraiser performs a review on the new comparables
and finds that incorrect information was provided on size, design, sales price,
location or closing date, the appraiser is entitled to one half of the original fee. In
such cases, the appraiser must comment on the reason for rejecting each
comparable.
• If the DE underwriter agrees that the reconsideration is valid, it is sent to the
appraiser. The appraiser will process the reconsideration and send the
completed appraisal report to the underwriter for review. The underwriter must
review the appraisal report and issue the statement of appraised value to the
borrower.
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 177 of 222
Broker Seller Guide
Prohibition of Property Flipping
General Property flipping is a practice whereby a recently acquired property is resold for a
considerable profit with an artificially inflated value. In an effort to preclude
homebuyers using FHA financing from becoming victims of predatory property
flipping activity, HUD has implemented a revised property flipping policy.
Overview of FHA requires that:
FHA’s Property • only owners of record may sell properties that will be financed using FHA-
Flipping Policy insured mortgages,
• any re-sale of a property may not occur 90 or fewer days from the last sale to be
eligible for FHA financing, and
• for re-sales that occur between 91 and 180 days, where the new sales price
exceeds the previous sales price by one hundred percent (100%) or more, FHA
will require additional documentation validating the property’s value.
Note: HUD considers the re-sale date as, the date of execution of a sales
contract by a buyer that will result in a mortgage to be insured by FHA.
Sale by the To be eligible for a mortgage insured by FHA, the property must be purchased from
Owner of the owner of record and the transaction may not involve any sale or assignment
Record of the sales contract. This requirement applies to all FHA purchase money
mortgages regardless of the time between re-sales.
The Lender must obtain documentation verifying that the seller is the owner of
record and submit this to HUD as part of the insurance endorsement binder; it is to
be placed behind the appraisal on the left side of the case binder. This
documentation may include, but is not limited to:
• a property sales history report,
• a copy of the recorded deed from the seller, or
• other documentation such as a copy of a property tax bill, title commitment or
binder, demonstrating the seller’s ownership of the property and the date it was
acquired.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 178 of 222
Broker Seller Guide
Prohibition of Property Flipping, Continued
Exceptions to Exceptions to the 90-Day Restriction
the 90-Day If the owner of record sells a property within 90 days after the date of acquisition, that
Restriction property is not eligible security for a mortgage insured by FHA unless the loan file is
documented that the transaction falls within one of the exceptions to the time
restrictions on re-sales listed below:
• Sales by HUD of its own Real Estate Owned (REO) properties.
• Sales by other United States Government agencies of single family properties
pursuant to programs operated by these agencies.
• Sales of properties by non-profits approved to purchase HUD-owned single-family
properties at a discount with resale restrictions.
• Sales of properties that are acquired by the sellers by inheritance.
• Sales of properties purchased by employers or relocation agencies in connection
with relocations of employees.
• Sales of properties by state and federally charted financial institutions and
Government Sponsored Enterprises.
Note: Most state and federally chartered financial institutions are going to be
banks, savings and loans, or credit unions.
• Sales of foreclosed properties by state licensed mortgage lenders.
• Any entity that sells foreclosed properties on behalf of an exempt lender or
financial institution.
• Sales of properties by local and state government agencies.
• Sales of a previously foreclosed or abandoned property acquired, rehabilitated
and resold by an entity using funds from and performing under agreements with
state and local government agencies under a Neighborhood Stabilization Program
(NSP).
Notes:
• Properties that were HUD REOs and then rehabilitated and resold are not
eligible under this exemption.
• NSP fund providers must have established a written agreement or similar
document authorizing certain entities (for-profit and/or non-profit companies)
as a representative purchaser and rehabilitator of foreclosed and abandoned
properties.
• Documentation proving a seller is exempt from any of the property flipping
guidelines is required in the endorsement file prior to approving the loan
transaction.
• Upon FHA’s announcement of eligibility in a notice, i.e. Mortgagee Letter (ML),
sales of properties located in areas designated by the President as federal
disaster areas, will be exempt from the restrictions of the property-flipping rule.
The notice will specify how long the exception will be in effect and the specific
disaster area affected.
• The exemption does not provide an exception to additional appraisal
requirements when the re-sale price is 100% or more over the price paid by
the seller when the property was acquired in the last 180 days.
• Re-sales that occur under this exemption within 90 days of last acquisition
with a sales price increase of 100% or more require a second appraisal.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 179 of 222
Broker Seller Guide
Prohibition of Property Flipping, Continued
Re-sales Re-sales Occurring Between 91 and 180 Days Following Acquisition
Occurring • If the re-sale date is between 91 and 180 days following acquisition by the seller,
Between 91 and the Branch is required to obtain a second appraisal made by another appraiser IF
180 Days the re-sale price is one hundred percent (100%) or more over the price paid by
Following the seller when the property was acquired.
Acquisition
Example: If a property is re-sold for $80,000 within six (6) months of the seller’s
acquisition of that property for $40,000, the Branch must obtain a second
independent appraisal supporting the $80,000 sales price.
• The lender may also provide documentation showing the costs and extent of
rehabilitation that went into the property resulting in the increased value, but must
still obtain the second appraisal.
• The cost of the second appraisal may not be charged to the homebuyer;
however may be paid by the seller.
• FHA also reserves the right to revise the re-sale percentage level at which this
second appraisal is required, by publishing a notice in the Federal Register.
• Requirements for the appraisals:
• A conventional appraisal is not acceptable.
• Both appraisals must be FHA appraisals prepared by independent appraisers.
• Both appraisers must be on HUD’s roster list of Approved Appraisers and be
state certified with an unexpired license.
• Repairs on both appraisals must be resolved.
• If there is a difference in value of more than five percent (5%) between the
two appraisals, the appraisal with the lowest value must be used.
• The Conditional Commitment is issued based on the appraisal used by
underwriting.
• Designate the review appraisal by stamping it “REVIEW APPRAISAL”.
• Both appraisals must be entered into the FHA Connection in the fields
allocated as “First Appraisal” and “Second Appraisal.” Once the first appraisal
information is entered, the field for the second appraisal information will
appear.
• USPAP requirements must be met on both appraisals. This rule requires
appraisers to analyze any prior sales of the subject property and comparables
that occurred within specific time periods.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 180 of 222
Broker Seller Guide
Prohibition of Property Flipping, Continued
Re-Sales • If the re-sale date is more than 90 days after the date of acquisition by the seller
Occurring but before the end of the twelfth (12th) month following the date of the
Between 91 acquisition, FHA reserves the right to require additional documentation from the
Days and 12 lender to support the re-sale value if the re-sale price is five percent (5.00%) or
Months greater than the lowest sales price of the property during the preceding twelve
Following (12) months.
Acquisition • At FHA’s discretion, such documentation may include, but is not limited to, an
appraisal from another appraiser.
Note: Please see the appraisal requirements previously mentioned in this
section for guidance.
• FHA will announce its determination to require the additional appraisal and other
value documentation, such as an Automated Valuation Method (AVM), through a
Federal Register issuance. This requirement may be established either
nationwide or on a regional basis, at FHA’s discretion.
New Property • The restrictions in the new amendment are not applicable to a builder selling a
Flipping newly built home or building a home for a homebuyer wishing to use FHA-
Amendment insured financing.
Inapplicable to
New
Construction
Date of Date of Property Acquisition Determined by the Appraiser
Property • The Lender may rely on information provided by the appraiser in compliance with
Acquisition the updated Standard Rule 1-5 of the Uniform Standards of Professional
Determined by Appraisal Practice (USPAP). This rule requires appraisers to analyze any prior
the Appraiser sales of the subject property that occurred within specific time periods, now set
for the previous three (3) years for one-to-four family residential properties.
• As a result, the information contained on the Uniform Residential Appraisal
Report or other applicable appraisal report form describing the Date, Price and
Data for Prior Sales is to include all transactions for the subject property within
three (3) years of the date of the appraisal and the comparable sales within
twelve (12) months of the date of the comparable sale.
• Appraisers are responsible for considering and analyzing any prior sales of the
property being appraised within three (3) years of the date of the appraisal and
the comparables that are utilized within twelve (12) months of the date of the
comparable sale.
• If the most recent sale of the property occurred at least one year previously, no
additional documentation is required.
• The Lender remains accountable for verifying that the seller is the owner of
record and may rely on information developed by the appraiser for this purpose if
provided.
• Any conflicts in information must be resolved and the file must be documented
accordingly.
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 181 of 222
Broker Seller Guide
Automated Underwriting System (AUS) Issues
FHA TOTAL • All loans (with the exception of loans in Military Impact Areas and Streamline
Scorecard Refinance transactions) must be run through TOTAL Scorecard.
• Evidence of the TOTAL Scorecard evaluation MUST be in every loan file.
Note: Streamline refinances must not be submitted through TOTAL Scorecard.
If a streamline refinance is submitted through an AUS system MUST be
underwritten, processed, and closed as a no cash-out (rate/term) refinance and
follow all AUS documentation recommendations in the findings (no exceptions).
• The Scorecard eliminates the possibility of different responses for a loan that is
run through DU, then subsequently run through LP.
• TOTAL only provides an “Accept” or “Refer” and the reasons for the refer,
including which rules were triggered. The AUS vendor provides the feedback
messages.
Notes:
• TOTAL stands for “Technology Open To Approved Lenders.”
• Only DE mortgagees with an AUS or Fannie DU or Freddie LP can directly
interface with the TOTAL Scorecard.
• The FHA Sponsor ID (lenders who do not have a FHA DE Lender approval) and
a Lender/Originator ID number must be entered correctly or TOTAL will
electronically render an error and the lender will not be able to process the loan.
Data Input General
Instructions to • The FHA CASE NUMBER must be a valid FHA Case Number.
Access TOTAL • If the case number is left blank on the INITIAL submission to TOTAL Scorecard
Scorecard for a “pre-qualification” loan, then the FHA Case Number MUST BE ENTERED
WITH THE FINAL SUBMISSION of data prior to loan closing.
• Failure to enter the case number in TOTAL may result in the case binder being
returned by FHA with a request for manual underwriting.
• Unless the loan is scored at least once with the FHA Case Number, FHA will
not recognize the risk assessment provided by TOTAL, nor can the data fields
in CHUMS be pre-filled with information necessary for endorsement
processing.
• When the data fields are not entered into CHUMS, FHA re-scores the
mortgage if the new entries indicate degradation in loan quality from those
same fields populated into TOTAL. This re-scoring may result in a downgrade
of the risk assessment from an approve to a refer and the file will be returned
for manual underwriting.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 182 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Data Input Desktop Originator/Desktop Underwriter (DO/DU)
Instructions to The tables below show the data input instructions to access the FHA TOTAL
Access TOTAL Scorecard in Desktop Originator/Desktop Underwriter (DO/DU)
Scorecard,
(continued)
Brokers
Calyx Point Users DO/DU Direct Users
• Agency Case Number: • Agency Case Number:
Interfaces/Fannie Mae/Loan APP Pg Government Screen: identify in
1 Screen: identify in the Agency the Agency Case No. field.
Case No. field. • FHA Lender ID: Government
• FHA Lender ID: Interfaces/Fannie Screen: identify in the FHA
Mae/Government Screen: identify in Lender ID field.
the FHA Lender ID field. • FHA Sponsor ID: Government
• FHA Sponsor ID: Interfaces/Fannie Screen; identify in the FHA
Mae/Government Screen: identify in Sponsor ID field.
the FHA Sponsor ID field.
SunTrust Employees
Calyx Point Users DO/DU Direct Users
• Agency Case Number: • Agency Case Number:
Interfaces/Fannie Mae/Loan APP Pg Government Screen: identify in
1 Screen: identify in the Agency the Agency Case Number field.
Case No. field. • FHA Lender ID: Government
• FHA Lender ID: Interfaces/Fannie Screen: identify in the FHA
Mae/Government Screen: identify in Lender ID field.
the FHA Lender ID field.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 183 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Data Input Loan Prospector (LP)
Instructions to The tables below show the data input instructions to access the FHA TOTAL
Access TOTAL Scorecard in Loan Prospector (LP).
Scorecard,
(continued)
Brokers
Calyx Point Users LoanProspector.com Direct Users
• Agency Case Number: • Agency Case Number: FHA
Interfaces/Freddie Mac/Page 3 Screen: identify in the “FHA Case
Screen: identify in the “FHA/VA Number” field.
Case #.” field. • FHA Lender ID: User Profile
• FHA Lender ID: Interfaces/Freddie Screen: identify in the “FHA
Mac/Page 3 Screen: identify in the Lender ID” field. The entry in the
“Lender ID” field. User Profile Screen will become
• FHA Sponsor ID: the default entry in the “FHA
Interfaces/Freddie Mac/Page 3 Lender ID” field on the FHA
Screen: identify in the “Sponsor Screen.
ID” field. • FHA Sponsor ID: FHA Screen;
identify in the “FHA Sponsor ID”
field; or User Profile Screen: Only
complete the “FHA Sponsor ID”
field on the User Profile Screen if
you assign FHA transactions to
only one (1) lender. It is critical
that the “FHA Sponsor ID” field be
completed with the correct lenders’
ID.
SunTrust Employees
Calyx Point Users LoanProspector.com Direct Users
• Agency Case Number: Interfaces/ • Agency Case Number: FHA
Freddie Mac/Page 3 Screen: Screen: identify in the “FHA Case
identify in the “FHA/VA Case #.” Number” field.
field. • FHA Lender ID: User Profile
• FHA Lender ID: Interfaces/Freddie Screen: identify in the “FHA
Mac/Page 3 Screen: identify in the Lender ID” field. The entry in the
“Lender ID” field. User Profile Screen will become
the default entry in the “FHA
Lender ID” field on the FHA
Screen.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 184 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
TOTAL • The lender is responsible for the integrity of the data used to obtain the
Scorecard risk assessment and for resubmitting the loan when material changes are
Resubmission discovered or otherwise occur during loan processing.
Requirements • The lender is required to resubmit the loan through the automated
underwriting system for an updated evaluation under any of the conditions
listed below.
• Borrowers were either added to or deleted from the loan application. Those
borrowers shown on the most recent submission to AUS must be the same
borrowers who sign the mortgage note/deed of trust.
• Borrowers income and/or cash assets/reserves decrease by an amount
greater than the allowable tolerances.
Note: For HMDA and Regulatory Compliance purposes, the income used in
making the underwriting decision must be consistent throughout the file (i.e,
AUS findings, FHA Loan Underwriting and Transmittal Summary (HUD-
92900-LT) and MLCS must all reflect the same income).
• There were changes to the sales price or terms and conditions of the mortgage.
• Any changes are discovered that would negatively affect the borrower’s
ability to repay the mortgage.
• Information about the property valuation changes, (i.e., the appraised value
is determined to be less than the sales price.)
TOTAL • The tolerance thresholds are provided for those situations where loan application
Scorecard data differs from what the mortgage lender entered into TOTAL early in the loan
Tolerance processing phase and then documents later in the processing of the loan.
Levels • The table below provides the tolerance levels available when scoring loans
through TOTAL Scorecard.
If the application variable is there is no need to resubmit to TOTAL for
rescoring provided that………
Cash Reserves the verified amount is different by ten percent
(10%) or less than that reported by the
borrowers on the initial application.
Income the borrower’s verified income matches
income used on last TOTAL Scorecard
submission.
Taxes and Insurance the escrow amounts verified at or near
settlement does not result in more than a two
percent (2%) increase in the payment-to
income and debt-to-income ratios.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 185 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
MLCS Loan Setup The following table provides instructions for MLCS Loan Setup and Processing.
and Processing
Subject Non-AUS Loans Fannie Mae Freddie Mac
DO/DU Loans LP Loans
Appraisal Codes F - Full appraisal F - Full appraisal F - Full appraisal
Casefile ID Not applicable MornetPlus Casefile ID # (see Key ID #
first condition under (see top left of LP
“Observations” section of DU Feedback Certificate)
Findings Report)
Equity Line Input Regardless of whether there Non-AUS guidelines apply. Non-AUS guidelines
is a balance or not on the apply.
HELOC at closing, it is
disclosed as secondary
financing in MLCS using the
total available credit line as
the “balance.”
Investor Codes 000 (all FHA loans) 000 (all DO/DU loans) 000 (all LP loans)
Program Codes • F51TA (FHA 5 Yr ARM) Same as non-AUS codes. Same as non-AUS
• F71TA (FHA 7 Yr ARM) codes.
• F15FX (10 or 15 Year
Fixed)
• F30FX (20 or 30 Year
Fixed)
• F30JFX (30 Year Fixed
Jumbo)
• F5TAJ (30 Year 5/1
Jumbo ARM)
• F7TAJ (30 Year 7/1
Jumbo ARM)
• F30SPI (Fixed Rate
Seller Paid Interest
Payment Reduction)
Reporting Income • “Verified” income in • “Verified” income in MLCS Same guidelines as
on MLCS MLCS refers to the refers to the income used to DO/DU.
income used to make make the underwriting
the underwriting decision on a loan file.
decision on a loan file. • If “Approve/Eligible,”
• On a non-AUS loan, “verified” income is the
“verified” income is the income used to make the
income that has actually DO/DU decision, regardless
been verified through of income documentation
tax returns, paystubs, requirements and/or
written VOE and any additional income found in
other income analyzing documentation.
documentation provided • If “Refer,” “verified” income
in the loan file. is the same as non-AUS
loans.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 186 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
MLCS Loan Setup and Processing, (continued)
Subject Non-AUS Loans Fannie Mae Freddie Mac
DO/DU Loans LP Loans
Reporting See previous page for • If, after analyzing income See previous page for
Income on information. documentation on a information.
MLCS, DO/DU loan, the
(continued) borrower has less income
than initially provided, the
loan must be resubmitted
to DO/DU with the lower
income. In some cases,
this could alter the
DO/DU decision (i.e., an
“Approve/ Eligible” may
become a
“Refer/Eligible”). This
lower income figure is the
“verified” income.
• If, after analyzing income
from documentation on a
DO/DU loan, the
borrower is found to have
more income than initially
provided, the loan does
not have to be
resubmitted through
DO/DU and “verified”
income is the income
initially provided.
Vendor Code Not applicable D - Desktop Underwriter. L - Loan Prospector.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 187 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
AUS TOTAL Scorecard/AUS Recommendations
Recommendations The following table provides descriptions to TOTAL Scorecard/AUS
and recommendations.
Resubmissions
Note: HUD requires only the final AUS findings report in the file, whether the
recommendation is an “Approve” or a “Refer.”
AUS Recommendation Description
DO/DU “Approve/Eligible” • If there is erroneous data in the credit report or contradictory or
derogatory information in the loan file that would justify additional
LP “Accept” investigation or provide grounds for a decision different from the
TOTAL Scorecard/AUS recommendation, the underwriter is required
to take appropriate action.
• The loan is eligible for FHA mortgage insurance with reduced
documentation and credit requirements.
• ZFHA should be entered as the CHUMS ID on the FHA Loan
Underwriting and Transmittal Summary (HUD-92900-LT).
Additionally, SunTrust requires the underwriter/person validating the
file to sign the FHA Loan Underwriting and Transmittal Summary
(HUD-92900-LT).
DO/DU “Approve/Ineligible” • The lender must determine that the reason for the ineligibility is one
that can be resolved in compliance with FHA Underwriting, and must
document the circumstances in the underwriter’s comments section of
the FHA Loan Underwriting and Transmittal Summary (HUD-92900-
LT). An FHA Direct Endorsement Underwriter signature is not
required on the FHA Loan Underwriting and Transmittal Summary
(HUD-92900-LT), unless the loan is downgraded to Refer in
accordance with FHA Guidelines. ZFHA should be entered as the
CHUMS ID on FHA Loan Underwriting and Transmittal Summary
(HUD-92900-LT). Additionally, SunTrust requires the underwriter/
person validating the file to sign the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT).
• If the ineligibility can be “cured” within TOTAL Scorecard/DO/DU, the
loan data must be corrected as appropriate and the loan must be
resubmitted to DO/DU.
• If the ineligibility cannot be overcome (within TOTAL
Scorecard/DO/DU or outside of TOTAL Scorecard/DU), the loan is
not eligible for FHA mortgage insurance.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 188 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
AUS TOTAL Scorecard AUS Recommendations, Continued
Recommendations
and
Resubmissions,
(continued)
AUS Recommendation Description
DO/DU “Refer/Eligible” • DU “Refer/Eligible” and LP “Refer” loans are underwritten to non-AUS
underwriting guidelines. Although a DE underwriter must underwrite
LP “Refer” the loan, reduced documentation may be used if allowed by the
findings report and the DE underwriter.
DO/DU “Refer/Ineligible” • The reason for the ineligibility must be determined.
• If the ineligibility can be “cured,” the loan data must be corrected as
appropriate and the loan must be resubmitted to TOTAL Scorecard /
DO/DU.
• If the ineligibility cannot be overcome, the loan is not eligible for FHA
mortgage insurance.
• If the ineligibility is “cured” outside of TOTAL Scorecard / DO/DU, see
“Refer/Eligible” above.
• System overrides are required when a loan application variable is revealed
during loan processing. These variables must be reviewed by a DE
underwriter and a decision rendered. The variables listed below may trigger a
system override (“Refer”).
• Front-end ratio is too high
• Back-end ratio is too high
• Bankruptcy occurred within last two years
• Foreclosure occurred within last three years
• A total of 90 days late mortgage payments in last year
Note: The 90 days late could mean one mortgage payment that was 90 days late,
three payments that were each 30 days late, or a payment that was 60 days late
and another payment that was 30 days late.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 189 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
AUS AUS Resubmissions and Forms in DO/DU
Recommendations The following table provides instruction on AUS resubmissions and forms in
and DO/DU.
Resubmissions,
(continued)
Subject Fannie Mae DO/DU Loans
AUS Reports • The DO/DU decision is not valid without the DO/DU Findings Report and the
DO/DU Underwriting Analysis form.
• The most current DO/DU Findings Report and DO/DU Underwriting Analysis
form must be in the lender’s origination binder and must reflect loan terms as
approved and closed. This includes loan files where the recommendation was
“Approve/Ineligible” or “Refer” and loan files where the loan had to be
traditionally underwritten.
• The DO/DU Findings Report and Underwriting Analysis form must also be
submitted in the lender’s FHA case binder and should be placed at the top of the
right side of the binder.
AUS Resubmissions and Forms in LP
The following table provides instruction on AUS resubmissions and forms in LP.
Subject Freddie Mac LP Loans
“Tolerances” – • There are no tolerances for information in LP except in the following
No Resubmission circumstances.
• It is not required to resubmit to LP if an FHA Case Number has been obtained
and income increases, assets increase, liabilities decrease, or other credit and
application variables improve.
AUS Reports • The LP decision is not valid without the LP Feedback Certificate.
• The most current LP Feedback Certificate and Loan Summary Report must be
in the lender’s origination binder and must reflect loan terms as approved and
closed. This includes loan files where the recommendation was “Refer” and
loan files where the loan had to be traditionally underwritten.
• The LP Feedback Certificate and Loan Summary Report must also be submitted
in the lender’s FHA case binder and should be placed at the top of the right side
of the binder.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 190 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Underwriting • Regardless of the risk assessment provided, the lender remains accountable
Issues for compliance with all FHA guidelines.
• Some examples of lender accountability items provided by FHA are listed
below.
• If the loan is a buydown, the lender needs to ensure the borrower is
qualifying on the note rate.
• Taxes are based on improved property on new construction cases.
• If the loan is a cash-out refinance, ensure the borrower meets the eligibility
conditions.
• Data integrity must be verified.
• Information in TOTAL must match the information in FHA
Connection.
Note: HUD will run a comparison. If results are a mismatch, HUD will
downgrade the assessment and return the file to the lender.
• Resubmission when borrower’s circumstances change.
Reference: See the subtopic “Tolerances – No Resubmission” previously
presented in this topic for additional information.
• Ensure FHA Loan Underwriting and Transmittal Summary (HUD-92900-
LT) indicates ZFHA as CHUMS ID if the loan was approved through
theTOTAL Scorecard.
• Sign HUD Form 92900-A page 3 and use ZFHA as CHUMS ID if the loan
was approved through the TOTAL Scorecard.
• Check for potential manual downgrades.
Note: A manual downgrade is similar to a system override in that they both
require review and decision by an underwriter; however, the manual
downgrade is used when either Federal eligibility issues or credit issues are
discovered.
• The following tables provide information on issues requiring manual
downgrades.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 191 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Underwriting Issues, (continued)
Manual Downgrades
Issue Requirements
No Credit Scores • Borrowers who do not have a credit score are not
eligible for financing with SunTrust.
Federal Eligibility The individual must be in good standing with any federally
includes the following: related obligation.
• Delinquent • Borrowers who are delinquent on any Federal Debt are
Federal Debt not eligible for an FHA insured mortgage.
• CAIVRS • If CAIVRS indicates a Federal delinquency, default,
• LDP/GSA claim payment or lien, the borrower is not eligible for
additional federally related credit.
• A borrower who is suspended, debarred or otherwise
excluded from participation in the Department’s
program is not eligible for a FHA insured mortgage.
Bankruptcy • To be eligible for AUS processing, the Bankruptcy must
• Chapter 7, and have been discharged for a minimum of 2 years.
• Chapter 13. • Bankruptcies that were discharged within two (2) years
of the loan application must be manually underwritten.
• If a Chapter 7 Bankruptcy is discharged less than one
(1) year, the borrower is not eligible for FHA.
Previous Mortgage • Borrowers whose previous residence or any real
Foreclosure property was foreclosed within a 3-year period are not
eligible for an insured mortgage.
Reference: See “Bankruptcy” subtopic within the topic
“Credit Requirements” for exceptions and additional
underwriting guidelines.
Late Mortgage • Traditional underwriting is required if the credit report
Payments used by TOTAL Scorecard did not accurately reflect
the mortgage payment history.
Unrecognizable HUD • If HUD in unable to recognize the data, the file will be
Case Number returned for traditional underwriting.
• The FHA Case Number must be valid or left blank on
the initial submission, but must be entered with the final
submission of data.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 192 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Underwriting Issues, (continued)
Subject Fannie Mae DO/DU Loans Freddie Mac LP Loans
Appraisal Review • All FHA appraisals must be • All FHA appraisals must
and Approval reviewed and approved by an be reviewed and
approved FHA DE approved by an
underwriter, regardless of the approved FHA DE
DO/DU recommendation. underwriter, regardless
• AUS specialists and POS of the LP
loan officers do not have recommendation.
authority to review and • AUS specialists and
approve appraisals on FHA POS loan officers do not
loans. have authority to review
and approve appraisals
on FHA loans.
Approval Authority • Generally, FHA loans must • All FHA loans must be
be approved by an FHA DE approved by an FHA DE
underwriter, regardless of the underwriter, regardless
DO/DU recommendation. of the LP
• AUS specialists and POS recommendation.
loan officers do not have • AUS specialists and
authority to approve FHA POS loan officers do not
loans. have authority to
approve FHA loans
submitted through LP.
CHUMS ID • For TOTAL Scorecard, if • For TOTAL Scorecard, if
“Approve/Eligible,” ZFHA “Accept/Eligible,” ZFHA
should be entered on the FHA should be entered on the
Loan Underwriting and FHA Loan Underwriting
Transmittal Summary (HUD- and Transmittal
92900-LT) as the CHUMS ID. Summary (HUD-92900-
• If “Refer,” the CHUMS ID of LT) as the CHUMS ID.
the FHA DE underwriter • If “Refer,” the CHUMS ID
should be entered on the of the FHA DE
FHA Loan Underwriting and underwriter should be
Transmittal Summary (HUD- entered on the FHA Loan
92900-LT) as the CHUMS ID. Underwriting and
• If “Approve/Ineligible,” see Transmittal Summary
the “AUS Recommendations (HUD-92900-LT) as the
and Resubmissions” subtopic CHUMS ID.
previously presented for • If “Accept/Ineligible,” see
additional information. the “AUS
Recommendations and
Resubmissions” subtopic
previously presented for
additional information.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 193 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Underwriting Issues, (continued)
For Mortgages Receiving an “Approve/Eligible” For Mortgages Receiving a “Refer/Eligible”
• The DE underwriter is not required to personally • The DE underwriter is required to
review the credit and/or qualifying ratios. underwrite both credit and capacity
• The DE underwriter is not required to certify that according to standard FHA guidelines.
the borrower’s credit and capacity meets FHA’s • Reduced documentation may be used if
standard requirements. allowed by the findings report and
approved by the DE Underwriter.
Note: The DE Underwriter is responsible for • The DE underwriter is required to certify
ensuring the integrity and accuracy of the data that the borrower’s credit and capacity
used to render a decision. meet standard FHA requirements.
• The DE underwriter must underwrite the
• The DE underwriter must underwrite the appraisal according to standard FHA
appraisal according to standard FHA requirements.
requirements. • The CHUMS ID number of the DE
• The TOTAL Mortgage Scorecard CHUMS underwriter is to be recorded on forms
number (ZFHA) is to be recorded on forms HUD- HUD-92900-A page 3 and the FHA
92900-A page 3 and the FHA Loan Underwriting Loan Underwriting and Transmittal
and Transmittal Summary (HUD-92900-LT). Summary (HUD-92900-LT).
Note: Capacity is the ability to repay the loan at
the approved ratios.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 194 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Submission to The following table provides screen input instructions for the submission to AUS
AUS Through through Calyx Point.
Calyx Point
Reference: See the topic “Ease-In Payment Reduction Feature” for specific
instructions to enter a seller-paid interest payment reduction in Calyx Point.
Fannie Mae ARM Plan Numbers in Calyx
• FHA 1 Year ARM: 251
• FHA 5/1 and 7/1 ARMs: FHAHY
Screens Fannie Mae DO/DU Freddie Mac LP
Borrower • Identify loan as an FHA loan. • Identify loan as an FHA loan.
Information • Enter base loan amount (without • Enter base loan amount (without
Screen UFMIP) in Loan Amt field. UFMIP) in Loan Amt field.
• Click on Mortgage Insurance button • Click on Mortgage Insurance button
at the bottom and input the UFMIP at the bottom and input the UFMIP
percentage in the MIP, FF field (can percentage in the MIP, FF field (can
either choose from existing drop down either choose from existing drop down
list or manually input), if the UFMIP is list or manually input), if the UFMIP is
financed. Total loan amount will financed. Total loan amount will prefill
prefill in the Loan Amount with Up- in the Loan Amount with Up-Front
Front MIP/Funding Fee field (which MIP/Funding Fee field (which is
is grayed out). grayed out).
• Check the box Lock to open up the • Check the box Lock to open up the
MIP, FF field and Amount Paid in MIP, FF field and Amount Paid in
Cash field, if needed. Cash field, if needed.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 195 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Submission to AUS Through Calyx Point, (continued)
Screens Fannie Mae DO/DU Freddie Mac LP
Loan • Leave Agency Case Number field • Leave Agency Case Number field
Application blank since FHA case number is not blank since FHA case number is not
Section I of obtained at application. obtained at application.
1003 • The Agency Case Number must be • Enter Prequal in Agency Case
included in the final 1003. Number field if prequalification.
• Select Underwriting in the
Processing Point field.
• Complete the applicable selection in
the Secondary Finance field.
• Select Full Documentation in the
Req’d Doc Type field.
Loan • If Purpose of Loan is Refinance, • Identify “Purpose of Loan” as
Application identify “Purpose of Refinance as “Purchase” or “Regular Refinance.”
Section II of Limited Cash-Out Rate/Term,” “Cash-
1003 Out/Other,” “Cash-Out/Debt
Property Consolidation,” or “Cash-Out/Home
Information Improvement.”
and Purpose
of Loan
Loan • Enter a full 2-year residency history • Enter a full 2-year residency history
Application for each borrower. for each borrower.
Section III of • If 2 (or more) individuals on loan who
1003 are not married, enter each one as a
Borrower “borrower” on a separate loan
Information application so that individual credit
reports may be ordered (even if they
are living together and co-mingle
accounts).
Loan • Enter current employment • Enter a full 2-year employment history
Application information. for each borrower.
Section IV of
1003 Note: A full 2-year employment
Employment history for each borrower is required
Information on the 1003 signed by the borrower.
Loan • If there is a non-occupant co- • If non-occupant co-borrower, the
Application borrower, the current total housing current total housing expense of the
Section V of expense of the non-occupant co- non-occupant co-borrower must be
1003 borrower will be included in the total included as a lump sum with the new
Monthly monthly debt ratio. first mortgage P&I under “Proposed
Income and Housing Expense.”
Combined
Housing
Expense
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 196 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Submission to AUS Through Calyx Point, (continued)
Screens Fannie Mae DO/DU Freddie Mac LP
Loan • Identify a gift as “Gift Not Deposited” • Identify a gift in the Gift fund for
Application in asset section, whether or not the down pmt field, whether or not the
Section VI of gift has been received and deposited gift has been received and deposited
1003 by the borrower. by the borrower.
Assets and • If the gift has been deposited into the • If the gift has been deposited into the
Liabilities borrower’s account, subtract the borrower’s account, subtract the
amount of the gift from the asset amount of the gift from the asset
balance prior to entering the asset balance prior to entering the asset
balance. balance.
• Enter the following in Institution • Create an asset (enter $0.00 as cash
Name field when a gift is involved: value) and enter the following in
• donor’s name, address, phone Institution Name when a gift is
number and relationship to involved:
borrower. • donor’s name, address, phone
• Enter funds from “Other Liquid number and relationship to
Assets” and “Secured Borrowed borrower, and
Funds” in asset section as checking • dollar amount of gift.
account with the funds description in • Identify any liquid asset (other than
Institution Name field (must meet gifts or net proceeds from a sale of a
standard FHA documentation). home) as “Other.”
• If the borrower will receive net equity • Identify any net proceeds from a sale
from a property he/she is selling, of a home as “Net Proceeds from
DO/DU will use the calculation from Sale.”
the REO section. If this must be • If a liability is to be paid at closing, it is
overridden, “Net Equity Sale of Real not included in the liability section but
Estate” must be selected, the net is reflected in the “Details of
equity manually calculated and the Transaction” on line d).
final figure entered as an asset (this • If an Installment liability has less than
will override the REO calculation). 10 remaining payments, and the
• If an Installment liability has less payment is less than $100, the debt
than 10 remaining payments and the must be deleted in order to not count
payment is less than $100, DO/DU in the borrower’s ratios.
will not count it in the borrower’s • If community property state and there
ratios. is a non-purchasing spouse, individual
• All Revolving liabilities will count in credit reports must be ordered (order
the borrower’s ratios, regardless of non-purchasing spouse’s outside of
how many months are left. LP). If monthly debts must be added
• If there is a contingent liability that will to the 1003, enter as a single lump
not be counted (must provide proper sum and identify as debts of non-
documentation meeting FHA purchasing spouse in Creditor
guidelines – no specific DO/DU Information field.
messages), it must be omitted.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 197 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Submission to AUS Through Calyx Point, (continued)
Screens Fannie Mae DO/DU Freddie Mac LP
Loan • If a liability is to be paid at closing, it • See previous page for information.
Application must be marked “to be paid at closing.”
Section VI of The “Details of Transaction” must reflect
1003 the following information for the
Assets and applicable transaction;
Liabilities, • if a purchase, nothing should be on
(continued) line d); or
• if a refinance, the amount to be paid
at closing should be on line d).
• If community property state and there is
a non-purchasing spouse, individual
credit reports must be ordered (order
non-purchasing spouse’s outside of
DO/DU). If monthly debts must be
added to the 1003, enter as a single
lump sum and identify as debts of non-
purchasing spouse in Creditor
Information field.
Loan • If rate/term refinance, enter total unpaid • If rate/term refinance, enter total
Application principal balances of all mortgages and unpaid principal balances of all
Section VII of debts included in refinance on line D mortgages included in refinance on
1003 (not including late fees, interest on the line D (not including late fees,
Details of loans, etc.). interest on the loans, etc.).
Transaction • If purchase with debts to be paid at • If purchase with debts to be paid at
closing, do not enter any of the debt closing, enter total balance of all
totals on line D. debts to be paid off on line D.
• If purchase, enter total prepaids to be • If purchase, enter total prepaids on
paid by the borrower on line E. Do not line E, regardless of who pays.
enter the amount of prepaids to be paid • If rate/term refinance, enter total
by the seller. prepaids, interest on existing
• If rate/term refinance, enter total mortgages, accrued late charges,
prepaids, interest on existing mortgages, escrow shortages, etc., on line E
accrued late charges, escrow shortages, (do NOT add delinquent interest.)
etc., on line E (do NOT add delinquent • Enter the total amount of the
interest.) UFMIP on line G from the Borrower
• Enter the total amount of the UFMIP on Information Screen.
line G from the Borrower Information • UFMIP prefills on line G from the
Screen. Borrower Information Screen.
• UFMIP prefills on line G from the • Enter the amount of discount points
Borrower Information Screen. on line H, regardless of who pays.
Continued on next page
Section 2.90 November 10, 2011
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Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Submission to AUS Through Calyx Point, (continued)
Screens Fannie Mae DO/DU Freddie Mac LP
Loan • Enter the amount of discount points to be • Enter seller-paid closing costs
Application paid by the borrower on line H. and prepaids on line K (these
Section VII of • Enter seller-paid closing costs on line K fees should not appear in the
1003 (these fees should not appear in the “Other “Other Credit” section on line L).
Details of Credit” section on line L). Do NOT enter the Do NOT enter the amount of
Transaction, amount of prepaids to be paid by the seller. prepaids to be paid by the
(continued) If the seller is paying prepaids, subtract the seller. If the seller is paying
amount paid by seller from line E. prepaids, subtract the amount
• UFMIP prefills on line N from the Borrower paid by seller from line E.
Information Screen. • UFMIP prefills on line N from
• If a commitment fee is charged, enter the Borrower Information
amount as a negative figure in “Other Screen.
Credits.”
Loan • If “yes” to bankruptcy and/or foreclosure • If “yes” to bankruptcy and/or
Application questions, DO/DU Findings Report will foreclosure questions, standard
Section VIII of issue specific messages referencing FHA guidelines apply.
1003 standard FHA guidelines.
Declarations • If “yes” to borrowed down payment
question, DO/DU Findings Report will issue
a message referencing standard VA
guidelines.
Loan • Complete government monitoring • Complete government
Application information. monitoring information.
Section X of
1003
Government
Monitoring
Addendum • If condo, DO/DU Findings Report will issue • N/A for LP.
Screen a specific condo message (standard FHA
guidelines apply).
• Complete Interviewer Signature Date field.
• If the loan is a 5/1 or 7/1 ARM, enter ARM
Plan FHAHY in the applicable field.
FHA/VA • N/A for DO/DU. • Leave Agency Case Number
Information field blank since FHA case
(Page 3) number is not obtained at
application.
• The Agency Case Number must
be included in the final 1003.
• The FHA Lender ID must be
completed for the FHA TOTAL
Scorecard.
• The FHA Sponsor ID must be
completed for the FHA TOTAL
Scorecard.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 199 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Submission to AUS Through Calyx Point, (continued)
Screens Fannie Mae DO/DU Freddie Mac LP
FHA • N/A for DU. • Complete 5a and 5b in order for LP
Worksheet to read the Closing Costs paid by
borrower in Total CC field (excluding
discount points) for correct
calculation of Statutory Investment.
Government • Click on the Government button at the • N/A for LP.
Screen top.
• Identify county where property is
located.
• If refinance, select Full
Documentation from drop box in
Refinance Type field.
• Identify the “Section of Act” from the
drop down list.
• Enter MIP refund amount, if applicable.
• The FHA Lender ID must be
completed for the FHA TOTAL Score
Card.
• The FHA Sponsor ID must be
completed for the FHA TOTAL
Scorecard.
• Enter amount of Seller Concessions
(seller contributions that exceed the
allowable 6%).
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 200 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Submission to The following table provides screen input instruction for the submission to LP on the
LP on the Internet (direct).
Internet (Direct)
Screens Data Entry
Loan Term and • Enter FHA in the Loan Type field.
Type Screen • Enter the total loan amount (with funding fee) in the Amount field.
Property • If property is a Condo or PUD, LP will not issue any specific messages.
Information Standard FHA guidelines apply.
• Enter the Estimated Value of Property, which is the borrower’s stated value
of the property.
Purpose of Loan • Enter Purpose of Loan as either “Purchase” or “Refinance”.
Borrower • Enter a full 2-year residency history for each borrower for submission to LP.
Information • If there is a non-occupant co-borrower, the non-occupant’s monthly housing
debt will be included in the total monthly debt ratio.
• Marital Status must be completed.
Employment • A full 2-year employment history for each borrower is required on the 1003
Information signed by the borrower (click on button “Add Borrower Employment Details”).
Assets and • Enter a gift in the field “Total Gift Fund” in the asset section, whether the gift
Reserves has been received and deposited by the borrower.
• Reserves must be manually calculated and enter in the field “Reserves”.
Liabilities and Real • Total monthly debt must be manually calculated and enter in field “Total
Estate Owned Monthly Debt”.
• If there is a non-occupant co-borrower, enter the non-occupant’s NON-
HOUSING debt in the field “Non-occupant Borrower Non-housing Debt”.
• Click on button “Liability and REO Breakdown” to enter individual debts. Debts
to be excluded should be marked “Y” to Excluded?
• Debts marked to be paid WILL NOT reflect in the LP Feedback, but will be
excluded from the total monthly debt ratio.
• If an Installment liability has less than 10 remaining payments, LP will not
count it in the borrower’s total monthly debt ratio.
• All Revolving liabilities will count in the borrower’s ratios, regardless of how
many months are left.
• If a community property state and there is a non-purchasing spouse, individual
credit reports must be ordered (order non-purchasing spouse’s OUTSIDE of
LP). If monthly debts must be added to the 1003, manually add as a lump sum
to the field Total Monthly Debt.
Continued on next page
Section 2.90 November 10, 2011
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Automated Underwriting Systems (AUS) Issues, Continued
Submission to LP on the Internet (Direct), (continued)
Screens Data Entry
Details of • If a refinance and a liability is to be paid at closing, the amount to be paid at
Transaction closing should be added to Refinance line (line D).
• If a purchase and a liability is to be paid at closing, do not enter the amount to
paid in the Refinance line (line D).
• Identify any seller/builder contributions in the Sales Concessions field,
including:
• buyer’s FHA UFMIP,
• prepaid taxes and insurance,
• extra discount points to provide permanent interest rate buydowns,
• payoff of credit balances on behalf of the buyer, and
• any concession or combination of seller concessions that exceed six
percent of the established reasonable value of the property.
Declarations • If “yes” to bankruptcy and/or foreclosure questions, LP will not issue any
specific messages and standard FHA guidelines will apply.
FHA • Enter the dollar amount of the UFMIP that is financed as part of the loan
amount in the Financed MIP field. Enter $0.00 if the FHA UFMIP is not
financed.
• Enter the closing costs paid by Borrower (which will appear on the LP
Feedback as the FHA Minimum Down Payment).
• If there is alimony obligation, enter the applicable dollar amount, if applicable.
• Leave Agency Case Number field blank since FHA case number is not
obtained at application.
• The Agency Case Number must be included in the final 1003.
• Complete entry in the FHA Sponsor ID field; or User Profile Screen: Only
complete the “FHA Sponsor ID” field on the User Profile Screen IF you assign
FHA transactions to only one (1) lender. It is critical that the “FHA Sponsor ID”
field be completed with the correct lenders’ ID.
User Profile • Complete entry in the FHA Lender ID field. This entry will become the default
entry in the “FHA Lender ID” field on the FHA Screen.
• Only complete the “FHA Sponsor ID” field on the User Profile Screen IF you
assign FHA transactions to only one (1) lender. It is critical that the “FHA
Sponsor ID” field be completed with the correct lenders’ ID.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 202 of 222
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued
Submission to The following table shows the submission to DU Direct.
DU Direct
Reference: See the topic “Ease-In Payment Reduction Feature” for specific
instructions to enter a seller-paid interest payment reduction in DU Direct.
DU ARM Plan Numbers
• FHA 1 Year ARM: 251-FHA ARM: 1 YR TREASURY 1&5 Caps
• FHA 3/1, 5/1, and 7/1 ARMs: FHA HYBRID ARM
Screens Fannie Mae’s Desktop Underwriter Data Entry
Type of Mortgage • Lender Loan Number is a required field.
and Terms of Loan • Enter the base loan amount (without UFMIP) in Loan Amt field.
Borrower • Enter a full 2-year residency history for each borrower (must be entered in the
Information full 1003)
Current • Enter a full 2-year employment history for each borrower (must be entered in
Employment the full 1003)
Monthly Income • If there is a non-occupant co-borrower, the current total housing expense of the
and Combined non-occupant co-borrower will be included in the total monthly debt ratio.
Housing Expense
Assets • Identify a gift as “Gift” in asset section, whether or not the gift has been
received and deposited by the borrower.
• If the gift has been deposited into the borrower’s account, subtract the amount
of the gift from the asset balance prior to entering the asset balance.
• Enter the following in Institution field (full 1003) when a gift is involved:
donor’s name, address, phone number and relationship to borrower.
• If the borrower will receive net equity from a property he/she is selling, DU will
use the calculation from the REO section. If this must be overridden, “Net
Equity” must be selected, the net equity manually calculated and the final
figure entered as an asset (this will override the REO calculation).
Liabilities • If an Installment has less than 10 remaining payments and the payment is
less than $100, DO/DU will not count it in the borrower’s ratios.
• All Revolving liabilities will count in the borrower’s ratios, regardless of how
many months are left.
• If there is a contingent liability that will not be counted (must provide proper
documentation meeting FHA guidelines), it should be marked “Omit.”
• If a liability is to be paid at closing, it must be marked “to be paid at closing.”
The Details of Transaction must reflect the following information for the
applicable transaction:
• if the loan is a purchase, nothing should be on line D), or
• if the loan is a refinance, the amount to be paid at closing should be on line
D).
• If community property state and there is a non-purchasing spouse, individual
credit reports must be ordered (order non-purchasing spouse’s OUTSIDE of
DO/DU). If monthly debts must be added to the 1003, enter as a single lump
sum and identify as “debts of non-purchasing spouse” in Creditor Information
field.
Continued on next page
Section 2.90 November 10, 2011
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Automated Underwriting Systems (AUS) Issues, Continued
Submission to DU Direct, (continued)
Screens Fannie Mae’s Desktop Underwriter Data Entry
Details of • If rate/term refinance, enter total unpaid principal balances of all mortgages
Transaction included in refinance on line D (NOT including late fees, interest on the loans,
etc.).
• If purchase with debts to be paid at closing, do not enter any of the debt totals
on line D.
• If purchase, enter total prepaids to be paid by the borrower on line E. Do NOT
enter the amount to be paid by the seller.
• If rate/term refinance, enter the total prepaids, interest on existing mortgages,
accrued late fees, escrow shortages, etc., on line E (may not include
delinquent interest).
• Enter total UFMIP on line G.
• Enter the amount of discount points to be paid by the borrower on line H.
• Enter seller-paid closing costs on line K - (these fees should NOT appear in the
“Other Credits” section on line L). Do NOT enter the amount of prepaids to be
paid by the seller. If the seller is paying prepaids, subtract the amount paid by
seller from line E.
• If a commitment fee is charged, enter amount as a negative figure in “Other
Credits” on line L.
Declarations • If “yes” to bankruptcy and/or foreclosure questions, DO/DU Findings Report will
issue specific messages referencing standard FHA guidelines.
• If “yes” to borrowed down payment question, DO/DU Findings Report will issue
a message referencing standard FHA guidelines.
Additional Data • Subject Property Type is a required field.
• If the loan is an ARM, select FHA HYBRID for the 5/1 or 7/1 ARM.
Government • The FHA Lender ID must be completed for the FHA TOTAL Score Card.
Information • The FHA Sponsor ID must be completed for the FHA TOTAL Score Card.
• Complete “Section of Act” and “County”. If county/city of subject property is not
listed, select a county nearest the property with the same loan limits (DO/DU
WILL NOT recognize county when selecting “ALL OTHERS”).
• Borrower-paid and seller-paid closing costs do not need to be completed.
• Complete Seller Concessions for any seller contributions over the allowable
6%
Section 2.90 November 10, 2011
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Broker Seller Guide
Rate, Points & Lock-Ins
Information The initial interest rate and discount points are established by SunTrust. Refer to
SunTrust’s Rate Sheet.
Note: It is important that the loan type be communicated when the loan is registered
and/or locked-in.
Application, Disclosures and Consumer Compliance
General All consumer disclosures or notices required by all federal, state and local laws and
regulations must be complied with. This includes, but is not limited to, the Real
Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Flood
Disaster Protection Act, the Truth-in-Lending Act, the Fair Credit Reporting Act, all as
amended, and all applicable usury limitations. Further, all consumer disclosures
relating to the mortgage loan must have been properly given on a timely basis in
compliance with applicable laws, rules and regulations.
Face-to-Face • A face-to-face interview is not required for FHA transactions.
Interview • HUD requires the lender to ask the borrower if he/she wants a face-to-face
interview. If the borrower does not desire such a meeting, it must be so noted in
the loan file.
Sales Contracts • The sales contracts, any amendments or other agreements and certifications are
to be included in the case binder file.
• Sales contracts do not need to refer to FHA financing in order to be considered
valid by HUD. However, the contract must provide the HUD real estate
certification and the amendatory clause. These may be included in the language
of the sales contract or as a separate addendum(s) and must be signed and
dated by the borrower, seller, selling real estate agent or broker.
• SunTrust requires the FHA Amendatory Clause and the FHA Real Estate
Certification forms to be signed and dated by the borrower, if not a part of the
purchase agreement (sales contract), on or before the date of the purchase
agreement) and must be present in the loan file at time of underwriting, or the
loan will be pended.
Continued on next page
Section 2.90 November 10, 2011
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Application, Disclosures and Consumer Compliance, Continued
Sales • The criteria of the amendatory clause are as follows:
Contracts, • the sales price as stated in the contract is inserted in the amendatory clause,
(continued) • a new amendatory clause is not required if the sales price is adjusted based
on a value that is less than the sales price, providing the original sales
contract with a price matching the amendatory clause and the revised or
amended contract are included in the case binder, and
• the amendatory clause is not required on HUD REO sales, or if Fannie Mae,
Freddie Mac, Department. of Veterans Affairs, Rural Housing Services, or
other Federal, State and local government agencies, mortgagees disposing
of REO assets, or sellers at foreclosure sales and those sales where the
borrower will not be an owner-occupant (i.e., a non-profit agency).
• If there are any seller concessions, these must be stated in the contract (either
as a percentage or a dollar amount). Failure to perform a condition of the
contract will not be grounds for denying loan endorsement provided the loan
closes in compliance with all regulations and policies.
• The FHA For Your Protection: Get a Home Inspection (HUD 92564-CN) form
must be given to prospective homebuyers at first contact. HUD has eliminated
the requirements that the form must be signed by purchasers and included in the
case binder.
• This inspection disclosure is required on purchase transactions of existing
properties (new construction and refinances are exempt).
Disclosures In addition to the standard origination/processing/closing disclosures required (i.e.,
(Origination/ 1003, TIL, GFE, etc.), HUD-specific disclosures are required during the loan
Processing/ application process.
Closing)
ARM Program ARM Product Truth-in-Lending Program Disclosure
Disclosure 5 Year ARM FHA Five Year ARM: 30 Year Loan Term (BRO 0404)
7 Year ARM FHA Seven Year ARM: 30 Year Loan Term (BRO 0405)
Note: All FHA ARMs are non-convertible.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 206 of 222
Broker Seller Guide
Application, Disclosures and Consumer Compliance, Continued
Origination • FHA For Your Protection: Get a Home Inspection (HUD-92564-CN),
Disclosures • FHA Amendatory Clause (BRO 0393) - if not included in sales contract,
• FHA Real Estate Certification (BRO 0394) - if not part of the sales contract,
Reference: See the “Sales Contracts” subtopic previously presented in this
topic for additional information.
• HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A),
pages 1 and 2,
Note: Page two (2) of the loan application addendum must be signed by the
borrower and in the file prior to submission to underwriting.
• FHA Important Notice to Homebuyers (HUD-92900-B),
• FHA Informed Consumer Choice Disclosure Notice (BRO 0399),
• FHA Notice to Homeowner - Assumption of HUD/FHA Insured Mortgages
Release of Personal Liability,
• FHA Energy Efficient Mortgage Program,
• FHA Financial Privacy Act Notice,
• FHA ARM Disclosure (if applicable),
• FHA Pamphlet “Protecting Your Family from Lead in Your Home,” and
• State-specific disclosures (if applicable).
Closing • FHA/VA New Construction Certification (BRO 0326)
Documents • FHA/VA Lead Standard Certification for Water Systems (BRO 0325)
• FHA Stacking Order - Non-Escrow States (BRO 0327),
• FHA Stacking Order - Escrow States (BRO 0327a),
• FHA Settlement Package Stacking Order - Non-Escrow States (BRO 0328)
• IRS Form 4506-T.
Reference: See the “IRS 4506-T” subtopic in Section 1.05: Closing Information of
the Broker Seller Guide for additional information regarding IRS Form 4506-T
requirements at application and at closing.
Note: The SunTrust Wholesale Branch Office is no longer required to arrange
documents in an FHA Case Binder File (or in Case Binder order). The FHA Stacking
Order forms listed above are to be used when shipping the file to the Production Ops
Department.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 207 of 222
Broker Seller Guide
Application, Disclosures and Consumer Compliance, Continued
Processing • FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT),
Documents • HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A),
• FHA Appraised Value Adjustment Disclosure (prints off of MLCS with HUD/VA
Addendum to Uniform Residential Loan Application),
• HUD Review - Processor Checklist,
• IRS Form 4506-T,
• FHA Refinance Maximum Total Loan Amount Worksheet (BRO 0397a),
• Miscellaneous processing certifications to use, if applicable:
• Bridal Registry Account Certification (BRO 0276),
• FHA New Construction Early Start Letter (BRO 0036),
• FHA Electrical Certification,
• FHA Heating Certification,
• FHA Plumbing Certification, and
• Borrower’s Contract with Respect to Hotel and Transient Use of the Property
(HUD 92561).
References:
• See the topic “Applications, Disclosures, and Consumer Compliance”
subsequently presented in this product description for additional information.
• See the “IRS 4506-T” subtopic in Section 1.05: Closing Information of the
Broker Seller Guide for additional information regarding IRS Form 4506-T
requirements at application and at closing.
Social Security • Each borrower must provide the lender with evidence of his/her social security
Numbers number. While the actual social security card is not required, the social security
number can be obtained from pay stubs, the driver’s license, etc. Tax returns
alone without a W-2 are not sufficient evidence of social security numbers.
• Social Security numbers must be consistent throughout the file on all
documentation. Any discrepancies must be addressed, even if it is an obvious
transposition of numbers. Tax ID numbers issued by the Social Security Office
are unacceptable.
• All individuals eligible for legal employment in the US must have a social security
number. Tax ID numbers issued by the Social Security Office are unacceptable.
This applies to purchase transactions and all refinances, including streamline
refinances.
• SunTrust requires that all credit reports indicate that the borrower’s Social
Security Number has been validated by a Social Security validation vendor. This
also applies to streamline refinances.
Reference: See the topic “FHA Social Security Number Validation” previously
presented in this product description for additional information.
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 208 of 222
Broker Seller Guide
MLCS Loan Setup and Processing
Program and The following table shows program and investor codes.
Investor Codes
Product MLCS Target
Program Code Investor Code
FHA 5 – Year ARM F51TA 000
FHA 7 – Year ARM F71TA 000
FHA Jumbo 5 – Year ARM F5TAJ 000
FHA Jumbo 7 – Year ARM F7TAJ 000
FHA 10 or 15 Year Fixed Rate F15FX 000
FHA 20, 25 or 30 Year Fixed Rate F30FX 000
FHA Jumbo 30 Year Fixed F30JFX 000
FHA Fixed Rate Seller Paid Interest F30SPI 000
Payment Reduction Feature
New • Show the COMPLETION status of the property as “Proposed,” as this will
Construction or allow the applicable documents to print with the closing package through
Existing Less Digital Docs. (Showing the status as “Existing” will cause these documents
Than One (1) not to print with the closing package and slow down the insuring of the
Year Old loan.)
• In the M0B screen, show the “P” under “Completion.”
Seller-Paid Reference: See the “Ease-In Payment Reduction Feature” topic previously
Interest presented in this product description for additional information.
Payment
Reduction
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 209 of 222
Broker Seller Guide
Workflow
General • If a loan is submitted through TOTAL Scorecard, the case binder file must
Guidelines include the complete AUS findings report.
Exception: The streamline refinance should not be submitted through TOTAL.
If the loan is run through TOTAL for a risk assessment, it then becomes
mandatory to provide documentation verifying the entries ( i.e., income, liabilities,
assets, and/or cash reserves).
• SunTrust has delegated underwriting privileges for all loans. Therefore, all loans
are underwritten in-house. Only underwriters with a DE Certification are qualified
to underwrite FHA loans.
• The underwriter/person validating both the AUS findings and the information on
the FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT) must
sign Page 3 of the URLA Addendum (HUD form 92900-A) and complete any
applicable condition items.
• SunTrust requires the underwriter/person validating the file to sign the FHA
Loan Underwriting and Transmittal Summary (HUD-92900-LT), regardless of
AUS approval (ZFHA may still be entered as the CHUMS ID for AUS
approved transactions).
• An abbreviated version of the loan application is not acceptable; a full loan
application with all sections completed is required.
• The loan application and loan application addendums must always be
signed and dated by the borrower(s) and interviewer before the loan is
submitted to SunTrust for underwriting, or the underwriter will pend the loan
for the missing executed documents.
• The borrower is still required to sign the initial loan application and the
loan application addendum when the loan application is taken via the
telephone or internet.
• The interviewer must always sign the loan application and loan application
addendum.
Note: A signed faxed copy of the initial loan application and addendum may
be used to submit the file to underwriting; however, the original signed
initial loan application and addendum must be obtained prior to closing
for the insuring loan file.
• All information on the FHA Loan Underwriting and Transmittal Summary (HUD-
92900-LT) must be completed. This includes the compensating factors when
applicable, CAIVRS, LDP, GSA information, and the CHUMS code for the AUS
system, if applicable (TOTAL Scorecard is ZFHA).
Underwriting • The Broker makes one (1) copy of each item in the submission package to be
Submission maintained in the Broker’s loan file. Original credit documents are provided to the
SunTrust Underwriter.
• The originals are to be placed in a file and submitted to the Underwriter in the
following order as provided on the SunTrust Loan Submission Form (BRO 0002).
This list will also provide the necessary credit documents that should be in each
FHA loan file.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 210 of 222
Broker Seller Guide
Workflow, Continued
Case Number Requesting Case Numbers
Assignment FHA Connection requires lenders to:
and • Certify, via a checkbox question, that they have an active loan application for the
Cancellation subject property.
• Provide the borrower’s name and social security number for all new construction
(i.e., under construction and existing construction less than one year old).
Automatic Case Number Cancellation
FHA Connection automatically cancels any uninsured case number where there has
been no activity for six months since the last action except for:
• Loans where an appraisal update has been entered, and/or
• Loans that have received the UFMIP.
Last action includes;
• Case number assigned,
• Appraisal information entered,
• Firm commitment issued by FHA,
• Insurance application received and subsequent updates, and
• Notice of Return and resubmissions.
Last action does not include updates to borrower names and/or property addresses.
Case Number Reinstatement
FHA will not reinstate any automatically cancelled case numbers, including case
numbers for condominium units, unless:
• The mortgagee provides verification that not reinstating the case number causes
an undue hardship to the borrower that is not related to recent updates to
premiums and underwriting requirements, or
• The mortgagee provides verification that the subject loan closed prior to
cancellation of the case numbers, such as a HUD-1 Settlement Statement.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 211 of 222
Broker Seller Guide
Workflow, Continued
Revised General Guidelines
Workflow • In support of our ongoing commitment to Fannie Mae’s Loan Quality Initiative
Procedures for (LQI), SunTrust will continue to require a final AUS submission prior to closing to
Changes in ensure data integrity at loan delivery.
PITIA • SunTrust’s workflow procedures will eliminate multiple resubmissions to
underwriting caused by PITIA (Principal, Interest, Taxes, Insurance and other
Assessments, including association dues) changes.
• These enhanced procedures, for new and existing traditionally underwritten and
AUS FHA loan transactions, will significantly reduce the number of loan files that
will have to be resubmitted to underwriting for re-approval prior to closing.
Revised Workflow Procedures
• If the PITIA payment amount increases by $25.00 or less OR if the PITIA
payment amount decreases, the loan does not have to be resubmitted to
underwriting for re-approval provided ALL of the following requirements are met:
• The final DTI, based on the revised PITIA, does not exceed product
guidelines, AND
• The cash requirements (i.e., funds required to close and/or reserves) do not
increase, AND
• For loans approved through AUS, there is no change to the final AUS
recommendation and/or final AUS findings (i.e. verification and approval
conditions per DU or LP).
AUS Resubmission Requirements Prior to Closing
In order to ensure data integrity between the automated underwriting system (i.e.,
DU or LP) and the loan file delivered to the investor, all loans must continue to be
resubmitted to AUS prior to closing.
Second Level • If a SunTrust DE underwriter denies a loan, a second level underwriting review is
Underwriting required.
Review • The second underwriting review would occur when the loan file is fully processed
and is underwritten and denied at the first level.
• If the loan is still denied after the second level underwriting, an adverse action
must be provided to the borrower with all the necessary information, including the
reason(s) for denial, and the underwriter must complete the “Mortgage Credit
Reject” screens in FHA Connection.
• Reasons for denial must be those reasons that can be specifically backed up by
information on the loan application and other documents that were used in the
credit evaluation process.
• If the loan is assigned to another lender, the “Mortgage Credit Reject” screens in
FHA Connection must be completed first. If the receiving mortgagee approves the
application, then the case binder must contain explanatory comments from the
approving mortgagee underwriter when submitted to HUD.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 212 of 222
Broker Seller Guide
Closing and Loan Settlement Documentation
General The following closing guidelines are specific to the end investor. Unless specified
below, all closing forms and documentation should follow standard SunTrust
guidelines.
Reference: See Section 1.05: Closing Information in the Broker Seller Guide for
SunTrust-specific requirements.
Closing Legal The following table shows the required legal documents.
Documents
Legal Documents Investor Form
Note The most recent version of the FHA Note for a fixed
rate loan or the most recent version of the FHA
ARM loan
Deed of Trust The most recent FHA Security Instrument as
applicable to state requirements should be used and
the last page of the instrument should indicate that
appropriate riders are attached.
Adjustable Rate Rider The FHA ARM Rider is used when the borrower has
applied and been approved for an FHA ARM loan.
Condominium Rider The FHA Condominium Rider must be used when
the subject property is a condominium unit. There
are no exceptions.
PUD Rider The FHA PUD Rider must be used when the subject
property is located in a PUD. There are no
exceptions
Non-Owner Occupancy The FHA Non-Owner Occupancy Rider must be
Rider used when the subject property is an investment or
second home property. There are no exceptions.
Note: FHA loans are not eligible on investment or
second home properties; however there may be
exceptions if the loan is a PD (property disposition)
loan or has received special consideration due to
the borrower’s circumstances (applicable to a home
that is categorized as a second home).
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 213 of 222
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued
Document Lenders must use the mortgage documents for FHA mortgage loans that are correct
Warranties for the jurisdiction, the mortgage type, the lien type and the property type. The
lender must use the most current version and appropriate forms. In some cases, the
mortgage forms may have to be adapted to meet the lender’s jurisdictional
requirements. Any change made to multi-state documents must comply with all
applicable laws.
SunTrust relies upon your representations and warranties that the loans are
enforceable in accordance with the terms of the Broker/Lender Agreement and
comply with all applicable laws. Accordingly, it is advisable that forms and
documents be reviewed by the lender’s legal counsel for compliance with the laws of
the state in which each loan is made.
Definition of • Allowable closing costs are defined as those costs that are:
Allowable • reasonable and customary in the area,
Costs • may be charged to the borrower, and
• included in the acquisition cost.
• If the HOC publishes a maximum dollar limit on each closing cost item, any cost
that exceeds the maximum limit must be paid out of pocket by the borrower.
• HUD’s definition of closing costs DOES NOT include discount points.
• Lock-in fees may be paid by the borrower, but cannot be financed in the loan
amount. If a lock-in fee is collected, the Lock-in Confirmation (MLCS SLIC,
LOCK-IN CONFIRMATION CFM) must be executed at least 15 days prior to the
date of the Note, otherwise a lock-in fee cannot be collected.
Reference: See the topic “HUD Allowable Closing Costs” in this product description
for a details on allowable closing costs not included in acquisition, including those
that cannot be charged to the borrower.
Usage of Purchase Transactions
Allowable Borrower-paid closing costs are added to the sales price to determine the total
Costs acquisition cost.
Refinance Transactions
Borrower-paid allowable closing costs may not be added to the appraised value to
determine the total acquisition cost for refinance transactions.
Continued on next page
Section 2.90 November 10, 2011
FHA 203(b) Loan Program Page 214 of 222
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued
Review of Final • All loans must close at the interest rate, term, loan amount that was approved by
Loan Approval TOTAL Scorecard/AUS and the Underwriter. There is no AUS or FHA tolerance.
Reference: See the table under the heading “AUS Resubmissions and Forms”
in the topic “AUS Issues” within the subtopic “AUS Recommendations and
Resubmissions” for additional information.
• If the loan received by the closer does not match the underwriting approval on
the FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT) and the
TOTAL Scorecard/DU or LP findings, the loan is not to close until the following
actions have been completed:
• re-submission of the loan to TOTAL Scorecard/DU or LP with the
appropriate revisions,
• re-submission of the new AUS report and findings, revised application
(1003), URLA Addendum (HUD 92900A – page 3) and the FHA Loan
Underwriting and Transmittal Summary (HUD-92900-LT), and
• re-approval of the revised loan terms by the SunTrust Underwriter.
• Compliance Inspection Reports must be signed by the underwriter on Block 4.
Reference: See “FHA TOTAL Scorecard” in the topic “AUS Issues” for additional
information regarding allowable tolerances.
Review of Final • Without exception, the final HUD-1 must be reviewed by the lender prior to
HUD-1 closing.
• If the transaction is a purchase, the allowable closing costs to both the borrower
and the seller must be verified (any “unallowable” costs must be taken off the
HUD-1 Settlement Statement.)
• All closing costs, including those items paid outside of closing (POC), lender
credit, and seller contributions, must be itemized on the HUD-1 for RESPA and
HUD compliance.
• If the transaction is a refinance, both of the following steps are required:
• the allowable costs must be verified (any “unallowable” costs must be taken
off the HUD-1), AND
• the mortgage amount must be recalculated if the estimated closing costs
used to calculate the mortgage result in an amount exceeding $500 based
on actual charges as reflected on the final HUD-1 for rate/term and
streamline refinance transaction.
Reference: See the “HUD-1 Settlement Statement” topic in Section 1.05: Closing
Information in the Broker Seller Guide for additional information.
Continued on next page
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Closing and Loan Settlement Documentation, Continued
Repairs General Information
Repairs and other conditions of the appraisal are to be indicated on the URAR and
the Conditional Commitment Direct Endorsement Statement of Appraised Value
(form HUD-92800.5B).
Required Repairs
General Information
• Required repairs are limited to those repairs necessary to preserve the physical
security of the property and to protect the health and safety of the occupants.
The three (3) S’s:
• Soundness -correct physical deficiencies or conditions affecting structural
integrity.
• Safety -protect the health and safety of the occupants.
• Security -protect the security of the property (security for the FHA insured
mortgage.)
• Avoid unnecessary requirements because they increase housing costs without
adding any basic amenities to the property.
• While appraisers are not to add repairs beyond FHA’s guidelines, the
Underwriter (Mortgagee) may add requirements as a condition of making the
loan. Individual mortgagees have the right to make additional requirements they
feel necessary to protect the security or soundness of the property and the
health and safety of the occupants. The applicant has the option of selecting
another lender if they feel these requirements/conditions are excessive.
Note: For Broker originations through SunTrust Mortgage, Inc., borrower-
paid repairs MAY NOT be financed into the loan amount.
Repair Escrows
Escrows for incomplete items should only occur in limited situations. HUD
Handbook 4145.1 page 5-1 provides additional guidance. The only acceptable
escrow would be due to extenuating circumstance beyond the contractor or seller’s
control. This would only be weather-related: i.e., inability to lay sod due to cold
weather, inability to install a roof due to continued snow, etc.
Note: Escrow of repairs on existing properties to facilitate a “quick” closing is
unacceptable.
Continued on next page
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Closing and Loan Settlement Documentation, Continued
Power of May be used for CLOSING DOCUMENTS (including page 4 of the Addendum to the
Attorney URLA and the final URLA if it is signed at closing). Any power of attorney, whether
specific or general, must comply with state laws and allow for the mortgage note to
be legally enforced in that jurisdiction. It is the lender’s responsibility to assure that
clear title can be conveyed in the event of foreclosure.
• Except for the conditions described below, the INITIAL loan application MAY
NOT be executed by using a power of attorney, i.e., it must be signed by ALL
borrowers. Either the initial loan application or the final, if one is used, MUST
contain the signatures of ALL borrowers.
• MILITARY PERSONNEL ON OVERSEAS DUTY OR ON AN
UNACCOMPANIED TOUR: The lender should obtain the serviceperson’s
signature of the application by mail or fax machine.
• INCAPACITATED BORROWERS UNABLE TO SIGN THE MORTGAGE
APPLICATION: The lender must provide evidence the signer has authority to
purchase the property and obligate the borrower. This would include a durable
power of attorney specifically designed to survive incapacity and avoid the need
for court proceedings. The incapacitated individual must occupy the property to
be insured (except of eligible investment property)
Reference: See Section 1.05: Closing Information in the Broker Seller Guide for
SunTrust-specific requirements concerning use of a power of attorney.
Poor Condition If the subject property is in such poor condition that it may be cost prohibitive or
Properties impractical or bring it up to FHA’s minimum property requirements, the appraiser
should recommend “Rejecting” the property and,
• complete the appraisal on an “AS IS” basis, clearly marking the reports as
rejected and provide reasons for the rejection,
• provide a list of all major deficiencies and state that the list should not be
considered all inclusive, and
• provide photographs, if possible.
Properties in • Loans secured by properties in declared disaster areas designated by Federal or
Declared State authorities as a result of hurricanes, tropical storms, etc., must contain a
Disaster Areas recertification of property condition by the original appraiser or a re-inspection by
a certified third party service that no damages were sustained to the property.
Reference: See “Properties in Declared Disaster Areas” under the topic
“Appraisal Requirements” for complete details and specific appraisal
requirements.
• Prior to closing, the manager of the applicable SunTrust Wholesale Branch Office
and the borrower(s) must sign a Borrower Property Condition Certificate (BRO
0006). Loans will NOT be funded without the fully executed Borrower
Property Condition Certificate (BRO 0006).
Continued on next page
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Closing and Loan Settlement Documentation, Continued
Properties Reference: See Section 1.07: Property Insurance of the Broker Seller Guide for
Located in a additional information regarding properties located in a Special Flood Hazard Area
Special Flood (SFHA).
Hazard Area
(SFHA)
Private Roads SunTrust requires the following documentation:
• a permanent recorded easement (non-exclusive, non-revocable, without
trespass from the property to a public street/road), and
• an acceptable maintenance agreement on the property or that the road is owned
and maintained by a homeowner or homeowners.
Runway Clear Existing properties located in an airport runway clear zone require a letter of
Zones acknowledgement from the borrower.
Note: New construction properties located in a runway clear zone are not eligible for
FHA financing.
Sewage Community Sewer Systems
Systems HUD no longer maintains a list of approved systems. The appraiser must note on
the URAR the name of the community system(s). The branch is responsible to
ensure the community system(s) are licensed and adequate to service the property.
Individual Sewage Systems
• For properties that cannot connect to a public system and are served by an
individual sewage system that is acceptable to the local health authority, the
system is then acceptable to HUD/FHA.
• Certifications are only required if evidence of system failure, if mandated by state
or local jurisdiction, if customary to the area, or at lender’s discretion. The
appraiser must note any readily observable deficiencies. In those instances, the
appraiser is to condition for a certification by the local health authority, a licensed
sanitarian or an individual determined to be qualified by the DE underwriter.
Connection to a Public Sewer System
The appraiser is required to report on the availability of connection to public and/or
community sewer system. The lender is responsible for the determination of the
feasibility for requiring connection. Generally, connection must be made to a public
sewer system or a community sewer system if connection costs to the public or
community system are reasonable (3% or less of the estimated value of the property.)
If connection costs exceed 3%, the existing on-site systems will be acceptable provided
they are functioning properly and meet the requirements of the local health department.
If connection is required, the loan must be sent back to underwriting for re-evaluation.
Continued on next page
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Closing and Loan Settlement Documentation, Continued
Water Systems Individual Water Systems
Individual water supply systems (wells) may be acceptable when connection to a
public or community water system is not available and there is assurance of a
continuing adequate supply of potable water for domestic needs. The water well
must also meet the requirements of the local health authority with jurisdiction.
Water Quality
• Individual water wells are owned and maintained by the homeowner, and are
subject to compliance with all requirements of the local or State Health Authority
having jurisdiction. The appraiser is to note any readily observable deficiencies and
report on the availability of connection to public and/or community water systems.
• A test or inspection is required under the following circumstances:
• if mandated by state or local jurisdiction,
• if there is knowledge that the well water may be contaminated,
• when the water supply relies upon a water purification system due to
presence of contaminants, or
• when there is evidence of the situations listed below:
• corrosion of pipes (plumbing),
• areas of intensive agriculture within ¼ mile,
• coal mining or gas drilling operations within ¼ mile,
• dump, junkyard, landfill, factory, gas station, or dry cleaning operation
within ¼ mile, or
• unusually objectionable taste, smell, or appearance of well water.
Well Location
• Individual water supply systems (wells) should be checked to establish the
distance from the septic systems.
• The appraiser is to note in the appraisal if the distances appear to be met plus
note any adverse site conditions that might warrant further inspections or due
diligence. The lender must make a decision as to whether a qualified third party
should map out these distances.
• The lender may want to have these distances marked on a survey in cases
where the lot is particularly small, depending on the location of the well.
• The minimum acceptable distances between wells and the sources of pollution
located on either the same or the adjoining lot are shown in the table below.
Source of Pollution Minimum Source of Minimum Horizontal
Horizontal Pollution Distance (Feet)
Distance (Feet)
Property Line 10 feet Other Sewer 50 feet
Lines
Septic Tank 50 feet Chemically 25 feet
Poisoned Soil
Absorption Field, 100 feet Dry Well 50 feet
Seepage Pit,
Absorption Bed
Sewer Lines with 10 feet Other Recommendations or
Permanent -tight requirements of the local
joints health authority
Continued on next page
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Closing and Loan Settlement Documentation, Continued
Water Systems, Well Location, Continued
(continued) • Individual water systems/wells should be located ON the subject property site. If
not, they must be on an adjacent property, and evidence of water rights and
recorded maintenance agreement must be provided for acceptance of the well
as the primary source of water for an FHA insured property.
• Cisterns-HUD indicates that properties served by cisterns are not acceptable for
mortgage insurance. However, the HOCs have the authority to consider waivers
in areas where cisterns are typical.
• New wells must be drilled, no less than 20 feet deep, and cased. Casing should
be steel or other casing material that is durable, leak-proof, and acceptable to
(either) the local health authority and (or) the trade or profession licensed to drill
and repair wells in the local jurisdiction.
• Individual Residential Water Purification Equipment-if a property is otherwise
eligible for insurance but does not have access to a continuing supply of safe
and potable water without the use of a water purification system, the
requirements in HUD Mortgagee Letters 92-18 and 95-34 must be satisfied.
Shared Wells
Shared wells may serve existing properties which cannot feasibly be connected to an
acceptable public or community water supply system. A shared well shall have a
valve on each dwelling service line as it leaves the well. A shared well shall service
no more than four living units or properties. A shared well must have a shared well
agreement and shall be binding upon signatory parties and their successors in title.
More information on this agreement can be referenced in HUD Handbook 4150.1
Rev-1, Section 12-16.
Connection to a Public Water System
• The appraiser is required to report on the availability of connection to public
and/or community water system. The lender is responsible for the determination
of the feasibility for requiring connection.
• Generally, connection must be made to a public water system or a community
water system if connection costs to the public or community system are
reasonable (3% or less of the estimated value of the property.)
• A written estimate for the cost of connection must be obtained before the
underwriter may waive this condition. If connection costs exceed 3%, the
existing on-site systems will be acceptable provided they are functioning properly
and meet the requirements of the local health department. If no connection is
required, the loan must be sent back to underwriting for re-evaluation.
Community Water Systems
• HUD no longer maintains a list of approved community water systems. This type
of water system is a central system owned, operated, and maintained by a
private corporation or a non-profit property owners association.
• If on community water, the appraiser must note on the URAR the name of the
water company. The lender is responsible to ensure the community system(s)
are licensed and adequate to service the property.
Continued on next page
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Closing and Loan Settlement Documentation, Continued
Well Waivers – FHA allows for a lesser distance from the well to the soil poisoned area (25 feet to 15
Existing feet) and drainfield (100 feet to 50 feet) if there is an impervious strata of clay,
Construction hardpan, or rock.
The DE underwriter may accept these lesser distances with the proper supporting
documentation such as evidence that the ground surface is effectively separated by
an impervious strata, a professional drawing, and a “clear” water test. These items
must be placed in the FHA case binder. In this instance a Waiver is not required.
The following exhibits are acceptable:
• A well driller’s log evidencing that the ground surface is effectively separated by
an impervious strata, or. a subsurface evaluation letter from either the local
Water Management District or Heath Department or from a qualified well installer
provided they clearly show data which would have been revealed by the well
drillers log.
• The professional drawing must indicate the distance from the subject well to the
septic tank, lot-line, drainfield and chemically poisoned soil on the subject site as
well as all adjacent adjoining and contiguous sites. If there are no improvements
on the neighboring lots, the notation of “vacant” on the drawing is adequate.
• The water must be tested to insure the maximum allowable contamination levels
for lead, nitrates, nitrites, total nitrate/nitrite, and fecal and total coliform are not
exceeded regardless of local stipulations unless they are more stringent. Also
adhere to conditions mandated by state and local governments as they pertain to
additional impurities.
Wells/Septics With Lesser Distances:
The FHA Regional Homeownership Centers will accept waiver requests for review,
on a case-by case basis, in which the distance from the well is less than 15 feet, the
septic tank is less than 50 feet, the septic drainfield is less than 50 feet and, the lot
line is less than 10 feet if these distances are acceptable to the local governing
entity.
The items listed below are required to submit a waiver request to FHA.
• DE Underwriter’s determination that there is adequate justification to request a
waiver. The underwriter must submit a written request (no faxes) indicating what
is to be waived along with legible copies of the exhibits
• Appraisal (minus the certification pages) showing the availability and feasibility of
connecting to public water and/or sewer.
• Evidence indicating the depth of the extensive, continuous impervious strata.
(Not required for well to lot line waiver unless the distance from the well to any
potential source of pollution is less than the prescribed minimum distances as
shown in the chart.)
• Professional drawing with all notations as shown above.
• Clear water test as shown above.
Continued on next page
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Closing and Loan Settlement Documentation, Continued
Well Waivers – • Evidence from the State that lab is approved to test for required parameters.
Existing • Evidence from the Health Department of acceptance of the well in relation to the
Construction, soil-poisoned area, septic tank and drainfield.
(continued) • Termite report (well to soil poisoned area)
• A letter from the utility company acknowledging the well will not hinder their
normal operations, if the well is located in a utility easement.
Note: Copies of the HOC approval and supporting data must be in the case binder
prior to submission for endorsement.
Well Waivers – Distances from the well to potential sources of pollution for new construction
New properties may not be less than those prescribed in the table. Consequently, the
Construction HOC will not accept any request for a waiver. (This includes properties that are
existing but less than one-year old.)
Lesser distances for the soil poisoned area (25 feet to 15 feet) and drainfield (100
feet to 50 feet) if there is impervious strata of clay, hardpan or rock. The DE
Underwriter may accept these lesser distances with the proper supporting
documentation without a request for a HUD waiver.
Copies of the following exhibits must be placed in the case binder prior to
submission for endorsement.
• Evidence indicating the depth of the extensive, continuous impervious strata.
(See acceptable documentation previously shown.)
• Professional drawing with all notations as shown above.
• Clear water test as shown above.
• Evidence from the State that lab is approved to test for required parameters.
• Evidence from the Health Department of acceptance of the well in relation to the
soil-poisoned area, septic tank and drainfield.
• A letter from the utility company acknowledging the well will not hinder their
normal operations, if the well is located in a utility easement.
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