Home Start Program Manual Rev. 8/24/09
Illinois Housing Development Authority
Introduction
The purpose of this manual is to highlight the differences between the Home Start program and any other FHA product that IHDA may offer. In most cases the rules and regulations found in IHDA’s FHA procedural guide apply. However when there is a difference between what is found in this manual and the IHDA FHA guide, the guidelines in this manual will prevail for purposes of the Home Start program. Additionally check ihda.org frequently for any revisions to the manual and program.
What’s covered in this manual:
♦ Home Start Program Description ♦ Home Start Program Qualifications ♦ Home Start Program Process
Illinois Housing Development Authority
IHDA’s Home Start Program is a two mortgage FHA insured program designed to take advantage of the federal $8000 tax credit to purchase a home
♦ First Mortgage: Max. Base Loan LTV of 96.5% ♦ Second Mortgage: 3.5% of the purchase price up to a
maximum of $6000 for down payment. The rate will be 0% and no payments are mandatory until June 30th 2010. If not paid in full by that date it will become a ten year amortizing loan with a rate that is .50% higher than the rate on the first. The first payment would start August 1st 2010.
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Example
♦ Purchase Price: ♦ Maximum Base Loan Amount ♦ Down Payment required by FHA: ♦ Up-front FHA Insurance Premium ♦ Estimated Closing Costs
$120,000 $115,800 $4,200 $2,026 $2,000
Sellers can pay closing costs, but a minimum contribution of 1% or $1000 (whichever is greater) must come from the buyer’s own funds. (These funds can come in the form of a gift from relatives)
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Other Program Features
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Home Start is available statewide. Pre closing Homebuyer education is mandatory: Education can occur through an HUD approved counseling agency or online through a mortgage insurance company training module. Loans must close within 90 days after reservation or November 30, 2009 whichever comes first. Homebuyers may utilize the first mortgage without the second, but the second mortgage if utilized must be attached to the IHDA first mortgage. The 2nd mortgage loan is due in full upon payoff or refinancing of the first mortgage. If a buyer uses the IHDA second mortgage, then that buyer cannot utilize any other IHDA loan products (HOME, Trust Fund MCC etc). If the buyer only uses the first mortgage then they cannot use the MCC program, but can use IHDA’s trust fund and Home programs if available. Home Start can be used in conjunction with other down payment and closing cost assistance programs. However any mortgages resulting from these programs must be in a subordinate position to IHDA’s 1st and second mortgage. A $300 fee is charged at closing if the buyer utilizes the second mortgage. IHDA will rebate $100 to the buyer if the buyer pays off second mortgage by June 30th 2010.
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Home Start Program Qualifications
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The Home Start program has three basic qualifications which are:
1. 2. 3.
Buyer(s) must be first time homebuyers. Household income must be under income limits. The property must be under IHDA’s purchase price limits.
Please note: While the three basic qualifications for the program are same as the MRB program, there will be some notable differences from the Standard MRB loan in how the loans are reviewed.
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Qualification #1 Buyer(s) must be first time homebuyers
♦ First Time Home Buyer Definition: Someone who hasn’t owned their
principal residence within the last three years. ♦ If the buyer has a spouse who is not going on the loan, that spouse must meet the first time home buyer requirement as well. ♦ Veteran’s and Active Duty Service Personnel and their spouses are exempt from the first time homebuyer requirement.* ♦ Targeted area exception does not apply for the Home Start program. For clarification on further issues regarding first time homebuyer status such as homebuyers who currently live in mobile homes, or who have inherited property please consult IHDA’s FHA Procedural Guide found at IHDA.org. * In order for a spouse of a veteran to take advantage of the Home Start program, the veteran must be alive at the time of application
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Qualification #2 Buyer(s) must fall under the income limits
♦ IHDA will count income from all sources for the Home Start Program. ♦ Gross Base income will be projected forward twelve months* Example: June 30 2009 Gross Base income $25,000 $25,000 divided by 6 months= $4167 $4167 times 12 equal = $50,000
♦ Overtime, Bonuses etc are generally averaged over a two year period* Example: June 30 2009 YTD OT: 2008 OT: $14,000 divided by 18= $778 multiplied by 12= $6000 $8000 $778 $9333 2yr OT average
*Please note: The above are general formulas for reviewing files, individual files may require different calculations
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Qualification #2 Income continued
♦ Income will be calculated from every person in the
household over 18 years of age. Note: This is substantially different from our calculations for IHDA’s standard 1st time homebuyer calculations. ♦ The income of spouses who are not going on the loan will be counted as well. ♦ Targeted area income limits will not apply for this program. For other issues regarding income calculations please consult IHDA’s FHA procedural guide for clarification.
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Qualification #2 Income continued
♦ There are two sets of income limits for the program
entitled Home Start Program Pool A and Home Start Program Pool B. ♦ Pool A is for households with incomes less than 80% of area median income. ♦ Pool B is for households with incomes greater than 80% of the area median income. ♦ A copy of Pool A and B’s income and purchase price limits are found at the Home Start document section at ihda.org.
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Pool B Limits
♦ These limits are designed for those whose income
exceeds 80% of the area median income, but less than IHDA’s MRB bond program. Example: 2 person household in Champaign makes $44,000 which is more than the below 80% income threshold but under IHDA’s MRB income limits of $69,400. Therefore loan would be reserved under Pool B.
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Qualification #3 Property Limits
♦ Only existing one unit properties such as
condos, single family homes, and townhomes qualify. The unit must be permanently affixed to the foundation. ♦ Targeted area purchase price limits will not apply for this program. ♦ The property must close by November 30, 2009.
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Home Start Application Process
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♦ The Home Start Program process will mark a change in IHDA
procedures. IHDA will not hold these loans in our portfolio. Instead participating lenders will sell these loans to US Bank who will also act as master servicer. ♦ In order to participate, a lender must be a FHA approved lender, and an IHDA approved lender. ♦ In addition to being an approved IHDA lender, participating lenders must also complete an IHDA FHA addendum and an agreement with US Bank if they are not able to underwrite their own loans. ♦ Has your institution completed the necessary paperwork? If not contact Linda Rich here at IHDA (312) 836-5236. To complete an agreement with US Bank, please contact US Bank’s MRBP Division.
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Home Start Process
♦ Buyer finds a participating IHDA Lender. Lenders can be found at
IHDA.org. ♦ Lender makes initial determination that borrower qualifies for the Home Start program. ♦ Once buyer signs a contract, lender then makes a reservation. IHDA reservations are made at https://ilrss.ihda.org/ilrss/.* ♦ Once reservation is made lender will put together a Home Start compliance package. ♦ Once compliance package is approved by IHDA and lender receives FHA credit approval lender closes loan. ♦ Lender submits closing package to IHDA. A separate closing package is sent to US Bank. ♦ Once closing package is approved by both IHDA and US Bank, US Bank will buy the loan from the lender. * A reservation manual will be available when the program is formally announced at ihda.org.
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IHDA’s Home Start Compliance Package Consists Of The Following:
The following Items are required within 30 days after reservation: ♦ Fully Completed Checklist for Prior Approval ♦ Mortgage Loan Prior Approval Voucher (MP-12), fully completed ♦ Loan Reservation Confirmation (for both first and second mtg) ♦ Appraisal ♦ Copy of the Home Start Affidavit of Buyer ♦ Copy of the Home Start Affidavit of Seller ♦ Signed and dated residential loan application ♦ Credit Report ♦ All VOD’s or last 3 months current bank statements ♦ Verification of income, from all sources ♦ Original Home Start Certification of Income completed by both borrower and lender ♦ Contract, signed by all parties, with all addendums attached ♦ 3 years signed Federal Income Tax Returns, with W-2’s from the prior year ♦ Counseling Certificate ♦ Any miscellaneous documentation (divorce decree’s, child support information, mobile home pictures, previous verifications, etc.) ♦ Note: Recapture does not apply to Home Start Program Loans These documents can be found at ihda.org. Make sure to use the current forms found at ihda.org for your submissions. Incomplete files (including a missing checklist) will be sent back unreviewed. Compliance files are mailed to 401 N. Michigan Avenue, Suite 700, Chicago, IL 60611 Attn: Single Family Programs
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Underwriting
Loans will be underwritten to FHA Standards with certain caveats: ♦ Minimum Fico Score: 640 ♦ Back End Ratio: 41% ♦ If you do not have the ability to underwrite FHA loans in house, US Bank has the ability to do so on your behalf. ♦ Total LTV cannot exceed 96.5%. ♦ Second Mortgage P and I must be included in qualifying ratios
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IHDA’s Home Start Closing Package Consists Of The Following:
These items are required within 10 days after closing:
♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦
Home Start MP-14 (Cover Sheet). Home Start Closing Checklist. Original Home Start Affidavit of Buyer re-affirmed at closing. Original Home Start Affidavit of Seller re-affirmed at closing. Copy of original Note. Copy of mortgage with ALL riders, including IHDA rider; Copy of Second Mortgage (IHDA mtg rider not required). Copies of RESPA (HUD Forms 1A and 1B) and Truth-in-Lending disclosure forms as required by law. Copy of signed HUD 92900 LT (formerly MCAW), and copy of signed 92900 A pages 3 & 4. Documentation required per the original approval to close. Transmittal sheet and copy of check for $300 fee if buyer utilizes the second mortgage. Closing files are mailed to 401 N. Michigan Avenue, Suite 700, Chicago, IL 60611 Attn: Single Family Programs
These documents can be found at ihda.org. Make sure to use the current forms found at ihda.org for your submissions. Incomplete files (including a missing checklist) will be sent back un-reviewed.
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What Happens Next
♦ Once approved by IHDA and US Bank, US Bank
will purchase both the first and second mortgage from your institution. If the buyer(s) take advantage of the second mortgage, then a fee of $300 is charged and paid to US Bank. Contact US Bank if you have questions on how to remit the fee to them. ♦ US Bank will follow up with trailing doc requirements.
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Conclusion
♦ For questions and clarification regarding program
parameters contact an IHDA compliance officer. ♦ For questions regarding qualification guidelines, please consult IHDA’s FHA Compliance Guide. If you have any additional questions, contact an IHDA compliance officer. ♦ For questions regarding how to sell Home Start loans to US Bank please call 1-800-562-5165 and speak to an US Bank Representative.
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