5.2 Land Contracts

5.2 Land Contracts 5.0 Mortgage Eligibility Overview Introduction A land contract, also known as an installment land contract or a contact for deed, is a real estate agreement between a buyer and seller, whereby the buyer may use and occupy the property. The grant deed from the property seller to the buyer is not recorded until all or a specified part of the sales price is paid. The buyer may not obtain the transfer of title until the land contract is paid; however, if the land contract is recorded, the recording should be reflected in the chain of title in the title report. Purchase versus Refinance The transaction must be defined as either a purchase or refinance based on the following criteria: Criteria Required Seasoning for Transaction Type Purchase • Land contracts executed less than 12 months prior to the date of the loan application must be considered purchase transactions.1 • Loans secured by the borrower’s principal dwelling must be treated as refinances for rescission purposes. • Loans secured by dwellings are HMDA-reportable. 1 Refinance • Land contracts executed more than 12 months prior to the date of the loan application must be considered either rate-andterm or cash-out refinance transactions.1 • Loans secured by the borrower’s principal dwelling are rescindable. • Loans secured by dwellings are HMDA-reportable. 1 For the purpose of determining seasoning, if the land contract is not recorded, use the date the contract was executed by all parties as the inception date. For the purpose of determining seasoning, if the land contract is not recorded, use the date the contract was executed and notarized by all parties as the inception date. Land contracts that do not contain a notary date are ineligible for this exception. Revised 04/27/09 Continued on next page Wholesale Lending Page 1 5.2 Land Contracts 5.0 Mortgage Eligibility Overview, Continued Purchase versus Refinance, Continued Criteria Determining the LTV/CLTV Purchase The LTV/CLTV is based on the lesser of the current appraised value or the total acquisition cost. Total acquisition cost is calculated as follows: • Purchase price as indicated in the original land contract plus • Any documented costs for rehabilitation, renovation, refurbishment, or energy conservation. Land Contract A copy of the executed land contract is required. When underwriting the loan that will pay off an unrecorded land contract, use the date that the contract was executed by the property seller and buyer as the inception date (for the purpose of determining seasoning). If the appraisal is made subject to the completion of any improvements, an Appraisal Update and/or Completion Report (Form 1004D/442) is required. Refinance The LTV/CLTV is based on the current appraised value for both rate-and-term and cash-out refinance transactions. Completion of Improvements Revised 04/27/09 Wholesale Lending Page 2 5.2 Land Contracts 5.0 Mortgage Eligibility Documentation Requirements Requirements Loans with land contracts submitted to JFK Financial Inc. for purchase must include the following documentation. Criteria Land Contract Documentation Requirements • A copy of the executed land contract is required, and • Standard verification showing the borrower has been making the payments. Verification includes:  Private party lender: Canceled checks.  Institutional lender: Evidence of timely repayments on the credit report. Verification of Mortgage (VOM) is not required if this evidence is shown on the credit report. Revised 04/27/09 Wholesale Lending Page 3