FHA 203K Rehabilitation Continued

• Condominiums:

• • • FHA Condominium Questionnaire is REQUIRED, regardless of warranty type
    • Projects should be submitted for review and include:
      • FHA Condo Submission Checklist
      • M&T FHA Condo Questionnaire
      • Appraisal
      • Insurance Coverage
      • Project Financials
      • Project By-Laws/Declarations
    • FHA HRAP/DELRAP Warranty will be completed by the Underwriter when affirming an existing HUD Approved project (HRAP) or Other-Lender Approved Project (DELRAP). 
      • NOTE:  FHA HRAP and Other-Lender DELRAPs do NOT need to be submitted to Project Review if the staff DE Underwriter is comfortable with the warranty.
    • DELRAP FHA Condominium Warranty will be completed by Risk Management when a project is endorsed.                          

• Documentation:
  • Full/Alternative
  • A fully executed 4506-T is required for all borrowers at application and at closing.  We must obtain and use at least one year's transcripts during the underwriting process.  Two (2) years are required for self-employed, commissioned and 1099 borrowers.  Standard documentation or AUS requirements (and/or waivers) must still be adhered to.  The information received back from the IRS must be reasonable, supported by documentation in the file and be consistent with the borrower's declarations.
  • All borrowers require a valid Social Security Number.  In lieu of obtaining the actual Social Security Card,
  • Social Security numbers may be verified by documentation such as paystub, W-2, tax returns, etc.
  • We will perform a Verbal Verification of Employment for all borrowers within 7 days of closing.
• Gifts
  • Gifts may be from a blood relative or a close friend with a clearly defined interest in the borrower.
  • Full down payment and closing costs may be gifted.
  • The donor must sign an FHA - Certified Gift Letter (Form 2421), unless otherwise determined by FHA’s Total Score Card.
  • Gift funds may not be used a cash reserves for 3 and 4 unit properties

• HPML - Further restrictions apply for loans classified as a Higher Priced Mortgage Loan:
  • The DTI ratio must include the expected property taxes and insurance
    • It must also include the largest payment of principal and interest scheduled in the first 7 years following closing.
  • The following must be verified via a third-party:
    • Current or reasonably expected income
    • Current or reasonably expected employment
    • Assets (other than the subject property)
    • Liabilities

For further details, please refer to the FHA Underwriting & Eligibility Standards.

• Identity of Interest transactions - are not permitted on 203K programs.

• Leaseholds
  • A term extending at least ten (10) years beyond the mortgage maturity is required along with a copy of the lease.
  • Sublease hold estates, when the mortgage or holds an interest in the property only through a sublease from a lessee, rather than through a lease or deed from a fee owner or an assignment of lease from a lessee, are ineligible. 
• For additional details, refer to HUD Manual 4150.1, Chapter 6.

• Loan Decisioning
  • All loans must be run through FHA Total Score Card (TSC) for approval.  If TSC returns a “refer” risk score, then the loan must be manually underwritten by a DE Underwriter.
  • MI Contract Underwriting is not permitted for any FHA program.
  • The minimum FICO Score, for both manual underwriting and TSC is 620:

Acceptable Credit
Borrower	Co-Borrower	Eligible
> 620	> 620	Yes
> 620	< 620	No
> 620	No Score / No Derogatory References	Yes
> 620	No Score / With Derogatory References	No

• • Landlord Verifications – When required, rental history may be verified in one of the following manners:
    • Direct written verification of rental history (VOR) if the landlord is a professional management firm (The professional management firm must be independently verified, i.e. Yellow Pages listing), or
    • Satisfactory 12 month rental payment history, as certified by a credit reporting agency, or
    • Twelve (12) months cancelled checks, front and back, if the landlord is not a professional management firm.
    • A copy of the front and back of each check is required when cancelled checks are provided as documentation. The print must be legible, the date of the bank endorsement for deposit must be clearly evident on the back of each check, and the check must clearly identify the servicer, landlord, or management company.
    • Underwriters may accept a handwritten landlord letter on a case-by-case basis (for strong loans with compensating factors) as long as a verbal verification with the landlord is documented prior to closing.
• Maximum Number of Financed Properties:  The maximum number of financed properties is limited to four (4).
• Minimum borrower contribution -Borrowers must provide a minimum contribution of 3.5%.  Gift funds may be considered part of the 3.5%.

Non-Profit Gift Programs – Not Permitted

Properties Listed for Sale – FHA/VA Refinances

• Properties currently listed for sale are NOT eligible for FHA refinances, whether fully qualifying, rate/term or , streamline.
• Properties previously listed and then canceled, are eligible for refinance subject to the following:

• Limited Cash Out/No Cash Out/Streamline:
  • We require that the file contain conclusive evidence, from a third party source, that the listing was canceled at least one full day prior to the application date.
  • Any property currently listed for sale upon or after the date of application will be ineligible for a refinance transaction.

• Purchase and Hold Requirements – guidelines for a buyer acquiring a new primary residence and renting the current primary residence.  The following apply:
  • Borrowers may only have one FHA mortgage, so the property they are vacating may not have an FHA mortgage.
  • The new primary residence occupancy must make sense, i.e.: buying bigger/more expensive primary or moving from a 2 unit to a one unit.
  • Borrowers must qualify including the PITI for both properties.
  • Rental income for the property being vacated may ONLY be used if one of the following applies:
  • • The borrower is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance, OR
    • The borrower has a 75% LTV or less as determined by a current residential appraisal.  An exterior only appraisal may be obtained to determine the current value of the property.
  • If rental income can be used based on one of the above, reduce the rental income by the appropriate vacancy factor as determined by the appropriate FHA HOC.  The following documentation will be required to verify the rental income:
    • A fully executed lease agreement of at least one year’s duration commencing after the loan is closed, and
    • A copy of the canceled check for the security deposit and/or first month’s rent.

• • • Qualifying Ratios
      • 31/43%
      • These ratios may be exceeded with compensating factors as discussed in Chapter 4, Section F of the HUD Handbook. These compensating factors must be recorded on the MCAW or FHA Loan Underwriting & Transmittal Summary.
    • Reserves - Three months PITI are required for 3 and 4 unit properties.  In addition, the property must be able to support itself based on the market rents less a 15% (10% for California, Nevada, Oregon and Washington) vacancy factor as opposed to the PITI.
    • Seller Concessions - Contributions up to 6% of the sales price are allowed towards the borrowers’ actual closing costs, prepaids and discount points.  Contributions exceeding 6% must be subtracted from the sales price (or value, if less) before calculating the loan-to-value. 
    • Short Sales and Short Payoffs:
      • Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on their principal residence simply to:
        • Take advantage of declining market conditions, and
        • Purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
  • Borrowers are considered eligible for a new FHA-insured mortgage if:
    • They were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
    • The proceeds from the short sale serve as payment in full.
  • Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.  Borrowers who sold their property under FHA's pre-foreclosure sale program are not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.  Lenders may make exception to this rule for borrowers in default on their mortgage at the time of the short sale if:
    • The default was due to circumstances beyond the borrower's control (such as death of a primary wage earner, long term un-insured illness, etc.), and
    • The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower's control that caused the default.

Special Program Option

This special program still follows standard FHA Underwriting guidelines unless otherwise noted.  Refer to the respective mortgagee letters on AllRegs for more information on this option.

• Good Neighbor Next Door (GNND) – Enables a full-time law enforcement officer, teacher, firefighter/emergency medical technician or active duty military personnel to purchase a specifically designated HUD acquired home located in a HUD-designated revitalization area at 50% discount and may apply for an FHA-insured mortgage with a down payment of only $100.
• Presidential Declaration of Disaster 203(h) - Through the Federal Housing Administration (FHA), HUD will insure 100% LTV mortgages for 1 family properties, primary or investment, in a Presidential-declared disaster area whose residences were destroyed or damaged to such an extent that reconstruction or replacement is necessary.  Check with the Federal Emergency Management Agency (FEMA) to obtain the specific affected counties and corresponding declaration dates.  This information can be found on the Internet at https://www.fema.gov/disasters.

Property Disposition Program - Upon closing of a HUD-owned single-family property (PD Sale), FHA will allow purchaser financing and closing costs to be deducted from its proceeds.  The costs must be reasonable and customary in the jurisdiction where the property is located.

• • The Sales Contract shall be used to reflect the total dollar amount HUD is expected to pay toward the purchaser’s financing and closing costs.  In no event may the costs exceed three percent (3%) of the properties gross purchase price. 
  • If the total closing costs reflected on the HUD-1 settlement statement are less than the amount indicated on the sales contract, HUD will reimburse only the actual costs charged and will not credit the purchaser with any difference either in cash or through a reduced purchase price.
  • Within the three percent (3%) allowance, HUD will reimburse loan origination fees up to one percent (1%) of the mortgage.
  • On a FHA 203(k) Rehabilitation Loan, HUD will reimburse one and a half percent (1.5%) of the mortgage.

Application / Disclosure Requirements

• FHA Assumption for HUD-FHA Insured Mortgages
• FHA Amendatory Clause – Real Estate Certification
• FHA Mortgagor’s Letter of Completion
• FHA Overnight Fee Authorization
• FHA/VA Non-Allowable Fee Disclosure
• FHA Borrower’s Acknowledgement
• FHA Subsidy Approval Checklist
• FHA Condo Questionnaire
• FHA 203(k) Maximum Mortgage Worksheet
• FHA 203k (not for Streamline K) - Initial Draw Request and Rehabilitation Inspection Form or FHA 203(k) Draw Request.
• Specification of Repairs (not for Streamline K; or similar work write up documentation) and all required         architectural exhibits.
• 203k Contractors Resume or similar contract with license and insurance information on contractor.
• Identity of Interest Certification.
• Self-Help Agreement (if applicable).

Assumability
Subject to full credit review, receipt of any FHA allowable assumption fees and subject to services guidelines.

Escrow Requirements

Refer to Section 400 - Secondary Policy and Procedures.

Mortgage Insurance Premium

Amount paid by the borrower for HUD to provide insurance on the loan.  Similar to private mortgage insurance, there is an upfront premium, which can be financed, and an annual premium based on term and LTV.

• Purchase Transactions –

LTV	Mortgage terms of more than 15 years
Upfront Premium v	Annual Premium	Duration in Years
89.99% & Less	2.25%	.50%	u
90.00 - 95.00%	2.25%	.50%	u
95.01% & over	2.25%	.55%	u

• Years will be determined when the loan balance equals 78%, provided the mortgagor has paid the annual mortgage insurance premium for

        at least 5 years (scheduled or actual).

• • Upfront MIP Premium does not apply to homes located in Military Impact Zones.
• Refinance transactions  -
  • FHA to FHA Refinance - On any refinance, where the MIP refund exceeds the new Up-front MIP (based on 2.25%), HUD will refund the overage directly to the borrower.  The less of the MIP refund or the new Up-front MIP (based on 2.25%) should be subtracted from the unpaid principal balance before calculating the new mortgage amount.  Use the Purchase Transactions chart above to determine the annual premium.
  • Non-FHA to FHA Refinance – use the Purchase Transactions chart above to determine the UFMIP and the annual premiums.

NY Consolidation Extension and Modification Agreement (CEMA)
Permitted for fixed rate transactions only.  The parties have to be the same from the original loan to the new CEMA, unless a documented death or documented divorce with new deed is provided.

Operational Addenda and Exhibits

• 203(k) Maximum Mortgage Worksheet
• Streamline 203(k) Limited repair program – Mortgagee Letter

Prepayment Penalty
If loan is paid off on any date other than a scheduled payment date, interest may be charged through the last day for the month the payoff is made.

Pricing and Rate Locks

Refer to daily rate sheets

• • For 203(k): Supplemental Origination Fee:  Greater of $350 or 1.5% of the cost of repairs.

Settlement Instruments

We require the use of the standard FHA Note and Mortgage/Deed of Trust form for the state in which the property is located as well as the standard multi-state applicable riders for, condominiums, PUDs or multi-unit properties, if applicable.

• Buy down agreement is required at closing for loans with a buydown
  • For 203(k) Rehabilitation and Streamline
    -Riders:   Rehabilitation Loan Rider
    -Miscellaneous: FHA 203k Borrower’s Acknowledgement – Form 2417
    -NYS ONLY: Section 22 Affidavit and Notice of Lending

Temporary Buydowns

• •  Purchases only – 2-1 buy down only
  • 203(k) Streamline only – 3-2-1 Buy down
  • Qualify at note rate.
  • The buy down may not result in a reduction of more then 2% below the interest rate on the note.
  • The buy down must not result in more than 1% annual decrease in the interest rate.  The borrower’s payment may change only once a year.

Product Description and Product Codes

203(k) Renovation 30 Year Fixed	613
203(k) Renovation Buydown	618
203(k) Streamline 30 Year Fixed	1613