FHA Underwriting Guidelines tual.com

FHA Underwriting

Guidelines

FHA Underwriting Guidelines | Table of Contents

Table of Contents

MiMutual Underwriting ___________________________________________________________________ 15 Philosophy ____________________________________________________________________________________ 15 Program Description ____________________________________________________________________________ 16

Requirements and Restrictions _____________________________________________________________ 17 Loan Requirements _____________________________________________________________________________ 17 Loan Restrictions (Ineligible) _____________________________________________________________________ 17 LTV/CLTV Maximums ___________________________________________________________________________ 17

Purchase ____________________________________________________________________________________________ 17 Rate/Term Refinance___________________________________________________________________________________ 17 Streamline Refinance __________________________________________________________________________________ 17 Cash Out Refinance ____________________________________________________________________________________ 17 Qualified Mortgages with Rebuttable Presumption ___________________________________________________ 18 Manual Downgrades____________________________________________________________________________ 19

Collateral Requirements __________________________________________________________________ 20 Eligible Collateral ______________________________________________________________________________ 20 Ineligible Collateral _____________________________________________________________________________ 20 Appraisals ____________________________________________________________________________________ 21

Appraiser Independence ________________________________________________________________________________ 21 Uniform Appraisal Dataset (UAD) _________________________________________________________________________ 21 Appraisal Order Process ________________________________________________________________________________ 22

Appraisal Integrity __________________________________________________________________________________ 22 Revisions Due to Sales Contract Amendments _______________________________________________________________ 22 Appraisal Delivery Requirements _________________________________________________________________________ 23 Appraisal Report Forms_________________________________________________________________________________ 23 Value Reconsideration Request __________________________________________________________________________ 23 Appraisal Portability ___________________________________________________________________________________ 24

Correspondent Transfers _____________________________________________________________________________ 24 Broker Transfers ____________________________________________________________________________________ 24 Second Appraisals _____________________________________________________________________________________ 25 Second Appraisal by Original Mortgagee _________________________________________________________________ 25 Second Appraisal by Second Mortgagee _________________________________________________________________ 25 Appraisal Updates _____________________________________________________________________________________ 26 Appraisal Effective Date ________________________________________________________________________________ 26 Appraisal Validity Period ________________________________________________________________________________ 26 Minimum Photograph Requirements ______________________________________________________________________ 27 Subject Property Exterior _____________________________________________________________________________ 27 Subject Property Interior _____________________________________________________________________________ 27 Comparables Sales, Listings, Pending Sales, Rentals, Etc _____________________________________________________ 27 Subject Property Deficiencies__________________________________________________________________________ 27 Condominium Projects _______________________________________________________________________________ 27 Adjusted Value ________________________________________________________________________________ 28 Purchase Transactions__________________________________________________________________________________ 28 Refinance Transactions _________________________________________________________________________________ 28 FEMA Declared Disaster Area Policy _______________________________________________________________ 28 Modular Home Eligibility ________________________________________________________________________ 29 Special Flood Hazard Areas (SFHAs) ________________________________________________________________ 29 Proposed / New Construction in SFHAs ____________________________________________________________________ 30 Repair Escrows ________________________________________________________________________________ 30 Acreage ______________________________________________________________________________________ 30

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FHA Underwriting Guidelines | Table of Contents

Legal Restrictions on Conveyance _________________________________________________________________ 30 Leased Equipment _____________________________________________________________________________________ 30

Age-Restricted Communities _____________________________________________________________________ 31 Effective Age and Remaining Economic Life _________________________________________________________ 31 Zoning _______________________________________________________________________________________ 31 Externalities___________________________________________________________________________________ 31 Properties Listed For Sale within the Last 6 Months (Refinances) ________________________________________ 32

Cash Out Transactions__________________________________________________________________________________ 32 Rate/Term Transactions ________________________________________________________________________________ 32 Attic _________________________________________________________________________________________ 32 Crawl Space ___________________________________________________________________________________ 32 Roof _________________________________________________________________________________________ 33 Inspection and Life Expectancy ___________________________________________________________________________ 33 Snow Covered Roof ____________________________________________________________________________________ 33 Multiple Parcels of Land _________________________________________________________________________ 33 Property Seasoning _____________________________________________________________________________ 33 Determining Phase of Construction _______________________________________________________________________ 33 Seller Seasoning (Purchases) _____________________________________________________________________________ 33 Termite Inspections ____________________________________________________________________________ 34 Map of TIP (Termite Infestation Probability) Zones ___________________________________________________ 35 Water and Sewage Systems Requirements __________________________________________________________ 35 Minimum Distance Between the Well and the Source of Pollution _______________________________________________ 35 Distance Sketch without a Well or Septic Report _____________________________________________________________ 36 Water System ________________________________________________________________________________________ 36

Water Well Minimum Property Requirements for Existing Construction ________________________________________ 36 Water Well Minimum Property Standards for New Construction ______________________________________________ 36 Restrictions ________________________________________________________________________________________ 36 Individual Water Supply System (Well) __________________________________________________________________ 37 Shared Well________________________________________________________________________________________ 37 Community Well ____________________________________________________________________________________ 39 Public Connection___________________________________________________________________________________ 39 Water Testing ______________________________________________________________________________________ 39 Water Purification Systems ___________________________________________________________________________ 40 Sewage System _______________________________________________________________________________________ 40 Individual Sewage System (Septic) ______________________________________________________________________ 40 Public Connection___________________________________________________________________________________ 40 Building on Own Land ___________________________________________________________________________ 40 Borrower Eligibility ____________________________________________________________________________________ 41 Maximum Mortgage Amount ____________________________________________________________________________ 41 Minimum Required Investment __________________________________________________________________________ 41 Borrower's Additional Equity in the Property ________________________________________________________________ 41 Required Documentation _______________________________________________________________________________ 41 Three and Four Unit Properties ___________________________________________________________________ 42 Existing Construction Less than One Year Requirements _______________________________________________ 42 Documentation Requirements for Maximum Financing ________________________________________________________ 42 Financing LTV Limit ____________________________________________________________________________________ 43 Docs to Be Provided to Appraiser Upon Order _______________________________________________________________ 43 Property Considerations ________________________________________________________________________________ 43

Condominiums __________________________________________________________________________ 44 FHA HOA Questionnaire _________________________________________________________________________ 44 Insurance Requirements_________________________________________________________________________ 44

Hazard/Liability Insurance (Project Approval)________________________________________________________________ 44 HO-6 (Loan Level) _____________________________________________________________________________________ 44 Fidelity Bond / Fidelity Insurance (Project Approval) __________________________________________________________ 45

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FHA Underwriting Guidelines | Table of Contents

Flood (Project and Loan Level) ___________________________________________________________________________ 45 Eligible Projects ________________________________________________________________________________ 46 Site Condominiums _____________________________________________________________________________ 47 Condominium Requirements _____________________________________________________________________ 48 Condominium Conversions_______________________________________________________________________ 48 HUD Condominium Certifications/Questionnaire _____________________________________________________ 48 FHA Concentration _____________________________________________________________________________ 48 When Condo Project Approval is Not Required_______________________________________________________ 48

Credit__________________________________________________________________________________ 49 Documentation Requirements ____________________________________________________________________ 49

Verification of Institutional Mortgage History _______________________________________________________________ 49 Verification of Rental Payment History _____________________________________________________________________ 49 Land Contract/Contract for Deed _________________________________________________________________________ 49 Lease with Option to Purchase ___________________________________________________________________________ 49 Credit Reports _________________________________________________________________________________ 50 Minimum Decision Credit Score (MDCS) ____________________________________________________________ 50 Valid Credit Score ______________________________________________________________________________ 50 Evaluating Credit History ________________________________________________________________________ 50 Collection Accounts, Charge Off Accounts, Accounts with Late Payments in the Previous 24 Months, and Judgments _______ 50

Handling of Collection Accounts________________________________________________________________________ 51 Disputed Accounts_____________________________________________________________________________________ 51

Disputed Derogatory Accounts Indicated on the Credit Report________________________________________________ 51 Non-Derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report _____________________ 52 Judgments ___________________________________________________________________________________________ 52 Inaccuracy in Debt Considered ___________________________________________________________________________ 52 Bankruptcy __________________________________________________________________________________________ 53 Pre-Foreclosure Sale (Short Sale) _________________________________________________________________________ 53 Foreclosure/Deed-in-Lieu (DIL) of Foreclosure _______________________________________________________________ 53 Consumer Credit Counseling _____________________________________________________________________________ 53 Housing Payment History _______________________________________________________________________________ 54 Purchases _________________________________________________________________________________________ 54 No Cash Out (Rate/Term) Refinances____________________________________________________________________ 54 Cash Out Refinances and Refer Recommendations _________________________________________________________ 54 Hardship Modifications__________________________________________________________________________ 54 Purchases ___________________________________________________________________________________________ 54 Refinances ___________________________________________________________________________________________ 54 Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt _________________________________________ 54 Delinquent Federal Tax Debt _____________________________________________________________________ 55 Consumer Credit Counseling _____________________________________________________________________ 55 Borrowers/Co-Borrowers ________________________________________________________________________ 55 Occupying ___________________________________________________________________________________________ 56 Non-Occupying Co-Borrowers____________________________________________________________________________ 56 Credit Inquiries ________________________________________________________________________________ 56 Authorized User Accounts _______________________________________________________________________ 56 Business Debt in Borrower's Name ________________________________________________________________ 56 Installment Debt _______________________________________________________________________________ 57 Deferred Obligations____________________________________________________________________________ 57 Student Loans _________________________________________________________________________________ 57 Revolving Charge Accounts_______________________________________________________________________ 57 Open 30-Day Charge Accounts ____________________________________________________________________ 58 Contingent Liability _____________________________________________________________________________ 58 Mortgage Assumptions _________________________________________________________________________________ 59 Cosigned Liabilities ____________________________________________________________________________________ 59

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FHA Underwriting Guidelines | Table of Contents

Court-Ordered Divorce _________________________________________________________________________________ 59 Debts Paid Prior to Closing _______________________________________________________________________ 59 Federal Debt __________________________________________________________________________________ 59 Undisclosed Debt ______________________________________________________________________________ 59

Undisclosed Debt Other Than a Mortgage __________________________________________________________________ 59 Undisclosed Mortgage Debt _____________________________________________________________________________ 60 Alimony, Child Support, or Other Maintenance ______________________________________________________ 60 Obligations Not Considered Debt__________________________________________________________________ 60 Payment Plans_________________________________________________________________________________ 61 Subordinating a Lien ____________________________________________________________________________ 61 MiMutual In-file Credit Reports ___________________________________________________________________ 61 Extenuating Circumstances_______________________________________________________________________ 62

Employment/Income _____________________________________________________________________ 63 Documentation Requirements ____________________________________________________________________ 63 Effective Income _______________________________________________________________________________ 63 Hourly or Salaried Employees_____________________________________________________________________ 63

Salary _______________________________________________________________________________________________ 64 Hourly ______________________________________________________________________________________________ 64 Overtime and Bonus Income _____________________________________________________________________ 64 Second Jobs/Part-Time Income ___________________________________________________________________ 64 Seasonal Employment __________________________________________________________________________ 65 Employed by Family-Owned Business ______________________________________________________________ 65 Union Employees ______________________________________________________________________________ 65 Commission Income ____________________________________________________________________________ 65 1099 Employees _______________________________________________________________________________ 66 Negative Income _______________________________________________________________________________ 66 Automobile Allowances _________________________________________________________________________ 66 Self-Employed _________________________________________________________________________________ 67 Additional Required Analysis of Stability of Employment Income ________________________________________ 68 Frequent Changes in Employment ________________________________________________________________________ 68 Gaps in Employment ___________________________________________________________________________________ 68 Temporary Reduction in Income __________________________________________________________________________ 68 Alimony, Child Support, or Maintenance Income _____________________________________________________ 69 Social Security Income __________________________________________________________________________ 69 Social Security Income Received for a Child _________________________________________________________ 70 Disability Benefits ______________________________________________________________________________ 70 Social Security Disability ________________________________________________________________________________ 71 VA Disability__________________________________________________________________________________________ 71 Private Disability ______________________________________________________________________________________ 71 Pension ______________________________________________________________________________________ 71 Individual Retirement Account (IRA) and 401(k) ______________________________________________________ 72 Military Income ________________________________________________________________________________ 72 Foster-Care Income _____________________________________________________________________________ 72 Non-Taxable Income ____________________________________________________________________________ 73 Short Term Disability / Workman's Comp ___________________________________________________________ 73 Foreign Income ________________________________________________________________________________ 73 Expected Income _______________________________________________________________________________ 74 Income Transcript Verification ____________________________________________________________________ 74 Full Tax Return Transcripts (1040s) ________________________________________________________________________ 74 W2 Transcript Waiver __________________________________________________________________________________ 75 Timing of Tax Returns ___________________________________________________________________________ 75 Additional Documentation Requirements __________________________________________________________________ 76

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