Hot Topics
THE HOME LENDING SOURCE March 1, 2011
Hot Topics From The HLS Underwriting Dept. FHA Q: Can we use rental income from a previous primary residence when a borrower is purchasing another one? A: 4155.1 4.E.4.g Exclusion of Rental Income From Property Being Vacated by the Borrower Underwriters may not consider any rental income from a borrower's principal residence that is being vacated in favor of another principal residence, except under the conditions described in HUD 4155.1 4.E.4.h Notes: • •
This policy assures that a borrower either has sufficient income to make both mortgage payments without any rental income, or has an equity position not likely to result in defaulting on the mortgage on the property being vacated. This applies solely to a principal residence being vacated in favor of another principal residence. It does not apply to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).
4155.1 4.E.4.h Policy Exceptions Regarding the Exclusion of Rental Income From a Principal Residence Being Vacated by a Borrower When a borrower vacates a principal residence in favor of another principal residence, the rental income, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA HOC, may be considered in the underwriting analysis under the circumstances listed in the table below. Reference: For information on jurisdictional HOC vacancy factors, see http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm. Exception Relocations
Description 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. A properly executed lease agreement (that is, a lease signed by the borrower and the lessee) of at least one year's duration after the loan is closed is required. Note: FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first
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month's rent was paid to the homeowner. The borrower has a loan-to-value ratio of 75% percent or less, as determined either by • a current (no more than six months old) residential appraisal, or • comparing the unpaid principal balance to the original sales price of the property. Note: The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466.
Sufficient Equity in Vacated Property
Q: Can a borrower own two homes with FHA financing? A: The table below describes the “exception” situations in which FHA does not object to borrowers obtaining multiple FHA-insured mortgages. Note: Considerations in determining the eligibility of a borrower for one of the exceptions in the table below include the • •
length of time the previous property was owned by the borrower, and circumstances that compel the borrower to purchase another residence with an FHA-insured mortgage. Important: In all cases other than those listed below, the borrower is not eligible to acquire another FHAinsured mortgage until he/she has either
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paid off the FHA-insured mortgage on the previous residence, or terminated ownership of that residence. Policy Exception
Relocation
Eligibility Requirements A borrower may be eligible to obtain another mortgage using FHA insurance, without being required to sell an existing property covered by an FHA-insured mortgage, if the borrower is •
relocating, and
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establishing residency in an area not within reasonable commuting distance from the current principal residence.
If the borrower subsequently returns to the area where he/she owns a property with an FHA-insured mortgage, he/she is not required to reestablish primary residency in that property in order to be eligible for
Hot Topics | 3/1/2011
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another FHA-insured mortgage. Note: The relocation need not be employer mandated to qualify for this exception. Increase in family size
A borrower may be eligible for another home with an FHA-insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family's needs. The borrower must provide satisfactory evidence •
of the increase in dependents and the property's failure to meet family needs, and
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the LTV ratio based on the outstanding mortgage balance and a current appraisal equals 75% or less. If it does not, the borrower must pay the loan down to 75% LTV or less.
Note: A current residential appraisal must be used to determine LTV compliance. Tax assessments and market analyses by real estate brokers are not acceptable proof of LTV compliance. Vacating a jointly owned property
A borrower may be eligible for another FHA-insured mortgage if he/she is vacating a residence that will remain occupied by a co-borrower. Example: An example of an acceptable situation is one in which there is a divorce and the vacating ex-spouse will purchase a new home.
Non-occupying co-borrower
A borrower may be qualified for an FHA-insured mortgage on his/her own principal residence even if he/she is a non-occupying co-borrower with a joint interest in a property being purchased by other family members as a principal residence with an FHA insured mortgage.
Q: Can we do a streamline refinance if we are making the loan term higher (ie: going from a 20 year to a 30 year) as long as we are meeting the net tangible benefit? A. Yes, this is fine, as long as the loan meets all the other streamline requirements. Q: How many inspections and title updates do I need to collect on a 203k maximum mortgage worksheet if the loan is a streamline 203k? A: At this time we only have one 203k investor (M&T) and they require 2 re-inspections and 2 title updates to be collected for on the worksheet. Q: If a condo is approved through FHA are we automatically good to go? A: Not necessarily. The underwriter would still need to see the condo questionnaire and verify with FHA guides that the condo is still acceptable and in compliance with FHA’s guidelines. Also if the association was
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close to expiring in FHA Connection, we may need to send the file to FHA for recertification with all the recertification requirements.
CONVENTIONAL Q: Are we able to do Homepath loans? A: Yes, with Flagstar, PHH or Wells. All of those investors require that they underwrite the loan Q: Do we have any investors that will allow a Homepath Renovation loan? A: No, we do not at this time. Q: Do we have any investors that will take a conventional loan without an approve/eligible? A: No Q: How long must the borrower have been in the home in order to do a cash out refinance? A: At least 6 months Q: Will any investors allow us to have a borrower with a 95% LTV when the 5% down is coming from gift funds? A: No, all of our investors still want our borrowers to have at least 5% of their own funds into the transaction.
GENERAL QUESTIONS Q: Do we need to verify continuance on SS income or Pension income if our borrower is of retirement age? A: No
A: If the previous foreclosure was not a FHA-insured mortgage, the three year period will typically begin on the date of the sheriff / trustee sale documented with a copy of the transfer of title. If the previous loan was an FHA the three year exclusion period starts from the date that the claim was paid corresponding to the previous foreclosure. That date will need to be obtained from HUD. Q: If a borrower is seasonally employed and has been working in the same line of business or same job for the last two years, can we use their income if they are currently laid off?
Hot Topics | 3/1/2011
Q: How long must we wait to do a loan for someone who has had a past foreclosure?
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A: No, we would need them to be back to work, receive a VOE in processing and at closing, and have 30 days worth of paystubs in the file.
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