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FHA GUIDELINES

FHA GUIDELINES

201: Appraisal

202: Assumability

203: Borrowers

204: Cash Reserves

205: Condos

206: Credit History

207: Credit Scores

208: Down Payment

209: Escrows

210: Flipping Requirements

211: Gift Funds

212: Identity of Interest Transactions

213: Number of Loans/Properties

214: Occupancy

215: Property Inspections

216: Ratios

217: Seller Contributions

218: Refinance Transactions

219: Underwriting

201: Appraisal1 unit properties require Fannie Mae Appraisal Form 1004 or Freddie Mac Appraisal Form 70. 2-4 unit properties require Fannie Mae Appraisal Form 1025 or Freddie Mac Appraisal Form 72.All condominiums (including site condominiums) must be completed on Fannie Mae AppraisalForm 1073 or Freddie Mac Appraisal Form 465, regardless of AUS.All appraisals of 1-4 unit properties must contain the Market Conditional Addendum to theAppraisal Report (Form 1004MC).Age Requirements for Existing/New Construction: No more than 120 days at closing, if theappraisal is older than 120 days, an Appraisal Update Report is requiredAppraisal Update and Extensions of validity period: Refer to HUD Handbook 4000.1 UAD(Uniform Appraisal Data) compliant appraisals are required for FHA loans.Appraisers must comply with the specific requirements for reporting results as per theFHA Appraisal Data Delivery Guide .Refer to the FHA Electronic Appraisal Delivery Page for more information.

201.1: Second Appraisal Requirements

A second FHA appraisal is required on:Properties being sold within 180 days of the seller's acquisition and the sales price has increased by 100% or more. The second appraisal may be completed by an FHA-approved appraiser, on Form 2055.The value from the second appraisal must be used for LTV calculation if it exceeds 5% less than the value from the first appraisal.If the second appraisal value is higher than the initial appraisal, the value from the second appraisal may not be used.

The borrower may not be charged for the second appraisal.

201.2: Repair/Completion Inspections

Satisfaction of repair requirements outstanding on the appraisal report can be met by providing one of the following as applicable:FNMA 1004D/FHLMC Form 442:

Can be utilized to report the completion of a repair and/or the satisfaction of requirementsand conditions noted in the original appraisal report which do not require architecturalexpertise.Can be completed by the FHA appraiser who performed the original appraisal if currentlyin good standing on the FHA Appraiser Roster OR any other FHA appraiser currently ingood standing on the FHAC site

In addition, a professionally and/or appropriately licensed, bonded, registered engineer or homeinspector or tradesperson can provide documentation to support that the deficiencies have beencorrected on their letterhead.A list of FHA-approved inspectors is available via the FHA Connection

202: AssumabilityMay be assumable with conditions; at servicer's option

203: Borrowers

203.1: Eligible

Inter vivos revocable trustsNon-occupant co-borrowersPermanent resident aliensNon-permanent resident aliens:

Non-permanent resident aliens (non-immigrants) are non-U.S. citizens who are permittedto reside in the U.S. on a temporary basis and may have been granted authorization towork or study in the U.S. by the USCIS. All non-permanent resident aliens must:

Have a valid Social Security NumberBe eligible to work in the United States as evidenced by a valid EmploymentAuthorization Document (EAD)* issued by the USCIS.Occupy the property as their primary residence

*Employment Authorization Document: Although Social Security cards may indicate work status, suchas “not valid for work purposes”, an individual's work status may change without the change beingreflected on the actual Social Security card. For this reason, the Social Security card must not be usedas evidence of work status, and the EAD must be used instead. If the EAD will expire within one yearand a prior history of residency status renewals exists, then continuation of residency status renewalcan be assumed. If there are no prior renewals, then the likelihood of renewal, based on informationfrom the USCIS must be determined.

NOTE: Borrower residing in the U.S. by virtue of refugee or asylee granted by the USCIS areautomatically eligible to work in this country. An EAD is not required.

203.2: Ineligible

Foreign nationalsBorrowers with diplomatic immunityBorrowers without social security numbersMore than four (4) borrowers per transactionAny individual listed on HUD's Limited Denial of Participation (LDP) listat https://www5.hud.gov/ecpcis/main/ECPCIS_List.jsp or the General Services Administration's (GSA) Excluded Party List https://www.sam.gov/. Documentation evidencing all required entities have been checked against the LDP and GSA lists must be included in the closed loan file.

204: Cash ReservesTOTAL SCORECARD: All assets submitted to AUS must be verified and documented.

1-2 unit properties: Document per AUS

3-4 unit properties: Document three (3) months PITI

205: Condos

205.1: Condominium Projects

Condominium Projects must be currently FHA Approved.FHA Approved Condos: The project must be listed on FHA's approved condominium project list at https://entp.hud.gov/idapp/html/condlook.cfm.Approval processing options are as follows:

HRAP: HUD Review and Approval Process. HOA must complete this process.Each loan must contain a FHA Approved Condo Certification form.If a project is no longer approved or does not meet Lender Certification criteria, then onlyan FHA-to-FHA streamline refinance is permitted.

205.2: Ineligible Condominium Projects

Projects where more than 25% of the total space is used for non-residential purposes;Live/work units where more than 25% of the total project or unit square footage is used fornonresidential purposes;Condominium Hotel or “Condotels”;Projects located within a designated coastal barriers;Projects where the Developer retains ownership of the common areas or amenities once transferof control has been turned over to the homeowner's association.

206: Credit HistoryPer AUS

206.1: Bankruptcies (Chapter 7 or 13):

Refer to FHA Handbook 4000.1, Chapters 4.b and 5.a

206.2: Collections and Judgments:

Refer to FHA Handbook 4000.1, Chapters 4.b and 5.a

206.3: Disputed Accounts:

Refer to FHA Handbook 4000.1, Chapters 4.b and 5.a

206.4: Foreclosure and Deed in Lieu of Foreclosure/ShortSale

Refer to FHA Handbook 4000.1 Chapters 4.b and 5.a

206.5: Mortgage Payment History Requirements

Purchases: The mortgage history is limited to a 1 x 30-day payment within the last 12 months.Refinances:

On all refinances, the borrowers must be current for the month due. The borrower mustmake their current payment prior to or at closing.Rate/Term and Simple Refinance:

The mortgage history is limited to a 1 x 30-day payment within the last 12 months, orsince date of note if less than 12 payments have been made.

Streamlines:0 x 30 in the last 12 months or since date of note if less than 12 payments have beenmade.Loans with less than a 12 month mortgage history on the loan being refinancedrequire the following:

Full tri-merge credit report0 x 30 on ANY mortgages held by the borrowerAny bankruptcy or foreclosure must be discharged in the required 24 or 26months respectively.

Loans seasoned less than 6 months since the first payment due date or 210 days fromthe Note Date to case number assignment are not permitted.

Cash-out:0 x 30 in last 12 months

Cash-out Refinance Transactions must be downgraded to a “refer” and manuallyunderwritten if any mortgage trade line (property where any borrower has an ownershipinterest), including mortgage line-of-credit payments:

Is currently delinquent. (A mortgage payment is considered delinquent if not paidwithin the month due.)Has had any mortgage delinquencies (not paid within the month due) for theprevious twelve (12) month period, or since the borrower obtained the loan,whichever is less

Properties with mortgages must have a minimum of six (6) months of mortgage payments.If the current mortgage has less than 6 months payment history, it is not eligible for cashout refinance.Properties owned free and clear may be refinanced as cash-out transactions.

206.6: CAIVRS

All borrowers must be screened using CAIVRS. The result must be acceptable.

206.7: Non-Borrowing Spouse

A Non-borrowing spouse or domestic partner is a person who has an ownership interest in thesecurity property. Non-borrowing spouses or domestic partners are required to sign the securityinstrument and other applicable documentation in order to perfect a lien in accordance with thegoverning state law. The option to waive any property right by virtue of being the owner's spouseor domestic partner must be in accordance with applicable state law.CAIVRS is not required for non-purchasing spouses or domestic partners in community propertystates (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington andWisconsin).The following guidelines apply for non-purchasing spouses or domestic partners in communityproperty states:

Debts of a non-purchasing spouse must be counted in the borrower's qualifying ratiosThe non-purchasing spouse or domestic partner's credit performance and credit score isgenerally not a consideration.SSN for non-borrowing spouse must be validated with SSAThe credit report must indicate the non-borrowing spouse's SSN (when an SSN exists) wasmatched with the SSA, or the file must contain separate documentation indicating that theSSN was matched with the SSA, or provide a statement that the non-borrowing spousedoes not have an SSN. Where an SSN does not exist for a non-borrowing spouse, the creditreport must contain at a minimum, the non-borrowing spouse's full name, date of birth,and previous addresses for the last two years.

207: Credit ScoresPurchase, Rate/Term or Cash-out: Minimum 620 Decision Score, regardless of AUS recommendation.

Streamline Refinance: Minimum 620 for streamline refinance transactions.

The following criteria must be used to determine each individual borrower's Representative Credit Score using the "middle/lower" method. All borrowers are required to have at least one (1) valid score.

If there are:

Three (3) valid credit scores, the middle score of the three (3) must be selected.

Three (3) valid credit scores with two (2) of the same scores, the duplicate score mustbe selected.

Two (2) valid scores, the lower of the two (2) scores must be selected.

One (1) valid score, the available score must be selected.

After selecting the Individual Credit Score for each borrower, the Decision Score isdetermined.

If there is:

More than one (1) borrower, the lowest selected credit score among all the borrowersis considered the Decision Score.

Only one (1) borrower, the selected credit score for the borrower is considered theDecision Score.

208: Down PaymentAll Minimum Required Investment guidelines as per FHA Handbook 4000.1 Chapters 4 and 5 must be met and fully documented.

Cash on Hand is not permitted.

Loans secured by the First Time Homebuyer Tax Credit are not a source of acceptable funds.

Grants/secondary financing involving HUD Neighborhood Stabilization Program funds are not permitted.

Bridge loans (Gap Financing) are not permitted.

Sweat Equity is not allowed.

209: EscrowsEscrow waivers not allowed under any circumstances. No exceptions.

210: Flipping RequirementsRefer to FHA Handbook 4000.1 Chapter 1-General Mortgage Eligibility.

Refer to Appraisals Section of the Library-Second Appraisal Requirements if applicable; also review our FHA Appraisal log to see if it requires a full second appraisal.

211: Gift Funds

211.1: Eligible Donors

A Family Member; Refer to “Identity of Interest” for FHA's definition of a Family MemberA close friend with a clearly defined and documented interest in the borrower;A charitable organization that does not replenish available gift funds with seller contributionsThe borrower's employerA governmental agency or public entity that has a program providing homeownership assistanceto

Low or moderate income families; orFirst-time homebuyers

211.2: Ineligible Donors

Any person or entity with an interest in the sale of the property, including but not limited to:

The builderThe seller (except gift of equity for relative)The developerThe real estate agentThe mortgage brokerOther interested party to the transactionAny gift or down payment assistance source where the provider is reimbursed eitherdirectly or indirectly by the seller or any interested third party, commonly known as“seller-funded” DPA

211.3: Documentation for Gift Letters:

Gift Letters must comply with all requirements per FHA Handbook 4000.1 Chapter 4 and 5

211.4: Source of Funds

It must be determined that the gift funds were not provided by an unacceptable source and were the donor's own funds.Follow all requirements per FHA Handbook 4000.1 Chapter 4 and 5

211.5: Gifts from Entities:

Follow all requirements per the FHA Handbook 4000.1 Chapter 4 and Chapter 5

211.6: Gift of Equity:

Only family members as defined in “Identity of Interest” section may provide equity credit as agift on a property being sold to other family members.

211.7: Gifts as Cash Reserves (TOTAL SCORECARD)

Deposited Prior To ClosingExcess gift funds in the borrower's account may be used as cash reserves (1- and 2-unitproperties only) and may be included in the borrower's account balance when submittingto TOTAL. The gift should be identified separately as gift funds on the FHA LoanTransmittal and 1003.

Provided At ClosingExcess funds from gifts remaining after loan closing may NOT be used as cash reserves.Gift must be submitted to TOTAL as “gift funds” and not included in borrower's accountbalance.

211.8: Gifts as Cash Reserves (Manual Downgrades)

Gifts may not be counted as part of the borrower's reserves under any circumstances formanually underwritten transactions.

212: Identity of Interest TransactionsAn identity-of-interest transaction is a sale between parties with an existing businessrelationship or between family members. Business relationship refers to an association betweenindividuals or companies entered into for commercial purposes.Family member is defined as follows, regardless of actual or perceived sexual orientation, genderidentity, or legal marital status:

Child, parent or grandparent;A child is defined as a son, stepson, daughter, or stepdaughter;A parent or grandparent includes a step-parent/grandparent or foster parent/grandparentSpouse or domestic partner;Legally adopted son or daughter, including a child who is placed with the borrower by anauthorized agency for legal adoption;Foster child;Brother, stepbrother;Sister, stepsister;Uncle;Aunt; orSon-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-lawof the borrowerMaximum LTV for Identity of Interest and Tenant/Landlord Transactions:

Follow Requirements per FHA Handbook 4000.1 Chapter 2 .A –Allowable Mortgage Parameters

213: Number of Loans/PropertiesA borrower may not have more than 1 FHA loan at a time, unless a policy exception applies as described in FHA Handbook 4000.1 Chapter 2-Allowable Mortgage Parameters and all applicable requirements are met.No restriction on the number of properties a borrower may own.

214: OccupancyOwner-occupied primary residence only

215: Property InspectionsTermite, Well and Septic Inspections

If evidence exists that a termite/pest inspection was ordered, requested, required and/orcompleted, a copy of the termite/pest inspection is required to be included in the file on any FHAloan, even if the borrower elected to waive a termite/pest inspection.

Properties under one year old require mandatory inspection, treatment and testing, even ifpreviously occupied for termite, well, and water systems.For existing properties over one year old, inspection and/or testing is only required if:

The appraisal indicates there may be a problem or that problems are common in the area.Mandated by the state or local jurisdiction (See below).Required by the sales contract.The property has been vacant for more than 30 daysThe utilities (water, gas, electric) are NOT on at the time of appraisal. Appraiser tocondition for further inspection to determine if the utilities are in proper working order

216: RatiosDU/LP: Per AUS approval. .Manual: For manually underwritten loans (excluding non-credit qualifying streamlines), refer to FHA 4000.1 Chapter 5.

217: Seller ContributionsProperty seller contributions must not exceed 6% of the sales price.Included in the 6% limitation is the payment of the UFMIP if being paid by the seller.

218: Refinance Transactions

218.1: Cash-Out

A refinance of any mortgage to take additional proceeds not limited to a specific purpose or awithdrawal of equity when there is no existing mortgage.

Cash-out is permitted for owner occupied principal residences only.

Income from a non-occupant co-borrower may not be used to qualify.

The subject property must have been owned and occupied by the borrower as theirprincipal residence for the twelve (12) months prior to the date of case number assignment

In the case of an inheritance, the borrower is not required to occupy the subjectproperty for a minimum period of time before application provided that the borrowerhas not used the property as an investment property at any point since inheritance ofthe property. If the borrower rented out the property following inheritance, theborrower would not be eligible for a cash-out transaction until the borrower hasoccupied the property as a principal residence for at least twelve (12) months.Include evidence the borrower has occupied the subject property as their principalresidence for the twelve months prior to case number assignment.

Mortgage Payment History Requirements: Refer to Credit History.Properties with mortgages must have a minimum of six (6) months of mortgage payments. If the current mortgage has less than 6 months payment history, it is not eligible for cash out refinance.Properties owned free and clear may be refinanced as cash-out transactions.The maximum LTV/CLTV is 85% and based on one of the following:

If the subject property has been owned by the borrower as his or her principalresidence for at least 12 months prior to the case number assignment date use thecurrent appraised value.If the subject property has been owned as the borrower's principal residence less than12 months prior to the case number assignment date, use the lesser of the sales priceof the property when acquired or the current appraised value.

A sales price does not have to be considered if the property was acquired as theresult of inheritance and is or will become the borrower's principal residence. Ifthe borrower rents out the property, they would not eligible be for a cash-outrefinance until they have occupied the property as their principal residence forat least 12 months.

218.2: Rate and Term:

A no cash-out refinance of any mortgage in which all proceeds are used to pay off eligibleexisting liens on the subject property and eligible costs associated with the transaction

Rate and Term refinance transactions are permitted for owner-occupied principalresidences and HUD approved secondary residences.

Include evidence the borrower currently occupies the property and determine the length of time the borrower has occupied the subject property.Mortgage Payment History Requirements: Refer to Credit HistoryCash back to the borrower at closing may not exceed $500.00(Note: must be zero in Texas).

218.2.1: Calculating Maximum Mortgage Amount:

The maximum mortgage amount for a Rate and Term Refinance transaction is the lesser of:The Nationwide Mortgage Limit;The maximum LTV ratio based on the transaction; orThe sum of existing debt and costs associated with the transaction as follows:

Existing Debt includes:The unpaid principal balance of the first mortgage as of the month prior to mortgagedisbursement;The unpaid principal balance of any purchase money junior mortgage liens as of the monthprior to mortgage disbursement;The unpaid principal balance of any junior liens over 12 months old as of the date ofmortgage disbursement. If the balance or any portion of an equity line of credit in excess of$1,000 was advanced within the past 12 months and was for purposes other than repairsand rehabilitation of the property, that portion above and beyond the $1,000 of the line ofcredit is not eligible to be included in the new loan;Ex-spouse or Co-owner equity. Refer to “Refinance to Buyout Title Holder Equity”;Interest due for the existing mortgage(s);Mortgage Insurance Premium (MIP) due on existing mortgage(if applicable);Any prepayment penalties assessed;Late charges;Escrow shortages

Allowed costs includes:All borrower paid costs associated with the new mortgage; andAny borrower-paid repairs required by the appraisal;Less any refund of the Upfront Mortgage Insurance Premium (UFMIP) in the originalmortgage, if applicable.

218.3: SimpleRefinance:

A no cash-out refinance of an existing FHA-insured mortgage in which all proceeds are used topay off the existing FHA-insured mortgage on the subject property and eligible costs associatedwith the transaction. An appraisal is required.

Simple Refinance transactions are permitted for owner-occupied principal or HUD approved secondary residences with an existing FHA-insured mortgage.Include evidence the borrower currently occupies the property as their principal residence. Mortgage History Payment Requirements: Refer to Credit History.Maximum LTV/CLTV: Refer to AUSCash back to the borrower at closing may not exceed $500.00(Note: must be zero in Texas).Discount Points may not be financed in the new loan amount.

Refer to “Mortgage Insurance” for applicable premiums.

218.3.1: Calculating Maximum Mortgage Amount:

The maximum mortgage amount for a Simple Refinance is the lesser of:

The Nationwide Mortgage Loan Limit;

The Maximum LTV ratio based on the transaction; or

The sum of existing debt and costs associated with the transaction as follows:Existing Debt includes:

The unpaid principal balance of the FHA-insured first mortgage as of themonth prior to mortgage disbursement;Interest due on the existing mortgage;MIP due on the existing mortgage;Late charges; andEscrow shortages

Allowed costs include:All borrower-paid costs associated with the new mortgage, EXCEPT discountpoints; andBorrower-paid repairs required by the appraisal;

Less any refund of UFMIP(if financed in the original mortgage

218.4: Streamline Refinance:

A refinance of an existing FHA-insured loan, with no appraisal required. There are two optionsavailable:

Credit Qualifying: A full credit and capacity analysis is required.Credit qualifying streamlines only permitted on previously indemnified loansunderwritten by FAMC.

Non-Credit Qualifying: Credit and capacity analysis is not required

218.4.1: The following applies to all Streamline RefinanceTransactions:

Streamline Refinance transactions are permitted for 1 unit owner-occupied principal or HUDapproved secondary residences with an existing FHA-insured mortgage.All Streamline Refinance transactions do not require an appraisal.At the time the case number is assigned the original value from FHAC for the loan beingrefinanced must be obtained and used as the appraised value. If an original value is notprovided, the LTV ratio must be considered to be less than 90% for the purpose of determiningthe term of the annual premium.Streamline transactions are either credit qualifying or non-credit qualifying.All streamline refinance transactions are not subject to the National Housing Act's StatutoryLoanLimits or Nationwide Mortgage Limits.

CAIVRS is not required on Streamline Refinances.Refinance Authorization Results from FHAC must be included in the file.All Streamlines require manual underwriting.Net Tangible Benefit Requirements must be met.The underwriter must review the borrower's employment documentation or obtain utility bills to Evidence the borrower currently occupies the property as their principal residence.Mortgage Payment History is required- Refer to Credit HistoryCash back to the borrower at closing may not exceed $500.00(Note: must be zero in Texas).

218.4.2: Mortgage Seasoning Requirements – StreamlineRefinances

On the date of the case number assignment:The borrower must have made at least six (6) payments on the FHA-insured loan being refinanced;At least six (6) full months have passed since the first payment due date of the loan being refinanced;At least 210 days must have passed from the closing date of the loan being refinanced; and If the borrower assumed the FHA loan being refinanced, they must have made six (6) payments since the time of assumption.Refer to Credit History – “Mortgage Payment History”for additional requirements for Streamlines with less than 12 payments made.

218.4.3: Net Tangible Benefit – Streamline Refinances

A Net Tangible Benefit is a reduced Combined Rate, a reduced term, and/or a change from anARM to Fixed Rate that results in a financial benefit to the borrower.The Combined Rate is the interest rate on the mortgage plus the Mortgage InsurancePremium(MIP) rate.It must be determined that there is a net tangible benefit to the borrower for all StreamlineRefinance transactions

REDUCTION IN TERM – The net tangible benefit test is met if:The mortgage term is reduced; andThe new interest rate does not exceed the current interest rate; andThe combined principal, interest and MIP payment of the new mortgage does notexceed the combined principal, interest and MIP of the refinanced mortgage by morethan $50

218.4.4: Maximum Mortgage Calculation for StreamlineRefinances:

The maximum base loan amount for Streamline Refinance transactions is the lesser of:The outstanding principal balance of the existing mortgage as of the month prior to themortgage disbursement; plus

Interest due on the existing mortgage; andMIP due on the existing mortgage; OR

The original principal balance of the existing mortgage(including financed UFMIP);Less any refund of UFMIP (if financed in the original mortgage)

Late charges and escrow shortages may not be included in the unpaid principal balance.

218.4.5: Maximum Mortgage Amortization Period

The maximum amortization period of a Streamline Refinance is limited to the lesser of:The remaining amortization period of the existing mortgage plus 12 years; or 30 years

218.4.6: Streamline Refinance Non-Credit Qualifying

A borrower is eligible for a Streamline Refinance without credit qualifying if all borrowers on theexisting mortgage remain as borrowers on the new mortgage.Mortgages that have been assumed are eligible provided the previous borrower was releasedfrom liability.A borrower on the mortgage to be refinanced may be removed from title and the new mortgagein the cases of divorce, legal separation or death when:

The divorce decree or legal separation agreement awarded the Property and responsibilityfor payment to the remaining borrower, if applicable; ANDThe remaining borrower can demonstrate that they have made the mortgage payments fora minimum of six months prior to case number assignment

218.4.7: Streamline Refinance Credit Qualifying

At least one borrower from the existing mortgage must remain as a borrower on the newmortgage.

All credit underwriting requirements must be met:Verify the borrower's income and full tri-merge credit report. Non-purchasing Spousecredit report is required. Refer to “Non-Purchasing Spouse”.Compute the debt-to-income ratios, andDetermine that the borrower will continue to make mortgage payments.A full loan application must be completed, signed and dated by the borrower.

Streamline Refinances must be manually underwritten. Refer to Manual Underwritingrequirements in the applicable sections of the FHA Handbook 4000.1.

218.5: Funds to Close

Funds needed to close in excess of the new total mortgage payment must be verified anddocumented as follows:A written VOD and the most recent statement for each amount, ORA statement showing the previous month's ending balance for the most recent month is required.If the previous month's balance is not shown, then the most recent two months consecutivestatements are required.The above requirements apply to both credit qualifying and non-credit qualifying.

218.6: Properties Recently Listed For Sale

Cash-Out refinances:A property listed for sale must have been canceled six (6) months prior to the initial loanapplication.

All other Refinance Types:Evidence the listing agreement was canceled at least one day prior to application.

The loan file must also document a letter of intent signed by the borrower acknowledging they donot intend to relist the property for 12 months after the note date.

218.7: Refinance to Buy Out Title Holder Equity

When the purpose of the new loan is to refinance an existing mortgage in order to buy outexisting title -holder equity, the specified equity to be paid is considered property-relatedindebtedness, and is eligible to be included in the new mortgage calculation.

Documentation of the divorce, property settlement, estate disposition or other bona fide equity agreement must be provided to document the equity awarded to the title-holder. Proceeds are disbursed directly to the ex-spouse, domestic partner, or authorized agent and are reflected on the Closing Disclosure/HUD-1. Proceeds must not be disbursed to the borrower.Borrower who will be acquiring sole ownership must receive no cash out from the transaction.

218.8: Refinancing to Pay off Recorded Land Contract

If the borrower will use the loan to complete payment on a land contract, contract for deed orother similar type financing arrangement in which the borrower does not have title to theproperty, the new mortgage may be processed as either a purchase or a refinance transactionwith maximum FHA- insured financing if the borrower receives no cash at closing.If the property was acquired less than 12 months preceding the loan application; then all loanproceeds are to be used to pay the outstanding balance on the land contract, plus eligible repairsand renovations, the appropriate LTV ratio is applied to the lesser of:

The appraised value of the land and improvements; orThe total cost to acquire the property (the original purchase price, plus any documentedcosts the purchaser incurs for rehabilitation, repairs, renovation, or weatherization), plusallowable closing costs and, reasonable discount points, if treated as a refinance.

Equity in the property (original sales price minus the amount owed) may be used for theborrower's entire cash investment. However, if the property was acquired less than 12 monthsearlier, and the borrower receives more than $500 cash at closing, the loan is limited to an 85%LTV.Replenishment of the borrower's own cash expended for repairs, improvements, renovation, orweatherization is not considered as '''cash back,''' provided the borrower can substantiate withcancelled checks and paid receipts all out-of-pocket funds spent for those purposes.Payoff statements are required on all existing mortgagesCash out transactions used to pay off land contracts or refinances on properties subject toground rents should be processed as if they were cash out transactions on properties held in feesimple.

218.9: Refinance of Privately Held Mortgage

Transactions which involve refinancing a privately held mortgage require the following:12 months of mortgage payments, verified by canceled checks or bank statements (if thepayment is automatically withdrawn from the borrower's account). If the account has beenopened less than 12 months, verification of all payments made is required.Evidence that the mortgage being paid off is a current recorded lien against the subjectproperty.

219: Underwriting

219.1: General Underwriting Information

The more restrictive of AFG or HUD Handbook requirements applyAll FHA loans must be submitted through DU or LP except for Streamline Refinances or manual downgrades that comply with Manual Underwriting requirements. We will close loans that receive an Approve/Accept.Loans using DPA must receive AUS approval or qualify for manual underwriting approvalThe HUD Limited Denial of Participation (LDP) listat https://www5.hud.gov/ecpcis/main/ECPCIS_List.jsp and the General Services Administration's (GSA) Excluded Party List https://www.sam.gov/ must be checked as per the FHA Handbook. Any entity noted on either of the LDP and GSA lists will cause the loan to be ineligible.

219.2: Self Employed Borrowers

Verify the existence of the borrower's business from a third party that may include a CPA, regulatory agency, or appropriate licensing bureau; orVerify a phone listing and address for the borrower's business through resources such as the telephone book, directory assistance, internet, or contact the appropriate licensing bureau. Internet sites such as 411.com, Chamber of Commerce sites and Manta.com where they allow the business owner to add their own information are not acceptable.Single source verifications, such as yellowpages.com, superpages.com, searchbug.com, are not acceptable.Processor certification is not permitted.

219.3: Employment and Income

Unless otherwise noted, document employment and income in accordance with FHA standardpolicies.Rental Income from a Departing Residence: For equity verification, the appraisal is not requiredto be completed by a FHA roster appraiser.VOE(s) required to document most recent 2 year history.

219.4: Additional Underwriting Requirements

Real estate commission that is in excess of 8% must be deducted from the sales price/appraisedvalue LTV calculation when determining maximum LTV.Purchase agreements renegotiated after the completion of the appraisal that increase the salesprice are only acceptable under the following circumstances:

The sales price adjustment is due to price overruns that impact the tangible value of theproperty on new construction. An updated appraisal must be obtained to verify the value ofthe modifications. A renegotiation of only seller paid closing costs and/or prepaids occurs

where seller paid closing cost/prepaids are common and customary for the market andsupported by comparables.Changes in the purchase contract resulting from renegotiating terms of sale may requirereview by the appraiser and delays could result.

Lead Based Paint Requirements: Lenders are responsible for ensuring that the seller hascomplied with all HUD's Lead Based Paint Disclosure requirements per Handbook 4000.1; forproperties where this applies, the Lender must perform a thorough review of the sales contractand all attachments to ensure that these requirements are met.