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HUD/FHA will now require
evidence of source of funds for an Earnest Money Deposit (EMDs) in excess of 1% of the Sales Price. Also, for any recent deposits & recently opened accounts of more
than 1% of the Adjusted Value (the lower of the Sales Price or Appraised Value) the source of these funds must be documented.
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The previous threshold was 2%
for EMDs and recent deposits.
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Lenders will now have to
include deferred obligations in the Borrower's liabilities. For example, a student loan deferred more than 12 months must now be counted as a recurring obligation and,
if the monthly payment is not yet known, use 2% of the outstanding balance to establish the payment amount (for installment debts use terms of the debt or 5% of the
outstanding balance).
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Previously, such debts were
not counted as a recurring obligation.
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Documents contained in the
loan file may not be more than 120 days old at the time of the Disbursement Date.
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Previously, documents could be
180 days old if the property involved new construction.
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Appraisal reassignments
made (at the Borrower's request) must be done within five business days.
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Previously, there was no time
frame established for such actions.
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In order to obtain an
additional FHA loan, a Borrower who is relocating must establish a new residence in an area more than 100 miles from the Borrower's current principal residence.
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Previously, there was no
specific mileage limitation.
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The maximum LTV percentage
in a tenant-landlord transaction will be limited to 85%.
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Previously, if the tenant
& landlord do not have an identity of interest relationship - the maximum mortgage calculation is not affected and the LTV is not limited to 85%.
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Cases in which it is
discovered that there is undisclosed mortgage debt OR if any business income declines by more than 20% must be downgraded to a "Refer" and manually underwritten.
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Previously, there was no
requirement to downgrade to a "Refer" for these circumstances.
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If the Borrower has a loan
secured by an interest in a timeshare it must be considered as an installment loan and a recurring obligation.
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Previously, such loans were
not considered as installment loans.
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For Borrowers who are paid
hourly and whose hours vary, the lender must average income for the past two years when calculating income.
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Previously, there was no
requirement to average income for such hourly workers.
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If a Borrower earns
Overtime or Bonus income and such income has decreased by 20% or more from the previous year, the lender must utilize the current year's income in qualifying the
borrower.
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Previously, HUD/FHA had no
such requirement and most underwriters would use a two year average as effective income.
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The percentage of
Non-Taxable income that may be added to a Borrower's gross income estimate will not be able to exceed the greater of 15% or the appropriate tax rate for the Borrower's
income amount, based on the Borrower's tax rate for the previous year. Also, if the Borrower was not required to file a Federal Tax Return for the previous tax
reporting period, the lender may only "Gross-Up" the Non-Taxable income by 15%.
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Previously, such income could
be "Grossed-UP" by 25% by the underwriter when calculating effective income.
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In calculating the
effective Net Rental Income from other real estate owned by a Borrower, lenders will now be required to utilize a 75% factor for vacancy, maintenance and collection
loss.
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Previously, three of the four
HUD Homeownership Centers (Philadelphia, Atlanta and Santa Ana) permitted lenders to use an 85% factor for properties located in their respective jurisdictions.
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Audited Profit and Loss
Statements or signed quarterly tax returns obtained from the IRS will be required to document self-employment income whenever the income used to qualify the Borrower
exceeds the two year average of tax returns.
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In the past, HUD/FHA did not
require that P&L Statements be audited since they can be very expensive.
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With advance approval,
HUD/FHA allowed Borrowers 60 years of age or older to borrow the required funds to close for the purchase of a principal residence.
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The draft 4000.1 Handbook is
silent on this topic which implies that secondary financing for Borrowers 60 years of age or older will no longer be permitted.
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On Manually Underwritten
loans, any surplus gift funds may not be considered as cash reserves.
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Previously, any surplus gift
funds could be counted as cash reserves.
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On cash-out refinance
transactions, the subject property must have been owned and occupied by the Borrower as their Principal Residence for the 12 months prior to the date of the FHA case
number assignment.
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Previously, only mortgages
with less than 6 months of payment history were not eligible for a cash-out refinance.
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On cash-out refinance
transactions, the maximum Combined Loan-To-Value (CLTV) ratio is 85%.
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Previously, existing or
modified subordinate liens were allowed to remain outstanding and/or new subordinate liens could have been offered to facilitate the refinance.
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Lenders will be required to
take additional steps to verify and document the stability of a Borrower's employment income if he/she has changed jobs more than three times in the previous 12 month
period or has changed lines of work. The lender must obtain: transcripts of training and/or education demonstrating qualification for a new position OR employment
documentation evidencing continual increases in income and/or benefits.
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These are new requirements.
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Closed-end debts do not
have to be included in the qualifying Debt-To-Income (DTI) ratios if they will be paid off within 10 months and "the cumulative payments of all debts are less than or
equal to 5% of the Borrower's gross monthly income". Also, the Borrower may not pay down the balance in order to meet the 10 month requirement.
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This 5% Rule is a new
requirement and will impact Borrowers that have any large debts that are due to be paid off soon.
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For manually underwritten
loans, the mortgagee must now obtain the Borrower's most recent pay stubs covering a minimum of 30 consecutive days (if paid weekly or bi-weekly, pay stubs must cover a
minimum of 28 consecutive days) that show the Borrower's year-to-date earnings AND one of the following:
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1. a written Verification
of Employment (VOE) covering two years OR
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2. an electronic
verification acceptable to FHA
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Previously, FHA did not
require pay stubs on manually underwritten loan transactions.
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On an FHA Rate and Term
refinance transaction, a new requirement will be to limit the LTV to 85% for a Borrower who has occupied the subject property as their Principal Residence for fewer
than 12 months prior to the FHA case number assignment OR if owned less than 12 months, has not occupied the property for that entire period of ownership.
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Previously, there was no such
85% LTV limitation.
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On an FHA streamline
refinance transaction, a Net Tangible Benefit test must be conducted. A Reduction in Term is now being considered as a net tangible benefit.
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Previously, a reduction in
term was NOT considered as a net tangible benefit.
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