May be used immediately.

** The underlined are changes or clarifications to existing guidelines.

 Checking and Savings Accounts

Large deposits: II.A.4.d.iii(A)(2) and II.A.5.c.iii(A)(2)

The Mortgagee must verify and document the existence of and amounts in the Borrower’s checking and savings accounts. For individual deposits of more than 50 percent of the total monthly Effective Income, the Mortgagee must obtain documentation of the deposits. The Mortgagee must also verify that the deposits are commensurate with the Borrower’s income and savings history and no debts were incurred to obtain part, or all, of the MRI. (The old rule was 1% of the adjusted value of the property)

Documenting the Transfer of Gifts

The Mortgagee must verify and document the transfer of Gifts from the donor to the Borrower in accordance with the requirements below.

• For Gifts that will be verified prior to settlement, the Mortgagee must obtain one of the following:
  • the donor’s bank statement showing the withdrawal and evidence of the deposit into the Borrower’s account;
  • a copy of the donor’s canceled check and evidence of deposit into the Borrower’s account;
  • a copy of the donor’s withdrawal receipt and evidence of deposit into the Borrower’s account; or
  • evidence of the electronic transfer of funds from the donor’s account to the Borrower’s account.

• For Gifts that will be verified at settlement, the Mortgagee must obtain one of the following evidencing payment to the settlement agent:
  • evidence of electronic transfer of funds from the donor’s account;
  • bank certified check;
  • cashier’s check; or
  • other official bank

• For Gifts of land, the Mortgagee must obtain:
  • proof of ownership by the donor; and
  • evidence of the transfer of title to the Borrower.

Regardless of when gift funds are made available to a Borrower or settlement agent, the Mortgagee must be able to make a reasonable determination that the gift funds were not provided by an unacceptable source. (No longer automatically requires a donor bank statement)

Credit

Chapter 7

A Chapter 7 bankruptcy (liquidation) does not disqualify a Borrower from obtaining an FHA-insured Loan if, at the time of case number assignment, at least two years have elapsed since the date of the bankruptcy discharge. During the most recent two years, the Borrower must have:

• re-established good credit; or
• chosen not to incur new credit obligations.

(Old rule was credit reestablished since BK was discharged)

Chapter 13

A Chapter 13 bankruptcy does not disqualify a Borrower from obtaining an FHA-insured Loan, if at the time of case number assignment at least 12 months of the payout period under the bankruptcy has elapsed. The Lender must determine that during the most recent 12 months, the Borrower’s payment performance has been satisfactory and all required payments have been made on time, and the Borrower has received written permission from bankruptcy court to enter into the loan transaction.

(Old rule counted any late payments in the plan, regardless of time period)

Rate-Term Refinance, Simple Refinance, Streamline Refinance, and Cash-Out Refinance

If the Mortgage on the subject Property is not reported in the Borrower’s credit report or the subject Property is not in the name of the Borrower, the Mortgagee must obtain a verification of Mortgage, bank statements or other documentation to evidence that all payments have been made by the Borrower in the month due for the previous 12 months. (added verbiage is underlined)

Property:

Proximity to High Pressure Gas Lines

The Appraiser must identify if the dwelling or related property improvement is near high-pressure gas or liquid petroleum pipelines or other volatile and explosive products, both aboveground and subsurface. The Appraiser must determine and report the marketability of the Property based on this analysis. The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the dwelling or related property improvement is not located more than 10 feet from the nearest boundary of the pipeline Easement.

Individual Water Supply Systems (Wells)

When an Individual Water Supply System is present, the Mortgagee must ensure that the water quality meets the requirements of the health authority with jurisdiction.

If there are no local (or state) water quality standards, then water quality must meet the standards set by the EPA, as presented in the National Primary Drinking Water regulations in 40 CFR §§ 141–142.

If the subject Property has a water source that includes a mechanical chlorinator or is served by springs, lakes, rivers, sand-point wells or artesian wells, the Property is not eligible for FHA mortgage insurance.

(new rule underlined)

Rental Income Received from the Subject Property

The Mortgagee may consider Rental Income from existing and prospective renters if documented in accordance with the following requirements. Rental Income from the subject Property may be considered Effective Income when the Property is or will be a one-unit dwelling with an ADU, a two- to four-unit dwelling, or an acceptable one- to four-unit Investment Property. No income from commercial space may be included in Rental Income calculations.

Required Documentation for One-Unit with an Accessory Dwelling Unit: The Mortgagee must verify and document the proposed Rental Income from the ADU by obtaining a Fannie Mae Form 1004/Freddie Mac Form 70, Uniform Residential Appraisal Report (URAR), and a Fannie Mae Form 1007/Freddie Mac Form 1000, Single Family Comparable Rent Schedule, showing fair market rent and, if available, the prospective leases. (new allowance to count rent from an ADU)

History of Rental Income: Where the Borrower has a history of Rental Income from the subject Property since the previous tax filing, the Mortgagee must verify and document the existing Rental Income by obtaining the Borrower’s most recent Tax Returns, including Schedule E, from the previous two years. For Properties owned less than two years, the Mortgagee must document the date of acquisition by providing a copy of the deed, Closing Disclosure, or other legal document.

To calculate the Effective Income from the subject Property where the Borrower does not have a history of Rental Income from the subject Property since the previous tax filing, the Mortgagee must use 75 percent of the lesser of:

• fair market rent reported by the Appraiser; or
• the rent reflected in the lease or other rental agreement.

The amount of the Rental Income from an ADU used as Effective Income must not exceed 30 percent of the total monthly Effective Income used to qualify the Borrower.

Note: A renter of an ADU is not a Boarder.

 If the subject Property is a one-unit with an Accessory Dwelling Unit (ADU), rental income from the ADU cannot be used as Effective Income to qualify for a cash-out refinance. Mortgagees must apply this requirement for both Mortgages underwritten through TOTAL Scorecard and manual underwriting.

 

 Required Reserves for One-Unit with an Accessory Dwelling Unit Properties

If Rental Income is being used as Effective Income to qualify the Borrower, the Mortgagee must verify and document Reserves equivalent to two months’ PITI after closing for one-unit with an ADU Properties. (new rule re: reserves for ADU’s)

Rental Income from Other Real Estate Holdings

One-Unit or One-Unit with an Accessory Dwelling Unit: The Mortgagee must verify and document the proposed Rental Income by obtaining a Fannie Mae Form 1004/Freddie Mac Form 70, Uniform Residential Appraisal Report (URAR), and a Fannie Mae Form 1007/Freddie Mac Form 1000, Single Family Comparable Rent Schedule, showing fair market rent and, if available, the prospective leases.

If the Property has been owned for less than two years, the Mortgagee must:

• annualize the Rental Income for the length of time the Property has been owned; and
• document the date of acquisition by providing the deed, Closing Disclosure, or similar legal document.

Note: A renter of an ADU is not a Boarder.

If the subject Property is a one-unit with an Accessory Dwelling Unit (ADU), rental income from the ADU cannot be used as Effective Income to qualify for a cash-out refinance. Mortgagees must apply this requirement for both Mortgages underwritten through TOTAL Scorecard and manual underwriting.

 Required Reserves for One-Unit with an Accessory Dwelling Unit Properties

If Rental Income is being used as Effective Income to qualify the Borrower, the Mortgagee must verify and document Reserves equivalent to two months’ PITI after closing for one-unit with an ADU Properties.

Accessory Dwelling Unit:

1. Definition: An Accessory Dwelling Unit (ADU) refers to a single habitable living unit with means of separate ingress and egress that meets the minimum requirements for a living unit. An ADU is a private space that is subordinate in size and within, or detached from a primary one-unit Single Family dwelling, which together constitute a single interest in real estate.
2. Standard A Single Family residential one-unit Property with a single ADU remains a one-unit Property. For any Single Family residential Property with two or more units, a separate additional Dwelling Unit must be considered as an additional unit.

Site Condominiums

(a) Definition:

A Site Condominium refers to:

• Condominium Project that consists entirely of Single Family detached dwellings that have no shared garages, or any other attached buildings; or
• a Condominium Project that:
  • consists of Single Family detached or horizontally attached (townhouse-style) dwellings where the Unit consists of the dwelling and land;
  • does not contain any Manufactured Housing Units; and
  • is encumbered by a declaration of condominium covenants or a condominium form of ownership.

(b) The Unit owner must be responsible for all required insurance and maintenance costs associated with the Unit dwelling, excluding landscaping, of the Site Condominium. Site Condominiums do not require Condominium Project Approval or Single-Unit Approval.