FHA Underwriting & Appraisal Guidelines Contents

279 Pages·2017·2.3 MB·English

FHA Underwriting & Appraisal Guidelines
Contents
Introduction .......................................................................................................... 8
PART A. Origination Through Closing .................................................................... 8
1. Origination/Processing ................................................................................ 8
a. Applications and Disclosures ........................................................................ 8
i. Contents of the Mortgage Application Package .................................. 8
ii. Disclosures and Legal Compliance ........................................................ 14
iii. Application Document Processing ....................................................... 16
b. General Mortgage Insurance Eligibility ....................................................... 23
i. Mortgage Purpose ............................................................................... 23
ii. Borrower Eligibility ............................................................................. 23
iii. Occupancy Types ............................................................................... 28
iv. Property Eligibility and Acceptability Criteria ........................................ 30
v. Legal Restrictions on Conveyance (Free Assumability) ........................... 38
2. Allowable Mortgage Parameters ................................................................ 39
a. Maximum Mortgage Amounts ................................................................... 39
i. National Housing Act’s Statutory Limits ................................................. 39
ii. Nationwide Mortgage Limits ................................................................ 39
iii. Financing of Upfront Mortgage Insurance Premium .............................. 40
iv. Calculating Maximum Mortgage Amounts on Purchases ....................... 40
b. Loan-to-Value Limits ................................................................................. 41
i. LTV Limitations Based on Borrower’s Credit Score (Applies to All Transactions) 41
ii. Purchase ............................................................................................ 41
iii. Refinance .......................................................................................... 43
iv. New Construction .............................................................................. 43
c. Required Investment ................................................................................. 44
i. Total Required Investment ................................................................... 44
ii. Minimum Required Investment ........................................................... 44
d. Maximum Mortgage Term ......................................................................... 44
e. Mortgage Insurance Premiums .................................................................. 44
i. Upfront Mortgage Insurance Premium .................................................. 44
ii. Annual (or Periodic) Mortgage Insurance Premium ............................... 44
3. Underwriting the Property ......................................................................... 46
a. Property Acceptability Criteria ................................................................... 46
i. Defective Conditions ............................................................................ 46
ii. Minimum Property Requirements and Minimum Property Standards ..... 46
iii. Minimum Required Repairs ................................................................ 56
iv. Leased Equipment.............................................................................. 56
v. Quality of Appraisal............................................................................. 56
vi. Chain of Title ..................................................................................... 56
FHA Underwriting & Appraisal Guidelines

vii. Opinion of Market Value .................................................................... 56
viii. Reconsideration of Value .................................................................. 56
b. Required Documentation for Underwriting the Property ............................. 57
c. Conditional Commitment Direct Endorsement Statement of Appraised Value 57
4. Underwriting the Borrower Using the TOTAL Mortgage Scorecard (TOTAL)58
a. Underwriting with an Automated Underwriting System ............................... 58
i. Use of TOTAL Mortgage Scorecard ........................................................ 58
ii. Requirements for the Submission of Data through TOTAL Mortgage Scorecard 58
iii. Function of TOTAL Mortgage Scorecard ............................................... 58
iv. Feedback Certificates: Risk Classification and Related Responsibilities (TOTAL) 60
v. Accept Risk Classifications Requiring a Downgrade to Manual Underwriting (TOTAL) 60
vi. Applicability of Automated Underwriting System Rules (TOTAL) ............ 61
vii. TOTAL Mortgage Scorecard Tolerance Levels for Rescoring .................. 61
b. Credit Requirements (TOTAL) .................................................................... 62
i. General Credit Review Requirements (TOTAL) ....................................... 62
ii. Credit Reports (TOTAL) ........................................................................ 62
iii. Evaluating Credit History (TOTAL) ........................................................ 63
iv. Evaluating Liabilities and Debts (TOTAL)............................................... 67
c. Income Requirements (TOTAL) ................................................................... 75
i. General Income Requirements (TOTAL) ................................................. 75
ii. Employment Related Income (TOTAL) .................................................. 75
iii. Primary Employment (TOTAL) ............................................................. 77
iv. Part-Time Employment (TOTAL) .......................................................... 77
v. Overtime and Bonus Income (TOTAL) ................................................... 78
vi. Seasonal Employment (TOTAL)............................................................ 78
vii. Employer Housing Subsidy (TOTAL) .................................................... 79
viii. Employed by Family-Owned Business (TOTAL) .................................... 79
ix. Commission Income (TOTAL) .............................................................. 80
x. Self-Employment Income (TOTAL) ........................................................ 80
xi. Additional Required Analysis of Stability of Employment Income (TOTAL)82
xii. Other Sources of Effective Income (TOTAL) ......................................... 83
d. Asset Requirements (TOTAL) ..................................................................... 96
i. General Asset Requirements (TOTAL) .................................................... 96
ii. Source Requirements for the Borrower’s Minimum Required Investment (TOTAL) 98
iii. Sources of Funds (TOTAL) ................................................................... 99
e. Final Underwriting Decision (TOTAL) ........................................................ 110
i. Documentation of Final Underwriting Review Decision (TOTAL) ............ 111
ii. Conditional Approval (TOTAL) ............................................................ 111
iii. HUD Employee Mortgages (TOTAL) ................................................... 111
iv. Notification of Borrower of Approval and Term of the Approval (TOTAL)111
5. Manual Underwriting of the Borrower ..................................................... 112
a. Credit Requirements (Manual) ................................................................. 112
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FHA Underwriting & Appraisal Guidelines

i. General Credit Requirements (Manual) ............................................... 112
ii. Types of Credit History (Manual) ........................................................ 112
iii. Evaluating Credit History (Manual) .................................................... 116
iv. Evaluating Liabilities and Debts (Manual) ........................................... 122
b. Income Requirements (Manual) ............................................................... 130
i. General Income Requirements (Manual) ............................................. 131
ii. Employment Related Income (Manual) ............................................... 131
iii. Primary Employment (Manual) ......................................................... 132
iv. Part-Time Employment (Manual) ...................................................... 133
v. Overtime and Bonus Income (Manual) ............................................... 133
vi. Seasonal Employment (Manual) ........................................................ 133
vii. Employer Housing Subsidy (Manual) ................................................. 134
viii. Employed by Family-Owned Business (Manual) ................................ 134
ix. Commission Income (Manual) ........................................................... 135
x. Self-Employment Income (Manual) .................................................... 136
xi. Additional Required Analysis of Stability of Employment Income ......... 137
xii. Other Sources of Effective Income (Manual) ...................................... 138
c. Asset Requirements (Manual) .................................................................. 151
i. General Asset Requirements (Manual) ................................................ 151
ii. Source Requirements for the Borrower’s Minimum Required Investment (Manual) 153
iii. Sources of Funds (Manual) ............................................................... 154
d. Final Underwriting Decision (Manual) ....................................................... 165
i. Duty of Care/Due Diligence (Manual) .................................................. 165
ii. Specific Underwriter Responsibilities (Manual) ................................... 166
iii. Underwriting of Credit and Debt (Manual) ......................................... 166
iv. Underwriting of Income (Manual) ..................................................... 166
v. Underwriting of Assets (Manual) ........................................................ 166
vi. Verifying Mortgage Insurance Premium and Mortgage Amount (Manual)167
vii. Calculating Qualifying Ratios (Manual) .............................................. 167
viii. Approvable Ratio Requirements (Manual) ........................................ 168
ix. Documenting Acceptable Compensating Factors (Manual) .................. 169
x. Borrower Approval or Denial (Manual) ............................................... 171
6. Closing ...................................................................................................... 173
a. Mortgagee Closing Requirements ............................................................ 173
i. Chain of Title ..................................................................................... 173
ii. Title ................................................................................................. 173
iii. Legal Restrictions on Conveyance (Free Assumability) ......................... 173
iv. Closing in Compliance with Mortgage Approval .................................. 173
v. Closing in JMAC’s Name .................................................................... 174
vi. Required Forms ............................................................................... 174
vii. Certifications .................................................................................. 174
viii. Projected Escrow............................................................................ 174
ix. Closing Costs and Fees ...................................................................... 175
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FHA Underwriting & Appraisal Guidelines

x. Disbursement Date ........................................................................... 176
xi. Per Diem Interest and Interest Credits ............................................... 176
xii. Signatures ...................................................................................... 176
b. Mortgage and Note................................................................................. 177
i. Definitions ........................................................................................ 177
ii. Standard .......................................................................................... 177
c. Disbursement of Mortgage Proceeds ........................................................ 177
i. Standard for Disbursement of Mortgage Proceeds ............................... 177
ii. Required Documentation for Disbursement of Mortgage Proceeds ...... 178
7. Programs and Products ............................................................................ 178
a. Refinances .............................................................................................. 178
i. Overview .......................................................................................... 178
ii. General Eligibility .............................................................................. 179
iii. Temporary Interest Rate Buydowns................................................... 179
iv. Upfront Mortgage Insurance Premium Refunds ................................. 180
v. Cash-Out Refinances ......................................................................... 180
vi. No Cash-Out Refinances ................................................................... 181
b. New Construction ................................................................................... 192
i. Definitions ........................................................................................ 192
ii. Inspections or Warranties for Maximum Financing .............................. 192
iii. Required Documentation for Maximum Financing .............................. 193
iv. Financing LTV Limit .......................................................................... 194
v. Documents to be Provided to Appraiser at Assignment........................ 194
vi. Property Considerations ................................................................... 194
vii. Mortgagee Review of Appraisal ........................................................ 194
viii. Completion of Construction ............................................................ 197
c. Building on Own Land .............................................................................. 198
i. Definition .......................................................................................... 198
ii. Borrower Eligibility ........................................................................... 198
iii. Maximum Mortgage Amount ............................................................ 198
iv. Minimum Required Investment ......................................................... 198
v. Borrower’s Additional Equity in the Property ...................................... 198
vi. Required Documentation ................................................................. 198
d. HUD Real Estate Owned Purchasing ......................................................... 200
i. Definition .......................................................................................... 206
ii. Sales Contract and Required Supporting Documentation ..................... 207
iii. Ordering Case Numbers.................................................................... 208
iv. Appraisals........................................................................................ 208
v. Occupancy Types .............................................................................. 208
vi. Maximum Mortgage Amounts .......................................................... 209
vii. Additional $100 Down Requirements for FHAC Insuring Application ... 209
PART B. APPRAISER AND PROPERTY REQUIREMENTS FOR TITLE II FORWARD AND REVERSE MORTGAGES 209
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FHA Underwriting & Appraisal Guidelines

1. Commencement of the Appraisal ................................................................... 209
a. Information Required before Commencement of Appraisal........................ 210
b. Additional Information Required Before Commencement of an Appraisal on New Construction 210
2. General Appraiser Requirements ................................................................... 211
3. Acceptable Appraisal Reporting Forms and Protocols .................................... 211
a. Additional Documentation Required for Appraisals of New Construction .... 212
b. Application of Minimum Property Requirements and Minimum Property Standards by Construction Status
................................................................................................................. 212
i. Existing Construction ......................................................................... 212
ii. New Construction ............................................................................. 212
iii. Determination of Defective Conditions .............................................. 213
iv. Inspection by a Qualified Individual or Entity ...................................... 213
c. Minimum Property Requirements and Minimum Property Standards ......... 214
i. Legal Requirements ........................................................................... 214
ii. Legal and Land Use Considerations .................................................... 215
iii. Externalities .................................................................................... 217
iv. Site Conditions ................................................................................. 218
v. New Construction Site Analysis .......................................................... 223
vi. Excess and Surplus Land ................................................................... 223
vii. Characteristics of Property Improvements ........................................ 224
d. Gross Living Area .................................................................................... 226
i. Definition .......................................................................................... 226
ii. Required Analysis and Reporting ........................................................ 226
iii. Additions and Converted Space ......................................................... 226
iv. Partially Below-Grade Habitable Space .............................................. 227
v. Bedrooms ........................................................................................ 227
e. Appliances .............................................................................................. 227
i. Definition .......................................................................................... 227
Appliances refer to refrigerators, ranges/ovens, dishwashers, disposals, microwaves, and
washers/dryers. ................................................................................. 227
ii. Standard......................................................................................... 227
iii. Required Analysis and Reporting ....................................................... 227
f. Swimming Pools ...................................................................................... 227
g. Mechanical Components and Utilities ....................................................... 228
i. Heating and Cooling Systems .............................................................. 228
ii. Electrical System ............................................................................... 229
iii. Plumbing System ............................................................................. 229
h. Roof Covering ......................................................................................... 229
i. Structural Conditions ............................................................................... 230
j. Defective Paint ........................................................................................ 230
k. Attic Observation Requirements .............................................................. 230
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FHA Underwriting & Appraisal Guidelines

l. Foundation .............................................................................................. 230
i. Basement .......................................................................................... 231
ii. Sump Pumps .................................................................................... 231
m. Crawl Space Observation Requirements .................................................. 231
n. Environmental and Safety Hazards ........................................................... 231
i. Lead-Based Paint ............................................................................... 232
ii. Methamphetamine Contaminated Property ....................................... 232
iii. Wood Destroying Insects/Organisms/Termites ................................... 232
o. Repair Requirements .............................................................................. 233
i. Limited Required Repairs ................................................................... 233
ii. As-Is Condition and Cosmetic Repairs ................................................. 233
iii. Defective Conditions Requiring Repair ............................................... 233
iv. Conditions Requiring Inspection by a Qualified Individual or Entity ...... 233
p. Utility Services ........................................................................................ 233
i. Definition .......................................................................................... 234
ii. Required Analysis and Reporting ........................................................ 234
iii. Individual Water Supply Systems ....................................................... 234
iv. Shared Wells ................................................................................... 236
v. Community Water Systems ............................................................... 236
q. Onsite Sewage Disposal Systems .............................................................. 236
i. Definition .......................................................................................... 236
ii. Required Analysis and Reporting ........................................................ 236
4. Valuation and Reporting Protocols ................................................................ 238
a. Photograph, Exhibits and Map Requirements ............................................ 238
b. Intended Use and Intended Users of Appraisal .......................................... 239
c. Development of the Market Value ............................................................ 239
i. Value Required .................................................................................. 239
ii. Appraisal Conditions ......................................................................... 240
iii. Valuation Development .................................................................... 241
5. Condominium Projects ............................................................................. 249
a. Definition ............................................................................................... 249
b. Standard ................................................................................................ 249
c. Required Analysis and Reporting .............................................................. 250
d. Site Condominium .................................................................................. 250
i. Definition .......................................................................................... 250
ii. Required Analysis and Reporting ........................................................ 250
6. Valuation of Leasehold Interests .............................................................. 250
a. Definition ............................................................................................... 250
b. Standard ................................................................................................ 250
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FHA Underwriting & Appraisal Guidelines

c. Required Analysis and Reporting .............................................................. 250
d. Mixed Use One- to Four-Unit Single Family Properties ............................... 251
i. Definition .......................................................................................... 251
ii. Required Analysis and Reporting ........................................................ 251
7. Market Conditions Addendum, Fannie Mae Form 1004MC/Freddie Mac Form 71, Instructions Applicable
to FHA Appraisals ............................................................................................... 251
a. Standard ................................................................................................ 251
b. Required Analysis and Reporting .............................................................. 251
8. Programs and Products ............................................................................ 252
a. Special Energy-Related Building Components.................................... 252
i. Special Energy Components ............................................................... 252
ii. Other Energy Related Building Components ........................................ 252
Property Assessed Clean Energy (PACE) refers to programs that may provide an alternative
means of financing energy and other PACE-allowed improvements for residential Properties
using financing provided by private enterprises in conjunction with state and local governments.
Generally, the repayment of the PACE obligation is collected in the same manner as a special
assessment tax is collected by the local government, rather than paid directly by the Borrower
to the party providing the PACE financing. ........................................ 254
b. HUD Real Estate Owned Properties .......................................................... 255
i. Definition .......................................................................................... 255
ii. Standard .......................................................................................... 255
iii. Required Analysis and Reporting ....................................................... 255
iv. Appraisals for HUD Real Estate Owned Properties Purchased With a New FHA insured Mortgage
(Effective for Case Numbers Assigned on or after March 14, 2016) .......... 258
PART C. Glossary ................................................................................................ 259

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FHA Underwriting & Appraisal Guidelines

Introduction
The following document describes the responsibilities and requirements of DE Underwriter when reviewing
and underwriting Federal Housing Administration (FHA) mortgage loans for JMAC Lending, Inc. These
guidelines are effective for case numbers assigned on or after September 14, 2015. These guidelines are to be
used in conjunction with JMAC Lending’s FHA Product Matrices to ensure full compliance with company
requirements. The product matrix should be considered the most updated, and relevant information.

PART A. Origination Through Closing

1. Origination/Processing
a. Applications and Disclosures
JMAC must obtain a completed Fannie Mae Form 1003/Freddie Mac Form 65, Uniform Residential Loan
Application (URLA) from the Borrower and provide all required federal and state disclosures in order to begin
the origination process. JMAC is responsible for using the most recent version of all forms as of the date of
completion of the form.
i. Contents of the Mortgage Application Package
JMAC must maintain all information and documentation that is relevant to its approval decision in the
mortgage file. All information and documentation that is required in these guidelines, and any incidental
information or documentation related to those requirements, is relevant to JMAC’s approval decision.
If after obtaining all documentation required below, JMAC has reason to believe it needs additional
support of the approval decision, JMAC must obtain additional explanation and documentation,
consistent with information in the mortgage file to clarify or supplement the information and
documentation submitted by the Borrower.
(A) General Requirements
(1) Maximum Age of Mortgage Documents
(a) General Document Age
Documents used in the origination and underwriting of a Mortgage may not be more than 120 Days
old at the Disbursement Date. Documents whose validity for underwriting purposes is not affected by
the passage of time, such as divorce decrees or tax returns, may be more than 120 Days old at the
Disbursement Date.
For purposes of counting Days for periods provided, Day one is the Day after the effective or issue
date of the document, whichever is later.
(b) Appraisal Validity
(i) Initial Appraisal Validity
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FHA Underwriting & Appraisal Guidelines

The 120 Day validity period for an appraisal may be extended for 30 Days at the option of JMAC if (1)
JMAC approved the Borrower or HUD issued the Firm Commitment before the expiration of the
original appraisal. Extending the appraisal requires Team Lead or Management approval
(ii) Appraisal Update
An appraisal update must be performed before the initial appraisal, with no extension, has expired.
Where the initial appraisal is subsequently updated, the updated appraisal is valid for a period of 240
days after the effective date of the initial appraisal report that is being updated.
(2) Handling of Documents
JMAC must not accept or use documents relating to the employment, income, assets, or credit of
Borrowers that have been handled by, or transmitted from or through the equipment of unknown
parties, or Interested Parties.
JMAC may not accept or use any third party verifications that have been handled by, or transmitted
from or through any Interested Party, or the Borrower.
(a) Information Sent to JMAC Electronically
JMAC must authenticate all documents received electronically by examining the source identifiers
(e.g., the fax banner header or the sender’s email address) or contacting the source of the document
by telephone to verify the document’s validity. JMAC must document the name and telephone
number of the individual with whom JMAC verified the validity of the document.
(b) Information Obtained via Internet
JMAC must authenticate documents obtained from an Internet website and examine portions of
printouts downloaded from the Internet including the Uniform Resource Locator (URL) address, as
well as the date and time the documents were printed. JMAC must visit the URL or the main website
listed in the URL if the page is password protected to verify the website exists and print out evidence
documenting JMAC’s visit to the URL and website.
Documentation obtained through the Internet must contain the same information as would be found
in an original hard copy of the document.
(c) Confidentiality Policy for Credit Information
JMAC must not divulge sources of credit information, except as required by a contract or by law. All
personnel with access to credit information must ensure that the use and disclosure of information
from a credit report complies with:
 Title VIII of the Civil Rights Act of 1968 (Fair Housing Act);
 the Fair Credit Reporting Act, Public Law 91-508;
 the Right to Privacy Act, Public Law 93-579;
 the Financial Privacy Act, Public Law 95-630; and
 the Equal Credit Opportunity Act, Public Law 94-239 and 12 CFR Part 202.
(3) Signature Requirements for all Application Forms
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FHA Underwriting & Appraisal Guidelines

All Borrowers must sign and date the initial and final Fannie Mae Form 1003/Freddie Mac Form 65,
Uniform Residential Loan Application (URLA). All Borrowers must sign and date page two of the initial
form HUD-92900-A, HUD/VA Addendum to Uniform Residential Loan Application, and sign and date
the complete final form HUD-92900-A. The application may not be signed by any party who will not
be on the Note.
 A Power of Attorney (POA) may not be used unless JMAC verifies and documents that all of
the requirements have been satisfied per the JMAC Power of Attorney Policy, and receive
Underwriting Manager approval.
Prohibition on Documents Signed in Blank
JMAC is not permitted to have Borrowers sign documents in blank, incomplete documents, or blank
sheets of paper.
(4) Policy on Use of Electronic Signatures
(a) Definition
An Electronic Signature refers to any electronic sound, symbol, or process attached to or logically
associated with a contract or record and executed or adopted by a person with the intent to sign the
record. FHA does not accept an electronic signature that is solely voice or audio. Digital signatures are
a subset of electronic signatures.
(b) Use of Electronic Signatures
An electronic signature conducted in accordance with the Electronic Signature Performance
Standards is accepted on FHA documents requiring signatures to be included in the case binder for
morthgage insurance, unless otherwise prohibited by law.
Electronic signatures meeting the Performance Standards are treated as equivalent to handwritten
signatures.
(c) Electronic Signature Performance Standards
The Performance Standards are the set of guidelines that govern FHA acceptance of an electronic
signature. The use of electronic signatures is voluntary. However, JMAC must fully comply with these
standards.
(i) The Electronic Signatures in Global and National Commerce Act (E-SIGN Act) Compliance and
Technology
JMAC must comply with all requirements of the E-SIGN Act, including those relating to disclosures,
consent, signature, presentation, delivery, rtenction, and any state law applicable to the transaction.
(ii) Third Party Documents
Third party documents are those documents that are originated and signed outside of the control of
JMAC, such as the sales contract. FHA will accept electronic signatures on third party documents
included in the case binder for mortgage insurance endorsement in accordance with the E-SIGN Act,
and the Uniform Electronic Transactions Act (UETA). An indication of the electronic signature and
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