Under the Debt Service Coverage documentation, property income is used to qualify the transaction. Debt Service Coverage is available to Experienced purchasing or refinancing investment
properties to hold for business purposes. The borrower is required to sign a Certification of Business Purpose and an Occupancy Certification.
Restrictions:
• Neither the Borrower(s) nor the borrower’s immediate family shall at any time occupy the subject property.
• When the subject property is encumbered by a bank/cross collateral loan, the transaction is considered a cash-out. Copy of the note will be required to verify the payoff/release
terms.
• Interest reserve accounts are not permitted.
Experienced Investor:
• An experienced residential investor is a borrower/guarantor having a history of owning and managing non-owner occupied residential real estate for at least one (1) year in the last three (3)
years. Ownership of commercial income producing property may also be used as evidence of investor experience.
o For files with more than one borrower/guarantor, only one borrower/guarantor must meet the definition.
• Ownership history can be documented for other REO with one of the following:
o Mortgage history on credit report
o Property profile report
o Other 3rd party documentation (e.g., Fraud Report, Settlement Statement, Closing Disclosure)
First-Time Investor:
• A borrower/guarantor not meeting the Experienced investor criteria. Borrower/Guarantor must currently own primary residence for at least one (1) year.
• Ownership history can be documented with one of the following:
o Mortgage history on credit report
o Property profile report
o Other 3rd party documentation (e.g., Fraud Report, Settlement Statement, Closing Disclosure)
First Time Investors are eligible subject to the following restrictions:
• Minimum credit score: 680
• If reported, no mortgage late payments during the past thirty-six (36) months.
• Minimum of 36-months seasoning from any credit event.
• Cash-out transactions not eligible.
• First time homebuyers are not eligible.
• If loan amount < $150,000, the minimum DSCR needs to be 1.25.
• HOW TO FILL OUT LOAN APPLICATION:
o Income section needs to be left Blank.
o If borrower is currently employed, the employment section should be completed including a valid phone number.
o For REO’s section, not all REO’s needs to be listed. The REO section needs to be completed to show the borrower meets either First Time Investor or Experienced Investor. List
the PITI(A) payment for the subject and primary residence of the borrower if applicable. Property under LLC name is not required to list on application unless borrower needs
to prove landlord experience.
• ASSET DOCUMENTATION
o 1 months of Asset verification is required for closing funds and reserves.
o VOD must be dated within 30 days of loan application date.
LEASE REQUIREMENTS:
o Unleased Property:
▪ More than 1 of the units within the subject property do not have an existing lease (vacant);
o Unleased Property LTV Restrictions if appraisal reflects any unit vacant
▪ Refer to Matrix
• DOCUMENTATION REQUIREMENTS (Long Term Rental)
o Purchase Transactions:
▪ Monthly Gross Rents are the monthly rents established on FNMA Form 1007 or 1025 reflecting long term market rents.
▪ If the subject property is currently tenant occupied, the 1007 or 1025 must reflect the current monthly rent.
• If using the lower of the actual lease amount or estimated market rent, nothing further is required.
• If using a higher actual lease amount, evidence of 2-months of receipt is required, and the lease amount must be within 120% of the estimated market
rent from the 1007/1025. If the actual rent exceeds the estimated market rent by more than 120%, the rents are capped at 120%.
• If using a higher estimated market rent from 1007/1025, it must be within 120% of the lease amount. If the estimated market rent exceeds the lease
amount by more than 120%, the estimated market rent is capped at 120%.
▪ A vacant or unleased property is allowed without LTV restriction.
▪ Unit subject to rent control or housing subsidy must utilize current contractual rent to calculate DSCR.
o Refinance Transactions:
▪ Required Documentations:
• FNMA Form 1007 or 1025 reflecting long-term market rents and lease agreements.
• If the lease has been converted to month to month, then provide the most recent two (2) months proof of receipt to evidence continuance of lease.
• If unable to provide evidence of receipt, the unit will be treated as vacant and subject to the following:
o LTV/CLTV limits: Lesser of 70%, or the LTV/CLTV based upon the DSCR/FICO/Loan balance matrix
▪ Monthly Gross Rents are determined by using the actual lease amount or estimated market rent from 1007/1025 as follows:
• If using the lower of the actual lease amount or estimated market rent, nothing further is required.
• If using a higher actual lease amount, evidence of 2-months of receipt is required, and the lease amount must be within 120% of the estimated market
rent from the 1007/1025. If the actual rent exceeds the estimated market rent by more than 120%, the rents are capped at 120%.
• If using a higher estimated market rent from 1007/1025, it must be within 120% of the lease amount. If the estimated market rent exceeds the lease
amount by more than 120%, the estimated market rent is capped at 120%.
▪ A vacant or unleased property is allowed subject to the following (Exclude Foreign National Borrowers): LTV/CLTV limits: Lesser of 70% or the LTV/CLTV based upon
the DSCR/FICO loan balance matrix
▪ Unit subject to rent control or housing subsidy must utilize current contractual rent to calculate DSCR.
DOCUMENTATION REQUIREMENTS Short Term Rental (e.g. AIRBNB, VRBO, FLIPKEY)
o Short Term Rental Income – Purchase and Refinance transactions
▪ LTV/CLTV Limits:
• Purchase: Lesser of 75%, or the LTV/CLTV based upon the DSCR/FICO/Loan balance matrix.
• Refinance: Lesser of 70%, or the LTV/CLTV based upon the DSCR/FICO/Loan balance matrix.
• See Matrix for Condo Hotel LTV/CLTV Limits.
▪ DSCR Calculation:
• Monthly gross rents based upon a 12-month average to account for seasonality required.
• Gross rents reduced by 20% to reflect extraordinary costs (i.e. advertising, furnishings, cleaning) associated with operating short-term rental property
compared to non-short-term property. If the rental documentation referenced below includes expenses, actual expenses should be compared to the
20% expense factor. If actual expenses are less than 20%, a minimum 20% expense factor is required to be utilized. If actual expense exceeds 20%, the
actual expense factor should be used.
• DSCR Calculation: (Gross Rents * .80) divided by PITIA = DSCR
▪ When short-term income is documented using multiple sources, the lowest source of monthly income is to be utilized for calculating DSCR.
▪ Any of the following methods may be used to determine gross monthly rental income:
• A 1007 or 1025 Comparable Rent Schedule survey prepared by the appraiser reflecting long-term or short-term market rents.
o If long-term rent is utilized, 20% expense factor is not to be applied.
• An alternative market rent analysis similar to FNMA Form 1007/1025 is allowed, subject to the following:
o Analysis must be completed pursuant to the lender’s appraisal management process.
o Must be completed by a licensed appraiser.
o Must include daily rental rate and occupancy percentage.
• The most recent 12-months rental history statement from the 3rd party rental/management service.
o The statement must identify the subject property/unit, rents collected for the previous 12 months, and all vendor management fees. The
rental income will exclude all vendor or management fees.
• The most recent 12-month bank statement from the borrower evidenced short-term rental deposits. Borrower must provide a rental record for the
subject property to support monthly deposits.
• AIRDNA (www.Airdna.co) Rentalizer and Overview report, accessed using the Explore Short-Term Rental Data, must meet the following requirements:
o Rentalizer (Property Earning Potential Report)
▪ Only allowed for purchase transaction
▪ Gross rents equal the revenue projection from the Property Earning Potential report less the 20% extraordinary expense factor.
▪ Forecast period must cover 12 months and dated 90-days within the Note Date
▪ Maximum occupancy limited to 2 individuals per bedroom
▪ Must have three (3) comparable properties similar in size, room count, amenities, availability, and occupancy.
▪ Market score or Sub-Market score must be 60 or greater as reflected on the Property Earning Potential Report.
Debt Service Coverage Ratio is the Monthly Gross Income divided by the PITIA (or ITIA for interest only loans) of the subject property.
Calculating Real Estate Tax Payment for subject property:
• For purchase and construction-related transactions, the Seller must use a reasonable estimate of the real estate taxes based on the value of the land and the total of all new and existing
improvements.
o State of California exception: Use 1.25% of the purchase price to determine the monthly tax payment.
• For refinance transactions, use the current tax assessment.
Debt Service Coverage Ratio: The Monthly Gross Income divided by the PITIA or ITIA of the subject property.
EXAMPLE: DEBT SERVICE COVERAGE RATIO CALCULATION
Single Family Purchase Money Transaction
Monthly PITIA = $650
• Estimated Monthly Market Rent (Form 1007) = $850
Existing Lease Monthly Rent = Not Available
Gross Market Rent = $850 (Estimated Monthly Market Rent when a lease is not available for a purchase transaction)
Gross Income = $850 ÷ PITIA ($650) = DSCR (1.30)
RESERVES
• 2 months PITIA
• Loan amount > $1.5M: 6-months of PITIA
• Loan amount > $2.5M: 12-months of PITIA
• ARM loans – reserves based upon initial PITIA, not the qualifying payment
• Reserves for a loan with an Interest Only feature based upon ITIA
• Proceeds from 1031 Exchange cannot be used to meet reserve requirements
• Net proceeds from a cash-out transactions may be used to meet reserve requirements
• Reserve is only required on the subject property
• Reserve is waived for R/T refinance transactions when the transaction results in a reduction to the monthly principal and interest payment of 10% or greater AND housing history is 1x30x12 or
better. For interest only, the reduction is based on the amortized payment used for loan qualification.
• For adjustable-rate mortgages (ARM), the reserves are based upon the initial PITIA, not the qualifying payment.
• Gift funds may not be used to meet reserve requirements.
FINANCED PROPERTIES
• Unlimited Financed properties for Debt Service (DSCR) Qualification.
• Exposure to a single borrower not to exceed $5,000,000 in current unpaid principal balance (UPB) or 10 loans.
LISTING SEASONING
• For all cash-out refinance:
o NO LISTINGS SEASONING CASE BY CASE FLORIDA DSCR MORTGAGE LENDERS – A listing expiration of less than six (6) months is permitted a minimum of 3-year prepayment penalty. If a property is listed for sale, the listing must be canceled prior to the
note date.
o The value will be based on the lesser of the lowest list price or appraised value.
• For Rate and Term refinance, the property needs to be off the market 1 day before taking loan application.
GIFT FUNDS
• Allowed for down payment and closing after minimum 10% borrower’s contribution. Not allow to meet reserve requirements.
ASSET DOCUMENTATION
The following may be used as asset documentation for down payment, closing costs, and reserves. See applicable Loan/LTV matrix for minimum reserve requirement. Asset documentation must
comprise of one (1) month and be dated within 90 days of the note date.
• Account statements (e.g., checking, savings, share, or brokerage accounts)
o Statements must include the following:
▪ Name of financial institution
▪ Reflect borrower as the account holder (Funds held jointly with another individual are considered 100% of the borrower’s funds)
▪ Account number
▪ Statement date
▪ Time period covered by the statement
▪ Available balance in U.S. dollar denomination
o Assets held in foreign accounts must be translated to English and verified in US Dollar equivalency at the current exchange rate via either http://www.xe.com or the Wall Street
Journal conversion table.
• Assets held in in a Trust require the following:
▪ Obtain written documentation (e.g., bank statements) of the value of the trust account from either the trust manager or the trustee, and
▪ Document the conditions under which the borrower has access to the funds
• Accounts verified using a third-party vendor participating in the Fannie Mae Day 1 Certainty® process.
• Verification of Deposit completed by the verifying financial institution (FNMA Form 1006).
• Borrowed funds secured by an asset are an acceptable source of funds for the down payment, closing costs, and reserves, since borrowed funds secured by an asset represent a return of
equity. Assets that may be used to secure funds include automobiles, artwork, collectibles, real estate, or financial assets, such as savings accounts, certificates of deposit, stocks, bonds,
and 401(k) accounts. When qualifying the borrower, monthly payments on loans secured by non-financial assets must be included in the debt-to-income calculation. When loans are
secured by the borrower’s financial assets, monthly payments for the loan do not have to be considered as long-term debt.
• Stocks/Bond/Mutual Funds – 100% of account(s) value may be considered for assets.
• Business funds
o Consumer Purpose Loans: The amount of business assets that may be utilized is limited to the borrower’s ownership percentage in the business.
o Business Purpose Loans:
▪ Assets held in the name of the vested entity: 100% of the assets may be used.
▪ Assets not held in the name of the vested entity: The amount of business assets that may be utilized is limited to the borrower’s ownership percentage in the business.
• Vested retirement account funds – 70% may be considered for closing and/or reserves;
• Cash Value of Life Insurance – 100% of the cash surrender value less any loans may be considered for assets.
• Non-regulated Financial Assets
o Crypto Currency – Bitcoin and Ethereum are eligible sources of funds for the down payment, closing costs and reserves. Crypto is not an eligible liquid asset for asset
utilization/depletion.
▪ Down payment and closing costs: currency must be liquidated and deposited into an established US bank account.
▪ Reserves: Loan file must include a statement meeting the requirements under account statements to document ownership of the crypto holdings. Current valuation, within
30-days of the loan Note date, can only be determined from the Coinbase exchange. 60% of the current valuation will be considered eligible funds.
The following are ineligible assets:
• Non-vested or restricted stock accounts
• Gift of equity
• Sweat equity
• Gift or grant funds which must be repaid
• Down payment assistance program
• Unsecured loans or cash advances
• 529 savings plan
• Funds contributed by a non-borrowing spouse unless documented as gift
PURCHASE
• Assignment of contract or finder’s fees reflected on the purchase contract are eligible, subject to interested party contribution limits.
• Seller as the vested owner on title.
• Buyer’s Real Estate Agent Commission – In response to the NAR Settlement, the following apply:
o Commission paid by the property buyer: Considered a closing cost.
▪ Source of funds must be documented in assets.
▪ If borrowed or financed, the monthly payment must be included in the debt-to-income ratio.
o Commission paid by the property seller:
▪ Not considered an interested party contribution if seller agrees to pay according to the negotiated terms of the purchase contract.
RATE TERM TRANSACTION
▪ Proceeds from the transaction are used to pay off an existing first mortgage loan and any subordinate loan used to acquire the property.
▪ Any subordinate loan not used in the acquisition of the subject property provided one of the following apply;
o Closed end loan, at least 12 months of seasoning has occurred.
o HELOC, at least 12 months of seasoning has occurred and total draws over the past 12 months are less than $2,000. (For business purpose transactions, any
draw over the life of the loan may not have been utilized for personal use. Business purpose transactions will require a draw history schedule, along with a
attestation from the borrower, in the credit file, that none of the advances where used for personal/consumer use).
▪ Buying out a co-owner pursuant to an agreement.
▪ Paying off an installment land contract executed more than 12 months from the loan application date.
▪ Other considerations
o Cash back in an amount not to exceed the lesser of 2% of the new loan amount or $5,000 can be included in the transaction.
o If the subject property was acquired greater than six (6) months, as measured from the property acquisition date to the new note date, the appraised value will
be used to determine LTV. If the property was acquired less than or equal to six (6) months, as measured from the property acquisition date to the new note
date, the lesser of the current appraisal value or previous purchase price plus documented improvements (if any) will be used to determine LTV. The purchase
settlement statement and any invoices for materials/labor will be required.
o Refinance of a previous loan that provided cash-out, as measured from the previous note date to the note date, and is seasoned less than 12 months, will be
considered a cash-out refinance.
o The transaction must be treated as cash-out when the subject property is encumbered by one of the following:
▪ Blanket/Cross-Collateralized loan, or
▪ Loan that allows for Paid in Kind (PIK) interest
CASH OUT
Cash-Out Seasoning is defined as the length of time the subject property has been owned by the borrower, as measured by the property acquisition date to the date of the new note.
▪ A minimum borrower seasoning of six (6) months is required.
▪ Less than six (6) months seasoning is allowed, the current appraised value maybe used, with the following circumstances:
o Borrower acquired the subject property through an inheritance, or
o Subject property was legally awarded the property through divorce, separation, or dissolution of a domestic partnership
▪ A mortgage secured by a property currently owned free and clear is considered cash-out.
▪ The payoff of delinquent real estate taxes (60 days or more past due) is considered cash-out.
▪ Cash-out can only be for business purposes.
▪ Cash-out eligible to satisfy the reserve requirements.
▪ Loans not eligible for cash-out:
o Investment properties listed for sale in the past six (6) months, unless a three (3) year prepay penalty, per requirements in prepayment penalty guide are
met.
o There has been a prior cash-out transaction within the past six (6) months
o Payoff of a Land Contract/Contract for Deed.
o When proceeds from the loan transaction are used for consumer purposes, i.e., payoff personal debt, personal tax lien(s), personal judgments, personal
collection, or lines of credit secured by the subject property.
o Loans with Power of Attorney.
DELAYED FINANCING
Delayed purchase financing is eligible when a property was purchased by a borrower for cash within 180 days of the loan application.
o The original purchase transaction was an arms-length transaction.
o The source of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).
o The maximum LTV ratio for the transaction is based upon the lower of the current appraised value or the property’s purchase price plus documented improvements.
o The preliminary title search or report must confirm that there are no existing liens on the subject property
o The transaction is considered cash-out, cash-out Loan/LTV limits apply.
o The new loan amount cannot be no more than the actual documented amount of the borrower’s initial investment subject to the maximum LTV for cash-out transactions. Rapid rescore is allowed.
TRADELINES
For each borrower who has three (3) credit scores, the minimum tradeline requirement is waived (all borrowers must be evaluated individually). For loans when the primary borrower has
less than three credit scores, each borrower must meet the minimum tradeline requirements, unless the co-borrower is the spouse of the borrower. In that case, only one spouse is required
to meet the minimum tradelines outlined below:
• At least three (3) tradelines reporting for a minimum of 12- months, with activity in the last 12-months, or
• At least two (2) tradelines reporting for a minimum of 24-months, with activity in the last 12-months
Borrowers who do not meet one of the above tradeline requirements, but have a minimum of two credit scores, can alternatively satisfy the tradeline requirement by meeting the below
requirements:
o No fewer than eight (8) tradelines are reporting, one (1) of which must be a mortgage or a rental history.
o At least one (1) tradeline has been open and reporting for a minimum of twelve (12) months.
o The borrower has an established credit history for at least eight (8) years.
o Tradelines with recent serious adverse history are not acceptable
o Student loans can be counted in credit depth as long as they are in repayment and not being deferred
The following are not acceptable to be counted as a tradeline: “non-traditional” credit as defined by Fannie Mae, self-reported tradeline, any liabilities in deferment status, accounts discharged
through bankruptcy, authorized user accounts, charge-offs, collection accounts, foreclosures, deed in lieu of foreclosure, short sales, or pre-foreclosure sales. Rapid rescore is allowed.
TRADELINES
For each borrower who has three (3) credit scores, the minimum tradeline requirement is waived (all borrowers must be evaluated individually). For loans when the primary borrower has
less than three credit scores, each borrower must meet the minimum tradeline requirements, unless the co-borrower is the spouse of the borrower. In that case, only one spouse is required
to meet the minimum tradelines outlined below:
• At least three (3) tradelines reporting for a minimum of 12- months, with activity in the last 12-months, or
• At least two (2) tradelines reporting for a minimum of 24-months, with activity in the last 12-months
Borrowers who do not meet one of the above tradeline requirements, but have a minimum of two credit scores, can alternatively satisfy the tradeline requirement by meeting the below
requirements:
o No fewer than eight (8) tradelines are reporting, one (1) of which must be a mortgage or a rental history.
o At least one (1) tradeline has been open and reporting for a minimum of twelve (12) months.
o The borrower has an established credit history for at least eight (8) years.
o Tradelines with recent serious adverse history are not acceptable
o Student loans can be counted in credit depth as long as they are in repayment and not being deferred
The following are not acceptable to be counted as a tradeline: “non-traditional” credit as defined by Fannie Mae, self-reported tradeline, any liabilities in deferment status, accounts discharged
through bankruptcy, authorized user accounts, charge-offs, collection accounts, foreclosures, deed in lieu of foreclosure, short sales, or pre-foreclosure sales.
HOUSING HISTORY
• Housing history for the DSCR Doc type is required for the borrower’s primary residence and the subject property if a refinance transaction. Any mortgage tradeline reported on the credit report
for any property owned by the borrower needs to be included in the housing history eligibility.
• A 12-month rental history is required when the borrower is renting their current primary residence. The following documents are requried:
o A verification of rent (VOR):
▪ A third party VOR is required for any file when the borrower is currently renting.
▪ Any VOR completed by a private party, or any non-institutional landlord must be supported by alternative documentation showing the most recent 6-month history
(cancelled checks, rental statements including payment history, etc.).
• An updated mortgage history, defined as paid current as of 45 days of the loan application date, is only needed for the primary residence and subject property. For any non-subject property,
non-primary mortgages not reporting to the credit bureau, additional housing history is not required.
• For any non-subject, non-primary mortgages not reporting to the credit bureau, additional housing history is not required.
• For refinance transactions of the subject property, when the existing financing is a Paid In Kind (PIK) loan, a copy of the note must be provided in the credit file to determine required payments.
Notes allowing interest to accumulate during the term of the loan are eligible, however, all refinance transactions are treated as cashout.
• First time homebuyers (FTHB) living with a spouse are eligible with the following:
o Spouse owns the primary residence
▪ Evidence spouse is on title, and
▪ Proof of 12- month payment history, or evidence the primary residence is owned free & clear
Current means the borrower has made all mortgage payments due in the month prior to the note date. If the credit report does not reflect the current payment history, one of the following additional
documents is required:
• A loan payment history from the servicer or third-party verification service,
• A payoff statement (for mortgages being refinanced),
• The latest mortgage account statement from the borrower, or
• A verification of mortgage.
For properties owned free and clear, a property profile report or similar document showing no liens against the property should be included in the credit file. Any balloon notes with an expired
maturity date exceeding 30 days requires an extension to avoid being counted as delinquent.
Mortgage(s) on Credit Report
The lender must review the credit report to determine the payment status of all reported mortgage accounts for the previous 12 months. Rolling late payments are not considered a single event. Each
occurrence of a contractual delinquency is considered individually for loan eligibility.
If a complete 12-month mortgage history is not reported on the credit report, the lender must use one of the following to complete the borrower’s payment history:
• Credit supplement; or
• Request for Verification of Mortgage Form completed by the creditor; or
• Loan payment history from the servicer; or
• Borrower’s proof of payment (e.g., cancelled check, ACH payment, bank transfer, etc.)
Mortgage(s) not reporting on Credit Report
The seller must review documentation for the previous 12-months to determine the payment status of all mortgage accounts not reporting on the credit report.
12-months mortgage payment history is to be documented, as follows:
• Mortgage statement or Note for the review period to verify monthly payment amount, and
• Proof of payments through one of the following:
o 12-months cancelled checks, ACH payment, bank transfer/wire, or electronic payment method from the borrower
▪ Payments made in cash are not eligible, or
o 12-months mortgage statements for the review period, or
o 12-months loan payment history from the creditor/servicer
▪ Proof of borrower’s payment for the most recent 6-months is required, or
o 12-months Verification of Mortgage form (VOM) completed by the creditor/servicer
▪ Proof of borrower’s payment for the most recent 6-months is required
If subject transaction is a refinance, mortgage payoff statement is required from the creditor:
• Payoff statement that reflects late fees, deferred balance, or delinquent interest greater than 30 days are subject to housing history and/or credit event criteria. Transaction is to be
considered cashout.
Mortgages not appearing on the credit report other than the primary residence or subject property, can be excluded from determining housing history eligibility.
Ballon Notes with Maturity Default
• Notes with a balloon feature with an expired maturity date exceeding 30 days require an extension to avoid being counted as delinquent (e.g. delinquent 31days is 1×30 late, delinquent 61
days is 1×60 late, etc).
CHARGE OFFS COLLECTIONS
Delinquent credit, such as charge-offs of non-mortgage accounts and collections, have the potential to affect loan position or diminish borrower equity.
• Individual collection and non-mortgage charge-off accounts equal to or greater than $250, and accounts that total more than $2,000, must be paid in full prior to or at closing. See below
for exceptions.
o Medical collections may remain open.
o A second mortgage or junior lien that has been charged off is subject to foreclosure seasoning periods for grade determination, based on the charge-off date.
O Collection and Charge-offs that have expired under the state of limitations on debts. Evidence of expiration must be documented.
O Charge-offs and collections can be ignored unless they are title impacted.
CONSUMER COUNSELING SERVICES
Borrowers currently participating in Fannie Mae approved credit counseling services are acceptable if most recent 12 months are paid as agreed and the CCCS administrator provides a letter
allowing borrower to seek new mortgage financing.
OPEN JUDGMENTS OR LIENS
All open judgments, garnishments, and all outstanding liens must be paid off prior to or at loan closing.
DEFAULT EVENT
If a loan payment is delinquent for 60 days, No Income Verification Florida Investor Loans loan servicer will enforce provisions from the following:
▪ 1-4 Family Rider (FNMA Form 3170): Paragraph “G” – Assignment of Leases.
▪ Assignment of Leases and Rents Rider: Paragraph 5
FORBEARANCE MODIFICATIONS OR DEFERRALS
Forbearances, modifications, and deferrals are considered under housing payment history as outlined below:
Greater than 12 Months from Note Date:
• Forbearance, loan modifications, or deferrals completed or reinstated greater than 12 months from the Note date of the subject transaction may be eligible subject to housing history
requirements for the selected program.
Within 12 Months of Note Date:
• Forbearance, loan modifications, or deferrals completed or reinstated within 12 months of the Note date of the subject transaction are not eligible.
TAX LIENS
All income tax liens (federal, state, local) must be paid off prior to or at loan closing. Tax liens that do not impact title may remain open provided the following are met;
• The file must contain a copy of the repayment agreement
• A minimum of 6-payments has been made under the plan with all payments made on time
CREDIT EVENT
Majority derogatory credit events such as bankruptcy, foreclosure, short sale, DIL and Loan Modifications are based on the discharged / dismissal / completion date to the Note Date.
NOTICE OF DEFAULT
Notice of Default will be considered a 1x90x12 under housing history restrictions.
▪ If the borrower cured the default and has made 12 timely payments, they are eligible without any restrictions.
ELIGIBLE BORROWERS INCLUDE:
• US Citizen
• Permanent Resident Alien
• Non-Permanent Resident Alien
• Foreign National Borrowers
• DACA
NON PERMANET RESIDENT ALIEN
An individual admitted to the United States as a lawful temporary resident. Lawful non-permanent residents are legally accorded the privilege of residing temporarily in the United States. This may be
documented with either an EAD or a VISA permitting employment.
• Borrower Eligibility requirements:
o Must have valid Social Security Number(s); and
o Must have established U.S. credit, see Credit Section
• Employment Status Documentation is required for all borrowers, and may consist of one of the following:
o Employment Authorization Documents
▪ Form I-766 Employment Authorization Document (EAD), (work permit/card) is required for US employment if the borrower is not sponsored by a current employer.
• If the EAD will expire within six (6) months of loan application, it is acceptable to obtain a letter from the employer documenting the borrower’s continued
employment and continued EAD renewal. The employer on the loan application must be the same as on the unexpired EAD. The EAD documentation is
acceptable up to 540 days if an automatic extension has been granted.
▪ Form I-765 Application for Employment Authorization, the form:
• Must reflect approval status in the Action Block (upper right-hand corner of the form), or
▪ Form I-797, I-797A, or I-797B conveying approval status.
• Petitioner to match employer name on application
o If EAD is not provided, a copy of the Visa permitting employment authorization needs to be included in the credit file.
▪ The following VISA types are acceptable: E-1, E-2, E-3, G-1 through G-5, H-1B, L-1A, L-1B, O-1- R-1.
▪ Other VISA types permitting employment may be considered, see the U.S. Dept of State Website at Directory of VISA Categories (state.gov).
o Asylum – Individuals granted asylum are eligible, documentation includes one of the following:
▪ Form I-765 Employment Authorization (EAD), (work permit/card) referencing code C08, or
▪ Form I-94 with a stamp or notation, such as “asylum granted indefinitely” or the appropriate provision of law (8 CFR 274a. 12(a)(5) or INA 208) to show their employment
authorization. The asylee does not need to present a foreign passport with this Form I-94. As asylee can be present an electronic Form I-94 with an admission class of “AY.”
o Deferred Action for Childhood Arrivals (DACA)
▪ Form I-766 Employment Authorization Document (EAD), (work permit/card) referencing code C33, or
▪ Form I-797 conveying approval status for Case Type I765-Application for Employment Authorization referencing code C33, or
▪ Form I-765 Application for Employment Authorization, the form:
• Must reflect approval status in the Action Block (upper right-hand corner of the form)
• Guideline restrictions:
o Maximum LTV: 75%
o Gift Funds are not allowed
FOREIGN NATIONAL
A Foreign National is a non-resident alien who may not purchase property intended for use as a primary residence or second home. Occupancy is limited to investment.
Citizens and individuals from OFAC sanctioned countries including Russia, and Belarus are not eligible. Citizens of China are not eligible to take a loan in the state of FL.
Automatic Payment Authorization Form
• Automatic Payment Authorization (ACH) Form is required for all foreign national borrowers. Funds must be from a U.S. Bank. The executed (ACH) enrollment form must be included
in the closed loan submission package. The (ACH) enrollment form must include the bank routing number, account number, and account type. Borrowers may select a date within
the grace period stated on the Note.
• The Borrower Consent Form is required.
A foreign national borrower must evidence their primary residence as follows:
▪ Primary Residence in A Foreign Country:
o The application must include the borrower’s full legal name, phone number, address including flat, floor, unit or house number, street name, city, province/state along with a
postal code.
▪ Primary Residence in the U.S.:
o The application must include the borrower’s address for their primary residence.
o Provide evidence of ownership (e.g., Property Profile Report, Fraud Report, Settlement Statement, Closing Disclosure)
▪ ITIN borrowers who do not own a primary residence in the U.S. are ineligible
o Housing History applied
Documentation Requirements:
▪ Primary residence in a foreign country:
o Copy of the borrowers valid and unexpired passport (including photograph), or
• Primary residence in the U.S.:
o Copy of unexpired government photo ID (e.g. driver’s license, passport), and
o ITIN card, or letter from IRS assigning the ITIN number to the borrower.
• If a non-U.S. Citizen is borrowing with a U.S. Citizen, foreign national documentation requirements do not apply.
• All parties (Borrower’s and Seller’s) involved on the transaction must be screened through exclusionary lists and must be cleared through OFAC’s SND list. A search of Specially Designated
Nationals & Blocked Persons list may be completed via US Department of Treasury: https://sanctionssearch.ofac.treas.gov/
• Borrowers from OFAC sanctioned countries are ineligible https://ofac.treasury.gov/sanctions-programs-and-country-information.
• Florida Purchases: Loans secured by property located in the state of Florida made to foreign principals, persons, and entities are to include one of the following Affidavits published by the Florida
Land Title Association:
o Conveyances to Foreign Entities – By Individual Buyer
o Conveyances to Foreign Entities – By Entity Buyer
• Individuals with Diplomatic immunity are not eligible, immunity status is listed on the reverse side of the U.S. issued ID card or at: https://2009-2017.state.gov/s/cpr/rls/dpl/index.htm.
• Documents signed by Borrowers outside of the United States must be notarized by a U.S. embassy or consular official. The certificate of acknowledgment must meet the standard notarial
requirements and must include the embassy or consular seal. If the U.S. embassy or consular official is unavailable, a notary is acceptable if the country, where signing is taking place, is part of
the Hague Convention and the signed documents are accompanied by an Apostille. See the following link to determine if the country is part of the Hague Convention:
https://travel.state.gov/content/travel/en/records-and-authentications/authenticate-your-document/apostille-requirements.html
Model Apostille forms can be found on the following link: https://www.hcch.net/en/instruments/specialised-sections/apostille
• Power of Attorney (POA) is not allowed.
Foreign National Qualifying with U.S. Credit
• For foreign national borrowers with a valid Social Security number or ITIN, the following apply:
o Credit report is required.
▪ In all cases, a credit report must be included in the file evidencing the borrower’s score or score is not available.
o ITIN borrowers who do not own a primary residence in the U.S. are ineligible.
• Restrictions when qualifying with U.S. credit:
o Minimum Fico 680
Housing History
Housing history is required for the following:
• Primary residence if the borrower resides in the U.S.
• Subject property refinance transactions (including cash-out)
Guideline restrictions: Qualifying Foreign Credit:
• Maximum LTV: 75% Refers to matrix
Reserves: Six (6) months of PITIA reserves are required for the subject property.
Assets held in foreign accounts may be used as a source of funds to close and to meet applicable reserve requirements. One of the following options may be utilized:
• Transferred to a U.S. domiciled account in the borrower’s name at least ten (10) days prior to closing unless funds are held in a foreign bank with U.S. branches insured by the FDIC; or
• Verified funds for closing to be wired directly to the closing agent. Wire transfer includes bank name, accountholder name, and account number. Banks used as source of wire transfer must
match the bank holding the assets verified in the loan file.
Documenting Assets Held in Foreign Accounts:
• Assets must be verified in U.S. Dollar equivalency at the current exchange rate via either www.xe.com or the Wall Street Journal conversion table.
• A copy of the most recent statement of that account.
• Refer to the Asset Documentation Topic of this guide for eligible sources and types of assets.
• Reserves may remain in a foreign bank account
• Gift funds not allowed
Power of attorney (POA) is not allowed.
MINIMUM SQUARE FEET
• SFR: 700 sq. ft.
• Condo: 500 sq. ft.
• 2-4 Units: 400 sq. ft. per individual unit
LEASEHOLD
In areas where leasehold estates are commonly accepted and documented via the Appraisal, loans secured by leasehold estates are eligible for purchase. The mortgage must be secured by
the property improvements and the borrower’s leasehold interest in the land. The leasehold estate and any improvements must constitute real property, be subject to the mortgage lien, and
be insured by the lender’s title policy. Seller must provide documentation and Leaseholds must meet all FNMA eligibility requirements (i.e. term of lease).
ACREAGE
Acreage: Maximum CASE BY CASE
APPRAISAL
• The sales comparison approach must be used as the final appraised value.
• Appraisal Age: Appraisals must be dated within 360 days prior to Note date. Recertification of value required if the report exceed 120 days of the Note Date.
• Person Property: Any personal property transferred with a property sale must be deemed to have zero transfer value, as indicated by the sales contract and the appraisal.
• Appraisal Transfers: Allowed. Appraisal must be within 90 days of the transfer receipt. Recert of value is allowed and valid up to 12 months from effective date.
• Appraisal Form: A full Interior & Exterior appraisal report on appropriate Fannie / Freddie form is required for all properties. Property Inspection Waiver (PIW) or exterior-only inspections are
not allowed.
• Fannie Mae Market Conditions Addendum: A Fannie Mae Form 1004MC Market Conditions Addendum, 1004MC must be included in the loan file.
A second appraisal is required when any of the following conditions exist.
o Loan amount > $2,000,000
o The transaction is defined as flip property defined in the Flipped section of this guide
o As required under appraiser review products section of this guide
When a second appraisal is provided, the transaction is “Appraised Value” will be the lower of the two appraisals. The second appraisal must be from a different company and appraiser than the first
appraisal.
Existing Construction:
• If the appraiser reports the existence of minor conditions or deferred maintenance items that do not affect the safety, soundness, or structural integrity of the property, the appraiser may
complete the appraisal “as is.” These items must be reflected in the appraiser’s opinion of value.
• When there are incomplete items or conditions that do affect the safety, soundness, or structural integrity of the property, the property must be appraised subject to completion of the specific
alterations or repairs. These items can include a partially completed addition or renovation, or physical deficiencies that could affect the safety, soundness, or structural integrity of the
improvements, including but not limited to, cracks or settlement in the foundation, water seepage, active roof leaks, curled or cupped roof shingles, or inadequate electrical service or plumbing
fixtures. In such cases, the Seller must obtain a certificate of completion from the appraiser before the mortgage is delivered to JMAC.
• Permanent and Functioning Heat Source – A permanent heat source is required except for properties located in geographic areas where it is typical not to have heat source and has no adverse
effect on marketability.
An appraisal review product is required on every loan file unless a 2nd appraisal is obtained. The appraisal review product should provide an “as is” value for the subject property (the “Appraised
Value”) as of the date of the subject loan transaction.
For files requiring an appraisal review product available are:
1. The lender may submit a appraisal report to Collateral Underwriter (CU) or Loan Collateral Advisor (LCA) . An eligible score is 2.5 or less. The file must include copy of the Submission
Summary Report (SSR).
2. An enhanced desk review product order through the following choices:
o ARR from Stewart Valuation Intelligence FKA Pro Teck
o CDA from Clear Capital,
o ARA from Computershare
o CCA from Consolidated Collateral Analysis
o VRR from Homegenius Real Estate
o Value review Appraisal Review Value from Valligent (Veros Software Company)
3. If the enhanced desk review product reflects a value more than 10% below the appraised value or cannot provide a validation, the file must include either a field review or a second
appraisal. A field review or a second appraisal is acceptable. These may not be from the same appraiser as the originate report. The 2nd appraisal may not be the same appraiser. (NOTE:
Cost will need to be paid by TPO or borrower)
4. AVM from an approved vendor dated within 90-days of the Note date, with the following:
o Acceptable FSD Score range
o AVM value must be within 10% of the appraised value
5. If the AVM reflects a value more than 10% below the appraised value or cannot provide a value, the file must include an enhanced desk review product, field review, or a second appraisal.
These may not be from the same appraiser or appraisal company as the original report.
RURAL PROPERTY
A property is classified as rural if;
• The appraiser indicates in the neighborhood section of the report a rural location; or
• If any two of the following conditions exist;
o The property is classified as rural by the appraiser
o Two of the three comparable properties are more than 5 miles from the subject property
o Less than 25% of the surrounding area is developed
ACCESSORY DWELLING UNITS (ADU)
A 1-unit with an accessory unit is acceptable. An accessory unit is typically an additional living area independent of the primary dwelling unit and includes a fully functioning kitchen and bathroom.
Some examples may include a living area over a garage and basement units. Whether a property is defined as a one-unit property with an accessory unit or a two-unit property will be based on the
characteristics of the property, which may include, but are not limited to, the existence of separate utilities, a unique postal address, and whether the unit is rented. The appraiser is required to
provide a description of the accessory unit and analyze any effect it has on the value or marketability of the subject property.
If the property contains an accessory unit, the property is eligible under the following conditions:
• The property is defined as a one-unit property with an accessory unit
o Multiple accessory units are not permitted
• The appraisal report demonstrates that the improvements are typical for the market through an analysis of at least one comparable property with the same use
• Rental income may be used for the accessory unit subject to the following:
o Appraisal to reflect zoning compliance is legal
▪ Permit is not required to establish zoning compliance
o Appraisal to include at least one comparable with an accessory unit
o Refinance – The market rent for the accessory unit should be documented on FNMA Form 1007 and the file must include a copy of the current lease agreement with two (2) months
proof of current receipt
o Purchase
▪ Owner-Occupied/2nd Home: Income from the accessory unit may not be used as qualifying income
▪ Non Owner-Occupied: Use the lower of the market rent on FNMA Form 1007 or actual rent.
PROPERTY FLIPPING
A property is considered a “flip” if either of the following are true:
• The price in the borrower’s purchase agreement exceeds the property Seller’s acquisition price by more than 10% if the property Seller acquired the property 90 or fewer days prior to the
date of the borrower’s purchase agreement.
• The price in the borrower’s purchase agreement exceeds the property Seller’s acquisition price by more than 20% if the property Seller acquired the property 91-180 days prior to the date
of the borrower’s purchase agreement.
If the property is a “flip” as defined above, the following additional requirements apply:
• A second appraisal must be obtained.
• If the loan is subject to Regulation Z, a copy of the second appraisal must be provided to the borrower in compliance with the federal HPML requirements.
• The second appraisal must be dated prior to the loan consummation/note date.
• The property Seller on the purchase contract must be the owner of record.
• Increases in value should be documented with commentary from the appraiser and recent comparable sales.
• Sufficient documentation to validate actual cost to construct or renovate (e.g., purchase contracts, plans and specifications, receipts, invoices, lien waivers, etc.) must be provided, if
applicable.
PROPERTY ELIGIBILITY
Property Condition
• Properties with condition ratings of C5, C6 or quality rating of Q6 are not allowed unless the issues that caused the ratings are cured prior to docs and the appraiser provides acceptable
documentation to show that the property now meets C4 or better condition requirements.
ELIGIBLE PROPERTY TYPES
• Single Family (SFR) detached or attached
• 2-4 Unit Properties
• Planned Unit Development (PUD) – Single Family detached with PUD riders
• De minimus Planned Unit Development (dPUD) – PUD with “de minimus” monthly HOA dues
• Warrantable Condo
• Non-warrantable condos with restrictions. Refer to the Condominium Guides.
• Condo Hotel
• Modular homes
• Leaseholds (in areas where leaseholds are common)
• Properties of 2 acres or less (no truncating allowed)
• Rural Properties
INELIGIBLE PROPERTY TYPES
• Timeshare or projects that restrict the owner’s ability to occupy the unit.
• Properties not readily accessible by roads that meet local standards.
• Properties not suitable for year-round occupancy, regardless of location
• Houseboat project, Dome, geodesic homes, log homes, properties used for cultivation, distribution, manufacture or sale marijuana.
• Properties with agricultural features (e.g., vineyards, farms, ranches, orchards, equestrian facilities)
• Properties with nonresidential, income-producing structures on premise (e.g., billboards, cell phone towers, commercial workshop)
• Properties used as healthcare facilities such as assisted living, elder care, recovery/treatment.
• Manufactured, mobile home projects, Houseboats, Units in a co-op development, Units subject to timeshare arrangements.
• Properties used as boarding houses, bed/breakfast, or single room occupancy.
• Properties with fractional ownership
• Properties on Native American Land (Reservations)
• Log Homes that are not common to the area
• Any project where the developer (or its affiliates) owns the Common and/or Limited Elements and leases the elements back to the HOA.
• Any project that has non-conforming zoning (can’t be rebuilt to current density).
• Any project with significantly deferred maintenance or has received a directive from a regulatory or inspection agency to mark repairs due to unsafe conditions.
CONDOMINIMUM
To qualify for an acceptable condominium unit, the condominium project must be common for the area and demonstrate good marketability.
• All loan secured requires a Full HOA Cert and condominium review except for:
o Site Condominium
o 2-4 Unit project provided the following are met:
▪ Project is not ineligible
▪ Evidence of sufficient hazard, flood, and walls-in insurance coverage if the subject unit has individual coverage. If the insurance covers the entire project, it must be
sufficient in the event of a total loss.
▪ Homeowner’s association dues to be included in DTI if applicable
• Special assessment information is to be provided to determine if there is a critical repair. Provide purpose, amount, term, balance, status, and cost per unit.
• Any projects with significant deferred maintenance or have received a directive from a regulatory or inspection agency to mark repairs due to unsafe conditions are not eligible for
purchase. Significant deferred maintenance includes deficiencies that meet one or more of the following criteria:
o Full or partial evacuation of the building to complete repairs is required for more than seven (7) days or an unknown period of time
o The project has deficiencies, defects, substantial damage, or deferred maintenance that
▪ Are severe enough to affect the safety, soundness, structural integrity, or habitability of the improvements; or
▪ Has improvements in need of substantial repairs and rehabilitation including many major components; or
▪ Impedes the safe and sound functioning of one or more of the building’s major structural or mechanical elements, including but not limited to the foundation, roof,
load bearing structures, electrical system, HVAC, or plumbing; or
▪ Has critical repairs with one of the following characteristics:
• Mold, water intrusions or potentially damaging leaks to the project’s building(s); or
• Unfunded repairs costing more than $10,000 per unit undertaken within the next 12 months (does not include repairs made by the unit owner or repairs
funded through special assessment).
• Florida Condominiums:
o For loans secured by a condominium unit in the state of Florida, if the project is over 30 years old (or 25 years if within 3 miles of the coast), a structural inspection is required for
projects greater than 5 stories. The inspection needs to address items that substantially conform to the definition of a milestone inspection as defined in Florida statute 553.899.
▪ Inspection must confirm there are no conditions severe enough to affect the safety, soundness, structural integrity, or habitability of the improvements
o Projects with an unacceptable or no inspection are ineligible
• See the current Loan/LTV matrix for maximum LTV and loan amounts.
• JMAC’ project exposure maximum shall be $5,000,000 or 20% of the total units in the project greater than 4 units, whichever is lower.
• Projects consisting entirely of detached (site) units will not require a project review and are eligible for single-family dwelling LTV. Completion of the Homeowners Association (HOA)
questionnaire is not required for site condominiums.
• Project has been created and exists in full compliance with applicable local jurisdiction, State, and all other applicable laws and regulations.
• Subject Unit Minimum Requirements: Minimum 500 Square Feet, Full Size Kitchen, minimum of one (1) bedroom.
• Master liability of at least $1,000,000 is required per occurrence. Maximum deductible is 5%.
• Commercial space allowed up to 50% of the project.
• No more than 20% of the total units in the project may be 60 days or more past due on the condominium/HOA fees.
• For condominium projects consisting of five (5) or more units, single entity ownership is limited to 20% of the project.
• Investor concentration allowed up to 60%. A higher percentage may be considered when the subject transaction is an investment property when a history of a high percentage of rental
units in the project can be demonstrated. Applies to all occupancy types.
• Projects involved in litigation are acceptable provided the lawsuit(s) are not structural in nature which impact the subject unit and do not affect the marketability of the project units and
potential damages do not exceed 25% of HOA reserves or documentation from the insurance carrier or attorney representing the insurance carrier that the insurance carrier has agreed to
conduct defense and the HOA insurance policy is sufficient to cover the litigation expense.
• Borrower must carry HO-6 coverage for replacement of such items as flooring, wall covering, cabinets, fixtures, built-ins, and any improvements made to the unit.
• Seller must confirm that the project documents do not give a unit owner or any other party priority over the rights of the first mortgagee.
CONDOTELS
Condominium Hotel – (a.k.a. Condo Hotel, Condotel)
• Projects where the units are individually owned, and the project offers hotel amenities.
o Hotel amenities may include on-site registration, housekeeping services, and other hospitality services
o A project that offers rentals of units on a daily, weekly, or monthly basis.
• Occupancy Type: Primary, Second Home, or Investment.
• Maximum LTV (may vary by product – see Loan/LTV matrix)
• Maximum Loan Amount: $1.5 million
• Minimum Loan Balance: $150,000
• Investor concentration, within the subject project, may exceed established project criteria, up to 100%.
• Gross rents (for all income doc types) reduced by 20% to reflect extraordinary costs (i.e., advertising, furnishings, cleaning) associated with operating short-term rental property compared
to non-short-term property.
• Minimum square footage: 500
• Fully functioning kitchen – appliances to include a refrigerator and cooktop/stove/oven
• Separate bedroom required
• Florida Condominiums:
o For loans secured by a condominium unit in the state of Florida, if the project is over 30 years old (or 25 years if within 3 miles of the coast), a structural inspection is required for
projects greater than 5 stories. The inspection needs to address items that substantially conform to the definition of a milestone inspection as defined in Florida statute 553.899.
▪ Inspection must confirm there are no conditions severe enough to affect the safety, soundness, structural integrity, or habitability of the improvements
• Projects with an unacceptable or no inspection are ineligible
NEW PROJECTS
• 50% of the total units in the project or subject’s phase must be sold and conveyed to the unit owners AND at least 50% of the units must be owner occupied.
• Project or subject’s legal phase along with other development phases must be complete. All common elements in the project or legal phase must be 100% complete.
• Project may be subject to additional phasing.
• The project developer may be in control of the condominium association provided the Master Agreement allows for the homeowners to take control upon either a predetermined percentage of
unit sales or within a defined time frame.
LEASE OCCUPANCY REQUIREMENTS
• All units must be residential units that are currently occupied and leased to tenants, except that up to 10% of the units for a loan may be comprised of units which are currently vacant, but in
lease-ready condition. Notwithstanding the foregoing, for portfolios of less than 10 units, up to one (1) unit may be vacant in the normal course of lease turnover.
• All properties must be either leased to an eligible tenant or in lease ready condition meaning the properties have been cleaned, no renovations or repairs to the properties are needed and the
properties are immediately available to be leased to an eligible tenant.
• Corporate lease agreements are acceptable with lease terms consistent with typical market standards and will be subject to standard market rent verification.
• Lease Agreements that allow Single Room Occupancy (SRO), or boarder leases are not permitted.
• Third-party sale-and-leaseback agreements and contracts for deed transactions will not be permitted.
• Leases must be in U.S. dollars.
INTERESTED PARTY CONTRIBUTION
May not exceed 3%
All seller concessions must be properly disclosed in the sales contract, appraisal and HUD-1 and be compliant with applicable federal, state and local law. Interested party contributions include
funds contributed by the property seller, builder, real estate agent/broker, mortgage lender, or their affiliates, or any other party with an interest in the real estate transaction. Interested party
contributions may only be used for closing costs and prepaid expenses and may never be applied to any portion of the down payment or contributed to the borrower’s financial reserve
requirements. If a seller concession is present, both the appraised value and sales price must be reduced by the concession amount for LTV calculations.
INSURANCE REQUIREMENTS
• 100% of the insurable value of the improvement, as established by the property insurer -or-
• The unpaid principal balance of the mortgage, as long as it at least equals the minimum amount – 80% of the insurable value of the improvements – required to compensate for damage
or loss on a replacement cost basis.
DISCLOSURES REQUESTS
• Florida Business Purpose Loan Borrower Certification
• Occupancy Certification
