The FHA Program - Advantages

• Purchase and Refinance
• One to Four Units (owner occupied only)
• No maximum or minimum income limits
• Government insured loans
• No citizenship requirement, although must have 2 year employment history
• Little cash needed (Grant Programs)
  - 3% down (Borrower must have at least 3% of own funds)
  - maximum mortgage is 97.75% of appraised value (LTV) in New York Metro     market
• All funds can be gifted, that is gift considered borrowers own funds
• Borrowers can have Gift-of-Equity for closing costs, prepaids and down   payment

Credit Requirements

• No Minimum Credit Score limitation
• Chapter 7 Bankruptcy will not disqualify you if 24 months from the Discharge Date   have passed and you have reestablished credit. FHA will consider a loan after 12   months if you can document the bankruptcy was caused by events beyond your   control (extenuating circumstances)
• Chapter 13 Bankruptcy is allowed after 12 months of the pay out period has   elapsed with court approval and 0x30 payment to trustee

Required bankruptcy documents include:

   • Evidence plan has been confirmed
   • Trustee rating
   • Written demand from trustee
   • Notice of Right to Encumber or Trustee Letter from court (written approval)
   • No major lates after bankruptcy

• Foreclosures are acceptable if occurred over 3 years ago
• Delinquent credit history is acceptable if sensible explanations provided
• Recent and/or undisclosed debts: A satisfactory explanation of new credit or   inquiries will be required
• Judgments will be required to be paid before your loan closes
• Previous rental or mortgage payment history. Your payment history is reviewed for   the previous 12 months. Mortgage must be current at approval.
• Chargeoffs and child support will be required to be paid at closing
• Collections may be required to be paid at closing
• Medical collections may be ignored
• Borrowers can pay down installment loans or credit card debts to qualify
• No open government loan defaults (student loans and etc.)
• No credit is OK. Can provide three alternative trade lines for 12 months (such as   utility bill)

• Cash out refinances permitted
- One and Two Family - 95% of appraised value plus allowable closing costs if there   is a 12-month perfect mortgage history. No lates allowed to get the maximum loan   to value (LTV) on cash out refinance. If 1x30 or 2x30 – the LTV will be reduced to   85%. Extenuating circumstances and proof are required for 1x60 (illness, loss of   job, etc.)
- Three and Four Family – 85% of appraised value plus allowable closing costs if   there is a 12-month perfect mortgage history

• Non-cash out refinances allowed up to approximately 97.75% of appraised value
• Unlimited loan amounts on cash out refinances up to maximum allowable LTV
• Sellers concessions are permitted up to 6% of sales price
• Allows streamline refinancing
• One Year, Three Year and 5 Year adjustable rate mortgages are available
• Use of su-su funds are acceptable
• Non-owner occupying parents (close relatives) can purchase with occupying   mortgagors to qualify to assist in qualifying. For Refinance, Non Occupying
  Co-Borrowers must be on the deed previously
  - single family and condo only

Employment

• Two years of continuous employment necessary for primary Borrower (does not   have to be the same job)
• Part time job can be 1 year minimum

Assets

• Reserves Refinance: not required (all LTVs, all property types)
• Reserves Purchase: required only for Three and Four family – 3 months PITI   (principal, interest, tax and insurance)
• 6% seller’s concession permitted on all LTVs
• Secured borrowing such as 401k, etc. permitted and monthly repayment does not   need to be counted into debt income ratio
• Funds for down payment, closing costs and reserves, where required must be   seasoned for 3 months. Any large deposits must be sourced and explained
• Must verify assets with most recent two months bank statements or verification of   deposit
• Gifts (any amounts and any LTVs) considered borrowers own funds. Acceptable gift   letter, proof of funds, and transfer (certified check and deposit into borrowers   account) are required
• Down payment and closing cost assistance are permitted (such as Nehemiah)

• 203k rehabilitation loans are available for borrowers to finance the costs of   rehabilitation
  - you can close on the loan and have the work done after closing for 203k loans
  - you can finance store front properties
  - Commercial property must be:
    a) 49% or less on 2 story buildings
    b) 33% or less on 3 story buildings
    c) 25% or less on 4 story buildings
  - a staircase to the second floor is considered residential space


• FHA loan limits for New York City five boroughs (Manhattan, Brooklyn, Queens,   Staten Island and The Bronx), Nassau, Suffolk, and Westchester.

  1Family - $729,750
  2Family - $934,200
  3Family - $1,129,250
  4Family - $1,403,400

  Visit the HUD website to see the values in your county   https://entp.hud.gov/idapp/html/hicostlook.cfm
  - a staircase to the second floor is considered residential space

The FHA Program – Disadvantages

• FHA charges a mortgage insurance premium (“MIP”) of 1.5% for MIP which is added   into mortgage amount

  Example:
- $100,000 mortgage
- $1,500 MIP
- $101,500 will be total mortgage amount

• FHA charges 0.50% in payment for the mortgage insurance premium for all LTVs   (except 15 year term below 90% LTV)
  - For example, a 7.5% loan would actually be 8.0%
• 3 and 4-family homes must have 3 months PITI reserves
• Borrowers must have computerized pay stubs or 1040s in addition to employment   verification or a gross pay letter with canceled checks (FULL INCOME AND ASSETS   DOCUMENTATION ONLY. See below.)
• Occupancy:
  a) Primary Residence
  b) Secondary Residence - only permitted under specific circumstances allowed by   Home Ownership Center
• ITINs (Individual Taxpayer Identification Numbers) are not acceptable. Must have   social security.

Compensating Factors

1. Single family dwelling
2. Low debt to income ratios
3. Less than 10% increase from old rent/house payment to the new housing expense
4. Three or more months cash reserves (house payments after closing) that are not     part of a gift
5. Borrower has potential for increased earnings (ex. Graduates)
6. Borrower has income that cannot be used as qualifying income
7. Larger than minimum down payment (more than 3% down)
8. Strong credit or credit scores
9. Time on the job. The longer the better
10. Time at current residence. The longer the better
11. Down payment saved by the borrower verses a gift
12. Minimal payment shock
13. No recent derogatory accounts

Document Requirements

1. Two most recent pay-stubs and 2 years W2 (Form 4506 is required and will be     checked prior to closing)
2. If Self-Employment or more than 25% income from bonus or overtime – must     provide last two years tax returns (all schedules) and YTD Profit & Loss for current     year from CPA
3. Last 12 month’s rental history or mortgage history
4. Fully executed Contract of Sale, including all the amendments to contract if any     changes have been made after signing the contract
5. Latest two month bank statements (all accounts if applicable)
6. Satisfactory explanation for all derogatory accounts that appear on the credit     report   (collections, charge offs, satisfied judgments should be paid in full prior to     closing)
7. Two pieces of ID (driver’s license, social security card, or other photo ID)
8. Copy of the Alien Resident Card (if non citizen)
9. All FHA disclosures signed

Appraisals

Appraisal must be done by an FHA licensed appraiser