The FHA 203(b) Loan Program - STM Partners

In This Product 

Description 

Section 2.22 – The FHA 203(b) Loan Program 

This product description contains the following topics. 

Overview ........................................................................................................... 2 

Features and Benefits ................................................................................ 2 

Product Summary ....................................................................................... 2 

Ineligible FHA Programs ............................................................................ 3 

Correspondent Lenders with DE (Direct Endorsement) Authority ............. 4 

Case Number Assignment and Cancellation ............................................. 5 

The SunTrust Government Sponsorship Program ..................................... 6 

HUD Handbooks & Mortgagee Information ................................................ 6 

Helpful Websites ........................................................................................ 7 

HUD Home Ownership Centers ................................................................. 7 

HUD Section of the Act and ADP Codes ................................................... 8 

Related Bulletins ............................................................................................... 9 

Loan Terms ..................................................................................................... 10 

Loan Term ................................................................................................ 11 

Maximum Loan Amount and LTV ............................................................. 11 

Transactions Affecting Maximum Mortgage Calculations ........................ 15 

FHA Jumbo ..................................................................................................... 20 

Eligible Transactions ....................................................................................... 24 

New Construction ............................................................................................ 26 

Ease-In Payment Reduction Feature .............................................................. 40 

Energy Efficient Mortgage (EEM) Program ..................................................... 43 

Refinances ...................................................................................................... 44 

Cash-Out Refinances ...................................................................................... 47 

No Cash-Out with an Appraisal (Rate and Term Refinances) ........................ 50 

Streamline Refinances .................................................................................... 52 

Secondary Financing ...................................................................................... 59 

Geographic Restrictions .................................................................................. 67 

Occupancy/Property Types ............................................................................. 68 

Eligible Borrowers ........................................................................................... 75 

Income ............................................................................................................. 82 

Liabilities and Qualifying Ratios ...................................................................... 99 

Credit Requirements ..................................................................................... 108 

FHA Social Security Number Validation ....................................................... 123 

Cash Requirements ...................................................................................... 125 

Contributions by Interested Parties ............................................................... 141 

HUD Allowable Closing Costs ....................................................................... 144 

Mortgage Insurance ...................................................................................... 147 

Appraisal Requirements ................................................................................ 155 

Prohibition of Property Flipping ..................................................................... 178 

Automated Underwriting Systems (AUS) ...................................................... 182 

Rate, Points & Lock-Ins ................................................................................. 196 

CRA Incentive and Verification............................................................... 196 

Application, Disclosures and Consumer Compliance ................................... 198 

Underwriting and Loan Submission .............................................................. 203 

Closing and Loan Settlement Documentation ............................................... 207 

Section 2.22 July 27, 2012 

FHA 203(b) Loan Program Page 1 of 217 

Correspondent Seller Guide

Overview 

Features and 

Benefits 

Product 

Summary 

Features and benefits of the FHA mortgage include the following: 

Features Benefits 

Fixed Rate programs are available. Flexibility in accommodating a 

FHA fixed rate Jumbo loans are 

available. 

Seller can pay up to 6% of sales price 

toward closing costs, prepaids, and 

interest buydowns. 

Ratios of 31%/43% for loans requiring 

borrower’s needs or preferences. 

The surge in higher conforming loan 

amounts is a great opportunity to help 

make homeownership more affordable 

for the borrower. 

Borrower needs less cash for the 

transaction. 

traditional underwriting. 

More borrowers can qualify for an FHA 

loan. 

100% gift allowed for down payment with Gift funds are considered as borrowers 

no money from buyer required. 

own funds to apply toward the required 

three and one half percent (3.50%) 

investment. 

AUS Underwriting is permitted on FHA AUS allows for less documentation and 

loans. 

easier borrower qualification. 

No reserves are required on 1-2 unit Borrowers need less cash to qualify. 

properties. 

100% FHA financing through Allows more borrowers to purchase 

FHA/SunTrust Approved Non-Profits. home without having established 

No income-limit restrictions in qualifying. 

savings. 

Borrowers are not limited to wages 

under a set amount for their area. 

Cash out refinances may be permitted Borrowers may use FHA’s easier 

up to an 85% LTV. 

qualifying guidelines with less equity 

remaining in their homes. 

Streamlined Refinances with and without 

appraisals. 

Less cost to borrowers. 

FHA loans are assumable by credit- More attractive for future resale if the 

qualified buyers. 

borrower plans to relocate or move up 

to a larger home in the future. 

General Information 

This product description describes SunTrust’s Federal Housing Administration’s 

(FHA’s) mortgage programs for Section 203(b), basic 1-4 family, and 234 

Condominiums. The FHA 203(b) and 234(c) mortgages are insured by the Department 

of Housing and Urban Development (HUD). This offers borrowers the opportunity to 

obtain a mortgage when they may not qualify under conventional guidelines. 

Continued on next page 




Overview, Continued 

Product 

Summary, 

(continued) 

Ineligible FHA 

Programs 

Reference: See Seller-Paid Interest Payment Reduction / Ease-In Payment 

Reduction Feature subsequently presented in this product description for additional 

information concerning the Seller Paid Interest Payment Reduction Feature. 

AUS Guidelines 

• Fannie Mae DU and Freddie Mac LP information can be found under the 

appropriate topic and subtopic when applicable. AUS System setup and 

processing is located in the AUS section of this product description. 

• If “Approve/Ineligible” or “Refer,” reduced documentation may be used if allowed 

by the findings report and approved by the D.E. Underwriter. 

Reference: See FHA TOTAL Scorecard in the topic AUS Issues for additional 

information. 

• FHA 203(k) loans. 

• Energy Efficiency Mortgages (EEMs) 

• FHA Refinance Program for borrowers in negative equity positions. 

Notes: 

• The programs listed above are being evaluated by SunTrust, but have not been 

embraced. 

• This list may not be inclusive of all ineligible FHA programs (i.e., Section 248 

Indian Reservation and other Restricted Lands). 






Correspondent 

Lenders with 

DE (Direct 

Endorsement) 

Authority 

• Correspondent lenders with full FHA Direct Endorsement Authority and FHA 

Direct Endorsement underwriters on staff may sell FHA loans to SunTrust 

Mortgage, Inc. that are underwritten and closed in full compliance with FHA 

regulations. SunTrust is not responsible for training correspondent lenders or 

providing HUD handbooks or Mortgagee letters. 

• Correspondent lenders are responsible for remitting the up-front MIP and for 

obtaining the MIC on each loan. Additionally, the correspondent lender is 

responsible for reviewing the MIC for accuracy. Any errors detected should be 

corrected and a new MIC issued BEFORE it is sent to SunTrust. SunTrust 

Mortgage, Inc. will enforce repurchase of FHA loans that do not have MIC. 

• SunTrust will verify through FHA Connection that the FHA loan has been 

submitted to HUD for MIC prior to purchase. 

• If FHA Connection reflects a receipt, SunTrust will purchase the loan. 

• If FHA Connection reflects a Notice of Return (NOR), SunTrust will not purchase 

the loan until the loan has been insured by HUD. 

Note: SunTrust may require evidence of the FHA Mortgage Insurance Certificate 

(MIC) prior to funding when government loans are received for purchase by 

SunTrust and/or has been pended at SunTrust, and it has been over 30 days from 

the date of closing. 

Reference: See Determining UFMIP in the topic Mortgage Insurance for additional 

information. 

• SunTrust will not purchase FHA Test Cases or loans considered “Test Cases,” 

where the lender is not yet approved for Direct Endorsement (D.E.) and is 

submitting cases to the HUD Homeownership Center (HOC) for issuance of a 

Firm Commitment. 






Case Number 

Assignment 

and 

Cancellation 

Requesting Case Numbers 

FHA Connection requires lenders to: 

• Certify, via a checkbox question, that they have an active loan application for the 

subject property. 

• Provide the borrower’s name and social security number for all new construction 

(i.e., under construction and existing construction less than one year old). 

Automatic Case Number Cancellation 

FHA Connection automatically cancels any uninsured case number where there has 

been no activity for six months since the last action except for: 

• Loans where an appraisal update has been entered, and/or 

• Loans that have received the UFMIP. 

Last action includes; 

• Case number assigned, 

• Appraisal information entered, 

• Firm commitment issued by FHA, 

• Insurance application received and subsequent updates, and 

• Notice of Return and resubmissions. 

Last action does not include updates to borrower names and/or property addresses. 

Case Number Reinstatement 

FHA will not reinstate any automatically cancelled case numbers, including case 

numbers for condominium units, unless: 

• The mortgagee provides verification that not reinstating the case number causes 

an undue hardship to the borrower that is not related to recent updates to 

premiums and underwriting requirements, or 

• The mortgagee provides verification that the subject loan closed prior to 

cancellation of the case numbers, such as a HUD-1 Settlement Statement. 






The SunTrust 

Government 

Sponsorship 

Program 

HUD 

Handbooks & 

Mortgagee 

Information 

• Mortgagee Letter 2009-28, dated September 18, 2009, announced HUD’s new 

Appraiser Independence guidelines and dictates that sponsored Correspondent 

clients will not be able to order appraisals on case numbers assigned on or after 

January 1, 2010. 

• Due to SunTrust’s interpretation of HUD’s new guidelines relating to ordering 

appraisals, effective for FHA case numbers assigned on or after January 1, 

2010, SunTrust will not purchase FHA loans from FHA Government Sponsored 

clients. 

• It is the Correspondent lender’s responsibility to review the MIC for accuracy 

before submitting the loan to SunTrust for purchase. 

• All FHA loans MUST be insured within 60 days of loan closing. 

Note: See Determining UFMIP in the topic Mortgage Insurance for specific 

information on remittance of Up-Front MIP (UFMIP). 

This product description contains only a portion of HUD’s various lending Handbooks 

and Mortgagee Letters. It is the responsibility of the originating office to ensure that 

mortgages processed for 203(b) and 234 loans meet HUD’s guidelines. 

Reference: See the following HUD Handbooks for further clarification or for complete 

guidelines: 

• 4000.2 REV-3 Mortgagees’ Handbook Application through Insurance (Single 

Family) 

• 4000.4 REV-1 Singly Family Direct Endorsement Program 

• 4060.1 Rev 2 FHA Title II Mortgage Approval Handbook 

• 4135.1 REV-2 Procedures for Approval of Single Family Proposed Construction 

Applications in New Subdivisions 

• 4145.1 REV-2 Architectural Processing and Inspections for Home Mortgage 

Insurance 

• 4150.1 REV-1 and REV 2 Valuation Analysis for Home Mortgage Insurance for 

Single Family One-to-Four Unit Dwelling 

• 4155.1 REV-5 Mortgage Credit Analysis for Mortgage Insurance on One-to-Four- 

Family Properties 

• 4165.1 REV-1 Endorsement for Insurance for Home Mortgage Programs (Single 

Family) 

• Handbooks and Mortgagee Letters can also be obtained from HUD’s general web 

site, http://www.hud.gov/index.html. 






Helpful 

Websites 

HUD Home 

Ownership 

Centers 

The following list provides links to helpful HUD web sites. 

• Circular Letters, http://www.hud.gov/offices/hsg/sfh/hoc/hsghocs.cfm for each 

Homeownership Center 

• FHA Connection, http://www.hud.gov/offices/hsg/connect.cfm 

• Housing Keyword Index, http://www.hud.gov/offices/hsg/keywords.cfm, – This 

Index allows you to search HUD’s web site using "keywords." From this site you 

can also access the sites listed below. 

• Letter "A"-Atlanta Homeownership Center (lists addresses, phone numbers, 

etc.) 

• Letter "D"- Denver Homeownership Center (lists addresses, phone numbers, 

etc.) 

• Letter "P"- Philadelphia Homeownership Center (lists addresses, phone 

numbers, etc.) 

• Letter "S"- Santa Anna Homeownership Center (lists addresses, phone 

numbers, etc.) 

• Letter "M"- Mortgagee Letters 

• HUD Clips, http://www.hud.gov/offices/adm/hudclips (Handbooks & Forms) 

• HUD Web site, http://www.hud.gov/ 

• FHA.gov 

• FHA Frequently Asked Questions (FAQ) 

http://www.hud.gov/faqs/faqbuying.cfm 

• HUD has consolidated the various local HUD Field Offices into four (4) Home 

Ownership Centers (HOCs). These HOCs are responsible for the policies and 

procedures that lenders are responsible for applying to the origination, 

processing, underwriting, closing and insuring of FHA loans. 

• The following table shows states that are served by the HOCs: 

Atlanta, Georgia Philadelphia, 

Denver, Santa Ana, 

Pennsylvania 

Colorado California 

Alabama Connecticut Arkansas Alaska 

Florida Delaware Colorado Arizona 

Georgia District of Columbia Iowa California 

Illinois Maine Kansas Guam 

Indiana Maryland Louisiana Hawaii 

Kentucky Massachusetts Minnesota Idaho 

Mississippi Michigan Missouri Nevada 

North Carolina New Hampshire Montana Oregon 

Puerto Rico New Jersey Nebraska Washington 

South Carolina New York New Mexico 

Tennessee Ohio North Dakota 

Virgin Islands Pennsylvania Oklahoma 

Rhode Island South Dakota 

Vermont Texas 

Virginia Utah 

West Virginia Wisconsin 

Wyoming 






HUD Home 

Ownership 

Centers, 

(continued) 

HUD Section of 

the Act and 

ADP Codes 

• All communication from the HOCs can be accessed through the Internet. 

Reference: See the subtopic “Helpful Web Sites” within this topic for internet 

links to individual HOCs. 

• The information provided in this product description MAY NOT include all HOC 

policies that may vary from standard FHA guidelines. It is the Correspondent 

Lender’s responsibility to determine the guidelines specific to their location. 

The table below provides the HUD codes for the Section of the Act and the applicable 

ADP code for each product. 

Section of 

the Act 

Description ADP Code for DE 

203(b) Basic Home Mortgage Insurance 703 

203(b) Interest Rate Buydown 796 

203(b) Condominium 734 

203(b) Condominium Interest Rate Buydown 797 




Related Bulletins 

General Related bulletins are provided below in PDF format. To view the list of published 

bulletins, select the applicable year below. 

• 2012 

• 2011 

• 2010 

• 2009 




Loan Terms 

Assumptions Loan Origination Dates 

A loan that is financed by HUD may be assumed provided it meets HUD’s 

requirements. The primary consideration for assumptions is the date of the original 

FHA loan. If the original loan was originated: 

• on or after December 15, 1989 the following guidelines must be met: 

• any person assuming an FHA insured mortgage must be found creditworthy 

by HUD or a DE lender, 

• the credit worthiness review requirement extends for the life of the mortgage. 

• the assumptor must be an owner occupant, and 

• private investors are prohibited from assuming insured mortgages that are 

subject to the restrictions of the 1989 Act. 

• between December 1, 1986 through December 15, 1989 the following guidelines 

must be met: 

• credit qualification is not required, unless the seller requests release of 

liability, and 

• seller can usually request release of liability if five (5) years have lapsed 

since the date of transfer (assumption), providing the assumptor has 

maintained a satisfactory payment history. 

• originated prior to December 1, 1986, HUD has no restrictions. 

Second Homes 

• HUD conditional commitments issued on or after February 5, 1988 but before 

January 27, 1991 must bring the outstanding mortgage down to 85% LTV. 

• Commitments issued after January 27, 1991 may not be assumed as second 

homes, except under the hardship provisions. 

• The original appraised value or current appraised value may be used to 

determine LTV. 

Investment Property 

• An investor that assumes a high ratio mortgage originated by an owner-occupant 

pursuant to a HUD Conditional Commitment (or VA CRV), or an appraisal signed 

by a DE underwriter on or after February 5, 1988 but prior to December 15, 

1989, must bring the outstanding mortgage balance down to a 75% LTV ratio if 

the borrower wants to be released from personal liability on the mortgage note. 



• Commitments issued after December 15, 1989 may not be assumed as 

investment property except under certain conditions. 

Release From Liability 

The lender is required to release all parties from liability when the assuming 

borrower is found creditworthy. The following two (2) forms are utilized for an FHA 

assumption: 

• Request for Credit Approval of Substitute Mortgagor (HUD form 92210), or 

similar form used by the lender, which does not formally release the original 

borrower from personal liability on the mortgage note, and. 

• Approval of Purchaser and Release of Seller (HUD form 92210.1), or other 

similar form used by the lender, which constitutes a formal release of liability. 





Loan Terms, Continued 

Assumptions, 

(continued) 

Secondary Financing 

The repayment terms must be clearly defined and included in the underwriting 

analysis. 

Cash Contributions 

• Cash contributions from the seller to facilitate an assumption are not acceptable. 

• The existing mortgage balance must be reduced by the amount of the 

contribution. 

• The seller, however, may pay the assumptor’s normal closing costs (processing 

fee and credit report) with no reduction to the mortgage. 

Loan Term Fixed Rate - 10, 15, 20, 25 or 30 years 

Maximum Loan 

Amount and 

LTV 


• Generally, the maximum insurable mortgage is the lesser of: 

• FHA’s statutory loan limit for the area (typically a county or 

metropolitan/micropolitan statistical areas (MSA), or 

• the applicable loan-to-value limit. 

• Loan amount limits vary by program, property location and the number of units 

within the dwelling. They apply to both purchase transactions and refinances. 

• A percentage of the Fannie Mae/Freddie Mac maximum loan limits are used to 

establish the FHA loan limits. 

• FHA’s “floor” loan limits for 1-4 unit properties is based on 65% of the conforming 

loan limits as established by the Federal Government. 

2011 FHA Mortgage Limits 

Units Floor Limits Maximum Ceiling Limits 

1 Unit $271,050 $729,750 

2 Units $347,000 $934,200 

3 Units $419,425 $1,129,250 

4 Units $521,250 $1,403,400 







Amount and 

LTV, 

(continued) 

• FHA uses its own data to set the maximum limit in each area. Loan amounts 

exceeding the “floor” limits are accepted for those counties where FHA has 

published higher loan limits. 

• A complete listing of FHA mortgage loan limits for all areas is available through 

the FHA mortgage limits page. Go to the HUD website on the Internet to 

determine the maximum loan amount allowed for the location of a specific 

property. 

Note: Use the chart below to determine what to choose from the dropdown 

labeled “Limit Year” on HUD’s website. The results of your search will determine 

the available maximum county loan limits. 

If the loan was 

locked... 

Before Jan. 19, 

2012 

On or After 

Jan. 19, 2012 

On or After 

Jan. 19, 2012 

...and the Case Number was 

assigned... 

...then choose the 

below “Limit Year” on 

HUD’s Website. 

Anytime Oct. 1, 2011 – 

Nov. 17, 2011 

Nov. 18, 2011 – Dec. 31, 2011 Nov. 18, 2011 – 

Dec. 31, 2011 

On or After Jan. 1, 2012 – CY2012 

Dec. 31, 2012 

• This FHA Mortgage Limits page allows you to look up the FHA mortgage limits for 

your area or several areas, and then list them by state, county, or Metropolitan 

Statistical Area 

Base Loan 

• Maximum LTVs are determined using the “base” loan amount. 

• The “base” loan is the maximum loan amount prior to adding any financed 

mortgage insurance premium. The type of transaction will determine the 

calculation of the base loan amount. 







Amount and 

LTV, 

(continued) 

The table below reflects the allowable LTV or other methods used in the maximum 

mortgage calculations. 

Occupancy Stage 

Construction 

of LTV / TLTV 

Purchases Owner 

Occupied 

Proposed and Existing 96.5% / 105% 

Owner 

Occupied 

*Second 

Homes 

Under Construction or 

Less than 1 Year 

90% / 105% 

Maximum financing allowed if Preapproved* 

*See “New Construction” for acceptable 

pre-approval documentation. 

85% 1 / 105% 

*Investment 75% / 105% - 1 Unit 1 

85% / 105% - 2 to 4 Units 

Notes: 

• Second Homes and Investment properties are eligible for FHA financing only under limited 

circumstances. 

• Refer to each subtopic within the Occupancy/Property Types topic for additional information before 

offering FHA financing for these property types. 

1 Condominiums in the State of Florida are not eligible. 







Amount and 

LTV, 

(continued) 

Refinances 1 * 

The table below reflects the allowable LTV or other methods used in the maximum 

mortgage calculations. 

Credit Qualifying Streamline 

Refinances with an 

Appraisal 

Credit Qualifying Streamline 

Refinances without an 

Appraisal 

Rate/Term Refinance 

Transactions 

Cash Out Transactions 

Primary Residences 

STM to STM Transactions 

97.75% / 105% 

Non-STM to STM Transactions 

97.75% / 100% 

STM to STM Transactions 

97.75% / 105% 

Non-STM to STM Transactions. 

97.75% / 100% 

97.75% LTV / 97.75% TLTV 

85% LTV 2 / 85% TLTV 1 to 4 Unit properties 

1 

See the topic Refinances for further information 

2 

Other limitations may apply; see the subtopic Cash-Out Refinances in the topic Refinances for 

additional information. 

Minimum Loan 

Amount 

None. 






Transactions 

Affecting 

Maximum 

Mortgage 

Calculations 

Transactions that Affect Maximum Mortgage Calculations 

Various transaction types or relationships may affect the allowable LTV or other 

methods used in the maximum mortgage calculations. 

Identity of Interest Transactions 

• Identity of Interest Transactions are transactions between family members, 

business partners or other business affiliates. Identity-of-interest transactions 

are restricted to a maximum LTV of 85%. However, maximum financing above 

85% is permissible under the following circumstances: 

• family member purchasing another family member’s principal residence, 

• employee of builder purchasing home from builder, 

• current tenant purchasing home she has rented for at least six (6) months 

predating the sales contract, (with lease or other written evidence), and 

• sales by corporations purchasing an employee’s home and reselling to 

another employee. 

Notes: 

• For identity-of-interest transactions, a family member includes a child, parent, 

grandparent (biological, foster or step), sister, step-sister, brother, step-brother, 

legally adopted son or daughter, a child who is a member of the borrower’s 

household due to placement by an authorized agency for legal adoption, aunt, or 

uncle. 

• A full appraisal is required and must include verification of the purchase price, 

last sale date, and recent listing of the subject property regardless of the 

feedback provided in the AUS Messaging. 

Non-Occupying Co-Borrowers 

• Non Occupying Co-Borrowers are restricted to a maximum LTV of 75%. 

However, maximum financing above 75% is permissible under the following 

circumstances: 

• borrowers are related by blood, marriage, or law, or 

• unrelated individuals that can document evidence of a family-type, 

longstanding and substantial relationship not arising out of the loan 

transaction, and 

• the property is a one (1) unit dwelling. 

• Below are other requirements for a non-occupying co-borrower. 

• All borrowers, regardless of occupancy status, must sign the security 

instrument and the mortgage note. 

• If a parent is selling to a child, the parent cannot be the co-borrower with the 

child on the new mortgage, unless the LTV is 75% of less. 

• Non-occupant co-borrowers are not permitted on cash-out transactions. 

References: 

• See Maximum Number of FHA Loans per Borrower subsequently presented in 

this topic for additional information. 

• See the topic Eligible Borrowers for additional information. 






Transactions 

Affecting 

Maximum 

Mortgage 

Calculations, 

(continued) 

Three and Four Unit Properties 

• Maximum mortgage is limited so that the ratio of the monthly mortgage payment 

(PITI plus Homeowners association dues, if applicable) divided by the monthly 

net rental income does not exceed 100%. 

• The monthly payment includes principal, interest, taxes, insurance, monthly 

mortgage insurance, and homeowner’s association dues computed at the note 

rate. 

• No considerations for buydowns may be given. 

• Net rental is the appraiser’s estimate of fair market rent from all units, including 

the unit the borrower will occupy, less the FHA allowance for vacancies and 

maintenance (or 25% if the local FHA has not established a separate allowance). 

• The projected rent may be considered only as gross income for qualifying 

purposes, and not used to offset the monthly mortgage payment. 

• Three (3) months reserves (PITI) after closing are required on all transactions. 

The LTV/TLTV may not exceed 85% on a cash-out refinance. 

Building On Own Land 

• Maximum financing is available if the borrower receives no cash from the 

settlement. LTV limits are applied to the lesser of: 

• the appraised value or 

• the documented acquisition cost, which includes the following: 

• builder’s price, or the sum of all subcontractor’s bids, materials, etc., 

• cost of the land (value may be used if land was owned more than 6 months 

or was received as an acceptable gift), 

• interest and costs from the construction loan obtained by the borrower to 

fund construction of the property, and 

• closing costs and reasonable discount points paid by the borrower. 

• Equity in the land may be used for the borrower’s entire down payment. 

• If the borrower receives cash at closing exceeding $250, the loan is limited to 

85% of the sum of the appraised value plus closing costs. 

Paying Off Land Contracts or Refinance Properties Subject to Ground Rent 

• If the borrower will use the loan to complete payment on a land contract, contract 

for deed, or other similar type financing arrangement where the borrower does 

not have title to the property, the new mortgage may be processed as either a 

purchase or a refinance transaction with maximum insured financing if the 

borrower receives no cash at closing. 

• if all loan proceeds are used to pay the outstanding balance on the land contract 

and eligible repairs, renovations, etc., the appropriate loan-to-value ratio is 

applied to the lesser of: 

• the appraised value, or 

• the total cost to acquire the property plus allowable closing costs and, if 

treated as a refinance, reasonable discount points. 






Transactions 

Affecting 

Maximum 

Mortgage 

Calculations, 

(continued) 

Paying Off Land Contracts, continued 

• Equity in the property may be used for the borrower’s entire down payment. 

• If the borrower receives cash at closing exceeding $500, the loan is limited to 

85% of the sum of the appraised value. 

• Treat cash-out refinances that pay off land contracts or refinance properties 

subject to ground rents in the same manner as cash-out refinance transactions 

on properties held in fee simple ownership. 

Occupancy of Former Investment Property 

The maximum mortgage amount available for borrowers who reoccupy their former 

investment property as their primary residence and wish to refinance are subject to 

the following restrictions: 

• If occupancy of the former investment property was 12 months or more prior to 

the loan application date, then maximum financing as an owner-occupant is 

allowed (97.75% for rate/term refinances; 85% for cash-out refinances) 

• If occupancy of the former investment property was less than 12 months prior to 

the loan application date, then the loan is eligible as a rate/term refinance only 

with a maximum LTV of 85%. 

HUD REO $100 Down Payment 

Reference: See the HUD REO Properties subtopic in the Occupancy/Property 

Types topic subsequently presented for additional information on the maximum 

mortgage amount and minimum down payment calculation. 

Additions to the Mortgage Amount 

• An increase in the maximum mortgage amount is permitted only when the 

appraised value exceeds the sales price; any remaining costs become part of 

the borrower’s settlement requirements. 

• The increase may not exceed HUD’s basic mortgage limits for the area where 

the property is located, except for solar energy systems. 

• Allowable additions to the mortgage amount are discussed under the headings 

below. 

• repairs and improvements, 

• energy-related weatherization items, and 

• solar energy systems. 






Minimum 

Downpayment 

Repairs and Improvements: 

• The table below provides the requirements necessary to add the amount of 

repairs and improvements in the loan amount. 

IF the… THEN the… 

• repairs are required by the appraiser 

and the value reflects these 

requirements, 

• repairs were not completed prior to 

the appraisal, and 

• sales contract or addendum 

identifies the borrower as 

responsible for paying for the repairs 

• amount that may be added to the 

sales price before calculating the 

maximum mortgage is the lowest of: 

• the amount the value of the 

property exceeds the sales 

price, 

• the appraiser’s estimate of 

repairs and improvements, or 

• the amount of the contractor’s 

bid, if available. 

Reference: See Section 1.05b: Reviewing Sales Contracts in the Correspondent 

Seller Guide for additional information. 

Energy-Related Weatherization Items 

If weatherization items are to be added to the property and paid for by the borrower, 

the cost may be added to both the sales price and the value before determining the 

maximum mortgage amount. Examples of weatherization items are shown below. 

• Thermostats 

• Insulation 

• Storm windows and doors 

• Weather stripping and caulking, etc. 

Solar Energy Systems 

The cost of the solar energy systems may be added directly to the mortgage amount 

(before adding the UFMIP) after applying the LTV ratio limits. Important facts to 

remember when considering adding the solar energy system are listed below. 

• The statutory mortgage limit for the area also may be exceeded by 20% to 

accommodate the cost of the system. 

• The amount that may be added to the mortgage is limited to the lesser of the 

solar energy systems replacement cost or its effect on the property’s market 

value. 

• Both active and passive solar systems are acceptable as are wind-driven 

systems. See HUD-Handbooks 4150.1 Rev-1 and 4930.2 for additional 

information. 

HUD’s Requirement 

• The minimum downpayment is three and one half percent (3.50%). 

• The minimum downpayment must come from the borrower’s own funds and may 

not include closing cost paid by the borrower. 






Maximum 

Number of FHA 

Loans per 

Borrower 

Maximum 

Number of 

Financed 

Properties and 

Borrower 

Exposure 


FHA will generally not insure more than one mortgage per borrower. Circumstances 

in which a borrower may keep his current FHA-insured mortgage are provided below. 

Relocating 

The borrower is relocating and re-establishing residency to another area that is not 

within reasonable commuting distance from the current HUD insured home. There is 

no need to reduce the principal balance or sell the current home. Other items of 

clarification are shown below. 

• The relocation need not be employer mandated. 

• If the borrower returns to an area where he/she owns a property with an FHA 

Mortgage, it is not required that the borrower re-establish primary residency in that 

property in order to obtain another FHA mortgage. 

Family Size Increase 

The borrower’s family has increased in the number of legal dependents and the 

present home no longer meets the family needs and the following applies: 

• satisfactory evidence must be provided of the increase in dependents and an 

explanation of why the property no longer meets the family needs; and 

• the outstanding mortgage balance on the present home is paid down to a 

maximum LTV of 75% (excluding financed MIP). 

• a current residential appraisal must be used to determine LTV compliance. 

Note: Tax assessments, market analysis by real estate brokers, etc., are not 

acceptable to determine LTV. 

Co-Borrower for Family Member 

The borrower will be a non-occupying co-borrower on property being purchased as a 

primary residence by other family members, may have a joint interest in that property 

as well as his own primary residence, which is a FHA-insured mortgage too. 

Vacating a Jointly Owned Property 

The borrower is vacating a residence that will remain occupied by a co-mortgagor. 

Acceptable situations include following a divorce where the borrower is purchasing a 

new home or where the borrower is vacating the property. 

Reference: See the Maximum Number of Financed Properties and Borrower 

Exposure in Section 1.22: Maximum Number of Properties and Borrower Exposure 

in the Correspondent Seller Guide for guidelines. 

Prepayment There is no prepayment penalty on FHA loans. 




FHA Jumbo 

General • Only 30 year fixed rate mortgages are eligible. 

• The SunTrust FHA Jumbo Loan program Eligibility Checklist (COR 0331) is 

required on all FHA Jumbo Loans. 

Jumbo 

Eligibility 

Maximum 

LTV/TLTV 

Minimum Credit 

Score 

Requirement 

for ALL 

Borrowers 

• The FHA Jumbo Loan Program code (F30JFX) must be used when the base loan 

amount meets or exceeds the loan amounts in the table below. 

If you have a: Jumbo Program Code begins at: 

1 Unit Property $417,001 




• On Purchase Transactions, the maximum LTV/TLTV is 96.5%. 

• On Rate/Term Refinance transactions, the maximum LTV/TLTV is 97.75%. 

• On credit qualifying Streamline Refinance transactions, the maximum LTV/TLTV 

is: 

• 97.75% / 105% for STM to STM transactions, and 

• 97.75% / 100% for non-STM to STM transactions. 

• On Cash-Out Refinance transactions, the maximum LTV/TLTV is 85.00%. 

Note: Cash-out refinance transactions for properties located in the state of 

Florida are limited to an LTV/TLTV of 80.00%. 

• The minimum credit score is 680 for Purchase, Rate/Term Refinance, and 

Streamline Refinance transactions. 

• The minimum credit score is 700 for Cash-Out Refinance Transactions. 





FHA Jumbo, Continued 

Underwriting 

Method 

Qualifying 

Ratios 

Non-Occupying 

Co-Borrowers 

and Co-Signers 

• All transactions are eligible for Traditional or Automated Underwriting through 

DU/DO and LP. 

• All Streamline Refinance transactions must be traditionally underwritten. 

Note: If a FHA streamline refinance is inadvertently submitted through DU the 

loan must still be manually underwritten. 

• Traditionally underwritten loans may not include any non-Traditional credit 

references. 

AUS Traditional 

• Maximum DTI 45.00% regardless 

of AUS findings. 

• Maximum ratios 31.00% / 43.00% 

• EEM/New Construction 33.00% / 

45.00% 

Note: Only Correspondent clients that 

have a Direct Endorsement 

underwriter on staff may underwrite 

and submit for purchase loan 

transactions involving the Energy 

Efficient Mortgage (EEM) loan program 

to SunTrust. 

• Non-Occupant Co-Borrowers and Co-Signers are not permitted. 

Loan Purpose • Purchase 

• Rate/Term Refinance 

• Credit Qualifying Streamline Refinances with and without an appraisal 

• Cash-Out Refinance 

• Max 85.00% LTV 

Maximum 

Number of 

Financed 

Properties 

Note: Cash-out refinance transactions for properties located in the state of 

Florida are limited to a LTV/TLTV of 80.00%. 

Reference: See the Maximum Number of Financed Properties and Borrower 

Exposure in Section 1.22: Maximum Number of Properties and Borrower Exposure 

in the Correspondent Seller Guide for guidelines. 






Refinance 

Guidelines 

Payment 

History 

Minimum 

Downpayment 

Required from 

the Borrower 

• Six (6) months seasoning (i.e., six (6) permanent mortgage payments made) is 

required for the existing mortgage, and 

• A twelve (12) month mortgage and/or rental verification is required. 

First-Time Homebuyers (applies to AUS and non-AUS loans) 

• Borrower must have an established credit history. 

Note: An established credit history is defined as a minimum of three (3) active 

traditional credit references that have been opened for at least 24 months and 

have been active at some time during that period. 

• Closed accounts with balances are acceptable. 

• A full twelve (12) month satisfactory payment/rental history (0x30) must be 

documented through a third party or credit bureau. 

Note: Private references are not acceptable. 

Borrower Not a First Time Homebuyer: 

• If DU “Approve/Eligible,” follow FHA AUS guidelines and findings. 

• If traditionally underwritten, no housing late payments within the last 12 months 

(all mortgages), and 

• Within the last 24 months no more than 2x30 late payments and acceptable to 

the DE Underwriter. 

Note: Isolated late payments may be acceptable. 

• Borrower(s) are required to contribute three and one-half percent (3.50%) from 

his/her own funds towards the down payment for purchase transactions. 

• Funds must be seasoned for a minimum of sixty (60) days and verified. 

• Gift funds are only acceptable if received from a family member. 

• gift funds may only be applied to closing cost and prepaids only after the 

borrower has made the required three and one half percent (3.50%) 

investment into the transaction from their own funds. 

• gift funds must meet the sixty (60) day seasoning requirement, either in the 

donor’s account or a combination of both donor’s and borrower’s accounts. 

Cash Reserves Two (2) months cash reserves are required. 

Secondary 

Financing 

• New secondary financing is eligible, including Community Seconds, on purchase 

transactions. 

• Existing secondary financing is eligible for subordination on refinance 

transactions. 






Down Payment 

Assistance 


Ineligible 


Ineligible 

Property Types 

Appraisal 

Requirements 

Declining 

Markets 

Guidelines 

Bankruptcy/ 

Foreclosure/ 

Short Sales 

Down Payment Assistance programs are not eligible. 

• The following program listed below may not be used. 

• Ease-In Payment Reduction Feature. 

The following property types are ineligible: 

• Manufactured Home 

• Investment Property 

• Second/Vacation Home 

Reference: See the Ineligible Property Types subtopic in the Occupancy/Property 

Types topic for additional information. 

• The property may not have more than ten (10) acres. 

• When the loan amount is $1,000,000 or higher, the FHA Roster appraiser must 

also be state certified to meet Title XI requirements for the Federal Institutions 

Reform, Recovery and Enforcement Act (FIRREA). 

Reference: See the Properties Located in Declining Market Areas subtopic in the 

Appraisal Requirements topic for additional information. 

• No bankruptcy (Chapter 7 or 13), foreclosure or short sales in the last three (3) 

years based on discharge date for Purchase money, Rate/Term refinance 

transactions, and Credit-Qualifying Streamline Refinance transactions. 

• No bankruptcy (Chapter 7 or 13), foreclosure or short sales in the last seven (7) 

years based on discharge date, for cash-out refinances. 

Reference: See the Section 1.28: Short Sale and Restructured Mortgage Loans 

document for additional information. 




Eligible Transactions 

ARM 

Alternative 

• The ARM Alternative is a lender funded buydown, not an Adjustable Rate 

Mortgage (ARM). 

• The feature is called the ARM Alternative because it is an alternative for 

borrowers who like the low initial interest rate of an ARM but want the interest 

rate protection of a fixed rate mortgage. 

• The ARM Alternative is a lender funded buydown where the cost of the buydown 

is built into the pricing and therefore no buydown funds are required at closing. 

Reference: See Section 2.02: The ARM Alternative product description in the 

Correspondent Seller Guide for additional information. 

Refinances Reference: See the topic Refinances in this product description for information. 

Temporary 

Buydowns 

General Requirements 

• Borrower paid temporary interest rate buydowns are not eligible. 

• Interest buydowns are permitted on purchase transactions only. 

• The loan must be a fixed rate mortgage on an owner occupied principal 

residence. 

• Builders and sellers may still offer buydowns on the fixed-rate loans; however, 

the borrower must qualify at the note rate. 

• No adjustment is required to the acquisition cost unless the seller, mortgagee or 

other third party contributes cash to the transaction that exceeds the 6% limit 

established by HUD. 

• The following requirements must be met for all temporary buydowns: 

• an agreement must be executed in which the seller, lender or other third 

party places funds in escrow with monthly releases to be made to the lender 

to subsidize the borrower’s monthly payment during the first years of the 

mortgage, 

• the buydown is limited to 2% below the Note rate, 

• the borrower is qualified on the Note rate, 

• the payment increase during the buydown period cannot be greater than 1% 

per year and can only occur once each year, 

• payments are to be made by the escrow agent to the mortgagee, who is the 

holder of the mortgage, or to its servicing agent, 

• the FHA case number must have a special suffix code if the loan is a 

buydown, and 

• the seller or mortgagee may provide the buydown funds subject to the seller 

contribution limits. 

• The FHA/VA Buydown Agreement (COR 0344) must be completed and signed 

by the borrower. 





Eligible Transactions, Continued 

Temporary 

Buydowns, 

(continued) 

Underwriting Requirements 

• A copy of escrow agreement, signed by the borrower and provider of the funds, 

must accompany the loan application. (The underwriter may condition for the 

executed buydown agreement at closing.) 

• It must be established that the eventual increase in mortgage payments 

will not affect the borrower adversely and likely lead to default. 

Escrow Agreement Requirements 

• Must provide that any escrow funds not distributed at time the mortgage loan is 

prepaid be applied to the outstanding balance due on the mortgage. In the event 

of foreclosure, the claim for mortgage insurance benefits must be reduced by the 

amount remaining in the buydown escrow account. 

• Must not permit reversion of undistributed escrow funds to the provider if the 

property is sold or the mortgage is prepaid in full unless the borrower establishes 

the escrow account. 

• May continue to buyers who assume the mortgage. 

• The escrow funds must be held in an escrow account by a financial institution 

supervised by a federal or state agency. 




New Construction 

Construction 

Definitions 

General 

Requirements 

Proposed Construction 

Property is considered “proposed construction” when no concrete or permanent 

material has been placed. Digging of footing and placement of rebar is not 

considered permanent. 

Under Construction 

Property is considered “under construction” from the first placement of concrete 

(permanent material) to one hundred percent (100.00%) completion or to ninety 

percent (90.00%) with only customer preference items remaining. 

Existing Construction Less Than One (1) Year Old 

Property is considered “existing construction” when the appraisal was performed less 

than one year since receipt of the final occupancy permit issued. The home is one 

hundred percent (100.00%) complete if the Certificate of Occupancy (or its 

equivalent) was issued prior to the appraisal and is less than twelve (12) months old. 

Note: A re-sale property (sold from builder to owner-occupant and sold again) is not 

exempt from the new construction exhibits when the Certificate of Occupancy (or its 

equivalent) is less than twelve (12) months old. 

Reference: See Appraiser’s Architectural Exhibits in the subtopic Architectural 

Exhibits/Properties Not Complying With ML 2001-27 subsequently presented in this 

topic for additional information. 

• The new construction requirements remain unchanged except for the clarification 

that the appraiser may appraise a home that is under construction and is 90% or 

more complete, with only minor finish items remaining, without benefits of plans 

and specifications. 

• The minor finish items include floor coverings, appliances, fixtures, landscaping, 

etc.). Grading, drainage and functional utilities must be completed. 

• The appraisal can be completed at any time during construction. 

• If a borrower wants to obtain maximum FHA financing on new construction, ONE 

(1) of the following documentation options is required: 

• construction was completed more than one (1) year preceding the 

borrower’s signature on the Addendum to Uniform Residential Loan 

Application (HUD-92900-A page 2), 

• the site plans and materials were approved by Department of Veterans 

Affairs, a DE underwriter, or a builder under the FHA’s Builder certification 

procedures, (see HUD Handbook 4145.1 Rev.2) before construction began 

(this does not apply to condominiums or manufactured housing), 

• the local jurisdiction has issued both a building permit (prior to construction) 

and a Certificate of Occupancy or equivalent, 





New Construction, Continued 

General 

Requirements, 

(continued) 

• the dwelling is covered by an approved 10-Year Protection Plan that is 

acceptable to HUD, or 

• the dwelling will be moved to a new location and the property is eligible at 

the new location by having the site plans and materials pre-approved before 

construction began. 

Note: Lenders are not responsible for establishing an approved locality list (i.e., 

it is not SunTrust’s responsibility to verify with each county that we lend in to 

determine if they issue a building permit prior to the start of construction). 

Lenders are to assume that if the county issues a building permit, then it is prior 

to construction. 

Reference: See the subtopic Lender Required Documents subsequently 

presented in this topic for additional information. 

• Loan files should contain a copy of the building permit (or a HUD Accepted 

Insured Ten-Year Protection Plans), the final Certificate of Occupancy, and the 

final inspection by the appraiser or HUD fee inspector, if applicable prior to 

closing. 

• The loan file must be documented as to whether there will be a building permit or 

a HUD Accepted Insured Ten-Year Protection Plan at the time the appraisal is 

being underwritten to permit the underwriter to make the appropriate conditions. 

• Localities that do not issue building permits prior to the start of construction must 

follow the "Early Start Letter" guidelines in order to avoid the ten (10) year 

warranty requirement, all three initial compliance inspections, and final 

compliance inspection. 

• This new definition of "pre-approval" process does not apply to Manufactured 

Housing and Condominiums. 

Reference: See HUD Specifications for Pre-Approval, Inspections and 

Documentation information. 

• All new construction must meet the Council of American Building Officials 

(CABO) 1992 Model Energy Code (MEC), regardless of LTV. 

• The following information applies to issues concerning flood zones: 

• a property (dwelling and related structures/equipment essential to the 

property value and subject to flood damage) cannot be built in a special 

flood zone (floodplain) unless FEMA has issued a “Letter of Map 

Amendment” (LOMA), or a “Letter of Map Revision (LOMR) stating that the 

property is not in a flood plain, 

• the builder can use an “Elevation Certificate” as an alternative documents if it 

is submitted with the Builder’s Certification of Plans, Specifications and Site 

(Form HUD-92541), and 

• if an “Elevation Certificate” is used in lieu of a LOMA or LOMR, flood 

insurance is required, however, if a LOMA or LOMR are provided, flood 

insurance is not required. 

• Reference: See General Section 1.14: Hazard and Flood Insurance of the 


Section 2.22 


July 27, 2012 

FHA 203(b) Loan Program 

Correspondent Seller Guide 

Page 27 of 217


General 

Requirements, 

(continued) 

Inspection 

Requirements 

Builder 

Approval: HUD 

No Longer 

Approves 

Builders 

• Properties built in an airport runway clear zone are not eligible for new 

construction FHA loans. 

• A certification must be provided on form HUD-92900-A, page 3, which states that 

the property is 100% complete at the time of loan closing (both on site and off 

site improvements) and the property meets HUD’s minimum property standards. 

Documentation must be provided to verify completion of the property (i.e., 

appraisal, Certificate of Occupancy, and final inspection from the original 

appraiser – as applicable for the type of new construction). 

• SunTrust requires a final inspection from the original appraiser on proposed or 

under construction properties, even with a Building Permit and Certificate of 

Occupancy issued prior to closing. If a Certificate of Occupancy, or its 

equivalent, was not issued, then a HUD fee inspector must issue the final 

inspection. 

• When a property is considered “existing construction” and there are no repairs or 

corrections conditions noted by the appraiser, the appraisal serves as final 

inspection. For new construction “existing” appraisals to serve as a final 

inspection the following requirements apply: 

• the appraisal must state that the property was built in accordance with the 

submitted plans and specs and grading and drainage are adequate, and 

• the appraisal may not be made “subject to completion per plans and 

specifications.” 

• In all cases, without exception, the builder must provide a one (1) year builder’s 

warranty as provided on Form HUD-92544. 

References: 

• See Comprehensive Valuation Package (CVP) Requirements in the topic 

Appraisal Requirements for additional information. 

• See Closing Documentation in the Application, Disclosures and Consumer 

Compliance topic for additional new construction forms. 

See Repair and Inspection Requirements in the Appraisal Requirements topic for 

information regarding when an appraisal is made “As Is” or “Subject to” one of the 

following categories: 

• Completion per Plans and Specifications, 

• Repairs and Alterations, or 

• Required Inspections. 

HUD no longer approves builders nor maintains a list of approved builders. 






HUD 

Specifications 

for Pre- 

Approval, 

Inspections 

and 

Documentation 

HUD Specifications for Pre-Approval, Inspections and Documentation as provided in 

HUD Mortgagee Letter 2001-27 are shown below. 

• The local jurisdiction is allowed to perform the inspections when evidenced by a 

Certificate of Occupancy. 

• Additionally, if a local jurisdiction issues a Building Permit (or its equivalent), prior 

to construction, it is acceptable as evidence of “Pre-Approval”. 

• In such cases where both a Building Permit and Certificate of Occupancy are 

issued by a local jurisdiction 

• Neither an Early Start Letter nor a HUD approved 10-Year Protection Plan is 

required. 

• This new definition of “pre-approval’ does NOT apply to condominiums due to 

special requirements applicable to these housing types. 

• In lieu of providing the Early Start Letter or proof of coverage by an acceptable 

protection plan, a copy of the Building Permit (or equivalent) and a copy of the 

Certificate of Occupancy (or equivalent) MUST be included in the endorsement 

binder. 

• The alternative to local inspections described above does not eliminate the 

requirement for a One-Year Builder Warranty (HUD Form 92544) as required by 

Section 801 of the National housing Act. 

• In addition to the One-Year Builder’s Warranty, the Builder’s Certification of 

Plans, Specifications and Site (Form HUD 92541) is still required. 

Notes: 

• FHA no longer requires mortgagees to retain architectural plans and 

specification for high ratio loans on construction of single-family properties, one 

year old or less, that have been processed and closed under the specifications 

of Mortgagee Letter 2001-27. 

• Mortgagee Letter 2005-09 only allows for the elimination of the retention of plans 

and specs after the case is endorsed, NOT the elimination of obtaining plans and 

specs for processing a new construction case. The client is still required to 

obtain the documents for the appraiser. 

• If the case is a condominium unit approved by FHA, the client is not required to 

obtain the plans and specs. 






Architectural 

Exhibits/ 

Properties Not 

Complying with 

ML 2001-27 

General 

• Local jurisdictions that do NOT issue a Building Permit (or its equivalent) prior to 

construction and a Certificate of Occupancy (or its equivalent), for a property one 

year old or less must have one of the following to be eligible for a high-ratio 

insured mortgage: 

• Early Start Letter, OR 

• 10 Year Protection Plan acceptable to HUD. 

• Properties NOT processed and closed in accordance with the specifications in 

Mortgagee Letter 2001-27.must meet the requirements shown below: 

• If the property is proposed or under construction and NOT 90% complete at 

time of appraisal, HUD expects the lender to obtain the architectural exhibits 

for the appraiser. 

• These exhibits must be adequate and accurate to determine compliance with 

applicable HUD standards, for the accurate basis for HUD commitments, 

determine acceptability of the physical improvements, and provide the basis 

for conclusion. Lenders are not expected to review or approve these 

documents. 

• Additionally, appraisers must receive a fully executed Builder’s Certification 

of Plans, Specifications & Site (Form HUD-92541) before performing the 

appraisal on proposed, under construction or less than one year old 

properties. 

• Appraisers must review Item 1 on this form and note in the Appraisal report 

any discrepancies between the information in Item 1 and the actual 

conditions observed on site. The appraisal and lender are responsible for 

addressing any yes answers in Item 1. 

Lender’s Architectural Exhibits 

For all proposed construction properties NOT processed under Mortgagee Letter 

2001-27 that are less than 90% completed at time of appraisal, HUD requires the 

lender to retain the appropriate architectural exhibit(s) in the origination file for 

resolving any future construction complaints and Section 518(a) complaints for 

structural defects. Therefore, the lender’s file must continue to retain the following 

documents for new or proposed construction and high ratio loans: 

• One Year Builder’s Warranty (Form HUD-92544) 

• Builder’s Certification (Form HUD-92541). 

• Design and local authority approval of individual water supply and/or sewage 

disposal system 






Architectural 

Exhibits/ 



ML 2001-27 

(continued) 

Lender’s Architectural Exhibits, continued 

• Any additional exhibits made necessary when the mortgage risk could be 

affected by unstable soil or other differential ground movement, ground water 

problems and other site or toxic hazards (i.e., engineers’ reports on soil 

exploration and testing, earthwork specifications, special foundation and related 

designs, slope or other stability evaluations, evaluations of underground sewage 

effluent disposal and waste disposal sites, et.). 

• Pest Inspection forms from the National Pest Control Association, HUD-NPCA- 

99-A and HUD-NPCA-99-B (where applicable). 

• The following documents, as applicable: 

• an executed Early State Letter, or 

• a 10-year Warranty, and 

• a final inspection from the HUD inspector. 

• Evidence of an approved Affirmative Fair Housing Marketing Plan or Voluntary 

Affirmative Marketing Agreement OR checked block “d” (part 11) on the Builder’s 

Certification (form HUD-92541). 

• Applicable inspections and/or certifications. 

• Any other additional/appropriate documents required in satisfying FHA 

requirements which may include, but are not limited to the LOMA/LOMR or 

elevation certificate regarding flood plains, well water tests, local health authority 

approval for individual water and sewer systems, etc. This is not applicable for 

condominium projects. 

• Final Inspection Requirements as shown below: 

• Final inspection report by a HUD fee inspector is required, if property is 

“proposed or under construction” and the LOCAL JURISDICTION DOES 

NOT ISSUE A FINAL CERTIFICATE OF OCCUPANCY or its equivalent. 

• When the final inspection is completed by a fee inspector on under 

construction and less than 90% complete properties, the inspection will 

include photographs along with a statement on the HUD-92051 as follows: 

“This is a newly completed dwelling that was not completed under HUD or 

VA inspections. The dwelling appears to be in conformance with the 

submitted construction exhibits.” 

• Final inspections performed by a fee inspector must include a notation that 

all utilities were on and functional when the inspection was conducted. 

• The appraiser may complete the final inspection if the local jurisdiction 

issues a Certificate of Occupancy (or its equivalent) with the exception of 

condominiums. 






Architectural 

Exhibits/ 



ML 2001-27, 

(continued) 

Appraiser’s Architectural Exhibits 

HUD’s itemization of architectural exhibits includes those listed below. 

• plot plan (including dwelling and accessory buildings, finish grade elevations 

direction of drainage, location of well and septic, if applicable), 

• floor plan (separate foundation plan and plan of each floor and basement, if any), 

• kitchen cabinet details, 

• electrical layout, 

• heat layout (ductwork and location of all vents), 

• heat loss calculations, 

• cooling system layout, 

• exterior elevations (front, side and rear), 

• sections (exterior wall sections, stairwells, and stairs), 

• fireplace section and elevations, if applicable, 

• roof truss details, 

• water supply plans and specifications, 

• sewage system plans and specifications, 

• individual water supply and sewage disposal systems, if applicable, and 

• Description of Materials HUD Form 92005. 

• Completed Builder's Certification of Plans, Specifications, & Site (form HUD- 

92541) signed and dated no more than 30 days prior to the date the appraisal 

was ordered. 

• all reports and available information (i.e., sales agreement, title report, 

environmental reports or studies and inspection reports). 

Note: HUD requires that all utilities be turned on and fully functional during a 

final inspection otherwise, the property is not considered 100% complete. 

• For “under construction” properties that will be insured at 90% LOAN TO VALUE 

OR LESS, the lender is to RETAIN a copy of the architectural exhibits in its 

origination binder; however, the Builder’s Certification and Builder’s Warranty are 

not required. 

• For “existing” properties GREATER than one-year old (100% complete) at the 

time of the appraisal, architectural exhibits are not required. 

Homes 100% Complete Less Than One Year old 

• If the home is 100% complete at time of the appraisal and the appraisal is to 

serve as the final inspection, the procedures below must be followed. (This 

procedure does not apply to manufactured homes.) 

Note: Manufactured homes are not eligible for financing through SunTrust 

Mortgage. 

• The appraisal serves as the final inspection and Form HUD-92051 is not 

required. 

• The appraiser must notate that the utilities were turned on at the time of 

inspection. 






Architectural 

Exhibits/ 



ML 2001-27, 

(continued) 

Lender 

Required 

Documents/ 

Properties Built 

in Accordance 

With ML 2001- 

27 

Lender 

Required 

Documents 

Homes 100% Complete Less Than One Year Old, continued 

• The appraiser is to inspect for health and safety violations. 

• If no health and safety problems are noted, there are no repairs, alterations, or 

inspection conditions, and the property is ready for occupancy, the appraiser is to 

mark the appraisal “As Is.” 

• The appraiser must take a clear photograph (in addition to the standard appraisal 

photos) of each diagonally opposite front and rear corner of the house to record 

adequate grading and drainage of the site; and make a statement on the appraisal 

report of the acceptance of the grading and drainage. 


• Complete appraisal package or Master Appraisal Report (MAR), is always 

required, including the information listed below, if the property is “under 

construction” or “existing”: 

• Verification that the property conforms with plans and specs. 

• Notation that there are no health and safety issues. 

• Clear photographs of each diagonally opposite front and rear corner of the 

house to record adequate grading and drainage of the site with the 

appraiser’s statement that grading and drainage is acceptable. 

• Notation of a final inspection if the property is “proposed construction” or 

“under construction” less than 90% completed. 

• Notation that all utilities were on and functional when the appraisal was 

completed (if the property is complete). 

Properties Built in Accordance With Mortgage Letter 2001-27 

• The lenders files must continue to retain the following documents for new or 

proposed construction and high ratio loans: 

• Builders Certification of Plans, Specs, & Site (form HUD-92541) 

• Building Permit 

• National Pest Association Form NPCA-99A and HUD-NPCA-99-B, where 

applicable. 

Properties Built in Accordance With Mortgage Letter 2001-27, continued 

• Builders 1 Year Warranty (HUD form 92544) 

• Certificate of Occupancy 

• Carpet ID 

• Manufactures Warranties 

• Insulation Certificate 

• Final Inspection by the appraiser with utilities on and functional (required by 

SunTrust) 






Lender 

Required 

Documents, 

(continued) 

Pre-Approval/ 

Early Start 

Letters 

Builder 

Certification 

Reference: See HUD Specifications For Pre-Approval, Inspections and 

Documentation previously presented in this topic for information concerning 

Mortgagee Letter 2001-27 

• Regardless of the process used, the lender must certify that the property is 100% 

complete (both on site and off site improvements) and that the property meets 

HUD's minimum property standards. This certification is on the Addendum to the 

Uniform Residential Loan Application (Form HUD 92900-A) on page 3. 

• Builders that wish to begin construction before the appraisal is completed or the 

lender issues the Statement of Appraised Value must have “Pre-approval” in order 

to permit a borrower to obtain greater than 90% financing in areas not issuing 

Building Permits (or their equivalent). 

• Pre-approval is defined as either a lender issued Early Start Letter (COR 0462) or 

a Building Permit (or its equivalent) issued by a local jurisdiction prior to 

construction. 

• Upon review and analysis of the plans and specs, Early Start Letters are typically 

issued by a lender’s DE Underwriter. 

• If a builder is providing a HUD approved ten (10) year warranty on the subject 

property an Early Start Letter is not required. 

• If the local jurisdiction issues both a Building Permit and a Certificate of 

Occupancy, then neither an Early Start Letter nor a HUD approved ten (10) year 

warranty is required. 

Note: This definition of pre-approval does not apply to condominiums or 

manufactured housing. 

Reference: See 10 Year Warranties for the HUD Accepted Insured Ten-Year 

Protection Plans subsequently presented in this product description for additional 

information. 

• The builder must complete the applicable sections of the Builder Certification of 

Plans, Specs & Site Form (HUD 92451, REV 4/01) for all new construction, 

regardless of whether or not a 10-year warranty is offered. 

• The Builder Certification of Plans, Specs & Site Form must be completed and 

signed within 30 days of the lender’s request for an appraisal. 

• The form must be provided to the appraiser who must review the form and note 

on the appraisal that he/she has seen the certification. In addition, the appraiser 

must comment on the appraisal as to whether or not he/she agrees with the 

builder’s findings. 

• If the form is not provided to the appraiser, HUD requires the appraiser to return 

the appraisal request. If the form is not complete, HUD requires the appraiser to 

return the form for completion prior to releasing the appraisal. 

Reference: See Builder Certification Procedure subsequently presented in this topic 

for additional information. 






10 Year 

Warranties 

Required 

Exhibits for 

HUD 

Endorsement 

Builder 

Certification 

Procedure 

• A ten (10) year warranty is required if the borrower wants maximum FHA 

financing, an Early Start Letter is not available and the local jurisdiction does not 

issue a building permit. 

• If a ten (10) year warranty is required, a copy of the actual warranty or letter from 

the warranty company specifically stating acceptance of the property must be 

provided. 

• Letters from the warranty companies should include the subject address, 

effective date of coverage, type of warranty and the warranty company’s name. 

The letter must be signed by an official of the company. 

• If a 10 Year Warranty is a condition on the loan, the loan cannot close until 

actual confirmation of the warranty approval has been received in writing. Verbal 

confirmation is not sufficient. 

• HUD issues periodic updates for approved warranty companies. Click here for 

the current list of HUD Accepted Insured 10 Year Protection Plans. 

• Construction exhibits required to be submitted to HUD in the endorsement 

package for high LTV (above 90%) cases are as follows: 

• Builder’s Certification (HUD-92541), 

• Builder’s Warranty (HUD-92544), 

• a HUD Accepted Insured Ten-Year Protection Plan, (when required), and 

• all other documents normally submitted, such as inspection reports, soil 

poisoning certifications, appraisal reports, Square Foot Cost Appraisal form, 

if applicable, etc. 


• The Builder Certification procedure is used to obtain mortgage insurance for 

most new construction in new subdivisions. 

• If the local HUD Field Office determines that local subdivision standards do not 

exist, or are inadequate to protect HUD’s underwriting risk or the health and 

safety of the of the intended occupants, it may require builders and lenders to 

use only the Improved Area procedure (IAP) and the Appraiser/Review Checklist 

(HUD-54891). 

• Local HUD offices will periodically publish a list of those jurisdictions where 

subdivision standards do not exist or are considered ineffective or inadequate. 

• THE BUILDER CERTIFICATION PROCEDURE IS NOT APPLICABLE TO 

CONDOMINIUM PROJECT APPROVAL. 

Builder Certification Procedure (Local Standards Are Acceptable) 

• The Builder Certification procedure is used where HUD determines that local 

subdivision standards adequately protect the health and safety of the borrower. 






Builder 

Certification 

Procedure 

Affirmative Fair 

Housing 

Marketing Plan 

(AFHMP) 

• The builder must complete the Builder Certification of Plans, Specifications, & 

Site (HUD-92541). If there are flood hazards, runway clear zones/clear zones or 

foreseeable hazards/adverse conditions noted on the certification, the DE 

underwriter has the responsibility to determine if the health and safety of the 

borrower or the underwriting risk is affected. The builder can use the certification 

for more than one (1) property by attaching it to a list of properties with matching 

FHA case numbers and entering “See Attached List” into the FHA case number 

block on the form. 

• The Builder Certification of Plans, Specifications, & Site (HUD-92541) is sent to 

the appraiser with the appraisal request. The appraiser will indicate any 

discrepancies noted, use it as a source to assist in determining the property 

value and return the form with the appraisal report to the lender. 

• The builder’s compliance with the Affirmative Fair Housing Marketing Plan 

requirements must be noted on the Builder Certification of Plans, Specifications, 

& Site (HUD-92541). 

• Mortgagee Letter 01-09 states, to “streamline the process and assure better 

compliance to HUD’s affirmative fair housing marketing requirements”, a fourth 

option is now available to builders that sold 5 or more units in the past 12 month 

period or plan to sell 5 or more units in the next 12 month period with FHA 

insured financing. 

• This new option-block “d”, paragraph 11 of the Builder Certification of Plans, 

Specifications, & Site (HUD-92541), allows the builder to self certify compliance 

with HUD’s affirmative fair housing marketing regulations. 

• Builders must also maintain records of their affirmative fair housing marketing 

activities and make them available to the Department upon request. 

• If a builder opts to check block “d,” they no longer need to submit an individual 

Affirmative Fair Housing Marketing Plan (AFHMP) to the department for 

approval, sign a Voluntary Affirmative Marketing Agreement (VAMA), or contract 

with another entity that has a VAMA or AFHMP. 

• To obtain approval of an AFHMP, the builder or developer must complete and 

file Form HUD-935.2 with the Fair Housing and Equal Opportunity (FHEO) 

Division of the local HUD Field Office or the FHEO Program Operations 

Divisions in HUD Regional Offices. 

• THE AFHMP MUST BE APPROVED BY THE FHEO DIVISION BEFORE THE 

BUILDER OR DEVELOPER BEGINS TO MARKET PROPERTIES. 

• For new subdivisions being built in phases, an AFHMP must be filed for the first 

phase. 

• Builders or developers that are planning large phased subdivisions must consult 

with the FHEO Division of the local HUD Field Office for further guidance. 

• The FHEO Division can request the submission of new or amended AFHMPs for 

subsequent phases. 






Affirmative Fair 

Housing 

Marketing Plan 

(AFHMP) 

• A builder or developer may be exempt from obtaining HUD approval of an 

AFHMP if the following conditions are met: 

• the builder/developer is in good standing to a Voluntary Affirmative 

Marketing Agreement (VAMA) between the Department and a State, local 

home builders association, or Board of Realtors associated with their 

national organizations (signatory promises that marketing activities 

connected with HUD-insured mortgages will be conducted in a nondiscriminatory 

manner), AND 

• the builder/developer submits to HUD written proof of its status as a 

signatory to such an agreement. 

• Case numbers should not be ordered on new properties until it has been 

verified that the builder is in compliance with HUD’s AFHMP requirements 

(i.e., have an approved AFHMP or documentation that builder is in good 

standing to a VAMA). 

Reference: See the FHA Case Number Assignment and Cancellation subtopic 

in the Overview topic for additional information. 

Land Contracts • If the borrower will use the loan to complete payment on a land contract, 

contract for deed, or other similar type financing arrangement where the 

borrower does not have title to the property, the new mortgage may be 

processed as either a purchase or a refinance transaction with maximum 

insured financing if the borrower receives no cash at closing. 

• If all loan proceeds are used to pay the outstanding balance on the land 

contract and eligible repairs, renovations, etc., the appropriate loan-to-value 

ratio is applied to the lesser of: 

• the appraised value plus the allowable closing costs, or 

• the total cost to acquire the property (the original purchase price, plus any 

documented costs the purchaser incurs for rehabilitation, repairs, 

renovation, or weatherization), plus allowable closing costs and, if treated 

as a refinance, reasonable discount points. 

• Equity in the property (original sales price minus the amount owed) may be 

used for the borrower’s entire down payment. However, if the borrower 

receives cash at closing exceeding $500, the loan is limited to 85% percent of 

the sum of the appraised value and allowable closing costs. 

• Replenishment of the borrower’s own cash expended for repairs, 

improvements, renovation, etc., is not considered as “cash back”, provided the 

borrower can substantiate, with cancelled checks and paid receipts, all out-ofpocket 

funds spent for these purposes. 






Building on 

Own Land, 

(continued) 

• Borrowers who are building homes on land they already own are still required to 

have a three and one half percent (3.50%) down payment (or its equivalent in 

land equity) into the transaction. All mortgage transactions must be calculated 

using the documented acquisition cost. 

Note: A manual verification of the calculation is necessary to determine that the 

maximum loan amount is accurate. Do not rely on computer-generated 

calculations during the processing and underwriting of the loan as an accurate 

loan amount. 

• The documented acquisition cost is entered in the Sales Price line, of the FHA 

Loan Underwriting and Transmittal Summary (HUD-92900-LT) and includes the 

sum total of the following items: 

• builder’s price or sum of all subcontractors’ bids, materials, etc., 

• cost of the land (if owned more than six [6] months or received as an 

acceptable gift, the appraised value of the land may be used instead of its 

cost), and 

• interest and other costs associated with any construction loan obtained by 

the borrower to fund construction of the property. 

• The calculated Loan-to-Value Ratio shown will reflect the lesser of the sales 

price or the appraiser’s value estimate, as it does on other purchase 

transactions, and is the same value used for TOTAL Scorecard. 

• If the borrower receives cash at closing to replenish his/her own cash funds 

spent during construction, it is not cash-out if documentation (i.e., canceled 

checks and paid receipts) is provided that the funds were paid out of pocket. 

• If the borrower receives cash-back of more than $250 at closing, the maximum 

LTV is limited to 85.00%. 






Property Tax 

Estimates 

Re-Sale of New 

Construction 

Properties 

Tax Estimate Used for Qualifying 

• Borrower(s) must qualify with the monthly payment based on improved property 

taxes, not on the vacant land. 

• In those states where it is customary for a borrower to pay property taxes in 

arrears, (and he/she may not pay property taxes on the improvements until a year 

or more after closing), FHA still expects the borrower to qualify based on accurate 

and realistic property tax estimates that include the improvements. 

• Realistic estimates of value for improved property must be obtained from reliable 

sources such as those listed below. 

• The appraiser 

• Comparable sales data 

• The assessor’s office 

Tax Estimate for Escrow Accounts 

• The borrower’s monthly escrow payments must be based on the accurate and 

realistic “improved” property estimate when tax authority reassessments are likely 

to occur within 12 months of mortgage loan closing. 

• RESPA permits lenders to project the disbursements for real estate taxes for 

the ensuing twelve months and collect funds based on this projection. When 

the annual escrow analysis is completed, refunds are issued or shortages 

collected based on the results of that analysis. 

• FHA will treat most re-sales of properties that are less than one (1) year old and 

100% complete, as an existing property for documentation purposes, and the 

new construction exhibits normally submitted will not be required. 

• Re-sales of properties that are existing construction less than a year old, the new 

construction exhibits are required when the following scenarios apply: 

• the new FHA loan is a non-arms length transaction, or 

• documentation to identify the transaction as a re-sale to a second or 

subsequent purchaser cannot be provided. 

Notes: 

• The property must be 100% complete (including all on and offsite 

improvements). 

• The FHA case binder file must clearly identify the transaction as a re-sale to a 

second or subsequent purchaser. 

• A lender selling a newly built home is currently exempt from the ninety (90) 

day property flipping guidelines. 

• A builder selling a newly built home, where the current builder completed the 

home and obtained the Certificate of Occupancy, is currently exempt from the 

ninety (90) day property flipping guidelines. 

• A builder selling a newly built home, where the current builder did not actually 

complete the construction of the property and the Certificate of Occupancy 

was issued prior to the current owner, is subject to all property flipping 

guidelines. 




Ease-In Payment Reduction Feature 

General Introduction 

• The “Ease-In” is a payment reduction feature where the seller / builder 

contributes interest up to the first six (6) months allowing the borrower to “easein” 

into a new home and to “ease-in” to the monthly payments. 

• The maximum interest subsidy may not exceed the six percent (6%) seller 

contribution. 

• The builder or seller may pay the interest portion beginning with the first payment 

up to the 6th month payment. 

• This feature is only available for a fixed rate FHA loan. 

• Temporary buydowns are not eligible when the seller-paid interest buydown 

feature is utilized. 

Amortization 

Schedule 

Requirements 

• This feature is only available for a 30-year fixed rate FHA purchase transaction. 

• Borrower must qualify at the Note rate. 

• The maximum contribution of 6% of the sales price may be used towards the 

borrower’s interest, closing costs and/or prepaids. 

• Any dollar amount over the 6% seller contribution limit must be subtracted dollarfor-dollar 

from the sales price. 

• Care must be taken to ensure the borrower’s three and one half percent (3.50%) 

down payment is not reduced as a result of the seller contributions. 

• The seller / builder contribution which is disbursed monthly must be a fixed 

amount (i.e., payments applied to the monthly interest cannot fluctuate from 

month to month). 

• No portion of the funds may be applied to the principal balance. 

Ineligible transactions 

• The following transactions are not eligible for use with the Ease-In Payment 

Reduction Feature: 

• Temporary buydowns 

• Base loan amounts greater than $417,000 

• Housing Finance Agency loans 

• An amortization schedule may be obtained on the SunTrust website or similar 

loan amortization programs can be used. 

• The following items are determined by running an amortization schedule: 

• Total Seller Paid Contribution: the dollar amount of the seller paid interest, 

• Reduced Payment Period: the number of months during which interest 

payments are made, a minimum of one (1) month and no more than six (6) 

months, and 

• Interest Payment: a fixed dollar amount being paid monthly toward borrower 

interest from the seller / builder contribution. 





Ease-In Payment Reduction Feature, Continued 

Interest 

Payment 

Reduction 

Calculation 

• An example of a 5-month payment reduction on a loan amount of $97,000 at 6% 

interest is shown in the table below. 

• The seller’s interest contribution for the payment reduction is a fixed amount that 

cannot exceed the last month of the subsidy period. 

• The maximum monthly interest contribution amount in the example below is 

$483.00. 

Monthly 

Payment 

Principal Interest 

Owed 

Total P & I Seller/Builder 

Contribution 

Borrower 

Contribution 

# 1 $96.56 $485.00 $581.56 $483.00 $98.56 

# 2 $97.04 $484.52 $581.56 $483.00 $98.56 

# 3 $97.53 $484.03 $581.56 $483.00 $98.56 

# 4 $98.02 $483.54 $581.56 $483.00 $98.56 

# 5 $98.51 $483.05 581.56 $483.00 $98.56 

DU Direct The table below shows the data input instructions for DU submission of the Ease-In 

Payment Reduction Features in DU Direct. 

Fannie Mae’s Desktop Underwriter (DU) 

Types, Terms & Property 

• Type of Mortgage and Terms of Loan 

• Interest Rate (%) – enter the Note Rate 

Details of Transaction 

• Line f. Est. closing cost- Add Ease-In amount to closing costs. 

• Line k. Closing Costs Paid By Seller – if an Ease-In Payment Reduction Feature 

is involved, add the Ease-In feature amount to other seller paid closing costs 

Other Credits 

• Description of Other Credits – enter “Other” 

• Amount – if an Ease-In feature is involved, enter the dollar amount of the Ease- 

In feature 

Additional Data 

• Loan Information 

• First Year Buydown Rate – enter the Note Rate 





Ease-In Payment Reduction Feature, Continued 

MLCS Loan 

Set-Up 

• The following program and investor codes are applicable for MLCS. Additionally, 

they apply to Non-AUS and Fannie Mae DU. 

• Program Code = F30SPI 

• Investor Code = 000 

• The table below shows MLCS procedures. 

MLCS 

Screen Field Input 

MOM Program Code F30SPI 

MOB Target Investor 000 (should prefill) 

MOB Buydown Code SPI 

Z74 Type D (for dollar buydown) 

Z74 Who Pays Buydown S (for seller) 

Z74 Amount $ Amount of monthly fixed interest payment 

fund 

Z74 MOS # of months seller will pay toward the 

interest portion of PITI payment 

Closing • The Seller-Paid Interest Buydown Agreement (COR 0322) must be completed by 

the Loan Closer and signed by the borrower and sellers. 

• The Ease-In Contribution must be show on a line within the 800 series of the 

HUD 1 settlement statement as a seller credit and be labeled “Seller-Paid 

Interest Contribution”, 4 months @ $483.54” with $1934.16 (per example above) 

under the seller’s column. 

• Additional funds paid by the seller over and above the cumulative interest 

calculation must be shown as a closing cost credit to the borrower on the HUD-1 

settlement statement. 

• HUD does not require or permit the presentation or disclosure of “seller-paid 

credits” on the Good Faith Estimate (GFE). 

• Seller credits must be entered as a “lump sum credit” on the HUD-1. 

Note: When the seller makes a contribution to more than one expense for the 

borrower, the seller credits shown on the HUD-1 MUST reflect the “lump sum 

payment.” 

• The servicing department will disburse the seller-paid interest contribution shown 

on the HUD-1 on a monthly basis and bill the borrower for the difference. 

• As far as IRS reporting is concerned, servicing will back out the seller-paid 

interest contribution for year-end reporting purposes on Form 1098. 




Energy Efficient Mortgage (EEM) Program 

General Only Correspondent lenders that have a Direct Endorsement underwriter on 

staff may underwrite and submit for purchase loan transactions involving the 

Energy Efficient Mortgage (EEM) loan program to SunTrust. Property repairs 

and energy upgrades must be complete for SunTrust to purchase the loan. 

Eligible 

Mortgages 

Eligible 

Property 

Qualifying the 

EEM Borrower 

Automated 

Underwriting 

System (AUS) 

A mortgage for the Purchase or Rate/Term refinance of a property to be insured 

under section 203(b), 203(k), or section 234(c) is eligible for the EEM program.) 

• Both new and existing 1-4 family unit properties are eligible, including 1-unit 

condominiums and manufactured housing. 

• The allowable EEM dollar amount is for the entire property and not based on a 

per unit basis for multiple unit properties. 

• For new construction or homes that were built to the 2000 IECC (or are being 

retrofitted to that standard), the borrower is eligible for the following stretch ratios 

in addition to the cost of the improvements: 

• Housing: 33.00% 

• Debt to Income: 45.00% 

• FHA’s TOTAL Scorecard may be used for underwriting EEMs. 

• The lender’s Direct Endorsement (DE) underwriter must attest that he/she has 

reviewed the monthly payment and loan amount calculations associated with the 

energy efficient improvements, and found the mortgage and the property to be in 

compliance with FHA’s underwriting instructions 




Refinances 

Types of 

Refinance 

Transactions 

SunTrust Mortgage offers the following types of refinance transactions: 

• Cash Out Refinance (85.00% LTV), Rate/Term Refinance, and 

• Streamline Refinances (FHA loan to FHA loan) 

• Credit Qualifying with an appraisal 

• Credit Qualifying without an appraisal 

General • A new FHA appraisal is required for each refinance transaction requiring an 

appraisal. An appraisal used for the purchase of the property cannot be used 

again for a subsequent refinance even if 120 days has not passed. 

• All Rate/Term refinance and Streamline Refinance transactions must have a 

payoff statement in the file. 

• The payment due in the month the loan is closing must be paid either prior to 

closing or included in the payoff amount at closing. (i.e., if the borrower closes 

and funds on a refinance in the month of December, the borrower does not need 

to have made the December payment. However, if the loan doesn’t close/fund 

until January, the December payment cannot be included in the loan amount and 

the borrower will need to pay the December payment from his/her own cash.) 

• All subordinated financing, whether it will be subordinated to the new SunTrust 

mortgage or will be paid off by the new SunTrust mortgage (unless FHA’s more 

restrictive twelve (12) month period applies), must be seasoned for at least six 

(6) months with 0x30 day late payments (i.e., six (6) permanent mortgage 

payments made) prior to application for the new SunTrust mortgage. 

• Confirm the borrower is current on the mortgage being refinanced for: 

• the month prior to the month in which they close, and 

• the month they close. 

Note: The borrower has the option to make the current payment at the 

beginning of the month or include it in the payoff amount at closing, when closing 

within the month the payment is due. 

• SunTrust Mortgage will not purchase any FHA loan where the tax, hazard and/or 

flood insurance escrows are netted from the unpaid principal balance of the FHA 

loan being paid off (i.e. principal balance cannot be reduced by escrow account 

balance). Refunds of any tax and insurance escrow account balances are paid 

directly to the borrower within 30 days after the existing loan is paid off. 

• SunTrust Mortgage will not purchase any FHA loan where the tax, hazard, 

and/or flood insurance escrows are transferred (rolled) from the unpaid principal 

balance of the FHA loan being paid off, to the new loan, in order to fund the new 

escrow account. Refunds of any tax and insurance escrow account balances 

are paid directly to the borrower within 30 days after the existing loan is paid off. 





Refinances, Continued 

FHA Refinance 

Credit Query 

• If the existing loan is an FHA loan, there could be a refund of a portion of the 

Upfront MIP. If the new loan will also be an FHA loan, this refund is applied as a 

credit in determining the new loan amount. FHA provides Refinance Credit 

Query to use in determining this amount “upfront.” 

• The Refinance Credit Query is used to determine the amount of the MIP credit 

available for an active FHA-insured loan that is being refinanced. 

• It provides 30-day and 60-day calculations based on the projected closing date 

of the new loan. 

• This feature can be used to determine the credit or refund on either FHA or 

conventional new financing without ordering a new case number. 

• This enables lenders to know the amount of the MIP credit or refund at the preapplication 

stage. 

• The refund schedule for FHA-to-FHA refinances is modified to a three (3) year 

time period for those mortgages endorsed for insurance on or after December 8, 

2004. 

• In order to accurately determine the correct UFMIP has been charged, SunTrust 

requires Correspondent lenders to complete a FHA Case Query on each 

borrower to verify the accuracy of the case number assignment date. A copy of 

the case query results must be included in the loan file prior to purchase. 

The instructions to utilize the Refinance Credit Query feature are shown below. 

Step Action 

1. Sign in to FHA Connection 

2. Click “Single Family FHA” 

3. Click “Single Family Origination” 

4. Click “Case Processing” 

5. Click “Case Query” 

6. Select the field office applicable to the subject property in the first box 

7. Enter the borrower’s social security number 

8. Click “Send” 

9. The User will see either the “Case Query” screen or the “Case Query List” 

10. If the “Case Query List” screen appears, print the screen, then select the 

case number that matches the case number on the subject loan file and 

print the resulting “Case Query” screen. 

11. The “Case Query” screen appears, print the screen and include with the 

loan file. 

12. Repeat the steps reflected above for each borrower 

Additionally, lenders MUST investigate, resolve and document in the loan file, any 

other case number matches that are found under the borrower’s social security 

number. 





Refinances, Continued 

FHA-to-FHA 

Refinance 

Transactions 

May Not 

Exceed County 

Loan Limits 

SunTrust Mortgage currently does not permit FHA-to-FHA refinance transaction to 

exceed the new county loan limits. 




Cash-Out Refinances 

General • HUD considers cash out refinances for debt consolidation a high risk, especially 

if borrowers have not demonstrated a significant increase in income and appear 

to be heavy credit users. 

• These transactions should be scrutinized more carefully. 

Delinquent 

Mortgages 

Eligible 

Borrowers 

• Borrowers who are delinquent or in arrears with their existing mortgage, or had a 

late payment in the last 12 months (no payment may have been more than thirty 

[30] days late) are NOT eligible for cash-out financing. 

• Verification of a satisfactory mortgage payment history must be provided 

through the month prior to closing, ensuring that all payments have been 

made within the month due for the previous 12 months. 

• An updated credit report or Verification of Mortgage (VOM) is required, if the 

mortgage payment history provided in the loan file is not reporting through 

the month prior to loan closing. 

• A prior to closing condition, code CLS54, will be issued requiring evidence 

that the existing mortgage is less than 30 days past due at closing with 0 x 

30 day late payment in the last 12 months. 

• Loan Officers must inform their clients that all mortgage payments must be 

made within the month due on their current mortgage, until the date of 

closing for their new transaction. 

Notes: 

• Payoff statements are not an acceptable means to document a mortgage 

payment history. 

• Cancelled checks may be an acceptable source of documentation for a 

mortgage payment history, at the underwriter’s and/or MLC’s discretion, on a 

case-by-case basis 

Reference: See the Mortgage/Rental Payment Histories subtopic subsequently 

presented in the Credit Requirements topic for additional requirements when using 

TOTAL Scorecard for borrowers that have any mortgage tradelines with a 

delinquency in their credit history. 

• Any co-borrower or co-signer being added to the Note must be an occupant of 

the subject property. 

• Non-occupant co-borrowers or co-signers are not permitted. 





Cash-Out Refinances, Continued 

Occupancy • Cash-out refinances are eligible only for primary residences. 

• Primary residences owned free and clear must be refinanced as cash-out 

transactions. 

• Owner-occupied One-to-four (1-4) unit dwellings are eligible. 

Maximum 

LTV/TLTV 

• If the borrower has owned and occupied the subject property as their primary 

residence for less than one (1) year prior to loan application, the maximum loan 

is limited to a combined TLTV of 85% of the lesser of: 

• appraised value (no closing costs, discount points or prepaid items), or 

• the original sales price of property (no closing costs, discount points or 

prepaid items). 

Note: A sales price need not be considered if the property was acquired as the 

result of inheritance and is, or will become, the borrower’s primary residence. 

• A combined TLTV of 85% of the appraised value may be used if the borrower 

has owned and occupied the subject property as their primary residence for at 

least one (1) year prior to loan application. 

Reference: See the TLTV Calculation subtopic in the Secondary Financing topic 

subsequently presented in this product description for additional information 

when secondary financing exists. 





Cash-Out Refinances, Continued 

Maximum 

LTV/TLTV 

Acceptable 

Payment 

History 

Secondary 

Financing 

• If the borrower has owned and occupied the subject property as their primary 

residence for less than one (1) year prior to loan application, the maximum loan 

is limited to a combined TLTV of 85% of the lesser of: 

• appraised value (no closing costs, discount points or prepaid items), or 

• the original sales price of property (no closing costs, discount points or 

prepaid items). 

Note: A sales price need not be considered if the property was acquired as the 

result of inheritance and is, or will become, the borrower’s primary residence. 

• A combined TLTV of 85% of the appraised value may be used if the borrower 

has owned and occupied the subject property as their primary residence for at 

least one (1) year prior to loan application. 




• Mortgages with less than 6 months of payment history are not eligible for a cashout 

refinance. 

• Free and clear properties are eligible for cash-out refinances. 

• New subordinated financing is not allowed on any cash-out transaction. 

• If the secondary financing is an equity line, the maximum amount of the equity 

line is used in the calculation. 

• All existing liens (to be paid off or remain subordinate to the new first mortgage) 

must be seasoned for at least six (6) months (i.e., six (6) permanent mortgage 

payments made), with an acceptable payment history (i.e., no late payments of 

30 days or beyond). 

• When the LTV of the proposed first mortgage is 85%, no subordinate financing 

may remain on the loan regardless of the length of ownership. 

• Discount points, prepaid expenses and closing costs may not be included nor 

added to the properties appraised value. 

Reference: See the Lender Credit subtopic in the Contributions by Interested 

Parties topic for additional information. 




No Cash-Out with an Appraisal (Rate and Term Refinances) 

General • The existing mortgage being refinanced can be either a current FHA, 

conventional, or VA loan. 

• Requires an appraisal, full processing documentation and underwriting. 

Occupancy Owner-occupied only. 

The Maximum 

Insurable 

Mortgage 

Maximum Cash 

Back to the 

Borrower 

• The maximum insurable mortgage is based on the lesser of one (1) of the 

following two (2) calculations: 

• multiply the appraised value of the property by 97.75%, or 

Note: If the property was acquired less than one year before the loan 

application and is not already FHA-insured, the lesser of the current 

appraised value or original sales price of the property must be used. 

• the sum of the existing first lien, Pro Rata MIP (if paying off an FHA 

mortgage, up to two [2] months) closing costs, prepaid expenses, borrower 

paid discount points, purchase money seconds, junior liens (not used to 

acquire the property) over 12 months old (i.e. 12 permanent mortgage 

payments made), prepayment penalties, accrued late charges, escrow 

shortages, borrower paid repairs required by the appraisal minus any refund 

of UFMIP (prepaid expenses are limited to per diem interest and 

hazard/flood insurance, property taxes and mortgage insurance impound, 

regardless of whether the lender refinancing the existing loan is also the 

servicing lender for that mortgage), and 

• the base loan amount may not exceed the maximum county loan limits for 

the property. 

Note: Any appraisal requirements, including, repairs, must be complied 

with before the mortgage is eligible for insurance endorsement. 

Reference: See the FHA Refinance Loan Amount Worksheet (COR 0333a) 

for assistance in calculating the loan amount. 

• The borrower may not receive cash back in excess of $500 at closing. 

• Delinquent interest may not be included. The refinance does not permit a 

borrower to obtain cash back by not making a mortgage payment when due. 

Reference: See the Lender Credit subtopic in the Contributions by Interested Parties 






No Cash-Out with an Appraisal (Rate/Term), continued 

Mortgage and 

Payoff 

Requirements 

Subordinate 

Liens 

Spousal Buy- 

Outs 

Seasoning 

Requirement 

• The mortgage being refinanced must be current for the month due. 

• The payment does not need to be paid for the month in which the loan 

closes/funds 

Note: If the closing/funding rolls over to the following month, the prior month’s 

payment cannot be included in the loan amount. 

• The amount of the existing first mortgage may include the interest charged by 

the servicing lender when the payoff will not likely be received on the first day of 

the month (as is typically assessed on FHA-insured mortgages). 

• Subordinate liens, including credit lines, may remain outstanding provided the 

FHA loan and subordinate lien meets the criteria outlined in the topic “Secondary 

Financing” of this product description. 

• If disbursements from an equity line exceed a total of $1,000 within the past 

twelve (12) month period and the funds were used for purposes other than 

repairs and rehabilitation of the subject property, the line of credit cannot be 

included in the new mortgage. 

• Subordinate financing, except purchase money seconds, must be seasoned 

twelve (12) months (i.e. twelve [12] permanent mortgage payments made) to be 

included in the loan amount. 

• New and existing subordinate financing is permitted up to a maximum TLTV of 

97.75%. 




• The amount of “specified equity” in a spousal buy-out is considered property 

related indebtedness and can be included in the new mortgage. 

• The “specified equity” must be documented in a recorded property settlement 

agreement or divorce decree. 

• If the borrower is newly separated and no property settlement agreement has 

been prepared, a legally recorded document prepared by an attorney specifically 

outlining the division of equity is acceptable to HUD. 

• If the subject property was purchased less than one (1) year prior to loan 

application and is not already FHA-insured, the maximum loan will be 

determined by using the lesser of the appraised value or the original sales price 

(plus the cost of any repairs or rehabilitation, with proper documentation). 

• If the subject property was purchased more than one (1) year prior to loan 

application, the maximum loan will be determined from the appraised value. 




Streamline Refinances 

General • Streamline refinances are designed to lower the monthly principal and interest 

(P&I) on a current FHA mortgage and must involve no cash back to the 

borrower, except for minor adjustments at closing not to exceed $500. 

• SunTrust Mortgage offers the following types of streamline refinance 

transactions: 

• Credit Qualifying Streamline Refinance with an appraisal, and 

• Credit Qualifying Streamline Refinance without an appraisal. 

• For credit qualifying transactions, SunTrust to SunTrust and non-SunTrust to 

SunTrust FHA streamline refinances are eligible for conforming and jumbo loan 

amounts. Unless otherwise stated, the guidelines below apply for both 

conforming and jumbo loan amounts. 

Loan Terms 

Streamline Refinance without an appraisal: 

• Term is lesser of 30 years or remaining term plus 12 years. 

Streamline Refinance with an appraisal: 

• 10, 15, 20, 25, and 30 year fixed rate 

Note: A reduction in the loan term without a net tangible benefit must be processed, 

underwritten, and closed as a no cash-out (rate/term) refinance. 





Streamline Refinances, continued 


Amount 

Streamline Refinance without an Appraisal 

• The maximum total loan amount may not exceed the outstanding principal 

balance, plus interest due on the current mortgage, minus the applicable refund 

of the UFMIP, plus the new UFMIP. 

Notes: 

• Discount points may not be included in the new mortgage. If the borrower 

has agreed to pay discount points, document in the file that the borrower has 

the assets to pay the discount point, along with any other financing costs 

that are not included in the new loan amount. 

• Delinquent interest, late charges or escrow shortages may not be included 

in the outstanding principal balance of the mortgage being paid off for the 

maximum mortgage calculation. 

• SunTrust Mortgage will not purchase any FHA loan where the tax, hazard 

and/or flood insurance escrows are netted from the unpaid principal balance 

of the FHA loan being paid off (i.e. principal balance cannot be reduced by 

escrow account balance). Refunds of any tax and insurance escrow account 

balances are paid directly to the borrower within 30 days after the existing 

loan is paid off. 


and/or flood insurance escrows are transferred (rolled) from the unpaid 

principal balance of the FHA loan being paid off, to the new loan, in order to 

fund the new escrow account. Refunds of any tax and insurance escrow 

account balances are paid directly to the borrower within 30 days after the 

existing loan is paid off. 

• The base loan amount may not exceed the maximum county loan limits for 

the property. 

• The borrower(s) for a non-owner occupied property, even if originally acquired as 

principal residences by the current mortgagors, may only refinance the 

outstanding balance of the existing mortgage. 

• FHA will compute a new LTV by dividing the new loan amount, exclusive of any 

UFMIP, by the lower of the sales price or appraised value that is in their Single 

Family Insurance System (SFIS) database for the existing loan being refinances. 

If there is missing information in the database and a computed value is not 

possible, only then will the new LTV default to 89.99%. 







Amount, 

(continued) 

Streamline Refinance with an Appraisal 

• The maximum total loan amount may not exceed the lower of: 

• Outstanding principal balance, plus interest due on the current mortgage, 

minus the applicable refund of the UFMIP, plus closing costs, plus prepaid 

items to establish the escrow account, plus the new UFMIP, or 

• 97.75% of the appraised value of the property, plus the new UFMIP. 

Notes: 

• Discount points may not be included in the new mortgage. If the borrower 

has agreed to pay discount points, document in the file that the borrower has 

the assets to pay the discount point, along with any other financing costs 

that are not included in the new loan amount. 

• Delinquent interest, late charges or escrow shortages may not be included 

in the outstanding principal balance of the mortgage being paid off for the 

maximum mortgage calculation. 

• SunTrust Mortgage will not purchase any FHA loan where the tax, hazard 

and/or flood insurance escrows are netted from the unpaid principal balance 

of the FHA loan being paid off (i.e. principal balance cannot be reduced by 

escrow account balance). Refunds of any tax and insurance escrow account 

balances are paid directly to the borrower within 30 days after the existing 

loan is paid off. 


and/or flood insurance escrows are transferred (rolled) from the unpaid 

principal balance of the FHA loan being paid off, to the new loan, in order to 

fund the new escrow account. Refunds of any tax and insurance escrow 

account balances are paid directly to the borrower within 30 days after the 

existing loan is paid off. 

• The base loan amount may not exceed the maximum county loan limits for 

the property. 

• Any refund of UFMIP on the old mortgage (if originally financed) must be 

subtracted from the existing first lien (i.e., current loan payoff) in calculating the 

new mortgage amount. 






Net Tangible 

Benefit 

The borrower must receive one of the following net tangible benefits from the new 

transaction: 

• a 5% reduction to the principal and interest (P&I) of the mortgage payment plus 

the annual MIP, or 

• refinancing from an ARM to a fixed rate mortgage. 

Reducing the term of the mortgage alone is not a net tangible benefit. The table 

below illustrates the net tangible benefit requirements for streamline refinances. 

Refinancing …to a Fixed Rate 

… from a Fixed Rate 

… from a One-Year ARM 

… from a Hybrid ARM During 

Fixed Period 

… from a Hybrid ARM During 

Adjustable Period 

Reduction of at least 5% percent of P&I and MIP 

New interest rate no greater than two percentage 

points above the current interest rate of the ARM 

Reduction of at least 5% percent of P&I and MIP 

New interest rate no greater than two percentage 

points above the current interest rate of the 

Hybrid ARM 

Notes: 

• Mortgage payment includes principal, interest, and monthly MIP. 

• A reduction in loan term without a net tangible benefit requires the loan to be 

underwritten and closed as a rate and term (no cash-out) refinance. 






Seasoning 

Requirement 

Maximum Cash 

Back to 

Borrower 

Secondary 

Financing 

Eligible 

Occupancy/ 


On the date of the new FHA case number assignment, 

• the borrower must have made at least six (6) payments on the existing FHA first 

mortgage and any subordinate financing 

• at least six (6) full months must have passed since the first payment due date of 

the refinanced first mortgage and any subordinate financing, and 

Example: The FHA case number on the mortgage being refinanced was closed 

on or before December 1st, and the borrower's first payment on that mortgage 

was due on January 1st. The lender may request assignment of an FHA case 

number for the refinancing mortgage no earlier than July 1st. 

• at least 210 days must have passed from the closing date of the current 

mortgage being refinanced. 

Streamline refinances are designed to lower the monthly principal and interest (P&I) 

on a current FHA mortgage and must involve no cash back to the borrower except 

for minor adjustments at closing not to exceed $500. 

• New subordinated financing is not allowed on any Streamline refinance 

transactions 

• Existing secondary financing may be subordinated, but it must be seasoned six 

(6) months (i.e., six (6) permanent mortgage payments made) prior to the date of 

the date of the new FHA case number assignment with 0x30 day late payments. 

• The maximum TLTV is as follows: 

• 105% for STM to STM transactions, and 

• 100% for non-STM to STM transactions. 

• Eligible for owner occupied, secondary, and investment properties. 

• Investment properties and second homes are only eligible for conforming 

streamline refinances without an appraisal. 

Note: Condominium Projects where the approval has been withdrawn must be a 

refinance without an appraisal. 






Employment/ 

Income 

Verification 

Qualifying 

Ratios 

Credit 

Requirements 

Mortgage 

Payment 

History 

Asset 

Documentation 

Requirements 

Buydowns 

Appraisal 

Requirements 

Standard employment/income documentation requirements must be met as outlined 

in the Income topic subsequently presented in this product description. 

• The maximum upfront ratio is 31%. 

• The maximum back-end ratio is 43%. 

Note: Streamline refinances are not eligible for TOTAL Scorecard, they must be 

traditionally underwritten. 

• Minimum credit scores for all borrowers on streamline refinances are: 

• 640 for loan amounts =/< $417,000, and 

• 680 for loan amounts > $417,000. 

• 

• Note: Credit scores must be entered into FHA Connection. 

• The borrower must have a payment history of 0x30 day lates over the most 

recent 12 month history for the first mortgage. 

• Less than 12 month payment history is acceptable as long as there are no late 

payments for the life of the loan. 

Note: 6 month payment seasoning is required from the date of loan application with 

0x30 day lates on any existing subordinate financing as well as the existing first 

mortgage. 

Standard asset documentation requirements must be met as outlined in the Case 

Requirements topic subsequently presented in this product description. 

Buydowns are not eligible with streamline refinances. 

Streamline refinances may be done with or without an appraisal. 






Loan 

Application 

CAIVRS 

LDP/GSA List 

TOTAL 

Scorecard 

Mortgage 

Insurance 

A full application is required. 

• Streamline refinances can be insured with or without an appraisal, and without 

HUD’s Credit Voice Alert Interactive Response System (CAIVRS). 

• Documentation of CAIVRS codes is not required. 

• The underwriter comments section of the FHA Loan Underwriting and 

Transmittal Summary must reflect LDP/GSA information. 

• The Fraud Prevention Certification (COR 0601) form, which includes LDP/GSA 

certification currently being used is required. 

• Streamline Refinance transactions are eligible for traditional underwritten and 

should not be submitted through TOTAL Scorecard (DU). 

Exception: If a streamline refinance is inadvertently submitted through TOTAL 

Scorecard, the loan must be traditionally underwritten, and the DE underwriter 

remains responsible for insuring all HUD and SunTrust Mortgage Credit 

streamline refinance guidelines are met (i.e., mortgage payment history, 

seasoning, etc.). Underwriters must also use their CHUMS ID for page three of 

the HUD/VA Addendum to Uniform Residential Loan Application (HUD 92900-A), 

FHA Connection, and the FHA Loan Underwriting and Transmittal Summary 

(HUD 92900-LT) for streamline refinances. 

Reference: See the MIP Premiums for Streamline Refinances ONLY subtopic 

subsequently presented in the Mortgage Insurance topic for additional information on 

mortgage insurance for streamline refinance transactions.. 




Secondary Financing 

General • Any financing other than the FHA first mortgage that creates a lien against the 

property is considered secondary financing, even those with “soft” or “silent” 

seconds (i.e., has no monthly repayment provisions or other features forgiving 

the debt). 

• Documentation from the provider of the secondary financing must show the 

amount of funds provided to the borrower and copies of the loan instruments are 

to be made part of the case binder file. 

• Costs incurred for participating in a down payment assistance secondary 

financing program may only be included in the amount of the second lien. 

• FHA reserves the right to reject any secondary financing that does not serve the 

needs of the intended borrower or where it believes the costs to the participants 

outweigh the benefits derived by the homebuyer. 

• All existing subordinated financing, whether it will be subordinated to the new 

SunTrust mortgage or will be paid off by the new SunTrust mortgage (unless 

FHA’s more restrictive twelve (12) month period applies), must be seasoned for 

at least six (6) months (i.e., six (6) permanent mortgage payments made) prior to 

application for the new SunTrust mortgage. 

• If new subordinated financing is being provided by a nonprofit, government entity 

or other business entity, the following is required: 

• Employer Identification Number (EIN) must be noted on the appropriate 

line(s) of the “Mortgage Information” section of the FHA Loan Underwriting 

and Transmittal Summary (HUD-92900-LT), and 

• the correct provider must be marked in the box below the EIN. 

• When the “Other” box is marked as the provider of secondary financing, 

the type of provider (i.e. employer, labor union) must also be identified. 

• Secondary financing subject to negative amortization is not acceptable. 

TLTV 

Calculation 

• The combined TLTV for a Purchase, Streamline Refinance, and Rate/Term 

Refinance transaction includes the proposed FHA first mortgage total loan 

amount (including any financed UFMIP) and any secondary financing, when 

secondary financing exists. 

• The combined TLTV for a Cash-out Refinance transaction includes the 

proposed FHA first mortgage base loan amount (excluding any financed 

UFMIP) and any secondary financing. 





Secondary Financing, Continued 

Automated 

Underwriting 

Systems (AUS) 

Information 

The following table shows information specific to AUS. 

Fannie Mae DU Freddie Mac LP 

• In all cases, the first mortgage data 

must include secondary financing 

data so that the TLTV is accurate. 

• Lenders must determine, outside of 

DU, the open date of any existing 

secondary financing to determine if 

it is eligible for inclusion in the new 

loan for rate/term refinances. 

• If secondary financing is a HELOC, 

the TLTV is based on the total 

available credit line, regardless of 

the balance. 

• In all cases, the first mortgage data 

must include secondary financing 

data so that the TLTV is accurate. 

• Lenders must determine, outside of 

LP, the open date of any existing 

secondary financing to determine if 

it is eligible for inclusion in the new 

loan for rate/term refinances. 

• If secondary financing is a HELOC, 

the TLTV is based on the total 

available credit line, regardless of 

the balance. 






Federal, State 

and Local 

Governmental 

Agencies 

• Secondary financing may be provided for the borrower’s full amount of down 

payment. 

• The second lien must be made or held by the eligible governmental body or 

instrumentality. 

• The first and second mortgages cannot result in cash back to the borrower at 

closing. 

• The sum of all financing cannot exceed 100% of the “cost to acquire” the 

property. “Cost to acquire” is defined as the sales price plus allowable 

borrower paid closing costs, discount points, prepaids, and repair and 

rehabilitation expenses. It does not include buydown funds, funds to pay 

off personal debts, or unallowable closing costs, such as tax service fees. 

• The maximum TLTV for SunTrust is 105%. 

• The “cost to acquire” may exceed the appraised value of the property under 

these types of government assistance programs. 

• The FHA insured first mortgage cannot exceed the FHA statutory limit for the 

area where the property is located. The combined indebtedness, however, may 

exceed the FHA statutory limit. 

• The source, amount, and repayment terms of the secondary financing must be 

disclosed in the mortgage loan application and the borrower must acknowledge 

that he/she understands and agrees to the terms. 

• The payment of the second mortgage is included in both the housing and debt 

ratios. 






Non-Profit 

Agencies 

• A non-profit agency, that is considered an instrumentality of the government and 

meets the criteria below may provide secondary financing when certain conditions 

are met: 

• must be type described in Section 501(c)(3) as exempt from taxation under 

Section 501(a) of the IRS code of 1986, and 

• have two(2) years’ experience as a provider of housing for low and moderate 

income persons, and 

• have a voluntary board with not part of the net earnings of the organization 

benefiting any member, founder, contributor, or individual. 

• A non-profit that meets the above criteria must also be approved by the local FHA 

HOC office. 

• Additionally, if the non-profit agency is considered an instrumentality of 

government, the guidelines indicated in the above section (Federal, State and 

Local Governmental agencies) must be followed. 

• Non-profit agencies not meeting either of the preceding criteria may provide 

secondary financing only after the borrower has met the normal down 

payment requirement of 3.50% of the acquisition cost and the combined 

dollar amount of the first and second mortgages do not exceed the statutory 

limit for the area where the property is located. 


• Lenders must determine if the non-profit has received FHA approval by checking 

the appropriate HOC web site for a list of all approved non-profit agencies. Click 

here for a roster of HUD approved nonprofits providing secondary financing. 

Note: HUD may add or remove nonprofit entities from this list, it is important to 

view the most current list at all times. 

• A copy of the roster showing FHA’s approval of the non-profit must be included 

letter in the loan file. 

• If the non-profit agency is not listed on the HOC web site, the non-profit agency is 

not eligible at this time. Approval must be granted from the local HOC. The nonprofit 

may submit an application for approval following instructions established by 

the local HOC. 

• Non-profit agencies not meeting either of the preceding criteria may provide 

secondary financing only after the borrower has met the normal down payment 

requirement of three and one half (3.50%) and the combined dollar amount of the 

first and second mortgages do not exceed the statutory limit for the area where 

the property is located. 


• The approval is effective for two (2) years, after which time the non-profit must 

submit updated program information to HUD for renewal. 

• See the Gift/Grant Funds subtopic in the Cash Requirements topic for down 

payment assistance programs and additional guidelines. 

• Click here to access FHA Mortgagee Letter 2002-22 for additional information on 

down payment assistance programs operated by Governmental Agencies and 

Non-profits using subordinate financing. 






Other 

Organizations 

and Private 

Individuals 

Family Member 

Loans 

• The repayment terms of the second mortgage must meet the following 

requirements: 

• it cannot provide for a balloon payment before ten (10) years unless the 

property is sold or refinanced, and 

• it must permit prepayment by the borrower, without penalty, after giving the 

lender 30 days advance notice, and 

• the required monthly payment under both the insured mortgage and the 

second mortgage or lien, plus other housing expenses and all recurring 

charges, cannot exceed the borrower’s reasonable ability to pay. Any 

periodic payments due on the second mortgage are due monthly and are 

substantially the same in amount. 

• The combined first and second mortgages cannot exceed the applicable LTV 

based on type of transaction or the maximum mortgage limit for the area. 

Reference: See the topic Refinances for additional information. 

• Family members may lend up to one hundred percent (100.00%) of the required 

down payment on a secured or unsecured basis to the borrower to assist with 

the costs of acquiring a home (i.e., down payment, closing costs, prepaid 

expenses, and discount points). HUD defines family member for this purpose as 

only those listed below: 

• child, stepchild, parent, or grandparent of the borrower or borrower’s spouse, 

• legally adopted sons or daughters (and a child who is a member of 

borrower’s household, if placed by an authorized agency for legal adoption 

by the borrower), or 

• foster children. 

• The following terms and conditions apply when the borrower is obtaining a loan 

from a family member: 

• if the loan from the family member is secured by the subject property, 

whether borrowed from an acceptable source or the family member’s own 

savings, only the family member provider may be the note holder (i.e., 

cannot be parent and brother). Additionally, the homebuyer (our borrower) 

cannot be a co-obligor on that note. 

• the combined amount of financing may not exceed 100% of the lesser of the 

property’s value or sales price, plus normal closing costs, prepaid expenses, 

and discount points. 

• the maximum TLTV for SunTrust is 105%. 






Family Member 

Loans, 

(continued) 

FHA Loan 

Underwriting 

and Transmittal 

Summary 

(HUD-92900-LT) 

• although the family member may lend one hundred percent (100.00%) of the 

cash requirements, cash back to the homebuyer (except for refund of 

earnest money deposit) at closing is unacceptable. 

• the secondary financing payments are included in the total debt-to-income 

ratio (i.e., the back-end ratio) for qualifying purposes. 

• the second lien may not have a balloon payment within five years from the 

date of execution. 

• if the family member providing the secondary financing borrowers those 

funds, the source may not be any entity with an identity of interest in the sale 

of the property. This includes the seller, builder, loan officer, real estate 

agent, etc. 

• mortgage companies that have retail banking affiliates may have that entity 

make a loan to the family member providing the secondary financing to the 

homebuyer (our borrower). However, the loan may not have more favorable 

terms and conditions than to other borrowers. 

• an executed copy of the document outlining the terms of secondary 

financing must be maintained in the lender’s file and also provided in the 

FHA case binder file. 

The following items need to be indicated on the FHA Loan Underwriting and 

Transmittal Summary (HUD-92900-LT): 

• 2nd mortgage proceeds, 

• 2nd mortgage monthly payment, and 

• Underwriter comments - provide details on 2nd mortgage (i.e., lender, term, 

payment). 






SunTrust 

Internal 

Employees: 

Tracking 

Secondary 

Financing in 

MLCS 

For all loans where secondary financing , including community seconds, is present, 

the following information must be appropriately identified in MLCS for tracking 

purposes: 

• 03-11 flow 

• MOE Screen - “Other Lien Indictor” as “1” second lien (not combo); FTHB 

field (Y) if applicable; and input amount of secondary financing in “Loan 

Amount” under “Other Financing Info,” and 

• M82 Screen (Government Only) - complete “amount of secondary financing” 

input amount of secondary financing; “NP/Gov’t EIN field” - input EIN of 

secondary financing provider; “source secondary financing” field with one of 

the following source codes from the table below: 

Code Secondary Financing Source 

01 Originating Lender 

02 Other Financial Institution 

03 Federal Government Program 

04 State Government Program 

05 Local Government Program 

06 Employer 

08 Not Applicable 

09 Property Seller 

10 Other 

11 Non Profit Organization 

12 Relative 





Documenting a 

Modified HELOC 

The following table shows information regarding the modification of Home Equity 

Lines of Credit (HELOCs). 

Non-AUS Loans Fannie Mae DU 

“Approve/Eligible” 

• Lenders in some cases must reduce the available line 

of credit on a HELOC to meet the new first mortgage’s 

TLTV and the HTLTV requirements. Obtain one of the 

following forms of documentation to show a modified 

line amount for a HELOC: 

1. A complete and recorded Modification Agreement 

(fully executed by the HELOC lender and all 

borrowers under the HELOC). 

2. In the event the recorded modification agreement is 

not back from recordation, an unrecorded 

modification agreement fully executed reflecting the 

instrument number or other evidence of submission 

for recordation stamped by the recorders’ office 

(certified by the clerk of court). 

3. A written agreement between the HELOC lender 

and the borrower agreeing to the reduction in the 

credit line amount to a specific amount as of a 

particular date. All borrowers must sign the written 

agreement. 

4. A cover letter from the HELOC lender on company 

letterhead reflecting a signature from the 

appropriate company representative that includes 

confirmation of the reduced credit line to a specific 

amount as of a specific date, along with evidence 

of the borrower’s request/consent to the reduction 

(preferably in writing). 

• Note: Obtain items 1 or 2 for the best evidence of 

documenting this change whenever possible. Items 3 

and 4 are acceptable when the first two are not 

available. In this case, it is mandatory to maintain 

appropriately signed documentation. 

• If you cannot obtain one of the above forms of 

documentation, use the original line amount of the 

HELOC to calculate the TLTV/HTLTV for the new first 

mortgage. 


• Non-AUS 

guidelines apply. 

• 

Freddie Mac LP 

“Accept/Eligible” 


• Non-AUS 

guidelines 

apply. 




Geographic Restrictions 

Introduction The following table shows applicable geographic restrictions. 

State Restriction 

Florida • Condominiums located in the state of Florida are not eligible. 

• Cash-out refinance transactions are limited to a LTV/TLTV of 80.00%. 

Georgia Properties containing Georgia Power Company leasehold agreements are not eligible 

for financing with SunTrust. 

New York As a result of state legislation, primary residences are not eligible if the transaction is 

determined to be a “subprime home loan”. 

Texas Cash-out refinances not eligible. 

Reference: See Section 1.02: Eligible Mortgage Loans of the Correspondent Seller Guide for SunTrust 

specific geographic restrictions that may apply to Texas and Hawaii. 




Occupancy/Property Types 

General HUD will accept 1-4 family units. The mortgaged premises must be a detached or 

semi-detached dwelling, row dwelling, townhouse, or unit within a condominium 

project or PUD. 

Primary 

Residences 

Three and Four 

Unit Properties 

• The primary borrowers, for the majority of the calendar year, must occupy the 

property. 

• Occupancy must take place within 60 days after signing the security instrument, 

with continued occupancy for one (1) year. 

Reference: See the Transactions Affecting Maximum Mortgage Calculations 

subtopic previously presented in the Loan Terms topic for additional information. 

• Three and four-unit properties, regardless of occupancy status, must be selfsufficient, 

i.e., the maximum mortgage is limited so that the ratio of the monthly 

mortgage payment divided by the monthly net rental income does not exceed 

100 percent. 

• The monthly payment is defined as principal, interest, taxes, and insurance, 

including mortgage insurance (PITI), as well as any homeowner’s association 

dues, computed at the note rate (no consideration for buydowns may be given). 

• Net rental income is the appraiser’s estimate of fair market rent from all units, 

including the unit chosen by the borrower for occupancy, less the FHA office’s 

allowance for vacancies and maintenance (or 25% if the local FHA has not 

established a separate allowance). 

• The above calculation is used only to determine the maximum loan amount. 

Borrowers must still qualify for the mortgage based on income, credit, cash to 

close, and the projected rents received from the remaining units. The projected 

rent may only be considered as gross income for qualifying purposes; it may not 

be used to offset the monthly mortgage payment. 

• The borrower must have a reserve of three (3) months’ mortgage payments 

(PITI) after closing on all transactions. The following assets are not considered 

cash reserves: 

• equity in other properties, 

• proceeds from a cash-out refinance (if this is the subject transaction), 

• gift funds, and 

• funds that are borrowed against a liquid account (i.e., 401k loan). 

• FHA’s Hotel and Transient Use Certification (HUD form 92561) must be signed 

by the borrower and included in the case binder file. 





Occupancy/Property Types, Continued 

Second Homes • Second homes are not eligible for HUD financing; however, HUD will grant a 

hardship exception on a case-by-case basis. The maximum LTV for such cases 

is limited to 85%. Such an exception must be requested through the local HOC 

in writing and must meet the conditions listed below. 

Note: Second homes (if allowed) are limited to 75% LTV/TLTV in the State of 

Florida. 

• The secondary residence must not be a vacation home or otherwise used 

primarily for recreational purposes. 

• The borrower must require the secondary residence due to seasonal 

employment, or employment relocation, or other circumstances not related to 

recreational use. 

• There must be a demonstrated lack of affordable rental housing in the area to 

meet the needs of the borrower or to be within a reasonable commuting distance 

of the borrower’s employment. Documentation to support this must include: 

• satisfactory explanation from the borrower of his/her need and that rental 

housing meeting these needs is not available, and 

• written evidence from local real estate professionals showing a lack of rental 

housing. 

• HUD conditional commitments issued on or after February 5, 1988 but before 

January 27, 1991 must bring the outstanding mortgage down to 85% LTV. 

• Commitments issued after January 27, 1991 may not be assumed as second 

homes. 



Automated Underwriting System (AUS) Information 

• Second homes are not eligible for DU or LP. 






Investment 

Properties 

• Investment properties are eligible for HUD-insured mortgages under the 

following programs or circumstances: 

• purchases of HUD owned REO properties, when permitted by the local FHA 

office selling the property (the max LTV is 75% for one-family dwellings and 

85% for 2-4 family dwellings), and/or 

• streamline refinances without an appraisal 

• SunTrust requires borrowers financing an investment property MUST reside in 

the state where the subject property is located, EXCEPT when the property is 

located within a 100 mile radius of the borrower’s primary residence. 

• Investors who meet the credit guidelines may assume mortgages on properties 

purchased under these programs. This includes those mortgages on investment 

properties that were purchased prior to 1989 that have since been streamline 

refinanced. 

• Rate/Term and Cash Out refinance transactions are NOT eligible. 

References: 

• S Streamline Refinance topic previously presented for additional information. 

• HUD Property Disposition (PD) properties in the Occupancy/Property Types 

topic in this product description for additional information. 


Investment properties are not eligible for DU or LP. 






Condominiums General 

• Correspondent clients that have a Direct Endorsement underwriter on staff may 

approve condominium projects using the Direct Endorsement Lender Review and 

Approval Process (DELRAP) or make the decision to submit the condominium 

project to HUD for the HUD Review and Approval Process (HRAP). 

• Only FHA loans secured by HUD approved condominium projects within the past 

2 years of original HUD approval may continue to be originated by the 

Correspondent client, except in the State of Florida. 

• SunTrust requires a minimum square footage of 600 square feet for 

condominiums. 

Planned Unit 

Developments 

(PUDs) 

Note: Condominium units less than the 600 square foot minimum will be 

considered on a case by case basis in urban areas where similar units are readily 

marketable. The appraisal must include comparables supporting market 

acceptance. 

• Condominium units must include a kitchen serviced by full-sized appliances, and 

cannot include any form of built-in sleeping accommodations. 

Reference: See the SunTrust Condominium and PUD Approval Requirements 


• PUDs do not require pre-approval by FHA or the underwriter. 

Note: PUDs with “Rights of First Refusal” are not eligible for FHA financing, per 

SunTrust Mortgage. 

• A PUD is defined as a mixed-use residential development of single-family 

dwellings in conjunction with rental, condominium, cooperative or town house 

properties. A residential development should be processed as a PUD if it has 

the following minimum characteristics: 

• a homeowner association that holds either title in fee or a lease of prescribed 

length on the common area, 

• mandatory membership of all unit owners (or units) in the association, 

• the right of all unit owners to participate by vote in the operation of the 

association, 

• lien supported assessment of the members to meet the association’s 

budgeted operating costs (special assessments may be handled differently), 

and 

• the appraisal for a detached PUD must be ordered as a detached PUD, not 

as a single family residence. 






HUD REO 

Properties 

Only Correspondent lenders that have a Direct Endorsement underwriter on 

staff may underwrite and submit HUD REO property transactions to SunTrust 

for purchase review and funding. 

• HUD may contribute up to three percent (3.00%) of the property’s gross 

purchase price towards the borrower’s allowable closing costs, including up to 

one percent (1.00%) of the loan origination fee. 

• If the borrower’s total closing costs reflected on the HUD I Settlement Statement 

are less than the amount indicated as being paid by HUD on the sales contract, 

HUD will credit ONLY the actual costs charged and will not credit the purchaser 

with any difference, either in cash or through a reduced purchase price. 

• The appraiser MUST be state certified with an unexpired license. 

• HUD REO appraisal reports are valid for 120 days from the effective date of the 

appraisal report. 

• A valid HUD REO sales construct must be ratified within 120 days of the 

appraisal effective date, or a new appraisal or an Appraisal Update and/or 

Completion Report (Fannie Mae form 1004D/Freddie Mac form 442) must be 

obtained. 

Reference: See the Fannie Mae Form 1004D/Freddie Mac Form 442 (Appraisal 

Update and/or Completion Report) subtopic in the Appraisal Requirements topic 

subsequently presented for additional information regarding appraisal updates. 

• A second appraisal may not be obtained simply to support a purchase price that 

is higher than the value on the current appraisal. 

• A second appraisal can only be ordered by the Correspondent Lender to support 

a higher sales price if there are material deficiencies with the current appraisal or 

the current appraisal will not be valid on the date of contract ratification. 

• The DE Underwriter is responsible for determining if there are material 

deficiencies in the current HUD REO appraisal. 

• When a second appraisal on a HUD REO property is obtained, the DE 

Underwriter must document why a second appraisal was ordered and retain both 

appraisal copies in the loan file. 

Note: HUD REO properties that are approved for the reduced down payment 

option (HUD REO $100 Down Payment Program) may not be registered on 

STMPartners these loans must be manually registered. 

• The UFMIP can be financed into the total loan amount. The total loan amount 

may never exceed 100% of the “as is” appraised value. 

• Closing costs and prepaids may not be included in the mortgage. 






203(b) with 

Repair Escrow 

Leasehold 

Estates 

Resale/Deed 

Restrictions 

Manufactured 

Housing 

Properties 

Purchased at 

Auction 

Only Correspondent lenders that have a Direct Endorsement underwriter on 

staff may underwrite and submit 203(b) with Repair Escrow property 

transactions to SunTrust for purchase review and funding. Property repairs 

must be complete for SunTrust to purchase the loan. 

Note: SunTrust is not currently accepting the FHA 203(k) Streamlined Refinances 

offered by HUD. 

Reference: See General Section 1.10: Leasehold Estate Guidelines of the 

Correspondent Seller Guide for a complete overview of leasehold estate 

requirements. 

Reference: See General Section 1.16a: Resale/Deed Restrictions of the 

Correspondent Seller Guide for a complete overview of Resale/Deed Restrictions 

requirements. 

Manufactured homes are not eligible for financing through SunTrust Mortgage. 

Reference: See the Properties Purchased at Auction in Section 1.25 Properties 

Purchased at Auction in the Correspondent Seller Guide for guidelines. 






Properties 

Recently Listed 

for Sale 

Short Sale 

Property 

Properties with 

City or County 

Restrictions 

Ineligible 


• The appraiser must note on the appraisal if a property was listed for sale in the 

last 12 months. 

• If the property is currently listed for sale when the appraisal is completed, the 

appraiser must note that it is currently listed for sale. 

• If a property was listed for sale in the last 12 months and the borrower was the 

owner of the property at the time it was listed for sale, the following applies: 

• for Rate/Term refinances: 

• the property must be taken off the market on or prior to the application 

(i.e., 1003) date, 

Note: If the property is currently listed for sale, documentation must be 

provided that the listing agreement is terminated (it is NOT okay just to take 

the “For Sale” sign down)! 

• when the subject property is the borrower’s primary residence, the 

borrower must confirm in writing their intent to occupy the subject 

property by signing an occupancy affidavit at closing, and 

• the current maximum LTV/TLTV ratios for the transaction apply. 

• for cash-out refinances: 

• the property must have been taken off the market for at least 90 days 

prior to loan application, and 

• if the property was listed for sale within the six (6) months preceding the 

application (i.e., 1003) date, the maximum LTV/TLTV is limited to 70%. 



• All properties must meet city or county restrictions (i.e., a restriction that requires 

all city/county employees to live within the city/county limits). 

• It is the lender’s responsibility to verify that any restrictions are met to assure 

HUD’s issuance of the Mortgage Insurance Certificate (MIC). 

The property types listed below are ineligible for HUD financing by SunTrust. 

• Commercial enterprises 

• Boarding houses 

• Hotels and motels 

• Tourist houses 

• Private clubs 

• Bed and breakfast establishments 

• Fraternity or sorority houses 

• Sinkhole Home (even if repaired) 

• Cooperatives 

• Manufactured Housing 




Eligible Borrowers 

AUS 

Information 

Borrowers 60 

Years of Age 

• For Fannie Mae DU, the number of borrowers on a loan is limited to 4. 

• For Freddie Mac LP, the number of borrowers on a loan is limited to 5. 

• Borrowers 60 years of age or older may borrow the required down payment for 

purchasing a principal residence, provided the guidelines listed below are met. 

• The donor or lender is a relative of the borrower, a close friend with clearly 

defined interest in the borrower, the borrower’s employer, or an institution 

established for humanitarian or welfare purposes. 

• The donor or lender is not one whose interest is solely in the sale of the 

property, such as a builder or seller, or any person or organization 

associated with them. 

• The principal amount of the insured mortgage loan, plus the Note or other 

evidence of indebtedness in connections with the property, may not exceed 

100% of the value plus prepaid expenses. 

• The note or other evidence of indebtedness may not bear interest exceeding 

that of the insured mortgage. 

• Evidence that these conditions are met must accompany the application. 

Co-Borrowers • A co-borrower is eligible under the following conditions: 

• must be on the title, note and security instrument. 

• the co-borrower’s income, liabilities, assets and credit history is used to 

determine creditworthiness, 

• the co-borrower does not have an interest in the transaction (i.e., seller, 

builder or real estate agent), exceptions may be granted if seller and coborrower/co-signer 

are related to the owner by blood, marriage or law), 

• if the parent is selling to a child, the parent cannot be co-borrower with the 

child on the new mortgage unless the loan-to-value is 75.00% or less, and 

• the co-borrower must be eligible for participation (not suspended or debarred 

or owe any delinquent Federal debts). 

• Non-occupant co-borrowers must have a principal residence in the U.S. unless 

otherwise exempted (i.e., military service with overseas assignments, U.S. 

citizens living abroad). While FHA does not object to legitimate transactions 

where non-occupant borrowers assist in the financing of the property, this 

arrangement may not be used by non-occupant borrowers to develop a portfolio 

of rental properties. A non-occupant co-borrower is only eligible on a one (1) 

unit property. 

• Non-occupant co-borrowers or co-signers are not permitted on cash-out 

transactions. 

• When there are two (2) or more borrowers, but one or more will not occupy the 

property as a principal residence, the maximum mortgage is usually limited to 

75.00% LTV; however, maximum financing is available for borrowers related by 

blood, marriage or law that meet the requirements shown in “Maximum Loan 

Amount.” 

Note: All references to co-borrowers, including the 75.00% LTV limits, apply equally 

to co-signers (except co-signers do not take title or sign the security instrument). 





Eligible Borrowers, Continued 

Co-Borrowers, 

(continued) 

Corporations, 

Partnerships or 

Sole 

Proprietorships 

References: 

• See Co-signers subtopic subsequently presented in this topic for additional 

information. 

• See the subtopic Maximum Loan Amount and LTV in the topic Loan Terms for 

additional information on non-occupying co-borrowers and Identity of Interest 

transactions. 

HUD will not insure loans made solely in the name of a business entity or trust (i.e., 

corporation, partnership, or sole proprietorship) except for streamline refinances in 

which the mortgage was originally insured in the name of a business. However, 

there are rare instances where the local HUD office will make exceptions. Some of 

the guidelines are as follows: 

• one (1) or more individuals along with the business entity must be analyzed for 

creditworthiness. 

• the individual(s) and the business entity must appear on the mortgage note. 

• the business entity, trust or individual(s) may appear on the property deed or 

title. 

• all parties appearing on the property deed or title must also appear on the 

security instrument. 

• the subject property is investment property and must conform to the guidelines 

and limitations of investment property. 

• local HUD office prior approval is required with documentation evidencing 

approval in file. 

Reference: See the HUD 4155 for additional information for non-profit organizations. 

Co-Signers • A co-signer does not have an ownership interest in the property (does not take 

title) but is liable for repaying the obligation and must sign all documents with the 

exception of the security instruments. 

• The co-signer’s income, assets, liabilities, and credit history are considered in 

determining creditworthiness for the mortgage. 

• The co-signer must complete and sign the application. 

• All other items applicable to co-borrowers also apply to co-signers. 

• Non-occupant co-signers are not permitted on cash-out transactions. 






First Time 

Homebuyers 

HUD 

Employees 

Definition 

• An individual who has had no ownership in a principal residence in the three (3) 

years prior to the closing date of the loan. 

• An individual who, though having owned a home in the previous three (3) years, 

owned a home with a former spouse while married and is no longer living in the 

property (as evidenced by the divorce decree and/or separation agreement). 

Counseling Requirement 

• HUD still recommends housing counseling for the purchase of a property. 

However there is no reduction in UFMIP for attending housing counseling. 

• Loan applications for HUD employees may be processed and underwritten by 

the lender; however, they must be submitted to the attention of the Processing 

and Underwriting Division Direction at the jurisdictional HOC for final signoff and 

approval PRIOR to closing. 

• SunTrust will accept a Purchase, Streamline Refinance, Rate/Term or Cash Out 

Refinance transaction. 

Note: Streamline refinance applications do not require final HUD sign-off prior to 

closing. 






Living Trusts Living trusts are eligible for HUD financing under the following conditions: 

• the borrower must remain the beneficiary, 

• the borrower must occupy the subject property as a primary residence, 

• the trust must provide reasonable means to assure the lender that it will be 

notified of any subsequent change of occupancy or transfer of beneficial interest, 

• the trust must appear on the security instrument (i.e., mortgage, deed of trust, or 

security deed), 

• the individual borrower must appear on the security instrument when required to 

create a valid lien under state law (otherwise, he/she is not required to appear), 

and 

• the owner-occupant, if any, and other borrower(s) must appear on the Note 

along with the trust; however, the individual borrower is not required to appear 

on the property deed or title. 

Military 

Personnel 

Military personnel are eligible for maximum financing if a member of the immediate 

family will occupy the subject property as a principal residence, even if the active 

duty borrower is stationed elsewhere. 






Non-Permanent 

Resident Aliens 

Non- 

Purchasing 

Spouses 

Reference: See Section 1.24: Non-Permanent Resident Alien Guidelines in the 

Correspondent Selling Guide for additional non-permanent resident alien guidelines. 

• If it is required by state law in order to perfect a valid and enforceable first lien, 

the non-purchasing spouse may be required to sign either the security 

instrument or documentation evidencing that he/she is relinquishing all rights to 

the property. 

• If the non-purchasing spouse executes the security for such reasons, he/she is 

not considered a borrower for HUD’s purposes and does not need to sign the 

loan application. 

• Except for those obligations specifically excluded by state law, the debts of the 

non-purchasing spouse must be considered in the qualifying ratios if the 

borrower resides in a community property state or the property to be insured is 

located in a community property state. 

• If the borrower resides in a community property state or the property is located in 

a community property state, a credit report must be obtained. 

• The non-purchasing spouse’s credit history is not to be considered a reason for 

credit denial. 

• HUD requires that DE underwriters know the state laws concerning community 

property and apply them appropriately to ensure that there is no increased risk to 

HUD. 






Ownership in 

Unit Limitation 

• If the borrower owns any type of financial interest (any type of ownership 

regardless of type of financing) in seven (7) or more rental dwelling units when 

the property is part of, adjacent to or contiguous to a property, subdivision, or 

group of properties owned by the borrower, he/she is not eligible for FHA 

financing on a property located within the contiguous area. 

• A contiguous area is typically defined as an area with a two (2)-block radius (i.e., 

condo project or PUD). 

• Each dwelling unit in two-, three-, and four-family properties counts towards the 

seven-unit limitation. The rental units in an owner-occupied two-, three-, or fourunit 

property also count toward this limitation. 

• Hotel and Transient Use Certification (HUD form 92561) signed by the borrower 

must be obtained for every application on a two, three and four family dwelling, 

OR a single family dwelling which is one of a group of five or more dwellings held 

by the same borrower. 

Parties in Title • Non-borrowing spouses or other non-borrowing parties may hold title to an FHA 

insured property; however, a valid and enforceable first lien on the property 

under state law is still required. 

• All parties appearing on the property deed or title must also appear on the 

security instrument (i.e., mortgage, deed of trust, security deed). 

• The only exception would be in the event of a Living Trust. The Trust must 

appear on the security instrument (i.e., mortgage, deed of trust, security deed). 

The individual borrower(s) is not required to appear on the property deed or title. 

Reference: See Living Trusts within this topic for additional information. 






Permanent 

Resident Aliens 

• Lawful Permanent Resident aliens are given the same consideration as United 

States citizens. 

• A permanent resident alien is an individual who is lawfully accorded the privilege 

of residing permanently in the United States. 

• The borrower must have a valid social security number (a taxpayer ID number is 

unacceptable). 

• The borrower must have evidence of permanent residency and indicate on the 

Uniform Residential Loan Application (URLA) that he/she is a lawful permanent 

resident alien. 

• The United States Citizenship and Immigration Services (USCIS) within the 

Department of Homeland Security issues evidence of lawful permanent 

residency. 

• The following documentation is acceptable proof of permanent resident status: 

• USCIS Form I-551 Alien Registration Receipt (green card), with an 

unexpired date on the front, 

• USCIS Form I-551 Conditional Alien Registration Receipt, with an unexpired 

USCIS I-751 Petition to Remove Conditions of Residence (green card by 

marriage), or 

• An unexpired passport with an unexpired stamp reading “Processed for I- 

551. Temporary Evidence of Lawful Admission for Permanent Residence. 

Valid until [date]. Employment Authorized.” 

Note: A “green card” that has no expiration date (issued between March 1977 and 

January 1987) is acceptable with no additional requirements. 

• If the green card will expire within six (6) months after closing, the borrower must 

provide the following: 

• A copy of the filed USCIS I-90 Application to Replace Permanent Resident 

Card, and 

• A copy of the USCIS I-797 Notice of Action for the I-90. 

• Borrowers with a conditional green card (issued for two years) cannot apply for 

renewal earlier than three months prior to the expiration date. SunTrust 

Mortgage requires the borrower to file one of the following forms prior to loan 

application: 

• I-751 Petition to Remove Conditions of Residence (green card by marriage), 

or 

• I-829 Petition by Entrepreneur to Remove Conditions. 




Income 

General Income 

• HUD generally requires all income to continue through, at a minimum, the first 

three (3) years of the mortgage loan. If the borrower intends to retire during this 

period, the effective income must be the amount of documented retirement 

benefits, social security payments, etc. 

• Borrowers that change jobs frequently within the same line of work, who 

continue to advance in income or benefits, should be considered favorably. In 

this instance, income stability takes precedence over job stability. 

Documentation 

• Faxed documentation may be used if the following applies: 

• the employer’s name and source of information is clearly identified on the 

form, 

• the document includes a name and telephone number of the individual with 

the employer who can verify the accuracy of the data, and 

• the lender verifies the document’s authenticity by reviewing, among other 

things, the information included in the banner of the fax and conducting a 

telephone verification. 

• Employment documentation downloaded from an Internet website may be used 

if the following applies: 

• The Verbal Verification of Employment (COR 0050) form must include the 

name and title of the Correspondent client’s employee performing the 

verification of employment for all FHA loan programs. 

Reference: See Section 1.38: Verbal Verification of Employment 

Guidelines in the Correspondent Seller Guide for additional documentation 

requirements for employed, self-employed and military borrowers. 

• the employer’ name and source of information is clearly identified, 

• the printed pages of the document reflect the URL address with the date and 

time it was printed, and 

• the lender verifies the document’s authenticity by reviewing, among other 

things, the information included on any header, footer and banner of the 

printout and verifies the existence of the website from which the document 

was derived. 

• The documents must be identifiable as belonging to the borrower. 





Income, Continued 

General, 

(continued) 

Salaried or 

Hourly Wage 

Income 

Automated Underwriting Systems (AUS) Information 



The DU Findings Report will provide specific 

messages on the following income types when 

identified correctly: 

• base salary for salaried borrower, 

• base salary for self-employed borrower, 

• commission, bonus, and overtime income, 

• positive net rental income, 

• social security and disability income, 

• alimony and child support, and 

• pension or retirement income. 

• The LP Feedback 

Certificate will provide 

specific messages on 

base salary for salaried 

and self-employed 

borrowers. 

• For all other income 

types, standard FHA 


All of the following documentation is required: 

• Pay stubs for the most recent 30 day period, 

• W-2’s for the previous two (2) years, 

• telephone verification of employment from the current employer, and 

• signed IRS form 4506-T. 



Fannie Mae DU/ Freddie Mac LP 

Current Employment 

Obtain the most recent pay stub showing at least one month of year-to-date earnings and any one of the 

following: 

• written verification of employment (VOE) from current employer, or 

• verbal verification of employment from current employer, must document the individual verifying employment, 

or 

• electronic verification acceptable to FHA. 

Employment History 

Verification of applicant’s previous 2-year employment history is required. 

Employment with the same employer for the previous 2 years does not require direct verification if all of the 

following conditions are met: 

• current employer confirms a 2 year employment history, or a paystub reflects a hiring date, and 

• only base pay is used to qualify (no overtime or bonuses), and 

• the borrower executes form IRS 4506-T for previous 2 years. 

If employment has changed in the previous 2 years and/or not all conditions above can be met, one or a 

combination of the following are required to verify the applicants 2 year employment history: 

• W-2(s) 

• VOE(s) 

• Electronic verification acceptable to FHA 

• School – college transcripts 

• Military – discharge papers 






Alimony, Child 

Support or 

Maintenance 

Payments 

Automated 

Underwriting 

Systems (AUS) 

Information 

• Income received from alimony, child support or maintenance payments must 

continue the first three (3) years after closing. 

• A copy of the divorce decree, legal separation agreement, voluntary agreement, 

or court order specifying the amount of support and the period of time over which 

it will be received is required. 

• Evidence (i.e., deposit slips, bank statements, front and back of canceled 

checks, court records or Federal tax returns) must be provided to reflect that the 

funds have been received for the last 12 months. 

• Period of less than 12 months may be acceptable provided the payer’s ability 

and willingness to make timely payments is adequately documented. 

• Properly documented child support income may be grossed up under the same 

terms and conditions as other non-taxable sources. 

Reference: See the subtopic Non-Taxable Income subsequently presented in 


The following table shows information specific to AUS for Alimony, Child Support or 

Maintenance Payments. 


• If “Approve/Eligible,” the following is 

required: 

• A copy of the front page of the divorce 

decree, 

• Copies of applicable pages from the 

divorce decree that provide details of 

support payments, including verification 

that the income will continue for at least 

three (3) years after loan closing, and 

• Verification of receipt of income for the 

last three (3) months, Bank statements 

or cancelled checks are acceptable. 

• If “Accept,” the following is required: 

• A copy of the front page of the divorce 

decree, 

• Copies of applicable pages from the divorce 

decree that provide details of support 

payments, including verification that the 

income will continue for at least three (3) 

years after loan closing, and 

• Verification of receipt of income for the last 

three (3) months. 






Automobile 

Allowances and 

Expense 

Account 

Payments 

• Only the amount that an auto allowance and/or expense account exceeds actual 

expenditures can be considered as income. 

• Income is documented with the most recent two (2) years’ tax returns (IRS Form 

2106 - Employee Business Expenses). 

• The employer must verify that the allowance/account will continue. 

• The borrower’s car payment is treated as a recurring debt and cannot be offset 

by the car allowance. 

• If there is a loss between the allowance and actual expenditures, that amount is 

considered a recurring debt and counted in the total debt ratio. 

• If the borrower uses the standard per-mile rate in calculating auto expenses, as 

opposed to the “actual cost” method, the portion that the IRS considers 

depreciation may be added back to income. 

Capital Gains • Capital gains (or loss) as shown on Schedule D of the Individual Tax Returns 

(IRS form 1040) generally occurs only one (1) time and should not be considered 

in determining effective income. 

• If the borrower has a constant turn over of assets resulting in gains or losses, the 

capital gain or loss may be considered in determining the income, provided the 

borrower has at least three (3) years’ tax returns evidencing capital gains. 

Commission 

Income 

Employer 

Differential 

Payments 

Example: An individual who purchases old houses, remodels them and sells them 

for a profit. 

Commission income can be used to qualify the borrower if the following guidelines 

are met: 

• the borrower must furnish the most recent two (2) years’ Federal tax returns, 

along with his/her most recent pay stub. 

• the commission income is averaged over the two (2) year period. 

• commission income showing a decrease requires significant compensating 

factors to justify loan approval. 

• any un-reimbursed business expenses (Schedule A of tax returns) must be 

deducted from the borrower’s income. 

• income received between one (1) and two (2) years may be considered if the 

underwriter is able to make a sound rationalization for acceptance and can 

document the likelihood of continuance. 

If the employer subsidizes the mortgage payment, the amount of the payments is 

considered gross income. It may NOT be used to offset the mortgage payment 

directly, even if the employer pays the servicing lender directly. 






Employment by 

Family-Owned 

Business 

Gaps in 

Employment 

Government 

Assistance 


Section 8 Home 

Ownership 

Vouchers 

• The borrower must provide the normal documentation for employment, income 

pay stub(s) and evidence of not being an owner of the business. This evidence 

may include one of the following: 

• a signed copy Federal personal tax returns, and/or 

• a signed copy of the Federal corporate tax return showing ownership 

percentages (usually evidenced on the Schedule K-1), if applicable. 

If a borrower has a gap of employment spanning one (1) month or more, an 

explanation from the borrower is required. Allowances for seasonal employment, 

such as is typical in the building trades, etc., may be documented by the lender. 

Automatic Underwriting Systems (AUS) Information 



If “Approve/Eligible,” an explanation of 

employment gaps greater than six 

months that have occurred in the last 

two years is required. 

If “Accept,” an explanation is required if 

the gap was more than 60 days. 

• Government assistance in the form of workman’s compensation, welfare 

programs, payments for foster children, unemployment income, etc. may be 

used to qualify the borrower. 

• Documentation must be provided from the agency paying benefits to verify that 

the benefits are likely to continue for at least three (3) years after closing. If 

continuance of such income is not expected for three (3) years, it may be 

considered as a compensating factor. 

• Unemployment income must be documented for two (2) years. Reasonable 

assurance of its continuance is also required. This applies to individuals 

employed on a seasonal basis, such as farm workers, resort employees, etc. 

Procedures for loan applications where the homebuyer receives a monthly 

homeownership assistance payment under the housing choice voucher 

homeownership program (Section 8) are shown below. 

• All Section 8 subsidized mortgage loans must have “88” entered as the program 

identification code in the FHA Connection or its functional equivalent. 

• FHA will assume that the subsidy will continue for at least three (3) years so that 

it may be considered effective income. 

• The methods for qualifying the borrower are shown below. 

• The homeownership assistance payment must be paid directly to the 

homeowner/borrower. 

• The amount of the monthly subsidy may only be considered as income in 

determining the borrower’s qualifying ratios. 

• Qualifying instructions for this scenario are shown below. 






Section 8 Home 

Ownership 

Vouchers 

(continued) 

Interest and 

Dividend 

Income 

• The amount of the non-taxable subsidy that is received directly by the 

homeowner may be grossed up by 25%. 

• The amount of the subsidy plus 25% of that subsidy may be added to the 

borrower’s income from employment and/or other sources in calculating the 

qualifying ratios. 

Note: Although HUD allows the homeownership assistance payments to be 

made directly to the servicing lender to offset the mortgage payment, 

SunTrust servicing is unable to facilitate the procedure for receiving or 

allocating these funds. Therefore, the requirements shown above must be 

adhered to for eligibility purposes, without exception. 

• All other FHA requirements (i.e., employment stability, credit history, down 

payment s, etc.) as shown in this product description apply. 

• Evidence required showing that the borrower still owns the assets generating the 

income used to qualify. 

• Interest and dividend income must be documented as received for the past two 

(2) years. 

• A two (2) year average is required to use such income to qualify for the 

mortgage. 

• Two (2) years signed Federal tax returns or account statements must be 

provided. Funds used for down payment and/or closing costs must be 

subtracted before the interest is calculated. 

Military Income In addition to base pay, military personnel may be entitled to additional forms of pay 

provided its continuance is verified in writing: 

• flight or hazard pay, 

• BAS, Basic Allowance for subsistence (rations), 

• clothing allowance, 

• proficiency pay, and 

• BAH, Basic Allowance for housing. 

Mortgage 

Credit 

Certificates 

• If a government entity subsidizes a mortgage payment, either through direct 

payments or tax rebates, these payments are considered as acceptable income 

if verified in writing. 

• Either type of subsidy may be added to gross income or used to offset the 

mortgage payment before calculating the qualifying ratios. 






New 

Employment 

Non-Taxable 

Income 

Note 

Receivable 

Income 

Overtime/ 

Bonus Income 

• If a borrower is about to begin a new job, there must be a guaranteed, nonrevocable 

contract, fully executed by employee and employer, to begin the new 

position within 60 days of closing, and the income is acceptable for qualifying 

purposes. 

• If the loan will close more than 60 days before the employment begins, the loan 

is not eligible for endorsement until the lender provides a pay stub or other 

acceptable evidence has actually begun the new job. 

• There must be sufficient, verified income/cash reserves to support debt during 

the interim between closing and start of employment. 

Non-taxable income may be “grossed-up” by using the published IRS tax tables or 

fifteen percent (15.00%). If the borrower is not required to file a federal income tax 

return, the tax rate to use is twenty-five percent (25.00%). 

• Income received from the repayment of a note must be verified by a copy of the 

note to establish the amount and length of payments. 

• Payments must continue for the first three (3) years after closing. 

• Evidence (i.e., front and back of canceled checks, deposit slips or Federal tax 

returns) must be provided evidencing that the funds have been received 

consistently for the past 12 months. 

Overtime and bonus income is treated as salaried income. 

Reference: See Salaried or Hourly Wage Income previously presented in this topic 


Overtime or bonus income may be used to qualify the borrower if it meets the 

following guidelines: 

• There must be a two (2) year history. 

• The likelihood that the overtime or bonus income will continue must be verified 

on the written verification of employment or telephone certification of 

employment. 

• The income is averaged over the most recent two (2) year period. If there is a 

decline in income, there must be justification for using it as qualifying income. 

• If the income is not consistent from year to year, more than two (2) years’ 

income must be averaged to calculate an acceptable qualifying income. 

• If received less than two (2) years, the income may be acceptable if it can be 

documented that it will continue. 

• The VOE must show likelihood of continuance. 

• A trend must be established and analyzed. 

• The reason for using the income for qualifying purposes must be justified and 

documented in writing. 






Part-Time 

Income 

(Second Job 

Income) 

Projected 

Income 

• HUD defines part-time income (second job income) as income from a job taken 

in addition to a borrower’s regular employment that supplements the borrower’s 

income. 

• If a borrower’s regular employment is less than the typical 40 hour work week, 

the stability of that income should be evaluated as any other regular, on-going 

primary employment. 

• Part-time income from second job may be used if it can be verified as having 

been uninterrupted for the previous two (2) years and if it has a strong likelihood 

of continuation. 

• A seasonal part-time or second job (such as that received by a person who 

works part-time at a department store during the Christmas shopping period) can 

be considered as uninterrupted if the borrower has worked in the same job “in 

season” for the past two years and expects to be rehired for the next season. 

(i.e., umpiring baseball games in summer). 

• Income from a part-time position that has been received for less than two (2) 

years may be included as effective income provided that the continuance of such 

income can be verified, and use of this income is justified and documented in the 

file. 

• Income that does not meet these requirements may be considered as a 

compensating factor. 

• Projected or hypothetical income is not acceptable for qualifying purposes. 

• However, exceptions to this rule are permitted as shown below. 

• Income from bonuses, cost-of-living adjustments, or performance raises 

(must be well documented with verification from the borrower’s employer) 

may be used if documentation verifies that it will be received within 60 days 

after closing. 

• Income from an accepted (but not yet started) job with a guaranteed, nonrevocable 

contract for employment beginning within 60 days of loan closing 

may be used in qualifying. 

• However, it must be verified that there will be sufficient income or cash 

reserves to support the mortgage payment and other obligations during the 

interim period between loan closing and start of employment. (i.e., teachers 

whose contracts begin with the new school year, or physicians who will 

begin residency after the loan is scheduled to close.) 

• If the loan will close more than 60 days before the borrower’s employment 

begins, the loan is NOT eligible for insuring until receipt of a pay stub or other 

acceptable evidence that the borrower has begun the new job. 






Recent Return 

to Work Force 

Borrowers who have been out of the work force for a significant period of time may 

use income they receive from returning to work provided the following guidelines are 

met: 

• the borrower must be employed in his/her current job for at least six (6) months, 

• a two-year work history prior to the absence from the work force (i.e., written 

verification of employment or W-2’s) must be documented, and 

• income from employment may only be considered as a compensating factor if 

these requirements cannot be met. 

Rental Income • Rent received for other properties owned by the borrower is acceptable if 

documented that the rental income is stable. 

• Rent received from additional units in the subject property (if a 2-4 unit property) 

may be used for qualifying purposes. 

References: 

• See the subtopic Rent Loss Insurance for additional information and 

requirements when using rental income. 

• See the subtopic Conversion of Existing Primary Residence to Rental 

Property or Second Hom for additional information on rental income. 

• Net rental income is calculated by taking the gross rents, minus the twenty-five 

percent (25.00%) reduction (or local office’s percentage reduction for vacancies 

and repairs), then subtract the monthly payment of PITI. 

• If this yields a positive number, add it to the borrower’s monthly gross income; if 

negative, consider it a recurring monthly obligation. 

• Rental income is verified using one (1) of the following documentation methods: 

• Schedule E of IRS Form 1040 (any depreciation is added back to the net 

income or loss reflected on the Schedule and the current ownership of the 

properties listed on Schedule E must be compared to the real estate owned 

section of the loan application), or 

Note: To be considered stable income, when tax returns are used to 

calculate the rental income and a current lease (or agreement to lease) is 

not provided, the 24-month rental history must be free of any unexplained 

gaps greater than three (3) months. 

• current leases (if the property was acquired since the last income tax year 

and is not listed on Schedule E, a current signed lease or other rental 

agreement must be provided and the gross rental is reduced by 25%* to 

allow for vacancies and maintenance before calculating net rental income). 

Note: Please check your HOC for their specific vacancy factor. 






Rental Income, 

(continued) 

Rent Loss 

Insurance 

Retirement and 

Social Security 

Income 

• Income from “boarders” is acceptable when it is received from a relative and can 

be shown on the borrower’s Federal tax returns. Otherwise, it may be used as a 

compensating factor. 

• If six (6) or more units are owned in the same general area, a map disclosing the 

locations must be submitted evidencing compliance with FHA’s seven (7) unit 

limitation. 

Reference: See Ownership in Unit Limitation in the topic Eligible Borrowers for 


When rental income is being used to qualify AND the subject property is secured by 

a 2-4 unit primary residence or 1-4 unit investment property, SunTrust will require the 

borrower to obtain rent loss insurance to cover at least six (6) months of gross 

monthly rent. 

Notes: 

• Rent loss insurance is not required if rental income from the subject property is 

not being used to qualify. 

• Rent loss coverage must be included as a part of the hazard insurance policy as 

an endorsement. The yearly hazard insurance premium must include the 

additional premium the borrower must pay for this coverage. The rent loss 

coverage provided in the hazard insurance policy must cover a minimum of six 

(6) months of gross monthly rent. 

Note: If the insurance company will not issue an endorsement to the hazard 

insurance policy for the rent loss coverage, the acceptance of a separate 

insurance policy will be considered on a case-by-case basis. Current published 

hazard insurance policy requirements (i.e., policy term, policy prepayment, 

escrow collection, etc.) will apply for the separate policy. 

• Rent loss insurance covers rental losses that are incurred during the period that 

a property is being rehabilitated following a casualty. 

• Retirement and Social Security income must be verified from the third-party 

source (Society Security Administration and former employer) or from the most 

recent two (2) years’ Federal tax returns. 

• The income must continue for at least three (3) years after closing; otherwise, it 

will be used only as a compensating factor. 






Self-Employed 

Borrowers 


• Individuals who own twenty-five percent (25.00%) or more interest in a business 

are considered self-employed. 

Effective Income 

• The total net profit of the business if a sole proprietorship with depreciation or 

depletion added back to the adjusted gross. 

• The amount of the draw or bonus taken from the capital account if the business is 

a partnership plus the borrower’s share of the net profit. or 

• The amount of wages or salary as shown on the W-2 if the business is a 

corporation, plus any bonus or other compensation, deducting any spousal 

income. 

Income Analysis 

• Establish an earnings trend over the previous two (2) years. Three (3) years may 

be used if all three (3) years tax returns are provided. 

• Quarterly tax return income may be included through the period covered by the 

tax filings. If no quarterly returns, the income shown on the P&L statement may 

be included provided the income stream is consistent with the previous years’ 

earnings. If the P&L shows an income stream considerably greater than previous 

years, the analysis must be based solely on the income verified through the tax 

returns. 

• Careful analysis of the business’ financial strength, the source of its income, and 

the general economic outlook for similar businesses in the area. 

• A borrower whose business shows a significant decline in income over the period 

analyzed is not acceptable, even if current income and debt ratios meet HUD 

guidelines. 

• A borrower’s withdrawal of cash from the business may have a severe negative 

impact on the ability of the business to continue operating and must be carefully 

considered in the analysis. 

Length of time in business 

• If the borrower has been in business for at least two (2) years, income may be 

considered stable and effective. 

• If the borrower has been in business between one (1) and two (2) years, he/she 

must have at least two (2) years previous employment or a combination of one (1) 

year employment and formal schooling or training in the occupation. 

• If the borrower has been in business less than one year, income is not eligible due 

to lack of earnings history. 






Self-Employed 

Borrowers, 

(continued) 

Documentation 

• Signed and dated Federal individual income tax returns with all schedules for the 

two (2) most recent previous years (if current year taxes have been filed, proof of 

filing may be required (i.e., canceled checks or IRS stamp on the tax return). 

• Signed and dated current financial statement, including a year-to-date balance 

sheet and income statement. 

• If the business is a corporation or partnership signed and dated Federal 

business tax returns for the most recent two (2) years with all schedules (if 

current year taxes have been filed, proof of filing may be required, i.e., canceled 

checks or IRS stamp on the tax return). 

• Business credit report on corporations and “S” corporations. 

Reference: See HUD Handbook 4155.1 Chapter 4 Section D for additional 

information on analyzing Individual, Corporate, “S” Corporation, and Partnership 

tax returns. 



Fannie Mae DU/Freddie Mac LP 

• Generally, standard FHA guidelines apply with some exceptions on documentation requirements. 

• The borrower must provide two (2) years of individual federal tax returns and corporate partnership 

federal tax returns (if applicable to business). 

• If “Approve/Eligible” or “Accept/Eligible,” the borrower is not required to provide business tax returns 

if ALL of the following can be met: 

• Individual Federal tax returns show increasing self employed income over the past two (2) 

years, 

• Funds to close are not coming from business accounts, 

• The loan is not a cash out refinance. 

Note: A business credit report is not required for a corporation or “S” corporation. 

• A profit and loss statement (P&L) and a balance sheet is required if more than a calendar quarter 

has elapsed since date of most recent calendar year or fiscal-year end tax return was filed by the 

borrower. If income used to qualify the borrower exceeds the two-year average of tax returns, an 

audited P&L or signed quarterly tax returns obtained from the IRS are required. 

• If one borrower is self-employed while another on the same loan is salaried, the DU Findings Report 

will provide an employment message for the self-employed borrower (ignore the employment 

message for the self-employed borrower and provide self-employed documentation as identified in 

the rest of the message). 

Foreign Income • Borrower must be US citizens receiving foreign employment income generated 

from a non-US source. 

• Non-US source of income may not include sanctioned countries 

administered by OFAC. 

• Foreign income (income generated from non-US sources) may be used only if its 

stability and continuance for three (3) years can be verified. 






Foreign 

Income, 

(continued) 

• Foreign income must be supported by: 

• the most recent two (2) years signed federal tax returns, and 

• standard income documentation (i.e., year-to-date paystub and W-2 forms 

for prior years). 

• If the income is paid in a foreign currency, the income must be translated into US 

dollars. 

Note: AUS is not able to recognize foreign income, therefore, these changes will 

need to be applied outside of AUS. 

Tip Income • Must have been received for at least the most recent two (2) years. 

• Documentation that the current employer expects the tip income to continue is 

required. 

• Tip income should be averaged over the past two (2) years to determine the 

amount of income that may be considered in qualifying the borrower. 

Note: Tip income must be entered in DU as “Other Types of Income.” 





Temporary 

Leave and 

Short-term 

Disability 

Income 

• Temporary leave from employment is generally short in duration and may 

encompass various circumstances such as maternity, medical, short-term 

disability, or other temporary leaves with or without pay. 

• The period of time that a borrower is on temporary leave is determined by 

various factors such as applicable law, employer policies, and short term 

insurance and/or benefit terms. 

• Leave from work ceases being considered temporary when the borrower does 

not intend to return to the current employer or does not have a commitment from 

the current employer to return to work. 

• Underwriters must determine the allowable qualifying income as follows: 

• If the borrower will return to work prior to the first mortgage payment, then 

the borrower’s regular employment income that will be received upon their 

return to work may be used for qualifying. 

• If the borrower will return to work after the first mortgage payment, then the 

borrower’s temporary leave income is used for qualifying. 

Notes: 

• Documentation evidencing amount, duration, and consistency for all 

temporary leave income sources must be obtained when used for qualifying. 

• Verify the borrower’s pre-leave income and employment, regardless of leave 

status. 

• Obtain documentation from current employer confirming the borrower’s 

statutory right to return to work (or employer’s commitment to permit the 

borrower to return to work), the confirmed date of return, and the borrower’s 

post-leave employment and income. 

• Obtain written statement signed by the borrower confirming that they will 

return to their current employer and stating the confirmed date of return. 

• When a borrower is currently receiving short-term disability payments that 

will decrease to a lesser amount within the next three (3) years because they 

are being converted to long-term benefits, the amount of the long-term 

payments must be used in determining the borrower’s stable income. 






Temporary 

Leave and 

Short-term 

Disability 

Income, 

(continued) 

• In addition to the above guidelines, the following applies for worker’s 

compensation: 

• Benefits that have a defined expiration date must have a remaining term of 

at least three (3) years from the date of the mortgage application in order to 

be used for qualifying the borrower. 

• A copy of the borrower’s disability policy or benefits statement must be 

obtained to verify the amount of the disability payments and to determine 

whether there is a contractually established termination or modification date. 

• A statement from the benefits’ payer (insurance company, employer, or other 

qualified and disinterested party) must be obtained to confirm the borrower’s 

current eligibility for the disability benefits. 




Non-AUS guidelines apply, except as 

follows: 

• If using borrower’s regular 

employment income, the amount is 

entered into DU using the applicable 

income type. 

• If using borrower’s temporary leave 

income, the amount is entered into 

DU as “Other Monthly Income” 

under “Other Types of Income” 

Trailing Spouse • The use of trailing co-borrower income is not permitted. 

Non-AUS guidelines apply, except as 

follows: 

• If using borrower’s regular 

employment income, the amount is 

entered into DU using the applicable 

income type. 

• If using borrower’s temporary leave 

income, the amount is entered into 

DU as “Other Monthly Income” 

under “Other Types of Income” 

Trust Income • A copy of the Trust Agreement or the Trustee’s statement confirming the 

amount, frequency and duration of payments must be provided. 

• The income must continue for at least three (3) years after closing. 

• Lump sum distributions made before loan closing may be used for down 

payment or closing costs if they are verified by a copy of the check or the 

Trustee’s letter that shows the distribution amount. If a distribution was made 

that reduces the Trust income, the reduction must be taken into consideration in 

computing the income. 

VA Benefits • Income received in the form of VA benefits must be documented by a letter or 

distribution form from the Veterans Administration. 

• The income must continue for at least three (3) years after closing. 

• Education benefits are not acceptable income, as it offsets education expenses. 






Borrowers on 

Strike 

Layoffs and 

Plant Closings 

Guidelines for Reviewing Borrower 

Applications Affected by Job 

Eliminations 

The guidelines below apply to a borrower who is currently out of work due to a strike 

at his/her place of employment. 

• The file must contain evidence that the borrower has returned to work. 

• The branch must be sure that the information obtained is from a reliable source. 

• One of the following methods may be used for confirmation: 

• a written verification from the employer confirming the borrower is back to 

work, or 

• a verbal verification with either the Human Resources Department, Payroll 

Department or the borrower’s supervisor. 

Note: The Correspondent Lender must verify and obtain the information directly 

with the employer (no third party documentation). 

• Borrowers may be considered on a case-by-case basis if the borrower has a 

minimum of one (1) year guaranteed employment remaining when he/she has 

been notified of a pending layoff or closing. 

• Underwriters are to use caution when approving these loans and document each 

file justifying why an approval was issued. When the plant closing or layoffs are 

effective in less than one (1) year, FHA recommends that the loan not be 

approved. 

• The guidelines shown in the table below are provided to assist in reviewing the 

applications from a borrower who is affected by job eliminations. 

Note: Marginal loans are not acceptable under these circumstances. 

Analyze the overall strengths of the file 

(i.e., credit, assets, ratios), including, but 

not limited to, the items shown in the 

example. 

Examples 

• Are the ratios low enough to support the loan if the 

borrower had to take a lesser paying job? 

• Has the borrower exhibited a savings pattern? This is 

of particular interest if the borrower’s current income is 

unlikely to be equaled by a new employer. 

• Will the borrower have cash reserves available as a 

cushion for any period of unemployment following 

closing? 

• Has the borrower established a satisfactory credit 

history? 

• What has been the borrower’s employment history? 

• What is the remaining length of time of guaranteed 

employment? 

Note: The client will need to monitor the time frame for 

sections of the business that are laying-off (or closing) 

first. 






Layoffs and Plant Closings, continued 

Guidelines for Reviewing Borrower 

Applications Affected by Job 

Eliminations 

Consideration of what other income is 

coming into the household that is 

verifiable. 

Obtain statements from the borrower 

addressing the concerns due to the 

pending layoff including but not limited to 

those shown in the example. 

Examples 

• Does borrower have second job? 

• Does borrower receive income from rental properties? 

• Does borrower have any undisclosed stable income? 

• Does a non-applicant spouse have stable income? 

• Does the co-borrower have additional stable income 

not disclosed? 

• Alternative plans, 

• Job skills, 

• What prospects are available for those skills in the area 

with other employers, 

• How does borrower plan to repay the mortgage, and 

• Other employment possibilities in the area, salary 

prospects within commuting distance. 

Documentation An IRS form 4506-T must be executed by the borrower(s) for all loans at application 

and again at closing. 

Reference: See General Section 1.37: Income Validation Guidelines in the 

Correspondent Seller Guide for a table of applicable income validation 

documentation and additional information. 

Written verifications 

• If written verification forms are used, the lender’s file must contain the original 

form (or a faxed form) with an original signature of the party completing the form. 

• Verification forms must pass directly between the lender and creditor without 

being handled by a third party. 

• When using a written verification of employment, the file must also contain a 

most recent (at time of application) pay stub. This must be provided at the time 

of underwriting. 

Alternate documentation of employment 

• Pay stub(s) covering the most recent 30 day period. The pay stub must show 

the borrower’s name, social security number and year-to-date earnings. 

• W-2’s for the most recent two (2) years. 

• Telephone certification of current employment. 

• Certification that original documents were examined and the name, title, and 

telephone number of the person with whom employment was verified. 

• Standard employment documentation must be used if the employer will not give 

telephone confirmation of employment or if the W-2 indicates inconsistencies. 

Note: Pay stubs are required before FHA will guarantee the loan. 




Liabilities and Qualifying Ratios 

Alimony and 

Child Support 

Authorized 

User Account 

Compensating 

Factors 

• The lender can choose to treat the payment of alimony one (1) of two (2) ways: 

• as a reduction from the borrower’s gross income, or 

• as a monthly obligation. 

• The lender should choose whichever method benefits the borrower the most. 

• Child support must be treated as a monthly obligation. 

Credit report tradelines that list a borrower as an “authorized user” are not required 

to be considered in the underwriting decision or the debt-to-income (DTI) ratios. 

Compensating factors may be used if a borrower’s debt ratios exceed the guidelines 

if an approval is granted. Underwriters must state in the “underwriter comments” 

section of the FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT) 

the compensating factors used to justify their loan approval. Some common 

examples of compensating factors listed below: 

• borrower has substantial documented cash reserves after closing. (At least three 

(3) months’ worth of liquid or readily convertible to cash without retirement or job 

termination. Other exclusions are gift funds, funds borrowed against IRAs, thrift 

savings plans, 401(k)s, etc., equity in other properties or proceeds from a cashout 

refinance). 

• borrower has demonstrated the ability to accumulate savings. 

• borrower makes a large down payment (ten percent (10%) or more.), 

• borrower has demonstrated a “conservative” use of credit. 

• borrower has demonstrated the ability to pay housing expenses equal to or 

greater than the proposed monthly housing expense for the new mortgage over 

the past 12-24 months. 

• previous credit history shows that the borrower has the ability to devote a greater 

portion of income to housing expenses. 

• the borrower receives documented compensation or income not reflected in 

effective income, but directly affecting the ability to pay the mortgage, including 

food stamps and similar public benefits. 

• there is only a minimal increase in the borrower’s housing expense. 

• the borrower has substantial non-taxable income (if no adjustment made 

previously in the ratio computations). 

• the borrower has potential for increased earnings, as indicated by job training or 

education in the borrower’s profession, or 

• the home is being purchased as the result of relocation of the primary wageearner 

and the secondary wage-earner has an established history of 

employment, is expected to return to work, and there is reasonable prospects for 

securing employment in a similar occupation in the new area. The Underwriter 

must address the availability of such possible employment. 

Note: It is not permissible to require the borrower to make advance payments on his 

mortgage for consideration as a compensating factor. 





Liabilities and Qualifying Ratios, Continued 

Condominium 

Fees 

Contingent 

Liability 

• With proper verification, that portion of the condo fee that clearly covers the 

utilities may be subtracted from the mortgage payment before computing ratios. 

• A contingent liability exists when a borrower holds a joint obligation with another 

person or persons. 

• Obligations where the borrower is a co-signer must be listed as the borrower’s 

debt, unless the borrower can provide conclusive evidence from the debt holder 

that there is no possibility the debt holder will pursue debt collection against 

him/her should the other party default. 

• The information listed below applies to contingent liabilities. 

• Mortgage Debt: If a borrower is obligated on an outstanding HUD, VA or 

conventional mortgage secured by a property which has been sold by 

assumption, contract for Deed or traded within the last twelve (12) months 

without a release of liability, or a property was transferred because of divorce, 

contingent liability must be considered a recurring liability unless the following 

circumstances apply: 

• the Servicer of the assumed loan provides a payment history showing that 

the mortgage has been current during the previous twelve months, or 

• an appraisal or closing statement from the sale of the property supports a 

value that results in a seventy-five percent (75.00%) LTV ratio (i.e., the 

outstanding balance on the mortgage loan, minus any UFMIP, cannot 

exceed seventy-five percent (75.00%) of the appraised value or sales price). 

Note: A copy of the divorce decree ordering the former/separated spouse to 

make payments or the assumption agreement and the deed showing transfer of 

title out of the borrower’s name is required. 

• Co-Signed Obligations: If the borrower is a co-signer, or otherwise coobligated 

on a car loan, student loan, mortgage, or any other obligation, 

contingent liability applies unless the lender obtains documented proof that the 

primary obligor has been making payments during the previous 12 months on a 

regular basis and does not have a history of delinquent payments on the loan. 






Contingent 

Liability, 

(continued) 


The following table shows information specific to AUS for Contingent Liabilities on 

Mortgage Debt. 


• If “Approve/Eligible,” the following is 

required: 

• obtain a copy of the divorce 

decree ordering the other 

spouse to make payments, or 

• the assumption agreement and 

the deed showing transfer of title 

out of the borrower’s name. 

Note: There is no twelve (12) month 

payment history requirement. 

• If “Accept,” the following is required: 

• obtain a copy of the divorce 

decree ordering the other 

spouse to make payments, or 

• the assumption agreement and 

the deed showing transfer of 

title out of the borrower’s name. 

Note: There is no twelve (12) month 

payment history requirement. 






Conversion of 

Existing 

Primary 

Residence to 

Rental Property 

or Second 

Home 

• This guidance applies solely to a principal residence being vacated in favor of 

another principal residence. 

• The housing payments for the current primary residence and the new proposed 

primary residence must be included in the debt to income calculation. 

• Underwriters are not permitted to include rental income from a primary residence 

being vacated in favor of another principal residence unless one of the following 

applies: 

• the homebuyer has a 75% LTV/TLTV or less, as determined by a current 

(dated within sixty [60] days of the Note date for the new transaction) 

residential appraisal (may be exterior-only) on the current primary residence, 

OR 

Note: SunTrust requires borrowers with a current 2-4 unit primary residence 

that will be converted to an investment property to meet the 25% required 

equity position to utilize the rental income from ANY of the property’s units, 

regardless if the units were previously occupied by the borrower or not. 

• the homebuyer is relocating with a new employer, or being transferred by the 

current employer to an area that is not within a reasonable commuting 

distance. 

• Evidence of a properly executed lease agreement of at least one year in 

term after the loan closing date and evidence of the security deposit 

and/or the first month’s rent was paid to the homeowner must be in the 

loan file. 

• Traditionally underwritten loans must document the following reserve 

requirements: 

• three (3) months reserves on BOTH properties, if the homebuyer cannot 

provide evidence of a seventy-five percent (75.00%) LTV/TLTV or less on 

the current primary residence, 

• two (2) months reserves on BOTH properties, if the homebuyer can provide 

evidence of a seventy-five percent (75.00%) LTV/TLTV or less on the current 

primary residence. 

Note: TOTAL Scorecard will determine reserve requirements for AUS approved 

transactions. 






Energy 

Efficient 

Properties 

(EEH) 

Installment 

Debt 

Ratios may be exceeded by up to two percent (2.00%) (becoming 33/45% 

respectively) if the property is an Energy Efficient home and the following conditions 

apply: 

• the property is identified as an Energy Efficient Home (EEH) by the HUD Field 

Office, and 

• evidence of the EEH designation must be provided to the buyer for eligibility to 

be passed to subsequent owners. 

Note: All properties meeting the 2000 International Energy Conservation Code 

(IECC) are considered energy efficient and eligible for the two percentage points 

increase in qualifying ratios. 

• Generally, installment debt with less than ten (10) remaining payments is not 

considered in the qualifying ratios. If the debt is other than a fixed installment, 

the underwriter must verify that the monthly installments plus interest are equal 

to an amount that can be paid off within ten (10) months. Reliance solely on the 

credit report is insufficient. Thus, it will be necessary to obtain a copy of the 

borrower’s pay statement, or other documentation, to determine the interest rate 

and number of payments required to satisfy the debt. 

• If the monthly payment on debts with less than ten (10) remaining payments is 

large enough to seriously affect the borrower’s ability to make the mortgage 

payment in the months immediately following closing, the monthly payment must 

be included in the debt ratios. An exception may be granted if the borrower has 

sufficient cash reserves after loan closing to supplement his/her income for 

payment of the debt. 




• If a liability has less than ten (10) 

remaining payments and the payment is 

less than $100, it is not counted in the 

borrower’s debt ratio. 

• All other liabilities listed on the 1003 will 

be considered in the borrower’s ratio. 

• All liabilities listed on the 1003 

will be considered in the 

borrower’s ratio. 






Obligations Not 

Considered as 

Debt 

• Federal/state/local taxes, 

• FICA or other retirement contributions such as 401Ks (including repayment of 

debt secured by these funds), 

• Commuting costs, 

• Union dues, 

• 401(k) payments, 

• Automatic deductions to savings accounts, 

• Child care, and 

• Other voluntary deductions. 

Projected Debt If a debt, such as a student loan or balloon note, is scheduled to begin repayment or 

to become due within the first 12 months of loan closing, the client must include the 

monthly obligation or take into consideration the note when qualifying the borrower. 

Property Taxes, 

Insurance and 

HOA 

Assessments 

• The taxes, insurance and HOA assessments, if applicable, due on a property 

owned by a borrower must always be considered in the borrower’s debt to 

income ratios, including properties that are currently owned free and clear. 

• Generally, it is assumed that, if the mortgage has been reported to the credit 

repositories, the payment includes taxes and insurance. This assumption also 

includes mortgages that are not on the credit report and other verification has 

been provided. 

• If the mortgage is with a private individual, it is assumed that the payment does 

NOT include taxes and insurance. 

• Reference: See Privately Held Mortgages subsequently presented in the Credit 

Requirements topic for additional information regarding payment verification 

requirements for privately held mortgages. 

• If the borrower discloses that the mortgage payment does not include taxes 

and/or insurance or the mortgage is with a private individual, the following 

applies: 

• the borrower must provide the amount of taxes and/or insurance (translated 

into a monthly figure), 

• the monthly taxes and/or insurance must be treated as a liability, and 

• documentation of the taxes and/or insurance is determined by underwriter 

discretion based on the borrower’s cash reserves. 

Qualifying Rate Fixed Rate Mortgages 

• Fixed rate loans-qualify at Note rate. 

• Temporary buydowns on fixed rate loans qualify at the Note rate. 






Qualifying 

Ratios 

• Housing ratios exceeding 31% and debt ratios exceeding 43% may be 

acceptable ONLY if significant compensating factors are documented and 

recorded on the FHA Loan Underwriting and Transmittal Summary (HUD-92900- 

LT). 

• Compensating factors, used to support the loan approval, must be listed in the 

underwriter comments section of the FHA Loan Underwriting and Transmittal 

Summary (HUD-92900-LT) for non-AUS approved loans exceeding 31/43% 

ratios. 

• The maximum DTI for SunTrust on any AUS approved transaction is 

50.00%, regardless of AUS findings. 

• Traditionally underwritten loans are not subject to this restriction; however, 

must continue to meet all other requirements, including credit scores, 

published by SunTrust and current FHA guidelines. 

• The housing ratio includes the PITI of the new mortgage, mortgage 

insurance, homeowner’s association dues, and payments on secondary 

financing. 

• Taxes included in the PITI for proposed/new construction properties must be 

based on “improved” property taxes. 

• The debt ratio includes housing ratio items, installment loans, revolving credit, 

other mortgage payments and any other monthly debt. 

• Victims of a Presidentially-Declared Major Disaster Area may have a debt ratio 

up to 45% without compensating factors. This debt ratio may be exceeded with 

appropriate compensating factors. Evidence that the borrower resided in the 

disaster area during the occurrence must be provided. This remains in effect for 

up to one-year from the date of the President’s declaration. Check the FEMA 

website to obtain specific affected counties and corresponding declaration dates 

for the Major Disaster Areas. 

Reference: See the subtopic Compensating Factors previously presented in this 





• If “Approve/Eligible,” no explanation 

is required for qualifying the 

borrower at ratios above FHA 

guidelines when this occurs. 

• The maximum DTI for SunTrust on 

any AUS approved transaction is 


• If “Accept,” no explanation is 

required for qualifying the borrower 

at ratios above FHA guidelines when 

this occurs. 

• The maximum DTI for SunTrust on 

any AUS approved transaction is 







Undisclosed 

Debt 

• Information disclosed on the loan application must be accurate and current 

through loan closing. This information includes (but is not limited to) any 

additional credit applied for or incurred during the application process and 

through loan closing. 

• If the borrower indicates new debt has been incurred which is not present on the 

initial application or on the credit report, documentation must be obtained from 

the borrower which indicates the balance and payment of the debt. This 

information must be included as a liability on the 1003 and the borrower must be 

requalified and/or the loan re-priced based on this new information. 

• If any additional liabilities or an increase in existing credit is revealed during the 

loan application process, SunTrust Mortgage, Inc., is required to re-qualify the 

borrower based on this new information. 

• Requalification may included, but is not limited to, obtaining a new credit report 

including an updated credit score, which may impact the qualifying interest rate 

and pricing, as well as, the borrower’s ability to qualify based on current program 

information. 

Note: At this time, SunTrust will NOT be pulling a new credit report prior to 

purchase to validate if the borrower has incurred any additional liabilities. 

Reference: See the “Inquiries” subtopic subsequently presented in the “Credit 

Requirements” topic for additional information 






Revolving 

and/or Open- 

End Debt 

• Monthly payments on revolving or open-end accounts, regardless of balance, 

must be included in the borrower’s monthly debt payment. If there is no balance, 

there is not monthly payment. 

• In the absence of a stated payment, the greater of 5% of the outstanding 

balance or $10 will be used as the required monthly payment. 

Student Loans If the debt repayment is scheduled to begin within twelve months from the date of the 

mortgage loan closing, the anticipated monthly obligation must be included in the 

debt ratio, unless written evidence that the debt will be deferred to a period outside 

this timeframe is provided. 

Unverified 

Liabilities 

Notes: 

• Student loans cannot be used towards the transaction as either income or assets. 

• If the RMCR or In-file Credit Report does not reflect a monthly payment amount, 

a copy of the Note or a letter from the lender must be used to determine the 

monthly payment amount. 

• If there are liabilities disclosed by the borrower but not on the credit report, 

independent verification is required. 

• Verification of such liabilities is based on underwriting discretion upon full 

analysis of the loan file. The underwriter must determine if verification is 

necessary to support an approval (if not verified, an explanation is required as to 

why the liability is immaterial). 




If “Approve/Eligible” and liabilities 

disclosed by the borrower are not on the 

credit report, the liability must be verified 

according to non-AUS guidelines. 

• If “Accept” and liabilities disclosed 

by the borrower are not on the credit 

report, the liability must be verified 

according to non-AUS guidelines. 

• If the verification reflects that the 

account is currently more than 90 

days past due, the loan must be 

downgraded to a “Refer”. 




Credit Requirements 

General • The overall analysis of a borrower’s credit should be performed using the 

following “hierarchy” order: 

• payment history for current and previous housing payments, 

• payment history for installment debts, and then 

• payment history for revolving accounts. 

• Generally, an individual with no late housing or installment debt payments should 

be considered as having an acceptable credit history unless there is derogatory 

credit on revolving accounts. 




If a borrower’s current address is outside 

of the United States, DU will not issue a 

recommendation. The loan must then 

be traditionally underwritten. 

Bankruptcy Documentation 

• Copy of the bankruptcy petition, 

• Schedule of Debts and Discharge, and 

• Written explanation from borrower. 

If a borrower’s current address is 

outside of the United States, LP will not 

issue a recommendation. The loan 

must then be traditionally underwritten. 

Note: Documentation of the bankruptcy is not required if, TOTAL Scorecard 

approves the transaction and the findings do not need to be manually downgraded to 

a “Refer” and traditionally underwritten. 

Chapter 7 [liquidation] Bankruptcy 

• Bankruptcy must have been discharged for at least two (2) years. 

• If bankruptcy is discharged for at least one year (but not less than 12 months), it 

may be acceptable if it occurred due to extenuating circumstances beyond the 

borrower’s control (i.e., death of principal wage earner, or serious long-term 

illness) and are not likely to recover, 

• Provide documentation that the borrower’s current situation indicates that the 

events that led to the bankruptcy are not likely to reoccur. 

• The borrower must have re-established good credit, or has chosen not to incur 

new credit obligations, 

• In lieu of an established credit history, credit letters covering the past 12 months 

from two of the following are acceptable: telephone, cable, gas or electric 

companies, etc. 





Credit Requirements, Continued 

Bankruptcy, 

(continued) 

• There cannot be any new derogatory credit information, unless TOTAL 

Scorecard approves the transaction and the credit report accurately reflects the 

derogatory credit information. 

Note: If the bankruptcy included a foreclosure, the more restrictive three (3) 

year wait still remains in effect. This three (3) year waiting period is based on 

the date the claim is paid. 

Reference: See Foreclosures subsequently presented within this topic for additional 

information. 

Chapter 13 Bankruptcy 

• A borrower paying off debts under a court approved wage earner’s plan pursuant 

to Chapter 13 of the Bankruptcy Act may be eligible if he/she is: 

• otherwise acceptable, 

• bankruptcy payments are included in the ratios, 

• one (1) year of the pay-out period has elapsed, 

• the performance under the plan has been satisfactory, and 

• the borrower receives court approval to enter into the mortgage transaction. 

• The borrower must have re-established good credit, or has chosen not to incur 

new credit obligations, 

• In lieu of an established credit history, credit letters covering the past 12 months 

from two of the following are acceptable: telephone, cable, gas or electric 

companies, etc. 

• There cannot be any new derogatory credit information. 

Note: Bankruptcy information through the Public Access to Court Electronic 

Records (PACER) service that matches the credit report is acceptable to FHA. 

However, if the borrower does not meet the standard requirement of two years (three 

years if part or a foreclosure), additional documentation may be required. 

Reference: See the “PACER” website at http://www.pacer.gov/login.html for more 

information 






Bankruptcy, 

(continued) 

Disputed 

Accounts 


To be eligible for AUS submission, the Chapter 13 Bankruptcy must have been 

discharged for at least two years. 



• Typically, the loan will receive an Standard FHA guidelines apply. 

• 

“Approve/Ineligible” in DU if there is a 

bankruptcy less than two (2) years or 

foreclosure less than three (3) years on the 

credit report. 

If “Approve/Eligible”, the loan must be 

manually downgraded to a “Refer” and 

traditionally underwritten if the following 

applies: 

• the information was reported 

• 

incorrectly on the credit report, or 

the information was not reflected on 

the credit report but disclosed by the 

borrower, or 

• the credit report (or other 

documentation) does not show a 

Chapter 13 Bankruptcy has been 

discharged for at least two (2) years. 

For Case Numbers Assigned prior to April 1, 2012 and after April 8, 2012, follow the 

guidelines below: 

DU will issue messaging regarding disputed accounts for FHA transactions. If the 

borrower is disputing any credit accounts or public records that appear on their credit 

report, submit the file to a direct endorsement underwriter for review unless: 

• the disputed account has a zero balance, is marked as “paid in full” or “resolved” 

on the credit report, or 

• has both a balance less than $500 and the date of the dispute is more than 24 

months old. 

For Case Numbers Assigned between April 1, 2012 and April 8, 2012, follow the 

guidelines outlined here. 






Collections For Case Numbers Assigned prior to April 1, 2012 and after April 8, 2012, follow the 


• It is SunTrust’s requirement for all AUS (DU and LP) processed loans: 

collections and charge off account(s) that total more than $5,000 must be paid 

off prior to or at closing. Funds sufficient to settle the account(s) must be verified 

and documented. It is NOT acceptable to pay down the aggregate balance of 

these accounts to $5,000 and allow them to remain open. Underwriter discretion 

will be used on collections outstanding less than $5,000 after full review of the 

file. 

• Account balances reduced to a judgment by a court must be paid in full. 

• The following criteria applies for loans that do not receive and “Approve/Eligible” 

through Total Scorecard: 

• Collections will be reviewed on a case by case basis depending on the 

overall quality, 

• Major indications of derogatory credit require sufficient written explanation 

from the borrower (i.e., collections, judgments, and any other recent credit 

problems). The explanation must make sense and be consistent with other 

credit information in the file, 

• Collections may be required to be paid off by closing based upon underwriter 

discretion after full review of the file, and 

• Underwriter must provide comments on the FHA Loan Underwriting and 

Transmittal Summary (HUD-92900-LT) regarding his/her analysis of the 

collections and the borrower’s willingness to repay obligations. 



• The following table shows information specific to AUS. 


• If “Approve/Eligible,” explanations of 

late payments are not required. 

• If “Approve/Eligible,” a hypothetical 

monthly payment does not need to be 

used in qualifying the borrower. 

If “Accept/Eligible,” explanations of late 

payments are not required. 






Consumer 

Credit 

Counseling 

• If a borrower is in a Consumer Credit Counseling Program, HUD views such a 

borrower in the same terms as a borrower who has gone through a Chapter 13 

bankruptcy. 

• If the borrower has been paying at least 12 months satisfactorily and the 

borrower receives written permission from the counseling agency to enter into 

the mortgage transaction, the borrower may be acceptable. 

• Since some creditors may still report the borrower as delinquent, even though 

they have agreed to accept a lower payment, this must be considered in the 

analysis of the borrower’s overall credit. 

• These cases should be analyzed on a case-by-case basis. It is a judgment call 

on the part of the DE underwriter after analyzing all the factors. The borrower 

being in a Consumer Credit Counseling program is viewed as neither a positive 

nor a negative. 

Note: TOTAL Scorecard will not recognize the borrower being in a Consumer 

Credit Counseling program. The underwriter should ensure HUD/FHA 

requirements are met. 






Credit Alert 

Interactive 

Voice 

Response 

(CAIVRS) 

System 


• The CAIVRS code is required on all FHA loans except streamline refinances. 

• The CAIVRS system will verify if the borrower(s) has had an insurance claim 

paid in the three (3) years prior to loan application on a previous HUD-insured 

mortgage or if there is a current delinquency on a HUD-insured mortgage. 

• If CAIVRS results show a claim delinquency, the borrower is generally not 

eligible for a FHA-insured mortgage. (see “Eligibility Exceptions” below.) 

• The CAIVRS system may be accessed by electronic response when ordering 

the FHA Case Number in FHA Connection. 

• The authorization code and message provided for each borrower by the CAIVR 

system must be written on the FHA Loan Underwriting and Transmittal 

Summary (HUD-92900-LT). 

• HUD does not allow credit bureaus to obtain the CAIVRS numbers. 

• Lenders may not rely on a clear CAIRVS approval when in possession of 

independent evidence of delinquent federal obligations and must document the 

resolution of any conflicting information. 

• If there is a delinquency code, the lender must contact the appropriate HUD 

HOC in order to obtain the necessary information to determine if the borrower 

qualifies for the FHA mortgage: 

HOC Phone Number 

Philadelphia HOC 1-215-656-0578, ext. 3059 

Atlanta HOC 1-888-696-4687 (select an option) 

Denver HOC 1-800-543-9378 

Santa Ana HOC 1-888-827-5605, ext. 3171 

Eligibility Exceptions 

• If the default or claim was caused by one of the following, the borrower(s) is 

eligible to receive another HUD-insured mortgage providing the appropriate 

documentation supporting the borrower(s) eligibility is attached to the FHA Loan 

Underwriting and Transmittal Summary (HUD-92900-LT): 

• Assumption: if the borrower sold the property with or without a release of 

liability, to an individual who subsequently defaulted, the borrower is eligible 

provided he/she can prove the loan was not in default at the time of the 

assumption, 






Credit Alert 

Interactive 

Voice 

Response 

(CAIVRS) 

System, 

(continued) 

Eligibility Exceptions, continued 

• Divorce: if there was a default on a mortgage awarded to a former spouse and 

the divorce decree or legal separation agreement awarded the property to that 

spouse (if a claim was paid, the mortgage must have been in default after the 

divorce decree or separation agreement was signed), or 

• Bankruptcy: if the property was included in a bankruptcy that was caused by 

circumstances beyond the borrower’s control. 

Alpha Code Definitions 

• A = No activity 

• B = Title I claim and/or Title II default 

• C = Title I and/or claim 

• D = One or more Title II defaults 

• E = One or more Title I claims 

Steps to Cure Problems 

If the code is “B-E” the borrower must contact the HUD Field Office for direction. 

Instructions given by the HUD Field Office must be provided by the borrower and 

must be followed to “cure” the problem. 

Credit Inquiries • Documentation of inquires is based on underwriting discretion upon full analysis 

of the loan file. 

• All inquiries within the last 90 days must be indicated on the credit report and 

explained in writing by the borrower. Any new debt must be verified and 

included in the debt ratio. 

• If the credit report reflects credit inquiries from lenders (including SunTrust Bank, 

Inc.) within 120 days of the credit report date, explanation for all inquiries 

referenced, except for the inquiry made by the originating lender that is directly 

related to the subject mortgage loan application, is required. 

Note: An explanation for the credit inquiry made by the originating lender that is 

directly related to the subject mortgage loan application is not required. 

• If the explanation reveals that new debt has been incurred which is not present 

on the initial application or on the credit report, documentation must be obtained 

from the borrower which indicates the balance and payment of the debt. This 

information must be included as a liability on the 1003 and the borrower must be 

requalified and/or the loan re-priced based on this new information. 

Note: At this time, SunTrust will NOT be pulling a new credit report prior to purchase 

to validate if the borrower has incurred any additional liabilities 






Credit Reports A merged in-file credit report from three (3) repositories is acceptable in lieu of a full 

Residential Mortgage Credit Report (RMCR). 

• Credit Reports with truncated SSN’s (Example: xxx-xx-1234) are acceptable 

under the following guidelines: 

• The credit report must reflect a minimum of the last four digits of the 

borrower’s social security number, 

• the mortgage application (1003) must have the complete 9 digit social 

security number, 

• the borrowers name, social security number and date of birth must be 

validated through FHA connection or its equivalent, and 

• lenders are responsible for verifying each borrower’s social security number 

as well as each borrower’s identity. 

• All copies of all credit report must be retained along with a written analysis of 

the reasons for any discrepancies between the credit reports. If any 

information is received that is inconsistent with the information on the credit 

report, the inconsistency must be reconciled. 

• SunTrust will not accept a Non-Traditional credit report (NTMCR) to offset 

derogatory references found in the borrower’s traditional credit, such as 

collections and judgments. 

Reference: See the HUD Handbook 4155.1, Chapter 1 for additional information on 

TRMCRs, RMCRs and NTMCRs. 




• Joint credit reports may be ordered for borrowers who are married to each 

other. 

• If there are two (2) or more borrowers who are not married to each other, 

individual credit reports must be ordered for each borrower, even if they live 

together and co-mingle accounts. 

• A merged in-file credit report from three repositories is obtained through DU. 

• All credit reports for all borrowers must be reviewed. 

• The feedback certificate must identify the borrower’s credit report used for 

TOTAL’s risk evaluation. 

• If the subject property is located in a community property state and the borrower 

has a non-purchasing spouse, individual credit reports are required. The nonpurchasing 

spouse’s report should be ordered outside of DU. 

• Credit Report Expiration Date: The credit documents may be up to 120 days old 

at the time the loan closes unless the transaction is for new construction, in 

which case, the documents can be 180 days old. 

• DU will return a message identifying the final date the loan can close based on 

the date the credit report will expire. 






Escrow 

Waivers 

Minimum Floor 

Credit Score 

Requirements 

Waiver of tax and/or insurance escrow is not allowed. 

• A minimum floor credit score of 640 is required on all non-jumbo FHA loan 

programs including DU “Approve/Eligible” loans. 

• ALL borrowers are required to meet this new minimum floor credit score on all 

non-jumbo FHA loan programs. 

Reference: See the Streamline Refinance subtopic previously presented for 

additional information on credit score requirements on FHA Streamline 

refinances. 

Notes: 

• DU “Approve/Ineligible” loans require an Underwriter to sign off on the loan. 

All borrowers are required to have a minimum 640 credit score in this case. 

• All data that has been input into the AUS engine MUST be validated and 

deemed accurate. 

• If the FHA product description includes a minimum credit score HIGHER 

than the minimums outlined above, the HIGHER restriction still applies. 

• If a borrower does not have traditional credit references with which to generate a 

credit score, the borrower is considered “unscoreable,” and is not eligible for 

financing with SunTrust. 

• The credit scores must be entered into the FHA Connection (or its functional 

equivalent). 

• Credit scores not entered by TOTAL Scorecard are entered at the Insurance 

Application process by the Post-Closing Department. 

• Only one credit score is required for an occupant borrower for the loan to be 

eligible for the FHA TOTAL Scorecard. 

Note: Once a mortgage loan is scored through TOTAL Scorecard the credit 

bureau scores remain permanent (unless re-scored through TOTAL) and cannot 

be changed with manual input. 






Debts Omitted 

or Not Verified 

on Credit 

Report 

Delinquent 

Federal Debt 

The lender must obtain a separate written verification (this includes accounts listed 

as “will rate by mail only” or “need written authorization”). 

• A borrower is not eligible for a HUD insured loan if he/she has any outstanding 

Federal debt (this includes debt of borrower sponsor, general contractor, and all 

principal of these entities), until the delinquent account is brought current, paid, 

or satisfied. 

• Federal debts include direct loans, HUD-insured mortgage loans, VA-insured 

mortgages, student loans, Small Business Administration loans, or 

judgments/liens against property for a debt owed the Federal Government. 

• A borrower with prior Federal defaults or claims must submit an explanation of 

the circumstances surrounding the delinquency with the following documents: 

• detailed explanation of how delinquent debt was incurred, 

• letterhead advice from affected agency, signed by an officer and stating that the 

delinquent debt is current or that satisfactory arrangement for repayment has 

been made, and 

• lender’s reason(s) for recommendation of the borrower (can include worksheets 

and remark sections from processing documents or a cover letter). 

Exception 

• A tax lien may remain unpaid if the lien holder subordinates the lien to the HUD 

insured mortgage and payment on the lien is included in the qualifying ratios. 

• If the lender has evidence that the IRS has demanded a first-lien position, the 

lien must be satisfied prior to closing. 

• The IRS routinely takes a second lien position on a principal residence without 

the necessity of independent documentation. 

• Eligibility for FHA mortgage insurance will not be jeopardized by outstanding IRS 

tax liens remaining on the property UNLESS there is information that the IRS 

has demanded a first-lien position. 

Note: Although eligibility for an FHA mortgage may be established by the 

actions described above, the overall analysis of the creditworthiness must 

include consideration of a borrower’s previous failure to make payments to the 

Federal agency in the agreed to manner and must document its analysis of how 

the previous failure does not represent a risk of mortgage default. 

• Delinquent payments must be explained in writing by the borrower to the 

satisfaction of the underwriter. Supporting documentation may be required. 

• Documentation of late payments is based on underwriting discretion upon full 

analysis of the loan file. 






Duplicate 

Public Records 

Foreclosure/ 

Deed in Lieu of 

Foreclosure/ 

Short Sale 

Judgments, 

Garnishments, 

and Liens 

• If it is unclear from the credit report that an item is duplicated, each item should 

be treated individually and appropriate documentation must be obtained. 

• A foreclosure, deed-in-lieu of foreclosure or short sale within the three (3) year 

period prior to loan application is not acceptable on a HUD insured loan. If the 

foreclosure was part of a bankruptcy, the more restrictive three (3) year wait 

remains in effect. 

• There is an exception if the foreclosure was on the borrower’s principal 

residence and was the result of extenuating circumstances beyond borrower’s 

control (i.e., death of the principal wage earner, or serious long-term illness). 

• In the case of an exception, the borrower must have re-established new credit 

with no derogatory credit since the foreclosure and he/she provide a letter from 

the lender who held the lien showing no outstanding liability. 

• Inability of a borrower to sell his/her home when transferred from one area to 

another is not an acceptable reason for foreclosure or deed-in lieu. 



For Case Numbers Assigned prior to April 1, 2012 and after April 8, 2012, follow the 


• Judgments, garnishments and/or liens must be paid in full at or prior to closing. 

• A letter of explanation written by the borrower is required. 

• Borrower must provide documentation of payoff. 

• The borrower must have reestablished credit, as reflected on the credit report in 

the file. 

• An exception may be made if the borrower has been making regular and timely 

payments on the judgment and the creditor is willing to subordinate that 

judgment to the insured first lien mortgage. 






Standard FHA guidelines apply. If underwriting is through LP, an 

explanation is not required. 






Mortgage/ 

Rental Payment 

Histories 

• The borrower’s housing payment history is significant when evaluating credit. 

• The lender must determine the borrower’s housing payment history through a: 

• credit report, 

• verification of rent directly from the landlord (for landlords with no identity-ofinterest 

with the borrower), 

• verification of the mortgage directly from the mortgage servicer, or 

• the review of canceled checks that cover the most recent 12 month period. 

Note: The lender must verify/document the previous 12 months housing history 

even if the borrower states they are living rent free. 

• Mortgages with less than 6 months of payment history are not eligible for a cashout 

refinance. 

• Properties owned free and clear are eligible for cash-out refinances. 

• Traditional underwriting is required for streamline refinance, second home, and 

investment property transactions or if the credit report used by TOTAL Scorecard 

does not accurately reflect the mortgage payment history. 

Reference: See Privately Held Mortgages subsequently presented for additional 

information regarding payment verification requirements for privately held 

mortgages. 




• Typically, the loan will receive an “Approve/Ineligible” if there are any 30/60/90 day late payments in 

the last 12 months on the credit report. 

• If “Approve/Eligible,” rental payment history verification is not required. 

• If “Approve/Eligible,” the loan must be manually downgraded to a “Refer” and traditionally 

underwritten if the following applies: 

• The information was reported incorrectly on the credit report; or 

• The account was not reflected on the credit report but direct verification outside of DU reflects 

more than 1x30 day late in the last 12 months. 

• The loan is a cash-out refinance and any mortgage trade line, including mortgage line-of-credit 

payments, during the most recent 12 months reflects 

• Any mortgage delinquencies in the most recent 12 month period, or 

• With less than 6 months payment history on the existing mortgage, or 

• Currently delinquent. 

Reference: See Privately Held Mortgages subsequently presented for additional information regarding 

payment verification requirements for privately held mortgages. 






Privately Held 

Mortgages 

Non-Traditional 

Credit 

A “privately held mortgage” is a mortgage or trust deed which is granted to a borrower 

with private monies and is between an individual investor, partnership, LLC, trust, etc., 

who has interest in the property and/or the person who purchased the property. 

If a borrower is refinancing a privately held mortgage, the following payment 

verification requirements apply: 

• A mortgage payment history of 12 months must be met. 

• At a minimum, at least six (6) months mortgage payments on the current 

privately held mortgage must be verified. The remaining six (6) months can 

come from a previous mortgage or rental verifications. 

• The privately held mortgage payments must be verified with either cancelled 

checks or bank statements (if the payment is automatically withdrawn from 

the borrower’s account). 

• If less than the minimum six (6) months mortgage payments on the current 

privately held mortgage are verified and the property is a 1 unit primary 

residence, then the following applies: 

• The borrower’s previous mortgage or rental payments may be used to 

supplements the required twelve (12) month payment history, but may not 

be used solely to satisfy the required payment history. 

• If previous mortgage or rental payments are used to supplement the 

required twelve (12) month payment history, then the previous mortgage 

or rental history must reflect no more than 1x30 late in the supplemental 

history. 

• The borrower’s previous rental history may be used to supplement the 

twelve (12) month history only if the rental payments are consistent with 

or within 20% of the total proposed PITIA mortgage payment. 

• If a mortgage payment is not required for the current privately held mortgage, 

then non-AUS guidelines apply for ratio and reserve requirements. 

• If the property is a 2-4 unit primary residence, the minimum six (6) month 

mortgage payment history on the current privately held mortgage must be 

verified, no exceptions. 

• Evidence must be included in the loan file that the lien being paid off is a 

current recorded lien against the subject property. 

• All other FHA credit history requirements apply. 

Note: These guidelines apply for all traditionally underwritten AND AUS 

processed FHA loans. 

If a borrower does not have traditional credit references with which to generate a 

credit score, the borrower is considered “unscoreable,” and is not eligible for financing 

with SunTrust. 






Recent and 

Undisclosed 

Debts 

Suspensions 

and 

Debarments 

• The purpose of any recent debts must be determined as the indebtedness may 

have been incurred to obtain part of the required down payment on the property 

being purchased. Unsecured debt may not be used for down payment. 

• The borrower must also provide a satisfactory explanation for any significant 

debt that is shown on the credit report but not listed on the loan application. 

• A borrower who is suspended, debarred, or otherwise excluded from 

participation in HUD’s programs is not eligible for a HUD insured mortgage. 

This is verified on HUD’s “Limited Denial of Participation (LDP) List” and the 

government wide General Services Administration’s (GSA) “List of Parties 

Excluded from Federal Procurement or Non-procurement Programs”. The results 

of reviewing these two lists must be documented on the FHA Loan Underwriting 

and Transmittal Summary (HUD-92900-LT) to confirm that the LDP/GSA lists 

have been checked. 

• The listing/selling Realtors, Builder, seller, and loan officer must also be verified 

on the LDP/GSA lists. 

• LDP/GSA lists can be accessed via FHA Connection or the Internet web site. 

Exception: If the seller(s) is on the GSA list but the property being sold is the 

seller’s principal residence, the transaction is eligible for HUD financing 

(assuming that all other parties are eligible). 






Documentation Age of Credit Documents 

• If the property is existing, credit documents (credit reports, employment, income 

and asset documentation) cannot be older than 120 days from the Note date. 

• If the property is new construction, credit documents (credit reports, 

employment, income and asset documentation) cannot be older than 180 days 

from the Note date. 

• The expiration date for the documents is based on the origination date on the 

document and not on the underwriting date. 

• All accounts with a balance must have been checked with the creditor within 90 

days of the credit report. All inquiries made within the last 90 days must also be 

included on the credit report. 

Alternate 

Documentation 

Written, Faxed, or Internet Verifications of Employment and Assets 

• If written verification forms are used, the lender’s file must contain the original 

form (or a faxed form) with an original signature of the party completing the form. 

• Verification forms must pass directly between the lender and creditor without 

being handled by a third party. 

• Internet downloads may be used but must be placed in the file in paper form. 

The documents must clearly identify the firm’s name and source of information. 

The lender is accountable for ascertaining the authenticity of the document by 

examining that information included on any headers, footers, and the banner 

portion of the print outs of the downloaded web pages(s). The printed web 

page(s) must also show the Uniform Resource Locator (URL) address and the 

date and time printed. The lender is to verify the existence of the web site from 

which the documents were derived. 

• The Internet downloaded documents must be identifiable as belonging to the 

borrower. 

• Documents relating to credit, employment or income of the borrowers that are 

handled by, transmitted from or through interested third parties (i.e., real estate 

agents, builders, sellers) or by using their equipment are not acceptable and may 

not be used as documentation. 

Verification of Mortgage/Rental 

One (1) of the following is acceptable: 

• most recent 12 month history as reflected on the credit bureau report, 

• most recent 12 months canceled checks (front and back), 

• previous year end statement and canceled checks year-to-date (front and back), 

or 

• written verification of mortgage or rental. 

Credit Report 

• An in-file credit report is acceptable, as long as it provides information from three 

(3) repositories. 

• If an in-file cannot meet HUD’s requirements, a full RMCR is required. 




FHA Social Security Number Validation 


Number 

Validation and 

Effect on Case 

Number 

Assignments 

General 

• FHA will validate Social Security Numbers (SSN) for consistency with borrower 

names and dates of birth as a further means of reducing identify theft and fraud 

to protect the insurance funds managed by FHA. 

• This service is only for FHA loans, and may not be used to verify Social Security 

Numbers (SSN) for other financing types. 

Reference: See the FHA Case Number Assignment and Cancellation subtopic in the 

Overview topic for additional information. 

Lender’s Responsibilities 

• The modified Addendum to Uniform Residential Loan Application (HUD-92900- 

A), pages 1 and 2 must be used for all new loan applications to provide 

disclosure to and consent by the borrower to verify his/her SSN, as well as each 

borrower’s identity. . See 

http://portal.hud.gov/hudportal/documents/huddoc?id=92900-a.pdf for revised 

form 92900-A. 

• The borrower’s name, SSN and birth date are entered by the lender at the 

borrower/address screen through the FHA Connection (FHAC) on all loans 

except proposed new construction. 

• It remains the lenders responsibility to verify each borrower’s SSN and identity. 

• Loans may not be closed or endorsed without an approved validation by FHA. 

Reference: See “Social Security Numbers” in the topic “Application, Disclosures 

and Consumer Compliance” for additional information. 

FHA’s Online Validation System 

• FHA’s on-line system provides an overall confidence rating. An acceptable 

confidence rating allows a case number to be assigned and the lender may 

continue to process the loan. 

• Validation will also be performed when the borrower name, date of birth or SSN 

is changed after the case number has been assigned. If the validation fails, a 

case warning will remain on the loan and the lender will need to resolve the 

inconsistency before the mortgage may be endorsed. 

• If an acceptable confidence rating is NOT received, one of the following actions 

may be taken by the lender: 

• Correct any or all of the three data fields to trigger additional verification 

attempts, if incorrect date, or 

• If it is believed the data is correct, override the online validation, continue 

with all other data entries into FHA Connection. The results of this action are 

shown below. 





FHA Social Security Number Validation, Continued 


Number 

Validation and 

Effect on Case 

Number 

Assignments, 

(continued) 

FHA’s Online Validation System, continued 

• The application is placed in the “holds tracking” mode resulting in an overnight 

validation attempt with the SSA’s database. 

• If successful, a case number is normally assigned the next day following 

successful verification by SSA; however, a two-day case number assignment 

may occur. 

• If the overnight matching with SSA fails, FHA will communicate the information 

regarding mismatched data fields, including transposed numbers, date of birth 

inconsistency, complete failure to match, etc. No case number will be issued. 

Evidence System is in Error 

• The lender may provide documentation to the jurisdictional Homeownership 

Center (HOC) if the borrower produces conclusive documentation that the SSA 

database is in error (i.e., borrower name change following recent marriage). 

• If the HOC staff believes the documentation to be valid, it will manually issue a 

case number. 




Cash Requirements 

General In all cases, the source of funds for closing must be verified with acceptable 

documentation including AUS loans. 




All assets entered in DU must be verified. • All assets entered in LP must be verified. 

• If the transaction is a refinance and the borrower is 

required to bring cash to closing, the source of closing 

funds must be verified if closing costs are greater than 

4% of the loan amount. If closing costs are 4% or less, 

verification of the source of funds is not required. 

Advance 

Mortgage 

Payments 

Prohibited 

Borrowers at 

Least 60 Years 

Old 

Cash Reserve 

Requirements 

FHA does not permit a lender, as a condition for making a FHA mortgage, to collect 

advance payments of the mortgage. Borrowers are not to be required to write postdated 

checks, give cash, or otherwise make mortgage payments in advance of the 

borrower’s mortgage payment requirements under the security instrument. 

Reference: See the Borrowers 60 years of Age subtopic in the Eligible Borrowers 


General 

• Assets, other than those necessary to cover closing funds, must be liquid or 

readily converted to cash (absent requirement or job termination) in order to be 

considered as cash reserves). 

• If funds not considered for cash reserves are used for closing, they should be 

considered assets only for the amount that is required for closing. Additional 

funds would not be considered “cash reserves.” 

Cash Reserve Requirements 

• There are no cash reserve requirements except under the following conditions: 

• three (3) months PITI reserves are required on all transactions for 3-4 unit 

properties, or 

• cash reserves may be needed for a compensating factor if debt ratios 

exceed the guidelines. 

Assets Not Considered Cash Reserves 

• The following assets are not considered “cash reserves”: 

• equity in other properties (not including a primary residence being sold with 

proceeds applied to the purchase of the subject property), 





Cash Requirements, Continued 

Cash Reserve 

Requirements 

(continued) 

Assets Not Considered Cash Reserves, continued 

• The following assets are not considered “cash reserves”: 

• proceeds from a cash-out refinance (if this is the subject transaction), 

• gift funds, and 

• funds that are borrowed against a liquid account (i.e., 401k loan). 

Note: Any gift funds that remain in the borrower’s account following closing, subject 

to proper documentation, may be considered as cash reserves when scoring the 

mortgage application through TOTAL Scorecard. 

Cash Reserves from Retirement Accounts 

• A portion of the borrower’s retirement account may be used as cash reserves 

when scoring a mortgage application through TOTAL Scorecard subject to the 

conditions listed below: 

• only 60% of the VESTED amount of the account may be used to account for 

withdrawal penalties and taxes. 

• the lender must document the existence of the account with the most recent 

depository or brokerage account statement. 

• evidence must be provided that the retirement account allows for 

withdrawals for conditions other than in connection with the borrower’s 

employment termination, retirement, or death. 

• retirement funds that can only be withdrawn under the conditions noted 

above may not be used as cash reserves. 

• any retirement funds that are also used for loan settlement must be 

subtracted from the amount included in cash reserves. 

Cash on Hand Cash at Home 

• Borrowers must be able to demonstrate the ability to save such funds. 

• The cash must be verified as deposited in a financial institution or held by the 

escrow/title company. 

• The borrower is responsible for providing satisfactory evidence of the ability to 

accumulate such savings (i.e., explanation of how funds were accumulated and 

over what period of time and a completed budget plan). 

• The reasonableness of the accumulation of the funds based on the borrower’s 

income stream, the time period during which the funds were saved, the 

borrower’s spending habits, documented expenses and history of using financial 

institutions. (Individuals with checking and/or savings accounts are less likely to 

save money at home than those with no history of such accounts.) 

• Income that is not reported to the IRS cannot be used for source of cash saved 

at home. 

Cash From Private Savings Clubs 

• Private savings clubs include those used by numerous ethnic groups. 

• The borrower must be able to adequately document the accumulation of his/her 

assets held with the club. 






Cash on Hand, 

(continued) 

Checking & 

Savings 

Accounts and 

Certificates of 

Deposit 

Cash From Private Savings Clubs, continued 

• There must exist, at minimum, account ledgers, receipts from the club, to enable 

a lender to receive verification from the club treasurer, as well as identification of 

the club that would permit you to re-verify the information provided. 

• The underwriter must be able to determine that it was reasonable for the 

borrower to save the money claimed and that there is no evidence that these 

funds are borrowed funds with an expectation of repayment. 




The borrower must provide one of the following: 

• most recent monthly bank statement showing the previous month’s ending 

balance if received monthly. If previous month’s balance is not shown, the most 

recent 2 monthly statements are required (in some cases, the AUS Findings 

Report may require 2 months), or 

• most recent quarterly bank statement, if received quarterly. 

Explanations are required for large deposits on bank statements that may require 

additional documentation. 

• Note: If the borrower does not hold the deposit account solely, all nonborrower’s 

on the account must provide a written joint access letter stating that 

the borrower has full access and use of the funds. 






Large Deposits • A large deposit could be a single deposit or multiple deposits over a period of 

time, which in aggregate, results in a large deposit. “Period of time” equals the 

period covered by the bank statements reviewed by the underwriter which, in 

aggregate, results in a large deposit. 

• We consider the following a large deposit: 

• Single deposits that represent 10% of the borrower’s gross monthly income. 

• If the bank account is joint with another borrower then review single 

deposits of 10% or more of the joint borrower’s gross monthly income. 

• If joint borrowers have separate account(s) then review single deposits 

of 10% or more of the individual borrower’s gross monthly income. 

• Self-employed borrower gross income is the monthly qualifying income 

used for the self-employed borrower. 

• Multiple aggregated deposits which represent 20% of the borrower’s gross 

monthly income for the period covered on the bank statement. 

• If the bank account is joint with another borrower then review multiple 

deposits of 20% or more of the joint borrower’s gross monthly income. 

• If joint borrowers have separate account(s) then review multiple deposits 

of 20% or more of the individual borrower’s gross monthly income. 

• Self-employed borrower gross income is the monthly qualifying income 

used for the self-employed borrower. 

• Account balance greater than the average balance over the previous two 

months. 

• The following large deposit documentation requirements apply: 

• Require a satisfactory signed letter of explanation from the borrower in all 

circumstances regardless if funds are needed for closing. 

• A letter of explanation is not required if funds are transferring from one 

account to another (i.e., checking to savings, money market to savings 

or checking, etc.) and both sides of the transfer(s) are tracked on the 

bank statement(s) in the file. 

• The appropriate level of due diligence must be used to ensure large deposits 

are not the result of undisclosed debt or because of incentives from a seller, 

realtor, builder, or developer. 

• Using the funds in question for down payment, closing cost, earnest money 

deposit, or reserves, requires additional supporting documentation to verify 

the source of funds. 

• If funds in question are not being used for down payment, closing costs, 

earnest money deposit, or reserves, and due diligence has been performed 

to ensure the funds are not from an unacceptable source, the underwriter 

may deduct the large deposit from the balance of the account and allow 

remaining funds to be used to qualify. 

• When reducing the asset balance by the amount of the large deposit, the 

reason for the change in the asset amount requires documentation, and 

update to AUS (if applicable) with the adjusted asset balance, and rerun of 

AUS to update the AUS decision. 






Large Deposits, 

(continued) 

Commission 

From Sale 

Credit Card 

Financing 

• When identifying the source of deposits take into consideration: 

• Do the deposits reflect a normal deposit pattern from an identifiable source? 

• Are the total monthly deposits consistent with the borrower’s income and 

earnings profile? 

• Does the borrower have direct deposits over a period of time which, in total, 

result in a large deposit? 

• Is the deposit possibly a loan? 

• Are there credit inquiries which may be a red flag? 

• Was the account recently opened? 

• If the borrower is a licensed real estate agent entitled to a real estate 

commission from the sale of the property being purchased, those funds may be 

used as part of the down payment, a letter from the Real Estate Agency must 

state how much will be credited to the Sales Agent (after any commission split or 

deduction of other fees) at closing on the HUD-1. 

• A family member entitled to the commission may also gift the funds to the 

borrower. 

• There is no required adjustment to the maximum mortgage. 

• The actual cost of a credit report and appraisal may be charged on a credit card 

when these cost are paid outside of closing under then following conditions: 

• a payment for the amount charged is included in the total debt ratio, and 

• the borrower has sufficient assets (documentation in file) to pay charged 

fees, in addition to funds needed for other closing costs and the down 

payment. 






Disaster Relief 

Grants and 


• Eligible grants and loans that may be used for the down payment with no 

adjustment to the maximum mortgage include the following: 

• grants or loans from state and federal agencies that provide immediate 

housing assistance to individuals displaced due to natural disaster, and 

• secured or unsecured disaster relief loans administered by the Small 

Business Administration (SBA). 

• If the SBA loan is secured by the subject property, it must be subordinate to the 

HUD insured first mortgage lien and the monthly payment must be included in 

the debt ratios. 

Down Payment • HUD requires a minimum down payment of three and one half percent (3.50%). 

• The minimum down payment is based on the lesser of the appraised value or 

sales price (without considering closing costs) minus any required adjustments. 

• The minimum down payment must be provided from borrower’s own cash funds 

(“own cash” is defined as inclusive of gifts, loans from family members, or loans 

from a governmental agency or instrumentality). 

Earnest Money 

Deposit 

Employer 

Assistance 

Plans 

Employer 

Guarantee 

Plans 

• The earnest money deposit (EMD) amount and source of funds must be verified 

if it is two percent (2.00%) or more of the sales price, if it appears excessive 

based on the borrower’s previous savings pattern or if the borrower is “tight” on 

closing funds. 

• A copy of the canceled check (front and back) must be provided and the source 

of the funds must be verified. 

• A certification from the deposit holder acknowledging receipt of funds is 

acceptable as long as it accompanies separate evidence of the source of funds. 

• Evidence of source of funds includes a verification of deposit or bank statement 

showing at the time the deposit was made the average balance was sufficient to 

cover the amount of the EMD. 

• If the employer, in order to entice or keep a valuable employee, pays the 

borrower’s closing costs, mortgage insurance premium, or any part of the down 

payment, no adjustment to the maximum mortgage amount is required. 

• If the employer does this as a reimbursement after closing the borrower must 

show evidence of sufficient funds to close. 

• Salary advances are not allowed as these are considered an unsecured loan. 

If the employer guarantees to purchase the borrower’s previous residence, as the 

result of relocation, the borrower must submit evidence of a relocation agreement 

and the net proceeds guaranteed. 






Gift/Grant 

Funds 


• A gift may be used for 100% of the borrower’s closing costs and down payment. 

• Gift funds cannot be used as reserves. If the borrower is receiving a gift for 

more than the amount to close, the “excess” cannot be used as reserves. Only 

the amount of funds that will be used for closing should be shown as gift funds 

not received, or as an asset. 

Note: Any gift funds that remain in the borrower’s account following loan closing, 

subject to the proper documentation, may be considered as cash reserves when 

scoring the mortgage application through TOTAL. 

• Eligible donors include the following: 

• Federal/State/Local government agency or instrumentality, 

• close relative of the borrower, 

• close friend with a clearly defined and documented interest in the borrower, 

• a corporation established for humanitarian, welfare, or charitable purposes, 

or 

• borrower’s employer or labor union. 

• The donor of the gift cannot be a person or entity whose interest is in the sale of 

the property (i.e., builder or seller, real estate broker, marketing agent, or any 

person/corporation/organization associated with them). Gifts or credits from 

these sources are considered inducements to purchase and must be subtracted 

from the contract sales price. 

• Only family members may provide equity credit as a gift on a property being sold 

to other family members. This must be reflected on the HUD 1. 

• If a gift is being provided by a nonprofit, government entity or other business 

entity, the following is required: 

• Employer Identification Number (EIN) must be noted in the appropriate 

line(s) of the “Mortgage Information” section of the FHA Loan Underwriting 

and Transmittal Summary (HUD-92900-LT), and 

• the correct provider box must be marked below the space where the EIN is 

entered. 

• When the “Other” box is marked as the provider of secondary financing, the type 

of provider (i.e. employer, labor union) must also be identified. 

• Lenders must approve all “gift programs” administered by charitable 

organizations. The program must meet all HUD regulations and guidelines. 

Copies of the organization’s paperwork, program criteria, website, and sample 

forms, and any other applicable information will be reviewed. 






Gift/Grant 

Funds, 

(continued) 

General Information, continued 

Notes: 

• Nonprofit entities are not allowed to provide gifts to homebuyers for the 

purpose of paying off installment loans, credit cards, collections, judgments, 

and similar debts. 

• Soft seconds are shown as second mortgages and not as a gift. 

Documentation Requirements 

• Documentation of gift funds must include the following: 

• A gift letter with donor’s and borrower’s signature that specifically states the 

following information: 

• dollar amount given, 

• no repayment is necessary, 

• the donor’s name, address, telephone number and relationship to 

borrower, 

• the address of the property being purchased/refinanced 

• donor’s signature, and 

• the gift letter must state, “We ARE AWARE OF THE FOLLOWING : I/We 

fully understand that it is a Federal crime punishable by fine or 

imprisonment, or both, to knowingly make any false statements when 

applying for this mortgage, as applicable under the provision of Title 18, 

United States Code, Section 1014 and Section 1010.” 

Note: It is not acceptable to notate the loan file/application with the above gift 

donor information in lieu of a gift letter. 

• If the gift funds transfer before closing, the following documentation is 

required: 

• a copy of the donor’s canceled check or other withdrawal document 

showing that the withdrawal is from the donor’s account, and 

• the borrower’s deposit receipt and bank statement showing the deposit. 

• When gift funds are transferred at closing, the lender is responsible for 

obtaining the following verifications: 

• the closing agent’s receipt of the gift funds from the donor for the amount 

of the gift, and 

• evidence that those funds came from an acceptable source. 

• If the gift funds transfer at closing and the transfer of funds is by certified 

check from the donor’s account, the donor must provide the following 

documentation: 

• a bank statement reflecting the withdrawal from the donor’s personal 

account, and 

• a copy of the certified check. 

• If the gift funds transfer at closing and the donor purchased a cashier’s check, 

money order, or other official bank check, the donor must provide a withdrawal 

document or canceled check for the amount of the gift to verify that the funds 

came from the donor’s personal account. 






Gift/Grant 

Funds 

(continued) 

Documentation Requirements, continued 

• If the donor borrowed the gift funds and cannot provide the documentation from 

his/her bank or other savings account, the donor must provide evidence that 

those funds were borrowed from an acceptable source (i.e., not from a party to 

the transaction including the mortgage lender). Donor’s may borrow gift funds 

from any other acceptable source provided that the borrowers are not obligors to 

any note to secure money borrowed to give the gift. 

• “Cash on hand” or “mattress money” is not an acceptable source of the donor’s 

gift funds. The source of funds must be verifiable. 

Note: Gift letters do not need to be redone if the gift amount is less than stated. 




• If “Approve/Eligible,” a gift letter and 

documentation of the transfer of funds 

is not required if all of the following 

applies: 

• gift funds were deposited into the 

borrower’s account by no later 

than the first time of DU 

submission; and 

• the loan application lists the 

donor’s name, address, phone 

number and relationship to the 

borrower, as well as the amount 

of the gift. 

• If “Approve/Eligible” and gift funds 

were not deposited into the 

borrower’s account by the first time of 

DU submission, standard FHA 


• If “Approve/Ineligible,” or “Refer,” 

reduced documentation may be used 

if allowed by the findings report and 

approved by the DE Underwriter. 

• If the borrower is receiving a gift for 

more than the amount to close, the 

“excess” may be considered as cash 

reserves when scoring the mortgage 

application through TOTAL. 

• If “Accept,” a gift letter and 

documentation of the transfer of 

funds is not required if all of the 

following applies: 

• gift funds were deposited in the 

borrower’s account by no later 

than the first time of LP 

submission; and 

• the loan application lists the 

donor’s name, address, phone 

number and relationship to the 

borrower, as well as the amount 

of the gift. 

• If “Accept” and gift funds were 

not deposited into the 

borrower’s account by the first 

time of LP submission, 

standard FHA guidelines apply. 

• If “Refer”, reduced documentation 

may be used if allowed by the 

findings report and approved by the 

DE Underwriter. 

• If the borrower is receiving a gift for 

more than the amount to close, the 

“excess” may be considered as cash 

reserves when scoring the mortgage 

application through TOTAL. 






Seller Funded 

Non-Profit 

Down Payment 

Assistance 


Loans From 

Family 

Members 

The Seller Funded down payment assistance programs are not eligible. 

• HUD will allow family member to make loans to borrowers for 100% of the funds 

required for closing. 

• The loans may be secured or unsecured. 

• A family member includes a child, parent, grandparent (biological, foster or step), 

sister, step-sister, brother, step-brother, legally adopted son or daughter, a child 

who is a member of the borrower’s household due to placement by an 

authorized agency for legal adoption, aunt, or uncle.. 

• The following conditions must be met: 

• the borrower cannot receive any cash back at closing (beyond the refund of 

any earnest money deposit), 

• if period payments are required, the borrower must still qualify with the 

payment added to the total debt ratio (not housing ratio), 

• the financing cannot provide for balloon payments within five (5) years from 

the date of the note, 

• if the family member borrows the funds, the initial source of loan funds 

cannot be any party with an identity of interest in the sale of the property 

(i.e., seller, builder, loan officer, or real estate agent), and 

• a family member can borrow the loan funds from the retail banking affiliate of 

a mortgage company as long as the financing made available is made under 

the terms and conditions that are available to all other borrowers (special 

considerations are not allowed). 






Loans Secured 

by an Asset 


• Funds may be borrowed for the total required investment as long as satisfactory 

evidence is provided that the funds are fully secured (collateralized) by 

investment accounts or real property and the borrower can qualify with the 

repayment. The payment is included in the total debt ratio. 

HUD Acceptable Sources of Collateralized Loans 

• HUD will accept collateralized loans for the total required investment as long as 

satisfactory evidence is provided that the funds are fully secured by investment 

accounts or real property and the borrower can qualify with the repayment. The 

payment is included in the total debt ratio. 

• Such assets include those listed below. 

• Investment Accounts 

• Real Property (i.e., cars, trucks, boats) 

• Real Estate (other than the property being purchased) 

• Stocks and Bonds 

• Certain types of loans that are secured against deposited funds in which 

repayment may be obtained through extinguishing the asset do not require 

consideration of a repayment for qualifying purposes. The asset securing the 

loan may not be included as assets to close or otherwise be considered as 

available to the borrower. The assets listed below are included in this category. 

• Cash value of life insurance policies 

• Loans secured by 401(k)s 

• Loans secured by a Certificate of Deposit 

• Verification of the loan terms (i.e., copy of the note) must be provided. If the 

loan was made after verification of deposit was completed, a copy of the 

check and the borrower’s deposit receipt or bank statement must be 

furnished. 

• The real estate agent or broker, lender, seller or other party to the 

transaction may not provide these funds. 

HUD Unacceptable Sources of Collateralized Loans 

• Signature loans 

• Cash advances on credit cards 

• Borrowing against household goods and furniture 

• Other similar unsecured financing (i.e., jewelry, tools) 






Mutual Funds • The borrower must provide one of the following: 

• two (2) months of account statements if received monthly, or 

• most recent quarterly account statement, if received quarterly. 

• Proof of liquidation is required. 

• Explanations (with additional documentation) are required for large deposits. 

Real Estate 

Proceeds 






balance if received monthly. If previous month’s balance is not shown most 




• If “Approve/Eligible” or “Accept/Eligible,” proof of liquidation is not required. 

Explanations (with additional documentation) are required for large deposits. 

Note: If the borrower does not hold the deposit account solely, all non-borrower’s 

on the account must provide a written joint access letter stating that the borrower 

has full access and use of the funds. 

• The net proceeds from the sale of a currently owned property may be used for 

the down payment requirement. 

• A fully executed HUD-1 Settlement Statement must be provided as satisfactory 

evidence of the proceeds to the borrower. 

• If the borrower has not settled on the property prior to the underwriting of the 

loan, it must be a condition of the loan approval. 






Real Estate Tax 

Credit 

• In some states it is customary for a borrower to pay property taxes in arrears, 

(and he/she may not pay property taxes on the improvements until a year or 

more after closing). The credit from the seller at closing for the seller’s portion of 

those taxes may be used to reduce the actual amount of cash that needs to be 

brought to the closing table. It may not be used to offset minimum 

investment or cash to close requirements. 

• The use of the tax credit only facilitates the exchange of cash. All cash to close 

documentation requirements must be met such (i.e., the mortgage amount is 

calculated the same, down payment requirements are the same, the verification 

of the money is the same.) 

• Sufficient assets to close must be verified from the borrower’s own funds without 

consideration to the tax credit. However, the borrower only needs to bring funds 

to the closing for the amount of the bottom line on the HUD-1, Settlement 

Statement, after the tax credit has been applied. 

Rent Credit • The cumulative amount of the rental payments that exceed the appraiser’s 

estimate of fair market rent d may be considered towards the borrower’s down 

payment. 

• Both the rent-with-option to purchase agreement and the appraiser’s estimate of 

market rent must be included in the case binder file. 

• If the sales agreement provides for a rent credit or a reduced rent and states that 

the credit is to apply toward the down payment requirement, one of the following 

applies: 

• if the rent paid prior to the sale is less than the appraiser’s estimate of rental 

value, the difference between the rent paid and the appraiser’s estimate 

(multiplied by the number of months the borrower was living in the property) 

is deducted from the contract sales price, 

• if the rent paid prior to the sale exceeds the appraiser’s estimate of rental 

value, the amount paid in excess of the appraiser’s estimate (multiplied by 

the number of months the borrower was living in the property) is applied 

towards closing funds, or 

• if the borrower occupied the property (or one owned by the seller) “rent free” 

as an inducement prior to the sale, the appraiser’s estimate of rental value 

(multiplied by the number of months the borrower was living in the property) 

is deducted from the sales price. 

• Note: Exceptions may be granted in a situation whereby a builder fails to 

deliver a property at an agreed-to-time and then permits the borrower to 

occupy that or another unit for less-than-market rent “temporarily” until 

construction is complete. 






Retirement 

Funds 

Sale of 

Personal 

Property 

• The borrower must provide all of the following: 

• copy of the most current retirement account statement, 

• if non-AUS underwriting, include the following items 

• copy of the check representing account funds, and 

• copy of the deposit receipt where funds were deposited into the borrower’s 

account) or copy of the bank statement reflecting the deposit). 

• If TOTAL, documentation of terms and conditions to include the following: 

• evidence that the account allows for withdrawals for conditions other than 

that related to the borrower’s employment or death, and 

• that the borrower qualifies for withdrawal and/or borrowing, and 

• evidence of liquidation is not required. 

• When utilizing retirement accounts as assets (even if not using for closing), 60% 

of the borrower’s vested interest may be used unless the borrower provides 

documentation that a higher percentage may be withdrawn after subtracting any 

federal income tax and withdrawal penalties. 

• If the fund is a 401k and there is an outstanding loan, the account value must be 

reduced by the principal balance on the loan BEFORE using as an asset. 

• Funds from retirement accounts may be used as cash reserves. 

Reference: See the “Cash Reserve Requirements” subtopic previously presented in 


• If using funds for closing, applicable withdrawal or income tax penalties must be 

deducted from the account balance to determine value. 

• Proof of liquidation is required. 




Proof of liquidation is not required if Proof of liquidation is required in LP. 

“Approve/Eligible” on DU. 

• If a borrower sells personal property for funds to close (i.e., cars, recreational 

vehicles, stamp or coin collections), conclusive evidence of the sale and an 

estimate of the value of the item being sold must be obtained. 

• Value must be established through the Blue Book for cars, Philatelic Association 

for stamps, Numismatic Association for coins, or a qualified appraiser with no 

financial interest in the transaction who could provide a written appraisal of the 

item. The lesser of the estimate of value or actual sales price is used as assets 

to close. 






Savings Bonds • Government issued bonds are given to the value at the original purchase price. 

• Exceptions may be made if eligibility for redemption and the redemption value 

are confirmed. 

• The borrower’s receipt of the funds at redemption must be verified. 

Stocks and 

Bonds 

• The value of securities must be verified through the borrower’s stockbroker or 

financial institution. 

• If statements are available, the borrower must provide one of the following: 

• two (2) months of account statements, if received monthly, or 

• most recent quarterly account statement if received quarterly. 

• Evidence of liquidation and borrower’s receipt of the funds must be documented. 






balance if received monthly. If previous month’s balance is not shown most 




• If “Approve/Eligible” or “Accept/Eligible,” proof of liquidation is not required. 

Note: If the borrower does not hold the deposit account solely, all non-borrower’s 

on the account must provide a written joint access letter stating that the borrower 

has full access and use of the funds. 

Sweat Equity • Labor performed or materials furnished by the borrower prior to closing are 

considered the equivalent of a down payment to the extent of the estimated cost 

of the work or materials. 

• Work completed prior to the appraisal or after closing is not eligible for sweat 

equity. 

• Sweat equity may be “gifted” subject to both the gift requirements and the sweat 

equity requirements. 

• The following requirements apply to sweat equity: 

• on existing construction, only the repairs and/or improvements listed on the 

appraisal are eligible. (work or materials provided before the appraisal are 

not eligible), 

• on proposed construction, the tasks the borrower will perform during 

construction are indicated in the sales contract, 

Reference: See Section 1.05b: Reviewing Sales Contracts in the 







Sweat Equity, 

(continued) 

• the borrower must demonstrate his/her ability to complete the work in a 

satisfactory manner and the contributory value of the labor is documented 

through either an appraiser’s cost estimate or through a cost estimating 

service such as “Marshall and Swift” or through the local HUD office, 

• the work does not include delayed work (on-site escrow), clean up, debris 

removal and other general maintenance (these are not sweat equity items), 

• the borrower does not receive any cash back at closing, 

• sweat equity is provided only on the subject property (work performed on 

other properties must be in cash and properly documented), and 

• if the borrower furnishes materials, verification of the source of funds used to 

purchase and the market value of the materials is provided. 

Trade Equity • The borrower may agree to trade his or her real property to the seller as part of 

the down payment. 

• The amount of the borrower’s equity contribution is determined by subtracting all 

liens against the property being traded (including real estate commission) from 

the lesser of that property’s appraised value or sales/trade price. 

• An appraisal on the trade property is required as well as evidence of ownership. 

• The appraisal must be a residential appraisal (conventional, FHA, or VA) and 

cannot be more than six (6) months old. 

• If the property being traded has an FHA mortgage, assumption processing 

requirements and restrictions apply. 

Reference: See Assumptions in the topic Loan Terms for additional information. 

Documentation Verification of Deposit 

• A written verification of deposit and a most recent bank statement are used to 

verify savings and checking accounts. 

• Credible explanations (and/or documentation) are required for large deposits on 

bank statements and recently opened accounts for the source of those funds. 

Alternate documentation 

• Bank statements for the most recent two (2) month consecutive period if 

received monthly, or most recent quarterly bank statement, if received quarterly. 

• ATM slips cannot be used as verification of assets. 




Contributions by Interested Parties 

Lender Credit Lender credit resulting from premium pricing is allowable by HUD under the 

requirements shown below. 

• Lender credit may be applied to closing costs, prepaid items and discount points; 

however, it may not exceed the allowable fee permitted by the jurisdictional FHA 

Home Ownership Center (HOC). 

• Lender credit cannot be applied to down payment nor to outstanding obligations 

of the borrower, including missed (delinquent) mortgage payments. 

• Lender credit is not considered a seller concession and is not subject to any 

limitations. 

• If lender credit is applied to closing costs that are being financed into the loan in 

a refinance transaction, the amount of these closing costs must be deducted 

from the total acquisition before calculating the maximum base loan amount. 

• Lender credit must be used to reduce the principal balance if the premium 

pricing agreement establishes a specific dollar amount for closing costs and 

prepaid expenses with any remaining funds, in excess of actual costs, reverting 

to the borrower. 

Reference: See General Section 1.35: SunTrust Compliance Overview of the 






Contributions by Interested Parties, Continued 

Seller 

Contributions 

• Sellers (or other interested third parties such as real estate agents, builders, or 

developers) may contribute up to 6% of the sales price towards actual closing 

costs, prepaid expenses, discount points and other financing concessions 

allowable by HUD. 

• HUD does not require or permit the presentation or disclosure of “seller-paid 

credits” on the Good Faith Estimate (GFE). 

• Seller credits must be entered as a “lump sum credit” on the HUD-1. 

Note: When the seller makes a contribution to more than one expense for the 

borrower, the seller credits shown on the HUD-1 MUST reflect the “lump sum 

payment.” 

• Seller contributions may not be used toward borrower’s outstanding obligations. 

• Contributions from sellers or other interested third parties to the transaction that 

exceed six (6) percent of the sales price, or other financing concessions, are to be 

treated as inducements to purchase, thereby reducing the amount of the 

mortgage. Each dollar exceeding the six (6) percent limit must be subtracted from 

the property’s sale price before applying the appropriate loan-to-value (LTV) ratio. 

• Job Loss Insurance is considered a “sales concession,” but does not require a 

dollar-for-dollar reduction from the sales price when calculating the LTV and TLTV 

ratios. 

• The dollar-for-dollar reduction to the sales price also applies when gift funds do 

not meet FHA requirements. 

• All DU loans submitted to SunTrust Mortgage must reflect zero in the new 

interested party contribution field and underwriters will manually calculate the 

limits. 

• Items typically paid by the seller (i.e., real estate commissions, charges for pest 

inspections, fees paid to release a deed of trust) are not considered contributions. 

• If a seller (builder) is paying HOA dues or taxes that come due during the first 

year of the mortgage, the borrower must qualify on the full PITI (including the 

monthly tax escrow and HOA fee). In addition, when determining the borrower’s 

three and one half (3.50%) downpayment, these “advance” payments cannot 

lower the borrower’s cash to close. 

• Real estate broker fees paid to a buyer-broker by the seller on behalf of the 

borrower are not considered a seller concession as long as the seller is paying the 

sales commission that is typical for that market. The HUD-1 Settlement 

Statement must be reviewed to ensure that the seller did not pay a sales 

commission separately inclusive of the buyer-broker fee. 

• If the seller is charged for closing costs that are “unallowable” to the borrower by 

HUD (i.e., underwriting fee, tax service fee, or document review fee), the payment 

on such costs must be OUTSIDE of seller contributions listed on the contract. In 

addition, these “unallowable” costs should not be reflected on the GFE. 

• Unacceptable fees for seller contributions: 

• one (1) year golf course fees, 

• initiation fees into a club, etc. 

Reference: See Section 1.13: Interested Party Contributions Limits in the 






Contributions by Interested Parties, Continued 

Seller-Paid 

Interest 

Payment 

Reduction / 

Ease-In 

Payment 

Reduction 

Feature 

• The seller-paid interest payment reductions are also known as the “Ease-In 

Payment Reduction” feature for SunTrust Mortgage marketing purposes. 

• Seller-paid interest payment reductions are available only on fixed rate loans. 

Temporary buydowns are ineligible when the seller-paid interest payment 

reduction is utilized. 

• It is similar to a buydown and must be in a fixed amount (amount of interest 

applied to the PITI cannot change from month to month). 

• The borrower(s) qualify at the note rate using the full PITI. 

Reference: See the Ease-In Payment Reduction Feature topic for more information 

regarding seller-paid interest payment reductions. 




HUD Allowable Closing Costs 

General • The homebuyer may pay customary and reasonable costs that are necessary to 

close the mortgage loan. 

Note: Discount points may be acquisitioned on some refinances, but never on 

purchase loans. Discount points may not be used to meet the buyer’s minimum 

investment requirements. 

• All closing costs, including any costs paid outside of closing (POC), lender credit, 

or seller contribution items, must be itemized on the HUD-1. 

• FHA will not allow “mark-up’s” (i.e., charging a fee to the mortgagor for an 

amount greater than that charged by the service provider). Only the actual cost 

for a service may be charged to the mortgagor. 

• It is expected that “Actual Costs” will not exceed what is reasonable and 

customary for the area. 

Notes: 

• All fees and charges must comply with Federal and State disclosure laws 

and other applicable laws and regulations. 

• The Lock-In Confirmation must be executed by the borrower(s) at least 

15 days prior to the date of the Note, if a commitment fee is collected. 





HUD Allowable Closing Costs, Continued 

Allowable 

Costs/ Not 

Included in 

Acquisition 

Closing costs and related information, pertaining to the fees that may be charged to 

the borrower AND NOT INCLUDED IN THE ACQUISTION COST, are shown in the 

table below 

Allowable Fees/Costs Not 

Included in Acquisition 

Related Information 

Appraisal Fees The fee for the actual completion of an FHA 

appraisal may not include a fee for management 

of the appraisal process, or any other activity 

other than the performance of completing the 


Appraisal Management 

• Any management fees charged by an AMC 

Company (AMC) Fees 

or other third party must be for actual 

services related to ordering, processing or 

reviewing of appraisals performed for FHA 

financing. 

Reasonable Discount Points 

• AMC and other third party fees must not 

exceed what is customary and reasonable 

for such services provided in the market area 

of the property being appraised. 

May be financed in the mortgage on a refinance, 

but may not be part of the three and one half 

percent (3.50%) down payment on a purchase 

transaction. 

Escrow Deposit (Property • Buyer may pay a maximum of two (2) 

Taxes and Assessments, and months. 

Insurance Premium) 

• May be financed in the mortgage on a 

refinance, but may not be part of the three 

and one half percent (3.50%) down payment 

on a purchase transaction. 

Hazard Insurance Premium • Actual cost for first year only (plus 2 months, 

subject to aggregate adjustment 

requirements.) 

Note: May be financed in the mortgage on 

refinances, but not as part of the three and 

one-half (3.50%) down payment. 

Interest • Actual cost. 

• Calculated on 360 days per year basis. 

Interest may only be collected from the 

mortgagor from the date the mortgage 

proceeds are actually disbursed by the 

mortgagee. 





HUD Allowable Closing Costs, Continued 

Unallowable 

Costs 

Below is a list of unallowable closing costs and fees, which MAY NOT BE 

CHARGED to the borrower. 

Unallowable Fees/Costs Related Information 

Finders 

payments 

fees & kickback UNALLOWED in transaction 

Commitment Fee Unallowed if the loan has not been locked at 

least 15 days prior to the date on the Note. 

Tax service fee Buyer cannot be charged. 

Fees Charged by Non- FHA does not permit loan origination services to 

approved Mortgage Brokers be performed by non-approved mortgage 

brokers. 

Note: FHA considers a mortgage broker as “a 

person (not employee or exclusive agent of a 

lender) who brings a borrower and lender 

together to obtain an FHA loan, and who 

provides settlement or closing services.” 




Mortgage Insurance 

General An annual Mortgage Insurance Premium (MIP) is charged and collected in monthly 

installments on most FHA loans. The percentage amount of the annual premium is 

based upon the LTV and the term of the mortgage. 

Remittance 

Period for 

Payment of Up- 

Front Mortgage 

Insurance 

Premium 

(UFMIP) 

There is also an initial Upfront Mortgage Insurance Premium (UFMIP) required on 

certain FHA loans which can be financed in the loan amount or paid in cash at 

closing. If any of the UFMIP is paid in cash, then the entire amount must be paid in 

cash. 

Reference: See the Determining UFMIP subtopic subsequently presented in this 

topic for additional information on the rounding of the UFMIP. 

• Effective with closings on or after November 1, 2005, the period for remittance of 

the FHA Up-Front Mortgage Insurance Premium (UFMIP) is being reduced from 

fifteen (15) days to ten (10) days. 

• The remittance period begins the date of the loan settlement, or the date of 

disbursement of mortgage proceeds, whichever is greater. 

• Lenders must include late charges for UFMIP remittances received by HUD 

more than 10 calendar days after they become due. UFMIP payments received 

more than 30 calendar days after the due date will result in additional charges. 





Mortgage Insurance, Continued 

Determining 

UFMIP 

MIP Premiums 

for Purchase 

and Refinances 

(EXCLUDING 

Streamline 

Refinances) 


Amount 

• UFMIP is determined by multiplying the initial premium percentage by the base 

loan amount. The total FHA-insured mortgage amount is limited to 100% of the 

appraised value, and the UFMIP is required to be included within that limit. 

• The UFMIP must be either: 

• entirely financed into the mortgage, with the mortgage amount rounded 

down to a whole dollar (with the exception of instances in which the borrower 

chooses to pay of to $49.99 of the UFMIP in cash, in which case it would not 

then be reflected in the total mortgage amount), or 

• paid entirely in cash and all mortgage amounts must be rounded down to a 

multiple of $1.00. 

• The mortgage amount must be rounded down to a multiple of $1.00, regardless 

of whether the UFMIP is financed or paid in cash. The UFMIP amount, that is 

part of the total mortgage amount, is not considered when determining 

compliance with statutory loan limits or LTV limits. The base mortgage amount 

must comply with the requirements. The total mortgage amount may exceed this 

limit by the financed UFMIP amount. 

Note: Any UFMIP amounts paid in cash are added to the total cash settlement 

amount. 

The following table shows Upfront Mortgage Insurance Premiums and Annual 

Monthly (UFMIP and Monthly), for FHA Case Numbers assigned on or after June 

11, 2012. 

FHA Single Family Mortgage Insurance 

Upfront and Annual Mortgage Insurance Premiums 

(All Loan Terms) 

Effective with case number assignments on or after June 11, 2012 

LTV Loan Term Purchase & Refinance Transactions 

(excluding Streamline Refinances) 


< $625,500 > 95% Greater than 15 Years 1.75% / 1.25% 

> $625,500 > 95% Greater than 15 Years 1.75% / 1.50% 

< $625,500 < 95% Greater than 15 Years 1.75% / 1.20% 

> $625,500 < 95% Greater than 15 Years 1.75% / 1.45% 

< $625,500 > 90% Less than or equal to 15 Years 1.75% / .60% 

> $625,500 > 90% Less than or equal to 15 Years 1.75% / .85% 

< $625,500 78.01 to 90% Less than or equal to 15 Years 1.75% / .35% 

> $625,500 78.01 to 90% Less than or equal to 15 Years 1.75% / .60% 

All < 78% Less than or equal to 15 Years 1.75%/ No Monthly 

Note: FHA is not authorized, and will not, insure any mortgages for which new FHA case number assignments are 

made on or after June 11, 2012, where the above premium structure has not been utilized. 






MIP Premiums 

for Purchase 

and Refinances 

(EXCLUDING 

Streamline 

Refinances), 

continued 


Monthly (UFMIP and Monthly), for FHA Case Numbers assigned on or after April 

09, 2012 but prior to June 11, 2012. 




Effective with case number assignments on or after April 9, 2012 but prior to June 11, 2012 

Base Loan LTV Loan Term Purchase & Refinance Transactions 

Amount 

(excluding Streamline Refinances) 


All > 95% Greater than 15 Years 1.75% / 1.25% 

All < 95% Greater than 15 Years 1.75% / 1.20% 

All > 90% Less than or equal to 15 Years 1.75% / .60% 

All 78.01 to 90% Less than or equal to 15 Years 1.75% / .35% 



made on or after April 9, 2012 but prior to June 11, 2012, where the above premium structure has not been utilized. 

Base 


Amount 

The following table reflects Upfront Mortgage Insurance Premiums and Annual 

Monthly (UFMIP and Monthly), for FHA Case Numbers assigned on or after April 18, 

2011 but prior to April 9, 2012. 




Effective with case number assignments on or after April 18, 2011 but prior to April 9, 2012 

LTV Loan Term Purchase & Refinance Transactions (excluding 

Streamline Refinances) 


All > 95% Greater than 15 Years 1.00% / 1.15% 

All < 95% Greater than 15 Years 1.00% / 1.10% 

All > 90% Less than or equal to 15 Years 1.00% / .50% 

All 78.01 

to 90% 

Less than or equal to 15 Years 

1.00% / .25% 



made on or after April 18, 2011 but prior to April 9, 2012, where the above premium structure has not been utilized. 






MIP Premiums 

for Streamline 

Refinances 

ONLY 


Monthly (UFMIP and Monthly), for FHA Case Numbers assigned on or after June 

11, 2012 when the existing loan being paid off was endorsed by FHA on or 

before May 31, 2009. 




Effective with case number assignments on or after June 11, 2012, when the existing loan being paid off 

Base 


Amount 

was endorsed by FHA on or before May 31, 2009. 

LTV Loan Term Endorsement Date Streamline Refinances 

FHA 203(b) Loan 


All Any LTV Any Loan Term on or before May 31, 2009 0.01% / 0.55% 




All < 78% Less than or equal to 15 

Years 

on or before May 31, 2009 

0.01%/ No Monthly 

Note: FHA is not authorized, and will not, insure any Streamline Refinance mortgages for which new FHA case 

number assignments are made on or after June 11, 2012, when the existing FHA loan being paid off was endorsed 

by FHA on or before May 31, 2009, where the above premium structure has not been utilized. 

Reference: See the FHA Case Number Assignments and Cancellation subtopic of the Workflow topic subsequently 

presented for additional information regarding bulk cancellation of case numbers in order to take advantage of the 

lower MIP premiums for Streamline Refinance transactions 






MIP Premiums 


Refinances 

ONLY, 

continued 

The following table shows the Upfront Mortgage Insurance Premiums and Annual 

Monthly (UFMIP and Monthly) for streamline refinances with case numbers assigned 

on or after June 11, 2012 when the existing loan being paid off was endorsed 

by FHA after May 31, 2009. 




Effective with case number assignments on or after June 11, 2012, when the existing loan being paid off 


Amount 

was endorsed by FHA after May 31, 2009. 

LTV Loan Term Endorsement Date Streamline 

Refinances 



< $625,500 > 95% Greater than 15 Years After May 31, 2009 1.75% / 1.25% 

> $625,500 > 95% Greater than 15 Years After May 31, 2009 1.75% / 1.50% 

< $625,500 < 95% Greater than 15 Years After May 31, 2009 1.75% / 1.20% 

> $625,500 < 95% Greater than 15 Years After May 31, 2009 1.75% / 1.45% 

< $625,500 > 90% Less than or equal to 15 Years After May 31, 2009 1.75% / .60% 

> $625,500 > 90% Less than or equal to 15 Years After May 31, 2009 1.75% / .85% 

< $625,500 78.01 to 90% Less than or equal to 15 Years After May 31, 2009 1.75% / .35% 

> $625,500 78.01 to 90% Less than or equal to 15 Years After May 31, 2009 1.75% / .60% 

All < 78% Less than or equal to 15 Years After May 31, 2009 1.75%/ No Monthly 


number assignments are made on or after June 11, 2012, when the existing loan being paid off was endorsed by 

FHA after May 31, 2009, where the above premium structure has not been utilized. 






MIP Premiums 


Refinances 

ONLY, 

continued 



on or after April 9, 2012 but prior to June 11, 2012, regardless of the 

endorsement date of the existing loan being paid off. 




Effective with case number assignments on or after April 9, 2012 but prior to June 11, 2012, regardless of 

Base 


Amount 

the endorsement date of the existing loan being paid off. 

LTV Loan Term Endorsement 

Date 

Streamline Refinances 



All > 95% Greater than 15 Years Any 1.75% / 1.25% 

All < 95% Greater than 15 Years Any 1.75% / 1.20% 

All > 90% Less than or equal to 15 Years Any 1.75% / .60% 

All 78.01 to 90% Less than or equal to 15 Years Any 1.75% / .35% 

All < 78% Less than or equal to 15 Years Any 1.75%/ No Monthly 


number assignments are made on or after April 9, 2012 but prior to June 11, 2012, regardless of the endorsement 

date of the existing loan being paid off, where the above premium structure has not been utilized. 



on or after April 18, 2011 but prior to April 9, 2012 regardless of the 





Effective with case numbers assigned on or after April 18, 2011 but prior to April 9, 2012 regardless of the 

Base 


Amount 


LTV Loan Term Endorsement Date Streamline Refinances 



All > 95% Greater than 15 Years Any 1.00% / 1.15% 

All < 95% Greater than 15 Years Any 1.00% / 1.10% 

All > 90% Less than or equal to 15 Years Any 1.00% / .50% 

All 78.01 to 90% Less than or equal to 15 Years Any 1.00% / .25% 

All < 78% Less than or equal to 15 Years Any 1.00%/ No Monthly 


number assignments are made on or after April 18, 2011 but prior to April 9, 2012 regardless of the endorsement 

date of the existing loan being paid off, where the above premium structure has not been utilized. 






UFMIP Refunds All refunds for FHA upfront mortgage insurance premiums have been eliminated, 

except for FHA-to-FHA refinance transactions. 

Streamline 

Refinance 

If the borrower is refinancing their current FHA loan to another FHA loan within three 

(3) years from the date of closing, a refund credit may be applied to the new loan 

transaction. The amount of the refund cannot exceed the new UFMIP being charged 

on the new loan transaction. 

The following table shows the three (3) year UFMIP refund schedule. 

Upfront Mortgage Insurance Premium Refund Percentages 

Month of Year 

Year 1 2 3 4 5 6 7 8 9 10 11 12 

1 80 78 76 74 72 70 68 66 64 62 60 58 

2 56 54 52 50 48 46 44 42 40 38 36 34 

3 32 30 28 26 24 22 20 18 16 14 12 10 

• For loans without an appraisal, use FHA’s computed value from the existing loan 

to calculate the LTV. 

• If FHA does not have a computed value, only then may 89.99% be considered 

as the LTV. 

Reference: See the Streamline Refinance topic previously presented for additional 

information. 






Annual 

Mortgage 

Insurance 

Premium 

Cancellation 

FHA’s annual mortgage insurance premiums will automatically be canceled under 

the following conditions: 

• For mortgages with terms greater than 15 years, the annual mortgage insurance 

premiums will be canceled when the LTV ratio reaches 78% provided the 

mortgagor has paid the annual mortgage insurance premiums for at least 5 

years. 

• For mortgages with terms of 15 years or less the annual mortgage insurance 

premiums will be cancelled when the LTV ratio reaches 78%, regardless of the 

length of time the borrower has paid the annual mortgage premiums. 

• FHA determines when the 78.00% LTV ratio is reached based on the lesser of 

the sales price or appraised value at origination (new appraised values will not 

be considered). 

• Cancellation of the annual MIP is normally based on the scheduled amortization 

of the loan. However, in cases where the loan payments have been accelerated 

or modified, cancellation can be based on the actual amortization of the loan. 

Under this circumstance a borrower may request cancellation from their loan 

servicer. 

• 

Note: The borrower cannot order a new appraisal to meet the 78.00% 

threshold. HUD will only base the LTV calculation off of the lesser of the sales 

price or appraised value that is in their data-base when the loan is closed. 

Condominiums Condominium loans are subject to the same upfront and monthly premium charge 

and termination schedule as reflected in this topic for all other 203(b) loans. 

Gross Loan 

Amount 

Special 

Considerations 

When UFMIP is financed into the loan amount, the total loan may exceed HUD’s 

maximum loan limit for the area by the amount of UFMIP. 

• The origination fee is calculated on the base loan amount only. 

• The discount points are calculated on the gross loan amount. 

• The entire UFMIP premium may be paid by a person other than the borrower. 

However, if any part is paid by a non-borrower, the entire UFMIP must be paid in 

cash. If the non-borrower is the seller, the amount paid must be considered a 

sales concession subject to FHA limits. 

• If the borrower is paying UFMIP, it must be 100% financed or 100% paid in cash. 

• The UFMIP is a pre-paid finance charge to be disclosed on the Good Faith 

Estimate and in the Truth-In-Lending Disclosure whether it is financed or paid in 

cash. 




Appraisal Requirements 

General • The following appraisal forms are now mandatory for FHA loans: 

• Uniform Residential Appraisal Report (Fannie Mae Form 1004) for all 1 unit 

single family dwellings 

• Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) for all 

individual condominium units 

• Small Residential Income Property Appraisal Report (Fannie Mae Form 1025) 

for all 2-4 unit single family dwellings 

Reference: See Section 1.07: Appraisal Guidelines in the Correspondent Seller 

Guide for additional information about UAD requirements. 

• Appraisal reports must include color photographs. 

Note: FHA has required color photographs as part of the Aprpaisal Exhibits since 

06/29/2000 (Notice H 00-12 section 4-1). 

• Facsimile (faxed) appraisal reports are not acceptable. 

• All property conditions, including repairs, alterations and/or required inspections 

must be reported within the appropriate section of the applicable Fannie Mae 

appraisal reporting form. 

Note: FHA does not require any home to have any appliances to be eligible for 

FHA financing. 

• Upon receipt of a completed appraisal report prepared on one of the revised 

Fannie Mae forms, the underwriter/processor must note any physical deficiency or 

adverse condition requiring repair, alteration or further inspection on Conditional 

Commitment Direct Endorsement Statement of Appraised Value (form HUD- 

92800.5B). 

All loans must have a FHA case number assigned to the subject property. 

HUD assigns case numbers through FHA Connection. 

References: 

• See FHA Social Security Number Validation for information relating to the 

assigning of FHA case numbers. 

• See the FHA Case Number Assignment and Cancellation subtopic in the 


• New FHA case numbers are required if the borrower changes properties. 

• The FHA case number must be provided to the appraiser before the appraiser 

may release the appraisal to the lender. 





Appraisal Requirements, Continued 

General, 

(continued) 

• HUD allows for the lender selection of the appraiser, however, the appraiser must 

be on FHA’s most current approved appraiser list and must perform the inspection 

of the subject property as well as all comparables. This same appraiser’s 

signature is required as “appraiser” on the left side of page 2 of the appraisal 

report (URAR). A supervisory signature is not permitted. . Reference can be 

made in the “Comments” section of the URAR regarding a trainee’s assistance 

with the appraisal. 

• Underwriters (or other members of lenders staff) are not to mark on the URAR. 

The Direct Endorsement Underwriter/HUD Reviewer Analysis of Appraisal Report 

(HUD form 54114) is used for comments. 

• HUD requires that the DE lender notify the borrower of the property’s appraised 

value before the credit file is underwritten. HUD will accept a simultaneous review 

of the appraisal and mortgage credit application if the DE lender discloses to the 

borrower that the DE underwriter may adjust the appraised value. 

• The simultaneous review notification requirement is met by one of the following 

forms: 

• the Appraised Value Adjustment Disclosure (Form LGEN0067L1)-which prints 

off with HUD/VA Addendum to Uniform Residential Loan Application, or 

• an initial URLA Addendum (92900a) if completed and fully executed prior to 

the underwriting of the loan. 

• New construction properties must have at least one comparable from outside the 

subdivision. All builder sales must not be used in the same subdivision. 

• New construction properties that are 90% complete, with only minor finish work 

remaining, may be appraised without the appraiser having plans and 

specifications. 

• For new construction where the house is 100% complete at the time of the 

appraisal, the appraiser must take a clear photograph (in addition to the standard 

appraisal photos) of each diagonally opposite front and rear corner of the house to 

record adequate grading and drainage of the site. 

Notes: 

• "Complete" means everything is complete including the installation of buyer 

preferences (flooring, appliances, etc.), utilities are on and fully functioning 

and all site improvements completed at the time of appraisal (Ready for 

Occupancy). 

• If the appraiser makes no repair or correction conditions, the appraisal serves 

as the final inspection. 

• If the appraisal is ordered as “proposed construction” and is fully completed, a 

final inspection is still required regardless if property is 100% complete. 

• If the appraisal is ordered as “new construction, existing” and is 100% complete, a 

final inspection is not required providing the appraiser states that “the dwelling 

was built in accordance with the submitted plans and specifications and drainage 

and grading are adequate.” 

Note: For identity of interest transactions, a full appraisal is required and must 

include verification of the purchase price, last sale date, and recent listing of the 

subject property regardless of the feedback provided in the AUS Messaging. 






Appraiser 

Requirements 

• FHA has established the requirements listed below for the appraiser regarding 

Seller Concessions and Verification of Sales. 

• Report the total dollar amount of the loan charges and/or concessions to be paid 

by any party on behalf of the borrower and describe which party provided the 

concession in the “Subject Section” of the appraisal report. Use of an addendum 

with the heading “Loan Charges /Sales Concessions” may be required due to 

limited space on the report. 

• Verify all sales transactions for seller concessions and report those findings in the 

appraisal. If the sales cannot be verified with someone having first-hand 

knowledge of the transaction (i.e., seller, buyer, or one of their representatives), 

the appraiser must state how and to what extent the sale was verified. 

• Report the type and the amount of sales or financing concessions for each 

comparable sale listed in the “Sales Comparison Analysis, Sales or Concession 

Section” for each comparable listed. If no concessions exist, the appraiser must 

state “none.” 

• Make market-based adjustments to the comparable sales for any sales or 

financing concessions that may have affected the sales price. Adjustment for 

each comparable sale must reflect the difference between the sales price with the 

sales concessions and what the property would have sold for without the 

concessions. 

• Provide an analysis of the current agreement of sale, contract, option or listing for 

the subject property and an analysis of all prior transfers that occurred within three 

(3) years prior to the effective date of the appraisal. If the contract is not provided 

to the appraiser, he/she must report the steps or efforts taken to obtain the current 

agreement of sale. 

• Provide analysis of all prior transfers of the comparable sales that occurred with 

one (1) year prior to the effective date of the appraisal in the “Sales Comparison 

Analysis, Sales or Financing Concessions” section. If the data is unavailable, the 

appraiser must note what steps were taken during the normal course of business 

to obtain and report the information. 





Mortgagee 

Requirements 

FHA has established mortgagee requirements relating to appraisals. These 

requirements are listed below. 

• Provide the appraiser with a complete copy of the ratified sales contract, 

including all addenda, for the subject property that is to be appraised. 

• Provide the appraiser with all financing data and sales concessions for the 

subject property granted by anyone associated with the transaction. Sales 

concessions information must include gifts which may or may not be included in 

the contract of sale. 

• If a reconsideration of value is requested, the appraiser must be provided with 

any amendments to the contract that occurred after the effective date of the 

appraisal. 

• For proposed/under construction loans with less than a 90% LTV, the lender 

should provide a complete set of the approved plans and specifications the 

builder submitted to the local building authority to obtain the building permits. In 

the event the property is located in a jurisdiction that does not approve plans 

then the plans and specifications are required. 

• Appraisers must receive a fully executed, Builder’s Certification of Plans, 

Specifications, And Site (HUD form 92541) before performing the appraisal on 

proposed, under construction or less than one year old properties. Appraisers 

must review Item 1on the form and note in the Appraisal Report any 

discrepancies between the information in Item 1 and the actual conditions 

observed on site. The lender is responsible to address any yes answer in Item 1. 






Market 

Conditions 

Addendum to 

the Appraisal 

Report (Freddie 

Mac 71/Fannie 

Mae 1004MC) 

Properties 

Located in 

Disaster Areas 

Properties 

Located in 

Declining 

Market Areas 

Reference: See the Market Conditions Addendum to the Appraisal Report (Freddie 

Mac 71/Fannie Mae 1004MC) subtopic in the Appraisal Reports and Exhibits topic 

within Section 1.07: Appraisal Guidelines of the Correspondent Seller Guide for 


Reference: See Section 1.31: SunTrust Disaster Area Procedures of the On-Line 

Correspondent Seller Guide for additional information on properties located in a 

disaster area. 

• The subject property is considered to be in a declining area when the SunTrust 

Mortgage Declining Market Index list indicates a severely declining or declining 

market, or the appraiser has marked the appraisal that property values are 

declining or referenced that values are declining in the appraisal comments, 

including the Market Conditions Addendum to the Appraisal Report. 

• At least two (2) comparable sales, as similar as possible to the subject property, 

that have closed within ninety (90) days prior to the effective date of the appraisal. 

• In some areas this may not be possible due to lack of market information 

and, in these cases, a detailed explanation is required. 

• At least two (2) comparable listings and/or pending sales, as similar as possible 

to the subject property, are required. 

• Listings and pending sales must be reported on the appraisal grid of the 

applicable appraisal form in comparable position four (4) or higher. 

• Listings and pending sales should bracket the listing, using both dwelling 

size and sales price whenever possible to insure that these comparables are 

market tested and have reasonable market exposure to avoid the use of 

over priced properties as comparables. 

Note: Reasonable market exposure is reflected by typical marketing times 

for the neighborhood. 

• Active listings must be adjusted to reflect list to sale price ratios for the 

market. 

• Pending sales must be adjusted to reflect the contract purchase price 

whenever possible or adjust pending sales to reflect list to sale price ratios. 

• Original list price, any revised list prices, and total Days On the Market 

(DOM), must be included. 






Properties 

Located in 

Declining 

Market Areas, 

(continued) 

Construction 

Status Types 

• An explanation is required for DOM that do not approximate time frames 

reported in the Neighborhood section of the appraisal reporting form or 

that do not coincide with the DOM noted in the Market Conditions 

Addendum to the Appraisal Report. 

• Reconcile the adjusted values of active listings or pending sales with the 

adjusted values of the settled sales provided. 

• If the adjusted values of the settled comparables are higher than the 

adjusted values of the active listings or pending sales, the appraiser must 

determine if a market condition adjustment is appropriate. 

• The final value conclusion should not be based solely on the comparable 

listing or pending sales data. 

• Data regarding market trends is available from multiple local and nationwide 

sources. Appraisers must be diligent in using only impartial sources of data. 

• The appraiser must verify data via local parties to the transaction: agents, 

buyers, sellers, lenders, etc. 

• If a sale cannot be verified by a party then public records or other 

impartial data sources that can be replicated may be used. 

• A Multiple Listing Service (MLS) by itself is not considered a verification 

source. 

• Unacceptable data sources include media and other sources considered not 

readily verifiable and should be able to be replicated. 

• Known or reported incentives or sales concessions must be noted in the 

financing section of the grid for any active or pending comparable used. 

• Direct Endorsement lenders are reminded that if the appraiser they selected 

provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an 

inflated amount, the Correspondent lender is held responsible, equally with the 

appraiser, for the integrity, accuracy and thoroughness of an appraisal submitted 

to FHA for mortgage insurance purposes. 

Proposed 

No concrete or permanent material has been placed. Digging of footing and 

placement of re-bar is not considered permanent. 

Under Construction 

From the first placement of concrete (permanent material) to 100% completion. 

(Finalized and ready to occupy.) 

Existing 

100% complete and has an occupancy permit. 

Existing less than one (1) year 

Appraisal performed less than one (1) year since final occupancy permit was issued. 

For model homes, age begins with issuing of permit to use as a model. 

Note: Any home built less than two (2) years must list the month and year completed 

in the age box on the Uniform Residential Appraisal Report (URAR). Complete is 

defined as 100% complete and nothing remains to be done. 






Comprehensive 

Valuation 

Package (CVP) 

Requirements 

The table below shows the CVP (appraisal package) requirements for various 

property or loan types. 

Comprehensive Valuation Package (CVP) Requirements 

URAR (Fannie Mae 

1004, 1073 and 1025) 

For Your Protection: 

Get a Home Inspection 

(HUD 92564-CN) 

Proposed/Under 

Construction 

Yes No 

Existing Construction < 

Yes • Yes (for a previously 

12 months old 

occupied home < 12 

mos. old.) 

• No (for a home that 

has never been 

Existing Property Yes 

occupied.) 

Yes 

Streamline Refinance 

with an Appraisal 

Yes No 

Streamline Refinance 

without an Appraisal 

No No 

HUD Real Estate Owned Yes Yes 

Excess Land • Excess land occurs when the subject lot is considerably larger than typical lots in 

the neighborhood, and the excess is capable of separate use. 

• In small communities and outlying areas different criteria must be used since the 

market may readily accept a wide variance in lot sizes due to wide differences in 

lot use by this segment of the market 

• SunTrust requires the property to be legally subdivided, with separate tax 

identification numbers, prior to the appraisal being completed. 

• SunTrust will not finance the purchase of excess land. 

• SunTrust requires the property to be legally subdivided, with separate tax 

identification numbers, prior to the appraisal being completed. 

• SunTrust will not finance the purchase of excess land. 

• When it has been determined that the plot contains excess land, the area of the 

readily marketable real estate entity, together with the existing or proposed 

improvements, is delineated and is appraised in the prescribed manner. The 

excess land is described but is not appraised. A requirement is made that the 

excess land be excluded from the mortgage security. 

• The highest and best use of the site must also be given close evaluation. 






Appraisal Date • Appraisals are valid for 120 days on existing, proposed or under construction 

properties and cannot be “re-used” during this period once the mortgage for 

which the appraisal was ordered has closed. 

• The effective date of an FHA appraisal cannot be before the FHA case number 

assignment date, unless: 

• the appraisal was originally ordered for conventional lending, HUD REO or 

government guaranteed loan purposes, but was performed by a FHA Roster 

Appraiser and is being converted to a FHA insured mortgage, and 

• when applicable, the certification field in the Appraisal Logging Screen in 

FHA connection is completed. 

Notes: 

• The certification field in the Appraisal Logging Screen will only appear 

when the appraisal effective date is more than ten (10) days prior to the 

case number assignment date and the appraisal must have been originally 

ordered for conventional lending, HUD REO or government guaranteed loan 

purposes. 

• For transactions where the original appraisal was not ordered for an FHA 

transaction, documentation must be retained in the loan file to evidence 

conversion of mortgage programs. 

• The lender is responsible for ensuring that the appraisal was performed in 

accordance with FHA appraisal reporting requirements. Validating this 

requirement may entail a re-inspection of the property by the appraiser. 

• If the original appraisal was not performed by a FHA Roster Appraiser, then 

a new FHA appraisal must be ordered, and the effective date may not be 

before the case number assignment date. 

• A new appraisal is required for each refinance transaction requiring an appraisal. 

• MCRVs are valid for 12 months from the issue date. 

• Extensions may be granted for 30 days at the option of the lender to allow for 

approval of the borrower and closing of the loan subject to the items listed below. 

• The borrower signs a valid sales contract or is approved for a loan prior to 

the expiration date of the appraisal. 

• The approval of the borrower occurs when the DE underwriter signs the FHA 

Loan Underwriting Transmittal Summary (HUD-92900-LT) or the loan is 

approved by TOTAL Scorecard. 

• 30-day extensions are not eligible on transaction that receive a “Summary 

Appraisal Update Report”. 

References: 

• See the Fannie Mae Form 1004D/Freddie Mac Form 442 (Appraisal Update 

and/or Completion Report) subtopic subsequently presented in this topic for 

additional information on updating an existing appraisal. 

• See the HUD REO Properties subtopic previously presented in the 

Occupancy/Property Types topic for additional information regarding HUD REO 

properties. 






Assignments of 

Appraisals 

(Commitments) 

and/or Cases 

Fannie Mae 

Form 

1004D/Freddie 

Mac Form 442 

(Appraisal 

Update and/or 

Completion 

Report) 


Upon written request from the borrower or the seller (if the borrower is not involved), 

appraisal reports and/or mortgage credit packages may be assigned to another 

lender, but does not need to include lender processing documents. 

Procedures 

• HUD must be notified when a transfer occurs in order to avoid problems with the 

issuance of MIC. An FHA case number is assigned to a specific lender and 

property. Such notification must be made on FHA Connection. 

• The receiving mortgagee must also place in the case binder to HUD, evidence of 

the CHUMS system reassignment. 

• If the receiving mortgagee approves the application and submits the case for 

endorsement, the case file does not need to include a copy of the original 

mortgagee’s FHA Loan Underwriting Transmittal Summary (HUD-92900-LT) 

from the transferring lender, but does need to include explanatory comments 

from the receiving (approving) mortgagee’s underwriter. 

• FHA does not require a change in either the lender’s name or the borrower’s 

name when an appraisal is transferred. 

• FAILURE TO COOPERATE IN THE TRANSFER/ASSIGNMENT OF CASES 

JEOPARDIZES THE MORTGAGEE’S HUD APPROVAL AS WELL AS THEIR 

DIRECT ENDORSEMENT APPROVAL. 

Maximum Compensation to Mortgagee 

• Any lock-in fee collected from the borrower at the time of application. 

• Any out-of-pocket expenses, appraised fees, credit reports, surveys, etc. 

• A pro-rated portion of the origination fee for reasonable costs incurred for the 

work performed: 

• if the DE underwriter has issued the 92800.5B only - 1/2 of original fee. 

• if the DE underwriter has issued the 92800.5B and a firm commitment 

(approval of property/borrower) - 1% origination fee. 

• The Appraisal Update and/or Completion Report (Fannie Mae form 

1004D/Freddie Mac form 442), may be used in the following circumstances: 

• to extend the validity period of an existing appraisal that is due to expire, 

• to extend the validity period of an existing appraisal for new construction that 

is incomplete, and 

• as an additional option to report the completion of a repair and/or the 

satisfaction of requirements and conditions noted in the original appraisal 

report. 






Fannie Mae 

Form 

1004D/Freddie 

Mac Form 442 

(Appraisal 

Update and/or 

Completion 

Report), 

(continued) 

• Notes: 

• Only the FHA appraiser that performed the original appraisal, if currently in 

good standing on the FHA Appraiser Roster, is permitted to complete a 

“Summary Appraisal Update Report.” 

• Any FHA appraiser that is currently in good standing on the FHA Appraiser 

Roster may complete a “Certification of Completion.” 

• Other methods used (i.e., contractor, home inspector and mortgagee 

certifications) may continue to be used as applicable. 

• Only one (1) “Summary Appraisal Update Report” may be completed per 

appraisal report received. 

• The effective date of the “Summary Appraisal Update Report” must be on or 

before the original expiration date of the original appraisal report. 

• A “Summary Appraisal Update Report” extends the original appraisal 

expiration date by up to 120 days. Therefore, a loan must be closed within 

120 days of the effective date of the “Summary Appraisal Update Report.” 


1004D/Freddie Mac form 442) may not be used when ordered by a lender 

who is not identified as an intended user in the original appraisal report 

unless the appraiser incorporates the original report being updated as an 

attachment rather than as a reference. 

• When a “Summary Appraisal Update Report” is issued, the appraiser must 

include a completed Market conditions Addendum (Fannie Mae form 

1004MC/Freddie Mac form 71) for the subject property that is reflective of the 

current market conditions as of the effective date of the Appraisal Update 

and/or Completion Report (Fannie Mae form 1004D/Freddie Mac form 442). 


1004D/Freddie Mac form 442), may not be used in the following circumstances: 

• the property value has declined, 

• building improvements that contribute value to the property cannot be 

observed from the street or a public way, 

Note: FHA requires that all improvements must be observable from a 

street or public way to utilize the Appraisal Update and/o9r Completion 

Report (Fannie Mae form 1004D/Freddie Mac form 442). 

• the exterior inspection of the property reveals deficiencies or other significant 

changes that did not exist as of the effective date of the appraisal report 

being updated, or 

• as a substitute for the Compliance Inspection Report (HUD 92051), when 

required, for new construction. 






Second 

Appraisal 

Options 

• In instances where the first appraisal was ordered by another lender, a second 

appraisal may be ordered under the following circumstances: 

• the first appraisal contains material deficiencies as determined by the D.E. 

Underwriter, 

• the appraiser performing the first appraisal is on the Correspondent’s 

Ineligible Appraiser List or the SunTrust Ineligible Appraiser and Appraisal 

Company List, 

• failure of the first lender, including cases where the first lender has since 

gone out of business, to provide a copy of the appraisal to SunTrust by the 

Correspondent client in a timely manner which would cause a delay in 

closing, posing a potential harm to the borrower, 

• Potential harm includes events outside the control of the borrower such as 

loss of interest rate lock, purchase contract deadline, foreclosure 

proceedings, late fees. 

• Both appraisals must be retained in the case binder; however, the first 

appraisal may be added to the case binder when it is received. 

Notes: 

• The loan file must be documented with why a second appraisal was 

obtained AND both appraisals must be retained in the loan file. 

• The cost of the second appraisal may be charged to the borrower. 

• The lender name does not need to be changed on appraisals being 

transferred from one lender to another. 

• A second appraisal may NOT be ordered in an attempt to obtain a higher 

property value or lesser number of deficiencies/repair requirements. 

• Reference: See the HUD Property Disposition (PD) Properties subtopic 

previously presented in the Occupancy/Property Types topic for additional 

information regarding HUD REO properties. 






Converting VA 

Appraisals to 

an FHA 

Appraisal 

General 

• HUD will accept single family (excluding condominiums) existing construction, 

proposed construction, under construction, and newly constructed properties one 

year old or less which were pre-approved by VA (this includes CRVs, 

LNOV/LAPPs), and these properties are eligible for high ratio (greater than 90%) 

loans using FHA mortgage insurance. 

• The appraiser must be on the FHA Roster of Approved Appraisers and be state 

certified with an unexpired license. 

• A HUD case number must be obtained through FHA Connection. The VA CRV 

(or LAPP appraisal) is sent to underwriting at loan submission and the DE 

underwriter processes the conversion and completes the 92800.5B conditional 

commitment. The conditions of the VA appraisal will become conditions of the 

FHA appraisal with the addition of the Lead Based Paint Hazard when 

applicable. 

References: 

• See the subtopic, “Property Requirements” under the topic, “Appraisal 

Requirements” subsequently presented in this product description for 

additional requirements for lead based paint repairs and inspections. 

• See the FHA Case Number Assignment and Cancellation subtopic in the 


• Circumstances under which a CRV/MCRV may not be converted include those 

listed below: 

• Property has an outstanding FHA Conditional Commitment issued by HUD. 

Conditional Commitments are no longer issued by HUD, except for HUD 

employees only others are issued by the DE underwriter. 

• Property or site is known to be unacceptable (i.e., subject to periodic 

flooding). 

• FHA previously rejected property or site. 

• The VA-MCRV or NOV expired before the sales contract was signed. 

• Case is processed under the DE program and property does not qualify as 

proposed construction. 

• Reference: See HUD Handbook 4000.4, paragraph 1-2 for additional 

information on using a VA-MCRV in the DE program. 

• Property is a unit in a condominium project that does not met FHA criteria. 






Converting VA 

Appraisals to 

an FHA 

Appraisal, 

(continued) 

Extension of Validity Period 

• FHA will not get involved in extending a VA appraisal. Generally, extension 

requests are sent to the VA office of jurisdiction, which will contact the fee 

appraiser involved, if appropriate, and issue an endorsement to the notice of 

value, if justified. The borrower must have signed the purchase agreement 

during the validity period for the extension to be considered. 

• If the appraisal is for new construction, whoever is shown on the LAPP NOV 

as the inspector will perform the final inspection. 

• The builder must complete the Builders Certification (HUD-92541).The 

information must be reviewed by the DE Underwriter who is responsible for 

resolving discrepancies and inconsistencies, if any. 

• The conditions of the VA appraisal will become conditions of the FHA 

appraisal. 

• The builder must be a VA approved builder. 

• Subdivisions, PUDs, and builders do not need HUD approval. 

VA Master CRV’s 

• A VA master CRV may be converted to FHA; however, each case must have an 

individual and separate case number. 

• The builder does not need HUD approval, however, the builder must be VA 

approved. 

• A Builders Certification form (HUD 92541) is required. 






Converting a 

VA MCRV for 

an FHA Loan 

General 

MCRVs are valid for 12 months from the date of issue. If a loan is submitted with an 

expired MCRV, the sales contract and FHA case number assignment must predate 

the MCRV expiration date. 

Reference: See Extension of Validity Period shown previously within this subtopic for 


Reciprocity – Proposed Construction 

Condos 

• VA MCRVs are acceptable as long as a HUD Approval letter of the project is 

provided and current. 

• All conditions of the HUD approval letter must be met prior to or at closing, in 

addition to all of the MCRV conditions. 

Subdivisions 

• VA MCRVs are acceptable provided that they have not expired and a satisfactorily 

completed Builder Certification form is obtained at the time of loan submission to 

the DE underwriter. 

• All MCRV conditions are to be met prior to closing. 

Conversion of MCRV 

To convert an MCRV for use on an FHA loan, the following documentation must be in 

the loan file for the DE underwriter to arrive at a final valuation: 

• A complete copy of the sales contract including an itemization of options and 

charges to the borrower for those options. 

• A current and complete MCRV (if not sure of what “complete” refers to, contact 

underwriting for definition). 

• A MCRV option sheet completed by processor listing MCRV number, property 

address, lot number, block number, name of subdivision, model name/type, base 

value of model, list of all options from sales contract and MCRV values, total of 

options, total value of MCRV, sales price and maximum loan. 

• Square footage measurements for areas in each model type where upgrades for 

competing, resilient flooring and padding are options with additional values. This 

should be provided by the builder. 

• Evidence of HUD project approval if a condominium, Must be current and reflect 

all conditions. 

• A Builder Certification form (HUD 92541) for property types other than a 

condominium. 

• WSSC letter (applicable only in Prince George and Montgomery Counties in MD). 






FHA Appraised 

Value 

Adjustment 

Disclosure 

Property 

Requirements 

• The FHA Appraised Value Adjustment Disclosure is signed by the borrower(s) at 

the same time the HUD/VA Addendum to Uniform Residential Loan Application 

(URLA) is signed. 

• The form must be signed and dated prior to submission to underwriting and 

included in the guaranty submission package sent to HUD. 

• This form is not required if the initial URLA Addendum (HUD 92900-a) is 

completed and signed before the loan is underwritten. 

General 

• HUD requires the approved appraiser to determine whether the property meets 

HUD Guidelines as specified in HUD Handbook 4150.2 and Appendix D. To 

perform this analysis, the appraiser must have full access to all property 

improvements, including crawl space and attic. 

References: 

• See the HUD Handbook for specific property requirements established by 

HUD. 

• See the Streamline Refinance topic for additional information regarding 

streamlines with an appraisal. 

• FHA requires that appraisers be provided with all financing data and sales 

concessions for properties to be a security for an FHA-insured loan. 

• The appraiser must provide a meaningful explanation to support any “Best comp 

available” statement. 

• Current owner space must contain name of actual owner and cannot just state 

“Owner of record.” 

• Time adjustments are considered a “red flag;” however are allowed if the 

rationale is documented and supported with a paired sales analysis. 

• Appraiser needs to inspect the exterior of all comparable sales. If the 

comparables are located in a gated community and the appraiser is unable to 

gain entry, other comparables need to be provided. MLS pictures are not 

acceptable. 

• Appraisers are required to identify and report sales concessions and properly 

address and/or adjust the comparable sale transactions to account for sales 

concessions in the appraisal of all properties. 






Unacceptable 

Locations 

Site Hazards 

and Nuisances 

• The appraiser must consider factors such as location requirements, neighborhood 

hazards and nuisances, site analysis, condition of physical improvements, 

economic life, code enforcements, and any other criteria HUD requires. 

• A site is required to be rejected if the property being appraised is subject to 

hazards, environmental contaminants, noxious odors, offensive sights or 

excessive noises to the point of endangering the physical improvements or 

affecting the livability of the property, its marketability, or the health and safety of 

its occupants. Rejections may also be appropriate if the future economic life of 

the property is shortened by obvious and compelling pressure to a higher use, 

making a long-term mortgage impractical. 

• The appraiser must indicate all hazards and nuisances affecting the subject 

property that may endanger the health and safety of the occupants and/or the 

structural integrity or marketability of the property in the applicable section of the 

appraisal form. 

• If hazards or nuisances are observed, the appraiser must describe the conditions 

and make a requirement for repair and/or for further inspection, and prepare the 

appraisal “subject to repairs” and/or “subject to inspection” in the site section of 

the report. These hazards or nuisances may include the following: 

• subsidence, operating and abandoned gas wells, abandoned wells, slush pits, 

• heavy traffic, airport noise and hazards, runway clear zones/clear zones, 

• proximity to high pressure gas, liquid petroleum pipelines or other volatile and 

explosive products 

• residential structures located within the fall distance of a high-voltage 

transmission line, radio/TV transmission tower, etc., 

• excessive hazard from smoke fumes, odors, and stationary storage tanks 

containing flammable or explosive material. 






Soil 

Contamination 

Grading and 

Drainage 

Individual 

Water Supply 

and Sewage 

System 

Distances 

Between 

Well/Septic/Etc. 

• The appraiser must notate the proximity to dumps, landfills, industrial sites or 

other sites that could contain hazardous wastes. Additionally to notate any readily 

observable evidence of hazardous substances in the soil (on-site contamination) 

and make a requirement for further inspection in the site section. 

• Conditions that could indicate soil contamination include pools or liquid, pits, 

ponds, lagoons, stressed vegetation, stained soils or pavement, drums or odors. 

If any of these conditions exist, further analysis or testing is required. 

• Proper drainage control measures may include gutters and downspouts or 

appropriate grading or landscaping to divert the flow of water away from the 

foundation. 

• If the grading does not provide positive drainage from the improvements, the 

appraiser should make a repair requirement. 

• Any readily observable evidence of standing water near the property could 

indicate improper drainage. IF the standing water is problematic, a repair 

requirement is made in the site section of the report. 

• When water and sewer are private, well and septic testing is governed by state or 

local requirements; however, the appraiser must note any observable 

deficiencies. 

• The appraiser must also report on the availability of connection to public and/or 

community water/sewer systems. The lender is responsible for the determination 

of the feasibility for requiring connection. 

• The appraiser should request a copy of a survey from the homeowner, if 

available, that would show the distances between well/septic drain field, 

well/foundation and well/property line. 

• The appraiser is not required to sketch the distances but should note in the 

appraisal if the distances appear to be met and note any adverse site conditions 

that might warrant further inspections or due diligence. 

• It is the lender’s decision as to whether a qualified third (3 rd ) party should map out 

these distances. In cases where the lot is particularly small and depending on the 

location of the well, the lender may want to require the survey to reflect these 

distances. 






Lead Based 

Paint Hazards 

Private Road 

Access and 

Maintenance 

• For all FHA insured properties, correction is required for all defective paint 

surfaces in or on structures and/or property improvements built before January 1, 

1978. 

• The appraiser must provide a detailed description and identify the exact location 

of any deficiency under physical deficiencies affecting livability. 

• For HUD REO properties, HUD will only order a lead-based paint evaluation for 

properties constructed before 1978 and purchased with FHA-insured financing. 

Notes: 

• If the appraiser observes defective paint in a home that was built before 1978, 

then the appraiser must enter an “X” in the “Yes” box and note all areas 

affected in the physical deficiencies or adverse conditions section of the 


• If the appraiser does not observe defective paint in a home that was built 

before 1978, an explanation is not required in the physical deficiencies or 

adverse conditions section of the appraisal report. 

• For all FHA loans secured by properties built prior to 1978 where lead-based paint 

is present and the appraiser noted defective paint in the home, SunTrust will 

require the following: 

• homeowners performing renovation, repair, or painting on their primary 

residence must provide a letter stating they made the repairs. 

• Any firm, renovator, contractor, or investment property owner completing the 

repairs must provide a copy of the EPA or State-Lead Training Certificate in 

the name of the party who performed the renovation, repair, and painting of 

defective paint surfaces to be reviewed by the Underwriter. 

• an inspection must be completed by an FHA Roster Appraiser or Inspector, 

verifying the repairs have been completed as required by the appraiser. 

Note: Inspections verifying completion of required repairs may also be performed 

by an independent third party. 

• For all other FHA transactions on properties built prior to 1978, all currently 

published lead-based paint guidelines continue to apply. 

• Each property must have vehicular or pedestrian access. 

• The property must have an all-weather road surface. (An all-weather surface is a 

road surface over which emergency vehicles can pass in all types of weather.) 

• Private streets or shared driveways are addressed under “offsite improvements” 

and must be protected by permanent recorded easements or be owned and 

maintained by a HOA. 

Reference: See the “Private Roads” subtopic under the “Closing and Loan Settlement 

Documentation” for additional requirements. 






Minimum 

Property 

Requirements/ 

Minimum 

Property 

Standards 

• New construction properties must comply with HUD’s Minimum Property 

Standards (MPS). 

• Existing construction must comply with HUD’s Minimum Property Requirements 

(MPR). 

Note: FHA does not require any home to have any appliances to be eligible for FHA 

financing. 

• The appraiser must denote any deficiency in the appropriate section(s) (i.e., site 

issues in site sections, improvement issues in improvement section) of the 

appraisal report. The appraiser is to note those repairs necessary to make the 

property comply with FHA’s MPR or MPS together with the estimated cost to 

cure. The lender will determine which repairs for existing properties must be 

made for the property to be eligible for FHA-insured financing. 

• Cosmetic repairs are not required; however, they are to be considered in the 

overall condition rating and valuation of the property. (I.e., surface treatments, 

beautification or adornment not required for the preservation of the property such 

as worn floor finishes, carpeting, holes in window screens, small crack in a 

windowpane are examples of deferred maintenance that do not require repairs 

but must be reported by the appraiser.) 

• The physical condition of existing building improvements is examined at the time 

of the appraisal to determine whether repairs, alterations or inspections are 

necessary. This is essential to eliminate conditions threatening the continued 

physical security of the property. 

• Required repairs are limited to the necessary requirements for the following: 

• protect the health and safety of the occupants (Safety), 

• protect the security of the property (Security), and 

• correct physical deficiencies or conditions affecting structural integrity 

(Soundness). 

• A property with defective conditions is unacceptable until the defects or 

conditions have been remedied and the probability of further damage eliminated. 

Defective conditions include those listed below. 

• Defective construction 

• Other readily observable conditions that impair the safety, sanitation or 

structural soundness of the dwelling. 

• The appraiser must provide the reason or an indication of a particular problem 

when requiring an inspection of any mechanical system, structural system, etc. 

Typical conditions that require further inspection or testing by qualified 

individuals or entities include those shown below: 

• infestation – evidence of termites 

• inoperative or inadequate plumbing, heating or electrical systems 

• structural failure in framing members 

• leaking or worn-out roofs 

• cracked masonry or foundation damage 

• drainage problems 






Repair and 

Inspection 

Requirements 

FHA now permits “as-is” appraisals and “subject to” appraisals. The table below 

shows the conditions under which each category is selected in the reconciliation 

section of the appraisal report. 

The FHA 

appraisal is 

made 

Reconciliation – How the appraisal is made 

Under the following conditions… 

As Is • There is/are no repairs, alterations or inspection conditions 

noted by the appraiser. 

• The property is recommended for rejection 

• It is establishing the “as-is” value for a regular 203(k) 

Subject to 

Completion per 

Plans and 

Specifications 

Subject to the 

following 

repairs or 

alternations 

Subject to the 

following 

required 

inspection 

Note: Only Correspondents lenders that have a Direct 

Endorsement underwriter on staff may underwrite and 

submit 203(k) transactions to SunTrust for purchase 

review and funding. 

• Proposed construction where constructions has not started 

• Under construction but not yet complete and less than 90% 

LTV 

• Regular 203(k) loan. 

Note: Only Correspondents lenders that have a Direct 

Endorsement underwriter on staff may underwrite and 

submit 203(k) transactions to SunTrust for purchase 

review and funding. 

• Repair or alteration condition(s) noted by the appraiser 

• Under construction, more than 90% complete with only 

minor finish work remaining (buyer preference items, i.e., 

floor, coverings, appliances, fixtures, landscaping, etc.). 

Note: This eliminates the need for construction exhibits. 

Required inspection(s) noted by the appraiser 






Repair and 

Inspection 

Requirements, 

(continued) 

Minor property conditions NOT requiring automatic repairs for existing 

properties include but are not limited to those listed below. 

• Missing hand rails 

• Cracked or damaged exit doors that are otherwise operable 

• Cracked window glass 

• Defective paint surfaces in homes constructed post-1978 

• Minor plumbing leaks (i.e., leaky faucets) 

• Defective floor finish or covering (worn through the finish, badly soiled carpeting) 

• Evidence of previous (non-active) Wood Destroying Insect/Organism damage 

where there is no evidence of un-repaired structural damage 

• Rotten or worn-out counter tops 

• Damaged plaster, sheetrock or other wall and ceiling materials in homes 

(constructed pre-1978) 

• Poor workmanship 

• Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting) 

• Crawl space with debris and trash 

• Lack of an all weather driveway surface 

Property conditions that may represent a risk to the health and safety of the 

occupants or the soundness of the property that will require automatic repair 

conditions include, but are not limited to those listed below. 

• Inadequate access/egress from bedrooms to exterior of home. 

• Leaking or worn out roofs (if three or more layers of shingles on leaking or worn 

out roof, all existing shingles must be removed before re-roofing). 

• Evidence of structural problems (such as foundation damage caused by 

excessive settlement). 

• Defective paint surfaces in homes constructed pre-1978. 

• Defective exterior paint surfaces in homes constructed post-1978 where the 

finish is otherwise unprotected. 

Inspections for the following items and/or conditions are no longer mandated 

in existing properties: 

• Wood Destroying Insect/Organisms: required if evidence of active infestation, if 

mandated by state or local jurisdiction, if customary to the area, or if a condition 

of the contract. 

• Well (individual water system): test or inspection required only if there is 

knowledge that well water may be contaminated, if mandated by state or local 

jurisdiction, when the water system relies on a purification system due to 

presence of contaminants, or when there is evidence of corrosion of 

pipes/plumbing, areas of intensive agricultural within ¼ mile, coal mining or gas 

drilling operations within ¼ mile, or dump, junkyard, landfill, factory gas station, 

or dry cleaning operation within ¼ mile; unusually objectionable taste, smell or 

appearance of the well water. 

• Septic: test or inspection required only if evidence of system failure, if mandated 

by state or local jurisdiction, if customary to the area, or at lender’s discretion 

• Roof: Flat or unobservable roof inspections not required. 






Repair and 

Inspection 

Requirements, 

(continued) 

Required Use 

of FHA Roster 

Inspector or 

Other 

Authorized 

Parties 

Conditions that DO require automatic inspections include the following items 

and/or conditions in existing properties: 

• Standing water against foundation and/or excessively damp basements 

• Hazardous materials on the site or within the improvements 

• Faulty or defective mechanical systems (electrical, plumbing, or heating) 

• Evidence of possible structural failure (i.e., settlement or bulging foundation 

wall). 

FHA requires the lender to select an inspector listed on the FHA Inspector Roster 

under the circumstances shown below. Lenders may access an FHA Inspector for 

their area through HUD’s website. 

New Construction 

• If the mortgagee elects not to have inspections performed by the local 

jurisdiction in accordance with Mortgagee Letter 01-27, or the local jurisdiction 

does not issue a Certificate of Occupancy (or its equivalent). 

• FHA requires inspections by a FHA Roster Inspector when the subject property 

is new construction or manufactured housing. 

• (Mortgagee Letter 2009-51 should rescind this)When a Mortgagee Certification 

is used to clear minor conditions, the Compliance Inspection Report (HUD- 

92051) must be used by the FHA Roster Compliance Inspector. 

• The FHA compliance inspector that performed the inspection must complete the 

Compliance Inspection Report (HUD-92051). 

• In addition to the signature of the inspector, the DE Underwriter would sign the 

form in Section III when and where appropriate. 

Existing Construction 

Other parties eligible to perform inspections are shown below. 

• A FHA Roster Inspector must conduct an inspection when structural or basic 

system repairs require architectural expertise, and complete a Compliance 

Inspection Report (HUD-92051). 

• Inspection reports that are conducted by the FHA appraiser are completed using 

the Appraisal Update and/or Completion Report (Fannie Mae Form 

1004D/Freddie Mac Form 442/March 2005) in accordance with Mortgagee Letter 

09-51. 

• The same appraiser, who placed a repair requirement not requiring architectural 

expertise, may determine satisfactory completion of the repair. 

• A licensed bonded and registered engineer, a licensed home inspector, or other 

professional trades person specifically registered or licensed may provide 

documentation to support that all deficiencies noted by the FHA appraiser has 

been acceptably corrected. These professionals may use their company’s forms 

and letterhead to make the certification. The report must be reviewed by either 

the FHA or the DE underwriter, as appropriate. 






Reconsider- 

ation of 

Appraised 

Value 

• The decision for a reconsideration of value must be made by the HUD staff 

review appraiser or the DE underwriter. 

• Before a request for reconsideration of value is accepted, the DE underwriter 

must review the appraisal report and evidence to support a higher value. Three 

(3) new comparables (no more than six [6] months old) must be submitted before 

sending the request back to the appraiser. 

• A request for reconsideration of value can be submitted after receipt of the 

official Conditional Commitment/Statement of Appraised Value. Original 

photographs of each comparable must accompany submission to the DE 

underwriter used to support the higher value. 

• If the new comparables are not similar or acceptable to support the increase, the 

reviewer will reject the request for reconsideration. If the reviewer does not 

reject the request but the appraiser performs a review on the new comparables 

and finds that incorrect information was provided on size, design, sales price, 

location or closing date, the appraiser is entitled to one half of the original fee. In 

such cases, the appraiser must comment on the reason for rejecting each 

comparable. 

• If the DE underwriter agrees that the reconsideration is valid, it is sent to the 

appraiser. The appraiser will process the reconsideration and send the 

completed appraisal report to the underwriter for review. The underwriter must 

review the appraisal report and issue the statement of appraised value to the 

borrower. 




Prohibition of Property Flipping 

General Property flipping is a practice whereby a recently acquired property is resold for a 

considerable profit with an artificially inflated value. In an effort to preclude 

homebuyers using FHA financing from becoming victims of predatory property 

flipping activity, HUD has implemented a revised property flipping policy. 

Overview of 

FHA’s Property 

Flipping Policy 

Sale by the 

Owner of 

Record 

FHA requires that: 

• only owners of record may sell properties that will be financed using FHAinsured 

mortgages, 

• any re-sale of a property may not occur 90 or fewer days from the last sale to be 

eligible for FHA financing, and 

• re-sales that occur between 91 and 180 days, where the new sales price 

exceeds the previous sales price by one hundred percent (100%) or more, FHA 

will require additional documentation validating the property’s value. 

Note: HUD considers the re-sale date as, the date of execution of a sales 

contract by a buyer that will result in a mortgage to be insured by FHA. 

To be eligible for a mortgage insured by FHA, the property must be purchased from 

the owner of record and the transaction may not involve any sale or assignment of 

the sales contract. This requirement applies to all FHA purchase money mortgages 

regardless of the time between re-sales. 

The Correspondent Lender must obtain documentation verifying that the seller is the 

owner of record and submit this to HUD as part of the insurance endorsement 

binder; it is to be placed behind the appraisal on the left side of the case binder. This 

documentation may include, but is not limited to: 

• a property sales history report, 

• a copy of the recorded deed from the seller, or 

• other documentation such as a copy of a property tax bill, title commitment or 

binder, demonstrating the seller’s ownership of the property and the date it was 

acquired. 





Prohibition of Property Flipping, Continued 

Exceptions to 

the 90-Day 

Restriction 

If the owner of record sells a property within 90 days after the date of acquisition, 

that property is not eligible security for a mortgage insured by FHA unless the loan 

file is documented that the transaction falls within one of the exceptions to the time 

restrictions on re-sales listed below: 

• Sales by HUD of it’s own Real Estate Owned (REO) properties. 

• Sales by other United States Government agencies of single family properties 

pursuant to programs operated by these agencies. 

• Sales of properties by non-profits approved to purchase HUD-owned singlefamily 

properties at a discount with resale restrictions. 

• Sales of properties that are acquired by the sellers by inheritance. 

• Sales of properties purchased by employers or relocation agencies in connection 

with relocations of employees. 

• Sales of properties by state and federally charted financial institutions and 

Government Sponsored Enterprises. 

Note: Most state and federally chartered financial institutions are going to be 

banks, savings and loans, or credit unions. 

• Sales of foreclosed properties by state licensed mortgage lenders. 

• Any entity that sells foreclosed properties on behalf of an exempt lender or 

financial institution. 

• Sales of properties by local and state government agencies. 

• Sales of a previously foreclosed or abandoned property acquired, rehabilitated 

and resold by an entity using funds from and performing under agreements with 

state and local government agencies under a Neighborhood Stabilization 

Program (NSP). 

Notes: 

• Properties that were HUD REOs and then rehabilitated and resold are not 

eligible under this exemption. 

• NSP fund providers must have established a written agreement or similar 

document authorizing certain entities (for-profit and/or non-profit companies) 

as a representative purchaser and rehabilitator of foreclosed and abandoned 

properties. 

• Documentation proving a seller is exempt from any of the property flipping 

guidelines is required in the endorsement file prior to approving the loan 

transaction. 

• Upon FHA’s announcement of eligibility in a notice, i.e. Mortgagee Letter (ML), 

sales of properties located in areas designated by the President as federal 

disaster areas, will be exempt from the restrictions of the property-flipping rule. 

The notice will specify how long the exception will be in effect and the specific 

disaster area affected. 






Exceptions to 

the 90-Day 

Restriction, 

(continued) 

Re-sales 

Occurring 

Between 91 and 

180 Days 

Following 

Acquisition 

• The exemption does not provide an exception to additional appraisal 

requirements when the re-sale price is 100% or more over the price paid by the 

seller when the property was acquired in the last 180 days. 

• Re-sales that occur under this exemption within 90 days of last acquisition with a 

sales price increase of 100% or more require a second appraisal. 

• If the re-sale date is between 91 and 180 days following acquisition by the seller, 

the lender is required to obtain a second appraisal made by another appraiser IF 

the re-sale price is one hundred percent (100%) or more over the price paid by 

the seller when the property was acquired. 

Example: If a property is re-sold for $80,000 within six (6) months of the 

seller’s acquisition of that property for $40,000, the Branch must obtain a 

second independent appraisal supporting the $80,000 sales price. 

• The lender may also provide documentation showing the costs and extent of 

rehabilitation that went into the property resulting in the increased value, but 

must still obtain the second appraisal. 

• The cost of the second appraisal may not be charged to the homebuyer; 

however may be paid by the seller. 

• FHA also reserves the right to revise the re-sale percentage level at which this 

second appraisal is required, by publishing a notice in the Federal Register. 

• Requirements for the appraisals are listed below. 

• A conventional appraisal is not acceptable. 

• Both appraisals must be FHA appraisals prepared by independent 

appraisers. 

• Both appraisers must be on HUD’s roster list of Approved Appraisers and be 

state certified with an unexpired license. 

• Repairs on BOTH appraisals must be resolved. 

• If there is a difference in value of more than 5% between the two (2) 

appraisals, the appraisal with the lowest value must be used. 

• The Conditional Commitment is issued based on the appraisal used by 

underwriting. 

• Designate the review appraisal by stamping it “REVIEW APPRAISAL.” 

• Both appraisals must be entered into the FHA Connection in the fields 

allocated as “First Appraisal” and “Second Appraisal.” Once the first 

appraisal information is entered, the field for the second appraisal 

information will appear. 

• USPAP requirements must be met on both appraisals. This rule requires 

appraisers to analyze any prior sales of the subject property and 

comparables that occurred within specific time periods. 






Re-Sales 

Occurring 

Between 91 

Days and 12 

Months 

Following 

Acquisition 

New Property 

Flipping 

Amendment 

Inapplicable to 

New 

Construction 

Date of 

Property 

Acquisition 

Determined by 

the Appraiser 

• If the re-sale date is more than 90 days after the date of acquisition by the seller 

but before the end of the twelfth (12th) month following the date of the 

acquisition, FHA reserves the right to require additional documentation from the 

lender to support the re-sale value if the re-sale price is five percent (5.00%) or 

greater than the lowest sales price of the property during the preceding twelve 

(12) months. 

• At FHA’s discretion, such documentation may included, but is not limited to, an 

appraisal from another appraiser. 

Note: Please see the appraisal requirements previously mentioned in this 

section for guidance. 

• FHA will announce its determination to require the additional appraisal and other 

value documentation, such as an Automated Valuation Method (AVM), through a 

Federal Register issuance. This requirement may be established either 

nationwide or on a regional basis, at FHA’s discretion. 

The restrictions in the new amendment are not applicable to a builder selling a newly 

built home or building a home for a homebuyer wishing to use FHA-insured 

financing. 

• The Correspondent Lender may rely on information provided by the appraiser in 

compliance with the updated Standard Rule 1-5 of the Uniform Standards of 

Professional Appraisal Practice (USPAP). This rule requires appraisers to 

analyze any prior sales of the subject property that occurred within specific time 

periods, now set for the previous three (3) years for one-to-four family residential 

properties. 

• As a result, the information contained on the Uniform Residential Appraisal 

Report or other applicable appraisal report form describing the Date, Price and 

Data for Prior Sales is to include all transactions for the subject property within 

three (3) years of the date of the appraisal and the comparable sales within 

twelve (12) months of the date of the comparable sale. 

• Appraisers are responsible for considering and analyzing any prior sales of the 

property being appraised within three (3) years of the date of the appraisal and 

the comparables that are utilized within twelve (12) months of the date of the 

comparable sale. 

• If the most recent sale of the property occurred at least one year previously, no 

additional documentation is required. 

• The Correspondent Lender remains accountable for verifying that the seller is 

the owner of record and may rely on information developed by the appraiser for 

this purpose if provided. 

• Any conflicts in information must be resolved and the file must be document. 




Automated Underwriting Systems (AUS) 

FHA TOTAL 

Scorecard 

• All loans with the exception of Streamline Refinance transactions must be run 

through TOTAL Scorecard. 

Note: Streamline refinances must not be submitted through TOTAL Scorecard. 

If a streamline refinance is submitted through an AUS system MUST be 

underwritten, processed, and closed as a no cash-out (rate/term) refinance and 

follow all AUS documentation recommendations in the findings. 



remains responsible for insuring all HUD and SunTrust Mortgage Credit 

streamline refinance guidelines are met (i.e., mortgage payment history, 

seasoning, etc.). Underwriters must also use their CHUMS ID for page three of 

the HUD/VA Addendum to Uniform Residential Loan Application (HUD 92900-A), 

FHA Connection, and the FHA Loan Underwriting and Transmittal Summary 

(HUD 92900-LT) for streamline refinances. 

• Submitting a loan using TOTAL Scorecard allows the lender to receive the 

benefits of documentation reduction and credit policy revisions. 

• Evidence of the TOTAL Scorecard evaluation MUST be in every loan file. 

• Only D.E. Mortgagees with an AUS or Fannie DU or Freddie LP can directly 

interface with the TOTAL Scorecard. 

• TOTAL only provides an “Accept” or “Refer” and the reasons for the Refer, 

including which rules were triggered. The AUS vendor provides the feedback 

messages. 

• The Scorecard eliminates the possibility of different responses for a loan that is 

run through DU, and then subsequently run through LP. 

Note: TOTAL stands for “Technology Open To Approved Lenders.” 





Automated Underwriting Systems (AUS), Continued 

Data Input 

Instructions to 

Access TOTAL 

Scorecard in 

Desktop 

Originator/Desk 

top Underwriter 

(DO/DU) 

The tables below show the data input instructions to access the FHA TOTAL 

Scorecard in Desktop Originator/Desktop Underwriter (DO/DU). 

Notes: 

• The FHA CASE NUMBER must be a valid FHA Case Number. 

• If the case number is left blank on the INITIAL submission to TOTAL Scorecard 

for a “pre-qualification” loan, then the FHA Case Number MUST BE ENTERED 

WITH THE FINAL SUBMISSION of data prior to loan closing. 

• Failure to enter the case number in TOTAL may result in the case binder being 

returned by FHA with a request for manual underwriting. 

• Unless the loan is scored at least once with the FHA Case Number, FHA will not 

recognize the risk assessment provided by TOTAL nor can the data fields in 

CHUMS be pre-filled with information necessary for endorsement processing. 

• When the data fields are not entered into CHUMS, FHA re-scores the mortgage 

if the new entries indicate degradation in loan quality from those same fields 

populated into TOTAL. This re-scoring may result in a downgrade of the risk 

assessment from an “Approve” to a “Refer” and the file will be returned for 

manual underwriting. 



DO/DU Direct Users 

Agency Case Number Government Screen: identify in the Agency Case 

Number field. 

FHA Lender ID • Government Screen: identify in the FHA Lender 

ID field. 






TOTAL 

Scorecard 

Resubmission 

Requirements 

Data Input 

Instructions to 

Access TOTAL 

Scorecard in 


Prospector (LP) 

• The lender is responsible for the integrity of the data used to obtain the risk 

assessment and for resubmitting the loan when material changes are discovered 

or otherwise occur during loan processing. 

• No AUS tolerances will be acceptable to SunTrust. 

• SunTrust requires 100% AUS data integrity prior to loan purchase. 

Note: For HMDA and Regulatory Compliance purposes, the income used in 

making the underwriting decision must be consistent throughout the file. (i.e., 

AUS findings, FHA Loan Underwriting Transmittal Summary (HUD-92900-LT) 

and MLCS must all reflect the same income.) 

The tables below show the data input instructions to access the FHA TOTAL 

Scorecard in Loan Prospector (LP). 

Notes: 

• The FHA Case Number must be a valid FHA Case Number 

• If the case number is left blank on the INITIAL submission to TOTAL Scorecard 

for a “pre-qualification” loan, then the FHA Case Number MUST BE ENTERED 

WITH THE FINAL SUBMISSION of data prior to loan closing. 

• Failure to enter the case number in TOTAL may result in the case binder being 

returned by FHA with a request for manual underwriting. 

• Unless the loan is scored at least once with the FHA Case Number, FHA will not 

recognize the risk assessment provided by TOTAL nor can the data fields in 

CHUMS be pre-filled with information necessary for endorsement processing. 

• When the data fields are not entered into CHUMS, FHA re-scores the mortgage 

if the new entries indicate degradation in loan quality from those same fields 

populated into TOTAL. This re-scoring may result in a downgrade of the risk 

assessment from an “Approve” to a “Refer” and the file will be returned for 

manual underwriting. 

• The FHA Ease-In Payment Reduction Feature is NOT eligible for LP submission. 

LP will not give an accurate recommendation for this product type. 



LoanProspector.com Direct Users 

Agency Case Number FHA Screen: identify in the FHA Case Number field. 

FHA Lender ID • User Profile Screen: identify in the FHA Lender 

ID field. The entry in the User Profile Screen will 

become the default entry in the FHA Lender ID 

field on the FHA Screen. 

• 






AUS 

Recommendations 

and 

Resubmissions 

TOTAL Scorecard/DO/DU Recommendations 

The following table provides descriptions to TOTAL Scorecard DO/DU 

recommendations. 

Note: HUD requires only the final AUS findings report in the file, whether it is 

an “Approval” or a “Refer”. 

Recommendation Description 

Approve/Eligible • If there is erroneous data in the credit report or contradictory or derogatory 

information in the loan file that would justify additional investigation or 

provide grounds for a decision different from the TOTAL Scorecard/DO/DU 

recommendation, the underwriter is required to take appropriate action. 

• The loan is eligible for FHA mortgage insurance with reduced documentation 

and credit requirements. 

Approve/Ineligible • The lender must determine that the reason for the ineligibility is one that can 

be resolved in compliance with FHA Underwriting, and must document the 

circumstances in the underwriter comments section of the FHA Loan 

Underwriting Transmittal Summary (HUD-92900-LT). An FHA Direct 

Endorsement Underwriter signature is not required on the FHA Loan 

Underwriting Transmittal Summary (HUD-92900-LT), unless the loan is 

downgraded to Refer in accordance with FHA Guidelines. The ZFHA should 

be entered as the CHUMS ID on FHA Loan Underwriting Transmittal 

Summary (HUD-92900-LT), except on streamline refinances. 

• If the ineligibility can be “cured” within TOTAL Scorecard/DU, the loan data 

must be corrected as appropriate and the loan must be resubmitted to 

TOTAL Scorecard/DU. 

• If the ineligibility cannot be overcome (within TOTAL Scorecard/DU or 

outside of TOTAL Scorecard/DU), the loan is not eligible for FHA mortgage 

insurance. 






AUS Recommendations and Resubmissions, continued 


Refer/Eligible • “Refer/Eligible” loans are underwritten to non-AUS underwriting guidelines. 

Although a DE underwriter must underwrite the loan, reduced documentation 

may be used if allowed by the findings report and the DE underwriter. 

Refer/Ineligible • The reason for the ineligibility must be determined. 

• If the ineligibility can be “cured,” the loan data must be corrected as 

appropriate and the loan must be resubmitted to TOTAL Scorecard/DO/DU. 

• If the ineligibility cannot be overcome, the loan is not eligible for FHA 

mortgage insurance. 

• If the ineligibility is “cured,” see “Refer/Eligible” above. 

LP 

Recommendations 

The following table provides descriptions of LP recommendations. 


Accept • If there is erroneous data in the credit report or contradictory or derogatory 

information in the loan file that would justify additional investigation or would 

provide grounds for a decision different from the LP recommendation, the 

underwriter is required to take appropriate action. 

• The loan is eligible for FHA mortgage insurance with reduced documentation 

and credit requirements. 

Refer • “Refer” loans are underwritten to non-AUS underwriting guidelines. 

Note: Reduced documentation may be used if allowed by the findings report 

and approved by the DE Underwriter. 

• System overrides are required when a loan application variable is revealed 

during loan processing. These variables must be reviewed by a D.E. 

Underwriter and a decision rendered. The variables listed below may trigger 

a system override (refer). 

• Front-end ratio is too high 

• Back-end ratio is too high 

• Bankruptcy occurred within last two years 

• Foreclosure occurred within last three years 

• A total of 90 days late mortgage payments in last year 

Note: The 90 days late could mean one mortgage payment that was 90 

days late, three payments that were each 30 days late, or a payment that 

was 60 days late and another payment that was 30 days late. 






AUS 

Resubmissions 

and Forms 

The following table provides instruction on AUS resubmissions and forms. 

Subject 

General • Loans may be resubmitted to TOTAL Scorecard as needed before the loan is 

endorsed. 

• Generally, if the information about the loan changes after the loan has been 

submitted to TOTAL Scorecard, the loan should be resubmitted. This practice 

ensures that the data submitted to TOTAL Scorecard, and then to CHUMS, is of 

the best quality possible. 

General 

Tolerances 

Note: Once the loan is endorsed, the loan may not be resubmitted to AUS for any 

reason. 

• FHA provides a degree of tolerance for minor material data changes to TOTAL 

Scorecard. 

When assessing ... There is no need to resubmit the loan to FHA TOTAL 

Scorecard if the... 

cash reserves cash reserves verified are not more than 10% less than 

what the borrower reported on the loan application. 

income verified income is not more than 5% less than what the 

borrower reported on the loan application. 

tax and insurance 

escrows 

tax and insurance escrows used at scoring do not result 

in more than a 2% point increase in the payment and 

debt-to-income ratios. 

• The terms and conditions of the closed loan and underwriting information in the 

loan file must match the data on which the TOTAL Scorecard risk classification 

is based, and other conditions specified in the government section of the AUS 

verification messages were based. 

• The loan is eligible for FHA’s insurance endorsement if: 

• The AUS rated the mortgage loan application as an “Accept” or “Approve”. 

• The data entered into the AUS are true, complete, and accurate. 

• The entire loan package meets all other FHA requirements. 

The AUS Feedback/Findings Report is included in the Case Binder. 

Note: The revised tolerance guidelines for Agency, Agency Plus and DU Refi 

Plus TM loan transactions DO NOT APPLY to LP processed FHA transactions. 






AUS 

Resubmissions 

and Forms, 

(continued) 

Subject 

Post Close 

Resubmission 

Tolerance 

Income used for the loan decision is the income that is HMDA reportable. 

The following table provides instruction on AUS resubmissions and forms. 

• The DE Underwriter is responsible for ensuring the integrity and accuracy of the 

data used to render a decision. 

• The Correspondent lender must include a loan in the package to explain the 

reason for the resubmission after closing. 

• Provided the resubmission is done prior to endorsement, resubmitting a loan to 

AUS after closing is acceptable. 

• If a loan is resubmitted after the loan has closed or is purchased, the AUS 

recommendation should be the same as the AUS recommendation prior to 

closing. 

• The loan must be resubmitted to the Correspondent lender’s DE 

Underwriter for final sign-off. 

• If the AUS recommendation changes upon resubmission, the loan must be 

traditionally underwritten and must meet traditional underwriting guidelines 

to be eligible for insuring. 

Fannie Mae DO/DU Loans Freddie Mac LP Loans 

AUS Reports • The TOTAL Scorecard/DO/DU 

decision is not valid without the 

DO/DU Findings Report AND the 

DO/DU Underwriting Analysis form. 

• The most current DO/ DU Findings 

Report and DO/DU Underwriting 

Analysis form must be in the 

lender’s origination binder and must 

reflect loan terms as approved and 

closed. This includes loan files 

where the recommendation was 

“Approve/Ineligible” or “Refer” and 

loan files where the loan had to be 


• The DO/DU Findings Report and 

Underwriting Analysis form must 

also be submitted in the lender’s 

FHA case binder and should be 

placed at the top of the right side of 

the binder. 

• The LP decision is not valid without 

the LP Feedback Certificate. 

• The most current LP Feedback 

Certificate and Loan Summary 

Report must be in the lender’s 

origination binder and must reflect 

loan terms as approved and closed. 

This includes loan files where the 

recommendation was “Refer” and 

loan files where the loan had to be 


• The LP Feedback Certificate and 

Loan Summary Report must also be 

submitted in the lender’s FHA case 

binder and should be placed at the 

top of the right side of the binder. 






Underwriting 

Issues 

• Regardless of the risk assessment provided, the lender remains accountable for 

compliance with all FHA guidelines. 

• Some examples of lender accountability items provided by FHA are listed below. 

• If the loan is a buydown, the lender needs to ensure the borrower is 

qualifying on the note rate. 

• Taxes are based on improved property on new construction cases. 

• If the loan is a cash-out refinance, ensure the borrower meets the eligibility 

requirements. 

• Data integrity must be verified. 

• Information in TOTAL must match the information in FHA Connection. 

Note: HUD will run a comparison. If results are a mismatch, HUD will 

downgrade the assessment and return the file to the lender. 

• Ensure FHA Loan Underwriting Transmittal Summary (HUD-92900-LT) indicates 

ZFHA as CHUMS ID if loan was approved through the TOTAL scorecard, except 

on streamline refinances. 

• Sign HUD Form 92900-A page 3 and use ZFHA as CHUMS ID if the loan was 

approved through the TOTAL Scorecard, except on streamline refinances. 

• Check for potential manual downgrades. 

Note: A manual downgrade is similar to a system override in that they both 

require review and decision by an underwriter; however, the manual downgrade 

is used when either Federal eligibility issues or credit issues are discovered. 






Underwriting 

Issues, 

(continued) 

The following tables provide information on issues requiring manual downgrades. 

Manual Downgrades 

Issue Requirements 

No credit scores • All borrowers must meet the minimum credit score requirements 

for SunTrust. 

• If a borrower does not have traditional credit references with 

which to generate a credit score, the borrower is considered 

Federal Eligibility includes 

the following: 

• Delinquent Federal Debt 

• CAIVRS 

• LDP/GSA 

Bankruptcy 

• Chapter 7, and 

• Chapter 13. 

Previous mortgage 

foreclosure 

“unscoreable,” and is not eligible for financing with SunTrust. 

• The individual must be in good standing with any federally 

related obligation. 

• Borrowers who are delinquent on any Federal Debt are not 

eligible for an FHA insured mortgage. 

• If CAIVRS indicates a Federal delinquency, default, claim 

payment or lien, the borrower is not eligible for additional 

federally related credit. 

• A borrower who is suspended, debarred or otherwise excluded 

from participation in the Department’s program is not eligible for 

a FHA insured mortgage. 

• A borrower who is suspended, debarred or otherwise excluded 

from participation in the Department’s program is not eligible for 

a FHA insured mortgage. 

• To be eligible for AUS processing, the Bankruptcy must have 

been discharged for a minimum of 2 years. 

• Bankruptcies that were discharged within 2 years of the loan 

application must be manually underwritten. 

• If a Chapter 7 Bankruptcy is discharged less than 1 year, the 

borrower is not eligible for FHA. 

• Borrowers whose previous residence or any real property was 

foreclosed within a 3-year period are not eligible for an insured 

mortgage. 

Reference: See “Bankruptcy” in the topic “TCredit 

Requirements” for exceptions and additional underwriting 

guidelines. 

Late Mortgage Payments Traditional underwriting is required, if the credit report used by Total 

Scorecard did not accurately reflect the mortgage payment history. 






Underwriting Issues, (continued) 

Subject Fannie Mae DO/DU Loans Freddie Mac LP Loans 

Appraisal 

Review and 

Approval 

Approval 

Authority 

• All FHA appraisals must be reviewed 

and approved by an approved FHA 

DE underwriter, regardless of the 

DO/DU recommendation. 

• AUS specialists and Loan Officers do 

not have authority to review and 

approve appraisals on FHA loans. 

• FHA loans must be approved by an 

FHA DE underwriter regardless of the 

DO/DU recommendation. 

CHUMS ID • For TOTAL Scorecard, if 

“Accept/Approve” ZFHA should be 

entered on the FHA Loan 

Underwriting Transmittal Summary 

(HUD-92900-LT) as the CHUMS ID, 

except on streamline refinances. 

• If “Refer,” the CHUMS ID of the FHA 

DE underwriter should be entered on 

the FHA Loan Underwriting 

Transmittal Summary (HUD-92900- 

LT) as the CHUMS ID. 

• If “Approve/Ineligible,” see the AUS 

Recommendations and 

Resubmissions subtopic previously 

presented for additional information. 

For Mortgages Receiving an “Accept/Eligible” 

• The DE underwriter is not required to personally 

review the credit and/or qualifying ratios. 

• The DE underwriter is not required to certify that 

the borrower’s credit and capacity meets FHA’s 

standard requirements. 

• Note: The DE Underwriter is responsible for 

ensuring the integrity and accuracy of the data 

used to render a decision. 

• The DE underwriter must underwrite the appraisal 

according to standard FHA requirements. 

• The TOTAL Mortgage Scorecard CHUMS number 

(ZFHA) is to be recorded on forms HUD-92900-A 

page 3 and the FHA Loan Underwriting Transmittal 

Summary (HUD-92900-LT). 

Note: Capacity is the ability to repay the loan at the 

approved ratios. 

• All FHA appraisals must be reviewed 

and approved by an approved FHA 

DE underwriter, regardless of the LP 

recommendation. 

• AUS specialists and Loan Officers do 

not have authority to review and 

approve appraisals on FHA loans. 

• FHA loans must be approved by an 

FHA DE underwriter regardless of the 

LP recommendation. 

• For TOTAL Scorecard, if 

“Accept/Approve” ZFHA should be 

entered on the FHA Loan 

Underwriting Transmittal Summary 

• 

(HUD-92900-LT) as the CHUMS ID. 

If “Refer,” the CHUMS ID of the FHA 

DE underwriter should be entered on 

the FHA Loan Underwriting 

Transmittal Summary (HUD-92900- 

LT) as the CHUMS ID. 

For Mortgages Receiving a “Refer/Eligible” 

• The DE underwriter is required to 

underwrite both credit and capacity 

according to standard FHA guidelines. 

• Reduced documentation may be used if 

allowed by the findings report and 

approved by the DE Underwriter. 

• The DE underwriter is required to certify 

that the borrower’s credit and capacity 

meet standard FHA requirements. 

• The DE underwriter must underwrite the 

appraisal according to standard FHA 

requirements. 

• The CHUMS ID number of the DE 

underwriter is to be recorded on forms HUD- 

92900-A page 3 and the FHA Loan 

Underwriting Transmittal Summary (HUD- 

92900-LT). 

Section 2.22 


July 27, 2012 


Correspondent Seller Guide 

Page 191 of 217


Submission to 

Freddie Mac 


Prospector 

(direct) 

The following table provides screen input instruction for the submission to Freddie 

Mac Loan Prospector (direct). 

Note: The FHA Ease-In Payment Reduction Feature is NOT eligible in LP. LP will 

not provide an accurate recommendation for this product type. 

Screens Data Entry 

Loan Type and • Enter FHA in the Mortgage Type field. 

Loan Term • Enter the total loan amount in the Base Loan Amount field (excluding UFMIP) 

Property • If property is a Condo or PUD, LP will not issue any specific messages. 

Information Standard FHA guidelines apply. 

• Enter the Estimated Value of Property, which is the borrower’s stated value of 

the property. 

Purpose of 


• Enter Purpose of Loan as either “Purchase” or “Refinance”. 

Borrower • Enter a full 2-year residency history for each borrower for submission to LP. 

Information • If there is a non-occupant co-borrower, the non-occupant’s monthly housing debt 

will be included in the total monthly debt ratio. 

• Marital Status must be completed. 

Employment • A full 2-year employment history for each borrower is required on the 1003 

Information signed by the borrower (click on button “Add Borrower Employment Details”). 

Assets and • Enter a gift in the field “Total Gift Fund” in the asset section, whether the gift has 

Reserves 

been received and deposited by the borrower. 

• Reserves must be manually calculated and enter in the field “Reserves”. 

Liabilities and • Total monthly debt must be manually calculated and enter in field “Total Monthly 

Real Estate 

Debt”. 

Owned 

• If there is a non-occupant co-borrower, enter the non-occupant’s NON- 

HOUSING debt in the field “Non-occupant Borrower Non-housing Debt”. 

• Click on button “Liability and REO Breakdown” to enter individual debts. Debts 

to be excluded should be marked “Y” to Excluded? 

• Debts marked to be paid WILL NOT reflect in the LP Feedback, but will be 

excluded from the total monthly debt ratio. 

• If an Installment liability has less than 10 remaining payments, LP will not count 

it in the borrower’s total monthly debt ratio. 

• All Revolving liabilities will count in the borrower’s ratios, regardless of how 

many months are left. 

• If a community property state and there is a non-purchasing spouse, individual 

credit reports must be ordered (order non-purchasing spouse’s OUTSIDE of LP). 

If monthly debts must be added to the 1003, manually add as a lump sum to the 

field Total Monthly Debt. 






Submission to Freddie Mac Loan Prospector (direct) 

Screens Data Entry 

Details of 

Transaction 

• If a refinance and a liability is to be paid at closing, the amount to be paid at 

closing should be added to Refinance line (line D). 

• If a purchase and a liability is to be paid at closing, do not enter the amount to 

paid in the Refinance line (line D). 

• Identify any seller/builder contributions in the Sales Concessions field, 

including: 

• buyer’s FHA UFMIP, 

• prepaid taxes and insurance, 

• extra discount points to provide permanent interest rate buydowns, 

• payoff of credit balances on behalf of the buyer, and 

• any concession or combination of seller concessions that exceed six percent 

of the established reasonable value of the property. 

Declarations • If “yes” to bankruptcy and/or foreclosure questions, LP will not issue any specific 

messages and standard FHA guidelines will apply. 

FHA • Enter the dollar amount of the UFMIP that is financed as part of the loan amount 

in the Financed MIP field. Enter $0.00 if the FHA UFMIP is not financed. 

• Enter the closing costs paid by Borrower (which will appear on the LP Feedback 

as the FHA Minimum Down Payment) 

• If there is alimony obligation, enter the applicable dollar amount, if applicable 

• Leave Agency Case Number field blank since FHA case number is not obtained 

at application 

• The Agency Case Number must be included in the final 1003. 

User Profile • Complete entry in the FHA Lender ID field. This entry will become the default 

entry in the “FHA Lender ID” field on the FHA Screen. 






Submission to 

DO/DU on the 

Web (Direct) 

The following table shows the submission to DU Direct. 

Reference: See the topic “Ease-In Payment Reduction Feature” for specific 

instructions to enter a seller-paid interest payment reduction in DU Direct. 

Screens Fannie Mae’s Desktop Underwriter Data Entry 

Type of 

Mortgage and 

Terms of Loan 

Construction-to 

-perm 

Borrower 

Information 

Current 

Employment 

Monthly 

Income and 

Combined 

Housing 

Expense 

• Lender Loan Number is a required field. 

• Enter the base loan amount (without UFMIP) in Loan Amt field. 

• Select “Purchase” as the “Purpose of the Loan” and enter the loan data as a 

purchase transaction. 

• Enter a full 2-year residency history for each borrower (must be entered in the full 

1003) 

• Enter a full 2-year residency history for each borrower (must be entered in the full 

1003) 

• If there is a non-occupant co-borrower, the current total housing expense of the 

non-occupant co-borrower will be included in the total monthly debt ratio. 

Assets • Identify a gift as “Gift” in asset section, whether or not the gift has been received 

and deposited by the borrower. 

• If the gift has been deposited into the borrower’s account, subtract the amount of 

the gift from the asset balance prior to entering the asset balance. 

• Enter the following in Institution field (full 1003) when a gift is involved: 

• donor’s name, address, phone number and relationship to borrower. 

• If the borrower will receive net equity from a property he/she is selling, DU will 

use the calculation from the REO section. If this must be overridden, “Net 

Equity” must be selected, the net equity manually calculated and the final figure 

entered as an asset (this will override the REO calculation). 

Liabilities • If an Installment has less than 10 remaining payments and the payment is less 

than $100, DO/DU will not count it in the borrower’s ratios. 

• All Revolving liabilities will count in the borrower’s ratios, regardless of how 

many months are left. 

• If there is a contingent liability that will not be counted (must provide proper 

documentation meeting FHA guidelines), it should be marked “Omit.” 

• If a liability is to be paid at closing, it must be marked “to be paid at closing.” The 

Details of Transaction must reflect the following information for the applicable 

transaction; 

• if the loan is a purchase, nothing should be on line d), or 

• if the loan is a refinance, the amount to be paid at closing should be on line 

d). 

• If community property state and there is a non-purchasing spouse, individual 

credit reports must be ordered (order non-purchasing spouse’s OUTSIDE of 

DO/DU). If monthly debts must be added to the 1003, enter as a single lump 

sum and identify as “debts of non-purchasing spouse” in Creditor Information 

field. 






Submission to DU on the Web (Direct), continued 

Screens Fannie Mae’s Desktop Underwriter Data Entry 

Details of 

Transaction 

• If rate/term refinance, enter total unpaid principal balances of all mortgages 

included in refinance on line d (NOT including late fees, interest on the loans, 

etc.). 

• If purchase with debts to be paid at closing, do not enter any of the debt totals on 

line d. 

• If purchase, enter total prepaids to be paid by the borrower on line e. Do NOT 

enter the amount to be paid by the seller. 

• If rate/term refinance, enter the total prepaids, interest on existing mortgages, 

accrued late fees, escrow shortages, etc., on line e. (may not include delinquent 

interest). 

• Enter total UFMIP on line g. 

• Enter the amount of discount points to be paid by the borrower on line h). 

• Enter seller-paid closing costs on line k - (these fees should NOT appear in the 

“Other Credits” section on line l). Do NOT enter the amount of prepaids to be 

paid by the seller. If the seller is paying prepaids, subtract the amount paid by 

seller from line e. 

• If a commitment fee is charged, enter amount as a negative figure in “Other 

Credits” on line l 

Declarations • If “yes” to bankruptcy and/or foreclosure questions, DO/DU Findings Report will 

issue specific messages referencing standard FHA guidelines. 

• If “yes” to borrowed down payment question, DO/DU Findings Report will issue a 

message referencing standard FHA guidelines. 

Additional Data Subject Property Type is a required field. 

Government 

Information 

• The FHA Lender ID must be completed for the FHA TOTAL Score Card. 

• Complete “Section of Act” and “County”. If county/city of subject property is not 

listed, select a county nearest the property with the same loan limits (DO/DU 

WILL NOT recognize county when selecting “ALL OTHERS”). 

• Borrower-paid and seller-paid closing costs do not need to be completed. 

• Complete Seller Concessions for any seller contributions over the allowable 6%. 




Rate, Points & Lock-Ins 

CRA Incentive 

and Verification 

Interest Rate 

and Discount 

Points 

Target Area 

• Loan eligibility for CRA Incentive is limited to SunTrust Bank’s Community 

Reinvestment Act (CRA) assessment areas. It is also based on the subject 

property being located in a low-or-moderate income census tract or the 

borrower’s income being equal to or lower than SunTrust’s maximum allowable 

income level for the property county. 

• SunTrust’s assessment areas are NOT located in all areas of the state. 

Reference: Click here to access the list of eligible states and counties. 

• If the subject property is located within a SunTrust targeted state and county, 

proceed with the steps listed below to determine SunTrust qualifying results of 

the subject property and/or the borrower’s income. 

Step Action 

1 Access the following website: www.suntrustgeocoder.com 

2 Enter CORRES for password and click the Login button. 

3 Input the property address and annual income and click the Submit button. 

4 Print the Geocoding Results and place in loan file. 

• The geocoding system must be used to determine the census tract locations of 

individual subject properties. 

• Your loan must receive a “Qualified’ message in order for it to be eligible for the 

CRA incentive. 

• A listing of maximum income limits is provided as a supplemental tool which may 

be used to inform users of the varying income limits by county, census tract, and 

product. Click here for the listings of maximum income limits. 

• If the loan is eligible, complete the CRA Census Tract Verification form (COR 

0560a). 

• Email completed form to correspondent.underwriting@suntrust.com within 

48 hours of locking the loan. 

• Once the information is validated, the appropriate pricing adjustments will be 

made and the new lock confirmation will be available online. 

Rate and price quotes are established by the Marketing Department daily and are 

communicated on SunTrust’s Rate sheet. 

Lock-ins It is important that the loan type be communicated when the loan is registered and/or 

locked-in. 

Reference: See Section 1.03: Loan Registration and Lock-In Procedures of the 

Correspondent Seller Guide for additional information concerning lock-ins. 





Rate, Points & Lock-Ins, Continued 

Program Code The following table shows the program code. 

Seller Paid 

Interest 

Buydown 

Product Program Code 

FHA 20 or 30 Year Fixed Rate F30FX 

FHA 10 or 15 Year Fixed Rate F15FX 

FHA Jumbo 30 year Fixed F30JFX 

FHA Fixed Rate Seller Paid Interest Payment 

Reduction Feature 

F30SPI 

Reference: See the topic Ease-In Payment Reduction Feature previously presented 

in this product description for additional information. 




Application, Disclosures and Consumer Compliance 

General All consumer disclosures or notices required by all federal, state and local laws and 

regulations must be complied with. This includes, but is not limited to, the Real 

Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Flood 

Disaster Protection Act, the Truth-in-Lending Act, and the Fair Credit Reporting Act, 

all as amended and all applicable usury limitations. Further, all consumer 

disclosures relating to the mortgage loan must have been properly given on a timely 

basis in compliance with applicable laws, rules and regulations. 

Face-to-Face 

Interview 

• A face-to-face interview is not required for FHA transactions. 

• HUD requires the lender to ask the borrower if he/she wants a face-to-face 

interview. If the borrower does not desire such a meeting, it must be so noted in 

the loan file. 

Reference: See Section 1.05: Underwriting for additional information regarding 

the “U.S. Patriot Act”. 





Application, Disclosures and Consumer Compliance, Continued 

Sales Contracts • The sales contracts, any amendments or other agreements and certifications are 

to be included in the case binder file. 

• Sales contracts do not need to refer to FHA financing in order to be considered 

valid by HUD. However, the contract must provide the HUD real estate 

certification and the amendatory clause. These may be included in the language 

of the sales contract or as a separate addendum(s) and must be signed and 

dated by the borrower, seller, selling real estate agent or broker. 

Note: It is SunTrust requirement, for the FHA Amendatory Clause and the FHA 

Real Estate Certification forms to be signed and dated by the borrower, if not a 

part of the purchase agreement (sales contract), on or before the date of the 

purchase agreement. 

• The criteria of the amendatory clause are as follows: 

• the sales price as stated in the contract is inserted in the amendatory clause, 

• a new amendatory clause is not required if the sales price is adjusted based 

on a value that is less than the sales price, providing the original sales 

contract with a price matching the amendatory clause and the revised or 

amended contract are included in the case binder, and 

• the amendatory clause is not required on HUD REO sales, or if Fannie Mae, 

Freddie Mac, Department. of Veterans Affairs, Rural Housing Services, or 

other Federal, State and local government agencies, mortgagees disposing 

of REO assets, or sellers at foreclosure sales and those sales where the 

borrower will not be an owner-occupant (i.e., a nonprofit agency). 

• If there are any seller concessions, these must be stated in the contract (either 

as a percentage or a dollar amount). Failure to perform a condition of the 

contract will not be grounds for denying loan endorsement provided the loan 

closes in compliance with all regulations and policies. 

• The FHA For Your Protection: Get a Home Inspection (HUD 92564-CN) must be 

given to prospective homebuyers at first contact. HUD has eliminated the 

requirements that the form be signed by purchasers and included in the case 

binder. 

Reference: See Section 1.05b: Reviewing Sales Contracts in the Correspondent 

Seller Guide for additional information. 






Disclosures 

(Origination / 

Processing / 

Closing) 

Origination 

Disclosures 

In addition to the standard origination/processing/closing disclosures required (i.e., 

1003, TIL, GFE, etc.), the following HUD-specific disclosures are required during the 

loan application process: 

• For Your Protection: Get a Home Inspection (HUD-92564-CN), 

• FHA Amendatory Clause (if not included in sales contract), 

• FHA Real Estate Certification (if not part of the sales contract) 

Note: It is SunTrust requirement, for the FHA Amendatory Clause and the FHA 

Real Estate Certification forms to be signed and dated by the borrower, if not 

part of the purchase agreement (sales contract), on or before the date of the 

purchase agreement. 

Reference: See the Sales Contract subtopic previously presented in this topic 


• HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A) 

pages 1 and 2, 

Note: Page two (2) of the loan application addendum must be signed by the 

borrower and in the file prior to submission to underwriting (prior to purchase for 

lenders that have a Direct Endorsement (D.E.) Underwriter on staff). 

• FHA Importance Notice to Homebuyer, 

• FHA Informed Consumer Choice Disclosure Notice, 

• FHA Notice to Homeowner- Assumption of HUD/FHA Insured Mortgages 

Release of Personal Liability, 

• FHA Energy Efficient Mortgage Program, 

• Financial Privacy Act Notice, 

• FHA Pamphlet “Protecting Your Family from Lead in Your Home,” and 

• State specific disclosures, if applicable. 






Processing 

Documents 


Numbers 

• FHA Loan Underwriting Transmittal Summary (HUD-92900-LT), 

• CRA Census Tract Verification (COR 0560a) 

• HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A), 

• FHA Appraised Value Adjustment Disclosure, 

• FHA Energy Efficient Mortgage Worksheet, 

• HUD Review - Processor Checklist, 

• 4506-T at application and closing, 

• Miscellaneous processing certifications to use if applicable: 

• FHA New Construction Early Start Letter, if applicable (DE Correspondents 

Only), 

• FHA Electrical Certification, 

• FHA Heating Certification, 

• FHA Plumbing Certification, and 

• Borrower’s Contract with Respect to Hotel and Transient Use of the 

Property (HUD-92561). 

Reference: See the Closing Documents subtopic later in this topic for additional 

information and required forms. 

• Each borrower, co-borrower, or co-signer must provide the lender with evidence 

of his/her social security number. While the actual social security card is not 

required, the social security number can be obtained from pay stubs, the driver’s 

license, passport, etc. Tax returns alone without a W2 are not sufficient 

evidence of social security numbers. 

• Social Security numbers must be consistent throughout the file on all 

documentation. Any multiple social security numbers or discrepancies must be 

addressed, even if it is an obvious transposition of numbers. 

• All individuals eligible for legal employment in the US must have a social security 

number. Tax ID numbers issued by the Social Security Office are unacceptable. 

This applies to purchase transactions and all refinances. 

Note: SunTrust requires that all credit reports indicate that a Social Security 

validation vendor has validated the borrower’s Social Security Number. 

Reference: See the FHA Social Security Number Validation for additional information. 






Closing 

Documents 

Power of 

Attorney 

• Fraud Prevention Certification (COR0601) 

• FHA/VA Buydown Agreement (COR 0344) 

• FHA/VA New Construction Certification (COR 0356), 

• FHA/VA Lead Standard Certification for Water Systems (COR 0357) 

• 4506-T 

• A Power of Attorney (POA) may be used for CLOSING DOCUMENTS, (including 

page 4 of the Addendum to the URLA and the final URLA if it is signed at 

closing). 

• Any POA, whether specific or general, must comply with state laws and allow for 

the mortgage note to be legally enforced in that jurisdiction. 

• It is the lender’s responsibility to assure that clear title can be conveyed in the 

event of foreclosure. 

• Except for the conditions described below, the INITIAL loan application MAY 

NOT be executed by using a power of attorney, i.e., it must be signed by all 

borrowers. 

• THE INITIAL AND FINAL LOAN APPLICATION, MUST CONTAIN THE 

SIGNATURES OF ALL BORROWERS AND THE INTERVIEWER. 

• Military Personnel on Overseas Duty or on an Unaccompanied Tour: 

• The lender should obtain the serviceperson’s signature of the application by mail 

or fax machine. 

• Incapacitated Borrowers Unable to Sign the Mortgage Application: 

• The lender must provide evidence the signer has authority to purchase the 

property and obligate the borrower. This would include a durable power of 

attorney specifically designed to survive incapacity and avoid the need for court 

proceedings. The incapacitated individual must occupy the property to be 

insured (except on eligible investment property.) 




Underwriting and Loan Submission 

General 

Guidelines 

• All loans must be submitted through TOTAL Scorecard. The case binder file must 

include the complete AUS findings report. 

• All loans with the exception of second home, investment property, or streamline 

refinance transactions must be submitted through TOTAL Scorecard if any borrower 

on the loan has a credit score. 



remains responsible for insuring all HUD and SunTrust Mortgage Credit guidelines 

are met (i.e., mortgage payment history, seasoning, etc.). Underwriters must also 

use their CHUMS ID for page three of the HUD/VA Addendum to Uniform 

Residential Loan Application (HUD 92900-A), FHA Connection, and the FHA Loan 

Underwriting and Transmittal Summary (HUD 92900-LT) for streamline refinances. 

• The underwriter/person validating both the AUS findings and the information on 

the FHA Loan Underwriting Transmittal Summary (HUD-92900-LT) must sign 

Page 3 of the URLA Addendum (HUD form 92900-A) and complete any 

applicable condition items. 

• An abbreviated version of the loan application is not acceptable; a full loan 

application with all sections completed is required. 

• The loan application and loan application addendums must always be signed 

and dated by the borrower(s) and interviewer before the loan is submitted to 

SunTrust”. 

• The borrower is still required to sign the initial loan application and the 

loan application addendum when the loan application is taken via the 

telephone or internet. 

• The interviewer must always sign the loan application and loan application 

addendum. 

Note: A signed faxed copy of the initial loan application and addendum may be 

used to submit the file to underwriting; however, the original signed initial loan 

application and addendum must be submitted prior to the time of purchase. 

• All information on the FHA Loan Underwriting Transmittal Summary (HUD-92900- 

LT) must be completed. This includes the approval box, borrower(s) ratings, 

compensating factors when applicable, CAIVRS, LDP, GSA information, and the 

CHUMS code for the AUS system, if applicable. (i.e., TOTAL Scorecard is 

ZFHA). 



FHA 203(b) Loan Program Page 203 of 217 


Underwriting and Loan Submission, Continued 

File 

Submission for 

Correspondent 

Lenders with 

FHA DE 

Underwriters 

Correspondent lenders with FHA DE Underwriters are delegated to underwrite 

FHA loans and are not eligible to submit these loans to SunTrust for 

underwriting. Approved loans, underwritten by the correspondent lender's DE 

underwriter are closed and a case binder is submitted to FHA for MIC. 

• The correspondent will prepare a case binder file for submission to HUD for MIC 

after the loan has closed. 

• The correspondent is responsible for obtaining the MIC. HUD will send the MIC 

to the correspondent, not to SunTrust. Correspondents must review the MIC for 

errors. Any inaccuracies should be corrected and a new MIC issued BEFORE it 

is sent to SunTrust. After the MIC has been reviewed and all information found 

to be correct, the MIC is then assigned and sent to SunTrust to clear the 

condition on the file. 




• If FHA Connection reflects a Notice of Return (NOR), SunTrust will not purchase 

the loan until the loan has been insured by HUD. 






File Submission 

for Sponsored 

Correspondent 

Lenders 

Reference: See “The SunTrust Government Sponsorship Program” subtopic 

previously presented in the Overview topic for additional information. 

Obtaining MIC • Loan files must be submitted to the appropriate HOC office to obtain mortgage 

insurance with in 30 days after loan closing. Files sent to the local HUD office 

instead of the HOC office may be lost or will be delayed in the local HUD office 

until they are batched together and sent with other files to the HOC office. In this 

situation, lenders have to be concerned about late fees for late receipt of the file 

as well as payment histories (loans with late payments prior to HUD’s issuance 

of MIC, require a 6 month payment history of timely payments included in the file 

in order for HUD to issue an MIC). Mortgage insurance approval should be 

received within 90 days after closing. 

• HUD will send the MIC to the correspondent lender’s office, not to SunTrust. It is 

the correspondent’s responsibility to obtain and assign the MIC to SunTrust 

Mortgage, Inc. and send it to SunTrust promptly after receipt. 




• If FHA Connection reflects a Notice of Return (NOR), SunTrust will not 

purchase the loan until the loan has been insured by HUD. 

Mortgage 

Record Change 

(MRC) 

Note: SunTrust will enforce repurchase of FHA loans that do not have MIC. 

• Only the existing holder of record will be able to provide HUD with the Mortgage 

Record Change (MRC) to update a new holder of record. 

• Direct Endorsement lenders must transfer the Servicer/Holder of Record and 

Mortgagee ID in FHA Connection prior to purchase of the loan. 

• The SunTrust Mortgagee ID is 54179. 

• HUD’s FHA Connection (FHAC) will treat MRC submissions received prior to 

endorsement, the same as they would the electronically received submissions 

through Electronic Data Interchange (EDI). 

• Lenders may confirm HUD’s records of the holder and Servicer information by 

accessing FHA Connection (FHAC) 

• The new HUD Query screen may be accessed by visiting 

http://entp.hud.gov/a43i/html/a43qry.html. 

• The Portfolio Request or Case Details screens may be used in conjunction with 

the new query screen to review and take corrective action, if necessary. 

• All MRC that are in suspense will be processed in the order in which HUD 

received them. 






Transfers of 

Rejected Loans 

• If a DE lender denies a loan that is then assigned to another lender, the original 

underwriter's credit analysis worksheet stating the reasons for rejecting the 

borrower or property must accompany the assigned package. 

• If the receiving mortgagee approves the application, then the case binder must 

contain the original denied worksheet with explanatory comments from the 

approving mortgagee underwriter when submitted to HUD. 




Closing and Loan Settlement Documentation 

General The following closing guidelines are specific to the end investor. Unless specified 

below, all closing forms and documentation should follow standard SunTrust 

guidelines. 

Closing Legal 

Documents 

The following table shows the required legal documents. 

Note The most recent version of the FHA Note for a fixed 

rate loan or the most recent version of the FHA ARM 

loan. 

Deed of Trust The most recent FHA Security Instrument as applicable 

to state requirements should be used and the last page 

of the instrument should indicate that appropriate riders 

are attached. 

Adjustable Rate Rider The FHA ARM Rider is used when the borrower has 

applied and been approved for an FHA ARM loan. 

Condominium Rider The FHA Condominium Rider must be used when the 

subject property is a condominium unit. There are no 

exceptions. 

PUD Rider The FHA PUD Rider must be used when the subject 

property is located in a PUD. There are no exceptions. 

Non-Owner Occupancy 

Rider 

The FHA Non-Owner Occupancy Rider must be used 

when the subject property is an investment or second 

home property. There are no exceptions. 

Note: FHA loans are not eligible on investment or 

second home properties; however there may be 

exceptions if the loan is a PD (property disposition) 

loan or has received special consideration due to the 

borrower’s circumstances (applicable to a home that is 

categorized as a second home). 





Closing and Loan Settlement Documentation, Continued 

Document 

Review Fee 

Document 

Warranties 

Definition of 

Allowable 

Costs 

Usage of 

Allowable 

Costs 

For all loans, there is a document review fee that will be charged and will be 

deducted from the proceeds at closing. Refer to the Correspondent Seller Guide, 

Section 1.08: Loan Delivery and Purchase Review for information on the fee 

charges. 

• Lenders must use the mortgage documents for conventional mortgage loans that 

are correct for the jurisdiction, the mortgage type, the lien type and the property 

type. 

• The lender must use the most current version and appropriate forms. 

• In some cases, the mortgage forms may have to be adapted to meet the lender’s 

jurisdictional requirements. 

• Any change made to multi-state documents must comply with all applicable laws. 

• SunTrust relies upon your representations and warranties that the loans are 

enforceable in accordance with the terms of the Correspondent Loan Purchase 

Agreement and comply with all applicable laws. 

• Accordingly, it is advisable that forms and documents be reviewed by your legal 

counsel for compliance with the laws of the state in which each loan is made. 

• Allowable closing costs are defined as those costs that are: 

• reasonable and customary in the area, 

• may be charged to the borrower, and 

• included in the acquisition cost. 

• If the HOC publishes a maximum dollar limit on each closing cost item, any cost 

that exceeds the maximum limit must be paid out of pocket by the borrower. 

• HUD’s definition of closing costs DOES NOT include discount points or prepaids. 

• If a lock-in fee is collected, the Lock-in Confirmation must be executed at least 

15 days prior to the date of the Note; otherwise a lock-in fee cannot be collected. 

Reference: See HUD Allowable Closing Costs in this product description for 

details on allowable closing costs not included in acquisition, including those that 

cannot be charged to the borrower. 

Purchase Transactions 

Borrower-paid closing costs are added to the sales price to determine the total 

acquisition cost. 

Refinance Transactions 

Borrower paid allowable closing costs may not be added to the appraised value to 

determine the total acquisition cost for refinance transactions. 






Review of Final 

HUD-1 

Review of Final 

Loan Approval 

• Without exception, the final HUD-1 must be reviewed by the lender prior to 

closing. 

• If the transaction is a purchase, the allowable closing costs to both the borrower 

and the seller must be verified (any “unallowable” costs must be taken off the 

HUD-1 Settlement Statement.) 

• If the transaction is a refinance, both of the following steps are required: 

• the allowable costs must be verified (any “unallowable” costs must be taken 

off the HUD-1), AND 

• the mortgage amount must be recalculated if the estimated closing costs 

used to calculate the mortgage result in an amount exceeding $500 based 

on actual charges as reflected on the final HUD-1 for a rate/term or 

streamline refinance transaction. 

Reference: See the subtopic “HUD-1 Settlement Statement” in the General 

Section 1.35: SunTrust Compliance Overview of the Correspondent Seller 

Guide for additional information. 

• All loans must close at the interest rate, term, loan amount that was approved by 

TOTAL Scorecard, AUS and the Underwriter. There is no AUS or FHA 

tolerance. 

Reference: See the table under the heading AUS Resubmissions and Forms in 

the topic Automated Underwriting Systems (AUS) Issues within the subtopic AUS 

Recommendations and Resubmissions for additional information for allowable 

tolerances. 

• If the loan received by the closer does not match the underwriting approval on 

the FHA Loan Underwriting Transmittal Summary (HUD-92900-LT) and the 

TOTAL Scorecard/DO/DU or LP findings, the loan is not to close until the 

following actions have been completed: 

• resubmission of the loan to TOTAL Scorecard/DO/DU or LP with the 

appropriate revisions, 

• resubmission of the new AUS report and findings, revised application (1003), 

URLA Addendum (HUD 92900A – page 3) and the FHA Loan Underwriting 

Transmittal Summary (HUD-92900-LT), and 

• re-approval of the revised loan terms by the SunTrust Underwriter. 

• Compliance Inspection Reports must be signed by the underwriter on Block 4. 

Reference: See the FHA TOTAL Scorecard subtopic in the Automated 

Underwriting Systems (AUS) Issues topic for additional information 






Repairs, 

(continued) 


Repairs and other conditions of the appraisal are to be indicated on the URAR and 

the Conditional Commitment Direct Endorsement Statement of Appraised Value 

(form HUD-92800.5B). 

Required Repairs 


• Required repairs are limited to those repairs necessary to preserve the physical 

security of the property and to protect the health and safety of the occupants. 

The three (3) S’s: 

• Soundness-correct physical deficiencies or conditions affecting structural 

integrity. 

• Safety-protect the health and safety of the occupants. 

• Security-protect the security of the property (security for the FHA insured 

mortgage.) 

• Avoid unnecessary requirements because they increase housing costs without 

adding any basic amenities to the property. 

• While appraisers are not to add repairs beyond FHA’s guidelines, the 

Underwriter (Mortgagee) may add requirements as a condition of making the 

loan. Individual mortgagees have the right to make additional requirements they 

feel necessary to protect the security or soundness of the property and the 

health and safety of the occupants. The applicant has the option of selecting 

another lender if they feel these requirements/conditions are excessive. 

Note: Only correspondent lenders that have a Direct Endorsement 

underwriter on staff may underwrite and submit for purchase loan 

transactions involving 203(k) or 203(b) with repair escrow transactions to 

SunTrust. 

Repair Escrows 

Escrows for incomplete items should only occur in limited situations. HUD 

Handbook 4145.1 page 5-1 provides additional guidance. The only acceptable 

escrow would be due to extenuating circumstance beyond the contractor or seller’s 

control. This would only be weather related: i.e., inability to lay sod due to cold 

weather, inability to install a roof due to continued snow, etc. 

Note: Escrow of repairs on existing properties to facilitate a “quick” closing is 

unacceptable. 






Poor Condition 

Properties 

Properties 

Located in 

Disaster Areas 

Properties 

Located in a 

Special Flood 

Hazard Area 

(SFHA) 

If the subject property is in such poor condition that it may be cost prohibitive or 

impractical or bring it up to FHA’s minimum property requirements, the appraiser 

should recommend “Rejecting” the property and, 

• complete the appraisal on an “AS IS” basis, clearly marking the reports as 

rejected and provide reasons for the rejection, 

• provide a list of all major deficiencies and state that the list should not be 

considered all inclusive, and 

• provide photographs, if possible. 

• If a property is located in a locality impacted by a disaster event, prior to submitting 

the loan to SunTrust for purchase review and funding, the lender must determine 

that the subject property, as well as the subject property’s neighborhood is in the 

same condition as at the time of the appraisal and has not been damaged. 

• The marketability and/or market value of the subject property and subject 

property’s neighborhood cannot have been negatively affected by the disaster 

event. 

• COR 0006 is to be completed by all lenders where a property is located in a 

locality impacted by a disaster event. 

Reference: See General Section 1.14: Hazard and Flood Insurance of the 


Private Roads Documentation 

The following documentation is required: 

• permanent recorded easement, and 

• joint maintenance agreement or maintained by a homeowners association 

Form of Road Maintenance Agreement 

The Road Maintenance Agreement must be a separate recorded document. 

Terms of the Road Maintenance Agreement 

The following terms are required: 

• the agreement includes the entire private road system to the public road 

• the agreement and access must be legal and in perpetuity (i.e., run with the 

land). 

• the agreement states how the costs are to be shared (e.g., equally by all lots, 

pro-rata, etc.). The provision for maintenance must not create an unusual or 

abnormal burden upon the ownership of the subject property. 

• the road is in an acceptable condition. The roadway(s) within the system must 

have all –weather surface(s) (i.e., a road surface over which emergency and the 

area’s typical passenger vehicles can pass at all times). 

• the roadway meets local jurisdiction’s emergency service access requirements. 






Private Road, 

(continued) 

Runway Clear 

Zones 

Sewage 

Systems 

Parties to the Road Maintenance 

All of the property owners served by the private road system must be a party to the 

agreement. 

Waiver of Road Maintenance Agreement 

The Direct Endorsement (DE) Underwriter may waive road maintenance agreement 

requirements if the property abuts a publicly maintained road and the easement is a 

common driveway between two (2) neighbors and it is all weather (e.g., such as in a 

shared driveway in older parts of cities). 

Underwriter Approval 

The recorded easements and road maintenance agreement must be reviewed and 

approved by the DE Underwriter and documented in the file when the loan is 

submitted for mortgage insurance. A letter to the file from the DE Underwriter is the 

only item to be included in the HUD’s insuring file. 

Existing properties located in an airport runway clear zone require a letter of 

acknowledgement from the borrower. 

Note: New construction properties located in a runway clear zone are not eligible for 

FHA financing. 

Community Sewer Systems 

HUD no longer maintains a list of approved systems. The appraiser must note on 

the URAR the name of the community system(s). The branch is responsible to 

ensure the community system(s) are licensed and adequate to service the property. 

Appraiser’s site sketch should clearly indicate the location of individual systems and 

leach fields. 

Individual Sewage Systems 

• For properties that cannot connect to a public system and are served by an 

individual sewage system that is acceptable to the local health authority, the 

system is then acceptable to HUD/FHA. 

• Certifications are only required if evidence of system failure, if mandated by state 

or local jurisdiction, if customary to the area, or at lender’s discretion. The 

appraiser must note any readily observable deficiencies. , In those instances, 

the appraiser is to condition for a certification by the local health authority, a 

licensed sanitarian or an individual determined to be qualified by the DE 

underwriter. 






Sewage 

Systems, 

(continued) 

Connection to a Public Sewer System 

• The appraiser is required to report on the availability of connection to public 

and/or community sewer system. The lender is responsible for the determination 

of the feasibility for requiring connection. Generally, connection must be made 

to a public sewer system or a community sewer system if connection costs to the 

public or community system are reasonable (Three percent (3.00%) or less of 

the estimated value of the property.) If connection costs exceed three percent 

(3.00%), the existing on-site systems will be acceptable provided they are 

functioning properly and meet the requirements of the local health department. If 

connection is required, the loan must be sent back to underwriting for reevaluation. 

Water Systems Community Water Systems 

• HUD no longer maintains a list of approved community water systems. This type 

of water system is a central system owned, operated, and maintained by a 

private corporation or a non-profit property owners association. 

• If on community water, the appraiser must note on the URAR the name of the 

water company. The lender is responsible to ensure the community system(s) 

are licensed and adequate to service the property. 

Individual Water Systems 

Individual water supply systems (wells) may be acceptable when connection to a 

public or community water system is not available and there is assurance of a 

continuing adequate supply of potable water for domestic needs. The water well 

must also meet the requirements of the local health authority with jurisdiction. 

Water Quality 

• Individual water wells are owned and maintained by the homeowner, and are 

subject to compliance with all requirements of the local or State Health Authority 

having jurisdiction. The appraiser is to note any readily observable deficiencies 

and report on the availability of connection to public and/or community water 

systems. 

• A test or inspection is required under the following circumstances: 

• if mandated by state or local jurisdiction, 

• if there is knowledge that the well water may be contaminated, 

• when the water supply relies upon a water purification system due to 

presence of contaminants, or 

• when there is evidence of the situations listed below: 

• corrosion of pipes (plumbing) 

• areas of intensive agriculture within one quarter (¼) mile 

• coal minim or gas drilling operations within one quarter (¼) mile 

• dump, junkyard, landfill, factory, gas station, or dry cleaning operation within 

¼ mile, or 

• unusually objectionable taste, smell, or appearance of well water. 






Water Systems, 

(continued) 

Well Location 

• Individual water supply systems (wells) should be checked to establish the 

distance from the septic systems. 

• The appraiser is to note in the appraisal if the distances appear to be met plus 

note any adverse site conditions that might warrant further inspections or due 

diligence. 

• The lender must make a decision as to whether a qualified third party should map 

out these distances. 

• The lender may want to have these distances marked on a survey in cases where 

the lot is particularly small, depending on the location of the well. 

• The minimum acceptable distances between wells and the sources of pollution 

located on either the same or the adjoining lot are shown in the table below. 

Source of 

Pollution 

Minimum 

Horizontal 

Distance (Feet) 

Source of 

Pollution 

Minimum 

Horizontal 

Distance (Feet) 

Property Line 10 feet Other sewer lines 50 feet 

Septic Tank 50 feet Chemically 

Poisoned Soil 

25 feet 

Absorption Field, 

Seepage Pit, 

Absorption Bed 

100 feet Dry Well 50 feet 

Sewer Lines with 10 feet Other Recommendations 

Permanent -tight 

or requirements of 

joints 

the local health 

authority 

• Individual water systems/wells should be located ON the subject property site. If 

not, they must be on an adjacent property, and evidence of water rights and 

recorded maintenance agreement must be provided for acceptance of the well as 

the primary source of water for an FHA insured property. 

• Cisterns-HUD indicates that properties served by cisterns are not acceptable for 

mortgage insurance. However, the HOCs have the authority to consider waivers 

in areas where cisterns are typical. 

• New wells must be drilled, no less than 20 feet deep, and cased. Casing should 

be steel or other casing material that is durable, leak-proof, and acceptable to 

(either) the local health authority and (or) the trade or profession licensed to drill 

and repair wells in the local jurisdiction. 

• Individual Residential Water Purification Equipment-if a property is otherwise 

eligible for insurance but does not have access to a continuing supply of safe and 

potable water without the use of a water purification system, the requirements in 

Mortgagee Letter 92-18 and 95-34 must be satisfied. 






Water Systems, 

(continued) 

Well Waivers 

Existing 

Construction 

Shared Wells 

Shared wells may serve existing properties which cannot feasibly be connected to an 

acceptable public or community water supply system. A shared well shall have a 

valve on each dwelling service line as it leaves the well. A shared well shall service 

no more than four living units or properties. A shared well must have a shared well 

agreement and shall be binding upon signatory parties and their successors in title. 

More information on this agreement can be referenced in HUD handbook 4150.1 

Rev-1, Section 12-16. 

Connection to a Public Water System 

• The appraiser is required to report on the availability of connection to public 

and/or community water system. 

• The lender is responsible for the determination of the feasibility for requiring 

connection. 

• Generally, connection must be made to a public water system or community 

water system if connection costs to the public or community system are 

reasonable (3% or less of the estimated value of the property.) 

• A written estimate for the cost of connection must be obtained before the 

underwriter may waive this condition. If connection costs exceed 3%, the 

existing on-site systems will be acceptable provided they are functioning properly 

and meet the requirements of the local health department. If no connection is 

required, the loan must be sent back to underwriting for re-evaluation. 

• FHA allows for a lesser distance from the well to the soil poisoned area (25 feet to 

15 feet) and drain field (100 feet to 50 feet) if there is an impervious strata of clay, 

hardpan, or rock. 

• The DE underwriter may accept these lesser distances with the proper supporting 

documentation such as evidence that the ground surface is effectively separated 

by an impervious strata, a professional drawing, and a “clear” water test. These 

items must be placed in the FHA case binder. In this instance a Waiver is not 

required. 

• The following exhibits are acceptable: 

• a well driller’s log evidencing that the ground surface is effectively separated 

by an impervious strata, or. a subsurface evaluation letter from either the local 

Water Management District or Heath Department or from a qualified well 

installer provided they clearly show data which would have been revealed by 

the well driller’s log. 

• the professional drawing must indicate the distance from the subject well to 

the septic tank, lot-line, drain field and chemically poisoned soil on the subject 

site as well as all adjacent adjoining and contiguous sites. If there are no 

improvements on the neighboring lots, the notation of “vacant” on the drawing 

is adequate. 

• the water must be tested to insure the maximum allowable contamination 

levels for lead, nitrates, nitrites, total nitrate/nitrite, and fecal and total coliform 

are not exceeded regardless of local stipulations unless they are more 

stringent. Also adhere to conditions mandated by state and local 

governments as they pertain to additional impurities. 






Well Waivers 

Existing 

Construction, 

(continued) 

Well Waiver, 

New 

Construction 

Well/Septic With Lesser Distances: 

• The FHA Regional Homeownership Centers will accept waiver requests for 

review, on a case-by case basis, in which the distance from the well is less than 

15 feet, the septic tank is less than 50 feet, the septic drainfield is less than 50 

feet and, the lot line is less than 10 feet if these distances are acceptable to the 

local governing entity. 

• The items listed below are required to submit a waiver request to FHA. 

• DE Underwriter’s determination that there is adequate justification to request 

a waiver. The underwriter must submit a written request (no faxes) indicating 

what is to be waived along with legible copies of the exhibits. 

• Appraisal (minus the certification pages) showing the availability and 

feasibility of connecting to public water and/or sewer. 

• Evidence indicating the depth of the extensive, continuous impervious strata. 

(Not required for well to lot line waiver unless the distance from the well to any 

potential source of pollution is less than the prescribed minimum distances as 

shown in the chart.) 

• Professional drawing with all notations as shown above. 

• Clear water test as shown above. 

• Evidence from the State that lab is approved to test for required parameters. 

• Evidence from the Health Department of acceptance of the well in relation to 

the soil-poisoned area, septic tank and drainfield. 

• Termite report (well to soil poisoned area) 

• A letter from the utility company acknowledging the well will not hinder their 

normal operations, if the well is located in a utility easement. 

Note: Copies of the HOC approval and supporting data must be in the case 

binder prior to submission for endorsement. 

• Distances from the well to potential sources of pollution for new construction 

properties may not be less than those prescribed in the table. Consequently, the 

HOC will not accept any request for a waiver. (This includes properties that are 

existing but less than one-year old.) 

• Lesser distances for the soil poisoned area (25 feet to 15 feet) and drainfield 

(100 feet to 50 feet), if there is impervious strata of clay, hardpan or rock. The 

DE Underwriter may accept these lesser distances with the proper supporting 

documentation without a request for a HUD waiver. 






Well Waiver, 

New 

Construction, 

(continued) 

• Copies of the following exhibits must be placed in the case binder prior to 

submission for endorsement. 

• Evidence indicating the depth of the extensive, continuous impervious strata. 

(see acceptable documentation previously shown.) 

• Professional drawing with all notations as shown above. 

• Clear water test as shown above. 

• Evidence from the State that lab is approved to test for required parameters. 

• Evidence from the Health Department of acceptance of the well in relation to 

the soil-poisoned area, septic tank and drainfield. 

• A letter from the utility company acknowledging the well will not hinder their 

normal operations, if the well is located in a utility easement.

The FHA 203(b) Loan Program - STM Partners

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