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Guaranteed Loan Program Seminar

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Title: Guaranteed Loan Program Seminar


1
Guaranteed Loan Program Seminar
  • Single Family Housing Guaranteed Loan Program
  • By
  • Bob Coordsen, Housing Specialist

2
The FL/VI Team
  • Myself, in the Gainesville HHQ
  • 1 originations coordinator
  • 1 post-closing coordinator
  • 6 specialists (underwriters)
  • 4 processors
  • Handle over 6,000 loan packages annually
  • Currently about 30-35 days backlogged

3
RD Instruction 1980-D
  • http//www.rurdev.usda.gov/rd_instructions.html

4
Program Mission
  • 1980.301(b)
  • Low to moderate income rural homebuyers
  • Adequate, safe and sanitary primary residences
  • Assist lenders to extend credit with reduced risk

5
Guaranteed Loan Benefits!
  • 100 financing
  • No purchase price limits per county/city
  • Ratios 29/41
  • Fixed, 30 year interest rates
  • No reserves required
  • Nontraditional credit accepted
  • Eligible gift/grant/MCCs/Buydowns allowed
  • Not limited to first time homebuyers

6
Guaranteed Loan Benefits!
  • 90 Loan Note Guarantee!
  • Original principal loan amount 150,000
  • Maximum loss claim payout 135,000
  • See 1980.322(a)(2) for loss payment calculation

7
Maximum Loan Amount
  • 100 of the appraised value plus the upfront
    guarantee fee
  • Purchase price lower than appraised value, room
    to include eligible closing costs, lender fees,
    etc.
  • Purchase price appraised value, only the g-fee
    may be included in the loan
  • No Maximum CLTV

8
Annual Upfront Guarantee Fee
  • Loans may be subject to
  • Upfront guarantee fee and/or
  • Annual Fee
  • Ensure applicable fees are utilized.
  • Provide subsidy neutral program
  • Statute authority per Housing Act 1949, as
    amended

9
Guarantee Fee Annual Fee Calculator https//usda
linc.sc.egov.usda.gov/
1
2
3
10
Applicant Eligibility
  • 1980.346
  • a.) Cannot own a dwelling in the local commuting
    area or owns a dwelling which is not structurally
    sound, functionally inadequate.

11
Applicant Eligibility 1980.346(a)
  • Local commuting area
  • No specific mileage range
  • Contact State RD Coordinator for assistance
  • Structurally unsound
  • Documented evidence of structural/sanitation
    issue
  • Functionally inadequate
  • Overcrowding too many bodies not enough space
  • Disability accommodations required

12
Applicant Eligibility
  • 1980.346
  • b.) Be without sufficient resources to provide
    the necessary housing and be unable to secure the
    necessary conventional credit without a RD
    guarantee upon terms and conditions which the
    applicant could reasonably be expected to
    fulfill.

13
Applicant Eligibility 1980.346(b)
  • Conventional credit qualification criteria
  • MUST MEET ALL SIX
  • 20 downpayment (cash/cash equivalents)
  • Closing cost/lender fee money
  • 28 PITI ratio
  • 36 TD ratio
  • Acceptable conventional credit tradelines/history
  • 30 year term with no PMI required

14
Applicant Eligibility
  • 1980.346
  • c.) Be a U.S. Citizen/Permanent Resident Alien
  • d.) Legal capacity to enter into mortgage debt
  • e.) Ability to personally occupy the property on
    permanent basis

15
Learning Check
  • Debbie and Bill own a home in Utah but they are
    moving to
  • Georgia. Can they retain the home in Utah and
    purchase a
  • new home in Georgia with a SFHGLP loan?
  • Yes
  • No

16
Learning Check
  • Debbie and Bill own a home in Utah but they are
    moving to
  • Georgia. Can they retain the home in Utah and
    purchase a
  • new home in Georgia with a SFHGLP loan?
  • Yes
  • No

17
Learning Check
  • Josh and Leanne own a home and have two children.
  • Current home 3 Bedroom 2 Bath
  • Want to buy 5 Bedroom 3 Bath, with a finished
    basement, located two
  • blocks away from current
    home
  • They want to have more children and they need
    extra space for
  • Joshs hunting gear. Do Josh and Leanne meet the
    regulation?
  • Yes
  • No

18
Learning Check
  • Josh and Leanne own a home and have two children.
  • Current home 3 Bedroom 2 Bath
  • Want to buy 5 Bedroom 3 Bath, with a finished
    basement, located two
  • blocks away from current
    home
  • They want to have more children and they need
    extra space for
  • Joshs hunting gear. Do Josh and Leanne meet the
    regulation?
  • Yes
  • No

19
Learning Check
  • Sean is in the military and will be deployed.
    His wife and
  • children will occupy the home he wishes to
    purchase
  • while he is away. Is Sean eligible for a SFHGLP
    loan?
  • Yes
  • No

20
Learning Check
  • Sean is in the military and will be deployed.
    His wife and
  • children will occupy the home he wishes to
    purchase
  • while he is away. Is Sean eligible for a SFHGLP
    loan?
  • Yes
  • No

21
Learning Check
  • Maribeth owns a home in Bolingbrook, IL and she
    wishes to
  • move closer to her employment located in
    Bloomington, IL.
  • She currently commutes two hours one way to work.
  • Is Maribeth eligible to retain her current home?
  • Yes
  • No

22
Learning Check
  • Maribeth owns a home in Bolingbrook, IL and she
    wishes to
  • move closer to her employment located in
    Bloomington, IL.
  • She currently commutes two hours one way to work.
  • Is Maribeth eligible to retain her current home?
  • Yes
  • No

23
Learning Check
  • Enrique is from Mexico. He has a temporary VISA
    and a
  • TIN. He has applied for permanent residency.
    Is Enrique
  • eligible as an applicant for a SFHGLP loan?
  • Yes
  • No

24
Learning Check
  • Enrique is from Mexico. He has a temporary VISA
    and a
  • TIN. He has applied for permanent residency.
    Is Enrique
  • eligible as an applicant for a SFHGLP loan?
  • Yes
  • No

25
Learning Check
  • Purchase Price 150,000
  • Appraised Value 153,000
  • What is the maximum loan amount RD can issue a
    loan note
  • guarantee.
  • 150,000 upfront guarantee fee
  • 153,000 upfront guarantee fee

26
Learning Check
  • Purchase Price 150,000
  • Appraised Value 153,000
  • What is the maximum loan amount RD can issue a
    loan note
  • guarantee.
  • 150,000 upfront guarantee fee
  • 153,000 upfront guarantee fee

27
Learning Check
  • Guaranteed loans are only for first time
    homebuyers.
  • True
  • False

28
Learning Check
  • Guaranteed loans are only for first time
    homebuyers.
  • True
  • False

29
  • ELIGIBLE RURAL
  • PROPERTY
  • SFH residences must be located in an
  • eligible rural area.

30
Nationwide Eligibility Web Site
  • http//eligibility.sc.egov.usda.gov
  • Property Eligibility
  • Income Eligibility
  • Income Limit pdf by state
  • State Guaranteed Loan Coordinator Contacts

31
Property Eligibility  
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Eligible Housing
  • Existing homes
  • HUD Handbooks 4150.2 and 4905.1
  • Existing home is defined as
  • 1. Home completed for 12 months (per occupancy
    document) never occupied
  • 2. Home completed for less than 12 months
    previously occupied

40
Eligible Housing
  • New Construction
  • Option 1
  • Acceptable building permit or Form RD 1924-25
  • Acceptable certificate of occupancy, or copies of
    3 construction inspections (footing/framing,
    mechanicals exposed/inspected, and final)
  • Acceptable one year builder warranty
  • Option 2
  • Ten year insured builders warranty
  • Builder signs Form RD 1924-25

41
Eligible Housing
  • Condominiums Fannie/Freddie/HUD or VA approved.
  • Evidence from
    entity is acceptable.
  • PUDs/Townhomes All eligible
  • Modular Existing and New Construction

42
Eligible Housing
  • Manufactured Built to HUD Code
  • New units purchase agreement dated within one
    year of manufacture date of unit
  • Built by approved-dealer contractor (states have
    lists)
  • Existing units Original owner with direct or
    guaranteed loan, or lender has property in REO
    and holds guarantee

43
Ineligible Housing
  • Rental / Vacation Homes
  • Income Producing Properties (active
    farms/commercial property/cell phone towers/wind
    turbines)
  • Site values above 30, that do not meet
    1980.313(d)

44
Site Value Over 30
  • Two tests 1980.313(d)
  • Value of site must be typical for area, per
    appraisal
  • Parcel cannot be eligible to be subdivided into
    two or more lots
  • States cannot impose specific acreage
    limitations.

45
Outbuildings
  • Vacant land primarily used for agriculture,
    farming, or commercial enterprise is not
    eligible.
  • Property must be predominately residential in
    design, use and character.
  • Functional farm service structures, typical for
    area, not used for income producing purposes
    deduct contributory value from appraised value.
  • Garages, storage sheds, etc. are eligible.

46
Outbuildings
  • Example
  • Appraised value of site and structures
    100,000
  • Contributory value of functional farm service
    structure 10,000
  • Net value adjustment
    90,000
  • Maximum loan amount for guarantee
    90,000
  • (plus any financed portion of or the full amount
    of the upfront guarantee
  • fee)

47
In-ground Pools
  • Deduct contributory value from appraised value to
    determine
  • maximum loan amount.
  • Appraiser is responsible to determine value of
    pool.
  • Example
  • Appraised Value 175,000
  • Value of in-ground pool 3,000
  • Maximum Loan Amount 172,000 upfront
    guarantee fee

48
Learning Check
  • Cathy wants to purchase a SFH residence that has
    5 acres of
  • land which has a small pond and wooded area,
    appraised
  • value is 150,000. There are two older
    traditional barns
  • valued at 12,000. What is the maximum loan
    amount RD
  • can guarantee?
  • Appraised value upfront guarantee fee
  • Appraised value - 12,000 upfront guarantee fee
  • 0, the property is ineligible it has barns

49
Learning Check
  • Cathy wants to purchase a SFH residence that has
    5 acres of
  • land which has a small pond and wooded area,
    appraised
  • value is 150,000. There are two older
    traditional barns
  • valued at 12,000. What is the maximum loan
    amount RD
  • can guarantee?
  • Appraised value upfront guarantee fee
  • Appraised value - 12,000 upfront guarantee fee
  • 0, the property is ineligible it has barns

50
Learning Check
  • Bill and Katie want to purchase a brick ranch
    with full
  • basement and fenced yard for 175,000. Bill is a
    school
  • teacher and Katie has a small daycare she
    operates from her
  • home. Does Katies in-home business make the
    home
  • income producing and ineligible for a guaranteed
    loan?
  • Yes
  • No
  • No, not if the fence is removed from the yard

51
Learning Check
  • Bill and Katie want to purchase a brick ranch
    with full
  • basement and fenced yard for 175,000. Bill is a
    school
  • teacher and Katie has a small daycare she
    operates from her
  • home. Does Katies in-home business make the
    home
  • income producing and ineligible for a guaranteed
    loan?
  • Yes
  • No
  • No, not if the fence is removed from the yard

52
Learning Check
  • Michael and Nicolle are buying a home for
    185,000. There
  • is a small commercial building in the backyard
    with a
  • driveway, perfect for Michael (an accountant) to
    do taxes
  • after hours from his firm for outside clients.
    Does the
  • building make the property income producing and
    ineligible
  • for a guaranteed loan?
  • Yes
  • No

53
Learning Check
  • Michael and Nicolle are buying a home for
    185,000. There
  • is a small commercial building in the backyard
    with a
  • driveway, perfect for Michael (an accountant) to
    do taxes
  • after hours from his firm for outside clients.
    Does the
  • building make the property income producing and
    ineligible
  • for a guaranteed loan?
  • Yes
  • No

54
Learning Check
  • Dave wants to purchase a 200 acre farm with hog
    barns. The
  • appraised value is 350,000. The hog barns are
    valued at
  • 50,000. Accessory storage sheds are valued at
    12,000.
  • Dave plans to rent the acreage to a local farmer.
    What is the
  • maximum loan amount RD can guarantee?
  • 350,000 upfront guarantee fee
  • 350,000 - 62,000 upfront guarantee fee
  • Not eligible, active farming operation

55
Learning Check
  • Dave wants to purchase a 200 acre farm with hog
    barns. The
  • appraised value is 350,000. The hog barns are
    valued at
  • 50,000. Accessory storage sheds are valued at
    12,000.
  • Dave plans to rent the acreage to a local farmer.
    What is the
  • maximum loan amount RD can guarantee?
  • 350,000 upfront guarantee fee
  • 350,000 - 62,000 upfront guarantee fee
  • Not eligible, active farming operation

56
Learning Check
  • Stuart is buying a property with 12 acres of
    land, non-income
  • producing. Appraised value is 200,000. The
    site value is
  • 65,000 (32.5). Two comps show similar acreage.
    The
  • appraiser states the county will not allow lots
    below 8 acres.
  • Is the home eligible for a guarantee?
  • Yes
  • No

57
Learning Check
  • Stuart is buying a property with 12 acres of
    land, non-income
  • producing. Appraised value is 200,000. The
    site value is
  • 65,000 (32.5). Two comps show similar acreage.
    The
  • appraiser states the county will not allow lots
    below 8 acres.
  • Is the home eligible for a guarantee?
  • Yes
  • No

58
  • Income Eligibility
  • Adjusted household income must not exceed the
  • applicable limitation for the state/county where
    the
  • property is located.

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65
Income Calculations
  • THREE DISTINCT INCOME CALCULATIONS
  • 1 Annual Income
  • Total of all adult household member income
    (including family assets)
  • Adult household member age 18 and up

66
Income Calculations
  • THREE DISTINCT INCOME CALCULATIONS
  • 2 Adjusted Income
  • Annual income figure, minus eligible deductions
  • Determines program eligibility
  • Eligible deductions, 1980.348
  • Dependents 480 each / Childcare expenses
  • Elderly family 400 (flat deduction)
  • Medical / Disability expenses that exceed 3 of
    the gross annual income

67
Dependent Determination
  • Who can claim the dependent as a household
    member? (480 deduction and 1-4 or 5-8 bracket)
  • IRS Publication No. 501 considers the custodial
    parent authorized to claim dependent on Federal
    income tax returns
  • Lenders may refer to divorce decree, custody
    agreement, and/or Federal income tax returns to
    assist in determination
  • These guidelines DO NOT apply to childcare
    expense deductions.

68
Income Calculations
  • THREE DISTINCT INCOME CALCULATIONS
  • 3 Repayment Income
  • Stable and dependable income of the applicants
  • History of receipt/assurance of continuance
  • Use to calculate ratios

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Income Documentation
  • All adult household members (age 18 and up)
  • 1 Written VOE (including 3rd party
    verifications/The Work Number) one recent
    paystub with YTD figure
  • 2 30 days of paystubs (originals or electronic
    printouts from employer intranet sites) with YTD
    figures two years W-2s telephone VOE

71
Income Documentation
  • All adult household members (age 18 and up)
  • Self Employed
  • 2 years tax returns (signed, dated, all
    schedules, originals or IRS transcripts accepted)
  • YTD Profit and Loss (PL) statement with balance
    sheet
  • YTD Income Expense statement
  • Items are not required to be audited

72
Income Reminders
  • Annual Income 1980.347
  • Current verified earnings
  • Previous 12 months / fiscal year may be used IF
    logical determination cannot be made (from same
    employer) Consider the types of income earned

73
Income Reminders
  • Repayment Income 1980.345 and 1980.347(e)
  • Stable and dependable income/history of receipt
  • Nontaxable income may be grossed up for repayment
    purposes per 1980.345(c)(2)(ii)

74
Income Reminders
  • Repayment Income Nontaxable Income
  • 1980.345(c)(2)(ii)
  • No 20 or 25 threshold allowed
  • Example
  • Single applicant 32,000 salary
  • Child Support 6,000 per year
  • How much can you gross up the child support?

75
Income Reminders
  • Repayment Income Nontaxable Income
  • 10 6,600 may be used for repayment income

76
Adjusted Income 1980.348
  • Example Calculations
  • 2 dependents x 480 960
  • 500 /month daycare x 12 months 6,000
  • Elderly family (age 62 up) 400
  • Medical / Disability Example

    Annual Income 76,500 / Medical expenses
    13,500
  • 76,500 x 3 2,295
  • 13,500 - 2,295 11,205 deduction
    allowed
  • Adjustments assist applicants to qualify for the
    program!

77
Income Tips DOCUMENT YOUR CALCULATIONS!
  • HHM not currently employed but looking/self
    employed? Count their previous income for annual
    income 1980.347(b)
  • If it is on the paystub as earnings, it is
    included in annual income. 1980.347(d)(1),
    Consider 1980.347(c)

78
Income Tips DOCUMENT YOUR CALCULATIONS!
  • Net Family Assets 1980.302(a)
  • Equity in real property
  • Checking accounts/savings accounts
  • IRAs (not 401ks)
  • Certificates of Deposits/stocks/bonds/capital
    investments
  • Trust funds available at will to the household
  • Value of business or household assets disposed of
    for less than market value (not including BK/FC)
    2 years preceding loan application

79
Income Tips DOCUMENT YOUR CALCULATIONS!
  • Net Family Assets 5k must be considered for
    annual income (not 401ks) 1980.437(d)(3)(iii)
  • Actual income 15,000 CD earning 3 450
  • Passbook savings rate 8,000 x .25 20
  • Deduct assets used to purchase the home before
    annual income calculation.
  • Unreimbursed employee expenses are deducted from
    annual AND repayment income. 1980.347(d)(2)(v)

80
Income Tips DOCUMENT YOUR CALCULATIONS!
  • Business losses are zero for annual income.
    Deduct the loss from repayment income.
    1980.347(d)(2)(ii) and 1980.345(b)(1)
  • Spouse income must be included for annual income,
    UNLESS living apart for 3 months (other than work
    or military assignment) or legal
    separation/divorce papers have been commenced.
    1980.347(d)(10)

81
Income Tips DOCUMENT YOUR CALCULATIONS!
  • No co-signors! 1980.345(c)
  • Mortgage Credit Certificates (MCCs) may be added
    to repayment income. 1980.392(a)

82
Rental Income Tips
  • Must meet 1980.346(a) to retain one dwelling
  • Rent x 75 - PITI / etc. /- Net rental income
  • Verify rental income received through canceled
    checks, money order receipts, or Schedule E

83
Rental Income Tips REPAYMENT INCOME
  • Repayment Income Less than 24 months rental
    history
  • Cannot use for repayment income, count full
    mortgage liability
  • Repayment Income 24 months or more, documented
    receipt
  • Use positive rental income, omit mortgage
    liability
  • Negative income is a monthly liability

84
Rental Income Tips ANNUAL INCOME
  • Annual Income
  • Include positive rental income
  • Negative rental income is counted as 0

85
Learning Check
  • Joe applies for a Guaranteed loan in September.
    Joe was employed as
  • mechanic at XYZ Garage for 3 years until he
    moved to ABC Garage in
  • June.
  • Will the lender have to consider his earnings
    from January June at
  • XYZ Garage when calculating annual income?
    What about
  • repayment income?

86
Learning Check
  • Annual Income NO
  • 1980.347(a) states CURRENT verified earnings (ABC
    Garage) are utilized for
  • the annual income calculation.
  • Repayment Income NO
  • Because Joe is no longer employed at XYZ garage
    these earnings are not
  • utilized for either income calculation.
    1980.345(b)

87
Learning Check
  • Cathy has worked for Thompsons Pharmacy for 4
    years. Her most
  • recent paystub indicates a 500 bonus. Cathy
    states this is the first
  • time in 4 years she has received a bonus, it was
    a one time award for
  • her help in opening a new store. The VOE from
    the employer states
  • bonus and commission income are not likely to
    continue.
  • Will the lender use her bonus for annual or
    repayment income?

88
Learning Check
  • Annual Income NO
  • 1980.347(c) states the lender may consider
    whether the income is
  • dependable based on verification by the employer
    and the applicants
  • history of such income over the previous 24
    months.
  • Repayment Income NO
  • Cathy has never received this bonus in the
    previous 4 years she has
  • worked for Thompson Pharmacy. The employer
    verified it is NOT likely
  • to continue. 1980.345(b)

89
Learning Check
  • An applicant has a business venture that is
    reporting a 5,000 loss on
  • the tax returns.
  • Should the lender
  • A.) Deduct the loss from the annual income
    calculation, or
  • B.) Count the business loss as zero in the
    annual income calculation

90
Learning Check
  • Answer B
  • 1980.347(2)(ii) states farm and nonfarm business
    losses are considered zero
  • in determining annual income.
  • FYI repayment The lender must deduct the
    business loss from repayment
  • income before calculating ratios, 1980.345(b)(1).

91
Learning Check
  • A truck driver has unreimbursed business expenses
    listed on his tax
  • returns for hotel and meal expenses in the amount
    of 4,000.
  • Which choices must the lender fulfill
  • A.) Deduct the unreimbursed expenses from the
    annual income calculation.
  • B.) Treat the unreimbursed expenses as zero
    for the annual income calculation.
  • C.) Deduct the expenses from repayment income.

92
Learning Check
  • Annual Income A
  • 1980.347(d)(2)(v) allows for a deduction of
    verified business expenses
  • made by salaried employees who must meet these
    expenses without
  • reimbursement for annual income.
  • Repayment Income C
  • This is money not available to repay the
    mortgage, therefore deduct these
  • expenses from repayment income, 1980.345(b)(1).
  • Lenders should be familiar with IRS forms and
    calculating
  • income/deductions.

93
Learning Check
  • Carols mother Tootie (age 89) is a household
    member, but is not a
  • party to the loan. She has 6,000 in a
    non-interest bearing checking
  • account and 50,000 in a CD earning 3 annually.
    The banks passbook
  • savings rate is currently 1. Which is the
    correct calculation of Tooties
  • assets for the annual income calculation?
  • A.) Tootie is not on the loan so her assets do
    not matter.
  • B.) 1,560
  • C.) 560

94
Learning Check
  • Answer B
  • Per 1980.347(d)(3)(iii)
  • 6,000 checking (no interest earned) x passbook
    rate 1 60
  • 50,000 CD x 3 annually 1,500
  • 1,500 60 1,560

95
Learning Check
  • Joe and Carol have 13,000 in a savings account
    earning 2 interest.
  • They will be using 6,000 towards the purchase of
    the home. What is
  • the correct amount of income earned on this net
    family asset for the
  • annual income calculation?
  • A.) 260
  • B.) 140
  • C.) 0 Savings accounts are excluded from
    annual income calculations

96
Learning Check
  • Answer B
  • The definition of net family asset in
    1980.302(a) allows the exclusion
  • of cash on hand which will be used to reduce
    the amount of the loan.
  • Therefore 13,000 - 6,000 7,000 x 2 140

97
Learning Check
  • An applicant has a spouse that will not be on the
    loan
  • application but will reside in the home. The
    spouses income
  • must be included for
  • Annual and repayment income
  • Annual income only
  • Repayment income only

98
Learning Check
  • An applicant has a spouse that will not be on the
    loan
  • application but will reside in the home. The
    spouses income
  • must be included for
  • Annual and repayment income
  • Annual income only, 1980.347(d)(10)
  • Repayment income only

99
Learning Check
  • Debbie and Bill have 6,500 of antique furniture
    and civil war
  • memorabilia listed on their 1003. Bill also owns
    his 2010 Toyota
  • Tundra valued at 22,000. Which is the correct
    annual income
  • calculation for these assets?
  • A.) 285
  • B.) 855
  • C.) 0

100
Learning Check
  • Answer 0
  • The items are personal property and are not
    considered a net family
  • asset per definition in 1980.302(a).

101
Learning Check
  • Earl has been employed with Local 853 Plumbing
    and Pipefitters for 5
  • years. Each year there is a three month interval
    where he collects
  • unemployment.
  • Should the lender include his unemployment
    benefits in the annual
  • and/or repayment income calculation?

102
Learning Check
  • Annual Income YES
  • 1980.347(d)(3)(5) includes payments in lieu of
    earnings such as
  • unemployment, disability and workers
    compensation, and severance
  • pay for annual income.
  • Repayment Income YES
  • Earl has historical documentation to support
    receipt of these earnings for
  • repayment. 1980.345(b)
  • Applicants with a sole source of income being
    unemployed benefits,
  • are not income eligible for Guaranteed loans.

103
Learning Check
  • Amber is recently divorced. Her divorce decree
    states she is to receive
  • 300 of child support each month. Her divorce
    has been final for 8
  • months and she yet to receive any money. Legal
    action has been
  • initiated to collect the payments, but her
    ex-spouse is unable to be
  • located.
  • Should the lender include 300 of child support
    in the annual and/or
  • repayment income calculation?

104
Learning Check
  • Annual Income NO
  • 1980.347(d)(7)(i) requires inclusion of alimony
    and/or child support
  • in annual income UNLESS payments are not
    received.
  • Repayment Income NO
  • Without a history of receipt , they are not
    stable and dependable for
  • repayment purposes. 1980.345(b)

105
Learning Check
  • Dean has received a 20,000 student loan from a
    local bank.
  • What is the proper amount to include in the
    annual and/or repayment
  • income calculation?
  • A.) 20,000
  • B.) the remainder of funds once all
    tuition/fees/ etc. are paid
  • C.) zero

106
Learning Check
  • Answer C Annual Income 0 Repayment
    Income 0
  • 1980.347(e)(7) states student loans are not
    considered income. This
  • philosophy also applies to repayment income as
    well.

107
Learning Check
  • Bob and Maggie are married. Bob has moved out of
    their apartment
  • and they have been have been separated for 2
    weeks. Neither party
  • has contacted an attorney. Bob wishes to
    purchase a residence with a
  • Guaranteed loan.
  • Does the lender have to consider Maggies income
    when calculating
  • Bobs annual and /or repayment income?

108
Learning Check
  • Annual Income YES
  • Annual income is required per 1980.347(d)(10).
  • Repayment Income NO
  • She is not a party to the note, therefore her
    income is not considered
  • for repayment. 1980.345(c)(4).

109
Learning Check
  • Michelle is 16 years old and works part time at
    McDonalds. She will
  • reside in the applicants home as a household
    member.
  • Does the lender have to count Michelles income
    in the annual income
  • calculation?

110
Learning Check
  • Answer NO
  • Michelle is a minor, therefore her income is not
    considered in the
  • annual income calculation per 1980.347(e)(1).

111
Learning Check
  • Melvin, a manager for Target, earns an annual
    salary of 75,000. His
  • wife Wendy was a cashier for Target earning 15
    per hour/ 40 hrs per
  • week. Wendy recently quit Target to begin a new
    career selling Mary
  • Kay Cosmetics.
  • What should the lender include when calculating
    the annual and
  • repayment income?
  • A.) 75,000 (Melvin alone)
  • B.) 75,000 31,200 (Melvin Wendys
    previous earnings)
  • C.) 75,000 20,000 (Melvin Wendys
    projected business plan)

112
Learning Check
  • Annual Income B. 75,000 31,200
  • 1980.347(b) requires her most recent earnings to
    be considered for annual
  • income.
  • Repayment A. 75,000
  • Without documentation of actual earnings in the
    new business, there is no
  • stable and dependable income to include for
    repayment from Wendys new
  • business.

113
Learning Check
  • Applicant presents a recent paystub with year to
    date (YTD) wages of
  • 18,535.32. The paystub indicates the pay period
    ended 4/29/2013.
  • Is the following calculation accurate for annual
    income?
  • 18,535.32 4 months 4,633.83 x 12 months
    55,605.96

114
Learning Check
  • Answer YES
  • 1980.347 states Annual income determinations
    will be thoroughly
  • documented in the lenders casefile.
  • If a lender submitted this calculation at the
    bottom of a paystub or on
  • another underwriting worksheet or document they
    may use, the Agency
  • would be able to understand how the lender
    determined the income.

115
Learning Check
  • Applicant submits the following
  • Paystub with YTD earnings thru 6/17/2013
    16,935.38
  • Overtime income is received regularly. 5 years
    with current employer.
  • 2012 W-2 34, 567.88
  • 2011 W-2 32,545.09
  • Lender calculates annual and repayment income
  • 16,935.38 5.5 months 3,079.16 x 12 months
    36,949.09
  • Does this appear accurate?

116
Learning Check
  • Answer Annual Income YES Repayment
    Income YES
  • Annual income was calculated with current YTD
    earnings. The total
  • projected income is supported for repayment
    purposes as well based
  • on the two previous years of employment with same
    employer.
  • 2012 W-2 34, 567.88
  • 2011 W-2 32,545.09

117
Learning Check
  • Applicant submits the following
  • Paystub with YTD earnings thru 6/17/2013
    24,567.88
  • Overtime income is received regularly. 5 years
    with current employer.
  • VOE states no raises due to pay freeze.
  • 2012 W-2 34,567.88
  • 2011 W-2 32,545.09
  • Lender calculates annual and repayment income
  • 24,567.88 5.5 months - 4,466.88 x 12 months
    53,602.64
  • Does this appear accurate?

118
Learning Check
  • Answer Annual Income NO Repayment Income
    NO
  • The annual estimated earnings are 53,602.64,
    compared to previous W-2s
  • 2012 W-2 34, 567.88 and 2011 W-2 32,545.09
  • This is a 19,034.76 increase from the previous
    year W-2. The
  • applicant is in the same position, no promotion
    or pay increases. It
  • does not provide a logical calculation for annual
    or repayment income.
  • Better Calculation
  • 24,567.88 (YTD) 34,567.88 (2012 W-2)
    59,135.76 17.5
  • months 3,379.18 x 12 months 40,550.23

119
Learning Check
  • Applicants present paystubs with the following
    listed for salary
  • Applicant 1 35,450, on the job 2 years
  • Applicant 2 23,650 , on the job 2 years
  • 35,450 23,650 59,100
  • YTD paystubs through 4/29/2013 reflect the
    following
  • Applicant 1 13,458.97 4 months 3,364.74
    x 12 40,376.91
  • Applicant 2 8,452.88 4 months 2,113.22 x
    12 25,358.64
  • 40,376.91 25,358.64 65,735.55
  • The lender submits the loan file to RD with an
    annual income
  • determination of 59,100. Would this be
    acceptable?

120
Learning Check
  • Answer NO
  • Salary Applicant 1 35,450 Salary Applicant
    2 23,650 59,100
  • HOWEVER
  • YTD paystubs through 4/29/2013 reflect the
    following
  • Applicant 1 40,376.91 Applicant 2
    25,358.64 65,735.55
  • They have documented evidence of making MORE than
    their base
  • salaries.

121
Learning Check
  • Applicants paystub shows the following as of
    4/1/2013
  • Base wages 5,000, Overtime 4,567, Bonus
    1,430
  • Applicant has worked with same employer for 1 ½
    years.
  • Previous year W-2 earnings 38,544.23
  • Lender calculates the annual and repayment
    income as follows to
  • remain conservative
  • 5,000 3 months 1,666.67 x 12 20,000
  • Is this acceptable?

122
Learning Check
  • Annual Income NO Base alone is not sufficient
    with documented history of

  • additional income types.
  • YTD earnings 4/1/2013
  • Base 5,000 OT 4,567 Bonus 1,430
    10,997
  • 10,997 3 months 3,665.67 x 12 months
    43,988
  • Repayment Income YES, conservative could work
    at uw discretion
  • Better Calculation Previous fiscal year may
    also be considered
  • 10,997 38,544.23 49,541.23 15 months
    3,302.74
  • 3,302.74 x 12 months 39,632.98
  • This calculation is closer to previous year
    earnings of 38,544.23

123
Learning Check
  • Josh and Leanne are applying for a Guaranteed
    loan.
  • Leanne is pregnant and has recently quit her job
    so she can stay home
  • to care for their child.
  • Does the lender have to consider her income
    earned YTD when
  • calculating annual income?

124
Learning Check
  • Answer NO
  • 1980.347(b)
  • Leanne has already terminated her employment.
  • Josh and Leanne must both sign a statement that
    Leanne is not presently employed and does not
    intent to resume employment in the foreseeable
    future.

125
Learning Check
  • Michael and Lola are applying for a Guaranteed
    loan.
  • Michael has recently quit his job due to stress.
    He plans to attend college to
  • learn a new trade so he can open his own
    business.
  • Does the lender have to consider his previous
    income earned YTD when
  • calculating annual income?

126
Learning Check
  • Answer YES
  • 1980.347(b)
  • Michael is attending college so he CAN become
    employed in the foreseeable future.

127
Learning Check
  • Bill was previously employed by Money Bank for
    over 8 years, earning
  • an annual salary of 65,000. The company went
    under and he was hired by
  • Big Business Bank nine months later earning an
    annual salary of 45,000.
  • What income should the lender include for the
    annual and repayment
  • income?
  • A.) 65,000 45,000 averaged
  • B.) 45,000

128
Learning Check
  • Annual Income C
  • Bill has secured new employment with a verified
    salary, which represents his
  • current verified earnings. 1980.347(a).
  • Repayment Income C
  • The underwriter can utilize his current earnings
    unless there are reasons that
  • they feel the new salary is not stable and
    dependable. 1980.345(b)

129
Learning Check
  • Bob has a home in South Carolina that he tried to
    sell for 8 months.
  • Due to a job relocation he is moving to Georgia
    and has rented his home for
  • three months thus far for 1500 per month. The
    mortgage payment is 950.
  • Which calculation(s) of net rental income may the
    lender use in Bobs annual
  • and repayment income?
  • A.) 550
  • B.) 175
  • C.) 0

130
Learning Check
  • Annual Income B.
  • Any positive net rental income received must be
    included in annual income.
  • 1,500 x 75 1,125 - 950 175
  • Repayment Income C.
  • Bob does not have a 24 month rental history for
    his home, therefore the rental
  • income is not considered stable and dependable by
    the lender for repayment
  • purposes.

131
Learning Check
  • Joaquin is a pastor and receives a housing
    allowance of 750 each
  • month. His contract with his church is for 5
    years.
  • Can the lender include Joaquins housing
    allowance in his annual and
  • repayment income?

132
Learning Check
  • Annual Income YES
  • 1980.347(d) requires the housing allowance to be
    included for annual income.
  • Repayment Income YES
  • Joaquin has a 5 year contract, thereby
    documenting the allowance will
  • be available at least three years into the
    mortgage obligation, so it may be
  • included in repayment income. Do not offset the
    PITI calculation.

133
Credit Tips
  • Selecting the score
  • Middle of three
  • Lower of two
  • One score not for use with manually
    underwritten loan files, need non-traditional
    credit. GUS may use one score if appropriate.
  • Repeating score is valid 750, 750, 732

134
Nontraditional Credit
  • Applicants with one or no FICO score.
  • Rent/Housing history available
  • 3 tradelines (including rent/housing) with a 12
    month history
  • Rent/Housing history not available
  • 4 tradelines, 12 month history
  • Recent 12 month history/Open accounts
  • Full written verification or 12 months of
    canceled checks/money orders

135
Credit
  • 1980.345(d)(1) Indicators of unacceptable
    credit
  • (i) More than one debt payment(s) more than 30
    days late in the last 12 months.
  • (ii) Foreclosure within the last 36 months.
  • (iii) Outstanding tax liens or delinquent
    government debts (city/county), no payment
    arrangements, regardless of age.
  • (iv) Judgment(s) caused by nonpayment currently
    due or outstanding within the last 12 months.

136
Credit
  • 1980.345(d)(1) Indicators of unacceptable credit
  • (v) Two or more rent payments paid 30 days or
    more past due within the last 3 years.
  • (vi) Collections within the last 12 months
    (utility bills, hospital bills, etc.)
  • (vii) Outstanding collection accounts, no
    payment arrangements, still due/payable,
    regardless of age.
  • (viii) Any debts written off within the last 36
    months. Short sales included here.

137
Credit Waiver
  • 1980.345(d)(3) Credit Waivers
  • UNDERWRITER DISCRETION
  • Applicant must provide documentation to show
  • (i) The circumstances were of a temporary
    nature, were beyond the applicants control, and
    have been removed (e.g. loss of job delay or
    reduction in government benefits, or other loss
    of income increased expenses due to illness,
    death, etc.) or
  • (ii) The adverse action or delinquency was the
    result of a refusal to make full payment because
    of defective goods or services or as a result of
    some other justifiable dispute relating to the
    goods or services purchased or contracted for.

138
Credit Waiver Poor Example
  • The adverse credit was temporary in nature,
    beyond the applicants
  • control, and is unlikely to occur again in the
    future.

139
Credit Waiver Good Example
  • The applicant lost their job in August 2009.
    Two weeks later they
  • broke their leg . The COBRA coverage they paid
    for has been slow to
  • pay submitted claims, resulting in the
    collection accounts that are in
  • dispute (see dispute letters provided). The
    applicant has been
  • employed with Food City for the previous 18
    months and has
  • insurance coverage, therefore the adverse credit
    is unlikely to occur
  • again in the future.

140
Chapter 7 Foreclosure Pending Are they eligible
to buy a new home with a GRH loan?
  • Chapter 7 is discharged, along with mortgage debt
  • Foreclosure action still pending with lender
  • Applicant remains responsible for real estate
    taxes, HOA fees, etc.
  • Until title is quit claimed to lender, applicant
    remains in ownership of the property, may not
    meet 1980.346(a)

141
Liabilities
  • Installment debts 6 months or less to repay may
    be excluded by the underwriter in the debt
    ratios 1980.345(c)(1) underwriters may include
    the debt if they feel it impacts repayment
    ability!
  • Revolving debts Balance is reported, but no
    payment listed Use 5 of reported balance OR
    payment due from current statement

142
Liabilities
  • Authorized User Tradelines
  • Lender must ensure
  • OPEN tradelines are an accurate reflection of
    applicants attitude and ability to repay debts
  • CLOSED tradelines require no further
    consideration

143
Liabilities
  • Disputed Tradelines
  • Outstanding balance due and excluded from debt
    ratios
  • Evidence of justifiable dispute in loan file
    (example correspondence between applicant and
    attorney)

144
Liability Tips
  • Include child support/alimony/garnishments,
    unless official release of liability is provided
  • Do NOT include 401k loans/loans against personal
    liquid assets

145
Liability Tips
  • Co-Signed Liabilities
  • Debts co-signed by the applicant FOR another
    party must be included unless the applicant
    provides 12 months evidence of payment from the
    co-obligor or other 3rd party (checks, money
    order receipts, bank statements)
  • Joint accounts are not co-signed accounts

146
Liability Tips
  • Previous Mortgage Debts
  • When the applicant has disposed of a property
    through a sale, trade or transfer without a
    release of liability, the debt must be considered
    unless the applicant provides evidence (canceled
    checks, money order receipts) that the new owners
    have successfully made payments over the past 12
    months.

147
Liability Tips
  • Exclude business debts on personal reports if 12
    months evidence is provided of the business
    account paying the debt is provided.

148
Student Loans
  • 1980.345(c)(1) Long term obligations must be
    included
  • in the debt ratios
  • Credit reports do not identify the repayment
    plan/type for the applicant.
  • Account verifications from the loan servicer or
    an online account statement are required for
    loans in repayment status. Credit reports alone
    are not eligible verification.

149
Student Loans
  • Conventional/Fixed Payment
  • Statements should confirm fixed monthly payment
    due

150
Student Loans
  • Deferred
  • 1 of the loan balance may be used in debt ratios
  • OR
  • verified payment provided by the loan servicer to
    document the future payment due

151
Student Loans
  • Graduated Repayment
  • Utilize the highest payment due on the repayment
    schedule

152
Student Loans
  • Income Based Repayment (IBR)
  • Payment amounts are not fixed and may increase
    annually.
  • IBR payments of 0 are not eligible to be used in
    the debt ratio.

153
Student Loans
  • Income Based Repayment (IBR), Verified IBR
    payments
  • If the IBR payment is less than 100 and 1 of
    the total loan balance is more than 100, a
    minimum payment of 100 must be included in the
    debt ratios.
  • If the IBR payment is less than 100 and the
    total loan balance is less than 10,000, a
    minimum payment of 1 of the total loan balance
    must be included in the debt ratios.
  • If the current IBR payment is over 100, lenders
    may use that payment amount in the debt ratios.

154
IBR Student Loan Examples
  • Q Account verification reports an IBR payment
    of 25 for a loan balance of 25,000.
  • A Include a 100 payment.
  • The current IBR payment is below 100 and 1 of
    the loan
  • balance is over 100 (250), therefore per
    guidance, use a
  • minimum payment of 100.

155
IBR Student Loan Examples
  • Q Account verification reports an IBR payment
    of 25 for a loan balance of 9,500.
  • A Include 95 payment.
  • The current IBR payment is below 100 and the
    loan
  • balance is less than 10,000. Therefore, per
    guidance use 1
  • of the total loan balance as the minimum payment
    (95).

156
IBR Student Loan Examples
  • Q Account verification reports an IBR payment
    of 250 for a loan balance of 45,000.
  • A Include the 250 payment.
  • The current IBR payment is above 100, therefore
    the current
  • payment is allowed to be included.

157
Previous Agency Loan
  • 1980.345(d)(e)
  • Applicant incurred a loss on a previous RD loan
    that is settled or
  • is subject to settlement
  • RD determines eligibility for new loan
  • Applicant must provide Lender with evidence to
    support the extenuating circumstances for RDs
    review.

158
Federal Debts
  • 1980.345(f)
  • All Federal debts / judgments (U.S. Tax Court
    exempt) must be satisfied (paid in full) or have
    an official release of liability
  • CAIVRS claims Applicant must provide the lender
    with official documentation that the delinquency
    has been paid in full or otherwise
    resolved/satisfied

159
Ratios
  • 1980.345(c)(5)
  • PITI 29
  • Total Debt 41
  • If either threshold is exceeded Debt Ratio
    Waiver Request with strong documented
    compensating factors required


160
Debt Ratio Waivers
  • Compensating factors may include but are not
    limited to
  • Historical ability to devote a higher percentage
    of income to housing expense/minimal increase in
    housing expense
  • Cash reserves available post loan closing
  • 680 FICO or higher
  • LENDER IS RESPONSIBLE TO DOCUMENT AND RETAIN
  • SUPPORTING EVIDENCE!

161
Payment Shock
  • Payment Shock as a risk layer IF
  • PITI ratio is above 29
  • AND
  • New PITI is 100 or more than current
    housing/rent, or applicant has no current history
    of paying rent or housing

162
Learning Check
  • Credit Scores
  • Applicant 1 750, 724, 750
  • Applicant 2 645
  • Which scores can be used for manual underwriting?
  • A.) 724 and 645
  • B.) 750 and 645
  • C.) 750 and non-traditional credit report for
    Applicant 2
  • D.) 724 and non-traditional credit report for
    Applicant 2

163
Learning Check
  • Answer C.
  • A repeating score may be selected for Applicant
    1.
  • Applicant 2 only has one score reported. For
    manually
  • underwritten loans a non-traditional credit
    report/tradelines is
  • required.

164
Learning Check
  • The following nontraditional tradelines have been
    verified for
  • Applicant 2
  • Verification of Rent, previous 16 month history
  • Ford Dealership, 22 months paid as agreed
  • Verizon cell phone, 48 months paid as agreed
  • Has the lender verified enough acceptable
    tradelines?

165
Learning Check
  • Answer YES
  • When rent is verified, 3 total tradelines are
    required (including
  • rent).
  • All tradelines had a 12 month history and were
    open accounts.

166
Learning Check
  • The credit report lists three medical collection
    open in 2010.
  • They total 12,500 and no payment arrangements
    have been
  • made. The lender has included a 1.00 payment
    for each account.
  • Is this acceptable?

167
Learning Check
  • Answer NO
  • If there is not a current payment arrangement
    verified the lender
  • must determine if the collection must be paid
    prior to loan closing,
  • or if they will grant a credit waiver per
    1980.345(d)(3) based upon
  • evidence provided by the applicant.
  • Retain evidence in permanent loan file to support
    loan approval
  • decision. Documented credit waiver to RD may be
    required.

168
Learning Check
  • An applicant has a Chapter 7 bankruptcy/foreclosur
    e/short sale
  • that has been discharged/completed less than 36
    months. They
  • are ineligible for a guaranteed loan.
  • True or False

169
Learning Check
  • Answer FALSE
  • Underwriters may consider granting credit waivers
    for any
  • adverse credit outlined in 1980.345(d)(1).
    Follow 1980.345(d)(3)
  • to properly document a credit waiver.

170
Learning Check
  • The CAIVRS number and the credit report both
    indicate the
  • applicant(s) has previously defaulted on a
    guaranteed loan. Who
  • determines if a new guaranteed loan may be
    granted?
  • A.) Approved Lender
  • B.) Rural Development

171
Learning Check
  • Answer B.
  • Rural Development will review the documentation
    and
  • explanation provided by the applicant as to why
    they defaulted on
  • their previous loan (direct or guaranteed).
  • Rural Development will determine if the
    applicants qualify for a
  • new guaranteed loan.

172
Learning Check
  • The ratios on a loan file are 32 PITI and 43
    TD. Which of the
  • following are strong documented compensating
    factors to support
  • a debt ratio waiver request from Rural
    Development?
  • A.) FICO score of 750
  • B.) Two years job time
  • C.) 6 months of reserves post loan closing
  • D.) Current rent 850 for two years, New PITI
    945
  • E.) Good residual income
  • F.) Taking night classes, more income potential

173
Learning Check
  • Answers A, C and D
  • These answers demonstrate strong credit, ability
    to save, and the
  • ability to make a similar rent payment
    successfully.
  • A.) FICO score of 750
  • B.) Two years job time
  • C.) 6 months of reserves post loan closing
  • D.) Current rent 850 for two years, New PITI
    945
  • E.) Good residual income
  • F.) Taking night classes, more income potential

174
Learning Check
  • An applicant has a 700 FICO and a Chapter 7 BK
    discharged
  • less than 24 months. A documented credit waiver
    must be
  • submitted to Rural Development with the loan
    file.
  • True
  • False

175
Learning Check
  • An applicant has a 700 FICO and a Chapter 7 BK
    discharged
  • less than 24 months. A documented credit waiver
    must be
  • submitted to Rural Development with the loan
    file.
  • True
  • False

176
Learning Check
  • Debt ratio waiver requests are only required if
    the total debt
  • threshold of 41 percent is exceeded.
  • True
  • False

177
Learning Check
  • Debt ratio waiver requests are only required if
    the total debt
  • threshold of 41 percent is exceeded.
  • True
  • False

178
Learning Check
  • Andrew has three student loans. They are
    individual accounts
  • on the credit report. Andrews parents make the
    payments
  • and he has 24 months evidence to support their
    payments.
  • Can the lender exclude the student loans from
    Andrews debt
  • ratios?
  • Yes
  • No

179
Learning Check
  • Answer B. NO
  • These are individual debts in Andrews name only.
    He is the
  • liable party for the debt. The debt must be
    included.

180
Learning Check
  • Joyce has been divorced from Peter for 3 years.
    Peter received
  • the marital home in the divorce but never
    refinanced
  • Joyce from the mortgage note. She quit claimed
    the home to
  • him at the time of the divorce. Peter has
    provided 12 months
  • of canceled checks that he pays the mortgage
    himself. Does the
  • lender have to include the mortgage debt in
    Joyces ratios?
  • Yes
  • No

181
Learning Check
  • Answer B No
  • Joyce has transferred the property to Peter. He
    has provided
  • 12 months of evidence from his account of
    mortgage
  • payments. Joyce can have this debt excluded from
    her ratios
  • per 1980.345(c)(1)(ii).

182
Learning Check
  • Larry has a FICO of 680 with 7 open tradelines.
  • 5 authorized user accounts with his grandmother,
    all paid as agreed.
  • 2 Individual accounts car payment with three 90
    day lates in the last 12 months and one new
    collection to Direct TV open three months ago.
  • Should the underwriter consider the 680 FICO an
    accurate indication of
  • Larrys ability and willingness to meet
    obligations as they become due?
  • Yes
  • No

183
Learning Check
  • Answer B. NO
  • Larrys own individual debts do not support
    1980.345(d). In fact he has
  • two indicators of adverse credit per
    1980.345(d)(1). Larry is obviously
  • benefiting from his grandmothers ability to pay
    her bills on time. The
  • underwriter should exercise extreme caution if a
    credit waiver per
  • 1980.345(d)(3) is issued and the loan approved.

184
Interest Rate 1980.320
  • Maximum rate determined on the day of lock
  • Maximum Calculation Fannie Mae 90 day delivery,
    plus 60 basis points, rounded up to the nearest
    quarter of one percent

185
Interest Rate 1980.320
  • https//www.fanniemae.com/singlefamily/historica
    l-daily-required-net-yields

January 7, 2013 Maximum Interest Rate
Calculation 3.03 60 basis points 3.63,
round up to the nearest ¼ of 1 3.75
186
Appraisals 1980.334
  • Completed within 6 months of the date the request
    for a conditional commitment is submitted to RD
  • Licensed or certified residential appraiser or a
    HUD Roster Appraiser
  • Use appropriate appraisal forms for property type
  • Clear photographs of front, rear, and street
    scene of subject and front view of each
    comparable. (color photographs are not required)
  • 1004 MC Market Conditions Addendum required

187
Appraisals
  • Inspections 1980.341(b)(1)
  • Existing homes HUD Han
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