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  • Underwriting Guidelines (FHA Loans)

  • Underwriting Guidelines (FHA Loans) Mortgage Lending Division Version 1.2 11/30/12

    CMS Policies & Procedures Page 2 of 243 Proprietary and confidential. For Internal use only. Do not distribute externally.

    OVERVIEW

    Purpose The following document describes the responsibilities and requirements of the Carrington Mortgage Services, LLC (CMS) Mortgage Lending Division Underwriter (Underwriter) when reviewing and underwriting Federal Housing Administration (FHA) mortgage loan applications.

    Table of Contents

    FHA Underwriting ........................................................................................................... 11

    Overview ................................................................................................................. 11 FHA Loan Programs and Compliance ......................................................................... 11

    Overview ................................................................................................................. 11 Mortgage Insurance Programs ................................................................................. 12

    Overview ................................................................................................................. 12 FHA Programs ........................................................................................................ 12 Section 203(b) Home Mortgage Insurance ............................................................. 12 Section 234(c) Mortgage Insurance for Condominium Units .................................. 13 Section 251 Adjustable Rate Mortgages ................................................................ 13

    Automated Data Processing (ADP) Code ............................................................... 14 Description .............................................................................................................. 14

    FHA Insured Mortgages for HUD Employees ......................................................... 16 Overview ................................................................................................................. 16 Underwriting HUD Employee Loans ....................................................................... 16

    Property Disposition (Sale of HUD Owned Properties) ......................................... 17 Overview ................................................................................................................. 17 Appraisal Requirements .......................................................................................... 17

    Seller Contributions .................................................................................................. 18 Requirements .......................................................................................................... 18

    FHA Case Numbers ................................................................................................... 20 Assigning the FHA Case Numbers / Sections of the ACT / ADP Codes ................ 20

    FHA Connection ......................................................................................................... 21 Overview ................................................................................................................. 21 Origination Functions in FHA Connection ............................................................... 21

    Case Number Assignment, Cancellation, and Reinstatement .............................. 23 Case Processing Menu ........................................................................................... 23 Case Number Assignment ...................................................................................... 23 Manual Case Number Cancellation ........................................................................ 23 Automatic Case Number Cancellation by the Systems .......................................... 24 Case Number Reinstatement.................................................................................. 24 Case Number Cancellation for Loans Eligible for Higher County Loan Limits ....... 25

    FHA Home Ownership Center (HOC) ....................................................................... 25 Home Ownership Centers ....................................................................................... 25

    FHA Loan Eligibility ....................................................................................................... 26

    Overview ................................................................................................................. 26 LDP and GSA Procurement/Non-Procurement ...................................................... 26

    Requirements .......................................................................................................... 26 Uniform Residential Loan Application .................................................................... 27

    Loan Application Requirements .............................................................................. 27

  • Underwriting Guidelines (FHA Loans) Mortgage Lending Division Version 1.2 11/30/12

    CMS Policies & Procedures Page 3 of 243 Proprietary and confidential. For Internal use only. Do not distribute externally.

    Face-To-Face Interview ............................................................................................. 28 Overview ................................................................................................................. 28

    Identity and Social Security Number Validations ................................................... 28 Identity Verification .................................................................................................. 28 Social Security Number Validation ......................................................................... 29

    Occupancy Types ...................................................................................................... 30 Overview ................................................................................................................. 30 Primary Residence .................................................................................................. 30 Occupancy of Former Investment Property or Second Home ................................ 31

    Borrowers, Co-Borrowers, Co-Signers, and Non-Purchasing Spouses .............. 31 Borrowers, Co-Borrowers And Co-Signers ............................................................ 31 Non-Purchasing Spouse ......................................................................................... 32 Community Property State-Specific Information ..................................................... 33 Additional State-Specific Requirements ................................................................. 35

    Transaction Types ..................................................................................................... 36 Overview ................................................................................................................. 36 Purchase Mortgage ................................................................................................. 36 Refinance Mortgages .............................................................................................. 37 Construction Permanent Mortgages (Single-Close Modification of Note) .............. 43 Loan Transactions Paying Off Land Contracts ....................................................... 44 Principal Curtailment ............................................................................................... 45 Refinance Transactions with Escrow Credits ......................................................... 46

    Leasehold Estates ..................................................................................................... 47 Overview ................................................................................................................. 47 Leasehold Estate Requirements ............................................................................. 47 Lease Requirements ............................................................................................... 47 Ground Rents .......................................................................................................... 48

    Maximum Mortgage Limits ....................................................................................... 48 Requirements .......................................................................................................... 48

    Loan-to-Values ........................................................................................................... 49 Calculating Loan-to-Value ....................................................................................... 49 Calculating Combined Loan-to-Value ..................................................................... 49

    Combined Loan Amount ........................................................................................... 50 Definition ................................................................................................................. 50

    Minimum Borrower Investment ................................................................................ 50 Overview ................................................................................................................. 50 Acquisition Cost ...................................................................................................... 50

    Secondary or Subordinate Financing...................................................................... 51 Overview ...............................................................................................