May 16, 2018 Fannie Mae and Freddie Mac Underwriting Guidelines. May 16, 2018. The underwriting guidelines from Freddie Mac and Fannie Mae form the cornerstone of the mortgage underwriting process.It is important for lenders to strictly adhere to these guidelines because they form the foundation of the rules that govern mortgage loans.
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PURCHASE AND 'NO CASH-OUT' REFINANCE MORTGAGES. (Fixed-Rate and ARMs). See chart below for LTV/TLTV/HTLTV ratios and other requirements for a 'no cash-out' refinance of a mortgage currently owned or securitized by Freddie Mac.
FHA Manual Underwriting Mortgage Guidelines And Requirements
Underwriting Guideline Manual 1.3. Approved Agency Automated Underwriting Systems (AUS) – Fannie Mae’s Desktop Underwriter® (DU) / Freddie Mac’s Loan Prospector® (LP) Recommendations Provided the loan meets the product eligibility criteria of the applicable Essent Product Eligibility Matrix (as outlined in.
This BLOG On FHA Manual Underwriting Mortgage Guidelines And Requirements Was UPDATED And PUBLISHED On August 20th, 2019
FHA Manual Underwriting Mortgage Lending Guidelines And Definition Of Compensating Factors Explained
There is no dead set in stone requirements with FHA Manual Underwriting Mortgage Guidelines. Manual Underwriting is when a mortgage loan application cannot get an approve/eligible per Automated Underwriting Systemand the Automated Underwriting System yields a referred/eligible per Automated Findings.
Referred means that the automated system cannot issue an automated approval with the information
The data entered in the automated approval system cannot render an automated underwriting system approval
Eligible means that the mortgage loan application is eligible for a mortgage loan approval
Refer means that the file needs to be referred to a human mortgage underwriter
What Does Manual Underwrite Mean
Manual Underwriting means that the mortgage file is assigned to a mortgage underwriter and has to be manually underwritten by a human underwriter:
The mortgage underwriter will review the whole mortgage loan application
The underwriter will look for derogatory credit information
They will analyze the credit risk surround the derogatory credit items and look for compensating factors which are positive factors
Examples of compensating factors are
Reserves
Low payment shock through verification of rent
Longevity in the job, larger down payment
Additional income not used as qualified income
Part-time income borrower has for at least a year but not used as qualified income
Other positive factors that show the strength of the mortgage loan borrower
Lenders view lower credit score borrower’s as higher risk
Under 620 credit 2019 FHA manual underwriting mortgage guidelines state that the mortgage underwriter has discretion in assessing the risk of the borrower when deriving to a decision on whether to issue a mortgage loan approval or not
Requirements With 2019 FHA Manual Underwriting Mortgage Guidelines
There are no specific requirements with 2019 FHA Manual Underwriting Mortgage Guidelines and a lot of deciding factors relies on mortgage underwriter discretion.
One of the most important factors most mortgage underwriters require is rental verificationand less than 5% payment shock or $100 increase from the rental expense to new housing payment, whichever is less
Rental verification is only valid if the renter can provide 12 month’s canceled checks where he or she has paid their rental payments with a bank check
The renter can also provide 12 month’s bank statements if they have paid it online
Cash rental payment does not count as verification of rent
If the renter has leased their apartment or home from a registered property management company, then a verification of rent form provided by the lender to the property management company can be used in lieu of canceled checks and/or bank statements
All rental payments in the past 12 months need to have been on time and no 30 day late payments on their monthly rents are allowed
FHA Manual Underwriting Guidelines On Credit Scores And DTI
The lowest credit scores allowed to qualify for a 3.5% down payment home purchase FHA Loan is 580 credit scores.
Mortgage lenders like myself have no FHA mortgage lender overlays
Manual underwriting mortgage loans with credit scores as low as 580 credit scores
However, most lenders do have overlays on credit scores with manual underwriting loans where they want a minimum credit score of at least 640 credit scores
HUD Guidelines On Debt To Income Ratio On Manual Underwriting
Most mortgage lenders normally prefer borrower’s debt to income ratios on manual underwrites at 43% DTI:
FHA Manual Underwriting Mortgage Guidelines does have a tier on debt to income caps depending on borrower’s credit scores
Compensating Factors will increase debt to income ratio cap requirements
I have done and closed on manual underwriting mortgage loan files with debt to income ratios up to 50% DTI
However, manual underwriters will look for strong compensating factors when underwriting a manual underwrite
Borrowers who are looking for an FHA mortgage lender with no Lender Overlays specializing in manual underwriting, please contact us at Gustan Cho Associates at 262-716-8151 or text for faster response. Or email us at [email protected]. We are available 7 days a week, evenings, weekends, and holidays to take calls and answer any questions.
2019 Update On HUD Manual Underwriting Guidelines
Manual Underwrites are becoming very popular. There are instances where an approve/eligible per AUS FINDINGS loan applicant will get downgraded to a manual underwrite such in cases where there are credit disputes. All manual underwriting require verification of rent.
NEW HUD guidelines on manually underwritten loans
The bullet points below apply to all manually underwritten FHA Loans
HUD Mortgagee Letter 2014-02 RESERVES REQUIRED on all manually underwritten loans.
1 month reserves are required on all 1-2 unit properties on manually underwritten FHA Loans
3 months reserves are required on all 3-4 unit properties with manually underwritten FHA Loans
Debt Ratio Limits On All FHA Manual Underwriting Loans
Automated Approved FHA Loans debt to income ratios are 46.9% DTI front end and 56.9% DTI back end on borrowers with credit scores 620 and higher. Borrowers with credit scores under 620, maximum DTI requirements is capped at 43% DTI for an automated underwriting system approval.
HUD Manual Underwriting Guidelines
Below is the manually underwritten debt to income ratio requirements PER 2018 HUD GUIDELINES ON MANUAL UNDERWRITING:
Borrowers with credit scores under 580 or borrowers who need to be underwritten with non-traditional credit, the maximum debt to income ratio required are 31% front end and 43% DTI back end
Borrowers with at least a 580+ credit score with NO compensating factors, the maximum front end debt to income ratio is 31% DTI and 43% DTI back end
Borrowers with at least a 580 credit score and ONE compensating factor, the maximum front end debt to income ratio is 37% DTI and maximum back end debt to income ratio is 47% DTI
Borrowers with at least a 580+ credit score with TWO compensating factors, the maximum front debt to income ratio is 40% DTI and maximum back end DTI is 50% DTI
Borrowers with at least a 580+ FICO credit score with NO discretionary debt, the maximum front end debt to income ratio is capped at 40% DTI and maximum back end is capped at 40% DTI
HUD Guidelines On Compensating Factors
Acceptable Compensating Factors per HUD GUIDELINES are limited to the following:
3 months of reserves for 1-2 unit properties
6 months reserves for 3-4 unit properties
The new total monthly mortgage payment is not more than $100 and/or 5% higher than previous total monthly housing payment, whichever is less
There is documented 12 monthly housing payment history with no more than one late payment in the past 12 months
Cash-out refinance transactions cannot have any late payments in the past 12 months
Residual income. (See HUD mortgagee letter 2014-02 for details)
Verified and documented significant additional income not considered effective income
Freddie Mac Income Matrix
All manual underwriting requires timely payments in the past 12 months. Borrowers who need a direct lender with no overlays on FHA Loans and can do manual underwriting on FHA and VA Loans, please contact us at The Gustan Cho Team at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at [email protected].
New Freddie Mac HomeOne 3% down mortgage program
The Freddie Mac HomeOne mortgage, a new 97 percent loan program, is now available. But, surprisingly, no one is talking about it.
It’s a big deal because restrictions applied to a the 3% down Home Possible program have been removed.
HomeOne has NO income limits
HomeOne has NO geographic restrictions (you don’t have to buy in a low-income census tract)
Despite fewer restrictions, the loan only requires a 3% down payment.
This could be the low-down-payment loan home buyers have been waiting for.
Compared to FHA loans, HomeOne may be a better fit for many buyers.
Get started on your HomeOne application here. (Aug 26th, 2019)
HomeOne advantages
The advantages of this program are clear. You can make as much money as you want, choose to live anywhere, and still be eligible for 3% down.
The former Freddie Mac program, Home Possible, required the applicant to either 1) make low-to-moderate income, 2) live in an underserved (and potentially undesirable) census tract, or 3) put down 5% to waive these restrictions.
While their income appears high “on paper,” their actual disposable income available to save for a down payment is limited.
HomeOne opens the door for cash-strapped, younger home buyers with higher incomes to break into homeownership.
Many younger buyers — who are new in their careers — probably have student loans. So, while their income appears high “on paper,” their actual disposable income available to save for a down payment is limited.
HomeOne seeks to help this type of prospective home buyer.
Qualifying for HomeOne Freddie Mac 97 percent financing
To be eligible for HomeOne:
At least one borrower must be a first-time homebuyer
The property must be a one-unit primary residence including single-family residences, townhomes, and condos
You need at least 3 percent for your down payment
Homebuyer education is required
Freddie Mac may consider you a first-time homebuyer even if you have owned property before. If all buyers are first-timers, at least one will have to complete an approved homebuyer education.
However, when you apply for a mortgage program, you don’t just have to be eligible. Eligibility means you are allowed to apply for the loan. Qualifying for the loan means you also meet the lender’s guidelines — credit history and score, assets and income, for instance.
In addition, you must have a usable credit score that will allow the lender to underwrite the loan using Freddie Mac’s automated system. The software will either accept or reject your application, and it only takes a few minutes.
If you get an “accept” recommendation, and your documents match your income and asset information in the application, you can use the program. If your application requires manual underwriting, you are not eligible for HomeOne.
Finally, the property must also meet the lender guidelines and the appraisal must be acceptable to the lender.
HomeOne vs FHA
While FHA mortgages have flexible underwriting guidelines and require just 3.5 percent down, they come with several drawbacks.
FHA home loans require an upfront mortgage insurance premium (MIP) of 1.75 percent of the loan amount.
FHA imposes annual mortgage insurance, typically 0.85% of the loan amount per year (about $70 per month for every $100,000 borrowed)
FHA mortgage insurance cannot be canceled regardless until you refinance into another loan type
HomeOne is better for some borrowers.
Conventional loans, including Freddie Mac’s HomeOne, does not require an upfront fee
PMI is cancelable when your loan balance reaches 78% of the home’s value
You can receive a lower monthly PMI payment than with FHA with a good credit score
However, mortgage insurance could be higher than FHA’s if you have a lower credit score. Ask your lender to compare both scenarios.
In brief, if you have good income, a great credit score, and have been responsible with your finances up to this point, HomeOne will probably suit you better than FHA.
Check more HomeOne requirements with a lender here. (Aug 26th, 2019)
What’s the minimum HomeOne credit score?
The program usually requires a credit score of 660 or higher. At least one borrower must have a traditional credit score to qualify (non-traditional credit reports and scores are not allowed for both borrowers).
What is the maximum debt-to-income ratio?
There is no set maximum, but you must have a debt-to-income ratio below 45% in most cases. That means no more than 45% of your gross income can go toward your total housing payment including principal, interest, mortgage insurance, taxes, homeowner’s insurance, and HOA dues.
How does Freddie Mac define “first time home buyer?”
This guideline is actually pretty generous. You may be eligible for HomeOne even if you owned a home in the past. Here’s what can make you eligible:
You have had no ownership interest in a residential property during the three-year period before buying a home
Displaced homemakers or single parents may qualify if their only homeownership in the last three years was joint with a former spouse and the home was their primary residence
You can purchase a home with HomeOne if at least one borrower on the loan is a first-time buyer.
Where do I get the required homeownership education?
If all borrowers are first-time home buyers, you will need homeownership education. Freddie Mac’s CreditSmart® training is free and an acceptable education source.
Can I refinance my home using HomeOne?
Yes. You may use HomeOne to refinance if you have at least 3% equity. If you have less than 3% equity, use the Freddie Mac Enhanced Relief Refinance (FMERR).
Freddie Mac Manual Underwriting Guidelines For Fha Loans
New and improved Home Possible
Freddie Mac’s Home Possible program, instituted in 2015, increased the availability of conventional (non-government) financing to buyers with small down payments. However, the minimum down payment was 5 percent for most applicants.
Only those who qualified for Home Possible Advantage could apply for a Freddie Mac 3% down loan. And that meant meeting income restrictions that depended on the local cost of housing. Danny Gardner, a senior vice president with Freddie Mac, said in a National Mortgage News interview that the program had some problems.
Freddie Mac Manual Underwriting Guidelines Free
For example, a loan could be derailed by a lender finding extra income, for instance, from a spouse. This would push the applicant over the income limit.
“That caused a level of complexity for lenders and consumers to understand those nuances,” Gardner said. “By having a more broad-based product where the metric is whether or not you are a first-time homebuyer makes those other if/then statements obsolete and lenders can be more confident promoting an option for borrowers.”
Apply for HomeOne
Mac Manual Download
Lenders are now accepting HomeOne loan applications. If you’ve been locked out of homeownership due to income restrictions or down payment requirements, now is the time to apply
Freddie Mac Manual Underwriting Guidelines 2018
Get qualified for the HomeOne loan. Start here. (Aug 26th, 2019)