Refer to Bulletin 2017-23, which announced revisions to our requirements for calculating the monthly debt payment-to-income ratio, which can be implemented prior to the 01/18/18 version of this section.
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1. Monthly housing
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expense (
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see Section 5401.1)
2.
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Payments on all installment
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debts with more than 10 months of payments remaining, including debts that are in a period of either deferment or forbearance.
- The monthly payment amount reported on the credit report, or
- 0.5 % of the original loan balance or the outstanding loan balance, as reported on the credit report, whichever is greater
- The monthly payment amount reported on the credit report, or
- 1% of the original loan balance or the outstanding balance, as reported on the credit report, whichever is greater
- The student loan has 10 or less monthly payments remaining until the full balance of the student loan is forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid, or
- The monthly payment on a student loan is deferred or is in forbearance and the full balance of the student loan will be forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid, at the end of the deferment or forbearance period
AND
- The Borrower currently meets the requirements for the student loan forgiveness, cancellation, discharge or employment-contingent repayment program, as applicable, and the Seller is not aware of any circumstances that will make the Borrower ineligible in the future
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- An executed sales contract for the property pending sale. If the executed sales contract includes a financing contingency, the Mortgage file must also contain evidence that the financing contingency has been cleared or a lender's commitment to the buyer of the property pending sale;
OR
- An executed buyout agreement that is part of an employer relocation plan where the employer/relocation company takes responsibility for the outstanding Mortgage(s)
The Borrower's liabilities must be reflected on the Mortgage application (Form 65, Uniform Residential Loan Application) and considered when qualifying the Borrower. Sellers must review the Mortgage application, credit report, Borrower's paystubs (if provided) and other file documentation for Borrower liabilities. All of the Borrower's debts incurred through the Note Date must be considered when qualifying the Borrower.
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When the Borrower pays off or pays
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down an existing
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debt (including paying down the principal balance on the Mortgage being refinanced)
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in order to qualify for the Mortgage, the Seller must document
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the source of funds used
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to pay off or pay down the debt. The source of
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funds must be an eligible source as described
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in Section 5501.3.
| Debt type | Eligibility and documentation requirements |
| Documentation in the Mortgage file must indicate the following:
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| Mortgage | Documentation in the Mortgage file must indicate the following:
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The Seller must evaluate the validity of circumstances under which the payments are being made by another party. For example, payments on multiple student loans made by the Borrower's parent represent a common situation. However, additional investigation and documentation might be necessary when a Borrower's multiple installment and revolving debts are being paid by the Borrower's spouse who is not on the subject Mortgage.
- Has been assigned to another by court order, such as a divorce decree, and
- The Seller documents the order (e.g., provides appropriate pages from the separation agreement or divorce decree) and documents the transfer of title
- The Mortgage file contains evidence that the debt has been paid timely by the Borrower's business for no less than the most recent 12 months, and
- The tax returns evidence that business expenses associated with the debt (e.g., interest, lease payments, taxes, insurance) have been reported and support that the debt has been paid by the business
- Provides for delivery of a specific amount of energy for an agreed upon payment during a given period; and
- Includes a production guarantee under which the Borrower is compensated on a prorated basis when the energy produced by the solar panels is less than the level required in the lease agreement
Payments for solar panels subject to a PPA or similar type of agreement may be excluded from the monthly debt payment-to-income ratio if the payment is calculated based only on the generated energy.
The Mortgage file must contain a copy of the lease agreement, PPA or similar type of agreement, as applicable.
- Cash-out refinance Mortgages
- Investment Property Mortgages
- Mortgages secured by second homes
- Mortgages secured by 2- to 4-unit properties
- Mortgages where there is evidence that the Borrower increases debt and then periodically uses refinance or debt consolidation loans to reduce payments to a manageable level
The following factors may be considered in justifying a debt payment-to-income ratio that exceeds 36% but is not greater than 45%:
- The Mortgage is secured by an energy efficient property, as described
- in Section 5401.1
- The Borrower's probability for increased earnings based on education, job training or time employed or practiced in a profession
- Documented rent paid by Related Persons living in the house
- The Borrower demonstrated ability to carry a higher housing expense or higher debt level while maintaining a good credit history for at least 12 months
- The existence of verified income that is not included within the definition of "stable monthly income"
- 1when there is an expectation that future expenses will be lower (such as child-support income that is scheduled to cease in one year when a child becomes an adult. In this case, the expectation would be that either future household expenses will be lower or that additional income will be provided by the new adult.)
In addition, the examples listed below may be used to justify higher qualifying ratios for Non-Loan Product Advisor Mortgages. These examples may not be used to justify higher qualifying ratios for Caution Mortgages because they have already been considered by Loan Product Advisor.
For any Manually Underwritten Mortgage for which either of the ratio guidelines is exceeded, the Seller must prepare and retain in the Mortgage file a written explanation justifying its underwriting decision.
See Section 5103.
1 for special requirements when a non-occupying Borrower is present.
| Related Guide Bulletins | Issue Date |
|---|---|
| Bulletin 2018-1 | January 31, 2018 |
| Bulletin 2017-23 | October 18, 2017 |
| Bulletin 2017-12 | August 9, 2017 |
| Bulletin 2016-23 | December 15, 2016 |
| Bulletin 2016-20 | November 9 |
| , 2016 |
Additional Resource: https://www.allregs.com/tpl/Viewform.aspx?formid=00051759&formtype=agency#page=469