4501.10: LTV/TLTV/HTLTV ratios, Borrower contribution, reserves, sources of funds for Home Possible® Mortgages (10/29/18)

(a) Loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios, Borrower contribution

(i) LTV/TLTV/HTLTV ratios

The following requirements apply to purchase and "no cash-out" refinance transactions:

Property Type	Maximum LTV ratio	Maximum TLTV ratio	Maximum HTLTV ratio
Fixed-Rate Mortgages
1- unit*	97%	105%**	97%**
2- to 4-unit	95%	95%	95%
ARMs
1- and 2-unit	95%	95%	95%
3- and 4-unit	75%	75%	75%
Manufactured Home	See Chapter 5703	See Chapter 5703	See Chapter 5703

* Super conforming Mortgages secured by 1-unit properties must have LTV, TLTV and HTLTV ratios not exceeding 95%. A 105% TLTV ratio is permitted when secondary financing is an Affordable Second®

** When the TLTV ratio exceeds 97%, the secondary financing subordinated to a Home Possible Mortgage must be an Affordable Second. The Affordable Second financing cannot be a Home Equity Line of Credit.

See Section 4501.7 for additional LTV/TLTV/HTLTV ratio requirements for Home Possible Mortgages with non-occupying Borrowers.

(ii) Borrower contribution requirements

The following requirements apply to purchase transactions:

Minimum contribution from Borrower personal funds, as described in Section 4501.10(c)(i)
Property Type	Home Possible Mortgages with LTV, TLTV and HTLTV ratios ≤ 80%	Home Possible Mortgages with LTV, TLTV or HTLTV ratios >80% ≤95%	Home Possible Mortgages with LTV, TLTV or HTLTV ratios >95%
1-unit	None	None	None
Manufactured Home	None	None	N/A
2- to 4-unit	None	3% of value	N/A

(b) Reserves

For Loan Product Advisor® Mortgages, the Seller must verify all reserves required by Loan Product Advisor, as stated on the Feedback Certificate.For Manually Underwritten Mortgages, the Borrower must have the following minimum reserves, using the monthly payment amount as described in Sections 5501.2 and 5501.3:

1-unit: None required
2- to 4-unit: Two months

(c) Sources of funds

The following sources of funds are permitted and must meet the requirements in Sections 4501.10(c)(i), 4501.10(c)(ii) and 4501.10(c)(iii), below:

Use	Permitted Sources of Funds
Minimum Borrower contribution	Borrower personal funds
Down Payment	Borrower personal funds Other eligible sources of funds
Paying down the principal balance of the Mortgage being refinanced for a "no cash-out" refinance transaction	Borrower personal funds Other eligible sources of funds
Closing Costs	Borrower personal funds Other eligible sources of funds Flexible sources of funds
Reserves	Borrower personal funds Other eligible sources of funds

(i) Borrower personal funds

When used with Home Possible Mortgages, Borrower personal funds include:

1. Borrower personal funds as described in Section 5501.3(b)

2. Cash on hand, if the following requirements are met:

The Seller reasonably concludes, and can support, that the Borrower is a cash-basis individual and that the cash on hand is not borrowed and could be saved by the Borrower
The Mortgage file contains the following documents supporting the Seller's conclusion:
- A completed Exhibit 23, Monthly Budget and Residual Analysis Form, or another document containing the same information, confirming that the total monthly residual income available for savings is a positive number
- Copies of six months' cash receipts (e.g., rent or utility receipts) or other alternative documentation (e.g., direct verifications or wire transfers) meeting the requirements of Section 5202.2(b)) to verify that recurring obligations, including the payment of revolving and installment debt, are customarily paid in cash
- A credit report, obtained at the time of loan application, meeting the requirements of Section 5203.1. The credit report must not show more than three Tradelines.
- Copies of three months' statements for any open revolving account that reveal cash advances are not the source of Borrower funds. Any cash advances must be explained and documented (i.e., a cash advance used in an emergency situation).
- An updated credit report obtained approximately one week before closing that does not show any new accounts or a substantial increase to an existing account that approximates, or exceeds, the amount of cash on hand provided by the Borrower
The Mortgage file must have no indication that the Borrower typically uses checking, savings or similar accounts
Evidence that all funds used to qualify the Borrower for the Mortgage transaction are deposited in a financial institution or are held in an institutional escrow account prior to closing

(ii) Other eligible sources of funds

When used with Home Possible Mortgages, other eligible sources of funds used to qualify the Borrower for the Mortgage transaction, include:

1. Other eligible sources of funds as described in Section 5501.3(c)

2. A gift or grant from the Seller as the originating lender, provided that a contribution of at least 3% of value (as described in Section 4203.1) is made from Borrower personal funds and/or other eligible sources of funds as described in this section. The gift or grant must not be funded through the Mortgage transaction, including differential pricing in rate, discount points, or fees for individual loans or across the Home Possible offering.

3. For purchase transactions, proceeds from an unsecured loan from the following sources:

Except as stated in item 6 below, an Agency that is not:
- The Seller or has participated in any aspect of the Mortgage origination process
- Affiliated with, under contract to, or financed (directly or indirectly) by the Seller or any party that participated in the Mortgage origination process
- For these purposes, "affiliated with" means that the Agency and the Seller or other party are related to each other as a consequence of one entity directly or indirectly controlling the other party, being controlled by the other party or being under common control with that party.
A Related Person, or
A Community Savings System (funds in excess of the Borrower contribution to the Community Savings System)

An unsecured loan must meet the following requirements:

Must not contain provisions that allow or could result in negative amortization
Must have a maturity date that:
- Does not exceed the maturity date of the Mortgage
- Is at least five years after the Note Date of the Mortgage, unless the unsecured loan is fully amortizing
Must have an interest rate that is no greater than the Note Rate on the Mortgage
Must not be a cash advance from a credit card or unsecured line of credit
Must have its source, terms and conditions documented on the Form 65, Uniform Residential Loan Application

If the monthly payment of principal and interest or interest only begins on or after the 61st monthly payment under the First Lien Mortgage or if repayment of the loan is due only upon sale or default, the amount of the monthly payment may be excluded from the monthly debt payment-to-income ratio; otherwise, the required monthly payments must be included in calculating the monthly debt payment-to-income ratio.

4. Sweat equity, if the following conditions are met:Sweat equity is credit for labor performed on the Mortgaged Premises and/or materials furnished for the Mortgaged Premises by the Borrower. Such credit must be fully explained and documented.Any labor performed must be completed in a skillful and workmanlike manner to support the appraised value. A certification of completion (Form 442) must be obtained verifying the work has been completed. The full amount of the Borrower's Down Payment may be in the form of sweat equity or a combination of sweat equity and Borrower personal funds as described in Sections 4501.10(c)(i) and 4501.10(c)(ii). Sweat equity can also be used in combination with an Affordable Second.

(A) Eligible repairs and improvements

Sweat equity is an eligible source of funds in connection with the following repairs and improvements:

All repairs and improvements to be completed by the Borrower that are listed in the sales contract and included in the appraisal report
Repairs or improvements that are reflected on the appraisal report that are outstanding at the time of the appraisal. Credit for work completed prior to the original property inspection by the appraiser is not eligible for sweat equity.

(B) Determining the value of the sweat equity

The value of the sweat equity that may be used as an eligible source of funds equals the value of the labor performed plus the value of the materials furnished, documented as follows:

The value of the labor performed must be estimated by the appraiser or a cost estimating service and documented in the appraisal report or separately in the Mortgage file; and
The value for materials furnished must either be estimated by the appraiser or a cost estimating service, or be calculated using receipts from the purchase of the materials. The estimates or costs as evidenced by receipts must be documented in the Mortgage file.

(C) Maximum loan-to-value (LTV) and total LTV (TLTV) ratios

For Home Possible Mortgages that use sweat equity as an eligible source of funds, the following maximum LTV/TLTV ratios apply:

Property type	Maximum LTV/TLTV ratio
1-unit Primary Residence	97%/105%
2- to 4-unit and Manufactured Homes	95%/95%

(D) No cash out at closing

If sweat equity is used as an eligible source of funds, the Borrower must not receive cash back at closing. All excess funds must result in a reduction of the principal balance on the Mortgage.

(E) Special delivery requirements

See Section 6302.14 for special delivery requirements for Home Possible Mortgages originated with sweat equity as a credit towards the Down Payment and/or Closing Costs.

5. Proceeds from an Affordable Second or other secondary financing that meets the requirements in Chapter 4204. When the TLTV ratio exceeds 97%, the secondary financing subordinated to a Home Possible Mortgage must be an Affordable Second.

6. Funds provided by an Agency that is affiliated with, under contract to, or financed (directly or indirectly) by the Seller as the originating lender, when:

The source of funds is an eligible source meeting all applicable Guide requirements (for example, a gift or grant from an Agency must meet the requirements in Section 5501.3(c))
A contribution of at least 3% of value (as described in Section 4203.1) is made from Borrower personal funds and/or other eligible sources of funds as described in this section; and
The source of funds is not funded through the Mortgage transaction, including differential pricing in rate, discount points, or fees for individual loans or across the Home Possible offering

(iii) Flexible sources of funds

When used with Home Possible Mortgages, flexible sources of funds include:

1. Financing concessions as described in Section 5501.5(b) meeting the applicable requirements of Section 5501.5

2. Lender credit, as described in Section 5501.6 and as documented on the Settlement/Disclosure Statement

3. Proceeds from an unsecured loan from the Seller as originating lender meeting the following requirements:

Must not contain provisions that allow or could result in negative amortization
Must have a maturity date that:
- Does not exceed the maturity date of the Mortgage
- Is at least five years after the Note Date of the Mortgage, unless the unsecured loan is fully amortizing
Must have an interest rate that is no greater than the Note Rate on the Mortgage
Must not be a cash advance from a credit card or unsecured line of credit
Must have its source, terms and conditions documented on Form 65

If the monthly payment of principal and interest or interest only begins on or after the 61st monthly payment under the First Lien Mortgage or if repayment of the loan is due only upon sale or default, the amount of the monthly payment may be excluded from the monthly debt payment-to-income ratio; otherwise, the required monthly payments must be included in calculating the monthly debt payment-to-income ratio.