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Conventional Loans - Fannie and Freddie

Fannie Acceptable Sources of Cash Reserves

When Purchasing or Refinancing a Primary Residence

When purchasing or refinancing a primary residence, lenders want to make sure that borrowers have some money left over after the closing has occurred. The cash reserves are usually two months based on your total mortgage payment, including taxes, insurance, PMI and association fees. Here is a list of the "acceptable" and "unacceptable" cash reserve sources.


Acceptable Cash Reserve Resources

  • Checking or savings accounts
  • Investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts.
  • The amount vested in a retirement savings account.
  • The cash value of a vested life insurance policy.
  • Receipt of tax return refunds.
  • Verified gift funds.
  • 100% value of liquidated stocks, bonds or retirement assets.


Unacceptable Sources of Reserves

  • Funds that have not been vested.
  • Funds that cannot be withdrawn under circumstances other than the account owner's retirement, employment termination, or death.
  • Stock held in an unlisted corporation.
  • Non-vested stock options and non-vested restricted stock.
  • Personal unsecured loans
  • Interested party contributions (IPCs)
  • Any amount of a lender contribution.
  • Cash proceeds from a cash-out refinance transaction.
  • Cash on hand or stashed away at home.


Fannie Mae Financing Concessions -

What Fees and Costs are Included

Depending on the down payment, sellers can pay a percentage of the buyer's costs at the time of closing.  Typical fees and/or closing costs paid by a seller in accordance with local custom - known as common and customary fees or costs - are NOT considered a sales concession, but the following fees, normally charged to the buyer but paid by the seller, could be considered a sales concession:

Financing concessions (if typically paid by the buyer):

  • Origination Fees
  • Discount Points
  • Commitment fees
  • Appraisal Costs
  • Transfer Taxes
  • Stamps
  • Attorneys' Fees
  • Survey Charges
  • Buyer's title insurance premiums or charges
  • Real estate tax service fees
  • Funds to subsidize a temporary or permanent interest rate buydown.

Financing concessions can also include prepaid items, such as:

  • Interest charges (limited to no more than 30 days of interest).
  • Real estate taxes covering any period after the settlement date.
  • Hazard insurance premiums (limited to no more than 14 months).
  • Homeowner association (HOA) assessments covering any period after the settlement date (limited to no more than 12 months).
  • Initial and/or renewal mortgage insurance premiums.
  • Escrow money for future renewal of borrower-purchased mortgage insurance coverage.


Fannie Mae & Freddie Mac Appraisal Quality Rating Codes Explained


Fannie Mae and Freddie Mac require appraisers to include a "Quality Rating Code" on all appraisal reports.  Here's what they mean for both existing and new construction.


Existing Property

C-1 - The entire structure is new, never been occupied and has no physical depreciation.


C-2 - Existing home, no deferred maintenance and requires no repairs.  This rating is give if   property is "almost" new or has been totally renovated.


C-3 - Existing home, well maintained but evidence of normal wear and tear.


C-4 - Existing home, minor deferred maintenance and requires only minimal repairs.


C-5 - Existing home, major deferred maintenance and in need of significant repairs but the home is still livable as a residence.


C-6 - Existing home, severe defects that affect safety, soundness and livability.  If property receives this rating, it's not eligible for conventional loan.


New Construction

Q-1 - Unique home individual designed by an architect for a specific user and details are exceptionally high quality.


Q-2 - Custom designed home built on individual property owner's land or high-quality tract lots.  Workmanship and materials are high quality.


Q-3 - Built from readily available blue prints in above-standard tract lots or individual's land. Materials in home are up-graded from standard materials and workmanship exceeds standards.


Q-4 - Standard or modified blue prints.  Materials, workmanship, finish work are stock builder grade and may have some upgrades.


Q-5 - Basic, standard quality, economy homes with limited interior design.  Meets minimum building codes and inexpensive construction, stock materials and limited upgrades.


Q-6 - Low cost and may not be suitable to year-round use.  Low quality and could be built by non-qualified builder with or without plans. May not be able to obtain a convention loan if receives this rating.


How to Handle Solar Panel Obligations when Selling a Home!

Fannie Mae & Freddie Mac


If the Seller Has a Standard Loan with a Lien Attached to the Property:

  • The lien has to be cleared off the property title.
  • The title to the solar panel system has to be transferred to the home buyer.
  • The payoff for the solar panel system would be part of the closing.
  • The payoff is deducted from the seller’s proceeds.

Solar Panels Financed with PACE Loan:

  • The sales contract must include a clause specifying whether the PACE obligation will remain with the property or be satisfied by the seller at, or prior to, closing.
  • Designation in the contract regarding where the PACE obligation will remain.
  • All terms and conditions of the PACE obligation must be fully disclosed to the Borrower.
  • Terms and Conditions must be made part of the sales contract between the seller and the Borrower.
  • The PACE obligation is transferred to the buyer.
  • The assessment payments are part of the monthly housing obligation.
  • The PACE obligation MUST be subordinate to the new first lien mortgage.


HomeStyle Renovation Mortgage

Close Now, Fix It, Move In!


If you are working with a client who is looking to obtain financing for home improvements when purchasing an existing home or a new construction property, then this program is a perfect match for your buyer.  This program also is great when working with borrowers looking to make improvements on an existing home they own.


Benefits and Features:

  • Perfect program for those properties that may just be missing the LTV benchmark - increasing the property value.
  • Perfect for properties that may have been given very low marks on quality and condition ratings.
  • Sell and close on more purchase transactions because you can now market to borrowers, properties that are less attractive, have repair contingencies and may not yet be 'market ready'.
  • The contractor costs can be built into the loan.
  • Program works for all occupancy types, including owner-occupied 1-4 family properties, one-unit second homes, and one-unit investor properties, including condos and PUD's, manufactured (No structural changes allowed)
  • No need for a second mortgage to repair the property. All costs are built into the first mortgage, which means lower closing costs.
  • Any type of repair is eligible, as long as it is permanently affixed to the subject property.
  • Available on both Fixed Rate Mortgages and Adjustable-Rate Mortgages.
  • Financing on limited cash-out refinances and purchases as high as:
    • 97% for Fixed Rate on one-unit principal residence
    • 85% for Fixed Rate on two-unit principal residence
    • 75% for Fixed Rate on 3-4-unit principal residence
    • 90% for Fixed Rate on one-unit second home
    • 85% for Fixed Rate on one-unit investment property purchase money loan
    • 75% for Fixed Rate on one-unit investment property limited cash-out refinance
  • Borrower may choose own contractor.
  • Payment reserves of up to six months PITI permitted when borrower must vacate (or not move in) until work is completed; may be financed in loan if value will support the amount needed.
  • Create a 'niche' market and sell more homes. 


  • Borrower must have a construction contract with a contractor
    • Fannie Mae provides a model Construction Contract(Form 3734) for use.
    • Lender must review the contractor hired by the borrower to determine they are adequately qualified to perform the work - Contractor Profile Report(Form 1202) can be used to assist in this process for the lender.
  • Plans and Specs must have been prepared by a registered, licensed, or certified general contractor, renovation consultant, or architect.
  • Plans and Specs must fully describe all work to be done and state when stages of completion will be scheduled, including both the job start and completion dates.
  • Any changes to original Plans and Specs must be accompanied by a HomeStyle® Change Order Request
  • Borrowers will be required to obtain Hazard and MI (if applicable) at the "as completed" value at time of loan closing.


  • If considered a refinance, the borrower is not eligible to receive any cash back at closing.
  • Renovation costs are limited to 75% of the lesser of the purchase price plus renovation cost or the "as completed" appraised value of the home .
  • For manufactured housing, the costs are limited to the lesser of 50% or $50,000 of the "as-completed" appraised value.
    • Renovation Costs may include:
      • Labor and materials
      • Soft costs (architect fees, permits, licenses, inspection fees, independent consultant fees, engineering fees, fees charged for processing draws, fees for energy reports (HERS), review of renovation plans).
      • Contingency reserve of the cost of labor., materials and soft costs) - this is optional unless property is a 2-4-unit property(10% required).
      • Payment reserves of up to six months PITI if eligible (if borrower cannot occupy at time of closing)
      • Contingency reserve may be financed or funded separately by the borrower.
    • Funds must be placed in an interest-bearing custodial account.
    • Contractor bid must be given to appraiser to determine "as completed" value.
    • Borrowers can perform the renovation work themselves at the lender's discretion, provided that the Do-It-Yourself financing does not exceed 10% of the complete value. Property is a one-unit owner-occupied home and not a manufactured home.  Sweat Equity may not be reimbursed.
    • When work is completed, the lender and borrower must sign the HomeStyle® Completion Certification.
    • If funds remain after all work is performed, they will be applied to the loan.


How Lenders Verify Continued Income

Fannie Mae


There are so many types of income, that sometimes it is difficult to know what will and will not be accepted to obtain mortgage financing.  This handy chart shows you what types of income require a lender to verify that the income will continue for 3 years, and which ones do not.

Lender May Not Need to Document 3 Years of Continuing Income Lender Will Likely Need to Document 3 Years of Continuing Income
Automobile Allowance Alimony or Child Support
Bonus, Overtime, Commission or Tip Income Distributions from Retirement Account (i.e. 401k, IRA)
Capital Gains Income Mortgage Differential Payments
Corporate Retirement or Pension Notes Receivable
Foster-Care Income Public Assistance
Interest or Dividend Income Royalty Payment Income
Military Income Social Security [Not Including Retirement or Long-Term Disability]
Mortgage Credit Certificates Trust Income
Part-Time Job, Second Job, or Seasonal Income VA Benefits [Not Including Retirement or Long-Term Disability]
Rental Income  
Self-Employment Income  
Social Security, VA or other Government Retirement  



Keep in mind that this chart is only referring to what types of income need to be verified for continuance. There are other factors that determine if the income is acceptable as a basis for loan repayment.


Properties that May Qualify for a

Fannie Mae Appraisal Waiver?


Appraisal waivers mean that an appraisal is not required on a property. This saves the borrower money and helps them close faster! Not all properties qualify, but it is always worth a try!

Eligible Transactions Ineligible Transactions
·     One-unit properties, including condominiums.

·     Limited cash-out refinance transactions:

o  Principal residences and second homes up to  90% LTV/CLTV

o  Investment properties up to 75% LTV/CLTV

·     Cash-out refinance transactions:

o  Principal residences up to 70% LTV/CLTV

o  Second homes and investment properties up to 60% LTV/CLTV.

·     Purchase transactions:

o  Principal residences and second homes up to 80% LTV/CLTV .

·     Loan casefiles that receive an Approve/Eligible recommendation.

·     Properties in high-needs rural locations, as identified by FHFA

o  Principal residences up to 97% LTV/105% CLTV (for borrowers at or below AMI)

o  Contingent on mandatory property inspection


·   Construction and construction-to-permanent loans.

·   Two- to four-unit properties

·   Loan casefiles in which the value of the subject property provided to DU is $1,000,000 or greater.

·   HomeStyle® mortgage products (Renovation and Energy)

·   Texas 50(a)(6) loans

·   Leasehold properties, community land trust homes, or other properties with resale restrictions.

·   Cooperative units and manufactured homes

·   DU loan casefiles that receive an ineligible recommendation.

·   Loans for which the mortgage insurance provider requires an appraisal.

·   Loans for which rental income from the subject property is used to qualify.

·   Loans using a Gift of Equity

·   When the lender has any reason to believe an appraisal is warranted.



Second Homes & Rental Income - What You Need to Know


Has it ever made sense that a borrower would let their second (vacation) home sit completely unoccupied and not take advantage of the times during the year that the property is not in use by the owner?  Fannie Mae has stepping up to the plate and addressed this situation.

One of the definitions for a second home is that the property may not be a "rental property." The clarification clearly indicates that these transactions are eligible as long as certain requirements are met.

General Guidelines for a second home that shows rental income on Schedule E or on other information in loan file:

  • Absolutely no rental income from the second home can be used in qualifying the borrower or otherwise offsetting any portion of the monthly mortgage obligation, including taxes, insurance, HOA dues or other assessments and charges (PITIA).
  • Borrower must still indicate that they will occupy the property for some portion of the year.
  • Property must be a one-unit dwelling, including eligible PUD and Condo units.
  • Borrower must have exclusive control over the property.
  • Must not be a rental property or a timeshare agreement (definition of rental property would mean that the income or rents from the second home are being used to qualify, and this would mean you would lose the definition of a second home).
  • Cannot be subject to any agreements giving a management firm control over the occupancy of the property.

Red Flags to watch for:

  • Borrowers should not say they intend to convert an existing rental property to a second home without sound and reasonable justification and documentation.
  • Should never be used to circumvent the fact that the property is truly being purchased or refinanced for use as an investment property.


CHOICE RenovationSM Mortgage

 Available for Purchases or Refinances!


Benefits and Features:

  • Great program to sell 'Fixer Upper' inventory.
  • Can be used to renovate or repair a property damaged in a disaster, or one that needs an upgrade for possible disasters.
  • Refinance and Finance the renovation. No need for a second mortgage!
  • Available for Purchase, No-Cash Out Refinance, Fixed Rate, Adjustable Rate, HomePossible™ & HomeOne™ & Super Conforming!


Properties Eligible:

  • 1-4 Units
  • Manufactured Homes
  • Second Homes
  • 1 Unit Investment Property
  • PUD's, Condos, Co-ops and Leasehold Estates


How Does the Program Work?

  • Buyer & Seller agree on a sales price.
  • Buyer works with contractor on "costs of improvement".
  • Lender uses the lesser of "Total Cost" or "As Completed" Value.
  • Loan Closes and lender disburses renovation funds into an escrow account.
  • Up to 50% of the renovation funds can be disbursed to the contractor at closing to start the project.


Home Possible® Mortgage


The Home Possible® mortgage offers more options and credit flexibilities to help

low- to moderate-income borrowers attain the dream of owning a home.


Program Guidelines:

  • Low down payment with a maximum of 97% LTV, 105% TLTV, 97% HTLTV for 1-unit properties.
  • Low down payment with a maximum of 95% for 2-4 Unit properties.
  • Properties allowed: 1-4 units, condos and planned-unit developments; and manufactured homes.
  • Down payments are permitted from family, employer-assisted programs, sweat equity and secondary financing. LTVs of 105% with an affordable second.
  • Program types include: 15- to 30-year fixed-rate mortgages; 5/1, 5/5, 7/1 and 10/1 ARMs; super conforming mortgages.
  • No-cash-out refinances are allowed for borrowers who occupy the property.
  • No Credit score is necessary.
  • Income limited to 80% of the area median income (AMI). Ask me for details!
  • Temporary Buydowns are permitted on 1-2 units.
  • Homeownership Education is required when all occupying borrowers are first-time homebuyers.


Freddie Mac’s List of Condo Project Types that Don’t Qualify for Financing


As you know when you list a condo unit for sale and you want to offer financing terms, you'll need to check to see if the condo project is on an "approved" list.


In order to save time and money, Freddie Mac published a list of condo "types" that DON'T qualify for financing.  Here's the list: 

  • Hotel/resort projects
  • Project with multi-dwelling units
  • Project with non-incidental commercial space exceeding 35%
  • Tenancy-inCommon apartment project
  • Timeshare projector project with segmented ownership
  • Houseboat project
  • Project in litigation, arbitration, mediation or other dispute
  • Project sold with excessive seller contributions
  • Project with excessive single investor concentration - Note: Increasing single entity ownership concentration maximum for projects with 21 or more units from 10% to 25%.
  • Continuing Care Retirement Community (CCRC)
  • Fannie Mae ineligible projects
  • Manufactured homes
  • New condominium projects in Florida
  • Project with mandatory dues or similar membership fees for use of Amenities such as clubhouses or recreational facilities.


Financing Investment Property 

Working with Real Estate Investors - Know the Rules!


  • Limited to 10 properties financed in total (this includes primary residence and any other properties).
  • Commercial properties or those greater than 4 units do not count toward the 10 property rule.
  • Properties titled to and financed by an entity (LLC, etc.) do not count toward the 10 property rule.
  • Down payment options vary depending on number of units and number of properties financed .



  • Easier to qualify than what most people realize.
  • Entire down payment must come from borrowers' own funds, no gifts allowed.
  • Seller contributions cannot exceed 2% of the sales price.
  • Cash Reserves Required - depending on number of properties owned.
  • Anticipated cash flow can often be used to offset the new payment making it easier to qualify.
  • Borrowers with multiple rental units can use rent to offset payments making it easier to qualify.
  • Must receive an Approve/Eligible recommendation thru DU.


  • Tax benefits associated with owning rental properties can be significant.
  • Interest rates are at record lows creating great buying opportunities.
  • Rental property buyers don't have a home to sell giving them a negotiating advantage.


Acceptable Sources of Funds for

Closing Costs or Down Payment


There are many ways to come up with the money that you need to buy a home.

My goal is to assist you with your personal plan!


Important Note:  Depending on the program, some of these funds may be used only for closing costs.  It is important to discuss with your lender what can be used for down payment purposes.


  • Deposit Accounts, Vested Retirement Accounts, Stocks, Bonds, Trust funds
  • Gifts (may have minimum investment requirements depending on program & LTV)
  • Sale of Asset (Home, car, boat - proof required)
  • Secured Loans: Vehicle, 401k, Home Equity, Bridge
  • Business Assets: Accounts (provided no negative impact on business)
  • Rent-to-Own: Credit toward down payment cannot exceed the difference between Market Rent and the Actual Rent paid for the last 12 months.
  • Seller Contributions: 2%, 3%, 6%, 8% or 9% depending upon LTV & Occupancy & Agency
  • Down Payment Assistance: Grant Funds or Community Loans
  • Tax refunds
  • Life insurance
  • Real Estate Commission
  • Lender's Premium pricing
  • Real Estate tax credit
  • VA & USDA Loans Only - Personal Unsecured Loans
  • Some Programs Allow Sweat Equity


VA Home Loans


Who is Exempt from the VA Funding Fee?



The following persons are exempt from paying the funding fee:


  • Veteran borrowers on Active Duty at the time of loan closing who are also Purple Heart Recipients.
  • Veterans receiving VA compensation for service-connected disabilities.
  • Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay.
  • Veterans who are rated by VA as eligible to receive compensation as a result of pre-discharge disability examination and rating or on the basis of a pre-discharge review of existing medical evidence (including service medical and treatment records) that results in issuance of a memorandum rating.
  • Veterans entitled to receive disability compensation, but who are not presently in receipt because they are on active duty.
  • Surviving spouses of veterans who died in service or from service-connected disabilities (whether or not such surviving spouses are veterans with their own entitlement and whether or not they are using their own entitlement on the loan).

Important Note:  If a client is exempt from the funding fee on their first VA loan, they will also be exempt on any future VA transactions.  It is not just a one-time benefit.


Who Qualifies” for a VA Loan!


Not everyone who served our country is eligible for a no-down VA loan - but there are many, many veterans who DO qualify and don't realize that they are eligible.  While a Certificate of Eligibility is the document that makes the final determination, here's a list of those who may qualify.

Branches of Service

  • Army
  • Navy
  • Air Force
  • Marines
  • Coast Guard
  • National Guard
  • Public Health Officers
  • Cadets - Army, Navy, Air Force, Marines,

Coast Guard

  • Midshipmen - Naval Academy
  • National Oceanic & Atmospheric Officers
  • Merchant Seamen (WWII)
  • US Citizens who served in the armed forces of other governments (WWII)


(If discharged, must have attained an "Honorable Discharge" or "Other Than Honorable" discharge in order to obtain a Certificate of Eligibility.)


Surviving Spouse Benefit Criteria

  • Unmarried Spouse of a Veteran
    • Who died on active duty OR
    • Who died from service-related injury OR
    • Who is listed as MIA or POW for at least 90 days (one-time use only) OR
    • Who was totally disabled whose disability may not have been the cause of death.
  • Veteran Spouse who remarried after age 57 and after December 16, 2003, and the veteran had
    • Died on active-duty OR
    • Died from service-related injury



Who Qualifies for a VA IRRRL?

[Interest Rate Reduction Refinancing Loans]


An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan. 

The ability to refinance a VA loan without the hassle of an appraisal or verification of income is a real winner for those who simply want to lower their monthly payment.  Review the chart below to see if your VA Status Qualifies you for a VA IRRRL.


Person(s) Obligated on Current VA Loan Person(s) to be Obligated on New IRRRL Can I Do an IRRRL?
Unmarried Veteran Veteran & New Spouse Yes
Veteran & Spouse Divorced Veteran Alone Yes
Veteran & Spouse Veteran & Different Spouse Yes
Veteran Alone Different Veteran who has Substituted Entitlement Yes
Veteran & Spouse Spouse Alone (Veteran Died) Yes
Veteran & Non-Veteran who are Joint Obligors Veteran Alone Yes
Veteran & Spouse Divorced Spouse Alone No
Unmarried Veteran Spouse Alone (Veteran Died) No
Veteran & Spouse Different Spouse Alone No


Minimum Property Standards Guide:

Is That Listing Ready for a VA Buyer? 

Below is a list of VA Minimum Property Requirements (MPRs)

for existing homes that can be used as a screening checklist for your listings.



·   General:  Must be free of hazards that affect the health and safety of occupants, structural soundness of property, or impair the use and enjoyment of property.

·   Handrails required on stairs with 3 or more risers.

·   Severe tripping hazards must be remedied (i.e., major buckling of concrete).

·   25% maximum non-residential use.

·   Mechanical systems must be adequate, safe, and protected from elements.

·   Conventional heating system must be present in all homes to maintain temperature of 50 degrees in areas with plumbing (i.e., wood stove cannot be only heat source).

·   Solar systems for water and space heating must have reliable backup system.

·   Roof must have 2 years of remaining life and no more than 3 layers of shingles.

·   Crawlspace must have adequate access, be clear of debris and be properly vented.  Must have access to ductwork and plumbing.

·   Excessive dampness or ponding of water in crawlspace must be corrected.

·   Natural ventilation of attics and crawl spaces must be provided.

·   Laundry and storage space may be shared in a 2-4 unit.

·   Rear yard must have access.  Row units may be by means of alley, easement, or passage through subject dwelling.

·   Private streets must have permanent easement and be maintained by HOA or maintenance agreement.


·   Streets must have all-weather surface.

·   Living unit must have its own access.

·   Unit utilities may not pass over, under or through another living unit unless there is legal and permanent access for maintenance and repair.

·   Must be space between buildings for maintenance of exterior walls.

·   Termite cert required. Treatment required if necessary.

·   Lot must drain away from dwelling.

·   Exterior wood must be protected from elements.  Chipped or peeling paint must be remedied.

·   Properties built prior to 1978 must have all defective paint surfaces remedied both interior and exterior.

·   Property cannot be located within a high-pressure gas or petroleum easement.  If located within 220 yards' special certifications will be required.

·   Property cannot be located within a high-voltage electric line easement.

·   Connection to public water/sewer disposal systems is only required when mandated by building, planning or health authorities.

·   Private water systems must be tested.


·   Water treatment systems are allowed only if public water is not available and water supply is from aquifer confirmed uncontaminated by health department.

·   Shared wells must be adequate and have maintenance and well-sharing agreements.




VA Energy-Efficient Mortgages

The Easy Way to Finance Home Improvements


VA allows the financing of certain energy-efficient improvements in the new purchase mortgage loan.


Acceptable energy-efficiency improvements include, but are not limited to:

  • Solar heating systems, including solar systems for heating water for domestic use, solar heating and cooling systems.
  • Caulking and weather-stripping.
  • Furnace efficiency modifications limited to replacement burners, boilers, or furnaces designed to reduce the firing rate or to achieve a reduction in the amount of fuel consumed as a result of increased combustion efficiency, devices for modifying flue openings which will increase the efficiency of the heating system, and electrical or mechanical furnace ignition systems which replace standing gas pilot lights.
  • Clock thermostats
  • New or additional ceiling, attic, wall and floor insulation
  • Water heater insulation
  • Storm windows and/or doors, including thermal windows and/or doors.
  • Heat pumps
  • Vapor barriers

The mortgage may be increased by:

  • Up to $3,000 based solely on the documented costs.
  • Up to $6,000 provided the increase in monthly mortgage payment does not exceed the likely reduction in monthly utility costs.

VA does not permit EEMs more than $6,000.


VA Assumptions - Not just for Veterans


VA loan assumptions are not restricted to Veterans who have VA eligibility.  Anyone can assume a VA loan if they meet the occupancy, credit and income requirements set forth by the VA.


Here are some quick facts: 

  1. The prospective home buyer must apply for a loan assumption with the servicing lender of the current mortgage.
  1. The servicing lender may charge a processing fee.
  1. The new borrower, if approved, will be charged a .5% funding fee on the balance of the current loan.
  1. If the assuming borrower is NOT a Veteran, the current Veteran borrower's eligibility will remain with the loan to insure the VA Guaranty. The current Veteran borrower will not be able to use that portion of their eligibility until that debt is paid off.
  1. If the assuming borrower IS a Veteran, they can substitute their own eligibility for the current Veteran borrower's, allowing the current Veteran borrow to have their entire eligibility restored.

If a non-Veteran assumes a VA loan and defaults on that loan, the portion of the eligibility that was used to insure that loan will be unavailable to the original Veteran borrower until the paid claim debt is paid off to VA.


VA Specially Adapted Housing Grants

Taking Care of Our Heroes



VA Specially Adapted Housing (SAH) Grants are funds available to Servicemembers and Veterans with severe service-connected disabilities to assist them in the building, remodeling or purchasing an adapted home.  Maximum of 3 grants, up to the maximum dollar amount allowable.


  • Specially Adapted Housing (SAH)
    • Maximum grant amount $100,896
    • Must be property owned or purchased by Veteran
    • Eligible Veterans and Servicemembers – Entitled to VA disability compensation due to:
      • The loss or loss of use, of both lower extremities, OR
      • Blindness in both eyes with 20/200 visual acuity or less in the better eye with use of a corrective lens, OR
      • The loss or loss of use of one leg, and:
  1. Residuals of organic disease or injury, OR
  2. The loss or loss of use of one arm, effecting balance and ability to move without aid.
    • The loss or loss of use of both arms at or above the elbows, OR
    • A severe burn injury.


  • Special Housing Adaptations (SHA)
    • Maximum grant amount $20,215
    • May be property owned or purchased by Veteran or family member (if Veteran will be residing with a family member)
    • Eligible Veterans and Servicemembers – Entitled to VA disability compensation due to:
      • Anatomical loss or loss of use of both hands or arms below the elbow, OR
      • A severe burn injury, OR
      • Certain respiratory or breathing injuries.


  • Temporary Residence Assistance (TRA)

A temporary grant may be available to SAH/SHA eligible Veterans and Servicemembers who are or will be temporarily residing in a home owned by a family member. The maximum amount available to adapt a family member's home for the SAH grant is $40,637 and for the SHA grant is $7,256.


  • Home Improvements and Structural Alterations (HISA)

Veterans and Servicemembers may receive assistance for any home improvement necessary for the continuation of treatment or for disability access to the home and essential lavatory and sanitary facilities. A Veteran may receive a HISA grant in conjunction with either a SAH or SHA grant. The HISA program is available for both Veterans with service-connected disabilities and Veterans with non-service-connected disabilities.

  • Home improvement benefits up to $6,800 may be provided to Veterans with service-connected disabilities.
  • Home improvement benefits up to $2,000 may be provided to Veterans with non-service-connected disabilities.


You can apply by completing VA Form 26-4555, Veterans Application in Acquiring Specially Adapted Housing or Special Home Adaptation Grant and submitting it to your local VA Regional Loan Center. You may also apply online; please visit the Veteran's portal at to register and submit an application for Specially Adapted Housing benefits.


VA Offers Home Loan Benefits to

Same-Sex Married Couples


A Presidential directive has required the VA to stop enforcing a portion of Title 38 that defines a spouse as someone of the opposite sex.  Same-sex couples who are legally married by state law may now enjoy the VA home loan benefits they have earned.


How does this directive affect same-sex couples when qualifying for a VA loan?


  • VA will now guarantee the entire loan and not just the Veteran's 50% of the loan, as the same-sex spouse is now treated the same as an opposite-sex spouse.
  • VA will now use the same-sex spouse's income for qualifying.


What is the lender's process and how will it affect my same-sex couple buyers?


  • Couples will need to provide documentation showing
  • Date and state of marriage, AND
  • State of residence at time of marriage.
  • Documents must be submitted to the VA Loan Center for approval on a case-by-case basis.
  • Additional processing time will be needed for the loan approval.


FHA Loans


What is the Definition of a Manually Underwritten Loan?


A manually underwritten loan includes a loan that: 

  • Involves borrowers without a credit score.
  • Received a 'Refer' recommendation from the automated underwriting system.
  • Received an 'Accept' but was downgraded to a 'Refer' by the underwriter based on FHA Rules.

A 'Refer' decision does not mean the loan is not approvable. It just requires an underwriter to review the details and see if it meets the FHA guidelines.


FHA Requires ALL Lenders to Manually Underwrite an FHA Loan

if the Automated System does not approve the loan or requires a downgrade to a Refer!


Following is a list of common "Triggers" that result in a file being manually underwritten:


  • Borrower(s) have $1,000 or more collectively in Disputed Derogatory Credit Accounts.
  • Bankruptcy is Within the Last Two Years*.
  • Short-Sale, Foreclosure or Deed in Lieu is Within the Last Three Years*.
  • Mortgage Trade Lines, including a line of credit that has been:
    • 3 or More 30-days late
    • 1 or More 60-days late, plus one 30-day late,
    • 1 greater than 90-days late in the last 12 months.


  • Credit Supplements or Undisclosed Mortgage Debt.
  • Business income where there is a greater than 20% Decline over the analysis period.
  • Borrowers without a credit score utilizing non-traditional credit


FHA Loans - Who Can Give a Gift?


Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:


  • Child, Parent, or Grandparent.
  • A child is defined as a son, stepson, daughter, or stepdaughter.
  • A parent or grandparent includes a stepparent/grandparent or foster parent/grandparent.
  • Spouse or domestic partner.
  • Legally adopted son or daughter, including a child who is placed with the Borrower by an authorized agency for legal adoption.
  • Foster Child.
  • Brother, Stepbrother.
  • Sister, Stepsister.
  • Uncle; Aunt
  • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the Borrower. 

Close Friend with a clearly defined and documented interest in the Borrower.

The Borrower's Employer or Labor Union.

A Governmental Agency providing homeownership assistance to low- or moderate-income families or first‐time homebuyers.

We Are Family!

How FHA Defines Family Members


Family members often lend a hand to assist someone in purchasing a home.  They can help with gifts, gifts of equity, and co-signing to name a few. Many of the rules built around these topics require the lender to determine if the person helping is a family member as described by FHA.


FHA Definition of Family

Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:


  • Child, Parent, or Grandparent.
    • A Child is defined as a son, Stepson, Daughter, or Stepdaughter;
    • A Parent or Grandparent includes a Stepparent/Grandparent or Foster Parent/Grandparent.
  • Spouse or Domestic Partner.
  • Legally adopted son or daughter, including a child who is placed with the Borrower by an authorized agency for legal adoption.
  • Foster child
  • Brother, Stepbrother
  • Sister, Stepsister
  • Uncle
  • Aunt
  • Son-in-law, Daughter-in-law, Father-in-law, Mother-in-law, Brother-in-law, or Sister-in-law


FHA - Can I have More than One FHA Loan? 


Always thought FHA was a one-time-good-thing?  Well think again!


Does your buyer currently have an FHA mortgage and -

  • Have limited down payment funds? OR
  • Have only gift funds from family for their down payment? OR
  • Have lower credit scores than allowed on most conventional financing?


Then your buyer may need another FHA mortgage.  But how is that possible if they haven't sold their current FHA financed home?


The following situations allow your buyer to have more than one FHA mortgage

  • Relocation - Must relocate for employment and document new residence is100 miles or more from current home.
  • Increase in Family Size – Must have current mortgage balance at or below 75% LTV.
  • Vacating a Jointly Owned Property – Example:
  • Non-Occupying Co-Borrower – Co-signed with family on their home.


But wouldn't they have to qualify with two mortgages?  Not in most cases!

  • Relocation: Rental income from departure residence allowed with appraisal documenting 25% equity in departure residence.  One-year lease and proof of security deposit or first month's rent will be required.
  • Increase in Family Size: Rental income from departure residence allowed with appraisal documenting 25% equity in departure residence.  One-year lease and proof of security deposit or first month's rent will be required.
  • Vacating a Jointly Owned Property: This exception may allow the borrower an exemption from including the monthly debt at all, but only if:
  1. There is a final divorce decree that awards the home and the debt to the ex-spouse; or
  2. The borrower can prove the remaining occupant co-borrower has been making payments on their own and has an on-time 12-month payment history.
    • Non-Occupying Co-Borrower: This exemption may allow the borrower exemption from inclusion of the monthly debt as stated above in b.


FHA Unique & Unusual Property Guidelines


Unique properties – Log homes, extra small homes, homes with lower-than-normal ceiling heights, etc., can be FHA eligible if they are structurally sound and readily marketable. The final determination to accept or reject the house is made by the lending institution’s underwriter and can be dependent on the availability of similar comparable sales/listings for the appraisal report.

Shared lots with undivided interest – Properties with legal descriptions that read “An undivided 1/2 (or 1/3,) interest in and to Lot. . . . .” are NOT eligible for FHA financing.

Excess land is defined as a lot that is larger than what is a typical and readily marketable in the area AND capable of a separate use. Generally, the excess portion can be subdivided and marketed as an individual parcel. However, in small communities and outlying areas, appraisers must use different criteria because the market may accept a wide variance in lot sizes. The appraiser should describe the excess land but not value it. The appraisal only gives value to the portion of the land which is not considered excess.  A legal description of the portion being appraised is required, which may entail a survey being performed. The appraiser must also describe the portion being appraised.

Nonresidential use – Areas designed or used for nonresidential purposes shall not exceed 49 percent of the total floor area. Any non-residential use of the Property must be subordinate to its residential use, character and appearance. Non-residential use may not impair the residential character or marketability of the Property. The non-residential use of the Property must be legally permitted and conform to current zoning requirements.

Move ons – Only stick built homes are eligible to be moved.  Homes moved without prior HUD approval will be treated as proposed construction and only eligible for 90% financing if on the new foundation for less than one year.  If on the new foundation for more than one year, the property is eligible for 96.5% financing.  All damage incurred during the move is the responsibility of lender.  The 203(k) program is available to assist an applicant to move a house.

Forest and Farm Property Tax Deferral Programs - Farm or forest tax deferral does not make a property eligible for FHA financing but if it is likely that the farm or forest use will not continue, a termination of deferral and payment of all deferred taxes must be required.


The Paper Trail:

Rules for Verifying Gift Funds on FHA Loans


One of the issues that always come up is how much money your clients plan to use for their down payment. However, what is rarely discussed is, "where is the money coming from for the down payment and closing costs?"


When working with FHA buyers and getting them pre-approved, if they say they are getting all (or part) of the money from a gift, FHA requires a "paper trail."  I want to share with you exactly what is needed because this alone could hold up closing - or kill a deal.


The gift letter itself must contain the following verbiage:

  • Name, address and telephone number of the donor.
  • The dollar amount of the gift.
  • The relationship of the donor to the borrower.
  • That no repayment is required.

There are four ways to verify the transfer of the funds (only one is required):

  1. If funds are already in a borrower's account, then
    1. Obtain a copy of the donor's bank statement showing the withdrawal and
    2. Evidence of the deposit into the borrower's account.
  2. If funds are not verified in the borrower's account, then
    1. Obtain a copy of the certified check or wire transfer and
    2. Obtain a bank statement showing the withdrawal from donor's account
  3. If funds are going paid directly to settlement agent, then
    1. Verify that settlement agent received funds from the donor for the amount of gift and
    2. Verify that the funds were from an acceptable source.
  4. If donor is borrowing funds, then
    1. Donor must document that funds were borrowed from an acceptable source - bank, credit union, home equity line of credit, etc.
    2. Cash on hand is NOT an acceptable source of gift funds


Sales Concessions and the FHA Appraisal


FHA has very specific guidance regarding Sales Concession and how roster appraisers must consider them.

  • Types of Concessions
    • Loan discount points
    • Loan origination fees
    • Interest rate buy downs
    • Closing cost assistance
    • Payment of condo fees
    • Builder incentives
    • Down payment assistance
    • Personal property
  • Lender must provide a complete and ratified contract of sale and/or financing data.
  • Appraisers must:
    • Report the dollar amount of the concessions
    • Identify the party providing the concession
    • Verify all sales transactions for seller concessions (many MLS systems don't report)
    • Report the type and amount of concession on all comparable sales.
    • Make market-based adjustments to comparable sales for sales concessions that affected the sales price.


FHA reminds appraisers that ignoring sales concessions and the impact they may have on a sales price can easily lead to overvaluation.


FHA Rent-to-Own Underwriting Rules


There are very specific guidelines regarding these types of transactions that a buyer and seller must follow in order for FHA financing to be an option. You can be a deal-saver by guiding clients with the right information!


Rent-to-Own Agreements and Rent Credit

Rent credit for down payment granted by a landlord to tenant facts:

  • Cannot exceed the difference between monthly rent and market rent.

(Ex: Landlord collects $1,000 per month and market rent is $800. 

      Only $200 can be applied toward down payment for future purchase.)


  • Market rent is determined by appraiser.
  • Rent-to-own agreement must be provided to lender.

Landlord/Tenant Sales Transactions

  • Loan amount will be limited to 85% LTV if there is a family or business relationship between the parties UNLESS:
    • Tenant has rented for at least six months. (lease or other occupancy verification is required.
    • Sales contract is not dated prior to completion of 6-month rental period. 
  • Maximum financing (96.5%) is available for landlord/tenant transactions with no family or business relationships with no restrictions on previous rental period.


FHA Property Flipping Rules, Restrictions & Exceptions


FHA has specific rules and exceptions when it comes to property flipping.

Property Flipping is a practice where recently acquired Property is resold for a considerable profit, within a short period of time with an artificially inflated value, often abetted by a Mortgagee's collusion with an Appraiser.

FHA defines the seller's date of acquisition as the date the seller acquired legal ownership of that Property. FHA defines the resale date as the date of execution of the sales contract.

Time Restriction on Transfers of Title:

  • Restriction on Resales Occurring 90 Days or Fewer after Acquisition: A Property that is being resold 90 Days or fewer following the seller's date of acquisition is not eligible for an FHA-insured Mortgage.
  • Resales Occurring Between 91 Days and 180 Days After Acquisition: A Mortgagee must obtain a second appraisal by another Appraiser if:
    • The resale date of a property is between 91 and 180 Days following the acquisition of the Property by the seller;
    • and the resale price is 100 percent or more over the price paid by the seller to acquire the Property.
  • If the second appraisal supports a value of the Property that is more than 5 percent lower than the value of the first appraisal, the lower value must be used as the Property Value in determining the Adjusted Value.
  • The cost of the second appraisal may not be charged to the Borrower.

Exceptions to time restrictions on resale are:

  • Properties acquired by an employer or relocation agency in connection with the relocation of an employee;
  • Resales by HUD under its REO program;
  • Sales by other U.S. government agencies of Single-Family Properties pursuant to programs operated by these agencies;
  • Sales of Properties by nonprofits approved to purchase HUD owned Single Family Properties at a discount with resale restrictions;
  • Acquisition due to inheritance;
  • Sales of Properties by state and federally chartered financial institutions and Government-Sponsored Enterprises (GSE);
  • Sales of Properties by local and state government agencies; AND
  • A builder selling a newly built house or building a house for a Borrower planning to use FHA-insured financing.

Required Documentation:

The lender must obtain a 12-month chain of title documenting the time restrictions on resales.

Manufactured Housing - Quick FHA Financing Facts


  1. Home must have a floor area of not less than 400 square feet.
  1. Must be constructed after June 15, 1976, in conformance with the Federal manufactured home construction and safety standards.
  1. Each transportable section must have the HUD Seal/HUD Tag located on the outside of the home near the taillight end of the section.
  1. Must be classified as real estate.
  1. Must be built and remain on a permanent chassis.
  1. Home cannot be in a flood zone.
  1. The home must not have been installed or occupied previously at another site or location.
  1. Home is eligible for a 203K Rehab loan.
  1. Perimeter enclosures must be constructed of concrete, masonry, or treated wood. Vinyl skirting alone is not acceptable.
  1. Engineer's foundation certification is required.
  1. Additional vacant manufactured housing located on a property being used strictly for storage (kitchen inoperable) may remain if it does not pose any health or safety issues.

FHA Loans from Family Members


A little-known acceptable source of funds to purchase

a home is a LOAN from a family member.

FHA Guideline

FHA will allow family members to lend the full amount of cash required to get into a home, including the down payment.  There is no additional "cash investment" required from the borrowers. Details are:


  1. The loan must be disclosed at application.
  1. The loan can be unsecured or secured against the subject property. The lien on the property must be the family member lending the monies - not a third party.
  1. It is acceptable for the family member to borrow the funds, for instance, from their financial institution. The institution can place a lien on the parents' property, but not the borrowers' (subject) property. In addition, the borrowers cannot sign the note with the financial institution.
  1. The source of funds that the family member is using for the loan cannot be directly or indirectly from anybody with a financial interest in the transaction.
  1. Payments, if applicable must be included in the debt ratio.
  1. No balloon payments can be due within 10 years.
  1. The CLTV cannot exceed 100% of the adjusted value of the property.
  1. The first mortgage loan amount calculations are not affected.


FHA - Identity of Interest

Who Can Exceed the LTV Limits?

FHA defines Identity of Interest as a sale between parties with an existing Business Relationship or between Family Members.


For an Identity of Interest sale, the Maximum loan to value is

85% vs. the FHA standard of 96.5%.


There are Exceptions to This Rule.


The Following Types of Transactions are Permitted to Exceed the 85% LTV restriction:


Family Member Transactions:

The Borrower purchases as their principal residence, the family members principal residence. OR

The property owned by another family member is purchased, and the borrower has been a tenant in that property for at least 6 months prior to the sales contract.

Builder's Employee Purchase: An employee of a builder, who is not a Family Member, purchases one of the builder's new houses or models as a Principal Residence.

Corporate Transfer: A corporation transfers an employee to another location, purchases the employee's house, and sells the house to another employee.

Tenant Purchase: The current tenant purchases the Property where the tenant has rented the Property for at least six months prior to the sales contract.


FHA: How to Establish Credit Without a Credit Score!


FHA clients that have no "credit score" or reportable credit on a credit report can still get mortgage financing.  Here are some ways that we help those clients establish a credit history!


If a Client Is Renting:

  • Rental housing payments (subject to independent verification if the Borrower is a renter)
  • Telephone service
  • Utility company reference (if not included in the rental housing payment), including:
  • Gas
  • Electricity
  • Water
  • Television service
  • Internet service

Note:  Some utilities are now being reported on your credit report!


If a Client Is Not Renting:

  • Insurance premiums not payroll deducted (for example, medical, auto, life, renter's insurance).
  • Payment to childcare providers made to businesses.
  • School tuition
  • Retail store credit cards (for example, from department, furniture, appliance stores, or specialty stores).
  • Rent-to-Own (for example, furniture, appliances).
  • Payment of that part of medical bills not covered by insurance.
  • Documented 12-month history of savings evidenced by regular deposits resulting in an increased balance to the account that:
  • Were made at least quarterly,
  • Were not payroll deducted, AND
  • Caused no insufficient funds (NSF) checks.
  • An automobile lease
  • A personal loan from an individual with repayment terms in writing and supported by cancelled checks to document the payments
  • A Documented 12-month history of payment by the Borrower on an account for which the Borrower is an authorized user.


Other Methods:

Your lender can work with you to offer suggestions for creating a credit profile.  This may include opening a credit card, charging a small amount and paying it completely off each month. These methods take a little time but may be well worth the effort!


The Key is to verify an established payment pattern by those providing these forms of credit!  After all, these are all forms of credit.  They are just not always reported to the credit bureaus!


Hot, Hot, Hot:

FHA Acceptable Sources of Heat


Many people ask me what types of heat sources are okay for homes where the borrower is using FHA to finance the property.  Here's the information - and by the way, USDA (Rural Housing) uses FHA rules listed below as their heat source guidelines too.


General Guidelines

  • All habitable rooms must have a heat source
  • Certain areas of the country do not require a heat source if normal for the area (i.e., Hawaii, certain
    counties in Florida)

Wood Stoves & Solar Systems

  • Acceptable with certification that they were installed according to manufacturer's recommendations.
  • Must ALSO have a conventional heat source in all living areas.
  • Must also have a heat source to maintain 50 degrees F in rooms where plumbing is located.

(Example: electric baseboard heat in bathroom, kitchen and basement/crawl space where plumbing pipes are located.)

Floor Heaters

  • Acceptable
  • If needs repairs or insufficient heat source for home, will require upgrade to conventional heat system.

Non-conventional Heating Systems

  • Space heaters or non-conventional heat sources must comply with local codes.
  • If does not comply, conventional heating system must be installed.

Propane Tanks

  • Must be located a safe distance from the home.
  • Must have ownership of propane tank UNLESS only leased tanks are available and normal for the area.
  • Propane furnaces located in crawl space or basement is not acceptable.


FHA Home Renovation Loan Options

Get the “Great Deal” and the Home of Your Dreams!


If you ever looked at a dream home and loved the “bones” of the house but not the outdated decorating or years of wear and tear, a renovation loan may be what you need to turn that dream into a reality. These loans allow you to buy the property, complete the renovation, and then move in, all wrapped into one home loan.


Program Type Limited Program Standard Program
Program Limits  

·  Non-structural work up to $35,000


·  No Minimum Amount


·  Major rehab or repairs


·  A Minimum Amount of $5,000

Examples of Renovations  

·  Minor remodeling


·  Replacing carpeting


·  Bathrooms & Kitchens


·  Health and safety hazards


·  Lead-based paint stabilization


·  Wells and/or septic systems


·  Plumbing, heating, air conditioning, and electrical systems


·  Accessibility for persons with disabilities


·  Energy efficiency improvements


·  New roofing, siding, gutters, and downspouts


·  Fences, walkways, and driveways


·  Decks, patios, and porches


·  Kitchen Appliances



·  Any items eligible for a Limited loan.


·  Major remodeling


·  Converting a 1-family structure to a 2-, 3-, or 4-family structure.


·  Decreasing an existing multi-unit structure to a 1- to 4-family structure or reconstructing a structure that has been or will be demolished, provided the complete existing foundation system is not affected and will still be used.


·  Repairing, reconstructing, or elevating an existing foundation where the structure will not be demolished.


·  Purchasing an existing structure on another site, moving it onto a new foundation, and repairing/renovating it.


·  Making structural alterations



Growing Family?

FHA Can Help!



Did you know that FHA allows borrowers who have outgrown their current home to retain the current home as a rental property and obtain a 2nd FHA loan?


Borrowers will be required to:

  • Provide proof of increased family size (birth certificates, tax returns, etc.). AND
  • Obtain an appraisal (ordered by lender) on current home to document 25% equity AND
  • Document home's inadequacies, AND
  • Provide 1-year lease and proof of payment of security deposit or first month's rent if rental income is to be used for qualifying. AND
  • Have appraiser provide Single Family Rent Schedule and Operating Income Statement if rental income is to be used for qualify.


FHA Flood Zone Requirements


New & Proposed Construction Existing Constructions Manufactured Homes Condos All Other Properties
Life-of-Loan Flood Zone Determination Required Required Required Required Required
Property Located within coastal barrier Resource system (Protected Areas) Property Not Eligible for FHA Insurance Property Not Eligible for FHA Insurance Property Not Eligible for FHA Insurance Property Not Eligible for FHA Insurance Property Not Eligible for FHA Insurance
Property Located within Special Flood Hazard Area (SFHA) Property Not Eligible for FHA Insurance Adequate Flood Insurance for Term of Loan (If Insurance under NFIP not available, property

not eligible)

Property Not Eligible for FHA Insurance Adequate Flood Insurance for Term of Loan (If Insurance under NFIP not available, property not eligible) Adequate Flood Insurance for Term of Loan (If Insurance under NFIP not available, property not eligible)
Unless Unless Unless Unless Unless Unless
Letter of Map Amendment (LOMA) or Letter of Map Revision (LOMR) Property Eligible for FHA Insurance No Flood Insurance Required Property Eligible for FHA Insurance No Flood Insurance Required No Flood Insurance Required
Or Or Or Or Or Or
FEMA National Flood Insurance Program (NFIP) Evaluation Certificate (FEMA Form 81-31) Property Eligible for FHA Insurance. Flood Insurance Required (if property remains in SFHA) Flood Insurance Required (if property remains in SFHA) Property Eligible for FHA Insurance. Flood Insurance Required (if property remains in SFHA) Flood Insurance Required (If property remains in SFHA) Flood Insurance Required (if property remains in SFHA)


FHA Financing for Mixed-Use and Accessory Unit Properties


Mixed Use - Residential and Commercial

  • 51% of the Gross Building Area (GBA) is for residential use; AND
  • Commercial use will not affect the health and safety of the occupants of the residential property.


2 Dwellings on One Lot

  • FHA will allow two separate dwellings on a parcel when one is classified as an accessory dwelling unit.
  • The lender must clearly identify the accessory unit's use and purpose (i.e., guest home, rental, etc.) so that the appraiser has that information when making determining value and checking zoning for legal conformity.
  • Both dwellings need to conform to FHA minimum property requirements.


Financing FHA Required Repairs


That's right.  If an appraised value is higher than the sales price,

FHA-required repairs can be financed into the new FHA loan!


  • Only FHA appraiser-required repair costs are eligible.
  • Costs are added to sales price BEFORE calculating mortgage amount (sales price + repair costs x 96.5%).
  • Repair costs + sales price cannot exceed appraised value.
  • Contract must stipulate that borrower is responsible for cost of FHA required repairs.
  • Any costs not eligible for inclusion in loan amount must be paid by borrower at closing.
  • Repairs completed by borrower BEFORE appraisal is performed are not eligible for inclusion in mortgage amount.
  • Repairs must be completed BEFORE closing*, unless delayed due to weather. If weather-related delay, a repair escrow must be established.
  • When purchasing a HUD home eligible for a repair escrow, 100% of the escrow can be financed.


The Paper Trail:

Rules when Selling Personal Property for Down Payment or Closing Costs


Proceeds from the sale of personal assets are acceptable if the individual purchasing the asset is not part of:

  • The real estate sale contract.
  • The mortgage financing transaction.


Documentation Requirements:

  • Proof that the borrower owns the asset.
  • Proof of value of the asset, as determined by an independent and reputable source.
  • Proof of transfer of ownership of the asset, by either a bill of sale or a statement from the purchaser.
  • The borrower's receipt of the sale proceeds from documents such as deposit slips, bank statements, or copies of the purchaser's (buyer of the asset) canceled check.

Depending how much money is needed, the lender may accept alternatives to this required documentation, especially when the proceeds of the sale represent a minor percentage of the borrower's overall money needed to close.


HUDs Lead-Based Paint Repair Rules


With a big increase in HUD REOs being sold these days, we are seeing FHA appraisers requiring "Lead-Based Paint Repairs" to be completed prior to closing.


According to HUD, the only reason this would be a requirement is when a HUD REO property, constructed before 1978, is being purchased using FHA-insured financing.

Since the EPA has some jurisdiction over the lead-based paint removal, here are the EPA's requirements:

  • Contractors making repairs must be "certified" (8 hours of training).
  • If repairs are done by a contractor, underwriter will require a copy of EPA or the State's Lead Based Paint Training Certificate.
  • If purchasing non-owner occupied REO, investor can make repairs but must have 8 hours training and same certification as contractor.
  • If purchasing owner-occupied home and borrower makes repair, must sign certification that they met EPA requirements and provide receipts as supporting evidence.
  • Final inspection done by FHA appraiser - but they will only certify that repairs have been completed, but they will NOT certify compliance with EPA requirements.

Realtors and property management firms can download more information using this links:

Renovation, Repair and Painting (RRP) ProgramAnswers to Frequent Questions about EPA's Lead Renovation, Repair and Painting (RRP) Rule

Renovation, Repair and Painting Program: Realtors

Half-Price Homes!

Good Neighbor Next Door - The Rare Gem


Good Neighbor Next Door (GNND) is the new name for an old program.  Most of you may know it as Teacher Next Door or Officer Next Door.  It was changed to include Firefighters and Emergency Medical Technicians (EMTs).


  • Specifically, for designated HUD homes in revitalization areas.
  • Must live in the property as primary residence for 36 months.
  • $100 down for HUD REO Property.
  • 50% discount (provided by HUD as "silent second").
  • "Silent second" released after buyer occupies as primary residence for 36 months.
  • Active-Duty Military Deployment is not considered an occupancy violation.
  • All equity/profit is buyer's after initial 36-month period.
  • HUD doesn't pay closing costs, prepaids, or selling agent commission; however, ALL can be rolled into new FHA loan.
  • Bid MUST be submitted by registered HUD agent.

Eligible borrowers are:

  • Full-time law enforcement officers
  • Teachers
  • Firefighters and/or EMTs

Additional borrower criteria:

  • Teachers, firefighters and EMTs must be employed by an entity that serves the area where the home
    is located.
  • Borrower does not have to be a first-time homebuyer; however, neither the borrower nor their spouse can have owned residential real estate in the previous year from the date of the bid.
  • Neither borrower nor their spouse can have previously purchased a home through the GNND program.


But what happens if the homeowner has to leave temporarily? 

Are they now on the hook for that additional 50% of the purchase price?  Maybe not.

Interruptions in the 36-month mandatory occupancy term may be allowed for hardship circumstances if the request is made in writing to HUD.  The request must include:

  • The reason(s) why the interruption is necessary.
  • The dates of the intended interruption. AND
  • A certification that:
    • The GNND program participant is not abandoning the home as his/her permanent residence; AND
    • The GNND program participant will resume occupancy of the home upon the conclusion of the interruption and complete the remainder of the 36-month owner-occupancy term.


The written request for approval of an interruption of the owner-occupancy term must be submitted to HUD's contractor at least 30 calendar days before the anticipated interruption. Eligible GNND program participants who are also military service members protected by the Service members Civil Relief Act (SCRA) need not submit their written request to HUD 30 days in advance of an anticipated interruption, but should submit their written request as soon as practical upon learning of a potential interruption.

HUD's contractor that would consider these requests is:

ISN Corporation

Attention: Secretary Held Loan Servicing

2000 N Classen Blvd. Suite #3200

Oklahoma City, OK  73106

(800) 225-5342 (toll free) (405) 724-7800 (fax)

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