• This information is for residential property (1-4 units) only. For commercial financing go here.
• Except where stipulated this information applies to mainstream loan options: FHA, conventional, and government (FHA, USDA, VA).
• The information presented here represent a synopsis of common criteria applicable to all lenders, not just Prospect Mortgage.
• Loan programs and underwriting criteria change all the time.
• In the interest of clarity detail information was omitted.
• This summary contains commonly applicable underwriting rules. Some underwriting criteria are universal, others are not.
• Exceptions can be requested for certain underwriting criteria, but not for others.
• For simplicity purposes "real estate professionals" are referred to a "realtors".
• Basic financing knowledge is assumed, but the lay person will find much useful information here also.
• Assume that this information is incomplete, not entirely accurate, and that there is more to it - good, bad, or indifferent. Please send me your scenarios for guidance.

APPRAISALS                                   [Back to the top]                           
Due to recent regulatory changes, appraisal are no longer ordered at time of application, but at time of origination (when the loan goes to underwriting) - typically 1-2 weeks following application. With few exceptions the appraisal protocol is in accordance with the Home Valuation Code of Conduct. Appraisal are ordered and quality reviewed through a 3rd party system before being delivered back to me . Ordering with your favorite appraiser is no longer an option, sometimes appraisers are not familiar with the area, and it now takes longer to get the appraisal back. It is now more important than ever for realtors to connect with the appraiser at time of inspection and provide comparables!

Appraisal reviews
Appraisal reviews can be stipulated by an underwriter for any loan application. Volatile market conditions and the distorting effect of short sales and foreclosures will do that for you. There are three types of reviews:

• Desk reviews (with or without validating the data in the appraisal report)
• Field reviews (field review, whereby the review appraiser examines the property) 
• Full review (whereby the appraiser independently collects data)

Appraisal appeals
Appraisals can be appealed with (very) good comparables, which I will invariably ask the realtor to provide. Typically for similar property sales, not used in the original appraisal:

• Have occurred no more than 6 months from date of inspection;
• Be closed as of the date of inspection;
• As close to the subject as the original sales; and
• Similar in size, age, design and site

PROPERTY TYPES / FEATURES                                   [Back to the top]   

Co-Ops
Co-op financing available, subject to local market underwriting criteria

Investment Properties

Conforming loans - Max LTV is 80% for purchases, 75% Limited Cash Out, 70% Cash Out.

• Borrowers who own 1-4 financed properties must meet the following reserve requirements:
• 2 months of reserves on the subject property if it is a second home
• 6 months of reserves on the subject property if it is an investment property, and
• 2 months of reserves on each other financed second home or investment property
• See FNMA Announcement 09-02 for FNMA reserve, Fico, and other requirements)
• Minimum FICO 680 for conforming loan amounts. High balance loans may require higher Fico.
• All transaction must be arm's length transactions. No relationships between the seller, buyer, and lender of record.
• Interest Only loans usually not permitted.
• 2 years rental property management history required. If not, additional reserves and/or compensating factors may be acceptable
• Borrowers renting or living rent free at principal residence require high level approval.
• No 30 day mortgage/rent lates within the past 12 months
• Investment property must be located in the same state as the borrower's primary residence
• Rent loss insurance may be required on any owner occupied 2-4 unit or 1-4 non-owner occupied property
  
  
  

Investment Properties - Refinance transactions with title change, or acquired in past 12 months

• Field review is required if title has changed or property acquired in the past 12 months.
• Any increase in value from the previous transfer price to the current price or value must be documented and reasonable.
• Loans being paid off must be from an institutional lender.
• The value used for calculating LTV/CLTV is based on the lesser of the original purchase price or current appraised value.
• Copy acquisition transaction documents is required to document the original purchase price and the borrower's cash investment (25% own funds).
• No relationships permitted between all parties (original buyer, seller, lender, realtors) to the original purchase transaction. Must be arm's length transaction.

More than 4 financed properties owned (1-4 unit Residential Properties)

• Maximum 10 properties financed allowed.
• See FNMA Announcement 09-02 for reserve, Fico, and other requirements)
• Total financed properties count is cumulative for all borrowers and must include properties held in partnerships, LLCs and S-corps.
• For corporations, borrower cannot be personally obligated on existing loan per credit report.
• More than 4 financed properties owned not permitted for any borrower regardless of occupancy type on subject loan for FHA/VA loans

Manufactured Homes

• Manufactured home (single, double or triple-wide) affixed to permanent foundation (as defined by HUD)
• Loans are be available subject to unique program criteria
• No second homes

Modular/Prefab - Off-Frame

• Modular/Prefab built classified as "Off-Frame", and built to loan criteria for factory-built housing.
• Loans are be available subject to unique program criteria

Modular/Prefab - On-Frame

• On Frame modular homes are properties defined as modular homes that are built to modular standards (based on local building codes) and are titled as real property (may be delivered via chassis) and the chasses remain with the property (on-frame).
• Loans are be available subject to unique program criteria

Condos
Condo loans have been hit with loan defaults more than other types of housing. As a result property standards have been raised significantly. Personal qualifications have been raised also. The good news is that project certifications have been delegated by Fannie Mae and HUD to approved lenders, including Prospect Mortgage. Spot approval are still available for conventional loans for mature projects only.

Condo financing can be a real minefield. I recommend realtors - whether a selling or buying agent - find out at the earliest opportunity what the financing options and limitations are. The brevity of this section does not reflect the complicated nature of the subject of condo financing. There is just too much to report in a meaningful way, and criteria change all the time. I'm supposedly the financing expert and all too often I realize that I am lucky if I can just ask the right questions. Fortunately I am supported by two designated condo teams who do nothing but deal with the intricacies. I hope that if nothing else, this section will help you to ask the questions also.

Whether you are a listing or buying agent, I recommend you get this condo questionnaire filled out, and submit to me at the earliest opportunity. I will tell you what the financing options and limitations are, how to create more options, how eliminate limitations (if any), and how to prequalify prospective purchasers. Don't assume anything: Verify! - no matter how reliable you think the information you already have is.

Rural Properties

• Maximum loan amount is conforming loan amount
• Land value cannot exceed 60% of the property value
• Acreage cannot exceed 10 acres
• No business/commercial activity (ranching, farming, horse training, etc.), confirmed by appraisal

Legal non-conforming property
"The use of land for purposes contrary to the applicable municipal zoning specifications, which often occurs when zoning changes while a property is in use".
If the property is destroyed, it often cannot be rebuilt and revert to it's former use. Difficult to finance, unless written confirmation can be obtained that it will be allowed. I recommend a "rebuild letter" be obtained from the applicable jurisdiction when the property goes on the market. The argument that the new zoning actually makes the property more valuable works for a commercial loan, but not for a residential loan. This is an old issue, but the rules are now enforced.

 

CONDO DEVELOPMENTS AND CONVERSIONS                                   [Back to the top]   
Any new condominium project needs to become "Warrantable" at the earliest opportunity. A condominium or condo-conversion development is warrantable if "it has features that serve as protection against hazards that threaten the value of the unit". I invite you to make me a consultant at the earliest opportunity - even before blueprints if possible! There are unique condo financing rules that apply to projects under development and the migration to becoming seasoned projects. There are many things developers and realtors can do make units eligible for financing at the earliest opportunity and accelerate sales as a result. Conversely, there are many potential pitfalls that can severely limit marketability, even make units ineligible for financing! Do not assume you are sufficiently informed. Small details can have disastrous consequences! Even I seek the support of my condo teams on all but basic situations. For further information about Warrantability go here.

• We offer all mainstream FHA, conventional, and government (FHA, USDA, VA) loans. The choice of type of loan is typically driven by the objectives of the borrower, the property, and income/asset/credit criteria. Except where stipulated this Handbook applies to purchases, sales, and refinances for these types of loans.
• Prospect Mortgage also offers various refinance programs for underwater or distressed borrowers. Contact me if you have a scenario.
• Portfolio, stated income, hard money, and Homepath loans represent significant opportunities and are represented below
  
  
  

CONVENTIONAL LOANS                                 [Back to the top]   

Purpose

• Purchase
• Refinance
• Limited Cash Out Refinance (LCOR):  
• Incidental cash back not to exceed the lesser of 2% of the balance of the new loan or $2,000.00
• Transactions with proceeds used to pay off subordinate liens that were not used to purchase the property are not eligible.
• Properties listed for sale in the last 6 months are eligible, but must be off the market before application dat
• Cash Out Refinance: (COR): 
• If the property was purchased by the borrower within the 6 months preceding the application for new financing, the borrower is not eligible for a COR.
• Properties listed for sale in the 6 months preceding the application for new financing are limited to 70% LTV.

Loan programs and terms

• Primary residence
• Single borrower
• Multiple borrowers (Only one borrower needs to occupy and take title to the property, except as otherwise required for mortgages that have guarantors or cosigners).
• Parents wanting to provide housing for their physically handicapped or developmentally disabled adult child. (If the child is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the parent is considered the owner/occupant.)
• Children wanting to provide housing for elderly parents. (If the parent is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the child is considered the owner/occupant).
  
  
• Second homes
  
• Must be located a reasonable distance away from the borrower's principal residence.
• Must be occupied by the borrower for some portion of the year
• Restricted to one unit dwellings.
• Must be suitable for yearround occupancy.
• The borrower must have exclusive control over the property.
• Must not be under rental property or a timeshare arrangement.
• Cannot be subject to any agreements that gives a management firm control over the occupancy of the property.
• Cashout limitation apply
  
  
• Investment property
  See "Property Types/Features"    [Back to the top]  



Conversion of principal residence to second home or investment property

• Current principal residence is pending sale but the transaction will not be closed prior to the new transaction.
• Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction.
  
  
• Conversion to a Second Home
• Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and
• 6 months of PITI for both properties is required to be in reserves. 
• Lender may consider reduced reserves of no less than 2 months for both properties if there is documented equity of at least 30% in the existing property.
  
  
• Conversion of an Investment Property
• 75% of the rental income can be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property. The rental income must be documented with a copy of the fully executed lease agreement, and the receipt of a security deposit from the tenant and deposit into the borrower's account.
• If the 30% equity in the property cannot be documented rental income may not be used to offset the mortgage payment. Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and 6 months of PITI for both properties is required to be in reserves.
  

FHA                                [Back to the top]   

Maximum LTV (Loan-To-Value)

• Purchase - maximum 96.50% LTV. Restrictions may apply with non-occupant borrowers
• Rate and Term Refinance - max 97.75% LTV (115% if second mortgage refinanced).
• Cash-out Refinance - max 85% LTV (115% if second mortgage refinanced)

Loan Program and Terms

• 30 or 25 Year Fixed (with or without a 2-1 or 1-1 buydown)
• 10, 15, 20 Year Fixed (not allowed on High Balance Loans)
• High Balance Loans - 30 year term only
• 1/1, 3/1, 5/1 ARM - 30 year term only
• Temporary Buydown - 30 year fixed only

Borrower Eligibility

• US Citizens, Inter-vivos revocable trusts
• Permanent and Non-Permanent Resident Aliens
• Non-Occupant Co-Borrowers must be on title and meet all FHA guidelines. The co-borrower must be a close family member or demonstrate a long-standing family relationship with the primary borrower.
• All borrowers must have valid social security number.
• A completed and signed 4506-T is required for all borrowers on all loans.

Maximum Loan Amount
Maximum loan amounts are determined on a per county basis. Lookup here.

Occupancy

• Owner Occupied Only.
• Non-Occupant Co-Borrowers allowed as per FHA guidelines.
  

FIX-FLIP PARTNERSHIPS
Most joint venture investments are on the basis of a profit share up to 50/50 (at 100% financing level). My investors usually prefer not to own the property and instead secure their investment with a mortgage. They add a share of the projected profit to the mortgage upfront. The investment is then repaid with the profit share (plus interest if any) when the property is sold or refinanced. This will allows the developer to manage the project independently and maximize profits. Please note that this is an equity investment and not a mortgage loan. There are no lender fees of any kind. The financing is provided through my personally developed circle of investors and does not involve Prospect Mortgage. Request a quote for your scenario here. If you are interested in investing this way, go here for further information.

FANNIE MAE HOMEPATH                                 [Back to the top]   

CONSTRUCTION/REHAB LOANS                            [Back to the top]