| Loan Terms | Fixed: 30yr. ARM: 5/6, 7/6 and 10/6 ARM (Index: 30 Day Average SOFR, margin & caps per rate sheet), and Interest-Only |
| Interest Only | - Minimum Credit Score 700
- Reduce maximum LTV by 5%
| Product | Term | I/O Term | Amortization Term |
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| 5/6 ARM I/O | 360 | 120 | 240 | | 7/6 ARM I/O | 360 | 120 | 240 | | 10/6 ARM I/O | 360 | 120 | 240 | | 30 yr FIXED I/O | 360 | 120 | 240 |
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| Qualifying rate/payment | - Fixed & ARM: Qualified at note rate.
- Interest only: Qualified at note rate. Qualifying payment is for the interest only payments.
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| Minimum Loan Amount | 1-4 Unit: $100,000 |
| DSCR (Long Term Rent) | - Loan has no DTI, only DSCR is used for eligibility.
- Debt Service Coverage Ratio is calculated as Monthly gross rent divide by PITIA (or ITIA for I/O) of subject property
- Gross rent documentation
- Purchase: FNMA 1007 or 1025 reflecting market rent. If the subject property is currently tenant occupied, the 1007 or 1025 must reflect current monthly rent. Use lower of estimate market rent on appraisal or a current rent. Lease agreement is required unless there is no existing lease or the existing lease is not assigned
- Refinance: FNMA 1007 or 1025, and a current lease agreement.
- Actual rent < Market rent: Use actual rent.
- Actual rent > Market rent: Use market rent, however, actual rent may be used with most recent 2 months proof of receipt (cash payments not allowed).
- Current lease must be supported with 2 most recent bank statements showing consecutive rental payments
- Expired lease agreement that has verbiage that states the lease agreement becomes a month-to-month lease once the initial lease term expired is allowed
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| DSCR (Short-Term Rent) | - Can be used for qualifying on refinance transactions when utilizing an on-line service such as Airbnb or VRBO.
- Minimum 12-month rental history is required
- Monthly gross income is the average monthly rental income for the most recent 12 months based on statements from the on-line service
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| Eligible Borrowers | - US citizens
- Permanent resident aliens (front and back copy of resident alien card required)
- Non-permanent resident
- Must be legally present in the U.S. with an acceptable visa type (E-1, E-2, E-3, G-1 through G-5, H-1B, H-1C, H-2, H-3, H-4, L-1A, L-1B, L-2, NATO 1-6, O-1, TN1 Canadian NAFTA Visa, TN-2 Mexican NAFTA Visa)
- Must have a 2-year credit history in U.S. and must meet minimum credit requirements
- No funds from outside the U.S. are allowed
- Not eligible for cash-out refinance transactions
- All borrowers must have a valid social security number
- Inter-Vivos Revocable Trusts
- U.S. based LLC, Partnerships, and Corporations
- Ineligible Borrowers: Borrowers with only an ITIN, First Time Home Buyers, Irrevocable Trust, Land Trusts, Foreign Nationals, Borrowers who are a party to a lawsuit, Borrowers with Diplomatic Immunity, Guardianship, Life Estates
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| Borrower Experience | - Experienced investor: A borrower who has history of owning and managing commercial or non-owner-occupied residential real estate for at least 12 months in the last 24 months. A letter of explanation is required to detail relevant real estate experience.
- All borrowers must meet experienced investor requirement
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| Properties | - Eligible: Single family, PUD, Condo (with Full HOA Cert, FNMA/FHLMC warrantable), 2-4 unit. Leasehold is not eligible for condo
- Ineligible: C5/C6 condition grades, manufactured homes, co-ops, condo hotels, non-warrantable condos, rural zoned properties, agriculturally zoned properties (agricultural/residential eligible), working farms, log homes, mixed-use, builder model leaseback, boarding houses, timeshares, assisted living facilities, zoning violations, geodesic domes, unique properties, properties with more than 10 acres, lot loans and properties with deed/resale restrictions, leasehold, Texas 50(a)(6), Hawaii lava zone 1-2, Condo < 400sqft & properties other than condos with less < 750sqft
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| Condo | - Full lender review required HOA Cert, CC&Rs, Bylaws, Articles of Incorp, Budget, except for a detached condo.
- Warrantable condo types S and T
- New condo (type R). New Condo may not be subject to additional phasing or annexation
- Project must be reviewed within 3 months preceding the note date
- CPM Project acceptance certification & unexpired PERS approval required if applicable
- Ineligible: Condo projects identified by Fannie Mae CPM as ‘Unavailable’, project with significant deferred maintenance or have received a directive from a regulatory or inspection agency to make repairs due to unsafe conditions are not eligible, condo under leasehold.
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| Accessory Unit (ADU) | Follow Agency |
| Appraisal Requirements | - Transfer appraisal not acceptable
- Age of report
- 120 days from the Note date. If appraisal is over 120 days old a new appraisal needs to be performed
- For new construction an appraisal update on form 1004D is required
- Appraisal form
- Fannie Mae 1004 (SFR/PUD), 1025 (2-4 Units), 1073 (Condo), 1004D, and 1007
- 2 full appraisal are required for loan amounts > $2,000,000. LTV will be based on the lower of the two values. All inconsistencies between the 2 appraisals must be address and reconciled
- CDA required on each loan with no CU score or a score greater than 2.5
- Desk review (CDA) from Clear Capital
- Review must not be over 120 days old from the Note
- If CDA reflects a negative value more than 10% variance, a field review is required. If the field review also produces a negative value more than 10% then the loan will remain ineligible
- Zoning must be residential
- Declining market value - Reduce maximum LTV by 10%
- FEMA declared disaster area
- If disaster end date has not been declared by FEMA, a date and time stamped area map from the state or county agency showing the subject property in relation to the disaster area is required to evidence that the property is outside of current known fire boundaries
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| Escrow Holdback | Not allowed. Any inadequacies determined by the appraisal must be remediated prior to closing |
| Number of Financed Properties | - No more than 20 residential 1-4 unit financed properties including borrower’s primary residence and subject property
- Financed properties that are commercial properties or unimproved land can be excluded from the calculation of number of properties financed
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| Housing Payment History | - Documented 12 months history is required on the subject property, primary residence, and ALL additional financed properties. The housing history requirements for additional financed properties (properties other than the subject and primary residence) are limited to properties with mortgages reflected on the credit report. All payment histories must reflect 0x30.
- VOR completed by professional management company or lease agreement (to document the term and payment) + 12 months bank statement or canceled checks
- Mortgage payment from an institutional lender, including the month prior to closing, verified through:
- 1) credit report reference for 12 months or
- 2) 12 months cancelled checks
- Mortgage payment from a non-institutional lender: VOM + 12-month payment proof
- Mortgage payments must be verified with either cancelled checks or bank statements (if the payment is automatically withdrawn from the borrower’s account)
- Evidence that the lien being paid off is a current recorded lien against the subject property
- If housing history (all financed properties) reflects forbearance agreement, the payment history must reflect 0x30 in most recent 12 months since exiting forbearance prior to Note date. Payment history must be provided by the lender/servicer
- Living rent free is eligible if the borrower is an experienced real estate investor with a minimum of 12 months ownership and management of income-producing residential or commercial real estate within the past 24 months.
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| Age of Credit Documents | 90 days from closing |
| Credit Requirements | FICO score requirements- All borrower must have a minimum of 2 FICO credit score. All bureaus must not be frozen.
- Representative FICO score is the lower of 2 or middle of 3 credit scores.
- For loans with multiple borrowers, use lowest representative FICO score amongst all borrowers.
- Credit rescores are not permitted unless the rescore is correcting erroneous line items or dispute accounts
Minimum tradelines requirements- Each borrower, a minimum of 2 trade lines must be evident and must meet the requirements as below:
- At least 1 trade line must be open for minimum 24 months and active within the most recent 6 months, and
- At least 1 trade line must be rated for 12 months and may be open or closed
- Self-reported, Account in deferment, Authorized user, collection/charge-offs, Account included in credit events (BK/FC/SS/DIL) are not considered as acceptable tradelines.
Derogatory accounts- Past-due accounts must be brought current prior to or at closing
- Collection and charge-off
- LOE to explain any delinquent credit
- Must pay off all delinquent credit that has the potential to impact lien position
- If balance of an individual account is less than $1,000 or if there are multiple accounts the total balance of all accounts cannot exceed $2,500
- All judgements, garnishments, and outstanding liens must be paid off. Must source funds used to payoff these items.
- Disputes on account must be resolved
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| Derogatory Credit Event | - Minimum 4 years waiting period since bankruptcy discharge or dismissal, foreclosure, notice of default (NOD), short sale or deed-in lieu or modification measured from the date of completion to the date of application
- LOE to explain credit event
- Borrower must show reestablished credit and meet the minimum credit requirement
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| Forbearance, Modification, or Deferrals | - Forbearance, loan modifications, or deferrals is not considered as a credit event. If these are completed or reinstated greater than 12 months from the Note date of the subject transaction and having a 0x30x12 housing history, no restrictions apply.
- If forbearance, modifications, or deferrals completed or reinstated within 12 months of the Note date of the subject transaction, borrower is not eligible for this program.
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| Occupancy | Investment only. Borrower must complete and sign Certification of Business Purpose. |
| Assets and Reserves | Documentation: Most recent 2-month bank statements (VOD not acceptable)- Must be liquid asset.
- Large deposits, defined as a single deposit that exceeds 5% of the loan amount, must be sourced
- Acceptable source of funds: Bank deposits, stocks, bonds, mutual funds, HELOC, life insurance surrender value if used for cash to close must be liquidated, sale of real property, IRA/401K
- Business funds can be used for down payment & cash reserves if borrower owns 100% of the business + CPA/EA/CTEC letter to confirm that the withdrawal will not negatively impact the business
- Ineligible asset: Gift funds, gift of equity
Reserves (PITIA for subject property x months)- Loan Amount <=$1,000,000: 3 Months
- Loan Amount > $1,000,000 and <=$2,000,000: 6 Months
- Loan Amount > $2,000,000 and <=$3,000,000: 9 Months
- Reserves are calculated based on the PITIA (fully amortizing loans) or ITIA (interest only loans) of the subject property
- Stocks & bonds can only use 70% of value for reserves
- Cash-out may be used for reserves
- If using life insurance, no liquidation is required
- Ineligible assets: Gift funds, Equity Lines of Credit
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| Title Ownership | - Ownership must be fee simple
- Eligible: Individual, Joint Tenants, Limited Liability Companies, Partnerships and Corporations, Inter-Vivos Revocable Trust
- Ineligible: Tenants in Common
- To vest a loan in an Entity, the following requirements apply
- All entity member to be on the loan
- Restricted to investment property only.
- Purpose and activities are limited to ownership and management of real property.
- Entity must be domiciled in a US State.
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| Business Vesting documentation | Depends on the type of entity, below documents from entity are required.- Any business structure is limited to a maximum of 4 members (all entity members to be on the loan)
- Purpose and activities of the business are limited to ownership and management of real estate
- LLC (Limited Liability Company)
- Entity Articles of Organization or Partnership
- Certificate of Good Standing or equivalent (Foreign LLC Certificate of Good Standing if entity is not formed in the subject
- property state)
- Certificate of Authorization for the person executing all documents on behalf of the Entity. The authorization may be determined in an Operating Agreement or other corporate documents. If not, a Borrowing Certificate is required. (LLC Borrowing Certificate -Single Member, or LLC Borrowing Certificate – Multiple Member)
- Corporate documents that contain a list of owners, title, and ownership percentage (e.g. organization structure)
- Tax Identification Number (EIN). Single member LLC may use EIN or the guarantor SSN
- Corporation
- Filed Certificate/Articles of Incorporation (and all amendments)
- By-Laws (and all amendments)
- Certificate of Good Standing (issued by Secretary of State (SOS) where the Corporation is incorporated)
- Tax Identification Number (EIN)
- Borrowing Resolution/Corporate Resolution granting authority of signer to enter loan obligation
- Receipt of current year franchise tax payment or clear search
- Partnership
- Filed Partnership Certificate (if a general partnership, filing with the SOS may not be required)
- Partnership Agreement (and all amendments)
- Certificate of Good Standing (issued by the SOS where partnership is registered)
- Tax Identification Number (EIN)
- Limited partner consents (where required by partnership agreement)
Documents signing requirements are as below (must be completed/signed as an individual by each member of the entity):- Loan application: Section labeled “Title will be held in what Name(s)” should be completed with the entity name. Each member is subject to the same underwriting requirements as an individual borrower
- Personal Guarantee form must be signed at loan closing and dated the same date as the Note, by all members.
- Spousal Consent to Pledge is required for community property states (AK, AZ, CA, ID, LA, NV, NM, TX, WA, WI).
- The following documents must be signed as an authorized signer of the entity by each member.
- Applicable federal and state disclosures
- Business Purpose and Occupancy Affidavit
- Note, Deed of Trust/Mortgage and all Riders
- Any state and/or federally required settlement statements
Example - Signature Requirements
[Authorized Signatory] may be replaced by a different title as specified in the Member Consent (e.g., Managing Member, Member, etc.).
Sample 1:
Borrower: JJ Investors, LLC by James Johnson, Single Member of LLC
Note, Security Instrument, and all Riders:
Signature Block
JJ INVESTORS, LLC a [ ] limited liability company
James Johnson
By: James Johnson
Title: [Authorized Signatory]
Sample 2:
Borrower: JJ Investors, LLC, by James Johnson and Jane Nelson, two Members of LLC;
Both Members are Authorized Signatories of LLC.
Note, Security Instrument, and all Riders:
Signature Block
JJ INVESTORS, LLC a [ ] limited liability company
James Johnson,
By: James Johnson
Title: [Authorized Signatory]
and
JJ INVESTORS, LLC a [ ] limited liability company
Jane Nelson
By: Jane Nelson
Title: [Authorized Signatory] |
| Solar Panels | Any item that will include a UCC associated with the property and/or will create an easement on title is ineligible |
| Impound | Impound is required for flood insurance only |
| Rent Loss Insurance | Rent loss insurance covering a minimum 6 months is required |
| Power of Attorney | Follow Agency |
| Purchase | - If Seller has taken Title to the subject property within 90 days or less prior to the date of sales contract
- Property seller on the purchase contract is the owner of record
- LTV will be based on the lesser of the prior sales price, current purchase price, or the current appraisal value
- Loans that are bank owned or relocation sales are exempt from the above requirements
- Personal property may not be included in the purchase agreement. Personal property items should be deleted from purchase agreement. Items such as lighting fixtures, kitchen appliances, window treatments and ceiling fans are not considered personal property for purposes of this section
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| Interested Party Contribution (IPC) | - Can only be used for closing costs and prepaid expenses, not down payment or reserves.
- Maximum 3%
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| Non-Arm’s Length Transactions | - Eligible non-arm’s length transactions and the related circumstances are properly documented:
- Sales or transfers between members of the same family. Transaction may not be due to any adverse circumstances
- Property seller acting as his or her own real estate agent
- Borrower/relative acting as borrower real estate agent
- Borrower/relative is an employee of the originating lender
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| Rate & Term | - The mortgage amount may include the:
- Principal balance of the existing first lien,
- Payoff of a purchase second lien
- Payoff of a non-purchase second lien seasoned a minimum of 12 months from date of application. The 2nd lien must not evidence draws exceeding $2,000 within the past 12 months from date of application. Withdrawal activity must be documented with transaction history of the line of credit
- Payoff of a co-owner pursuant to a written agreement
- Financing of the payment of prepaid items and closing costs
- Minimum of 6 months seasoning from the note date of the new transaction required if previous refinance was cash-out, including the payoff of a non-seasoned subordinated lien.
- For properties owned 6 months or longer prior to the closing date the LTV is based upon the appraisal value
- If the subject property was purchased within 6 months of closing date the LTV will be based upon the lesser of the original sales price (Closing Disclosure from subject property acquisition required) plus documented improvements (invoices for material/labor are required) or the current appraised value. *Inherited properties are exempt from this seasoning requirement and LTV will be calculated off current appraised value
- Properties listed for sale are ineligible for refinance unless the listing was withdrawn prior to the date of closing
- Max Cash-back to borrower is limited to the lesser of $2,000 or 1% of the new loan
- Principal reduction is permitted up to the lesser of $2,500 or 2% of the new loan
- Payoff of delinquent real estate taxes (60 days or more past due) is considered cash-out.
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| Cash-Out | - LOE for use of loan proceeds is required and must be business purpose (i.e., investment on another property, renovation, etc.). Personal/consumer purpose is not allowed.
- Max cash-in-hand (defined as loan amount minus UPB & closing cost): $500,000.
- If property was acquired within 12 months of closing date the LTV will be based upon the lesser of the original sales price (Closing Disclosure from subject property acquisition required) plus documented improvements (invoices for material/labor are required) or the current appraised value.
- Loans not eligible for cash-out
- Non-Permanent Resident Aliens
- Property listed for sale in the past 6 months
- Payoff of a Land Contract / Contract for Deed / Texas 50(a)6
- Cash-Out Seasoning is defined as the time difference between application date of the new loan and the property acquisition date.
- 6 months Title seasoning is required for a transaction to be eligible for cash-out
- For properties owned 12 months or longer, the LTV is based upon the appraisal value
- If the subject property was purchased within 12 months of closing date, the LTV will be based on the lesser of the original sales price (Closing Disclosure from subject property acquisition required) plus documented improvements (invoices for material/labor are required) or the current appraised value
- Delayed Financing: Property was purchased by a borrower for cash within 90 days of the loan application
- Cash back to the borrower in excess of the original purchase price or appraised value (whichever is less) is not allowed.
- Source of funds for the purchase transaction are documented.
- If source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than subject (e.g. HELOC secured by another property), the settlement statement for the refinanced transaction must reflect all cash - out proceeds were used to pay off or pay down the loan used to purchase the property.
- Funds received as gifts and used to purchase the property may not be reimbursed with the new loan proceeds.
- Original purchase transaction must be documented by a Closing Disclosure confirming that no mortgage financing was used to obtain the subject property
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| Continuity of Obligation | - For a refinance transaction there must be continuity of obligation of the outstanding lien that will be paid
- Continuity of obligation is met when one of the following exists:
- At least 1 borrower is obligated on the new loan who was also a borrower obligated on the existing loan being refinanced
- Borrower has been on Title for at least 6 months and paid the mortgage for the last 6 months
- Borrower recently been legally awarded the property (divorce, separation, or dissolution of a domestic partnership)
- Properties that are owned free and clear meet the continuity of obligation requirements
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| Title | - All transactions require a minimum 12-month Chain of Title
- Title insurance policy must be dated within 90 days and insured the exact loan amount
- Any item that will include a UCC associated with the property and/or will create an easement on title is ineligible
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| Foreclosure Bailout | A foreclosure bailout is a refinance or purchase transaction where the true purpose of the loan is to refinance an existing loan to the borrower which is secured by the mortgage property that is in foreclosure. Such transactions are ineligible. |
| Subordinate Financing | Not allowed |
| Temporary Buydown | Not allowed |
| HPML | Not allowed |
| Prepayment Penalty | - The minimum prepayment charge will be equal to 6 months of interest on the amount of the prepayment that exceeds 20% of the original principal balance
- Prepayment penalty is applicable regardless of the reason for the prepayment of principal including prepayments resulting from the sale or refinance of the subject property or curtailments that exceed 20% of the original principal balance in any 12 month period
- Period: Borrower(s) can choose from 0 to 5-years
- Any state restrictions please follow Prepayment Penalty chart
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