SMARTSELF ALT DOC:
SMARTSELF PLUS:
SMARTSELF ALT DOC:
- Loan amounts up to $3M
- Use 12 or 24 month bank statements or asset depletion to qualify
- No tax transcripts or tax returns required
- Debt to Income Ratios up to 50%, 620 minimun. FICO
- 4+ years major derogatory credit
- $1.5M Cash Out at 80% LTV with 720 FICO, $1M Cash in hand
- Up to 15 financed properties
- Fixed 30; ARM 5/1, 7/1, 10/1 – all with optional Interest Only
- 90% LTV Purchase/Rate & Term – No MI
SMARTSELF PLUS:
- Loan amounts up to $1M
- 2-4 years major derogatory credit
- 85% LTV Purchase/Rate & Term - No MI
Program Summary:
The SmartSelf & SmartSelf-Plus Product is designed for strong credit quality self-employed borrowers that permits the use of bank statements to support self-employed income for qualification purposes. The documentation must provide evidence the borrower’s self-employed income is stable, sufficient to repay the borrower’s debts and likely to continue. The income documentation must support the Ability to Repay requirements (ATR). A minimum of one borrower must be self-employed and utilizing self-employed income for qualification purposes to be eligible for the SmartSelf Product. Borrowers who provide tax returns or tax transcripts are generally ineligible for the program.
Eligible Transactions:
• Purchase
• Rate & Term (Limited Cash-out) Refinance
• Cash-out Refinance
Ineligible Transactions:
Unacceptable loan types include but are not limited to the following, provided, however, that in the event that any of these limitations would violate the requirements of the Equal Credit Opportunity Act or the Fair Housing Act, the provisions of those laws and implementing regulations are controlling:
• Any loan that meets an agency, state or a federal definition of a high cost loan
• Borrowers with diplomatic immunity or otherwise excluded from U.S. jurisdiction.
• Bridge loans • Cross-collateralization or Blanket loans, covering multiple properties
• Deed-Restricted Properties (exceptions will be considered on a case-by-case basis)
• Flip transactions (multiple private transfer in the last 12 months; see Property Flips/Rapid Appreciation for more details)
• Foreclosure bailouts of any kind. (An arms-length purchase of a short sale is not deemed a foreclosure bailout.)
• Land trusts in the state of Illinois
• Leaseholds secured by Indian/Tribal lands
• Lease-Purchase Options
• Loans to fund escrows for work completion except as provided in this guide
• Loans to mortgage loan officers
• Loans with any fraudulent activities including but not limited to straw borrowers, straw buyers, builder/seller bailout plans, multiple property payment skimming, which typically involves investors who purchase investment properties with seller carry back financing and collect rents but do not make the mortgage loan payments.
• Model Home Lease-Backs
• Mortgage Credit Certificates (MCC)
• Refinancing of a subsidized loan, including loans subsidized by Habitat for Humanity, U.S. Department of Agriculture, FHA with a recapture or any city/county grant.
• Reverse 1031 Exchanges
• Temporary Buydowns
Maximum # of Financed Properties:
Borrower(s) may own no more than fifteen (15) financed properties including the subject property, unless the current principal residence is pending sale and meets the requirements of this product profile. The borrower may own additional real estate if it is owned free and clear. The following property types are not subject to these limitations, even if the borrower is personally obligated on a mortgage on the property: 1) commercial real estate, 2) multifamily property consisting of more than four units, 3) ownership in a timeshare, 4) ownership of a vacant lot (residential or commercial), or 5)ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home). Loan files must include full PITIA (principal, interest, taxes, insurance, applicable association dues and/or assessments) for all REO listed on the 1003. Refer to Cash Reserves for additional requirements.
Occupancy:
Eligible occupancy types include:
• Primary residences for 1-4 unit properties
• Second Homes – 1-2 Unit only o For 2 unit second homes, one unit must be available for the borrower’s exclusive use, no rental or time-sharing arrangements in the borrower’s exclusive unit. Must be suitable for year round use. Must be located in a recognized vacation area typical for second home properties (e.g., beach, ski, golf, resort). Must be a reasonable distance from borrower’s current owner-occupied property
• Investment or Non-Owner Occupied – 1-4 Units
Ineligible Borrowers:
• Borrowers with diplomatic immunity or otherwise excluded from U.S. jurisdiction
• Borrowers who are citizens and not employed in the U.S.
• Foreign Nationals
• Land Trusts
• Borrowers whose qualifying income is not likely to continue for at least 3 years (e.g., a bonus or an inheritance)
• Properties vested in an LLC or Corporation (title must be taken as an individual)
• Borrowers with any ownership in a business that is federally illegal, regardless if the income is not being considered for qualifying
Maximum Acreage:
Properties are limited to 20 acres. Acreage and land value must be typical and common for the subject’s market. The appraiser must indicate the total acreage as well as provide data which indicates that like-size properties with similar land values are typical and common in the subject area’s market. It is not acceptable to have property appraised with only 20 acres in order to meet eligibility.
Condos:
All loans secured by condos must be reviewed by the Lender prior to approval.
Warrantable Condos:
• Both FNMA Condo Project Manager (CPM) and FNMA Limited Review are allowed
• Detached Condo units that are Principal Residences may be processed with Limited Review
• If project is currently FNMA approved, a HOA Certification is still required.
• New projects are not eligible for Limited Review
• New or newly converted projects in Florida are eligible with a Full Review and must meet the following: 1) Maximum LTV/CLTV/HCLTV 60%, 2) Maximum Lender exposure in any one project is limited to 20%
Non-Warrantable Condos:
• The FNMA investment property concentration limits (i.e., the percentage of non-owner occupied properties within a project) do not apply
• Minimum 50% of units in project (or subject legal phase, considered with prior legal phases) must be sold or under contract. 50% requirement is cumulative and for each individual phase
• Single Entity Ownership Exception: 1) Projects in which a single entity (the same individual, investor group, partnership, or corporation) owns up to and including 25% of the total number of units in the project are permitted
Ineligible Property Types:
Acreage greater than 20 acres (appraisal must include total acreage) • Agricultural zoned property • Commercial Enterprises (e.g. Bed and Breakfast, Boarding House, Hotel) • Condotels • Co-ops • Geodesic Domes, Berms, Earth homes • Hobby Farms • Income producing properties with acreage • Leaseholds • Log homes • Manufactured/Mobile, Modular, or Factory Built Homes • Projects with insufficient Flood Insurance – Borrower supplemented is not permitted • Properties appraised with a property condition of C5 or worse • Properties held in a business name • Properties located adjacent to or containing environmental hazards • Properties Purchased Through Auctions • Properties subject to oil and/or gas leases (may be eligible on a case-by-case basis) • Properties vested in an LLC or Corporation (title must be taken as an individual) • Properties with less than 750 square feet of living area • Timeshares • Unimproved Land and property currently in litigation • Unique properties • Working farms, ranches or orchards • Zoning violations including residential properties zoned commercial
Employment:
Employment must be reviewed for stability and continuity, with at least a two year history in the same job or jobs in the same or related field. Other circumstances may also be acceptable as outlined in this section. In all instances the source of the borrower’s income must align with their overall employment history and profile. Self-employed borrowers must have a two year history of self-employment with the same business being utilized for qualification.
Income:
All income documentation must be dated within 90 days of the date the Note is signed. Full Income Documentation is required, which includes:
Wage Earners:
• Paystubs and W-2s
• A 4506-T, signed at application and closing, is required for all transactions.
• A Verbal Verification of Employment is required for all borrowers. When the pay stubs and W-2s are provided for wage earner income and employment verification, the documentation must meet the following criteria: 1) Paystub(s) must o show the most recent 30 days YTD earnings; 2) must be typed or computer generated and verify: a) Borrower’s full name and address b) Borrower’s Social Security number c) Employer’s name and address d) Year to date earnings and Borrower’s rate of pay (Must include sufficient information to appropriately calculate income; otherwise, additional documentation must be obtained; whether or not pay stubs reflect garnishments (child support, IRS, etc.); if there are any loan deductions
• Two years’ W-2s must be typed or computer generated Tax Returns Tax returns are not required. Borrowers who provide tax returns are not eligible for the SmartSelf product. Exceptions may be considered and will be reviewed through the exception process. 4506-T A signed and dated 4506T is required for all applicants both prior to closing and at closing.
Self Employed:
A borrower with a 25% or greater ownership interest in a business is considered self-employed. Self-Employed Borrowers are permitted with a minimum 2 year history with the business being utilized for income qualification; Documentation Requirements: • 1099 Contractors are eligible provided a CPA with knowledge of the borrower’s tax filing status confirms the borrower has filed either Schedule C or Schedule E for their contract employment for the past 2 years. A Borrower Affirmation document must be signed at closing confirming the income and loan terms on the final 1003.
• Service and Tip Industry: Due to the cash nature of the service and tip industry, those borrowers may participate in the bank statement program. Full documentation is required for employment. Base salary is verified with pay stubs and W-2s. 1) Qualified tips are averaged over time. Utilize the bank statement analysis to determine tip income. 2) At least two corporate reference letters are required. Previous 12 months bank statement deposits will be utilized to calculate income. No P&L is required. 3) A Borrower Affirmation document must be signed at closing confirming the income and loan terms on the final 1003.
General Requirements (Personal and Business Statements):
Unacceptable Deposits/Excluded Deposits – not limited to the following: 1) Cash advances from credit cards 2) Income sources already taken into account 3) Non-business related account transfers 4) Tax refunds 5) Product returns/credits 6) Gift funds 7) Credit line deposits/business financing
• Non-Sufficient Funds are instances where payment of a check cannot be made due to insufficient funds in the account the check is being paid from. The following requirements pertain to NSFs: 1) No more than 4 NSFs in any 12-month period 2) An explanation for the NSFs should be provided 3) Overdrafts and NSFs are treated different: Overdrafts are covered with borrower’s own funds (e.g., savings accounts, “sweep” accounts) versus use of a line of credit or credit card accounts to cover NSFs. In order to use this treatment there cannot be a fee associated with curing an overdraft.
• Decreasing income trends must be explained; additional documentation may be required. Low ending balances must be explained; additional documentation may be required. Net deposits must not reflect any other income sources already taken into consideration (i.e. deduct SS payments, W-2 wage earnings, etc., that have already been used for income calculation).
• Income disclosed on the initial signed application should be reviewed for consistency with the income calculated from the bank statements. Large deviations should be evaluated and may require a written explanation from the borrower regarding their business and the income they earn and/or additional documentation to further support the calculated income.
Personal Statements:
If the borrower maintains separate bank accounts for personal and business, and chooses to only use personal bank statements for qualifying:
The borrower is to provide the most recent twelve (12) or twenty-four (24) months consecutive personal bank statements; and Three (3) months business bank statements (to support the borrower does maintain separate accounts). If business bank statements cannot be provided to evidence a separate business account, then the personal statements must follow the requirements of business bank statements 1)If a borrower chooses to provide twelve (12) months of statements and the income analysis demonstrates a pattern of large fluctuations or inconsistencies in deposits, then twenty-four (24) months of statements may be required. 2) P&L is not required, however, when a P&L is provided, monthly income will be determined from the P&L and verified by the bank statements. 3) Deposits will be added up and averaged over either 12 or 24 months as determined by the number of months of bank statements utilized to support monthly income. o Large or irregular deposits that are inconsistent must be backed out of the average. 4) Beginning and ending balances will be evaluated and must support the overall transaction requested. Low beginning and/or ending balances may require additional documentation up to and including 1040s, 1065s, 1120s, etc.
Business Statements:
If the borrower maintains separate bank accounts for personal and business or a borrower utilizes the same account for both personal and business purposes “combined”, and chooses to only use business bank or “combined” statements for qualifying: 1) The borrower is to provide the most recent twelve (12) or twenty-four (24) months consecutive business bank statements. 2) Deposits will be added up over the 12 or 24 months of statements provided to determine a gross deposit number: a) Gross deposits will be multiplied by a 50% expense factor to determine a net deposit number that is then divided by 12 or 24 months as determined by the number of months of bank statements utilized to support monthly income. b) If a borrower’s business expense factor is higher or lower than 50% the following may be used to determine a monthly income: CPA or tax preparer produced Profit and Loss statement signed by the CPA or tax preparer and acknowledgement of their review of the borrower’s business records to support the P&L. Such statement shall not include unacceptable disclaimer/exculpatory language; or a CPA or tax preparer produced written statement specifying the actual expense ratio of the business and acknowledgement the expense ratio is based on their review of the most recent year’s financials. Such statement shall not include unacceptable disclaimer/ exculpatory language. The expense factor per the P&L or CPA or tax preparer produced statement must be reasonable. (If a CPA or tax preparer produced statement is provided, apply the stated expense factor to gross deposits to calculate the qualifying income. f a CPA or tax preparer produced P&L is provided, apply the stated expense factor to gross deposits to calculate the qualifying income. The annual deposits on the bank statements must be at least 75% of the gross receipts per the P&L. (Ex: If P&L indicates gross receipts of $200,000 the gross deposits must be $150,000 or more)
c) Beginning and ending balances will be evaluated and must support the overall transaction requested. Low beginning and/or ending balances may require additional documentation up to and including 1040s, 1065s, 1120s, etc.
Residual Income (Disposable Income):
For loans with DTI > 43% residual income requirements must be met. Residual income equals Gross Qualifying Income less Monthly Debt (as included in the debt-to-income ratio).
Eligible Income Sources
Annuity and/or Pension Income income may be used as qualifying income if it is properly documented and is expected to continue for at least three years. Acceptable documentation includes: Most recent award letter; or Most recent 2 years 1099; and copy of the bank statement showing current receipt
Asset Based Income (Asset Amortization):
Asset amortization is a calculation used to generate a monthly income stream from a borrower’s personal assets. It can be combined with other income sources. There is no age restriction. The following requirements must be met:
Eligible Assets (must be readily available to borrower(s) with no penalties or limitations):
Ineligible Assets
Asset Amortization Calculation
Down payment, closing costs and any necessary adjustments as outlined above must be subtracted from eligible asset sources to determine net available assets. Net available assets are divided by the term of the subject mortgage to calculate a qualifying asset based income.
EXAMPLE:
Savings Account Balance $200,000 ($200,000 Usable toward calculation)
Stock Fund Balance $100,000 ($90,000 Usable toward calculation)
Mutual Fund Balance $20,000 ($18,000 Usable toward calculation)
Down Payment and Closing Costs = $50,000
Net eligible assets = $308,000 – $50,000 = $258,000
Term of mortgage = 360 months
Asset Amortization Calculation = $258,000/360 = $716.66 monthly income
Reserves:
The required number of months of reserves is dependent on factors such as but not limited to the occupancy, loan purpose, type of property, and loan amount. The monthly housing expense for purposes of determining reserves includes the following:
Cash Reserves:
Contact Loan Officer for information on the following other types of income:
Boarder Income
Borrowers REgularly Scheduled for less than 40 hours
Bonus, Incentive & Overtime Income
Capital Gains
Child Support, Alimony, Maintenance Income
Commission
Disability
Dividend and/or Interest Income
Employment Offers
Employment by a Relative/Family Business
Foreign Income
Foster Care Income
Installment Sales & Land Contracts
Military Income
Mortgage Differential Income
Notes Receivable Income
Non-Taxable Income
Part-Time, Second Job
Relocating Life Partners, Trailing Co-Borrowers
Rental Income
Retirement or Social Security Income
Royalty Income
Seasonal Income
Stock Options
Trust Income
VA Survivors' Benefits/Dependent Care
The SmartSelf & SmartSelf-Plus Product is designed for strong credit quality self-employed borrowers that permits the use of bank statements to support self-employed income for qualification purposes. The documentation must provide evidence the borrower’s self-employed income is stable, sufficient to repay the borrower’s debts and likely to continue. The income documentation must support the Ability to Repay requirements (ATR). A minimum of one borrower must be self-employed and utilizing self-employed income for qualification purposes to be eligible for the SmartSelf Product. Borrowers who provide tax returns or tax transcripts are generally ineligible for the program.
Eligible Transactions:
• Purchase
• Rate & Term (Limited Cash-out) Refinance
• Cash-out Refinance
Ineligible Transactions:
Unacceptable loan types include but are not limited to the following, provided, however, that in the event that any of these limitations would violate the requirements of the Equal Credit Opportunity Act or the Fair Housing Act, the provisions of those laws and implementing regulations are controlling:
• Any loan that meets an agency, state or a federal definition of a high cost loan
• Borrowers with diplomatic immunity or otherwise excluded from U.S. jurisdiction.
• Bridge loans • Cross-collateralization or Blanket loans, covering multiple properties
• Deed-Restricted Properties (exceptions will be considered on a case-by-case basis)
• Flip transactions (multiple private transfer in the last 12 months; see Property Flips/Rapid Appreciation for more details)
• Foreclosure bailouts of any kind. (An arms-length purchase of a short sale is not deemed a foreclosure bailout.)
• Land trusts in the state of Illinois
• Leaseholds secured by Indian/Tribal lands
• Lease-Purchase Options
• Loans to fund escrows for work completion except as provided in this guide
• Loans to mortgage loan officers
• Loans with any fraudulent activities including but not limited to straw borrowers, straw buyers, builder/seller bailout plans, multiple property payment skimming, which typically involves investors who purchase investment properties with seller carry back financing and collect rents but do not make the mortgage loan payments.
• Model Home Lease-Backs
• Mortgage Credit Certificates (MCC)
• Refinancing of a subsidized loan, including loans subsidized by Habitat for Humanity, U.S. Department of Agriculture, FHA with a recapture or any city/county grant.
• Reverse 1031 Exchanges
• Temporary Buydowns
Maximum # of Financed Properties:
Borrower(s) may own no more than fifteen (15) financed properties including the subject property, unless the current principal residence is pending sale and meets the requirements of this product profile. The borrower may own additional real estate if it is owned free and clear. The following property types are not subject to these limitations, even if the borrower is personally obligated on a mortgage on the property: 1) commercial real estate, 2) multifamily property consisting of more than four units, 3) ownership in a timeshare, 4) ownership of a vacant lot (residential or commercial), or 5)ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home). Loan files must include full PITIA (principal, interest, taxes, insurance, applicable association dues and/or assessments) for all REO listed on the 1003. Refer to Cash Reserves for additional requirements.
Occupancy:
Eligible occupancy types include:
• Primary residences for 1-4 unit properties
• Second Homes – 1-2 Unit only o For 2 unit second homes, one unit must be available for the borrower’s exclusive use, no rental or time-sharing arrangements in the borrower’s exclusive unit. Must be suitable for year round use. Must be located in a recognized vacation area typical for second home properties (e.g., beach, ski, golf, resort). Must be a reasonable distance from borrower’s current owner-occupied property
• Investment or Non-Owner Occupied – 1-4 Units
Ineligible Borrowers:
• Borrowers with diplomatic immunity or otherwise excluded from U.S. jurisdiction
• Borrowers who are citizens and not employed in the U.S.
• Foreign Nationals
• Land Trusts
• Borrowers whose qualifying income is not likely to continue for at least 3 years (e.g., a bonus or an inheritance)
• Properties vested in an LLC or Corporation (title must be taken as an individual)
• Borrowers with any ownership in a business that is federally illegal, regardless if the income is not being considered for qualifying
Maximum Acreage:
Properties are limited to 20 acres. Acreage and land value must be typical and common for the subject’s market. The appraiser must indicate the total acreage as well as provide data which indicates that like-size properties with similar land values are typical and common in the subject area’s market. It is not acceptable to have property appraised with only 20 acres in order to meet eligibility.
Condos:
All loans secured by condos must be reviewed by the Lender prior to approval.
Warrantable Condos:
• Both FNMA Condo Project Manager (CPM) and FNMA Limited Review are allowed
• Detached Condo units that are Principal Residences may be processed with Limited Review
• If project is currently FNMA approved, a HOA Certification is still required.
• New projects are not eligible for Limited Review
• New or newly converted projects in Florida are eligible with a Full Review and must meet the following: 1) Maximum LTV/CLTV/HCLTV 60%, 2) Maximum Lender exposure in any one project is limited to 20%
Non-Warrantable Condos:
• The FNMA investment property concentration limits (i.e., the percentage of non-owner occupied properties within a project) do not apply
• Minimum 50% of units in project (or subject legal phase, considered with prior legal phases) must be sold or under contract. 50% requirement is cumulative and for each individual phase
• Single Entity Ownership Exception: 1) Projects in which a single entity (the same individual, investor group, partnership, or corporation) owns up to and including 25% of the total number of units in the project are permitted
Ineligible Property Types:
Acreage greater than 20 acres (appraisal must include total acreage) • Agricultural zoned property • Commercial Enterprises (e.g. Bed and Breakfast, Boarding House, Hotel) • Condotels • Co-ops • Geodesic Domes, Berms, Earth homes • Hobby Farms • Income producing properties with acreage • Leaseholds • Log homes • Manufactured/Mobile, Modular, or Factory Built Homes • Projects with insufficient Flood Insurance – Borrower supplemented is not permitted • Properties appraised with a property condition of C5 or worse • Properties held in a business name • Properties located adjacent to or containing environmental hazards • Properties Purchased Through Auctions • Properties subject to oil and/or gas leases (may be eligible on a case-by-case basis) • Properties vested in an LLC or Corporation (title must be taken as an individual) • Properties with less than 750 square feet of living area • Timeshares • Unimproved Land and property currently in litigation • Unique properties • Working farms, ranches or orchards • Zoning violations including residential properties zoned commercial
Employment:
Employment must be reviewed for stability and continuity, with at least a two year history in the same job or jobs in the same or related field. Other circumstances may also be acceptable as outlined in this section. In all instances the source of the borrower’s income must align with their overall employment history and profile. Self-employed borrowers must have a two year history of self-employment with the same business being utilized for qualification.
Income:
All income documentation must be dated within 90 days of the date the Note is signed. Full Income Documentation is required, which includes:
Wage Earners:
• Paystubs and W-2s
• A 4506-T, signed at application and closing, is required for all transactions.
• A Verbal Verification of Employment is required for all borrowers. When the pay stubs and W-2s are provided for wage earner income and employment verification, the documentation must meet the following criteria: 1) Paystub(s) must o show the most recent 30 days YTD earnings; 2) must be typed or computer generated and verify: a) Borrower’s full name and address b) Borrower’s Social Security number c) Employer’s name and address d) Year to date earnings and Borrower’s rate of pay (Must include sufficient information to appropriately calculate income; otherwise, additional documentation must be obtained; whether or not pay stubs reflect garnishments (child support, IRS, etc.); if there are any loan deductions
• Two years’ W-2s must be typed or computer generated Tax Returns Tax returns are not required. Borrowers who provide tax returns are not eligible for the SmartSelf product. Exceptions may be considered and will be reviewed through the exception process. 4506-T A signed and dated 4506T is required for all applicants both prior to closing and at closing.
Self Employed:
A borrower with a 25% or greater ownership interest in a business is considered self-employed. Self-Employed Borrowers are permitted with a minimum 2 year history with the business being utilized for income qualification; Documentation Requirements: • 1099 Contractors are eligible provided a CPA with knowledge of the borrower’s tax filing status confirms the borrower has filed either Schedule C or Schedule E for their contract employment for the past 2 years. A Borrower Affirmation document must be signed at closing confirming the income and loan terms on the final 1003.
• Service and Tip Industry: Due to the cash nature of the service and tip industry, those borrowers may participate in the bank statement program. Full documentation is required for employment. Base salary is verified with pay stubs and W-2s. 1) Qualified tips are averaged over time. Utilize the bank statement analysis to determine tip income. 2) At least two corporate reference letters are required. Previous 12 months bank statement deposits will be utilized to calculate income. No P&L is required. 3) A Borrower Affirmation document must be signed at closing confirming the income and loan terms on the final 1003.
General Requirements (Personal and Business Statements):
Unacceptable Deposits/Excluded Deposits – not limited to the following: 1) Cash advances from credit cards 2) Income sources already taken into account 3) Non-business related account transfers 4) Tax refunds 5) Product returns/credits 6) Gift funds 7) Credit line deposits/business financing
• Non-Sufficient Funds are instances where payment of a check cannot be made due to insufficient funds in the account the check is being paid from. The following requirements pertain to NSFs: 1) No more than 4 NSFs in any 12-month period 2) An explanation for the NSFs should be provided 3) Overdrafts and NSFs are treated different: Overdrafts are covered with borrower’s own funds (e.g., savings accounts, “sweep” accounts) versus use of a line of credit or credit card accounts to cover NSFs. In order to use this treatment there cannot be a fee associated with curing an overdraft.
• Decreasing income trends must be explained; additional documentation may be required. Low ending balances must be explained; additional documentation may be required. Net deposits must not reflect any other income sources already taken into consideration (i.e. deduct SS payments, W-2 wage earnings, etc., that have already been used for income calculation).
• Income disclosed on the initial signed application should be reviewed for consistency with the income calculated from the bank statements. Large deviations should be evaluated and may require a written explanation from the borrower regarding their business and the income they earn and/or additional documentation to further support the calculated income.
Personal Statements:
If the borrower maintains separate bank accounts for personal and business, and chooses to only use personal bank statements for qualifying:
The borrower is to provide the most recent twelve (12) or twenty-four (24) months consecutive personal bank statements; and Three (3) months business bank statements (to support the borrower does maintain separate accounts). If business bank statements cannot be provided to evidence a separate business account, then the personal statements must follow the requirements of business bank statements 1)If a borrower chooses to provide twelve (12) months of statements and the income analysis demonstrates a pattern of large fluctuations or inconsistencies in deposits, then twenty-four (24) months of statements may be required. 2) P&L is not required, however, when a P&L is provided, monthly income will be determined from the P&L and verified by the bank statements. 3) Deposits will be added up and averaged over either 12 or 24 months as determined by the number of months of bank statements utilized to support monthly income. o Large or irregular deposits that are inconsistent must be backed out of the average. 4) Beginning and ending balances will be evaluated and must support the overall transaction requested. Low beginning and/or ending balances may require additional documentation up to and including 1040s, 1065s, 1120s, etc.
Business Statements:
If the borrower maintains separate bank accounts for personal and business or a borrower utilizes the same account for both personal and business purposes “combined”, and chooses to only use business bank or “combined” statements for qualifying: 1) The borrower is to provide the most recent twelve (12) or twenty-four (24) months consecutive business bank statements. 2) Deposits will be added up over the 12 or 24 months of statements provided to determine a gross deposit number: a) Gross deposits will be multiplied by a 50% expense factor to determine a net deposit number that is then divided by 12 or 24 months as determined by the number of months of bank statements utilized to support monthly income. b) If a borrower’s business expense factor is higher or lower than 50% the following may be used to determine a monthly income: CPA or tax preparer produced Profit and Loss statement signed by the CPA or tax preparer and acknowledgement of their review of the borrower’s business records to support the P&L. Such statement shall not include unacceptable disclaimer/exculpatory language; or a CPA or tax preparer produced written statement specifying the actual expense ratio of the business and acknowledgement the expense ratio is based on their review of the most recent year’s financials. Such statement shall not include unacceptable disclaimer/ exculpatory language. The expense factor per the P&L or CPA or tax preparer produced statement must be reasonable. (If a CPA or tax preparer produced statement is provided, apply the stated expense factor to gross deposits to calculate the qualifying income. f a CPA or tax preparer produced P&L is provided, apply the stated expense factor to gross deposits to calculate the qualifying income. The annual deposits on the bank statements must be at least 75% of the gross receipts per the P&L. (Ex: If P&L indicates gross receipts of $200,000 the gross deposits must be $150,000 or more)
c) Beginning and ending balances will be evaluated and must support the overall transaction requested. Low beginning and/or ending balances may require additional documentation up to and including 1040s, 1065s, 1120s, etc.
Residual Income (Disposable Income):
For loans with DTI > 43% residual income requirements must be met. Residual income equals Gross Qualifying Income less Monthly Debt (as included in the debt-to-income ratio).
Eligible Income Sources
Annuity and/or Pension Income income may be used as qualifying income if it is properly documented and is expected to continue for at least three years. Acceptable documentation includes: Most recent award letter; or Most recent 2 years 1099; and copy of the bank statement showing current receipt
Asset Based Income (Asset Amortization):
Asset amortization is a calculation used to generate a monthly income stream from a borrower’s personal assets. It can be combined with other income sources. There is no age restriction. The following requirements must be met:
- Available for Primary Residence and Second Homes Only
- Borrower and Co-Borrower must be individual or co-owners of all asset accounts with no other account holders listed on the documentation
- 100% of eligible assets must be verified and will be amortized over the term of the loan (e.g., 360 months for a 30 year loan, 180 months for a 15 year loan)
- All assets must be in a U.S. financial institution—No Foreign Assets
- The sum of eligible assets as defined are net of any discounts and minus any funds used for closing and/or minimum reserves required for the program.
- Other reported earnings from Capital Gains or Interest/Dividend may not be used if Asset based income is utilized
Eligible Assets (must be readily available to borrower(s) with no penalties or limitations):
- Bank Deposits – Checking, Saving, Money Market accounts = 100%
- Investment Account: May be comprised of publicly traded stocks, bonds and/or mutual funds = 90% (stock options not allowed)
- Retirement Accounts: 401(K) plans or IRA, SEP or KEOGH accounts = 80% (IRA borrower must be at least 59 1/2; Eligible only if distributions have not been set up
- Any outstanding loan or margin accounts should be backed out of the investment accounts balance.
- No privately held stock or non-regulated financial companies
Ineligible Assets
- Business funds including personal accounts used for self-employed income calculation
- Non-liquid assets (automobiles, artwork, etc.)
- Any life insurance
- Any type of UTMA or custodial account for minors
- Bitcoin or other digital currency
Asset Amortization Calculation
Down payment, closing costs and any necessary adjustments as outlined above must be subtracted from eligible asset sources to determine net available assets. Net available assets are divided by the term of the subject mortgage to calculate a qualifying asset based income.
EXAMPLE:
Savings Account Balance $200,000 ($200,000 Usable toward calculation)
Stock Fund Balance $100,000 ($90,000 Usable toward calculation)
Mutual Fund Balance $20,000 ($18,000 Usable toward calculation)
Down Payment and Closing Costs = $50,000
Net eligible assets = $308,000 – $50,000 = $258,000
Term of mortgage = 360 months
Asset Amortization Calculation = $258,000/360 = $716.66 monthly income
Reserves:
The required number of months of reserves is dependent on factors such as but not limited to the occupancy, loan purpose, type of property, and loan amount. The monthly housing expense for purposes of determining reserves includes the following:
- Principal and interest (P&I);
- Hazard, flood, and mortgage insurance premiums (as applicable)
- Real estate taxes
- Ground rent
- Special assessments
- Any owners’ association dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit)
- Any monthly co-op corporation fee (less the pro rate share of the master utility charges for servicing individual units that is attributable to the borrower’s unit)
- Any subordinate financing payments on mortgages secured by the subject property.
Cash Reserves:
- Maximum amount of reserves required is 15 months
- For rate and term refinance transactions reserve requirements above are not required for primary and secondary residences that meet the following: o Maximum Loan Amount $1,500,000 2) 0X30X12 lates on all mortgages 3) Housing payment is decreasing on the subject property 4) SmartSelf Plus Only- 3 months reserves for derogatory credit applies 5) Additional properties owned require reserves as outlined below
- Borrowers who own additional real estate must have: 1) 2 months of reserves for each additional financed property owned including properties that are pending sale and will not be sold prior to the subject transaction closing. 2) The PITIA is based on each individual properties respective PITIA.
- SmartSelf Plus: Cash in hand from a cash-out refinance may be used to satisfy reserve requirements
Contact Loan Officer for information on the following other types of income:
Boarder Income
Borrowers REgularly Scheduled for less than 40 hours
Bonus, Incentive & Overtime Income
Capital Gains
Child Support, Alimony, Maintenance Income
Commission
Disability
Dividend and/or Interest Income
Employment Offers
Employment by a Relative/Family Business
Foreign Income
Foster Care Income
Installment Sales & Land Contracts
Military Income
Mortgage Differential Income
Notes Receivable Income
Non-Taxable Income
Part-Time, Second Job
Relocating Life Partners, Trailing Co-Borrowers
Rental Income
Retirement or Social Security Income
Royalty Income
Seasonal Income
Stock Options
Trust Income
VA Survivors' Benefits/Dependent Care
