Loan Requirements

• Income from all sources is required. This may include sources of income that your lender does not include.
• Income from anyone over 18 years old is used and sometimes income from people under 18 is included.
• Income calculations are projected for the next 12 months. Because of this the calculated income could be higher than the current income.
• For a purchase, the program calculates the household’s income.
• For a refinance, the lender calculates the household’s income. In some cases, the program may also need to calculate the income separately.

• Buyers need a least $2,000 for down payment and closing costs (purchase only).
• Down payment gifts are limited to 20% of the home’s price. Gift givers must provide a gift letter.

The debt of all people in the household is included even if they are not on the loan.

Housing debt and non-housing debt is used to calculate DTI. Examples include PITI (principle, interest, taxes, and insurance), mortgage insurance, HOA dues, flood insurance, student loans (even if in deferment or forbearance), credit card minimums, car loans, and all other monthly debt obligations.

For student loans in deferment or forbearance 1% of the total debt or lender estimate can be used to estimate monthly payments.

A mortgage is affordable if the total debt-to-income ratio is not over 42%. In most cases the program will not allow a loan that creates a ratio over 42%.

A ratio of up to 45% is allowed if the loan is fixed rate and if the borrower meets at least 3 of the following:

• Median FICO credit score of 700 or better for one person on the loan.
• The future monthly housing cost is not more than 20% above the borrower’s current housing costs.
• The borrower will have three or more months PITI (principle, interest, taxes, and insurance), mortgage insurance and HOA dues in the bank after closing.
• The borrower has an unbroken 2-year work history in their current field.
• No late payments on the household’s credit report(s) in the most recent 12 months.
• Down payment of at least 10%.

A higher debt-to-income ratio may be allowed for an “energy mortgage.” The homeownership team will need to review the loan and understand the energy savings.

Co-signers are allowed. Co-signers cannot appear on title to the property. The buyer must meet the program debt-to-income ratio requirement without including co-signer income.

If the co-signer is on title, they must live in the home as their primary residence and be included in the household application (income, assets, and debt).

• In all calculations, the home’s value is based on the affordable value formula from the home’s Permanently Affordable Covenant. This value is calculated by the program upon request.
• Loans must come from a bank, credit union, or loan broker. Private loans are not allowed (friends/family loan).
• Interest-only, negative amortizing, or other non-amortizing loans are not allowed.
• 80/20 programs are allowed if the second loan is fixed-rate.
• Sub-prime loans are not allowed.
• Prepayment penalties are not allowed.
• A fixed-rate loan interest rate cannot be more than the U.S. 10 Year Treasury Note rate plus 3% (based on last closed value). This includes the primary mortgage only.
• Loans with lender paid mortgage insurance or lender provided down payment grants with higher rates may be considered. Approval is at the discretion of the program.
• The interest rate of a fixed-rate second loan cannot be more than the U.S. 10 Year Treasury Note rate plus 4.5% (based on last closed value). This includes any junior loans (i.e. home equity loans).
• When buying, loans totaling up to 100% or less of the combined loan to value ratio (CLTV) are allowed. The value equals the purchase price.
• When refinancing, loans totaling 93% or less of the combined loan to value ratio (CLTV) are allowed. The value equals the program calculated affordable value at the time of refinancing.

Adjustable-Rate Mortgages (ARMs) are allowed if:

• There is a minimum of 5 years before the first rate adjustment.
• There is at least six months between rate adjustments.
• There is a 6% cap on total rate increases over the life of the loan.
• There are no prepayment penalties.
• The initial interest rate cannot be more than the U.S. 10 Year Treasury Note rate plus 1.5% (based on last closed value).
• There are no interest-only or negative amortization features.
• There are no payment caps.

Home Equity Lines of Credit (HELOCs) are allowed if:

• CLTV is not more than 90% of the program calculated affordable value.
• The debt-to-income ratio is not more than 42%.
• The HELOC is for less than 33% of the program calculated affordable value.
• The initial interest rate is not more than the Wall Street Journal Prime Rate plus 1.25%.
• Yearly rate changes are not more than 3% or the rate change is tied to the Wall Street Journal Prime Rate.

Home Equity Conversion Mortgages (sometimes called HECM or Reverse Mortgages) are not allowed. The United States Department of Housing and Urban Development (HUD) has stated homes with price restriction limits are not suitable for these types of loans.

Before closing, the program needs to review the Closing Disclosure (CD) to confirm the loan meets program requirements.

To allow a subordination request (refinance or HELOC) the program needs to review the loan estimate (LE), loan application (form 1003), title work, and appraisal (if available).

Sometimes loans that do not meet these guidelines can be approved through an Exception Request Process. The Exception Request Process can take 4-6 weeks which may result in delayed closing.