Announcement 20-0009: Carrington Advantage Program Underwriting Guideline Updates

Cash Out Refinance

The mortgage amount for a cash-out refinance transaction may include any of the following:

• Existing first mortgage payoff
• Closing costs and prepaid items (interest, taxes, insurance) on the new mortgage
• The amount of any subordinate mortgage liens being paid off that do not meet seasoning and draw history requirements as described in Rate/Term Refinance
• The amount of any non-mortgage related debt paid off through closing
• Additional cash in hand reflected on the settlement statement

Cash Out Refinance

The mortgage amount for a cash-out refinance transaction may include any of the following:

• Existing first mortgage payoff
• Closing costs and prepaid items (interest, taxes, insurance) on the new mortgage (Note: Payment of delinquent property taxes is permitted for cash out refinances and must be paid with borrower funds or cash out proceeds)
• The amount of any subordinate mortgage liens being paid off that do not meet seasoning and draw history requirements as described in Rate/Term Refinance
• The amount of any non-mortgage related debt paid off through closing
• Additional cash in hand reflected on the settlement statement

Non-Permanent Resident Alien -
Income / Employment RequirementsStandard guidelines apply for verifying income and employment of Non-Permanent Resident Aliens.

Note: Non-Permanent Resident Aliens are not eligible for income qualification using bank statement documentation (personal or business).

Credit Analysis - Delinquent Property Taxes

Delinquent property taxes may be included in Cash-Out refinance transactions and must be paid by with borrower funds or cash-out proceeds. Proceeds from Rate/Term refinance transactions may not be used to pay delinquent property taxes.

Employment / Income Analysis –
Bank Statement DocumentationSelf-employed borrowers are eligible for either Personal Bank Statement Documentation or Business Bank Statement Documentation. The following restrictions apply to both documentation types:

Ÿ  Borrowers must be self-employed for at least two (2) years verified by two (2) years of business licenses or a CPA letter.

Ÿ  Business must be in existence for at least two (2) years.

See Guidelines for additional requirements.

Employment / Income Analysis –
Bank Statement DocumentationSelf-employed borrowers are eligible for either Personal Bank Statement Documentation or Business Bank Statement Documentation. The following restrictions apply to both documentation types:

Ÿ  Borrowers must be self-employed for at least two (2) years verified by two (2) years of business licenses or a CPA letter.

Ÿ  Borrower may not be an employee of any other borrower

Ÿ  Business must be in existence for at least two (2) years.

See Guidelines for additional requirements.

Employment History - Gaps in Employment

Borrowers re-entering the workforce following a gap in employment of 6 months or more are allowed provided borrower has been in his/her current position more than 6 months and evidence of 2 years previous employment is documented.

Borrowers should provide a signed, written explanation for any employment gaps that exceed 30 days in the most recent 12-month period, or that exceed 60 days in months 13-24.

Recent graduates with evidence of recent schooling.

Employment History - Gaps in Employment

Borrowers re-entering the workforce following a gap in employment of 6 months or more are allowed provided borrower has been in his/her current position more than 6 months and evidence of 2 years previous employment is documented.

Borrowers should provide a signed, written explanation for any employment gaps that exceed 30 days in the most recent 12-month period, or that exceed 60 days in months 13-24.

Recent graduates with evidence of post-secondary education from a college, university, community college, Junior college, career school, technical school, or vocational/trade school are allowed. .

Employment by a Relative

Income for borrowers who are employed by a relative must be verified with all of the following:

• Federal income tax returns for the most recent 2 years;
• W-2s for the most recent 2 years; and
• Pay stub(s) covering the most recent 30-day period.

Income should be averaged over the 2-year period. Clarification of potential ownership by the borrowers of family-owned businesses may also be required. A borrower may be an officer of a family operated business but not an owner. Verification of their status should be provided by written confirmation obtained from a CPA or legal counsel.

Employment by a Relative

Income for borrowers who are employed by a relative must be verified with all of the following:

• Federal income tax returns for the most recent 2 years;
• W-2s for the most recent 2 years; and
• Pay stub(s) covering the most recent 30-day period.

Income should be averaged over the 2-year period. Clarification of potential ownership by the borrowers of family-owned businesses may also be required. A borrower may be an officer of a family operated business but not an owner. Verification of their status should be provided by written confirmation obtained from a CPA or legal counsel.

Note: if a borrower is employed by a relative, and the relative is also a borrower on the loan, the relative that owns the business may not use bank statement documentation for qualifying.

Eligible Property Types

• Single-Family Residence
• Planned Unit Development Type E (existing)
• Planned Unit Development Type F (new)
• Townhomes
• 2-4 unit Multi-Family Properties
• Modular Homes
• Condominium (low-rise and high-rise)
• Site Condominium
• Non-Warrantable Condominiums

Eligible Property Types

• Single-Family Residence
• Planned Unit Development Type E (existing)
• Planned Unit Development Type F (new)
• Townhomes
• 2-4 unit Multi-Family Properties
• Modular Homes
• Condominium (low-rise and high-rise)
• Site Condominium
• Non-Warrantable Condominiums

·       Hobby Farms

Ineligible Property Types

• Manufactured / Mobile Homes
• Co-operative Units
• Condotels or Condo Hotels
• Leaseholds
• Log Homes
• Rural Properties
• Farms or Hobby/Working Farms
• Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)
• Properties with active oil, gas, or mineral drilling, excavation, etc.
• Hawaiian properties in lava zones 1 and 2
• Builder Model Leaseback
• Non-Conforming zoning regulations that prohibit rebuilding

·       State-approved medical marijuana producing properties

Ineligible Property Types

• Manufactured / Mobile Homes
• Co-operative Units
• Condotels or Condo Hotels
• Leaseholds
• Log Homes
• Rural Properties
• Working/Income Producing Farms
• Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)
• Properties with active oil, gas, or mineral drilling, excavation, etc.
• Hawaiian properties in lava zones 1 and 2
• Builder Model Leaseback
• Non-Conforming zoning regulations that prohibit rebuilding

·       State-approved medical marijuana producing properties

Hobby Farms

Are typically small farms where the homeowner engages in farming activity for personal use and are eligible properties. In this case the primary use of the property is residential and the secondary use is for insignificant farming activity. CMS must determine whether the property is primarily residential based on the property characteristics, zoning and land use of the property. If the primary use of the property is residential, despite the presence of agricultural-type outbuildings, then the property is eligible. Working/income producing properties used primarily for farming or ranching are ineligible.

Cash-Out Refinance

For all cash-out refinance transactions: at least one borrower must have been on title a minimum of six (6) months prior to the new note date and a minimum of 6 months must have elapsed since the most recent mortgage transaction on the subject property (either the original purchase transaction or subsequent refinance). Note date to note date is used to calculate the 6 months.

For cash-out refinance transactions where the property is currently vested in a trust or LLC, the borrowers must have owned the property in the name of the trust or LLC for at least six (6) months prior to closing.

Note: Properties removed from a Trust are not required to meet the title seasoning requirement if the property moves from the Trust to the owner of Trust and 6 month seasoning is met in the Trust.

There is no waiting period if the borrower was legally awarded the property through divorce, separation, or dissolution of a domestic partnership.

For business purposes only.  Proceeds of the loan are limited to the purchase of an additional investment property or the improvement and/or maintenance of the subject property or other investment properties. Utilizing proceeds of the loan for personal, family, or household purposes is prohibited.

Cash-Out Refinance

For all cash-out refinance transactions: at least one borrower must have been on title a minimum of six (6) months prior to the new note date and a minimum of 6 months must have elapsed since the most recent mortgage transaction on the subject property (either the original purchase transaction or subsequent refinance). Note date to note date is used to calculate the 6 months.

For cash-out refinance transactions where the property is currently vested in a trust or LLC, the borrowers must have owned the property in the name of the trust or LLC for at least six (6) months prior to closing.

Note: The six (6) months seasoning requirement may include a recent vesting change from the borrower’s Trust or LLC to the borrower or from the borrower to the borrower’s LLC. Loans may not close vested in the name of a Trust. Properties removed from a Trust or LLC are not required to meet the seasoning requirements if the property moves from the Trust to the owner of the Trust or the LLC to the owner of the LLC. Minimum fifty-percent (50%) ownership of the LLC is required.

There is no waiting period if the borrower was legally awarded the property through divorce, separation, or dissolution of a domestic partnership.

For business purposes only.  Proceeds of the loan are limited to the purchase of an additional investment property or the improvement and/or maintenance of the subject property or other investment properties. Utilizing proceeds of the loan for personal, family, or household purposes is prohibited.

Solar Panels

Properties with solar panels are eligible for financing. If the property owner is the owner of the solar panels, standard eligibility requirements apply (for example, appraisal, insurance, and title). If the solar panels are leased from or owned by a third party under a power purchase agreement or other similar arrangement, the following requirements apply (whether to the original agreement or as subsequently amended):

·       The solar panels may not be included in the appraised value of the property.

·       The property must maintain access to an alternate source of electric power that meets community standards.

·       The monthly lease payment must be included in the debt-to-income (DTI) ratio calculation unless the lease is structured to:

• Payments under power purchase agreements where the payment is calculated solely based on the energy produced  are excluded from the DTI ratio.

See Guidelines for additional requirements.

Solar Panels

Properties with solar panels are eligible for financing. If the property owner is the owner of the solar panels, standard eligibility requirements apply (for example, appraisal, insurance, and title). If the solar panels are leased from or owned by a third party under a power purchase agreement or other similar arrangement, the following requirements apply (whether to the original agreement or as subsequently amended):

·       The solar panels may not be included in the appraised value of the property.

·       The property must maintain access to an alternate source of electric power that meets community standards.

See Guidelines for additional requirements.