Section 4: Mortgage Loan Underwriting
Approved lenders are responsible for all underwriting decisions for all mortgages originated under the program. Mortgage loans must be underwritten to the standards of the applicable loan type.
4.1 Loan Types
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Federal Housing Administration (FHA) Loans: 96.5% LTV / follow HUD guidance for combined loan-to-value (CLTV)
- FHA section 203(b), Single Family Residences
- FHA section 234(c), Condominiums
- FHA Section 184 Indian Home Loan Guarantee Program
-
Veterans Administration (VA) Loans: 100% LTV / Follow VA guidance for CLTV
-
U.S. Department of Agriculture Rural Housing Service (USDA -RHS) Loans: 100% LTV / follow USDA guidance for CLTV
-
Conventional Loans: Maximum CLTV: 105%
- Fannie Mae (FNMA) HFA Preferred / Freddie Mac (FHLMC) HFA Advantage – Up to 97% LTV
4.2 Seller Contributions
First Mortgage Loan Seller Contribution Limitations. Follow department guidelines.
- FHA and USDA-RHS loans have a maximum seller contribution of 6%.
- VA: Follow VA agency guidelines
- Fannie HFA (Housing Finance Agencies) Preferred and FHLMC (Federal Home loan Mortgage Corp.) HFA Advantage Loans have a maximum seller contribution of:
- 3% with CLTVs greater than 90%.
- 6% with CLTVs less than or equal to 90%.
- May be used for closing costs and / or single or split mortgage insurance (MI) premiums.
- Lender-paid MI may not be paid with seller contributions.
4.3 Mortgage Insurance
- Government loans (FHA, VA, USDA-RHS) follow standard FHA, VA, and USDA-RHS mortgage guidelines.
- Conventional mortgage loans that require MI must acquire the policy from one of the following mortgage insurance providers:
- Arch
- MGIC
- Enact
- Essent
- National MI
- Radian
Payment options:
- Borrower-paid – monthly with annual renewal
- Split premium
- Single premium
- Lender-paid (LPMI) – not allowed
Approved lender is responsible for activating any MI policy and remitting any MI payments due to the mortgage insurer prior to the sale of the mortgage loan to the department’s servicer. The approved lender is also responsible for transferring the MI policy to the department’s servicer after the sale of the mortgage loan.
4.4 Credit
All borrowers who have a credit score must have a minimum credit score of 620 for mortgage loans underwritten using AUS (Automated Underwriting Systems).
Borrowers without a credit score are eligible only when the loan receives an AUS Approve recommendation and all applicable agency requirements are met.
Borrowers with frozen credit files are eligible only when the loan receives an AUS Approve recommendation and all agency guidelines for evaluating frozen credit are followed.
4.5 Manual Underwriting
Manual underwriting is permitted for FHA, VA, USDA-RHS, and Section 184 mortgage loan types. Borrowers must have a credit score of at least 640 and two months of reserves after closing. Minimum credit score is required for all borrowers who have a credit score. Borrowers with no credit scores are eligible for manual underwriting. Follow agency guidelines.
4.6 Debt-to-Income Ratio (DTI)
- Borrowers’ maximum DTI may not exceed 50%.
- VA loans with AUS approval and two months of reserves may have DTI ratios of 50.01% - 55%.