Construction Perm Mortgage Loan Description (Sample)

Lender Loan Description for Construction Perm Mortgage

*The CMT index is based on the weekly average yield on United States Treasury securities adjusted to a constant maturity of 1 year, as made available by the Federal Reserve.

**The LIBOR (London Inter Bank Offered Rate) index is the average of interbank offered rates for one year U.S. dollar-denominated deposits in London markets. The index rate is published weekly in the Wall Street Journal.

GENERAL PRODUCT DESCRIPTION INCLUDING BENEFITS AND FEATURES

This adjustable rate construction-to-permanent product is a combination of fixed and adjustable features that make a great alternative product to the traditional 30 year fixed rate mortgage. After the initial period, the interest rate will adjust at regular annual intervals. At the first adjustment, the interest rate can adjust up or down, depending on the index value.

The interest only financing option is also a combination of fixed and adjustable features as well. After the initial fixed period, the interest rate adjusts at regular intervals. At the first adjustment, the interest rate can adjust up or down, depending on the index value. Under this option, the loan is interest only during the first 10 years.

The construction term is for 6, 9, 12 or 18 months.

This product is designed for borrowers who:

• Will benefit from a lower qualifying rate and payment

• Who seek flexibility payment options with the interest only feature

• Plan to own the property short term

• Who wants the flexibility of investing the saved principal payment

LTV/RATIOS

Purchase and Limited Cash Out Refinance

Property Type LTV CLTV/HCLTV Loan

Amount Min Credit Score Debt Ratios

Primary 1Unit 95% 95% $400,000 640 42

90% 95% $500,000 640 42

90% 90% $650,000 680 42

80% 90% $650,000 640 42

85% 90% $750,000 680 42

80% 90% $1,000,000 680 42

75% 75% $1,000,000 660 42

75% 75% $1.500,000 680 42

70% 75% $2,000,000 680 42

Second Home 1Unit 90% 90% $500,000 720 40

85% 85% $650,000 720 40

80% 80% $750,000 700 40

75% 80% $1,000,000 700 40

70% 75% $2,000,000 700 40

BORROWER AND PROPERTY INFORMATION

BORROWER ELIGIBILITY:

U.S. Citizen

Non-occupant co-borrower

Occupying borrower must qualify at a DTI of 47% for primary residences and 45% for second homes

Permanent Resident Alien

Qualified Inter Vivos Revocable Trusts

The borrower may be a trust only if it is a revocable inter vivos or "Living" trust. All loans are subject to Fannie Mae standards of eligibility. Loans are not eligible in any case where the title policy takes exception to the trust ownership. The borrower must be obligated on the note individually and as trustee of an inter vivos trust.

ELIGIBLE PROPERTY TYPES:

Single Family Detached

PUDs

OCCUPANCY STATUS:

Primary Residence

Second Home

PROPERTY LOCATION:

USA

MORTGAGE INFORMATION

AMORTIZATION TERM: 360 months

AMORTIZATION TYPE: ARM

Interest Only Feature: 120 months

ASSUMABILITY:

3/1 Assumable at any time after construction is completed and subject to Lender Approval

5/1 and 7/1 Assumable anytime after the initial fixed interest rate period and subject to Lender approval, construction must be completed.

BUYDOWNS:

Not Applicable

CONSTRUCTION PERM

CP Period - 6, 9, 12 or 18 months

Interim Construction Rate - As determined by the Mortgage Lender's Construction Lending Division.

Float Down Option - not available

Conversion/Modification Fee - $250.00

Modification Option: MKT loans can modify to a fixed rate subject to loan being re-underwritten.

Prepayment Penalty during Construction – The Borrower shall pay a prepayment premium equal to 1% of a partial payment made on the loan, whether the entire principal amount of the Loan has been advanced under the agreement or not, if the Loan is prepaid in whole or in part at any time (1) on or before the Conversion Date or (2) after the Conversion Date if the Loan has not been converted to a permanent loan.

Builder Requirements - C/P loans to individuals acting as contractor in building their own home are unacceptable unless the individual is a licensed builder, architect, or engineer and the LTV is no more than 75% of appraised value. The LTV is limited to 75% because of the difficulty in determining the true cost to build. They must be approved by the Residential Construction Lending department prior to starting construction.

Mortgage Loan Amount Approval - Any Construction Perm loan in excess of $1,000,000 will require loan committee approval

FEES:

Standard Mortgage Lender Fees Apply

LIEN POSITION:

First Mortgage

LOAN PURPOSE:

Purchase – Construction Permanent

Refinance – Construction Permanent

• If the lot is owned for more than 12 months, then the loan can be processed as a refinance. For purposes of determining the value of a refinance transaction where the property has been owned greater than 12 months, the value is based on the current appraised value.

LOAN TYPE:

Conventional

MORTGAGE INSURANCE:

• Required on all loans above 80% LTV

• Reduced MI coverage is not eligible.

• RMIC ONLY on loans with the following criteria LTV’s of 85%, loan amounts at 750,000 and credit score of 680.

STANDARD LTV 30 YEAR TERM COVERAGE

80.01% - 85.00% 12%

85.01% - 90.00% 25%

90.01% - 95.00% 30%

95.01% - 100% 35%

PREPAYMENT PENALTY:

If the Mortgage Loan has been converted to a permanent loan, the Borrower may prepay all or any part of the Loan without penalty at any time after the Conversion Date.

AUTOMATED/TRADITIONAL UNDERWRITING:

Traditional Underwriting

• Loans may only be approved by underwriter with sufficient credit authority for the loan submitted.

• The loans exceeding $1,000,000 should be submitted to the Jumbo Underwriter in the respective region for a recommendation of approval and then submitted to Consumer Credit in Birmingham for final approval.

Automated Underwriting

Conforming loan amounts can utilize DU or LP. Credit Policy overlays not applicable if the following criteria are met:

 Conforming loan amount

 Loan must be marketable without risk adjustments.

 Risk adjustments cannot be used with DU/LP submissions. If risk adjustments are used, then credit policy underwriting guidelines apply

 DU findings must indicate Approve/Eligible, if receive an Approved Ineligible for LTV/CLTV outside standard agency parameters must traditionally underwrite the loan.

 LP findings must indicate Accept/Accept or Accept Plus, if receive a Caution or Accept/Ineligible for LTV/CLTV exceeds product limits loan must be traditionally underwritten.

APPRAISAL:

• All loans under $1,000,000 require one full appraisal.

• Loans ≥ $1,000,000 require two full appraisals.

• Any appraisal with a loan balance of $1,000,000 or greater must be performed by an approved Jumbo appraiser.

• Whenever any appraisal is subject to completion or repairs, a final inspection (Freddie Mac Form 442) with an original photo of the completed property or repairs, performed by the original appraiser is required.

• For existing properties as well as new construction, the appraisal report must have an effective date no more than 120 days prior to the note date.

• If the appraisal report will be more than 120 days but less than one year old at closing, the original appraiser must conduct a Recertification of Value to verify that the estimated value has not declined and the market conditions remain the same as described in the original appraisal.

• If the appraisal is dated more than one year from the date of the note, or the appraiser believes that the property has declined in value since the original appraisal, a completely new appraisal will be required.

• Interior photographs are required for loans greater than $650,000 or properties valued at $1,000,000 or more.

CREDIT:

A tri-merged in-file conforming to Fannie Mae requirements or full Residential Mortgage Credit Report (RMCR) should be used. The RMCR or in-file should reflect credit scores from all repositories.

An established credit history is defined as a minimum of 3 active traditional credit references that have been opened for at least 24 months and have been active during that time period.

Benchmark Score Credit score:

The minimum representative credit score is the credit score(s) selected based on the lower of two scores or the middle of three repository scores. The lowest selected score among all borrowers is the decision score to be used and entered into the decision score field of credit scores found in the automated underwriting decision.

• Refer to LTV grid on page 2 for credit score requirements.

Public Records, Judgments, Liens & Collections

Borrower must provide satisfactory explanation of any delinquent credit.

• Borrower must pay off all delinquent credit – including delinquent taxes, judgments, charged-off accounts, tax liens, and mechanics’ or material men’s liens – that has the potential to affect lien position or diminish the borrower’s Equity.

• Collection accounts or charged-off accounts do not need to be paid-off if the balance of an individual account is less than $250 or if the total balance of all accounts is $1,000 or less.

Bankruptcies & Foreclosures

• Bankruptcies discharged 2 years with no late payments or derogatory credit over the prior 24 months and minimum 3 active trade lines more than 24 months old. Borrowers with prior bankruptcies that do not meet the re-established criteria are not eligible.

• The age of the foreclosure is calculated from the date reported or the date of the most recent 120+ mortgage late. The definition of foreclosure includes any 120+ mortgage late within the last 24 months, notice of default, settlement on a real estate secured trade line, deed-in-lieu, and forbearance agreements. Borrowers with a foreclosure within the past 3 years are not eligible.

Mortgage Credit History

• The mortgage history must reflect 0 x 30 in the previous 12 months.

• The mortgage history must reflect 0 x 60 in the previous 24 months.

• Any 30-day late mortgage payments must be explained in detail by the borrower.

DOCUMENTATION:

Full/Alternative

Assets

• Written Verification of Deposit (VOD) with two months average balance OR most recent 2 months bank statements.

Income

Salaried Borrower

• Most recent paystubs, covering a thirty day period with YTD earnings

• 2 years W-2’s for all employers

• Verbal VOE

• OR Verification of Employment (VOE)

• If the borrower receives 25% or more of his or her income from commissions, is employed by a family member or interested party to the transaction, receives rental income from an investment property, receives income from periodic or contract employment, receives income from a partnership or corporation in which he or she has less than a 25% ownership interest, or receives income from capital gains, royalties, real estate or other non employment income reported on an IRS 1099, we require the most recent two years’ federal income tax returns with all schedules and a signed 4506T at application and closing. . Note: If a salaried or commissioned employee has a 25% or more ownership interest in a business entity other than the one for which he or she is primarily employed, the lender should document and underwrite the loan application using our requirements for self-employed borrowers.

Non Salaried Borrower

• Two years history of stable and durable income for the previous two years must be established. A person who has been self-employed for less than two years must have had at least two years of previous successful employment in the same occupation or related field.

• Most recent two 2 years business and personal returns, including all schedules

• Signed IRS form 4506T at application and at closing.

• A P&L statement is not required.

• Business returns may be waived if the borrower meets the following requirements:

o Self employed in the same business for at least five years

o Borrower individual returns show an increase in self employment income over the last two years.

o Borrower is paying the down payment and closing costs from own funds and not from the business account.

Jumbo loans only:

• If a tax return for the most recent fiscal year in not included in the file after April 15, then a 12 month profit and loss statement for the previous year is required and signed by the accountant.

o Verbal VOE must be obtained from a satisfactory third party source. (i.e. CPA, Attorney, Business License or business directory listing)

DOWN PAYMENT:

The borrower should have a minimum of 5% of their own personal funds. The source of assets must be seasoned for at least 60 days before the date of the loan application.

• Funds needed for closing must be verified as required by documentation type.

• Source of substantial increases in account balances or funds on deposit less than 90 days must be verified.

• For loans with verified assets and a required down-payment, the borrower must contribute a minimum of 5% of the purchase price. Gift funds may be used as noted below for the remaining down payment.

• No borrower down payment contribution is required when gift funds are at 20% of the property value for both primary and second home loans.

• No borrower down payment contribution is required when secondary financing is allowed and CLTV is 100%.

• No refunds of down payment from loan proceeds.

ESCROW:

Required, unless LTV is 80% or less; subject to .25% escrow waiver fee.

ESCROW HOLDBACK:

Refer to Mortgage Lender Credit Policy

FLOOD INSURANCE:

Refer to Mortgage Lender Credit Policy

PROPERTY OWNED REQUIREMENTS:

Limited to four properties financed with the Mortgage Lender. Maximum of ten properties financed with all institutions.

QUALIFYING RATE:

3/1, 5/1, 7/1 and 10/1 at Note Rate

RESERVES:

2 Months PITI on Loan Amount below $700,000

6 Months PITI on Loan amounts ≥ $700,000

6 Months PITI - requires a borrower who has multiple mortgages secured by investment properties to have financial reserve equal to at least 6 payments (of principal, interest, and escrows) for all of the mortgages finances.

Reserves are viewed as personal funds available after closing – business funds are not eligible.

SUBORDINATE FINANCING:

Allowed at conversion

• Closed End Seconds

• HELOCs

MISCELLANEOUS

Multiple Real Estate Loans to the Same Borrower

Ownership of multiple investment properties can affect a borrower's ability to repay the total mortgage debt if the borrower is unable to rent some of the properties for extended periods. For new requests for loans secured by the borrower's principal residence, Mortgage Lender does not impose any limitations on the number of real estate loans that the borrower can currently be financing.

• If the loan request is secured by a primary residence, no limitation concerning multiple mortgages applies

When a loan request is to be secured by a second home or an investment property, will not provide financing for more than four properties under its consumer mortgage or home equity product terms unless the loan conforms to government agency or investor guidelines and is immediately saleable except under the terms of an approved special program.

• If the loan request is secured by a second home, lot, land or investment property, the borrower may not own more than 4 properties (including his or her primary residence) that are currently being financed by (all lines of business; on 's balance sheet)