Credit Frequently Asked Questions

Information by State  Print version

	ADP codes
	ARMS/Qualifying rate
	CAIVRS
	Closing costs/fees
	Compensating factors
	Consumer Credit Counseling Program
	Credit denial
	Down payment
	Documentation requirements
	Earnest money
	Home inspections fees
	LDP/GSA
	Lender approval
	Lender transfers
	Automated Underwriting System (AUS)
	Loan-to-value ratios
	Mortgage insurance premiums (MIP)
	Mortgage limits
	Non-purchasing spouses
	Premium pricing
	Principal residences
	Principal reductions
	Refinances
	Secondary financing
	Sweat equity
	Tax credits

ADP Codes

Question 1: Since most loans now require only 3.5% down, are the ADP Codes 748 and 749 for loans with values/sales prices equal to or less than $50,000 still applicable?

Answer: ADP codes 748 and 749 are no longer used for processing new FHA-insured home mortgages.

ARMS/Qualifying Rate

Question 2: If we are processing an ARM with a LTV of 94.96%, do we round the LTV up to 95% and qualify the borrower at 1% above the note rate?

Answer: No!  You do not round the LTV up!

CAIVRS

Question 3: How should we proceed if CAIVRS indicates a default or claim against our borrower(s)?

Answer: See HOC Reference Guide - Chapter 2, Pages 2-9.
NOTE: Lenders should not refer borrowers to the HOC for information about the default or claim.

Question 4: How can I obtain a clear CAIVRS?

Answer: See HOC Reference Guide - Chapter 2, Page 2-9.

Question 5: What if the default or claim is regarding another Federal debt, such as, VA Guaranteed Mortgage, Title I Loan, Federal Student Loan, Small Business Administration Loan, Delinquent Federal Taxes, etc.?

Answer: See HOC Reference Guide - Chapter 2, Page 2-9.

Question 6: How long does this remain in CAIVRS after the claim is paid?

Answer: It remains in the system for 38 months after the claim is paid; however, 36 months after the claim is paid the borrower(s) are eligible for a new loan. Reference HUD Handbook 4155.1, 4.A.2.c, Handbook 4155.1, 4.A.8.a and Handbook 4155.1, 4.A.8b.

Question 7: Am I required to check CAIVRS on streamline refinance transactions?

Answer: No. Reference HUD Handbook 4155.1, 6.C.1.e.

Closing Costs/Fees

Question 8: Can commitment fees, discount points, or premium pricing be used to pay borrower’s UNALLOWABLE charges?

Answer: As of January 27, 2006, mortgagees may charge and collect from mortgagors those customary and reasonable costs necessary to close the mortgage. See HOC Reference Guide - Chapter 2, page 2-15.

Question 9: Can the borrower pay the fee charged by providers of automated income and employment verification systems for telephone employment verifications?

Answer: See HOC Reference Guide - Chapter 2, Page 2-15.

Compensating Factors

Question 10: What does HUD consider as compensating factors?

Answer: Reference HUD Handbook 4155.1, 4.F.3.

Question 11: Where should compensating factors be addressed on the 92900-LT (MCAW)?

Answer: The Underwriter must provide the compensating factors in the "Underwriter Comments" section of the 92900-LT. Reference Handbook 4155.1, 4.F.3.a.

Consumer Credit Counseling Program

Question 12: How long should a borrower be in a Consumer Credit Counseling Program before we can consider them for an FHA-insured mortgage?

Answer: Typically, we view these situations as we would a borrower in a Chapter 13 Bankruptcy. If the borrower has been paying at least twelve months satisfactorily and the counselor recommends the borrower as a good credit risk, the borrower may be acceptable. Since some creditors may still report the borrower as delinquent, even though they have agreed to accept a lesser payment, this must be considered in the analysis of the borrower's overall credit. These cases should be analyzed on a case-by-case basis. It is a judgment call on the part of the underwriter after analyzing all the factors. Reference HUD Handbook 4155.1, 4.C.2.i.

Credit Denial

Question 13: If I deny a borrower credit, must I notify HUD?

Answer: Effective September 24, 2001, an enhancement was made to FHA Connection allowing the lenders to enter Mortgage Credit Reject information instead of submitting copies of the worksheets to HUD. Entry of this information is acceptable for all Direct Endorsement cases except Direct Endorsement Home Equity Conversion Mortgage (HECM) cases. This enhancement allows lenders to view, add, update or delete a borrower that presents a credit risk and is ineligible for a mortgage.

Question 14: Does the credit denial procedure apply for streamline refinances?

Answer: Yes, all loans.

Documentation Requirements

Question 15: Can verification forms such as VOEs, VODs, etc. be hand delivered by a third party?

Answer: No, verifications must pass directly between the lender and provider without being handled by any third party. So as not to delay mortgage closings, verifications may also be transmitted by facsimile machine. However, the lender’s file must contain the original verification form that was mailed to and returned from the employer, creditor, or financial institution. Reference HUD Handbook 4155.1, 1.2.d.

Down Payment

Question 16: When was the new down payment calculation effective?

Answer: The revised down payment requirements are effective with all new FHA Case Number Assignments on and after January 1, 2009. (Reference Mortgagee Letter 2008-23.)

Question 17: When is use of the new 92900-LT mandatory?

Answer: All loan applications taken on or after October 1, 2008. (Reference Mortgagee Letter 2008-15.)

Question 18: How does the new down payment calculation affect Energy Efficient Mortgages (EEMs)?

Answer: The 3.5% minimum investment must be met on mortgages calculated using the EEM mortgage. The cost of the energy package is still added (100%) to the approved base loan amount prior to adding Upfront MIP. Reference HUD Handbook 4155.1, 6.D.2.b, Mortgagee Letter 2008-15 and Mortgagee Letter 2009-18.

Question 19: How are required repairs paid by the borrower treated under the new down payment calculation?

Answer: If the borrower is paying for the required repairs, the contract sales price on the 92900-LT should reflect the amount of the repairs. For instance, if the repairs are $500 on a $100,000 sale, the contract sales price on the sales price line of the 92900-LT should show $100,500. The Underwriter Comments should reflect the repair amount of $500, plus the sales contract sales price of $100,000 equals $100,500. Reference HUD Handbook 4155.1, 2.A.5.a.

Question 20: How does the new down payment calculation affect loans for individuals with Veterans status?

Answer: There are no more Veteran Status Loans with the passing of the new legislation effective for loans assigned on or after January 1, 2009.

Question 21: How does the new down payment calculation affect REO properties?

Answer: Loan amounts for REO properties will be calculated according to the new down payment calculation in Mortgagee Letter 2008-23 and 00-27. However, the 3.5% investment is not required for the $100 down incentive.

Question 22: How does the new down payment calculation affect Identity of Interest (IOI) transactions, which do not meet the circumstances for maximum financing?

Answer: Identity-of-interest transactions are limited to a maximum loan-to-value ratio of 85 percent, unless they meet one of circumstances described in HUD Handbook 4155.1, 2.B.2.c; Mortgagee Letter 2008-23.

Question 23: How do you determine if the borrower has met the 3.5% statutory investment?

Answer: Reference Mortgagee Letter 2008-23.

NOTE: The borrower can receive cash back on a purchase transaction if they have paid more than the required 3.5% investment because of the earnest money deposit. They can also receive cash back because of prorated tax credits.

Question 24: When calculating the borrower’s three percent statutory investment, if the amount has odd cents equal to $.50 or higher, should we round to the next higher dollar?

Answer: No.

Earnest Money

Question 25: When must the deposit and source of funds for earnest money be documented?

Answer: When the deposit exceeds 2% of the sale price or appears excessive based upon the borrower’s history of accumulating savings.  Reference HUD Handbook 4155.1, 5.B.2.a.

Home Inspection Fee

Question 26: Can the fee for home inspections be considered as a required repair and included in the mortgage?

Answer: No, the borrower must pay in cash. The charge for the inspection can be included in the closing costs, which must be reasonable and customary.  Reference Mortgage Letter 88-16 and Mortgagee Letter 2006-04.

Lender Approval

Question 27: How do I obtain FHA approval to originate loans?

Answer: See HOC Reference Guide - Chapter 3, Page 3-5. Also, link to How to become a HUD - Approved Lender.

Question 28: How can I originate loans in other areas?

Answer: The Department has now provided for an overall expansion of lending areas, which will be composed of all of the HUD field office jurisdictions within groups of States. Refer to Mortgagee Letter 2005-40 for the expanded lending areas.

Question 29: How do I obtain Direct Endorsement Approval?

Answer: See HOC Reference Guide - Chapter 3, Page 3-5.

Question 30: How do I get Direct Endorsement Approval for my underwriter?

Answer: FHA will no longer approve individuals effective February 26, 1996. The approval process previously employed has been replaced by a DE Registry. (Refer to Mortgagee Letter 96-10) It is the lender's responsibility to ensure that the underwriter meets HUD guidelines. Reference HUD Handbook 4155.2, 2.B.4.c.

Question 31: How does my underwriter obtain a CHUMS ID Number?

Answer: Lenders may add, update or delete information in the underwriter registry through FHA Connection. Reference to Mortgagee Letter 96-10

Question 32: What functions can a lender contract out?

Answer: There are certain loan origination functions that do not materially affect underwriting decisions, which may be contracted out by mortgagees without increasing the risk to FHA. The types of functions that may be contracted out are: clerical assistance, preparation of loan documents, mailing out and collecting verification forms, ordering credit reports, preparing for endorsements and shipping loans to investors. The Department may approve such other functions.

NOTE: Underwriting and customary loan officer functions may not be contracted out! Reference Mortgagee Letter 95-36

Question 33: I have received a solicitation from a lender regarding an FHA program. How do I know this is an FHA-approved lender?

Answer: See HUD Approved Lender.

LDP/GSA:

Question 34: Am I required to check the LDP/GSA lists on streamline refinance transaction?

Answer: Yes, you are required to check these lists on all transactions. Reference HUD Handbook 4155.1, 6.C.1.e.

 Lender Transfers

Question 35: What do I do if another lender refuses to transfer a case to me? Can I get another case number and appraisal?

Answer: See HOC Reference Guide - Chapter 2, Page 2-17 and HUD Handbook 4155.2, 1.D.5 and Mortgagee Letter 2009-29.

Question 36: What compensation can the transferring lender expect to receive?

Answer: Reference HUD Handbook 4155.2, 1.D.5.a, which outlines HUD's current position on lender transfers.

NOTE: That the borrower can pay a maximum origination fee of one percent in obtaining a FHA-insured mortgage.

Automated Underwriting System (AUS)

Question 37: Can an AUS fee be charged to the borrower?

Answer: The lenders may charge a credit report fee in addition to the AUS fee in certain circumstances. If an updated report is required after the scoring of the loan in TOTAL, the borrower(s) may be charged for the additional report required.

Question 38: What, if any, documentation is required to show a loan was
approved via an AUS?

Answer: See Reference Guide - Chapter 2, Page 2-14.

Loan-to-Value Ratios

Question 39: Which loan-to-value ratio do we use when determining the length of time that a borrower will be required to pay monthly Mortgage Insurance Premiums (MIP)?

Answer: The applicable loan-to-value ratio would determine the length of time the borrower would be required to pay monthly Mortgage Insurance Premiums (MIP). Reference HUD Handbook 4155.2, 7.3.

Note: Currently, CHUMS and the FHA Connection are calculating the loan-to-value ratio using the base loan amount divided by the appraised value. The systems have been modified to notify lenders when the loan balance at which the 78% threshold, excluding the Upfront MIP, in which it would be eligible for the cancellation of the annual MIP. The required loan balance data will be available to lenders via the Case Query Screen located in the FHA Connection Single Family Origination section and the Portfolio and Advance Notice.

Mortgage Insurance Premiums (MIP)

Question 40: What is MIP?

Answer: Through its FHA Single Family Insurance Programs, HUD provides insurance for mortgages placed by private lenders and is designed to encourage lenders to make credit available in areas and to borrowers who may not otherwise qualify for conventional loans on affordable terms. FHA's role is essentially that of an insurance company. All borrowers must pay a mortgage insurance premium (MIP) to offset the insurance risk involved.

Question 41: How long will the borrower be expected to pay this premium?

Answer: The borrower is required to pay an upfront MIP and a monthly MIP, for a specific number of years, based on the LTV calculated at time of underwriting. Borrowers are now required to pay an upfront MIP and monthly MIP on all condominiums and 203(k) loans. Reference Mortgagee Letters 2005-38 and 2008-22; HUD Handbook 4155.2, 7.1, Handbook 4155.2, 7.2 and Handbook 4155.2, 7.3.

Question 42: At what point, or LTV percentage, can the MIP be terminated?

Answer: On loans closed on or after January 1, 2001, MIP will be terminated for mortgages with a term more than 15 years, provided the MIP has been paid for at least 5 years and have an LTV less than or equal to 78%; or for mortgages with a term 15 years and less serviced, in which the LTV ratios are 90% and greater and the LTV ratio is less than or equal to 78% and the MIP has been paid for at least 5 years. Mortgages with a term 15 years and less serviced and with a LTV ratio of 89.99% and less will not be charged annual MIP. Reference Handbook 4155.2, 7.3c.

Question 43: How does a borrower obtain information about MIP refunds?

Answer: They can call 1 (800) 697-6967 or email.

Note: For any FHA insured loans closed on or after January 1, 2001 and endorsed before December 8, 2004, no refund is due the homeowner after the fifth year of insurance. For FHA insured loans endorsed on or after December 8, 2004, no refund is due the homeowner unless they refinanced to a new FHA insured loan, and no refund is due these homeowners after the third year of insurance. Mortgagee Letter 2005-03 provides additional information on the recent policy changes regarding refunds of upfront mortgage insurance premiums.

Mortgage Limits

Question 44: Where can I find the FHA mortgage limits?

Answer: See Mortgage Limits page.

Question 45: A borrower wants to purchase a property where the rear part of the lot is located in one county, and the remaining property is located in another county.  Which mortgage limit prevails?

Answer: The county limit is determined by the property address.

Question 46: What is the new website for the maximum mortgage limits?

Answer: https://entp.hud.gov/idapp/html/hicostlook.cfm

Non-Purchasing Spouses

Question 47: Can a non-purchasing spouse be added to title at closing?

Answer: ONLY if required by state law in order to perfect a valid and enforceable first lien. In some states, the non-purchasing spouse may be required to either sign the security instruments or documentation evidencing that he or she is relinquishing all rights to the property. Reference HUD Handbook 4155.1, 4.A.5.a.

Effective with FHA Case numbers assigned on or after January 1, 2009, ML 2008-40 allows a non-applicant individual (who has an ownership interest in the property) to take ownership interest in the property at settlement without executing the mortgage note and mortgage, deed of trust or security deed. The guideline is applicable to refinances and purchase transactions. Reference: ML 2008-40.

The lender must still ensure that a valid and enforceable first lien exists on the property under state law, which may require the execution of the mortgage (but not typically the note) by all parties who have an ownership intrest in the property. If the party in question executes the mortgage, deed of trust or security deed only for such reasons, he or she is not considered a borrower for FHA purposes, and therefore does not need to sign the loan application or be considered in the credit underwriting. Reference: ML 2008-40.

Premium Pricing

Question 48: Can premium pricing be used to pay such things as down payment, collections and judgments?

Answer: The funds derived from a premium priced mortgage may never be used to pay any portion of the borrower's down payment and may not be used for payment of debts, collections and judgements.

Reference HOC Reference Guide - Chapter 2, Page 2-6 and HUD Handbook 4155.1, 5.A.2.i.

Principal Reductions

Question 49: If I discover the loan we closed is over-insured, how do I calculate the principal reduction?

Answer: Recalculate the base loan amount and the UFMIP to determine the new loan amount. This amount should be subtracted from the closed loan amount to reduce the principal.

Principal Residences

Question 50: If my principal residence is currently covered by an FHA-insured mortgage, can I purchase another principal residence with an FHA-insured mortgage?

Answer: Only under the following situations described below:

a) Relocation - Relocating to another area not within a reasonable commuting distance from the current principal residence. There is no need to reduce the principal balance. Reference to HUD Handbook 4155.1, 4.B.2.d and Mortgagee Letter 2008-25.

b) Increase in Family Size AND the outstanding mortgage balance on the present property is paid down to 75 percent or less LTV exclusive of any financed MIP.

1 - A current residential appraisal must be used to determine LTV compliance.
2 - The borrower must provide satisfactory evidence of the increase in dependents and how the property no longer meet the family needs.See Reference Guide - Chapter 2, Page 2-02 and Handbook 4155.1, 4.B.2.d

c) Vacating a jointly owned property; Please Note: Situation cited in HUD Handbook 4155.1, 4.B.2.d. is only meant to be one example of an acceptable situation.

d) Non-occupying co-borrower; On a case-by-case basis, a relative could be a non-occupying co-borrower on more than one FHA-insured property. For example, Mom and Dad are non-occupying co-borrowers on both son and daughter's FHA-insured mortgages. Reference to Handbook 4155.1, 4.B.2.d.

Refinances

For all refinances, the case binder must include the payoff statements and the calculations used for HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary (LT). Also, submit the refinance cost breakdown form or a similar form that identifies payoff and closing costs used to calculate the loan amount. The maximum (statutory) mortgage limit cannot be exceeded.

Question 51: What is the calculation for a streamline refinance with an appraisal?

Answer: For FHA case numbers assigned on or after November 17, 2009 the maximum insurable mortgage is the lesser of:

• the existing principal balance minus the applicable refund of UFMIP plus closing costs, prepaid items to establish the escrow account and the new UFMIP that will be charged on the refinance transaction, OR
• 97.75 percent of the appraised value of the property plus the new UFMIP that will be charged on the refinance.

Reference: Mortgagee Letter 2009-32 and Handbook 4155.1, 3.C.3.a
Note: Appendix II of HUD HB 4155.1 Rev 5 is no longer applicable.

Question 52: What is the calculation for a streamline refinance without an appraisal?

Answer: For FHA case numbers assigned on or after November 17, 2009 the maximum insurable mortgage cannot exceed the outstanding principal balance

• minus the applicable refund of the Upfront Mortgage Insurance Premium (UFMIP),
  
• plus the new UFMIP that will be charged on the refinance.

Note: The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may not include delinquent interest, late charges or escrow shortages.

Reference: Mortgagee Letter 2009-32 and Handbook 4155.1, 3.C.2.c

Question 53: What is the calculation for a no-cash out refinance?

Answer: For new case numbers assigned after January 1, 2009 the new loan amount (before adding UFMIP) cannot exceed the lesser of:

• 97.75 multiplied by the Appraised Value or the Existing Debt: Add together the amount of the existing first lien, any purchase money second mortgage, any junior liens over 12 months old, closing costs, prepaid expenses, borrower paid repairs required by the appraisal, discount points and then subtract any refund of UFMIP

Reference: Mortgagee Letter 2008-40, Handbook 4155.1, 3.B.1.a, Handbook 4155.1, 3.B.1.b and Handbook 4155.1, 3.B.1.e

Unlimited CLTV on new and/or re-subordination or modification of existing subordinate financing.

Question 54: What is the calculation for a cash-out refinance?

Answer: Effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85% of the appraiser's estimate of value. Reference HUD Handbook 4155.1, 3.B.2.f and Mortgagee Letter 2009-08.

Note: If the subject property has been owned less than 12 months preceding the date of the loan application as the borrower's principal residence, the mortgage amount is limited to the lesser of either 85 percent of the appraiser's estimate of value or 85 percent of the sales price of the property when acquired. A sales price need not be considered if the property was acquired as the result of inheritance and is or will become the heir's principal residence.

Question 55: Can prepaids be included in the calculation for both no-cash out refinances and streamline refinances with an appraisal? How much?

Answer: See Mortgagee Letters 01-12, 2008-40 and 2009-32; HUD Handbook 4155.1, 3.B.1.b and Handbook 4155.1, 3.C.3.a

Question 56: Can liens be subordinated on streamline refinances?

Answer: If subordinate financing is remaining in place, the maximum combined loan-to-value ratio is 125 percent.

• For streamline refinance transactions WITHOUT an appraisal, the CLTV is based on the original appraised value of the property.
• For streamline refinance transactions WITH an appraisal, the CLTV is based on the new appraised value.

Reference: Handbook 4155.1, 3.C.2.f, Handbook 4155.1, 3.C.3.b and Mortgagee Letter 2009-32

Question 57: On no-cash out refinances?

Answer: Subordinate liens, including credit lines, regardless of when taken, may remain outstanding provided the insured mortgage meets the eligibility criteria for mortgages with secondary financing as described in Handbook 4155.1, 5.C. See Question No. 1 under "Secondary Financing".

Reference: ML 2008-40 and Handbook 4155.1, 3.B.1.c

Question 58: On Cash out refinances?

Answer: Surbordinate financing may remain in place, but subordinate to the FHA insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.

If new subordinate financing is being offered by the lender or other permitted entity, the CLTV is limited to 85% (the FHA-insured first mortgage and any new junior liens when added together)

Many subordinate lien holders request modifications to the terms of the lien (typically a reduction in the amount of the lien) in exchange for remaining in a subordinate position. Modifying the subordinate lien in this manner often results in re-executing the lien at closing, which is acceptable to FHA. In this case, FHA does not consider the lien a new subordinate lien.

Reference: ML 2009-08 and Handbook 4155.1, 3.B.2.e

Question 59: Can individuals be added to title on streamline refinances?

Answer: Individuals may be added to the title on a streamline refinance without a credit worthiness review, and triggering the due-on-sale clause.

Reference: ML 2009-32 and Handbook 4155.1, 6.C.3.c

Question 60: Under what circumstances can individuals be deleted from title on streamline refinances?

Answer: Individuals may be deleted from the title on a streamline refinance only under the circumstances described in Handbook 4155.1, 6.C.2.d:

a) When an assumption of a mortgage not containing a due-on-sale clause occurred more than six months previously and the assumptor can document that he or she has made the mortgage payments during this interim period; or

b) Following an assumption of a mortgage in which the transferability restriction (due-on-sale clause) was not triggered, such as in a property transfer resulting from a divorce decree or by devise or descent, and the assumption or quit-claim of interest occurred more than six months previously and the remaining owner-occupant can demonstrate that he or she has made the mortgage payments during this time.

Reference: ML 2009-32, Handbook 4155.1, 6.C.3.c and Handbook 4155.1, 6.C.2.d

Question 61: Can an investor reduce his term on a streamline refinance transaction without an appraisal? 

Answer: No, for transactions that include a reduction in the mortgage term, that loan must be underwritten and closed as a rate and term (no cash-out) refinance transaction. Investment properties are not eligible for streamline refinancing to ARMs.

Note: Investors can only refinance the unpaid principal balance.

Reference: ML 2009-32, Handbook 4155.1, 3.C.2.d, Handbook 4155.1, 3.C.2.e and Handbook 4155.1, 6.C.4.k. The $50 latitude is not available for mortgages on investment property.

Question 62: Can a borrower refinance a conventional loan to an FHA loan on a property with delinquent taxes, and that lien is now in a first lien position?

Answer: The delinquent taxes could be included in the determination of the loan amount since they are property related; however, the circumstances surrounding the sale of the property for non-payment of taxes must be addressed when reviewing the borrowers credit history.  The non-payment of taxes must have been due to extenuating circumstances beyond the borrowers control.

Secondary Financing

Question 63: Can the sum of all financing exceed 100 percent LTV?

Answer:

1. The FHA-insured first mortgage, when combined with any second mortgage or other junior liens from government agencies may not result in cash back to the borrower. The sum of all liens cannot exceed 100 percent of the cost to acquire the property. The cost to acquire is the sales price plus allowable borrower-paid closing costs, discount points, repair and rehabilitation expenses, and prepaid expenses. The cost to acquire may exceed the appraised value of the property under these types of government assistance programs. The FHA insured first mortgage cannot exceed the FHA statutory limit for the area where the property is located. The combined indebtedness, however, may exceed the FHA statutory limit.

2. If provided by other organizations and private individuals, the combined amounts of the first and second mortgages cannot exceed the applicable loan-to-value (LTV) ratio. (Maximum LTV for the state and property value, per Appendix II of Handbook 4155.1 REV-5.)

Reference: Handbook 4155.1, 5.C

Sweat Equity

Question 64: Can a borrower receive cash back at closing from a gift of sweat equity?

Answer: Only if the borrower’s investment (earnest money deposit, POCs, etc.) plus the gift of sweat equity exceeds the required investment.  Example:  Borrower’s father gives a gift of sweat equity in the amount of $2,000.  The borrower’s earnest money deposit is $1,000 and the statutory investment is $3,000.  In this scenario, the borrower could not receive cash back.  However, if the borrower’s earnest money deposit was $2,000, he/she could receive $1,000 cash back at closing.

Reference: Handbook 4155.1, 5.B.6.g, Handbook 4155.1, 5.B.6.h

Tax Credit

Question 65: Can the tax credit be applied toward the borrower's required investment?

Answer: The borrowers must have their own minimum investment assets verified by the lender at underwriting.  Seller real estate tax credits cannot be used to offset minimum investment requirements; however, the tax credit may mean that actual cash brought to closing is less, or even result in cash back.  This is acceptable.  The borrowers minimum investment verification is mandatory, regardless of the actual cash brought to or received at closing.