General Guidelines & Definitions - Alternative Lending Branch University
The Guidelines may be amended or supplemented from time to time and without notice or warning. Each broker, and the loans submitted by them, shall comply with all underwriting guidelines contained within. All loans are made pursuant to all State and Federal laws. We only do Non-Consumer Business Purpose or Commercial Loans.
Escrows and Impounds- Escrow/impound accounts ARE NOT required on any private money or alternative lending programs.
Lender Holdbacks- Lender holdbacks for rehab and finish construction loans are allowed and will be accompanied by a contingency reserve equal to 10% of the cost of repairs. Management must determine contingency, holdback and draw schedule case-by-case. Estimates and contracts must be provided by licensed and insured contractors Lender holdback and default addendum must be signed at closing Title Indemnity Agreements and Mechanic Lien Endorsements may be requested by Management Additional documentation may be required by Title
Subordinate Financing- Subordinate financing is acceptable; however, the terms must be acceptable to loan committee. There will usually be an additional reduction in LTV depending on the amount of the borrower’s down payment, and this should be clearly disclosed on submission form.
Seasoning- We have No seasoning for cash out nor purchase loans. There is no seasoning required for any loan.
Pre Payment Protection- Many pricing scenarios depend on loans not “running off” or paying off early on our portfolio. Below are explanations of the Prepay Protections we have implemented on our residential loan programs. No Prepayment Protection: This option carries NO charge for early payoff. Refer to rate sheets for minimum costs on lender points and pricing adjustments for no prepayment fee options.
Prepayment Protection on 2nd Homes & N/O/O& Commercial Loans - Where applicable, a prepayment fee will be assessed during the first 24 months of the loan. The amount of the prepayment fee will be equal to 6 months’ interest on 80% of the principle balance. The borrower always has a right to pay down 20% of the principle balance each year without any additional charge.
Purchase Transactions- A purchase transaction involves the purchase of an eligible property, as defined by a sale and purchase agreement executed by the buyer (our borrower) and the seller.
Rate & Term- A rate & term refinance transaction is defined as follows:
The payoff of an existing first mortgage loan. The payoff of any existing subordinate mortgage loan that was used in whole to acquire the subject property. The pay off of all title liens, judgments and due or delinquent property taxes, as applicable. The financing of closing costs (including prepaid expenses). Cash out to the borrower in an amount not to exceed the lesser of: 1) 2.0% of the balance of the new mortgage loan; or 2) 5,000.00.
Cash-Out Refinance- A cash-out refinance transaction is defined as follows:
The payoff of an existing first mortgage loan. The payoff of any existing subordinate mortgage loan that was used in whole to acquire the subject property. The pay off of all title liens, judgments and due or delinquent property taxes, as applicable. The financing of closing costs (including prepaid expenses). Cash out that the borrower may use for their designated purpose.
Debt Consolidation- A debt consolidation refinance is when a new mortgage loan is used to:
Refinance existing mortgage loans, as applicable. Finance closing costs and points. To repay personal consumer debt at the borrower’s election, as required by loan committee, or as necessary for DTI (Debt-to-Income) qualification purposes in accordance with the law
Rehab Refinance- A rehab refinance is for: A mortgage loan that may include the pay off of existing mortgages, title liens, judgments, due and delinquent property taxes, closing costs, and points where any excess loan proceeds are used to remodel or rehabilitate the collateral.
Rehab Purchase- A rehab purchase is for: A mortgage loan used in a purchase transaction where the subject property is in need of rehab.
Business Loans- A Business loan is defined as the following: A mortgage loan that may include the payment of existing mortgages, closing cost, and points where at least 51% of the loan amount is wired, at closing, directly to the borrower's business bank account where they will be used for business purposes Commercial Transactions with Residential Collateral- A commercial transaction is defined as the following: Purchase: This occurs when a buyer purchases a residential property in the name of an LLC, LLC or a Corporation. If the subject property is going to be owner-occupied, then it must be clearly delineated. Buying the property will help the borrower’s existing business. Under no circumstance will we consider funding a loan on an owner-occupied property in the name of an LLC, LLP or a Corporation for the explicit or implicit purpose of circumventing RESPA, REG Z, Sec 35, Sec 32 or any other Federal, State or County regulation as it regards to consumer lending. Refinance This occurs when ownership to a property has been vested in an LLC, LLP, or a Corporation for a period of six months or more. If the subject property has been owned for less than six months, it must have been acquired by the business entity.
Cash-Out Limits The following limits apply: No limit.
Construction to Permanent or Completion- Construction completion loans are allowed on purchase and refinance transactions. Documented acquisition costs must be provided to accurately assess the property value. Certificate of Occupancy must be issued prior to the close of escrow and/or the release of any contingency reserves. Updated appraisal is required if the appraisal was performed prior to the completion of the work. Cost bid from a licensed and insured/bonded General Contractor is required.
Contract for Deed/ Land Contracts- A mortgage loan that pays off a contract for Deed is treated as a refinance transaction as long as it has a 12 month pay history on the underlying contract and this can be verified by canceled checks or outgoing wire confirmations.
Leases with Options to Purchase- Lease-options are allowed with the following requirements:
If the contract is less than 12 months old, valuation will be determined using the lesser of: 1) the appraised value, or 2) the purchase price. Cash out to the borrower is permitted as long as all standard underwriting criteria for cash-out transactions is met and 12 months of canceled checks or outgoing wires are provided.
Inherited Properties- If a mortgaged property was inherited within the last 12 months, the following restrictions apply: The borrower must have clean title. Title may be held in probate, subject to the following conditions: Court order approving the refinance of the subject property; Probate Attorney must provide a letter of explanation regarding the use of loan proceeds, copy of court order approving the refinance, proof of estate administrator and any other documents to reflect the legality of this transaction; Estate Administrator must provide copy of the most recent Will (if applicable) and complete the loan application on behalf of the estate and administrator; and All cash proceeds from the transaction must be sent directly to the approved Trust account for the estate and acknowledged by the Probate Attorney. Percentage of ownership by all the heirs must be detailed.
Reserves- Reserves are not required.
IRS 1031 Exchange- IRS 1031 exchanges are allowed
Required Business Entity Documentation - If the loan is being vested in the name of a business entity, the following acceptable forms of documentation will be required. Business Entity Required Documentation Domestic Corporations Articles of Incorporation (filed copy) Bylaws Corporate Minutes General Partnerships Partnership Agreement executed by all partners Fictitious business name statement and proof of publication (if applicable) By Laws, Minutes and Operating Agreement Limited Partnerships Fully Executed partnership agreement executed by all general and limited partners LP1 filed with the Secretary of State (filed copy) LP2 filed with the Secretary of State (filed copy, if applicable, for amendments) Fictitious business name statement and proof of publication (if applicable) By Laws, Minutes and Operating Agreement All business entities must be in good standing and registered to do business within the State the collateral is located Limited Liability Company (LLC) Articles of Organization and Operating Agreement executed by all members LLC1 filed with the Secretary of State (filed copy) LLC12 (filed copy, if applicable) Fictitious business name statement and proof of publication (if applicable) Foreign Entities Articles of Organization and Operating Agreement executed by all members LC1 filed with the Secretary of State (filed copy) LLC12 (filed copy, if applicable) Fictitious business name statement and proof of publication (if applicable) Certificate of Good Standing from the State where the company is organized or a declaration that such certificates are not issued by that State Certificate of Qualification verifying ability to conduct/transact business in the State in which the collateral is in
Note: A foreign entity is an entity that is organized outside the state the property is located in.
Ownership- Ownership must be fee simple or leasehold only and must be in the name of the individual borrower(s), Trust(s) or Business Entity(ies).
Eligible Borrower/ Residency Types- The following table reflects the eligible borrower types:
Borrower Description Non-Occupant Co-Borrowers Co-borrowers who do not plan to occupy the subject property. Permanent Resident Aliens Persons who live in the US all or most of the time. They have registered their status and hold a “Green Card.” Allowed to aliens who are lawful, permanent residents of the United States under the same terms that are available to U.S. citizens. Must hold acceptable evidence of permanent residency issued by the United States I.N.S. Documented evidence of permanent residency status must be provided. Non-Permanent Resident Aliens Persons who live in the US part of the time, and in a foreign country or countries the remainder of the time. They have registered their status and hold a “Green Card.” Allowed to aliens who are lawful, non-permanent residents of the US under the same terms that are available to U.S. citizens.
Non-Resident Aliens or Foreign Nationals- Persons who are residents of a foreign country, are not residents of the US, and do not hold a “Green Card.”
Non-Eligible Borrowers- The following borrower types are NOT eligible for products:
Illegal Aliens/ Undocumented Persons Are persons who have either entered or remained in the US illegally. They have not registered their status and have no legal recognition as residents of the US. Note: All persons involved in loan transactions with are subject to a search on the OFAC government monitoring watch list.
Credit Report- A tri-merge credit report must be provided prior to approval for pricing and underwriting purposes. ALTERNATIVE BRANCH will re-run credit prior to loan committee. Note: There is no minimum trade-line, depth or maximum delinquency constraints. Consumer counseling is OK.
Installment Debt- All of a borrower’s debts and monthly obligations must be verified and included in the calculation of the Debt-to-Income Ratio (“DTI) for owner’ occupied transactions. Monthly obligation payments to be included in the calculation are:
Monthly housing expenses, including principal and interest payments on their mortgage(s), taxes, insurance, HOA dues, and payments on subordinate liens. Monthly payments on installment debts, if more than 10 payments remain. Monthly payments on real estate loans. Monthly payments on automobile leases (payments must be included even if fewer than ten (10) payments are outstanding). 5% of debt on collections. Net rental losses from real estate owned. Alimony, child support, or maintenance payments, if more than 10 payments remain. Garnishment of wages. Co-signed and divorce debt payments as described below. Non-deferred student loan payments as described below. Business debt payments as described below. Debts secured by financial assets such as a 401(k) account. Timeshares are considered an installment debt. NOTE: Debts that are to be paid through closing, as evidenced by the HUD-1, canceled checks, and paid bills need NOT be included in DTI calculations.
Revolving Debt- Revolving debt is included as a monthly obligation regardless of the number of payments remaining. The monthly payment verified on the credit report may be used as the payment obligation in calculating the total debt ratio. If the payment amount is not verified on the credit report, the payment disclosed by the borrower or 3% of the outstanding balance can be used.
Co-Signed Debt If a borrower is a co-signer or guarantor of a debt, that liability must be indicated on the Form 1003. The payments for such loans must be included in the calculation of DTI unless there is satisfactory documentation to prove that the primary debtor has been making the payments on time and on a regular basis. Three consecutive months of canceled checks, outgoing wires, or ACH debits are required as evidence.
Divorce Debt- Debts opened jointly with a former spouse must be considered in the calculation of DTI on O/O transactions unless a legal separation agreement or divorce decree shows the borrower is not responsible for the debt.
Business Debt- Debts paid by a borrower’s business account will be included in the debt to income ratio on all O/O transactions unless a minimum of six consecutive months canceled checks are provided to show the payments are made on time by the business.
Student / Deferred Loans- The payment may be excluded from the DTI calculation on O/O transactions if proof from the creditor is provided to show that no payment will be required for at least six (6) month
Age of Appraisal- The following age requirements apply: Appraisal must be less than 90 days old at time of closing; a new appraisal will be required after 90 days. Rental Survey must be included in the appraisal if the loan is for a second home or non-owner occupied proper
Neighborhood Analysis- When evaluating an appraisal, ALTERNATIVE BRANCH Lending underwriter will analyze the following: A rating of less than 25% built up usually indicates non-residential use and requires more consideration when reviewing the entire appraisal. An oversupply of housing is not desirable and may indicate either a slow market or an unmarketable property. A marketing time of 6 months or less is preferred. The subject property should conform to the “predominate occupancy” and the “housing price ranges” noted in the Property Land Use section. Market rents must be stable or increasing. Appraiser’s statement of market rents must be comparable to the rental properties used for comparison. Rent controls and the effect of vacancies must be considered as excessive vacancies that may reflect a lack of marketability. Rental data should be supplied from other similar income producing properties that are similar in number of units, size, and room count. Rental comparables must be in close proximity to the subject. Choosing comparables outside the immediate area may reflect a lack of marketability.
Comparable Market Data- The adequacy of the comparable sales will be analyzed by: Date of sale Proximity to subject Type of sale (open market, third party, short sale, REO, etc.) Number and dollar amount of adjustments Gross room count Unit coun
Zoning- If a property is a legal, non-conforming use, the appraiser must address the issue and specifically state that the property may be 100% rebuilt “as is” in the event of a loss and document the source of such opinion, or the file must contain a letter from a zoning official stating the property may be 100% rebuilt “as is” in the event of a loss.
Water Supply- Properties using alternative water supplies are acceptable provided the appraiser demonstrates that such water supply is typical and acceptable for the immediate area.
Sewage Systems- Cesspools and septic tanks are acceptable provided the appraiser demonstrates that such systems are common and customary for the area.
Private Roads- roads require a permanent easement for ingress and egress with provisions for road maintenance.
Permanent Heat Source- A permanent heat source is required unless typical for the climate and supported by at least two (2) comparables demonstrating marketability.
Description of Improvements- Improvements must generally conform to the neighborhood in terms of age, type, design and materials used for construction. Factory-built homes require special attention to determine the appeal of this type of housing and to establish its price range
Appraisers Comments- The comments regarding the improvements should be carefully analyzed. The appraiser must describe repairs required/deferred maintenance on the property or the impact of any sales concession. Seller concessions, whether cash or assets, may have a negative effect on the subject property value
Proximity to Subject- The comparable properties should be within a distance that appears reasonable for the area and the property type.
Rehab or Finish Construction Valuation- In cases of rehabilitation or finish construction loans, ALTERNATIVE BRANCH will base LTV off: 1) the repaired value/future value, or 2) the purchase price plus rehab cost. If the loan scenario is a purchase transaction, LTV will be based off the acquisition cost only. The underwriter will need to carefully evaluate the draw schedule, paying particular attention to how the LTV adjusts pro forma for each draw as additional funds are disbursed and incremental property value is created. LTV movement must align with “common sense” and ensure that the borrower has significant “skin in the game” throughout the rehabilitation or finish construction process.