NQM Underwriting Guidelines
Effective 5/15/2026
•
147 Pages
•
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Table of Contents
General Guidelines
Title Page
1
Table of Contents
2
Introduction
12
Fair Lending Statement
12
Responsible Lending Statement
12
Zero Tolerance – Fraud
13
Guidelines and Programs
14
Guidelines
14
Non-QM Programs
14
DSCR Programs
14
General Underwriting Requirements
15
Age of Loan Documentation
15
Mortgage Insurance
15
Daily Simple Interest
15
Geographic Restrictions
15
Alternative Loan Program Analysis
16
Escrow Waivers
16
Exposure
16
Exceptions
17
Compliance
17
Higher Priced Mortgage Loans (HPML)
17
State and Federal High Cost Loans
18
New York Subprime Loans
18
Prepayment Penalties, Points, and Fees
19
Principal Curtailment
20
Maximum Interest Credit
20
Occupancy Types
20
Primary Residence
20
Second Home
20
Investment Property & Business Purpose Loans
20
Business Purpose Forms
21
Transaction Types
21
Purchase
21
For Sale by Owner
21
Refinance General
21
Benefit to Borrower
21
Continuity of Obligation – No Ratio
22
Rate & Term Refinance
22
Determining Loan to Value
23
Properties Listed for Sale
23
Cash-Out Refinance
23
Eligibility Requirements
23
Ownership Requirements
24
Seasoning
24
Determining Loan to Value
24
Properties Listed for Sale
24
Delayed Financing
25
Debt Consolidation
25
Determining Loan to Value
27
Properties Listed for Sale
27
Assumability
27
2-1 Temporary Buydown
27
Flip Transactions
28
Non-Arm's Length Transactions
29
Inherited Properties and Property Buyouts
29
Land Contract/Contract for Deed
29
Lease with Purchase Option
30
Permanent Financing for New Construction
30
Subordinate Financing
31
Second Lien
32
Ineligible Senior Lien Criteria
32
New York CEMAS
32
Foreign Notaries
32
Borrower Eligibility
33
U.S. Citizens
33
Permanent Resident Aliens
33
Non-Permanent Resident Aliens
33
Temporary Protected Status
33
Employment Authorization
34
Visa
34
ITIN
35
ITIN – Documentation Requirements
35
ITIN - Eligibility
35
DACA
36
Foreign Nationals
36
ACH Payments
36
Exclusionary List/OFAC/Diplomatic Immunity
36
Borrowers
37
Customer Identification (CIP)
37
Fraud Report and Background Check
37
Ineligible Borrowers
37
Co-Borrowers / Co-Signers
38
Non-Occupant Co-Borrowers
38
First Time Homebuyer (FTHB)
38
First Time Investor
39
Maximum Financed Properties (Max Financed Properties)
39
Employee Loans
39
Power of Attorney
39
Vesting and Ownership
39
Vesting Requirements
39
Inter Vivos Revocable Trust
40
Entity Vesting
41
Requirements – Entity Vesting
41
Documentation – Entity Vesting
41
Signature Requirements – Entity Vesting
42
Leasehold Estates
44
Lease Requirements
44
Additional Eligibility Requirements
44
Establishing Land Purchase Price
45
Credit
45
Credit Report
45
Fraud Alerts
46
Credit Report Security Freeze
46
Credit Inquiries
46
Past Due Accounts
46
Credit Rescoring
46
Gap Credit Report
47
Qualifying Credit Score
47
Representative Score
47
Full and Alt Doc
47
DSCR Loans
48
Tradeline Requirements
48
Standard Tradelines
48
Limited Tradelines
48
Non-Traditional Credit
49
Non-Permanent Residents with No Score
49
Housing History
49
Mortgage History Verification (Non – DSCR)
50
Mortgage History Verification (DSCR Only)
50
Balloon Mortgages with an Expired Maturity
50
Rental Verification
51
Rent Free or Incomplete Housing History
51
Housing Events and Prior Bankruptcy
52
Seasoning (Housing Event / Bankruptcy)
52
Written Explanations for Derogatory Credit
53
Liabilities
53
Installment Debt
53
Revolving Debt
53
Authorized User Accounts
53
Business Debt
53
Child Support, Alimony or Maintenance Obligations
54
Collections and Charge-Offs
54
Consumer Credit Counseling Service (CCCS)
55
Court Ordered Assignment of Debt
55
Current Residence Pending Sale
55
Debts Paid by Others
55
Disputed Accounts
56
Judgments, Liens and IRS Tax Repayment Plans
56
Lawsuit/Pending Litigation
56
Lease Obligations
57
Open 30-Day Charge Accounts
57
Retirement/Savings Plan Loans
57
Student Loans
57
Timeshares
57
Undisclosed Debts
57
Employment
59
Employment History
59
Frequent Job Changes
59
Gaps in Employment
59
Written Verification of Employment (WVOE)
59
Verbal Verification of Employment (VVOE)
59
Verification of Self- Employment
60
Full Documentation
60
Wage Earners (Full Doc – Flex Supreme, Flex Select and Super Jumbo)
60
Wage Earners (Full Doc – ITIN)
60
Wage Earners (Full Doc – Foreign Nationals)
60
IRS 4506-C Tax Transcripts (Full Doc)
61
Self-Employment Income (S/E Full Doc)
61
Stability and Continuance of Self-Employment (S/E Full Doc)
61
Documentation Requirements (S/E Full Doc – Non-Foreign National)
62
Qualifying Income (S/E Full Doc – Non-Foreign National)
62
Documentation Requirements (S/E Full Doc – Foreign National)
62
1099 Income (Full Doc)
62
Secondary Business Income
63
Other Income
63
Unacceptable Income Sources
63
Annuity Income
63
Automobile Allowance
63
Bonus and Overtime
63
Capital Gains
64
Child Support, Alimony or Maintenance Income
64
Commission Income
64
Declining Income
65
Disability Income
65
Dividend/Interest Income
65
Employment by a Relative
66
Foreign Income
66
Foster Care Income
66
Hourly Wages
66
Housing Allowance
66
Non-Taxable Income
67
Notes Receivable Income
67
Part-Time/Second Job Income
67
Pension/Retirement
67
Rental Income – Full Doc
67
Restricted Stock Units (RSU)
69
Seasonal Income
69
Social Security Income
69
Tips and Gratuities
70
Trust Income
70
Unemployment Compensation
70
Alternative Documentation (Alt Doc)
71
Combination of Other Income Sources (Alt Doc)
71
Bank Statement General Requirements (Alt Doc)
71
Bank Statement Analysis
72
Underwriting NSFS
73
Personal Bank Statements (Alt Doc)
74
Calculating Qualifying Income
74
Co-Mingled Accounts
74
Business Bank Statements (Alt Doc)
75
Calculating Qualifying Income
75
Option 1: 50% Expense Ratio
75
Option 2: Third Party P&L Expense Statement
75
Option 3: Third-Party Prepared Expense Statement
75
P&L Plus 2 Months Bank Statements (Alt Doc)
76
P&L Only (Alt Doc)
76
CPA/Tax Preparer’s Verification
76
IRS Form 1099 (Alt Doc)
77
Asset Utilization (Alt Doc)
77
Qualified Assets
77
Net Qualified Asset Calculation
78
Written Verification of Employment (WVOE)(Alt Doc)
78
Ratios and Qualifying – Full and Alt Doc
80
Debt to Income Ratio (DTI)
80
Non – QM Product Terms
80
Second Lien Select Senior Lien Qualifying Terms
81
DSCR Product Terms
81
DSCR Ratios and Rental Income Requirements – 1-4 Unit Residential
82
DSCR Ratio
82
Lease and Occupancy Requirements – DSCR Supreme and Investor DSCR
82
Long Term Rentals – DSCR Supreme and Investor DSCR
82
Short Term Rentals – DSCR Supreme and Investor DSCR
83
No Ratio Rental Income Requirements
83
Multi 5-8 Unit Rental Income Requirements
84
Rental Income Requirements
84
Lease Requirements
84
Occupancy Requirements
84
Eligible Tenants
84
Assets
85
Asset Documentation
85
Business Assets
85
Foreign Assets
85
Other Assets
86
Borrowed Funds Secured by an Asset
86
Certificate of Deposit (CD)
86
College Savings Account – 529 Plan
87
Crypto Currency
87
Earnest Money/Cash Deposit on Sales Contract
87
Employer Assistance
87
Gift Funds
88
Gift of Equity
89
Interested Party Contributions
89
Life Insurance
90
Net Proceeds From Sale of Real Estate
90
Rent Credit for Lease with Purchase Option (Rent to Own)
90
Retirement Accounts
91
Sale of Personal Assets
91
Spousal Accounts
91
Stock Options
91
Stocks, Bonds, and Mutual Funds
91
Trust Accounts
92
Unacceptable Funds
92
Reserves
92
Appraisals
93
Appraisal Requirements
93
Exclusionary List
93
Appraisal Independence Policy Statement
93
Appraiser Qualifications
94
Electronic Submission of Appraisal Report
94
Request for Appraisal Reconsideration
94
Age of Appraisal and Appraisal Updates
95
Appraisal Transfer Policy
95
Appraisal Report Requirements
96
Appraisal Requirements 1-4 Unit Residential
96
Appraisal Requirements Multi 5-8 Unit
97
Appraisal Requirements – Second Liens
97
Second Appraisal Requirements
98
Ordering / Authorizing a Second Appraisal
98
Charges for Second Appraisal or Inspection
98
Appraisal Review Process
98
Appraisal Review Process – 1-4 Unit Residential Properties
99
Appraisal Review Process – Multi 5-8 Unit Properties
99
Property Considerations
99
Minimum Property Standards
100
Accessory Dwelling Units (ADU)
100
Additions Without Permits
101
Declining Markets
101
Deed Restrictions
101
Property Condition
101
Escrow Holdbacks
102
Land Value and Acreage
102
Rural Properties
102
Mixed-Use Properties (Primary Residence)
103
Multiple Dwellings on One Lot
103
Multiple Parcels
104
New Construction
104
Solar Panels
104
Property Types
105
Condominiums - General
107
General Condominium Requirements (Condo)
107
Maximum Concentration Exposure (Condo)
107
Project Insurance (Condo)
107
Unit Square Footage (Condo)
107
Right of First Refusal / Superior Lien Rights (Condo)
107
Condo Project Type Definitions (Condo)
107
Established vs New Project (Condo)
108
Warrantable vs Non-Warrantable (Condo)
108
Review Types (Condo)
108
Project Review Waiver
109
Project Review Expriration Dates (Condo)
109
Ineligible Projects
110
Projects in Need of Critical Repairs
111
Special Assessments
112
Inspection Reports
112
Warrantable Condominiums
112
Warrantable Condominium Insurance Requirements
113
Limited Review and FNMA Approved Projects - Warrantable
113
Minimum Documentation Requirements – Warrantable Limited Review
113
FNMA Approved Projects, Type T - Warrantable
113
Limited Review Eligibility Requirements, Project Type Q - Warrantable
113
Limited Review and Occupancy - Warrantable
113
Full Review - Warrantable
114
Minimum Documentation – Warrantable Full Review
114
Full Review Eligibility Requirements - Warrantable
114
New Project Documentation Requirements - Warrantable
114
New Project Eligibility Requirements - Warrantable
115
Non-Warrantable Condominiums
115
Minimum Documentation Requirements – Non-Warrantable Review
115
Non-Warrantable Condo Eligibile Attributes
115
Single Entity Ownership – Non-Warrantable
116
Third Party Owned Amenities, Mandatory Club Dues – Non- Warrantable
116
Projects in Litigation – Non-Warrantable
116
Combined Units – Non-Warrantable
116
New Projects - Non-Warrantable
117
Insurance Requirements - Non-Warrantable
117
Condotels
117
Condotel General Requirements
117
Condotel Identification Criteria
118
Detached Condo / Site Condo
118
Cooperatives (Co-Op)
118
Co-Op Project Requirements
118
Co-Op Calculating the LTV Ratio
119
Co-Op Loan Documentation Requirements
119
Delegated Correspondent Responsibilities (Co-Op)
119
Manufactured Housing
120
Disaster Areas
121
Property Appraised Prior to Disaster Incident
121
Property Appraised After Disaster Incident
121
Disaster Incident Occurs After Closing, Prior to Funding
121
Disaster Effective Time Period
121
Property Insurance
122
Hazard Insurance
122
Minimum Hazard Insurance Coverage
122
Loss Settlement
122
Determining the Amount of Required Hazard Coverage
122
Deductible Amount
122
Evidence of Hazard Insurance
122
Optional Coverage
123
Rent Loss Insurance (DSCR)
123
Condominium and PUD Project Insurance Requirements
123
Condo Projects
123
PUD Projects
123
Coverage Requirements
123
Loss Settlement
124
Special Coverage Requirements
124
Required Coverage Amount
124
Policies Covering Multiple Projects
125
Deductible Amount
125
General Liability Coverage
125
Fidelity Bond Coverage
125
Non-Warrantable Condo Insurance Allowances
125
Individual Property Insurance Requirements for a Unit in a Project Development
127
Determining When Coverage Is Required
127
Coverage Sufficiency
127
Required Perils
127
Loss Settlement
127
Deductible Amount
127
Flood Insurance
127
Flood Certificate
128
Minimum Flood Insurance Coverage
128
Acceptable Flood Insurance Policies
128
Project Flood Insurance Requirements
128
Deductible Amount
128
Evidence of Flood Insurance
129
Named Insured for Property and Flood Insurance
129
Notice of Cancellation for Property Insurance
129
Mortgagee / Loss Payee Clause
129
Loss Payee Clause
130
Mortgagee Clause Requirements by Property Type
130
Title Insurance
130
Title Policy Requirements
130
Borrower Information
130
Coverage Amount
131
Insured Name
131
Age of Report
131
Vesting
131
Gap Coverage
131
Title Policy Forms
131
Title Policy Underwriter
131
Title Commitment Review
132
Survey Requirements
132
Texas Home Equity Loans (Cash-Out Refi Texas)
133
Texas Home Equity - Seller Certification
133
Texas Home Equity - General Requirements
133
Texas Home Equity - Loan Parameters
134
Texas Home Equity - Restrictions
134
Texas Home Equity - Occupancy
134
Texas Home Equity - Borrowers
134
Texas Home Equity - Non-Borrowing Spouse
135
Texas Home Equity - Power of Attorney
135
Texas Home Equity - Payoff of Debt
135
Texas Home Equity - Secondary Financing
135
Texas Home Equity - Property Characteristics
136
Texas Home Equity - Urban and Rural Homestead Definitions
136
Texas Home Equity - 12-Day Cooling Off Period
137
Texas Home Equity - Closing Disclosure and Final Loan Application
137
Texas Home Equity - Points and Fees
137
Texas Home Equity - Attorney Review
138
Texas Home Equity - Title
138
Texas Home Equity - Survey
138
Texas Home Equity - Documents
138
Texas Home Equity – 50 (F)(2)Refinancing an Existing Home Equity Loan
139
Forms and Tools
140
Change History
141
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