NQM Underwriting Guidelines
Effective 08/03/2026
•
144 Pages
•
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Table of Contents
General Guidelines
Title Page
1
Table of Contents
2
Introduction
11
Fair Lending Statement
11
Responsible Lending Statement
11
Zero Tolerance – Fraud
12
Guidelines and Programs
13
Guidelines
13
Non-QM Programs
13
DSCR Programs
13
General Underwriting Requirements
14
Age of Loan Documentation
14
Mortgage Insurance
14
Daily Simple Interest
14
Geographic Restrictions
14
Alternative Loan Program Analysis
15
Escrow Waivers
15
Exposure
15
Exceptions
16
Compliance
16
Higher Priced Mortgage Loans (HPML)
16
State and Federal High Cost Loans
17
New York Subprime Loans
17
Prepayment Penalties, Points, and Fees
18
Principal Curtailment
19
Maximum Interest Credit
19
Occupancy Types
19
Primary Residence
19
Second Home
19
Investment Property & Business Purpose Loans
19
Business Purpose Forms
20
Transaction Types
20
Purchase
20
For Sale by Owner
20
Refinance General
20
Benefit to Borrower
21
Continuity of Obligation – No Ratio
21
Rate & Term Refinance
21
Determining Loan to Value
22
Properties Listed for Sale
22
Cash-Out Refinance
22
Eligibility Requirements
22
Ownership Requirements
23
Seasoning
23
Determining Loan to Value
23
Properties Listed for Sale
24
Delayed Financing
24
Debt Consolidation
24
Determining Loan to Value
25
Properties Listed for Sale
25
Assumability
25
2-1 Temporary Buydown
25
Flip Transactions
26
Non-Arm's Length Transactions
27
Inherited Properties and Property Buyouts
28
Land Contract/Contract for Deed
28
Lease with Purchase Option
28
Permanent Financing for New Construction
29
Subordinate Financing
29
Second Lien
30
Ineligible Senior Lien Criteria
30
New York CEMAS
30
Foreign Notaries
31
Borrower Eligibility
31
U.S. Citizens
31
Permanent Resident Aliens
31
Non-Permanent Resident Aliens
31
Temporary Protected Status
32
Employment Authorization
32
Visa
32
ITIN
33
ITIN – Documentation Requirements
33
ITIN - Eligibility
33
DACA
34
Foreign Nationals
34
ACH Payments
34
Exclusionary List/OFAC/Diplomatic Immunity
34
Borrowers
35
Customer Identification (CIP)
35
Fraud Report and Background Check
35
Ineligible Borrowers
35
Co-Borrowers / Co-Signers
36
Non-Occupant Co-Borrowers
36
First Time Homebuyer (FTHB)
36
First Time Investor
37
Maximum Financed Properties (Max Financed Properties)
37
Employee Loans
37
Power of Attorney
37
Vesting and Ownership
37
Vesting Requirements
37
Inter Vivos Revocable Trust
38
Entity Vesting
39
Requirements – Entity Vesting
39
Documentation – Entity Vesting
39
Signature Requirements – Entity Vesting
40
Leasehold Estates
42
Lease Requirements
42
Additional Eligibility Requirements
42
Establishing Land Purchase Price
43
Credit
43
Credit Report
43
Fraud Alerts
44
Credit Report Security Freeze
44
Credit Inquiries
44
Past Due Accounts
44
Credit Rescoring
44
Gap Credit Report
45
Qualifying Credit Score
45
Representative Score
45
Full and Alt Doc
45
DSCR Loans
46
Tradeline Requirements
46
Standard Tradelines
46
Limited Tradelines
47
Non-Traditional Credit
47
Non-Permanent Residents with No Score
47
Housing History
47
Mortgage History Verification (Non – DSCR)
48
Mortgage History Verification (DSCR Only)
48
Balloon Mortgages with an Expired Maturity
48
Rental Verification
49
Rent Free or Incomplete Housing History
49
Housing Events and Prior Bankruptcy
50
Seasoning (Housing Event / Bankruptcy)
50
Written Explanations for Derogatory Credit
51
Liabilities
51
Installment Debt
51
Revolving Debt
51
Authorized User Accounts
52
Business Debt
52
Child Support, Alimony or Maintenance Obligations
52
Collections and Charge-Offs
52
Consumer Credit Counseling Service (CCCS)
53
Court Ordered Assignment of Debt
53
Current Residence Pending Sale
53
Debts Paid by Others
53
Departure Residence with No Contract in Place
54
Departure Residence Pending Sale
54
Disputed Accounts
54
Judgments, Liens and IRS Tax Repayment Plans
54
Lawsuit/Pending Litigation
55
Lease Obligations
55
Open 30-Day Charge Accounts
55
Retirement/Savings Plan Loans
55
Student Loans
56
Timeshares
56
Undisclosed Debts
56
Employment
56
Employment History
56
Frequent Job Changes
56
Gaps in Employment
56
Written Verification of Employment (WVOE)
57
Verbal Verification of Employment (VVOE)
57
Verification of Self- Employment
57
Full Documentation
57
Wage Earners (Full Doc – Flex Supreme, Flex Select and Super Jumbo)
58
Wage Earners (Full Doc – ITIN)
58
Wage Earners (Full Doc – Foreign Nationals)
58
IRS 4506-C Tax Transcripts (Full Doc)
58
Self-Employment Income (S/E Full Doc)
59
Stability and Continuance of Self-Employment (S/E Full Doc)
59
Documentation Requirements (S/E Full Doc – Non-Foreign National)
59
Qualifying Income (S/E Full Doc – Non-Foreign National)
60
Documentation Requirements (S/E Full Doc – Foreign National)
60
1099 Income (Full Doc)
60
Secondary Business Income
60
Other Income
60
Unacceptable Income Sources
61
Annuity Income
61
Automobile Allowance
61
Bonus and Overtime
61
Capital Gains
61
Child Support, Alimony or Maintenance Income
62
Commission Income
62
Declining Income
62
Disability Income
62
Dividend/Interest Income
63
Employment by a Relative
63
Foreign Income
63
Foster Care Income
64
Hourly Wages
64
Housing Allowance
64
Non-Taxable Income
64
Notes Receivable Income
64
Part-Time/Second Job Income
64
Pension/Retirement
65
Rental Income – Full Doc
65
Restricted Stock Units (RSU)
66
Seasonal Income
67
Social Security Income
67
Tips and Gratuities
67
Trust Income
68
Unemployment Compensation
68
Alternative Documentation (Alt Doc)
68
Combination of Other Income Sources (Alt Doc)
68
Bank Statement General Requirements (Alt Doc)
69
Bank Statement Analysis
70
Underwriting NSFS
71
Personal Bank Statements (Alt Doc)
72
Calculating Qualifying Income
72
Co-Mingled Accounts
72
Business Bank Statements (Alt Doc)
72
Calculating Qualifying Income
73
Option 1: 50% Expense Ratio
73
Option 2: Third Party P&L Expense Statement
73
Option 3: Third-Party Prepared Expense Statement
73
P&L Plus 2 Months Bank Statements (Alt Doc)
73
P&L Only (Alt Doc)
74
CPA/Tax Preparer’s Verification
74
IRS Form 1099 (Alt Doc)
74
Asset Utilization (Alt Doc)
75
Qualified Assets
75
Net Qualified Asset Calculation
76
Written Verification of Employment (WVOE)(Alt Doc)
76
Residual Income
76
Ratios and Qualifying – Full and Alt Doc
77
Debt to Income Ratio (DTI)
77
Non – QM Product Terms
77
Second Lien Select Senior Lien Qualifying Terms
78
DSCR Product Terms
78
DSCR Ratios and Rental Income Requirements – 1-4 Unit Residential
78
DSCR Ratio
79
Lease and Occupancy Requirements – DSCR Supreme and Investor DSCR
79
Long Term Rentals – DSCR Supreme and Investor DSCR
79
Short Term Rentals – DSCR Supreme and Investor DSCR
80
No Ratio Rental Income Requirements
80
Multi 5-8 Unit Rental Income Requirements
80
Rental Income Requirements
80
Lease Requirements
81
Occupancy Requirements
81
Eligible Tenants
81
Assets
81
Asset Documentation
81
Business Assets
82
Foreign Assets
82
Other Assets
83
Borrowed Funds Secured by an Asset
83
Certificate of Deposit (CD)
83
College Savings Account – 529 Plan
83
Crypto Currency
83
Earnest Money/Cash Deposit on Sales Contract
84
Employer Assistance
84
Gift Funds
84
Gift of Equity
86
Interested Party Contributions
86
Life Insurance
87
Net Proceeds From Sale of Real Estate
87
Rent Credit for Lease with Purchase Option (Rent to Own)
87
Retirement Accounts
87
Sale of Personal Assets
88
Spousal Accounts
88
Stock Options
88
Stocks, Bonds, and Mutual Funds
88
Trust Accounts
88
Unacceptable Funds
89
Reserves
89
Appraisals
89
Appraisal Requirements
89
Exclusionary List
90
Appraisal Independence Policy Statement
90
Appraiser Qualifications
90
Electronic Submission of Appraisal Report
91
Request for Appraisal Reconsideration
91
Age of Appraisal and Appraisal Updates
91
Appraisal Transfer Policy
92
Appraisal Report Requirements
92
Appraisal Requirements 1-4 Unit Residential
92
Appraisal Requirements Multi 5-8 Unit
93
Appraisal Requirements – Second Liens
94
Second Appraisal Requirements
94
Ordering / Authorizing a Second Appraisal
95
Charges for Second Appraisal or Inspection
95
Appraisal Review Process
95
Appraisal Review Process – 1-4 Unit Residential Properties
95
Appraisal Review Process – Multi 5-8 Unit Properties
96
Property Considerations
96
Minimum Property Standards
96
Accessory Dwelling Units (ADU)
97
Additions Without Permits
98
Declining Markets
98
Deed Restrictions
98
Property Condition
98
Escrow Holdbacks
99
Land Value and Acreage
99
Rural Properties
99
Mixed-Use Properties (Primary Residence)
100
Multiple Dwellings on One Lot
100
Multiple Parcels
100
New Construction
101
Solar Panels
101
Property Types
102
Condominiums - General
103
General Condominium Requirements (Condo)
103
Maximum Concentration Exposure (Condo)
104
Project Insurance (Condo)
104
Unit Square Footage (Condo)
104
Right of First Refusal / Superior Lien Rights (Condo)
104
Condo Project Type Definitions (Condo)
104
Established vs New Project (Condo)
105
Warrantable vs Non-Warrantable (Condo)
105
Review Types (Condo)
105
Project Review Waiver
106
Project Review Expriration Dates (Condo)
106
Ineligible Projects
106
Projects in Need of Critical Repairs
108
Special Assessments
109
Inspection Reports
109
Warrantable Condominiums
109
Warrantable Condominium Insurance Requirements
110
Limited Review and FNMA Approved Projects - Warrantable
110
Minimum Documentation Requirements – Warrantable Limited Review
110
FNMA Approved Projects, Type T - Warrantable
110
Limited Review Eligibility Requirements, Project Type Q - Warrantable
110
Limited Review and Occupancy - Warrantable
110
Full Review - Warrantable
111
Minimum Documentation – Warrantable Full Review
111
Full Review Eligibility Requirements - Warrantable
111
New Project Documentation Requirements - Warrantable
111
New Project Eligibility Requirements - Warrantable
112
Non-Warrantable Condominiums
112
Minimum Documentation Requirements – Non-Warrantable Review
112
Non-Warrantable Condo Eligibile Attributes
112
Single Entity Ownership – Non-Warrantable
113
Third Party Owned Amenities, Mandatory Club Dues – Non- Warrantable
113
Projects in Litigation – Non-Warrantable
113
Combined Units – Non-Warrantable
113
New Projects - Non-Warrantable
114
Insurance Requirements - Non-Warrantable
114
Condotels
114
Condotel General Requirements
114
Condotel Identification Criteria
115
Detached Condo / Site Condo
115
Cooperatives (Co-Op)
115
Co-Op Project Requirements
115
Co-Op Calculating the LTV Ratio
116
Co-Op Loan Documentation Requirements
116
Delegated Correspondent Responsibilities (Co-Op)
116
Manufactured Housing
117
Disaster Areas
118
Property Appraised Prior to Disaster Incident
118
Property Appraised After Disaster Incident
118
Disaster Incident Occurs After Closing, Prior to Funding
118
Disaster Effective Time Period
119
Property Insurance
119
Hazard Insurance
119
Minimum Hazard Insurance Coverage
119
Loss Settlement
119
Determining the Amount of Required Hazard Coverage
119
Deductible Amount
119
Evidence of Hazard Insurance
119
Optional Coverage
120
Rent Loss Insurance (DSCR)
120
Condominium and PUD Project Insurance Requirements
120
Condo Projects
120
PUD Projects
120
Coverage Requirements
121
Loss Settlement
121
Special Coverage Requirements
121
Required Coverage Amount
122
Policies Covering Multiple Projects
122
Deductible Amount
122
General Liability Coverage
122
Fidelity Bond Coverage
122
Non-Warrantable Condo Insurance Allowances
123
Individual Property Insurance Requirements for a Unit in a Project Development
124
Determining When Coverage Is Required
124
Coverage Sufficiency
124
Required Perils
124
Loss Settlement
124
Deductible Amount
124
Flood Insurance
125
Flood Certificate
125
Minimum Flood Insurance Coverage
125
Acceptable Flood Insurance Policies
125
Project Flood Insurance Requirements
125
Deductible Amount
126
Evidence of Flood Insurance
126
Named Insured for Property and Flood Insurance
126
Notice of Cancellation for Property Insurance
126
Mortgagee / Loss Payee Clause
126
Loss Payee Clause
127
Mortgagee Clause Requirements by Property Type
127
Title Insurance
127
Title Policy Requirements
127
Borrower Information
127
Coverage Amount
128
Insured Name
128
Age of Report
128
Vesting
128
Gap Coverage
128
Title Policy Forms
128
Title Policy Underwriter
128
Title Commitment Review
128
Chain of Title
128
Title Exceptions
129
Survey Requirements
129
Texas Home Equity Loans (Cash-Out Refi Texas)
130
Texas Home Equity - Seller Certification
130
Texas Home Equity - General Requirements
130
Texas Home Equity - Loan Parameters
130
Texas Home Equity - Restrictions
131
Texas Home Equity - Occupancy
131
Texas Home Equity - Borrowers
131
Texas Home Equity - Non-Borrowing Spouse
131
Texas Home Equity - Power of Attorney
132
Texas Home Equity - Payoff of Debt
132
Texas Home Equity - Secondary Financing
132
Texas Home Equity - Property Characteristics
132
Texas Home Equity - Urban and Rural Homestead Definitions
132
Texas Home Equity - 12-Day Cooling Off Period
133
Texas Home Equity - Closing Disclosure and Final Loan Application
133
Texas Home Equity - Points and Fees
134
Texas Home Equity - Attorney Review
134
Texas Home Equity - Title
134
Texas Home Equity - Survey
135
Texas Home Equity - Documents
135
Texas Home Equity – 50 (F)(2)Refinancing an Existing Home Equity Loan
135
Forms and Tools
137
Change History
138
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