NQM Underwriting Guidelines
Effective 7/01/2026
•
143 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
23
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
51
Business Debt
51
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
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
55
Timeshares
55
Undisclosed Debts
56
Employment
56
Employment History
56
Frequent Job Changes
56
Gaps in Employment
56
Written Verification of Employment (WVOE)
56
Verbal Verification of Employment (VVOE)
56
Verification of Self- Employment
57
Full Documentation
57
Wage Earners (Full Doc – Flex Supreme, Flex Select and Super Jumbo)
57
Wage Earners (Full Doc – ITIN)
57
Wage Earners (Full Doc – Foreign Nationals)
58
IRS 4506-C Tax Transcripts (Full Doc)
58
Self-Employment Income (S/E Full Doc)
58
Stability and Continuance of Self-Employment (S/E Full Doc)
58
Documentation Requirements (S/E Full Doc – Non-Foreign National)
59
Qualifying Income (S/E Full Doc – Non-Foreign National)
59
Documentation Requirements (S/E Full Doc – Foreign National)
59
1099 Income (Full Doc)
60
Secondary Business Income
60
Other Income
60
Unacceptable Income Sources
60
Annuity Income
60
Automobile Allowance
61
Bonus and Overtime
61
Capital Gains
61
Child Support, Alimony or Maintenance Income
61
Commission Income
62
Declining Income
62
Disability Income
62
Dividend/Interest Income
63
Employment by a Relative
63
Foreign Income
63
Foster Care Income
63
Hourly Wages
63
Housing Allowance
64
Non-Taxable Income
64
Notes Receivable Income
64
Part-Time/Second Job Income
64
Pension/Retirement
64
Rental Income – Full Doc
65
Restricted Stock Units (RSU)
66
Seasonal Income
66
Social Security Income
67
Tips and Gratuities
67
Trust Income
67
Unemployment Compensation
68
Alternative Documentation (Alt Doc)
68
Combination of Other Income Sources (Alt Doc)
68
Bank Statement General Requirements (Alt Doc)
68
Bank Statement Analysis
69
Underwriting NSFS
70
Personal Bank Statements (Alt Doc)
71
Calculating Qualifying Income
72
Co-Mingled Accounts
72
Business Bank Statements (Alt Doc)
72
Calculating Qualifying Income
72
Option 1: 50% Expense Ratio
72
Option 2: Third Party P&L Expense Statement
72
Option 3: Third-Party Prepared Expense Statement
73
P&L Plus 2 Months Bank Statements (Alt Doc)
73
P&L Only (Alt Doc)
73
CPA/Tax Preparer’s Verification
74
IRS Form 1099 (Alt Doc)
74
Asset Utilization (Alt Doc)
74
Qualified Assets
74
Net Qualified Asset Calculation
75
Written Verification of Employment (WVOE)(Alt Doc)
76
Residual Income
76
Ratios and Qualifying – Full and Alt Doc
76
Debt to Income Ratio (DTI)
76
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
78
Lease and Occupancy Requirements – DSCR Supreme and Investor DSCR
78
Long Term Rentals – DSCR Supreme and Investor DSCR
79
Short Term Rentals – DSCR Supreme and Investor DSCR
79
No Ratio Rental Income Requirements
80
Multi 5-8 Unit Rental Income Requirements
80
Rental Income Requirements
80
Lease Requirements
80
Occupancy Requirements
81
Eligible Tenants
81
Assets
81
Asset Documentation
81
Business Assets
82
Foreign Assets
82
Other Assets
82
Borrowed Funds Secured by an Asset
82
Certificate of Deposit (CD)
83
College Savings Account – 529 Plan
83
Crypto Currency
83
Earnest Money/Cash Deposit on Sales Contract
83
Employer Assistance
84
Gift Funds
84
Gift of Equity
85
Interested Party Contributions
86
Life Insurance
86
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
87
Spousal Accounts
87
Stock Options
88
Stocks, Bonds, and Mutual Funds
88
Trust Accounts
88
Unacceptable Funds
88
Reserves
89
Appraisals
89
Appraisal Requirements
89
Exclusionary List
89
Appraisal Independence Policy Statement
90
Appraiser Qualifications
90
Electronic Submission of Appraisal Report
90
Request for Appraisal Reconsideration
91
Age of Appraisal and Appraisal Updates
91
Appraisal Transfer Policy
91
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
94
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
95
Property Considerations
96
Minimum Property Standards
96
Accessory Dwelling Units (ADU)
96
Additions Without Permits
97
Declining Markets
97
Deed Restrictions
97
Property Condition
98
Escrow Holdbacks
98
Land Value and Acreage
98
Rural Properties
99
Mixed-Use Properties (Primary Residence)
99
Multiple Dwellings on One Lot
100
Multiple Parcels
100
New Construction
100
Solar Panels
100
Property Types
102
Condominiums - General
103
General Condominium Requirements (Condo)
103
Maximum Concentration Exposure (Condo)
103
Project Insurance (Condo)
103
Unit Square Footage (Condo)
103
Right of First Refusal / Superior Lien Rights (Condo)
104
Condo Project Type Definitions (Condo)
104
Established vs New Project (Condo)
104
Warrantable vs Non-Warrantable (Condo)
104
Review Types (Condo)
105
Project Review Waiver
105
Project Review Expriration Dates (Condo)
105
Ineligible Projects
106
Projects in Need of Critical Repairs
107
Special Assessments
108
Inspection Reports
108
Warrantable Condominiums
109
Warrantable Condominium Insurance Requirements
109
Limited Review and FNMA Approved Projects - Warrantable
109
Minimum Documentation Requirements – Warrantable Limited Review
109
FNMA Approved Projects, Type T - Warrantable
109
Limited Review Eligibility Requirements, Project Type Q - Warrantable
109
Limited Review and Occupancy - Warrantable
110
Full Review - Warrantable
110
Minimum Documentation – Warrantable Full Review
110
Full Review Eligibility Requirements - Warrantable
110
New Project Documentation Requirements - Warrantable
111
New Project Eligibility Requirements - Warrantable
111
Non-Warrantable Condominiums
111
Minimum Documentation Requirements – Non-Warrantable Review
111
Non-Warrantable Condo Eligibile Attributes
112
Single Entity Ownership – Non-Warrantable
112
Third Party Owned Amenities, Mandatory Club Dues – Non- Warrantable
112
Projects in Litigation – Non-Warrantable
113
Combined Units – Non-Warrantable
113
New Projects - Non-Warrantable
113
Insurance Requirements - Non-Warrantable
113
Condotels
114
Condotel General Requirements
114
Condotel Identification Criteria
114
Detached Condo / Site Condo
114
Cooperatives (Co-Op)
115
Co-Op Project Requirements
115
Co-Op Calculating the LTV Ratio
115
Co-Op Loan Documentation Requirements
115
Delegated Correspondent Responsibilities (Co-Op)
116
Manufactured Housing
117
Disaster Areas
117
Property Appraised Prior to Disaster Incident
117
Property Appraised After Disaster Incident
117
Disaster Incident Occurs After Closing, Prior to Funding
118
Disaster Effective Time Period
118
Property Insurance
118
Hazard Insurance
118
Minimum Hazard Insurance Coverage
118
Loss Settlement
118
Determining the Amount of Required Hazard Coverage
118
Deductible Amount
119
Evidence of Hazard Insurance
119
Optional Coverage
119
Rent Loss Insurance (DSCR)
119
Condominium and PUD Project Insurance Requirements
119
Condo Projects
119
PUD Projects
120
Coverage Requirements
120
Loss Settlement
120
Special Coverage Requirements
120
Required Coverage Amount
121
Policies Covering Multiple Projects
121
Deductible Amount
121
General Liability Coverage
121
Fidelity Bond Coverage
122
Non-Warrantable Condo Insurance Allowances
122
Individual Property Insurance Requirements for a Unit in a Project Development
123
Determining When Coverage Is Required
123
Coverage Sufficiency
123
Required Perils
123
Loss Settlement
124
Deductible Amount
124
Flood Insurance
124
Flood Certificate
124
Minimum Flood Insurance Coverage
124
Acceptable Flood Insurance Policies
124
Project Flood Insurance Requirements
125
Deductible Amount
125
Evidence of Flood Insurance
125
Named Insured for Property and Flood Insurance
125
Notice of Cancellation for Property Insurance
126
Mortgagee / Loss Payee Clause
126
Loss Payee Clause
126
Mortgagee Clause Requirements by Property Type
126
Title Insurance
126
Title Policy Requirements
126
Borrower Information
127
Coverage Amount
127
Insured Name
127
Age of Report
127
Vesting
127
Gap Coverage
127
Title Policy Forms
127
Title Policy Underwriter
127
Title Commitment Review
128
Survey Requirements
128
Texas Home Equity Loans (Cash-Out Refi Texas)
129
Texas Home Equity - Seller Certification
129
Texas Home Equity - General Requirements
129
Texas Home Equity - Loan Parameters
130
Texas Home Equity - Restrictions
130
Texas Home Equity - Occupancy
130
Texas Home Equity - Borrowers
130
Texas Home Equity - Non-Borrowing Spouse
131
Texas Home Equity - Power of Attorney
131
Texas Home Equity - Payoff of Debt
131
Texas Home Equity - Secondary Financing
131
Texas Home Equity - Property Characteristics
131
Texas Home Equity - Urban and Rural Homestead Definitions
132
Texas Home Equity - 12-Day Cooling Off Period
132
Texas Home Equity - Closing Disclosure and Final Loan Application
133
Texas Home Equity - Points and Fees
133
Texas Home Equity - Attorney Review
133
Texas Home Equity - Title
133
Texas Home Equity - Survey
134
Texas Home Equity - Documents
134
Texas Home Equity – 50 (F)(2)Refinancing an Existing Home Equity Loan
134
Forms and Tools
136
Change History
137
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