| Geographic Restrictions |
Eligible Counties:No Exception will be allowed |
| Mortgage Insurance |
Mortgage Insurance – Borrower Paid Monthly
- LTV> 80% - Mortgage insurance will be ordered through MGIC, ARCH or Essent.
Coverage amount required:
- 80.01% - 85% = 12% coverage
- 85.01% - 90% = 25% coverage
|
| Documentation |
- Full income and asset verification is required. In an effort to fully document the borrower’s ability to meet their obligations, borrowers should disclose and verify all liquid assets (in addition to minimums required).
|
| Underwriting / Ability to Repay QM |
- ALL loans must be run through Fannie Mae Desktop Underwriter (DU) for the benefit of alerts. DU conditions may not be utilized for loan documentation.
- All loans require a MANUAL UNDERWRITE
- Credit documentation is based on QM Ability to Repay and the Underwriter’s discretion based on the risk factors of the loan file.
- Unless otherwise addressed in these guidelines, Fannie Mae underwriting guidelines should be followed.
- In some cases, exceptions to underwriting guidelines or product eligibility may be acceptable when strong compensating factors exist to directly address the issue and offset the risk.
- Applying the Re-underwriting Criteria
- The following steps are required if the borrower discloses or Provident Bank discovers additional debt(s) or reduced income after the underwriting decision was made up to and concurrent with loan closing:
| Step |
Description |
| 1 |
Provident Bank must document the additional debt(s) and reduced income and apply those changes to the loan to confirm loan eligibility. |
| 2 |
If there is a new subordinate debt on the subject property, the mortgage loan must be re-underwritten |
| 3 |
The final loan application signed by the borrower must include all income and debts verified, disclosed, or identified during the mortgage process |
|
| Exceptions |
- Exceptions to these written guidelines may be made by Provident Bank on a case by case basis.
- NO Exceptions will be granted for DTI EXCEEDING GUIDELINE REQUIREMENTS.
- Exceptions to any of the above guidelines must be approved by PB Corporate Office.
- Exceptions on loans requiring MI must be prior approved with the Mortgage Insurance Company.
- All approved Exceptions may have a Loan Level Price Adjustment (LLPA).
|
| All Rate/Term Refinance Transactions |
- Underwriter to condition for the Borrower(s)" Certificate of Reasonable Tangible Net Benefit for Refinance Loans" Disclosure prior to funding.
- "Borrower(s) Certificate of Reasonable Tangible Net Benefit for Refinance Loans" disclosure
- Disclosure is generated with closing package and must be fully completed and executed by the borrower and returned with loan documents.
- Underwriter to review the complete/executed "Borrower(s) Benefit Worksheet."
- Copy of both executed forms to be placed in LOS 1008 place holder.
|
| Age of Documentation |
| Type |
Age of Documentation |
| Credit Report |
No more than 120 days from before Note date |
| Income |
No more than 120 days from before Note date |
| Assets |
No more than 120 days from before Note date |
| Appraisal |
No more than 120 days from before Note date |
| Title Commitment |
No more than 120 days from before Note date |
|
| Borrower Eligibility |
- ELIGIBLE BORROWERS
The following are eligible borrowers:
- US Citizens
- Inter-Vivos Revocable Trusts
- The inter vivos revocable trust must be established by one or more natural persons, solely or jointly.
- The primary beneficiary of the trust must be the individual(s) establishing the trust.
- The mortgage must be underwritten as if the individual establishing the trust (or at least one of the individuals, if there are two or more) were the borrower (or a co-borrower, if there are additional individuals whose income or assets will be used to qualify for the mortgage).
- Eligibility Requirements
- At least one individual establishing the trust must be a borrower on the loan.
- Occupancy must be as a primary residence or second home
- The title insurance policy must ensure full title protection and must indicate that title to the subject property is vested in the name of the trustee(s). The policy may not list any exceptions arising from the trust ownership of the property.
- Full title to the property must be vested either:
- Solely in the trustees, or
- Jointly in the trustees and in the name of an individual borrower.
- Permanent Resident Aliens/Non-Permanent Resident Aliens are eligible if they meet the following requirements:
- Can provide acceptable documentation to verify that a non-U.S. citizen borrower is legally present in this U.S.
- Must be employed in the United States for the past 24 months.
- Demonstrate that income and employment for at least 24 months and is likely to continue for at least three (3) years.
- First time homebuyers (FTHB): A first-time buyer is defined as anyone who has not owned a home for three (3) years. For loans with more than one (1) borrower where at least one borrower has owned a home in the past three (3) years, first-time homebuyer requirements do not apply. (see reserve requirements)
- All borrowers must have a social security number
- Minimum FICO 720
- 12 months reserves required
- INELIGIBLE BORROWER
- Irrevocable trusts
- Land trusts
- Limited Partnerships, General Partners, Corporations, and Limited Liability Companies
|
| Non Occupant Borrowers |
- Non-Occupant Borrowers are credit applicants on a principal residence transaction who:
- Do not occupy the subject property
- May or may not have an ownership interest in the subject property as indicated on the title;
- Sign the mortgage or deed of trust note;
- Have joint liability for the note with the borrower(s); and
- Do not have an interest in the property sales transaction, such as the property seller, the builder, or the real estate broker.
- Eligible Transactions
- Purchase
- Rate and Term Refinance
- Maximum Loan Amount
- 1-2 unit primary residences: $1,000,000
- Down Payment and Reserve Requirements
- The occupying borrower(s) must make the first 5% of the down payment from their own funds; and
- The occupying borrower(s) must document sufficient assets from their own funds to cover half of the required reserves or 2 months PITIA, whichever is greater.
- LTV Ratio Requirement
- The maximum LTV, CLTV and HCLTV ratio may not exceed 75%.
|
| Occupancy Types |
- Eligible occupancy types include:
- Primary residences for 1-2 unit properties
- Second Homes
- Ineligible occupancy types include:
- Primary residences for 3-4 unit properties
- Investment properties
|
| Multiple Properties Financed/Owned |
- The borrower(s) may own a total of ten (10) financed, 1-4 unit residential properties, including the subject property and regardless of occupancy.
- All financed 1-4 unit residential properties, other than the subject property, require additional four (4) months reserves for each property.
NOTE: 1-4 unit financed properties held in the name of an LLC or other corporation can be excluded from the calculation of number of properties financed only in cases where the borrower is not personally obligated for the mortgage.
|
| Ownership Interest |
- Title must be in the Borrower’s name at time of application for refinance transactions and at time of closing for all transactions. Borrower(s) may hold title as follows:
- Title must be in the Borrower’s name at time of application for refinance transactions and at time of closing for all transactions. Borrower(s) may hold title as follows:
- Individual: Individual vesting is an individual Borrower taking sole ownership to a property.
- Joint Tenants: Joint tenancy is a form of co-ownership giving each tenant equal interest and equal rights in a property, including the right of survivorship.
- Leasehold Estates: In areas where leasehold estates are commonly accepted, loans secured by leasehold estates are eligible for purchase. The mortgage must be secured by the property improvements and the borrower’s leasehold interest in the land. The leasehold estate and the improvements must constitute real property, must be subject to the mortgage lien, and must be insured by the Provident Bank’s title policy.
- An Attorney Opinion Letter will be required to verify meets FNMA guidelines.
- The term of the leasehold estate must run at least 5 years beyond maturity date of the loan.
|
| Transactions |
Purchase Transactions
- A purchase money transaction is one in which the proceeds are used to finance the acquisition of a property or to finance the acquisition and rehabilitation of a property. The table below provides the general requirements for purchase money mortgage transactions. Certain mortgage loans and products may have different eligibility requirements for purchase mortgage transactions. If applicable, the difference will be stated in the specific mortgage loan or product topic section.
- Proceeds from the transaction must be used to:
- Finance the acquisition of the subject property
- Finance the acquisition and rehabilitation of the subject property,
- Convert an interim construction loan or term note into permanent financing, or
- Pay off the outstanding balance on the installment land contract or contract for deed.
- Proceeds from the transaction may not be used to give the borrower cash back other than the following:
- An amount representing reimbursement for the borrower’s overpayment of fees and charges, including refunds that may be required in accordance with certain federal laws or regulations. The settlement statement must clearly indicate the refund, and the loan file must include documentation to support the amount and reason for the refund; and
- A legitimate pro-rated real estate tax credit in locales where real estate taxes are paid in arrears.
Note: If the borrower receives cash back for a permissible purpose as listed above, the underwriter must confirm that the minimum borrower contribution requirements associated with the selected mortgage product, if any, have been met.
Limited Cash-Out Refinance Transactions
- Limited cash-out refinance transactions must meet the following requirements:
- The transaction is being used to pay off an existing first mortgage loan (including an existing HELOC in first-lien position) by obtaining a new first mortgage loan secured by the same property; or for a single-closing construction-to-permanent loan to pay for construction cost to build the home, which may include paying off an existing lot lien.
- Only subordinate liens used to purchase the property may be paid off and included in the new mortgage, or 2nd TD’s used for significant home improvements (documentation required).
- The subject property must not be currently listed for sale. It must be taken off the market on or before the disbursement date of the new mortgage loan, and the borrowers must confirm their intent to occupy the subject property (for principal residence transactions).
- The following are acceptable in conjunction with a limited cash-out refinance transaction:
- Modifying the interest rate and/or term for existing mortgages
- Paying off the unpaid principal balance of the existing first mortgage (including prepayment penalties)
- For single-closing construction-to-permanent transactions, paying for construction costs to build a home, which may include paying off an existing lot lien
- Financing the payment of closing costs, points, and prepaid items. With the exception of real estate taxes that are more than 60 days delinquent, the borrower can include real estate taxes in the new loan amount as long as an escrow account is established, subject to applicable California law or regulation.
- Receiving cash back in an amount that is not more than the lesser of 2% of the new refinance loan amount or $2,000
- Buying out a co-owner pursuant to an agreement
- Paying off a subordinate mortgage lien (including prepayment penalties) used to purchase the subject property.
- Paying off a non purchase money second that has had no draws in the last 12 months.
- The following transaction type is not eligible as a limited cash out refinance:
- Financing a short-term refinance mortgage loan that combines a first mortgage and a non-purchase-money subordinate mortgage into a new first mortgage or any refinance of that loan within six months.
Cash-Out Refinance Transactions
- Cash-out refinance transactions must meet the following requirements:
- The transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property or be a new mortgage on a property that does not have a mortgage lien against it.
- Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.
- The property must have been purchased (or acquired) by the borrower at least six months prior to the disbursement date of the new mortgage loan except for the following:
- There is no waiting period if the underwriter documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).
- Delayed Financing Exception to Guidelines
- Original transaction must have closed within the last 6 months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following are met:
- The new loan amount can be no more than the actual documented amount of the borrower’s initial investment in purchasing the property plus the financing of closing costs, prepaid fees and points (subject to the maximum LTV/CLTV/HCLTV ratios for the transaction based on the lesser of the purchase price or current appraised value).
- All other cash out refinance eligibility and Cash Out Limits are met and cash out pricing is applied.
- The purchase transaction was an arms-length transaction.
- The original purchase transaction documented by a settlement statement, which confirms that no mortgage financing was used to obtain the subject property.
- The sources of funds for the purchase transaction are documented (such as: bank statements, personal loan documents, HELOC on another property).
NOTE: The preliminary title report must not reflect any existing liens on the subject property. If the source of funds used to acquire the property was an unsecured loan or a HELOC (secured by another property), the settlement statement for the refinance transaction must reflect that all cash-out proceeds be used to pay off or pay down, as applicable, the loan used to purchase the property. Any payments on the balance remaining from the original loan must be included in the DTI.
- If the property was owned prior to closing by a limited Liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement.(In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s).
- If the property was owned prior to closing by an Inter Vivos revocable trust, the time held by the trust may be counted towards meeting the borrower’s six month ownership requirement if the borrower is the primary beneficiary of the trust.
- The following are acceptable uses for cash-out refinance transactions:
- Paying off the unpaid principal balance of the existing first mortgage:
- Financing the payment of closing costs, points, and prepaid items. The borrower can include real estate taxes in the new loan amount. Delinquent real estate taxes (taxes past due by more than 60 days) can also be included in the new loan amount, but if they are, an escrow account must be established subject to California law or regulation.
- Paying off an outstanding subordinate mortgage lien of any age;
- Taking equity out of the subject property that may be used for any purpose;
- Financing a short-term refinance mortgage loan that combines a first mortgage and a non-purchase-money mortgage into a new first mortgage or a refinance of the short-term refinance loan within six months.
- The following transactions types are not eligible as cash-out refinances:
- The subject property was purchased by the borrower within the six months preceding the disbursement date of the new mortgage loan except if delayed financing guidelines are met.
- Transactions in which a portion of the proceeds of the refinance is used to pay off the outstanding balance on an installment land contract, regardless of the date the installment land contract was executed.
- The new loan amount includes the financing of the real estate taxes that are more than 60 days delinquent and an escrow account is not established, unless requiring an escrow account is not permitted by the applicable law or regulation.
- The transaction is not eligible if the subject property is listed for sale at the time of funding of the new mortgage loan.
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| LTV/CLTV Calculations |
- Purchases Money Transactions
- The LTV/CLTV/HCLTV is calculated based on the lesser of the sales price or the current appraised value.
Refinances Transactions
- The LTV/CLTV/HCLTV is calculated based on the current appraised value for properties owned a minimum of 12 months.
- If the subject property is owned for less than 12 months the LTV/CLTV/HCLTV is calculated based on the lesser of the original purchase price of the property or the current appraised value.
Delayed financing Exception
- The LTV/CLTV/HCLTV is calculated based on the lesser of the purchase price or the current appraised value of the subject property.
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| Non-Arm's Length Transactions |
- Non-arm’s length transactions are purchase transactions in which there is a relationship or business affiliation between the seller and the buyer of the property. Provident Bank allows non-arm’s length transactions for the purchase of existing properties, unless specifically forbidden for the particular transaction, such as delayed financing.
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| Employee Loans |
|
| Subordinate Financing |
- Subordinate liens must be recorded and clearly subordinate to Provident Bank’s first mortgage lien. Disclose the existence of subordinate financing and the subordinate financing repayment terms to the Underwriter, the appraiser, and the mortgage insurer.
- If a first mortgage is subject to subordinate financing, the underwriter must calculate the LTV/CLTV, and HCLTV ratios.
- The underwriter must consider any subordinate liens secured by the subject property, regardless of the obligated party, when calculating CLTV and HCLTV ratios. This includes business loans, such as those provided by the Small Business Administration.
- Acceptable Subordinate Financing Types
- Variable payment mortgages that comply with the details below.
- Mortgages with regular payments that cover at least the interest due so that negative amortization does not occur.
- Mortgages terms that require interest at a market rate.
- Unacceptable Subordinate Financing Terms
- Mortgages with negative amortization.
- Subordinate financing that does not fully amortize under a level monthly payment plan where the maturity or balloon payment date is less than five years after the note date of the new first mortgage.
- Eligible Variable Payment Terms for Subordinate Financing
- Provident Bank permits variable payments for subordinate financing if the following provisions are met:
- With the exception of HELOCs, when the repayment terms provide for a variable interest rate, the monthly payment must remain constant for each 12-month period over the term of the subordinate lien mortgage. (For HELOCs, the monthly payment does not have to remain constant).
- The monthly payment for all subordinate liens must cover at least the interest due so that negative amortization does not occur.
- If subordinate financing is left in place in connection with a first mortgage loan refinance transaction, Provident Bank requires execution and recordation of a re-subordination agreement.
- Defining Refinance Transactions Based on Subordinate Lien Payoff
- The payoff of a purchase money second with no cash out,
- Limited Cash-out Refinance
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| Interested Party Contributions |
- Interested party contributions include funds contributed by the property seller, builder, real estate agent/broker, mortgage lender, or their affiliates, or any other party with an interest in the real estate transaction.
- Interested party contributions may only be used for closing costs and prepaid expenses, and may never be applied to any portion of the down payment or contributed to the borrower’s financial reserve requirements.
- Interested party contributions are limited according to the CLTV:
| CLTV |
Limit |
| ≤75% |
9% |
| >75% |
6% |
|
| Sellers Concessions |
- All seller concessions must be addressed in the sales contract, appraisal and Closing Disclosure. A seller concession is defined as any interested party contribution beyond the stated limits, in the above section, or any amounts not being used for closing costs or prepaid expenses (i.e. funds for repairs not completed prior to closing is a seller concession). If a seller concession is present, both the appraised value and sales price must be reduced by the concession amount for purposes of calculating the LTV/CLTV.
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| Personal Property |
- Any personal property transferred with a property sale must be deemed to have zero transfer value, as indicated by the sales contract and the appraisal. If any value is associated with the personal property, the sales price and appraised value must be reduced by the personal property value for purposes of calculating the LTV/CLTV.
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| Escrows |
- Impound Accounts:
- Escrows may be established for funds collected that are required to be paid under the Security Instrument. These funds include, but are not limited to, taxes, insurance (hazard, flood, and mortgage) premiums, special assessments, ground rents, water, sewer, and other governmental impositions.
- Impounds required for loans with LTV/CLTV/HCLTV greater than 89.99%.
- Impounds required for a loan that is HPML, regardless of LTV.
- Escrow holdbacks are acceptable on a case by case basis when escrow will be disbursing the funds.
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| Reserves & Assets |
- Reserve Requirements
| Occupancy |
Loan Amount |
Required Reserves |
| Purchase, R/T |
≤$726,200≤80%LTV |
3 months PITI |
| ≤$726,200>80% |
6 months PITI |
| >$726,200≤80%LTV |
6 months PITI |
| >$726,200>80%LTV |
9 months PITI |
| >$1,000,000 |
9 months PITI |
| Primary Residence Cash Out |
≤$1,000,000 |
6 months PITI |
| >$1,000,000 |
9 months PITI |
| Second Home Purchase/RT |
Any Loan Amount or LTV |
9 months PITI |
- Beyond the minimum reserve requirements and in an effort to fully document the borrowers' ability to meet their obligations, borrowers should disclose and verify all other liquid assets.
- First time homebuyers (borrower(s) who have not owned a property in the last 3 years) require reserves of 12 months PITIA.
- All financed properties, other than the subject property, requires an additional four (4) months reserves for each property.
- Assets Documentation:
- Checking and Savings Account
- The two most recent, consecutive months statements for each account are required or 1 month Bank Statement and a VOD covering 60 day average balance
- Large deposits inconsistent with monthly income or other deposits must be verified and documented
- Marketable Securities
- Two most recent, consecutive months stock/securities account statements are required.
- 70% of value of stock accounts can be considered in the calculation of assets available for closing cost and reserves.
- Non-vested accounts are not eligible for use as down payment or reserves
- Margin accounts and/or pledged asset balances must be deducted.
- Retirement Accounts
- Most recent retirement account statement covering a minimum two-month period.
- Evidence of liquidation is required when funds are used for down payment or closing costs.
- 70% of vested value of retirement accounts, after reduction of any outstanding loans, may be considered toward the required reserves if the borrower is of retirement age (over 59.5 years old).
- 60% of vested value of retirement accounts, after reduction of any outstanding loans, may be considered toward the required reserves if the borrower is not of retirement age (less than 59.5 years old).
- Terms of Withdrawal
- Retirement accounts that do not allow any type of withdrawal are ineligible for use as reserves.
- Business Funds
- Business funds may be used for down payment and/or closing costs, not for purposes of calculating reserves.
- CPA letter to confirm withdrawal will have no impact on business.
- Borrower must have access to funds
- The borrower must be the sole proprietor or 100% owner of the business or all Borrowers combined own 100%.
- Restricted Stock/Stock Options
- Many executives receive a portion of their compensation in the form of company stock. When using vested company stock the following documentation is required:
- When stock is used for down payment, provide proof of liquidation.
- Stock options must be vested and exercised to be used for reserves.
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| Gift Funds |
- The following applies to Gift Funds - PRIMARY RESIDENCE ONLY
- For purchase and rate and term transactions of 1-Unit properties with loan amount ≤$726,200 and LTV less than 70% gift funds may be used (Reserve requirements must be borrowers own funds)
- For purchase and rate and term transactions with loan amounts >$726,200 gift funds may be used once the borrower contributes at least 5% from their own funds. (Reserve requirements must be borrowers own funds)
- Gift funds may not be used to meet reserve requirements.
- Donor must be an immediate family member, future spouse, or domestic partner living with borrower.
- An executed gift letter with the gift amount, donor’s name, address, and telephone number and relationship is required.
- Proof of transfer of funds or evidence of receipt must be documented.
- Acceptable Donors
- A gift can be provided by:
- a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or
- a fiancé’, fiancée, or domestic partner.
- The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction.
| LTV, CLTV, or HCLTV Ratio |
Minimum Borrower Contribution Requirement From Borrower's Own Funds |
| Less than 70% |
One-to four-unit principal residence |
A minimum borrower contribution from the borrower’s own funds is not required. All funds needed to complete the transaction can come from a gift for conforming loan amounts only ($726,200).- Gift Funds cannot be used as Reserves.
|
| 70% - 90% |
One-to four-unit principal residence |
A 5% minimum borrower contribution from the borrower’s own funds is required.- Gift Funds cannot be used as Reserves.
|
- Documentation Requirements
- Gifts must be evidenced by a letter signed by the donor, called a gift letter.
- The gift letter must:
- Specify the dollar amount of the gift;
- Specify the date the funds were transferred;
- Include the donor’s statement that no repayment is expected
- Verifying Donor Availability of Funds and Transfer of Gift Funds
- The Underwrite must verify that sufficient funds to cover the gift are either in the donor’s account or have been transferred to the borrower’s account. Acceptable documentation includes the following:
- A copy of the donor’s check and the borrower’s deposit slip,
- A copy of the donor’s withdrawal slip and the borrower’s deposit slip,
- A copy of the donor’s check to the closing agent, or
- A settlement statement showing receipt of the donor’s check.
- When the funds are not transferred prior to settlement, the Underwriter must document that the donor gave the closing agent the gift funds in the form of a certified check, a cashier’s check, or other official check.
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| Credit |
- Unless otherwise addressed below, Fannie Mae underwriting guidelines should be followed for evaluating a borrower’s credit history.
| Credit Standards |
| Age of Credit Report |
45 days old at time of close. A soft pull will be pulled at 45 days. |
| Representative FICO Score |
An individual borrower’s representative credit score is determined by the following:- If 2 credit bureau scores are reported, the representative credit score will be the lower of the 2.
- If 3 credit bureau scores are reported, the representative credit score will be the middle of the 3.
When there is more than 1 borrower, the lowest of all borrowers’ representative credit scores will be used. |
| TradeLines |
- Minimum of 3 tradelines are required. The following requirements apply:
- 1 tradeline must be open for 24 months and active within the last 6 months.
- The 2 remaining tradelines must be rated for 12 months and may be open or closed.
-OR-
- Minimum of 2 tradelines are acceptable when the following requirements are met:
- 1 revolving or installment tradeline paid as agreed for 24 months and is open and active in the last 6 months; and
- 1 installment tradeline open or closed paid as agreed for 24 months within the past 5 years.
- An exception to the minimum tradeline requirement is not required if the borrower’s credit history meets the following:
- No less than 10 tradelines are reporting.
- At least one tradeline is open and reporting for a minimum 12 months
- Credit history established for at least 10 years
NOTE: Borrowers not contributing income for qualifying purposes are not subject to the minimum tradeline requirement.
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| Revolving |
If a revolving account balance is to be paid off at or prior to closing, a monthly payment on the current outstanding balance does not need to be included in the borrower’s longterm debt, i.e. not included in the debt-to-income (DTI) ratio.
- Such accounts do not need to be closed as condition of excluding the payment from the DTI ratio.
- NO revolving accounts can currently be in forbeareance.
- Borrower must be out of forbearance for 12 months with previous 12 months payments paid on time.
|
| Installment |
- NO installment tradeline can currently be in forbearance.
- Burrower must be out of forbearance for 12 months payments made on time.
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| Mortgage / Rent |
- Mortgage - 0x30 late payments in the past 12 months as evidenced by:
- Credit Report
- Standard Mortgage Verification
- Loan Payment history from the servicer, or
- The borrowers cancelled checks or bank statements for the last 12 months.
- Rent – 0 x 30 in the past 12 months evidenced by:
- The borrowers cancelled checks or bank statements for the last 12 months.
- Credit Supplement or Direct Verification of Rent from the landlord.
- If the landlord is a private party or if there is a relationship between borrower(s) and landlord 12 months cancelled checks will also be required.
- If the borrower is living rent free with family provide a detailed Letter of Explanation (LOE) signed/dated by the borrower(s).
- Borrower may not have had any forbearance on mortgage or rent in past twelve months. They must be out of forbearance in good standing (no lates) in past 12 months.
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| Authorized User Accounts |
Credit report tradelines that list a borrower as an authorized user cannot be considered in the underwriting decision, except as outlined below.
An authorized user tradeline may be considered if:
- Another borrower in the mortgage transaction is the owner of the tradeline; or
- The borrower can provide written documentation e.g., canceled checks, payment receipts, etc.). that he or she has been actual and sole payer of the monthly payment on the account for at least 12 months preceding the date of the application.
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| Non-Traditional Credit |
Not allowed |
Bankruptcy 7
Bankruptcy 11
Bankruptcy 13
Foreclosure |
None in the last 7 years |
| Loan Modification |
None in last 7 years, Unless the modification was lender initiated and documented proof that it was not a distressed situation and no principal balance was forgiven. |
| Short Sale Deed-in-Lieu |
None in the last 7 years; |
| If an EXCEPTION is made, there will be a LLPA (Loan Level Price Adjustment) Applied. |
|
| Debt To Income |
- The Debt-to-Income (DTI) ratio is based on the total of existing monthly liabilities plus any planned future liabilities based on credit inquiries or otherwise disclosed by the borrower, and then divided by the calculated gross monthly income. Liabilities include all housing expenses, revolving debt, installment debts, real estate loans, rent, alimony, child support, and other consistent and recurring expenses.
- For other properties owned, documentation to confirm the P&I, taxes, insurance, HOA dues, lease payments or other property-related expenses must be provided.
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| Credit Inquires |
- Provident Bank must review the section of the borrower’s credit report that indicates the presence of creditor inquiries to determine the number and age of the inquiries.
- Recent inquires may indicate that the borrower has been actively seeking new credit accounts. The presence of a large number of unrelated inquiries represents higher credit risk (whether or not the borrower actually obtained credit as a result of the inquiry.)
- The presence of many recent inquiries in combination with a significant number of recently opened accounts or delinquent accounts represents a high credit risk.
- When the credit report indicates that recent inquiries took place, the Underwriter must confirm that the borrower has not obtained any additional credit that is not reflected in the credit report or the mortgage application. If additional credit was obtained, a verification of that debt must be provided and the borrower must be qualified with the monthly payment.
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| Employment And Income |
- Verifying Income
- PB must verify with Human Resources that the Borrower is currently employed and has not been notified of any layoffs, furlough and etc.
- Stability of Employment and Income
- Stable monthly income is the Borrower’s verified gross monthly income from all acceptable and verifiable sources that can reasonably be expected to continue for at least the next three years. For each income source used to qualify the Borrowers, the Underwriter must determine that both the source and the amount of the income are stable.
- A two-year history of receiving income is required in order for the income to be considered stable and used for qualifying. When the Borrower has less than a two-year history of receiving income, the Underwriter must provide a written analysis to justify the determination that the income that is used to qualify the Borrower is stable. While the sources of income may vary, the Borrower should have a consistent level of income despite changes in the sources of income.
- The following is required to establish stability of employment and income for the borrower(s) whose income is used to qualify:
- A minimum of two (2) years employment and income history
- Gaps in employment in excess of 30 days during the past two (2) years require a satisfactory letter of explanation.
- Gaps in employment in excess of 1 year require an explanation, borrower to be on current job for a minimum of 6 months and a two-year work history prior to the gap must be documented.
- For Borrowers who has less than a two-year employment and income history the Borrower’s income may be used for qualifying income if the Mortgage file contains documentation to support that the Borrower was either attending school or in a training program immediately prior to their current employment history; School transcripts must be provided to document. (Underwriter may call School (Institution) to verify Borrowers Enrollment).
- Income may not be used for qualification purposes if it comes from any source that cannot be verified, is not stable, or will not continue.
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| IRS Form 4506-C / Tax Transcripts |
- If Transcripts are unavailable PB will require:
- W-2 Borrower(s)
- Written VOE from the employer and/or;
- 12 months cancelled checks/bank statements showing consistent payroll deposits and/or;
- Previous year, yearend pay stub reflecting YTD earnings (At underwriter’s discretion)
- Self Employed Borrower(s)
- If Self Employed borrower(s) pay themselves W-2 wages that cannot be verified by W-2 transcripts, 12 months of cancelled checks or the borrower’s personal bank statements will be required.
- 2019 & 2020 Business returns are required and verified by transcripts. YTD P&L with most recent 3 consecutive months business bank statements to support P&L gross receipts.
- If the 2020 Business Tax Transcripts are unable to be verified or have not been filed:
- Then a copy of the IRS Extension, and
- 12 months bank statements for 2020, and
- YTD P & L for 2020 and 2021 and
- Current consecutive YTD Business Bank Statements to support the business annual gross receipts.
- If 2020 Business Tax Returns have not been filed an exception would be required to use the 2020 Business Tax Return income. (May result in a Loan Level Price Adjustment)After October 15th 2021 no exceptions will be made. 2020 transcripts will be required and/or other alternative source of verification (Underwriter discretion)
- A completed, signed, and dated IRS form 4506-C must be completed for all borrowers whose income is used to qualify for the mortgage.
- The 4506-C must be processed and tax transcripts obtained (for each year requested) to validate against all income used for qualifying.
- If borrower(s) is solely W-2 wage earner, then W-2 Transcripts only are acceptable.
- Tax transcripts must match documentation in the file.
- In the case where taxes have been filed and the tax transcripts are not available from the IRS, the IRS Response to the request must reflect “No Record Found”. In these cases, an additional prior year’s tax transcript should be obtained and provided. Large increases in income that cannot be validated through a tax transcript may only be considered for qualifying on a case-by-case basis.
- In cases where the borrower is self-employed an IRS 4506T must be completely filled out, signed and processed for each business tax return used in the loan decision and/or included in the loan file.
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| Paystubs |
- The paystub must meet the following requirements:
- Clearly identify the borrower as the employee.
- Show the borrower’s current pay period and year-to-date earnings.
- If the borrower is paid hourly, the number of hours must be shown on the paystub.
- Pay stubs must be computer generated or additional conditions may apply.
- Pay stubs issued electronically via email or downloaded from the internet must show the URL address, date and time printed, and identifying information on place of origin and/or author of the documentation.
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| W-2 Forms |
- W-2 forms must be complete and be a copy provided by the employer.
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| Verification of Employment (VOE), Verbal VOE (VVOE) or Self-Employed Confirmation |
- Verification Policy
- Borrower may be asked to explain in details of their business and how income is derived.
- P & L must reflect Income has not declined.
- A written Verification of Employment (VOE) may be required for a borrower’s income sourced from commissions, bonus, overtime, or other income when the income detail is not clearly documented on W-2 Forms or paystubs.
- A verbal verification of employment confirming the borrower’s employment status is required for all borrowers whose income is used for qualification purposes.
- The VVOE must be completed within 5 business days before the Note date for wage income.
- Must verify borrower has not received notice of termination by employer.
- Verification of self-employed businesses by a third-party source is required within 5 calendar days from the Note and again at funding date.
- The following standards apply:
- Written VOE must include:
- Borrower’s date of employment
- Borrower’s employment status and job title
- Name, phone number and title of person completing the VOE
- Name of employer
- Base pay amount and frequency
- Additional salary information, which itemizes bonus, commission, overtime, or other variable income, if applicable
- VOE must be mailed directly to the employer, attention of the personnel department.
- The VOE must be returned to the lender’s address
- VVOE must contain the following information
- Date of contact
- Borrower’s date of employment
- Borrower’s employment status and job title
- Name, phone number, and title of contact person at employer
- Name of employer
- Name and title of person contacting the employer
- Method and source used to obtain the phone number
- Must ask if borrower has received any notice of future termination.
- Self-Employed Confirmation must include
- Verification of the existence of the borrower’s business from a third party, such as a CPA, regulatory agency, or applicable licensing bureau. A borrower’s website is not acceptable as third-party verification.
- Listing and address of the borrower’s business using a telephone book, internet, or directory assistance.
- Name and title of the person completing the verification
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| Tax Returns |
- The following standards apply when using Income Tax Returns to verify income:
- Personal Income Tax Returns
- Must be complete with all schedules (W-2 forms, 1099 Forms, K-1 schedules, etc.)
- Signed and dated if tax returns are not validated by transcripts.
- Business Income Tax Returns
- Must be complete with all schedules (K-1 schedules, Form 1065, etc.)
- Signed and dated if tax returns are not validated by transcripts.
- For Unfiled Tax Returns for the prior year’s tax return
- Between Jan 1 and the tax filing date (typically April 15), borrowers must provide:
- IRS form 1099 and W-2 forms from the previous year
- Loans closing in January prior to receipt of W-2s may use the prior year year-end paystub. For borrowers using 1099s, evidence of receipt of 1099 income must be provided.
- Between the tax filing date and the extension expiration date (typically October 15), borrowers must provide (as applicable):
- Copy of the filed extension
- W-2 forms for corporations
- Form 1099 for commission income
- Current year profit & loss (signed by the borrower)
- Year-end profit and loss for prior year (signed by the borrower)
- After the extension expiration date, loan is not eligible without prior year tax returns.
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| Income Analysis Forms |
- Income Analysis Forms
- The loan file must include an Income Analysis form detailing income calculations. The Fannie Mae Form 1084, Freddie Mac Form 91 or another equivalent lender form consistently utilized by the Provident Bank is acceptable.
- Income analysis for borrowers with multiple employers, business or income sources must show income/ (loss) details separately, not in aggregate.
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| Income Documentation Requirements |
- Various forms of documentation are required depending on the type of income used to qualify.
- Income amounts should be averaged for the time period covered.
- Unless otherwise stated, when declining income has occurred, the most recent twelve (12) months should be used; in certain cases, average income for a longer period may be used when the decline is related to a one-time capital expenditure.
- Documentation for the capital expenditure must be provided.
- The following income documentation must be provided for each borrower whose income is used to qualify:
| Type |
Documentation Requirements |
| Employment Income |
| Salaried |
An earnings trend must be established and documented. Large increases in salary over the previous two years must be explained and documented.
- W-2 forms or personal tax returns, including all schedules, for prior two years.
- Year-to-date pay stub covering 30 days, up through and including the most current pay period at the time of application and not earlier than 120 days prior to the Note date.
- If borrower is claiming overtime pay, it must be shown on the YTD pay stub.
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| Hourly & Variable Income |
- An earnings trend must be established and documented. Stable to increasing income should be average over a minimum two-year period. Declining income must be explained by the employer/borrower and a written determination by the underwriter must be provided if declining income is used for qualifying.
- W-2 forms or personal tax returns, including all schedules for prior two years.
- Year-to-date pay stub covering 30 days, up through and including the most current pay period at the time of application.
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| Part-Time Income |
- Borrower must have worked the part time job uninterrupted for the past two years and plans to continue. If part-time income shows a continual decline, written sound rationalization for using the income to qualify must be provided or income should NOT be used.
- W-2 forms for prior two years.
- Year-to-date paycheck stub covering 30 days, up through and including the most current pay period at the time of application.
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| Commission |
- Commission income must be averaged over the previous two years. If the commission income shows a continual decline, written sound rationalization for using the income to qualify must be provided or the income should not be used.
- W-2 forms for prior two years if commissions are less than 25% of the total income.
- Tax returns, including all schedules and W-2 form from the previous two years if commissions are ≥ 25% of the total income.
- Unreimbursed business expenses (form 2106), if applicable no longer has to be subtracted from income per Fannie Mae Announcement SEL-2018-09 dated December 04, 2018, which was effective immediately.
- Year-to-date paycheck stub covering 30 days, through and including the most current pay period at the time of application and not earlier than 120 days prior to the Note date.
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| Overtime & Bonus |
- An earnings trend for bonus and overtime must be established and documented. A period of more than two years must be used in calculating the average overtime and bonus income if the income varies significantly from year to year. If either type of income shows a continual decline, written sound rationalization for using the income to qualify must be provided or income should not be used.
- W-2 forms or personal tax returns, including all schedules for prior two years.
- Year-to-date paycheck stub covering 30 days, through and including the most current pay period at the time of application and not earlier than 120 days prior to the Note date.
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| Self-Employed Income |
| Self Employed |
- Self-employed borrowers are defined as those individuals who have 25% or greater ownership interest or receive a 1099 statement to document income.
- Borrowers who are employed by a family member are considered to be self-employed, regardless of the percentage of ownership, and two (2 years personal tax returns are required.
- Potential ownership by the borrower must be addressed.
- A fully completed, signed and Processed IRS 4506T for each business tax return used in the loan decision and/or included in the loan file is required.
- REQUIREMENTS OF SELF-EMPLOYED INCOME:
- Borrower to provide most recent three (3) months current consecutive Business Bank Statements to verify a deposit (income) and YTD P & L.
- If 2020 transcripts are unavailable we will also need 12 months business bank statements for 2020 plus YTD 2021 to support gross receipts on the business tax returns and P & L.
- If borrower(s) pay themselves W-2 earnings and W-2 transcripts are unavailable to verify 12 months cancelled checks or bank statements will be required to verify the history.
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| Sole Proprietorship |
- Current Year to date P & L.
- Example of date January 1, 2021 – July 31, 2021
- Personal tax returns, including all schedules, for prior two years.
- See Tax Returns for additional requirements for unfiled prior year returns.
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| Partnerships (General, Limited) Limited Liability Companies "S" Corporation Corporations |
- Current Year to date P & L.
- Example of date January 1, 2021 – July 31, 2021
- Personal tax returns, including all schedules, for prior two years.
- K-1s from prior two years, showing ownership percentage.
- If K-1s show a loss, they are required, regardless if they are used for qualifying purposes. If using capital gains, interest/dividend or W2 income from this source is used, K-1s are required.
- Business tax returns (1065/1120), including all schedules, for the prior two years are required if the borrower has an ownership percentage ≥ 25%.
- See Tax Returns for additional requirements for unfiled prior year returns.
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| Schedule K-1 Income |
- For borrowers who have less than 25% ownership of a partnership, S corporation, or limited liability company (LLC), ordinary income, net rental real estate income, and other net rental income reported on IRS Form 1065or IRS Form 1120s, Schedule K-1 may be used in qualifying the borrower provided the Underwriter can confirm the business has adequate liquidity to support the withdrawal of earning. If the Schedule K-1 provides this confirmation, no further documentation of business liquidity is required.
- The following provides verification of income requirements for Schedule K-1 borrowers with less than 25% ownership of a partnership, an S corporation, or an LLC.
- If the Schedule K-1 reflects a documented, stable history of receiving cash distributions of income from the business consistent with the level of business income being used to qualify, then no further documentation of access to the income or adequate business liquidity is required. The Schedule K-1 income may then be included in the borrower’s cash flow.
- If the Schedule K-1 does not reflect a documented, stable history of receiving cash distributions of income from the business consistent with the level of business income being used to qualify, then the Underwriter must confirm the business has adequate liquidity to support the withdrawal of earning. The Underwriter may use discretion in the method used to confirm the business has adequate liquidity.
- If the borrower has a two-year history of receiving "guaranteed payments to the partner" from a partnership or an LLC, these payments can be added to the borrower’s cash flow.
- An exception to the two-year requirement of receiving "guaranteed payments to the partner" is if a borrower has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or a law firm) after having an established employment history with the partnership. In this situation, the Underwriter may rely on the borrower’s guaranteed compensation. This must be evidenced by the borrower’s partnership agreement and further supported by evidence of current year to date income.
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| Temporary Leave |
- Temporary leave from work is generally short in duration and for reasons of maternity or parental leave, short-term medical disability, or other temporary leave types that are acceptable by law or the borrower’s employer. Borrowers on temporary leave may or may not be paid during their absence from work.
- If the Underwriter is made aware that a borrower will be on temporary leave at the time of closing of the mortgage loan and that borrower’s income is needed to qualify for the loan, the Underwriter must determine allowable income and confirm employment per requirements below:
- The borrower’s employment and income history must meet standard eligibility.
- The borrower must provide written confirmation of his or her intent to return to work.
- The Underwriter must document the borrower’s agreed upon date of return by obtaining, either from or directly from the employer (or a designee of the employer when the employer is using the services of third party to administer employee leave), documentation evidencing such date that has been produced by the employer or by a designee of the employer.
- Example of the documentation may include, but are not limited to, previous correspondence from the employer or designee that specifies the duration or expected return date or a computer printout from an employer or designee’s system of record. (This documentation does not have to comply with the Allowable Age of Credit Document guideline).
- The Underwriter must receive no evidence or information from the borrower’s employer indicating that the borrower does not have the right to return to work after the leave period.
- The Underwriter must obtain a verbal verification of employment. If the employer confirms the borrower is currently on temporary leave, the Underwriter must consider the borrower employed.
- The Underwriter must verify the borrower’s income.
- The amount and duration of the borrower's "temporary leave income", which may require multiple documents or sources depending on the type and duration of the leave period; and
- The amount of the "regular employment income" the borrower received prior to the temporary leave. Regular employment income includes, but is not limited to, the income the borrower receives from employment on a regular basis that is eligible for qualifying purposes (for example, base pay, commission, and bonus).
- Income verification may be provided by the borrower, by the borrower's employer, or by a third-party employment verification vendor.
- Requirements for Calculating Income Used for Qualifying.
- If the borrower will return to work as of the first mortgage payment date, the Underwriter can consider the borrower’s regular employment income for qualifying.
- If the borrower will not return to work as of the first mortgage payment date, the Underwriter must use the lesser of the borrower’s temporary leave income (if any) or regular employment income. If the borrower’s temporary leave income is less than his or her regular employment income, the Underwriter may supplement the temporary leave income with available liquid financial reserves.
- Supplement Income Calculation. Supplemental income amount =available liquid reserves divided by the number of months of supplemental income.
- Available liquid reserves: subtract any funds needed to complete the transaction (down payment, closing cost, other required debt payoff, escrows, and minimum required reserves) from the total verified liquid asset amount.
- Number of months of supplemental income: the number of months from the first mortgage payment date to date the borrower will begin receiving his or her employment income, rounded up to the next whole number.
- After determining the supplemental income, the Underwriter must calculate the total qualifying income.
- Total qualifying income=supplemental income plus the temporary leave income.
- The total qualifying income that results may not exceed the borrower’s regular employment income.
- Example:
- Regular income amount: $6,000 per month.
- Temporary leave income: $2,000 per month
- Total verified liquid assets: $30,000
- Funds needed to complete the transaction: $18,000
- Available liquid reserves: $12,000
- First payment date: July 1
- Date borrower will begin receiving regular employment income: November 1
- Supplemental income: $12,000/4=$3,000
- Total qualifying income: $3,000 + $2,000= $5,000
- These requirements apply if the Underwriter becomes award through the employment and income verification process that the borrower is on temporary leave. If a borrower is not currently on temporary leave, the Underwriter must not ask if he or she intends to take a leave in the future.
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| Rental Income |
| All Properties |
- Evidence of most recent month’s rent received is a requirement when using rental income to qualify.
- A current lease;
- And agreement to lease; or
- Personal tax returns, including all schedules for prior two years that is free of unexplained gaps greater than 3 months (such gaps could be explained by student, seasonal, or military renters, or property rehabilitation).
- See section tax returns for unfiled prior year returns for additional requirement.
- For properties listed on Schedule E of the borrower’s tax returns, net rental income should be calculated as the total of (income + depreciation + interest + taxes + insurance) divided by the applicable months minus the current PITIA.
- If the subject property is the borrower’s primary residence and generating rental income, the full PITIA must be included in the borrower’s total monthly obligations.
- If rental income is not available on the borrower’s tax returns, a current executed lease agreement is required. Net rental income should be calculated as the gross monthly rent multiplied by 75%.
- Positive rental income is considered gross income for qualifying purposes, while Negative income must be treated as recurring liability.
- Apply the resulting amount to income, if positive, or recurring debts, if negative.
- Short Term rentals are acceptable if there is a full two-year history reported on the 1040’s.
- Short Term rental income is not allowed when it is on the subject property.
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| Departing Residence Rental Income |
- Exclusion of Rental Income From Property Being Vacated by the Borrower and Properties Vacated by the Borrower in the last 6 months:
- Underwriters may not consider rental income from a borrower’s principal residence that is being vacated in favor of another principal residence, except under the conditions described below:
Notes:
- This policy assures that a borrower either has sufficient income to make both mortgage payments without any rental income, or has an equity position not likely to result in defaulting on the mortgage on the property being vacated.
- This applies solely to a principal residence being vacated in favor of another principal residence. It does not apply to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).
- Policy Exceptions Regarding the Exclusion of Rental Income From a Principal Residence Being Vacated by a Borrower and Properties Vacated by the Borrower in the last 6 months.
- When a borrower vacates a principal residence in favor of another principal residence, the rental income, reduced by the appropriate vacancy factory, may be considered in the underwriting analysis under the circumstances listed in the table below:
| Exception |
Description |
| Relocations |
- The borrower is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally-recognized commuting distance.
- A properly executed lease agreement (that is, a lease signed by the borrower and the lessee) of at least one year’s duration after the loan is closed is required.
Note: Underwriters should also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the borrower. |
| Sufficient Equity in Vacated Property |
The borrower has a loan to-value ratio of 75 percent or less, as determined either by:
- A current (no more than six months old) residential appraisal, or
- Comparing the unpaid principal balance to the original sales price of the property.
Note: The appraisal, in addition to using forms Fannie Mae 1004/Freddie Mac 70, may be an exterior-only appraisal using Fannie Mae/Freddie Mac Form 2055, and for condominium units, form Fannie Mae 1075/Freddie Mac 466
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