SS Memo 10-02


Date: April 13, 2010

Cash Reserves

(SECTION 4006.02)

AHFC has seen an increase in applications for borrowers that currently own a primary residence that is not being sold and that they intend to convert to a second home or income property. In keeping with recently revised industry standards, Section 4006.02 of the Selling Guide is being amended as follows to address additional requirements in these circumstances:


For conventional, VA and RD loans, the borrower must have a minimum of two months payments in cash reserves on a single-family residence (not required on Type II manufactured home loans). This requirement is waived when the down payment is 20% or more and has come from the borrower's own unencumbered assets. For duplex, triplex or fourplex loans and Rural Non-Owner Occupied Loans, the borrower must have remaining liquid assets after closing (typically 6 months PITI) that could be used to supplement payments during vacancies and to make regular and emergency repairs to the property as necessary. Gift funds are acceptable for these reserves. Certain retirement accounts, adjusted for any early withdrawal penalties, are also acceptable for these reserves. On FHA and HUD loans, follow the applicable agency criteria.

Regardless of loan type, if the borrower currently owns a dwelling that will not be sold as a condition of loan closing, additional reserves are required. If the borrower has 30% equity or more in the other dwelling, additional reserves equal to 2 months PITI on that property are required. If the borrower has less than 30% equity in the other dwelling, additional reserves equal to 6 months of PITI on that property are required.

Mortgage Voucher

(Form PUR-1)

Page two of the Mortgage Voucher, Form PUR-1 has been amended to reflect current MI and PMI codes.

Hazard Insurance

(Section 1003.09)

Section 1003.09 has been revised to clarify requirements for condominiums and units located in Common Interest Communities as follows:

If the master or blanket policy does not cover the unit's interior, the borrower must obtain a "walls-in" policy, commonly known as an HO-6 policy. The HO-6 policy must provide coverage in an amount that is no less than 20% of the condominium unit's appraised value.

Energy Ratings

(Section 7002.03 & .07)

Section 7002.03 & .07 has been revised to increase the age allowance for the initial energy rating on existing properties subject to energy improvements from one year old at time of submission for AHFC loan commitment to three years old at time of submission.

Verification of Employment

(Section 4003.01)

Many employers rely on The Work Number for employment and income verification which is acceptable to AHFC. However, lenders are reminded that for income restrictive loan programs, an Employment Plus Income Verification which includes previous and year-to-date wages, bonus and overtime, must be obtained.

Prior Homeownership - TEP

(Section 5002)

Section 5002.05(c)(2) of the Selling Guide sets forth the criteria for establishing that applicants under the Tax Exempt First Time Homebuyer Program have not had an ownership interest in a principal residence for the previous three years. If the borrowers state they have not had an ownership interest in a primary residence, yet their tax return reflects home mortgage interest deductions they claim were made in error, amended tax returns must be supplied. The file must demonstrate that the borrowers did not reside in any property for which a real estate tax deduction was taken. A verification of rent for the previous three years is typically required.

Lock-in and Commitment Procedures

(Section 1005)

Lenders are reminded that the cut-off time for submitting Interest Rate Lock-in Requests (UND-2) and commitments (UND-3) is 4:00 pm, Monday through Friday. In order for a lock-in to be honored and to avoid a $250 lock-in fee, the commitment submission (UND-3) must be received by AHFC (or Postmarked) prior to 4:00 pm on the day of lock-in expiration.

Forms Guide revisions

(Forms are available in PDF)

Revised/Deleted Forms

PUR-1 Revised 4/10

ATTACHMENTS (Attachments are available in PDF)