Non-QM Underwriting Guideline Updates

• Cryptocurrency (digital assets such as bitcoins)

• Cryptocurrency (digital assets such as bitcoins)
  • Note: Deposits to traditional bank accounts that are sourced to liquidations of virtual currency are acceptable. The crypto wallet must be sourced to the borrower or to an acceptable gift donor and otherwise meet the requirements for gift funds.

For all established condominium projects without valid PERS or FHA approvals, or for projects that do not meet all the requirements of the various project review methods, an HOA Certification Review is required. CMS must review the completed CMS Mortgage Homeowners’ Association Certification to ensure compliance with the following requirements:

• Project must meet the definition of an established condo.
• At least 50% of the total units in the project must be conveyed to purchasers as primary or second homes.

For all established condominium projects without valid PERS or FHA approvals, or for projects that do not meet all the requirements of the various project review methods, an HOA Certification Review is required. CMS must review the completed CMS Mortgage Homeowners’ Association Certification to ensure compliance with the following requirements:

• Project must meet the definition of an established condo (new condos must be Fannie Mae PERS approved or reviewed as a non-warrantable condo project).
• At least 50% of the total units in the project must be sold or under contract to purchasers as primary or second homes.

Acreage and land value must be typical and common for the subject’s market. Maximum acreage permitted is 10 acres. Investment property transactions are limited to 5 acres.

Special consideration should be taken for properties with land values that exceed 35% of the total property value to ensure the value is justified and the property has marketability. The appraisal report must provide data which indicates like-size properties with similar land values are typical and common in the subject’s market area.

Acreage and land value must be typical and common for the subject’s market. Maximum acreage permitted is 10 acres for all occupancy types.

Special consideration should be taken for properties with land values that exceed 35% of the total property value to ensure the value is justified and the property has marketability. The appraisal report must provide data which indicates like-size properties with similar land values are typical and common in the subject’s market area.

Assets to be used for down payment, closing costs, debt payoff, and reserves must be seasoned for 60 days or sourced. Asset statements must be dated within 120 days of closing and verified with one of the following:

• Most recent two 2 months’ account statements, or most recent quarterly account statement, indicating opening and closing balances, and reflecting a consecutive 60 days of asset verification.

Assets to be used for down payment, closing costs, debt payoff, and reserves must be seasoned for 30 days or sourced. Asset statements must be dated within 120 days of closing and verified with one of the following:

• Most recent one (1) monthly account statement, or most recent quarterly account statement, indicating opening and closing balances, and reflecting a consecutive 30 days of asset verification.

A Debt Service Coverage Ratio (DSCR) must be calculated for the subject property to take advantage of expanded LTVs.

The DSCR calculation is as follows:
Debt Service Coverage Ratio = Gross Income / Proposed PITIA

To calculate gross income, use the lower of the (a) executed lease agreement or (b) market rent from appraisal form 1007. If the executed lease agreement reflects a higher monthly rent, it may be used in the calculation when evidence of receipt of the higher amount for the 3 most recent, consecutive months is provided. Where the appraisal comparable rent schedule reflects the subject property is currently leased, a copy of the current lease must be obtained.

A Debt Service Coverage Ratio (DSCR) must be calculated for the subject property to take advantage of expanded LTVs.

The DSCR calculation is as follows:
Debt Service Coverage Ratio = Gross Income / Proposed PITIA

To calculate gross income, use the lower of the (a) executed lease agreement or (b) market rent from appraisal form 1007. If the executed lease agreement reflects a higher monthly rent, it may be used in the calculation when evidence of receipt of the higher amount for the two (2) most recent, consecutive months is provided. Where the appraisal comparable rent schedule reflects the subject property is currently leased, a copy of the current lease must be obtained.

Past due consumer debts can be no more than 30 days past due at time of closing. Consumer late payments may not exceed 1x60 over the prior 12 months for Investor Advantage.

Past due consumer debts can be no more than 30 days past due at time of closing. Consumer late payments may not exceed 1x60 over the prior 12 months for Investor Advantage.

For refinance transactions, an executed lease with no less than 3 months remaining at time of close is required for all units in the subject property contributing to the DSCR calculation. Month-to-month tenancy is not subject to this requirement with sufficient evidence (such as a signed extension letter). Purchase transactions may be vacant.

Existing leases and title reports must be reviewed to ensure clear title and first lien enforceability. Tenants must not have a first right of refusal to purchase the subject property. Lease terms must not exceed three (3) years.

For refinance transactions, an executed lease with no less than 3 months remaining at time of close is required for all units in the subject property contributing to the DSCR calculation. Month-to-month tenancy is not subject to this requirement with sufficient evidence (such as a signed extension letter). Purchase transactions may be vacant.

Existing leases and title reports must be reviewed to ensure clear title and first lien enforceability. Tenants must not have a first right of refusal to purchase the subject property. Lease terms must not exceed three (3) years.

Requirements for P&L Documentation

• Profit and Loss statements must be provided for the most recent 12 or 24 months, and:
  ...
  • CMS must perform a 100% reverification of the P&L statement and/or CPA letter utilizing the phone number or email from the underwriter research.

Requirements for P&L Documentation

• Profit and Loss statements must be provided for the most recent 12 or 24 months, and:
  ...
  • CMS must perform a 100% reverification of the P&L statement and/or CPA letter utilizing the phone number or email from the underwriter research.
  • Bank statements covering the most recent 2 months are required when evidence of the business can’t be validated. Validation can be supported by a business license, internet search, or acceptable 3rd party verification. The bank statement deposits must support 80% of the monthly average revenue from the P&L. If the most recent 2 months bank statements do not support 80% of the monthly average, continuous bank statements may be added to the analysis until the tolerance is met.

This guideline update is effective for loans with an application date (Retail) or TPO submission date (Wholesale/Correspondent) of May 4, 2026 or later. However, underwriting and QC may reserve the right to require additional documentation for loans in process if necessary to validate the business.

A borrower is considered self-employed with 25% or more ownership interest in a business. The business may be a sole proprietorship, general partnership, limited partnership, corporation, or S-corporation. A Liquidity Test is not required to qualify the borrower.

A borrower is considered self-employed with 25% or more ownership interest in a business. The business may be a sole proprietorship, general partnership, limited partnership, corporation, or S-corporation. A change in the legal structure, name, or tax ID number of a business is acceptable when the business activities are substantially the same before and after the change. A Liquidity Test is not required to qualify the borrower.

• Borrowers must be self-employed for at least two (2) years verified by two (2) years of business licenses or a CPA letter.
• Borrower may not be an employee of any other borrower
• Business must be in existence for at least two (2) years.

• Borrowers must be self-employed for at least two (2) years verified by two (2) years of business licenses or a CPA letter.
• Borrower may not be an employee of any other borrower
• Business must be in existence for at least two (2) years. A change in the legal structure, name, or tax ID number of a business is acceptable when the business activities are substantially the same before and after the change

• Borrowers must be self-employed for at least two (2) years verified by two (2) years of business licenses or a CPA letter.
• Business must be in existence for at least two (2) years.

• Borrowers must be self-employed for at least two (2) years verified by two (2) years of business licenses or a CPA letter.
• Business must be in existence for at least two (2) years. A change in the legal structure, name, or tax ID number of a business is acceptable when the business activities are substantially the same before and after the change.

• The following documentation is required:
  12 or 24 months complete personal/business bank statements. Bank statements should be from the same account. Account changes during the review period are acceptable for circumstances such as account closure when the borrower is a victim of fraud or the borrower changes banking institutions, provided there is a clear account transfer date and no deposits are duplicated. Transaction history printouts are not acceptable.

• The following documentation is required:
  12 or 24 months complete personal/business bank statements or third party asset verification obtained directly by CMS. Bank statements should be from the same account. Account changes during the review period are acceptable for circumstances such as account closure when the borrower is a victim of fraud or the borrower changes banking institutions, provided there is a clear account transfer date and no deposits are duplicated. Transaction history printouts from the borrower are not acceptable.

OPTION 1: DEFAULT EXPENSE FACTOR

Add up the deposits over the 12 or 24 months of statements provided to determine a gross deposit number as follows:

Multiply Gross deposits by the result of [100% (minus) Expense Factor] to determine a net deposit number. Divide the net deposit number by 12 or 24 months as determined by the number of months of bank statements utilized to support monthly income. Qualifying income must be multiplied by the percentage of ownership the borrower is entitled to.

Default Expense Factors will be applied as follows:

• Service Business = 50% Expense Factor (examples include Consulting, Accounting, Legal, Counseling, Therapy, Financial Services, Insurance, IT)
• Product Business = 60% Expense Factor (examples include Retail, Food Services, Restaurant, Manufacturing, Contracting, Construction)

OPTION 1: DEFAULT EXPENSE FACTOR

Add up the deposits over the 12 or 24 months of statements provided to determine a gross deposit number as follows:

Multiply Gross deposits by 50% to determine net income. Divide the net deposit number by 12 or 24 months as determined by the number of months of bank statements utilized to support monthly income. Qualifying income must be multiplied by the percentage of ownership the borrower is entitled to.

OPTION 2: THIRD-PARTY PREPARED EXPENSE STATEMENT

Expense Factors may never be lower than:

• Service Business = 20% Expense Factor Floor
• Product Business = 35% Expense Factor Floor

OPTION 2: THIRD-PARTY PREPARED EXPENSE STATEMENT

• Expense Factors may never be lower than 20% Expense Floor.

If necessary, adjust net income on the P&L to account for the following minimum expense thresholds. Total business expenses as a proportion of total business earnings may never be lower than:

• Service Business = 20% Expense Floor (examples include Consulting, Accounting, Legal, Counseling, Therapy, Financial Services, Insurance, IT, Rideshare, Freelance Workers, Writers)
• Product Business = 35% Expense Floor (examples include Retail, Food Services, Restaurant, Manufacturing, Contracting, Construction)

If necessary, adjust net income on the P&L to account for the following minimum expense thresholds. Total business expenses as a proportion of total business earnings may never be lower than 20% Expense Floor.

A soft pull credit report is required within 14 days of closing.

A soft pull credit report or Undisclosed Debt Monitoring (UDM) report is required within 14 days of closing.

Qualified Assets can be comprised of stocks, bonds, mutual funds, vested amount of retirement accounts and bank accounts. If a portion of the qualified assets are being used for down payment, closing costs, or reserves, those amounts must be excluded from the balance before analyzing a portfolio for income determination. Please note: Restricted stock and margined accounts are not considered qualified assets and are not eligible.

The following assets are considered Qualified Assets and can be utilized to calculate income:

• 100% of checking, savings, and money market accounts
• 100% of the remaining value of stocks & bonds
• 70% of retirement assets
• 100% Cash Value of Life Insurance

Qualified Assets can be comprised of stocks, bonds, mutual funds, vested amount of retirement accounts and bank accounts. If a portion of the qualified assets are being used for down payment, closing costs, or reserves, those amounts must be excluded from the balance before analyzing a portfolio for income determination. Please note: Restricted stock and margined accounts are not considered qualified assets and are not eligible.

The following assets are considered Qualified Assets and can be utilized to calculate income:

• 100% of checking, savings, and money market accounts
• 100% of the remaining value of stocks & bonds, less any margin balance
• 70% of retirement assets
• 100% Cash Value of Life Insurance

Vesting in the name of an LLC, partnership, corporation, or S-corporation is acceptable on investment property transactions only. To vest a loan in an Entity, the following requirements must be met:

• Business purpose and activities are limited to ownership and management of real estate.

Vesting in the name of an LLC, partnership, corporation, or S-corporation is acceptable on investment property transactions only. To vest a loan in an Entity, the following requirements must be met:

• Business purpose and activities are limited to ownership and management of real estate. Acceptable business purposes include real estate investments, rehabilitation, sales, long-term rentals, and vacation and short-term rentals.