Non-QM Underwriting Guideline Updates - CFA Investment Properties

An investment property (or non-owner occupied property) is an income-producing property that the borrower does not occupy.

Investment properties are permitted on the Carrington Flexible Advantage Plus program only.

An investment property (or non-owner occupied property) is an income-producing property that the borrower does not occupy. Subordinate financing is not permitted.

Investment Property Requirements for the Carrington Flexible Advantage Program:

• • Business Purpose Loans only
  • Grades A & B
  • 6 Months Reserves
  • Standard Tradelines
  • First Time Investors: Refer to Matrix for Minimum FICO

A signed letter from the borrower disclosing the purpose of the cash-out must be obtained on all cash-out transactions that require an exception. Borrower(s) must write, sign, and date all Letters of Explanation themselves. The Lender or Broker may identify the subject matter only and not contribute to the letter’s content.

The Underwriter should ensure the purpose of the cash-out is also reflected on the loan application.

A signed letter from the borrower disclosing the purpose of the cash-out must be obtained on all Carrington Flexible Advantage Investment Property cash out refinances and any cash-out transactions that require an exception. Borrower(s) must write, sign, and date all Letters of Explanation themselves. The Lender or Broker may identify the subject matter only and not contribute to the letter’s content.

The Underwriter should ensure the purpose of the cash-out is also reflected on the loan application.

For the Carrington Flexible Advantage program, cash out proceeds must be used for “real estate” business purposes only. Proceeds of the loan are limited to the purchase of an additional investment property or the improvement and/or maintenance of the subject property or other investment properties. Utilizing proceeds of the loan for personal, family, or household purposes is prohibited.

Occupancy

Primary Residence and Second homes

All LTVs

Up to $250,000

Occupancy

Primary Residence, Second homes and Investment Properties

All LTVs

Up to $250,000 for LTV > 60%

Up to $500,000 for LTV ≤ 60%

A First-Time Investor is a borrower who has not owned at least one investment property for at least 12 months anytime during the most recent 36-month period. See the Carrington Flexible Advantage Plus Program Matrix for restrictions when all borrowers are First-Time Investors.

A First-Time Investor is a borrower who has not owned at least one investment property for at least 12 months anytime during the most recent 36-month period. See the Carrington Flexible Advantage and Carrington Flexible Advantage Plus Program Matrices for restrictions when all borrowers are First-Time Investors.

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.
• Business Entity is limited to a maximum of 4 ‘owners’ (owners are members, partners, or shareholders, as the case may be)
• All Entity owners must be natural persons and provide a Personal Guaranty for the loan signed at closing
• Each Entity owner must complete the URLA. The loan application, credit report, income and assets for each owner will be used to determine qualification and pricing.

See guidelines for full documentation and closing requirements.

A primary wage-earner who lacks sufficient traditional credit history to generate credit scores from at least two bureaus, and/or additional borrowers with no scores, may qualify subject to the following requirements:

• Maximum 65% LTV
• For primary wage earners, if one score generates, it must be 550 or greater. Additional borrowers must have no scores or at least one score of 500 or greater.
• 24-month housing rating required with no lates, rent-free not permitted.
• Any reported tradelines must not exceed 0x60 in the most recent 24 months. No new collections or charge-offs in the most recent 24 months.
• Full Documentation of Income only, Alt doc income types not permitted

A primary wage-earner who lacks sufficient traditional credit history to generate credit scores from at least two bureaus, and/or additional borrowers with no scores, may qualify subject to the following requirements:

• Maximum 65% LTV
• For primary wage earners, if one score generates, it must be 550 or greater. Additional borrowers must have no scores or at least one score of 500 or greater.
• 24-month housing rating required with no lates, rent-free not permitted.
• Any reported tradelines must not exceed 0x60 in the most recent 24 months. No new collections or charge-offs in the most recent 24 months.
• Full Documentation of Income only, Alt doc income types not permitted
• Not permitted on Investment Properties

All mortgages and rental payments must be paid as agreed for the last 12 months, or since the date the Housing Event was cured (if Housing Event occurred less than 12 months ago). Mortgage and rental lates prior to the Housing Event are disregarded.

All mortgages and rental payments must be paid as agreed for the last 12 months, or since the date the Housing Event was cured (if Housing Event occurred less than 12 months ago). Mortgage and rental lates prior to the Housing Event are disregarded.  Investment Properties are not permitted.

Borrowers who do not have a complete 12-month housing history are subject to the following restrictions:

Borrowers who do not have a complete 12-month housing history are subject to the following restrictions:

• Primary residence and second homes only
• Minimum 6 months reserves after closing
• 10% minimum borrower contribution
• Full documentation of income (1-Year Alternative Income Documentation and Bank Statement Documentation not allowed), with the exception of properties owned free and clear.
• VOR/VOM must be obtained for all months available reflecting paid as agreed

Properties owned free and clear are considered 0x30 for grading purposes and may utilize Alternative Income Documentation (including 1-Year and Bank Statement Documentation) provided the other restrictions in this section are met.

Borrowers who do not have a complete 12-month housing history are subject to the following restrictions:

• Minimum 6 months reserves after closing
• 10% minimum borrower contribution
• Full documentation of income (Alternative Income Documentation not allowed), with the exception of properties owned free and clear.
• VOR/VOM must be obtained for all months available reflecting paid as agreed

Properties owned free and clear are considered 0x30 for grading purposes and may utilize Alternative Income Documentation (including 1-Year and Bank Statement Documentation) provided the other restrictions in this section are met.

Borrowers must contribute a minimum of 5% of their own funds towards the down payment on purchase transactions. Investment Property transactions require all funds come from the borrower.

A minimum borrower contribution of 10% is required on the following transactions:

• Primary residence with unverifiable housing history
• Loan amount over the FHFA 1-unit Conforming Loan Limit
• Second homes

Limited tradelines (Refer to Limited Tradelines for additional requirements)

Borrowers must contribute a minimum of 5% of their own funds towards the down payment on purchase transactions.

A minimum borrower contribution of 10% is required on the following transactions:

• Primary residence with unverifiable housing history
• Loan amount over the FHFA 1-unit Conforming Loan Limit
• Second homes and Investment Properties

Limited tradelines (Refer to Limited Tradelines for additional requirements)

Reserves are measured by the number of months of housing expense a borrower could pay using his or her financial assets. See the Carrington Flexible Advantage Program Matrix / CMS Carrington Flexible Advantage Plus Program Matrix. The highest reserve requirement, rather than a cumulative total, should be used when a transaction has multiple required reserves.

Cash-out proceeds are permitted for reserves with a FICO score greater than or equal to 620. Excess gift funds verified in the borrower's bank account prior to closing are permitted for reserves. Gift funds provided at closing may not be considered toward reserves.

Additional reserves are also required when the following situations are present:

• Multiple Financed Properties: 2 months for each additional property when the subject is a Second Home or Investment Property
• Use of Rental Income Without a Lease: 3 months in addition to standard requirement
• First-Time Homebuyer: 6 months
• Limited Tradelines: 6 months
• No Housing History or Less Than 12 Months Verified: 6 months
• Bank Statement Income: 6 months 

Reserves are measured by the number of months of housing expense a borrower could pay using his or her financial assets. See the Carrington Flexible Advantage Program Matrix / CMS Carrington Flexible Advantage Plus Program Matrix. The highest reserve requirement, rather than a cumulative total, should be used when a transaction has multiple required reserves.

Cash-out proceeds are permitted for reserves. Excess gift funds verified in the borrower's bank account prior to closing are permitted for reserves. Gift funds provided at closing may not be considered toward reserves.

Additional reserves are also required when the following situations are present:

• Multiple Financed Properties: 2 months for each additional property when the subject is a Second Home or Investment Property
• Use of Rental Income Without a Lease: 3 months in addition to standard requirement
• First-Time Homebuyer: 6 months
• Limited Tradelines: 6 months
• No Housing History or Less Than 12 Months Verified: 6 months
• Bank Statement Income: 6 months
• Investment Properties: 6 months

Asset Conversion may be used to determine qualifying income. Permitted on Purchase, Rate and Term and Cash Out. All occupancy types are permitted. See the Carrington Flexible Advantage Plus Program Matrix for credit score and LTV restrictions.

Asset Conversion may be used to determine qualifying income. Permitted on Purchase, Rate and Term and Cash Out. All occupancy types are permitted. See the Carrington Flexible Advantage and Carrington Flexible Advantage Plus Program Matrices for credit score and LTV restrictions.

A signed written letter of explanation for adverse credit and purpose of cash out is required for the following loans:

• Qualifying FICO <600 and borrower(s) using Alternative Income Documentation, or
• Borrower(s) with bankruptcy dismissals or discharges within 12 months of closing

Borrowers must explain any non-medical adverse credit within 24 months of closing. The explanations should identify the reason why the adverse credit occurred and how the borrower(s) will prevent reoccurrence. CMS must analyze the Borrower’s delinquent accounts to determine whether derogatory credit was based on financial mismanagement or extenuating circumstances. Any letter of explanation or documentation of delinquent accounts must be consistent with other information in the file. Borrower(s) must write, sign, and date all Letters of Explanation themselves. The Lender or Broker may identify the subject matter only and not contribute to the letter’s content.