Selling Guide

Published October 2, 2019

B5-7-03: High LTV Refinance Alternative Qualification Path (12/04/2018)

This topic contains information about using the Alternative Qualification Path for the high LTV refinance option, including:

Eligibility Requirements

The following table provides criteria for using the Alternative Qualification Path.

If any of the following apply to the new loan...

Then the loan...

The P&I payment increases by more than 20% from the current P&I payment

must comply with the Alternative Qualification Path requirements.

A borrower on the loan being refinanced is being excluded from the new loan other than due to death, and the remaining borrower(s) cannot provide evidence of making payments on their own for the prior 12 months
The loan is a higher-priced mortgage loan or a higher-priced covered transaction under Regulation Z

In addition to all other requirements associated with the high LTV refinance option loans, loans originated in accordance with the Alternative Qualification Path must also meet the requirements described in the following table.

Additional requirements for high LTV refinance loans originated using the Alternative Qualification Path

Minimum credit score of 620.

Maximum DTI ratio of 45%.

Verified assets needed to close, when applicable.

The lender is required to manually underwrite all loans subject to the Alternative Qualification Path.

Documentation Requirements

In addition to the eligibility considerations described in this topic, the documentation requirements in the following table apply.

Income Type and Eligible Income Sources Documentation Requirements
All Employment Income

Verbal verification of employment (See B3-3.1-07, Verbal Verification of Employment, for additional requirements.)

Note: Each borrower must complete and sign a separate IRS Form 4506-T at or before closing.

Base Pay (salary or hourly)

Tip, Bonus, and Overtime Income

One paystub or a completed Request for Verification of Employment (Form 1005 or Form 1005(S)).

Applies to primary employment, secondary employment (second job and multiple jobs), and seasonal income.

Commission Income

One paystub or Form 1005 or Form 1005(S) or one year personal tax return.

Military Income

A military Leave and Earnings Statement or a verification of employment.

Self-Employment

One year personal tax return.

Applies to primary and secondary self-employment.

Alimony or Child Support

Copy of divorce decree, separation agreement, court order or equivalent documentation, and one month documentation of receipt.

Employment-Related Assets as Qualifying Income

Lender must obtain standard documentation for this type of income as described in B3-3.1-09, Other Sources of Income.

Rental Income

Lease or one year personal tax return (Form 1007 is not required).

Applies to rental income from subject property or from other properties owned by the borrower.

Retirement and Pension

One of the following:

  • award letter,

  • one year personal tax return,

  • W-2 or 1099 form, or

  • one month bank statement reflecting direct deposit.

Social Security

One of the following:

  • award letter,

  • one year personal tax return,

  • Form SSA-1099, or

  • one month bank statement reflecting direct deposit.

Temporary Leave Income

Lender must receive:

  • the borrower’s written confirmation of his or her intent to return to work, and

  • 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.

Regardless of the date of return, the amount of the “regular employment income” the borrower received prior to the temporary leave must be used to qualify.

All Other Income Types

  • Automobile Allowance

  • Boarder Income

  • Capital Gains Income

  • Disability Income - Long-Term

  • Employment Offers or Contracts

  • Foreign Income

  • Foster-Care Income

  • Housing or Parsonage Income

  • Interest and Dividends Income

  • Mortgage Credit Certificates

  • Mortgage Differential Payments Income

  • Non-Occupant Borrower Income

  • Notes Receivable Income

  • Public Assistance Income

  • Royalty Payment Income

  • Schedule K-1 Income

  • Trust Income

  • Unemployment Benefits (seasonal or non-seasonal)

  • VA Benefits Income

Lender must determine appropriate documentation.

Examples include (but are not limited to):

  • an award letter or equivalent documentation or agreement,

  • one paystub or equivalent documentation,

  • one year personal tax return,

  • IRS 1099 Form, or

  • one month bank statement reflecting direct deposit.

Asset Type

  • Checking Accounts

  • Savings Accounts

  • Certificates of Deposit

  • Money Mark Accounts

  • Stocks, Bonds, Mutual Funds

  • Retirement Accounts

  • Trust Accounts

  • Secured Borrowed Funds

  • Donations from Entities (Hardest Hit Fund)

  • Gifts

One recent statement (monthly, quarterly, or annual) showing asset balance.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2018-09 December 04, 2018
Announcement SEL-2018-06 August 07, 2018