Current through Register Vol. XLI, No. 50, December 13, 2024
Section 88-1-3 - Determining eligibility for programloans3.1. General. -- In order to be eligible for a Program Loan, a person or family must meet the definition of an Eligible Borrower as provided in these regulations and must (i) be a resident or intend immediately to become a resident of the state, (ii) intend to make the Eligible Single-Family Dwelling his principal residence within a reasonable time after the Program Loan is closed, (iii) possess the legal capacity to contract for and understand the obligations of the Program Loan, (iv) agree not to rent the Eligible Single-Family Residence during the term of the Program Loan without the written consent of the Housing Development Fund, (v) have a general financial standing acceptable to the Housing Development Fund, and meet the underwriting standards provided in these regulations.3.2. Determination and evaluation of applicant's income. -- In all cases, the applicant must produce copies of his federal income tax return for each of the two (2) years preceding the date of his application as a basis for determining the applicant's family income for said two (2) years. Whether the applicant's family income exceeded fifty thousand dollars ($50,000) for either of said years shall be determined by reference to the applicant's "Adjusted Gross Income" (line 10) in the case of Form 1040A tax returns or to "Total Income" (line 21) in the case of Form 1040 tax returns. In addition, if the applicants are husband and wife and were not married during the entire two (2) year period, each applicant will provide copies of all W-2 forms for that period with respect to himself or herself and the former spouse and such other information as the Participating Lender may request in order to determine the gross income attributable to each applicant during such two (2) year period. The following additional procedures must be followed by Participating Lenders in regard to determining and evaluating the income of a Program Loan applicant: (a) Compliance with applicable law; information to be current. -- Participating Lenders must comply with the Federal Equal Credit Opportunity Act, Regulation B of the Federal Reserve System and all other laws applicable to taking, evaluating and acting upon loan applications. Verification of income data must not be over sixty (60) days old.(b) Temporary income. -- Temporary income such as VA educational allowances and unemployment compensation will not be considered except insofar as it will probably be continued for a period long enough to affect the applicant's ability to repay the Program Loan.(c) Income from alimony, child support and maintenance. -- Income from alimony, child support and maintenance payments will be considered only to the extent it is likely to be consistently made. Factors which the Participating Lender may consider in determining the likelihood of consistent payments include, but are not limited to, whether the payments are received pursuant to a written agreement or court decree, the receipt of which has been verified, the length of time the payments have been received, the regularity of receipt, the availability of procedures to compel payment, and the credit-worthiness of the payor, including the credit history of the payor where available to the Participating Lender under the Fair Credit Reporting Act or other applicable laws. The Participating Lender must submit to the Housing Development Fund evidence adequate to support its determination.(d) Overtime income. -- Overtime will not be considered in evaluating repayment ability of an applicant unless: (i) Income is derived due to shift work differential; (ii) scheduled by the hour, scheduled to work forty-two (42) hours per week, has been worked one (1) year previously, and the employer states the scheduled hours will remain the same in the future; and (iii) any income derived from mileage as in the case of a truck driver, which is a regular part of salary, must be considered and substantiated by previous two (2) years income tax returns.(e) Commissions. -- When all or a major portion of the applicant's income is derived from commissions, it will be necessary to establish the stability of such income if it is to be considered in the loan analysis for the repayment of the mortgage debt or short term obligations. In order to assess the value of such income, lenders should obtain written verification of the actual amount of commissions paid to date and the manner in which they are paid. The length of the borrower's employment in this type of occupation is a very important factor. If the borrower has been employed for a relatively short time, the commissions would not be considered stable. If commissions are to be considered as stable income, the borrower would need to have been on his present job a minimum of one (1) year.(f) Second job. -- Income from a second job will be considered only if the job has been worked for at least two (2) years and it is likely that the job will be retained by the applicant.(g) Self-employment income. -- Income to a self-employed applicant will be considered only if it has been received for at least two (2) years as substantiated by signed federal income tax returns.(h) Retirement income. -- Retirement income will be considered only if substantiated by pension fund documentation or information from the Social Security Office or the Veteran's Administration.(i) Construction work verification. -- Construction workers who are in a union and are assigned jobs by the union must be documented and underwritten in the following manner: (1) Verification of employment from the union;(2) Verification of employment from the construction company;(3) If less than three (3) years on the present job, submit previous verification of employment or a job history for preceding three (3) years.(j) Stability of employment. -- Ordinarily, a minimum of four (4) months with the present employer shall be required of each applicant. An exception to the above may be granted if it can be determined that there is no probation period, employment is in the same field as previous employment, and the employment is of a stable nature. Employment verifications must be submitted to cover a full three (3) years. Three (3) or more employment changes by the applicant within the previous five (5) years or three (3) changes of residence must be explained in writing by the applicant.3.3. Assessing applicant's financial strength. -- The following factors are to be considered by the Participating Lender in determining whether an applicant possesses the financial ability to repay the Program Loan: (a) Credit report. -- The credit report must be no more than sixty (60) days old and must have been issued by an independent credit reporting agency acceptable to the Housing Development Fund. The credit report must be comparable to a factual data credit report and cover a full three (3) years. When necessary, out-of-town reports must be included. Such report must verify the applicant's current employment and all debts listed on the application, including high credit, date opened, balance, monthly payment, term and rating. Also, it must state that records have been checked for legal actions, including suits, judgments, foreclosures, garnishments and bankruptcies. It is the lender's responsibility to verify in writing, direct from the source, any indebtedness not shown on the credit report. If the credit investigation reveals debts or obligations which were not divulged by the applicant, lenders must be certain to obtain clarification as to the status of such debts from the applicant. A proper analysis requires a total correlation between the obligations claimed by the applicant and those revealed by a credit report.(b) Housing expense-to-income ratio. -- The applicant's total anticipated monthly housing expense (principal and interest payments, taxes, insurance premiums, planned unit development fees) excluding utility payments, may not exceed twenty-eight percent (28%) of the applicant's gross monthly income.(c) Financial obligation-to-income ratio. -- The total of: (i) The applicant's total anticipated monthly housing expense as determined above, plus (ii) the total of all other installment debt monthly payments, plus(iii) monthly job-related expenses such as child care, plus(iv) obligatory monthly payments such as alimony, child support and maintenance may not exceed thirty-six (36%) of the applicant's gross monthly income.For purposes of this computation, financial obligations which terminate in seven (7) months or less should not be considered unless they are of such large amounts that they put a substantial strain on the applicant's resources for any period of time. When the credit information shows open accounts of several years which are clearly of a revolving or open-end type (e.g., Sears, Wards, oil company credit cards, etc.) the regular monthly payment for such account should be considered as a long-term obligation to be included in the ratio.
(d) Personal property credit history. -- An applicant with a history of slow payments on previous indebtedness will not receive a Program Loan unless an adequate explanation for the slow payments is provided.(e) Real estate credit history. -- This is also a consideration in evaluating an applicant's financial standing, both with regard to paying habits and financial ability to repay the Program Loan. Consequently, the applicant should provide: (1) If the applicant owns residential real property which has yet to be sold, a statement of the term of any present loan, its monthly payment amount, current pay-off and payment record; and (ii) if the property has been sold, a statement of the date when sold, the balance at that time and payment record.(f) Judgments. -- Any applicant who is found to have judgments recorded against him must submit a written statement explaining the nature and reason for the suit or judgment. All judgments must be paid before an application can be considered.(g) Bankruptcy. -- An application will not be considered if the applicant is or has been a bankruptcy debtor, received a bankruptcy discharge, filed a bankruptcy petition or had an "Order For Relief" entered against him pursuant to the United States Bankruptcy Code within the past two (2) years. If a bankruptcy discharge occurred longer than two (2) years previously, the application will be considered if the following requirements are satisfied:(1) Credit was acceptable prior to the bankruptcy and the applicant has obtained consumer items on credit subsequent to the bankruptcy and has met the payments on these obligations in an excellent manner over a continued period.(2) The bankruptcy was caused by circumstances beyond the applicant's control (e.g., unemployment, prolonged strike, medical bills not covered by insurance).(3) The circumstances alleged must be verified. (Discharge document that lists all creditors filed against and the amounts).(4) The applicant must submit in writing a satisfactory explanation of the bankruptcy.(5) If the applicant had poor credit for some time prior to the bankruptcy and indicates lack of financial stability subsequent to the bankruptcy, the application will be disapproved.(h) Funds on deposit. -- The verification of deposits is intended to determine if the applicant has sufficient cash to make the required down payment and to pay closing costs. If there are any discrepancies between information on the loan application and the deposits as verified, a decision should not be made on the application until resolved. The necessary funds must be on deposit when the application is taken. If the source of funds is other than savings accounts, the funds must be verified in writing. If company savings, it must be verified that it may be withdrawn at any time.(i) Gift letter. -- The most common alternative source of required cash is a gift. A gift statement is required when an applicant proposes to obtain funds from a third party. The gift statement must confirm that there is no obligation on the part of the applicant to repay these funds at any time. It must also give the relationship between the donor and the applicant and the name and address of the donor.