A. Financial Strength
The underwriting package must evidence sufficient funds for down payment, closing costs and reserves (if required). An established pattern of savings demonstrates skill in financial management and contributes to increased net worth. Evidence that this net worth is in cash or cash equivalents strengthens the Loan transaction as these funds are readily available to repay debt obligations, pay unexpected expenses, and provide protection against short term interruptions of income. All asset accounts used for verification of down payment, reserves, or income, MUST only be vested in the name of the borrower(s) on the 1003. Accounts with any non-borrower owners are not eligible to support AmMAC’s loan transaction. Top of Form
B. Down Payment
Definition
Down payment is the difference between the sales price of real estate and the mortgage amount (excluding closing costs).
Minimum Down Payment
If the subject property is |
and the minimum LTV is |
then the required Borrower down payment is |
Primary |
< 80% |
20% 1 |
Second Home |
< 80% |
20% 1 |
Investment |
N/A |
N/A |
- Gift funds are not allowed to meet the 20% down (or any reserve requirement); once those are met with Borrower’s own funds, they are permissible (see Gift from a Related Person).
- No trade-in or exchange of property is allowed as part or all of the borrower’s down payment.
C. Cash Assets – Down Payment & Closing Costs
Cash Assets
Cash assets are assets the Borrower may use to pay the down payment and closing costs on the Loan or for post closing reserves. See Verification of Funds for requirements on verifying accounts for reserves versus accounts for down payment & closing costs.
Cash Assets for Down Payment and Closing Costs
The following are considered to be cash assets at 100% of the verified amounts:
Funds on deposit in the Borrower's checking, savings, money market, or certificate of deposit account |
Earnest money deposit |
Funds disbursed from a trust account |
Lump sum relocation cash payments |
Saving cash to close |
Proceeds of a secured loan (See Proceeds from Secured Loans) |
Proceeds from the sale of the Borrower's real estate |
Use of a Credit Card for the Payment of Fees
A credit card may be used to pay the following fees associated with the mortgage:
Appraisal |
Credit Report |
|
AU Fee |
Acceptable credit cards are:
Visa |
MasterCard |
Cash Assets Requiring Liquidation
The following may be counted as cash assets at 100% of the verified liquidated amounts:
Cash value of life insurance |
Stocks, Bonds, Mutual Funds, U.S. Government Securities and Publicly Traded Securities
A copy of the account statement(s) for the most recent two months is required to identify the Borrower as owner of the asset at the time of liquidation. |
The value of the asset at the time of liquidation and proof of liquidation is required. |
Checking, Savings, Money Market, or Certificate of Deposit Accounts
Verification of checking, savings, money market, or certificate of deposit accounts may be accomplished by Standard Documentation. See Verification of Funds.
Business Accounts
Funds in business accounts may not be used for down payment, closing costs, and reserves.
Earnest Money
Whenever verification of assets is required, documented funds to close must always include funds to cover the earnest money deposit.
For example:
Purchase price: $100,000
Total needed for closing: $5,000
Earnest money deposit: $1,500
Verified assets: $4,000
Without evidence that the earnest money cleared the borrower's account prior to the date the balance was verified, it is unknown whether the borrower has sufficient funds to close. The earnest money deposit must be documented. If the underwriter is unable to trace the escrow deposit check(s) through the bank statements we have been provided, additional documentation should be requested.
Acceptable documentation verifying the receipt and source of the earnest money deposit funds includes:
A copy of the canceled or certified check, and account verification, or |
A bank statement showing that the earnest money deposit check has cleared the account, or |
Certification from the earnest money deposit holder acknowledging receipt of the funds, along with documentation from the borrower evidencing an acceptable source of funds. |
Trust Account
Funds from a trust account must be verified by a typed copy (not hand written) of the trust agreement or a signed statement on letterhead from the trustee that provides the following information:
The name, address, telephone number, and contact person of the trustee. |
Identifies the Borrower is a beneficiary. |
States that the Borrower has access to all or a specific amount of the funds. |
The trust has the assets to disburse funds to the Borrower. |
States whether the disbursement is a loan and provides repayment terms. |
Lump Sum Relocation Payments
Corporate sponsored relocating Borrowers often receive a substantial lump sum cash payment from their employer as an incentive to move to a new location. This lump sum payment may be used as a source of down payment if:
The lump sum cash payment is non-revocable, and |
Only the post tax amount is credited towards the down payment. |
Gift from Related Person
Allowed only after down payment and reserve requirements are met with Borrower’s own, sourced funds. Gift funds over and above this amount are permissible but must be sourced.
Gift or Grant from a Municipality or Nonprofit Organization
Not Allowed.
Individual Development Account
Not Allowed.
Group Savings (su-su)
Not Allowed.
Pooled Funds
Not Allowed.
Retirement Accounts
IRA and SEP IRA - A copy of the account statement for the most recent two months is required showing the Borrower as owner of the account and the dollar value. Conditions under which the funds may be withdrawn and/or borrowed and verification of liquidation is required. |
401(k), KEOGH, 403(b) and other IRS Qualified Employer Plans - Only the post-tax amount available to the Borrower may be considered as funds for down payment and closing costs. A copy of the account statement for the most recent two months is required showing the Borrower as owner of the account, the account value and the Borrower's vested interest. Conditions under which the funds may be withdrawn and/or borrowed and verification of liquidation is required. |
Proceeds from Secured Loans
Any loan for down payment or closing costs must be secured by an asset of equal or greater value. Verification of receipt of funds must be obtained prior to closing. Proof is required that the Borrower owns the asset securing the loan. The Underwriter needs to ensure that the payment for the new loan is included in the borrower’s DTI calculation. Proceeds from loans secured by household goods are not acceptable.
Loans Secured by Financial Assets - Proceeds from a loan secured by the Borrower's financial assets (e.g. 401(k), IRA, publicly traded stock, etc) may be used for down payment and closing costs. Copies of the most recent account statement must be obtained and must indicate that the Borrower is the owner of the account and the amount of funds available for loans. Verification of receipt of proceeds is required. Also refer to Long Term Debt-Loans Secured by Financial Assets. |
Equity Loans - Funds for down payment and closing costs may come from an equity loan that is secured by property other than the subject property. The subject property cannot be used as collateral. Verification of the equity loan terms and the security for the Loan is required. Refer to Long Term Debt.. |
Bridge (Swing) Loans - A bridge loan is a form of second mortgage that is usually collateralized by the Borrower's present home. Verification of the bridge loan terms and the collateral for the loan must be obtained. The subject property cannot be used as collateral. The terms of the bridge loan must provide for automatic extension until the home is sold. Also refer to Long Term Debt. |
Interim Financing - Any interim financing obtained by the Borrower must be paid off in full simultaneously with the AmMAC Loan closing. |
Subordinate Financing Refer to Subordinate Financing. |
Sale of Personal Property
Not Allowed.
Sale of Real Estate
Borrowers who intend to sell their current residence prior to closing must provide proof of sufficient proceeds for closing on the subject property. The application must indicate the sales price of the home to be sold and list all current liens to allow the underwriter to approximate the amount of proceeds.
Documentation - Either of the following are acceptable means of documenting cash from the sale of real estate:
|
Cash Value of Life Insurance
A copy of the benefits statement is required in order to determine that the Borrower is the owner of the policy and the amount of cash available to the Borrower. Proof of liquidation is required if the Borrower is using the cash value of life insurance for down payment or closing costs, a copy of the check and proof of its deposit are required.
Savings Bonds
A copy of the bond certificate must be obtained reflecting the Borrower as owner of the bond, or
Include a statement from a financial institution attesting that it has seen the bonds and listing the serial numbers of the bonds, dates of maturity, type and amount, and stating that the Borrower is the owner. A copy of the appropriate U.S. Treasury Table evidencing the current values of the bonds should also be provided.
Evidence of liquidation is required.
D. Reserves
Cash Assets for Reserves
Reserves are cash assets remaining after the down payment and the closing costs have been paid.
Reserves are the same cash assets as those used for the down payment and closing costs but, since reserves are not paid to anyone, the asset does not have to be liquidated at the time of closing.
Funds from retirement accounts may be considered for reserves only if the borrower has access to the funds. Retirement account funds may not be used as reserves when withdrawals are allowed only in connection with the borrower’s retirement (and borrower is not of retirement age), termination of employment or death (e.g. pensions, cash balance plans, etc.) or when withdrawals are prohibited.
The monetary value assigned to any cash asset used for reserves should be equal to the amount of cash that the Borrower would receive if they liquidated the asset.
Examples include:
Retirement accounts:
50% of the borrower’s vested interest in the account may be used to meet reserve requirements; verify vested balance, outstanding loans and conditions under which these funds can be withdrawn. Especially for Pension accounts that do not typically permit withdrawal prior to retirement, the borrower will need to provide documentation from the plan administrator detailing conditions for withdrawal, otherwise pension balances cannot be used for meeting Reserve requirements. |
Publicly Traded Stocks, Mutual Funds and Government Securities:
70% of the borrower’s vested interest in the account may be used to meet reserve requirements. If the brokerage statements reflect a margin account balance, the amount of the margin account must be subtracted from the portfolio value, before applying the 70% reserve percentage. |
Cash Reserve Requirements
Evidence the borrower meets AmMAC’s cash reserve requirements must be provided. Reserve requirements are typically measured in months of PITI, which includes Principal and Interest (from the first mortgage and any subordinate liens), Taxes, Insurance(s) and Association Dues. For ARM loans, the note rate should be used to determine the principal and interest used to calculate required reserves.
Refer to the LTV Matrices for cash reserve parameters.
The following assets may be used to meet the cash reserve requirements:
- Cash equivalents (checking, savings, or money market accounts)
- 70% of the vested value (net of any outstanding loan balance) of Publicly Traded Stocks, Mutual Funds and Government Securities may be used (no stock options).
- Cash surrender value of life insurance (less outstanding loans, if repayment not included in debt ratio calculation)
- For IRA’s, 401K’s, vested pension plans and educational savings accounts:
- 50% of vested pension, profit sharing, 401K, or Traditional IRA (less outstanding loans) provided the plan permits withdrawals prior to retirement.
- 70% of Roth IRA (less outstanding loans)
- 50% of Educational savings accounts such as 529 Plans
- Equity proceeds from the sale of a residence.
Minimum Down Payment – Gift Funds
Down payment may not be gifted. However, once Borrower’s minimum 20% down payment has been met, gift funds beyond this amount are permissible. Gift funds may not be used to meet minimum down payment or any reserve requirement.
Group Savings
Not allowed
Pooled Funds
Not allowed
Individual Development Account
Not allowed
Saving Cash To Close/Cash on Hand
Cash on hand that cannot be verified, is not allowed.
Use of Business Funds
Not allowed
Subordinate Financing
Subordinate financing, closed end or HELOC, is allowed subject to the guidelines in Subordinate Financing.
Note: The Combined Loan to Value (CLTV) available is calculated by adding the HELOC credit line limit (rather than the amount of the HELOC in use) to the first mortgage amount, plus any other subordinate financing, and dividing the sum by the value of the mortgaged premises.
Trades
Not Allowed
Sweat Equity
Not allowed
1031 Exchanges
Not allowed
Gifts
Not Allowed
E. Other Assets for Down Payment
Rent with Option
Not allowed
Trades
Not allowed
Land Equity
For construction take-out financing where the land was previously owned by the Borrower, the Borrower's equity position in the land may be used as a credit towards the down payment.
Determining Value - If the lot was purchased less than 12 months prior to the date of the Loan application, the value of the lot should be based on the lesser of the purchase price or land value indicated on the appraisal report. If the lot was purchased 12 or more months prior to the date of the application, the value of the lot is as indicated on the appraisal report. |
Sweat Equity
Not Allowed.
Real Estate Commissions
Real estate commissions earned by the Borrower who is a Realtor by profession may be used for the down payment provided the fees are customary for the area and provided the Borrower doesn’t also work for the listing agent—which would violate our non-arm’s length policy. While it is acceptable for this commission to show on the Final HUD-1, since it cannot be sourced in advance of closing, the Borrower still must have sufficient verifiable assets to cover all closing costs, down payment and reserves without including this projected commission amount.
1031 Tax Deferred Exchanges
Not allowed
Top of Form
F. Ineligible Sources of Down Payment, Closing Costs & Reserves
The following are unacceptable sources for down payment, closing costs, and reserves:
Donated funds or Gift Funds (except as specified in Gifts from a Related Party) |
Cash on hand |
Proceeds from an unsecured loan/proceeds from sale of assets other than sale of a residence |
Retained Earnings |
Stock issued by a privately held company |
Cash Out refinance proceeds from subject property |
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