FHA

PROGRAM GUIDELINES AND MATRICES

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PRODUCT MATRIX

Table of Contents

Section 1 – Overview & Underwriting Criteria ............................................................................................................................................................... 3

Section 2 - Underwriting Criteria ................................................................................................................................................................................. 3
Section 3 – Product Eligibility ..................................................................................................................................................................................... 4
3.1 Available Products ........................................................................................................................................................................................4
3.2 Available Buydown Products ..........................................................................................................................................................................4
3.3 Buydowns ...................................................................................................................................................................................................4
3.4 Age of Credit Documents ...............................................................................................................................................................................5
3.5 Borrower Eligibility .......................................................................................................................................................................................5
3.6 Minimum Loan Amount .................................................................................................................................................................................5
3.7 State Restrictions .........................................................................................................................................................................................5
3.8 Dual Role / Compensation .............................................................................................................................................................................5
3.9 CLTV Exceeding 100% ..................................................................................................................................................................................5
Section 4 – Product Matrix ......................................................................................................................................................................................... 6
4.1 FHA LTV/CLTV Matrix ....................................................................................................................................................................................6
Section 5 - Credit ..................................................................................................................................................................................................... 7
5.1 Credit .........................................................................................................................................................................................................7
5.2 Manual Underwriting Credit Requirements ........................................................................................................................................................ 7
5.3 Non-Borrowing Spouse Debt in Community Property States ................................................................................................................................ 8
5.4 Forbearance and Modification .........................................................................................................................................................................9
5.5 Manual Downgrade Requirements ................................................................................................................................................................. 10
5.6 Disputed Derogatory Credit ......................................................................................................................................................................... 11
5.7 Maximum DTI for Manual Underwriting .......................................................................................................................................................... 11
5.8 Compensating Factors................................................................................................................................................................................. 12
5.9 Alternative Credit Requirements ................................................................................................................................................................... 13
5.10 Student Loan Calculation ........................................................................................................................................................................... 13
5.11 Less than 10 payments ............................................................................................................................................................................. 13
5.12 Maximum Number of FHA Financed Properties .............................................................................................................................................. 14
Section 6 - Assets ................................................................................................................................................................................................... 14
6.1 Earnest Money ........................................................................................................................................................................................... 14
6.2 Cash on Hand ............................................................................................................................................................................................ 15
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6.3 Gift Fund Documentation ............................................................................................................................................................................. 15
6.4 Eligible Gift Donors ..................................................................................................................................................................................... 15
6.5 Family Members Defined ............................................................................................................................................................................. 16
6.6 Reserve Requirements ................................................................................................................................................................................ 16
6.7 Real Estate Tax Credits ............................................................................................................................................................................... 16
Section 7 - Income ................................................................................................................................................................................................. 17
7.1 Ineligible Income ....................................................................................................................................................................................... 17
7.2 Modified Tax Returns and Past Due Returns ................................................................................................................................................... 17
7.3 Borrower(s) Whose Hours Vary .................................................................................................................................................................... 17
7.4 Commission Income ................................................................................................................................................................................... 17
7.5 Gaps In Employment .................................................................................................................................................................................. 17
7.6 Part-Time Income ...................................................................................................................................................................................... 18
7.7 Rental Income ........................................................................................................................................................................................... 18
Section 8 - Property ................................................................................................................................................................................................ 19
8.1 Ineligible Properties .................................................................................................................................................................................... 19
8.2 Appraisal Validity ....................................................................................................................................................................................... 19
8.3 Accessory Dwelling Unit (ADU) ..................................................................................................................................................................... 19
8.4 Single-Unit Condominium Approval Eligibility .................................................................................................................................................. 20
8.5 3-4 Unit Self-Sufficiency Requirement ........................................................................................................................................................... 20
8.6 Property Flipping ........................................................................................................................................................................................ 21
Section 9 - Misc. Guidelines ..................................................................................................................................................................................... 21
9.1 Maximum Seller Contributions ...................................................................................................................................................................... 21
9.2 Inducements to Purchase ............................................................................................................................................................................ 22
9.3 Identity of Interest ..................................................................................................................................................................................... 22
9.4 Closing in Trust .......................................................................................................................................................................................... 23
9.5 Power of Attorney ...................................................................................................................................................................................... 23
9.6 Co-Signors ................................................................................................................................................................................................ 23
9.7 Parties on Title........................................................................................................................................................................................... 23
9.8 Escrow Holdbacks....................................................................................................................................................................................... 23
9.9 Flood Insurance ......................................................................................................................................................................................... 23
9.10 VVOE – FHA Streamline ............................................................................................................................................................................. 23
9.11 FHA Resources ......................................................................................................................................................................................... 23

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Section 1 – Overview & Underwriting Criteria

This Product Eligibility Policy outlines the parameter requirements for residential mortgage loans submitted to Orion Lending. This document
is an integral part of the loan underwriting review process and should be reviewed in conjunction with all potential findings.

All loans will be examined and evaluated to determine whether the proposed loans conform to these guideline parameters. The qualifying
specifications and procedures are meant to serve as a principal foundation to qualify, and each borrower will be reviewed in its entirety on an
individual basis.

Section 2 - Underwriting Criteria

Appendix is intended to reference and supplement FHA’s Seller Guide (4000.1). Refer to the 4000.1 for specific information concerning
qualification requirements that are not specifically referenced in the product appendix.

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Section 3 – Product Eligibility

Standard Balance High Balance
Qualifying Qualifying
Product Amort Term Program Codes Product Amort Term Program Codes
Rate Rate
10 Yr. Fixed 120 Note Rate FF10 FUEL 25 Yr. Fixed 300 Note Rate FF25 HB FUEL

3.1 Available 15 Yr. Fixed 180 Note Rate FF15 FUEL 30 Yr. Fixed 360 Note Rate FF30 HB FUEL
Products
20 Yr. Fixed 240 Note Rate FF20 FUEL

25 Yr. Fixed 300 Note Rate FF25 FUEL

30 Yr. Fixed 360 Note Rate FF30 FUEL

Standard Balance High Balance

Qualifying Program Qualifying
Product Amort Term Product Amort Term Program Codes
3.2 Available Rate Codes Rate
Buydown Products 30 Yr. Fixed 360 Note Rate FF30 BD 1/0 30 Yr. Fixed 360 Note Rate FF30 HB BD 1/0

30 Yr. Fixed 360 Note Rate FF30 BD 2/1 30 Yr. Fixed 360 Note Rate FF30 HB BD 2/1

• Eligible Buydown Option

o 1/0 buydown
o 2/1 buydown
• Purchase only
• 30 yr. Fixed Rate Only
• Single Unit Property
o Not Allowed – Manufactured/Modular or DPA programs
3.3 Buydowns • Seller or Builder paid buydowns allowed
o Borrower paid buydowns are not eligible
• Borrower must meet MRI (minimum required investment) of 3.50%
• Borrower must qualify at the Note Rate
o If reserves are required, the reserves must be calculated using the permanent Note Rate payment
• The percentage of funds must be included in the interested party contribution limit
o To calculate the percentage of the buydown fund contribution, divide the buydown fund total by the purchase price
• Buydown calculator

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3.4 Age of Credit • New and existing construction: All credit, income, and asset documentation must be < 120 days at the time of funding
Documents

• U.S. Citizens
3.5 Borrower
Eligibility • Permanent resident aliens
• Nonpermanent resident aliens

3.6 Minimum Loan • $55,000

Amount

3.7 State • Texas 50 (a) (6) Refinance Mortgages are prohibited

Restrictions • West Virginia – Maximum DTI is 50%. Streamline refinances must be full qualifying

3.8 Dual Role / • Dual Role/Compensation is allowed per ML 2022-22

Compensation

Allowed with funds from an FHA eligible DPA (Down Payment Assistance)
3.9 CLTV Exceeding
100% • CLTV may not exceed 100% if the funds are provided by an individual or financial institution

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Section 4 – Product Matrix

PURCHASE

PROPERTY TYPE OCCUPANCY PURPOSE LOAN AMOUNT MIN FICO LTV/CLTV

SFR, Condo, PUD,
Per county No FICO
2-4 Unit, Primary Purchase 96.5/1005
limits Or 5503,4
Manufactured1,2

RATE TERM
PROPERTY TYPE OCCUPANCY PURPOSE LOAN AMOUNT MIN FICO LTV/CLTV

SFR, Condo, PUD, Rate/Term,

Per county No FICO
2-4 Unit, Primary Simple 97.75
limits or 5503,4
Manufactured1,2 Refinance

STREAMLINE6
PROPERTY TYPE OCCUPANCY PURPOSE LOAN AMOUNT MIN FICO LTV/CLTV

SFR, Condo, PUD,

Per county
2-4 Unit, Primary Streamline Per 4000.1
limits
Manufactured1,2
No FICO
4.1 FHA LTV/CLTV or 5503,7
Matrix SFR, Condo, PUD,
Per county
2-4 Unit, Investment Streamline Per 4000.1
limits
Manufactured1,2

CASH OUT
PROPERTY TYPE OCCUPANCY PURPOSE LOAN AMOUNT MIN FICO LTV/CLTV
SFR, Condo, PUD,
Per county No FICO
2-4 Unit, Primary Cash Out8 80/85
limits or 5503
Manufactured1,2
1
Singlewide not allowed
2
limited to conforming loan limits
3
Manufactured Minimum FICO 640 (Boost DPA allows down to 580 FICO and Chenoa DPA allows down to 600 FICO – see matrices for details)
4
550-579 FICO - 90% Max LTV/CLTV
5
No Maximum CLTV if secondary financing is from a Government Entity or HUD approved Non-profits. Private Individual and Other Organizations, CLTV is equal to the
FHA maximum LTV.
6
Credit Qualification required in West Virginia
7
Mortgage only with FICO allowed
8
Borrower must have been on title for 12 months prior to the case number order date.

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Section 5 - Credit

• Fico Score of 550+

o 550-580: 0 x 30 x 12 housing history required
o 550-579: AUS approval required; manual underwrite not eligible
• No FICO – No FICO requires no usable credit, derogatory credit does not qualify
o 1 unit – 1-month reserves
o 2-4 units – 3 months reserves
5.1 Credit o Manual UW required
o See Alternative Credit Requirements section below
• Streamline Refinances
o Mortgage only with FICO allowed
o Non-Credit qualifying housing payment history
 0 x 30 6 months prior to the chase number assignment
 Max 1 x 30 months 7-12

Satisfactory credit criteria

• Housing payments and Installment payments:
o 0x30 in the previous 12 months and,
5.2 Manual
o No more than 2x30 in the previous 24 months
Underwriting
Credit • Revolving accounts – No major derogatory credit in the previous 12 months defined as:
Requirements o Any revolving payment more than 90 days late, or
o Any revolving payment more than 3x60 days late.
If the payment history does not meet the above criteria, additional analysis is required. Only loans that meet HUD’s extenuating circumstance
definition (documented serious illness or death of a wage earner) are eligible. If extenuating circumstances are not met the loan is ineligible.

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If the Borrower resides in a community property state, or the Property being insured is in a community property state, debts of the non-
borrowing spouse must be included in the Borrower’s qualifying ratios, except for obligations specifically excluded by state law.

• A credit report must be obtained for the non-borrowing spouse to determine the debts that must be included

• A signed authorization for the non-borrowing spouse is required

• The non-borrowing spouse’s credit history is not considered

State Excludes Debts from DTI Additional State Requirements
Exclude only those debt acquired prior to marriage. Satisfaction of non-purchasing spouse’s collections and judgements not
required if all the following are met:
o He/she is not contributing towards the down payment or
transaction costs (includes gift or money from joint accounts)
AZ
o He/she signs the title disclaimer to prevent any judgements
from attaching to the property; and
o He/she does not sign the Deed of Trust

Can exclude only those debts that were acquired prior

All delinquent debts, including those of the non-purchasing spouse
CA to the marriage and only with a specific pre-Marital
must be satisfied prior to or at closing.
5.3 Non-Borrowing agreement.
Spouse Debt in Can exclude only those debts that were acquired prior
Community ID to the marriage and only with a specific pre-Marital No additional restrictions.
Property States agreement.
Can exclude only those debts that were acquired prior
LA to the marriage and only with a specific pre-Marital No additional restrictions.
agreement.

NV Exclude only those debt acquired prior to marriage. No additional restrictions.

Can exclude only those debts that were acquired prior

NM to the marriage and only with a specific pre-Marital No additional restrictions.
agreement.
Can exclude only those debts that were acquired prior
TX to the marriage and only with a specific pre-Marital No additional restrictions.
agreement.

WA Exclude only those debt acquired prior to marriage. No additional restrictions.

WI Exclude only those debt acquired prior to marriage. No additional restrictions.

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The following are required prior to closing (the Note Date) to be eligible for FHA financing:
Forbearance

If Then
Purchase, Rate/Term or Three (3) consecutive monthly payments must be made on time since completion of a mortgage forbearance
Streamline Refinance plan.
Cash-out Refinance Twelve (12) consecutive monthly payments must be made on time since the completion of a mortgage
forbearance plan.

• If payments have been made under a forbearance plan within the 12 months prior to the case number assignment the
following is required:
o A copy of the forbearance plan (not required if forbearance was due to COVID-19), and
o Evidence of the payment amount and date of payments during the plan
• If a forbearance plan will remain open on another FHA-insured loan after the closing of a new FHA loan, the Forbearance Plan
must be terminated (deferred payments paid in full) at or prior to closing
o Documentation of termination is required for other REO properties
5.4 Forbearance
o Documentation of termination is not required for the subject property
and Modification
A loan that was in forbearance and subsequently granted a loan modification is no longer considered to be in forbearance. A loan modification is a
permanent change in one or more terms of the borrower’s mortgage.
Modification

If Then
Rate/Term or Streamline A minimum of six (6) consecutive payments under the modification plan to be eligible for refinancing (in
Refinance addition to the manual downgrade requirements below).

Cash-out Refinance Twelve (12) consecutive monthly payments must be made on time since the completion of a mortgage
forbearance plan.

• Payments are computed from the first payment date due under the modification agreement to the new note date.
o Documentation must be in the loan file to evidence all payments have been made timely prior to closing.
• The modified loan must be paid as agreed since the modification has been in place.
o If there are any delinquent payments regardless of when they occurred, the borrower is ineligible for an FHA-insured loan. The
borrower is considered delinquent.

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A loan that received an Accept/Approve recommendation must be downgraded and manually underwritten if:

• The mortgage file contains information or documentation that cannot be entered into or evaluated by TOTAL Mortgage Scorecard

• Additional information, not considered in the Automated Underwriting System (AUS) recommendation affects the overall insurability of the
Mortgage

• Business income shows a greater than 20 percent decline over the analysis period

• The Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts

• The date of the Borrower’s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of case number
assignment

• The case number assignment date is within three years of the date of the transfer of title through a:

o Pre-Foreclosure Sale (Short Sale)

o Foreclosure sale

o Deed-in-Lieu (DIL) of foreclosure

• The Mortgage Payment history, for any Mortgage trade line, including mortgage line-of-credit payments, reported on the credit report used
5.5 Manual to score the application during the 12 months prior to the case number assignment reflects:
Downgrade
Requirements o Purchase and Rate/Term Refinance

 three or more late payments of greater than 30 Days;

 one or more late payments of 60 Days plus one or more 30-Day late payments;

 one payment greater than 90 Days late; or

 that the Borrower has made less than three consecutive payments since completion of a mortgage Forbearance Plan.

o Cash-out Refinance

 Reflects a current delinquency;

 Any delinquency within 12 months of the case numbers assignment date; or

 The borrower has made less than 12 consecutive monthly payments since completion of a mortgage forbearance plan.

• The Borrower has undisclosed mortgage debt that requires a downgrade if the mortgage history reflects any of the following:

 Reflects a current delinquency;

 Any delinquency within 12 months of the case numbers assignment date; or

 more than two 30-day delinquent payments within 24 months of the case number assignment date.

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Disputed Derogatory Accounts are defined as any of the below dated within 24 months of the case number assignment date:
• A disputed collection, or
• A disputed charge-off account, or
• Disputed accounts (revolving, installment, etc.) with delinquent payments in the previous 24 months
A letter of explanation is required from the borrower whenever a derogatory disputed account is reported on the credit report regardless of the
cumulative balance.
• Disputed Derogatory Accounts <$1000 (cumulative for all borrowers) – TOTAL Scorecard
o A manual downgrade is not required if the cumulative total of all disputed accounts is <$1000.
• Disputed Derogatory Accounts >$1000 (cumulative for all borrowers) – TOTAL Scorecard
o Loans with an Approve/Eligible finding must be downgraded to a manual underwrite if the credit report indicates there are disputed
accounts with a cumulative total (includes disputed accounts for all borrowers) is > $1000.
5.6 Disputed o If the cumulative balance is > and the borrower is not resolving the debt, the monthly payment must be included in the DTI
Derogatory Credit calculation.
Disputed Derogatory Accounts excluded from the cumulative balance include:
• Disputed medical accounts, and
• Disputed derogatory credit resulting from identity theft, credit card theft or, unauthorized use.
o To exclude these items the borrower must include a copy of the police report or other documentation from the creditor to support
the status of the accounts.
Disputed Non-Derogatory accounts include the following:
• Disputed accounts with zero balance
• Disputed accounts with delinquent payments aged 24 months or greater
• Disputed accounts that are current and paid as agreed
Non-derogatory accounts or disputed accounts not listed on the credit report do not require a manual downgrade. Non-derogatory disputed accounts
are excluded from the $1000 cumulative balance limit.

Credit Score Debt to Income Requirements

580 score and no credit score 31/43 Cannot exceed 31/43

5.7 Maximum DTI

> 31/43 up to 37/47 One Compensating Factor
for Manual
Underwriting
> 580 > 37/47 up to 40/50 Two Compensation Factors

40/40 No discretionary Debt

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Compensating factors may be used to justify approval of manually underwritten mortgages with qualifying ratios as described in
Handbook 4000.1 II.A.5.d.viii
Residual Income may be used as a compensation factor
• Follow VA requirements for calculation
Reserves as a compensating factor may be used based on the following requirements:
• Reserves are equal to or exceed three total monthly mortgage payments (1 and 2 units); or
• Reserves are equal to or exceed six total monthly mortgage payments (3 and 4 units)
No discretionary debt may be cited as a compensating factor subject to the following requirements:
• The borrower’s housing payment is the only open account with an outstanding balance that is not paid off monthly,

5.8 Compensating • The credit report shows established credit lines in the borrower’s name open for at least six months; and
Factors • The borrower can document that these accounts have been paid off in full monthly for at least the past six months
Additional income from overtime, bonuses, part-time or seasonal employment that is not reflected in effective income can be cited as
a compensating factor subject to the following requirements:
• Document the borrower has received this income for at least one year, and it is likely to continue; and
• If the income were included in gross effective income, it is sufficient to reduce the qualifying ratios to not more than 37/47
A minimal increase in housing payment may be cited as a compensating factor subject to the following requirements:
• The new total monthly mortgage payment does not exceed the current total monthly housing payment by more than $100 or 5%,
whichever is less; and
• There is a documented 12-month housing payment history with no more than one 30-day delinquent payment. In cash out refinance
transactions all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months
• If the borrower has no current housing payment, this may not be cited as a compensating factor

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To establish a credit history, three credit references reporting for a minimum of 12 months must be used, including at least one
of the following:

• Rental housing payments (requires independent verification if Borrower is a renter)

• Telephone service; or

• Utility company reference (if not included in rental housing payment), including gas, electricity, water, television, or internet service
In addition to the credit references above, the following sources of unreported recurring debt may be used to establish sufficient
credit references:
• insurance premiums not payroll deducted (e.g., medical, auto, life, renter’s insurance)
• payment made to childcare provider businesses
5.9 Alternative • school tuition
Credit
Requirements • retail store credit cards (e.g., department, furniture, appliance stores)
• rent-to-own (e.g., furniture, appliances)
• medical bill payments not covered by insurance
• personal loan from an individual with repayment terms in writing and supported by canceled checks to document payments
• automobile lease
• 12-month savings history evidenced by regular deposits resulting in an increased balance to the account that:
o were made at least quarterly;
o were not payroll deducted; and,
o caused no insufficient funds (NSF) checks.
• 12-month history of payment by the borrower on an account for which the borrower is an authorized user

Regardless of payment status, the following calculation must be used:

5.10 Student Loan • The payment amount reported on the credit report or the actual documented payment from the servicer when the payment is above zero;
Calculation or

• 0.5 percent of the outstanding loan balance, when the monthly payment reported on the Borrower’s credit report is zero

All applicable monthly liabilities must be included in the qualifying ratio. Closed-end debts do not have to be included if:

5.11 Less than 10 • they will be paid off within 10 months from the date of closing, and
payments • the cumulative payments of all such debts are less than or equal to 5 percent of the Borrower’s gross monthly income.
• The Borrower may not pay down the balance to meet the 10-month requirement.

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A borrower may be eligible to obtain another FHA-insured mortgage without being required to sell an existing property covered by an FHA-insured
mortgage if the borrower:
• Is Vacating a jointly owned property:
o A Borrower may be eligible for another FHA-insured Mortgage if the Borrower is vacating (with no intent to return) the Principal
Residence which will remain occupied by an existing Co-Borrower.
• Is A Non-occupying co-borrower:
o A non-occupying Co-Borrower on an existing FHA-insured Mortgage may qualify for another FHA-insured Mortgage on a new
Property to be their own Principal Residence.
o A Borrower with an existing FHA-insured Mortgage on their own Principal Residence may qualify as a non-occupying Co-Borrower
5.12 Maximum on other FHA-insured Mortgages.
Number of FHA • Is Relocating:
Financed
Properties o relocating or has relocated for an employment-related reason; and
o establishing or has established a new Principal Residence in an area more than 100 miles from the Borrower’s current principal
residence
o If the borrower moves back to the original area, the borrower is not required to live in the original house and may obtain a new
FHA-insured mortgage on a new principal residence, provided the relocation meets the two requirements above.

• Has an Increase in Family Size:

o If the Borrower provides satisfactory evidence that:
 the Borrower has had an increase in legal dependents and the Property now fails to meet family needs; and
 the Loan-to-Value (LTV) ratio on the current Principal Residence is equal to or less than 75% or is paid down to that
amount, based on the outstanding Mortgage balance and a current residential appraisal.

Section 6 - Assets

Earnest money deposit that exceeds 1 percent of the sales price or is excessive based on the Borrower’s history of accumulating savings must
be verified by obtaining the following:

6.1 Earnest Money • A copy of the borrower’s canceled check;

• Certification from the deposit-holder acknowledging receipt of funds; and
• A verification of deposit or bank statement showing the average balance was sufficient to cover the amount of the earnest money deposit at
the time of the deposit.

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Cash on Hand refers to cash held by the Borrower outside of a financial institution. To be eligible for use:
• Verify that the Borrower’s Cash on Hand is deposited in a financial institution or held by the escrow/title company;
• Document the Borrower’s Cash on Hand by obtaining an explanation from the Borrower describing how the funds were accumulated and the
amount of time it took to accumulate the funds; and

6.2 Cash on Hand • Determine the reasonableness of the accumulation based on the time-period during which the funds were saved and the Borrower’s:
o income stream
o spending habits
o documented expenses and,
o history of using financial institutions

Obtain a gift letter signed and dated by the donor and Borrower that includes all the following:
• The donor’s name, address, telephone number;
• The donor’s relationship to the Borrower;
• The dollar amount of the gift; and
• a statement that no repayment is required.
Verify and document the transfer of gifts from the donor to the Borrower in accordance with the following requirements:
6.3 Gift Fund a. If the gift funds have been verified in the Borrower’s account, obtain the donor’s bank statement showing the withdrawal and evidence of
Documentation the deposit into the Borrower’s account
b. If the gift funds are not verified in the Borrower’s account, obtain the certified check or money order or cashier’s check or wire transfer or
other official check evidencing payment to the Borrower or settlement agent, and the donor's bank statement evidencing sufficient funds for
the gift amount
c. For gifts of land, obtain proof of ownership by the donor and evidence of the transfer of title to the Borrower.
If the gift funds are being borrowed by the donor and documentation from the bank or other savings account is not available, have the donor provide
written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction, including the Lender.
Cash on Hand is not an acceptable source of donor gift funds.

Gift Funds may be provided by:

• The borrower’s family member.
• The borrower’s employer or labor union.
6.4 Eligible Gift • A close friend with a clearly defined and documented interest in the borrower.
Donors
• A charitable organization.
• A governmental agency or public entity that has a program providing homeownership assistance to low- or moderate-income families of
first-time homebuyers.
Only Family Members may provide equity credit as a gift on property being sold to other Family Members.

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Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:
• Child, parent, or grandparent- a child is defined as a son, stepson, daughter, or stepdaughter- a parent or grandparent includes a
stepparent/grandparent or foster parent/grand parent
• Spouse or domestic partner
• Legally adopted son or daughter, including a child who is placed with the borrower by an authorized agency for legal adoption

6.5 Family • Foster child

Members Defined • Brother, stepbrother
• Sister, stepsister
• Uncle
• Aunt, or
• A son-in-law, daughter-in-law, father-in-law, mother-in-law, sister-in law of the borrower
Note: A cousin is NOT considered an eligible family member

• 1-2 Units – Not required with Approve/Eligible findings

• 1-2 Units – 1-month PITIA if a Refer finding or a manual downgrade
• 3-4 Units – 3 months PITIA reserves regardless of underwriting method
6.6 Reserve • Borrower with non-traditional/insufficient credit requires 2 months PITIA reserves (cannot use gift funds)
Requirements
Use of gift funds for reserves:
• Approve/Accept findings may use gift funds to meet reserves
• Manual underwrite and manual downgrade may NOT use gift funds to meet reserves

Where real estate taxes are paid in arrears, the seller’s real estate tax credit may be used to meet the MRI, if the underwriter
documents that the borrower had sufficient assets to:

6.7 Real Estate Tax • Meet the MRI (Minimum Required Investment) and,
Credits • Pay the borrower paid closing costs at the time of underwriting without consideration of the real estate tax credits.
If during the underwriting process, the borrower is short funds to close, exclusive of the MRI, the prorated taxes can be used to offset the funds
required for the establishment of their escrow account, not to exceed actual costs.

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Section 7 - Income

If the income or asset source is not acceptable under all laws, such as income generated through marijuana sales, then the loan is ineligible for Orion
7.1 Ineligible Lending; this includes both self-employed borrowers and wage earners working for a company. Likewise, all use of the subject property must be
Income compliant with all laws. Properties that have mixed-use that do not meet all local, state, or federal laws are ineligible for Orion Lending.

7.2 Modified Tax

All borrower(s) using tax returns to support income for qualification must have filed any past due returns a minimum of 90 days before the
Returns and Past application date. Income modifications within 90 days of the application for the benefit of qualification are not permitted.
Due Returns

For employees who are paid hourly and whose hours vary, the income must be averaged over the previous two years. If the borrower can document
an increase in pay rate, the most recent 12-month average of hours at the current pay rate may be used as qualifying income.
7.3 Borrower(s) Acceptable documentation to validate average hours:
Whose Hours Vary
• 12 months of consecutive paystubs
• Employer to provide a 12-month history of hours worked

Commission Income may be used as Effective Income if the Borrower earned the income for at least one year in the same or similar line of work and
it is likely to continue.

7.4 Commission Calculate Effective Income from commission by using the lesser of:
Income • Either the average commission income earned over the previous two years, or
• The length of time commission income has been earned if less than two years or,
• The average commission income earned over the previous year

For borrowers with gaps in employment of 6 months or more (an extended absence) the borrower’s current income may be
considered effective provided the below can be documented:
• The borrower has been employed in the current job for at least 6 months at the time of the case number assignment; and
7.5 Gaps In
Employment • a 2-year work history prior to the absence from employment
Note: Documentation extending further than 2 years to cover the gap may be required in the case of varying (hourly waged) borrowers
i.e., gap of employment due to COVID in the most recent 24 months will require documentation to support a full 24 months of income without the
gap may be required.

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Part-time employment refers to employment that is not the borrower’s primary employment and is performed generally for less than 40 hours per
week.

7.6 Part-Time • Part-time employment income may be used as effective income if the borrower has a history of working two jobs uninterrupted for the past
Income two years and the current position is likely to continue
• The income must be averaged over the previous two years
• If a documented increase in pay rate is verified, a 12-month average of hours at the current pay rate may be used

Rental Income from the subject Property may be considered Effective Income when the Property is a two- to four-unit dwelling. Rental income from
a single family with an Accessory Dwelling Unit (ADU) is not acceptable.
• No income from commercial space may be included in Rental Income calculations
DOCUMENTATION REQUIREMENTS
Limited/No History of Rental Income Since Previous Tax Filing
Two-to –Four Units:
• Verify and document the proposed rental income by obtaining an appraisal showing fair market rent and, if available, the
prospective leases
History of Rental Income
• TOTAL Mortgage Scorecard: Verify and document the existing Rental Income by obtaining the Borrower’s most recent tax
returns, including Schedule E, from the previous two years.

• Manual Underwrite: Verify and document the existing Rental Income by obtaining:

7.7 Rental Income o the existing lease, rental history over the previous 24 months that is free of unexplained gaps greater than three months
Subject Property (such gaps could be explained by student, seasonal or military renters, or property rehabilitation),
o and the Borrower’s most recent tax returns, including Schedule E, from the previous two years.
For Properties with less than two years of Rental Income history, document the date of acquisition by providing the Mortgage/Deed of Trust, Closing
Disclosure, or similar legal document.
CALCULATION OF EFFECTIVE INCOME
Subject property Rental Income must be added to the Borrower’s gross income and may not reduce the Borrower’s total Mortgage Payment by the
net subject property Rental Income.
Limited/No History of Rental Income Since Previous Tax Filing, use the lessor of:
• The monthly operating income reported on Fannie Mae form216/Freddie Mac form 998; or
• 75 percent of the lessor of:
o Fair market rent reported by the Appraiser; or
o Rent reflected in the lease or other rental agreement
Rental Income is calculated by averaging the amount shown on Schedule E, Depreciation, mortgage interest, taxes, insurance, and any Homeowners’
Association (HOA) dues shown on Schedule E may be added back to the net income or loss.

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Section 8 - Property

• Condotels/Hotel Conversions
• Cooperatives
• Geodesic Domes

8.1 Ineligible • Mobile Homes

Properties • Singlewide Manufactured Homes
• Timeshares
• Unimproved Land and property currently in litigation
• Working Farms and Ranches

The FHA appraisal validity period is 180 days

Extension up to 1 year
• An appraisal update may be performed to extend the original appraisal validity to one year if:
8.2 Appraisal
Validity o the appraisal update is performed within one year from the effective date of the initial appraisal being updated
o the appraisal update is completed by the original FHA appraiser
o Transferred appraisals may not be extended unless original appraisal was ordered through an Orion Lending approved AMC and
subject to appraiser acceptance of the update request

An Accessory Dwelling Unit (ADU) refers to a habitable living unit added to, created within, or detached from a primary one-unit Single Family
dwelling, which together constitute a single interest in real estate. It is a separate additional living unit including:
• A kitchen;
• Sleeping area;
8.3 Accessory
• Bathroom facilities;
Dwelling Unit
(ADU) • An independent means of ingress and egress; and
• Is independent from the primary dwelling unit.
o If the ADU is created within the primary dwelling, to be considered independent, the ADU must be able to be secured from outside
entry from the primary dwelling.
A Single-Family Residential Property with an ADU remains a one-unit Property. For any Property with two or more units, a separate additional
Dwelling Unit must be considered as an additional unit.

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• Manual UW LTV cannot exceed 90%

• Condo Project may not be on the FHA approved Condominium Project list
If the condominium project is not FHA approved and a single-unit approval is needed, Broker to provide at the time of the case
number assignment request:
• HUD -9991 fully completed by the HOA
• DU Findings
• If the Unit is in a Condominium Project that is not currently approved but has an FHA Condo ID, Orion will enter the FHA Condo ID when the
FHA case number is requested

8.4 Single-Unit Orion Lending will:

Condominium • Submit the completed form 9991 to HUD at the time of the case number assignment request
Approval Eligibility
o Loan will be placed on holds tracking until the FHA concentration can be confirmed and determined acceptable by HUD
o Turn time approximately 3 days
• Retrieve the case number results
• Notify the broker
o Results are successful, appraisal can be ordered
o Results are unsuccessful, case number has not been assigned, the project exceeds HUD’s threshold for FHA concentration
If the case number was ordered as a SFR (single family residence) and it is discovered during the underwriting process that the property is condo,
HUD requires the case number to be cancelled and re-ordered. HUD does not permit the case number to updated to a condo once the case number
has been assigned.

Net Self-Sufficiency rental income refers to the rental income produced by the subject property over and above the PITIA.

8.5 3-4 Unit Self- The calculation uses the appraiser’s estimate of fair market rent from all units, including the unit the borrower chooses for occupancy and subtracting
Sufficiency the appraiser’s estimate for vacancies and maintenance or 25% of the fair market rent.
Requirement • The PITIA divided by the monthly net self-sufficiency may not exceed 100 percent for 3–4-unit properties
NOTE: If any unit is currently being used for a business, the rents from that unit cannot be considered when computing self-sufficiency

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The eligibility of a property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller acquired title to
the property and the date of execution of the sales contract that will result in the FHA-insured Mortgage. FHA defines the seller’s date of acquisition
as the date the seller acquired legal ownership of that property. FHA defines the resale date as the date of execution of the sales contract by all
parties intending to finance the Property with an FHA-insured Mortgage.
Property Re-sold 0-90 days from Acquisition
• Ineligible however sales contracts that were executed during the 0–90-day time-period may be re-executed on or after the 91st day. The
existing URLA, DU findings, loan number and case number (if unexpired) may be used.
• An appraisal for the same borrower(s) that pre-dates the contract execution date is unacceptable
Property Re-sold 91-180 days from Acquisition

8.6 Property A second appraisal by another appraiser if:

Flipping • Two appraisals are required if the sales price is an increase greater than 100% of the acquisition cost
• The required second appraisal must be completed by different FHA appraiser and must include documentation to support the increased
value
• The borrower cannot be charged if a second appraisal is required
o If the second appraisal supports a value of the property that is more than 5 percent lower than the value of the first appraisal, the
lower value must be used as the property value in determining the adjusted value. The cost of the second appraisal may not be
charged to the borrower.
Property Re-sold 181-360 days from Acquisition
• A second appraisal is only required at the discretion of the underwriter
• The borrower cannot be charged if a second appraisal is required

Section 9 - Misc. Guidelines

9.1 Maximum
Seller 6%
Contributions

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Inducements to Purchase refer to certain expenses paid by the seller and/or another Interested Party on behalf of the Borrower and result in a
dollar-for-dollar reduction to the purchase price when computing the Adjusted Value of the Property before applying the appropriate Loan-to-Value
(LTV) percentage. These inducements include, but are not limited to:
• Contributions exceeding 6 percent of the purchase price
• Contributions exceeding the origination fees, other closing costs, prepaid items, and discount points
• Decorating allowances
• Repair allowances
• Excess rent credit
9.2 Inducements to
Purchase • Moving costs
• Paying off consumer debt
• Personal Property
• Sales commission on the Borrower’s present residence
• Below-market rent, except for Borrowers who meet the Identity-of-Interest exception for Family Members
Below-market rent is an inducement to purchase when the sales contract terms, including a lease to purchase, allow the borrower to live in the
property rent free or for a rental amount that is greater than 10% below the appraisers estimate of fair market rent. In such cases the inducement is
the difference between the rent charged and the appraiser’s estimate of fair market rent prorated over the period between the execution of the sales
contract and the property sale.

The maximum loan-to-value (LTV) percentage for Identity-of-Interest transactions on principal residences, including transactions where a tenant-
landlord relationship exists at the time of contract execution, is restricted to 85 percent. An Identity-of-Interest transaction is a sale between parties
with an existing Business Relationship or between Family Members. The 85 percent maximum LTV restriction does not apply for Identity-of-Interest
transactions under the following circumstances:
• Family Member Transactions
o The principal residence of another family member; or
o A property owned by another family member in which the borrower has been a tenant for at least 6 months immediately predating
the sales contract. A lease or other written evidence to verify tenancy and occupancy is required.
9.3 Identity of
Interest • Builder’s Employee Purchase
o An employee of a builder, who is not a family member purchases one of the builder’s new houses or models as a principal
residence
• Corporate Transfer
o A corporation transfers an employee to another location, purchases the employee’s hours, and sells the house to another employee
• Tenant Purchase
o The current tenant purchases the property where the tenant has rented the property for at least 6 months immediately predating
the sales contract. A lease or other written evidence to verify tenancy and occupancy is required.

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9.4 Closing in Trust Permitted for both purchase and refinance, subject to Orion approval. See Orion Lending Trust Policy for requirements.

Permitted for all transactions, excluding cash-out refinances, with the following requirements:
• Must be specific to the transaction;

9.5 Power of • Must include the borrower(s) name, property address and loan amount;
Attorney • The POA must be fully executed and notarized; and
• A letter of explanation required from the borrower to document the reason for using.
• Orion Lending to review and approve prior to loan closing.

• May not be, or have any affiliation with, the builder, the developer, the real estate agent, the mortgage broker or any other interested party
to the transaction
• Must be the legal age to bind a contract
• Must be a relative, defined as the borrower’s spouse, child, or other dependents, or by any other individual who is related to the borrower
9.6 Co-Signors by blood, marriage, adoption, or legal guardianship, a fiancé, or domestic partner
• Do not have an ownership interest in the subject property as indicated on the title
• Have joint liability for the note with the borrower
• Must execute additional closing documents per state spousal matrix, if married

Purchase Transaction
• Individuals placed on title may be borrower(s) or title-only owners. All individuals placed on title must be listed as the buyer on the
purchase contract.
9.7 Parties on Title
Refinance Transactions
• At least one borrower on the loan must also be an owner on title. Additional title-only parties are permitted and may currently be on the
title or may also be added through the transaction.

9.8 Escrow Allowed – see Escrow Holdback policy for details

Holdbacks

9.9 Flood If flood insurance is required, Orion Lending will follow HUD guidelines and accept either Private Flood Insurance, or National Flood Insurance
Insurance

9.10 VVOE – FHA VVOE (or third-party verification) for income source of salaried and self-employed borrowers required. Non-W2 and non-self-employed borrowers do
Streamline not require a VVOE.

9.11 FHA • 4000.1

Resources • FHA FAQ

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