FHA Single Family Housing Policy Handbook 4000.1, Part II — a. Origination/Processing (05/25/2025)

FHA Single Family Housing Policy Handbook 4000.1, Part II — a. Origination/Processing (05/25/2025)

a. Origination/Processing (05/25/2025) i. Application Packages and Disclosures (A) Borrower Eligibility (1) Definition Borrower refers to one who applies for and receives a Loan insured under this part. The term may also include any co-maker or Co-signer or any assumptor who is obligated for the repayment of a loan obligation insured under this part. (2) Contents of the Loan Application Package The Lender must maintain all information and documentation that is relevant to its approval decision in the Lender’s case binder. All information and documentation that is required in this Handbook 4000.1, and any incidental information or documentation related to these requirements, is relevant to the Lender’s approval decision. If, after obtaining all documentation required below, the Lender has reason to believe it needs additional support for the approval decision, the Lender must obtain additional explanation and documentation, consistent with information in the case binder, to clarify or supplement the information and documentation submitted by the Borrower. (a) Maximum Age of Loan Application Documents Documents used in the origination and underwriting of a Loan may not be more than 120 Days old at the Disbursement Date. Only documents whose validity for underwriting purposes is not affected by the passage of time, such as divorce decrees or Tax Returns, may be more than 120 Days old at the Disbursement Date. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 884 Last Revised: 11/26/2025 For counting purposes, Day one is the Day after the effective or issue date of the document, whichever is later. (b) Handling of Documents Lenders, including sponsored TPOs, must not accept or use documents relating to the employment, income, assets, or credit of Borrowers that have been handled by, or transmitted from or through, the equipment of unknown or Interested Parties, including the Borrower, the Dealer or its agent, or sponsored TPOs. The documents referred to in this section are Lender-generated direct verification documents, which are used to verify and supplement documentation submitted by the Borrower at application. These verifications are to be sent directly from the Lender to the requested responder to obtain independent, written verification of employment, income, rent, or financial accounts. (i) Information Sent to the Lender Electronically The Lender must authenticate all documents received electronically by examining the source identifiers (e.g., fax banner header or the sender’s email address) and contacting the source by telephone to verify the document’s validity. The Lender must document the name and telephone number of the individual with whom the Lender verified the validity of the document. (ii) Information Obtained via Internet The Lender must authenticate documents obtained from an Internet website and examine portions of printouts downloaded from the Internet including the Uniform Resource Locator (URL) address, as well as the date and time the documents were printed. The Lender must verify that the website exists. Documentation obtained through the Internet must contain the same information as would be found in an original hard copy of the document. (iii)Confidentiality Policy for Credit Information Lenders must not divulge sources of credit information, except as required by a contract or by law. All personnel with access to credit information must ensure that the use and disclosure of information from a credit report complies with: • Fair Housing Act, 42 U.S.C. §§ 3601–3619; • the Fair Credit Reporting Act (FCRA), Public Law 91-508; • the Privacy Act, Public Law 93-579; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 885 Last Revised: 11/26/2025 • the Financial Privacy Act, Public Law 95-630; and • the Equal Credit Opportunity Act (ECOA), Public Law 94-239 and 12 CFR Part 202. (c) Signature Requirements for All Application Forms All Borrowers must sign and date the Fannie Mae Form 1003/Freddie Mac Form 65, Uniform Residential Loan Application (URLA), and form HUD- 92900-TI, HUD Addendum to the Uniform Residential Loan Application for Title I Loans. The application may not be signed by any party who will not be on the Note. A Power of Attorney (POA) may not be used unless the Lender verifies and documents that all of the following requirements have been satisfied: • For military personnel, a POA may only be used when all of the following apply: o when the service member is on overseas duty or on an unaccompanied tour; o when the Lender is unable to obtain the absent Borrower’s signature on the application by mail or fax; and o where the attorney-in-fact has specific authority to encumber the Property and to obligate the Borrower. • For incapacitated Borrowers, a POA may only be used: o where a Borrower is incapacitated and unable to sign the application; and o where the attorney-in-fact has specific authority to encumber the Property and to obligate the Borrower. For guidance on use of POA on closing documents refer to Use of Power of Attorney at Closing. (d) Prohibition on Documents Signed in Blank Lenders are not permitted to have Borrowers sign documents in blank, incomplete documents, or blank sheets of paper. (e) Policy on Use of Electronic Signatures (i) Definition An Electronic Signature refers to any electronic sound, symbol, or process attached to or logically associated with a contract or record and executed or adopted by a person with the intent to sign the record. FHA does not accept an electronic signature that is solely voice or audio. Digital signatures are a subset of electronic signatures. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 886 Last Revised: 11/26/2025 (ii) Use of Electronic Signatures An electronic signature conducted in accordance with the Electronic Signature Performance Standards (Performance Standards) is accepted on FHA documents requiring signatures to be included in the case binder for loan insurance, unless otherwise prohibited by law. Electronic signatures meeting the Performance Standards are treated as equivalent to handwritten signatures. (iii)Electronic Signature Performance Standards The Performance Standards are the set of guidelines that govern FHA acceptance of an electronic signature. The use of electronic signatures is voluntary. However, Lenders choosing to use electronic signatures must fully comply with the Performance Standards. The Electronic Signatures in Global and National Commerce Act (ESIGN Act) Compliance and Technology A Lender’s electronic signature technology must comply with all requirements of the ESIGN Act, including those relating to disclosures, consent, signature, presentation, delivery, retention and any state law applicable to the transaction. Third Party Documents Third Party Documents refer to those documents that are originated and signed outside of the control of the Lender, such as the sales contract. FHA will accept electronic signatures on Third Party Documents included in the case binder for loan insurance endorsement in accordance with the ESIGN Act and the Uniform Electronic Transactions Act (UETA). An indication of the electronic signature and date should be clearly visible when viewed electronically and in a paper copy of the electronically signed document. Authorized Documents Authorized Documents refer to the documents on which FHA accepts electronic signatures provided that the Lender complies with the Performance Standards. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 887 Last Revised: 11/26/2025 • Loan Insurance Endorsement Documents: Electronic signatures will be accepted on all documents requiring signatures included in the case binder for loan insurance. • Servicing and Loss Mitigation Documentation: Electronic signatures will be accepted on any documents associated with servicing or loss mitigation services for FHA-insured Loans. • FHA Insurance Claim Documentation: Electronic signatures will be accepted on any documents associated with the filing of a claim for FHA insurance benefits, including form HUD-637, Title I Claim for Loss. Associating an Electronic Signature with the Authorized Document The Lender must ensure that the process for electronically signing authorized documents provide for the document to be presented to the signatory before an electronic signature is obtained. The Lender must ensure that the electronic signature is attached to, or logically associated with, the document that has been electronically signed. Intent to Sign The Lender must be able to prove that the signer certified that the document is true, accurate, and correct at the time signed. Electronic signatures are only valid under the ESIGN Act if they are “executed or adopted by a person with the intent to sign the record.” Establishing intent includes: • identifying the purpose for the Borrower signing the electronic record; • being reasonably certain that the Borrower knows which electronic record is being signed; and • providing notice to the Borrower that their electronic signature is about to be applied to, or associated with, the electronic record. Intent to use an electronic signature may be established by, but is not limited to: • an online dialog box or alert advising the Borrower that continuing the process will result in an electronic signature; • an online dialog box or alert indicating that an electronic signature has just been created and giving the Borrower an opportunity to confirm or cancel the signature; or • a click-through agreement advising the Borrower that continuing the process will result in an electronic signature. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 888 Last Revised: 11/26/2025 Single Use of Signature Lenders must require a separate action by the signer, evidencing intent to sign, in each location where a signature or initials are to be applied. This provision does not apply to documents signed by Lender employees or Lender contractors provided the Lender obtains the consent of the individual for the use of their electronic signature. The Lender must document the Borrower’s consent. Authentication - Definition Authentication refers to the process used to confirm a signer’s identity as a party in a transaction. Authentication - Standard Before a Lender reports the Loan for insurance, the Lender must confirm the identity of the signer by authenticating data provided by the signer with information maintained by an independent source. Independent sources include, but are not limited to: • national commercial credit bureaus; • commercially available data sources or services; • state motor vehicle agencies; or • government databases. The Lender must verify a signer’s name and date of birth, and either their Social Security Number (SSN) or driver’s license number. Attribution - Definition Attribution is the process of associating the identity of a signer with their signature. Attribution - Standard The Lender must maintain evidence sufficient to establish that the electronic signature may be attributed to the individual purported to have signed. The Lender must use one of the following methods, or combinations of methods, to establish attribution: • selection by or assignment to the individual of a Personal Identification Number (PIN), password, or other shared secret, that the individual uses as part of the signature process; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 889 Last Revised: 11/26/2025 • delivery of a credential to the individual by a trusted third party, used either to sign electronically or to prevent undetected alteration after the electronic signature using another method; • knowledge base authentication using “out of band/wallet” information; • measurement of some unique biometric attribute of the individual and creation of a computer file that represents the measurement, together with procedures to protect against disclosure of the associated computer file to unauthorized parties; or • public key cryptography. Credential Loss Management Lenders must have a system in place to ensure the security of all issued credentials. One or a combination of the following loss management controls is acceptable: • maintaining the uniqueness of each combined identification code and password, such that no two individuals have the same combination of identification code and password; • ensuring that identification code and password issuances are periodically checked, recalled, or revised; • following loss management procedures to electronically deauthorize lost, stolen, missing, or otherwise compromised identification code or password information, and to issue temporary or permanent replacements using suitable, rigorous controls; • using transaction safeguards to prevent unauthorized use of passwords or identification codes; or • detecting and reporting any attempts at unauthorized use of the password or identification code to the system security unit. (f) Required Documentation and Integrity of Records Lenders must ensure that they employ industry-standard encryption to protect the signer’s signature and the integrity of the documents to which it is affixed. Lenders must ensure that their systems will detect and record any tampering with the electronically signed documents. FHA will not accept documents that show evidence of tampering. If changes to the document are made, the electronic process must be designed to provide an “audit trail” showing all alterations, the date and time they were made, and identify who made them. The Lender’s system must be designed so that the signed document is designated as the Authoritative Copy. The Authoritative Copy of an II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 890 Last Revised: 11/26/2025 electronically signed document refers to the electronic record that is designated by the Lender or holder as the controlling reference copy. (3) Credit Application and Required Supporting Documentation The Lender must obtain a completed URLA (Fannie Mae Form 1003/Freddie Mac Form 65) and form HUD-92900-TI from the Borrower in order to begin the origination process. (a) Interview with Borrower The Lender must conduct a telephone or face-to-face interview with the Borrower and any co-maker or Co-signer to resolve any material discrepancies, and ensure that the information, including listed debts and obligations, is accurate and complete. (b) Contractor Certification If the Loan is originated as a Dealer Loan, the person selling the improvements must sign the Note to Salesperson certification provided on form HUD-92900-TI. (c) Credit Application Name Requirements (i) Standard All credit applications must be executed in the legal names of one or more individuals on the application. Credit applications from a corporation, partnership, sole proprietorship, nonprofit or trust (including living or non-revocable trusts) are not permitted under Title I. A multifamily dwelling (two or more units) may be owned by a corporation, partnership, or trust with prior approval from the Secretary. Loan applications from a corporation, partnership, or trust must be in the name of the entity and also be in the name of one or more individuals. (ii) Required Documentation The Lender must include a statement that it has verified the Borrower’s identity using a valid government-issued photo identification at or prior to closing the Loan, or the Lender may choose to include a copy of such photo identification as documentation. (d) Disclosure of Improvements to be Made The improvements to be made must be specified on the URLA. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 891 Last Revised: 11/26/2025 (4) Borrower’s Authorization The Lender must obtain the Borrower’s authorization to verify the information needed to process the loan application. (5) Borrower’s Authorization for Use of Information Protected under the Privacy Act (a) Standard The Lender must obtain the Borrower’s consent for use of the Borrower’s information for any purpose relating to the origination, servicing, loss mitigation, and disposition of the Loan or, if applicable, the Property securing the Loan, and relating to any insurance claim and ultimate resolution of such claims by the Lender and FHA. (b) Required Documentation The Lender must obtain a signed statement from the Borrower that clearly expresses the Borrower’s consent for the use of the Borrower’s information as required above. (6) Improvement Contract and Required Documentation (a) Standard The Lender must not originate a Title I Property Improvement Loan if any provision of a contract or agreement to perform property improvements violates FHA requirements. An addendum or modification may be used to remove or correct nonconforming provisions. The Lender must ensure that at least one individual who signed the improvement proposal or contract is a Borrower. (b) Required Documentation The Lender must obtain supporting documentation to determine if all improvements are eligible for Title I financing and also to determine the reasonableness of the cost for the material and labor described. (i) Contractor Improvements If a Borrower plans to use a contractor, a Lender must obtain a copy of a proposal or contract that describes in detail the work to be performed and the estimated or actual cost. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 892 Last Revised: 11/26/2025 (ii) Borrower Acting as Own Contractor If a Borrower is Acting as Own Contractor, the Lender must obtain a detailed written description of the work to be performed including the materials to be furnished and their estimated cost. (iii)Split Financing If a contract or work estimate exceeds the amount of the Title I Loan, the Lender must verify the source of the additional funds. If the funds are from an additional Loan, this Loan Payment must be considered in the Borrower’s debt ratio. (B) Disclosures and Legal Compliance The Lender must provide or ensure the Borrower is provided with the following disclosure. (1) Notice to Borrower of HUD’s Role in Title I Loans (a) Standard The Lender must provide a written notice to clearly inform each Borrower that the Loan will be insured against Default by HUD and about the actions that HUD will take to collect the Loan if the Borrower defaults. This notice also serves to document the Borrower’s agreement to pay any penalties and administrative costs that may be assessed by HUD. (b) Required Documentation – Borrower Acknowledgment The Lender must have each Borrower sign a copy of the notice prior to closing. The copy signed by the Borrower(s) must be retained in the case binder. (c) Required Documentation – Wording of the Notice On any newly originated dealer Property Improvement Loan, and on any refinanced or assumed Property Improvement Loan, the Lender must prepare the notice on the Lender’s letterhead. The notice must read as follows: We have approved your application for a property improvement loan that is to be insured by the Department of Housing and Urban Development. If you fail to repay this loan as agreed, we may assign the loan and any mortgage to HUD for collection. Failure to pay this debt to HUD may result in offset of Federal payments due you (including Federal income tax refunds, Social Security II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 893 Last Revised: 11/26/2025 benefit payments, and Federal employee wages or retirement) or may result in the administrative garnishment of your wages. In addition, failure to pay may result in the referral of the debt for collection by the Department of Justice, by the Department of the Treasury, or by private collection agencies. In addition to principal and interest on the debt, you will be liable for the payment of any penalties or administrative costs that may be imposed by HUD as authorized by Section 3717 to Title 31 of the United States Code. Your signature below indicates that you have read and understand this notice, and that you consent to pay any penalties, administrative costs, and interest that may be assessed by HUD. On any newly originated direct Property Improvement Loan, the text of the notice must read as follows: We have approved your application for a property improvement loan that is to be insured by the Department of Housing and Urban Development. As one of the conditions of loan approval, you have agreed to furnish us with a form HUD-56002, Completion Certificate for Property Improvements, after the work is completed, and to permit us, or our agent, to inspect the completed improvements. If you fail to repay this loan as agreed, we may assign the loan and any mortgage to HUD for collection. Failure to pay this debt to HUD may result in offset of Federal payments due you (including Federal income tax refunds, Social Security benefit payments, and Federal employee wages or retirement) or may result in the administrative garnishment of your wages. In addition, failure to pay may result in the referral of the debt for collection by the Department of Justice, by the Department of the Treasury, or by private collection agencies. In addition to principal and interest on the debt, you will be liable for the payment of any penalties or administrative costs that may be imposed by HUD as authorized by Section 3717 to Title 31 of the United States Code. Your signature below indicates that you have read and understand this notice, and that you consent to pay any penalties, administrative costs, and interest that may be assessed by HUD. (2) Compliance with All Applicable Laws, Rules, and Requirements The Lender must comply with all federal, state, and local laws, and requirements applicable to the loan transaction, including full compliance with the applicable disclosure requirements of the Consumer Financial Protection Bureau (CFPB), including those related to: II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 894 Last Revised: 11/26/2025 • Truth in Lending Act (TILA); • Real Estate Settlement Procedures Act (RESPA); and • the FCRA and the ECOA, as implemented by Regulation B (12 CFR Part 1002). (3) Nondiscrimination Policy The Lender must fully comply with all applicable provisions of nondiscrimination and equal opportunity laws, regulations, and contract provisions including, but not limited to: • Fair Housing Act, 42 U.S.C. §§ 3601–3619; • the FCRA, 15 U.S.C. §§ 1681a‒1681x; and • the ECOA, 15 U.S.C. §§ 1691a‒1691f. The Lender must make all determinations with respect to the adequacy of the Borrower’s income in a uniform manner without regard to race, color, religion, sex, age, national origin, familial status, disability, marital status, receipt of public assistance, because an applicant has in good faith exercised any right under the Consumer Credit Protection Act, or location of the Property. (C) Application Document Processing The Lender must report the Loan and perform any associated tasks in FHA Connection (FHAC). The Lender may use nonemployees in connection with its origination of FHA-insured Loans only as described below. The Lender ultimately remains responsible for the quality of the Loan and for strict compliance with all applicable FHA requirements, regardless of the Lender’s relationship to the person or entity performing any particular service or task. (1) Sponsored Third-Party Originator The Lender is responsible for dictating the specific application and processing tasks to be performed by the sponsored TPO. Only HUD-approved Lenders acting in the capacity of a sponsored TPO may have direct access to FHAC. (2) Dealer The Lender is responsible for approving and monitoring a Dealer and dictating the specific application and processing tasks that the Dealer performs. (3) Contract Service Providers A Lender may use qualified contractors to perform the administrative and clerical loan processing functions, provided the contractors do not have an interest in the transaction. These contractors perform the following functions: typing loan II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 895 Last Revised: 11/26/2025 documents, mailing out and collecting verification forms, ordering credit reports, and/or preparing for insuring and shipping Loans to Investors. (4) Excluded Parties The Lender may not contract with entities or persons that are suspended, debarred, or otherwise excluded from participation in HUD programs, or under a Limited Denial of Participation (LDP) that excludes their participation in FHA programs. The Lender must ensure that no sponsored TPO or contractor engages such an entity or person to perform any function relating to the origination of an FHA-insured Loan. The Lender must check the System for Award Management (SAM) and must follow appropriate procedures defined by that system to confirm eligibility for participation. (5) Underwriter Qualifications HUD does not approve nor require Direct Endorsement certification for Title I underwriters. Title I Lenders approve the underwriter based on demonstrated capabilities and knowledge in loan underwriting. The Lender must ensure that the underwriter meets the necessary qualifications to underwrite Title I Property Improvement Loans. The Lender that closes or reports the Loan for insurance in FHAC must employ the underwriter in a full-time position. (D) Initial Document Processing The Lender begins processing the Loan by obtaining the completed URLA (Fannie Mae Form 1003/Freddie Mac Form 65) and form HUD-92900-TI. (E) Case Number Assignment The case number is assigned when the Loan is reported for insurance in FHAC. A Lender reports all prospective Title I Property Improvement Loans to HUD via the FHAC portal web site. Once the Lender’s submission passes all data entry validations, it is accepted for overnight processing. This process verifies the submitted data against a series of system validations. Once completed, the system will issue a Title I case number that will be specific to the loan transaction. The system will advise the Lender if additional information is required or if corrections are needed. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 896 Last Revised: 11/26/2025 ii. Property Improvement Loan Eligibility and Purpose (A) Definition A Property Improvement Loan refers to a Loan made to finance actions or items that substantially protect or improve the basic livability or utility of a Property. Unless otherwise indicated, the term includes: • Single Family, Multifamily and Nonresidential Property Improvement Loans; • Manufactured Home Improvement Loans classified as real estate or as Personal Property; • Historic Preservation Loans; and • Fire Safety Equipment Loans in existing Health Care Facilities. (B) Standard The loan proceeds may be used for the following loan types and purposes. (1) Single Family Property Improvement Loan A Single Family Property Improvement Loan refers to a Loan to finance alterations, repairs, and improvements to or in connection with an Existing Structure used or to be used as a Single Family residence. Existing Structure refers to a dwelling, including a Manufactured Home, which was completed and occupied at least 90 Days prior to an application for a Title I Loan, or a nonresidential Structure that was a completed building with a distinctive functional use prior to an application for a Title I Loan. However, these occupancy and completion requirements shall not apply to: • Loans having a principal obligation of $1,000 or less; or • residential Structures which have been damaged by conditions determined by the President to warrant relief under the provisions of title 42, chapter 68, of the United States Code. (2) Multifamily Property Improvement Loan A Multifamily Property Improvement Loan refers to a Loan to finance the alteration, repair, improvement, or conversion of an Existing Structure used or to be used as an apartment house or a dwelling for two or more families. The multifamily Structure may not be owned by a corporation, partnership, or trust, unless prior approval from the Secretary is obtained for an exception to this requirement. (3) Nonresidential Property Improvement Loan A Nonresidential Property Improvement Loan refers to a Loan made to finance the construction of a new, exclusively nonresidential Structure or the alteration, repair, or improvement of an Existing Structure that is nonresidential. Such a II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 897 Last Revised: 11/26/2025 Structure may be temporarily used for residential purposes while the Borrower constructs a new dwelling to replace a dwelling previously occupied by the Borrower that was destroyed or damaged by conditions determined by the President to warrant relief under the provisions of 42 U.S.C. Chapter 68, provided that the credit application is filed within one year from the date of such a determination. (4) Manufactured Home Improvement Loan (Real Estate) A Manufactured Home Improvement Loan refers to a Loan made to finance the alteration, repair, or improvement of an Existing Manufactured Home, which is classified as Real Property in that the home is placed on a permanent foundation, the home and lot are classified as realty by the state or locality in which the Property is located, and any Loans on the Property are secured by Loans or deeds of trust covering the home and lot. The proceeds of a Manufactured Home Improvement Loan may also be used for improvements to the home site, as long as the Borrower is the owner of the home and the underlying real estate. An owner is a person, including a Borrower, who has title in whole or in part to the Property which is the subject of a loan transaction. (5) Manufactured Home Improvement Loan (Chattel/Personal Property) A Manufactured Home Improvement Loan refers to a Loan made to finance the alteration, repair, or improvement of an Existing Manufactured Home, which is classified as Personal Property by the state or locality in which the Property is located. The proceeds of a Manufactured Home Improvement Loan may also be used for improvements to the home site, as long as the Borrower is the owner of the home and the underlying real estate. (6) Historic Preservation Loan A Historic Preservation Loan refers to a Loan to finance the preservation (restoration or rehabilitation) of an historic residential Structure, which is listed on the National Register of Historic Places, or certified by the Secretary of the Interior as conforming to National Register criteria. Restoration is the process of accurately recovering the form and details of a historic residential structure as it appeared at a particular period of time by removing later work and by replacing missing original work. Rehabilitation refers to the process of returning a historic residential structure to a state of utility, through repair or alteration, which makes possible an efficient contemporary use. In rehabilitation, those portions of the Property important in illustrating historic, architectural and cultural values are preserved or restored. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 898 Last Revised: 11/26/2025 (7) Fire Safety Equipment Loan for Health Care Facility A Fire Safety Equipment Loan refers to a Loan made to finance the purchase and installation of any device or construction feature which is recognized in the latest edition of HUD’s Minimum Property Standards for Care Type Housing (HUD Handbook 4920.1) or the Fire Safety Code of the National Fire Protection Association, and is designed to reduce the risk of death, personal injury, or property damage resulting from a fire in a Health Care Facility. A Health Care Facility refers to a proprietary facility or a facility of a private nonprofit corporation or association licensed or regulated by the state or by the municipality or other political subdivision in which the facility is located, and operated as one or more of the following: • a nursing home for the accommodation of convalescents or other persons who are not acutely ill and not in need of hospital care, but who require skilled nursing care and related medical services performed under the general direction of persons licensed by the law of the state where the facility is located to provide such care or services; • an intermediate Health Care Facility for the accommodation of persons who, because of incapacitating infirmities, require minimum but continuous care, but not continuous medical care or nursing services; • an extended Health Care Facility for inpatient care for convalescents or chronic disease patients who require skilled nursing care and related medical services; or • another comparable Health Care Facility. (C) Refinance A refinance transaction establishes a new Loan to pay off the existing debt for a Borrower with legal title to the subject Property. The existing debt to be paid off must be a Title I Property Improvement Loan. The refinance Loan may also advance funds for additional improvements. FHA insures three types of Title I Property Improvement refinance transactions: 1. Simple Title I Property Improvement Refinance 2. Streamline Title I Property Improvement Refinance (Non-credit Qualifying) 3. Title I Property Improvement Refinance With Advance of Funds (D) General Borrower Eligibility Requirements In order to obtain FHA-insured financing, all Borrowers must meet the eligibility criteria in this section. The Borrower who is also the Dealer or contractor must comply with Title I Borrower Acting as Own Contractor policy. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 899 Last Revised: 11/26/2025 (1) Social Security Number (a) Standard Each Borrower must provide evidence of their valid Social Security Number (SSN) to the Lender, except for individuals employed by the World Bank, a foreign embassy, or equivalent employer identified by HUD, who are not required to provide an SSN. (b) Required Documentation The Lender must: • validate and document an SSN for each Borrower, co-Borrower, or Co-signer on the Loan by: o entering the Borrower’s name, date of birth, and SSN in the Borrower/address validation screen through FHAC; and o examining the Borrower’s Social Security Card; original pay stubs; IRS Form W-2s, Wage and Tax Statement; valid Tax Returns obtained directly from the Internal Revenue Service (IRS); or other document relied upon to underwrite the Loan; and • resolve any inconsistencies or multiple SSNs for individual Borrowers that are revealed during loan processing and underwriting using a service provider to verify the SSN with the SSA. (2) Borrower Age Limits The Borrower must be old enough to enter into a loan Note that can be legally enforced under the laws of the state or other jurisdiction where the Property is located. There is no maximum age limit for a Borrower. (3) Borrower and Co-Borrower Ownership and Obligation Requirements The Borrower must have at least a one-half interest in the Property that is being improved in one of the following forms: • Fee Simple title to the Real Property, including a Manufactured Home that qualifies as Real Property; • lease of the Real Property for a fixed term, which expires not less than six calendar months after the final maturity of the proposed Title I Loan; • a recorded land installment contract for the purchase of the Property; or • title to a Manufactured Home that is the Principal Residence of the Borrower. To be eligible, all Borrowers and co-Borrowers must have title to the Property at settlement, be obligated on the Note or credit instrument, and sign all security instruments. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 900 Last Revised: 11/26/2025 Not all individuals with an interest in the Property are required to be Borrowers. However, the security instrument must be executed by all parties necessary to make the lien valid and enforceable under state law. (4) Citizenship and Immigration Status U.S. citizenship is not required for loan eligibility. (5) Residency Requirements The Lender must determine the residency status of the Borrower based on information provided on the loan application and other applicable documentation. In no case is a Social Security card sufficient to prove immigration or work status. (a) Permanent Residents (i) Standard A Borrower with lawful permanent resident status may be eligible for FHA-insured financing provided the Borrower satisfies the same requirements, terms, and conditions as those for U.S. citizens. (ii) Required Documentation For persons with lawful permanent resident status, the Lender must document the file with evidence of permanent residency and indicate that the Borrower is a lawful permanent resident on Fannie Mae Form 1003/Freddie Mac Form 65, Uniform Residential Loan Application (URLA). The U.S. Citizenship and Immigration Services (USCIS) within the Department of Homeland Security provides evidence of lawful, permanent residency status. (b) Citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau (i) Standard A Borrower with citizenship in the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau may be eligible for FHA-insured financing provided the Borrower satisfies the same requirements, terms, and conditions as those for U.S. citizens. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 901 Last Revised: 11/26/2025 (ii) Required Documentation For Borrowers who are citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau, the file must include evidence of such citizenship. (c) Non-U.S. Citizens without Lawful Residency Non-U.S. citizens without lawful residency in the U.S. are not eligible for FHA-insured Loans. (6) Borrower Ineligibility due to Delinquent Federal Non-tax Debt (a) Standard Lenders are prohibited from processing an application for an FHA-insured Loan for Borrowers with delinquent federal non-tax debt, including deficiencies and other debt associated with past FHA-insured Loans. Lenders are required to determine if the Borrowers have delinquent federal non-tax debt. Lenders may obtain information on delinquent Federal Debts from public records, credit reports or equivalent, and must check all Borrowers against the Credit Alert Verification Reporting System (CAIVRS). (b) Verification If a delinquent Federal Debt is reflected in a public record, credit report or equivalent, or CAIVRS or an Equivalent System, the Lender must verify the validity and delinquency status of the debt by contacting the creditor agency to whom the debt is owed. If the debt was identified through CAIVRS, the Lender must contact the creditor agency using the contact phone number and debt reference number reflected in the Borrower’s CAIVRS report. If the creditor agency confirms that the debt is valid and in delinquent status as defined by the Debt Collection Improvement Act of 1996, then the Borrower is ineligible for an FHA-insured Loan until the Borrower resolves the debt with the creditor agency. The Lender may not deny a Loan solely on the basis of CAIVRS information that has not been verified by the Lender. If resolved either by determining that the information in CAIVRS is no longer valid or by resolving the delinquent status as stated above, the Lender may continue to process the loan application. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 902 Last Revised: 11/26/2025 (c) Resolution In order for a Borrower with verified delinquent Federal Debt to become eligible, the Borrower must resolve their federal non-tax debt in accordance with the Debt Collection Improvement Act of 1996. The creditor agency that is owed the debt can verify that the debt has been resolved in accordance with the Debt Collection Improvement Act. (d) Required Documentation The Lender must include documentation from the creditor agency to support the verification and resolution of the debt. For debt reported through CAIVRS, the Lender may obtain evidence of resolution by obtaining a clear CAIVRS report. (7) Eligibility Period for Borrowers Delinquent on FHA-Insured Loans If a Borrower is currently Delinquent on an FHA-insured Loan, they are ineligible for insurance on a new FHA Loan unless the delinquency is resolved. (8) Delinquent Federal Tax Debt (a) Standard Borrowers with delinquent Federal Tax Debt are ineligible. Tax liens may remain unpaid if the Borrower has entered into a valid repayment agreement with the federal agency owed to make regular payments on the debt, and the Borrower has made timely payments for at least three months of scheduled payments prior to the date of application. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments. The Lender must include the payment amount in the agreement in the calculation of the Borrower’s Debt-to-Income (DTI) ratio. (b) Verification Lenders must check public records and credit information to verify that the Borrower is not presently delinquent on any Federal Debt and does not have a tax lien placed against their Property for a debt owed to the federal government. (c) Required Documentation The Lender must include documentation from the IRS evidencing the repayment agreement and verification of payments made, if applicable. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 903 Last Revised: 11/26/2025 (9) Valid Lien Requirements (a) Unsecured Loan A Property Improvement Loan amount less than or equal to $7,500 may be unsecured. A Manufactured Home Improvement Loan on a unit classified as Personal Property need not be secured and any/combined Title I Loans must not exceed $7,500. (b) Secured Lien Any Property Improvement Loan in excess of $7,500 must be secured against the subject Property. If there are other Title I Loans on the same Property, a Property Improvement Loan of $7,500 or less must be secured if the combination of outstanding balances on the Title I Loans will exceed $7,500. (c) Lien Priority (i) Standard The secured Title I Property Improvement Loan need not be in first lien position. The lien may be in either the first or the second lien position. (ii) Exception A third lien position may be accepted under the following circumstances: • where the existing first and second mortgages were made at the same time for a purchase; • where an existing second mortgage was provided by a state or local government agency in conjunction with a downpayment assistance program; • with a two lien purchase where the second lien expires after a period of occupancy; or • when the Borrower used a two lien transaction to purchase the Property, but refinanced the first trust as a no cash-out or for a lower interest rate. The refinanced first mortgage may include closing costs and reasonable financing fees, but must not have financed additional funds for improvements, debt consolidation, and delinquent taxes, and must not result in cash to the Borrower. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 904 Last Revised: 11/26/2025 A third lien position is not acceptable when: • an existing second mortgage encumbering the Property is a home equity line of credit, or a Home Equity Conversion Mortgage (HECM), or any reverse mortgage; or • the Property is secured by any partial claim event. (iii)Required Documentation Lenders must document concurrent loan dates of the Loans secured by a first and second lien. If the Borrower refinanced the original first mortgage, documentation must be obtained to evidence: • the date of the first mortgage, and date of refinance; • the second lien had been subordinated so that it retained second position; and • the refinanced first mortgage was not greater than the Payoff of the unpaid balance, plus closing costs and reasonable financing fees, and no cash to the Borrower. (10) Eligibility Requirements for Living Trusts (a) Property Held in Living Trust The Lender may originate a Loan for a living trust for a Property held by the living trust, provided the beneficiary of the living trust is a Co-signer and will occupy the Property as their Principal Residence, and the trust provides reasonable means to ensure that the Lender will be notified of any changes to the trust, including transfer of beneficial interest and any changes in occupancy status of the Property. (b) Living Trusts and Security Instruments (i) Standard The name of the living trust must appear on the security instrument, such as the mortgage, deed of trust, or security deed. The name of the individual Borrower must appear on the security instrument when required to create a valid lien under state law. The names of the Owner-Occupant and other Borrowers, if any, must also appear on the Note with the trust. The name of the individual Borrower is not required to appear on the property deed or title. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 905 Last Revised: 11/26/2025 (ii) Required Documentation The Lender must obtain a copy of the trust documentation. (E) Excluded Parties The Lender must establish that no participants are Excluded Parties and document the determination on the Title I loan summary/underwriter’s worksheet. (1) Borrower (a) Standard A Borrower of a new Loan or assumption is not eligible to participate in FHA- insured loan transactions if they are suspended, debarred, or otherwise excluded from participating in HUD programs. Exception Establishing Excluded Parties is not required for an existing Borrower being evaluated under Loss Mitigation Tools. (b) Required Documentation The Lender must check the HUD Limited Denial of Participation (LDP) List to confirm the Borrower’s eligibility to participate in an FHA-insured loan transaction. The Lender must check the System for Award Management (SAM) and must follow appropriate procedures defined by that system to confirm eligibility for participation. (2) Other Parties to the Transaction (a) Standard A Loan is not eligible for FHA insurance if anyone participating in the loan transaction is found on HUD’s LDP List or in SAM. This may include but is not limited to: • Borrower • Dealer involved in a Dealer Loan • loan officer • loan processor • underwriter II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 906 Last Revised: 11/26/2025 (b) Required Documentation The Lender must check HUD’s LDP List and SAM, and must follow appropriate procedures defined by that system to confirm eligibility for participants involved in the transaction. (F) Policy Limiting the Number of Title I Property Improvement Loans (1) Standard Multiple Title I Loans may be issued for the same Property, provided that the sum of the outstanding balances on all Title I Loans on the same Property do not exceed the maximum loan amount outlined above (based on the type of Property). (2) Required Documentation The Lender must include in the case binder verification of the outstanding balances of all Title I Loans. (G) Occupancy Requirements (1) Standard For all property types except Manufactured Homes, the Borrower is not required to occupy the Property. (2) Manufactured Home Improvement Loan Standard The Borrower must own and occupy a Manufactured Home as a Principal Residence. (a) Definition of Principal Residence A Principal Residence refers to a dwelling where the Borrower maintains or will maintain their permanent place of abode, and which the Borrower typically occupies or will occupy for the majority of the calendar year. A person may have only one Principal Residence at any one time. Exception A Borrower who is serving in the United States military and is temporarily deployed or assigned from their permanent duty station near the Manufactured Home is considered to be in a temporary duty status and qualifies as meeting the occupancy requirement. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 907 Last Revised: 11/26/2025 (b) Required Documentation When improvements to a Manufactured Home are financed by a Title I insured Loan, the Borrower must certify that the Manufactured Home is occupied as a Principal Residence. The URLA (Fannie Mae Form 1003/Freddie Mac Form 65) and other loan documents must consistently evidence that the Borrower occupies the Manufactured Home. If the Borrower owns other Property, the URLA must identify the property address, expenses for debt, taxes and insurance, and its use as either a Secondary Residence or for investment. When a Borrower does not occupy a Manufactured Home because of temporary deployment or assignment in the United States military, the case binder must contain documentation to evidence the orders or assigned duty station that is not within reasonable commuting distance from the Manufactured Home. (H) General Property Eligibility (1) Eligible Geographic Locations The Property must be located within the U.S., Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern Mariana Islands, or American Samoa. (2) Restrictions on Property Locations within Coastal Barrier Resources System In accordance with the Coastal Barrier Resources Act, a Property is not eligible for FHA loan insurance if the improvements are in or are proposed to be located within the Coastal Barrier Resources System (CBRS). (3) Hazard Insurance Hazard insurance is not required for Title I Property Improvement Loans. (4) Special Flood Hazard Areas (Secured Liens) (a) Standard For Secured Liens, the Lender must determine if it is located in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). The Lender must obtain flood zone determination services to cover the Life of the Loan Flood Certification. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 908 Last Revised: 11/26/2025 Lenders must ensure that Borrowers maintain adequate Flood Insurance during the life of the Loan. Insurance must be obtained on the secured Loan if the Lender or Servicer becomes aware that the home site involved subsequently becomes part of an SFHA due to a Flood Insurance Rate Map (FIRM) revision. The insurance must be maintained by the Borrower for the remaining term of the Loan. Coverage must meet minimum federal requirements for the type of Property under the National Flood Insurance Program (NFIP). At their discretion, Lenders may require more insurance than those set by the NFIP. Flood maps and other information about FEMA designated flood hazard areas may be obtained from FEMA’s website or by contacting the FEMA office for the geographic area in question. (b) Required Documentation When the Property is secured by a Title I lien, the Lender must obtain the Life of the Loan Flood Certification indicating whether or not the property site is located within an SFHA. (5) Flood Insurance (a) Standard Flood Insurance is required if the Property to be improved is secured and is located in a FEMA designated flood hazard area. The amount of insurance must be no less than the unpaid balance due on the Title I Loan, and the Lender must be named as the loss payee. Prior to closing, Lenders must inform Borrowers of the requirement to have or obtain adequate Flood Insurance as a condition of closing for Properties where any portion of the Property is located in an SFHA. Flood Insurance must be maintained for the life of the insured Loan. (b) Required Documentation When the property site is located in an SFHA, the Lender must provide a copy of the pages from the Flood Insurance policy showing coverage amount equal to or greater than the unpaid principal balance due on the Title I Loan and reflecting the Lender as loss payee. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 909 Last Revised: 11/26/2025 (i) Requirements for Private Flood Insurance If the Borrower purchases a Private Flood Insurance (PFI) policy in lieu of an NFIP policy, the Mortgagee must ensure the PFI policy meets the following requirements: • is issued by an insurance company that is licensed, admitted, or otherwise approved to engage in the business of insurance in the state or jurisdiction in which the Property to be insured is located, by the insurance regulator of the state or jurisdiction; or, in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property, is recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the state or jurisdiction where the Property to be insured is located; • provides Flood Insurance coverage that is at least as broad as the coverage provided under a standard Flood Insurance policy under the NFIP for the particular type of Property, including when considering exclusions and conditions offered by the insurer; • includes deductibles that are no higher than the specified maximum, and includes similar nonapplicability provisions, as under a standard Flood Insurance policy under the NFIP; • includes a requirement for the insurer to provide written notice 45 Days before cancellation or nonrenewal of Flood Insurance coverage to the Borrower and the Mortgagee. In cases where the Mortgagee has assigned the loan to HUD, the insurer must provide notice to HUD and, where applicable, to the Borrower; • includes information about the availability of Flood Insurance coverage under the NFIP; • includes a mortgage interest clause similar to the clause contained in a standard Flood Insurance policy under the NFIP; • includes a provision requiring the Borrower to file suit no later than one year after the date of a written denial for all or part of a claim under the policy; and • contains cancellation provisions that are as restrictive as the provisions contained in a standard Flood Insurance policy under the NFIP. (ii) Private Flood Insurance Policy Compliance Aid Definition The Private Flood Insurance (PFI) Policy Compliance Aid is the statement: “This policy meets the definition of private flood insurance contained in 24 CFR 203.16a(e) for FHA-insured mortgages.” II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 910 Last Revised: 11/26/2025 Standard The PFI Policy Compliance Aid may be made by the insurance provider, attesting that a PFI policy meets the requirements of Flood Insurance. The Mortgagee may rely on the PFI Policy Compliance Aid to determine whether a PFI policy meets the Flood Insurance requirements. A Mortgagee may not reject a policy solely because it is not accompanied by a PFI Policy Compliance Aid. (6) Property Types Title I insures the following eligible property types: • Single Family Dwelling (1 unit) • multifamily dwelling (2 or more units) • nonresidential Property • Manufactured Home (real estate) • Manufactured Home (Chattel/Personal Property) • historic Property (listed on the National Register of Historic Places or certified by the Secretary of the Interior as conforming to National Register criteria) (a) Single Family Dwelling A Single Family Dwelling refers to a one-unit residential Structure that was completed and occupied for a time period of at least 90 Days prior to loan application. This 90-Day occupancy requirement need not be: • satisfied by the Borrower; nor • during the 90 Days immediately prior to the loan application. A newly constructed dwelling that has not been occupied for at least 90 Days is not eligible for a Title I Property Improvement Loan. A vacant residence is eligible so long as it was previously occupied at some point in the past (for at least 90 Days). (b) Multifamily Dwelling A Multifamily Property refers to an Existing Structure used or to be used as an apartment house or dwelling for two or more families. (c) Nonresidential Property A Nonresidential Property refers to a Structure that is used or will be used exclusively for nonresidential purposes. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 911 Last Revised: 11/26/2025 (d) Manufactured Home A Manufactured Home refers to a transportable Structure, comprised of one or more modules, each built on a permanent chassis, with or without a permanent foundation, designed for occupancy as a Principal Residence by a single family. A Manufactured Home being improved may have been constructed at any time, including construction prior to June 15, 1976. The Title I Property Improvement Loan program does not require that Manufactured Homes comply with the National Manufactured Housing Construction and Safety Standards Act of 1974 (42 U.S.C. §§ 5401–5426) at 24 CFR Part 3280. The Borrower must occupy the Property as their Principal Residence. (i) Manufactured Home (Real Estate) A Manufactured Home refers to a one-unit Manufactured Home that qualifies as real estate in that: • the home is placed on a permanent foundation; • the home and the lot are classified as real estate by the state or the locality in which the Property is located; and • any Loans on the Property are secured by Mortgages or deeds of trust covering the home and lot. (ii) Manufactured Home (Chattel/Personal Property) A Manufactured Home refers to an Existing Manufactured Home unit classified as Personal Property in the state or locality where the Property is located, whether the Manufactured Home is on a permanent foundation or not. (e) Historic Property A Historic Property refers to a residential Structure that is listed on the National Register of Historic Places or is certified by the Secretary of the Interior as conforming to National Register criteria.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. Origination/Processing (05/25/2025) · source URL · snapshot 8c03836f77f317e1