FHA Single Family Housing Policy Handbook 4000.1, Part II — b. General Mortgage Insurance Eligibility (06/27/2025)

FHA Single Family Housing Policy Handbook 4000.1, Part II — b. General Mortgage Insurance Eligibility (06/27/2025)

b. General Mortgage Insurance Eligibility (06/27/2025) i. Mortgage Purpose FHA offers various mortgage insurance programs which insure approved Mortgagees against losses on Mortgages. FHA-insured Mortgages may be used to purchase housing, improve housing, or refinance existing Mortgages. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 147 Last Revised: 11/26/2025 (A) Purchase/Construction to Permanent The Borrower may finance the purchase of an existing one- to four-unit residence, and may also finance construction of a one- to four-unit residence through a Construction to Permanent (CP) Mortgage. Properties to be acquired through an unrecorded land contract must be treated as a purchase. (B) Rehabilitation (1) 203(k) Standard and Limited Rehabilitation Mortgages The Section 203(k) Rehabilitation Mortgage Insurance Program is used to: • rehabilitate an existing one- to four-unit Structure, which will be used primarily for residential purposes; • rehabilitate such a Structure and refinance the outstanding indebtedness on the Structure and the Real Property on which the Structure is located; or • purchase and rehabilitate the Structure and purchase the Real Property on which the Structure is located. (2) 203(h) and 203(k) for Disaster Victims The Section 203(h) Mortgage Insurance for Disaster Victims program allows FHA to insure Mortgages made by qualified Mortgagees to victims of a Presidentially-Declared Major Disaster Area (PDMDA) who have lost their housing, or whose housing was damaged and are in the process of rebuilding or buying another house. (C) Refinance A refinance transaction is used to pay off the existing debt or to withdraw equity from the Property with the proceeds of a new Mortgage for a Borrower with legal title to the subject Property. Types of Refinances FHA insures several different types of refinance transactions: 1. Cash-out refinances are designed to pull equity out of the Property. 2. No cash-out refinances of FHA-insured and non FHA-insured Mortgages are designed to pay existing liens. These include: Rate and Term refinance, Simple Refinance, and Streamline Refinance. 3. Refinances for rehabilitation or repair (Section 203(k)). II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 148 Last Revised: 11/26/2025 ii. Borrower Eligibility (A) General Borrower Eligibility Requirements In order to obtain FHA-insured financing, all Borrowers must meet the eligibility criteria in this section. A party who has a financial interest in the mortgage transaction, such as the seller, builder or real estate agent, may not be a co-Borrower or a Co-signer. Exceptions may be granted when the party with the financial interest is a Family Member. (1) Social Security Number (a) Standard Each Borrower must provide evidence of their valid SSN to the Mortgagee. Exception Individuals employed by the World Bank, a foreign embassy or equivalent employer identified by HUD, state and local government agencies, Instrumentalities of Government, and HUD-approved Nonprofit organizations are not required to provide an SSN. (b) Required Documentation The Mortgagee must: • validate and document an SSN for each Borrower, co-Borrower, or Co-signer on the Mortgage 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 original pay stubs; IRS Form W-2s, Wage and Tax Statement; valid Tax Returns obtained directly from the IRS; or other document relied upon to underwrite the Mortgage; and • resolve any inconsistencies or multiple SSNs for individual Borrowers that are revealed during Mortgage 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 mortgage Note that can be legally enforced in the state, or other jurisdiction, where the Property is located. There is no maximum age limit for a Borrower. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 149 Last Revised: 11/26/2025 (3) Borrower Minimum Decision Credit Score (a) Definition The Minimum Decision Credit Score (MDCS) refers to the credit score reported on the Borrower’s credit report when all reported scores are the same. Where three scores are reported, the median score is the MDCS. Where two differing scores are reported, the MDCS is the lowest score. Where only one score is reported, that score is the MDCS. An MDCS is determined for each Borrower. Where the Mortgage involves multiple Borrowers, the Mortgagee must determine the MDCS for each Borrower, and then select the lowest MDCS for all Borrowers. Where the Mortgage involves multiple Borrowers and one or more of the Borrowers do not have a credit score (non-traditional or insufficient credit), the Mortgagee must select the lowest MDCS of the Borrower(s) with credit score(s). (b) Eligibility Standard The Borrower is not eligible for FHA-insured financing if the MDCS is less than 500. (4) Borrower and Co-Borrower Ownership and Obligation Requirements To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name or a living trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments. In community property states, the Borrower’s spouse is not required to be a Borrower or a Co-signer. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under state law. (5) Co-signer Requirements Co-signers are liable for the debt and therefore, must sign the Note. Co-signers do not hold an ownership interest in the subject Property and therefore, do not sign the security instrument. (6) Principal Residence in the United States Non-occupying co-Borrowers or Co-signers must either be United States (U.S.) citizens or have a Principal Residence in the U.S. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 150 Last Revised: 11/26/2025 (7) Military Personnel Eligibility (a) Standard Borrowers who are military personnel, who cannot physically reside in a Property because they are on Active Duty, are still considered owner occupants and are eligible for maximum financing if a Family Member of the Borrower will occupy the subject Property as their Principal Residence, or the Borrower intends to occupy the subject Property upon discharge from military service. (b) Required Documentation The Mortgagee must obtain a copy of the Borrower’s military orders evidencing the Borrower’s Active Duty status and that the duty station is more than 100 miles from the subject Property. The Mortgagee must obtain the Borrower’s intent to occupy the subject Property upon discharge from military service, if a Family Member will not occupy the subject Property as their Principal Residence. (8) Citizenship and Immigration Status U.S. citizenship is not required for Mortgage eligibility. (9) Residency Requirements The Mortgagee must determine the residency status of the Borrower based on information provided on the mortgage application and other applicable documentation. A Social Security card is not sufficient to prove immigration or work status. The following categories of individuals are eligible for FHA-insured financing in accordance with the requirements set forth below: (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 The mortgage file must include evidence of lawful permanent residence and indicate that the Borrower is a lawful permanent resident on the URLA. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 151 Last Revised: 11/26/2025 The U.S. Citizenship and Immigration Services (USCIS) within the Department of Homeland Security provides evidence of lawful permanent resident 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) 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 mortgage file must include evidence of such citizenship. (10) Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt (a) Standard Mortgagees are prohibited from processing an application for an FHA-insured Mortgage for Borrowers with delinquent federal non-tax debt, including deficiency Judgments and other debt associated with past FHA-insured Mortgages. Mortgagees are required to determine whether the Borrowers have delinquent federal non-tax debt. Mortgagees 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 Mortgagee 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 Mortgagee 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, then the Borrower is ineligible for an FHA-insured Mortgage until the Borrower resolves the debt with the creditor agency. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 152 Last Revised: 11/26/2025 The Mortgagee may not deny a Mortgage solely on the basis of CAIVRS information that has not been verified by the Mortgagee. If resolved either by determining that the information in CAIVRS is no longer valid or by resolving the delinquent status as stated above, the Mortgagee may continue to process the mortgage application. (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. 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 Mortgagee must include documentation from the creditor agency to support the verification and resolution of the debt. For debt reported through CAIVRS, the Mortgagee may obtain evidence of resolution by obtaining a clear CAIVRS report. (11) Eligibility Period for Borrowers Delinquent on FHA-Insured Mortgages If a Borrower is currently delinquent on an FHA-insured Mortgage, they are ineligible for a new FHA-insured Mortgage unless the delinquency is resolved. (12) 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. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments. The Mortgagee must include the payment amount in the agreement in the calculation of the Borrower’s Debt-to-Income (DTI) ratio. (b) Verification Mortgagees must check public records and credit information to verify that the Borrower is not presently delinquent on any Federal Debt and does not II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 153 Last Revised: 11/26/2025 have a tax lien placed against their Property for a debt owed to the federal government. (c) Required Documentation The Mortgagee must include documentation from the IRS evidencing the repayment agreement and verification of payments made, if applicable. (13) Valid First Liens The Mortgagee must ensure that the mortgaged Property will be free and clear of all liens, except the insured Mortgage and any secondary liens permitted by FHA regulations at 24 CFR §§ 203.32 and 203.41. (a) Consent of Non-borrowing Spouses If necessary to perfect a valid first lien under state law, the Mortgagee must require a non-borrowing spouse to execute either the security instrument or documentation indicating that they are relinquishing all rights to the Property. (b) Tax Liens Tax liens may remain unpaid if the Borrower has entered into a valid repayment agreement with the lien holder to make regular payments on the debt and the Borrower has made timely payments for at least three months of scheduled payments. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments. Except for federal tax liens, the lien holder must subordinate the tax lien to the FHA- insured Mortgage. (14) Additional Eligibility Requirements for Nonprofit Organizations and State and Local Government Agencies (a) Eligibility Criteria for a Mortgage for Nonprofit Organizations (i) Standard HUD-approved Nonprofit organizations may be eligible for FHA-insured Mortgages. HUD-approved Nonprofit organizations are eligible for the same percentage of financing that is available to an owner-occupant on their Principal Residence. HUD-approved Nonprofit organizations may only obtain FHA-insured fixed rate Mortgages. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 154 Last Revised: 11/26/2025 (ii) Required Documentation A HUD-approved Nonprofit must be listed on the HUD Nonprofit Roster and intend to sell or lease the Property to Low- to Moderate-Income families. (b) Eligibility Criteria for a Mortgage for State and Local Government Agencies (i) Standard State and local government agencies and instrumentalities of government may obtain FHA-insured financing provided: • the agency has the legal authority to become the Borrower; • the particular state or local government is not in bankruptcy; and • there is no legal prohibition on obtaining a deficiency Judgment based solely on its status as a state and local government. State and local government agencies are eligible for the same percentage of financing that is available to an owner-occupant on their Principal Residence. State and local government agencies are not eligible for cash- out refinances. State and local government agencies may only obtain FHA-insured fixed rate Mortgages. (ii) Required Documentation The Mortgagee must obtain an opinion from counsel verifying the legal status requirements of the agency. State and local government agencies are not required to be listed on the HUD-approved Nonprofit roster. (15) Eligibility Requirements for Living Trusts (a) Property Held in Living Trusts The Mortgagee may originate a Mortgage 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 assure that the Mortgagee will be notified of any changes to the trust, including transfer of beneficial interest and any changes in occupancy status of the Property. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 155 Last Revised: 11/26/2025 (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) Required Documentation The Mortgagee must obtain a copy of the trust documentation. (B) Excluded Parties The Mortgagee must establish that no participants are Excluded Parties and document the determination on form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary. (1) Borrower (a) Standard A Borrower is not eligible to participate in FHA-insured mortgage transactions if they are suspended, debarred, or otherwise excluded from participating in HUD programs. (b) Required Documentation The Mortgagee must check the HUD LDP List to confirm the Borrower’s eligibility to participate in an FHA-insured mortgage transaction. The Mortgagee must check SAM and follow appropriate procedures defined by that system to confirm eligibility for participation. The Mortgagee must check the “Yes” box on form HUD-92900-LT if the Borrower appears on either the LDP or SAM list. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 156 Last Revised: 11/26/2025 (2) Other Parties to the Transaction (a) Standard A Mortgage is not eligible for FHA insurance if anyone participating in the mortgage transaction is listed on HUD’s LDP List or in SAM as being excluded from participation in HUD transactions. This may include but is not limited to: • seller (except where selling the Principal Residence) • listing and selling real estate agent • loan originator • loan processor • underwriter • Appraiser • 203(k) Consultant • Closing Agent • title company (b) Required Documentation The Mortgagee must check the HUD LDP List and SAM and follow appropriate procedures defined by that system to confirm eligibility for all participants involved in the transaction. iii. Occupancy Types (A) Principal Residence (1) Definition 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. (2) Standard (a) FHA Requirement for Owner Occupancy At least one Borrower must occupy the Property within 60 Days of signing the security instrument and intend to continue occupancy for at least one year. 203(k) Rehabilitation products may have different requirements for the length of time to occupy the Property. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 157 Last Revised: 11/26/2025 (b) FHA-Insured Mortgages on Principal Residences FHA will not insure more than one Property as a Principal Residence for any Borrower, except as noted below. FHA will not insure a Mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining Investment Properties, even if the Property to be insured will be the only one owned using FHA mortgage insurance. Properties previously acquired as Investment Properties are not subject to these restrictions. (c) Exceptions to the FHA Policy Limiting the Number of Mortgages per Borrower The table below describes the only circumstances in which a Borrower with an existing FHA-insured Mortgage for a Principal Residence may obtain an additional FHA-insured Mortgage on a new Principal Residence. Policy Exceptions Eligibility Requirements Relocation 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: • relocating or has relocated for an employment- related reason; and • establishing or has established a new Principal Residence in an area more than 100 miles from the Borrower’s current Principal Residence. 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. Increase in family size A Borrower may be eligible for another house with an FHA-insured Mortgage 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. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 158 Last Revised: 11/26/2025 Policy Exceptions Eligibility Requirements Vacating a jointly-owned Property 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. Non-occupying co-Borrower 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. A Borrower with an existing FHA-insured Mortgage on their own Principal Residence may qualify as a non- occupying co-Borrower on other FHA-insured Mortgages. (3) Required Documentation The Borrower must indicate on the URLA (Fannie Mae Form 1003/Freddie Mac Form 65) that the Property will be the Borrower’s Principal Residence and certify to that fact on form HUD-92900-A. (B) Secondary Residence (1) Definition Secondary Residence refers to a dwelling that a Borrower occupies in addition to their Principal Residence, but less than a majority of the calendar year. A Secondary Residence does not include a Vacation Home. (2) Standard Secondary Residences are only permitted with written approval from FHA after a determination that: • the Borrower has no other Secondary Residence; • the Secondary Residence will not be a Vacation Home or be otherwise used primarily for recreational purposes; • the commuting distance to the Borrower’s workplace creates an undue hardship on the Borrower and there is no affordable rental housing meeting the Borrower’s needs within 100 miles of the Borrower’s workplace; and • the maximum mortgage amount is 85 percent of the lesser of the appraised value or sales price. (3) Required Documentation The Mortgagee must demonstrate the lack of affordable rental housing, and include: II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 159 Last Revised: 11/26/2025 • a satisfactory explanation of the need for a Secondary Residence and the lack of available rental housing; and • written evidence from local real estate professionals who verify a lack of acceptable housing in the area. (C) Investment Property (1) Definition An Investment Property refers to a Property that is not occupied by the Borrower as a Principal or Secondary Residence. (2) Standard Investment Properties are not eligible for FHA insurance. Exception Investment Properties are eligible if the borrower is a HUD-approved nonprofit Borrower, or a state and local government agency, or an Instrumentality of Government. Investment Properties are eligible for insurance under the HUD Real Estate Owned Purchasing product, except under the 203(k) program. iv. Property Eligibility and Acceptability Criteria (A) General Property Eligibility 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. (1) Special Flood Hazard Areas The Mortgagee must determine if a Property is located in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). The Mortgagee must obtain flood zone determination services, independent of any assessment made by the Appraiser, to cover the Life of the Loan Flood Certification. A Property is not eligible for FHA insurance if: • a residential building and related improvements to the Property are located within any SFHA Zone beginning with the letter A, an SFHA, or any Zone beginning with the letter V, a Coastal High Hazard Area, and insurance under the National Flood Insurance Program (NFIP) is not available in the community; or II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 160 Last Revised: 11/26/2025 • the improvements are, or are proposed to be, located within the Coastal Barrier Resources System (CBRS). To be eligible for FHA insurance, a Property located in an SFHA must be in a community that participates in the NFIP and has NFIP available, regardless of whether the Borrower obtains NFIP coverage. (a) Flood Insurance (i) Definitions Flood Insurance refers to insurance provided by an NFIP or a Private Flood Insurance (PFI) policy that covers physical damage by floods. An NFIP policy refers to insurance managed by the Federal Emergency Management Agency (FEMA) that covers physical damage by floods. A PFI policy refers to insurance provided by a private insurance carrier that covers physical damage by floods. (ii) Standard Eligible Properties If any portion of the dwelling and related Structures or equipment essential to the Property Value is located in an SFHA and NFIP insurance is available in that community, the Mortgagee must ensure the Borrower obtains and maintains Flood Insurance. Required Flood Insurance Coverage For Properties located within an SFHA, Flood Insurance must be maintained for the life of the Mortgage in an amount at least equal to the lowest of the following: • 100 percent replacement cost of the insurable value of the improvements, which consists of the development or project cost less estimated land cost; • the maximum amount of NFIP insurance available with respect to the particular type of Property; or • the outstanding principal balance of the Mortgage. Requirements for PFI If the Borrower purchases a 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 II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 161 Last Revised: 11/26/2025 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. (iii) 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.” 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. In the absence of the PFI Policy Compliance Aid within the policy, a Mortgagee may review the policy to determine if it meets FHA requirements or rely II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 162 Last Revised: 11/26/2025 on the insurance agent or carrier to separately provide the PFI Policy Compliance Aid language. (iv) Required Documentation For Properties located within an SFHA, the Mortgagee must include in the case binder: • a Life of Loan Flood Certification for all Properties; • if applicable, include a: o FEMA Letter of Map Amendment (LOMA); o FEMA Letter of Map Revision (LOMR); or o FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY- 22-152); and • a copy of the certificate of Flood Insurance or complete copy of the Flood Insurance policy, if required. (v) Required Reporting The Mortgage must report the required Flood Insurance information in the insurance application screen in FHAC. (b) Eligibility for New Construction in SFHAs If any portion of the dwelling and related Structures or equipment essential to the Property Value is located in an SFHA, the Property is not eligible for FHA mortgage insurance, unless the Mortgagee: • obtains a FEMA-issued final LOMA or LOMR that removes the Property from the SFHA; or • obtains a FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY- 22-152). The Elevation Certificate must document that the lowest floor of the residential building, including the basement, and all related Structures or equipment essential to the Property Value are built above the 100-year flood elevation in compliance with the NFIP criteria; and • ensures the Borrower obtains Flood Insurance. (c) Eligibility for Existing Construction in SFHAs When any portion of the residential improvements is determined to be located within an SFHA, Flood Insurance must be obtained. (d) Eligibility for Condominiums in SFHAs The Mortgagee must ensure the Condominium Association obtains Flood Insurance on buildings located within the SFHA. The Flood Insurance coverage must protect the interest of the Borrowers who hold title to an individual unit, as well as the common areas of the Condominium Project. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 163 Last Revised: 11/26/2025 (e) Eligibility for Manufactured Housing in SFHAs The finished grade level beneath the Manufactured Home must be at or above the 100-year return frequency flood elevation. If any portion of the dwelling and related Structures or equipment essential to the Property Value for both new and existing Manufactured Homes is located in an SFHA, the Property is not eligible for FHA mortgage insurance, unless the Mortgagee: • obtains a FEMA-issued LOMA or LOMR that removes the Property from the SFHA; or • obtains a FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY- 22-152) showing that the finished grade beneath the Manufactured Home is at or above the 100-year return frequency flood elevation; and • ensures the Borrower obtains Flood Insurance. (f) Restrictions on Property Locations within Coastal Barrier Resources System In accordance with the Coastal Barrier Resources Act, a Property is not eligible for FHA mortgage insurance if the improvements are or are proposed to be located within the Coastal Barrier Resources System. (2) Seller Must Be Owner of Record (a) Standard To be eligible for a mortgage insured by FHA, a Property must be purchased from the owner of record. The transaction may not involve any sale or assignment of the sales contract. (b) Required Documentation The Mortgagee must obtain documentation verifying that the seller is the owner of record. Such documentation may include, but is not limited to: • a property sales history report; • a copy of the recorded deed from the seller; or • other documentation, such as a copy of a property tax bill, title commitment, or binder, demonstrating the seller’s ownership of the Property and the date it was acquired. This requirement applies to all FHA purchase money Mortgages, regardless of the time between resales. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 164 Last Revised: 11/26/2025 (3) Restrictions on Property Flipping Property Flipping is indicative of a practice whereby recently acquired Property is resold for a considerable profit with an artificially inflated value. (a) Definition Property Flipping refers to the purchase and subsequent resale of a Property in a short period of time. (b) Standard (i) Time Restriction on Transfers of Title The eligibility of a Property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller has acquired title to the Property and the resale date. The Seller’s Date of Acquisition refers to the date the seller acquired legal ownership of that Property. The Resale Date refers to the date all parties have executed the sales contract that will result in the FHA-insured Mortgage for the resale of the Property. (ii) Restriction on Resales Occurring 90 Days or Fewer after Acquisition A Property that is being resold 90 Days or fewer following the seller’s date of acquisition is not eligible for an FHA-insured Mortgage. (iii) Resales Occurring between 91 Days and 180 Days after Acquisition A Mortgagee must obtain a second appraisal by another Appraiser if: • the resale date of a Property is between 91 and 180 Days following the acquisition of the Property by the seller; and • the resale price is 100 percent or more over the price paid by the seller to acquire the Property. 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. (iv) Exceptions to Time Restrictions on Resale Exceptions to time restrictions on resale are: II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 165 Last Revised: 11/26/2025 • Properties acquired by an employer or relocation agency in connection with the relocation of an employee; • resales by HUD under its REO program; • sales by other U.S. government agencies of Single Family Properties pursuant to programs operated by these agencies; • sales of Properties by nonprofits approved to purchase HUD- owned Single Family Properties at a discount with resale restrictions; • sales of Properties that are acquired by the seller by inheritance; • sales of Properties by state and federally-chartered financial institutions and Government-Sponsored Enterprises (GSE); • sales of Properties by local and state government agencies; and • sales of Properties within PDMDAs, only upon issuance of a notice of an exception from HUD. The restrictions listed above and those in 24 CFR § 203.37a do not apply to a builder selling a newly built house or building a house for a Borrower planning to use FHA-insured financing. (c) Required Documentation The Mortgagee must obtain a 12 month chain of title documenting compliance with time restrictions on resales. (4) Restriction on Investment Properties for Hotel and Transient Use (a) Standard The Mortgagee must obtain the Borrower’s agreement that Investment Properties using FHA-insured financing will not be used for hotel or transient purposes, or otherwise rented for periods of less than 30 Days. (b) Required Documentation The Mortgagee must obtain a completed form HUD-92561, Borrower’s Contract with Respect to Hotel and Transient Use of Property, for each Mortgage secured by: • a one-unit Single Family dwelling with an Accessory Dwelling Unit (ADU); • a two- to four-unit dwelling; or • a Single Family dwelling that is one of a group of five or more dwellings owned by the Borrower within a two block radius. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 166 Last Revised: 11/26/2025 (5) Mixed Use of Property Mixed Use refers to a Property suitable for a combination of uses including any of the following: commercial, residential, retail, office, or parking space. Mixed Use one- to four-unit Single Family Properties are eligible for FHA insurance, provided: • a minimum of 51 percent of the entire building square footage is for residential use; and • the commercial use will not affect the health and safety of the occupants of the residential Property. (6) Property Assessed Clean Energy Property Assessed Clean Energy (PACE) refers to an alternative means of financing energy and other PACE-allowed improvements for residential properties using financing provided by private enterprises in conjunction with state and local governments. Generally, the repayment of the PACE obligation is collected in the same manner as a special assessment tax; it is collected by the local government rather than paid directly by the Borrower to the party providing the PACE financing. Generally, the PACE obligation is also secured in the same manner as a special assessment tax against the Property. In the event of a sale, including a foreclosure sale, of the Property with outstanding PACE financing, the obligation will continue with the Property causing the new homeowner to be responsible for the payments on the outstanding PACE amount. In cases of foreclosure, priority collection of delinquent payments for the PACE assessment may be waived or relinquished. Properties which will remain encumbered with a PACE obligation are not eligible for FHA mortgage insurance. (7) Dwelling Unit Limitation (a) Standard If the Mortgage will be secured by an Investment Property, including Mortgages for Governmental Entities or nonprofit Borrowers, the Borrower may not have a financial interest, regardless of the ownership or financing type, in more than seven Dwelling Units within a two block radius. In determining the number of Dwelling Units owned by the Borrower, the Mortgagee must count each Dwelling Unit in a two-, three-, and four-family Property. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 167 Last Revised: 11/26/2025 (b) Required Documentation If the Borrower owns six or more units within a two block radius, a map must be provided disclosing the locations of the units as evidence of compliance with FHA’s seven unit limitation. (B) Property Types FHA’s programs differ from one another primarily in terms of what types of Properties and financing are eligible. Except as otherwise stated in this Handbook 4000.1, FHA’s Single Family programs are limited to one- to four-family Properties that are owner-occupied Principal Residences. FHA insures Mortgages on Real Property secured by: • detached or semi-detached dwellings • Manufactured Housing • townhouses or row houses • individual units within FHA-Approved Condominium Projects FHA will not insure Single Family Mortgages secured by: • commercial enterprises • boarding houses • hotels, motels and condotels • tourist houses • private clubs • bed and breakfast establishments • other transient housing • Vacation Homes • fraternity and sorority houses (1) One-Unit A one-unit Property is a Single Family residential Property with a single Dwelling Unit, or with a single Dwelling Unit and a single ADU. (2) Two-Unit (a) Definition A two-unit Property is a Single Family residential Property with two individual Dwelling Units. (b) Standard The Mortgagee must obtain a completed form HUD-92561. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 168 Last Revised: 11/26/2025 (3) Three- to Four-Unit (a) Definition A three- to four-unit Property is either: • a Single Family residential Property with three or four individual Dwelling Units; or • a Single Family residential Property with two individual Dwelling Units and one ADU or three individual Dwelling Units and one ADU. (b) Standard The Mortgagee must obtain a completed form HUD-92561. (c) Self-Sufficiency Rental Income Eligibility (i) Definition Net Self-Sufficiency Rental Income refers to the Rental Income produced by the subject Property over and above the Principal, Interest, Taxes, and Insurance (PITI). (ii) Standard The PITI divided by the monthly Net Self-Sufficiency Rental Income may not exceed 100 percent for three- to four-unit Properties. (iii) Calculation Net Self-Sufficiency Rental Income is calculated by using the Appraiser’s estimate of fair market rent from all units, including the unit the Borrower chooses for occupancy, and subtracting the greater of the Appraiser’s estimate for vacancies and maintenance, or 25 percent of the fair market rent. (4) Accessory Dwelling Unit (a) Definition An Accessory Dwelling Unit (ADU) refers to a single habitable living unit with means of separate ingress and egress that meets the Minimum Requirements for Living Unit. An ADU is a private space that is subordinate in size and can be added to, created within, or detached from a primary one- unit Single Family dwelling, which together constitute a single interest in real estate. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 169 Last Revised: 11/26/2025 (b) Standard A Single Family residential one-unit Property with a single ADU remains a one-unit Property. For any Single Family residential Property with two or more units, a separate additional Dwelling Unit must be considered as an additional unit. (5) Condominium Unit (a) Definitions Condominium Unit (Unit) refers to real estate consisting of a one-family Dwelling Unit in a Condominium Project. A Condominium Project refers to a project in which one-family Dwelling Units are attached, semi-detached, detached, or Manufactured Home units, and in which owners hold an undivided interest in Common Elements. (b) Standard A Condominium Unit must be either located within an FHA-approved Condominium Project, meet FHA’s definition of a Site Condominium, or have completed the FHA Single-Unit Approval process before a Mortgage can be insured. (6) Site Condominiums (a) Definition A Site Condominium refers to: • a Condominium Project that consists entirely of Single Family detached dwellings that have no shared garages, or any other attached buildings; or • a Condominium Project that: o consists of Single Family detached or horizontally attached (townhouse-style) dwellings where the Unit consists of the dwelling and land; o does not contain any Manufactured Housing Units; and o is encumbered by a declaration of condominium covenants or a condominium form of ownership. Manufactured Housing condominium units may not be processed as Site Condominiums. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 170 Last Revised: 11/26/2025 (b) Standard The Unit owner must be responsible for all required insurance and maintenance costs associated with the Unit dwelling, excluding landscaping, of the Site Condominium. Site Condominiums do not require Condominium Project Approval or Single- Unit Approval. (7) Manufactured Housing (a) Definition Manufactured Housing is a Structure that is transportable in one or more sections. It may be part of a Condominium Project, provided the project meets applicable FHA requirements. (b) Standard To be eligible for FHA mortgage insurance as a Single Family Title II Mortgage, all Manufactured Housing must: • be designed as a one-family dwelling; • have a floor area of not less than 400 square feet; • have the HUD Certification Label affixed or have obtained a letter of label verification issued on behalf of HUD, evidencing the house was constructed on or after June 15, 1976, in compliance with the Federal Manufactured Home Construction and Safety Standards; • be classified as real estate (but need not be treated as real estate for purposes of state taxation); • be built and remain on a permanent chassis; • be designed to be used as a dwelling with a permanent foundation built in accordance with the Permanent Foundations Guide for Manufactured Housing (PFGMH); and • have been directly transported from the manufacturer or the dealership to the site. (c) Required Documentation (i) HUD Certification Label If the appraisal indicates the HUD Certification Label is missing from the Manufactured Housing unit, the Mortgagee must obtain label verification from the Institute for Building Technology and Safety (IBTS). II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 171 Last Revised: 11/26/2025 (ii) PFGMH Certification The Mortgagee must obtain a certification by an engineer or architect, who is licensed/registered in the state where the Manufactured Home is located, attesting to compliance with the PFGMH. The Mortgagee may obtain a copy of the foundation certification from a previous FHA-insured Mortgage, showing that the foundation met the guidelines published in the PFGMH that were in effect at the time of certification, provided there are no alterations and/or observable damage to the foundation since the original certification. If the Appraiser notes additions or alterations to the Manufactured Housing unit, the Mortgagee must ensure the addition was addressed in the foundation certification. If the additions or alterations were not addressed in the foundation certification, the Mortgagee must obtain: • an inspection by the state administrative agency that inspects Manufactured Housing for compliance; or • certification of the structural integrity from a licensed structural engineer if the state does not employ inspectors. (C) Property Valuation The Mortgagee is responsible for obtaining an appraisal to verify the value of the Property and the Property’s compliance with HUD’s Minimum Property Standards (MPS). (1) Integrity of Valuation Process: Communications with Mortgagees The Mortgagee must ensure the integrity of the valuation process by ensuring the valuation process is free from conflicts of interest and the appearance of conflicts of interest. (a) Standard The Mortgagee must prevent its staff, or any person who is compensated on a commission basis upon the successful completion of a Mortgage, or who reports, ultimately, to any officer of the Mortgagee not independent of the mortgage production staff and process, from having substantive communications with an Appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment. Normal communications necessary to processing of a case is permissible, but cannot attempt to influence the Appraiser. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 172 Last Revised: 11/26/2025 The underwriter who has responsibility for the quality of the appraisal report is allowed to request clarifications and discuss with the Appraiser components of the appraisal that influence its quality. (b) Exception for Smaller Mortgagees When absolute lines of independence cannot be achieved because of the Mortgagee’s small size and limited staff, the Mortgagee must clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its mortgage production process. (2) Communications with Third Parties The underwriter may request a clarification or reconsideration of value from the Appraiser, following the requirements in Reconsideration of Value. The Mortgagee may not discuss the contents of an appraisal with anyone other than the Borrower. (3) Verifying HUD’s Minimum Property Standards/Minimum Property Requirements As the on-site representative for the Mortgagee, the Appraiser provides preliminary verification that a Property meets the Property Acceptability Criteria, which include HUD’s MPR or MPS. When examination of a Property reveals noncompliance with the Property Acceptability Criteria, the Appraiser must note all repairs necessary to make the Property comply with HUD’s Property Acceptability Criteria, together with the estimated cost to cure. v. Legal Restrictions on Conveyance (Free Assumability) The Mortgagee must determine that any legal restrictions on conveyance conform with the requirements in 24 CFR § 203.41. In accordance with 24 CFR § 203.41 (d)(1)(ii), FHA considers a reasonable share of appreciation to be at least 50 percent. HUD does not object to affordable housing programs whereby the homeowner’s share of appreciation is on a sliding scale beginning at zero, provided that within two years the homeowner would be permitted to retain 50 percent of the appreciation. If the program sets a maximum sales price restriction, the Borrower must be permitted to retain 100 percent of the appreciation. A Property that contains leased equipment, or operates with a leased energy system or Power Purchase Agreement (PPA), may be eligible for FHA-insured financing but only when such agreements are free of restrictions that prevent the Borrower from freely transferring the Property. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 1. Origination/Processing Handbook 4000.1 173 Last Revised: 11/26/2025 Such agreements are acceptable, provided they do not cause a conveyance (ownership transfer) of the insured Property by the Borrower to: • be void, or voidable by a third party; • be the basis of contractual liability of the Borrower (including rights of first refusal, preemptive rights or options related to a Borrower’s efforts to convey); • terminate or be subject to termination all or part of the interest held by the Borrower; • be subject to the consent of a third party; • be subject to limits on the amount of sales proceeds a Borrower can retain (e.g., due to a lien, “due on sale” clause, etc.); • be grounds for accelerating the insured Mortgage; or • be grounds for increasing the interest rate of the insured Mortgage. Any restrictions resulting from provisions of the lease or PPA do not conflict with FHA regulations unless they include provisions encumbering the Real Property or restricting the transfer of the Real Property. Legal restrictions on conveyance of Real Property (i.e., the house) that could require the consent of a third party (e.g., energy provider, system owner, etc.), include but are not limited to, credit approval of a new purchaser before the seller can convey the Real Property, unless such provisions may be terminated at the option of, and with no cost to, the owner. If an agreement for an energy system lease or PPA could cause restriction upon transfer of the house, the Property is subject to impermissible legal restrictions and is generally ineligible for FHA insurance. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages 2. Allowable Mortgage Parameters Handbook 4000.1 174 Last Revised: 11/26/2025 2. Allowable Mortgage Parameters This section provides the basic underwriting standards for Single Family (one- to four-units) Mortgages insured under the National Housing Act. When underwriting a Mortgage, the Mortgagee must determine the Borrower’s creditworthiness, capacity to repay, and available capital to support the Mortgage. The Mortgagee must also examine the Property to ensure it provides sufficient collateral for the Mortgage. For each Mortgage the Federal Housing Administration (FHA) insures, the Mortgagee must fully comply with the following underwriting procedures.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part II — b. General Mortgage Insurance Eligibility (06/27/2025) · source URL · snapshot 8c03836f77f317e1