The Buyers

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The Buyers Bonus Mortgage Program
Steve Calem, MBA, CMPS Vice President, Real
Estate Lending American Bank Tel
240-482-0264 steve_at_stevecalem.com
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Buyers Bonus Mortgage Program -
Program Highlights -

• The Buyers Bonus Mortgage Program feature allows
  seller/builder-paid principal and interest
  payments, for up to the first six (6) months, on
  one (1) unit primary residences that are
• purchase-money transactions only
• existing properties (previously occupied), or
• newly constructed homes (not previously
  occupied)
• Excellent option for Builders to sell
  slower-moving inventory!

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Buyers Bonus Mortgage Program -
Program Highlights -

• The amount of the principal and interest payments
  paid by the seller/builder must be for the full
  amount of the borrowers principal and interest
  monthly payment.
• Partial payments and payments in half-month
  increments, such as, 1.5 months, 2.5 months and
  3.5 months, are not allowed.

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Buyers Bonus Mortgage Program -
Program Highlights -

• The borrower is responsible for paying the tax
  and insurance portion of the total monthly
  mortgage payment.
• Example Principal and Interest
  Payment 1,580.17
• Tax 250.00
• Insurance 100.00
• Total Monthly
  Payment 1,930.17
• Borrower will be billed for this portion of the
  total
• monthly mortgage payment, or 350.00, in this
  case.
• Escrow waivers are not permitted. No exceptions.

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Buyers Bonus Mortgage Program -
Program Highlights -

• Eligible Occupancy Types

• One (1) unit primary residences
• Units located in warrantable condominium
  projects
• Units located in warrantable condominium
  conversion projects, and
• PUD projects

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Buyers Bonus Mortgage Program - Program
Highlights -
Eligible Loan Products

• Fully Amortizing Agency Fixed Rate (10 to 40
  year) mortgages
• Fully Amortizing Agency 3/1, 5/1 and 7/1 ARMs (10
  to 30 year) mortgages
• Agency Seven (7) Year Balloons (30 Year
  Amortization)
• Fully Amortizing Flexible 97 Fixed Rate, 5/1 and
  7/1 ARMs (15 or 30 Year) mortgages, and
• Fully Amortizing Flexible 100 Fixed Rate, 5/1 and
  7/1 ARMs (15 or 30 Year) mortgages
• Note Interest-Only transactions are NOT
  eligible with this program

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Buyers Bonus Mortgage Program - Program
Highlights -
Eligible Loan Products (contd)

• Fully Amortizing Agency Express No Income
  Verification Fixed Rate and 7/1 ARMs (10 to 40
  year) mortgages
• Fully Amortizing Agency Shortcut Fixed Rate
  (10-40 year), 3/1, 5/1 and 7/1 Arms, and
• Fully Amortizing Conforming Portfolio LIBOR 3/1,
  5/1 and 7/1 (10-30 year) (Full Documentation and
  No Income Verification Options)
• Note Interest-Only transactions are NOT
  eligible with this program

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Buyers Bonus Mortgage Program -
Program Highlights -

• Eligible Loan Products (contd)
• Fully Amortizing Fannie Mae MyCommunity
  MortgageTM Programs
• MyCommunity 97 (15-30 year) Fixed Rate and 7/1
  ARMs
• MyCommunity 100 (15-30 year) Fixed Rate and 7/1
  ARMs
• MyCommunity 100 Plus (15-30 year) Fixed Rate and
  7/1 ARMs
• Note Interest-Only and 40 year terms are NOT
  eligible under the Buyers Bonus Loan Program

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Buyers Bonus Mortgage Program -
Program Highlights -

• Eligible Loan Products (contd)
• Fully Amortizing Teacher, Healthcare Worker
  Safety First (15-30 year terms)
• Teacher, Healthcare Worker Safety 1st, 97
  Program, Fixed and 7/1ARMs
• Teacher, Healthcare Worker Safety 1st, 100
  Program, Fixed and 7/1 ARMs
• Note Interest-Only and 40 year terms are
  NOT eligible under the Buyers Bonus Loan
  Program.

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Buyers Bonus Mortgage Program -
Program Highlights -
Automated Underwriting Guidelines

• The transaction MUST be processed through Desktop
  Underwriter (DU) or Desktop Originator (DO).
• The transaction MUST receive an
  Approve/Eligible recommendation.
• Notes
• Approve/Ineligible or Expanded Approvals
  (regardless of the level) are NOT acceptable.
• Freddie Macs Loan Prospector (LP) is NOT an
  acceptable Automated Underwriting engine for this
  program.

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Buyers Bonus Mortgage Program -
Program Highlights -
How do I Qualify the Borrower?

• The borrower MUST be qualified at the full amount
  of the payment at the Note rate.
• Example
• 250,000 loan amount _at_ 6.50 for 30 years
• 1,580.17 250.00 Taxes 100.00 Hazard
  Insurance 1,930.17 Total Payment.
• Borrower qualifies at this payment 1,930.17.

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Buyers Bonus Mortgage Program -
Program Highlights -
Seller Contribution Limits
The amount of the principal and interest payments
made by the seller/builder MUST be included in
the calculation of the total Seller
Contribution limits. Example If the total
contribution limit is 6 or 15,000, (based on a
250,000 loan amount), and 6 months of the total
Principal and Interest payments at 1,580.17,
equaled 9,481.02 or approximately 4, the
9,481.02 counts towards the total seller
contribution limits. The seller has an
additional 5,518.98 or approximately 2 (in this
example) to use towards the borrowers other
closing costs.
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Seller Contribution Limits (contd)
Buyers Bonus Mortgage Program -
Program Highlights -

• Important items to remember about this program
• Seller contributions CANNOT be applied towards
  the borrowers minimum contribution towards the
  transaction or downpayment.
• Seller contributions MAY NOT exceed ACTUAL COSTS,
  resulting in cash to the borrower.

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Buyers Bonus Mortgage Program -
Program Highlights -
Seller Contribution Limits (contd)

• Under the Buyers Bonus Mortgage Loan Program,
  the seller contributions may be applied to the
  actual costs of
• Permanent interest rate buydowns,
• Temporary buydowns,
• Closing costs (including discount points),
• Prepaid items interest, taxes, hazard,
  mortgage insurance, etc.),
• Cost of property repairs, and
• Up to the first six (6) months of the
  borrowers PI payments.
• In all cases, these contributions are subject
  to contribution limits.

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Buyers Bonus Mortgage Program -
Program Highlights -
Closing a Loan with a Buyers Bonus Contribution

• The Buyers Bonus Mortgage Program Agreement
  Form (COR 0012) must be signed by
• The Lender
• The Borrower, and
• The Provider of the Funds
• (i.e., the Seller or Builder)

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Closing a Loan with a Buyers Bonus
Contribution (contd)

• The seller/builder paid principal and interest
  payments MUST be shown
• on a line within the 800 Series of the HUD I
  Settlement Statement, as a Seller Credit,
• labeled Assistance Payments, X months at
  XXXX.XX,
• the total dollar amount under the sellers
  column.

Items Payable In Connection with Loan Paid From Borrowers Funds at Settlement Paid From Seller/Builders Funds at Settlement
812. Assistance Payments 6 months _at_ 1,580.17 9,481.02
813.
814.
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Closing a Loan with a Buyers Bonus
Contribution (contd)

• Important items to remember about this program
• The amount of the principal and interest
  payments paid by the Seller/Builder MUST for the
  FULL AMOUNT of the principal and interest portion
  of the monthly payment.
• Partial payments are NOT allowed.
• Payments in half-month increments (i.e., 1.5
  months, 2.5
• months, 3.5 months, etc.) are NOT allowed.

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Closing a Loan with a Buyers Bonus
Contribution (contd)
Additional funds paid by the Seller/Builder over
and above the cumulative principal and interest
payments, MUST be shown as a CLOSING CREDIT to
the borrower on the HUD I Settlement
Statement. Example
Summary of Borrowers Transaction Summary of Sellers Transaction
209. 509.
Adjustments for items unpaid by seller Adjustments for items unpaid by seller
213. Seller-Paid Closing Costs 3,000 513. Seller-Paid Closing Costs 3,000
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Closing a Loan with a Buyers Bonus
Contribution (contd)

• The total amount of the Seller/Builder paid
  dollar principal and interest payments and any
  additional funds paid by the Seller/Builder MAY
  NOT EXCEED the LESSER of
• actual costs, OR
• the maximum allowable seller contribution.
• Example If the actual costs 16,000.00 and
  the maximum allowable seller contribution limit
  is 15,000, the Seller/Builder is limited to the
  LESSER of the two, or 15,000.

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Closing a Loan with a Buyers Bonus
Contribution (contd)

• What happens once American Bank Mortgage receives
  the loan?
• The Seller/Builder paid PRINCIPAL AND INTEREST
  payments shown on the HUD I Settlement Statement,
  will be disbursed by the Servicer on a monthly
  basis, and
• The borrower will be billed for the TAX and
  INSURANCE escrow payments.
• Note Escrow waivers are NOT permitted. No
  Exceptions.
• The Servicer will back out the Seller/Builder
  paid INTEREST for year-end reporting purposes on
  the IRS Form 1098.

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Questions and Answers
Question Can you clarify whether or not this
is a seller concession or a seller contribution?

Answer This program allows for seller
contributions, and not seller concessions, which
still must be subtracted from the sales price
before calculating the LTV. Seller contributions
are now calculated on the LTV rather than the
TLTV and can be as much as 9 depending on the
LTV.
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Questions and Answers
Question How do you calculate the amount the
seller is paying towards principal and interest
up front?
Answer Calculating the principal and interest
cannot be done until the terms of the mortgage
have been determined. The Buyers Bonus Mortgage
Program is used to attract homebuyers. The
borrower may need to renegotiate with the
builder/seller once the program they want is
known.
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Questions and Answers
Question Can the funds for this program be used
as a principal reduction on the loan?
Answer No, the funds must be used for the
Buyers Bonus program. The seller/builder cannot
pay down the borrowers principal, as this would
be considered down payment and the seller
cannot contribute to the borrowers required
contribution or down payment.
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Questions and Answers
Question Can the funds for this program be used
as a principal reduction on the loan?
Answer The seller/builder paid principal and
interest payments shown on the HUD-1 will be
disbursed by the servicer on a monthly basis, and
the borrower will be billed for the tax and
insurance escrow payments.
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Questions and Answers
Question What if the borrower pays their Tax
and Insurance payment late? Will the payment be
counted as late?
Answer Yes. Since the tax and insurance
payment from the borrower triggers the Principal
and Interest to be applied to the loan by the
Servicer, if the borrower makes their tax and
insurance payment late, this will cause the
entire payment to be applied late.
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Questions and Answers
Question For a new construction property, where
the taxes are estimated, how much will the
borrower actually pay?
Answer The borrower will pay the estimated
amount until the taxes are re-assessed.
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Questions and Answers
Question Are the seller contributions itemized
on the HUD-1?
Answer The seller/builder paid principal and
interest payments must be shown on a line within
the 800 series of the HUD-1 settlement statement
as a seller credit and labeled Assistance
Payments, X months at XXX.XX, with the total
dollar amount under the sellers column.
Additional funds paid by the seller/builder over
and above the cumulative principal and interest
payments must be shown as a closing cost credit
to the borrower on the HUD-1 settlement statement.
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Questions and Answers
Question Is the borrower allowed to receive
money back from the earnest money deposit (EMD)
at closing?
Answer The borrower can only get money back
on a 100 TLTV loan if it is over and above the
required investment. The Flex 100, for example,
requires that the borrower put in a minimum of
500 of their own funds towards closing costs and
prepaids. The borrower cannot get this money
back at closing.
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Questions and Answers
Question Is the maximum seller contribution six
percent (6)?
Answer The maximum seller contribution depends
on your program and loan terms. The maximum
seller contribution can be anywhere from 3 to
9, depending on the LTV. Remember, this program
is only for 1 Unit Primary residences.
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Questions and Answers
Question Can the money the borrower is saving
from not making the first six (6) months
principal and interest payments be put towards
repairs to the house?
Answer As long as they are not required
repairs the appraiser or underwriter needs done
prior to closing.
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Questions and Answers
Question What is the maximum loan amount
allowed on the Buyers Bonus Mortgage Program?
Answer Since this is an Agency program, the
maximum loan amount allowed is the conforming
loan limit of 417,000.
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Questions and Answers
Question Is the 1098 issued to the buyer or
the seller?
Answer American Bank does not issue a 1098 to
the seller. The lender should advise the seller
to check with their tax preparer to see how the
interest they are paying on behalf of their buyer
will impact their taxes. Also, the Servicer will
back out the seller/builder paid interest for
year-end reporting purposes to the borrower,
since they cannot use as part of the interest
paid on the loan. The borrower does not pay it,
so they are not allowed to claim it on their
taxes.
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Thank you.
Steve Calem, MBA, CMPSTel 240-482-0264steve_at_ste
vecalem.comwww.capitalfundingroup.com