FundLoans Portfolio Guidelines

APEX (Alt Doc) | MONTAGE (Full Doc) | SPECTRUM (DSCR)

Effective 04-01-2026 | V1.0

1.0 OVERVIEW

FundLoans guidelines are structured to assist Brokers by making common-sense lending decisions on loans to their borrowers who may have limited access to credit. These borrower's situations generally require us to consider alternative forms of documenting income and/or compensating factors which can offset repayment risk indicated by a recent credit event or elevated debt-to-income ratio.

Loans eligible for sale to a Government Sponsored Entity ("FNMA" or "FHLMC") are not eligible.

If a topic is not addressed within these guidelines, FundLoans will align with Fannie Mae (FNMA) Manual Underwriting guidelines.

These Guidelines provide detailed requirements for eligibility but FundLoans is not obligated to fund a loan even if it satisfies these requirements. Compliance with these guides does not create a commitment by FundLoans to fund, as FundLoans has sole discretion to fund any loan.

State and Federal specific regulatory requirements supersede all underwriting guidelines herein.

1.1 Broker Responsibilities

FundLoans Credit Guidelines must be interpreted and applied in a manner that complies with the laws and regulations established by the Consumer Financial Protection Bureau (CFPB), any other applicable laws and regulations, and underwriting practices common to the industry.

FundLoans has a no-tolerance policy as it relates to fraud. Brokers/Originators should have and continue to follow their own established fraud and identity procedures for every loan to prevent and detect fraud (including, but not limited to, Social Security Number Verification, verbal verifications of employment, processing of tax transcripts, USPS, OFAC, AML and any other Exclusionary Lists). Loans containing fraudulent documentation or information will not be funded by FundLoans and will trigger clawback provisions as applicable in the Broker Agreement. Any determination of Broker/Originator involvement and/or knowledge of misrepresentation will result in the dissolution of any relationship. The appropriate agencies will be notified as required under applicable law.

2.0 DOCUMENTATION TYPES

2.1 Full Documentation Program (MONTAGE)

• Full Documentation
• Asset Allowance
• Assets Only

2.2 Alternative Documentation Program (APEX)

Alternative Documentation may be used to determine qualifying income both alone and in conjunction with other documentation options. When more than one documentation option is utilized for qualifying, i.e., bank statements together with 1099, the documentation option yielding the highest borrower income will be used to determine pricing. When Alt Doc programs are used in conjunction with full doc income qualification, Alt Doc pricing and qualification will be used. Please see the applicable Apex Matrix for restrictions.

The following programs are considered Alt Doc from a credit and pricing standpoint:

• 1099 Income
• Asset Allowance
• Bank Statements (Personal, Business or Co-Mingled)
• P&L Only
• Written Verification of Employment (WVOE)

2.3 Debt Service Coverage Ratio (SPECTRUM)

• Debt Service Coverage Ratio (DSCR)

3.0 ELIGIBILITY

3.1 Eligible Borrowers

All borrowers on loans funded by FundLoans will be individual, natural persons.

• U.S. Citizens (as defined by USCIS)

• Permanent Resident Aliens: An individual who is not a U.S. Citizen but maintains legal, permanent residency in the United States. Documentation requirements:

  • Valid and unexpired Permanent Resident Card/" Green Card" (Form I-551) without conditions. For conditional permanent residents, proof of filed Form I-751 required. If any green card expires within the 6 months before closing, proof of a filed Form I-90 is required.

• Non-Permanent Resident Aliens: An individual who is not a U.S. Citizen but lives in the U.S. under the terms of an acceptable visa and/or EAD Card. Borrowers who are residents of countries which participate in the State Department's Visa Waiver Program (VWP) are not required to provide a valid visa. Individuals with diplomatic immunity who are not subject to United States jurisdiction are not eligible. Non-Permanent Resident Aliens must be employed in the U.S. for the last 24 months.

• Foreign Nationals are permitted under our DSCR program. Please see the Foreign National section for additional information.

Documentation Requirements

Visa:

• If expiration is within six months of the loan application and the borrower has not changed employers, a copy of the employer's letter of sponsorship for visa renewal must be provided.
• If Visa has expired at closing (date the note is signed), a filed USCIS Form I-797 is required.
• For residents of Canada or Mexico, H1-B status stamped on an unexpired passport is acceptable.

EAD Card:

• No C Series EAD allowed
• If expiration is within six months of the application, the borrower must show evidence that they have applied for an extension or provide a letter from the employer indicating they will continue to sponsor their employment.

• The EAD Card must be unexpired at closing (date the Note is signed).

Non-permanent resident borrowers must document legal residency status by meeting the documentation requirements below. Borrowers who cannot meet the requirements below are not eligible.

|Spouse / Child of Permanent Resident Alien|V-1|Spouse of a Legal Permanent Resident (LPR) who is the principal beneficiary of a family-based petition (Form I-130) which was filed prior to December 21, 2000,and has beenpendingfor at least threeyears.|Visa and EAD|A15| ||V-2|Child of a Lawful Permanent Resident (LPR) who is the principal beneficiary of a family-based visa petition (Form I-130) that was filed prior to December 21, 2000, and has been pending for at least threeyears.||| ||V-3|The derivative child of a V-1 or V-2.|||

3.2 Ineligible Borrowers

• Foreign Nationals (except under DSCR (Spectrum)
• All Persons with Diplomatic Immunity, as defined by the U.S. Citizenship and Immigration Services
• Persons sanctioned by OFAC or from OFAC sanctioned countries: https://ofac.treasury.gov/sanctionsprograms-and-country-information
• Seller Employee Loans
• Trusts of any kind cannot be the borrower but may hold title
• 501(c)(3) Organizations or any "non-profit"
• LLCs, Corporations or Partnerships (vesting acceptable)
• LLCs whose members include other LLCs, Corporations, Partnerships, or Trusts ("layered" entities)
• LLCs where a Power of Attorney is used
• Businesses or persons whose income derives from the cannabis industry. Self-employed income (active or passive) derived from a company involved in cultivation, transportation, retailing, etc. is not allowed regardless of percentage of company ownership. Income from borrowers who are paid W-2 only is allowed.

Note: Business entities of any kind cannot be the borrower but may hold title

3.3 Borrower Types

|First-Time Homebuyer (FTHB)|An individual who:
(i) is purchasing the security property
(ii) will reside (owner-occupied) in the security property as a principal residence;
and
(iii) had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase of the security property| |Non-Borrowing Occupant|Any individual residing in the security property who is not considered during the loan qualifying process. A Non-Borrowing Occupant on title will be required to execute applicable documents to create a valid lien.| |Non-Occupant Co-borrower ("Co-signer")|An individual who:
(i) May or may not have any ownership interest in the property as indicated on title.
(ii) Signs the mortgage or deed of trust note.
(iii) Has joint liability for the note along with the Primary Borrower.
(iv) Does not have a vested interest in the property sales transaction, i.e. is not a seller of the property, is not an existing tenant, is not the builder or the real estate broker.
(Will NOT require occupant ratios)
Allowed as follows:
• Primary Residence Only
• Cash-Out not permitted
• Blended ratios allowed up to 80% max LTV/CLTV
• Occupying borrower's DTI cannot exceed 60% DTI when LTV >80%
Note (a): A family relationship is not required provided the transaction is considered an arm's length transaction.
Note (b): The continuity of obligation requirement on a refinance transaction is considered met if one of the current owners is on the loan application.|

3.4 Eligible Occupancy

|Second Home|A Second Home is a property that is located a reasonable distance from the borrower's primary residence and is occupied by the borrower for some portion of the year. The property must be suitable for year-round occupancy and cannot be used as a rental property. FTHBs are allowed. Second homes are limited to the following:
● One Dwelling Unit
● Condominium
● PUD
● Townhouse| |Investment Property|An Investment Property is defined as a 1 to 4-unit residential property that the borrower (nor any relative of the borrower) does not occupy.
"Business Purpose" is any loan that is not primarily for personal, family, or household use. Non-owner occupied properties are assumed business purpose unless any funds are used for personal, family, or household use by the borrower.
Requirements:
● First Time Investors are allowed. See below guidelines for requirements.
● A signed Business Purpose & Occupancy Affidavit is required on all investment property transactions that are closing as Business Purpose. The broker/originator must provide a personal use occupancy certification if loan is not closing as a business purpose transaction.
● All investment properties that are vested in the name of an entity (e.g. LLC, Partnership, S-Corp) require a signed Business Purpose and Occupancy Affidavit|

3.5 Eligible Transactions

3.5.1 Purchase Money

Purchase money mortgages are mortgage transactions in which the loan proceeds are used to purchase the subject property. This is evidenced by a sales or purchase agreement that has been executed by the applicant (buyer who is a party to the transaction) and the seller. Assignment of the purchase contract to the applicant is not allowed unless (i) the buyer assignor is the spouse or registered domestic partner of the borrower; or (ii) applicant is the original named buyer and assigning to an allowed entity that is 100% controlled by the applicant(s).

Additional requirements:

First-time Home Buyers (FTHB)- FTHB are allowed- must be primary residence or second home or meet the First Time Investor guidelines for the program.

Non-Arm's Length Transaction (NAL)- A Non-Arm's Length transaction is a transaction between family members, co-workers, friends, or anyone associated with the transaction such as the listing agent, mortgage lender or broker (Interested Party). For Sale By Owner (FSBO) must be arm's length (not applicable to documented family sales). The following are required if the purchase of the subject property is a non-arm's length transaction:

• Primary Residence: The property must be the borrower's primary residence. NAL transactions on second homes and Investment properties are ineligible.
• Borrower to provide verification of earnest money deposit (canceled check, wire, bank statement, etc.)
• 80% Maximum CLTV/LTV

Letter of Explanation regarding the relationship between the parties may be required.

Gift of Equity is eligible: a Gift of Equity occurs when equity in a property is gifted from the owner to the borrower when the borrower and owner are related and is permitted:

• for principal residence and second home purchase transactions only;
• can be used to fund all or part of the down payment and closing costs (including prepaid items); and
• cannot be used towards financial reserves.

The acceptable donor and minimum borrower contribution requirements of Fannie Mae Seller Guide Section B3-4.3-04 apply to gifts of equity. When a gift of equity is provided by an acceptable donor, the donor is not considered to be an interested party and the gift of equity is not subject to interested party contribution requirements.

Examples of Non-Arm's Length Transactions:

• Relatives: defined by blood, marriage, adoption, or legal guardianship. The transactions between parents, siblings, grandparents, aunt, uncle, cousin, step- child or spouse is considered Non-Arm's Length.
• Employee/Employer
• Landlord/Tenant
• Home Builders
• Real Estate Brokers/Agents
• Third-Party Service Providers
• Seller Employees
• Owner Financed

The following transactions not allowed:

• Bail out a family member who has had difficulties making their mortgage payment;
• Builder paying off loan(s) used for construction or rehab of the property
• The seller's real estate agent for the subject property also acting as the loan officer for the borrower(s) purchasing the same subject property
• Employer to employee sales or transfers
• Property trades between buyer and seller.

The following are allowed:

• Buyer(s)/Borrower(s) representing themselves as an agent in real estate transactions can be allowed provided that any commission earned by the buyer/borrower is not used for the down payment, closing costs, or monthly PITIAA reserves.

• A relative (or donor that meets FNMA eligible donor definition) as the real estate agent but no other party to the transaction (builder, developer, broker, seller, etc.) is acceptable; however, the gift must be sourced and received prior to close and commission for the transaction cannot be used for a gift.
• Seller(s) representing themselves as an agent in real estate is allowed.

3.5.2 Rate/Term Refinance

A Rate/Term Refinance transaction is when the new loan amount is limited to the payoff of the present first lien mortgage, any seasoned non-first lien mortgages, closing costs and prepays, or buying out a co-owner/partner pursuant to an agreement.

A seasoned non-first lien mortgage is a purchase money mortgage or a closed end or HELOC mortgage that has been in place for more than 12 months (with no draws greater than $2,000 in the past 12 months). Withdrawal activity must be documented with a transaction history from the HELOC account. The above classification may differ from the way loans are classified under Texas law, please refer to Fannie Mae B5-4.1-02

Refinance of a previous cash-out loan seasoned < 1 year will be considered a cash-out refinance. The property's current appraised value may be used to determine LTV at any time after initial acquisition provided that cashout is limited to rate/term standards and the loan amount (inclusive of closing costs and prepaids) does not exceed the original acquisition cost.

At least one borrower on the new loan must be an owner (on title) of the subject property at the time of loan application and must meet applicable seasoning requirements. Exceptions are allowed in the following cases:

• The borrower acquired the property through an inheritance or was legally awarded the property (e.g. divorce, separation, dissolution of domestic partnership).
• The property was previously owned by an inter vivos revocable trust and the borrower is the primary beneficiary of the trust.

Cash-out Limit - Cash-out to the borrower limited to the greater of $5,000 or 2% of the loan amount.

Use current appraised value for LTV calculation purposes.

The new Rate/Term Refinance Loan amount is defined and limited by the following:

Rate / Term Refinance Transaction

• Current first lien mortgage payoff amount
• • Any seasoned non-first lien mortgage payoff amounts on the subject property + Closing costs (must be reasonable and within market standards)
• • Prepayment fees
• • Court ordered buyout settlement (if applicable)
• = New Loan Amount

3.5.3 Cash-out Refinance Transactions

Proceeds from the transaction used for any refinance that does not meet the definition of a rate/term transaction. A mortgage secured by a property currently owned free and clear is considered cash-out. The payoff of delinquent real estate taxes (60-days or more past due) is considered cash-out. All excess proceeds eligible for distribution to the borrower are net of customary fees, prepayment fees and other related closing costs. Additional requirements are:

Cash-Out Seasoning is defined as the difference between the note date of the existing loan to the note date of the new loan. Below seasoning requirements are acceptable for cash-out transactions:

• For properties owned 6 months or longer, the LTV/CLTV is based upon the new/current appraised value.
• Cash-out Seasoning of less than (6) months is not allowed when the prior transaction was also cashout (as determined by the final Closing Disclosure or Settlement Statement).
• Cash-Out Seasoning of (6) months or less is allowed with the following restrictions:
  • Property value is limited to the lesser of the current appraised value or the purchase price + documented improvements.
  • The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property), and at least one of the following must exist:
    • No mortgage financing was used to acquire the property.
    • The original purchase transaction is documented by a settlement statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed or similar alternative confirming the amount paid by the grantee to trustee may be substituted for a settlement statement if a settlement statement was not provided to the purchaser at the time of sale.)
    • The preliminary title search or report must confirm that there are no existing liens on the subject property, or the existing lien being refinanced was taken out after the property was obtained as evidenced by a copy of the note.
    • The mortgage being refinanced was used to purchase the property and has an original term of 24 months or less as evidenced by a copy of the settlement statement and original note.
    • If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the settlement statement for the refinance transaction must reflect that all cash-out proceeds be used to pay off or pay down, as applicable, the loan used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.
    • The lender has documented that the borrower acquired the property through an inheritance or was legally awarded the property through divorce, separation, or dissolution of a domestic partnership. LTV/CLTV is based on current appraised value.

Cash back as it relates to the maximum limits is defined as "cash in hand" to the borrower. Net proceeds from a cash-out transaction may be used to meet reserve requirements. See program matrices for maximum cash-out limits. A letter explaining the use of loan proceeds is required when the cash-out exceeds $250,000.

3.5.4 Delayed Financing

Borrowers who have purchased a subject property within the last six months preceding the disbursement date of the new mortgage are eligible to receive cash back with the loan being priced and treated as a cash-out refinance if the following requirements are met (See FNMA Guides for additional information):

• The original purchase must have been an Arm's Length Transaction.
• The original purchase transaction is documented by the Settlement Statement which confirms that no mortgage financing was used to obtain the subject property.
• The preliminary title report must confirm that there are no existing liens on the subject property.
• The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing costs, prepaid fees, and points on the new mortgage loan (subject to maximum LTV and CLTV ratios for cash-out transactions based on the current appraisal)
• If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), then all cash- out proceeds are to be used to pay-off or paydown the loan used to purchase the property.

Settlement Statement for the refinance transaction must reflect the above

Any payments on the balance remaining from the original loan must be included in the DSCR/DTI ratio calculation for the refinance transaction.

Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan.

Source of funds must be documented. Examples of proper documentation include bank statements, personal loan documents, 401(k) withdrawal statements, or evidence of a HELOC on another property.

3.5.5 Continuity of Obligation

At least one of the applicant(s) (or member(s) of a vested entity) on the existing mortgage must also be an applicant on the new refinance transaction secured by the subject property. The following requirements must be met:

• Rate/Term Refi: At least one applicant on the new refinance mortgage was a borrower on the mortgage being paid off
• Cash-Out: At least one applicant on the new mortgage held title to the subject property for the most recent 6-month period and the mortgage file contains documentation the applicant has been making timely mortgage payments, including the payments for any secondary financing, for the most recent 6- month period

Continuity is not required if at least one applicant on the proposed refinance inherited or was legally awarded the subject property by a court in the case of a divorce, separation, or dissolution of a domestic partnership.

3.5.6 Listing Seasoning

Properties previously listed for sale must be seasoned at least 6 months from the listing contract expiration date to the application date.

On case-by-case basis, shorter seasoning may be allowed and not subject to the above requirements if:

• Listing was required by court order (divorce decree, joint tenancy dissolution, etc.); or
• Property proceeds are used to buy out the interests of co-beneficiaries (such as inherited property, dissolution of trust, etc.); and
• LTV% is at least 10% below maximums.

3.5.7 Texas Home Equity Loans 50(a)(6)

Allowable based on FNMA Guides B5-4.1 must adhere to Article XVI, Section 50(a)(6) statue.

NOTE: Primary Residences only. Interest Only is prohibited on a Texas Section 50(a)(6) Equity Cash Out loan. Loans must be fully amortized.

3.6 Ineligible Transactions

• Construction to permanent transactions (except owner-occupied primary residence)
• Builder Bailout Loans
• Conversion Loans
• Lease Options/Rent-to-Own
• Land Contracts
• Assignments of the contract to another buyer (see exception 3.3.1 above)
• Ground leases
• Payoff of a loan with equity sharing features

4.0 CREDIT

4.1 Analysis of Credit

Credit must meet FundLoans eligibility requirements described in this section. For any scenario or guideline not addressed or contained herein, FNMA credit guidelines will apply.

4.2 General Requirements

Underwriting must document that the borrower does not qualify for a GSE loan or has chosen a non-GSE loan program.

• The credit report should provide merged credit data from the three major credit repositories: Experian, TransUnion, and Equifax. Either a three-bureau merged report, or a Residential Mortgage Credit Report is required.

• Aging - The credit report should be dated within 120 days prior to the Note date.

• Gap Report - A credit refresh/gap report must be provided within a 10-day window of note date (not required on DSCR doc type)

• A written explanation for credit inquiries in the last 90 days is required (not required on DSCR doc type).

4.2.1 Credit Scores

The middle score when 3 agency scores are provided and the lower score when only 2 agency scores are provided of the primary income earner is the representative credit score of the loan. If Borrowers are 50/50 owners of a business and income is equal, the higher Representative Credit score is used for qualifying.

Married (or registered domestic partners) borrowers need only one borrower to meet the FICO and tradeline requirements.

Unmarried joint applicants who meet at least two of the three below criteria may be treated as spouses for determining compliance with the trade line requirements:

• Reside together for at least two years;

• Hold at least one joint trade line; and

• Jointly hold asset accounts

Methodology of which FICO score to use is as follows:

|# of Borrowers|# of Scores per Borrower|Methodology| |1 Borrower|2 or 3|•
Lower of 2 or the Middle of 3 FICO Scores| |2 or more-
Borrowers
Non DSCR|2 or 3|•
Primary Wage Earner's Lower of 2 or Middle of 3 FICO
Scores
•
If borrowers are 50/50 owners of a business and
income is equal, the higher representative score is
used for qualification
•
If 2 of the 3 credit scores are identical, the identical
score isyour mid score| |Assets Only|2 or 3|•
Assets owned 50/50: use the lowest borrower's
Lower of 2 or Middle of 3 FICO Scores
•
75% of assets owned one borrower (including funds
to close and all post-closing asset requirements) use
that borrower's Lower of 2 or Middle of 3 FICO Scores| |DSCR
Loans|2 or 3|•
The Representative Credit Score for a borrower is the
middle score of 3 FICO scores, or the lower score of 2
FICO scores when only 2 FICO scores are provided.
•
When more than one borrower qualifies for the loan,
the qualifying credit score is the lower Representative
Credit Score of all borrowers|

4.2.2 Tradeline Requirements

All borrowers should have an established credit history that is partially based on tradeline history. All borrowers must meet the minimum tradeline requirements. Authorized User accounts cannot be used to meet minimum tradeline requirements.

If a Borrower has 3 credit scores reporting, then the minimum tradeline requirement for that borrower has been met, unless the only tradelines present are Unacceptable Tradelines listed below.

Standard Tradelines - Each borrower must have:

• 3 tradelines w/ at least 12 months reviewed and activity reported in the past 12 months

OR

• 2 tradelines w/ at least 24 months reviewed and activity reported in the past 12 months

Valid tradelines have the below characteristics:

• The credit line must be reflected on the borrower's credit report and may include self-reported utilities

• The account must have activity in the last 12 months but may be open or closed

• An acceptable 12 or 24-month housing history not reporting on credit may also be used as a tradeline (VOR with credit supplement and may come from either a private party or property management company).

Limited Tradelines: If Standard Tradelines requirements are not met but have 2 credit scores reporting the following restrictions apply:

• Max LTV/CLTV of 75%

• A 10% down payment has been made by the applicant from their own resources

• Primary residences only

• Not allowed Assets Only or Asset Allowance doc types

Unacceptable Tradelines:

• Loans in a deferment period (Student loans can be counted as tradelines as long as they are in repayment and are not deferred)

• Collection or charged-off accounts,

• Accounts discharged through bankruptcy, and

• Authorized user accounts (unless evidence is provided that 24 consecutive payments have been made directly to the creditor by our borrower via canceled checks/auto pay / ACH records)

• Foreclosures, deed in lieu of foreclosure, short sales, or pre-foreclosure sales

• Any account currently 90 days late

4.2.3 Credit Reporting Data Included in DTI Ratios

For all programs that require a DTI for qualification purposes, the following credit data must be included in the ratios:

• Installment Debt: All installment loans (monthly obligations with fixed payments and terms) must be included in the borrower's debt-to-income ratio.

  • Excluded from DTI: payments of 10 months or less (leases excluded)

  • Excluded from DTI: any installment debt that is paid prior to or at closing can be excluded from the DTI. Supporting documentation is required to verify that these debts have been paid.

• Revolving Debt: Open-ended debt obligations in which the principal balance may vary each month. The minimum required payment stated on the credit report, or the current account statement must be used to calculate DTI. If no payment is stated on the credit report, the greater of $10 or 5% of the current balance should be included in the DTI unless there are sufficient documented reserves (in excess of the

required minimum reserve requirement) to cover the full reporting account balance.

• Excluded from DTI: Revolving accounts that are paid off prior to or at closing are excluded from the DTI. Supporting documentation such as a credit supplement or verification from the creditor is required. Funds used for the payoff must be sourced if account balance is paid prior to closing.

• 30-Day Charge Accounts: For open 30-day charge accounts that do not reflect a monthly payment on the credit report, or 30-day accounts that reflect a monthly payment that is identical to the account balance, 5% of the outstanding balance will be considered to be the required monthly payment.

Open-end accounts do not have to be included in the monthly debt payment if the borrower has sufficient funds to pay off the outstanding account balance. The funds must be verified in addition to any funds required for closing and reserves.

If the borrower paid off the account balance prior to closing or at closing, proof of payoff may be provided in lieu of verifying funds to cover the account balance.

• Lease Obligations: Must be included in the DTI regardless of the time remaining on the lease

• Child Support, Alimony or Maintenance Obligations: Must be current at the time of application and must be included in the DTI. The loan file should contain supporting documentation (such as a final divorce decree, legal separation agreement or court order) evidencing the obligation. If payments are delinquent, then they must be brought current prior to the loan closing.

• Contingent Liabilities: An individual has a contingent liability when an outstanding debt obligation has been assigned to another party, but the creditor has not released the borrower from the obligation. Contingent Liabilities must be included in the DTI unless the following conditions are met:

  • Excluded from DTI: If one borrower was obligated to buy-out the other borrower because of a divorce or separation, then the loan file should include the divorce decree, separation agreement or court order that shows transfer of ownership. In addition, the obligation in question must be current.

  • Excluded from DTI: Debts paid by others can be excluded from the DTI Ratio if the debt is being paid in a satisfactory manner by another party for the past 6 months. Acceptable documentation includes cancelled checks or bank statements that consistently show another party making at least the past 6 payments.

• Paystub Deductions: Are included in DTI (excluding 401(k) repayments)

4.2.4 Credit Reporting for Business Debt

Business debt is typically a financial obligation of a business. However, business owners can sometimes be personally responsible for that debt as well. If business debt is reflected on a personal credit report and the business debt is less than 6 months old, then the debt must be included in the DTI. If the business debt is greater than or equal to 6-months old, the debt may be omitted from the DTI if the borrower provides documentation that the borrower's business is making the payments on the debt. Acceptable documentation includes the most recent 6 months of cancelled checks or bank statements showing the debt as paid from the

business account. Undisclosed business debt found in MERS or Fraud Report may also require documenting payment history or be included in DTI at underwriter's discretion.

4.2.5 Housing History Greater Than 12 Months

Acceptable housing history requires evidence one borrower (not a non-occupant co-borrower) has made a primary housing payment for at least the last 12 months (24 months required for WVOE loans) whereby that payment history meets the requirements of the Program Credit Matrix, to include all personally liable mortgage loans on all real estate owned (except DSCR which only requires history for the subject property (refinance) and primary) All mortgage history reported on the credit report must meet the payment history requirements per the applicable matrix.

A combination of mortgage and rent verification may be provided to complete a 12-month housing payment history. When the borrower moved from rental to ownership a gap month is acceptable from the end of the rental period to the first payment mortgage due date, if applicable.

Fully documented, recent, consecutive 12 or 24-month mortgage history, as required by program guidelines, on a personally held investment property meets the requirements herein, if the borrower cannot document the required history on a primary residence.

A Verification of Mortgage (VOM) must be obtained for all outstanding mortgages that are not reported to the borrower's credit report, including private mortgages. If the credit report does not reflect pay history, following are acceptable methods of verification:

For mortgage payments (any of the following)

• VOM ordered from Mortgage Servicer,

• Electronic pay history printout directly from Mortgage Servicer showing timely payments,

• Credit Supplement showing paid as agreed

• Bank Statements showing account ownership and timely payments debited by Mortgage Servicer,

• Cancelled checks front and back as well as the most recent mortgage statement, or

• For private mortgages, provide a fully executed VOM together with either bank statements showing account ownership and timely payments debited by Mortgage Servicer OR cancelled checks front and back along with the most recent mortgage statement.

For rental payments

• If was/is renting from a private party, obtain either a fully executed VOR OR the most recent lease for the property address in question. In either case, verification of timely payments made is required (either canceled checks front and back OR bank statements showing account ownership and payments debited by landlord).

• If was/is renting from a management company, obtain a fully executed VOR. Otherwise, obtain the most recent lease, along with payment history ledger from management company, canceled checks front and back OR bank statements showing account ownership and payments debited by management company.

NOTE: Any properties owned free and clear by a borrower is considered as a 0x30 housing history for grading purposes for each month the property has been owned free and clear (e.g. a property owned free and clear for the last 12 months satisfies the housing history requirement). Documentation verifying free and clear is required such as property detail report, data verify report, title search, etc.

4.2.6 No Housing History or Less Than 12 Months Verified

This section applies to any borrower who has not made at least 12 months of housing payments on any property (or as a tenant in a rental situation) in the most recent 12 months.

NOTE: If loan application/1003 shows a property rented or owned in the prior 12 months, a fully executed VOR/VOM must be obtained for these months reflecting paid as agreed. *Excluding address history that is documented as rent-free.

• Borrowers living rent free at their primary residence are eligible if 12 or greater most recent months consecutive housing history on a personally held investment property is provided; or

  • A signed letter from the owner/primary resident of the home must be provided verifying that the borrower is living rent-free.

  • The letter needs to indicate the relationship between the borrower and owner/primary resident and the reason why the borrower is living rent-free at the home.

  • DTI may not exceed 45%

  • Reduce LTV by 5% of the maximum allowed per Program Matrix

• Borrower living in the marital home with a spouse is considered to have the same housing history of the spouse.

Once the above documentation requirements have been met the loan must adhere to the following restrictions:

• Primary residence only

• Minimum 6 months reserves after closing

• 10% minimum borrower contribution

• Bank statement income documentation program only

4.2.7 Past Due Balloon Payment on Existing Mortgage

Balloon mortgages with an expired maturity date can be considered as follows:

• The extension is executed prior to the balloon's maturity and any required payments since the extension were made as expected. This would be considered as a 0x30; or

• The extension was executed after the balloon's maturity but prior to closing, and the borrower continued to make timely monthly payments and the payments were accepted by the lender. This would be considered as a 0x30, or

• The extension was not executed, but the VOM indicates the loan is paid as agreed, the payoff does not include suspense or deferred payments or interest, and the maturity date of the balloon was within 180 days of the new maturity date. This would be considered as 1x30.

4.2.8 Other Credit and Credit Reporting Requirements

• Authorized User Accounts: Credit report tradelines in which the applicants are "authorized users" may not be considered in the underwriting decision except in certain circumstances such as those listed here:

  • Another borrower in the mortgage transaction is the owner of the tradeline,

  • The borrower is an authorized user on a spouse's credit report tradeline, or

  • The borrower can provide written documentation that they have made at least 50% of the payments on the account for at least 12 months preceding the date of the application.

• Student Loans: Payments and deferment will be reviewed in accordance with FNMA guides.

• Judgments, Garnishments and Liens: The borrower is required to pay-off all open judgments, garnishments, and liens (including mechanics liens or materialmen's liens) prior to or at loan closing.

• Tax Liens: Tax lien(s) may remain open if subordinated, lien amount included in LTV/CLTV, and payment included in DTI under the following conditions:

  • Must be on a repayment agreement seasoned a minimum of 3 months (lump sum payment of first 3 months not allowed); and

  • Must document the most recent 12 months' payments (or payments-to-date if an agreement has been in place less than 12 months) have been made in a timely manner

• Consumer Credit Counseling Services (CCCS): Borrower enrollment in CCCS is allowed when a minimum of 12 months have elapsed on the plan and evidence of timely payments for the most recent 12 months is provided. The CCCS administrator must also provide a letter allowing the borrower to seek financing on a new home while enrolled in the plan.

  • If accounts included in CCCS plan reflect as charge-off or collection accounts on the credit report, then exclude these balances from the charge-off and collection limits listed below. The monthly CCCS plan payment must be included in the DTI calculation.

  • If a completion date is not shown on the credit report, the borrower is required to submit verification from the counseling agency eligible establishing the date of completion.

• Collection Accounts and Charge-offs: Do not have to be paid in full if the following applies:

  • Collections and charge-offs < 24 months old with a maximum cumulative balance of $2,000

  • Collections and charge-offs ≥ 24 months old with a maximum of $2,500 per occurrence

  • Collections and charge-offs that have passed beyond the statute of limitation for that state (supporting documentation required)

  • All medical collections (regardless of the amount)

Collection and charge-off account balances remaining after the exclusions listed above may remain open when one of the following is met:

• Borrower has sufficient reserves to cover remaining collection and charge-off balances (in addition to meeting all down payment/cash-to-close/required reserves); or

• Payment for remaining collections and charge-offs included in DTI results in final DTI ≤ 50% (payment calculated at 5% of the balance of remaining unpaid collections and charge-offs).

A combination of the two options above is allowed. A portion of the unpaid collection balance can be included in the DTI while the remainder is covered by excess reserves. Collections and charge-offs that cannot be factored into DTI or reserves must be paid off.

• Past Due Accounts: All past due accounts must be brought current.

• Disputed Accounts: When the credit report contains tradelines disputed by the borrower:

  • If the tradeline is paid as agreed, no further action is needed.

  • If the disputed account has a zero balance or is being paid at closing, no further action is needed.

  • If the disputed account has delinquency within two years of the credit report date and the account balance is $2,500 or less, no further action is needed.

  • If the disputed account has delinquency within two years of the credit report date and the account balance is over $2,500, the credit file should be documented with a credit supplement showing the dispute has been resolved.

• If the total aggregate balance of accounts in dispute exceeds $5,000, a minimum of 5% of the total balance must be included in the DTI.

4.2.9 Mortgage Forbearance, Deferral, Modification

• Forbearance, Deferral or Modification completed or reinstated more than 12-months from the note date and having 0x30x12 Housing History is allowed. Examples include:

  • Forgiveness of a portion of principal and/or interest on either the first or second mortgage

  • Application of a principal curtailment by or on behalf of the investor to simulate principal forgiveness

  • Conversion of any portion of the original mortgage debt to a "soft" subordinate mortgage

  • Conversion of any portion of the original mortgage debt from secured to unsecure

• Forbearance, Deferral or Modification completed or reinstated within 12-months of the note date are not eligible.

4.2.10 Significant Adverse Credit

The waiting period commences on the completion, discharge, dismissal date, or settlement date (as applicable) of the derogatory credit event and ends on the note date of the new loan unless otherwise noted.

Multiple adverse credit and/or housing events in the last seven (7) years are not allowed.

Bankruptcy (all chapters), Short Sale, Deed-in-Lieu, Notice of Default, Notice of Trustee Sale and/or Foreclosure must be seasoned for the period listed on the applicable program matrix and subject to any additional CLTV/LTV maximums as listed on the matrix.

5.0 FULL DOCUMENTATION

5.1 Overview

FundLoans will accept Full Documentation (Full Doc) for the following Wage Earner types. All Wage Earner loans require an executed 4506-C or 8821 and income will be calculated in accordance with the most recent FNMA Guides. 2 years of employment history must be verified for all documentation types.

• 12 or 24 Month Wage Earner
• 12 or 24 Month Self-Employed borrower

5.2 Documentation Requirements

The following table summarizes the required documentation for our Full Doc Wage Income Earner types:

• Each tax return must be signed by the borrower unless one of the following signature alternatives has been obtained:
  • documentation confirming that the tax returns were filed electronically,
  • a completed IRS Form 4506–C (signed by the borrower) for the year in question, or

• IRS transcripts that validate the tax return.

• If business/self-employed borrowers tax returns are on extension, then the borrower will need to supply their most recent filed tax return and a signed P&L through the most recent quarter (if applicable) and a P&L from previous year.

5.3 Unscheduled Income

Borrowers can receive income from many different sources and different pay structures. The following details describe methods used in determining a borrower's average monthly income based on these income source variations. Applicants with unscheduled income are eligible borrowers according to the following guidelines and requirements:

Bonus, Commission and Overtime Income

• A two-year history receipt is required. Borrowers in the same line of work but with different employers will be considered on an exception basis.
• Documentation requirements: In addition to a current paystub and W2's, obtain a written verification of employment (WVOE), breaking down bonus, commission and/or overtime pay for the current year as well as the prior 2 years. Absent a WVOE, year-ending paystubs from the prior 2 years can be used to verify bonus, commission and/or overtime pay.
• Careful consideration must be given to the pay structure of the income type when qualifying income. For example, bonus income may only be paid on an annual basis. When that is the case, and the annual bonus has been paid out as evidenced by the current paystub, that figure must be annualized for income calculation purposes.
• A declining trend should be carefully considered whereby an appropriate income calculation should be applied. For example, if a borrower earned less in commission income in the most recent year, an income average from the most recent year should be utilized as opposed to averaging with the previous year where more income was earned.
• There should be no indication that the income will not continue for the foreseeable future

Seasonal Employment/Unemployment

• Borrower must have worked for the same employer for the past 24-months. If the borrower is employed by a union (construction, electrical, plumbing) and are placed on different jobs over a period that is considered acceptable.
• A Written Verification of Employment (WVOE) is required stating that there is a reasonable expectation of returning the next season
• Unemployment Compensation for time-off has been consistent for the past 24 months and coincides with the seasonal job
• Income must be annualized over a 12-month period for qualifying purposes unless income is declining

Rental Income- Full Doc- All properties except departing residence

• Required Documentation: Most recent year's personal tax return including Schedule E. In addition, a copy of a current unexpired, executed lease is required along with the most recent 2 months proof of rent receipt (e.g. cancelled checks, bank statements). If the lease is not current, the lease must indicated that the original term converts to month-to-month or there must otherwise be evidence that

the lease converted month-to-month. Rental income must be derived solely from the ownership of rental properties as declared on the Schedule E.

• For newly acquired rental property, a copy of the executed lease is required along with verification of the security deposit and evidence that first month's rent has been deposited into the borrower's account. The property may not be leased to a family member. The property must have been purchased subsequent to the most recent tax year (i.e. would not yet be reported on Schedule E).
• For purchase transaction of an investment property, copies of the current lease agreement(s) transferred to the borrower are required. Current lease amount would be used for rental income calculation. If property is not currently rented (i.e. vacant per appraiser), or if the existing lease is not being transferred to the borrower, then lease agreements are not required and appraisal Form 1007 or 1025 (as applicable) will be used to determine gross market rent.

Properties defined as a one-unit property with an accessory unit (ADU) may use rental income from the accessory unit subject to the following:

• Appraisal must reflect that the zoning compliance is legal (permits are not required to establish zoning compliance).
• The appraisal must include at least one sales comparable with an accessory unit, and Form 1007 must include at least rental comparable with an accessory unit in which the ADU receives rental income.
• Refinance: Market rent for the accessary unit should be documented on Form 1007, and the file must include a copy of the current lease with two months proof of current receipt.
• Purchase: Use the lesser of the market rent on Form 1007 or the lease agreement if the subject is an investment property. Rental income from an ADU is not allowed for primary residences and second homes.
• Landlord history is not required to use rental income under the Full Doc Program.
• FNMA Form 1007 is required for all non-owner-occupied transactions when rental income is used to qualify.

NOTE: In all rental income instances (including an ADU), qualifying rental income will be gross rents x 75% to account for vacancy losses and ongoing maintenance expenses.

Housing and Automobile Allowance:

• Please refer to FNMA Guides

RSU Income – Restricted Stock:

• Restricted stock refers to stock of a company that is not fully transferable until certain conditions have been met. Upon satisfaction of those conditions, the stock becomes transferable to the person holding the grant. Restricted stock should not be confused with stock options. Restricted stock must be vested as well as received on a regular, recurring basis.
  • The following documentation is required:
    • Issuance agreement or equivalent (part of the benefits package), and
    • Schedule of distribution of units (shares), and
    • Vesting schedule, and

- Evidence that stock is publicly traded, and
- Evidence of payout of the restricted stock (e.g., YTD pay stub and 2 years W2s)

• Calculation of income:
  • To determine the restricted stock price, use the lower of:
    • 1. Current stock price, or
    • 2. The two-year stock price average
  • Qualifying income will be calculated using an average of the restricted stock income for the past two years, and year to date stock earnings. The average stock price should be applied to the number of stock units vested each year.
  • Future vesting must support qualifying income.

Interest and Dividend Income:

• The most recent 2 years of personal tax returns including Schedule B are required.
• Current documentation of the asset(s) that is producing the interest or dividend is required and must support a 3-year continuance.
• Ineligible Interest and Dividends – Income from interest-bearing or dividend-producing assets being used for the down payment or closing costs are not eligible.
• Ineligible Interest and Dividends – Any taxable interest or dividend income that is not recurring must be deducted from the borrower's cash flow.

Capital Gains/Losses, Royalties, Notes Receivable, Trust, Lottery Winnings, Employee Contracts, Alimony and Child Support:

• Verification that these sources of income will continue for a minimum of 3-years is required.
• A minimum of 12-month history of receipt is required
• 2 years of tax returns are required (for capital gains income only)

Non-Taxable Income:

• Non-taxable income can be grossed-up by 25% or by borrower's income tax bracket, whichever is less.

NOTE: At certain levels Non-Taxable Income could be subject to taxation and some income types may contain both taxable and non-taxable income. Federal Tax Returns may be required to accurately determine the non-taxable portion. Refer to FNMA Guides.

5.4 Declining/Increasing Income

If income is declining year-over-year, then the lowest income year will be used to qualify the borrower. A letter of explanation detailing the reason for the decline and the possibility of further income deterioration is required.

If a borrower's income has grown at a pace greater than 20% per annum, then an average of the last two years' income will be used. The lender is responsible for ensuring that the borrower has the capacity to repay the loan and meets ATR requirements.

5.5 Determining Income for Self-Employed Borrowers

Business Verification

• A Third-Party Verification of the existence of the borrower's business is required within 120 business days of the Note date.

• Verification must be from a third-party, such as a CPA, Enrolled Agent, or CTEC (excluding PTIN tax preparers), a Regulatory Agency or an applicable Business License Verification of the business to include a phone listing and address using an independent third-party, i.e., Internet Search.

General Requirements for Self Employed Income (Full Doc)

• Applicants must own at least 25% of a business to be considered self-employed.
• Applicants must have been successfully self-employed for a minimum of two full years. If the business is stable and shows an upward trend, then the income used for the applicant is averaged over the 2 most recent years' Form 1040s. Case-by- case determinations will be made if the business shows a decreasing/downward trend.
• Borrowers should be self-employed for at least two years with the same business. However, a borrower may qualify with less than two years but more than one year of self-employment with the same business if the borrower can document at least two years of previous successful employment in the same line of work in which the person is currently self-employed, OR one year of previous successful employment in the same line of work and one year of formal education or training in the same line of work.
• Copies of all required business licenses are required.
• A YTD P&L is required.

Cash Flow Analysis (Full Doc)

• When determining the appropriate qualifying income for a self-employed borrower, it is important to note that business income (specifically from a partnership or S corporation) reported on an individual IRS Form 1040 may not necessarily represent income that has been distributed to the borrower. When distributions are greater or equal to K1 Box 1, no cash flow testing is required. If distributions are less than K1 Box 1, underwriting may use actual distributions with no testing required. If testing is required, underwriting may use the Quick Ratio: (current assets – inventory) ÷ current liabilities or Current Ratio: current assets ÷ current liabilities.

5.6 Requirements for Corporate Structures

The legal structure of a business determines how income/loss is reported to the IRS, how its taxes are paid and how it accumulates capital. Legal structures also determine the extent of each owner's liability. The five principal business structures are:

Sole Proprietorship:

Business income, expenses and taxable profits are reported on Schedule C of the Individual Tax Return. Required documentation for a Sole Proprietorship include:

• Federal Individual Income Tax Return Form 1040 for the most recent 2 years including Schedule C. The tax returns must be signed by the borrower(s) with all applicable schedules.
• YTD P&L and Balance Sheet prepared by borrower or CPA.

A Partnership (General or Limited):

Is when two or more owners are joined by contract to conduct business and will share profits and losses according to the partnership agreement. Income taxes are paid by the individuals since the partnership itself is not required to pay taxes. Partnership documentation required:

• Federal Business & Personal Tax Returns for the most recent 2 years. The tax returns must be signed by the borrower(s) with all applicable schedules.
• Schedule K-1 (Partners share of Income) for the most recent 2 years.
• YTD P&L and Balance Sheet prepared by a CPA or borrower.

Limited Liability Company (LLC):

An LLC is a business structure that blends the tax efficiencies of a partnership and the limited liability of a corporation. LLCs report profit or loss on IRS Form 1065 and each member-owner's share of that profit/loss is reported on Schedule K-1. An LLC pays no tax on its income. Each member-owner uses the information on the K-1 to report their share of the LLC's net profit or loss on their individual IRS Form 1040 (regardless of whether the member-owner receives a cash distribution from the LLC). LLC documentation required:

• Federal Business & Personal Income Tax Returns for the most recent 2 years. The tax returns must be signed by the borrower with all applicable schedules.
• Schedule K-1 (Partner's Share of Income) for the most recent 2 years.
• YTD P&L and Balance Sheet prepared by a CPA or borrower.

S Corporation:

An S Corp is a legal entity that has a limited number of stockholders that elect not to be taxed as a regular corporation. Business gains and losses are divided among and passed through to stockholders. The stockholders are taxed at their individual tax rate for their proportionate share of ordinary income, capital gains and other taxable items. An S Corp provides many of the benefits of partnership taxation and at the same time provides the owners with limited liability protection.

The ordinary income from an S Corporation's business is reported on IRS Form 1120S with each shareholder's share of income reported on Form 1120S's Schedule K-1. Cash distributions from an S- Corp to a borrower will be reviewed and considered when evaluating the cash flow of the S-Corp. S- Corp documentation required:

• Federal Individual Income Tax Return Form 1040 for the most recent 2-years. Tax returns must be signed by the borrower with all applicable schedules.
• Schedule K-1, Shareholder's share of income, deductions, credits etc., for the most recent 2-years.
• IRS Form 1120S Income Tax Return for the S Corp's most recent two years (if the ownership is greater than or equal to 25%.)
• YTD P&L and Balance Sheet prepared by a CPA or borrower.

C Corporation:

A C-Corp is a legal tax paying entity with its own rights privileges and liabilities separate from those of its owners. A C-Corp can sue, be sued, hold, convey, or receive property, enter contracts under its own name and doesn't dissolve when ownership changes. C-Corp documentation required:

• Federal Individual Income Tax Return Form 1040 for the most recent 2 years. Tax returns must be signed by the borrower with all applicable schedules.
• IRS Form 1120 Income Tax Return for the C-Corp's most recent two years.
• YTD P&L with Balance Sheet prepared by a CPA or borrower.
• Corporate earnings from a C-Corp cannot be considered unless the borrower is 100% owner of the corporation (i.e. only the borrower's wage income can be considered).

Each tax return must be signed by the borrower unless one of the following signature alternatives has been obtained:

• documentation confirming that the tax returns were filed electronically,
• a completed IRS Form 4506–C (signed by the borrower) for the year in question, or
• IRS transcripts that validate the tax return.

NOTE: YTD financials from other entities (whose income is not needed to qualify) are not required if the previous two years' tax returns show positive income.

6.0 Alt Doc

For all loan programs and/or income options, any decline or large fluctuation in income that is documented in the file requires an explanation from the borrower regarding the decline/fluctuation.

NOTE: Form 4506-C or 8821 is not required for any Alt Doc program unless there is a co-borrower (not married to borrower) who is qualifying with full income documentation.

6.1 Bank Statements

The following are required for both the Personal Bank Statement option and the Business Bank Statement option:

• Borrowers should be self-employed for at least two years with the same business. However, a borrower may qualify with less than two years but more than one year of self-employment with the same business if the borrower can document at least two years of previous successful employment in the same line of work in which the person is currently self-employed, OR one year of previous successful employment in the same line of work and one year of formal education or training in the same line of work.

• Businesses should be established and have been in existence for the past two years. However, if a borrower is qualifying with less than two years but more than one year of self-employment, then the business should be established for the same length of time that the borrower has been self-employed.

• A 3[rd] party verification that the business is in existence, in good standing and active is required. A signed written statement from a CPA/EA/CTEC is permitted for verification (PTIN not allowed). They must attest that they have audited the business financial statements or reviewed working papers if they have not done so somewhere else in the loan file.

• All parties listed on a personal bank account used for income must be included as borrowers on the loan.

• Bank statements used for income must be consecutive and reflect the most recent months available.

• Bank statements must support stable and generally predictable deposits. Large and unusual deposits as determined by the underwriter must be sourced. Otherwise, they must be excluded. Cash is not an acceptable deposit source when not customary to the business type.

• Net Decrease - The underwriter must evaluate deposit and withdrawal patterns and determine whether or not the income used for qualifying is stable. Account withdrawals that are consistently greater than deposits may be a sign of declining cash flow/income. As a result, declining income may require a UW certification/attestation of why the decrease was deemed acceptable if not already addressed elsewhere in the file. Otherwise, an explanation from the borrower or their tax preparer regarding the

decline may be needed and may result in loan disqualification if the income is deemed unstable. If the explanation is from the CPA/Licensed Tax Preparer, they must attest that they have audited the business financial statements or reviewed working papers provided by the borrower if they have not done so somewhere else in the loan file.

• Non-Sufficient Funds (NSF) - FundLoans defines an NSF occurrence as one or more items returned in the same day. An LOE from the borrower must be provided. NSF are allowed as follows:

  • If there are one (1) or more occurrences in the most recent three (3) month time period, up to three (3) occurrences are allowed in the most recent 12-month time period.

  • If there are zero (0) occurrences in the most recent three (3) month period, up to five (5) occurrences in the most recent 12-month time period are acceptable.

• Overdraft Protection - FundLoans considers an overdraft to be an event where an account has gone negative but is linked with another account or line of credit with the same financial institution. FundLoans will allow these and treat them as an isolated incident (i.e not an NSF) provided:

  • Overdraft protection from a depository account: Occurrences may be excluded if statements for the linked account confirm that (a) the linked account balance at the time of the transfer exceeded the amount of the overdraft transfer, (b) the link account's balance did not report as zero or negative at any point during the statement period of the transfer, and (c) the linked account did not itself receive overdraft protection proceeds during the statement period of the transfer.

  • Overdraft protection from a line of credit: Occurrences may be excluded if statements for the linked account confirm that (a) the line's credit limit was not exceeded during the statement period of the transfer, (b) a payment amount which equals or exceeds the sum of all overdraft protection occurrences analyzed in the statement period is made within 30 days after the statement close date.

• Deposits in the form of transfers from other accounts are generally excluded as qualifying deposits unless it is a wire transfer from another company for services rendered.

• FundLoans will consider other forms of income used in conjunction with the Bank Statement Program such as W2 income or fixed income such as Social Security Benefits.

• When a signed and dated Third Party P&L is provided, it must cover the same dates as the bank statements.

6.1.1 Personal Bank Statements

The following documentation is required:

• 12 or 24 months complete personal bank statements dated within 30 days of application (multiple personal accounts may be used), and

• Transaction histories are not acceptable.

• The initial 1003 must disclose monthly income.

• Bank statements reflecting other individuals except non-borrowing spouses who are not applicants on the loan are not eligible. When a spousal joint account is used, the borrower must be 100% owner of the

business and all income/deposits from the non-borrowing spouse must be removed. All parties must attest in writing that the income/deposits being qualified belongs to the borrower.

The following applies when analyzing personal bank statements:

• All deposits attributable to direct transfers of net income from borrower's business account into the personal account can be qualified. Total deposits are not reduced by an expense factor.

• Large and/or unidentified deposits as determined by the underwriter must be sourced. If it is determined that any deposit did not come from the borrower's business, the deposit must be excluded from the income calculation.

• Direct deposits of gross business income into borrower's personal account indicate a commingled account (personal and business income and expenses) in which case one of the expense ratio methods must be used.

• Transfers will be excluded unless they are from the borrower's business account.

• Cash is not an acceptable deposit source when not customary to the business type.

Income Qualification: Qualifying income is 100% of the total business-related deposits divided by 12 or 24 months (or net business-related deposits reduced by applicable expense ratio when account is commingled).

1003 Initial Disclosed Income: Income disclosed on the initial signed application should be reviewed. If income calculated is significantly different than income stated on the 1003, the underwriter should request an explanation from the borrower to determine acceptability of the income. The letter of explanation can come from the Loan Officer or Underwriter.

6.1.2 Business Bank Statements

The following documentation is required:

• 12 or 24 months of complete business bank statements from the same account. If an account has been moved to a different bank and is shown to be one and the same, that is acceptable. Co-mingling of multiple accounts to generate a full 12 or 24 months is not permitted.

The following apply when analyzing business bank statements:

• Reasonable and Customary Eligible Business Expenses from personal bank accounts:

  • Personal bank accounts that are addressed to a DBA

  • Personal bank accounts that can evidence use for business expenses

  • Blended bank statements are allowed on an exception basis with sole proprietor structure

• Wire transfers from other accounts must be either documented as business-related or excluded from the income/deposit calculation. Cash is not an acceptable deposit source when not customary to the business type.

• Transaction histories are not acceptable.

• Borrowers must have at least 25% ownership of the business. The lender must verify the borrower's percentage of ownership. Acceptable forms of documentation include a business license, a signed written statement from a CPA or a Third-Party Tax Preparer (excluding PTIN tax preparers), an Operating Agreement, Articles of Incorporation/Articles of Organization, a Partnership Agreement, or a Business

Certificate filed with a governmental agency. Underwriters have discretion to request additional documentation to satisfy this condition.

• Minimum expense ratio is 20%, regardless of Qualification Method used below. On a case-by-case basis a lower expense ratio is allowed when employment clearly and rationally supports a lower ratio. For example: consulting, remote IT, and content creation.

Income Qualification:

Variable Expense Ratio (Method 1): Total deposits multiplied by the borrower's ownership percentage in the business and then reduced by a fixed expense factor as follows:

Service Business: 0 employees: 20% Ratio 1-5 employees: 40% Ratio 6+ employees: 50% Ratio

Product Business: 50% Ratio (regardless of # of employees)

If there is a discrepancy or ambiguity, underwriters may, at their discretion, default to 50% Ratio.

• Calculation Example: $500,000 in total deposits X 60% ownership percentage reduced by a 50% expense factor ÷ 12 months of bank statements = $12,500/month in qualifying income.

OR

CPA Expense Ratio (Method 2): Total deposits multiplied by the borrower's ownership percentage in the business and then reduced by an expense factor as provided by a Certified Public Accountant, Enrolled Agent, or CTEC in a properly drafted letter (PTIN tax preparers not allowed). Divide by 12 or 24 months. The CPA/Licensed Tax Preparer must attest that they have audited the business financial statements or reviewed working papers provided by the borrower. Bank statements will be analyzed to assure that recurring withdrawals are appropriately accounted for in the expense ratio.

• Calculation Example: $300,000 in total deposits X 40% ownership percentage reduced by a 20% expense factor from a CPA ÷ 12 months of bank statements = $8,000/month in qualifying income.

OR

P&L (Method 3): 12 or 24 Month CPA (or Enrolled Agent or CTEC if license can be verified) P&L plus 12 or 24 months business bank statements. Total allowable deposits from the business bank statements must be no more or no less than 10% of the average monthly gross revenues reflected on the P & L's. (NOTE: in the event that the 10% tolerance is not met for a given month, additional consecutive banks statements can be added to the analysis until the tolerance is met)

Deposits Less Withdrawals (Method 4): Underwriting may review the business' deposits less withdrawals to determine an applicant's income. Sum the net income over the 12-month period provided, multiply by the applicant's pro-rata ownership percentage, and divide by 12. Transfers to an applicant's personal account do not need to be considered a deduction for calculation purposes. The resulting income should be reasonable for the applicant's line of work.

1003 Initial Disclosed Income: Income disclosed on the initial signed application should be reviewed. If income calculated is significantly different than income stated on the 1003, the underwriter should request an explanation from the borrower to determine acceptability of the income. The letter of explanation can come from the Loan Officer or Underwriter.

6.2 Rental Income- Alt Doc

The rental income analysis described in this section can be utilized on the following loan programs:

• 12-24 Bank Statement Analysis

• P&L Only

• WVOE

• 1099 Reduced Doc

• Asset Allowance

In all instances when utilizing rental income, qualifying rental income will be gross rents x 75% to account for vacancy losses and ongoing maintenance expenses. For non-subject investment properties rental income from investment properties not associated with the borrower's business may do so by providing a current active lease together with proof of rent payments received for the most recent 2 months. If there is a newly executed lease for new tenants, provide proof of receipt for deposit and 1[st] month's rent.

For purchase transaction of an investment property, copies of the current lease agreement(s) transferred to the borrower are required. Current lease amount would be used for rental income calculation. If property is not currently rented (i.e. vacant per appraiser), or if the existing lease is not being transferred to the borrower, then lease agreements are not required and appraisal Form 1007 or 1025 (as applicable) will be used to determine gross market rent.

Properties with an accessory unit (ADU) may use rental income from the accessory unit subject to the following:

• Appraisal must reflect that the zoning compliance is legal (permits are not required to establish zoning compliance),

• The appraisal must include at least one sales comparable with an accessory unit, and Form 1007 must include at least rental comparable with an accessory unit in which the ADU receives rental income.

• Refinance: Market rent for the accessory unit should be documented on Form 1007, and the file must include a copy of the current lease with two months proof of current receipt.

• Purchase: Use the lesser of the market rent on Form 1007 or the lease agreement if the subject is an investment property. Rental income from an ADU is not allowed for primary residences and second homes.

6.3 P&L Only

Required Documentation if utilizing a Profit and Loss Statement for income validation:

• A Profit and Loss Statement (P&L) covering the most recent previous 12 or 24 months (depending on loan program), valid if the most recent month is dated within 60 days of closing. The P&L must be completed and reviewed by a Certified Public Accountant, Enrolled Agent, CTEC, or Tax Attorney. FundLoans does not allow PTIN tax preparers. A borrower prepared P&L will not be accepted under any circumstances.

• The acceptable 3[rd] party that prepares the P&L must sign and date the P&L to validate the accuracy of the P&L. The P&L may be unsigned if the 3[rd] party preparer signed and dated a cover letter or similar document that accompanies the P&L delivery and specifically states they prepared the P&L provided.

• The CPA/Enrolled Agent/CTEC/Tax Attorney must attest that they have audited the business financial

statements or reviewed working papers provided by the borrower if they have not done so somewhere else in the loan file.

• Proof must be provided that the appropriate 3rd party preparer who completed the P&L is duly licensed, or certified - certification or licensing proof is acceptable if verified by professional services directory, government listing, or other reasonable 3rd party (certification proven by other reasonable methods may be allowed at underwriter discretion).

• Proof the business has been in operation for 12 months or greater (24 months required for the 24month P&L program)

• Proof of business ownership percentage if the business is a corporate entity and the P&L covers the business as a whole and not just the borrower's share of the business. Borrowers must have at least 25% ownership of the business. The lender must verify the borrower's percentage of ownership. Acceptable forms of documentation include a business license, a signed written statement from a CPA/Enrolled Agent/CTEC/Tax Attorney (excluding PTIN tax preparers), an Operating Agreement, Articles of Incorporation/Articles of Organization, a Partnership Agreement, or a Business Certificate filed with a governmental agency. Documentation showing sole member entity or sole proprietor is acceptable to indicate 100% ownership

• P&L Only is an Alternative Documentation type and will be priced under the Apex program. P&L must reasonably reflect the income and expenses of the industry described.

P&L statements not meeting the requirements of this section, or which are suspicious in nature, may require additional verification.

NOTE: Supplemental income such as W2 or SSI may be included with this loan program provided it is not the dominant income type or conflicts with primary income calculation. Supplemental income should be documented in accordance with full doc income requirements.

6.4 Written Verification of Employment (WVOE)

Borrowers who have a 2-year history of employment with the same employer may utilize this program subject to the following:

• WVOE must be completed on the Fannie Mae Form 1005 sent directly to and received directly from the employer. The employment information must be completed by Human Resources, the Payroll Department or an Officer of the company. A WVOE from an online provider such as Equifax or The Work Number is also acceptable. Borrowers employed by family members or related individuals are not eligible.

• Paystub, Tax Returns or W2s are not required.

• The only eligible source of income is limited to salary/base pay from employment. Supplemental income sources such as commissions or rental income are not permitted.

• An internet search of the business is required with documentation to be included in the credit file to support existence of the business.

• VVOE within 10 days of closing is required.

The following apply when using WVOE only:

• Minimum FICO 680

• Primary Residence Only

• Max 80% LTV for purchase or rate/term refinance

• Max 70% LTV for cash-out refinance

• 0x30x24 housing history (rent free or any other instance of documenting less than 24 months of housing history is ineligible)

• FTHB maximum 70% LTV & 45% DTI

• No gift funds allowed

6.5 1099 Reduced Doc Income

Borrowers who have a two-year history of receiving 1099 only or have recently converted from W2 to 1099 and have at least one year of receiving 1099 in the same line of work may utilize this program.

Borrower must provide the following:

• 1099 for the previous year tax year, payable to the borrower and not a business

• Verification of Employment from the current contract employer covering the most recent two years plus Year-to-Date earnings, likelihood of continued contractor status and whether the contractor is required to pay for any business-related expenses (non-reimbursed).

  • If the verification does not reference related expenses, then a Fixed Expense Ratio of 10% may be used.

• Most recent two months proof of receipt is required in the form of paystubs, checks or bank statements.

NOTE: If WVOE cannot be obtained for any employers in 2-year history, an LOE is required regarding the extenuating reason why it cannot be obtained as well as both a year end and a year-to-date paystub from all contract employers to support the income calculation.

NOTE: Supplemental income such as W2 or SSI may be included with this loan program provided it is not the dominant income type or conflicts with primary income calculation. Supplemental income should be documented in accordance with full doc income requirements.

6.6 Asset Allowance

Asset Allowance may be used to determine qualifying income both alone and in conjunction with other documentation options. Asset Allowance is considered to conform to the Apex Program from a credit and pricing standpoint. Please see the applicable FundLoans Matrix for restrictions.

Asset Allowance is permitted on primary residences and second homes only. Gift funds or funds held in trust are not permitted.

All individuals listed on the asset account(s) must be on the Note and Mortgage. Non-occupant borrower(s) not allowed.

If a portion of the Qualified Assets is being used for down payment, closing costs or reserves, those amounts must be excluded from the balance before analyzing a portfolio for income determination.

Supplemental Income Use:

• DTI without asset allowance 60% or less:

- Proof of three (3) month seasoning of all assets it required. The most recent 3 months of account statements for all Qualified Assets are required. Balances of qualifying assets must be verified within 10 days of Note Date.

- Income Calculation: Monthly Income = Net Qualified Assets / 36 Months

• DTI without asset allowance > 60%:

  • Proof of six (6) month seasoning of all assets is required. The most recent 6 months of account statements for all Qualified Assets are required. Balances of qualifying assets must be verified within 10 days of Note Date.

  • Income Calculation: Monthly Income = Net Qualified Assets / 60 Months

Standalone Income Use (and all loans over $3.5MM):

• Employment is left blank.

  • Proof of six (6) month seasoning of all assets is required. The most recent 6 months of account statements for all Qualified Assets are required. Balances of qualifying assets must be verified within 10 days of Note Date.

  • Income Calculation: Monthly Income = Net Qualified Assets / 84 Months

The following assets are considered Qualified Assets and may be utilized to calculate income:

• 100% of checking, savings, and money market accounts

• 100% of the remaining value of publicly traded stocks & bonds (excludes unvested RSUs and stock options)

• 70% of 401k, Retirement assets (Under eligible retirement age of at least 59 ½)

• 80% of 401k, Retirement assets (Eligible retirement age of 59 ½)

• Personal funds in the borrowers name only (business funds and joint accounts with individuals not on the loan are not eligible).

Assets not allowed:

• Foreign assets (non-US)

• Equity in real estate or proceeds from recent sale (during the seasoning period) of real estate

• Privately traded or restricted/non-vested stocks

• Any asset which produces income is already included in the income calculation

• Gift funds

• Crypto currently not converted into U.S. dollars or held in U.S. or state-regulated financial Institution

• Non-occupant co-borrowers are not allowed.

7.0 Short Term Rental Income

Short term rental income is allowed if Borrower is an Experienced Investor (see section 11.1) as defined in these guidelines (applicable to all doc types). DSCR doc type requires a minimum 1.0 ratio.

Third-party vendor documentation must be provided (such as Property Guard, Vrolio or equivalent), validating that the governing municipality where the subject STR is located allows properties to be rented as a STRs.

License or appropriate municipal/governmental registration of the property or unit(s) must be provided for refinance transactions (all doc types) or confirmation from appraiser that no such license or registration is required.

Documentation must also be provided that the property is actively marketed as a short-term rental.

Long term rents on form 1007/1025 may always be used to document income.

7.1 Full Doc:

If not otherwise addressed below, follow FNMA guidelines for rental income.

Purchase:

STR rents are not allowed for purchase transactions. Gross rents are determined by long term rents from Form 1007/1025 (or lease in place if buyer is assuming) and subject to 75% vacancy factor.

Refinance:

STR rents determined by most recent 2 years Schedule E and subject to 75% vacancy factor.

7.2 Alt Doc and DSCR:

In all scenarios below, gross rents are reduced by 20% to reflect extraordinary costs (i.e., advertising, furnishings, cleaning) associated with operating short-term rental property compared to non-short-term property. If the rental documentation referenced below includes expenses, actual expenses should be compared to the 20% expense factor. If actual expenses are less than 20%, a minimum 20% expense factor is required to be utilized. If actual expense exceeds 20%, the actual expense factor should be used.

Purchase:

Form 1007/1025 (or equivalent AMC developed report e.g. STR Pro) indicating STR rents provided the following are included:

• Source of the data identified that was used to complete the STR analysis;

• Include comparable STR properties, focusing on room count, gross living area (GLA), location, and market appeal;

• Include daily rental rate and occupancy percentage; and

• Factor seasonality and vacancy into the analysis.

Refinance:

Can use one or the lesser of the following to establish rents:

• Most recent 12-month income statement from seller's third-party management company or online marketplace.

• Most recent 12-month bank statements with deposits identifiable as STR income for the subject property.

Properties that have been newly constructed within the last 120 days of the application, less than 12-months history, or properties previously used as long-term rentals that are being converted to STRs may be allowed on an exception basis only and, if allowed, must document rents using the purchase methods above.

8.0 Departing Residence

CURRENT PRINCIPAL RESIDENCE – PENDING SALES OPTIONS

|CURRENT PRINCIPAL RESIDENCE – PENDING SALES OPTIONS|CURRENT PRINCIPAL RESIDENCE – PENDING SALES OPTIONS|CURRENT PRINCIPAL RESIDENCE – PENDING SALES OPTIONS| ||Option 1: Departing Residence NOT Under
Contract or Listed for Sale|Option 2: Departing Residence Under Contract| ||No contract required for the departure
residence|A copy of an executed sales contract for the property
pending sale| |Purchase
Agreement||| ||Signed letter of intent from the borrower
indicating they intend to list the departure|The pending sale transaction must be arm's length| |Multiple Listing /
Open Market|||

||residence for sale within 90 days of closing
the subject transaction|| |Sale||| ||Equity in the departure residence must be
documented with an Exterior-Only
Inspection Residential Appraisal Report
(FNMA Form 2055)|No appraisal required for the departure residence| |Equity Estimate||| ||Departure residence must have a minimum
of 20% equity after deduction of
outstanding liens. If equity is less than 20%,
the full payment must be included in the
borrower's qualifying DTI|The borrower must be netting positive proceeds from
the sale of the property, or assets must be accounted
for to cover any funds the borrower may have to bring
to closing on the sale of the departure residence| |Equity Test||| ||Reserves are based on the marketing time
indicated by the departure residence
appraisal: (1) Marketing time of 6 months
or less = 12 months of PITIA reserves; (2)
Marketing time of over 6 months = 24
months of PITIA reserves|No limit on LTV/CLTV; refer to the program maximum| |Additional
Reserves||| ||Maximum LTV/CLTV on the subject
transaction is 90% or the program
maximum, whichever is less|Maximum LTV/CLTV on the subject transaction is 90%
or the program maximum, whichever is less| |LTV Max on
Subject|||

CURRENT PRINCIPAL RESIDENCE – PENDING RENTAL OPTIONS

|CURRENT PRINCIPAL RESIDENCE – PENDING RENTAL OPTIONS|CURRENT PRINCIPAL RESIDENCE – PENDING RENTAL OPTIONS|CURRENT PRINCIPAL RESIDENCE – PENDING RENTAL OPTIONS| ||Option 1: Departing Residence NOT Under
Lease|Option 2: Departing Residence Under Lease| ||Appraiser's Single-Family Comparable Rent
Schedule (Form 1007)|Copy of fully executed lease and evidence of
cleared/cancelled check for Security Deposit. Lease
must begin before 1st payment due date on new
subject property mortgage| |Establishing Fair
Market Rents||| ||(75% of Appraiser's Market Rent estimate)
minus PITIA|(75% of Monthly Rent reflected in Lease) minus PITIA| |Net Rental
Income
Calculation||| ||Income can be added to Borrower's
Qualifying Income and the monthly
mortgage(s) debt obligation can be
excluded from the DTI ratio. Losses must be
added to Total Debt Obligations as Negative
Rental Income, but the monthly
mortgage(s) debt obligation can be
excluded|Income can be added to Borrower's Qualifying Income
and the monthly mortgage(s) debt obligation can be
excluded from the DTI ratio. Losses must be added to
Total Debt Obligations as Negative Rental Income, but
the monthly mortgage(s) debt obligation can be
excluded| |Application of
Calculated
Income / Loss||| ||3 months of the Departing Residence PITIA|No additional reserves requirement| |Additional
Reserves
Requirement||| ||If the departing rental residence will also be
used as security for loan proceeds used for|If the departing rental residence will also be used as
security for loan proceeds used for down payment or| |Bridge Loan /
Secured|||

||down payment or cash to close, the new
loan terms must be factored into the
income calculations above|cash to close, the new loan terms must be factored into
the income calculations above| |Borrowed Funds
to Close||| ||Maximum LTV/CLTV on the subject
transaction is 90% or the program
maximum, whichever is less|Maximum LTV/CLTV on the subject transaction is 90%
or the program maximum, whichever is less| |LTV Max on
Subject|||

9.0 Monthly Debt

• DTI = total monthly debt ÷ total monthly gross income.

• Monthly debt service used to calculate DTI must include the following:

  • Monthly mortgage principal and interest, hazard and flood insurance, real estate taxes, special assessments, association dues and any subordinate financing payments for all real estate owned by the borrower.

  • Rent obligation on a primary residence when the subject transaction is for a second home or investment property.

  • Recurring installment debts.

  • Lease payments.

  • Revolving and open-ended account payments, regardless of the balance.

  • Child support or separate maintenance payments and alimony.

  • Other continuing obligations.

• The maximum allowable DTI varies depending on the loan program but will never exceed 50%. Please refer to FundLoans's Credit Matrix for maximum allowable DTI.

9.1 Borrower ATR Certification

Loans subject to Reg Z. Ability to Repay must include a borrower(s) certification attesting to the following:

• Borrower(s) have fully disclosed their financial obligations,

• Borrower(s) have reviewed and understand the loan terms; and

• Borrower(s) have the ability to repay the loan.

NOTE: An underwriter's detailed attestation regarding borrowers ability to repay is acceptable in lieu of signed borrower disclosure for all loan programs except Asset Allowance or Assets Only.

(See Appendix Section for sample Borrower Attestation verbiage)

9.2 Subordinate Financing

Subordinate Financing is not allowed on DSCR loans. For all other loans, FundLoans allows subordinate financing provided the following conditions are met:

• The subordinate financing doesn't have a negative amortization or interest only feature.

• Subordinate financing with prepayment penalties are not allowed.

• All subordinate financing must be from a Financial Institution (i.e. no private party).

• Subordinate financing payment must be included in the DTI calculation.

• Subordinate financing is included in the CLTV calculation and cannot exceed Max CLTV in Credit Matrix.

Required Documentation for subordinate financing:

• Copy of the Note

• Copy of the Subordination Agreement

9.3 Adjustable Rate and Interest Only Qualifying

For all ARM loan transactions, the greater of the note rate or the fully indexed rate is used to determine the qualifying PITIA.

Interest-only ARM loans are qualified using the greater of the note rate or the fully indexed rate using the fully amortized payment over the fully amortized term of the loan.

Interest only loans locked as fixed rate are calculated using the fully amortized payment over the fully amortized term of the loan using the Note rate.

DSCR loans qualify using ITIA. All DSCR Interest Only loans whether they are fixed or ARM, allow the use of the ITIA for qualification.

All ARM Notes and Riders should contain ARCC fallback language consistent with FNMA requirements.

10.0 Assets

10.1 Allowed Assets

The following is a list of assets that can be used to determine a borrower's liquidity. Next to each asset is the value that FundLoans assigns based on its liquidity.

• Checking and Savings (100%)

• Certificates of Deposit (100%)

• U.S. Savings Bonds (100% if fully matured, otherwise 80%)

• Marketable Securities (100% net of margin debt) - Marketable Securities are defined as legitimate stocks, bonds or mutual funds that are publicly traded.

• Restricted Stock Units (RSU) - Refer to FNMA Guides

• IRA, Keogh, and 401(K) Retirement Accounts (80 % of vested balance less outstanding loans secured against it if borrower(s) have reached the age of 59 1/2, 70% of vested balance less outstanding loans secured against it if borrower(s) younger than 59 ½). Account statements should be updated with a transaction history dated within 30 days of note date due to market volatility.

• Trust Accounts (100%) - Must review a copy of the full Trust (generally, irrevocable trusts not allowed but subject to review and approval by FundLoans legal department).

• The use of business assets for self-employed borrowers for down payment, closing costs and reserves are allowed. The borrowers on the loan must have 25% ownership of the business and must be the owners of the business account. Access letters from the remaining owners of the business must be obtained.

  • For non DSCR loans, a letter from a CPA/Enrolled Agent/CTEC, (excluding PTIN tax preparers) must be obtained verifying that the withdrawal of funds for the transaction will not have a negative impact on the business. If a CPA/Tax Preparer letter is not provided, Business Expense Coverage Calculation must be completed by the underwriter (see calculation below) to determine if the withdrawal of funds from the business is acceptable. If no balance sheet provided, the underwriter may use the data from the analysis of business

bank statements used for income documentation. Documentation showing sole member entity or sole proprietor is acceptable to indicate 100% ownership.

• Business Expense Coverage Calculation: Most Recent Statement(s) Ending Balance(s)

  • (Plus) Funds Available from Personal Account(s)

  • (Minus) Transaction Down Payment

  • (Minus) Transaction Closing Costs

  • (Minus) Program Required Reserves

  • = "Funds Available for Business Expense Coverage"

  • "Funds Available for Business Expense Coverage" must be a positive number and reflect:

    • A minimum of 2 months of average expenses as reflected on the P&L or as determined by using the expense factor; or

    • The balance sheet for the business must reflect positive working capital.

• Spousal accounts - Accounts held solely in the name of a non-borrowing spouse may be used for down payment and closing costs only and are subject to the requirements outlined in Verification of Assets guideline herein. Accounts held solely in the name of a non-borrowing spouse may not be used to meet reserve requirements.

• Cryptocurrency

  • All types of cryptocurrency are an eligible source of funds for down payment and closing costs. The cryptocurrency must be seasoned per relevant guidelines, liquidated and deposited into an established US bank account.

  • For reserves, Bitcoin and Ethereum only can be used without liquidation if:

    • Account statement(s) documenting 60 days ownership and seasoning from the note date;

    • Verification of current valuation from a publicly traded exchange (e.g. Coinbase) within 30 days of note date and value discounted 50%; and

    • Total discounted value of Bitcoin and Ethereum can only account for 25% of the net eligible assets for reserves.

    • 100% of any type of bitcoin that is seasoned, liquidated and deposited into a U.S. financial institution prior to closing can be used for reserves.

• Delayed 1031 Exchange funds (aka "like-kind exchanges") are eligible for EMD, down payment and closing costs. 1031 Exchange funds are not eligible for reserves.

10.2 Verification of Assets

The lender may use any of the following types of documentation for verification.

• FNMA Form 1006 Verification of Deposit (VOD) that meets all applicable requirements for the form pursuant to FNMA B3-4.2-01 and documents the balance for the required 60 day seasoning period.

• Complete copies of bank statements or investment portfolio statements from the most recent 60 days prior to the application date. The statements must cover account activity for the most recent 60 days. A summary statement will not be accepted.

• Large deposits must be sourced. Large deposits are defined as a single deposit that exceeds 50% of the total monthly qualifying income for the loan.

• The statements may be computer generated forms, but must include or state the following:

  • Clearly identify the borrower as the account holder, the account numbers, the time the statements cover. Include all deposits and withdrawal transactions. The report must include the previous close balance, the current balance, and the ending account balance.

  • Retirement account statements must be from the most recent period and identify the borrower's vested amount and terms.

10.3 Seasoning:

Assets must be seasoned for 60 days, and any large deposits (as defined in 10.2 above) as determined by the underwriter must be sourced.

10.4 Gift Funds:

100% of gift funds are allowed on owner-occupied transactions

For second homes and investment properties, the borrower must demonstrate they have a minimum of 10% of their own funds for the down payment.

Gifts must be from a family member. Gifts can be used to pay off debt

Gift funds cannot be counted towards reserves.

Purchase transactions only

Gifts of Equity are not allowed on Investment Properties.

Unsecured loans, sweat equity, and gifts that require repayment are not eligible for sources of down payment

10.5 Reserves

||| |Reserve Requirements|| ||| ||| |Loan Amount|Months PITIA Required| ||| |≤ $500,000|3 Months*| |>$500,000 - $1,500,000|6 Months*| |> $1,500,000|9 Months*| |First Time Investor|12 Months| |DSCR|6 months subject property only| |Foreign National|12 Months + additional 2 months for each
additional property owned|

Additional 2 months to above requirements for each additional financed ***** property owned, max 12 months required.

• Non-Occupant Borrower(s) require an additional 6 months reserves to above requirements.

• For IO loans reserves are based on the IO payment amount.

• Cash Out proceeds can be used to satisfy reserve requirements unless stated otherwise herein.

10.6 Seller Concessions

|Occupancy|LTV|Max Percentage| |Primary and 2nd Homes|≤75|9%| |Primary and 2nd Homes|75.01 – 90.00|6%| |Investment|All|3%|

Seller Concessions include:

• Financing concessions greater than the max financing concession limitations; or

• Contributions such as cash, furniture, automobiles, decorator allowances, moving costs, and other giveaways granted by any interested party to the transaction (contributions with a combined value under $1,000 should be excluded)

• The value of excess sales concessions must be deducted from the sales price when calculating LTV for underwriting and eligibility purposes. The LTV is then calculated using the lower of the reduced purchase price or the appraised value.

11.0 Debt Service Coverage Ratio (Spectrum)

For DSCR loans, borrowers are not required to disclose employment information on the application (Form 1003). Income derived from regular employment, retirement or other investments should not be disclosed and tax returns are not required. The application should otherwise be fully completed including the Schedule of Real Estate Owned listing all properties owned and reflective of any associated mortgages (including private mortgages).

11.1 Experienced Investors

An experienced investor is defined as a borrower with proof of ownership and/or management of residential and/or commercial rental real estate for at least 12 months in the most recent 36-month period (from note date). The following documentation must be provided demonstrating the borrower's experience covering the minimum 12-month period:

• Completed REO schedule on 1003 showing current income-producing property(ies) or 3rd party documentation evidencing rental income was received from a prior owned income producing property(ies); AND

• Property profile(s) confirming ownership dates.

11.2 First Time Investors

First Time Investors are borrowers who do not meet the definition of an experienced investor. First Time Investors are permitted as follows:

• Loan amounts ≤$2,000,000

• FICO ≥ 700

• Minimum 1.00 DSCR

• 5% LTV reduction

• months reserves

• No gift funds allowed; and

• Verified 12-month housing payment history.

11.3 Occupancy and Documentation Requirements

Only 1 to 4-unit residential investment properties are eligible for the Spectrum DSCR Product. Neither the borrower nor any relative of the borrower (direct or through marriage) can occupy the subject property.

All loans require a borrower executed Business Purpose and Occupancy Affidavit. The borrower(s) must acknowledge that the loan is a business purpose loan by completing and signing the appropriate sections of the Borrower Certification of Business Purpose Affidavit (sample document included in the 8.0 Appendix Section of this guide).

Any loan whereby the proceeds are used for personal, family, or household purposes is considered a consumer transaction and is ineligible for the DSCR Program. This includes cash-out on investment properties where the loan proceeds are used for any personal use (i.e. paying off consumer debt).

11.4 Housing History Greater than 12 months

Acceptable housing history requires evidence that a borrower has made a housing payment for at least the last 12 months whereby that payment history meets the requirements of the Spectrum Program Credit Matrix. Housing history for the DSCR Doc type is limited to verifying the borrower's primary residence and the subject property if a refinance transaction. For these properties, VOMs are required for any outstanding mortgages including private mortgages. No additional documentation is required to support the VOM if from an institutional party. Private entity VOM requires cancelled checks (or equivalent electronic debit) to support. Verifications dated within 30 days of application do not require to be updated unless more than 60 days at time of Note date. If a borrower is renting their primary residence, a VOR from an institutional entity or verified professional property management company the landlord is required with no additional documentation. VOR from private parties requires cancelled checks (or equivalent electronic debit).

• Properties owned free and clear are considered 0x30 for grading purposes for each month the property has been owned free and clear (e.g. a property owned free and clear for the last 12 months satisfies the housing history requirement). Documentation verifying free and clear is required such as property detail

report, data verify report, title search, etc.

• Any housing event reported on the credit report for any property owned by the borrower needs to be included in the housing history eligibility.

• For any non-subject property, non-primary mortgages not reporting to the credit bureau, additional housing history is not required. However, any such mortgage that is reporting to the credit bureaus is subject to the housing rating requirements per the Spectrum Program Credit Matrix.

11.5 No Housing History or Less Than 12 Months Verified

This section applies to any borrower who has not made at least 12 months of housing payments on any property (or as a tenant in a rental situation) in the most recent 12 months. Borrowers who live rent free at their primary residence are not considered ineligible if they are an Experienced Investor that owns other REO that meets the 12-month housing history requirement as documented by acceptable mortgage payment history or free and clear ownership. A "rent-free" letter of explanation from the homeowner is required. Borrowers who do not have a complete 12-month housing history are ineligible for the program.

11.6 Debt Service Coverage Calculation

Borrowers financing non-owner-occupied investment properties qualify based on their ability to service the debt over the life of the loan. For Debt Service Coverage, rental income is used to qualify for the transaction. Debt Service Coverage is available to Experienced Investors and First Time Investors based on the requirements in this Selling Guide.

The Debt Service Coverage Ratio (DSCR) is calculated as follows:

DSCR = Gross Rental Income ÷ PITIA of the proposed new loan. If the subject transaction is an Interest Only loan, divide the Gross Rental Income by the ITIA (i.e. Interest only payment plus taxes, insurance, and HOA dues). PITIA or ITIA is based on the Note Rate of the loan for Fixed Rate loans. For ARM loans, see Section 9.3

Rounding up of the DSCR value is permissible from the 3rd decimal for determining eligibility. Interest Only loans require a minimum FICO score as per the Spectrum Program Credit Matrix.

On DSCR purchase transactions, the qualifying Gross Rental Income figure is the higher of the market rent on Form 1007/1025 or the current lease (if assumed through the purchase). The amount that may be used for qualifying is based on the following:

• When the market rent on Form 1007/1025 is greater than the current lease, the underwriter may use the Market Rent amount as listed not exceeding 120% of the lease amount to qualify. (e.g. lease is $1,100 and Form 1007/1025 is $1,500, then $1,320 may be used to qualify). A copy of the lease is still required.

• When the lease is greater than the market rent, the higher lease amount (up to 120% of 1007/1025 rents) may be used with 2 months' current proof of receipt of the higher rental income.

• A new lease (within 30 days from application) requires documenting receipt and deposit of first month's rent and security.

• Leases are required to be no less than twelve (12) months but may convert to month-to-month upon expiration.

On DSCR refinance transactions, the qualifying Gross Rental Income figure is the higher of the market rent on Form 1007/1025 or the current lease. The amount that may be used for qualifying is based on the following:

• When the market rent on Form 1007/1025 is greater than the current lease, the underwriter may use the Market Rent amount as listed not exceeding 120% of the lease amount to qualify. (e.g. lease is $1,100 and Form 1007/1025 is $1,500, then $1,320 may be used to qualify). A copy of the lease is still required.

• When the lease is greater than the market rent, the higher lease amount (up to 120% of 1007/1025 rents) may be used with 2 months' current proof of receipt of the higher rental income.

• A new lease (within 30 days from application) requires documenting receipt and deposit of first month's rent and security.

• Leases are required to be no less than twelve (12) months but may convert to month-to-month upon expiration.

Vacant one-unit properties or more than 1 vacant unit in a 2+ unit property are not allowed unless:

• Unit is STR (see additional guidelines herein); or

• Evidence that property has been recently rehabbed; or

• Transaction is delayed financing.

• Evidence the property is actively marketed for rent is required.

Use the market rent from Form 1007/1025 with no vacancy factor.

For properties defined as a one-unit property with an accessory unit (ADU), rental income may be qualified from the accessory unit subject to the following:

• Appraisal must reflect that the zoning compliance is legal (permits are not required to establish zoning compliance),

• The appraisal must include at least two sales comparable with an accessory unit, and Form 1007 must include at least rental comparable with an accessory unit in which the ADU receives rental income.

• Multiple accessory units: see Multiple ADU section

• Refinance: Market rent for the accessory unit should be documented on Form 1007, and the file must include a copy of the current lease with two months proof of current receipt.

• Purchase: Use the lesser of the market rent on Form 1007 or the lease agreement.

The Debt Service Coverage Ratio (DSCR) must be greater than or equal to the published minimum as referenced on the Spectrum Program Credit Matrix to be eligible for funding by FundLoans. The underwriter must supply their DSCR calculated ratio/score result, i.e., the ratio result is notated on the loan approval/1008, or underwriter's DSCR Calculation Worksheet.

11.7 Foreign National (DSCR Program Only)

A Foreign National is a citizen of a country other than the United States who resides outside of the U.S., who has not become a naturalized U.S. Citizen. Foreign National Borrowers are eligible only under the DSCR program.

Eligibility

• Foreign Nationals, as defined by U.S Citizenship and Immigration Services (USCIS), are eligible borrowers when the borrower resides from one of the following countries/continents:

  • Canada

  • Caribbean (Except Cuba)

  • China (Except Hong Kong)

- Europe (Except Balkan Region, Belarus, Russia, and the Crimea, Donetsk, Luhansk, Kherson, and Zaporizhzhia regions of Ukraine)

- Latin America (Except Nicaragua) South America (Except Venezuela)

• Foreign Nationals from any other country not listed above or from any Country comprehensively sanctioned by OFAC (currently Cuba, Iran, North Korea, Syria, and the Crimea, Donetsk, and Luhansk regions of Ukraine) are ineligible.

Verification of Residency Status

• The following visa types are permitted as foreign nationals: B-1, B-2, J-1, J-2. Visas must be valid through the Note date. Copies of the borrower's passport and unexpired visa must be obtained. Acceptable alternative documentation to verify visa classification is an I-797 form (Notice of Action) with valid extension dates and an I-94 form (Arrival/Departure Record)

• If a non-U.S. citizen is borrowing with a U.S. citizen, it does not eliminate visa or other foreign national documentation requirements. Co-borrowers in possession of spouse or family member visas may be considered on an exception basis.

• Participating countries can be verified through the U.S. Department of State website at: https://travel.state.gov/content/travel/en/us-visas/tourism-visit/visa-waiver-program.html

Exclusionary List/OFAC/Diplomatic Immunity

• All parties involved on each transaction must be screened through any exclusionary list used by the originator. The originator should apply its exclusionary list policy to any loans originated under these guidelines. However, business purpose loans require only interested parties such as buyers and sellers.

• Parties to the transaction must also be cleared through OFAC's SND List (borrowers, sellers, employers, banks, etc.). A search of the Specially Designated Nationals and Blocked Persons List may be completed via the U.S. Department of the Treasury website: https://sanctionssearch.ofac.treas.gov/

• Borrowers from jurisdictions comprehensively sanctioned by OFAC are ineligible (at present, those jurisdictions include Cuba, Iran, North Korea, Syria, and the Crimea, Donetsk, and Luhansk regions of Ukraine). are ineligible. Access the link below for a list of sanctioned countries:

• https://www.treasury.gov/resource center/sanctions/SDN List/Pages/default.aspx

• Individuals with diplomatic immunity are ineligible due to the inability to compel payment or seek judgment. Verification that the borrower does not have diplomatic immunity can be determined by reviewing the visa and/or passport.

Income Eligibility

DSCR Only

Credit Requirements Foreign National Program

Foreign National Borrowers without qualifying U.S. Credit (including borrowers without a valid Social Security Number and borrowers with or without an Individual Tax Identification Number) must provide evidence of three

(3) active credit trade lines with a 2-year history from their country of origin. If a housing / mortgage trade line is provided - No derogatory mortgage history is permitted in the last 24 months. ANY combination of the following is acceptable to arrive at the trade line requirement. Satisfactory credit reference letters will assume a Foreign Credit distinction for locking and qualifying purposes.

• Trade lines evidenced via a U.S. credit report; AND/OR

• Trade lines evidenced via international credit report if a U.S. credit report cannot be produced or does not provide a sufficient number of trade lines; AND/OR

• Minimum 3 active credit trade lines evidenced via credit reference letter and supporting transaction history from county of origin.

  • Trade lines evidenced via credit reference letters from verified financial institutions (including those where savings/checking accounts are maintained) in the borrower's country of origin if a

  • U.S. credit report and/or international credit report is not available, or the combination of the credit reports does not provide a sufficient number of trade lines

  • A minimum of 1 reference letter must be from an internationally known financial institution

  • Each letter of reference must state the type and length of the relationship, how the account is held, payment amount, outstanding balance and status of account including a minimum 24month payment history

  • A single reference source may provide verification of multiple accounts. Individual account detail must be provided

  • The letter must mention the borrower by name

  • Name, title & contact information of the person signing the letter must be included

  • Currency must be converted to U.S. Dollars and signed and dated by certified translator

• Credit report and reference letters must be dated within 60 days of the date of the loan documents. If more than 60 days, a new credit report must be obtained, or updated reference letters provided. Credit report and any reference letters must be translated by a 3rd party with confirmation in file.

• A two (2) year housing history is required.

Assets- Foreign National Program

• Foreign National borrowers must have twelve (12) months PITIA reserves plus two (2) months for each additional property

• All funds for down payment, closing costs and reserves must be sourced and seasoned for 60-days and must be in a US account for 30 days

• Foreign bank accounts must be verified in U.S. Dollar equivalency at the current exchange rate via either https://www.xe.com/ or https://www.wsj.com/market-data/currencies/exchangerates conversion tables. The exchange conversion web print-out must be documented in the loan file.

• The foreign bank must be a publicly traded internationally known financial institution. A search may be conducted via a web site such as https://finance.yahoo.com/. The web print-out must be documented in the loan file.

Cash-Out

• Maximum cash-out $250,000

Gift Funds

• Gift Funds are ineligible for the Foreign National Program

Maximum Loan Exposure to One Borrower

• The maximum loan exposure to one Foreign National borrower is limited to two (2) FundLoans loans

Occupancy

• All Foreign National loans are considered investment properties

Vesting

• Vesting in a Business Entity or Trust is not permitted

12.0 Collateral

12.1 Eligible Property Types

• Single Family Dwelling
• Single Family Dwelling with 1 Accessory Unit (ADU)
• Multi Family Dwelling 2-4 Units
• Planned Unit Development (PUDs)
• Condominium
• Modular homes

Non-rural properties must be ≤20 acres.

Rural properties must be ≤10 acres unless DSCR in which case ≤5 acres.

12.2 Ineligible Property Types

|2.2 Ineligible Property Types|| |Assisted Living (case-by-case see section below)|Builder bailout or financing builder inventory| |Agricultural properties|Padsplits| |Barndominiums|Properties with less than 400 sq. ft. total living space| |Boarding houses (or properties with individual room
leases)|Properties Under Construction| |C5 or C6 property condition grades|Rural properties greater than >10 acres or >5 acres if DSCR| |Commercial properties|Tenancy in Common properties (vesting ok)| |Geodesic domes|Time-shares| |Leasehold Properties on Tribal Land|Unique Properties| |Log Homes|Working Farms| |Manufactured housing or Manufactured Homes|Vacant lots|

Mixed Use Escrow holdbacks are not permitted Model Home Leasebacks Cooperative Housing (Co-op)

NOTE: A property's zoning by itself does not make the property ineligible. In addition to other items such as having similar comparable sales that support the subject's value and marketability, the highest and best use of the property must be residential use whereby the residential use represents a legal and permissible use of the land per the zoning requirements. Furthermore, the zoning must allow the property to be rebuilt based on its current residential use to current density if destroyed.

12.3 ADU (Accessory Dwelling Unit)

One-unit properties with a single ADU are eligible if meeting FNMA guidelines. Rents from a single ADU are also allowed.

12.4 Declining Markets

The appraiser determines if a property is located in a declining market. Within the Neighborhood section of the appraisal, the Housing Trends subsection provides information on Property Values, Demand/Supply and Marketing Time. When the appraiser marks the Declining box for Property Values, the property is considered to be located in a declining market. For any property located in a declining market where the LTV is > 65%, a 5% LTV reduction is required.

12.5 Flips

When the subject property is being resold within 90 days of its acquisition by the seller and the sales price has increased more than 10%, or being resold within 91-180 days of its acquisition and the sales price increased by more than 20% the transaction is considered a "flip." To determine the applicable sales period, the acquisition date (the day the seller became the legal owner of the property) and the purchase date (the day both parties executed the purchase agreement) are required to be used.

Flip transactions are subject to the following requirements:

• All transactions must be arm's length, with no identity of interest between the buyer and property seller or other parties participating in the transaction.
• No pattern of previous flipping activity may exist in the last 12 months. Exceptions to ownership transfers may include newly constructed properties, sales by government agencies, properties inherited or acquired through divorce, and sales by the holder of a defaulted loan.
• The property was marketed openly and fairly, through a multiple listing service, auction, for sale by owner offering (documented) or developer marketing.
• No assignments of the contract to another buyer.
• If the property is being purchased for more than 5% above the appraised value, a signed letter of acknowledgement from the Borrower must be obtained.
• A second appraisal is required (borrower may not pay for the 2[nd] appraisal).

12.6 Transferred Appraisals

Appraisal transfers are allowed when an appraisal was completed prior to the loan being closed. Appraisal transfers are subject to the following requirements:

• The appraisal must be less than 60-days old at the time of transfer (less than 120-days at closing) and ordered through an approved Appraisal Management Company
• A letter must be obtained from the original lender on company letterhead stating they are transferring the appraisal to the approved FundLoans lender. The letter must transfer the ownership and rights for the specific transaction.
• The Lender must certify they have complied with Federal, State and FNMA Appraisal Independence requirements
• An appraisal delivery form must be provided to the borrower to confirm the borrower's receipt of the appraisal within three (3) business days of the report's completion

If the original Lender will not transfer the appraisal or provide the transfer letter, then a new appraisal is required.

NOTE: Subject to FIRREA Requirements; if corrections are required, it is the Broker/Originator's responsibility to work with the previous lender to obtain them and FundLoans will not review.

12.7 Condo Project Review Warrantable

• FNMA eligible projects are allowed.
• Site Condos meeting the FNMA definition are eligible for single-family dwelling LTV/CLTV.

NOTE: UW Attestation and/or documentation clearly stating whether the property is a warrantable or nonwarrantable condo must be delivered with the file. Lender to provide CPM approval or Condo Questionnaire as applicable.

12.8 Condo Project Review Non-Warrantable

Non-warrantable condominiums are eligible based on the following characteristics. See Credit Matrix for LTV restrictions.

• Maximum project exposure to FundLoans is subject to underwriter's discretion.

||NON-WARRANTABLE CONDOS| ||| |CHARACTERISTIC|EXCEPTION CONSIDERATIONS| ||| |COMMERCIAL SPACE|Subject unit 100% residential. Commercial space in building/project < 50%. Any
commercial must be "typical to the marketplace and have no negative impact
on marketability. Commercial % determined by appraiser. Commercial entity
cannot control HOA.|

|COMPLETION STATUS|The project, or the subject's legal phase along with other phases, must be
complete. All common elements in the project or legal phase must be 100%
completed. At least 50% must be sold or under a bona-fide contract.| |CONDOTELS|• Min 700 FICO
• Maximum LTV/CLTV Purchase: 75%
• Maximum LTV/CLTV R/T and Cash-Out: 65%
• Max cash in hand $250,000
• Maximum Loan Amount: $1,500,000
• Max DTI 50% or Min DSCR of 1
• Primary, Second Home or Investment
• Investor concentration, within the subject project, may exceed established
project criteria, up to 100%
• Minimum square footage of 500 and at least 1 Bedroom required
• Fully functioning kitchen – define as a full-size appliance including a
refrigerator and stove/oven
• Projects with names that include the words "hotel," "motel," "resort," or
"lodge" are acceptable
• May not have mandatory rental pooling
• May not have full time registration desk, concierge, or daily cleaning
located on premises to service units in project
Project must have obtained a hotel or resort rating for its hotel, motel, or resort
operations through hotel ratings providers including, but not limited to, travel
agencies,hotel bookingwebsites,and internet search engines| |DELINQUENT HOA DUES|No more than 35% of the total units in the project may be 60 days or more past
due on the payment of condominium/association fees.| |INVESTOR CONCENTRATION|Investor concentration in project up to 60%.| |HOA CONTROL|The developer may be in control of the condominium association provided the
Master Agreement provides for the homeowners to take control upon either a
predetermined percentage of unit sales or within a defined time period.| |HOA RESERVES|HOA Budget must include a dedicated line-item allocation to replacement
reserves of at least 8% of the budget.| |LITIGATION|Pending litigation may be accepted on an exception basis. Litigation that involves
structural issues, health and safety issues or items that will impact the
marketability of the project will not be accepted.| |NEW PROJECTS|The project or the subject's legal phase along with other phases must be
complete. All common areas in the project must be 100% complete. Minimum of
50% of units must be sold or under contract. HOA should be in control- project
under Developer or Builder control will be considered on an exception basis only.|

SINGLE ENTITY OWNERSHIP Single entity ownership in project up to 50%.

13.0 Appraisal

A full appraisal involves a complete inspection of the home, including the interior and exterior of the subject property. Acceptable appraisal report forms must follow FNMA and FHLMC standards which include Uniform Appraisal Data Set (UAD) Specifications and the Field Specific Standardization Requirements. Additional requirements:

• Uniform Residential Appraisal Report (URAR) with color photos is required

• FNMA form 1004 / FHLMC Form 70 for use on one-unit properties including individual units in Planned Unit Development (PUD) projects. See FNMA or FHLMC for required appraisal forms to be used on specific properties.

Properties must be appraised within the 12 months that precede the date of the note. When the appraisal report is more than 120 days old, the appraiser must perform a recertification of value per FNMA 1004 D or FHLMC Form 442 which includes inspection of the exterior of the property and review of current market data to determine whether the property has declined in values since the date of the original appraisal.

Additionally, FundLoans reserves the right to require additional appraiser re-valuation reports depending on age of documentation at time of full loan delivery.

• See FundLoans Credit Matrix for additional appraisal requirements, if any

13.1 Valuation Overview

FundLoans uses FNMA Guidelines as our minimum appraisal standards for all written appraisal reports. Reports must include/have, at a minimum, the following:

• Ordered by/through an approved AMC

• Uniform Appraisal Standards

• Appraiser Independence

• Appraiser Competency

• Fair Lending Requirements

• Vendor Selection Process

• Acceptable Appraiser Practice Standards

• Compliance with the Uniform Standards Professional Appraisal Practice (USPAP), as established by the Appraisal Standards Board of the Appraisal Foundation

• Properties in excess of the predominant value of the subject market area are acceptable provided they are supported by similar comparables and also represent the highest and best use of the land as improved

• A Second Appraisal will be required when:

  • Loan Amount exceeds $2,000,000.
  • The transaction is a flip as defined in the Property Flipping section of this guide.

The second appraisal may not be a transferred appraisal (except on a case-by-case basis).

The transactions "Appraised Value" will be the lower of the two appraisals.

If a second appraisal is not provided from an approved FundLoans AMC, then an AIR compliant appraisal may be accepted on a case-by-case basis. FundLoans, at its discretion, can request an additional Appraisal Product.

• See complete FNMA Guides at https://selling-guide.fanniemae.com/Selling-Guide/

• See complete USPAP Guides at www.uspap.org

13.2 Appraiser Independence

FundLoans expects to receive honest, unbiased professional opinions of value.

• Appraisers must have no direct or indirect interest, financial or otherwise in the subject property or with the involved parties

• FundLoans prohibits associates from asking appraisers to report a predetermined value or withhold disclosure of adverse features

• All appraisals must be ordered through an Appraisal Management Company (AMC). Appraisals that are not ordered through an AMC but are AIR compliant can be reviewed on an exception basis.

We will not accept an appraisal from an appraiser who works for the lender, borrower or any parties affiliated with the transaction. All appraisals will be following the Appraiser Independence Requirements pursuant to the Dodd-Frank Wall Street Reform and the Consumer Protection Bureau Act of 2010. Compliance with the Appraiser- Independence Requirements will be reviewed by an independent third-party.

A LICENSED OR CERTIFIED APPRAISER MUST SIGN ANY REPORT PREPARED FOR THE LENDER IN ORDER FOR THE LOAN TO BE ELIGIBLE FOR FUNDING BY FundLoans.

13.3 Appraisal Review Requirements

Appraisal desk reviews are required for all loan amounts, except when a 2[nd] full appraisal is required.

Desk review from one of the following is required:

• Collateral Desktop Analysis (CDA) from Clear Capital

• Appraisal Risk Review (ARR) from Proteck/Stewart

• ARA from Computershare

• CCA from Collateral Analytics VRR from Homegenius (previously Red Bell)

• Valreview from Veros Software

If a valuation from either of these companies is less than 90% of the appraised value, then the LTV will be calculated using the lower desk review value.

• If CDA is not available, then another appraisal or a field review will be required. If a field review is used in lieu of a CDA or APR, the value must be within 10% of the appraised value.

• On all Purchase Money Transactions, closing instructions should indicate that no credits for property condition are allowed and there should be no seller concessions due to damage to the property that was caused by the declared federal disaster.

Underwriting is responsible for identifying areas impacted by disasters and taking the appropriate steps to ensure the subject property has not been adversely affected.

Adverse events that receive a formal disaster declaration issued by local, state or federal departments of emergency management must follow the procedures listed below. A list of all federally declared disaster areas may be found on the FEMA website at http://www.fema.gov/disasters.

Any subject property in a designated disaster area, whether it is a purchase or a refinance transaction, will require a Disaster Inspection Report. The practice of obtaining a Disaster Inspection Report should continue for a minimum of 90 days from the date of the disaster and display a completion date that doesn't exceed 15 days prior to the loan closing.

14.0 Title Insurance

14.1 Requirements

The purpose of title insurance is to provide evidence of ownership and the lawful possession of a property. It protects the owners (in the case of an owner's policy) and lenders (in the case of a mortgage loan policy) against loss if the chain of property is imperfect or against unknown encumbrance against the property.

FundLoans requires coverage provided by American Land Title Association (ALTA) or an equivalent association. Either a Standard or Short Form Policy is acceptable. Short Form Policies are provided due to a shorter turnaround time, allowing a faster delivery to the secondary market.

Eligible title insurance must reflect the following:

• The effective date of the commitment should be dated within 120 days of the signing of the note and the mortgage. If the date exceeds 120 days, the title company must update the commitment with either gap coverage or an updated commitment. Please note that Texas loans must be within 90 days.

• Title insurance is required, the amount of the policy must be the same as the amount of the loan.

• All title vesting must be reviewed to insure it is as it appears on the application. All title holders are required to authorize the mortgage transaction which is accomplished by requiring all non- applicant title holders to sign certain closing documents.

• When title insurance is required on a property that is held in trust, the trust agreement must be reviewed and approved by the title company and FundLoans underwriters. FundLoans will not allow loans that are held in an Irrevocable Trust.

• The definition of the estate should be Fee Simple

• For a purchase loan, the vesting will state the seller's name(s) and should match the purchase contract. A deed transferring title will be required at closing.

• The Legal Description for the property should appear as it does on the appraisal and the application. The title report must contain the entire legal description and may be identified by lot and block or metes and bounds description.

• The original title commitment should be countersigned by an authorized person from the title company

• Title report should show the appropriate lien position. It will also show if there are any exceptions listed on the commitment.

• Outstanding mortgages on the subject property are also listed on the preliminary title report. Any additional mortgages must be addressed, paid-off and released at or prior to closing the loan. If any liens are to remain open, they must meet FundLoans's subordination guides.

• Liens and Judgments - Any liens (federal tax liens, mechanic's liens, etc.) or judgements must be paid-off at or prior to closing. Judgments that belong to another person or of a similar name may appear on the

preliminary title report. In these instances, the applicant must sign an affidavit at closing, to satisfy the title company, which states they are not the person(s) named in the judgement(s). These judgments should not be on the final title policy. Solar liens are to be subordinated or paid off. HERO liens must be paid.

• Real estate taxes and assessments are liens against the property that take precedence over all other liens. If the property owner fails to pay their taxes or assessments, then the county or city can sell the taxes to obtain the monies owed to them. Even if a lender has interest in the property the taxes can be sold.

• If taxes on the subject property are due and payable within 30 days but the county or city will not accept payment yet, then an escrow account is required to be set up by the title company to avoid any exceptions on the final title policy.

• If a title company requires an escrow account when the due date is beyond 30 days (i.e., 45 days), then all parties must adhere to the title company's requirements

• Easements are rights that a person has on the property/land of another person. Examples of easements are public utility easements, mineral rights, beach rights and riparian rights. These will not affect our lien position and can remain as exceptions on the title policy.

• Encroachment is construction on the property of another, i.e., wall, fence, or a driveway. Encroachments listed on the preliminary title report can remain as an exception on the final title policy if the title company will insure against loss or damage caused by the enforced removal of the real property that is encroaching onto the easement. However, if the title company will not provide insurance, then the encroachment must be reviewed by the underwriter to determine if this will materially affect the value of the property/improvements or our security interest.

• Surveys - All survey exceptions must be cleared on all loan products. FundLoans will defer to

  • the title company to advise on what is necessary to remove the survey exception.

• Homeowners Association Dues - HOA dues must be current or paid current at time of closing. A letter from the association is required stating that the applicant's dues are up to date, that there are no liens currently and that no liens have been placed on the subject property due to non- payment of dues.

• Lis Pendens - A legal notice that is recorded to show any pending litigation relating to the property. Anyone that is acquiring an interest in the property after the date of the notice may be bound by the outcome. All Lis Pendens are to be removed or the application will be denied.

• Rebuild in Coastal Areas - The application will be denied if the subject property is in a coastal area and cannot be rebuilt.

• Oil and Gas Leases and Mineral Right - FundLoans will require affirmative language if they remain as exceptions on the final title policy. We must confirm that these leases do not provide for any surface rights. If lease does provide for surface rights this property will be ineligible for sale to FundLoans.

• Agreements such as private well and septic, private roads and shared driveways also require affirmative language and can remain as an exception on the title unless they relate to a public utility. Private well agreements need to be reviewed to determine whether the well is on the subject property or the rights to the well will be transferred with the title to the property. If this is not the case, the subject property may be considered ineligible for sale to FundLoans.

Unacceptable Title Defects can be, but are not limited to, the following:

• Open liens, judgements, taxes, or tax liens

• Non-clearance of a probated property

• Foreclosure

• Properties with unexpired redemption periods

14.2 Title Policy Requirements

Only accredited title companies with an acceptable rating can provide title insurance and ownership reports. A 24 Month Chain of Title is required on all title policies.

Endorsements

FundLoans requires all applicable endorsements to be present in a Title Insurance Policy. Endorsements are available for title insurance policies only and they provide affirmative language and/or protection to the lender for the specific exceptions being left on the title that typically occur due to property type. The following is a list of required endorsements:

• Comprehensive Endorsement Survey (ALTA Form 100 or ALTA 9)

• EPA Endorsement (ALTA 8.1)

• Condominium Endorsement (ALTA 4)

• PUD Endorsement (ALTA 5)

• Adjustable/Variable Rate Endorsement (ALTA 6)

Spousal Property Rights

Marital property law affects the ownership, control, and disposition of property during a marriage, upon divorce and upon the death of a spouse. Common law, community property and homestead rights all have an impact on how certain real property may be conveyed, encumbered, or transferred to a creditor to satisfy debt in case of a foreclosure. The initial and final CD to be signed and dated by non-borrowing spouse (refi's only).

Certain states require marital signatures on all transactions. Spouses that are not applicants should not be required to sign the promissory note. There will be times that we may require a spouse to sign necessary documents per state requirements for homestead rights.

Survey Requirements – Each loan will have:

• A survey of the property securing the loan; or

• A survey affidavit, acceptable in all respects to the title insurance company insuring the loan, such that the title insurance policy insuring the first mortgage encumbering the loan is without exception regarding any matter related to a survey including:

  • the location of improvements on the subject property

  • the location of easements on the subject property

  • the location of encroachments affecting the subject property, or the subject property's metes and bounds

• If a survey is included, the survey must have been certified, dated, and signed by a licensed civil engineer or registered surveyor performing the survey. Unimproved land surveys are not acceptable.

• Surveys must be reviewed by the lender for easements, encroachments, flood zone impacts and possible boundary violations.

14.3 Title Vesting

Fee Simple with Title Vesting as:

• Individuals

• Joint tenants

• Tenants in Common

• Inter-Vivos Revocable Trust – vesting in a trust and an individual is no permitted

• Vesting in an Entity –Investment Properties Only- requirements below:

  • Entity must be domiciled in a U.S. state.

  • Business structure is limited to a maximum of four (4) owners/members.

  • Personal Guarantees must be provided by all members of the Entity who qualify for the loan. However, if a borrower signs as an individual and not as a member, a personal guarantee is not required.

  • Each Entity member on the loan must sign the security instruments.

  • Layered or nested entities are not permitted.

  • Each Entity member providing a personal guarantee must complete a Form 1003 or similar credit application indicating clearly that such document is being provided in the capacity of the guarantor. The application of each member providing a personal Guarantee and their credit score, and creditworthiness will also be used to determine qualification and pricing.

NOTE: Vesting in a life estate is not allowed.

NOTE: Power of Attorney's (POA's) are eligible except for cash out loan programs, or when closing/vesting in the name of an Entity.

For each business type, the following documentation must be provided:

• Limited Liability Company (LLC):

  • Entity Articles of Organization, Partnership, and Operating Agreements as required.

  • Tax Identification Number (Employer Identification Number – EIN). In any case where a sole proprietor is using SSN in lieu of EIN, provide UW cert or supporting documentation to confirm.

  • Certificate of Good Standing

  • Certificate of Authorization for the person executing all documents on behalf of the Entity

  • LLC Borrowing Certificate required when all members are not on the loan.

• Corporation:

  • Filed Certificate/Articles of Incorporation (including all amendments)

  • By-Laws (including all amendments)

  • Certificate of Good Standing (issued by the Secretary of State where the business is incorporated)

  • Tax Identification Number (EIN). In any case where a sole proprietor is using SSN in lieu of EIN, provide UW cert or supporting documentation to confirm.

  • Borrowing Resolution/Corporate Resolution granting authority of signor to enter into a loan obligation.

  • Receipt of current year franchise tax payment or CLEAR search (only required where applicable per state).

• Partnership:

  • Filed Partnership Certificate (if a general partnership, filing with the Secretary of State may not be required)

  • Partnership Agreement (and all amendments)

• Certificate of Good Standing (issued by the Secretary of State where the Partnership is registered)

• Tax Identification Number (EIN). In any case where a sole proprietor is using SSN in lieu of EIN, provide UW cert or supporting documentation to confirm.

• Limited partner consents (where required by partnership agreement).

NOTE: Official documentation issued by a CPA, a Third-Party Tax Preparer (excluding PTIN tax preparers), the state or IRS should be used to satisfy documentation requirements. Fillable PDF's (i.e W9's) or emails from borrowers are not sufficient.

15.0 Hazard Insurance Requirements

Hazard insurance must protect against the loss or damage of the property from fire and other hazards covered by the standard extended coverage endorsement. FundLoans requires hazard insurance protection on all loans with an effective date on or before closing. A declaration page is required prior to closing for all loans as proof of insurance. On all refinance transactions, if the coverage termination date is within 30 days of the closing, FundLoans will require evidence of continuing coverage. A loss payable endorsement is required for all loan transactions.

The coverage must provide for claims to be settled on a replacement cost basis. Extended coverage must include, at a minimum:

• Wind
• Civil commotion (including riots)
• Smoke
• Hail
• Damages caused by aircraft vehicle or explosions

The HOI Policy must be effective for at least 60 days after the date of funding. Evidence of Insurance can be provided in one of the following forms:

• Policy
• Certificate of Insurance
• Insurance Binder

Evidence of Insurance Requirements:

• Names of the borrowers to reflect same name as on the Note/Security Instrument
• Property address matches the Note/Security Instrument
• For primary residence loans, Mailing address is the same as property address
• Policy Number
• Loan Number
• Name of insurance company
• Insurance agent information
• Effective and expiration dates of coverage. For purchase loans, effective date must be on or before funding/disbursement date
• Premium amount
• Coverage amount and deductible
• Loss payee clause as applicable
• Signed and dated by the agent

Deductibles:

• Family Residences – The maximum allowable deductible, to include any separate wind-loss or other separate deductible that apply to a specific property element, is 5% of the face amount of the policy
• Condos and PUDs - The maximum deductible amount for policies covering the common elements must be no greater the 5% of the face amount of the policy.
• For losses related to an individual unit in a PUD that is covered by a blanket policy; the maximum deductible is no greater than 5% of the replacement cost.
  • If there is a wind-loss deductible, then the deductible must be no greater than 5% of the face amount of the policy.
• For Condos with blanket insurance policies that cover both the individual units and the common elements, the maximum deductible amount related to the individual unit should be no greater than 5% of the replacement cost of the unit.

Determining the amount of required Hazard Coverage:

The coverage must provide for claims to be settled on a replacement cost basis. Extended coverage must include, at a minimum, wind, civil commotion (including riots), smoke, hail, and damages caused by aircraft vehicle or explosions.

Hazard insurance policies that limit or exclude from coverage, in whole or in part, windstorm, hurricane, hail damages, or any other perils that would normally be included under an extended coverage endorsement are not acceptable.

Borrowers may not obtain hazard insurance policies that include such exclusions or limitations unless they have obtained a separate policy or endorsement from another commercial insurer that provides adequate coverage for the limited or excluded peril.

Hazard Insurance coverage should be in the amount of the lesser of:

• 100% of the insurable value of improvements, as established by the property insurer or reputable 3rd party source (i.e., CoreLogic);
• Estimated cost to replace as notated on appraisal delivered with loan file (Total Estimate of Cost-New) OR RCE from insurance provider/agent;
• The unpaid principal balance of the mortgage

If none of the above are met, then coverage that does provide the minimum required amount must be obtained.

Flood Insurance:

Flood insurance coverage is required when a loan is secured by a property located in a Special Flood Hazard Area (SFHA), or a Coastal Barrier Resources System (CBRS) or Otherwise Protected Area (OPA). FundLoans follows Fannie Mae Guidelines in regards to Flood Insurance Coverage Requirements.

The lender must determine whether the property is located in an SFHA, a CBRS, or an OPA by using the FEMA Standard Flood Hazard Determination form. All flood zones beginning with the letter "A" or "V" are considered SFHAs.

Note: If the subject property is located within a CBRS or an OPA, flood insurance is required regardless of whether the property is located in an SFHA.

The minimum amount of flood insurance required must be equal to the lesser of:

• 100% of the replacement cost value of the improvements,
• the maximum coverage amount available from NFIP, or
• the unpaid principal balance (UPB) of the loan (or loan amount at the time of origination).

Rent Loss Insurance:

Non-owner occupied properties must have rent loss coverage equal to 6 months PITIA.

16.0 Specialty Programs

The following guidelines are generally on a case-by-case basis, subject to prior approval by FundLoans and subject to change without notice. Each below may be further defined in a separate matrix.

16.1 Super Jumbo (Apex/Montage)

Loan amounts greater than $3.5MM (primary) and greater than $3.0MM (2[nd] /NOO) are subject to a separate matrix and the following applies:

• FICO Min.: 700 (all borrowers)
• Housing History: 0x30x24
• Credit Event: ≥ 48 months
• Secondary Financing: Not allowed
• Borrower Eligibility: US Citizen or Permanent Resident Only
• Non-Occupant Co-Borrowers: Not allowed
• Rural: Not allowed
• Acreage: max 10
• Tradelines not waived with 3 scores
• Reserves: Use of cash-out not allowed to satisfy

16.2 Assets Only

Assets Only may be used for borrowers who have significant verifiable assets and would benefit from alternative loan qualification. Asset Only is considered to conform to the Montage Program from a credit and pricing standpoint. Assets Only may be used with any occupancy type. Please see the applicable FundLoans Matrix for restrictions.

Total liquid assets (US based only) must meet the sum below (reserves are not required):

• 100% of the subject property loan amount;
• Closing costs and prepaids; and
• 60 months of net loss on any personally vested non-subject property including primary residence, 2nd homes, and residential rental real estate properties.

Qualified Assets:

The following assets are considered Qualified Assets and may be utilized for qualification:

• 100% of checking, savings, and money market accounts
• 100% of publicly traded stocks & bonds (excludes unvested RSUs and stock options)
• 70% of 401k, Retirement assets (Under eligible retirement age of at least 59 ½)
• 80% of 401k, Retirement assets (Eligible retirement age of 59 ½)
• 100% of cash value of life insurance policy

Case-by-case subject to investor approval: Personally vested non-subject real estate using 75% of AVM from approved AMC (minus) all recorded liens. HELOCs are counted at the maximum limit regardless of amount used.

Any loans secured against financial assets being used for asset qualification will be netted against the asset's value before application of discount.

The most recent 6 months of account statements for all Qualified Assets are required. Balances of qualifying assets must be verified within 10 days of Note Date. Any deposit greater than 10% of the face value of the account of the most recent statement must be sourced and documented. Any deposits which cannot be sourced will be deducted from the end value of the account.

Ineligible Asset Types

• Gift Funds
• Business funds
• Non-liquid assets (automobiles, artwork, business net worth etc.)
• Annuities of any type
• Face value of a life insurance policy
• Foreign Assets
• Joint accounts with individuals who are not on the loan
• Funds held in a trust (revocable living trust acceptable if all named grantors/trustees on account and borrowers on loan).
• Cryptocurrency

DTI: A traditional DTI is not calculated for Assets Only. Rather, post-closing Qualified Assets must be greater than the sum of the items noted below:

• 100% of the loan amount
• 60 months of all real estate and consumer debt payments including revolving accounts, installment and lease accounts, alimony/child support, and mortgage related expenses on all properties owned including the subject property taxes, insurance, HOA dues, etc. (do not include the subject property P&I)
• Subject property reserves requirements based on the loan amount as detailed in the Reserves section of this guide.

Residual Income: In accordance with ATR standards, a monthly residual income calculation must be completed. The formula for this calculation is:

Post-Closing Qualified Assets ÷ 60 months = Total Monthly Income Total Monthly Income – Total Monthly Debt Obligations (Expenses) = Monthly Residual Income Minimum residual income is $1,500/month.

NOTE: Required reserves are not deducted from Post-Closing Qualified Assets when calculating residual income.

Mortgage Related Expenses: As referenced in the DTI section, property related expenses must be accounted for in the 60-month debt calculation.

Subject Property: Exclude the subject P&I from the 60-month calculation (i.e. only include taxes, insurance, HOA dues, special assessments, etc.).

Non-Subject Properties: Include the PITIA of additional REO in the 60-month calculation. Whenever an

additional REO is an investment property, the PITIA for that property may be excluded from the coverage requirement provided the property has positive cash flow. If the investment property has a negative cash flow, any net negative rental amount must be included in the 60-month debt total. Leases + 2 month's most recent rent receipts are required to document the rental income received for an investment property (Form 1007 is not required). A 25% vacancy factor must be applied to the monthly rent prior to calculating positive/negative cash flow for the property. Net rent can never exceed $0.

Employment and Income: Employment and income are not required to be disclosed on the 1003. If not disclosed, enter "Not applicable to this loan" in the respective fields. A secondary contact phone number must be reflected in the business phone number section on the 1003 (for consumer contact purposes only). Borrower Affirmation: The borrower must acknowledge their ability to repay the loan by signing a Borrower Affirmation Document at closing.

16.3 Assisted Living Facilities

On a case-by-case basis and subject to additional pricing overlays subject to the following:

• 700 FICO
• 65% LTV/CLTV maximum
• 1.00 DSCR
• Loan amounts <$2MM
• Property must be clearly residential in nature. No commercial features of any type allowed.
• Borrower must own and operate the facility.
• No FC/NOD/BK/SS/DIL/MOD events <48 months.

Subject to floor rates and published LLPAs.

16.4 Multiple ADU

On a case-by-case basis and subject to additional pricing overlays, if any multiple ADUs is eligible under the following conditions:

• The property is defined as a one-unit property; Whether a property is defined as a one-unit property with an accessory unit or a 2+ unit property will be based on the characteristics of the property, which may include, but are not limited to, the existence of separate utility meter(s), a unique postal address, and whether the unit can be legally rented. The appraiser must determine compliance with this definition as part of the analysis in the Highest and Best Use section of the appraisal. See FNMA Section B4-1.3-05, Improvements Section of the Appraisal Report for additional ADU appraisal requirements.
• Each ADU meets the requirements of an ADU in the previous section above;
• Zoning permits multiple ADUs;
• The appraisal report demonstrates that the improvements are typical for the market through an analysis of at least one comparable property with the same use and same number of ADUs as the subject, and lender can verify the ADU is:
  • a.) legal (per building code); and
  • b.) may legally be rented (permissible use – zoning).

Unpermitted or unconventional (e.g. manufactured or container) ADUs allowed only subject to exception and additional appraisal comparables.

+2-unit property may be considered on an exception basis only.

17.0 Miscellaneous

17.1 Fraud Reviews

Data integrity is crucial to having a quality loan file delivery and mitigation of fraud risk. All loans must be submitted to an automated fraud and data check tool (i.e. Fraud Guard, DataVerify, etc.). A copy of the findings report must be provided in the loan file along with any documentation resolving any deficiencies or red flags noted.

17.2 OFAC and Watchlist Search Parties

Watchlists verifications compare all participants names to industry and lender exclusionary lists to identify high risk participants. Provide documentation to confirm all parties to the transaction such as borrowers, entities holding title and all owners, sellers, realtors, realtor brokerages, closing attorney, lender/originator and loan officer were successfully checked and not included on these lists. For refinances, the borrowers, entities holding title and all owners, closing attorney/title agent, originator and loan officer should be included in the searches. Any high alerts or red flags must be addressed or cleared by the underwriter.

17.3 Closing Documentation

All closing documentation (i.e., Notes, Deeds of Trust, etc.) must conform to and be FNMA approved. The use of any non-FNMA documentation must receive prior approval from FundLoans.

17.4 Age of Documents

The Note date is utilized for document expiration for all funding types including escrow and non-escrow funding.

Appraisal: 365 days of note date, with a recertification of value required if report exceeds 120 days of the note date.

Credit/Income/Asset: 90 days

P&L: 60 days

17.5 Property Taxes

The lender must document the real estate taxes used to determine the monthly housing expense used to calculate the debt-to-income (DTI) ratio. The amount must be based on the value of the land and the total of all assessed improvements. The most recent real estate tax bill, tax assessment or tax certificate from title are examples of acceptable documentation.

For new construction or full renovation property we need one of the following to document the proposed property taxes based on improvements:

• Documentation from title/settlement attorney detailing tax amount being used is based on current tax mileage and new build/improvements OR

• Printout of online county tax estimator using purchase price OR appraisal cost new estimate (if shown on appraisal), OR

• Copy of calculation worksheet using mileage rate + purchase price OR appraisal cost new estimate (if shown on appraisal) needs to be provided.

NOTE: FundLoans will not cannot accept previous years tax bill that does not show current improvements (i.e. land only is assessed)

17.6 Escrows

• Escrows for taxes and insurance will be required for all HPMLs (High Price Mortgage Loans) that are primary residences.

• Escrows for taxes and insurance will be required on Debt Consolidation Refinances

• Escrows are required for LTV's greater than 80%

• Flood Insurance must be escrowed regardless of LTV.

17.7 Maximum Financed Properties

• A borrower may own up to 20 financed properties including the subject property.

• There is no limitation to the total number of financed properties a borrower may own when the subject property is an investment property

17.8 Maximum Exposure

• Fundloans' exposure is subject to underwriter's discretion based on overall risk profile.

• DSCR <1 is limited to a maximum exposure of $3mm to any one borrower.

17.9 Disaster Policy

FundLoans permits loans that are secured by properties that are located within a declared disaster area or in an undeclared disaster area, either man-made or natural, subject to the following conditions:

• FundLoans reserves the right to require a written certification from the appraiser, a Disaster Inspection Report, which indicated that the value of the property has not been affected by any damage arising out of the disaster and that the subject property is in marketable condition and that there are no major repairs needed or detrimental conditions to the subject property.

• Borrowers are required to complete a Borrower Certification at time of closing on the physical condition of the property. See Doc Magic Doc Prep for a copy of this document.

18.0 Exceptions

Exceptions to these Guides can be made at FundLoans' discretion by submitting a FundLoans Exception Request form to FundLoans. The Underwriter should review the loan file to ensure prudent underwriting was used as well as listing compensating factors for the loan exception on the form.

FundLoans is under no obligation to fund loans that meet these guidelines or has an exception on the loan file. Compliance with these guides does not create a commitment by FundLoans to fund. Any loans that will be funded are at the sole discretion of FundLoans.

19.0 Appendix

• Sample Borrower Ability to Repay Attestation Verbiage

• Sample Business Purpose and Occupancy Affidavit

• Sample Condo Questionnaire (Limited Review)

• Sample Condo Questionnaire (Full Review)

• Sample Personal Guaranty Agreement

• Exhibit A- Prepay Penalty Reference Guide

Borrower Ability to Repay Attestation

Disclosure Date Loan Number Lender Borrower Name(s) Property Address

Before approval of your mortgage loan, we must ensure that we are making a loan that you can afford. To determine whether you could repay the mortgage loan, we will collect, verify, and analyze specific financial information regarding your current income, assets and debt obligations.

At a minimum, we will consider the following eight factors to determine your ability to repay:

• Your current income or assets

• Your current employment status

• Your credit history

• The monthly payment for the mortgage

• Your monthly payments on other mortgage loans you get at the same time on the same property

• Your monthly payments for other mortgage-related expenses (such as property taxes, homeowners' insurance, etc.)

• Your other debts

• Your monthly debt payments, including the mortgage, compared to your monthly income ("debt- toincome ratio")

In addition, we will also assess how much money you have remaining each month after paying your debts. We recommend that you also consider these same factors when determining how much you can afford to repay based on your income, expenses, and savings priorities to stay within your budget.

By signing below, I/we certify the following about the information and documentation provided with my/our request for a mortgage loan, including information about the purpose of the loan, the amount and source of the down payment, employment and income information, and assets and liabilities.

• All information and documentation provided is true and correct to the best of my knowledge; I have not made any omissions or misrepresentations.

• I am not aware of any omissions, misstatements of fact, or misrepresentations made by persons assisting me through the loan process; and

• I understand my obligation to amend and/or supplement the information provided if any of the facts that I have provided should change prior to closing of the mortgage loan.

Borrower Name Borrower Signature Date

Business Purpose and Occupancy Affidavit

Condo Questionnaire (Limited Review)

Condo Questionnaire (Full Review)

Personal Guaranty Agreement

Exhibit A Prepayment Penalty Reference Guide

State Specific Acquisition Guidance

FundLoans will not fund loans with prepayment penalties in the following states:

• Alaska, Kansas, Minnesota, New Mexico, North Dakota and

• Maryland when a Note is contracted under the Usury Laws (either explicitly or if Choice of Law is not stated)

All other loans with a prepayment penalty must be in compliance with applicable state law. The following states include specific limitations or requirements:

• Illinois permitted to legal entities. Prohibited to individual borrowers.

• Maryland – Note must specifically include Choice of Law - Title 12, Subtitle 10 Credit Grantor provisions

  • THIS LOAN IS MADE PURSUANT TO TITLE 12, SUBTITLE 10 OF THE MARYLAND COMMERCIAL LAW ARTICLE FOR CREDIT GRANTOR CLOSED-END CREDIT

• New Jersey permitted to legal entities. Prohibited to individual borrowers.

• Ohio permitted on loan amounts >=$112,957 (for 2025).

  • Loan amounts <$112,957 permitted only on 3-4 residential units. Number of units will be validated prior to funding.

• Oregon – requires state specific notice to borrower verbiage to be disclosed on the loan agreement (i.e. Note, Note Addendum or prepayment penalty rider) The disclaimer must be in at least 10-point font and either bold or underlined (see example below)

  • NOTICE TO THE BORROWER: Do not sign this loan agreement before you read it. This loan agreement provides for the payment of a penalty if you wish to repay the loan prior to the date provided for repayment in the loan agreement.

• Pennsylvania permitted on loan amounts >$319,777 (for 2025).

  • Loan amounts =<$319,777 permitted only on 3-4 residential units. Number of units will be validated prior to funding.

• Washington permitted on fixed rate loans. Prohibited on ARM loans.

Allowable Types of Prepayment Structure

FundLoans will accept the following 1-to-5 year prepayment types as permitted by applicable laws and regulations on closed-end 1-to-4 unit business purpose investment properties. Prepayment penalty must be contracted for in an appropriate Note and Security Instrument or Rider.

• 6 months interest on amount of prepayment above 20% of the original loan amount in any 12-month period.

State Specific Restrictions to Structure:

• Michigan – allows a Flat Prepay Structure for 3 years at 1/1/1 % of the amount of the amount prepaid.

• Mississippi – allows up to a maximum 5-year declining (step down) prepayment penalty structure that cannot exceed 5%/4%/3%/2%/1%.

• Ohio- allows a flat Prepayment Penalty up to 5 years and equal to 1% or less of the original principal amount (see loan amount rules above).

• Rhode Island – allows a flat 1-year Prepayment Penalty equal to 2% of the balance due.

20.0 Version History

Version 1.0 Effective 04/01/2026