Frequently asked questions
On a cash-out refinance where borrowers will use loan proceeds to cover the reserves requirement, will we still require a bank statement?
Yes, guidelines still require that borrowers provide 1 month’s bank account statement for all loans, regardless of if we use the funds in the account to qualify the loan.
Can borrower use the proceeds from a cash-out refinance to meet the reserve requirements?
Depends on the occupancy. On Owner-occupied, proceeds from a cash-out refinance may only be used towards reserves if 1) LTV is 70% or less; and 2) FICO is 720 or greater. On investment properties, cashout proceeds may be used towards the reserve requirement.
Borrowers wish to purchase a new primary residence but already own their current residence. Would we be able to do the loan on the new purchase?
Yes, given acceptable motivation. Borrowers to provide a satisfactory motivation letter confirming their intent to move into subject property as primary residence. Borrowers to also state what they intend to do with the vacating residence (sell, rent, etc.). If they will be converting their vacating property to a rental, and are using rental income to qualify the loan, borrowers to provide fully executed proposed lease for incoming tenants, including copies of cancelled first month’s rent and security deposit checks, and proof of deposit into borrowers’ personal bank account. If we do not require rental income to offset the housing payment, then just the letter is acceptable. Entire current housing debt will be included in DTI.
What is the minimum property condition Quontic will lend on?
Property must be rated with a minimum C3 rating. C4 will be considered on a case-by-case basis.
Do we lend on a leasehold property?
Yes, we follow FNMA guidelines in regard to leasehold properties.
Lease and Lender Requirements
The term of the leasehold estate must run for at least five years beyond the maturity date of the loan unless fee simple title will vest at an earlier date in the borrower.
The lease must provide that the leasehold can be assigned, transferred, mortgaged, and sublet an unlimited number of times either without restriction or on payment of a reasonable fee and delivery of reasonable documentation to the lessor. The lessor may not require a credit review or impose other qualifying criteria on any assignee, transferee, mortgagee, or sublessee.
The lease must provide for the borrower to retain voting rights in any homeowners’ association.
The lease must provide that in addition to the obligation to pay lease rents, the borrower will pay taxes, insurance, and homeowners’ association dues (if applicable), related to the land in addition to those he or she is paying on the improvements.
The lease must be valid, in good standing, and in full force and effect in all respects.
The lease must not include any default provisions that could give rise to forfeiture or termination of the lease, except for nonpayment of the lease rents.
The lease must include provisions to protect the mortgagee’s interests in the event of a property condemnation.
The lease must provide lenders with:
- the right to receive a minimum of 30 days’ notice of any default by the borrower, and
- the option to either cure the default or take over the borrower’s rights under the lease.
Are we able to lend on properties that have business-use?
We follow FNMA’s guidance when it comes to properties that have a business-use in addition to their residential use, such as a property with space set aside for including but not limited to, a day care facility, a beauty or barber shop, or a doctor’s office. The following special eligibility criteria must be met:
- The property must be a one-unit dwelling that the borrower occupies as a principal residence.
- The borrower must be both the owner and the operator of the business.
- The property must be primarily residential in nature (over 50% residential use), AND
- The dwelling may not be modified in a manner that has an adverse impact on its marketability as a residential property.
The appraisals for such properties must include All of the following requirements:
- provide a detailed description of the mixed-use characteristics of the subject property;
- indicate that the mixed use of the property is a legal, permissible use of the property under the local zoning requirements;
- report any adverse impact on marketability and market resistance to the commercial use of the property; AND
- report the market value of the property based on the residential characteristics, rather than of the business use or any special business-use modifications that were made.
Will we lend on a property zoned for “Exclusive Farm Use” (EFU)?
No. EFU zones are preserved and protected lands for continued and future commercial agricultural production and related uses. As such, even if the purchaser or current owners do not use the property for commercial use/production, the property would be ineligible for CDL.
Would we lend on farms or rural properties?
It depends. If a property is zoned for agricultural use, we must ensure that the property is residential in nature, its residential use is a permissible use under the zoning classification, and its use does not primarily involve commercial activities such as farming or ranching. We follow FNMA / Freddie Mac regarding this topic. For more information, please click on the following link: https://sf.freddiemac.com/faqs/rural-properties-faq
Can we lend on properties with outbuildings, such as barns, shops, storage sheds, etc?
That would depend on the type of outbuilding. We follow FNMA’s guidance on this topic:
|Type of Outbuilding||Acceptability|
|Minimal outbuildings, such as small barns or stables, that are of relatively insignificant value in relation to the total appraised value of the subject property.||The appraiser must demonstrate through the use of comparable sales with similar amenities that the improvements are typical of other residential properties in the subject area for which an active, viable residential market exists.|
|An atypical minimal outbuilding.||The property is acceptable provided the appraiser’s analysis reflects little or no contributory value for it.|
|Significant outbuildings, such as silos, large barns, storage areas, or facilities for farm-type animals.||The presence of the outbuildings may indicate that the property is agricultural in nature. The lender must determine whether the property is residential in nature, regardless of whether the appraiser assigns value to the outbuildings|
Can we lend in a Condop?
Can we lend in a Condotel / Condo Hotel?
Yes, if the subject unit is NOT and does not have the option to participate in the hotel program. The project will be considered as ‘non-Warrantable’, whereas LTV restrictions and pricing adjustments will apply.
Can we lend on an Investment Coop unit?
No, Investment coops are not permitted. Only investment Condo units are permitted.
Do we lend in projects (Condos/Coops/PUDs) that have re-sale, age, income, or any other owner-related restrictions?
Projects with any sort of re-sale restrictions present a severely negative impact on the marketability of the unit in the event borrower defaults and this becomes an REO. It is important to identify what the restrictions are in order to determine project warrantability and eligibility:
- If the only restriction is “Right of First Refusal”, this is okay, and the project can still be eligible as Warrantable.
- For projects with age restrictions, such as 55-and-older communities, we will allow financing to these projects if:
- Borrower meets the age requirements, and;
- The project must not have any rehabilitation, medical treatment, or elder-care facilities (for example, nursing homes).
- The project will only be considered eligible as a non-Warrantable. If both the above conditions are not met, the loan will be ineligible under all loan programs.
- For projects with income restrictions, such as low-to-moderate income (LMI), we will allow financing to these projects if:
- the subject unit is NOT one of the LMI or income-restricted units.
- The project will only be considered eligible as a non-Warrantable. If the above condition is not met, the loan will be ineligible under all loan programs.
For all other re-sale or owner-related restrictions not identified above, the loan will be deemed ineligible under all loan programs.
Can reserves be gifted?
No. Gifts can only be applied to down payment and closing costs.
Are there FTHB restrictions associated with the Bank Statement program?
No, but the minimum FICO score is higher than for other borrowers (660).
Does Quontic have a Bank Statement program for investment properties?
No. Quontic does not offer the Bank Statement program for investment properties currently.
Could bank statements be a mix of both – personal and business?
For assets to close, yes. If Business assets are to be used, the business’s Accountant/CPA/Tax Preparer must verify that business will not be adversely impacted by Borrower withdrawals.
Do you allow credit rescoring mid-process or does the score have to be updated prior to application?
This is allowed on a case-by-case basis. If tradelines are being paid off or paid down to improve FICO scores, must provide proof of payment and source of funds used.
Do you need to be licensed in the state if you are doing an investment property?
If the loan program is for Lite Doc investment, yes. If the loan program is DSCR, it will depend on the state in which the property is located.
Are gift funds allowed? If so, can it be 100% of down payment?
Yes, 100% gift funds are allowed for down payments and closing costs. You can also accept a gift of equity from your relative in the purchase.
Does the P&L need to be audited, since it is to be signed by CPA instead?
The accountant does not need to make a representation that the P&L is audited.
Do you need to source large deposits on those bank statements?
We allow up to 10k of unsourced deposits over a one-month period combined.
How many months reserves are needed? For subject properties only or all properties?
It depends on the loan program. For Owner-Occupied Lite Doc and Bank Statement programs, see below:
|LTV||Min. Reserve Requirement|
|Less than or equal to 65% LTV||0 months PITI(A)|
|Greater Than 65% LTV||3 months PITI(A)|
|Borrowers who own other financed properties are required to evidence an additional 1 month of PITIA reserves for the subject property for each additional financed property, capped at a maximum total of 18 months PITIA reserves.|
Are there FTHB restrictions associated with the Lite Doc program?
The only restriction is that First Time Homebuyers require a Minimum 660 FICO. You can be a FTHB and purchase an investment property and use the rental income to qualify unlike Fannie Mae and Freddie Mac – and we also accept gifts towards down payment and closing costs.
Are there any minimum number of tradelines?
We require at least 3 tradelines reported for a minimum 12-month period. Borrower may use alternative tradelines to meet the minimum requirements.
Do you apply an expense factor to the P&L, or are you taking the net income?
We do not apply an expense factor of the P&L, we qualify using the net income. But, if the client owns less than 100% of the business we will use the percentage of ownership by the net income.
Can you use non-occupant borrower income? If yes, what are the documents required?
Yes. P&L or VOE.
Do we need a CPA letter along with the CPA prepared P&L?
The letter can come from a CPA, an accountant, an enrolled agent, or a Tax Preparer. Letter must include length of relationship with borrower, Borrower’s position/title, Ownership percentage of company, Business inception date, and Statement on good standing of the borrower’s business. Letter must be signed on the accounting firm’s letterhead and cannot contain any exculpatory language that may compromise the integrity of the information provided.
Do reserves from asset accounts have to go back more than 1 month?
No. We are only looking for 1 month (the most recent month) bank statement to verify all funds.
Can we do owner-occupied properties in the name of a Trust?
Yes. However, the property must be held in an Inter Vivos (Living) Revocable Trust. Irrevocable trusts are not permitted. We follow FNMA’s guidance regarding this topic. At least one of the Settlors/Trustors who established the trust must be on the Loan/Note and used to qualify. Trustee(s) may also credit qualify for the loan, so long as they have the power to mortgage the security property for the purpose of securing a loan. All individual borrower(s) must sign the Note itself. The Title/Mortgage will be in the name of the Trust.
All trust formation documents need to be emailed to [email protected] for review. A Change of Circumstance (CoC) is required adding the Trust Attorney Review fee of $250.
Can we do a loan under an LLC?
Yes. However, only Investment properties can be held under an entity name (Corp/Inc/LLC). The loan will be opened with the entity as the Borrower and the individual owning the entity as the Guarantor. All individuals with 25% or more ownership in the entity must guarantee the loan and provide an application. The Certification of Beneficial Owners of Legal Entities form must be signed and completed prior to closing. Owner-occupied and second home properties cannot be done in an LLC.
What are the loan amount limits?
It will depend on the program type, loan purpose, FICO, and LTV. Generally, the minimum loan amount is $100,000 and the maximum loan amount is $3,000,000. Loan amounts must be in increments of $50.