Features & Guidelines ~ Eligibility ~ Property Guidelines ~ Frequently Asked Questions ~ Pre-Application
Borrower Eligibility and Qualification Guidelines
To receive an R&R loan, the borrower must meet the following eligibility and qualification guidelines. Documentation to verify compliance with each item is also specified below.
Ownership and Principal Residence
The borrower must be an owner OR must be in the process of purchasing the home according to the standards specified below. They must reside in the home as their principal residence OR, in the case of a homebuyer, must plan to reside in the home as their principal residence. Lenders are to gather the following documents as applicable to verify ownership and residency.
For applicants who currently own and reside in the home:
- A copy of the recorded deed or leasehold agreement (must have a term which exceeds the term of the R&R loan by at least five years).
- A copy of a valid driver’s license or the previous year’s Federal Income Tax return verifying that the borrower’s permanent address is the property being renovated and/or repaired.
For applicants who are purchasing the home to be renovated/repaired:
- A copy of the executed Agreement of Sale with a specified closing date, as well as a copy of a loan commitment approval letter for the financing of the home purchase. (A copy of the HUD 1 settlement sheet along with certified true and correct copies of the deed, mortgage and Note for the first mortgage are to be submitted to PHFA in the Final Package.)
All owners on the deed to the home are required to sign the Renovate & Repair Mortgage.
Credit
All borrowers must meet the following credit guidelines.
- The middle FICO score must be at least 620 (use the lowest score when only two scores are obtained).
- No more than one 30-day late payment on any mortgage loans in the previous 12 months.
- No non-medical collection accounts may be present on credit reports, unless the borrower can document satisfactory repayment for at least the previous 12 months.
- Must be current on property taxes or have made satisfactory payments for at least one year as part of a documented repayment plan with the applicable taxing authority.
- Bankruptcies and foreclosures need to be fully discharged or closed for at least 2 years and satisfactory credit reestablished.
Credit information must be obtained for all persons on the loan application using a Merged, Tri-Merged, Multi-Merged or Residential Mortgage Credit Report (and supplemental information if needed). If one borrower’s credit score is acceptable and another’s is not, PHFA must pre-approve the loan.
Written requests for exceptions may be emailed to renovateandrepair@phfa.org or faxed to 717.780.3872 using the form provided by PHFA along with supporting documentation. If approved by PHFA, the borrower may be required to attend credit counseling by a PHFA-approved agency.
Income Limit (Adjusted Gross Income)
- The adjusted gross income of all adult household members must not exceed 150 percent of the greater of the current statewide or area median income (AMI) as established by the federal Department of Housing and Urban Development (HUD) for the county in which the home is located, and as published and provided by PHFA. (In Erie County that figure is $90,000.) An adult household member is any person over the age of 18 who resides in the home as a principal residence and is not a full-time undergraduate student (as documented by providing transcripts or other documentation from a college or university showing the student is enrolled for at least 12 credit-hours per semester).
- Compliance with the income limit is documented by providing a copy of the federal income tax returns for the previous year for all adult occupants of the home. This includes any adult occupants who reside in the home as a principal residence—even those who are not owners and/or are not applying for an R&R loan. The combined Adjusted Gross Income of all adult occupants must not exceed the applicable income limit.
- There is no minimum income level, except that the borrower must have sufficient income to afford the loan as referenced under the section below on qualifying income.
- For situations where the borrower is using R&R funds to accommodate the needs and/or living space of an adult family member with a disability who does or will reside in the home as a permanent and principal residence upon completion of the work, only the income of the adult family member with the disability is utilized for determining compliance with the income limit. The disability must be documented by providing a copy of the Social Security Disability Income statement or a letter from a health care provider.
Qualifying Income
(Gross Monthly Income Projected from Application forward Twelve Months)
Gross monthly income is to be used to determine eligibility for loan repayment. The calculation of gross monthly income includes the current income received by all applicants before taxes and withholding. Only income that is expected to continue for at least one year from loan closing is to be utilized.
The following documentation must be provided to determine gross monthly income:
- For employment income the following documentation must be provided for each job for each applicant that is responsible for the repayment of the R&R loan: a current pay stub, processor’s certification and W2 from the previous year OR a properly completed, signed Verification of Employment OR a Verification of Employment verified through a work number.
- Child support income must be received regularly in consistent amounts and verified through domestic relations if being used to support the R&R loan.
- Social Security statement with or without a disability award letter. Bank statements showing automatic deposit of the funds is also sufficient for documenting social security income.
- Pension and/or retirement income award letter or bank statements showing automatic deposit of the funds.
- For self-employed borrowers, the most recent two years of federal income tax returns.
- Other documentation may be used as applicable for additional income sources.
The following calculations must be utilized to determine gross monthly income:
- Upon receipt of employment income documentation, gross monthly income is determined by multiplying the required number of hours worked each week by the hourly rate. If the hours vary weekly (with or without overtime), the average gross monthly income is to be used. This is calculated by adding the total income from the previous year W2’s (before withholdings) to the current year-to-date income and dividing by the applicable number of months.
- For borrowers who receive non-taxable income, the amount of non-taxable income may be grossed up by 25 percent for qualification purposes.
- For persons who are self-employed, the average net income plus depreciation as listed on the most recent two years of federal income tax returns should be utilized.
Total Monthly Debt to Income
The total monthly debt to income ratio cannot exceed 45 percent of the gross monthly income figure. The total monthly debt ratio is calculated by dividing total monthly debt by total gross monthly income. Total monthly debt is defined as all personal obligations assumed which shall include, but are not limited to; the monthly payment for the R&R loan; any and all mortgage payments (including escrows for taxes and insurance); court-ordered child support, revolving charge accounts; and all installment loans with more than ten installments remaining. For those who are self-employed, business and farm debts shall not be considered as personal debts and therefore would not be considered in the total monthly debt ratio.
917 State Street, Erie, Pennsylvania 16501 Phone: 814-453-4505; Fax: 814-454-6984