Verus Mortgage Capital Correspondent Non-Agency Seller Guide - DSCR Programs

Chapter 1: Program Overview

Non-Agency (Non-QM) – First Lien Programs

The Non-Agency programs offer loans with features beyond the criteria established for Qualified Mortgages. Features include alternative income documentation for self-employed borrowers, interest only, and loan qualification for investment properties using the subject property cash flow. Non-Agency loans submitted to Verus must meet the criteria of the current published Eligibility Guide as of the Verus loan lock date for review.

See current Loan/LTV Matrices located on the Verus website: www.verusmc.com.

Chapter 2: First Lien Eligibility

2.1 Program Matrices

See current Loan/LTV Matrices located on the Verus website: www.verusmc.com.

2.1.1 Eligible Products

The following loan products are eligible for purchase by Verus:

Product	Qualifying Rate	Index	Total Term	I/O Term	Amort Term	Caps
5/6 ARM	Higher of Fully indexed or Note Rate	30-day avg SOFR	360	NA	360	2/1/5
5/6 ARM I/O	Higher of Fully indexed or Note Rate	30-day avg SOFR	360	120	240	2/1/5
5/6 ARM I/O	Higher of Fully indexed or Note Rate	30-day avg SOFR	480	120	360	2/1/5
7/6 ARM	Higher of Fully indexed or Note Rate	30-day avg SOFR	360	NA	360	5/1/5
7/6 ARM I/O	Higher of Fully indexed or Note Rate	30-day avg SOFR	360	120	240	5/1/5
7/6 ARM I/O	Higher of Fully indexed or Note Rate	30-day avg SOFR	480	120	360	5/1/5
10/6 ARM	Higher of Fully indexed or Note Rate	30-day avg SOFR	360	NA	360	5/1/5
10/6 ARM I/O	Higher of Fully indexed or Note Rate	30-day avg SOFR	360	120	240	5/1/5
10/6 ARM I/O	Higher of Fully indexed or Note Rate	30-day avg SOFR	480	120	360	5/1/5
15 YR FIXED	Note Rate	NA	180	NA	180	NA
30 YR FIXED	Note Rate	NA	360	NA	360	NA
30 YR FIXED I/O	Note Rate	NA	360	120	240	NA
40 YR FIXED	Note Rate	NA	480	NA	480	NA
40 YR FIXED I/O	Note Rate	NA	480	120	360	NA

Note: When Investor Solutions – DSCR documentation type is selected, all ARM products may use the Note rate for qualifying.

ARM Adjustment Criteria

Adjustment	Reset Period	Lookback Period	Margin
6-months	45-days	See Rate Sheet	Margin Floor

2.1.2 Interest Only

See current Loan/LTV Matrices located in the Verus website www.verusmc.com for program information.

• Standard/Alt Doc: Qualification based upon the remaining term (amortized) after expiration of the interest only period
• DSCR: Qualification based upon the interest only payment

2.1.3 Loan Amounts

See current Loan/LTV Matrices located in the Verus website www.verusmc.com for program information.

2.1.4 Minimum Credit Score

See current Loan/LTV Matrices located in the Verus website www.verusmc.com for program information.

2.1.5 Qualifying Payment

The qualifying payment is based upon the amortized principal and interest payment along with monthly real estate taxes, insurance, and association dues (if applicable).

For interest only loans, using standard or Alt documentation, this is the remaining term after expiration of the interest only period. DSCR loans can be qualified using the interest only payment (ITIA).

2.1.6 State Eligibility

See the Verus matrices for state eligibility restrictions and overlays.

2.1.6.1 New York - CEMA

Consolidation, Extension, and Modification Agreement (CEMA) may be utilized for refinance transactions secured by property located in the State of New York. Attorneys experienced in reviewing and preparing CEMA documentation should be utilized.

2.1.6.2 Texas Senate Bill 17

Verus will not purchase any Texas loans that are secured by real estate if the borrower is restricted under Texas Senate Bill 17 (SB 17). These restrictions apply to people connected to the following countries: China, Russia, Iran, and North Korea.

2.4 Borrower Eligibility

2.4.3 Foreign National

A foreign national is not a citizen, permanent resident, or non-permanent resident of the U.S. This program limits occupancy to investment property only.

• Foreign Nationals are eligible under the Foreign National DSCR matrix, see matrix for maximum loan amount, maximum LTV/CLTV, and minimum credit score requirements.
• Foreign Nationals are not eligible under Prime Ascent Plus, Prime Ascent, DSCR Plus, DSCR 1-4, DSCR 5-8 Unit/2-8 Mixed Use, Cross Collateral, Closed End Second, HELOC programs.

2.4.3.1 Residence Requirements

Borrower's primary residence must be in a foreign country. Borrowers with a primary residence in the U.S. are ineligible.

• Loan application must include the borrower's full legal name, phone number, address including flat, floor, unit or house number, street name, city, province/state, country along with a postal code.

2.4.3.2 Automatic Payment Authorization (ACH) Form and Borrower Contact Consent Form

• Automatic Payment Authorization (ACH) Form: Sellers are strongly encouraged to use the Verus Automatic Payment Authorization (ACH) Form at closing to establish automated payments for the borrower.
• Borrower Contact Consent Form: Required.

2.4.3.3 Documentation/Eligibility Requirements

The following are required as evidence the borrower is in the U.S. legally:

• Copy of the borrowers valid and unexpired passport (including photograph) and

  • Copy of the borrower's valid and unexpired visa (including photograph) OR an I-797 form with valid extension dates and I-94, or
  • Borrowers from countries participating in the State Department's Visa Waiver Program (VWP) are not required to provide a valid visa. Participating countries can be found at https://travel.state.gov/content/travel/en/us-visas/tourism-visit/visa-waiver-program.html The credit file should be documented with a current print-out of the participating countries, with the borrowers country of origin highlighted, or
  • Citizens of Canada traveling to the United States do not require a nonimmigrant visa.
  • If a foreign national is borrowing with a U.S. citizen, foreign national documentation requirements do not apply.

• Borrowers with an Individual Tax Identification Number (ITIN) are eligible so long as primary residence is not in the U.S. Proof of ITIN card or letter from IRS are not required to be documented.

• OFAC SDN screening: See Section 2.6.3.2.1 Individuals for criteria.

• OFAC Sanctioned Countries: Foreign national borrowers/guarantors from OFAC sanctioned countries are not eligible, which currently include the countries of Cuba, Iran, North Korea, Russia, Syria, Venezuela. The list is subject to change at any time based on updates to U.S. sanctions, laws, and regulations.

• Florida Purchases: Loans secured by property located in the state of Florida made to foreign principals, persons, and entities are to include one of the following Affidavits published by the Florida Land Title Association:

  • Conveyances to Foreign Entities – By Individual Buyer (All members signing a Personal Guaranty must sign the affidavit)
  • Conveyances to Foreign Entities – By Entity Buyer (All members signing a Personal Guaranty must sign the affidavit)

• Diplomatic Immunity: Individuals with Diplomatic immunity are not eligible, immunity status is listed on the reverse side of the U.S. issued ID card.

• Document Execution: Documents signed by Borrowers outside of the United States must be notarized by a U.S. embassy or consular official. If the U.S. embassy or consular official is unavailable, a notary is acceptable if the country where signing is taking place is part of the Hague Convention and the signed documents are accompanied by an Apostille.

• Power of Attorney: Not allowed.

2.4.3.4 Qualifying U.S. Credit for Foreign National Borrowers

• Restrictions when qualifying with U.S. credit: Minimum credit score: 680
• If foreign national borrowers have established U.S. credit: See Section 2.6.1 Credit Reports, Section 2.6.11 Credit Score, and Section 2.6.12 Tradelines.

2.4.3.5 Housing History and Credit Events

• Housing history must be documented for the subject property, if a refinance transaction, for the most recent 12 months.
• Housing history for the borrower's primary residence in a foreign country is not required to be documented.
• If the borrower has U.S. credit, housing history that is documented on the credit report for properties that are not the subject property must be included in housing history eligibility. Additional housing history is not required when non-subject property mortgages are not reported on the credit report.
• If the borrower has U.S. credit, credit events documented on the credit report for properties that are not the subject property must be included in credit event eligibility.
• For all real estate owned, housing history and credit events documented outside of the credit report must be reviewed for program eligibility.
• See Section 2.6.5.1 Mortgage Verification for subject property documentation requirements.
• If the borrower has U.S. credit, an updated mortgage history, defined as paid current as of the month prior to the application date, is only required for the subject property.
• For refinance transactions of the subject property, when the existing financing is a Paid In Kind (PIK) loan, a copy of the Note must be provided in the credit file to determine required payments. Notes allowing interest to accumulate during the term of the loan are eligible, however, all refinance transactions are treated as cash-out.

2.4.3.6 Property Income Analysis

• Debt Service Coverage Ratio (DSCR) Doc Type: Gross monthly rent from the subject property is used to determine the DSCR. See Section 2.9.3.1.1 Long-Term Rental Documentation, Section 2.9.3.1.2 Short-Term Rental Documentation, and 2.9.3.2 Debt Service Coverage Ratio (DSCR) for DSCR calculation methods.
• Foreign National DSCR matrix: See for additional eligibility requirements.

2.4.3.7 Assets

Acceptable asset documentation is required to be included in each loan file. The borrower must meet the minimum contribution amount per program requirements. Assets should be liquid or able to be liquidated without restriction by the borrower. The documentation requirement for all transactions is a single account statement covering a one (1) month period and dated within 120 days of the loan Note date.

• Assets may be held in a U.S. bank account or in a foreign account to meet funds to close and reserve requirements.
• See Section 2.7.2 Asset Documentation for eligible sources and types of assets.
• Large deposits are not required to be sourced.
• Gift funds are allowed after minimum 10% borrower contribution.

2.4.3.7.1 Assets Held in Foreign Accounts

One of the following options may be utilized when documenting funds to close:

• Transferred to a U.S. domiciled account in the borrower's name at least ten (10) days prior to closing unless funds are held in a foreign bank with U.S. branches insured by the FDIC; or
• Verified funds for closing to be wired directly to the closing agent prior to or as of the consummation date (Note date). Wire transfer to include bank name, accountholder name, and account number. Bank used as source of wire transfer must match the bank holding the assets verified in the loan file.

Documentation Requirements:

• Foreign assets must be verified in U.S. Dollar equivalency at the current exchange rate via either www.xe.com or the Wall Street Journal conversion table.
• Reserves may remain in a foreign bank account or may be documented in a U.S. bank account, see matrix for reserve requirements.

2.4.3.8 Restrictions

• Neither the borrower(s), the borrower's immediate family, nor borrower affiliated tenants shall at any time occupy the subject property. Borrower affiliated tenants are defined as any borrower or guarantor, any affiliate of the borrower/guarantor, any holder of a direct or indirect interest in Borrower or such affiliate, any officer, director, executive employee, or manager of the borrowing entity, and any family member (including spouse, siblings, ancestors, and lineal descendants) of any person or entity described in the preceding.
• Cash-out on an investment property where loan proceeds are used for consumer purposes is ineligible.
• Interest reserve accounts are not permitted.

2.4.7 Entity Vesting

2.4.7.2 Vesting for Business Purpose Loans (Investment Occupancy)

A Business Purpose Loan where the borrower is an entity is limited to the following structures: Limited Liability Company (LLC), Partnership, and Corporation.

The following requirements apply to all loans vested in an entity:

Program Eligibility:

• Loans vested in an entity are eligible under the following programs: Prime Ascent, DSCR Plus, DSCR 1-4, DSCR 5-8 Unit/2-8 Mixed Use, Foreign National DSCR, Closed End Second.
• Loans vested in an entity are ineligible under the following programs: Prime Ascent Plus, ITIN, Home Equity Line of Credit.

Additional Requirements:

• Purpose and activities are limited to ownership and management of real property for the vesting entity.
• Multi-level entity structures are allowed with a maximum of two layered entities, subject to entity documentation requirements met for all entities.
• Entity must be domiciled in a U.S. State.
• Entity is limited to a maximum of four (4) member(s) or manager(s).
• Personal guaranties must be provided by member(s)/manager(s) representing at least 25% cumulative ownership of the entity. The personal guaranty form is available on the Verus website: www.verusmc.com.
• A guarantor must have authority to execute loan documents on behalf of the entity.
• Each Entity member (applicant) providing a Personal Guaranty (full recourse) must complete a FNMA Form 1003 or similar credit application indicating clearly that such document is being provided in the capacity of guarantor. Only the debt appearing on the personal credit report of individual(s) providing a personal guaranty needs to be reflected on the FNMA Form 1003 loan application.
• No Correspondent Seller shall suggest or encourage the formation of an Entity for the purpose of obtaining a mortgage loan.

2.4.7.2.1 Guarantor(s) Documentation

• Loan Application: Completed for each guarantor (e.g., FNMA Form 1003 or other application) with section labelled "Title will be held in what Name(s)" completed with only the LLC name and signed as an individual.
• Credit report: From all guarantors completing an application.
• Disclosure Documents: Business purpose loan disclosures as applicable (e.g., GFE, TIL, LE, CD, ECOA) and any state or federally required settlement statement as applicable.
• Legal Documents: Note, Deed of Trust/Mortgage, and all applicable Riders must be executed by the guarantor in their capacity as authorized signer for the entity.
• Personal Guaranty: The guaranty must be full recourse, reference the Note and loan amount, with members/managers on the application signing as an individual. Personal guaranties from community property states (AK, AZ, ID, LA, NM, TX, WA, WI) must be accompanied with a Spousal Consent to Pledge.

2.4.7.2.2 Entity Documentation Requirements

Limited Liability Company (LLC):

• Entity articles of organization or partnership (or equivalent)
• Evidence of good standing for the state in which the entity was formed. Evidence of good standing not required for new entity (i.e., formed within 120 days of the Note date). For all other entities, a certificate of good standing is required dated within 120 days of the Note date.
• Entity documents authorizing the guarantor to execute loan documents on behalf of the entity (e.g., Operating Agreement, Certificate of Authorization). If not available, a Borrowing Certificate is required.
• Entity documents must include a list of members/managers (e.g., organization structure) and, if more than one member/manager, the ownership percentage must also be included.
• Employer Identification Number (EIN)/Tax Identification Number.

2.5 Loan Transaction Requirements

2.5.1.4 Delayed Financing

• Delayed purchase financing is eligible when a property was purchased by a borrower for cash less than 6 months from the subject transaction Note date.
• The transaction is considered a rate/term refinance for pricing and eligibility. Cash-in-hand limits do not apply except for Foreign Nationals. Foreign Nationals are subject to max cash-in-hand limits per the Foreign National matrix.
• The original purchase transaction was an arms-length transaction.
• The source of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).
• The maximum LTV/CLTV ratio for the transaction is based upon the lower of the current appraised value or the property's purchase price plus documented improvements.

2.5.3 Non-Arm's Length Transactions

Ineligible Programs: DSCR Plus, DSCR 1-4, DSCR 5-8 Unit/2-8 Mixed Use, Foreign National, Cross Collateral.

2.5.4 Interested Party Contributions (Seller Concessions)

Investment:

• Maximum contribution: 6%

2.5.5 Escrows – Impound Accounts

Business Purpose Loans:

• Escrow waivers are not allowed for the following programs:

  • DSCR Cross Collateral
  • Foreign National DSCR: Borrower without a U.S. credit score

• Escrow accounts for property taxes and hazard insurance may be waived subject to the following requirements:

  • LTV less than or equal to 80%
  • Minimum credit score of 720
  • Minimum 12-months of reserves
  • Escrow waiver is subject to an LLPA adjustment

• Flood insurance escrow account may be waived.

2.5.8 Loan Eligibility – Payoffs at Closing

• A signed and dated final ALTA Settlement Statement is required, inclusive of both buyer and seller fees.
• All liens paid at closing must be identified on the preliminary title report and supported by documentation that substantiates and validates the payoff. Exception: Payments to a city, municipality, state, or HOA do not require additional justification.
• All other payoffs listed on the final ALTA Settlement Statement must be supported by documentation that validates the payoff.
• All third-party payoffs must include a valid payoff statement and verification of disbursement.

2.6 Credit

2.6.1 Credit Reports

A credit report is required for each individual borrower, including any member of an entity providing a personal guaranty. 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.

The credit report used to evaluate a loan may not reflect a security freeze. If the borrower(s) unfreeze credit after the date of the original credit report, a new tri-merged report must be obtained to reflect current and updated information from all repositories.

2.6.2 Gap Credit/Undisclosed Debt

• A gap credit report or Undisclosed Debt Monitoring (UDM) report is required no more than 30-days prior to loan closing or any time after closing.
• Any new tradeline with a balance must be included in determining the DTI ratio.
• Business purpose DSCR transactions are excluded from this requirement.

2.6.3 Fraud Report and OFAC Search

2.6.3.1 Fraud Report

Data integrity is crucial to quality loan file delivery and mitigation of fraud risk. Fraud report is required from an automated fraud and data check vendor solution.

Requirements:

• Transaction participants must be included in the fraud report as follows: Individual borrower(s)/entity borrower(s)

2.6.3.2 OFAC Search

2.6.3.2.2 Foreign Countries

Borrower(s)/Guarantor(s) from OFAC sanctioned countries are not eligible. The Borrower(s)/Guarantor(s) are defined as individuals signing the loan application.

Requirements:

• Borrowers/Guarantors who are Foreign Nationals must be screened against the OFAC comprehensive sanctioned countries list. Search to be completed via the US Department of Treasury Office of Foreign Asset Control: http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx. Not applicable for Non-Permanent Resident Aliens and Permanent Resident Aliens.
• If the borrower is an entity, member(s)/manager(s) who are not Guarantors do not have to be screened against the OFAC comprehensive sanctioned countries list.

2.6.4 Credit Inquiries

Credit inquiries listed on the report within 90 days of the report date must be addressed by the borrower with a letter of explanation. If no credit was extended, borrower must state the purpose of the inquiry. If new credit was extended, borrowers must provide documentation on the current balance and payment. New payment terms are to be included in the DTI ratio. DSCR is excluded from addressing credit inquiries.

2.6.5 Housing History

• Housing history is required for all Real Estate Owned (REO) evidencing the payment activity for the most recent 12-months.
• For refinances, most recent 12-month housing payment history is required for all mortgages secured against the subject property.
• All payment history will be used for program eligibility.
• Housing payments must be paid current as of the month prior to the loan application date.
• Any REO listed on the application owned free & clear requires a Property Profile Report or similar document. Property taxes, all insurance, and homeowner's association (HOA) dues if applicable, are to be verified and included in DTI.
• Borrower(s) who sold a primary residence within the past six (6) months, currently residing rent-free, and purchasing a new primary residence are allowed. 12-month mortgage history is required on previous primary residence.
• Less than 12-month history or residing rent-free allowed with the following restrictions: DTI may not exceed 43%, LTV may not exceed 80%, and any available portion of a 12-month housing history must be paid as agreed.
• Borrowers who are currently renting a residence, a most recent 12-month rental history is required reflecting paid as agreed.
• If income is being used from a non-subject REO, a housing history is required.
• For DSCR transactions, see Section 2.9.2 DSCR Housing History.

2.6.5.1 Mortgage Verification

The Seller must review mortgage history documentation to determine the payment status of all mortgage accounts. Rolling late payments are not considered a single event. Each occurrence of contractual delinquency is considered individually for loan eligibility.

• Credit report must be reviewed to determine the payment status of all reported mortgage accounts for the previous 12-months.
• Mortgages not reporting on the credit report or mortgages with an incomplete 12-month history, provide any of the following to complete the borrower's payment history:
  • Credit supplement, or
  • Verification of Mortgage (VOM) completed by the lender/servicer, or
  • Loan payment history from the lender/servicer, or
  • Mortgage statements for the review period, or
  • Borrower's proof of payment

2.6.6 Debt Obligations

2.6.6.5 Revolving Debt

• Revolving debt is open-ended debt in which the principal balance may vary from month to month. The minimum required payment, as stated on the credit report or current account statement, should be used to calculate the debt-to-income ratio.
• Any non-mortgage account can be no more than 30 days delinquent at time of application, except for DSCR transactions. Any delinquent account must either be brought current or paid off at closing, except for DSCR transactions.

2.6.6.14 Consumer Credit Charge-Offs and Collections

• Individual collection and non-mortgage charge-off accounts equal to or greater than $250, and accounts that total more than $2,000, must be paid in full prior to or at closing. See below for exceptions: Medical collections may remain open.
• Collections and charge-offs that have expired under the state statute of limitations on debts may be excluded from the DTI calculation.
• For DSCR transactions, charge-offs and collections can be ignored unless title is impacted.

2.6.10 Forbearance, Modification, or Deferrals

Within 12-months of Note Date:

• Forbearance, loan modifications, or deferrals completed or reinstated within 12-months of the Note date of the subject transaction are not eligible under Prime Ascent Plus, ITIN, DSCR Plus, DSCR 1-4, DSCR 5-8 unit/2-8 mixed use, Foreign National, Cross Collateral.

2.6.11 Credit Score

Loan eligibility is based upon the representative credit score, also referred to as the decision credit score. A valid decision credit score requires at least one (1) borrower to have a minimum of two (2) credit scores.

• DSCR Documentation: Determine a decision credit score for each borrower/guarantor (lower of two or middle of three), use highest decision credit score amongst all borrowers/guarantors to determine loan eligibility.

2.6.12 Tradelines

2.6.12.1 Standard Tradelines

Investor Solutions DSCR: For each borrower who has three (3) credit scores, the minimum tradeline requirement is waived (all borrowers must be evaluated individually). Each borrower with less than three (3) credit scores must meet the minimum tradeline requirements outlined below.

Foreign National DSCR With U.S. Credit: For each borrower who has three (3) credit scores, the minimum tradeline requirement is waived (all borrowers must be evaluated individually). Each borrower with less than three (3) credit scores must meet the minimum tradeline requirements outlined below.

Minimum tradeline requirements:

• At least three (3) tradelines reporting for a minimum of 12-months, with activity in the last 12-months, or
• At least two (2) tradelines reporting for a minimum of 24-months, with activity in the last 12-months.

2.7 Assets

2.7.1 Asset Requirements

Acceptable asset documentation is required to be included in each loan file. The borrower must meet the minimum contribution amount per program requirements. Assets should be liquid or able to be liquidated without restriction by the borrower. The documentation requirement for all transactions is a single account statement covering a one (1) month period and dated within 120 days of the loan Note date.

Large deposits:

• If personal accounts are used for assets, large deposits defined as any single deposit that represents greater than 100% of the borrower's qualifying monthly income are to be documented for a purchase transaction.
• If business accounts are used for assets: Business account used for income requires large deposits greater than 100% of monthly business revenue to be documented for a purchase transaction. Business account not used for income does not require large deposits to be documented.
• Large deposits do not need to be sourced on Investor Solutions – DSCR loans.

2.7.2 Asset Documentation

The following may be used as asset documentation for down payment, closing costs, and reserves. See applicable Loan/LTV matrix for minimum reserve requirement.

• Account statements (e.g., checking, savings, share, or brokerage accounts) must include the name of financial institution, reflect borrower as the account holder, account number, statement date, time period covered, and available balance in U.S. dollar denomination. Assets held in foreign accounts must be translated to English and verified in US Dollar equivalency.
• Assets held in a Trust: Obtain written documentation of the value of the trust account and document the conditions under which the borrower has access to the funds.
• Accounts verified using a third party vendor participating in the Fannie Mae Day 1 Certainty® process.
• Verification of Deposit completed by the verifying financial institution (FNMA Form 1006).
• Borrowed funds secured by an asset are an acceptable source of funds for down payment, closing costs, and reserves. Assets that may be used include automobiles, artwork, collectibles, real estate, or financial assets. When qualifying the borrower, monthly payments on loans secured by non-financial assets must be included in the debt-to-income calculation for non-DSCR transactions.
• Stocks/bonds/mutual funds: 100% of the account(s) value may be considered for assets.
• Vested retirement account: 70% of the vested balance may be considered for assets.
• Business accounts: May be considered for assets. For Business Purpose Loans: Assets held in the name of the vested entity use 100% of the assets; assets not held in the name use the borrower's ownership percentage.
• Cash Value of Life Insurance: 100% of the cash surrender value less any loans may be considered for assets.

2.8 Income Documentation

2.8.12 Alt Doc - Asset Utilization

Asset Utilization may be used as the sole source of income for loan qualification or to supplement other income sources. When used to supplement other income sources, the minimum asset requirements under the qualification method is waived.

2.8.12.1 Restrictions

• See Verus Matrices for maximum LTV and minimum credit score
• See Verus Matrices for maximum DTI
• DTI limits: First time homebuyer (FTHB): 45%; Less than 12-month housing history: 43%
• Gift funds not eligible
• Assets from non-occupant co-borrowers not allowed

2.8.12.2 Asset Utilization Qualifying Method

Debt Ratio Calculation: Minimum Eligible Assets required is the lower of $1,000,000 or 150% of the loan balance. Qualifying income based upon Total Assets Eligible for Depletion, less down payment, less out of pocket closing costs, less required reserves, divided by 84.

Chapter 3: Debt Service Coverage Ratio (DSCR) Programs

2.9 Debt Service Coverage (Investment Property)

Debt Service Coverage Ratio transactions are available to experienced investors purchasing or refinancing investment properties for business purposes. The typical borrower is expected to have a history of managing income-producing rental properties or has a significant equity down payment in a purchase transaction.

The borrower is required to execute a Borrower Certification of Business Purpose and an Occupancy Certification.

2.9.1 Borrower/Guarantor Experience

2.9.1.1 Experienced Investor

• An experienced residential investor is a borrower/guarantor having a history of owning and managing non-owner occupied residential real estate for at least one (1) year in the last three (3) years. Ownership of commercial income producing property may also be used as evidence of investor experience.
• For files with more than one borrower/guarantor, only one borrower/guarantor must meet the definition.
• Ownership history can be documented for other REO with one of the following: Mortgage history on credit report, Property profile report, or Other Third party documentation (e.g., Fraud Report, Settlement Statement, Closing Disclosure).

2.9.1.2 First Time Investor

First Time Investor is a borrower/guarantor that is purchasing an investment property for the first time, meaning they have not previously owned a property intended for rental income, resale, or other investment purposes.

First Time Investors are ineligible for DSCR Plus, see DSCR matrices for requirements and restrictions.

Eligibility Requirements:

• First time homebuyer (FTHB) not allowed
• Minimum credit score: 700
• Minimum of 36-months seasoning from any credit event
• 1-Unit only
• DSCR > 1.00
• Must own a primary residence

2.9.2 DSCR Housing History

• Housing history must be documented for the borrower's primary residence and the subject property, if a refinance transaction, for the most recent 12-months.
• Housing history that is documented on the credit report for properties that are not the borrower's primary residence or the subject property must be included in housing history eligibility. Additional housing history is not required when non-primary residence and non-subject property mortgages are not reported on the credit report.
• Credit events documented on the credit report for properties that are not the borrower's primary residence or the subject property must be included in credit event eligibility.
• For all real estate owned, housing history and credit events documented outside of the credit report must be reviewed for program eligibility.
• See Section 2.6.5.1 Mortgage Verification for primary residence and subject property documentation requirements.
• An updated mortgage history, defined as paid current as of the month prior to the application date, is only required for the primary residence and subject property.
• Primary residence owned free & clear requires a Property Profile Report or similar document. Payment history evaluation for property taxes and insurance is not required.
• For refinance transactions of the subject property, when the existing financing is a Paid In Kind (PIK) loan, a copy of the Note must be provided in the credit file to determine required payments. Notes allowing interest to accumulate during the term of the loan are eligible, however, all refinance transactions are treated as cash-out.
• First time homebuyers (FTHB) living with a spouse are eligible subject to all of the following:
  • Spouse owns the primary residence
  • Documentation verifies the spouse is on title to the primary residence
  • Housing history is documented for the primary residence for the most recent 12-months, or evidence is provided verifying the primary residence is owned free & clear

2.9.3 1-4 Unit Residential Property

2.9.3.1 Property Income Analysis

Gross monthly rents are used to determine the DSCR. See the appropriate Long-Term or Short-Term requirements below for rental income documentation and DSCR calculation.

2.9.3.1.1 Long-Term Rental Documentation and DSCR Calculation

Purchase Transactions:

• Monthly Gross Rents are the monthly rents established on FNMA Form 1007 or 1025 reflecting long-term market rents.
• If the subject property is currently tenant occupied, the 1007 or 1025 must reflect the current monthly rent. Monthly gross rent is to be evaluated for each unit individually.
  • If using the lower of the actual lease amount or estimated market rent, nothing further is required.
  • If using a higher actual lease amount, evidence of 2-months of receipt is required, and the lease amount must be within 120% of the estimated market rent from the 1007 or 1025. If the actual rent exceeds the estimated market rent by more than 120%, the rents are capped at 120%.
  • If using a higher estimated market rent from 1007/1025, it must be within 120% of the lease amount. If the estimated market rent exceeds the lease amount by more than 120%, the estimated market rent is capped at 120%.
• A vacant or unleased property is allowed without LTV restriction.
• Units subject to rent control or housing subsidy must utilize current contractual rent to calculate DSCR.

Refinance Transactions:

• Required documentation:

  • Original appraisal report reflecting tenant-occupied
  • FNMA Form 1007 or 1025 reflecting long-term market rents
  • Executed lease agreement (Leases that have converted to month-to-month are allowed)
  • If lease agreement is not provided, see matrix for LTV/CLTV restrictions

• Vacant property as indicated on the appraisal is allowed subject to the following: See matrix for LTV/CLTV restrictions.

• Monthly Gross Rents are determined by using the actual lease amount or estimated market rent. Monthly gross rent is to be evaluated for each unit individually.

  • If using the lower of the actual lease amount or estimated market rent, nothing further is required.
  • If using a higher actual lease amount, evidence of 2-months of receipt is required, and the lease amount must be within 120% of the estimated market rent from the 1007 or 1025.
  • If using a higher estimated market rent from 1007/1025, it must be within 120% of the lease amount.

• Units subject to rent control or housing subsidy must utilize current contractual rent to calculate DSCR.

DSCR Calculation:

• Debt Service Coverage Ratio is the Monthly Gross Rents divided by the PITIA (or ITIA) of the subject property. See the Verus Eligibility Matrix for required Debt Service Coverage Ratios.
  • PITIA: Gross rents divided by PITIA = DSCR
  • ITIA: Gross rents divided by ITIA = DSCR

2.9.3.1.2 Short-Term Rental Documentation and DSCR Calculation

Short-term rentals are properties that are leased on a nightly, weekly, monthly, or seasonal basis. Short-term rental income may be used if the borrower/guarantor provides documentation verifying that local city or county ordinances are met, where required.

Short-term rental income is ineligible for DSCR Plus.

Purchase and Refinance Transactions:

• See matrix for LTV/CLTV overlays

• See matrix for Condo Hotel (Condotel) LTV/CLTV restrictions

• DSCR calculation:

  • Monthly gross rents based upon a 12-month average to account for seasonality required
  • Gross rents 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 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. If actual expense exceeds 20%, the actual expense factor should be used.
  • PITIA: (Gross Rents * .80) divided by PITIA = DSCR
  • ITIA: (Gross Rents * .80) divided by ITIA = DSCR

• When short-term rental income is documented using multiple sources, the lowest source of monthly income is to be utilized for calculating DSCR.

• Methods to determine gross monthly rental income:

  • Short-term rental (STR) analysis form or 1007/1025 may be used, must include: source of data used, comparable STR properties, daily rental rate and occupancy percentage, seasonality and vacancy factors, and must be completed by a licensed appraiser.
  • The most recent 12-month rental history statement from the Third party rental/management service (e.g., AirBNB, VRBO, Flipkey). The statement must identify the subject property/unit, rents collected, and all vendor management fees.
  • The most recent 12-month bank statements from the borrower evidencing short-term rental deposits.
  • AIRDNA (www.Airdna.co) Rentalizer/Property Earning Potential Report with specific requirements: Only allowed for purchase transaction; Gross rents equal the revenue projection; must have three (3) comparable properties; Market Score or Sub-Market Score must be 60 or greater.

2.9.3.2 Debt Service Coverage Ratio (DSCR) Calculation

Debt Service Coverage Ratio is the Monthly Gross Income divided by the PITIA (or ITIA for interest only loans) of the subject property. See the Verus Eligibility matrix for required Debt Service Coverage Ratios.

Real Estate Tax Calculation:

• For purchase and construction-related transactions, use a reasonable estimate of the real estate taxes based on the value of the land and the total of all new and existing improvements. State of California exception: Use 1.25% of the purchase price to determine the monthly tax payment.
• For refinance transactions, use the current tax assessment.

Example: Sample Debt Service Coverage Ratio Calculation

Component	Amount
Monthly PITIA	$650
Estimated Monthly Market Rent (FNMA Form 1007)	$850
Existing Lease Monthly Rent	Not Available
DSCR Calculation	Gross Rents ($850) ÷ PITIA ($650) = DSCR (1.30)

2.9.3.3 Restrictions

• Neither the borrower(s), the borrower's immediate family, nor borrower affiliated tenants shall at any time occupy the subject property. Borrower affiliated tenants are defined as any borrower or guarantor, any affiliate of the borrower/guarantor, any holder of a direct or indirect interest in Borrower or such affiliate, any officer, director, executive employee, or manager of the borrowing entity, and any family member (including spouse, siblings, ancestors, and lineal descendants).
• Cash-out on an investment property where loan proceeds are used for consumer purposes is ineligible.
• Gift funds permitted after a minimum 10% borrower contribution, documented per 2.7.2 Asset Documentation.
• Interest reserve accounts are not permitted.
• When the subject property is refinanced out of a cross collateral/blanket mortgage and into a single asset mortgage, the following are required: Copy of the Note for the cross collateral/blanket mortgage, Copy of the Deed of Trust or Mortgage, Copy of the payoff statement for the subject property, and transaction must be treated as cash-out when the borrower receives cash-out proceeds.

2.9.3.4 Borrower Application

• FNMA Form 1003 (URLA) or Business Purpose Loan Application to be provided.
• Borrower information section of the loan application should be completed.
• REO section at a minimum to include the borrower's primary residence and subject property if refinance.
• Borrower's contact information to be provided on the loan application.

2.9.4 5-8 Unit Residential and 2-8 Mixed Use Property

2.9.4.1 Property Income Analysis

• Minimum DSCR >= 1.00
• DSCR = Eligible monthly rents/PITIA (Loans with an interest only feature may use the ITIA payment)
• Leased: Use lower of Estimated market rent or lease agreement.
• Vacant Unit(s): Use 75% of market rents.
  • Max: 1 vacancy on 2-3 Unit properties, 2 vacancies on 4+ Units
  • Vacant residential units must be actively marketed for rent. Provide screenshot of listing or other documentation.
  • Vacant commercial space not allowed.
• Reduce qualifying rents by any management fee reflected on appraisal report.
• Copies of any existing leases must be provided (Purchase and Refinance transactions). If the lease has been converted to month-to-month, then provide the most recent two (2) months proof of receipt.
• Income from commercial space must not exceed 49.99% of the total property income.
• Short-term rental use/income not eligible.

2.9.4.2 Borrower/Guarantor Experience

• Experienced Investors only, borrower must have a history of owning and managing commercial or non-owner occupied residential real estate for at least 1 year in the last 3 years.
• First time investors and first time homebuyers (FTHB) are not eligible.

2.9.4.3 Eligible Property

Residential 5-8 Unit:

• Residential unit(s) not permitted to be occupied by the borrower or the borrower's immediate family.
• Residential Unleased Units: Maximum 1-unit on 2-3 unit property; Maximum 2-units on 4+ unit property
• Maximum 2-acres

Mixed Use 2-8 Unit:

• Mixed use property consists of residential and commercial units. The number of commercial units is limited by the total number of units in the building:
  • 2-3 Total Units: Max 1 commercial Unit
  • 4-5 Total Units: Max 2 commercial Units
  • 6-8 Total Units: Max 3 commercial Units
• Vacant commercial space not allowed
• Commercial space must not exceed 49.99% of the total building area
• Commercial unit(s) may be occupied by the borrower's business
• Commercial usage limited to Retail/Office/Restaurant
• Residential Unleased Units in a Mixed Use Building:
  • 2-3 Total Units: Maximum 1 unleased residential unit
  • 4+ Total Units: Maximum 2 unleased residential units
  • Residential unit(s) not permitted to be occupied by the borrower or the borrower's immediate family
  • Maximum 2-acres

2.9.4.4 Property Condition

• No fair or poor ratings
• No environmental issues (Storage or use of hazardous material i.e., dry cleaner, laundromat, chemical storage, fuel station, auto body repair)
• No health or safety issues (As noted by appraiser, i.e., broken windows, stairs)
• No excessive deferred maintenance that could become a health or safety issue for tenants
• No structural deferred maintenance (i.e., Foundation, roof, electrical, plumbing)

2.9.4.5 Restrictions

• Neither the borrower(s), the borrower's immediate family, nor borrower affiliated tenants shall at any time occupy the subject property. Borrower affiliated tenants are defined as any borrower or guarantor, any affiliate of the borrower/guarantor, any holder of a direct or indirect interest in Borrower or such affiliate, any officer, director, executive employee, or manager of the borrowing entity, and any family member (including spouse, siblings, ancestors, and lineal descendants).
• Cash-out on an investment property where loan proceeds are used for consumer purposes is ineligible.
• Gift funds are ineligible.
• Interest reserve accounts are not allowed.

2.9.4.6 Prepayment Penalty

Eligible prepayment penalties are limited to either a fixed percentage or declining percentage style, see matrix for requirements.

2.9.5 Cross Collateral

A cross collateral loan, also referred to as a portfolio loan or blanket mortgage, is a single mortgage that uses two or more properties as collateral. While the properties are tied together under one loan, individual properties may be sold without requiring full repayment of the entire mortgage.

Unlike traditional mortgages, which typically include a due-on-sale clause requiring full repayment if the secured property is sold, a cross collateral loan includes a partial release clause. This allows the sale of properties within the portfolio, with a corresponding partial repayment of the loan balance.

2.9.5.1 Cross Collateral Requirements

• Cross collateral loans are eligible under the Cross Collateral DSCR matrix, see matrix for maximum loan amount, maximum LTV/CLTV, minimum credit score requirements, and other requirements.
• DSCR: Loan DSCR and Property DSCR are required, see 2.9.5.3 Debt Service Coverage Ratio for calculation requirements.
• Mixed transactions (i.e., Purchase, Cash-out) are permitted but eligibility/pricing is based upon most conservative transaction type.
• Transaction must be treated as cash-out when the aggregate total of the new loan exceeds the payoff amount for the properties being refinanced into a new cross collateral/blanket mortgage, provide the following:
  • Copy of the Note for the cross collateral/blanket mortgage to verify release terms
  • Copy of the Deed of Trust or Mortgage evidencing the encumbered properties
  • Copy of the payoff statement for the subject property to verify payoff terms
  • Transaction must be treated as cash-out when the borrower receives cash-out proceeds
• Partial Release: 120% of the allocated balance required to be paid to obtain a partial release.
• Other Requirements:
  • Seller to complete cross collateral workbook and upload to Verus portal
  • Closing Documentation: The Verus Business Purpose documents or a similar commercial style closing documents must be utilized
  • MERS Assignment: Cross Collateral loans cannot be originated or assigned to MERS

2.9.5.2 Borrower/Guarantor Experience

• Experienced Investors only, borrower must have a history of owning and managing commercial or non-owner occupied residential real estate for at least 1 year in the last 3 years.
• First time investors and first time homebuyers (FTHB) are not eligible.

2.9.5.3 Debt Service Coverage Ratio (DSCR) – Calculation Requirements

Loan DSCR and Property DSCR calculations are required for eligibility.

Loan DSCR:

• Captures the debt service coverage ratio at the loan level for the total gross rent and total loan amount for all properties combined.
• Minimum loan DSCR is 1.00
• Loan DSCR calculation: Total gross rental income for all properties / Total loan amount PITIA (or ITIA)

Property DSCR:

• Captures the debt service coverage ratio at the property level for each individual property.
• Minimum DSCR for each property is .75
• Property DSCR calculation: Gross rental income per property / Allocated loan amount PITIA (or ITIA) per property

Real Estate Tax Calculation:

• For purchase and construction-related transactions, use a reasonable estimate of the real estate taxes based on the value of the land and the total of all new and existing improvements. State of California exception: Use 1.25% of the purchase price.
• For refinance transactions, use the current tax assessment.

2.9.5.4 Property Income Analysis

• Gross monthly rent is used to determine the DSCR.
• Long-Term Rental: See Section 2.9.3.1.1 Long-Term Rental Documentation for documentation requirements.
• Short-Term Rental:
  • See Section 2.9.3.1.2 Short-Term Rental Documentation for documentation requirements.
  • Monthly gross rents based upon a 12-month average to account for seasonality required.
  • Gross rents reduced by 20% to reflect extraordinary costs (i.e., advertising, furnishings, cleaning) associated with operating short-term rental property. If actual expenses are less than 20%, a minimum 20% expense factor is required. If actual expense exceeds 20%, use actual expense.
• Vacant Property:
  • 10% LTV reduction is to be applied when 25% or more of the properties in the portfolio are vacant.
  • Property Level Requirements for 2-4 Unit: Property is considered vacant when 2 or more units are vacant. Use 75% of market rent for the vacant unit(s).
  • Vacant properties must be in lease-ready condition and cannot be undergoing renovations.

2.9.5.5 Appraisal Requirements 1-4 Unit Residential

• A Full Interior/Exterior appraisal report is required for each property, see Section 2.10.1.1 Appraisal Requirements 1-4 Unit Residential for complete criteria.
• An Appraisal Review product is required for each property, see Section 2.10.1.3.1 Appraisal Review Products 1-4 Unit Residential for complete criteria.

2.9.5.6 Property Value

• Minimum value: $100,000 per property, based on the lesser of the purchase price or appraised value.
• Maximum value:
  • Maximum $1.5MM for 1-unit property
  • Maximum $3.0MM for 2-unit property
  • Maximum $4.5MM for 3-unit property
  • Maximum $6.0MM for 4-unit property

2.9.5.7 Restrictions

• Neither the borrower(s), the borrower's immediate family, nor borrower affiliated tenants shall at any time occupy the subject property. Borrower affiliated tenants are defined as any borrower or guarantor, any affiliate of the borrower/guarantor, any holder of a direct or indirect interest in Borrower or such affiliate, any officer, director, executive employee, or manager of the borrowing entity, and any family member (including spouse, siblings, ancestors, and lineal descendants).
• Cash-out on an investment property where loan proceeds are used for consumer purposes is ineligible.
• Gift funds are ineligible.
• Interest reserve accounts are not allowed.
• Escrow waivers are not allowed.
• Blanket Insurance Policy: An insurance policy that covers multiple properties is acceptable when the borrower is the named insured and the subject properties are explicitly identified with separate coverage for each property.

2.9.5.8 Prepayment Penalty

Prepayment penalty is assessed when:

• The loan prepays in full during the prepay period; or
• Partial release payment is made during the prepay period. The prepay penalty amount is based upon the release price.

Eligible prepayment penalties are limited to either a fixed percentage or declining percentage style, see matrix for requirements.

2.9.6 Assignment of Leases and Rents

Investor occupancy loans require an assignment of leases and rents to be signed by the borrower. The following forms or similar forms may be used:

• 1-4 Family Rider (FNMA Form 3170) for 1-4 Unit, or
• Assignment of Leases and Rents Rider for 1-4 Unit, 5-8 Unit, or 2-8 Mixed Use