Credit, Income, DTI, Rental History, and Non-Occupant Borrowers

If you are currently living rent-free, you must ensure your loan application reflects a present housing expense of “$0.00” and provide a Letter of Explanation (LOE) stating that you live rent-free. If you are renting from a family member, the documentation requirements are more specific to ensure the expense is legitimate. You must provide a copy of the executed lease agreement and 12 months of canceled checks or bank statements evidencing the rental payments. This documentation helps verifying the housing history and ensures compliance with arm’s-length transaction guidelines.

For loans that receive an “Approve/Eligible” or “Accept” finding from the Automated Underwriting System (AUS), the Chenoa Fund program generally does not apply payment shock calculations. Payment shock is the percentage increase from a borrower’s current housing expense (rent) to the proposed new mortgage payment. Since manual underwriting is currently suspended, and AUS-approved loans are exempt from this specific calculation, borrowers are primarily evaluated based on their total Debt-to-Income (DTI) ratio and residual income rather than the specific increase in their monthly housing outlay.

As of October 16, 2023, manual underwriting for FHA loans has been suspended under the Chenoa Fund program guidelines. This means that to be eligible for purchase, all loans must receive an “Approve/Eligible” or “Accept” finding from an Automated Underwriting System (AUS). Previously, manual underwriting was an option for borrowers with “Refer” findings who had strong compensating factors, but currently, the program relies strictly on the automated approval findings for eligibility. Borrowers must meet the credit score and profile requirements necessary to secure an AUS approval.

FHA guidelines, which the Chenoa Fund follows, require a complete two-year history of employment to be documented on the loan application. If there are any gaps in your employment within that two-year window, a Letter of Explanation (LOE) may be required to clarify the circumstances surrounding the gap. The two-year period is calculated backward from the date of the loan application. Borrowers should be prepared to provide dates and reasons for any interruptions in their work history to ensure the underwriter can verify the stability of their income.

For self-employed borrowers, the program places a high emphasis on verifying that the business is active close to the closing date. Specifically, the business must be verified as open and operating within 30 calendar days prior to the Note date. Acceptable verification can include evidence of current work such as executed contracts or signed invoices, current business receipts, or a lender certification confirming operation via a phone call. Additionally, two years of tax returns or transcripts are typically required to calculate qualifying income properly.

Yes, the Chenoa Fund allows for the use of non-occupant co-borrowers, provided they are family members or relatives as defined by FHA guidelines. This can be a useful strategy for borrowers who need additional income on the application to meet qualification standards. When a non-occupant co-borrower is included, their income is used for Debt-to-Income (DTI) ratio calculations. However, for manufactured housing transactions, non-occupant co-borrowers are not permitted. Borrowers should consult their lender to ensure the specific family relationship meets FHA definitions.

A documented rental history is not strictly required for all borrowers to qualify for the Chenoa Fund. The absence of a rental history does not automatically disqualify an applicant. However, for first-time homebuyers, a documented rental payment history may be beneficial as it can assist in the Automated Underwriting System (AUS) evaluation process. If you do not have a rental history because you are living rent-free, you will typically need to provide a Letter of Explanation (LOE) to clarify your living situation and confirm that you have no present housing expense.

For borrowers with a credit score of 600 and above, the Debt-to-Income (DTI) ratio requirements are primarily determined by the findings of the Automated Underwriting System (AUS), such as Desktop Underwriter (DU) or Loan Prospector (LP). If the AUS provides an “Approve/Eligible” or “Accept” finding, the program generally accepts the DTI ratio approved by the system without imposing a strict numerical cap. This allows for flexibility based on the borrower’s overall credit profile and compensating factors, provided the loan meets all other FHA and program requirements.

Currently, for the standard FHA-paired down payment assistance products, there are no borrower income limitations. This is a significant advantage for moderate-to-higher income borrowers living in high-cost areas who may have the income to support a mortgage but lack the liquid savings for a down payment. While Area Median Income (AMI) calculations are standard in many housing programs, the Chenoa Fund’s current guidelines state that AMI calculation is not required at this time for these specific offerings. However, borrowers applying for the separate USDA loan program must still adhere to strict USDA income caps.

To qualify for the Chenoa Fund down payment assistance program, the minimum credit score requirement is 600. It is important to note that the program strictly requires that all borrowers on the transaction must have at least one valid credit score; borrowers with non-traditional credit only are generally not eligible for the FHA-paired down payment assistance. When determining eligibility, lenders follow standard industry practices by using the lower of two scores or the middle of three scores for the qualifying borrower. While 600 is the baseline, specific product variations or lender-specific overlays might apply depending on the loan profile.