Servicing of Loans

You should expect to receive a “Goodbye Letter” (Notice of Transfer of Servicing) shortly after closing, and you must read it carefully. This is not a scam; it is a mandatory legal notice sent at least 15 days before your loan servicing is transferred to a new company. It tells you when your current lender stops accepting payments and when the new servicer (like CBC Mortgage Agency for the first lien) begins accepting them. Ignoring this letter is a major “don’t,” as sending payments to the wrong entity can result in late fees and credit reporting issues.

Do ensure that any funds you bring to the closing table are properly sourced. Lenders cannot accept “mattress money” or large, unexplained cash deposits. If you are using gift funds from a relative to cover closing costs, you must provide a signed gift letter and a paper trail showing the transfer of funds. If you are receiving seller credits, ensure they do not exceed the 6% maximum allowed for interested party contributions. All funds for the Minimum Required Investment (MRI) that are not covered by the Chenoa Fund assistance must be verified assets in your file.

If you have a forgivable second mortgage, you must strictly monitor your payment timeliness. The “do” here is to make 36 consecutive on-time payments on your first mortgage. “On-time” means the payment is not 30 days or more delinquent. If you make a late payment, the 36-month counter resets to zero, and you must start a new streak of 36 payments to qualify for forgiveness. You should keep your own records of payment history (bank statements or cancelled checks) to facilitate the forgiveness request once you hit the 36-month mark.

You should be aware that refinancing is generally a “don’t” for the first 36 months if you want to keep your down payment assistance. The program has strict subordination policies: for repayable loans, subordination is typically not allowed during the first three years. For forgivable loans, refinancing the first mortgage usually triggers a “clawback,” meaning the forgiveness terms are voided and you must repay the full amount of the assistance immediately. If you plan to refinance early to lower your rate, you must be prepared to pay off the second mortgage in full at that time.

You must be vigilant about where you send your first payment. Because you have two loans (the FHA first mortgage and the Chenoa Fund second mortgage), you may have two different servicers. Do not assume one check covers both or that both go to the same address. You will receive a “First Payment Letter” at closing detailing the specific address for each loan. For repayable second mortgages, payments typically go to Midwest Loan Services. Missing the first payment (Early Payment Default) is a serious “don’t” that can trigger repurchase demands and jeopardize your standing in the program.

A critical “do” for the Chenoa Fund program is occupying the property as your primary residence. You must intend to move into the home within 60 days of closing. The program strictly prohibits using these funds for investment properties, vacation homes, or “second homes.” If you are purchasing a 2-unit property, you must live in one of the units. Failure to occupy the property can be considered mortgage fraud and violates the terms of the deed of trust. You must continue to occupy the property to maintain the forgivable status of certain down payment assistance products.

You should strictly avoid taking on new debt or allowing new credit inquiries just before closing. Lenders often perform a “soft pull” credit check within 10 days of closing to ensure no new debts have been incurred. New monthly obligations, such as payments for a new car or furniture, can negatively impact your Debt-to-Income (DTI) ratio. If your DTI increases beyond the limit approved by the Automated Underwriting System (AUS), your loan could be denied at the last minute. Maintain the exact financial profile you had during application until the keys are in your hand.

It is a major “don’t” to change your employment status immediately before closing. Lenders are required to perform a verbal verification of employment (VVOE) within 10 calendar days of the Note date. If you are self-employed, the lender must verify your business is open and operating within 30 days of the Note date. If you quit, change jobs, or close your business during this window, your income verification may fail, jeopardizing your loan approval. You should maintain stable employment and income through the funding date to ensure you remain eligible for the program and the specific DTI ratios approved.

While the Chenoa Fund program embraces technology and allows hybrid closings, there is a strict “don’t” regarding specific collateral documents. You cannot use electronic signatures for the Promissory Note or the Mortgage (or Deed of Trust). These specific documents require original “wet” signatures in blue or black ink. If you sign these electronically, they will be rejected, and you will be required to re-sign them physically, which can delay the funding of your loan. However, most other initial application documents and disclosures may be signed electronically, provided they comply with the ESIGN Act standards.

Yes, for many borrowers, completing homeownership education is a critical “do” before you can close on your home. If your credit score falls between 600 and 639, this education is mandatory. For borrowers with scores of 600–619, you must take a specific course through Money Management International (MMI), which is paid for by CBC Mortgage Agency. If your score is 620–639, you may use any HUD-approved counseling course, including Framework or Homeview. You must complete this course and provide the certificate to your lender prior to closing. Failure to do so will delay your ability to sign final loan documents.