Freddie Mac Single-Family Seller/Servicer Guide 4504.7 — Borrower contribution, reserves and sources of funds for HeritageOne® Mortgages

This section contains requirements related to: ■ Borrower contribution ■ Reserves ■ Sources of funds ■ Funds provided by a Native American Tribe

(a) Borrower contribution For purchase transaction Mortgages, the minimum Borrower contribution required to be paid from Borrower personal funds (as described in Section 4504.7(c)(i)), based on the loan-tovalue (LTV)/total LTV (TLTV) ratios for the Mortgage, is: Minimum Borrower contribution for HeritageOne® Mortgages Property/Mortgage type LTV/TLTV ratios ≤ 80% LTV/TLTV ratios > 80% and ≤ 95% LTV/TLTV ratios > 95% 1-unit properties None None None 2- to 4-unit properties None 3% of value 3% of value Manufactured Homes None None None (a) Reserves Reserves are not required for: ■ Accept Mortgages secured by 1-unit properties, unless Loan Product Advisor® determines reserves are necessary to offset other underwriting factors ■ Manually Underwritten Mortgages secured by 1-unit properties For Mortgages secured by 2- to 4-unit properties, the Seller must verify all reserves required by Loan Product Advisor, as stated on the Last Feedback Certificate.

(b) Sources of funds The following sources of funds may be used to qualify the Borrower if the requirements in Section 4504.7(c)(i), 4504.7(c)(ii) or 4504.7(c)(iii), as applicable, are met: Sources of funds for HeritageOne Mortgages Use Permitted source(s) of funds Minimum Borrower contribution Borrower personal funds Down Payment ■ Borrower personal funds ■ Other eligible sources of funds Paying down the principal balance of the Mortgage being refinanced for a “no cash-out” refinance Mortgage ■ Borrower personal funds ■ Other eligible sources of funds Sources of funds for HeritageOne Mortgages Use Permitted source(s) of funds Closing Costs ■ Borrower personal funds ■ Other eligible sources of funds ■ Flexible sources of funds Reserves ■ Borrower personal funds ■ Other eligible sources of funds (i) Borrower personal funds Borrower personal funds include: ■ Borrower personal funds described in Section 5501.3 ■ Cash on hand, if the requirements in Section 4501.7(c)(i)(2) are met (ii) Other eligible sources of funds Other eligible sources of funds include: ■ Other eligible sources of funds described in Section 5501.4 ■ Gift or grant funds provided by the Seller as the originating lender, if a contribution of at least 3% of value is made from Borrower personal funds and/or other eligible sources of funds. The gift or grant may not be funded through the Mortgage transaction (i.e., through premium pricing). ■ Although Sections 4204.2(a)(i)(A) and 5501.4 provide otherwise, funds provided by an Agency affiliated with, under contract to or financed (directly or indirectly) by the Seller as the originating lender, if: ❑ The source of funds (e.g., a gift or grant, an unsecured loan, an Affordable Second®) is an eligible source of funds that meets all other Guide requirements; and ❑ The source of funds is not funded through the Mortgage transaction ■ For purchase transaction Mortgages, funds from an unsecured loan. Funds from an unsecured loan must be from one of the following sources: ❑ A Community Savings System (funds exceeding the Borrower’s contribution to the Community Savings System) ❑ Except as stated in Section 4504.7(c)(ii) or 4504.7(d), an Agency that is not: ■ The Seller or participated in any aspect of the Mortgage origination process ■ Affiliated with, under contract to, or financed (directly or indirectly) by the Seller or any party that participated in the Mortgage origination process. For these purposes, “affiliated with” means that the Agency and the Seller or other party are related to each other as a consequence of one entity directly or indirectly controlling the other party, being controlled by the other party or being under common control with that party. The unsecured loan must meet the following requirements: ❑ Must not contain provisions that allow or could result in negative amortization ❑ Must have a maturity date that: ■ Does not exceed the maturity date of the Mortgage ■ Is at least five years after the Note Date of the Mortgage, unless the unsecured loan is fully amortizing ❑ Must have an interest rate that is no greater than the Note Rate on the Mortgage ❑ Must not be a cash advance from a credit card or unsecured line of credit ❑ Must have its source, terms and conditions documented on Form 65, Uniform Residential Loan Application If the monthly payment begins on or after the 61st monthly payment under the First Lien Mortgage or if repayment of the loan is due only upon sale or default, the monthly payment amount may be excluded from the monthly debt payment-toincome ratio; otherwise, the required monthly payments must be included in calculating the monthly debt payment-to-income ratio. ■ Sweat equity as a credit towards the Down Payment and/or Closing Costs, if the sweat equity requirements in Section 4501.7(c)(ii)(4) are met, except that the maximum LTV/TLTV ratios in this chapter and the special delivery requirements in Section 6302.50 apply ■ Funds from an Affordable Second or other secondary financing arrangement (iii) Flexible sources of funds Flexible sources of funds include: ■ Financing concessions described in Section 5501.6(b) that meet the applicable interested party contribution requirements in Section 5501.6 ■ Lender credits described in Section 5501.7(a) that are documented on the Settlement/Closing Disclosure Statement ■ Unsecured loan proceeds from the Seller as the originating lender meeting the following requirements: ■ Must not contain provisions that allow or could result in negative amortization ■ Must have a maturity date that: ❑ Does not exceed the maturity date of the Mortgage ❑ Is at least five years after the Note Date of the Mortgage, unless the unsecured loan is fully amortizing ■ Must have an interest rate that is no greater than the Note Rate on the Mortgage ■ Must not be a cash advance from a credit card or unsecured line of credit ■ Must have its source, terms and conditions documented on Form 65 If the monthly payments begin on or after the 61st monthly payment under the First Lien Mortgage or if repayment of the loan is due only upon sale or default, the monthly payment amount may be excluded from the monthly debt payment-to-income ratio. Otherwise, the required monthly payments must be included in calculating the monthly debt payment-to-income ratio.

(c) Funds provided by a Native American Tribe For funds provided by a Native American Tribe: ■ The Native American Tribe providing the funds must be the Eligible Native American Tribe within whose Tribal Area the Mortgaged Premises is located; or ■ The Borrower must be an enrolled member of the Native American Tribe providing the funds