FHA Single Family Housing Policy Handbook 4000.1, Part II — e. Closing and Disbursement (05/08/2025)

FHA Single Family Housing Policy Handbook 4000.1, Part II — e. Closing and Disbursement (05/08/2025)

e. Closing and Disbursement (05/08/2025) i. Borrower Identification The Lender must include a statement that it has verified the Borrower’s identity using valid government-issued photo identification at or prior to closing the Loan, or the Lender may choose to include a copy of such photo identification as documentation. ii. Lender Closing Requirements Before disbursing the proceeds of a Title I Property Improvement Loan, the Lender must ensure, at a minimum, that the following conditions have been met: • the Borrower is eligible for a Title I Property Improvement Loan; • the interest of the Borrower in the Property is valid, through such title or other evidence as are generally acceptable to prudent lending institutions and leading attorneys in the community where the Property is located; • the proposed use of the loan proceeds is eligible and adequately documented; • the case binder contains a valid Note and security instrument (if required); and • all other required documents relating to the loan transaction. (A) Required Documents for Case Binder The Lender must confirm that the case binder is complete and that the following documents, if applicable to the Loan, have been obtained for retention in the case binder. The required documents are: • URLA (Fannie Mae Form 1003/Freddie Mac Form 65) and form HUD-92900- TI; • proof of identity and SSN verification; • Notice to Borrower of HUD’s Role in Title I Loans; • work contracts, estimates, and/or invoices describing the improvements; • evidence of the Borrower’s interest in the Property; • Settlement Statement, or similar legal document, reflecting Disbursement(s), itemized loan fees and charges; • Title I Loan summary/underwriter’s worksheet detailing the amount financed, calculation of qualifying ratio, and any compensating factors used; • Note or assigned retail installment contract; • security instrument (if applicable); • Truth-in-Lending Disclosure (if applicable); • credit report(s); • loan verification if not reflected on credit report; • non-traditional references, if applicable; • explanation for any adverse credit information and inquiries within recent 90 Days; • asset verification including a worksheet or other document with Initial Payment itemization; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 980 Last Revised: 11/26/2025 • gift letter (if applicable); • verification of employment; • income verification; • clearance in HUD’s LDP List, and HUD’s CAIVRS; • form HUD-56002, Completion Certificate for Property Improvements; • inspection report for improvements (required for loan amounts greater than $7500); • IRS Form 4506 or 4506-C executed by the Borrower; • Life of Loan Flood Certification; • payment history on subject Loan if Loan Payments have begun; and • Lender processing and servicing notes. (B) Title Insurance At its option, the Lender may obtain title insurance for Property treated as real estate. (C) Disbursement Date Disbursement Date refers to the date proceeds of the Loan are made available to the Borrower. (D) Signatures The Lender must ensure that the loan Note, and all closing documents are signed by all required parties in accordance with the Borrower Eligibility. (E) Use of Power of Attorney at Closing A Borrower may designate an attorney-in-fact to use a POA to sign documents on their behalf at closing, including the Disclosure Notice to Borrower. Unless required by applicable state law, as stated below, or they are the Borrower’s Family Member, none of the following persons connected to the transaction may sign the security instrument or Note as the attorney-in-fact under a POA: • the Lender, or any employee or Affiliate; • the loan originator, or employer or employee; • the title insurance company providing the title insurance policy, the title agent closing the Loan, or any of their Affiliates; or • any real estate agent or any person affiliated with such real estate agent. Exception Closing documents may be signed by an attorney-in-fact who is connected to the transaction if the POA expressly authorizes the attorney-in-fact to execute the required documents on behalf of a Borrower, only if the Borrower, to the satisfaction II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 981 Last Revised: 11/26/2025 of the attorney-in-fact in a recorded interactive session conducted via the Internet, has: • confirmed their identity; and • reaffirmed, after an opportunity to review the required loan documents, their agreement to the terms and conditions of the required loan documents evidencing such transaction and to the execution of such required Loan by such attorney-in-fact. The Lender must obtain a copy of the URLA (Fannie Mae Form 1003/Freddie Mac Form 65) and form HUD-92900-TI signed by the Borrower or POA in accordance with Signature Requirements for all Application Forms. (F) Electronic Signatures See Policy on Use of Electronic Signatures. (G) Disbursement of Loan Proceeds (1) Standard The Lender must verify that loan proceeds are disbursed in the proper amount. The Lender must disburse the loan proceeds: • solely to the Borrower; • jointly to the Borrower and the Dealer; or • jointly to the Borrower and other parties to the transaction. When the Property Improvement Loan is made by or on behalf of a state or local government agency or a nonprofit organization: • form HUD-56002 is not required; • the loan proceeds are held in an escrow account pending completion of the improvements; and • the loan proceeds may be disbursed to the contractor from the escrow account in stages with the written approval of the Borrower and based upon the percentage of work completed. (2) Required Documentation The Lender must obtain and include in the case binder the final disbursement document or other legal documentation detailing fees, charges, and Disbursement and to whom funds were disbursed. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 982 Last Revised: 11/26/2025 iii. Closing Documents (A) Note (1) Definition Note refers to any form of credit instrument commonly used in a jurisdiction to evidence the secured Loan. (2) Standard (a) Form The Lender must ensure that the Note complies with all applicable state and local requirements for creating a recordable and enforceable Loan, and an enforceable Note. HUD does not provide Note forms or prescribe a particular Note format. The Lender must ensure that the Note and all other documents evidencing the loan transaction are in compliance with applicable federal, state, and local laws. The Note must: • state the principal amount of the Loan and the annual rate of interest; • bear the signature of each Borrower and of any co-maker or Co-signer; and • be valid and enforceable against the Borrower and any co-maker or Co-signer. (b) Interest Rate The interest rate is negotiated between the Lender and the Borrower. The interest rate must be fixed for the full term of the Loan and must be stated in the Note or retail sales installment contract. Interest on the Loan must accrue from the date of the Loan, and be calculated on a simple interest basis. Adjustable Rate Mortgage products are not permitted for FHA Title I Property Improvement Loans. (c) Temporary Interest Rate Buydown Requirements Temporary interest rate buydowns are not permitted. (d) Signature The Borrower and any co-maker or Co-signer must execute the Note for the full amount of the loan obligation. Although the Borrower may sign the Note on an earlier date, the date of the Loan must be the date that the loan proceeds II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 983 Last Revised: 11/26/2025 are disbursed by the Loan. Such date must be entered on the Note when Disbursement occurs. (e) Payments on the Loan The Note must provide for equal installment payments due monthly. The Note may provide for the first and/or final payments to vary in amount but not to exceed 1.5 times the regular installment. Where the Borrower has an irregular flow of income the Note may be payable at quarterly or semi-annual intervals corresponding with the Borrower’s flow of income. The first scheduled Loan Payment must be due no later than two months from the date of the Loan. (f) Default Provision The Note must contain a provision for acceleration of maturity, at the option of the holder, upon a monetary Default by the Borrower. (g) Late Charges The Note may provide for a Late Charge unless specifically precluded by state law. The Late Charge may be imposed only for a payment which is in arrears for the greater of 15 Days or the number of Days required by applicable state law. Late Charges must be billed to the Borrower or reflected in the payment coupon. Evidence of Late Charges paid by the Borrower must be in the case binder if an insurance claim is made. (i) Amount of Late Charge The Late Charge must not exceed the lesser of 5 percent for each installment of P&I, up to a maximum of $10 per installment, or the maximum amount permitted by applicable state law. (ii) Method of Payment Payment of any Late Charge cannot be deducted from the monthly payment of P&I. Late payment fees must be calculated and shown as an additional charge to the Borrower. (iii)Daily Interest in Lieu of Late Charges In lieu of Late Charges, the Note may provide for interest to accrue on installments in arrears, continuing daily, based on the interest rate in the Note. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 984 Last Revised: 11/26/2025 (h) Prepayment Provision Borrowers cannot be charged a prepayment penalty on any FHA Title I Property Improvement Loan. Lenders may charge reasonable and customary charges for recording a release of a security interest in the Property if permitted by state law. (B) Security Instrument (1) Definition Security Instrument refers to any legal instrument that is commonly used in a jurisdiction in connection with a Loan secured by a Title I Property Improvement Loan. (2) Standard Title I Property Improvement Loans must be secured against the subject Property if required by Valid Lien Requirements. When lien security is required, the Loan must be secured by a recorded lien on the improved subject Property and evidenced by a Mortgage or deed of trust, as governed by state laws. A chattel mortgage, financing statement, Uniform Commercial Code (UCC)-1 filing, or similar lien against the property improvements only is not acceptable. (3) Required Documentation The lien must be evidenced by a Loan or Mortgage, executed by the Borrower and all other owners in Fee Simple. (4) Executing the Security Instrument The individual borrower name(s) must appear on the security instrument, property deed, and title. While an eligible Borrower need only have a “one-half” interest in the Property the Borrower plus all other owners or parties who have a legal Fee Simple interest in the Property must execute the security instrument in order to establish a valid and enforceable lien. If a Borrower is a lessee, the Borrower and all deeded owners of the Property must execute the Loan. If a Borrower is a land installment contract purchaser, the Borrower, all deeded owners, and all intervening contract sellers must execute the security instrument. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT E. Title I Insured Programs 2. Property Improvement Loan Program Handbook 4000.1 985 Last Revised: 11/26/2025 (5) Recording and Perfecting the Security The Lender must ensure that the legal description of the Property as recited in the Loan (or deed of trust) is accurate and that the Loan creates a valid and enforceable lien on the Real Property in the jurisdiction in which the Property is located. The Loan must be recorded and perfected in the manner specified by applicable state law in the state where the Property is located.

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