Collateralized Loans are an acceptable source for the Borrower’s Minimum Required Investment (MRI) to obtain FHA-insured financing.
A Collateralized Loan is a loan that is fully secured by a financial asset of the Borrower, such as deposit accounts, certificates of deposit, investment accounts, or real property. These assets may include stocks, bonds, and real estate other than the property being purchased.
Loans secured against deposited funds, where repayment may be obtained through extinguishing the asset, do not require consideration of repayment for qualifying purposes. The Mortgagee must reduce the amount of the corresponding asset by the amount of the collateralized loan.
Only an independent third party may provide the borrowed funds for collateralized loans. The seller, real estate agent or broker, lender, or other Interested Party may not provide such funds.
Unsecured loans such as, cash advances on credit cards and borrowing against Personal Property are not acceptable sources for the Borrower’s Minimum Required Investment (MRI). Personal Property refers to tangible property, other than Real Property, such as cars, recreational vehicles, stamps, coins or other collectibles household goods and furniture.
The Mortgagee must verify and document the existence of the Borrower’s assets used to collateralize the loan, the promissory Note securing the asset, and the loan proceeds.
Any loan of the Borrower’s Minimum Required Investment (MRI) must also comply with the additional requirements set forth in Source Requirements for the Borrower’s MRI (see Handbook 4000.1 II.A.4.d.ii or 4000.1:II.A.5.c.ii).
For additional information see Handbook 4000.1 II.A.4.d.iii(K) or II.A.5.c.iii(K) and II.A.4.d.iii(N) or II.A.5.c.iii(N) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh