• In order to be eligible for a Rural Development guaranteed loan, the Borrowers’ adjustable household income cannot exceed the maximum allowable income limit set forth in Rural Development Instruction 1980-D §1980.348, Exhibit C (use moderate-income limits). (http://eligibility.sc.egov.usda.gov)
• The borrower must not have sufficient assets to obtain other traditional conventional financing. The borrower may, however, qualify for an FHA or VA loan. In other words, applicants may have liquid assets and be eligible to participate in the GRH Program. Those assets, however, should not be sufficient to meet the down payment and closing cost requirements associated with a conventional uninsured mortgage product (LTV ≤ 80%). This means applicants do have a choice of USDA-Guaranteed Rural Housing, FHA, VA, or a conventional mortgage product with private mortgage insurance.
The USDA Loan Guaranteed Rural Housing Purchase Program Features
• In order for a property to be eligible for a Rural Development guaranteed loan, the property must be located in a rural designated area as defined in Rural Development Instruction §1980.312. You may view eligible areas on USDA Rural Development’s web-site at:
• Property must be a nonfarm, non-income providing tract.
• According to Rural Development Instruction §1980.313 (e) “Generally, the value of the site must not exceed 30 percent of the total value of the property. When the value of the site is typical for the area, as evidenced by the appraisal, and the site cannot be subdivided into two or more sites, the 30 percent limitation may be exceeded.”
The maximum interest rate for the Rural Development Guaranteed Rural Housing Program is defined as the FNMA 90-day actual-actual yield requirements plus 60 basis points, rounded up to the nearest quarter percent.
Each day USDA Loan will publish the maximum Note Rate as defined by FNMA on its Rural Housing Rate Sheet. These rate sheets are only available to Licensed and approved mortgage brokers.
Note: For Guaranteed Rural Housing refinance transactions, the interest rate of the new loan must only be less than the interest rate of the existing loan.
GUARANTEED RURAL HOUSING PROGRAM
• Rural Development Guaranteed Rural Housing loans are typically underwritten to Rural Development Instruction §1980.345(d).
Additional specific requirements:
• The total debt ratio should include revolving debt regardless of when the debt will be retired. Installment loans will only be considered if the debt will be retired in more than six months. However, if the monthly payment on the debt is substantial, the payment will also be included in long term debt.
• If the borrower has co-signed a loan for another party, an acceptable 12-month history validating that the borrower is not making the payment must be provided in order to exclude the payment from the total debt.
• When a borrower has a delinquent student loan obligation, a satisfactory six-month repayment history must be provided.
• A 24-month history of residence is required on all files. Additionally, a 12-month verification of rent or mortgage with a payment rating is also required on all files when the primary wage earner has a credit score of less than 620. This may be done using a Request for Verification of Rent or Mortgage Account, or information contained on the credit report, or cancelled checks. All lates greater than 30 days must be documented with an explanation from the applicant.
NOTE: Applicants with credit scores of 640 or greater are not required to explain recent credit inquiries or to document adverse credit history except for those involving delinquent Federal debt or a previous Agency loan. Additionally, existing collection accounts may remain outstanding and rental verifications are not required for applicants with credit scores of 640 or greater.
Verification of funds is not required unless the borrower’s contribution is the greater than 2% of the purchase price. In those cases, the following are acceptable sources for verification of funds.
• Checking or Savings Verification of Deposit (FNMA Form 1006)
• Current balance must cover cash-to-close requirements.
• Average balance must be consistent with current balance. Any significant increase must be accompanied by written explanation and proof of source of deposits,
• Statements – To substantiate that a borrower has sufficient funds available for closing, the lender may accept the borrower’s original statement(s) for the most recent two (2) months to verify funds that the borrower has in a deposit institution. The borrower’s statements must identify clearly the depository institution, the account holder(s), the account number, the time period covered by the statement, all deposit and withdrawal transactions, and the ending account balance.
If the date of the borrower’s most recent statement is more than 45 days earlier than the date of the borrower’s application, the borrower must supply a supplemental statement – the lender may accept any -generated forms (such as deposit or withdrawal slips) that show a machine-printed account number, balance, and date.
• Cash-On-Hand – Cash-on-hand is typically not an acceptable source of funds for closing. However, it may be acceptable if the following can be documented:
• Analysis of discretionary income through a household budget supports the ability to accumulate the funds.
• Cash is a way of life for the borrower and can be documented with receipts where cash is used consistently to make household payments, such as rent/mortgage, utilities, etc.
• Gifts (or grants) – A borrower can use funds obtained as a gift (or grant) to satisfy part of the cash requirement for closing only if the donor is a relative or friend, or charitable organization, municipality, or nonprofit organization.
A gift must be evidenced by a letter that is signed by the donor. The letter must:
• specify the dollar amount of the gift and the date the funds were transferred;
• indicate the donor’s name, address, telephone number, and relationship to the borrower; and
• include the donor’s statement that no repayment is expected.
The lender must verify that funds have been transferred to the borrower’s account and show documentation of the transfer of the gift funds from the donor’s account; for example, by obtaining a copy of the donor’s withdrawal slip or canceled check and the borrower’s deposit slip, etc. When the funds are not transferred prior to settlement, the donor may give the closing agent a certified check for the amount of the gift. A copy of that check or a settlement statement showing receipt of that check will be sufficient documentation for the lender’s records provided the donor is listed as the remitter.
A gift (or grant) from a charitable organization, municipality, or nonprofit organization must be evidenced by either a copy of the letter awarding the gift or grant to the borrower or a copy of the legal agreement that specifies the terms and conditions of the gift or grant. This supporting document must include language indicating that no repayment of the gift or grant is expected and an indication of how the funds will be transferred (to the borrower, the lender, or the closing agent). The lender must include in the individual mortgage file evidence of the transfer of the funds – such as a copy of the donor’s canceled check or a settlement statement showing receipt of the check.
Note: All supporting gift documentation (other than the gift letter) is no longer required if the entire gift is going toward closing costs/prepaids (any amount), or being used to pay-off debt of $1,000 or less.
• Disposition of Personal Assets – Proceeds from the sale of personal property may be used towards closing costs. Documentation for funds obtained should include a bill of sale, statement verifying deposit of funds, and when applicable, a transfer of title.
• Borrowing of Funds on an Unsecured Basis – Borrowers that qualify may borrow funds on an unsecured basis to pay for their closing costs and prepaids. For example, a borrower could obtain an unsecured loan from a family member, or credit union, or even a credit card cash advance.
In order to qualify for this option, a borrower’s median credit score must be 660 or above.
When utilizing this option, Lenders must remember to include the unsecured debt in the total debt calculations, and should indicate on the “Source of Downpayment, Settlement Changes, and/or Subordinate Financing” Section of the FNMA 1003 (Uniform Residential Loan Application) the amount of the unsecured funds.