USDA RURAL HOUSING T year Fixed

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1 CLTV Min. FICO 2 Section 502-Guaranteed Program Owner Occupied Primary Residents PURCHASE Units Max. LTV Total LTV INCL. w/o Guarantee Fee Guarantee Fee % 103.5% N/A 640 REFINANCE-(Existing USDA Rural Housing loans only) 1 100% 101% 101% 640 Cash Out Refinance Not Available thru USDA 1 Total loan amount including the Guarantee Fee may exceed 100% of the lesser of sales price or appraised value by the amount of the Guarantee Fee. Please refer to Guarantee Fee topic for specifics. Purchase transactions, loan amount cannot exceed the lesser of the sales price or appraised value plus the guarantee fee (100% LTV +3.5%) Refinance transactions, loan amount cannot exceed the balance of the loan being refinanced, plus the Guarantee fee and reasonable and customary closing costs (100% LTV plus 1% for a maximum 101% LTV). CLTV parameters are same as LTV. Refer to Secondary Financing topic. Note: Applicable state restrictions may apply, refer to Geo Restrictions (E.G. max LTV in West VA is 100%, therefore Guarantee Fee may not always be financed.) 2 Min. FICO for all Borrowers on loan, regardless of GUS Accept/Eligible findings. Program Description: Rural Housing Service (RHS) Section 502 Guaranteed program provides very-low-, low- and moderate-income rural residents with better access to affordable housing finance options with little or no down payment or out-of-pocket costs. Borrowers may obtain a loan to purchase an existing home that is located in a designated rural area. A rural community generally has a population of 10,000 or less; however, a community with a population of 20,000 or less can be considered rural if it is located outside a metropolitan statistical area (MSA). Note: MSA is a county or group of counties of 50,000 people or more, or twin cities with a combined population of at least 50,000. In addition to the county such a city, contiguous counties are included in metro area according to commuting patterns. In New England states, metro areas consist of towns and cities instead of counties, otherwise the rules are similar. SPM offers ONLY the USDA Rural Housing Section 520 Guaranteed Program. (The USDA Direct Program is not available.) Maximum loan amount is standard conforming $417,000 (Base loan Amount prior to adding financed Guarantee Fee) Property Eligibility MUST be documented by loan Originator. Originator must print copy of USDA web page* evidencing property is listed as eligible USDA Rural property and submit web page in loan package. (Click on Single Family Housing under Property Eligibility ) USDA Program/Income (household) Eligibility MUST be documented in loan file by Originator submitting a completed and fully executed RD in the loan package. All applicable information on page 1 must completed. Borrower s signature(s) & dates on bottom of page 2 are required. Original signatures are not required: copies by scan, , photocopy, fax and image are acceptable. * Property Eligibility and/or Income Eligibility, use website link: Originators: Please refer to Originator Responsibilities topic posted in table below. 1

2 *** This Product Guide is intended to state SPM s USDA Rural Housing Guaranteed program offerings. It is not to be construed as a substitute for the USDA Rural Housing Guidelines and therefore cannot list all of the requirements for all topics. Please refer to USDA Rural Housing Guidelines and GUS training materials for details. Links are posted in the Tools and Resource section posted at the end of the Product guide*** Underwriting Age of Documents Appraisal Requirements ARM Products Not available Assets Credit package and Appraisal report must be dated within 90 days from Note date The appraisal must be ordered from SPM website. Select from drop-down box USDA Full Uniform Residential Appraisal report required using the sales comparison (market) and cost approach to market value. Alternative appraisal products such as 2055, AVMs, etc. are not eligible with this program. Appraisers must be on FHA s approved list on the FHA Connection with State Certification designation of Certified General or Certified Residential The most recent version of the URAR is required with Market Conditions Addendum o The appraisal must be prepared in accordance with HUD Handbooks and o Appraiser must certify that the Handbook and requirements have been met Note: The appraisal will be in compliance with RD instruction 1980-D section (b)(1)(i) when HUD Handbooks and are met. Appraisal reports must be completed within 90 days from effective date of appraisal to Note date. o If the appraisal report will be more than 90 days old, a re-inspection by the Appraiser is required. The appraiser must use the Appraisal Update and/or Completion Report (Form 1004D or 442) which must include all of the following: A determination on whether or not the property value has declined That there has been, at minimum, an exterior inspection of the property Note: If the appraiser determines that the value has declined, a new appraisal is required and loan must be re-underwritten using the new value. Borrower must lack sufficient resources to obtain traditional uninsured conventional financing (Borrower has less than 20% down payment). IRA Retirement and 401-K accounts are not included as liquid assets for the purpose of USDA RH Borrower Eligibility purposes. Borrower Investment: If required- Cash on hand is not permitted. Funds must be validated in an account. Asumability Not assumable 2

3 Underwriting Automated Underwriting Rural Development s Guaranteed Underwriting System (GUS) is the only acceptable method of underwriting. DU, LP or Manual Underwriting outside of GUS is not permitted. ExpressLoan DU is not permitted. GUS finding must be Accept/Eligible. Any other findings (Accept/Ineligible, Refer, etc.) are not eligible. o While only Accept/Eligible findings are permitted, the GUS findings must be down-graded (and will still be considered eligible) under the following circumstances: Debts are discovered that are not reflected on the credit report such as: Alimony, Child support, paystub loans and/or Credit Unions or small Community Banks The UW must complete the Rural Development Comprehensive Risk Assessment Worksheet for all Accept/Eligible transactions that are down graded. (Form is to be retained in loan file) Note: For properties located in community property state where Non-Borrowing Spouse s debts must be factored in qualifying criteria off non-gus generated credit report, USDA RH does NOT require downgrade! See Non-Borrowing Spouse topic for additional information. USDA Conditional Commitment is required: o The loan must be submitted to the local RD office in the state in which the property is located to obtain a Conditional Commitment prior to closing. o All approvals are subject to available USDA Rural Housing funds. o Turn around times will vary with local RD offices. Rate Locks, Purchase Contract expiration dates, closings, and loan file documentation such as credit package and appraisal dates, etc. must be closely monitored. With GUS Accept findings on the FINAL Submission, minimal documentation is required for USDA Conditional Commitment: o Form RD (first 2 of 4 pages attached and completed) with UW signature on top of page 2 of Approved Lender Certification, fully completed with Borrower s date and signature(s) on bottom of page 2. Original signatures are not required: copies by scan, , photocopy, fax and image are acceptable. o URAR Appraisal Report o FEMA Form Standard Flood Hazard Determination o Additional documentation may be requested by RD for processing (E.G. Non-Borrowing spouse in community property states). Check with local RD office. Underwriter is responsible to review USDA Rural Housing Conditional Commitment for any additional requirements that may be needed. Loan Documents may NOT be drawn until USDA Rural Housing Conditional Commitment has been issued. Reminders: o GUS does not recognize or analyze compensating factors or risk layers, therefore, UW must perform prudent manual validation to ensure all USDA Rural Housing guidelines are met. o Age of documentation, Rate Locks and/or Purchase contract expiration dates must be closely monitored as the local USDA Rural Housing s Conditional Commitment turn times may vary depending upon location and/or volume Please refer to Tools and Resources topic for GUS resources 3

4 Borrower Eligibility Eligibility Criteria: Cannot be eligible for un-insured conventional financing (also see asset section) MUST meet income Limitation criteria posted under Income Criteria topic AND must select a property located in an area designated eligible for USDA Rural Housing financing. Limit one USDA Rural Housing loan per Borrower and Co-borrower The maximum number of Borrowers permitted on a single loan transaction is limited to a total of FOUR. Loan transactions with more than 4 Borrowers cannot be entertained. Pursuant to Section (a), the Borrower may only own ONE primary residence. o Borrowers may be the current owner of a structurally sound, functionally adequate residence, as long as it is sold prior to or concurrently with the purchase of the new home. HUD-1 statement evidencing sale of property and net proceeds must be retained in loan file Net Equity portion will be populated in GUS once the Real Estate Owned Property section is properly completed. o Retention of a current residence to a rental property will generally not be allowed. GUS findings will determine specific criteria. The local Rural Dev. Office can be contacted for details. (Please refer to Income Section for Rental income criteria for seasoned investment property) Must have valid Social Security Number U.S. Citizens and Permanent Resident Aliens only. o Permanent Res. Alien status must be documented in file. o Non-Permanent Resident liens or Foreign Nationals are not permitted. Title must be held in individual names only: No Trusts, Partnerships, LLC s, Corporations, etc. All First Time Homebuyers must complete First Time Homebuyer Education: o First Time Homebuyer Education is required for both Borrowers and Co-Borrowers. o Training must be provided by homebuyer counselors that are certified by any of the following: (1) Department of Housing and Urban Development (HUD); (2) NeighborWorks America (NWA); (3)National Federation of Housing Counselors (NFHC); (4) State Housing Finance Agency or other qualified state organization; or (5) National American Indian Housing Council (NAIHC). o On-line training may be available in certain locations. Contact local USDA RH office. o Certification of completion is required and must be retained in the loan file. In-eligible: Borrowers who are eligible for uninsured conventional financing Borrowers whose adjusted household income exceeds the Rural Development income limit for the applicable area All entities and vestings other than individuals, Non-Permanent residents and Foreign Nationals Full Time students Please refer to USDA RH Instruction 1980-D for additional details. Link is posted in Tools and Resources 4

5 Underwriting Borrower Income limitations Buy-downs Cash Out Refinance Construction Modification Co-Borrower Corporate Exceptions Corporate Relocations Credit report requirements Limited to low- and moderate-income rural residents whose income is equal to or less than 115% of the area median income. An income calculator is available on USDA Rural Housing website. Please refer to links in Resource and Tool section. Temporary Buy-downs not available. See Discount Points topic for Permanent Buy downs Not allowed Not Allowed Co- Borrower must occupy the property. Co- Borrower must take title to the property AND sign the Note and the Mortgage Co-signors are not permitted. The co-borrower cannot be an interested party to the transaction (such as seller, builder, real estate agent, etc) The maximum total number of Borrowers permitted on a single loan transaction is four. Pleases refer to Non-Borrowing Spouse topic. Exceptions (Corporate Exceptions) to these guidelines are NOT available at this time. All guidelines herein stated must be strictly adhered regardless of GUS Accept/Eligibility findings. Not Allowed Credit reports for Applicants will be pulled from the GUS system. Credit reports from GUS transactions are included in the Final submission s USDA Rural housing loan review process. They do not need to be printed to request commitment from local USDA office. Please refer to Automated UW topic. 5

6 Underwriting Credit Disaster Area Credit history: must indicate a reasonable ability and willingness to meet obligations as they become due. Regardless of a GUS accept approval, the following are indications of unacceptable credit history: More than one payment being more than 30 days late in last 12 months. (Note: This will be determined by GUS) A Foreclosure or Bankruptcy in the past 36 months. o Bankruptcy must have been discharged for more than 36 months o Foreclosure must have been dismissed for more than 36 months A judgment in the past 12 months. Outstanding tax liens, (regardless of age), that are currently delinquent Two or more rent payments paid 30 days or more past due Outstanding collection accounts, (no matter what their age), that are currently delinquent Previous RHS debt or non-rhs debt that resulted in a loss. Any outstanding judgment obtained by the United States in a federal court (other than a tax lien) Credit requirements: All borrowers must be screened using CAIVRS (Credit Alert Interactive Voice Response System) to determine if applicant is delinquent of a federal loan. A clear CAIVRS (Credit Alert Interactive Voice Response System) is required. Minimum required Credit Score is 640 regardless of GUS findings. o All Borrowers and Co-borrowers must meet minimum credit score requirement GUS scorecard will select the eligible credit score for underwriting purposes. o One score may be appropriate: the score card will make such determination. o If the Borrower has a credit score, the length of credit history, the number of trade lines and payment history is not applicable Note: Non-traditional credit history is not acceptable. Unless specifically indicated as being eligible on USDA Rural website property eligibility website, normal Disaster Area policies apply. Please check Disaster website for applicable information. 6

7 UNDERWRITING Discount Points Doc Type Down Payment EEM Escrow Impounds Escrow Repair Holdbacks Exceptions Fee Limitation Flip transactions Geographic Restriction Gift Funds Temporary Buy-downs are not available Discount points (permanently reducing the interest rate) may only be financed for Rural Development-defined low-income applicants Full Doc required. Please refer to Income Criteria and Income Documentation. RD 4543 (1980-D) contains checklist information indicating UW and Closing documentation requirements. Follow link in Tools and Resource section. The information on the checklist must be used to ensure the USDA required Underwriting and Loan Closing Documentation is maintained in the Lender s Case file. Branches are responsible to ensure 2-sided documents are imaged on both sides. Not required Energy Efficient Mortgages are not allowed Impound accounts are required for property taxes and hazard insurance. There are not impound waivers available As per USDA , Escrow Repair hold backs are only allowed for the following: When proposed exterior development work cannot be completed because of weather and the work remaining to be done does not affect the livability of the dwelling, an escrow account for only exterior development may be established by the originating lender if the following conditions are met: o A signed contract and bid schedule is in effect for the proposed exterior development work. o The contract for development work must provide for completion within 120 days. o Written agreement to obtain a final inspection report The escrow account must be funded in an amount sufficient to assure the completion of the remaining work. This figure should be 150% of the cost of completion but may be higher if UW determines that a higher amount is needed. Exceptions (Corporate Exceptions) to these guidelines are NOT available at this time. All guidelines herein stated must be strictly adhered regardless of GUS Accept/Eligibility findings. As per USDA Section (a): Charges and fees may be charged providing the charges mirror those charged for FHA loans. Specific questions pertaining to usual and customary fees and charges should be directed to the local USDA RH center. Flip transactions (title indicating several changes in ownership over the course of a few months) or properties acquired by Seller within past 90 days are NOT eligible for financing. Geographic Restrictions other than Property s location in USDA designated area may apply. Always check the SPM Geographic Restriction Table posted on the web. Acceptable from someone who is NOT a member of the household A fully completed Gift Letter from the Donor stating that no repayment of the gift is required. Evidence of the borrower s receipt of the gift funds must be included in the loan file. 7

8 UNDERWRITING Guarantee Fee Guarantee Fee calculation GUS A Guarantee Fee of 3.5% of the loan balance is due at closing for Purchase Transactions and 1% for Refinances The fee can be financed in the loan amount, included as part of the Seller s contribution, or collected directly from the borrower at closing. See Guarantee Fee calculation section below. o The LTV may ONLY be exceeded by the Guarantee Fee when it is financed and state law allows. The actual LTV with financed Guarantee Fee will be % for purchases and % for refinances. o If the Guarantee is NOT financed, (or state restriction applies) the LTV is limited to 100%. Please refer to matrix on page 1. The Guarantee Fee may be calculated in two ways depending on whether the fee will be financed or not: Loan Guarantee Fee NOT Guarantee Fee Financed Type Financed* Purchase Multiply loan amount by 3.50% and round to the nearest cent. Rate/ Term Refi Ex.: $100,000 x.035= $3,500 Multiply the loan amount by 1% The fee is calculated as follows: 1. Divide the base loan amount by.965 and round to the nearest cent. 2. Multiply that number by.035 (3.50%) and round to the nearest cent. Ex.: $100, = $103, (rounded to $103,626.94). $103, x.035 = $3, (rounded to $3, Follow steps 1 and 2 above, substituting 99 for.965 and.01 for.035. Example: $100, = $101, $101, x.01 = $1, Example: $100,000 x.01 = $1, Note: Since the Guarantee Fee is not financed, it can be paid by Borrower, Seller, or through an eligible Gift Donor. The use of the AUS- Guaranteed Underwriting System (GUS) is mandatory. See Automated UW topic. Please refer to GUS training material links posted in Tools and Resource section. The following information is posted as a reminder: Loans are required to be resubmitted to GUS if any loan data changes. This includes: o Borrowers were added or deleted from the application, or critical information has changed o Decrease in Borrowers income and/or cash assets/reserves o Increase in the loan amount or interest rate on the mortgage loan request o Any changes that would negatively affect the Borrower s ability to repay the mortgage o Information regarding the property changes-such as a change in sales price or value Loans may NOT be resubmitted to GUS after closing Note: Any increase in income and/or assets must be reviewed to ensure program eligibility 8

9 UNDERWRITING IRS Form #4506 & Tax Transcripts Income Criteria A signed and dated IRS Form 4506-T completed at application and closing, is required for all borrowers. Both 4506-T forms must be present in the loan file and must include authorization for transcripts for the most recent two years. Processed 4506-T transcripts must be reconciled by UW. Significant differences must be reviewed, resolved, and detailed comments regarding the resolution documented on the 1008 by UW. If the IRS returns no transcripts available for the time period requested, proof of extension and the most recent years IRS transcripts available, are required. References: USDA RD INSTR d, SEC (Annual Income)-for Program Eligibility USDA RD INSTR d, SEC )Adjusted Income)-for Program Eligibility Refer to Tools and Resources for links to the guide. There are two separate income requirements that must be met: (I) The Income Limitation to determine Program Eligibility AND (II) the ability to repay the loan or the DTI calculation. The Income Limitation Program Eligibility (I) must be submitted by the Originator via a completed 1980-D in the loan package at time of submission. (See Originators Responsibilities Topic). UW enters data onto GUS The Ability to Repay the loan (E.G. DTI calculations) is the UW responsibility as part of standard underwriting practices. I. INCOME LIMITATION TO DETERMINE USDA Rural Housing PROGRAM ELIGIBILITY (Household) Household income which should be included to determine program eligibility is defined as Annual Income and Adjusted Annual Income and can be determined for individual states at the following link: The Household Eligibility Calculation Worksheet must be completed by UW and retained in loan file. The Household income will include income from all household family members regardless of the fact that they will have contractual obligations from signing the note. o Household income from all working adults (age 18 or older) in the household that will reside in the home must not exceed the moderate-income limits established for the area in which they are purchasing/refinancing a home. The following are included in annual income to qualify for an RHS guaranteed loan: o Gross amount of wages, salaries, overtime pay, commissions, fees, tips, bonuses and other compensation for personal services of all adult members of the household. o Net income from the operation of a farm, business or profession, interest, dividends and other net income of any kind from real or personal property. o Payments from social security, annuities, insurance policies, pensions, unemployment, workers compensation, alimony and/or child support and other types of periodic receipts. o All regular pay, special pay and allowances of a member of the armed forces who is the borrower or spouse whether or not that family member lives in the unit Continued on following page. 9

10 Income Criteria Continued from previous page Pursuant to Section (d)(3)iii: Where the household has family assets as defined in section (a) in excess of $5,000, the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook rate must be considered when calculating annual income. Adjustments to reduce annual income include $ for each minor child, full time student or a disabled member of the family. o $ may be deducted from annual income for each family member over 62 years of age. An additional deduction may be calculated for certain expenses when added together exceed 3% of gross annual income o Reference RD instruction 1980-D section (a) for specifics DERWRITING II. LOAN QUALIFICATION- ABILITY TO REPAY (DTI calculation) USDA RD INSTR d, SEC (a) Repayment Income)-Loan Qualifying Refer to Tools and Resources for links Repayment income may differ from annual income, as not all household members will be on the loan. Only the income from the Borrower and Co-borrower (E.G. parties signing the Note) may be used in determining ratios Ability to repay is determined by the debt ratios. Employment income and Repayment Income (non-employment income) may be used to determine Borrower s ability to repay. Reminder: GUS does not determine income stability and dependability. UW is responsible to ensure income sources meet history and dependability criteria and repayment information data is accurately entered into GUS. Regardless of GUS findings: a minimum two year employment history and continuance of income for 3 years from stable non-wage sources are required when utilized. Continued on following page 10

11 UNDERWRITING Income Criteria Continued from previous page The following income information constitutes a brief summary of income criteria pursuant to RD 4543 (1980-D). Self-employed Borrowers: 2 years signed individual tax returns for the most recent two years with all schedules attached. In addition, a YTD P&L and YTD Income/Expense statement for the business is required. P&L and Income/Expense statement do not need to be audited, but must be dated and signed by Borrower. o If Borrower owns 25% or more ownership in the business entity, 2 year s Business tax returns, a YTD P&L and YTD Income/Expense statement for the business is required. P&L and Income/Expense statement do not need to be audited, but must be dated and signed by Borrower. o Rental income: Borrower may own only ONE property other than subject. Generally, current residence may not be retained and converted to investment property. (See Borrower Eligibility) Property may NOT be financed with USDA RH Property may NOT be located within 50 mile radius of subject property If rental income of a seasoned investment property is included for qualifying purposes, UW must determine income to be stable and dependable as evidenced by 2 year s history on Schedule E tax returns. Non-Employment Income: Need written verification (E.G. award letter, pension statement, or other appropriate documentation) or verification through most recent year s tax return. o Examples include: alimony/child support, pension/retirement, automobile expense, military income, social security/disability income, trust income, unemployment, and notes receivable. o Tax Exempt Income: Non-taxable sources of income can be grossed up as stated in Section (c)(2)(ii). Please note, USDA does not offer a standard % gross up factor, it must be calculated off the actual amount of federal tax savings attributable to the nontaxable income. Please refer to the announcement RD 4543(1980-D) for specific income documentation and criteria. The link is posted in Tools and Resources. Income Documentation Loans originated under the Guaranteed program must use Full documentation In addition, they may also be eligible for alternative forms of documentation, as follows: o If no Verification of Employment (VOE) is available, applicant income may be verified by W-2 tax forms for the previous two tax years, telephone verification of the applicant s permanent employment, and one of the following: Paycheck stubs or payroll earnings statements covering the most recent 30-day period Or Electronic or computer-generated verification of earnings for the most recent 30-day period Information would be required in addition to W-2 tax forms for the previous two tax years, telephone verification of the applicant s permanent employment, Note: Handwritten paycheck stubs or payroll earnings statements are not acceptable. Self-employed income analysis must be completed on FannieMae Form 1084 Cash Flow analysis For specific Applicant s income documentation and underwriting criteria, please refer to RD AN No.4543 (1980-D) 11

12 Inspections Interested Party Contributions Liabilities Properties shall identify which party (i.e., purchaser or seller) is responsible to obtain and pay for required inspections and certifications. Property must meet the current requirements of HUD Handbook and Water supply must meet the local health or state drinking water standards based on the results of a bacteriological analysis of the water supply source. Also refer to Property Eligibility requirements for specifics. An amount of 6% of the sales price can be contributed towards all closing costs The following information is provided for informational purposes only. USDA AN 4543 (1980-D) and RD 1980-D policies apply: UNDERWRITING Section (c)(1)(ii) requires all previous mortgage liabilities disposed of through a sale, trade, or transfer without release of liability, to be included in the debt ratio unless evidence can be obtained that the remaining party has made the payments over the last 12 months. Copy of Divorce decree must be obtained evidencing applicant is no longer responsible. Quitclaim deeds do not remove liability of mortgage debts Installment debts > 6 months must be included in DTI All revolving debts must be included in DTI See Non-Borrowing Spouse for specific criteria Please refer to USDA AN 4543 (1980-D) and RD 1980-D for specifics. Links are posted in Tools and resources. Loan Amount Maximum loan amount is $417K All loan amounts must be rounded to even dollars (no cents) Loan Type & Occupancy Max Loan Amount Owner occupied Purchase and Rate/Term Refinance only Cash out and non-owner transactions not permitted *Refinance transactions are only eligible when refinancing a current Rural Housing guaranteed loan. Maximum loan amounts are established as follows 100% of the conforming loan limit (E.G. $417,000) base loan amount w/o financed Guarantee Fee. Refer to LTV/CLTV parameters on page 1 Matrix and Guarantee Fee topics. Multiple loans to the Same Borrower Up to one financed property (which is not the subject property); however, this may not be financed by Rural Development. May not be within the local commuting area. Local commuting area = within a 50 mile radius Please refer to Income and Borrower Eligibility sections. 12

13 Mortgage Insurance Mortgage Credit Certificates (MCC) Nontraditional Credit Non- Borrowing Spouse Private Mortgage Insurance is NOT required. Please refer to Guaranty Fee section. Permitted if available in the community in which the rural property is located. Not permitted Credit report must be pulled outside of GUS system for determination of applicable Non-Borrowing spouse debts in Community property states. Manual down grades to GUA for Non-Borrowing spouses are not required 13

14 UNDERWRITING Originator s Responsibilities The Originator is responsible to submit BOTH USDA Property eligibility website page AND USDA Income (household) Eligibility as documented in fully executed in the loan submission package. It is important to submit BOTH the Property eligibility website page, as well as Household Income information on in the submission package due to USDA guidelines requiring that both the property and household income eligibility requirements be met. USDA Property Location Eligibility MUST be documented in loan file by Originator. Originator must print copy of web page evidencing property is listed as eligible USDA Rural property address and submit in loan package. (Click on Single Family Housing under Property Eligibility ) o Read website disclaimer: USDA Rural Housing has FINAL determination of property eligibility/acceptability, as incorrect map information may occasionally result in erroneous eligibility results. o Be sure to avoid misspelling subject s street address, and obtain correct address information to avoid an Unable to Determine property eligibility finding. Newly constructed properties could also result in an unable finding. (Note: SPM will not finance new construction). o Please refer to Property Eligibility section for additional details regarding acceptable property types and characteristics. Note: website page merely confirms that property address is located in an eligible area. o Income Eligibility(USDA Household) MUST be documented in loan file by Originator with fully completed, dated and signed as previously stated. o Income Eligibility is NOT the same as qualifying income. Please refer to Income Criteria section of product guide for specifics. Notes: Property Eligibility, Income Eligibility, and Income Limit PDF by state: Use website link: Power of Attorney Payment Shock Standard SPM POA policy applies Payment shock is considered a risk layer for UW to analyze when: o Front end ratio exceeds 29 % and proposed mortgage is 100% or greater than current housing o Applicant has no history of housing expense Note: Payment shock is NOT considered a risk layer when the front end ratio is at or below 29% Regardless of the GUS decision, for succeeding home purchases, the PITIA may not exceed twice (2 times) the borrower s existing PITIA For loan transactions wherein the payment shock is >100%, there should not be any additional risk layering without strong compensating factors. The Underwriter is responsible to determine payment shock eligibility, See RD AN D Program limit Rural housing loans are limited to one loan per borrower and co-borrower. 14

15 UNDERWRITING Property Eligibility Eligible Properties must meet ALL following requirements: Be located in a rural area, as designated by the local RHS office*. Consist of an EXISTING (not new construction take-out) Single Family non-farm 1 residence. Attached or Detached PUDs are also acceptable. Property must be Fee Simple (cannot be Leasehold). Site value may not exceed 30% of total property value. Site values 30% are not an issue. There are no acreage limitations o Exceptions may apply on a case-by-case basis 2. o Contact your local Rural Development office for details. Property must be contiguous to and have access to a paved or all-weather surface street, road or driveway. The property must have dependable water and waste disposal systems that are approved by local authorities. The property may NOT have an in-ground swimming pool. 3 o Above ground pools, saunas or hot tubs are not an issue for detached SFD. They are considered personal property. o PUDs, whether attached or detached may have a swimming pool ONLY if it is a community pool located within the common area of the PUD project. * USDA Rural Housing has FINAL determination of property eligibility/acceptability, as incorrect map information may occasionally result in erroneous eligibility results. Refer to Originator s Responsibilities for specific requirements. Foot Notes: 1 Property must be free of any type of income producing appurtenances such as grain bins, silos, dairy farms, hog barns, or multiple equestrian stables. Properties with out buildings that are non-essential to the goal of achieving home ownership are NOT eligible. Examples include large farm service buildings capable of housing combines, tractors, trailers, harvesters, Granny/Mother-in- Law/Guest units, homes with 2 nd kitchens, etc. Other income producing features such as cell phone towers, windmills, billboard advertising etc. will also render the property in-eligible. The presence of a mobile home on the subject property s site (regardless if wheels are/are not removed) will not be permitted. Regardless of appraiser assigning (or NOT assigning value to the out buildings), the presence of these types of features will render the loan un-insurable/unsalable. 2 Local Rural Dev. Office will entertain exceptions. Typically they will require Appraiser to document: (a) site is typical for area by utilizing comps with similar acreage, (b)site cannot be subdivided into two or more separate parcels (c) acreage must be non-tillable or income producing. 3 The swimming pool may NOT be removed before or after closing to meet eligibility requirements Continued on following page 15

16 Continued from previous page UNDERWRITING Ineligible Properties: Properties not listed as USDA eligible including Investment Properties and Second Homes, swimming pools, etc. Properties with income producing features 2-4 units Condominiums Co-ops Manufactured Homes New Construction or Rehabilitation Loans Properties with cisterns (even if common to area) Leasehold Resale/Deed Restrictions Properties located in a flood or mudslide zone. This restriction may be waived for existing homes in some states. In those states, National Flood Insurance must be available and flood insurance is required. Contact your local Rural Development office for details. TBD properties (To be Determined). All properties MUST have a valid address AND be located in a USDA Rural Housing area. Purchase Transactions Qualifying Ratios Borrower may NOT receive cash back from USDA Rural Housing funds o HUD-1 cannot reflect cash back to Borrower(s) except for items prepaid by the Borrower outside of closing. These would include items such as credit report, appraisal, earnest money or pre-paid hazard insurance Standard maximum ratio is 29/41. UW may approve debt ratio > 29/41 up to 45% DTI with relative documented compensating factors and GUS Accept/Eligible findings. Regardless of GUS Accept/Eligible findings, maximum allowable DITI is capped at 45%. 16

17 UNDERWRITING Refinance Transactions Reserves Secondary/ Subordinate Financing Spot Relocation Mortgages Term Continued from previous page Non-Streamline Rate and Term refinance only. Full appraisal is required o USDA does not offer cash out refinance transactions. o Streamline Refinance transactions cannot utilize GUS system: therefore not available. Refinance transaction MUST be a current Rural Housing Guaranteed loan. Any other type of loan type from a non-rural Development source is not eligible (E.G. this product may NOT be used to refinance FHA, VA or Conventional loans). o Refi transaction may be Section 502 USDA Direct to Guaranteed or Section 502 USDA Guaranteed to Guaranteed. o Transaction must provide the benefit of a lower interest rate to the Borrower Interest Rate cannot exceed the interest rate of the existing loan The loan security must include the same property as the original loan. The security property must be owner-occupied as the Borrower s principal residence Loan amount restrictions: o The maximum loan amount cannot exceed the balance of the loan being refinanced, plus the guarantee fee and reasonable and customary closing cots (including funds necessary to establish a new tax and insurance escrow account) o Subordinate financing, such as home equity lines of credit and down payment assistance silent seconds, cannot be included in the new loan amount o Any existing secondary financing must be subordinate to the first lien. o Unpaid fees such as late fees due the servicer cannot be included in the new loan amount Seasoning Requirements: None Cash Out to the Borrower is NOT permitted. Documentation must be present in the loan file to substantiate any refunds given to Borrower were paid into the transaction from the Borrower s own funds. Reimbursement of personal funds used for eligible loan purposes as part of the refinance transaction, such as appraisal fees or credit report fee. Outside of reimbursement of fees, no cash out proceeds is permitted o Cash out as a result of final escrow and interest calculations must be applied to principal reduction of the new loan Not required Purchase Transactions: Not permitted Refinance Transactions: o Any existing secondary financing must be re-subordinated to the first lien within the LTV/CLTV parameters. o New secondary/subordinate financing is not permitted Not allowed Loan term is 30 years only. 17

18 TOOLS AND RESOURCES Tools and Resources Announcements: Documentation Requirements: o The following link contains a checklist to ensure that all documentation and underwriting requirements have been met. The information on the checklist must be used to ensure the USDA required Underwriting and Loan Closing Documentation is maintained in the Lender s Case file. Eligibility link- use the following link to access USDA Home page: o Income: To determine eligibility of an applicant/household, click on the Income Eligibility Link on left side o Property Eligibility: To determine whether the property is located in a designated rural area, click SFH under Property Eligibility. Enter the property address to get an instant determination or to view a map. o Income Limit by State: Click on Income Limit tab, Single Family Housing, then Guaranteed GUS: o Link to GUS training: o Link to GUS User Guide: o Centralized Help Desk: Option #2, Option #2 o GUS Help RD.HD@stl.usda.gov Include Name, Phone Number, Description of Error, Screen print of error if applicable, etc. USDA statewide Service center link: (click on required state location on map). Use this site to locate your local USDA office. USDA RD 1980-D: USDA Training and Resource Library: o n%20training/2010%20guaranteed%20loan%20training_skin.swf. Note: This is an excellent reference tool, however takes a while to down-load and consists of 250 pages! Guarantee Fee info is not yet updated. 18