# Presentation: 416483

## DRAFT

***- Single Family -***

**DRAFT**

## <insert your personal introduction on this slide>

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## Agenda

- USDA, Rural Development
- Guaranteed Rural Housing
- Benefits
- Lender Approval
- Applicant Eligibility
- Property Eligibility
- The Process
- Resources Available

## United States Department of Agriculture

**United States ****Department of Agriculture**

## Guaranteed Rural Housing(GRH)

- Loan made, held, and/or serviced by an approved GRH lender
- Guaranteed against loss by USDA

**Notes:**
Single Family Housing Guaranteed Loan Program
Loans for low- and moderate-income families in rural areas.
Guaranteed up o 90% of loan amount

## Lender Approval

-    An Approved Lender must be:
- A State Housing Agency, Farm Credit Service, or:
- Approved by HUD, VA, Fannie Mae, Freddie Mac, or:
- A participant in other Rural Development or Farm Service Agency Guaranteed loan programs

**Notes:**
HUD or VA Lenders may be supervised or non-supervised
State Approved Lenders: provide evidence to, and are approved by, the Rural Development State Office where they originate
Nationally Approved Lenders: generally originate in two or more States, and provide evidence to, and are approved by, the National Office
Lender Participation - Approved Lenders can close in their own name; Brokers can package, originate and close on behalf of Approved Lenders

## Home Buyer Benefits

- 102% LTV
- No Mortgage Insurance
- 30 Year Fixed Rate
- Partner with other Funding Sources
- No Loan Limit
- Fees & Repairs may be Financed
- Unlimited Gifts or Seller Contributions
- No Reserves Required

**Notes:**
LTV = Appraised Value + GRH Fee
Partner with State Finance Authority programs, other down payment or closing cost assistance programs, MCC’s, etc.
Income/debt ratio limits limit the loan.
Please check with investor.  They may have further restrictions.

## Compare cost to insure

**Notes:**
The low one-time Agency fee means that the borrower can afford more house in comparison to a loan requiring MI.

## Lender Benefits

- Community Reinvestment Act (CRA)
- 102% LTV
- Saleable to Secondary Market
- Lender Profitability
- Guaranteed by Government
- Expand Market Share
- Lender Underwrites Loan
- Quality Customer Service

**Notes:**
102% LTV = Appraised Value + GRH Fee **Appraised Value is considered rather than Purchase Price
Lender Profitability
SRP – Service Release Premium
Yield Spread
Sell with retained servicing
Rural Development does not underwrite loans
48 hour turn around
Rural Development is local & accessible
Guarantee
100% coverage on the top 35% of loan
85% coverage on the balance
Total loss paid up to 90% of loan principal

## Rate and Term

- 30-Year Fixed
- Interest Rate Set by Approved Lender
- Not higher than the 30-year, 90-day actual/actual Fannie Mae rate plus 60 basis points
- 	*- Or -*
- Lender’s Published VA rate
- One-Time GRH Fee
- 2.00% Purchase
- .5% Refinance

## Loan Purposes

- Purchase New
- Purchase Existing

**Notes:**
Attached or detached single family units are acceptable.
See latest AN regarding Condominiums.

## New Construction

- Stick & Modular:
- New is 12 months or less.  Includes already constructed, partially constructed or planned construction.
- Can do Construction-perm or end loan
- Construction-perm require additional forms, see notes

**Notes:**
1980.340Construction Contracts:
Utilize when there is a construction loan with draws made to the applicant
If construction contract exceeds $10,000
Need forms 400-1, 400-3, 400-6
Equal Opportunity clause must be in the contract
Contractor shall not discriminate because of race, color. religion, sex, or national origin 
Additional thresholds for companies with more than 50 employees
	Not required if only doing the end loan

## More Loan Purposes

- Repairs
- Refinance
-  Rural Development Direct
-  Guaranteed Loan
- Typical Loan Closing Costs

**Notes:**
1980.310
Typical Costs
“take out” financing for new construction
necessary appliances
loan discount points for low income applicants only

## Prohibited Purposes

- Construction Draws – see notes.
- Furniture & Personal Property
- Existing Manufactured Home
- Income Producing Property
- Non-Essential Buildings & Land
- Request wavier for swimming pool
- Not for farm properties

**Notes:**
1980.311
Existing Manufactured Homes unless already financed by Rural Development
Non-Essential Assets - extra buildings & land.  Residential properties only.  Outbuilding may be justified if needed for vehicle, lawn equipment, storage.
Income Producing Property – duplexes, businesses.  Home based businesses that do not affect the integrity of the dwelling are OK, such as Avon, Pampered Chef. 
1980.311 Special Provisions
Homeowners association (HOA) acceptable when approved by HUD, VA, Fannie Mae or Freddie Mac.

Construction-perm loans can be financed.  “Construction draws” is listed because the Agency cannot guarantee the draws when issued.  The guarantee is issued after final inspection and receipt of a complete closing package.
The Agency is pilot testing a construction-perm loan wherein the guarantee is issued prior to construction.

## Income

- Household *adjusted *annual income may not exceed the **MODERATE INCOME **limit.
- Limits based on family size & county where the property is located

## FL/VI Adjusted HOUSEHOLD Income Limits

-        All counties    except      Clay, Duval	  	Collier      Palm Beach
- 			                Nassau, St Johns
- 1-P	48,000			48,550		56,200		51,050
- 2-P	54,850			55,500		64,250		59,250
- 3-P	61,700			62,400		72,250		66,500
- 4-P	68,550			69.350		80,300		74,050
- 5-P	74,050			74,900		86,700		79,950
- 6-P 	79,000			80,450		93,150		85,900
- 7-P	85,000			86,000		99,550		91,800
- 8-P	90,050	        		91,550             106,000		97,750
-  **THESE ARE NOT GROSS INCOME LIMITS**
-  Verify income of all adult household members

**Notes:**
Verify income of all household members age 18 or older.  Compare the total gross income to the limits.  If the gross income is less that the limit, this threshold eligibility criteria is met.  However, if the gross income is over the limit, use the allowable deductions to ADJUST the income down.  The ADJUSTED income must be at or less than the Agency limit for ADJUSTED household income.

Adjusted income should not be confused with the repayment ability determination.  Lenders verify and determine repayment ability in the normal manner.

## Calculator on the web

- What if the total gross income is above the limits? Use the calculator!
- Income & Property Eligibility web site at: _[http://eligibility.sc.egov.usda.gov](http://eligibility.sc.egov.usda.gov/)_
- Click on “single family” under link “Income Eligibility”
- Fill in a few blanks and you are done

## Adjusted Annual Income

- Count income of all Adult Household Members
- Gross income
- OT, commissions, bonuses, etc.
- Net self-employment income
- SS, child support, unemployment, etc.

**Notes:**
1980.347
Household income includes:
All PT & FT verified gross income received by adult household members
Projected income of adult household members
Seasonal work
Gross amounts of overtime, bonuses, commissions, & unemployment compensation estimated for the next 12 months
Net of self-employment income
Interest, dividends, & other net income of real or personal property
Social Security benefits – including those received by minors or by adults on behalf of minors 
Public assistance - except food stamps 
Periodic allowances – child support, alimony, recurring monetary gifts, etc.
Educational grants or scholarships after listed educational expenses
Regular, special pay (except hostile fire), & allowances of a member of the armed forces who is an applicant or co-applicant

1980.348
Adjustments to Income include:
$480 per minor, FT student, disabled adult other than the applicant, co-applicant, or spouse
$400 for an elderly family (applicant or co-applicant are 62 years of age or older or disabled)
Care of minors 12 years of age or under necessary to enable a family member to be gainfully employed or to further education.
Medical expenses not covered by insurance for an elderly family by which the aggregate exceeds 3% of gross annual income

## Available adjustments to reduce gross income (to fit within the limits)
$480/annual per minor or full-time student
Verified child care expenses (12 yr old or less)
$400/annual where borrower or co-borrower is elderly or disabled
Medical expenses not covered by ins and aggregate exceeds 3% of gross

- $480/annual per minor or full-time student
- Verified child care expenses (12 yr old or less)
- $400/annual where borrower or co-borrower is elderly or disabled
- Medical expenses not covered by ins and aggregate exceeds 3% of gross

**Adjusted Annual Income**

**Notes:**
1980.348
Adjustments to Income include:
$480 per minor, FT student, disabled adult other than the applicant, co-applicant, or spouse
$400 for an elderly family (applicant or co-applicant are 62 years of age or older or disabled)
Care of minors 12 years of age or under necessary to enable a family member to be gainfully employed or to further education.
Medical expenses not covered by insurance for an elderly family by which the aggregate exceeds 3% of gross annual income

## Use the calculator	

- For families where income is over the limit.  There is no need to memorize or look up the adjustments.  Fill in a few blanks on the fast easy site,
- _[http://eligibility.sc.egov.usda.gov](http://eligibility.sc.egov.usda.gov/)_

## Repayment Income

- Adequate & Dependable Income
- Repayment Income ≠ Adjusted Annual Income
- OT, commission, self-employment, & bonus income should have a 24 mo. history
- Earned Income Credit may be added
- Non-taxable income may be “grossed-up”

**Notes:**
1980.345 (b)
Losses from a farm or non-farm business must be deducted.
Self-Employment considered per current AN
Generally gross-up non-taxable income 20%. Remember that Social Security becomes taxable above a income threshold – consult with IRS.

## Repayment Ability

- PITI – 29.0% (31% on post 1/2000 homes)
- TD – 41.0% (43% on post 1/2000 homes)
- Include all debts ≥ 6 months
- May exceed Ratio Limits _with_ documented compensating factors such as:
- Zero or little payment shock
- 620+ Credit score
- 2+ years on the job
- And More...

**Notes:**
1980.345(c)
Shorter term obligations should be considered if they have significant impact
Obligations co-signed by an applicant must be considered unless evidence that is has not been necessary to make payments over the past 12 months (cancelled checks & an acceptable history)

Agency must concur with ratio waiver

## Credit Verification

- Verification
- Residential Mortgage Credit Report (RMCR)
- Tri-Merged Credit Report
- Credit Alert Interactive Voice Response System (CAIVRS)
- Rent History – 12 months
- Required only if FICO less than 620

## Credit History

- No Credit Lines does not equal Bad Credit
- Scores – NO MINIMUM
- ≥ 620 – no further review of credit
- < 620 – review per Rural Development Regulations
- Credit Waiver from Lender’s Underwriter
- Temporary circumstances,
- Beyond applicant’s control,
- and Circumstances removed;
- or
- Justifiable Dispute

**Notes:**
See current AN for further information on using credit scores

1980.345(d)

THIS CRITERIA KICKS IN WHEN THE MIDDLE FICO IS 620 OR LOWER OR THERE IS NO SCORE (USING ALTERNATE CREDIT)
Unacceptable Credit:
More than one debt payment being more than 30 days late within the last 12 months.
Loss of security due to a foreclosure within the last 36 months.
Outstanding tax liens or delinquent Government debts with no satisfactory arrangements for payments, no matter what their age as long as they are currently delinquent and/or due and payable.
Judgment outstanding or has been outstanding within the last 12 months.
Two or more rent payments paid 30 days or more past due within the last 3 years.
Accounts which have been converted to collections within the last 12 months (utility bills, hospital bills, etc.).
Collection accounts outstanding, with no satisfactory arrangements for payments, no matter what their age as long as they are currently delinquent and/or due and payable.
Any debts written off within the last 36 months.
Bankruptcy discharge less than 36 months before application.
Satisfied judgment or foreclosure with no loss of security less than 12 months before application.
If Rural Development suffered any loss related to a previous loan, a loan guarantee shall not be issued unless Rural Development determines the loss was beyond the applicant's control, and any identifiable reasons for the loss no longer exist.

Credit waiver- Lender may consider mitigating circumstances MUST BE FULLY DOCUMENTED
Circumstances were temporary in nature, beyond the applicants control and have been removed
Reason for delinquency due to defective goods or justifiable dispute

## Risk Layering

- Payment Shock
- Ratio Wavier
- Credit Waiver
- 2-1 Buy Down
- Co-Applicant score below 620

**Notes:**
See current AN for further discussion of underwriting & risk layering
Risk layering if Payment Shock exceeds 100% is not recommended.  Underwriters make the credit decision.
See slides “Repayment Ability” & “Credit History” for further discussion

## Other Criteria

- Do not own a SUITABLE dwelling in the local area.
- U.S. Citizen or Permanent Resident or Qualified Alien
- Primary Residence

**Notes:**
Does not own a dwelling in the local commuting area at time of closing (Unable to sell dwelling outside local commuting area.)
Current dwelling is functionally inadequate or other reasons.  Consult with RD.
Retaining a present home can cause multiple problems with underwriting.
Existing mortgage payment must be counted in the ratios
Rental income does NOT wash out the existing mortgage payment.
Must calculate projected net rental income.
Rental income likely does not have enough history to count as income in the ratios.

See current AN for non-citizen status documentation.  Specific documents are required.  Rural Development and FHA guidelines do not match on this subject.

## Site Eligibility

- Must be in Eligible Area
**	**_[https://eligibility.sc.egov.usda.gov/](https://eligibility.sc.egov.usda.gov/)_
- Access from a Street, Road or Driveway
- Provide FEMA Form 81-93 Flood Cert
- Site Value ≤ 30% of total value
- Request exceptions when justified.
- Leasehold Estates (where applicable)

**Notes:**
1980.313
Rural Development staff complete an environmental desk review on each loan.  This is why the FEMA Form 81-93 is requested in the submission package.
Site Value > 30% - document site cannot be subdivided into two or more sites
LEASEHOLD ESTATES 1980.314 Long term leaseholds is a well established practice in the area and such leaseholds are freely marketable
Unexpired term is at least 40 years from date of approval.
HOAs must conform to FNMA, Freddie, FHA, and/or VA guidelines.

## Flood Hazard Areas

- Existing homes may be financed if flood insurance is obtained.
- New home Financing Discouraged in These Areas
**Exceptions**
**Obtain a FEMA Letter of Map Revision (LOMR) indicating property is not in flood hazard area A-B**
**Has FEMA approved flood plain area management plan**
**First floor elevation above the 100 year flood plain**
**Obtain flood insurance (if no LOMR)**
**No reasonable alternate non-flood zone sites are available.**

**Notes:**
1980.318
Typically private wells and septic tanks are not permitted in flood zones.  Well heads must be protected from flood water contamination.
Development of scattered sites in flood zones A-B cannot be financed regardless of floor elevation.  Development on multiple lots where the development has had prior county approval and FEMA has issued the letter indicating verification that the lot is no longer in a flood hazard zone is permitted.

## Appraisal of Property

- Less Than 6 Months Old
- ‘As Is’ or ‘As Improved’
- State Licensed Appraiser
- FHA approved appraisers for existing properties (see inspections).
- Reviewed by Rural Development

**Notes:**
1980.334
Types of Appraisals – See current AN
URAR FNMA 1004
Quantitative Analysis FNMA 2055
Appraisal report must include market and cost approaches
Not less than three comparable sales which are less than 12 months old
Appraiser should provide explanation for unusual adjustments
Photographs should clearly provide front, side, and rear views of subject property
Front view of comparable sales is required
Lender will be notified of unacceptable appraisal reports

## Inspections – New Homes

- For FL, Agency has no additional requirements beyond the Certificate of Occupancy.
- Wells and septic systems must be approved by local government agency.

**Notes:**
1980.341

## Existing Property Inspections 

- Property must comply with HUD Handbook 4150.2 and 4905.1
- Contract with FHA appraiser to complete URAR.
- Deficiencies must be corrected.
- Test well water.  Must meet county requirement.
- Pest Inspection.  Deficiencies must be corrected.

**Notes:**
1980.341
Conform to HUD handbook 4150.2 and 4905.1

## Repairs/renovations

- May be included in the Loan
- Completed prior to issuance of the Loan Note Guarantee
- Escrow of repairs permitted under certain limited circumstances

**Notes:**
Seller, applicant, lender agree to proposed repairs.  The purchase contract should detail the agreement in regard to repairs/renovations, such as the specific repairs and who is responsible for payment.
The appraisal should be accomplished on as ‘as developed’ basis.
The Rural Development does not dictate the necessary repairs.  Any deficiencies noted by the FHA appraiser must be resolved to the satisfaction of the appraiser, the buyer, the seller, and the lender.

## New Construction Warranty

- 1 Year Builder’s Warranty
- Or
- 10 Year Builder’s Warranty from approved company

**Notes:**
10 year warranty must be from an Agency approved company

## Escrow Accounts

- Existing *AND* New Construction
- Exterior work only when due to weather
- Escrow at least 150% of the cost of completion

**Notes:**
1980.315 
Remaining work does not effect livability 
Need signed contract
Work to be completed within 120 days
Lender to provide final inspection

## The Process

- Lender pre-qualifies application.

- Lender reserves GRH funds.

- Lender processes application.

**The Process**

- Lender submits complete application.

## The Process

- Rural Development issues Conditional Commitment
- within 48 hours.

- Lender closes loan.

- Rural Development issues
- Loan Note Guarantee to Lender.

- Lender submits closing package to Rural Development.

## Reservation of Funds

- When lender has:
- Pre-qualified Applicant
- Signed Purchase Agreement
- Fax Rural Development Form 1980-86, Request for Reservation of Funds
- Reservation valid for 60 days

**Notes:**
Reservations set aside funds to ensure availability to the applicant for 60 days.
Allows for National and State monitoring of funds usage.

## Application

- Agency reviews underwritten package for GRH compliance.
- Conditional Commitment issued within 48 hours.
- Agency informs lender if package incomplete.

**Notes:**
Rural Development reviews the lender’s underwriting – Rural Development does not underwrite the loan a second time.
Conditional Commitment = GRH Loan ApprovalAuthorizes Lender to close provided Conditions are accepted
If Lender determines that a Condition cannot be met, alternatives can be proposed to Rural Development for consideration.
Conditional Commitment is typically issued for 90 days & may be extended for another 90 days.
If construction is involved, the expiration date will correspond with the projected completion of the project. 
Do NOT delay submission of a submission package on an end loan for new construction even when construction has not started.  The applicant must remain eligible until the Conditional Commitment is issued.  The delay in submission jeopardizes the eligibility process. The standard reason for lender delay is because they are waiting for the appraisal to be done after the appraiser does the final inspection.  While this method saves a small inspection fee when compared to having the appraisal up front on an “as proposed” basis, the risk is high regarding the applicants continued eligibility status.  In addition, the Reservation of Funds is good for only 60 days.  When a delay in file submission is anticipated, the Reservation should not be submitted until within 60 days of the submission.

## Submission Checklist

- 1980-21, Request For SFH Loan Guarantee
- Lender’s Loan Underwriting Analysis
- Uniform Residential Loan Application
- Income Verification
- Credit Verification
- Purchase Agreement
- Appraisal
- FEMA 81-93, Standard Flood Hazard Determination

**Notes:**
High quality copies are acceptable. 
FNMA 1008 or comments and requirements of underwriter must be attached. Document payment shock. 
FNMA 1003 Uniform Residential Application is common.
Purchase Agreement for existing or construction contract for new construction.
Appraisal:  
New construction (less than 12 months) State certified appraiser for all new construction. 
 Existing properties (over 12 months old). Request FHA appraiser to complete URAR for existing properties (over 12 months old).  FHA appraiser does NOT log appraisal with FHA nor issue the FHA required notices to homeowner.  FHA appraiser’s completion of the URAR satisfies Agency inspection requirements.  Any deficiencies sited by the FHA appraiser must be resolved.  See the slide on inspection of existing property.

## Post-Closing

- If repairs were escrowed, repairs must be completed prior to issuance of the Guarantee.
- Submission Checklist
-  1980-19, Loan Closing Report
-  Guarantee Fee
-  Lender Certification (on Commitment form)
- Copy of Promissory Note
- Copy of HUD Settlement statement
- 1980-11 Lender Record Change if loan is sold.
- Loan Note Guarantee issued.

**Notes:**
In FL/VI, the conditions list issued with the Conditional Commitment for Loan Note  Guarantee constitutes the loan closing checklist.
Lender’s post closing department should assure that all Rural Development conditions have been met.  
The lender must sign and date the lender’s certification on the reverse of the Form 1980-18, “Conditional Commitment for Loan Note Guarantee”.

## Servicing/Reporting

- Online Reporting
- Servicing
- Early default intervention
- Loss mitigation
- Liquidation
- Timely liquidation
- Timely disposal (if applicable)
- Timely loss claim to Rural Development

## Resource Websites

- Eligibility Website  _[http://eligibility.sc.egov.usda.gov/](http://eligibility.sc.egov.usda.gov/)_
- Florida/Virgin Islands Website  _[www.rurdev.usda.gov/fl/guarhhs.htm](http://www.rurdev.usda.gov/fl/guarhhs.htm)_
- National Web Site  _www.rurdev.usda.gov_
- Rural Development Instruction 1980-D  _[http://](http://www.rurdev.usda.gov/regs/regs_toc.html)__[www.rurdev.usda.gov/regs/regs_toc.html](http://www.rurdev.usda.gov/regs/regs_toc.html)_
- Administrative Notices  _[http://](http://www.rurdev.usda.gov/regs/an_list.html)__[www.rurdev.usda.gov/regs/an_list.html](http://www.rurdev.usda.gov/regs/an_list.html)_
- Fannie Mae Rates
- 	_[http://www.efanniemae.com/singlefamily/reference_tools/net_yields/db_rate_chart.jhtml](http://www.efanniemae.com/singlefamily/reference_tools/net_yields/db_rate_chart.jhtml)_
- Credit Alert Interactive Voice Response System (CAIVRS) (301)344-4000 or _[http://](http://www.hud.gov/offices/hsg/sfh/sys/caivrs/caivrs/cfm)__[www.hud.gov/offices/hsg/sfh/sys/caivrs/caivrs/cfm](http://www.hud.gov/offices/hsg/sfh/sys/caivrs/caivrs/cfm)_

**Notes:**
Eligibility Website - public availability
test property location eligibility
Test income limits

Florida/Virgin Islands Website – public availability
Extensive information on the guaranteed residential loan program for:
Individuals
Realtors
Builders
Lenders

National Rural Development Website
Information for all programs
Information for all states

Rural Development Instruction 1980-D
502 Guaranteed Single Family Housing instruction

Administrative Notices
Further guidance to lenders & Rural Development staff for the GRH program

Fannie Mae Rates

## Questions?

## THANK YOU

- <Insert Contact Info>