HB-1-3550

8.1 INTRODUCTION

Once the Loan Originator has completed all of the procedures described in Chapters 3 

through 7 and has decided based on the qualifications of the applicant, the characteristics of the 

property, and the results of the underwriting analysis that the loan should be made, the case file 

is submitted to the Loan Approval Official for final review and approval. Section 1 of this 

chapter describes the procedures used to notify the applicant of the Loan Approval Official’s 

decision and to obligate loan funds, if appropriate. Section 2 describes the steps the Loan 

Originator and the closing agent must take to prepare the loan for closing. Section 3 describes 

the steps required to actually obtain funds for the closing and ensure that the closing is 

accomplished. Section 4 describes the process for administering construction loans. 

SECTION 1: LOAN APPROVAL AND OBLIGATION

8.2 THE LENDING DECISION

If the underwriting analysis indicates that the loan should be approved, the Loan Originator 

must submit a complete case file to the Loan Approval Official. The Loan Approval Official should 

review all of the documents contained in the case file to ensure that they are completed properly, and 

must confirm that the Loan Originator’s underwriting decision is sound. The Loan Approval Official 

should approve or reject the loan within 30 days of receiving a complete case file.

A. Rejection

Handbook Letter 15 (3550), Standardized Adverse Decision Letter, must be signed by the 

Loan Approval Official and sent to the applicant. Whenever applicants are denied credit, they 

must be advised of their review and appeal rights, as described in Paragraph 1.9. 

B. Approval

If the loan is approved, Form RD 3550-7, Funding Commitment and Notification of Loan 

Closing, will be issued, signed and dated by the Loan Approval Official. Throughout the fiscal 

year, loans may be approved subject to an appraisal. When this allowance is used, the box 

labeled “This commitment is contingent upon RHS obtaining an acceptable appraisal that 

adequately secures the loan and meets the requirements of 7 CFR Part 3550, section 3550.62” on 

Form RD 3550-7 must be checked.

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(01-23-03) SPECIAL PN

Revised (06-28-23) PN 585

CHAPTER 8: LOAN APPROVAL AND CLOSING
HB-1-3550

Paragraph 8.2 The Lending Decision

8.3 OBLIGATING FUNDS

A. Initial Obligation

A loan must be approved and obligated the same day. Form RD 3550-7 must be signed 

and dated by the Loan Approval Official at the time of loan approval and obligation. Therefore, 

Form RD 3550-7 or any approval letter must not be issued to the applicant unless the loan has 

been approved and obligated. 

As soon as the Loan Approval Official approves the loan and signs Form RD 3550-7, 

the Loan Originator will obligate funds through LoanServ. The executed Form RD 3550-7 

must be stored in the recipient’s case file in ECF. If, after 15 days Form RD 3550-7 is not 

signed and returned, the Loan Originator must deobligate the loan and complete Form RD 

1940-10, Cancellation of U.S. Treasury Check and/or Obligation. Once the loan has been 

deobligated, the application is withdrawn. Should the applicant express interest in another 

loan, a new application must be filed, and would be processed based on the new application 

date.

Loan approval and funds obligation may also trigger re-disclosure of the Loan Estimate if 

the interest rate and/or closing costs at loan approval are greater than disclosed on the original 

Loan Estimate. If a revised Loan Estimate is required, it must be issued within 3 business days 

of loan approval/obligation but no later than 4 business days prior to loan consummation 

(7 business days if the revised Loan Estimate is mailed to the applicant).

B. Changing the Loan Amount

If the loan amount must be increased or decreased prior to loan closing, any paperwork 

that reflects or is affected by the loan amount must be revised. The closing agent and the 

applicant must return any loan closing forms that have already been distributed so that they can 

be revised appropriately. Exhibit 8-1 illustrates the steps for making changes to the loan amount. 

When an increase in the obligation amount is needed, the Agency has 15 days from when funds 

become available to adjust the amount in the appropriate system and a new Form RD 3550-7 

must be issued. The applicant has 15 days from date of the form to sign and return it. 

NOTE: Form RD 1940-10, Cancellation of U.S. Treasury Check and/or Obligation, must 

be completed for any deobligation (full or partial). This must be signed by the Loan Approval 

Official within 5 business days after allotted appeal timeframe has expired (if applicable), or 

within 5 business days once it has been determined funds are no longer needed or valid (if appeal 

rights are not given). Deobligation processing must occur within 15 business days from 

date/signature on Form RD 1940-10. 

If a loan amount must be increased or decreased for a prior fiscal year, the Field Office 

should contact the Servicing and Asset Management Office (Servicing Office) Disbursement 

Unit. All requests to increase the obligation amount for a direct loan with prior fiscal year 

funds are subject to the availability of funds at the time for the request. The Servicing Office 

Disbursement Unit will make the required corrections to the obligation amount.

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HB-1-3550

Paragraph 8.3 Obligating Funds

NOTE: Although it is understandable that errors sometimes occur when obligating and closing 

loans, Field Offices are required to make every effort to adhere to the guidelines outlined in 

this handbook for correctly obligating loans.

Exhibit 8-1

Steps for Changing the Loan Amount

Increase Amount of Loan

Verify availability of funds.

If the funds have not yet been sent to the Field Office or closing agent, 

cancel the request. If a check has already been sent, void the check and 

return it to the Servicing Office with Form RD 1940-10 and Form RD 

3550-17. If ACH or wire funds have been sent, contact the SFH

Assistance Section at the Servicing Office so they can initiate retrieval of 

the funds.

Cancel the obligation for the loan in LoanServ. 

Update the new loan information in UniFi 

Reobligate the loan for the correct amount and request a new check or 

ACH through LoanServ

Decrease Amount of Loan

If the check or ACH disbursement has not yet been sent to 

the Field Office, cancel the request. If the funds have 

already been sent, void the check, if applicable, and return 

it to the Servicing Office with Form RD 1940-10 and 

Form RD 3550-17. If ACH or wire funds have been sent, 

contact the SFH Assistance Section at the Servicing Office 

so they can initiate retrieval of the funds. 

Amend the original obligation in LoanServ. 

Update the new loan information in UniFi.

Request a new check or ACH through LoanServ.

C. Canceling a Loan

To cancel the entire loan prior to loan closing, the Loan Originator must deobligate the 

loan and cancel the funds request in LoanServ. Form RD 1940-10, Cancellation of U.S. 

Treasury Check and/or Obligation, must be completed for any deobligation (full or partial, 

including when an applicant does return the Form RD 3550-7 within 15 days and in cases 

where the loan has not closed). This must be signed by the Loan Approval Official within 5 

business days after allotted appeal timeframe has expired (if applicable), or within 5 business 

days once it has been determined funds are no longer needed or valid (if appeal rights are not 

given). Deobligation processing must occur within 15 business days from the date of signature 

on Form RD 1940-10. The executed Form RD 1940-10 must be stored in the recipient’s case 

file in ECF. If ACH or wire funds were already sent, the Field Office should contact the 

Servicing Office’s SFH Assistance Section and request that the funds be recalled from the 

closing agent. If a Treasury check has already been sent to the Field Office or closing agent, the 

check must be voided and returned to the Servicing Office with the completed Forms RD 1940-

10, Cancellation of U.S. Treasury Check and/or Obligation, and RD 3550-17, Funds 

Transmittal Report. The Agency’s or applicant’s decision to cancel the loan must be 

documented carefully. The following instructions are to be followed for returning checks to the 

Servicing Office for cancellation:

Return Treasury Checks via overnight mail to: 

USDA Rural Development 

Single Family Housing Branch 

211 North Broadway 

Suite 1701; Mail Stop 2234 

St. Louis, MO 63102 ______________________________________________________________________________________________________________________________ 

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(01-23-03) SPECIAL PN

Revised (06-28-23) PN 585
HB-1-3550

Paragraph 8.3 Obligating Funds

The required information for this packet is:

1) Form RD 1940-10, Cancellation of U.S. Treasury Check and/or Obligation;

2) Form RD 3550-17, Funds Transmittal Report; and

3) Check

After the funds have been returned, the Loan Originator must notify the applicant and closing 

agent of the loan cancellation using Handbook Letter 15 (3550), Standardized Adverse Decision 

Letter, which must be signed by the Loan Approval Official. In situations where the cancellation is not 

the applicant’s choice, Handbook Letter 15 (3550) must indicate any action that can be taken to correct

or appeal the decision. It is the applicant’s responsibility to notify the seller and any contractors of the

cancellation.

D. Monitoring Obligations:

The National Office posts an Undisbursed Obligation report to SharePoint each month so 

that State Offices can monitor undisbursed obligations over 180 days. This monthly report must 

be reviewed utilizing Attachment 8-B, Unliquidated Obligation Review, and must be saved in 

the recipient’s case file within ECF. Timely usage of funds is essential and aids the Agency in 

ensuring that program dollars are not deobligated in the following fiscal year, making them 

unavailable to fund other applications. The monitoring of a State’s unliquidated obligations 

should consider the circumstances of the loan, determine the need for the remaining funds, and 

whether a full or partial deobligation should occur. Based on the monitoring process in place, 

e.g., monthly reviews identified in Attachment 8-B, these should be used to provide a status on 

the semi-annual ULO Certification report.

In conjunction with the Undisbursed Obligation report, National Office also posts the 

Loans Fully Disbursed, not Activated report to SharePoint each month so the State Offices can 

monitor loan funds which have been fully disbursed, but the loan has not yet been activated. 

Timely activation is essential to ensure borrower repayment begins promptly, to avoid negative 

impacts for the borrower and the Agency. 

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HB-1-3550

SECTION 2: PREPARING FOR CLOSING

8.4 TITLE INSURANCE AND CLOSING AGENTS

For most loans, the Agency requires title insurance, and requires that the loan closing be 

conducted by a closing agent who meets the Agency’s standards. This paragraph summarizes the 

Agency’s requirements for title insurance and closing agents, and the procedures for approving 

the individuals and firms that provide those services. Details about these procedures can be found 

in RD Instruction 1927-B.

A. Title Insurance

Title insurance is required for most loans unless the State Director determines that the use 

of title insurance is not possible, is not economically feasible for the type of loan involved, or in 

the area of the State where the loan will be made. In these cases, an attorney’s opinion can be 

accepted. If the total outstanding balance of any unsecured (note only) Section 502 loans is less 

than $7,500, title insurance is not required. If the total outstanding balance on Section 504 loans 

is $25,000 or less, title insurance is not required. Title insurance is not required for loans made

on tribal trust land when a certified Title Status Report is issued by the Bureau of Indian Affairs.

B. Closing Agents

An attorney or title company may act as a closing agent and close Agency real estate 

loans, provide necessary title clearance services, and perform other closing-related duties 

prescribed by the Agency. A closing agent approved by the Agency is required for all section 

502 loans of $7,500 or greater and for 504 loans where the total outstanding balance is greater 

than $25,000 with the exception of a subsequent loan made for minimum essential repairs 

necessary to protect the Government’s interest. When feasible, loans made on tribal trust land 

do not require a closing agent as they may be closed by the Agency in conjunction with the 

Bureau of Indian Affairs.

C. Approvals

State Offices maintain a list of title insurance companies that are authorized to provide 

title insurance in the State. Each approved title insurance company may provide a master list of 

title companies and attorneys that are covered by its closing protection letter and are thereby 

authorized to perform closings on behalf of that title insurance company. The State Office 

determines which title insurance companies will be authorized to issue title insurance policies for 

Agency loans based on RD Instruction 1927-B.

______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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(01-23-03) SPECIAL PN

Revised (03-09-22) SPECIAL PN
HB-1-3550

Paragraph 8.4 Title Insurance and Closing Agents

Since a title insurance company is not regulated by the State, the approval process will be 

repeated at least every 5 years, or more often if adverse information becomes available, to ensure 

continued compliance by the title insurance company. 

If an applicant selects a title company or attorney that is on the State Office list, no 

further verifications are necessary. If the attorney or title company selected is not on the list, 

they should provide an acceptable closing protection letter from an approved title insurance 

company.

Alternatively, title companies may submit Form RD 1927-20, Certification of Title 

Insurance Company, and attorneys may submit Form RD 1927-19, Certification of Attorney, to 

request Agency approval. 

D. Procedures

If the applicant selects a title company or attorney that is not on the State Office list, the 

Loan Originator must send the title company or attorney Form RD 1927-20 or Form RD 1927-19, 

whichever is appropriate. The title company or attorney must return Form RD 1927-20 or Form 

RD 1927-19 to the Loan Originator for review. Standards for evaluating a title company or 

attorney’s qualifications are contained in RD Instruction 1927-B.

To notify a title company or attorney of their selection and approval, the Loan Originator 

should send Form RD 1927-4, Transmittal of Title Information, and attach Form RD 1927-9, 

Preliminary Title Opinion, if an attorney is performing loan closing. 

8.5 RESPONSIBILITIES OF THECLOSINGAGENT/ATTORNEY

The Loan Originator must provide Form RD 3550-25, Loan Closing Instructions and 

Loan Closing Statement, to the closing agent/attorney. This form provides information about the 

amount of personal funds required from the applicant, the appropriate disbursement of funds, any 

remaining requirements that the applicant must meet, and the instruments and forms required for 

loan closing. The Loan Originator also should attach all forms needed for loan closing as well as 

copies of other documents to facilitate the closing agent’s/attorney’s review (e.g., tax bills, legal 

descriptions, or surveys). Closing documents may be sent via email IF THE EMAIL

ATTACHMENT IS ENCRYPTED WITH A SECURITY PASSWORD TO PROTECT

THE APPLICANT’S/BORROWER’S SENSITIVE INFORMATION WHICH INCLUDES

THE SOCIAL SECURITY NUMBER, ADDRESS, DATE OF BIRTH, etc. Form RD

3550-25 need not be executed until loan closing, and must be returned, along with the other closing 

documents.

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HB-1-3550

Paragraph 8.5 Responsibilities of the Closing Agent/Attorney

The closing agent/attorney is required to perform a number of tasks, including:

• Provide a title insurance binder (or prepare Form RD 1927-9, Preliminary Title 

Opinion) within 10 days of the date of the transmittal letter;

• Secure a title insurance policy within 60 days of loan closing or a final title opinion 

within 14 days of loan closing; 

• Establish a mutually convenient date for the loan closing;

• Assess whether, after closing, the borrower will have an ownership interest in the 

property that is of the priority required by the Agency and subject only to those 

exceptions approved by the Agency; 

• Ensure that the applicant provides a copy of an acceptable hazard insurance policy or 

insurance binder, and evidence that 1 year’s premium has been paid; 

• Confirm that the applicant has flood insurance, ifapplicable;

• Collect any other information the Agency has instructed the applicant to provide;

• Ensure that the applicant is aware of any funds that must be brought to closing; and

• On the day of the loan closing, confirm that the applicant has no outstanding 

judgments. If any additional entries of record are identified, the loan cannot be closed 

until these entries are cleared or approved. 

The Agency or closing agent/attorney must 

complete the Closing Disclosure, which itemizes 

the costs to be paid by the applicant and seller at 

closing. The Closing Disclosure may be used to 

reset tolerance instead of reissuing a

revised Loan Estimate when a change in circumstance has occurred. UniFi will provide much of 

the information needed for the Closing Disclosure, including the amount of the initial deposit to 

the escrow account. This information should be provided to the closing agent/attorney. Real 

estate taxes and homeowners’ association/condo fees must be prorated between the seller and 

borrower using the Closing Disclosure to estimate the actual amount of cash needed for closing 

and to determine the actual payment amount. The closing agent/attorney also must ensure that 

there are no outstanding demands for payment from a contractor or supplier for construction or 

repair work. If required by State Supplement, Form RD 1927-5, Affidavit Regarding Work of 

Improvement, must be signed at closing by the seller or, in the case of a subsequent loan, by the 

borrower, to certify that there are no outstanding claims.

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(01-23-03) SPECIAL PN

Revised (06-28-23) PN 585

The Agency is responsible for meeting the 

accuracy and timing requirements of the 

Closing Disclosure.
HB-1-3550

8.6 RESPONSIBILITIES OF THE LOAN ORIGINATOR

The Loan Originator is responsible for coordinating all aspects of the process so that the 

required pieces come together on the day of closing. Between the time the loan is approved and 

the day of closing, the Loan Originator must: (1) work with applicants to be sure they understand 

and carry out their obligations; (2) work closely with the closing agent and review their work, as 

appropriate; (3) re-verify income, eligibility and validate the interest rate; (4) prepare the 

documents that the Agency must provide for closing; and (5) ensure all loan approval conditions 

have been met. 

A. Prepare the Applicant

The Loan Originator must work with applicants to ensure that they understand the steps 

required to reach closing successfully.

1. Notification of Loan Closing

The Loan Originator must notify the applicant of the conditions to be met and 

information to be provided at or before loan closing using Form RD 3550-7, Funding 

Commitment and Notification of Loan Closing. The applicant must review, sign, and 

return Form RD 3550-7 to the Loan Originator within 15 days from the date of the form. 

The loan cannot be closed unless Form RD 3550-7 has been signed and all obligations 

listed on the form have been met.

2. Closing Costs

The applicant may be required to bring funds to closing for a variety of purposes, 

including assets that must be contributed as a down payment, funds to pay for closing costs, 

or resources to fund the initial deposit to the escrow account. Borrowers receiving a 

subsequent loan may be required to prepay interest at closing. If loan closings occur on the 

29th, 30th, or 31st, the applicant will choose a desired payment due date between the 1st and 15th of 

the following month, 30 days from loan closing. UniFi will calculate the number of days and 

dollar amount of prepaid interest to be collected at closing as described in Chapter 10 of the 

DLOS manual. An estimate of the required amount, determined by the Loan Originator, is 

provided on Form RD 3550-7. The closing agent/attorney makes the final determination of 

the actual amount required from the applicant. 

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HB-1-3550

Paragraph 8.6 Responsibilities of the Loan Originator

B. Review Title Insurance Binder (or Preliminary Title Opinion) and OtherClosing 

Documents

Upon receipt of a title insurance 

binder (or Form RD 1927-9, Preliminary 

Title Opinion), the Loan Originator must

carefully review it and consider the issues 

identified in Exhibit 8-2. The Loan 

Originator should review any exceptions 

listed to determine if the lien position is in 

jeopardy. If the exceptions will adversely 

affect the property’s title, suitability, or 

security value, the loan cannot be closed.

If prior liens will be present as part 

of a leveraging strategy, Form RD 1927-8, 

Agreement with Prior Lienholder, must be 

executed by the lien holder and recorded in 

the appropriate real estate mortgage 

records.

If any required information is 

omitted, or if the title insurance binder (or

Form RD 1927-9) is not satisfactory, the Loan Originator should return it to the closing 

agent/attorney for corrections.

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(01-23-03) SPECIAL PN

Revised (06-28-230) PN 585

Exhibit 8-2

Reviewing the Title Insurance 

Binder (or Preliminary Title 

Opinion)

• Afterclosing,the borrowermust becomethe

owner of record of the real property.

• Any liens or recorded claims that would prevent the 

Agency from obtaining an enforceable mortgage 

must be removed.

• Outstanding judgments, bankruptcy,insolvency, 

or probate proceedings must be resolved.

• All property rightsintended to be taken assecurity 

must be available.

• If wetlands easements or other conservation 

easements have been placed on the property, they 

must be acceptable to the Agency.

• If there are any exceptions of record, they 

must be acceptable to the Agency.
HB-1-3550

Paragraph 8.6 Responsibilities of the Loan Originator

The Loan Originator must also review the Closing Disclosure prepared by the closing 

agent/attorney and, if correct, will proceed (or authorize the closing agent/attorney) to provide 

the disclosure to the applicant at least three business days before loan consummation. The 

applicant may waive the three-business day waiting period if they are facing a bona fide financial 

emergency. Such request for waiver of the three-business day waiting period must be received 

from the applicant in writing. If revisions to the Closing Disclosure are needed after it has been 

provided to the applicant, an additional three business day waiting period will be required. 

C. Re-verifying Employment and Income 

The Loan Originator must obtain an oral verification of employment (VOE) within 10 

business days prior to the closing date if the applicant has worked for the employer for less than a 

year or the other types of verifications are inconsistent or suspicious. A written verification of 

employment, dated within 10 business days prior to the closing date, may be accepted in lieu of an 

oral VOE. Documentation to re-verify the applicant’s income must be updated before loan closing 

if: (1) the closing will occur more than 120 days after the date on the income/employment 

verification documents; (2) there is evidence to indicate a change in financial status; or (3) the 

applicant’s employment status had changed within 4 months prior to submission of the application. 

All re-verification activity should be documented carefully. 

If the income re-verification indicates a significant change in income, the Loan 

Originator should take the following steps: 

• Verify that the applicant is still income-eligible. A program loan cannot be granted if 

the applicant’s adjusted income exceeds the moderate-income level at closing. 

Regardless of whether the applicant’s income decreases or increases to change their 

status from very-low or low income, no changes are needed on the loan obligation. 

(There are no income restrictions for non-program applicants.) 

• Determine whether the applicant is eligible for payment subsidy. Payment subsidy 

may be granted if the applicant’s adjusted income is at or below the applicable 

moderate-income limit.

• Consider whether the applicant could obtain 100 percent private financing and refer 

the applicant to a private lender, if appropriate.

• Confirm that the applicant has adequate repayment ability.

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HB-1-3550

Paragraph 8.6 Responsibilities of the Loan Originator

D. Re-verify Eligibility

The applicant’s circumstances may have changed since loan approval/obligation and 

must be reviewed as part of closing preparations. Form RD 3550-7, Funding Commitment and 

Notification of Loan Closing, should be reviewed to be sure all obligations are included on the 

most recent Eligibility Summary. After all re-verifications have been completed, the Loan 

Originator will print out and sign a new UniFi Eligibility Summary and place it in the applicant 

case file.

E. Validate the Interest/Note Rate

Before preparing the loan closing documents, the Loan Originator must validate the note 

rate. The validation process involves reviewing the information in UniFi and LoanServ to 

ensure that both systems have the same and correct interest rate.

The Loan Originator should use the following process to validate the note rate.

• Review the interest rate history to determine if an interest rate change occurred 

between loan approval/obligation and loan closing. 

• Determine which of the interest rates is lower. The Loan Originator must use the 

applicable interest rate in effect at loan approval or loan closing, whichever is

lower.

• If the interest rate at closing is lower than the one in effect at the loan 

obligation/approval date, both UniFi and LoanServ must be updated to reflect the 

lower rate.

• Ensure that documents printed from UniFi, especially those affected by the interest 

rate such as the Promissory Note, Loan Estimate and Closing Disclosure, Truth in 

Lending Statement (as applicable) and Form RD 410-4, are accurate, consistent with 

the information in LoanServ, and in compliance with program guidelines. 

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Revised (03-09-22) SPECIAL PN
HB-1-3550

Paragraph 8.6 Responsibilities of the Loan Originator

F. Prepare Loan Documents

The Loan Originator should assemble the forms needed for closing, and forward them to 

the closing agent/attorney with Form RD 3550-25, Loan Closing Instructions and Loan Closing 

Statement. When preparing the instructions, any cash back to the applicant/borrower must be 

limited to the reimbursement for certain items paid by the applicant/borrower outside of closing 

(i.e. earnest money deposit, homeownership education fee, inspection fees, and the first year’s 

hazard insurance premium). Loan funds or excess seller paid concessions may not be disbursed to 

the applicant/borrower. Excess loan funds should be applied as a principal reduction. 

Closing documents may be sent via email IF THE EMAIL ATTACHMENT IS

ENCRYPTED WITH A SECURITY PASSWORD TO PROTECT THE

APPLICANT’S/BORROWER’S SENSITIVE INFORMATION WHICH INCLUDES THE

SOCIAL SECURITY NUMBER, ADDRESS, DATE OF BIRTH, etc. 

The closing agent/attorney is responsible for completing the appropriate forms, preparing 

the security instruments, and obtaining signatures at closing, as needed. Attachment 8-A lists the 

documents needed for loan closing. 

In unusual circumstances, changes must be made to the text of a security instrument or 

promissory note. For example, in the case of a non-program borrower, the clauses relating to 

refinancing to other credit and prohibition on leasing will be stricken. The Loan Originator 

should draw a line through only the specific language to be deleted, and alert the closing 

agent/attorney of the deletions. All persons signing the security instrument or promissory note

must initial the changes in the margin.

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HB-1-3550

Paragraph 8.6 Responsibilities of the Loan Originator

1. Special Documents for Assumptions

Whether new funds are obligated or existing loan funds are recycled through an 

assumption is primarily an accounting function, and is largely transparent to the 

purchaser and seller. However, there are 3 procedural differences that will affect the 

purchaser and the seller. First, the purchaser must sign Form RD 3550-22, Assumption 

Agreement Single Family Housing, at closing. Second, the original note is not returned 

to the seller. Instead, the note is amended to indicate that it has been assumed. The 

original Promissory Note, with a copy of Form RD 3550-22 attached, is kept in a locked 

fire-proof file. Copies are placed in the purchaser’s case file. Third, Form RD 3550-16, 

Release from Personal Liability, is provided to the seller at closing. The agreement is 

executed to release the seller from all personal liability for the amount of debt being 

assumed. In cases where the debt is not being assumed in full, the Servicing Office will 

handle the settlement of the remaining debt and any release of liability for that portion 

of the debt not being assumed. 

Unless required by State law, a previous mortgage / deed of trust may be released 

provided that all previous promissory notes and assumption agreements are listed on both 

the new assumption agreement and the new mortgage or deed of trust to ensure that all 

debts are adequately secured.

2. Special Documents for SubsequentLoans

Applicants who are obtaining a subsequent loan have a legal right to cancel the loan 

within 3 business days from whichever of the following activities occurs last:

(1) execution of the mortgage or deed of trust; (2) receipt by the applicant of the Closing 

Disclosure at least 3 business days prior to consummation; or (3) receipt of Form RD 

1940-43, Notice of Right to Cancel. The Loan Originator or closing agent/attorney 

cannot disburse funds to the applicant until the 3 business days have passed, unless a 

hardship exists and the applicant waives their right to cancel the loan in writing.

3. Special Instructions for Loans on Tribal Trust Land

Only the Bureau of Indian Affairs (BIA) has the legal authority to secure a recording 

on tribal trust land. The BIA serves as the recording office and title insurance guarantor 

for all tribal trust lands. A Title Status Report (TSR) must be requested from the BIA for 

which the Agency will need to provide certain lending documents such as the approved 

lease agreement, mortgage / deed of trust, promissory note, etc. The Agency may close 

the loan upon BIA approval and commitment to issue the certified TSR which will show 

the recorded Agency lien. Without a certified TSR issued from the BIA the Agency does 

not have a secured lien. 

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(01-23-03) SPECIAL PN

Revised (03-09-22) SPECIAL PN
HB-1-3550

SECTION 3: CLOSING

8.7 OBTAINING FUNDS FORCLOSING

The Agency utilizes an automated process for the electronic disbursement of loan funds 

known as the Automated Clearing House (ACH) network. This process pertains only to initial 

disbursements on section 502 loans. At the appropriate time, funds are released via ACH into

the closing agent’s/attorney’s account in order to close the loan. Under no circumstances will the 

loan closing proceeds be transferred from one closing agent’s/attorney’s bank account to another. 

In the event the funds were sent to the wrong closing agent/attorney, call the Servicing Office at 

the Field Support/ACH Help Desk. 

The ACH process is not utilized for subsequent disbursements on construction loans,

section 504 Loan and Grant combos, 504 grants, and 504 loans. Subsequent disbursements on 

construction loans, section 504 Loan and Grant combos, 504 loans, and 504 grants only are 

requested via the LoanServ system.

Any loan that is closed in the Field Office will use a paper check, i.e. Native American 

loans closed via Office of General Counsel (OGC) and section 502/504 Note only loans. Checks 

are generated the day they are requested and are dated for 3 days later.

8.8 ESTABLISHING THE DISBURSEMENTSCHEDULE 

Some borrowers will be able to occupy their dwellings immediately, while others will 

need to remain in other housing until construction or rehabilitation is complete. To avoid 

requiring borrowers to repay an Agency loan while continuing to pay other housing costs, 

borrowers who cannot occupy the property within 30 days are permitted to defer loan payments.

A. Permanent Loans

If loan funds are to be used to purchase an existing dwelling or newly built house (that 

was complete or largely complete when the purchase agreement was signed), or to complete 

minor repairs, such as painting or carpeting, the borrower should be able to occupy the property 

within 30 days. In these situations, a permanent loan is made and the borrower’s repayment 

obligation begins immediately. Funds for permanent loans are requested in a single 

advance. In general, the loan funds are disbursed in full at closing. If funds for repairs are not 

fully disbursed at loan closing, the undisbursed loan proceeds are deposited into an escrow 

account supervised by the closing agent/attorney, or into a supervised bank account and disbursed 

in accordance with RD Instruction 1902-A.

8-14
HB-1-3550

Paragraph 8.8 Establishing the Disbursement Schedule

B. Construction Loans

If loan funds are to be used to build a new dwelling or 

to undertake repairs that will prevent the borrower from 

occupying the dwelling for more than 30 days, the loan is 

made as a construction loan. Funds for construction loans are 

disbursed in multiple advances that begin to accrue daily simple interest as of disbursement at 

the borrower’s subsidized rate and will not exceed the note rate. When activating the 

construction loan, and to ensure that interest accrues at the subsidized rate during construction, 

the Loan Originator must enter the subsidized rate into LoanServ. The deferral period identified

on Form RD 1940-16, Promissory Note, should be within the estimated timeframe to complete the

construction as identified in the construction contract documents (e.g., Form RD 1924-6, 

Construction Contract). If the construction period exceeds the estimated deferral period, the Loan 

Originator will modify the note and contact the Servicing and Asset Management Office, SFH 

Assistance Section, to request the deferral period to be extended. 

The Loan Originator will post each disbursement into LoanServ. LoanServ will calculate 

and record the amount of the interest accrual during the construction period. The Loan 

Originator must generate the Approved Eligibility Summary from UniFi and place it in the 

borrower’s case file when the construction loan is activated. The construction loan is converted 

for amortized payments, which will be due the first day of the month as a permanent loan in 

LoanServ, once the final disbursement is posted in LoanServ and following any of these events: 

• Final inspection by the Agency or qualified third party;

• Issuance of the Certificate of Occupancy by the local jurisdiction;

• Occupancy of the new or repaired dwelling

NOTE: If a borrower is unwilling to initial the revised note, the loan may still be 

converted (see table in Paragraph 8.13). 

When construction funds are not fully expended at loan conversion, all remaining loan 

proceeds are deposited into an escrow account supervised by the closing agent/attorney, or into a 

supervised bank account and disbursed in accordance with RD Instruction 1902-A. Principal 

curtailments for construction funds remaining after completion are handled according to Chapter 

5, Paragraph 5.26. 

C. Construction Take-Out Loans

If loan funds are to be used to purchase a newly built house where construction had not 

started or just started at the time the purchase agreement was signed and where the builder will 

retain ownership of the lot during construction and fund the construction, the loan is made as a 

purchase new loan. In this situation, the obligation can occur in advance of construction 

provided the proposed construction and site meet the property and environmental standards. In 

addition, the Loan Originator should determine how the construction quality will be documented 

following the guidance in Chapter 6, Paragraph 6.7 B. Once the construction is complete, the 

closing is held and the disbursement schedule follows that of a permanent loan. 

(01-23-03) SPECIAL PN

Revised (06-28-23) PN 585

8-15

Interest will always accrue at 

the subsidized rate during the 

construction period.
HB-1-3550

 Prior to closing, obligations for these loans must be closely monitored. The Loan 

Originator should routinely check in with the builder and/or applicant (e.g. by telephone, 

email, etc.) to ensure the construction is progressing in a timely manner based on the 

closing date established on the purchase agreement. Valuation updates or completion 

reports from the appraiser are not required unless the Agency learns of substantial changes 

to the plans or specifications which were not pre-approved by the Loan Approval Official. 

8.9 ESTABLISHING A REPAYMENTSCHEDULE

A. Monthly Installments

The Loan Originator must indicate the appropriate monthly payment schedule on Form 

RD 1940-16, Promissory Note. Under no circumstances will a new loan be scheduled with an 

annual installment. Borrowers with existing loans specifying annual payments may request 

conversion to monthly payments, and must convert to a monthly payment schedule before any 

subsequent loan or new payment subsidy is approved. 

B. Housing Assistance Program (HAP)

HAP payments made from the Housing Choice Voucher-Homeownership Program 

should be handled in the following manner. The Loan Originator should: 

• Encourage the Public Housing Authority (PHA) to send the HAP (principal, interest, 

taxes and insurance portion only) directly to Rural Development (via the appropriate 

lockbox) or to the leveraged lender versus sending it directly to the family. 

• Notify the PHA of the appropriate lockbox address and inform the PHA that the 

check must include the borrower’s name and account number at a minimum. 

• If the PHA elects to use any other payment method, Field Offices will be responsible 

for monitoring these accounts, which will require coordination with the Servicing 

Office to ensure they remain current. 

• Accounts that use the Housing Choice Voucher should be designated a “Yes” in the 

field called “Section 8 Vouchers” in the “New Application Additional Set Up Screen” 

in UniFi.

8.10 ORIGINAL EQUITY

Original equity is calculated using the market value, as defined in Form RD 3550-12, 

Subsidy Repayment Agreement, at the time of loan approval/obligation for both new and 

existing properties. Original equity is the difference between current market value and the total 

of all Agency and leveraged assistance (including subordinate affordable housing products 

and/or grants). Prepaid taxes and insurance are not considered original equity, nor are 

contributions toward closing costs. Form RD 3550-12, Subsidy Repayment Agreement, contains 

the original equity amount. Only one agreement should be executed by the subject borrower for 

the subject property. A new agreement should not be completed when extending additional 

financing (i.e. subsequent loans) to an existing borrower with an active agreement. 

8-16
HB-1-3550

When an applicant is purchasing a program Real Estate Owned (REO) property and the 

purchase price is less than the market value due to an administrative price reduction, the equity

to be credited to the borrower (if any) is any difference between the actual purchase price and the 

loan amount. Administrative price reductions do not affect original borrower equity.

8.11 LOAN CLOSING

The closing agent/attorney must review each closing document with the applicant, obtain 

signatures, as appropriate, and collect and disburse all required funds. Attachment 8-A provides a

list of the documents that may be required at closing.

A. Loan Closing DocumentSubmission

• Many of the legal documents and other 

information used in underwriting the loan must 

be provided to the Servicing Office in order to

assist with quality assurance and servicing.

• Prior to loan closing the Loan Originator must

complete the following items to be submitted to the closing 

agent/attorney:

1. Form RD 3550-19, Transmittal – Closing Documents, with the appropriate 

documents as indicated on the transmittal.

2. Form RD 3550-25, Loan Closing Instructions and Loan Closing Statement, 

which includes the required forms to be signed by the borrower(s) at loan closing. 

Once loan closing has occurred, the closing agent/attorney will:

1. Send to the Servicing Office via express (overnight)mail:

a.Form RD 3550-17, Funds Transmittal Report, and

b.A check for total fees collected as shown on Form RD 3550-17.

2. Send to the Field Office via express (overnight) mail:

a. Original loan closing documents, and

b. Copy of Form RD 3550-17, Funds Transmittal Report, along with a 

copy of check for total fees collected.

The Field Office is responsible for submitting closing documents to the Servicing 

Office within 3 working days of loan closing, as described in Form RD 3550-25, Loan Closing 

Instructions and Loan Closing Statement, and in Chapter 10 of the DLOS manual. 

8-17

(01-23-03) SPECIAL PN

Revised (03-09-22) SPECIAL PN

Special Loan Closing 

Requirements

See Chapter 9 for condominiums, 

community land trusts, planned 

unit developments, or 

manufactured homes. See Chapter 

10 for leveraged loans.
HB-1-3550

Paragraph 8.11 Loan Closing

The closing agent/attorney must return all original documents to the Loan Originator to be 

retained in the case file. However, the original Promissory Note and other essential records must be 

retained in their original hard copy form, in a locking-type fire proof filing cabinet or safe. The title 

insurance policy (or final title opinion) will be sent only to the Loan Originator and applicant by 

separate envelope. The Servicing Office does not receive a copy of the Final Title Policy.

The loan docket for construction loans should not be sent to the Servicing 

Office until the loan is converted to a permanent loan and the Promissory Note is 

amended.

B. Review Closing Documents

The Loan Approval Official must review the closing documents to verify that the Agency 

has received the proper lien priority. The Loan Approval Official also should check Form RD 

3550-7, Funding Commitment and Notification of Loan Closing, to confirm that the applicant 

submitted all required information. The Loan Approval Official then signs Form RD 3550-25, 

Loan Closing Instructions and Loan Closing Statement, to certify that the loan was closed in 

accordance with the instructions provided.

C. Activate the Loan

The Loan Originator activates the loan in LoanServ after loan closing to signal the 

Servicing Office that the loan has been closed, and that servicing should begin. The Servicing 

Office does not begin to service construction loans until they are converted to permanent.

D. Record Mortgage or Deed of Trust

The closing agent/attorney must record Form RD 3550-14 after loan closing. The closing 

agent/attorney should submit an unrecorded copy to the Loan Originator along with the other 

closing documents. The recorded copy should be provided to the Loan Originator as soon as it is 

completed.

If the original is retained by the filing official, a conformed copy showing the date and 

place of recordation must be provided.

E. Secure Title Insurance Policy

The closing agent/attorney must secure the title insurance policy and deliver it to the 

Loan Originator and applicant. A copy of the binder/commitment letter must be submitted to 

the Servicing Office with other closing documents.

8-18
HB-1-3550

SECTION 4: CONSTRUCTION LOANS

8.12 ADMINISTER CONSTRUCTIONFUNDS

When funds are used for construction or rehabilitation, the Loan Originator must 

supervise their use. The Loan Originator and the borrower must each accept the work when the 

contractor wishes to receive payment. If applicable, proper implementation of mitigation 

measures required by the environmental assessment also should be reviewed. If the work is 

acceptable, the Loan Originator should order a check with the borrower’s and contractor’s names 

on it as instructed in Chapter 12 of the DLOS manual. The check is sent to the Field Office, and 

once received, it should be given only to the borrower for endorsement. After the borrower 

endorses the back of the check, it should be promptly delivered to the contractor. The payment 

process may be expedited if the Loan Originator, borrower, and contractor meet at the dwelling, 

but this may not be feasible in all instances. 

The amount of each disbursement for construction loans is determined by the draw 

schedule, which is developed based on the value of the work, according to Marshall and Swift 

guidelines. To ensure that all work will be completed satisfactorily, the Agency holds back 40 

percent of each payment to the contractor, unless the contractor has obtained a Surety Bond, 

Performance Bond, or Payment Bond, in which case only 10 percent is held back. Holdbacks are 

released with the final payment.

8.13 CONVERT CONSTRUCTION LOANS

When a construction loan is made, the promissory note is written at the promissory note 

rate; however, when the loan is activated, the subsidized rate the borrower will receive is entered 

in LoanServ as the note rate. This causes interest during the construction period to accrue at the 

subsidized rate.

A construction loan is converted to a permanent loan effective on the first of the month 

following final inspection, or occupancy, or issuance of an occupancy permit. First payment due 

date should be the first of the month following the loan conversion. When the loan is converted to 

a permanent loan, the Loan Originator must change the note rate in LoanServ to the note rate 

that was in effect when the construction loan was made, so that it matches the borrower’s note. 

Loan conversion and the final inspection can occur on the same day provided the local 

office receives a copy of the final occupancy permit or other equivalent inspection report prior to 

the date of final inspection and funds have been fully disbursed. 

8-19

(01-23-03) SPECIAL PN

Revised (06-28-23) PN 585

 Example - Establishing the 1st Payment Due Date

 Loan closed - 5/17/21 

 Final Inspection, Occupancy, or Occupancy Permit Date - 2/25/22 

 Loan Conversion Date - 3/1/22

 1st Payment Due Date - 4/1/22
HB-1-3550

Paragraph 8.13 Convert Construction Loans

A. Modify Note and LoanServ

On the conversion date, the Loan Originator updates Form RD 

1940-16, Promissory Note, to reflect the new principal amount of the 

loan, including the interest generated during the construction period. 

The borrower should initial the note to acknowledge the change. The 

Loan Originator then amortizes the new principal amount over the 

remaining term of the loan. The Loan Originator also must change the 

note rate in LoanServ, which was entered at the applicable subsidized 

rate, to reflect the note rate in effect when the construction loan was 

made, and change the account number, as directed by the Servicing 

Office, to reflect the conversion from a construction loan to a 

permanent loan. Conversion to the permanent loan number will signal 

the Servicing Office to take over servicing responsibilities.

B. Update Payment Subsidy

If the borrower is eligible for payment subsidy, the Loan Originator must reverify income 

if more than 120 days have passed since the last verification or there is evidence to indicate a 

change in financial status since the construction loan was made. Income will be verified using 

the preferred sources. Written verifications may be valid for an additional 60 days with oral 

reverifications at the end of the 120 days. The Loan Originator must generate Form RD 1944- 

14, Payment Assistance/Deferred Mortgage Assistance Agreement, or Form RD 1944-6, Interest 

Credit Agreement, and Form RD 3550-12, Subsidy Repayment Agreement, and obtain the 

appropriate signatures.

The LESSER of the sales price including construction/rehabilitation costs, or appraised 

value obtained in connection with the loan approval/obligation is used to determine market value 

on Form RD 3550-12, Subsidy Repayment Agreement, regardless of the length of the 

construction process. For Self-Help loans, the market value is the appraised value as determined 

at the time of loan approval/obligation, which is subject to completion per plans and 

specifications. If the construction is not ultimately finished under the Self-Help program, an 

amended Form 3550-12, Subsidy Repayment Agreement, using the market value definition in 

this paragraph must be used. If the applicant owns the site free and clear, or if an existing nonAgency debt on the site without a dwelling will not be refinanced with Agency funds, the market 

value at the time of loan approval will be the LESSER of the appraised value or the construction 

cost plus the value of the site.

8-20

Borrower Acknowledgement 

of Accrued Interest

If the borrower is unavailable or 

unwilling to acknowledge the revised loan 

amount from the accrued interest during 

construction, the Loan Originator should 

proceed with conversion to permanent in 

LoanServ. The running record should be 

documented and a letter sent to the 

borrower with a copy of the revisions to 

the promissory note.
HB-1-3550

ATTACHMENT 8-A

Attachment 8-A 

Page 1 of 1

RD 410-4

DOCUMENTS TO BE SIGNED OR SUBMITTED AT LOAN CLOSING

Uniform Residential Loan Application (printed from UniFi)

RD 3550-14

RD 1940-16

RD 1927-9

RD 3550-7 

CFPB H-24 

RD 1940-41

RD 1940-43 

CFPB H-25 

RD 1944-6

RD 1944-14

RD 3550-12

Document 

RD 3550-15

RD 3550-9

RD 1927-5

RD 1927-8

RD 3550-22

RD 3550-16

RD 3550-17

RD 3550-19

RD 1955-49

RD 3550-10

RD 3550-11

RD 3550-25

RD 3550-29

Real Estate Mortgage or Deed of Trust for (State) 

Promissory Note

Preliminary Title Opinion or Title Insurance Binder 

Funding Commitment and Notification of Loan Closing 

Loan Estimate (if applicable)

Truth in Lending Statement (if applicable)

Notice of Right to Cancel (if applicable – subsequent loan, refinance, etc.) 

Closing Disclosure

Interest Credit Agreement (if applicable)

Payment Assistance/Deferred Mortgage Assistance Agreement (if applicable) 

Subsidy Repayment Agreement (if applicable)

Evidence of Insurance and receipt for 1st year premium 

Tax Information

Initial Escrow Account Disclosure Statement

Affidavit Regarding Work of Improvement (within 45 days) 

Agreement with Prior Lienholder (if applicable)

Assumption Agreement - Single Family Housing (if applicable) 

Release from Personal Liability (if applicable)

Funds Transmittal Report

Transmittal-Closing Documents and Attachments listed on Form (if applicable) 

Quitclaim Deed or Warranty Deed (if applicable)

Condominium Rider (if applicable)

Planned Unit Development Rider (if applicable)

Loan Closing Instructions and Loan Closing Statement 

Authorization Agreement for Preauthorized Payments (if applicable) 

Document Errors and Omissions Agreement

First payment coupon generated from UniFi

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534
HB-1-3550

Attachment 8-B

Page 1 of 4

ATTACHMENT 8-B 

UNLIQUIDATED OBLIGATION REVIEW

Obligation of funds should not occur until the loan and/or grant has been fully underwritten in 

accordance with the procedures described in Chapters 3 thru 7 of this handbook. Once funds are 

obligated, they must be disbursed in a timely manner. Loan approval and obligation implies that 

the Agency has determined the applicant has an immediate need for and will promptly use the 

funds. Therefore, it is imperative that unliquidated obligations are monitored to ensure that the 

funds are still needed and will be used by the applicant.

Monthly reviews of obligations are important to the Agency in order to properly report and 

certify the validity of obligation balances, prevent the loss of loan funds that expire at the end of 

a fiscal year, make funds available that otherwise would not be used and reduce the risk of fraud, 

waste and abuse.

1. State Office Monitoring

The National Office will post an Undisbursed Obligation report to SharePoint each 

month so that the State Office can monitor undisbursed obligations on a monthly basis. 

This report provides a detailed listing of all unliquidated obligations that are more than 

180 days old. The report of unliquidated obligations will contain a close code of “1”, “4” 

or “9”. An obligation with a close code of “4” is classified as an application, indicating 

the loan has not yet closed, while obligations with a close code of “1” or “9” are 

classified as active accounts, signifying a closed loan.

The review official’s sample must consist of all unliquidated obligations that have 

been inactive for twelve months or more. In addition, at least half of the unliquidated 

obligations that have been inactive for less than 12 months must be reviewed.

Obligations selected shall be reviewed to determine whether the intended purpose of the 

loan or grant is expected to occur. The following review guide entitled, “Single Family 

Housing Unliquidated Obligations” must be utilized for completion of the review. After 

completion of the review guide, the review official will inform the Field Office if the 

obligation may remain outstanding or if de-obligation is required.

(01-23-03) SPECIAL PN

Revised (09-19-18) PN 516
Attachment 8-B 

Page 2 of 4

This review is intended to disclose unliquidated obligations for loans or grants:

(a) That do not have a legal basis, or are not properly authorized and

supported by appropriate documentation;

(b) Which have been completed and have not been closed out; and

(c) Under which no future expenditures are expected.

Once a determination is made that an obligation can be deobligated, the Loan 

Originator will take the applicable action as per the instructions in HB-1-3550, Chapter 8, 

Paragraph 8.3 B. or C. as appropriate.
HB-1-3550

Attachment 8-B

Page 3 of 4

Single Family Housing Unliquidated Obligation Review

State Office Reviewer 

Title

Applicant’s Name: 

State

Review Date

Account Number: 

Date of Obligation: 

1. Has the loan/grant closed? Yes No 

2. If the loan/grant has not closed, has the applicant provided all the necessary information and 

does the file contain documentation as to why the loan has not closed?

Yes No NA 

3. Are legal or construction issues preventing disbursal of funds or the loan from 

closing? Yes No NA 

4. Has the planned construction period expired? Yes No NA 

5. Have funds been spent consistent with percentage of construction 

completion? Yes No NA 

6. Has the customer received any supplemental or subsequent loans or other additional funds? 

Yes No 

7. If the answer above is yes, is there justification for increase in funding levels? 

Yes No NA 

8. Is there a period of inactivity? Yes No 

If yes, explain and document the reasons below. 

9. Is the undisbursed obligationjustified? Yes No 

If yes, explain justifications and basis to continue with loan below.

10. Should the obligation be canceled? Yes No 

If no, establish a completion date for closing out the obligation below.

(01-23-03) SPECIAL PN

Revised (09-19-18) PN 516
HB-1-3550

Attachment 8-B 

Page 4 of 4

2. National Office Monitoring

The National Office will periodically request loan/grant files to conduct reviews of 

undisbursed obligations. The results of the review will be shared with the State Offices. 

If the National Office review concludes the unliquidated obligation is not justified, the 

State Office must inform the Field Office to de-obligate the funds and follow-up to 

ensure that it is accomplished in a timely manner.