HB-1-3550

11.1 INTRODUCTION

A nonprogram loan is an extension of credit to a borrower who does not qualify for 

program credit, or an extension of credit to allow a buyer to purchase a property that does not 

qualify as a program property. The Agency will make nonprogram loans to:

• Allow the assumption of an existing program loan on new rates and terms; or

• Expedite the sale of a Real Estate Owned (REO) property.

Unless otherwise specified in this chapter, nonprogram loan applications should be 

accepted, evaluated, and closed following the procedures described for Section 502 loans in 

Chapters 2 through 10. For a summary of the differences between program and nonprogram 

loans, see Attachment 11-A.

A. Nonprogram Assumptions

When an existing Agency borrower 

wishes to sell a security property, the Agency 

will assist that borrower by allowing any 

creditworthy buyer to assume the outstanding 

Section 502 debt, even if the purchaser is not 

eligible for a program loan or the property does

not qualify as a program property. This helps the borrower sell the property and reduce the 

chances that the borrower will default without requiring the Agency to obligate new funds. The 

amount assumed is reamortized over a full new loan period.

B. Nonprogram Loans to Purchase REO Property

When the Agency has REO property to dispose of and funding is available, credit may be 

extended on nonprogram terms in order to facilitate the sale of the property. Field Staff should 

consult with the State Office to ensure that funds for nonprogram REO sales are available before 

offering credit. Nonprogram credit may only be offered after the expiration of any restriction 

period on program properties. Chapter 16 provides additional guidance on REO sales.

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(01-23-03) SPECIAL PN

Revised (03-09-22) SPECIAL PN

CHAPTER 11: NONPROGRAM LOANS [7 CFR 3550.74]

Same Rate and Terms Assumptions

In certain cases, generally those involving 

transfers of title between family members, a loan 

may be assumed under the same rates and terms by 

someone who is not program-eligible. However, 

such a loan is not considered a nonprogram loan.
HB-1-3550

11.2 PRE-QUALIFICATION

The pre-qualification step is substantially the same as for program loans, as described in 

Section 1 of Chapter 3. When a potential applicant expresses interest in nonprogram credit, the 

Loan Originator explains the Agency’s nonprogram requirements and uses UniFi to determine 

whether the potential applicant has adequate repayment ability. Although the potential applicant 

may submit an application regardless of the outcome of the pre-qualification, this step can save 

the applicant and Agency staff time in the long run by letting potential applicants know in 

advance about any reasons they may not be eligible for a nonprogram loan.

11.3 APPLICATION PROCESSING

This step is substantially similar to the process for a program loan described in Section 2 

of Chapter 3. The nonprogram applicant must submit Form RD 410-4, Uniform Residential 

Loan Application. The Loan Originator then determines whether the application is complete, 

asks follow up questions needed to understand the applicant’s situation, and conducts a 

preliminary credit check, as described in Paragraph 4.11. The Loan Originator then makes a 

preliminary eligibility determination and notifies the applicant.

Unlike applicants for program loans, applicants for nonprogram credit must submit a 

nonrefundable $100 application fee. However, this fee cannot be collected prior to issuing the 

Loan Estimate to nonprogram applicants, in accordance with Paragraph 3.8. The application fee 

is waived for applicants who are public bodies or nonprofit organizations.

11.4 ELIGIBILITY

Nonprogram applicants are not subject to the income eligibility, asset, citizenship, or 

occupancy requirements described in Chapter 4 for program borrowers. They may own other 

properties and are not required to first seek private sources of financing. However, they must 

comply with other requirements found in Section 4 of Chapter 4 relating to legal capacity, 

truthful applications, and suspension or debarment, and must meet the credit requirements 

outlined in Section 3 of Chapter 4.

11.5 PROPERTY REQUIREMENTS

Properties financed with nonprogram loans are not required to meet the site and dwelling

requirements described in Sections 1 and 2 of Chapter 5, but are required to meet the 

environmental requirements described in Section 3 of Chapter 5. Chapter 16 describes 

disclosure and documentation requirements for REO properties being disposed of that are not 

decent, safe, and sanitary or that may contain hazards.

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11.6 UNDERWRITING THELOAN

A. Down Payment Requirement

Nonprofit organizations and State and local governments are not required to contribute a 

down payment. Other nonprogram applicants are required to make a down payment.

Nonprogram borrowers who intend to occupy the property must contribute 2 percent of the 

purchase price. Nonprogram borrowers who do not intend to occupy the property must 

contribute 5 percent of the purchase price.

B. Amount to be Financed

For assumptions, Agency credit is limited to the lesser of the sales price or the amount of 

the existing borrower’s outstanding debt, less the purchaser’s down payment. If the purchaser 

requires additional funds to purchase the property, the funds must come from another source.

For REO sales, Agency credit is limited to the sales price, less the purchaser’s down 

payment. Closing costs and fees, tax service fees, and any required initial deposit to the escrow 

account cannot be financed.

C. Interest Rate

The interest rate charged for nonprogram loans is the nonprogram rate in 

effect at the time of loan approval. Nonprogram rates can be found in Exhibit B of 

RD Instruction 440.1.

D. Loan Repayment Period

The repayment period for nonprogram loans depends on whether the applicant intends to 

personally occupy the property.

For nonprogram applicants who intend to personally occupy the property, the maximum 

loan term is 30 years. If an applicant already has a nonprogram loan, a new 30-year loan is not 

permitted, even if the applicant intends to occupy the new property.

For nonprogram applicants who do not intend to personally occupy the property, the 

maximum loan term is 10 years. If more favorable terms are necessary to facilitate the sale, the 

loan may be amortized over a period of up to 20 years, with payment in full due not later than 10 

years from the date of closing.

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(01-23-03) SPECIAL PN

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

Paragraph 11.6 Underwriting the Loan

E. Repayment Ability

Chapter 6 provides detailed guidance on the use of the principal, interest, taxes, and 

insurance (PITI) and total debt (TD) ratios. For nonprogram applicants the ratios permitted 

depend upon whether the applicant intends to personally occupy the property. For nonprogram 

applicants who intend to personally occupy the property, the PITI ratio must not exceed 33 

percent of repayment income, and the TD ratio must not exceed 41 percent. For nonprogram 

applicants who do not intend to occupy the property, the TD ratio must not exceed 41 percent. 

No analysis of the PITI ratio is required.

11.7 LOAN APPROVAL AND CLOSING

As with program loans, once the Loan Originator has completed the underwriting 

analysis, loans recommended for approval are forwarded to the Loan Approval Official. When 

the loan is approved, the applicant selects a closing agent who conducts title clearance, reviews 

security requirements to verify that they conform to the Agency’s standards, and works with the 

Loan Originator to ensure that all required closing documents are prepared for signature at 

closing.

Because the same closing forms are used for both program and nonprogram borrowers, 

the Loan Originator must modify the security instruments, promissory note, and, if applicable, 

the assumption agreement to delete:

• Any conditions related to financing or refinancing with other credit, restrictions on 

leasing, and consent to junior lien encumbrances; and

• Any references to borrower eligibility for payment subsidies and special servicing 

actions.

Chapter 8 provides detailed instructions for closing both program and nonprogram loans.

11.8 SERVICING NONPROGRAMLOANS

After closing, the Loan Originator activates the loan in LoanServ and prepares a loan 

docket to send to the Servicing and Asset Management Office (Servicing Office) for servicing, 

as described in Chapter 8. Nonprogram borrowers are not subject to periodic reviews of their 

ability to refinance with private credit and are not eligible for payment subsidies, moratoriums, 

or subsequent loans.

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Attachment 11-A

Page 1 of 2

ATTACHMENT 11-A

SUMMARY OF DIFFERENCES BETWEEN 

PROGRAM LOANS AND NONPROGRAM LOANS

Topic Section 502 Program Loan Nonprogram Loan

Income Borrower must not be above lowincome at loan approval and must 

not be above moderate-income at 

loan closing.

No income eligibility restrictions.

Application No application fee. $100 application fee except from 

public bodies or nonprofit 

organizations.

Interest Rate Promissory note rate is the lower of 

the program rate in effect at loan 

approval and loan closing. Program 

interest rate is used.

Promissory note rate is the 

nonprogram rate in effect at loan 

approval. Nonprogram interest rate 

is used.

Payment Subsidy Borrower may be eligible for 

payment subsidies.

No payment subsidy available.

Loan Term Standard term is 33 years; some 

may qualify for a 38 year term.

Maximum term for an occupant is 

30 years; maximum term for a 

nonoccupant is 10 years.

Down Payment Borrowers required to contribute 

non-retirement assets greater than

$15,000 ($20,000 for elderly 

households).

Purchasers who will be occupants 

are required to contribute 2 percent 

of the purchase price as a down 

payment. Purchasers who will be 

nonoccupants must contribute 5 

percent.

Repayment 

Ability

Borrowers must not exceed a 33 

percent principal, interests, taxes, 

and insurance (PITI) ratio, and 41 

percent total debt (TD) ratio. 

Borrowers who will personally 

occupy the property must not 

exceed a 33 percent PITI ratio and 

41 percent TD ratio. Borrowers 

who will not personally occupy the 

property must not exceed a 41 

percent TD ratio.

(01-23-03) SPECIAL PN

Revised (03-09-22) SPECIAL PN
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Attachment 11-A 

Page 2 of 2

Topic Section 502 Program Loan Nonprogram Loan

Closing Costs Closing costs may be financed with 

Agency funds to the extent that the 

total debt does not exceed the 

property’s market value and the area 

loan limits.

Closing costs cannot be financed 

with Agency funds.

Escrow and 

Other Fees

Initial escrow deposit, tax service 

fee, homeownership education fee, 

and appraisal fee may be financed 

with Agency funds, even if these 

amounts cause the loan to exceed the 

market value of the property or the 

area loan limit.

These fees and initial escrow 

deposit cannot be financed with 

Agency funds.

Eligibility for 

Servicing Actions

Borrowers are eligible for a variety 

of servicing actions, including 

payment subsidies.

Payment moratoriums, payment 

subsidies, and subsequent loans are 

not permitted. If both the borrower 

and property are eligible, the loan 

may be refinanced with Agency 

credit to permit payment assistance.

Refinancing with 

Private Credit

Borrower must refinance with 

private credit when able to do so.

No requirement for refinancing 

with private credit.

Leasing 

Restrictions

Borrower cannot lease property for 

more than 3 years and cannot offer 

the renter an option to purchase.

Borrower may lease property for 

any period of time, and with 

purchase options.