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Revised (10-04-19) PN 529 

 

CHAPTER 7: LOAN TERMS AND CONDITIONS 

7 CFR 3555.104 

7.1 INTRODUCTION 

The SFHGLP helps low- and moderate-income people living in rural areas purchase 

adequate, modest, decent, and safe homes by providing guarantees for qualified loans that 

a lender would not make without a guarantee. The program’s loan terms and conditions, 

which are described below, are designed to ensure that the loans are used to acquire 

modest homes and that the property will provide adequate security for the loan. 

7.2 MAXIMUM LOAN AMOUNT 

The applicant is permitted to finance reasonable and customary expenses associated 

with purchasing a home as described in Chapter 6, if the total amount financed does not 

exceed any of the following limits: 

 The maximum loan amount for which the applicant qualifies, as determined by 

their income and repayment ability as further discussed in Chapter 8 and 9 of this 

Handbook; 

 The fair market value of the property, as determined by a current appraisal 

conducted in accordance with the Uniform Standards of Professional Appraisal 

Practices (USPAP); and 

 The LTV of the loan can exceed 100 percent of the market value of the property 

when the guarantee fee is financed. Loans may exceed 100 percent LTV only to 

the extent that the excess represents a financed guarantee fee. See additional 

guidance in Chapter 6 of this Handbook regarding refinance loans. 

The purchase price of the property is permitted to exceed these limits for applicants 

with sufficient cash reserves or access to a source other than credit through which to 

obtain the necessary cash difference. 

A newly constructed dwelling that does not meet the definition of an existing 

dwelling, as defined at Section 3555.10, and cannot meet the requirements of Section 

3555.202(a) is limited to 90 percent of the present market value. The dwelling must meet 

or exceed the International Energy Conservation Code (IECC) in effect at the time of 

construction. 
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7.3 LOAN TERMS 

The lender must consider whether the loan could be made without a guarantee. If the 

lender is willing to make the loan without the guarantee at the same rates and terms, the 

loan is not eligible for the guarantee program. If the lender is not willing to make the 

loan without a guarantee and wishes to request a guarantee, the required loan terms for all 

loans guaranteed under the program are described below. 

A. Repayment Period 

The loan term must be 30 years and the loan must fully amortize in that period. The 

promissory note must show regular monthly payments generally payable on the first day 

of the month. 

B. Interest Rate 

The lender and the borrower are free to negotiate any mutually acceptable fixed 

interest rate. The interest rate should be locked by the time of loan settlement. In the 

event the interest rate is not locked at the time Form RD 3555-18 is issued, and the 

interest rate increases between the time of issuance of Form RD 3555-18 and loan 

closing, the lender will note the change when submitting the loan closing package and 

support the increase in interest rate with modified loan application documents. Modified 

loan documents will include at a minimum: 

 Updated URLA reflecting data changes due to an interest rate adjustment. 

 Underwriting analysis reflecting the updated interest rate and confirming the 

applicant(s) remain eligible for the SFHGLP. 

 Interest rates that have been underwritten with the assistance of GUS will require a 

resubmission if the locked interest rate adversely affects the eligibility of the loan. 

The resubmission will be treated as a new request by SFHGLP processing offices. 

An increased interest rate could result in a denial of Loan Note Guarantee request 

if the underwriting recommendation of GUS at issuance of Form RD 3555-18 

results in a recommendation lower than the original recommendation (i.e. an 

Accept underwriting recommendation at issuance of the Form RD 3555-18, 

changed to Refer underwriting recommendation as a result of a resubmission with 

a higher interest rate). 
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C. Terms Unacceptable for a Guarantee 

The following terms are unacceptable for the guaranteed loan. 

 Adjustable rate mortgages (ARMs); 

 Balloon mortgages; 

 Mortgages for other than 30 years; 

 Interest on interest or negative amortization (or any non-fully amortizing loan); 

and 

 Prepayment penalties.