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SECTION 1: OVERVIEW OF THE UNDERWRITING PROCESS

6.1 INTRODUCTION

The underwriting process brings together the applicant eligibility requirements discussed 

in Chapter 4 and the property requirements discussed in Chapter 5 with the loan and subsidy 

requirements that are discussed in detail in this chapter. By putting all of this information 

together, the Loan Originator can determine the applicant’s repayment ability, whether a loan 

can be approved, and the amount of the loan. This chapter is structured as follows:

• Section 1 reviews the concept of underwriting;

• Section 2 describes loan terms and requirements;

• Section 3 provides policies and procedures for determining whether the applicantis 

eligible for payment subsidy and the amount of the subsidy; and

• Section 4 provides policies and procedures for underwriting a loan for a specific 

property and preparing the loan approvalrecommendation.

6.2 WHAT IS UNDERWRITING?

Through the underwriting process, the Loan Originator evaluates an applicant’s 

circumstances and the condition and value of the property to determine whether making a 

particular loan is a prudent use of funds. Exhibit 6-1 summarizes key underwriting decisions.

Underwriting has both objective and subjective elements. For example, 

income eligibility is an objective factor -- if the applicant’s income exceeds program 

income limits, the applicant cannot receive a program loan. On the other hand, 

analyzing an applicant’s credit history and estimating the value of the property both

involve some degree of judgment. The underwriter’s challenge is to make both objective and 

subjective decisions in a fair and impartial manner for all applicants.

CHAPTER 6: UNDERWRITING THE LOAN

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Exhibit 6-1

Key Underwriting Decisions 

Does the Applicant Meet Program Requirements?

The applicant must:

• Have the legal capacity to enter into a loan agreement;

• Have the financial resources to repay the loan;

• Have an acceptable credit history; and

• Meet the specific requirements for participation in the program, such as eligibility based 

on income and citizenshipstatus.

• A first-time homebuyer must complete a homeownership education course prior to 

entering into a contract to purchase or construct a home for maximum benefit (or shortly 

thereafter).

Does the Property Meet Program Requirements?

The property must:

• Meet Agency standardsregarding location and housing quality;

• Meet the Agency’s environmental reviewrequirements;

• Not have legal hindrances to the borrower’s ownership of the property; and

• Have sufficient value to protect the Agency’sfinancial investment in the property.

Does “The Deal” Work?

• Can the Agency offer loan terms and conditions that enable the applicant to afford the 

loan?

• Isthe applicant willing and able to meet the terms and conditions the Agency can offer?

Paragraph 6.2 What is Underwriting?

The Agency’s underwriting standards and procedures are similar in many respects to 

those used by private lenders. However, because the Agency’s mission, in part, is to serve home 

buyers who are unable to obtain private credit, the underwriting process differs in 4 key respects:

• The Agency’s criteria for an acceptable credit history are somewhat less stringent 

than those used by private lenders;

• Agency loan-to-value requirements enable many applicants to become homeowners 

with little or no down payment;

• In most circumstances, the Agency has the ability to offer subsidies that enhance an 

applicant’s ability to repay the loan; and

• The Agency conducts quality checks on new loans as well as on withdrawn and 

rejected applications to confirm that the Loan Originator complied with the 

underwriting standards and procedures. Refer to Attachment 6-B for guidance on 

monitoring requirements.

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6.3 USING UNIFI TO FACILITATE UNDERWRITING

UniFi automatically completes most of the underwriting calculations discussed in this 

chapter. However, the Loan Originator must understand how the calculations are made, in order 

to enter the correct information into the system and, more importantly, to be able to explain the 

results to applicants.
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SECTION 2: LOAN TERMS AND REQUIREMENTS

6.4 ELIGIBLE LOAN PURPOSES AND USES [7 CFR3550.52]

The Section 502 program is intended to help those who do not currently own adequate 

housing buy, build, relocate, rehabilitate, or improve a property to use as a principal residence. 

All improvements must be on land that, after closing, is part of the security property. Eligible 

costs are listed below.

A. Site-RelatedCosts

Eligible site-related costs include:

• Providing a minimum adequate site, as described in Section 1 of Chapter 5, if the 

applicant does not already own an adequate site;

• Providing adequate utilities, including adequate and safe water supply and wastewater 

disposal facilities; and reasonable connection fees, assessments, or the pro rata 

installment costs for utilities such as water, sewer, electricity and gas;and

• Site preparation, including grading, foundation plantings, seeding or sodding, trees, 

walks, yard fences, and driveways.

B. Dwelling-Related Costs

In addition to costs for acquisition, construction, repairs, or the cost of relocating a 

dwelling, eligible dwelling-related costs include:

• Special design features or equipment necessary because of a physical disability of a 

member of the applicant’shousehold;

• Approved energy saving materials, equipment, or construction methods (heating 

systems must use a type of fuel that is commonly used, economical, and dependably 

available);

• Storm cellars and similar protective structures;and

• Purchase and installation of essential equipment including range, refrigerator, clothes 

washer and/or dryer, if these items are not included in the sale of the home or are not 

in working order, and if the purchase of these items is not the primary purpose of the

loan.

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Paragraph 6.4 Eligible Loan Purposes and Uses [7 CFR 3550.52]

C. Fees and Related Costs

Other eligible costs include:

• Reimbursement for certain items paid by the borrower outside of closing (i.e. 

earnest money deposit, inspection fees required by the Agency, and the first 

year’s hazard insurance premium); legal fees; architectural and engineering 

services; costs of title clearance and loan closing services; the appraisal fee; 

surveying, environmental and tax service services; personal liability insurance 

fees under Mutual Self-Help Housing; and other incidental expenses approved by 

the Loan Approval Official. Commissions, finders’ fees, homeowner association

fees, placement fees,and administrative fees charged to the buyer by the real 

estate agent are not eligible costs;

• Fees for acceptable homeownership education under 7 CFR 3550.11 provided the 

fee does not exceed the reasonable costs determined by the State Director. Fees 

may be added to the loan amount in excess of the area loan limit and the appraised

value ofthe house in cases where the borrower requests it be included in the loan;

• The buyer’s portion of real estate taxes that the applicant must pay at the time of 

closing including delinquent taxes on a property owned by the applicant;

• Real estate taxes that become due during the construction period on houses to be built;

• The borrower’s share of Social Security taxes and similar taxes for labor hired 

by the borrower in connection with making the planned improvements;

• Establishment of escrow accounts, including the initial escrow deposit, for the 

payment of taxes and property insurance premiums;

• Payment of recapture amounts deferred by a former borrower;

• Costs associated with implementation of mitigation measures to ensure

environmental compliance;

• For leveraged loans, lender charges and reasonable fees related to obtaining the

non- Agency loan; and

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Paragraph 6.4 Eligible Loan Purposes and Uses [7 CFR 3550.52]

• Fees to public agencies and private nonprofit organizations that are tax exempt 

under the Internal Revenue Code for the packaging of loan applications. The 

charges must be reasonable considering the services provided and the cost of similar 

services in the same or a similar rural area. The fee cannot exceed the amount listed 

in Attachment 3-A and the package must comply with the requirements outlined in 

the aforementioned attachment.

D. Loan Restrictions [7 CFR 3550.52(e)]

Agency loans can be used to finance existing properties that include in-ground 

swimming pools. However, in-ground swimming pools with new construction or with 

dwellings that are purchased new are prohibited. 

Agency funds cannot be used to purchase or improve structures designed for incomeproducing purposes or income-producing land. Home-based operations such as childcare, 

product sales, or craft production that do not require specific features are not restricted.

6.5 REFINANCING

In general, Agency funds should not be used to refinance existing debt; however, 

refinancing is permitted in limited circumstances.

A. Refinancing Agency Debt [7 CFR 3550.52(c)]

Borrowers with Agency nonprogram loans (nonprogram assumptions or credit sales) or 

initial Section 502 program loans with a term less than 25 years are not eligible for payment 

subsidy. Borrowers with these types of loans may be permitted to refinance if the borrower is 

eligible to receive a program loan, the property is program-eligible, and the borrower is in danger 

of losing the property due to circumstances beyond the borrower’s control. 

Subject to the availability of funds and Agency priorities, Agency debt including subsidy 

recapture, may be refinanced as a special servicing option. When an existing Agency loan is 

being refinanced as a special servicing action in the limited circumstances provided in 7 CFR 

3550.52 and 3550.201, the household’s adjusted income must not exceed the applicable 

moderate income limit for the area at the time of loan approval and closing. 

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Paragraph 6.5 Refinancing

B. Refinancing Non-Agency Debt [7 CFR3550.52(b)]

1. Situations in Which Refinancing is Permissible

Refinancing of non-Agency debt, except for debt on manufactured homes, is 

permissible in 3 circumstances.

• Refinancing for an existing home at risk of foreclosure. An applicant who 

owns a home but is clearly unable to continue making payments and risks losing 

the home through foreclosure may be eligible for Agency refinancing if the risk 

is due to circumstances beyond the applicant’s control. Risk of foreclosure 

doesn’t necessarily mean that the applicant’s mortgage is currently delinquent; it 

means that foreclosure is a highly likely eventuality because the mortgage 

payments are no longer sustainable due to circumstances beyond the applicant’s

control.

• Refinancing for an existing home in need of repairs. Debt on an existing 

home may be refinanced if the home is in need of repairs totaling $5,000 or 

more to correct major deficiencies and make the dwelling decent, safe, and 

sanitary; and refinancing is necessary for the borrower to show repayment 

ability. In such cases the owner need not be at risk of losing the property through

foreclosure.

• Refinancing for a site without a dwelling. Agency funds may be used to 

refinance non-Agency debt on a building site without a dwelling if the debt is for 

the sole purpose of purchasing the site, the applicant is unable to pay the debt, 

and the applicant is otherwise unable to acquire decent, safe, and sanitary 

housing. The site must meet the conditions described in Section 1 of Chapter 5. 

The Agency loan must include adequate funds to construct a dwelling on the site

that conforms to the requirements of Section 2 of Chapter 5, and the applicant 

must occupy the property once it is constructed.

In any of these circumstances, a non-Agency loan, including a Single Family Housing 

Guaranteed Loan, can be refinanced only if the Agency will have adequate security. For a 

site with an existing dwelling, the applicant must engage the services of a State-licensed 

inspector to perform a whole house inspection and provide statement that the dwelling 

appears to meet the Agency’s DSS standards as described in Section 2 of Chapter 5. If there 

are any noted deficiencies that prevent the home from meeting decent, safe, and sanitary

standards, the deficiencies must be addressed as part of the loan.

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Paragraph 6.5 Refinancing

2. Eligible Debt

In general, Agency funds can be used to refinance only debt that was incurred for eligible 

purposes, as described in Paragraph 6.4. For applicants who are in danger of foreclosure, 

Agency funds also may be used to repay a protective advance made by a mortgagee for costs 

related to the delinquency, such as accrued interest, insurance premiums, real estate tax 

advances, or preliminary foreclosurecosts.

The primary debt to be refinanced must be secured with a lien against the security 

property. For existing dwellings, but not for sites without a dwelling, short-term or unsecured 

debts also may be included in the refinancing if refinancing of these debts is necessary to 

establish sound repayment ability, the debts were incurred for purposes that are eligible under 

Section 502, and they do not represent a significant portion of the loan.

3. Timing of the Debt

In general, the debt to be refinanced must have been incurred before the application was 

filed. Costs incurred after the application date, but before loan closing, may be refinanced if: (1) 

they are incurred for legal fees or other technical services related to the property, or for materials, 

construction or site acquisition; (2) the applicant is unable to pay the costs from personal 

resources or to obtain credit from other sources; and (3) failure to authorize the use of Agency 

funds to pay such costs would jeopardize the applicant’s ability to repay the loan. The applicant 

should consult with the Loan Originator before incurring such expenses.

4. Verification ofDebt

To verify that the debt to be refinanced meets these requirements, the Loan Originator 

should send Form RD 3550-30, Verification of Debt Proposed for Refinancing, to each creditor 

whose debt is proposed for refinancing. The form, which asks for account information as well as 

a copy of the original debt and security instrument, should be accompanied by a preaddressed, 

postage-paid envelope (sufficient enough to cover the cost of and large enough to hold the 

multiple-paged instruments) and Form RD 3550-1, Authorization to Release Information, which 

authorized the respondent to release this information.
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6.6 MAXIMUM LOAN AMOUNT [7 CFR 3550.63]

Unless an exception is granted, a loan 

may not exceed the area loan limit. The loan 

may exceed the area loan limit in an amount 

necessary to cover the appraisal fee, the tax 

service fee, homeownership education fee, and 

any required contribution to an escrow account 

for taxes and insurance (excluding the first-year 

insurance premium).

All area loan limits are available online at: 

https://www.rd.usda.gov/files/RDSFHAreaLoanLimitMap.pdf

A. Granting Exceptions

Exceptions to the area loan limit may be 

granted on a case-by-case basis when the current 

limit is insufficient to provide adequate housing. 

Exceptions may be granted to accommodate the 

specific needs of an applicant, for example, to 

serve exceptionally large households or to 

provide reasonable accommodation for a 

household member with a disability. Requests 

for exceptions may be approved by the State 

Director if the cost of the property will not

exceed $5,000.

To request an exception, the Loan Originator must fully document the need for the 

exception. If approval is granted, the Loan Originator should follow UniFi procedures to 

override the maximum mortgage limit.

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Effects of the Area Loan Limit

Determining if a property is modest prior to orderingan 

appraisal. Market value is generally reflective of the price 

for a property agreed upon between a willing and informed 

buyer and a willing and informed seller and/or contractor 

under usual and ordinary circumstances when the property 

is exposed for sale on the open market with reasonable 

time allowed to find a purchaser. Since the modest 

determination must be made when the purchase agreement 

or construction package is submitted, if the property is 

deemed modest but the appraised value subsequently 

comes in higher than the area loan limit - the property will 

still be considered modest.

Maximum Loan Amount. The total amount of the 

Agency loan, loans from other sources, or the applicant’s 

own funds, including but not limited to the value of the 

site, cannot exceed the applicable area loan limit.

Costs of Appraisal or Closing. The loan an applicant 

receives must not exceed the area loan limit unless the 

applicant chooses to finance the appraisal fee, tax service 

fee, homeownership education fee, or the initial 

contribution to fund the escrow account, in which case 

the loan can exceed the area loan limit by the cost of 

these items.
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Paragraph 6.6 Maximum Loan Amount [7 CFR 3550.63]

Exceptions also can be granted for subsequent loans that may cause the entire 

indebtedness to exceed the area loan limit only if necessary to protect the Government’s 

interests. The State Director can authorize subsequent loans that exceed the area loan limits to 

accommodate the cost of necessary repairs, reasonable closing costs, and allowable excess costs 

(including the appraisal fee, tax service fee, homeownership education fee, and initial deposit to 

fund the escrow account), without authorization from the Deputy Administrator, Single Family 

Housing, even if the increase exceeds $5,000.

B. SpecialSituations

To further ensure that only modest housing is financed, the maximum loan amount will 

be limited in the following situations:

1. Housing Other than Self-Help

• If the applicant owns the building site free and clear or if an existing non-Agency 

debt on the site will not be refinanced with Agency funds, the market value of 

the lot will be deducted from the area loan limit.

• If Agency funds will be used to refinance non-Agency debt on the building 

site, the equity (market value minus the debt owed against the site) will be 

deducted from the area loan limit.

• When the applicant is purchasing a site below the market value, the difference 

between the market value and the sales price will bededucted from the area 

loan limit.

• When an applicant is receiving a housing grant or other form of affordable housing 

assistance for eligible loan purposes other than closing costs, the amount of 

such grants and other affordable housing assistance will be deducted from the 

area loan limit.

2. Self-Help Housing

The maximum loan amount for self-help housing will be determined by adding the total 

of the market value of the lot (including reasonable and typical costs of site development), the 

cost of construction, and the value of sweat equity. The total of these factors cannot exceed the 

area loan limit for the area.
HB-1-3550 6.7 LOAN-TO-VALUE (LTV) RATIO [7CFR3550.63(b)]

The LTV ratio is the relationship between the amount to be financed, including all leveraged 

loans and grants (where a lien will be taken), and the market value of the security property. The value of 

the property is determined using the appraisal procedures described in Section 5 of Chapter 5. A loan 

may exceed the LTV limitations discussed in Paragraphs 6.7 A. and B. to allow the borrower to finance 

certain allowable excess costs. For any Agency loan, the amount that can be financed in excess of the 

allowable LTV includes the appraisal fee, the tax service fee, homeownership education fee, and the 

initial contribution to the escrow account.

A. Loans for Existing Dwellings (100%LTV)

For existing dwellings, the LTV limitation for a Section 502 loan, plus any other liens on 

the security property, is 100 percent of value plus allowable excess costs.

B. Loans for New Dwellings (90-100%LTV)

For loans on new dwellings, the permitted LTV ratio depends upon whether the applicant 

provides documentation that the construction quality is acceptable to the Agency. If construction 

that meets the Agency standards can be documented, the LTV limitation is 100 percent of value 

plus allowable excess costs.

If construction quality is 

not adequately documented, 

loans for new dwellings are 

limited to 90 percent of the 

market value plus allowable 

excess costs.

The following are 

acceptable documentation of 

construction quality:

• The Agency has 

issued a conditional 

commitment and 

inspected the property,

as described in Section 1 of Chapter 9.

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If the allowable LTV is 100%, the maximum loan is $50,740 (the 

appraised value plus allowable excess costs). $1,000 of the closing 

costs must be paid by the borrower in cash.

If the allowable LTV is 90%, the maximum loan is $45,740 (90% of 

the appraised value plus allowable excess costs). $6,000 must be paid

by the borrower in cash.

Purchase Price

Appraisal and Tax servicing 

Closing Costs

$ 400 Costs to Establish Escrow

Example - Maximum Loan Based on Loan to Value Ratios

$50,000 Appraised Value

$51,740 Total Costs Including:

$49,500

$ 340

$ 1,500
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Paragraph 6.7 Loan-to-Value (LTV) Ratio [7 CFR 3550.63(b)]

• The dwelling is covered by an insured 10-year warranty plan, as described in RD 

Instruction 1924-A, and there is a certificate of occupancy when issued by the local 

governing agency. In areas where there is no local authority to issue a certificate of 

occupancy or similar document, the State Office will provide appropriate guidelines 

for what will be considered acceptable documentation of a dwelling’s or unit’s livable 

condition.

• The loan will be closed prior to the start of construction so that the Agency can 

monitor the construction following the procedures described in Section 6 of 

Chapter 5.

• The new dwelling is a manufactured home that meets the requirements set forth in 

Section 3 of Chapter 9.

• Applicant provides a complete set of plans and specifications and, to demonstrate that 

the construction was properly inspected, copies of all construction-phase reports 

prepared by a licensed construction inspector. In the case of properties inspected by 

the Federal Housing Administration (FHA) or Veterans Affairs (VA), a certification 

that the dwelling was built in accordance with approved plans and specification may 

be submitted in lieu of construction-phase reports.

C. Subsequent Loans for Necessary Repairs

If necessary to protect the Government's security interest, the Agency may make a 

subsequent loan that causes the total indebtedness to exceed the market value of the property 

and/or the area loan limit. The excess amount cannot exceed the cost of the necessary repairs, 

reasonable closing costs, and allowable excess costs. The Loan Originator should review the 

status of the borrower’s account in LoanServ and coordinate with the Servicing and Asset 

Management Office (Servicing Office) as necessary.

D. Subsequent Loans for Closing CostsOnly

When the Agency makes a subsequent loan to a program borrower for closing costs only 

at the time of the sale of an REO property or a property transfer and assumption, total 

indebtedness may exceed the market value and/or the area loan limit by up to 1 percent, plus 

allowable excess costs.
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Paragraph 6.7 Loan-to-Value (LTV) Ratio [7 CFR 3550.63(b)]

E. Refinanced Loan for Existing Agency Borrower

When the Agency refinances an existing Agency loan, including those refinanced as a 

special servicing action (subject to the availability of funds and Agency priorities) such as at the 

end of a moratorium, the loan may exceed the market value of the property and/or the area loan 

limit only as necessary to cover the borrower's outstanding indebtedness, closing costs associated 

with the new loan, and allowable excess costs. Directives will be provided for usage of this 

option as Agency priorities are determined.

F. Affordable Housing Products

In those cases where a junior lien is a soft, silent or forgivable subordinate affordable 

housing product, the loan to value ratio may exceed the market value provided:

• Agency is in the senior lien position and the Agency loan is fully secured (with 

allowable exceptions for the tax service fee, appraisal fee, homebuyer education, 

and initial escrow for taxes and insurance);

• The junior lien is for an authorized loan purpose identified in § 3550.52; and

• The grant or forgivable affordable housing product comes from a recognized 

grant source such as a Community Development Block Grant or a Home 

Investment Partnerships Program (HOME). 

Only affordable housing products that result in a lien against the property need to be 

considered in evaluating the loan to value ratio. Grants and similar funding that do not result in a 

lien and are not required to be paid back should not be considered in evaluating the loan to value 

ratio.

6.8 REPAYMENT PERIODS [7 CFR 3550.67]

Loans must be scheduled for repayment over a period that does not exceed the useful 

life of the property. The standard maximum loan term for most Section 502 loans is 33 years.
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Paragraph 6.8 Repayment Periods [7 CFR 3550.67]

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A. Exceptions to the Standard 33-Year Maximum Term

Repayment may be scheduled over a 38-year term for:

• Initial loans, or subsequent loans made in conjunction with an assumption, if the 

applicant’s adjusted income does not exceed 60 percent of the applicable area median 

income and the longer term is necessary to show repayment ability;and

• Subsequent loans not made in conjunction with an assumption, if the borrower’s 

initial loan was for a period of 38 years, the borrower’s adjusted income at the time 

the subsequent loan is approved does not exceed 60 percent of the applicable area 

median income, and the longer term is necessary to show repayment ability.

The repayment period is limited to a maximum of 10 years for loans under $24,000, and 

for unsecured loans as described in Paragraph 5.12 A. Loans under $24,000 should first be 

considered at 10 years; however, a longer term may be used when necessary to show repayment 

ability. Manufactured homes are eligible for a maximum loan term of 30 years.

B. Effect of Repayment Period on Payment Subsidy

Loans may be approved for less than the maximum period. However, before approving a 

loan with a payment term that is less than the maximum period, the Loan Originator should 

consider the effect this may have on any payment subsidy for which the applicant may be 

eligible. Because a shorter loan term could require the Agency to contribute a higher payment 

subsidy, an applicant with an initial loan term of less than 25 years cannot obtain payment 

subsidy. An applicant may receive payment subsidy on a secured subsequent loan with a term of 

less than 25 years if the initial loan had a term of 25 years or more. Section 3 of this chapter 

provides additional information about payment subsidies.

6.9 INTEREST RATES [7 CFR3550.66]

A. Note Rates

The note rate is the interest rate shown in the promissory note. Exhibit B of RD 

Instruction 440.1 provides current interest rates for program and nonprogram loans. For program 

loans, the note rate used for the promissory note must be the lower of the Rural Housing (RH) 

502 very low or low-income limit interest rates in effect at loan approval and obligation of funds 

or at loan closing.
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Paragraph 6.9 Interest Rates [7 CFR 3550.66]

For non-program loans, the non-program rate in effect at loan approval must be used for 

the promissory note. For program and non-program loans, the date the loan was approved must 

be the same date the loan was obligated in LoanServ. 

B. Subsidized Rate

As described in Section 3, borrowers 

who qualify may receive payment subsidies 

based upon a lower interest rate. The 

subsidized rate does not affect the promissory 

note. Instead, a separate agreement is executed 

annually (or more often if the subsidy amount 

changes) to document the amount of payment 

subsidy provided.

6.10 USE OF ASSETS [7 CFR3550.64]

A. Asset Limits

Applicants with assets in excess of established limits must use those assets for a down 

payment or other costs associated with the purchase of the property. Section 2 of Chapter 4 

discusses assets in detail. Applicants may choose to use assets that fall below the established 

limits toward the purchase, even though they are not required to do so.

• Nonelderly applicants must use nonretirement assets in excess of $15,000 toward the 

purchase of the property.

• Elderly applicants must use nonretirement assets in excess of $20,000 toward the 

purchase of the property.

Example - Effect of Interest Rate and Repayment 

Period on Monthly Payments

Loan Amount Loan Term MonthlyPayment

$50,000 @ 7% 33 years $324.05

$50,000 @ 7% 38 years $313.79

$50,000 @ 1% 33 years $148.29

$50,000 @ 1% 38 years $131.84
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Paragraph 6.10 Use of Assets [7 CFR 3550.64]

B. Eligible Uses of Assets

Eligible uses for excess assets or assets the 

applicant has elected to contribute include making 

payments to:

• Reduce the principal balance;

• Pay architectural, engineering, inspection, 

or testing fees related to new construction 

orrepairs;

• Establish the escrow account for taxes and 

insurance;

• Pay closing costs and related fees;

• Reduce non-housing debts;

• Contribution to a retirement asset;or

• Purchases not considered a net family asset (Exhibit 4-3).

C. Ineligible Uses ofAssets

If an applicant has excess assets, those assets cannot be used for purposes other than 

those listed in Paragraph 6.10 B.

6-16

Required Down Payment

If an applicant was issued a Certificate of Eligibility 

that listed a required down payment and they 

subsequently spend or dispose of those funds for 

ineligible loan purposes and now no longer have assets 

sufficient to cover the required down payment, the Loan 

Approval Official will re-evaluate eligibility at the time 

of approval or denial. If the applicant is no longer 

eligible, the reasons for denial will include Attachment

1-B with appeal rights.
HB-1-3550

SECTION 3: PAYMENT SUBSIDIES [7 CFR 3550.68]

6.11 AN OVERVIEW OF PAYMENTSUBSIDIES

The Agency uses payment subsidies to enhance an applicant’s repayment ability for 

Section 502 loans. UniFi calculates the applicant’s payment subsidy. The sample calculations 

provided in this section are intended to help the Loan Originator understand how the calculation 

works so that it can be explained to the applicant.

A. Three Types of Subsidy

1. Interest Credit

A borrower who initially received subsidy in the form of interest credit can continue 

to do so as long as the borrower remains eligible and continuously receives interest credit 

assistance. Subsequent loans to these borrowers should be subsidized with interest credit. 

Paragraph 6.13 describes the method for calculating subsidies using the interest credit 

method.

2. Payment Assistance Method 1

A borrower currently receiving payment assistance using payment assistance method 

1 will continue to receive it for the initial loan as the borrower is eligible for payment 

assistance method 1. However, if a borrower receiving payment assistance method 1 

receives a subsequent loan, payment assistance method 2 will be used to calculate the 

subsidy for the initial loan and subsequent loan. Paragraph 6.12 B describes the method 

for calculating subsidies using payment assistance method 1.

3. Payment Assistance Method 2

All other eligible applicants will receive payment assistance method 2. This includes: 

applicants who receive new initial loans; borrowers obtaining subsequent loans who 

qualify for payment subsidy, but who are not currently receiving interest credit; and 

applicants who assume loans under new rates and terms. Borrowers who cease to receive 

interest credit or payment assistance method 1 for 6 months or more will receive 

payment assistance method 2 if they subsequently begin to receive payment subsidies. 

Paragraph 6.12 A describes the method for calculating payment assistance method 2.

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Paragraph 6.11 An Overview of Payment Subsidies

B. Applicant Eligibility

1. Income Eligibility

Applicants who obtain loans on nonprogram terms are not eligible for payment 

subsidies. To be eligible for an initial loan at the time of origination, an applicant must 

be income-eligible for the Section 502 loan -- that is, have adjusted income that does not 

exceed the applicable low-income limit at the time of loan approval and the applicable 

moderate-income limit at the time of loan closing. When an existing Agency loan is 

being refinanced as a special servicing action including, but not limited to, following a 

moratorium, the household’s adjusted income must not exceed the applicable moderate 

income limit for the area at the time of loan approval and closing. Initial approval of 

payment subsidy for borrowers who become eligible after loan closing is the

responsibility of the Servicing Office. A borrower who is receiving payment subsidy 

can continue to receive it, even if their income exceeds the moderate income limit, as 

long as their subsidized rate does not exceed the note rate.

2. Occupancy Requirement

To be eligible to receive a payment subsidy, the applicant must occupy the dwelling

as their principal residence, unless during the term of the loan the Agency determines 

that the dwelling is uninhabitable or that the borrower may be absent temporarily from 

the property for reasons acceptable to the Agency, such as seasonal or migratory 

employment, military call-ups, or hospitalization. A dwelling is considered a principal 

residence when physically occupied by the owner on a permanent basis (i.e. lives there 

for the majority of the year and is the address of record for such activities as Federal 

income tax reporting, voter registration, occupational licensing, etc.).

C. Loan Requirements

1. Loan Term

For an applicant to be eligible for a payment subsidy, initial loans and subsequent 

loans made in conjunction with a new rates and terms assumption must have a term of at 

least 25 years. Borrowers can receive a payment subsidy for a subsequent loan not made 

in conjunction with an assumption with a term of less than 25 years, if the initial loan had 

a term of at least 25 years.

2. Type ofLoan

To receive payment subsidy, the loan must be made on program terms and must be 

secured by a mortgage on the property.

6-18
HB-1-3550

6-19

(01-23-03) SPECIAL PN

Revised (03-09-22) SPECIAL PN

Paragraph 6.11 An Overview of Payment Subsidies

D. Annual and Interim Reviews

Subsidy agreements are effective for a period not exceeding 24 months. For 

agreements that exceed 12 months, an annual review is conducted by the Servicing 

Office to determine whether the borrower is eligible to continue to receive payment 

subsidies. Annual and interim reviews of borrowers receiving payment subsidies are the 

responsibility of the Servicing Office. Borrowers who receive payment subsidies must 

notify the Agency if any adult household member changes or obtains employment, the 

household composition changes, or if income increases by more than 10 percent. 

Borrowers may report other changes that would result in increased payment subsidies. 

The review period may be different in certain circumstances. Borrowers receiving 

payment assistance via method 1 with adjusted incomes above 80 percent of the 

applicable adjusted median income will pay the Equivalent Interest Rate (EIR) for the 

appropriate income contained in Exhibit 6-4.

1. Self-Employed Applicants

For a self-employed applicant, the initial payment subsidy agreement will run from 

the effective date to 3 months after the end of the applicant’s business fiscal year, but not 

more than a 12-month period. This will allow subsequent agreements to coincide with 

the applicant’s business fiscal year, with a 3-month overlap, to provide sufficient time for 

the applicant to supply verification of the previous year’s income.

2. Unemployed Applicants

For an applicant receiving unemployment benefits, the agreement will be effective for 

the period during which the applicant will receive unemployment benefits, or, if the 

period is unknown, no longer than 6 months. The expiration date of the agreement will 

be established by the Loan Originator.

3.Annual Payment Borrowers

For an applicant currently paying an annual installment who receives a subsequent 

loan, the initial payment subsidy agreement, including the subsequent loan, will be in 

effect until the next January 1st.
HB-1-3550

Paragraph 6.11 An Overview of Payment Subsidies

E. Recapture Requirement

Borrowers are required to repay all or a portion of the payment subsidy received over the 

life of the loan when the title to the property transfers or when the borrower ceases to meet the 

occupancy requirement described in Paragraph 6.11 B. 2. The borrower must sign Form RD 

3550-12, Subsidy Repayment Agreement, at the time of loan closing for existing properties, 

when a construction loan is converted to a permanent loan, or whenever the borrower qualifies 

for payment subsidy for the first time.

The amount to be recaptured is determined by a calculation specified in the borrower’s 

subsidy repayment agreement and is based on the borrower’s equity in the property at the time 

of loan pay off. If there is no equity based on the recapture calculation, the amount of principal 

reduction attributed to subsidy is not collected. The recapture calculation includes the amount 

of principal reduction attributed to subsidy plus the lesser of:

• The amount of subsidy received; or 

• A portion of the value appreciation of the property subject to recapture. In order 

for the value appreciation to be calculated, the borrower will provide a current 

appraisal, including an appraisal for any capital improvements, or arm’s length 

sales contract as evidence of market value upon Agency request. Appraisals must 

meet Agency standards.

6.12 CALCULATINGPAYMENTASSISTANCE

A. Payment Assistance Method 2

The amount of payment assistance granted is the lesser of the difference between:

• The annualized promissory note installments for the combined RHS loan and 

eligible leveraged loans plus the cost of taxes and insurance less 24 percent of the 

borrower’s adjusted income,or

• The annualized promissory note installment for the RHS loan less amount the 

borrower would pay if the loan were amortized at an interest rate of 1percent.

Borrowers receiving payment assistance method 2 must pay the greater of:

• A payment to RHS based on 24 percent of their adjusted annual income lessthe 

amortized payment for the eligible leveraged loan less the cost of taxes and 

insurance; or

• A payment to RHS based on an interest rate of 1 percent plus theamortized 

payment for the eligible leveraged loan plus the cost of taxes and 

insurance.

An eligible leveraged loan is a loan with payments amortized over a period of not less 

than 30 years and an interest rate that does not exceed 3 percent.

6-20
HB-1-3550

Paragraph 6.12 Calculating Payment Assistance

6-21

(01-23-03) SPECIAL PN

Revised (01-06-17) PN 492

B. Payment Assistance Method 1

The amount of payment assistance granted is the difference between the installment due 

at the promissory note rate and the amount the borrower must pay based upon income.

Borrowers receiving payment assistance method 1 must pay the greater of:

• A floor payment calculated as a percentage of adjusted income, less the cost of taxes 

and insurance; or

• The loan payment amortized at the applicableEIR.

Borrowers who receive leveraged loans are not subject to floor payments. Exhibit 6-3 

provides a sample payment assistance method 1 calculation.

1. Establishing the FloorPayment

The floor payment is a minimum percentage of adjusted income that the borrower must 

pay for Principal, Interest, Taxes, and Insurance (PITI).

• Very low-income borrowers must pay a minimum of 22 percent.

• Low-income borrowers with adjusted incomes below 65 percent of the applicable 

adjusted median income must pay a minimum of 24percent.
HB-1-3550

Paragraph 6.12 Calculating Payment Assistance

6-22

Exhibit 6-2

Sample Payment Assistance Method 2 Calculation

The Jones family wishes to purchase a home for $90,000. They have been approved for a $60,000 loan from RHS 

and a $30,000 Affordable Leveraged Loan.

The family’s adjusted income is $23,000; monthly taxes and insurance are estimated at $150/month.

(1) Calculate the combined Annual Payment at the Note Rate plus Taxes and Insurance less 24% of the Adjusted 

Annual Income (AAI).

-$460

$166

Insurance (PITI at Note Rate) 

AAI ($23,000 X 24%)

Total Monthly Subsidy

(2) Calculate the annualized RHS note installment lessthe annualized 1% installment.

PAYMENT SUBSIDY WILL BE THE LESSER OF (1) OR (2).

$166 MonthlySubsidy

Calculate Monthly Installment(P&I)

Principal Amount Payment Period Note Rate

RHS Loan $60,000 33 years 6.0%

Affordable Leveraged Loan $30,000 30 years 3.0%

$349 RHS Loan ($60,000 @ 6% for 33years)

$127 Affordable Leveraged Loan ($30,000 @ 3% for 30years)

$150 Estimated Monthly Taxes and Insurance(T&I)

$626 Combined Principal, Interest, Taxes and

$349 RHS Monthly Note Installment

-$178 RHS 1% Payment ($60,000 @ 1% for 33years)

$171 Total Monthly Subsidy

$460 24% of AAI

-$127 Affordable Leverage

-$150 T&I

$183 Total Monthly P&I Installment
HB-1-3550

Paragraph 6.12 Calculating Payment Assistance

6-23

(01-23-03) SPECIAL PN

Revised (01-06-17) PN 492

Exhibit 6-3

Sample Payment Assistance Method 1 Calculation

The Jones family has received payment assistance method 1 on their initial loan since it was approved. They have 

recently been approved for a subsequent loan to make needed repairs.

The following financial information is needed to calculate the payment assistance.

The family’s Adjusted Annual Income is $23,000. The Adjusted Median Income is $36,500.

(1)

(2) Calculate the Floor Payment forPI*

24% Floor payment percentage for applicant @ 63% of median income

$460 Floor payment for PITI* ($23,000 ÷ 12 months x0.24)

$310 Floor payment for PI* ($460 - $150 for taxes andinsurance)

(3) Calculate the Payment at theEIR*

4% EIR* for applicant at 63% of median

(4)

* PI = Principal and Interest.

PITI = Principal, Interest, Taxes,and Insurance 

EIR = Equivalent InterestRate

Principal Amount Repayment Period Note Rate

Initial Loan $60,000 33 Years 7%

Subsequent Loan $30,000 33 Years 6%

$23,000 Adjusted income

63% Percent of adjusted median ($23,000 ÷$36,500)

$150 Monthly taxes and insurance

Calculate the Payment at the Note Rate

$389 Initial Loan payment at the note rate (amortized amount for $60,000 @ 7% for 33 years)

$174 Subsequent Loan payment at the note rate (amortized amount for $30,000 @ 6 % for 33 years)

$563 Total

$273 Initial Loan payment at the EIR (amortized amount for $60,000 @ 4% for 33 years)

$137 Subsequent Loan payment at the EIR (amortized amount for $30,000 @ 4% for 33 years)

$410 Total Payment at EIR

Compute Monthly Payment Assistance

$563 Payment at the note rate (combine initial and subsequent loans)

-$410 Required payment is the greater of (2) or (3)

$153 Monthly payment assistance

Low-income borrowers with adjusted incomes between 65 and 80 percent of the 

applicable adjusted median income must pay a minimum of 26 percent.
HB-1-3550

Paragraph 6.12 Calculating Payment Assistance

6-24

2. Calculating the Payment at theEIR

The EIR is determined by comparing the applicant’s adjusted income to the applicable 

adjusted median income for the area in which the security property is located. The payment at 

the EIR is calculated by amortizing the loan using the applicant’s loan amount, the term of the 

loan, and the EIR for which the applicant qualifies. Exhibit 6-4 provides the EIRs to be used.

Exhibit 6-4 

Equivalent Interest Rates

Use the equivalent interest rate for the income range applicable to 

the applicant’s adjusted income.

Adjusted Median 

Income Range

Equivalent 

Interest Rate*

0%-50% 1.0%

50.01%-55% 2.0%

55.01%-60% 3.0%

60.01%-65% 4.0%

65.01%-70% 5.0%

70.01%-75% 6.0%

75.01%-80% 6.5%

80.01%-90% 7.5%

90.01-100% 8.5%

100.01%-110% 9.0%

110.01%-greater 9.5%

* EIR can never exceed the note rate.

6.13 CALCULATING INTEREST CREDIT

The amount of interest credit granted is the difference between the installment due at the 

promissory note rate and the amount the borrower must pay.

• 20 percent of adjusted monthly income, less the cost of taxes and insurance;or

• A loan payment reflecting the loan amount amortized at an interest rate of 1 percent. 

Exhibit 6-5 provides a sample interest credit calculation.
HB-1-3550

6-25

(01-23-03) SPECIAL PN

Revised (01-06-17) PN 492

Paragraph 6.13 Calculating Interest Credit

Exhibit 6-5

Sample Interest Credit Calculation

The Joneses have received an interest credit subsidy on their initial loan since it was 

approved and have recently been approved for a subsequent loan to make needed repairs. 

The terms of the 2 loans are as follows:

Principal Amount Payment Period Note Rate

Initial Loan $60,000 33 years 7.0%

Subsequent Loan $15,000 33 years 6.5%

The family’s adjusted income is $22,000; monthly taxes and insurance are estimated at

$90/month.

(1) Calculate the Annual Payment at the NoteRate

$389 Initial Loan (Amortized amount for $60,000 @ 7% for 33years)

$ 92 Subsequent Loan ($15,000 @ 6.5% for 33years)

$481 Total

(2) Calculate the Minimum Payment for Principal andInterest

$367 Minimum amount for PITI* ($22,000 ÷ 12 months x0.20)

$277 Minimum amount for PI* ($367 -$90)

(3) Calculate the Required Payment at 1 Percent

$222 Monthly payment at the subsidized rate ($75,000 @ 1% for 33years)

(4) Compute Monthly InterestCredit

$481 Monthly payment at the note rate

-$277 Required payment is the greater of (2) or(3)

$204 Monthly paymentsubsidy

* PI = Principal and Interest

PITI = Principal, Interest, Taxes, and Insurance 

EIR = Equivalent Interest Rate
6-26

HB-1-3550

SECTION 4: UNDERWRITING A LOAN FOR A SPECIFIC PROPERTY

6.14 APPROVING A SPECIFIC PROPERTY

Underwriting for a specific property begins after the applicant has been determined 

eligible and submits information about the property.

• Applicants who do not currently own the property must submit an option or

sales contract. The sales contract must specify whether the purchaser or seller 

will be paying for the inspections and certifications.

• Applicants who already own the property must submit evidence of ownership as 

described in Paragraph 5.11, a legal description, and a property survey showing all 

structures on the site.

If the property appears to be acceptable (refer to Paragraph 5.17 B. for additional 

guidance), the Loan Originator requests an appraisal of the property. If the property is not 

acceptable, the Loan Originator must notify the applicant and provide a new Form RD 1944-59, 

Certificate of Eligibility.

6.15 FUNDS AVAILABLE FOR CLOSING

If the applicant must pay for closing costs that cannot be financed, or plans to make a 

down payment to reduce the loan amount, the Loan Originator must obtain complete copies of 

the borrower’s two most recent consecutive bank statements to ensure that the applicant has 

sufficient funds to pay the required costs, or can demonstrate that the funds will be available 

before closing. If additional funds are to be received from an outside source, the Loan Originator 

must ensure that the applicant has completed Form RD 3550-2, Request for Verification of 

Gift/Gift Letter, to certify that the additional funds will not need to be repaid.
HB-1-3550

6.16 CALCULATING THE APPROVABLE LOAN AMOUNT

Once the Loan Originator verifies and enters all applicable applicant information and 

receives the appraisal, then UniFi can be used to determine whether the applicant appears to 

qualify for the needed loan amount, and if not, determine whether there are ways to make the 

loan feasible.

A. Calculating the Approvable Loan at Standard Terms

Once the required information is entered, the worksheet automatically computes the PITI 

and TD ratios, determines whether the applicant is eligible for a payment subsidy and the 

amount, and determines whether the applicant can afford the selected property using standard 

loan terms. If UniFi indicates that the loan can be approved, the Loan Originator should prepare 

the loan approval package, as described in Paragraph 6.17.

B. Working with Applicants Who Do Not Qualify Using StandardTerms

If the applicant cannot be approved for a loan using standard terms, the Loan Originator 

should determine whether any of the adjustments described below are possible. If any of the 

adjustments make the loan feasible, the Loan Originator should prepare the loan approval 

package, as described in Paragraph 6.17.

1. Possible Applicant Actionsto Make aLoan Feasible

The Loan Originator should discuss with the applicant options for enhancing their 

ability to obtain Agency financing including: (1) identifying additional parties to the note;

(2) seeking down payment assistance or other assistance programs to supplement the 

Agency loan; (3) providing an additional down payment to reduce the principal amount 

of the loan; (4) seeking a less expensive dwelling; or (5) obtaining leverage funds with 

terms more favorable than available from the Agency.

2. Possible Agency Actions to Make a Loan Feasible

The Loan Originator should first consider any compensating factors, as described in 

Paragraph 4.24 A., that have not yet been considered and does not result in multiple risk 

layering. The Loan Originator should then recompute the loan using a 38 year term 

provided the applicant’s income qualifies for a 38 year loan.

6-27

(01-23-03) SPECIAL PN

Revised (06-02-23) PN 583
6-28

HB-1-3550

Paragraph 6.16 Calculating The Approvable Loan Amount

In the case of a subsequent loan, the Agency may authorize reamortization of the 

initial loan if the borrower cannot reasonably be expected to meet installment payments 

unless the account is reamortized. The Loan Originator should consult with the

Servicing Office to determine whether reamortization is appropriate.

6.17 APPROVINGCREDIT

The results of the underwriting analysis are summarized on UniFi’s Eligibility Summary.

The Eligibility Summary must be signed, dated, and filed in the applicant case file, and must 

reflect the verified applicant and property information at the time of loan underwriting.

If the results of the analysis indicate that the applicant’s loan is feasible, the Loan 

Originator should recommend that it be approved. Before forwarding the case file, the Loan 

Originator should review it to ensure that all documentation required for approval as listed in 

Attachment 3-G is included. The Loan Originator also should reconfirm that the documentation 

in the case file demonstrates that:

• The applicant is eligible, as described in Chapter 4;

• The property is eligible, as described in Chapter 5; and

• The loan is feasible at approvable loan terms, as described in thischapter.

When the Electronic Case File (ECF) is complete, the Loan Originator will inform the 

Loan Approval Official the file is ready for review and decision. Refer to Attachment 3-G for 

guidance on the documentation required prior to loan approval. The Loan Approval Official is 

responsible for all underwriting exceptions within their authority (or obtaining higher level 

authority) and determining loan approval or denial. To ensure adequate separation of duties, the 

Loan Approval Official must be different than the Loan Originator for the subject application.

If a Loan Approval Official’s first year loan delinquency exceeds the national new loan 

delinquency rate, they are required to use the Underwriting, Pre-Closing, and Compliance Tool 

(which can be found in SharePoint) as part of their review and decision of Section 502 loans.

Housing Program Directors are responsible for monitoring the required use of this tool (as well 

as new loan delinquencies), and the National Office will monitor use of the tool as well.
HB-1-3550

Attachment 6-A 

Page 1 of 1 

ATTACHMENT 6-A 

Reserved for Future Agency Use
HB-1-3550

Attachment 6-B 

Page 1 of 8

ATTACHMENT 6-B

LOAN QUALITY REVIEW

Quality loan underwriting ensures that the Agency properly and prudently uses funds and 

contributes to reducing the first- and second-year delinquency rates, when coupled with 

homeownership education.

I. State Office Monitoring

State Offices must periodically conduct quality checks on new loans, as well as on 

withdrawn and rejected applications, for each Field Office to confirm that the Loan Approval 

Official complied with the underwriting standards and procedures. A minimum of one first year 

loan, one withdrawn, and one rejected application, or five percent of loans in each of these 

categories (whichever is greater) will be reviewed for each Loan Approval Official at least 

annually using the questions in item IV. of this attachment. A State Office Summary of these 

reviews (item III. of this attachment) will be submitted to National Office at 

SFHDIRECTPROGRAM@usda.gov for the prior fiscal year no later than December 31st.

States who are scheduled for an Internal Compliance Review (ICR) will not be 

required to complete the 6-B, Loan Quality Review, within the fiscal year in which the ICR is

being conducted.

II. National OfficeMonitoring

The National Office will hold a teleconference with State Offices to discuss their 

submitted review results and actions they have or will take to address noted underwriting 

weaknesses or trends.

(01-23-03) SPECIAL PN

Revised (06-02-23) PN 583
HB-1-3550

Attachment 6-B 

Page 2 of 8

III. State Office Summary

Date:

State:

State’s (current) 1st Year Delinquency Rate:

State’s (current) 2nd Year Delinquency Rate:

Number of Loan Approval Officials:

Number of Loan Originators:

A. Please describe any underwriting and/or post-closing 

reviews or other oversight activities the State Office 

has completed in the last year.

B. Please describe issues or trends that were identified through State Office oversight in the last 

year, and what has been done to resolve them.

C. Please address any issues, trends, or factors you think may be contributing to new loan 

delinquency (first and second year loans) in yourstate.

D. Based on the results of the individual file reviews, list any follow up action needed (e.g. 

training to be provided, action to be taken in an automated system, follow up withthe 

Servicing Office, etc.) and timeframe for completion. Use a continuation sheet if necessary.

Action Item Person Responsible Target Date

Recommended Reports:

• 24 Report

• Summary of Active 

Monthly New Loans (Hyperion

– SFH (rddw)>SFH 

Direct>Loan Servicing>SFHD 

New Loans Drilldown –

Servicing State)

• UniFi State and Field Office 

ManagementReports
HB-1-3550

Attachment 6-B 

Page 3 of 8

IV. State Office LoanReview

Applicant’s/Borrower’s Name: 

Account Number(s): Status:

Reviewer’s Name: 

State:

Obligation Date: Closing Date: Conversion Date (construction advances):

Loan Approval Official(LAO):

LAO’s 1stYear DelinquencyRate: 

Did the LO/LAO ensure Attachment 3-G was fully completed? Yes No 

Rejected Applications

1. If the adverse decision was subject to appeal, was the applicant informed of their informal

administrative review, mediation, and appeal rights, using HB Letter 15 and HB-1-3550, 

Attachment 1-B?

Yes No

2. If the adverse decision was not subject to appeal, was the applicant notified that they 

may request an informal administrative review using HB Letter 15 and HB-1-3550, 

Attachment 1-C?

Yes No

Reviewer to provide brief narrative on the reason(s) the application was rejected and the 

appropriateness of the rejection:

Withdrawn Applications

1. Did the applicant withdraw the application by writing or calling the Field Office?

Yes No

2. Was the application withdrawn by the Field Office because of missinginformation, 

which was requested in Handbook Letter 11, RequestInformation?

Yes No

Reviewer to provide brief narrative on the reason(s) the application was withdrawn and the 

appropriateness of the withdraw:

(01-23-03) SPECIAL PN

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

Attachment 6-B 

Page 4 of 8

When answering the questions below, focus on the documentation at the time of loan closing (or 

the most recent documentation available for rejected or withdrawn applications).

A. Income Eligibility:

Were all income sources:

1. Properly classified (annual and/or repayment)? Yes No

2. Verified using preferred method? Yes No 

If no, identify alternative method(s) used to verify income:

3. Evaluated for stability and dependability? Yes No

Reviewer to provide brief narrative on this issue, including length/stability of employment:

4. Were 

applicable deductions verified? Yes No

If no, reviewer to provide brief narrative on this issue:

5. Reviewer is to perform their own income calculations (annual, adjusted, andrepayment).

Annual Adjusted Repayment

Loan Originator

Reviewer

Difference
HB-1-3550

Attachment 6-B 

Page 5 of 8

(01-23-03) SPECIAL PN 

Revised (03-19-20) PN 534

a. Are the Loan Originator’s income projections within 10 percent of the reviewer’s

income calculations? Yes No

b. Explain any difference between annual and repayment calculations (e.g. non-taxable

income “grossed up” as applicable, different sources of income were used,etc.).

B. Creditworthiness:

1. What was the credit score(s) for the applicant(s)? Applicant:

Co-applicant:

2. Did the applicant(s) have more than one creditscore? Yes No

If no, reviewer to provide brief narrative on this issue, including any non-traditional 

credit verifications that were used:

3. If the applicant’s credit score was under 640, was Form RD 1944-61 used to evaluate the

TMCR? Yes No NA

4. If the applicant’s credit history as reported on the TMCR and third-party verifications

indicated unacceptable credit handling:

i. Were the circumstances properly documented? Yes No NA

Reviewer to provide brief narrative on this issue below: 

ii. Was an allowable exception approved by the Loan Approval Official?

Yes No NA
HB-1-3550

Attachment 6-B 

Page 6 of 8

C. Qualifying Ratios:

1. Were all debts reported on the credit report included in the debt-to-income ratios?

Yes No

If no, which debts were excluded and what kind of documentation was used to support the 

decision?

2. Based on the reviewer’s repayment income calculation as determined above as well as the 

established and verified factors at the time of loan closing (loan amount, monthly taxes and 

insurance, liabilities listed on the TMCR, etc.), were the resulting qualifying ratios within 

the applicable parameters?

Reviewer’s ratio calculations below:

PITI:

Total Debt:

If no, was a compensating factor properly usedand documented? Yes No 

Reviewer to provide brief narrative on this issue below:

3. Was an exception approved by the Loan Approving Official or by a higher-level 

supervisor when required? Yes No NA

If yes, name ofsupervisor (ifapplicable):

4. Did the applicant have payment shock? Yes No

Reviewer calculation below or enter “could not be measured” if applicable:

Payment shock = (Total proposed principal, interest, taxes, and insurance payment after 

subsidy / current housing expense excluding utilities) – 1
(01-23-03) SPECIAL PN

Revised (06-02-23) PN 583

HB-1-3550

Attachment 6-B

Page 7 of 8

If payment shock is more than 100%:

a. Were there other risk layers (adverse credit waivers, use of compensating factors, 

etc.)? Yes No NA

D. Eligible Loan Purposes:

Were Agency funds used for eligible purposes? Yes No 

If no, explain:

E. Property Eligibility Requirements:

1. Was the property located in an eligible area per

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do? Yes No

If a printout from this site is not on file, the reviewer should enter the property address 

into this site.

2. Was the appropriate environmental analysis completed prior to obligation of funds?

Yes No

3. Was there proof of adequate insurance at closing? Yes No

F. Debts vs. Market Value:

Was the total of all debts secured by the property less than or equal to the property’s market 

value as determined by the appraisal, except by allowable excess costs? Yes No

If no, provide explanation below:
HB-1-3550

Attachment 6-B 

Page 8 of 8

G. Post-Closing / Servicing Activity:

1. Has insurance been force-placed after closing? Yes No NA

2. Has the account been approved for a moratorium? Yes No NA

3. If yes, reviewer to provide a brief narrative below (check ECF for moratorium 

documentation):

4. Has the account been accelerated? Yes No

If yes, reviewer to provide brief narrative below (e.g. has borrower indicated a reason 

for the delinquency; how long from closing to acceleration; if account is severely 

delinquent but not yet accelerated, why; etc.)

5. Has the borrower filed for bankruptcy since loan closing? Yes No

If yes, reviewer to provide brief narrative below (e.g. date of filing; was the Agency’s 

debt reaffirmed; etc.)

6. Is the borrowerin foreclosure? Yes No

If yes, reviewer to provide brief narrative below (e.g. date of initial foreclosure action; 

did the borrower attempted to cure the default; etc.)

State Office Summary Comments (Include State Office observations on the soundness of the 

loan, necessary or specific action to be taken as a result of your review, such as training needs 

identified and a plan for providing it):