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Wholesale and NDC USDA

of 60 Revised 07-21-17

Table of Contents USDA Fixed Rate Conforming Guides ........................................................................................................... 7

Program Description ................................................................................................................................. 7

Product Codes ........................................................................................................................................... 7

Price Adjustments ..................................................................................................................................... 7

Loan Amounts Guaranteed ....................................................................................................................... 7

Loan Term ................................................................................................................................................. 7

Guaranteed Program ................................................................................................................................ 7

Underwriting Options ............................................................................................................................... 8

Minimum Credit Score (FICO) ................................................................................................................... 8

Age of Credit Documents .......................................................................................................................... 8

Analyzing the Borrower’s Credit to Determine Established Credit Reputation ........................................ 8

Ratios ........................................................................................................................................................ 9

Credit Waivers required on GUS Refer/Manual Downgraded loans and Compensating Factors ............ 9

Qualified Mortgages/Ability to Repay .................................................................................................... 10

Higher Priced Mortgage Loans (HPML) ................................................................................................... 10

Electronic Signatures loan documents/Purchase contract/disclosures ................................................. 11

Program Limitation ................................................................................................................................. 11

Maximum LTV/CLTV/Credit Score/DTI ................................................................................................... 11

Transaction Types ................................................................................................................................... 12

Ineligible Transactions ............................................................................................................................ 12

Refinance Transactions ........................................................................................................................... 12

Seasoning ................................................................................................................................................ 13

Subordinate Financing ............................................................................................................................ 13

Documentation ....................................................................................................................................... 13

12 month chain of title needed for all transactions ............................................................................... 13

Payment Shock ........................................................................................................................................ 13

Loan File Documents ............................................................................................................................... 14

Short Sale Purchase Transactions ........................................................................................................... 14



Construction to Permanent Financing .................................................................................................... 14

New Construction ................................................................................................................................... 14

Occupancy ............................................................................................................................................... 15

Eligible Property Types............................................................................................................................ 15

Ineligible Property Types ........................................................................................................................ 16

Flood Hazards .......................................................................................................................................... 17

Condominium Eligibility .......................................................................................................................... 17

Property Flipping ..................................................................................................................................... 17

Energy Efficient Mortgages ..................................................................................................................... 17

Geographic Restrictions .......................................................................................................................... 18

Appraisal Requirements .......................................................................................................................... 18

Unique Property ...................................................................................................................................... 19

Appraisal Update .................................................................................................................................... 19

Private Well/Water Supply ..................................................................................................................... 20

Sand Point Wells ..................................................................................................................................... 20

Minimum Distances allowed between well and septic tank .................................................................. 20

Well Waiver Requirements ..................................................................................................................... 21

Well Waiver Procedures ......................................................................................................................... 21

Private Septic System .............................................................................................................................. 22

Pest/Termite inspection .......................................................................................................................... 22

Private Roads .......................................................................................................................................... 22

Energy Thermal Code Existing Construction ........................................................................................... 22

POA - Power of Attorney’s ...................................................................................................................... 23

Title/Vesting ............................................................................................................................................ 23

Eligible Borrowers ................................................................................................................................... 23

Co-Borrowers .......................................................................................................................................... 24

Education/Counseling ............................................................................................................................. 24

Eligibility and Parties Eligible to Participate in USDA’s Rural Development Loan Guarantee Program . 24

Non-Permanent Resident Aliens ............................................................................................................. 24

Ineligible Borrowers ................................................................................................................................ 25



Co-brokering ........................................................................................................................................... 25

Minimum Credit Score 640 ..................................................................................................................... 25

Authorized User ...................................................................................................................................... 25

Credit Reports ......................................................................................................................................... 26

Credit Supplements................................................................................................................................. 26

Credit History .......................................................................................................................................... 26

Credit Exception required on manually underwritten loans and GUS loans that receive a “Refer”

underwriting recommendation: ............................................................................................................. 27

Charge-Off Accounts ............................................................................................................................... 27

Collection Accounts................................................................................................................................. 28

Bankruptcy Chapter 7 ............................................................................................................................. 28

Bankruptcy Chapter 13 in Repayment .................................................................................................... 29

Bankruptcy Chapter 13 Discharged ........................................................................................................ 30

Disputed Accounts .................................................................................................................................. 30

Derogatory Credit ................................................................................................................................... 30

Consumer Credit Counseling Service ...................................................................................................... 31

Judgment Accounts ................................................................................................................................. 31

Liabilities ................................................................................................................................................. 32

Evaluating Credit after a Short Sale ........................................................................................................ 33

Rental/Housing Verification .................................................................................................................... 33

Business Liabilities .................................................................................................................................. 33

Student Loans ......................................................................................................................................... 33

Balloon//Deferred Payments (excluding student loans) ........................................................................ 34

Co-signed Debt ........................................................................................................................................ 34

Debts Addressed in Divorce Decree ........................................................................................................ 34

Community State Property ..................................................................................................................... 34

Borrower Income for Program Eligibility ................................................................................................ 35

Income for loan Qualification ................................................................................................................. 36

Income Tax Rates .................................................................................................................................... 37

Business Debts ........................................................................................................................................ 39



Child Care Expenses ................................................................................................................................ 40

Child Support/Alimony Garnishments .................................................................................................... 40

Medical Expenses .................................................................................................................................... 40

Disability Expenses .................................................................................................................................. 40

Number of Properties Owned ................................................................................................................. 41

Rental Income ......................................................................................................................................... 42

4506-T Requirement ............................................................................................................................... 42

Asset Verification .................................................................................................................................... 42

Asset Verification .................................................................................................................................... 42

Large Deposits ......................................................................................................................................... 43

Retirement Assets ................................................................................................................................... 43

Sale of Personal Assets ........................................................................................................................... 43

Reserves .................................................................................................................................................. 43

Gift Funds ................................................................................................................................................ 43

Earnest Money ........................................................................................................................................ 43

Reimbursement of Fees to Borrower at Closing ..................................................................................... 44

Allowable Fees ........................................................................................................................................ 44

Non-Arm’s Length Transactions .............................................................................................................. 44

Maximum Contributions by Interested Party ......................................................................................... 44

Guarantee Fee......................................................................................................................................... 45

Down Payment ........................................................................................................................................ 46

Principal Reduction ................................................................................................................................. 46

Escrow Impound Requirements .............................................................................................................. 46

Escrow for Exterior Work Completion .................................................................................................... 47

Escrow for Interior Repair Work ............................................................................................................. 47

Assumability ............................................................................................................................................ 48

Temporary Buydowns ............................................................................................................................. 48

Non-Occupant Co-Borrowers .................................................................................................................. 48

USDA Streamline Assist Refinance Guides .................................................................................................. 49

Program Description ............................................................................................................................... 49



Product Codes ......................................................................................................................................... 49

Loan Amounts ......................................................................................................................................... 49

Maximum Loan Amount ......................................................................................................................... 49

Loan Term ............................................................................................................................................... 49

USDA Streamline Assist Refinance Program ........................................................................................... 49

Underwriting Options ............................................................................................................................. 50

Minimum Credit Score (FICO) ................................................................................................................. 50

Age of Credit Documents ........................................................................................................................ 50

Eligibility Requirements for Streamline Refinance ................................................................................. 50

DTI Ratios ................................................................................................................................................ 50

Qualified Mortgages/Ability to Repay .................................................................................................... 50

Higher Priced Mortgage Loans (HPML) ................................................................................................... 51

Electronic Signatures loan documents/Purchase contract/disclosures ................................................. 51

Program Limitation ................................................................................................................................. 51

Maximum LTV/CLTV/Credit Score/DTI ................................................................................................... 51

Ineligible Transactions ............................................................................................................................ 52

Streamline Refinance Documentation Required .................................................................................... 52

Seasoning ................................................................................................................................................ 52

Subordinate Financing ............................................................................................................................ 52

12 month chain of title needed for all transactions ............................................................................... 52

Change in Obligor(s) ................................................................................................................................ 52

Occupancy ............................................................................................................................................... 53

Eligible Property Types............................................................................................................................ 53

Ineligible Property Types ........................................................................................................................ 53

Flood Hazards .......................................................................................................................................... 53

Condominium Eligibility .......................................................................................................................... 54

Energy Efficient Mortgages ..................................................................................................................... 54

Geographic Restrictions .......................................................................................................................... 54

Appraisal Requirements .......................................................................................................................... 54

Private Roads .......................................................................................................................................... 54



POA - Power of Attorney’s ...................................................................................................................... 55

Title/Vesting ............................................................................................................................................ 55

Eligible Borrowers ................................................................................................................................... 55

CAIVRS ..................................................................................................................................................... 55

CAIVRS Claims ......................................................................................................................................... 55

LDP / GSA ................................................................................................................................................ 56

Ineligible Borrowers ................................................................................................................................ 56

Credit Reports ......................................................................................................................................... 56

Credit Supplements................................................................................................................................. 56

Credit Requirements - Streamline Refinance ......................................................................................... 56

Mortgage Payment History ..................................................................................................................... 57

Net Tangible Benefit ............................................................................................................................... 57

Borrower Income for Program Eligibility ................................................................................................ 57

Income for loan Qualification ................................................................................................................. 58

Child Care Expenses ................................................................................................................................ 59

Principal Reduction at Closing ................................................................................................................ 59

Allowable Fees ........................................................................................................................................ 59

Guarantee Fee......................................................................................................................................... 59

Escrow Impound Requirements .............................................................................................................. 60

Assumability ............................................................................................................................................ 60

Temporary Buydowns ............................................................................................................................. 60



USDA Fixed Rate Conforming Guides

Program Description The Guaranteed Rural Housing Loan Program is offered through the Rural Housing Service (RHS), an agency of the U.S. Department of Agriculture. The program offers assistance to low- and moderate-income rural residents whose income is equal to or less than 115% of the area median income in designated rural areas by The Rural Development with little or no down payment or out -of-pocket costs. For additional eligibility and underwriting criteria not specifically addressed in these guidelines or

in FCBM’s all combined underwriting guidelines, refer to The Rural Development Regulations and

Guidance website at http://www.rurdev.usda.gov/handbooks.html

Product Codes USD30- Fixed Rate USDA 30 Year

Price Adjustments Certain transactions may be subject to price adjustments. Refer to your rate sheet.

Loan Amounts Guaranteed Minimum loan amount: $50,000- Maximum: Per USDA eligibility (conforming loan limit) Direct/Leveraged is not allowed.

Loan Term 30 year

Guaranteed Program The Guaranteed Rural Housing Loan Program is offered through the Rural Housing Loan Service Program (RHS), an agency of the U.S. Department of Agriculture. The program offers assistance to low- and moderate-income rural residents whose income is equal to or less than 115% of the area median income. Moderate income is defined as the greater of 115% of the U.S. median family income or 115% of the average of the state-wide and state non-metro median family incomes or 115/80ths of the area low-income limit.

This program allows 100% LTV, 30-year fixed-rate first mortgages in designated RHS service areas.

http://www.rurdev.usda.gov/handbooks.html



Underwriting Options Automated Underwriting: GUS (Guaranteed Underwriting System) that receive Accept/Eligible, or Manual Underwriting due to GUS Refer – see credit section for specific requirements on manual underwriting.

Minimum Credit Score (FICO) 640 on Approve/Eligible or Refer/Eligible (Manual Underwriting) – see credit section for specific requirements on manual underwriting Non-Traditional credit is not allowed.

Age of Credit Documents Credit Documents must be no more than 120 days from loan disbursement date (loan funding) on all transactions(Existing or New construction properties).

Analyzing the Borrower’s Credit to Determine Established Credit Reputation At least one applicant must have two (2) traditional credit trade line accounts reporting twelve (12) months payment history on the credit report in order for the applicant to have a valid credit score regardless of the AUS recommendation (Accept or Refer). These two (2) trade lines can be open/closed/disputed/authorized user accounts. Note: If this requirement cannot be met on a GUS “Accept” recommendation, the loan must be manually downgraded to a “Refer” and additional alternative (non-traditional) credit references must be verified to establish satisfactory credit history.

A total of three (3) trade line credit references are required when at least one of the credit references

includes a verification of rental housing payments (VOR) or mortgage loan payments (VOM). If housing

payment history cannot be verified; then, at least four (4) trade line credit references must be obtained

in order to document sufficient credit history.

For example: If the applicant only has two traditional credit trade lines reporting 12 months of payment history on the credit report; then, you would need to provide at least 1 non-traditional tradeline that meets the criteria of open with 12 month history IF they have rental history, if they do not have a rental history then you would need to provide 2.

The preferred method to verify alternative credit references is by obtaining a Non-Traditional Mortgage Credit Report (NTMCR); if obtaining a Non-Traditional Mortgage Credit Report (NTMCR) is impractical or unavailable; independent verification is acceptable in the form of:

Cancelled checks,

Third-party verifications, or

Non-traditional credit report for the following non-traditional credit sources that include the creditor’s name, date the account was opened, account balance, monthly payment due, and payment history reported in 0x30, 0x60, 0x90 format.



Acceptable alternative (non-traditional) credit references include:

Verification of rent payments;

Utility payment records (if utilities were not included in any rent payments) such as gas, electricity, water, land-line home telephone service or cable TV;

Insurance payments (excluding those paid through payroll deductions) such as medical, automobile, life and household, or renter’s insurance;

Payments to child care providers – made to a business providing such a service;

School tuition;

Payments to local stores (department, furniture, appliance and specialty stores);

Payments for the uninsured portions of any medical bills;

Internet/cell phone services;

Automobile leases;

A personal loan from an individual (other than a family member) with repayment terms in writing and supported by cancelled checks or money order receipts to document repayment;

A documented 12-month history of saving by regular deposits (at least quarterly/non-payroll deducted/no NSF checks reflected), resulting in a reserve account equal to three months of proposed mortgage payments (PITI) as a cash reserve post-closing; or

Any other reference which gives insight into the applicant’s willingness to make periodic payments on a regular basis for credit obligations.

Ratios - Ratio limits are 29/41 on manually underwritten loans/GUS downgrades - FCBM will allow ratios

up to 32/44 for manually underwritten loans with documentation of strong compensating factors and USDA approval

- 29%/41%, higher ratios allowed with a GUS Accept Note: GUS Refer or Manual Downgraded loans require a Credit Waiver be submitted to USDA validating the circumstances leading to the adverse credit have been resolved, and if increased ratios up to 32/44 are warranted for qualification, a Request for Ratio Waiver must be submitted to USDA for approval. Credit Waivers required on GUS Refer/Manual Downgraded loans and Compensating Factors When manually underwriting a loan, the underwriter must make the credit decision based on the overall evaluation of the risks documented and verified, and determine if the borrower is creditworthy in accordance with USDA’s credit policies and guidelines for GUS refer loans or manually underwritten loans listed in the credit section of this Guide and per USDA’s HB-1-3555 Chapter 10. For GUS Refer or Manual Downgraded loans, a credit waiver with supportive documentation validating the circumstances leading to the adverse credit is necessary. The credit waiver must list no less than three compensating factors evaluated to confirm the borrower’s willingness and ability to meet credit obligations; below is a list of compensating factors:

Qualifying Credit Score for all Borrowers at least 680 Similar housing with no payment shock

o The proposed PITI [proposed housing expenses] is equal to or less than the applicant’s current verified housing expense for the 12 month period preceding loan application.



Verification of housing expenses is to be documented on a Verification of Rent (VOR) or credit report.

o The VOR or credit report must include the actual payment amount due and report no late payments or delinquency for the previous 12 months. (Rent or mortgage payment histories from a family member will not be considered.)

The new loan represents a significant reduction in housing expenses (must be a reduction of 50% or more)

Minimum 3 months’ reserves o Accumulated savings of liquid assets or cash reserves available after loan closing equal to or

greater than 3 months of PITI payments (gift funds not acceptable to be used) o 2 consecutive bank statements, dated within 30 days of loan application documenting the

average balance held by the applicant is required to document accumulation of assets. (Cash on hand is not eligible for consideration as a compensating factor.)

Two years’ job history with the SAME employer, no job gaps. (Not permitted for self-employed applicants) o The applicant(s) has been continuously employed with their current primary employer for a

minimum of 2-years. Documentation that the circumstances that caused the credit problems were temporary in

nature, beyond the applicant’s control, and the circumstances have been removed and resolved for the 12 months prior to application

Note: A Request for Ratio Waiver to be submitted to the Rural Housing for approval of ratios exceeding 29/41 but equal or less than 32/44 on GUS Refer/Manual Downgraded loans must include the compensating factor of the credit score for all Borrowers of no less than 680 plus two additional compensating factors from the above list.

Qualified Mortgages/Ability to Repay A Qualified (QM) loan is a mortgage that complies with the Consumer Financial Protection Bureau (CFPB) /Dodd-Frank Rule that the mortgage loan was made by the creditor/lender on the premise that a reasonable and good faith determination based on verified and documented information that the consumer/borrower has a reasonable ability to repay the mortgage loan based on the terms, all applicable taxes, insurance (including mortgage insurance) and assessments. The rule is effective on applications dated on or after January 10th, 2014 The requirements for a mortgage to meet the QM criteria limits the points and fees charged in relation to the transaction, prohibits risky loan features. Further, the creditor/lender must verify and document the consumer’s Ability to Repay the Qualified Mortgage (ATR/QM).

Florida Capital Bank Mortgage offers financing only to Qualified Mortgages that are originated and closed in accordance to Agencies QM Guidelines and FCBM’s underwriting guidelines.

Higher Priced Mortgage Loans (HPML) Florida Capital Bank Mortgage does not offer financing to USDA loans that are “Higher Priced Mortgage Loans” (HPML). The USDA loan must be originated and closed under the Safe Harbor QM (non-HPML) criteria.



Electronic Signatures loan documents/Purchase contract/disclosures Electronic Signatures are acceptable to FCBM when used to originate and underwrite the loan application and may be used on:

• Initial Loan Application (1003) and Disclosures. • Sales Contract and any applicable addendums. • Appraisal Reports. • Property inspections. • Third party verification documents such as Verifications of Employment.

The Loan Originator must comply with all applicable requirements and standards set forth or referenced in the Federal Electronic Signatures in Global and National Commerce Act (E-SIGN); if applicable, the Uniform Electronic Transactions Act (UETA) adopted by the state in which the subject property secured by the mortgage loan associated with an electronic record is located and with FCBM Electronic Signature Policy.

Program Limitation Rural housing loans are limited to one loan per borrower and co-borrower.

Maximum LTV/CLTV/Credit Score/DTI Loan Purpose LTV/CLTV* GUS Minimum Credit

Score

DTI

Purchase

100%

Approve/Eligible 640 Per GUS

Refer/Eligible

640 29/41

680 32/44**

Rate/Term

100%

Approve/Eligible 640 Per GUS

Refer/Eligible

640 29/41

680 32/44**

Note: Refinances can only be used when refinancing current Rural Housing Guaranteed loans, Leveraged loans may not be refinanced under the Guaranteed Rural Housing program. *For the first mortgage, 100% of the market appraised value and may include all of the recurring and non-recurring closing costs. The maximum LTV may exceed 100% of the appraised value only by the amount of the Guarantee Fee being financed in the loan amount. ** Subject to Rural Housing Approval of Ratio Waiver and Credit Waiver Request



Transaction Types

Purchase Transactions are eligible up to a maximum 100% LTV plus the Guarantee Fee.

Rate/Term Refinance may only be used to pay off an existing RD/USDA loan and may exceed 100% LTV when the Guarantee Fee is financed.

Ineligible Transactions Cash Out Refinances and Rural Development Streamline Refinances are not allowed

Refinance Transactions Rate/Term Refinance loans are acceptable when refinancing current Rural Housing Guaranteed loans, Leveraged/Direct loans may not be refinanced under the Guaranteed Rural Housing program. Note: It is also permissible to do a rate/term refinance for properties in areas that have been determined to be non-rural since the existing loan was made. Refer to the USDA Income and Property eligibility website.

The maximum loan amount cannot exceed the balance of the existing Rural Development loan being refinanced plus:

Accrued Interest

Financed guarantee fee

Reasonable and customary closing costs

Funds to establish a new tax and insurance escrow account

Reasonable Discount points may be financed (cannot exceed 2% of the loan amount) Important: Unpaid fees such as late fees are not eligible to be included in the new loan amount or

expenses related to the property inspection and repairs may not be financed.

Refinance transactions must comply with the following requirements:

Existing mortgage must be a Guaranteed Loan. Note: Direct-to-Guaranteed Loan refinances are not permitted

New refinance transactions must result in a more favorable term for existing guaranteed loan.

Existing Guaranteed borrowers are eligible to refinance their current USDA loan when eligibility requirements of USDA HB 3555 are met along with all of the following:

o Refinance will reduce the current interest rate by 1% or more. o Existing loan to be refinanced was closed at least 12 months prior to the Agency’s receipt

of a conditional commitment request for refinance. o Borrower has been current on their existing USDA loan for the 180 day period prior to

the Agency’s receipt of a conditional commitment request for refinance. o The new principal, interest, taxes and insurance (PITI) monthly amount is less than the

monthly PITI amount of the existing loan.

Borrowers may be added to the new SFHGLP loan, provided they meet all applicable Agency eligibility requirements.

Existing borrowers may be deleted from the current loan, provided at least one original borrower is retained on the new refinance loan.



The loan security must include the same property as the original loan. The security property must be owner-occupied as the borrower’s primary residence.

Maximum loan amount cannot exceed the balance of the loan being refinanced, plus the guarantee fee and reasonable and customary closing costs (including funds necessary to establish a new tax and insurance escrow account). Subordinate financing, such as home equity lines of credit and down payment assistance “silent” seconds, cannot be included in the new loan amount. Unpaid fees, such as late fees due the servicer, cannot be included in the new loan amount.

Any existing secondary financing must be subordinate to the first lien. No new subordinate financing is permitted.

Borrower(s) are not eligible to receive cash out from the refinance transaction. Borrowers may be reimbursed at closing for any fees paid in advance (for ex: appraisal and credit report fee). A nominal amount of cash may result due to final escrow and interest calculations. This amount, if any, must be applied to principle reduction of the new loan.

Note: For additional information regarding USDA’s refinance program, refer to USDA HB 3555, Chapter 6.

Seasoning

USDA requires all loans to be refinanced to have a minimum of 12-payments made prior to the date of loan closing for the new loan.

Subordinate Financing Not allowed on purchase transactions and no new subordinate liens are permitted on refinances; eligible subordinate financing may remain in place; however, it must be re-subordinated to the first mortgage.

Documentation Per USDA Guidelines

12 month chain of title needed for all transactions For additional information refer to income for loan qualification section further in these guides

Payment Shock In cases where payment shock is 100% or higher, no additional risk layering will be allowed without strong compensating factors. Verification of Rent will be required to validate, per underwriter discretion.



Loan File Documents

Standard Fannie Mae conventional or FHA loan documents are allowed. Additionally, the following RHS documents are required for the Guaranteed Loan Program:

Property Eligibility Calculation Worksheet (print out of website income eligibility screen).

Request for Single Family Housing Loan Guarantee Form RD-3555-21 which includes the Income Eligibility Worksheet as well as the print out of website income eligibility screen (must be completed and executed by the borrower and the lender and accompany the commitment request). o Initial and final must be signed by all applicants, when applicable.

Short Sale Purchase Transactions Must be disclosed at the time of submission to FCBM; the following documentation will be required:

A Contract Addendum and

Documentation from the seller’s lien holder approving the transaction.

Construction to Permanent Financing Not eligible at FCBM

New Construction Per RHS requirements, in order to be eligible for maximum financing, the lender must obtain evidence of at least one following when the property is less than 12 months and never been occupied:

Building Permit issued by local jurisdiction, or

Certificate of Occupancy, or

Certification form RD 1924-25 “Plan Certification” to be completed by a qualified individual or organization (e.g. licensed architect, engineer, plan reviewing, local building official, licensed general contractor, etc.

Evidence of construction inspections / Warranty to be provided to include one of the following:

Certificate of Occupancy and the 1-year Builder’s Warranty plan, or

The 1-year Builder’s Warranty plan and copies of the 3 Construction Inspections performed by local jurisdiction when:

o Footings and foundation are ready to be poured, prior to backfilling o Shell is complete, but plumbing electrical, and mechanical work are still exposed o Final inspection of completed work prior to occupancy

Or

A final Inspection and a 10-year Builder Warranty Additional Requirements for new construction dwellings regarding Energy Thermal Code:

The property is to conform to thermal standards with form IECC 2006, a certification is required Note: If there is no evidence provided of the construction inspections listed above; the property is ineligible for max financing with LTV limited to 90%



Occupancy Primary residence only

Eligible Property Types

1 units Single Family Detached Leaseholds*

PUD’s Condominiums (HUD

Approved)

Factory built/modular (panelized and pre-fabricated)

*Leaseholds are permitted if long-term leasing of home sites is a well-established local practice, and such leaseholds are freely marketable in the area. Note: the term of the leasehold must exceed the life of the mortgage term.

Effective December 1st, 2014:

- The subject property may contain an in-ground swimming pool - The subject site size must be modest, typical and developed in accordance with any standards imposed

by a state or local government Note: For additional property eligibility information and General Property Requirements, please go to Chapter 12.5 of USDA’s Handbook 3555 or visit the USDA web site at http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do



Ineligible Property Types

2-4 Units Single Family Attached S Corporation/business owned property

Properties that are located in an area not designated as rural by RHS.

Houseboats Condotels and Non-Warrantable Condominiums

Cooperatives Unimproved land Geodesic Domes

Properties with unexpired right of redemption periods after a foreclosure or tax sale have occurred (except in the State of Alabama*****)

Log Homes

Working farms, ranches, orchards, and/or commercial operations

Timeshare or segmented ownership properties

Manufactured housing and mobile homes

Metal Buildings Community Land Trust

Properties less than 12 months old and never occupied

Properties w/ deed restrictions that limit transferability of title, or contain a “first right of refusal’ provision

Residences lacking kitchen and full bathroom facilities

*Properties located mudslide zone Life Estates **Properties with individual water purification systems

Note*Properties located in a mudslide zone: This restriction may be waived for existing homes in some states. In those states, National Flood Insurance must be available and flood insurance required. Contact your local Rural Development office for details. ** An individual water purification system is a system that is needed to make the water safe and meet code when the individual water supply is unsafe for human consumption unless the system is operating properly. This is NOT a system that is installed to improve the taste or softness of the water. **** See the requirements for Right of Redemption in Alabama in the Conventional Collateral guidelines.



Flood Hazards Flood insurance is required if any part of the principal structure is located within an SFHA. Furthermore, if the principal structure is not located within a SFHA, however the detached stand-alone building is in a SFHA, flood insurance will be required on the detached structure. Refer to FCBM flood insurance requirements posted in the resource center for additional information regarding coverage requirements. Existing Properties located in a Special Flood Hazard Area (SFHA) are eligible for USDA loan guarantee only

if flood insurance through FEMA’s National Flood Insurance Program (NFIP) is available for the community

and flood insurance whether NFIP, or private flood insurance that meet requirements of 42 USC 4012a

(b)(1)(A).

New Construction Properties located in a Special Flood Hazard Area (SFHA) are ineligible for a USDA loan guarantee unless:

An Elevation Certificate (FEMA Form 086-0-33) prepared by a licensed engineer or surveyor is provided documenting that the lowest floor (including the basement) of the residential building, and all related improvements/equipment essential to the value of the property, are built at or above the 100-year flood elevation in compliance with National Flood Insurance Program (NFIP) criteria; or

A final Letter of Map Amendment (LOMA) or final Letter of Map Revision (LOMR) removes the property for the SFHA is obtained from FEMA.

Condominium Eligibility The condominium project must meet FHA minimum project standards and be located in a project on FHA’s Approved Condominium Project List. An FHA Certification for Individual Unit Financing, signed and dated by our Condo Review Department, evidencing compliance with FHA minimum project standards, is required. Please refer to our resource center at www.flcbmtg.com for condominium project approval requirements.

Property Flipping Property flipping is generally defined as a purchase transaction for a property that has recently been acquired by the seller and is being sold for a quick profit. A flip transaction is evident if the title reveals several changes in ownership in the course of a few months. This type of transaction is generally not acceptable unless the property value is supported and the underwriter performs a thorough review of the appraisal to validate any increase in value is supported.

Energy Efficient Mortgages Not allowed

http://www.flcbmtg.com/



Geographic Restrictions The property must be located in a designated rural area as designated by the RHS office. To determine whether the property is located in a designated rural area, go to the Rural Development Web site at http://eligibility.sc.egov.usda.gov from the home page; click “Single Family Housing” under “Property Eligibility.” Enter the property address to get an instant determination or to view a map. Appraisal Requirements The appraisal report must not be more than 150 days old as of the date of the note for existing or new construction properties. The Uniform Residential Appraisal Report (URAR) must be completed using the sales comparison (market) and cost approach to market value.

If the property is less than 1 year old, the appraisal report must include the “Estimated Reproduction Cost-New of Improvements”; whereas on properties older than 1 year old, either the “Estimated Reproduction Cost” or the “Estimated Replacement Cost” can be included on the report. The appraiser will identify the source of the cost estimates and will comment on the methodology used to estimate depreciation, effective age and remaining economic life. USDA appraisals must meet UAD requirements including a UAD Condition Rating C4 or better, (C5 and C6 rating are not permitted). If the appraisal is completed subject to repairs or alterations, then the UAD Condition Rating must reflect the overall condition of the subject property after all repairs or alterations have been completed. The appraisal report must incorporate a UAD Quality Rating (Q1, Q2, Q3, Q4, Q5, or Q6) that best describes the overall quality of the subject property and each comparable property. A subject property with an overall quality rating of Q6 is generally not acceptable collateral, unless all issues that caused the property to be rated Q6 are cured prior to closing.

Market Conditions Addendum: The Fannie Mae -1004MC form must be included with all appraisals.

Appraisals must be completed by an FHA Roster appraiser for Rural Housing loans. When prepared in accordance with the FHA Single Family Handbooks 4000.1 and the appraisal constitutes acceptable documentation to comply with existing dwelling inspections made in accordance with RD Instruction 1980-D, section 1980.341(b)(1)(i). The lender should be careful to select an appraiser familiar with and who can certify that the requirements of the FHA Single Family Handbooks 4000.1 have been met.

Important: The market sales or sales comparison approach is required for all appraisals. The income approach is only needed if the appraiser determines that is necessary to develop credible value. The appraiser is to state on the appraisal report, that the property “Meets HUD Handbook Standards”

Note: Alternative appraisal products such as Appraisal form 2055 or AVM’s are not allowed. Reminder: Subject Photographs

Front and rear at opposite angles to show all sides of the dwelling;

Any improvements with contributory value that are not captured in either the front of rear photographs such as recent updates, restoration, remodeling and renovations;

Street scene photo identifying the location of the property and showing neighboring improvements;

The kitchen, main living area, bathrooms, bedrooms;

http://eligibility.sc.egov.usda.gov/



Basement, attic and crawl space;

Comparable sales, listings, and/or pending sales utilized in the valuation analysis must include at least a front view of each comparable utilized;

Condominium projects should include additional photographs of the common areas and shared amenities.

Accessory Dwelling Unit The presence of an accessory dwelling unit (ADU) does not automatically render the property ineligible; instead, the appraiser will determine if the ADU represents a second single family housing unit and provide the expert opinion of the highest and best use of the property as a primary residence.

Unique Property If the appraiser considers the property to be unique, or has specialized improvements; the appraisal is to be completed using the sales comparison approach and the cost approach to value and the appraiser will identify the source of the cost estimates and comment on the methodology used to estimate depreciation, effective age and remaining economic life.

Zoning The property must comply with applicable zoning restrictions. However, if an existing property does not comply with all current zoning ordinances but it is accepted by the local zoning authority, the appraiser must report the property as legal non-conforming and reflect any adverse effect on value and marketability of the property.

Appraisal Update The Underwriter may extend the validity period of the appraisal with an Appraisal Updated and/or Completion Report. If an Appraisal report is greater than 150 days prior to loan closing, the underwriter may extend the validity of the appraisal to be up to 240 days from the effective date of the initial appraisal report through loan closing with an Appraisal Update Report and/or Completion Report FNMA Form 1004D. The Appraisal Update and/or Completion Report (Form 1004D or 442) must include all of the following:

A determination on whether or not the property value has declined

That there has been, at minimum, an exterior inspection of the property

Notes on any market changes If the appraiser determines that the value has declined, a new appraisal and loan must be re-underwritten using the new value. Note: Detailed appraisal information is available in USDA 3555, Chapter 12.5.



Private Well/Water Supply If the property has a Well, a Water Quality Analysis inspection is required and must meet local and state standards of drinking water regulation for private wells. If there are no local or adequate State requirements and standards for private wells, then water quality must be tested for lead including nitrates/nitrites and microbial contaminants such as total and fecal coliform and, if local concern on other contaminants are present it must be tested. The water analysis report is valid for 150 days as of the date of loan closing. Note: The Rural Housing Development Authority does not accept a private well located inside the home be the source of drinking water.

Sand Point Wells Sand point wells are no longer an acceptable source of private water for USDA mortgages. Minimum Distances allowed between well and septic tank The appraiser may certify acceptable distances on the appraisal report. If the appraiser is not able to determine acceptable distances, or denotes a distance issue or any adverse site conditions; then, a qualified drawing/map completed by a surveyor, licensed contractor or local health authority inspection certifying acceptable distances will be necessary. For new construction properties, approval from the local health authority for the new well/septic will be required. The Rural Housing Development Authority accepts the minimum distance requirements set forth by HUD and the respective jurisdictional HOC. Minimum Distances:

o Well to Property line: 10 feet o Septic to Property line: 10 feet o Well to Septic Tank: 50 feet o Well to Absorption/Drain Field: 100 feet (see notes below)

Notes: The distance may be reduced to 50 feet with proper supporting documentation evidencing the ground surface is effectively separated from the water bearing formation by extensive, continuous impervious strata of clay, hardpan, or rock this information is to be verified via a professional well driller’s log to include a drawing indicating the distance from the subject well to the septic tank, lot-line, drain field and chemically poisoned soil on the site as well as, all adjacent, adjoining and contiguous sites; if there are no improvements on the neighboring lots, a notation of “vacant” on the drawing is adequate. Also, an acceptable water test must be provided to verify eligibility.

Acceptable substitute to the well driller’s log is a subsurface evaluation letter from either the local health authority or the Water Management District, or a letter from a licensed and qualified well installer provided they clearly show data which would have been otherwise revealed by the well driller’s log regarding an apparent impervious strata.

If the distance between the well to the absorption/drain field is less 100 feet but at least 50 feet, and supporting documentation listed in this paragraph is provided, the underwriter may approve the distance between the well to the absorption / drain field that are less than 100 feet but no less than 50 feet.



Well Waiver Requirements New Construction The Rural Housing Development Authority allows for a lesser distance from the well to a septic absorption / drain field (from 100 to 50 feet) if the well penetrates impervious strata of clay, hardpan or rock. In this case, the Underwriter may accept these lesser distances for new construction with the proper documentation provided the reduced distances are acceptable to state and local authorities; evidence that the ground surface is effectively separated by an impervious strata may be supported by a well-driller’s log or acceptable substitute (see notes in the minimum well distances section.) Additionally, a survey or a professional drawing is required to be placed in the case binder. Note: The distances must meet the local and/or State Health Authority codes or the FHA Single Housing Handbook 4000.1.

Existing Construction If the minimum distance requirements from the well to a potential source of pollution is less than that allowed by the Rural Housing Development Authority, a request for a well waiver may be submitted by the underwriter to the appropriate HUD Home Ownership Center (HOC). To obtain the contact information for the appropriate HOC please click on this link https://entp.hud.gov/clas/support.cfm The HOC will accept for review, on a case-by-case basis, waiver requests on existing construction, if the distances from the well to the septic tank is less than 50 feet; or less than 75 feet from the absorption / drain field as long as those distances are acceptable to state and local authorities and the underwriter determines that there is adequate justification to request a waiver of the minimum distance(s), in which case he/she must forward a written request to the HOC with the appropriate exhibits enclosed.

The HOC will accept for review, on a case-by-case basis, waiver requests on existing construction for properties serviced by a Sand Point Well.

Well Waiver Procedures Waivers are only granted on existing construction. The HOC will not accept any request for waivers on new construction properties. The following is required to be included in a request for waiver being submitted to the appropriate HUD HOC:

o Appraisal. The appraisal should indicate that the property has a well and/or septic and that public utilities are not available. Note: If public utilities are available, the lender must determine if connection is feasible. If not,

include the reasons with the request for waiver.

o Survey or professional drawing with all notations. The survey or professional drawing must indicate the distance from the subject well to the septic tank, property line, septic drain field and chemically poisoned soil on the subject site as well as all adjacent, adjoining and contiguous sites. If there are no improvements on the neighboring lots, the notation of "vacant" on the drawing is adequate.

o If the well is located in a utility easement, a letter from the utility company acknowledging the well will not hinder their normal operations is required.

o Evidence that the ground surface is effectively separated by an impervious strata. This may be supported by a well driller’s log or acceptable substitute. Acceptable substitutes are a subsurface

https://entp.hud.gov/clas/support.cfm



evaluation letter from either the local Water Management District or Health Department or a letter from a qualified well installer provided it clearly shows data which would otherwise have been revealed by the well driller’s log. The underwriter must insure the well driller's log (or acceptable substitute) denotes an apparent impervious strata. If this information is not available, the property is NOT eligible for well waiver.

o Well water test in accordance with the latest local and state drinking water regulations for private wells. This includes all microbiological and chemical test parameters in the regulation. If there are no local or adequate state requirements then the maximum contaminant levels established by the Environmental Protection Agency (EPA) will apply (refer to our private well section).

o Evidence from the county health department of acceptance of the well in relation to the soil poisoned area, septic tank and septic drain field.

o Termite report.

Private Septic System The septic system must be free of observable evidence of failure. An FHA roster appraiser, government health authority, licensed septic professional, or qualified home inspector may perform the septic system evaluation. An FHA roster appraiser or qualified home inspector may require an additional inspection due to their observations. Existing dwellings appraised by a HUD roster appraiser, who has indicated the dwelling meets the required HUD handbooks does not require further septic certification.

Pest/Termite inspection Must be provided if required by state law or if the appraiser or inspection requests inspection

Private Roads Private roads must be all-weather surfaced over which emergency vehicles and passenger vehicles can pass at all times. Properties located on private roads require a permanent recorded easement that is non-exclusive, non-revocable roadway, drive-way easement without trespass from the property to a public street/road, or the street must be maintained by a Homeowners Association (HOA). If the property has a shared driveway, there must be a permanently recorded easement for ingress and egress.

Energy Thermal Code Existing Construction A certification that the existing property meets the 2006 IECC or comparable code is required to be provided



POA - Power of Attorney’s In order to use a Power of Attorney is permissible only when the Borrower is unable to sign and the loan file must be documented per the requirements below:

For military personnel, a POA may only be used for one of the applications (initial or final), but not both: o When the service member is on overseas duty or on an unaccompanied tour; o When the Mortgagee is unable to obtain the absent Borrower’s signature on the application

by mail or via fax; and o Where the attorney-in-fact has specific authority to encumber the Property and to obligate

the Borrower. Acceptable evidence includes a durable POA specifically designed to survive incapacity and avoid the need for court proceedings.

For incapacitated Borrowers, a POA may only be used where: o A Borrower is incapacitated and unable to sign the mortgage application; o The incapacitated individual will occupy the Property to be insured;

and o The attorney-in-fact has specific authority to encumber the Property and to obligate the

Borrower. Acceptable evidence includes a durable POA specifically designed to survive incapacity and avoid the need for court proceedings.

Title/Vesting Loans where a custodian, agent, conservator, or guardian is signing on behalf of the borrower, non-borrower spouse, or a vested owner are not allowed. Title must be placed in individual names only.

Eligible Borrowers

*Contact your local USDA office to confirm Eligible borrowers via the SAVE system. Eligible borrowers must provide evidence of valid Social Security Number Non-traditional Credit not allowed for any transaction Borrowers may have only one primary residence. Borrowers may be the current owner of a structurally sound, functionally adequate house, as long as it is sold prior to or concurrently with the purchase of the new home. Note: Borrowers must lack sufficient resources (for example, borrower is unable to secure the necessary down payment which is generally 20%, to obtain conventional financing without RHS guarantee assistance).

US Citizens Permanent Resident Aliens* Non-Permanent Resident Aliens *



Co-Borrowers Co-Borrowers are allowed. The maximum number of borrowers cannot exceed four. The subject property must be the primary residence for the borrower and co-borrower.

Education/Counseling All borrowers and co-borrowers must participate in an approved homebuyer education program if required by the RHS office issuing the conditional commitment. Eligibility and Parties Eligible to Participate in USDA’s Rural Development Loan Guarantee Program Evidence of the determination for eligibility for all applicants includes that all borrowers must have acceptable CAIVRS (HUD’s Credit Alert Verification Reporting System) that is clear of any delinquent federal loans and that the borrower(s) are not listed on the U.S. General Services Administrations (GSA) System for Award Management (SAM) and documentation of this must be in the file. Borrowers are ineligible for financing if they are presently delinquent on any Federal debt or are suspended or debarred, or otherwise excluded from participating in Rural Development programs. Also, the lender must certify that all other parties involved in the mortgage transaction do not appear on the GSA list. Other parties to the mortgage transaction include:

Borrower(s)

Seller(s)

Listing or selling real estate agent

Loan officer

Loan processor

Underwriter

Appraiser, or

Builder Non-Permanent Resident Aliens Allowed with the following:

Must occupy the property as principal residence

Have a valid Social Security Number

Eligible to work in the United States Note: Expiration dates must be provided for Permanent and Non-permanent Resident Aliens.



Ineligible Borrowers

Co-brokering Not Allowed Minimum Credit Score 640

A least one borrower whose income or assets are used for loan qualification must have 3 trade lines reported on the credit report with a 12 months payment history (any account that is open and active with repayment underway or any account that has been open, but may now be closed) in order to have a valid credit score.

If at least one borrower does not meet the minimum number of trade lines, a manual downgrade is required and alternative (non-traditional) credit references need to be obtained. This requirement applies to all loans regardless of GUS findings. When alternative (non-traditional) credit references are to be obtained; then, a minimum of 3 active alternative credit references must be verified one of which must be housing payment. If no verification of housing payment can be obtained; then 4 active alternative credit references are required.

Note: For additional information, please refer to the section in this guide titled “Analyzing the Borrower’s Credit to Determine Established Credit Reputations” and to RD-Handbook, Chapter 10, Sections 10.5 and 10.6.

Authorized User When the credit report reflects open authorized user tradelines, a careful analysis of the borrower’s credit report is necessary to ensure the credit report is an accurate reflection of the borrower’s credit history; therefore, evidence of at least one the following will be needed when there are open authorized user tradelines on the credit report in order to keep the “Accept” recommendation: 1.) Evidence the co-borrower of the loan application owns the tradeline, or 2.) Evidence the owner of the tradeline is the spouse an of the applicant, or 3.) Evidence the applicant has been making payments on the account for the last 12 months. Note: Authorized user tradelines that are closed do not require manual consideration or to be documented.

Corporation General Partnership, LLC Non-Revocable and Revocable Inter Vivos

Trust

Real Estate Syndication Non-Occupant Co-borrowers Loans where a custodian, agent, conservator, or

guardian is signing on behalf of the borrower,

non-borrower spouse, or a vested owner are

not allowed.



Credit Reports A Tri-Merged credit report is required via an approved credit vendor, please contact RHS for information. If an approved credit vendor is not utilized then the loan must be manually underwritten. Credit Supplements If a credit supplement is needed it must meet the following:

Be from the original credit reporting agency,

Must contain the name and phone number of person the information was verified with, and

Must state the reason for update/removal of accounts. Note: If installment and/or revolving debts is not listed on the credit report and such debt had to be manually entered into GUS by the lender, the “Accept” recommendation must be downgraded to a “Refer” and a manual underwrite must be completed for loan files with these characteristics.

Credit History The Borrower must have a credit history that indicates a reasonable ability and willingness to meet obligations as they become due. The following are indications of unacceptable credit history:

If a Borrower is presently delinquent on a non-tax Federal debt, he/she is automatically ineligible for a guaranteed loan.

More than one 30 day delinquency on any housing payment or on non-traditional trade line in last 12 months.

A foreclosure/Deed in Lieu/Short-sale or Chapter 7 Bankruptcy in the past 36 months from loan application.

Currently in Chapter 13 Bankruptcy repayment period or if the Chapter 13 Bankruptcy has been discharged 12 months or less from loan application.

A judgment in the past 12 months.

Outstanding tax liens or delinquent Government debts with no satisfactory arrangements for payments, no matter what their age as long as they are currently delinquent and/or due and payable.

Outstanding collection accounts that are currently delinquent no matter what their age.

Previous RHS debt or non-RHS debt that resulted in a loss.

Any outstanding judgment obtained by the United States in a federal court (other than a tax lien) that is currently outstanding or has been outstanding within the last 12 months

Any debt written off in the last 36 months

Any accounts converted into collection within the last 12 months (i.e. utility bills, hospital bills, etc.)



Credit Exception required on manually underwritten loans and GUS loans that receive a “Refer” underwriting recommendation: Credit history problems do not always reflect an unwillingness to meet financial obligations. If the underwriter believes that the applicant is creditworthy based on documentation and explanations provided, the underwriter must indicate the reasons to justify the credit decision and for the exception approval. Exceptions should be made only in the following types of situations.

Temporary situation. The circumstances that caused the credit problems were temporary in nature, beyond the applicant’s control, and the circumstances have been removed and resolved for the 12 months prior to application. Examples include a temporary loss of job, delay or reduction in benefits, illness, or dispute over payment for defective goods or services.

Reduced housing expenses. The loan will significantly reduce the applicant’s housing expenses, which will result in improved debt repayment ability. A significant reduction in housing expenses would be 50 percent or more.

Furthermore, the underwriting should be able to document that the borrower is able to manage financial obligations successfully. The borrower’s explanation and documentation should confirm the event that led to the derogatory credit deficiencies and illustrate that the borrower had no reasonable options other than to default on their financial obligation. The event, the severity of the resulting hardship, and the extent of the efforts from the borrower to resolve the situation should be taken into consideration when making an underwriting decision. Exceptions are not permitted to be made allowing delinquencies of Federal debts, or outstanding judgments by the U.S. in a Federal Court to remain open and unpaid after loan closing other than on Federal Tax Liens where evidence of payment plan with satisfactory payments made for no less than 3 months is required. Charge-Off Accounts Charge off accounts are not required to be included in the liability or debt as these are debts written off by the creditor(s) unless the applicant has entered into a repayment agreement with the creditor; the monthly payment must be included in the DTI. No further documentation is necessary on AUS GUS Accept loans; whereas, on manually underwritten loans with credit scores below 640 require credit evaluation in accordance with RD-Handbook, Chapter 10, Section 7, Paragraph 10.7A however, the minimum acceptable credit score at FCBM is 640.



Collection Accounts Collections indicate an applicant’s regard for credit obligations and must be considered in the creditworthiness analysis. Paying off an outstanding collection account is not justification in itself that would establish an applicant’s willingness to meet obligations in an acceptable manner. This decision will be based upon several factors including the credit profile of the borrower, the amount of financial reserves available, the unpaid balance of the collection accounts, and whether they pose a threat to the first mortgage lien and are likely to affect the applicant’s equity or ability to repay the requested loan so the underwriter must conclude the borrower did not disregard his or her financial obligations such as outside factors, such as disputes, illness, loss of job may have contributed to the presence of the collection. For Manually underwritten loans: The underwriter must document the capacity analysis for approving a Loan when collection accounts are present and remain unpaid. The preferred method to document a lender’ decision to leave collections unpaid is the underwriting analysis. For each outstanding collection account, the applicant must provide a letter of explanation together with documentation supporting the applicant’s justification. The supporting documentation and explanation must be consistent with other credit information in the file. The underwriter must perform a capacity analysis as described below. For GUS-AUS Accept underwritten loans: The underwriter remains responsible for considering the existence of unpaid collections and the existence of unpaid collections in the final loan decision subject to performing the capacity analysis described below. The underwriter must document the reasons for approving the loan with unpaid collections. Note that a letter of explanation or documentation supporting the presence of unpaid collections are not required with an AUS Accept recommendation. Capacity Analysis for Collection Accounts (Manually Underwritten and GUS Accept Underwritten loans) Unpaid collections and charge-offs are to be listed on the loan application as a liability. Collection accounts that meet the omission policy noted below can be excluded from the DTI ratio and no additional documentation will be necessary. The underwriter must perform a capacity analysis regardless of the method utilized to underwrite in order to minimize the future risk of open collections left unpaid: If the cumulative balances of the total outstanding balance of all collections accounts of all applicants is equal or greater than $2,000. (Note: Medical collections and charge off accounts are to be excluded from the total balance above)The following will apply:

1) The collection accounts must be paid in full at or prior to closing; or 2) Provide evidence of payment arrangements have been made with each creditor for each

collection account remaining outstanding and the monthly payment for each outstanding collection account will be included in the borrower’s DTI; or

3) If there is no established payment arrangement, the underwriter must utilize in the DTI calculation for each collection, 5% of the outstanding balance to represent the monthly payment.

Bankruptcy Chapter 7 Manually Underwritten Loans



Three years must have passed from the discharge date to the date of the loan application and the applicant(s) has/have re-established good credit history or chosen not to incur new credit obligations. Also, there must be an explanation detailing the circumstances that lead to the bankruptcy in order to determine that the prior circumstances are not likely to reoccur. If the bankruptcy included a real estate mortgage debt that remains in foreclosure pending action, requires the title to be transferred to the lender in order to remove the applicant from ownership and responsibility of real estate taxes and HOA dues (if applicable). If title is not transferred; the applicant will be subject to USDA guidelines for owning an additional dwelling noted in the “Number of Properties Owned” section of these guidelines. GUS “Accept” – Automated Underwriting System If the loan receives a GUS Accept recommendation from GUS, no additional documentation is required regarding the Bankruptcy. Bankruptcy Chapter 13 in Repayment If the applicant is currently in a Chapter 13 bankruptcy re-payment plan status; he/she would be considered eligible provided that all of the following are met on either Manually Underwritten loans or GUS Accept recommendations:

1. 12 months of the pay-out period under the bankruptcy has elapsed; and 2. The applicant’s payment performance has been satisfactory and all required payments have been

made on time; and 3. The applicant’s has received written permission from bankruptcy court to enter into the mortgage

transaction. Manually Underwritten loans require for the underwriter to subject a “Credit Exception” in accordance to credit exception policy noted in these guidelines and include the bankruptcy monthly payment in the DTI. AUS-GUS “Accept” loans have the Automated Underwriting System render as acceptable the plan that is in progress therefore, a credit exception is not required to be performed by the underwriter; however, the monthly payment must be included in the DTI.



Bankruptcy Chapter 13 Discharged Manually Underwritten Loans If the applicant has completed the repayment plan and the chapter 13 has been discharged for at least 12 months prior to the date of the loan application and demonstrates a willingness to meet credit obligations; the underwriter is not required to request a credit exception. GUS “Accept” – Automated Underwriting System If the loan receives an “Accept” recommendation from GUS, the AUS considered the discharge date of the plan in the scorecard and no additional documentation is required. Disputed Accounts Disputed accounts listed on the credit report are not considered in the credit score. For manually underwritten loans, all disputed accounts must have a letter of explanation and documentation supporting the basis of the dispute which must be consistent with the credit record verified. The disputed account(s) must be considered as adverse credit by the underwriter if account shows delinquencies. If the credit report indicates a tradeline or a public record is in dispute, a manual downgrade of the “Accept” recommendation is necessary unless the conditions below are met: 1.) The account has a zero dollar balance, 2.) The account is marked “paid in full” or “resolved,” or 3.) The account has a balance owed of less than $500 and is more than 24 months old. The outstanding balances on the disputed accounts are to be considered in DTI unless there is evidence that the balance has been paid or disputed with an attorney to the creditor Derogatory Credit All derogatory credit reported must be investigated to determine whether the information reported is accurate and to determine if there is an acceptable explanation for the derogatory credit information that may justify approval via an exception. In addition to performing a credit analysis per the credit history guides, the borrower is automatically ineligible for a USDA guaranteed loan if he/she is presently delinquent on a non-tax federal debt. If the applicant(s) has had a previous Agency loan that resulted in a loss to the Government, has been settled, or is subject to settlement, additional documentation may be required of the applicant(s) to determine if the loss incurred was beyond the control of the applicant and if any identifiable reasons for the loss still exist. The underwriter must verify that the applicant has no delinquent Federal debt through the Credit Alert Verification Reporting System (CAIVRS). Note: CAIVRS is a Federal government-wide repository of information on those individuals with delinquent or defaulted Federal debt, and those for whom a payment of an insurance claim or guarantee loss claim has occurred.



Collection accounts and judgments indicate an applicant’s regard for credit obligations, and must be considered in the creditworthiness analysis and are defined as adverse credit and may indicate an inability or unwillingness of the applicant to meet obligations as they become due; therefore, the underwriter must document reasons for approving a mortgage when the applicant has collection accounts or judgments. The applicant must explain, in writing and/or provide supportive documentation, for all collections and judgments. (For additional information reference the RD-Handbook, Chapter 10, Section 10, Paragraph 10.9.

Consumer Credit Counseling Service A borrower who has experienced credit management problems in the past that elected to participate in consumer counseling sessions is not disqualified from obtaining a mortgage loan, provided that:

One year of the pay-out period has elapsed under the plan; and

The payment performance has been satisfactory and on time; and

Written permission from the counseling agency to enter into the mortgage transaction and counselor recommendation of the applicant as a good credit risk is required to be provided by the consumer counseling service agency is required.

For Manually Underwritten Loans: The underwriter must evaluate the applicant’s credit history in accordance to the “Credit Exception “section in the guidelines. Satisfactory payment to the plan administrator must be evidence and considered by the underwriter and include the monthly payment into the DTI. The borrower’s credit must still be evaluated by the underwriter in accordance to the credit standards of

these guides and those of RD-Handbook, Chapter 10, Paragraph 10.8.

For AUS-GUS Accept Loans: No further explanation or documentation is required on GUS Accept loans other than including the monthly payment into the DTI.

Judgment Accounts Unpaid judgments make the applicant ineligible for the USDA Guarantee Mortgage.

Open/Unpaid judgments are required to be paid in full unless the applicant can provide evidence of at least 3 months satisfactory payments made prior to the loan application via a repayment plan. The underwriter must obtain a copy of the payment agreement and validate payments have been made in accordance with the payment agreement. The monthly payment will be included in the debt-to-income ratio unless less than 10 months payment remains and the underwriter determine that the debt does not have a significant impact on the applicant’s ability to qualify for the mortgage. Note: Prepaying scheduled payments as a means of meeting minimum requirements is unacceptable.



Liabilities

Installment debts with more than 10 months payment remaining on the credit report utilized for the underwriting credit decision must be included into the DTI this includes alimony, child support, separate maintenance payments or student loans.

All revolving debts must be included into the DTI calculation. If no payment on the credit report then 5% of the balance reported on the credit report will be used for DTI purposes or $10 unless the borrower provides documentation from the creditor to confirm a lower monthly payment is due. Revolving accounts with no outstanding balance do not require to be closed to exclude from the DTI.

30-Day Accounts refer to accounts that require the applicant to pay off the outstanding balance every month; the underwriter must verify that the outstanding balance is paid in full every 30-days for the past 12 months in order to exclude the 30-day account payment from the DTI; otherwise, the underwriter must utilize 5% of the outstanding balance in the DTI, or if there is any reported late payments within the most recent 12 months. Note: the credit report can be utilized to document the 30-day account balance is paid in full monthly for the previous 12 months.

Short-term obligations defined as repayment balances with less than 10 months left that have a significant impact on the applicant’s ability to repay is defined as credit card or an installment debt with monthly payment of 5% or greater of the applicant gross monthly income must be included in the DTI.

Student loans must be included into DTI calculations regardless of deferment period and verification of current payment due is required.

401K loans are not to be included into DTI calculation.

In divorce settlements when one person retains ownership of a residence as a result of the proceeding, it does not imply that the person relinquishing ownership is automatically released of the financial liability associated with the existing mortgage debt. The divorce decree along with the release of liability from the mortgage creditor must be presented as evidence that an applicant is no longer legally responsible for the mortgage payment. If no release of liability is granted by the creditor then the applicant remains legally obligated for the debt. Quit claim deeds do not remove liability for mortgage debts.

Note: If installment and/or revolving debts is not listed on the credit report and such debt had to be manually entered into GUS by the lender, the “Accept” recommendation must be downgraded to a “Refer” and a manual underwrite must be completed for loan files with these characteristics.



Evaluating Credit after a Short Sale The criteria noted below apply to both Manually Underwritten loans and AUS Accept loans: The applicant is ineligible for a mortgage if the short-sale was to take advantage of declining market conditions, or purchase a superior property within reasonable commuting distance. If the applicant was current at the time of the short-sale, or in the case of a divorce was current at the time of the divorce, he/she may be eligible for a new mortgage provided that all mortgage payments and all installment debt payments were made on time 12 months preceding the short sale period.

If the applicant was in default on the mortgage at the time of the short sale or pre-foreclosure, he/she is generally not eligible for a new mortgage for the next 3 years form the date of the short sale to the date of the loan application. The underwriter must evaluate the applicant’s credit history in accordance to the credit standards of these guides and those of RD-Handbook, Chapter 10, Paragraph 10.8.

Rental/Housing Verification Verification of housing/rental expenses is required on Manual Underwriting/ GUS Downgrades with documented 12 month timely payment history through a VOR, canceled checks, or rent/mortgage history on a credit report; or when the borrower does not have a valid credit score.

Business Liabilities Business liabilities listed on the borrower’s personal credit report may be excluded from the DTI if evidence that such debt is paid through a business account. Documentation to be provided via either 12 cancelled business checks or 12 months of business bank statements.

Student Loans Student loans are a long term obligation required to be included in the DTI by RHS regardless of payment type or status of payments. Student loan payments should be treated as described below: Fixed payment loans: The actual monthly loan payment may be used. Documentation must be provided to verify:

The payment is fixed (non-variable),

The interest rate is fixed,

The repayment term is fixed,

There will be no future adjustments to the terms of the loan payments. Non-Fixed payment loans: Payments for deferred loans, Income Based Repayment (IBR), Graduated, Adjustable, and other types of repayment agreements which are not fixed require the lender to use as, the monthly payment to be included in the debt-to-income the greater of:

1% of the outstanding loan balance; or

The payment as reflected on the credit report. Note: Graduated Payment, Income Based Repayment, Adjustable Rates, Interest only, and Deferred Plans are repayment plans that are subject to change and do not represent a fixed payment or a repayment plan therefore, the underwriter must use 1% of the balance.



Balloon//Deferred Payments (excluding student loans) Balloon/deferred payments that will commence within 24 months from loan closing require the Underwriter to estimate the monthly payment using 5% of the outstanding balance.

Co-signed Debt Co-signed debts also known as co-borrower, joint obligor or guarantor by the borrower for another party are considered a liability and must be included in the DTI unless the applicant provides evidence that payments over the past 12 months have been made on time by the other responsible party via cancelled checks or bank statements. If any late payments are reported for the previous 12 months the liability must be included.

Note: Debts identified as “Individual” must always be considered in the debt ratio, regardless of who is making the monthly payment as the legal obligation resides with the applicant.

Debts Addressed in Divorce Decree A mortgage debt being omitted from the liabilities because the property was awarded to the ex-spouse via a settlement of divorcement requires the following documents:

Copy of the final divorce decree awarding the property to the ex-spouse,

Copy of the executed and recorded quit claim deed from the applicant deeding the property to the ex-spouse,

Document the ex-spouse has been making the mortgage payments for the most recent 12 months, or copy of the release of liability from the note holder releasing the applicant of the debt, or evidence that the ex-spouse refinanced the property removing the applicant from such liability.

Community State Property A credit report is to be obtained for the non-borrowing spouse and the debts appearing on the credit report are to be included in the DTI ratio when the borrower resides or the property being purchased in located in the following states: AZ, CA, ID, LA, NV, NM, TX, WA and WI. Note: The credit history of the non-borrower spouse will not be considered in the credit decision



Borrower Income for Program Eligibility For the Guaranteed Loan Program, the borrower’s adjusted income may not exceed 115% of the U.S. median income. To determine income limits visit: http://eligibility.sc.egov.usda.gov click on “Guaranteed” under “income limits” Income calculator: Click on “Single Family Housing” under “Income Eligibility” for income calculator. Moderate income is defined as the greater of 115% of the U.S. median family income or 115% of the average of the state-wide and state non-metro median family incomes or 115/80ths of the area low-income limit. An income calculator is available on the Rural Development Web site at http://eligibility.sc.egov.usda.gov from the home page; click “Single Family Housing” under “Income Eligibility.” The following are included in annual income to qualify for an RHS guaranteed loan:

Gross amount of wages, salaries, overtime pay, commissions, fees, tips, bonuses and other compensation for personal services of all adult members of the household.

Net income from the operation of a farm, business or profession, interest, dividends and other net income of any kind from real or personal property. Receipt of 12 months of payments must be documented.

Payments from social security, annuities, insurance policies, pensions, unemployment, workers compensation, disability or death benefits, severance pay, alimony and/or child support and other types of periodic receipts. Receipt of 12 months of payments must be documented. Retirement and Social Security income must have a 3 year continuance.

Recurring monetary gift or contributions from someone who is not a member of the household.

All regular pay, special pay and allowances of a member of the armed forces who is the borrower or spouse whether or not that family member lives in the unit.

Any amount of educational grants or scholarships or VA benefits available after deducting the expenses for tuition, fees, book and equipment.

Spouse’s income unless the spouse has been living apart from the applicant for at least 3 months due to court proceedings for divorce or because legal separation has commenced.

Automobile allowance and Expense Account Income: Amount that exceeds actual expenditure may be used o Receipts for 2 years and verification from employer for continuance o Debt will included in debt ratios

Income derived from liquid assets will be considered in the annual income calculation to ensure program eligibility. The underwriter is to calculate the income derived from assets when the cumulative eligible assets listed in the asset section of these guides are of $5,000 or more. The greater of the calculation is to be included in the annual income for the program eligibility:

1. Actual income derived from asset, or 2. Asset value x passbook savings rate

Note: Deduct any funds utilized for downpayment, closing costs, pre-paids, etc. in the home purchase transaction PRIOR to calculating income. The following sources are not included in annual income but will be considered in determining the ability to repay the loan:

Income from minors.

Food stamp allotment.





Payments from foster care.

Irregular cash gifts.

Lump sum additions, such as capital gains, etc.

Medical reimbursements.

Educational benefits.

Hazardous duty pay for military person exposed to hostile fire.

Payments received for the care of foster children.

Income exempted by Federal Statue (details noted in 1980-D Exhibit F). Adjustments to reduce annual income include $480.00 for each minor child, full time student or a disabled member of the family. $400.00 may be deducted from annual income for each family member over 62 years of age. An additional deduction may be calculated for certain expenses when added together exceed 3% of gross annual income. Note: Household members who are not applicants must provide a recent paystub with YTD figure.

Disclosure of the number of people who reside at the subject property at least 50% of the time, information must include the following: Name, Relationship and Annual Income*

* Includes salaries, wages, part-time income, self-employment income, social security, pensions, annuities, unemployment, workers compensation, alimony, child support

Important: Do not include income from minors, foster care income, lump sum payments from insurance or inheritances, scholarships, and grant.

Grossing up non-taxable income is allowed for the repayment of the loan; however, evidence that the income is not subject to federal income taxes is necessary with copy of the signed the tax returns. The appropriate tax rate for the borrower’s income bracket is to be used when grossing up the non-taxable income and the underwriter is to state which income tax rate used to gross up the non-taxable income.

Income for loan Qualification Loans originated under the guaranteed program may use Full documentation. Salaried Borrowers A full Written VOE AND one recent paystub dated within 30 days from loan application with YTD earnings is required. In addition, they may also be eligible for alternative forms of documentation, as follows:

If no Verification of Employment (VOE) is available, applicant income may be verified by W-2 tax forms for the previous two tax years, telephone verification of the applicant’s permanent employment, and one of the following: Paycheck stubs or payroll earnings statements covering the most recent 30-day period Or electronic or computer-generated verification of earnings for the most recent 30-day period. FCBM’s Income Calculator Worksheet will be utilized in the income analysis.



Part-Time Income Part-time or second job income with duration of 24-months may be used. Overtime and Bonus Income Overtime and bonus income can be used to qualify the applicant if the employer verifies that the applicant has received it during the last 24 months and indicates that the overtime or bonus income will in all probability continue Reminder: If a Bonus, Overtime, and/or Commission income is used to qualify a complete written VOE is required with a breakdown of source of income covering not less than two years. Important: Declining income will be heavily scrutinized. Alimony, Child Support and Separate Maintenance Documentation that child support, alimony, or separate maintenance will continue for three (3) years after the date of loan closing is required or this income type cannot be considered as income. The borrower must also provide evidence that the funds have been received for the last 12 months. Acceptable evidence includes deposit slips, canceled checks, court records, or tax returns. Unreimbursed Employee Expenses Unreimbursed employee expenses are reported on IRS Form 2106, “Employee Business Expenses.” The Total Amount spent out of pocket is the sum of columns A and B on Line 8; this amount of unreimbursed employee expenses must be deducted from repayment income. Income Tax Rates

2016 Income Tax Rate

Tax rate Single filers Married filing jointly

or qualifying widow/widower

Married filing separately

Head of household

10% Up to $9,275 Up to $18,550 Up to $9,275 Up to $13,250

15% $9,276 - $37,650 $18,551 - $75,300 $9,276- $37,650 $13,251 - $50,400

25% $37,651 - $91,150 $75,301 - $151,900 $37,651 - $75,950 $50,401 - $130,150

28% $91,151 - $190,150 $151,901 - $231,450 $75,951 - $115,725 $130,150 - $210,800

33% $190,151 - $413,350 $231,451 - $413,350 $115,726 - $206,675 $210,801 - $413,350

35% $413,351 - $415,050 $413,351 - $466,950 $206,676 - $233,475 $413,351 - $441,000

39.6% $415,051 or more $466,951 or more $233,476 or more $441,001 or more

Source: IRS.gov



2015 Income Tax Rate

Tax rate Single filers Married filing jointly

or qualifying widow/widower

Married filing separately

Head of household


15% $9,226 - $37,450 $18,451 - $74,900 $9,226- $37,450 $13,151 - $50,200

25% $37,451 - $90,750 $74,901 - $151,200 $37,451 - $75,600 $50,201 - $129,600

28% $90,751 - $189,300

$151,201 - $230,450 $75,601 - $115,225 $129,601 - $209,850

33% $189,301 - $411,500

$230,451 - $411,500 $115,226 - $205,750 $209,851 - $411,500

35% $411,501 - $413,200

$411,501 - $464,850 $205,751 - $232,425 $411,501 - $439,000


Source: IRS.gov

Income tax rate for 2014

Tax rate Single filers Married filing jointly or

qualifying widow/widower

Married filing separately Head of household


15% $9,076 - $36,900 $18,151 - $73,800 $9,076- $36,900 $12,951 - $49,400

25% $36,901 - $89,350 $73,801 - $148,850 $36,901 - $74,425 $49,401 - $127,550

28% $89,351 - $186,350 $148,851 - $226,850 $74,426 - $113,425 $127,551 - $206,600

33% $186,351 - $405,100 $226,851 - $405,100 $113,426 - $202,550 $206,601 - $405,100

35% $405,101 - $406,750 $405,101 - $457,600 $202,551 - $228,800 $405,101 - $432,200


Source: IRS.gov



See the example below on how to determine the appropriate tax rate when grossing up non-taxable income: Example Single applicant with annual wages of $35,000 receiving VA service connected disability (non-taxable) of $10,000 per year in 2012 or $833.33 per month. The tax rate for the non-taxable income is 15% therefore, the annual grossed up non-taxable income would be $10,000 x 15% = $11,500 or $958.33 per month.

Self Employed Borrowers Self-employed borrowers for this purpose are defined as:

Borrowers that own 25% or more of a company or business. Commissioned borrowers. Borrowers employed by a relative or closely-held family business. Borrowers who are not commissioned, but need to validate their expenses.

Self-employed borrowers must provide:

2 years income documentation is required. If less than 2 years but greater than 1 year of Self Employment history will be reviewed on a case by case basis for eligibility.

2 years personal and business tax returns with all schedules for all Self Employed borrower(s) and P&L Statement and Balance Sheet for current year for all Self Employed borrower(s).

If an extension was filed, must provide extension documentation, P&L Statement and Balance Sheet for the extension year.

CPA letter certifying income provided on P&L Statement is in line with prior profits.

IRS issued transcripts are required for all tax years used for loan qualification.

FCBM’s Income Calculator Worksheet will be utilized in self-employed income analysis.

Non-reimbursed expenses will be deducted from the gross income. Reminder: If a Bonus, Overtime, and/or Commission is used to qualify a complete written VOE is

required with a breakdown of source of income covering not less than two years.

Important: Declining income will be heavily scrutinized.

Business Debts The Rural Housing Development is aware that the primary business structure of most self-employed borrowers seeking USDA financing for a mortgage loan is that of a sole proprietorship; consequently, the individual owner is personal liability for all debts of the business and business related debts are often paid with business funds, rather than personal income. Therefore, if a debt such as a car loan is paid through the business, the debt does not need to be included in debt ratio calculations as long as documentation is provided that the debt is being paid by the business. Documentation that the debt payments are made by the business may include 12 months of cancelled business checks.



Child Care Expenses Annual child care expenses are not counted as liabilities when calculation debt ratios but must be disclosed per RHS parameters, must enter child care expenses within the income eligibility website: http://eligibility.sc.egov.usda.gov Eligible child care expenses are expenses that the applicant(s) pay to care for minor children age 12 and younger in order for them to be employed or complete their education. Must document evidence of: Who is paid, How much they are paid, How often they are paid. This documentation can be obtained in the form or receipts or letters from providers, and/or tax returns. Private school tuition is not an eligible child care expense. Payment for these services may not be made to persons whom the applicant/borrower is entitled to claim as dependents for income tax purposes. Child Support/Alimony Garnishments Child support, alimony, garnishments, or other court order debt is considered a monthly liability for DTI calculations. Medical Expenses Medical expenses must be entered within the income eligibility website: http://eligibility.sc.egov.usda.gov The medical expenses are only allowed for households that qualify as an “Elderly Household.” The

amount utilized for Medical expenses must exceed 3% of the Gross Annual Income for the Applicant and

Co-applicant when combined with eligible disability expenses. This include medical expense for any

household member the applicant/borrower anticipates incurring over the ensuing 12 months “and”

which are not covered by medical insurance. Ex: dental expenses, prescription medications, medical

insurance premiums, eyeglasses, hearing aids, home nursing care, monthly payments on accumulated

major medical bills and full time nursing or institutional care which “cannot” be provided in the home for

the member of the household. Annual Medical expenses do not count at liabilities when calculating debt

ratios unless there is a reported monthly debt by a creditor.

Disability Expenses Disability expenses must be entered within the income eligibility website: http://eligibility.sc.egov.usda.gov The amount utilized for Disability expenses must exceed 3% of the Gross Annual Income for the Applicant and Co-applicant when combined with eligible medical expenses. Reasonable expense for the care of an individual with disabilities in excess of 3% of the annual income, when combined with eligible medical expenses, may be deducted from annual income if the expense:

Enable the individual with disabilities or another family member to work

Are not reimbursable from the insurance or any other source; and

Do not exceed the amount of earned income included in annual income by the person who is able to work as a result of the expense.

Typical disability expenses include:

Care attendant to assist in individual with disabilities when daily activities or family living directly






related to permitting the individual or another family member to work:

Special apparatus, such as wheelchairs, ramp adaptation to vehicles or work place equipment, if directly related to permitting the individual with disabilities or another family member to work.

Annual Disability expenses do not count at liabilities when calculating debt ratios

Number of Properties Owned Borrowers who own other residential property may be eligible to purchase another home if all of the following criteria below is met:

Owned property is not financed by any Rural Housing Development Guaranteed or Direct Loan Program,

The Borrower is financially qualified to own more than one home (limited to owning one SFR other than the subject property associated with the new loan request) and,

Current home owned no longer adequately meets the borrower’s needs (manufactured housing not on a permanent foundation is considered inadequate), such as relocation with a new employer or being transferred by current employer to an area not within reasonable commuting distance, severe overcrowding, disability or limited mobility of a permanent household member resident that cannot be accommodated without substantial retrofitting of the current property. Supporting documentation must be provided that the condition for the current home not meeting borrower’s need has existed for more than 90 days and will continue to persist for at least nine (9) months into the future. Example of what defines severe overcrowding, disability or limited mobility: Severe overcrowding is defined as more than 1.5 household residents per room. Disability or limited mobility is defined as property that requires the installation of a ramp, an elevator or stair lift, or extra-wide doors and hallways.

The underwriter must provide an explanation as to the reasons beyond the borrower’s control or convenience why the purchase of the subject property must be completed prior to the sale of the existing property.



Rental Income Rental income received for a property owned and retained by the applicant may be acceptable in limited circumstances noted below: Repayment Income for rents received 24 months or more: Positive net rental income received may be considered as stable and dependable by the underwriter and included in the repayment income with: 1) Copies of the 2 most recent years of filed tax returns with all schedules including Schedule E of IRS

Form 1040, and 2) A copy of the current lease agreement.

Note that negative net rental income is treated as a recurring liability. Repayment Income for rents received less than 24 months: 1) No rental income may be included for repayment purposes. This includes Rental income from

departing primary residence as this income is not considered stable due to the lack of historical receipt.

2) Corresponding mortgage liabilities must be included in the debt ratios 4506-T Requirement A 4506-T signed and dated by all borrowers must be provided in initial package. Also, effective December 1st, 2014 the Rural Housing requires a 4506-T completed and signed by each household member 18 years of older so that the lender can validate income for all household members residing or that will reside in the home. This is in addition to the IRS transcripts required by FCBM to be provided for the time period covered by the required income documentation utilized to verify the borrower’s ability to repay the mortgage loan. If the IRS returns “no transcripts available” for the time period requested, proof of extension and the most recent years’ IRS transcripts available to cover the most recent 2 year period are required

Asset Verification All assets must be disclosed on the 1003 if being utilized. 2 full consecutive months of statements with all pages are required and must be dated within 30 days of the initial loan application date. An average balance is utilized, not the ending balance. Asset Verification The cumulative amount of all assets in the household must be considered in the eligibility of the applicant and those assets include:

Checking/Savings accounts

CD’s/ stocks/bonds/money markets/investment accounts, etc.

Equity in real property or other capital investments

IRA’s

Revocable trust funds available to the household



Large Deposits If the borrower’s bank account statement reflects deposits made that are outside of the borrower’s typical deposits derived from wages, these deposits are to be documented and explained.

Retirement Assets If used, all pages of the statements are required and are considered a compensating factor and for cash reserves only. Terms of withdrawal are to be documented in order to use 60% of the vested amount available; the withdrawal of retirement assets cannot be restricted to be allowed only due to retirement, separation of death, etc. If access to funds is only granted upon death, employment separation, or retirement, they are not eligible to be used. Sale of Personal Assets Proceeds from the sale of personal property may be used towards closing costs. Documentation for funds obtained should include a bill of sale, copy of cancelled check with accompanying bank statement verifying deposit of funds, proof of ownership of personal assets sold, and when applicable, a transfer of title. Reserves Not required but if being used as a compensating factor, the reserves should be calculated as the lessor of the two month average balance or the actual balance on the most recent statements. Note: Gift funds cannot be counted towards the reserve requirement. Gift Funds Acceptable from someone who is not a member of the household. A fully completed gift letter stating that no repayment of the gift is required- must be signed by donor and all applicants. The gift funds are to be identified separately, even if the funds have been deposited into the borrower’s checking/savings account. Documentation to source the gift funds from the donor is required per RHS requirements. Note: Gift funds can be used toward closing costs, voluntary down payment or guarantee fees. Earnest Money Earnest money on the sales contract may be considered an asset if the funds have cleared the borrower’s Account.



Reimbursement of Fees to Borrower at Closing If the borrower(s) received any cash back at loan closing, the amount must not exceed the documented contributions made from their own funds for eligible loan purposes (e.g., earnest money deposit, lender/home inspection fees paid out of pocket, etc.). Note: Loan fees paid by the borrower with credit cards or other short term loans may not be reimbursed at loan closing. If lenders are required to reimburse borrowers as the result of erroneous preparation of the Loan (LE), these funds may be provided to the borrower as this is a penalty due from the lender. Allowable Fees Fees that are customary allowed on FHA and VA loans would also be considered allowable fees per RHS program. Some prohibited fees include but are not limited to: Payment of fees charges or commissions; these fees could be in the manner of finder’s fees, referral of prospective applicants, etc.

Non-Arm’s Length Transactions Non-arms’ length transactions include transactions in which there is a relationship or business affiliation between the borrower and any interested party involved in the purchase or loan transaction (e.g., the builder, seller, lender, broker, employer, real estate agent, appraiser, etc.)

Not allowed if new construction and the borrower is affiliated with or related to the builder/developer.

The maximum loan-to-value (LTV) factor for non-arms-length transactions on primary residences is restricted to 85%.

Financing above the 85% maximum is permitted under certain circumstances, as described in the FHA product guidelines

Non-arm’s length transactions require a 12-month payment history from the seller to ensure the subject transaction is not a foreclosure bailout.

Maximum Contributions by Interested Party For the Guaranteed Loan Program, an amount of 6% of the sales price can be contributed towards all closing costs by an interested party. All funds, including pre-paids, paid by the seller are included in the maximum contribution limits.



Guarantee Fee The Guarantee Fee is determined by Rural Development. The guarantee fee is charged and collected at the time of closing and can be paid by the buyer or seller, or financed into the loan amount. USDA Rural Housing requires an upfront guarantee fee accompanied by an annual fee, applicable to both purchase and refinance transactions. Important: Customers are responsible for Proper disclosure of the Guarantee Fee on the Loan Disclosure (LE). It is critical to confirm accuracy prior to sending disclosures. Upfront Guarantee Fee for Purchase and Refinance transaction loans being obligated on or after October 1st 2016:

The Upfront Guarantee Fee of 1 % of the Loan amount is due at closing and The USDA Rural Housing Annual Guarantee Fee of 0.35%, applicable to both purchase and

refinance transactions Calculation of Upfront Guarantee Fee The Guarantee Fee may be calculated in two ways depending on whether the fee will be financed.

Transaction Type Guarantee Fee Not Financed Guarantee Fee Financed

Purchase Transactions for loans being obligated on or after October 1, 2016

Multiply the loan amount by 1% and round to the nearest cent.

Example: $100,000 x 0.01 = $1,000.

Based on the total loan amount (including any upfront guarantee fee financed in the loan)

Example: $100,000 x 0.01 = $101,000

Rate and Term Refinances for loans obligated on or after October 1, 2016

Multiply the loan amount by 1%.

Example: $100,000 x .01 = $1,000.

Based on the total loan amount (including any upfront guarantee fee financed in the loan)

Example: $100,000 x 0.01 = $101,000

Upfront Guarantee Fees Utilize Guarantee fee calculator via USDA website: https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do Upfront Guarantee Fee:

An upfront guarantee fee equal to 1% of the loan amount for purchase or refinance transactions for loans being obligated as of October 1, 2016.

https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do



Annual Guarantee Fee: Refinance Transactions Loans Obligated on or After October 1st, 2016

An annual fee of 0.35 % of the unpaid principle balance for all refinance transactions Purchase Transactions: Loans Obligated on or After October 1st, 2016

An annual fee of 0.35 % of the unpaid principle balance for all purchase and refinance transactions The annual fee will be calculated and collected as follows:

1. The initial fee, for the first year of the loan will be determined and calculated based on the loan amount. For remaining years of the loan, the annual fee will be charged on the scheduled amortized unpaid principal balance (UPB) of the loan, not the actual UPB.

2. The initial annual fee will be calculated based on the closing date of the loan. The annual fee and upfront guarantee fee are subject to change annually to maintain a subsidy neutral program.

Down Payment Not Required

Principal Reduction Principal Reduction is allowed in the following circumstances:

Excess Tax credits

Excess funds vs. requested loan amount

Excess gift funds/seller concessions remaining

Items paid with credit cards

The principal reduction is not to exceed the lesser of $2,000 or 2% of the original loan amount Escrow Impound Requirements Escrows Impounds for Taxes and Insurance are required.



Escrow for Exterior Work Completion When proposed exterior development work cannot be completed because of inclement weather and the work remaining to be done does not affect the livability of the dwelling, an escrow account for exterior development may be established by the originating lender if the following conditions are met:

The cost of any remaining work is not greater than 10% of the total (final) loan amount.

The livability of the dwelling is not affected.

A signed contract and bid schedule is in effect for the proposed exterior development work.

The Closing Disclosure (CD) is to reflect the holdback.

The contract for development work must provide for completion within 30 days.

The escrow account must be funded in an amount sufficient to assure the completion of the remaining work. This figure should be 150% of the cost of completion but may be higher if the lender determines a higher amount is needed.

A final inspection/certificate of completion report is required to be completed and signed by the appraiser and Rural Housing and Community Development Service (RHCDS) must be notified when the work has been completed.

The final inspection/certificate of completion report must state the improvements were completed in accordance with the requirements and conditions in the original appraisal report and be accompanied by photographs of the completed improvements.

Note: The completion of the work must be certified by the Underwriter on Form RD-355-18/18E. Escrow for Interior Repair Work FCBM may allow on a case-by-case basis via exception approval for minor interior repair items that cannot be completed prior to loan closing to be escrowed. In addition to an escrow repair pricing adjustment, the following determining factors must be verified to determine acceptability in approving escrow repair items:

The cost of any remaining work is not greater than 10% of the total (final) loan amount.

The livability of the dwelling is not affected.

A signed contract and bid schedule is in effect for the proposed exterior development work.

The Closing Disclosure (CD) is to reflect the holdback.

The contract for development work must provide for completion within 30 days.

The escrow account must be funded in an amount sufficient to assure the completion of the remaining work. This figure should be 150% of the cost of completion but may be higher if the lender determines a higher amount is needed.

A final inspection/certificate of completion report is required to be completed and signed by the appraiser and Rural Housing and Community Development Service (RHCDS) must be notified when the work has been completed.

The final inspection/certificate of completion report must state the improvements were completed in accordance with the requirements and conditions in the original appraisal report and be accompanied by photographs of the completed improvements.

Note: The completion of the work must be certified by the Underwriter on Form RD-355-18/18E.



Assumability Not applicable Temporary Buydowns Not Allowed Non-Occupant Co-Borrowers Not allowed



USDA Streamline Assist Refinance Guides

Program Description The Guaranteed Rural Housing Loan Program is offered through the Rural Housing Service (RHS), an agency of the U.S. Department of Agriculture primarily used to help low to moderate income individuals or households refinance homes whose income is equal to or less than 115% of the area median income in designated rural areas by The Rural Development with little or no down payment or out -of-pocket costs. For additional eligibility and underwriting criteria not specifically addressed in these guidelines or in FCBM’s all combined underwriting guidelines, refer to The Rural Development Regulations and Guidance website at http://www.rurdev.usda.gov/handbooks.html Product Codes USD3S - Fixed Rate 30 Year Mortgage Interest Rate The interest rate of the new loan must not exceed the interest rate of the loan being refinanced Loan Amounts Minimum loan amount: $50,000- Maximum: $417,000 (conforming loan limit) Maximum Loan Amount The loan amount cannot exceed the sum of the total:

1. Principal balance and interest of the existing USDA guaranteed loan being refinanced, 2. USDA Refinance Guarantee Fee, 3. Funds to establish escrow for taxes and insurance, and 4. Eligible closing costs.

Note: Late mortgage fees cannot be included in the new loan amount calculation. Loan Term 30 year USDA Streamline Assist Refinance Program Loan being refinanced must be a Section 502 or a Guaranteed Rural Housing loan

http://www.rurdev.usda.gov/handbooks.html



Underwriting Options Requires Manual Underwriting as this product cannot be processed through GUS. Minimum Credit Score (FICO) The minimum representative credit score must be at least 640. Borrowers must have two credit scores. Age of Credit Documents Credit Documents must be no more than 120 days from loan disbursement date (loan funding) on all

transactions Eligibility Requirements for Streamline Refinance

The security property must be owner-occupied as the borrower’s primary residence.

The new refinance must provide the borrower with a net tangible benefit of $50 per month which must be a result of a reduction to the principal, interest and/or annual fee monthly payment.

The interest rate must be lower than the current interest rate.

There must be satisfactory timely mortgage payments for the 12 months period prior to the refinance.

Value of property is based off the unpaid principal balance.

An appraisal is not required.

Removal of a borrower is not permitted.

A new borrower may be added to the refinanced loan so long one original borrower remains.

Non-occupant co-borrower is not permitted.

Borrowers must meet the household income limits established by the RHD of ≤ 115% of the area median.

DTI Ratios DTI ratios do not apply and are not required to be calculated. Qualified Mortgages/Ability to Repay A Qualified Mortgage (QM) loan is a mortgage that complies with the Consumer Financial Protection Bureau (CFPB) /Dodd-Frank Rule that the mortgage loan was made by the creditor/lender on the premise that a reasonable and good faith determination based on verified and documented information that the consumer/borrower has a reasonable ability to repay the mortgage loan based on the terms, all applicable taxes, insurance (including mortgage insurance) and assessments. The rule is effective on applications dated on or after January 10th, 2014 The requirements for a mortgage to meet the QM criteria limits the points and fees charged in relation to the transaction, prohibits risky loan features. Further, the creditor/lender must verify and document the consumer’s Ability to Repay the Qualified Mortgage (ATR/QM).



Florida Capital Bank Mortgage offers financing only to Qualified Mortgages that are originated and closed in accordance to Agencies QM Guidelines and FCBM’s underwriting guidelines. Higher Priced Mortgage Loans (HPML) Florida Capital Bank Mortgage does not offer financing to USDA loans that are “Higher Priced Mortgage Loans” (HPML). The USDA loan must be originated and closed under the Safe Harbor QM (non-HPML) criteria. Electronic Signatures loan documents/Purchase contract/disclosures Electronic Signatures are acceptable to FCBM when used to originate and underwrite the loan application and may be used on:

• Initial Loan Application (1003) and Disclosures. • Sales Contract and any applicable addendums. • Appraisal Reports. • Property inspections. • Third party verification documents such as Verifications of Employment.

The Loan Originator must comply with all applicable requirements and standards set forth or referenced in the Federal Electronic Signatures in Global and National Commerce Act (E-SIGN); if applicable, the Uniform Electronic Transactions Act (UETA) adopted by the state in which the subject property secured by the mortgage loan associated with an electronic record is located and with FCBM Electronic Signature Policy. Program Limitation Rural housing loans are limited to one loan per borrower and co-borrower. Maximum LTV/CLTV/Credit Score/DTI

Loan Purpose LTV/CLTV Underwriting

Method

Minimum Credit

Score

DTI

Refinance of a

guaranteed USDA Loan

(Streamline Assist)

N/A

Manual

Underwriting

640

N/A

Existing secondary financing must re-subordinate (no new secondary financing is permitted).



Ineligible Transactions

Cash Out Refinances.

USDA Direct Housing Loans. Note: USDA mortgages being refinanced with Mortgage Credit Certificates (MCC) are not eligible at FCBM.

Streamline Refinance Documentation Required

Fully completed Uniform Residential Loan Application (1003),

A tri-merged credit report,

Evidence of 12 month mortgage payment history including verification that the loan is current through loan closing,

The borrower’s adjusted annual household income cannot exceed the income limits set forth by the Rural Housing Development; therefore, full income verifications including asset producing income such as interest and dividends for all adult household members to verify program eligibility is required (income documents are not used for qualification, as no ratio calculations are required) via current paystubs, 1099’s, 1098’s, W-2’s for wage earner; whereas, for self-employed borrowers two years of tax returns or tax transcripts with YTD P&L and Balance Sheet is required.

A 4506-T signed and dated completed and signed by each household member 18 years of older residing or that will reside in the home,

Evidence of sufficient Homeowners Insurance coverage (HOI and HO-6, if applicable),

Evidence of sufficient Flood Insurance coverage, if applicable.

Note: Refer to the USDA Income and Property Eligibility website: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?NavKey=home@1

For additional information regarding USDA’s streamline refinance program, refer to USDA HB 3555, Chapter 6.

Seasoning

The existing loan to be refinanced must have closed at least 12 months prior to the new refinance.

Subordinate Financing No new subordinate liens are permitted; eligible subordinate financing may remain in place; however, it must be re-subordinated to the first mortgage. 12 month chain of title needed for all transactions

For additional information refer to income for loan qualification section further in these guides Change in Obligor(s) The removal of obligors is not permitted; however, adding a borrower is permissible.

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?NavKey=home@1•



Occupancy Primary residence only Eligible Property Types

Ineligible Property Types

2-4 Units Life Estates S Corporation/business owned property

Leaseholds Houseboats Condotels

Cooperatives Unimproved land Geodesic Domes

Properties with unexpired right of redemption periods after a foreclosure or tax sale have occurred (except in the State of Alabama*****)

Log Homes

Working farms, ranches, orchards, and/or commercial operations

Manufactured housing and mobile homes Metal Buildings Multi-dwelling condominiums or PUDs

Community Land Trust **Properties with individual water purification systems

Residences lacking kitchen and full bathroom facilities

*Properties located mudslide zone Timeshare or segmented ownership properties

Property must be in an eligible rural area or an area that was eligible at the time of the original loan closing

Flood Hazards Flood insurance is required if any part of the principal structure is located within an SFHA. Furthermore, if the principal structure is not located within a SFHA, however the detached stand-alone building is in a SFHA, flood insurance will be required on the detached structure. Refer to FCBM flood insurance requirements posted in the resource center for additional information regarding coverage requirements. Properties located in a Special Flood Hazard Area (SFHA) are eligible for USDA loan guarantee only if flood insurance through FEMA’s National Flood Insurance Program (NFIP) is available for the community and flood insurance whether NFIP, or private flood insurance that meet requirements of 42 USC 4012a (b)(1)(A).

Single Family Detached or Attached

PUD/Townhouse

Condominiums (warranty review not

required)

Factory built/modular (panelized and pre-fabricated)



Condominium Eligibility A condominium project review is not required. Energy Efficient Mortgages Not allowed Geographic Restrictions Refinance loans are permissible for properties in areas that have been determined to be non-rural since the existing loan was made. Refer to the USDA Income and Property Eligibility website to determine property eligibility website at http://eligibility.sc.egov.usda.gov from the home page; click “Single Family Housing” under “Property Eligibility.” Enter the property address to get an instant determination or to view a map. Appraisal Requirements An appraisal is not required for this program. The value of the property is based off the unpaid principal balance of the existing USDA guaranteed loan to be paid off. Private Roads Private roads must be all-weather surfaced over which emergency vehicles and passenger vehicles can pass at all times. Properties located on private roads require a permanent recorded easement that is non-exclusive, non-revocable roadway, drive-way easement without trespass from the property to a public street/road. If the property has a shared driveway, there must be a permanently recorded easement for ingress and egress.




POA - Power of Attorney’s In order to use a Power of Attorney is permissible only when the Borrower is unable to sign and the loan file must be documented per the requirements below:

For military personnel, a POA may only be used for one of the applications (initial or final), but not both: o When the service member is on overseas duty or on an unaccompanied tour; o When the Mortgagee is unable to obtain the absent Borrower’s signature on the application

by mail or via fax; and o Where the attorney-in-fact has specific authority to encumber the Property and to obligate

the Borrower. Acceptable evidence includes a durable POA specifically designed to survive incapacity and avoid the need for court proceedings.

For incapacitated Borrowers, a POA may only be used where: o A Borrower is incapacitated and unable to sign the mortgage application; o The incapacitated individual will occupy the Property to be insured;

and o The attorney-in-fact has specific authority to encumber the Property and to obligate the

Borrower. Acceptable evidence includes a durable POA specifically designed to survive incapacity and avoid the need for court proceedings.

. Title/Vesting Loans where a custodian, agent, conservator, or guardian is signing on behalf of the borrower, non-borrower spouse, or a vested owner are not allowed. Title must be placed in individual names only. Eligible Borrowers Eligible borrowers must provide evidence of valid Social Security Number

*Contact your local USDA office to confirm Eligible borrowers via the SAVE system. CAIVRS Evidence that borrowers were checked against the Credit Alert Interactive Voice Response System (CAIVRS) to determine if they have delinquent federal debt must be provided and a clear CAIVRS is required. Also, all federal debt and judgments must be paid in full or otherwise resolved and have supporting documentation. CAIVRS Claims The borrower must provide official documentation that the delinquency has been paid in full or

otherwise resolved prior to loan processing.

US Citizens Permanent Resident Aliens* Non-Permanent Resident Aliens *



LDP / GSA Evidence that the borrower(s) are not listed on the U.S. General Services Administrations (GSA) System for Award Management (SAM) and HUD’s Limited Denial of Participation list must be in the file. Also, the lender must certify that all other parties involved in the mortgage transaction do not appear on the GSA list. Other parties to the mortgage transaction include:

Loan officer

Loan processor

Underwriter

Appraiser

Ineligible Borrowers

Credit Reports A Tri-Merged credit report is required. The mortgage payment must reflect 0x30 for the previous 12 months. Credit Supplements If a credit supplement is needed it must meet the following:

Be from the original credit reporting agency,

Must contain the name and phone number of person the information was verified with, and

Must state the reason for update/removal of accounts.

Credit Requirements - Streamline Refinance The Borrower must meet the below credit requirements indicating a reasonable ability and willingness to meet the mortgage obligation as it becomes due:

The Borrower must not be presently delinquent on a tax Federal debt.

Must not have any 30 day delinquency on the mortgage payment in the most recent 12 months.

Any outstanding judgment or tax liens must be accompanied with a satisfactory arrangement for payments, no matter what their age as long as they are currently delinquent and/or due and payable.

Corporation General Partnership, LLC Non-Revocable and Revocable Inter Vivos Trust

Real Estate Syndication Non-Occupant Co-borrowers Loans where a custodian, agent, conservator, or guardian is signing on behalf of the borrower, non-borrower spouse, or a vested owner are not allowed.



Mortgage Payment History The credit report must reflect satisfactory timely mortgage payments for the 12 months period prior to the refinance. Net Tangible Benefit The new refinance must provide a Net Tangible Benefit to the borrower. Net Tangible Benefit is defined as a $50 or greater reduction in the principal, interest, taxes and insurance (PITI) which includes the annual fee payment on the new guaranteed loan when compared to the existing PITI including the annual fee payment. Community State Property A credit report is to be obtained for the non-borrowing spouse when the borrower resides or the property being purchased in located in the following states: AZ, CA, ID, LA, NV, NM, TX, WA and WI. Borrower Income for Program Eligibility For the Guaranteed Loan Program, the borrower’s adjusted income may not exceed 115% of the U.S. median income. To determine income limits visit: http://eligibility.sc.egov.usda.gov click on “Guaranteed” under “income limits” Income calculator: Click on “Single Family Housing” under “Income Eligibility” for income calculator. Moderate income is defined as the greater of 115% of the U.S. median family income or 115% of the average of the state-wide and state non-metro median family incomes or 115/80ths of the area low-income limit. An income calculator is available on the Rural Development Web site at http://eligibility.sc.egov.usda.gov from the home page; click “Single Family Housing” under “Income Eligibility.” The following are included in annual income to qualify for an RHS guaranteed loan:

Gross amount of wages, salaries, overtime pay, commissions, fees, tips, bonuses and other compensation for personal services of all adult members of the household.

Net income from the operation of a farm, business or profession, interest, dividends and other net income of any kind from real or personal property. Receipt of 12 months of payments must be documented.

Payments from social security, annuities, insurance policies, pensions, unemployment, workers compensation, disability or death benefits, severance pay, alimony and/or child support and other types of periodic receipts. Receipt of 12 months of payments must be documented. Retirement and Social Security income must have a 3 year continuance.

Recurring monetary gift or contributions from someone who is not a member of the household.

All regular pay, special pay and allowances of a member of the armed forces who is the borrower or spouse whether or not that family member lives in the unit.

Any amount of educational grants or scholarships or VA benefits available after deducting the expenses for tuition, fees, book and equipment.

Spouse’s income unless the spouse has been living apart from the applicant for at least 3 months due to court proceedings for divorce or because legal separation has commenced.

Automobile allowance and Expense Account Income: Amount that exceeds actual expenditure may be used





o Receipts for 2 years and verification from employer for continuance o Debt will included in debt ratios

Income derived from liquid assets will be considered in the annual income calculation to ensure program eligibility. The underwriter is to calculate the income derived from assets when the cumulative eligible assets listed in the asset section of these guides are of $5,000 or more. The greater of the calculation is to be included in the annual income for the program eligibility:

1. Actual income derived from asset, or 2. Asset value x passbook savings rate

Note: Deduct any funds utilized for closing costs, pre-paids, etc. in the home purchase transaction PRIOR to calculating income. The following sources are not included in annual income but will be considered in determining the ability to repay the loan:

Income from minors.

Food stamp allotment.

Payments from foster care.

Irregular cash gifts.

Lump sum additions, such as capital gains, etc.

Medical reimbursements.

Educational benefits.

Hazardous duty pay for military person exposed to hostile fire.

Payments received for the care of foster children.

Income exempted by Federal Statue (details noted in 1980-D Exhibit F). Adjustments to reduce annual income include $480.00 for each minor child, full time student or a disabled member of the family. $400.00 may be deducted from annual income for each family member over 62 years of age. An additional deduction may be calculated for certain expenses when added together exceed 3% of gross annual income. Note: Household members who are not applicants must provide a recent paystub with YTD figure. Disclosure of the number of people who reside at the subject property at least 50% of the time, information must include the following: Name, Relationship and Annual Income* * Includes salaries, wages, part-time income, self-employment income, social security, pensions, annuities, unemployment, workers compensation, alimony, child support Important: Do not include income from minors, foster care income, lump sum payments from insurance or inheritances, scholarships, and grant.

Income for loan Qualification Not required as no ratio calculations are required for this program.



Child Care Expenses Annual child care expenses are not counted as liabilities when calculation debt ratios but must be disclosed per RHS parameters, must enter child care expenses within the income eligibility website: http://eligibility.sc.egov.usda.gov Large Deposits If the borrower’s bank account statement reflects deposits made that are outside of the borrower’s typical deposits derived from wages, these deposits are to be documented and explained. Cash Back at Closing The borrower cannot receive any cash back from the transaction. Excess loan funds cannot be refunded to the borrower. Note: If lenders are required to reimburse borrowers as the result of erroneous preparation of the Loan Estimate (LE), these funds may be provided to the borrower as this is a penalty due from the lender. Principal Reduction at Closing Principal Reduction is allowed in the following circumstances:

Excess funds vs. requested loan amount.

Excess gift funds remaining.

The principal reduction is not to exceed the lesser of $250. Allowable Fees Fees that are customary allowed on FHA and VA loans would also be considered allowable fees per RHS program. Some prohibited fees include but are not limited to: Payment of fees charges or commissions; these fees could be in the manner of finder’s fees, referral of prospective applicants, etc. Guarantee Fee The guarantee fee is charged and collected at the time of closing and can be paid by the buyer, or financed into the loan amount. USDA Rural Housing requires an upfront guarantee fee accompanied by an annual fee, applicable to both purchase and refinance transactions. Important: Customers are responsible for Proper disclosure of the Guarantee Fee on the Loan Estimate. It is critical to confirm accuracy prior to sending disclosures. Upfront Guarantee Fee The Upfront Guarantee Fee of 1 % of the Loan amount is due at closing. Annual Guarantee Fee The annual guarantee fee of 0.35% of the unpaid principle balance for all refinance transactions applies.




Escrow Impound Requirements Escrows Impounds for Taxes and Insurance are required. Assumability Not applicable Temporary Buydowns Not Allowed

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