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					FHA




      USDA
      951-582-2659
Advantages and Benefits

• No down payment: True 100% product
• No monthly mortgage insurance: Clients can afford more!
• No cash reserves required.
• No minimum credit score
• Expanded qualifying ratios: 29/41%
• Exceptions may be made to accommodate qualifying
  clients
• No asset limits
• Not just for first time buyers
• No purchase limits
Advantages and Benefits cont.

• No limitation on source of closing costs
• No limit on seller concessions to pay for closing costs and
  repairs
• Any lender may participate with formal Rural Development
  approval
• Lenders may charge normal and customary fees to for
  their services
Eligible Rural Areas

• Property must be in an
  eligible California rural
  area or community. These
  are communities of fewer
  than 10,000 persons
• To access eligible areas
  log on to -
  http://eligibility.sc.egov.usda.
  gov/eligibility/welcomeAction
  .do
Income Verification




•   There are two types of income that Rural Development must review:
    Adjusted Annual and Repayment - please see
    http://www.rurdev.usda.gov/HSF-Guar_Income_Limits.html

•   Definition of Annual Income: Annual income is the income of all adults
    (18 and above) that will be residing in the the house.
Eligible Deductions

• $480 deduction for: each child under age 18, disabled
  applicants age 18 or older, full-time student age 18 or
  older
• Verified childcare expenses
• $400 deduction for any elderly family as defined by
  1980.302(a)
• The amount by which the aggregate of the following
  expenses of the household exceeds 3% of gross annual
  income
• The care of minors 12 years of age or under
Example of Adjusted Income
Repayment Income

•   All income that is considered stable
•   Income of person signing
•   Income that is anticipated to last at 24 months
•   Income may be based on projected income when
    determining base earnings
•   Historical Income that is higher than projected must be
    explained
•   Non taxable income may be grossed up 20%
•   Vehicle allowances
•   Pending pay increases
Income Documentation

•   A written “request for verification of employment” and recent paycheck
•   Most recent 30 day period paycheck stubs, W2’s for previous 2 years
    or telephone verification of employment
Eligible Properties & Loan Purposes

•   Townhouses and condominiums
•   New construction: new site
    loans, bridge loans etc.
•   Property repairs and
    improvements
•   Closing costs including pre-paid
    expenses
Financing Comparison
Refinancing

• Rural Development Direct 502 Loans may have subsidy
  recapture due.
• Loan Term must be 30 years
• Fixed interest rate at or below current rate
• A 1% guarantee must be paid to Rural Development
• Adjusted income limits and repayment are the same as of
  the initial GRH loan
• May add or delete borrowers
• Property must be owner occupied
Refinancing Cont.


• Maximum loan amount cannot exceed the balance of the loan
  being refinanced, plus the 1% guarantee
• LTV may be up to 101% for refinances if the 1% is included
• No insulation/flood certification and property inspections
  required
• Cannot refinance debts other than GRH or Direct 502 loan
• No cash back except for fees paid out of pocket by the borrower
Loan Amounts




• Minimum: None! Check with your AFN loan officer
• Maximum: No maximum purchase limit on home. Clients may
  buy the home that best suits their needs. Subject to income
  qualifying and approved credit, and loan to value restrictions
Calculating the 3.62694% Guarantee
Example #1
Purchase Price $250,000
Appraised Value $258,000
Borrowers want to finance $8,000 in closing costs in the loan since the appraisal is higher than the purchase price. In addition,
they will finance USDA’s guarantee fee.
Loan Amount $258,000 divided by .965 = total loan amount of $267,357.51
Subtract total loan amount $267,357.51 from loan amount $258,000 =
$9,357.51 USDA Guarantee Fee
Total Loan Amount $267,357.51 X 3.5% = $9,357.51 USDA Guarantee Fee
Example #2
Purchase Price $300,000
Appraised Value $300,000
There is no room to finance closing costs; however, the borrowers would like to finance the USDA guarantee fee.
Loan Amount $300,000 divided by .965 = Total loan amount of $310,880.82
Subtract total loan amount $310,880.82 from loan amount $300,000 = $10,880.82 USDA Guarantee fee
Total loan amount $310,880.82 X 3.5% = $10,880.82 USDA Guarantee Fee

Example #3
Purchase Price $175,000
Appraised Value $190,000
There is a $15,000 difference between the appraisal and the purchase price, however, the borrowers only want to finance
$10,305 in closing costs plus the USDA fee.
Purchase Price $175,000 + $10,305 closing costs = Loan Amount $185,305
Loan Amount $185,305 divided by .965 = total loan amount $192,025.90
Subtract total loan amount $192,025.90 from loan amount $185,305 = $6,720.90
Total Loan Amount $192,025.90 X 3.5% = $6,720.90
Credit Criteria

• A 12-month Verification of Rent is not required
• The representative credit score is considered to be in the
  middle of three scores, or the lower of two
• Borrowers with no credit score: Non-traditional credit
  histories will have to be collected ie. Car payment, utilities,
  cell phone bills etc.
• Compensating factors are allowed to help justify loans for
  borrowers who have lower credit scores yet need higher
  ratios
Credit Criteria Cont.

• Layered risk associated with
  the application should be
  avoided without very strong
  compensating factors
• The credit of the primary
  wage earner will carry the
  most weight
• Spouse only loans are
  permitted
Rural Development Underwriting Matrix
Risk Layering Examples

•   Payment shock over 100%
•   Self employment income with less than 24 months history
•   Repayment ratios exceeding the normal maximums of 29/41%
•   No cash reserves
•   No history of savings
•   No previous housing expense
•   Unstable income based on 24-month employment history
•   Low credit scores based on 24- month employment history
•   Purchasing a home with a great deal of deferred maintenance
Waivers to Credit Requirements

• The circumstances were
  of a temporary nature and
  were beyond control, and
  have been removed
• The adverse action was
  the result of a justifiable
  dispute because of
  defective goods
Repayment Ratios

• 29% Housing Ratio and 41% Total Debt Ratio
• There is not a maximum amount the ratios may be
  exceeded
• Non-taxable income such as child support and SSI
  may be grossed up 20%
• All debts with more than 6 monthly installments
  remaining must be considered in the Total Debt Ratio
• Underwriters may request an exception to the 29/41
  guidelines by proper documentation of compensating
  factors
Loan Term & Interest Rate

• 30 year amortization only
• Rural Development does not offer ARM’s
• The maximum interest rate charges on GRH loans
  may not be more than the current Fannie Mae rate or
  the lender’s rate for VA first mortgage loans with no
  discount points, which ever is higher
• The Fannie Mae site may be accessed at
  www.efanniemae.com/syndicated/documents/mbs/ap
  eprices/archives/cur30.html
Submitting/Changing the Loan
•   View website http://www.rurdev.usda.gov/ to determine where loan
    should be submitted
•   The lender must submit a revised 1008 and 1980-21 indicating the
    proposed use of the loan funds
Loan Closing


• Make certain the loan and interest rate match the rate should on
  the commitment
• Make sure the guarantee fee is 3.62694% of the final loan
  amount for purchase transactions or 1% refinance transactions
• Submit the closing package to the RD office that issued the
  commitment
• Upon receiving Form RD 1980-17 attach to original promissory
  note
GRH Processing Guide


• Complete the 1980-21 form with the applicant at the time of
  application
• Fax the Reservation of Funds to the appropriate Rural
  Development Office
• Rural Development will return a “Confirmation of Funds”
• Complete your loan origination package and submit to your
  underwriter
• Rural development will review the application and issue a
  commitment within 24-48 hours
• The underwriting lender will inform the originating office and
  department of the loan conditions
GRH Processing Guide Cont.

• The lender closes the loan when all underwriter and
  RD conditions have been met
• The lender submits a closing package to RD obtain
  the Loan Note Guarantee
• RD issues the Loan Note Guarantee to the approved
  lender
• The Loan Note Guarantee must be attached to the
  original promissory note as proof of guarantee in the
  event of a loss
Web Resources

• National Rural Development regulations can be
  downloaded at -
  http.www.rurdev.usda.gov/regs/regs_toc.html
• Current Administrative Notices can be found at -
  http://www.rurdev.usda.gov/regs/regs_toc.html
• Replacement forms can be found at -
  http://www.rurdev.usda.gov/regs/formstoc.html
Rural Development Home Pages


• USDA-Rural Development
  national home page is
  located at -
  http://rurdev.usda.gov/
• Property and household
  income eligibility is located at
  -
  http://eligibility.sc.egov.usda.
  gov/eligibility/welcomeAction
  .do
Other Useful Sites