16.4 UPFRONT LOAN GUARANTEE FEE (07/07/17)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

The lender will pay an up-front guarantee fee, which may be passed from the lender to the borrower. Payment is paid by the lender to the Agency. When a lender is not submitting electronic loan closings, as outlined in paragraph 16.3 above, the fee must be paid with a lender or closing agent check made payable to payable to the Treasurer of the United States; United States Department of Agriculture; Rural Development; or other reasonable variation such as USDA; USDA - Rural Development; or to Rural Development. Lenders who participate in the submittal of electronic loan closings will pay the up-front guarantee fee through pay.gov.

Fees received by check will be processed daily in accordance with subpart B of part 1951. Fees will be returned to the lender if the guarantee is not issued. Once the fee is paid and the guarantee issued, the fee is nonrefundable.

Agency staff should determine that the loan conditions have been met and acknowledge receipt of the lender’s request for loan note guarantee within two business days of receipt of receiving complete closing documents.

The up- front guarantee fee is subject to change to maintain a subsidy neutral program required of Public Law 111- 212. Future updates, after notification by Federal Register, will be published in Exhibit K, of RD Instruction 440.1, available in any Rural Development office or on the Rural Development website as follows: http://www.rurdev.usda.gov/rd_instructions.html.

Purchase Loans – Up-Front Loan Guarantee Fee

For “Purchase” loans (i.e. loans on existing properties, proposed new construction or under construction and manufactured housing), the loan guarantee fee is equal to two percent (2 %) of the amount loaned to the borrower. It is not based directly on the purchase price of the property; it is based on the total loan amount.

Refinance – Up-Front Loan Guarantee Fee

For “Refinance” loans (i.e. loans to refinance an existing Section 502 Direct or Guaranteed Loan, the loan guarantee fee is equal to two percent (2%) of the amount loaned to the borrower.

Calculation of Up-Front Loan Guarantee Fee

The maximum loan amount for a guaranteed loan is 100% of the appraised value plus the guarantee fee. The guarantee fee can be included in the principal loan amount. Closing costs and fees may also be included in the loan amount up to 100% of the appraised value for purchase transactions. The maximum loan-to-value (LTV) allows financing the guarantee fee over and above the appraised value of the property. When financing the guarantee fee over and above the appraised value of the property, the foundation for calculating the guarantee fee is the loan amount before the guarantee fee is calculated.

 Financing the Entire Up-Front Guarantee Fee

The borrower may elect to finance the entire guarantee fee. When financing the guarantee fee, the total loan may exceed the appraised value of the property only by the amount of the guarantee fee being financed.

Example/Purchase Loan:

The appraised value of the subject property is $100,000. In this example, the purchase price of the property is $98,000. The borrower has elected to finance $2,000 in eligible loan closing costs (these costs do not reflect any portion of the guarantee fee).

The entire guarantee fee will be financed. The guarantee fee must be calculated on the base loan amount. To finance the entire fee, begin with the base loan amount of $100,000 ($98,000 purchase price plus $2,000 eligible closing costs). Calculate the total loan amount including the guarantee fee as follows:

$100,000 /.98 = $102,040.82 (Loan amount including the guarantee fee)

$102,040.82 x 2% = $2,040.82 (Guarantee fee)

Example/Refinance Loan:

A refinance request includes payment of principal and interest payoff, plus closing costs which equal $100,000 (a non-streamlined refinance type). The appraised value is $100,000. The entire guarantee fee will be financed. The total loan amount including the guarantee fee may be calculated as follows:

$100,000 / .98 = $102,040.82 (Loan amount including the guarantee fee)

$102,040.82 x 2% = $2,040.82 (Guarantee fee)

Financing Part of the Up-Front Guarantee Fee

The borrower may elect to finance only a portion of the guarantee fee. In these cases, the borrower will pay a fee that corresponds to the total loan amount that includes the partial fee. The remaining amount of the guarantee fee, which is not financed, will have to be paid by the borrower from personal funds, seller concessions or eligible gift assistance at settlement. Using the example of a $100,000 loan for a property appraised at $100,000, review the partial fee scenarios below.

Example/Purchase and Refinance (non-streamlined transaction):

$1,000 of the 2 percent fee will be financed; therefore the total loan amount will be $101,000.

$101,000 x 2% = $2,020.00 (Guarantee fee)

In this scenario, the applicant will borrow $101,000 which includes $1,000.00 of the guarantee fee. The borrower will have to pay the remaining $1,020.00 of the guarantee fee from personal funds at settlement ($2,020.00 total fee minus the $1,000.00 financed =$1,020.00).

Not Financing the Up-Front Guarantee Fee

Borrowers are not required to finance the guarantee fee and may elect to pay the entire fee amount out of personal funds, seller concessions or by eligible gift assistance at settlement. In the example of a $100,000 loan for a property appraised at $100,000, the borrower may save money by paying the fee out -of-pocket. Since the fee is not financed into the loan amount, it is not considered part of the total loan.

Example/Purchase and Refinance (non-streamlined transaction):

$100,000 x 2% = $2,000.00 guarantee fee due at loan closing.

Borrowers can avoid paying interest on a higher principal loan amount and/or a higher guarantee fee if they elect to pay the fee at settlement.

NOTE: An up-front fee calculator is available for use by lenders and employees at the following website:

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