6.3 PROHIBITED LOAN PURPOSES (03/15/17)

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

Guaranteed loan funds cannot be used for any of the following purposes.

• Loan Discount Points. Loan discount points, other than to reduce the effective interest rate, cannot be financed as part of the loan. Discount points must be reasonable and customary for the area and cannot be more than those charged other applicants for comparable transactions. Permissible discount points financed may not exceed two percentage points of the loan amount for a non-streamlined refinance. Loan discount points and loan origination fees must be itemized separately on the settlement statement so that the Agency can accurately identify the amount of the loan used for loan discount points. Loan discount points representing fees other than to reduce the effective interest rate, such as to compensate for a low credit score or low loan amount are ineligible. The lender must begin with an eligible interest rate per 7 CFR Part 3555, 3555.104 prior to reducing the effective interest rate.
• Income Producing Property. Purchase or improvement of income-producing land or buildings that will be used principally for income producing purposes is not allowed. Vacant land or properties used primarily for agricultural, farming or commercial enterprise are ineligible. A minimal income-producing activity, such as maintaining a garden that generates a small amount of additional income, does not violate this requirement. A qualified property must be predominantly residential in use, character and appearance. Refer to Chapter 12 of this Handbook for additional information on qualifying a property.
• Manufactured Homes. Purchase of an existing manufactured home is not permitted, unless it is a purchase of an existing Rural Development Section 502 direct loan or guarantee, as provided in Section 2 of Chapter 13 of this Handbook.
• Lease Payments. Payment on any lease agreement associated with the proposed real estate transaction is prohibited.
• Seller contributions. Seller or other interested party contributions towards closing costs in excess of six percentage points are prohibited. Closing costs and/or prepaid items paid by the lender by premium pricing are not included in the seller contribution limitation. Fees towards the applicant’s cost to close such as real estate commission or other typical fees paid by the seller or other interested party under local, state law, or local custom are not considered in the maximum contribution calculation. Lenders are responsible to ensure this requirement is met.
  Closing costs. Closing costs, including lender fees, may not exceed three percent of the total loan amount, unless flexibility is provided through guidance published by the CFPB’s Ability to Repay and Qualified Mortgage (ATR/QM) standards. The SFHGLP up-front guarantee fee and annual fee is not included in the three percent lender fee calculation. Lenders are responsible to ensure this requirement is met.