5.2 REQUESTING A GUARANTEE (03/09/16)

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

Not all loans are appropriate for the SFHGLP. The lender should determine whether, based on preliminary information, it appears that the loan will meet the program's criteria. The lender should also ensure that the applicant is fully informed about the requirements of the program.

A. Preliminary Determination of Applicant Eligibility

In general, the program is most appropriately used to offset the risk of making high loan-to-value loans in rural areas. It is not intended to offset risks that stem from a poor credit history or poor property condition. In particular, the lender should review the following items to make a preliminary determination of the applicant's eligibility.

Income. Does the combined annual adjusted income of all members of the applicant's household (not just those who will be signatories to the note) fall within the program's income limits? Annual and adjusted incomes are distinct from repayment income.Briefly, repayment income represents the income of parties to the note used to repay the loan. Annual income represents the entire household's combined income, regardless of whether the household members are loan applicants or not. Adjusted annual income represents the combined household income minus qualified household deductions. The adjusted annual income may not exceed the program's income limits, which determines the household's eligibility for a SFHGLP loan. Chapter 9 contains more detail about calculating annual adjusted income for program eligibility. Appendix 5 contains the current income limits. Adjusted annual income eligibility may also be checked online at http://eligibility.sc.egov.usda.gov/eligibility/ or by using the Agency's automated underwriting system, GUS.Aside from meeting annual adjusted income requirements, the applicant must also have sufficient repayment income and meet additional program requirements. See Chapter 9 for more information about repayment income.
Ratios. Do the applicant's PITI (Principal, Interest, Taxes and Insurance) and total debt (TD) ratios fall at or below the limits described in Chapter 11? Ratios are calculated using repayment income from applicants that will be a party to the Promissory Note. Please see Chapter 9 for more detail.
Credit. Does the credit record appear to meet the program guidelines described in Chapter 10? The applicant must have a credit history that demonstrates their ability and willingness to repay the loan. GUS is unable to accept supplemental credit reports.
Loan amount. Is the loan amount supported by the appraisal's fair market value? If there is not yet a current appraisal, is the loan amount expected to be supported by the appraisal? Appraisals are addressed in Chapter 12.
Rural area. Does the property appear to be in an eligible rural area as designated by program guidelines? If warranted, did Agency staff confirm that the property location was rural? The Agency encourages lenders and those involved in the origination package to verify a property's eligibility on the Agency's property eligibility website. Property eligibility in many cases may be checked online at http://eligibility.sc.egov.usda.gov/eligibility/ or by using the Agency's automated underwriting system.
Qualified alien/U.S. citizen. Is the applicant a qualified alien or a United States citizen? If the applicant is not a U.S. citizen, they must produce evidence that they are qualified to receive Federal assistance and establish that they are a qualified alien. Alternately, Agency personnel can check a Department of Homeland Security (DHS) Citizenship and Immigration Services (CIS) database to determine eligibility. See Chapter 8 for more information.
Need for Guarantee. Has the lender made a preliminary determination regarding the applicant's ability to obtain traditional credit?Form RD 3555-21, “Request for Single Family Housing Loan Guarantee” requires both the lender and the applicant to certify that the applicant is unable to secure credit from other sources upon terms and conditions which the applicant can reasonably fulfill. The certification can be made if the applicant does not meet the requirements to obtain a traditional conventional credit loan. Traditional conventional credit is defined for Agency purposes as:
- The applicant has available personal non-retirement liquid asset funds of at least 20% of the purchase price that can be used as a down payment;
- The applicant can, in addition to the 20% down payment, pay all closing costs associated with the loan;
- The applicant can meet qualifying ratios of no more than 28% PITI and 36% TD when applying the 20% down payment;
- The applicant demonstrates qualifying credit for such a loan.
- The conventional mortgage loan term is for a 30- year fixed rate loan term without a condition to obtain private mortgage insurance (PMI).

If the applicant meets the cumulative criteria of traditional conventional credit, as defined by the Agency above; the applicant is ineligible for the SFHGLP.

Liquid assets for conventional credit down payment purposes typically consist of cash or cash equivalents. Cash or cash equivalents include funds in the applicant's checking or savings accounts, or investments in stocks, bonds, mutual funds, certificates of deposit, and money market funds, unless they were encumbered (pledges as collateral) or otherwise inaccessible without substantial penalty. Cash equivalents do not include funds in Individual Retirement Accounts, 401(k) accounts, Keogh accounts, or other retirement accounts that are restricted and may not be accessed without incurring substantial monetary penalties.

B. Informing the Applicant

Before requesting a loan guarantee, the lender should take the following steps to ensure that the applicant has a general understanding of the SFHGLP.

Concept of a loan guarantee. Describe to the applicant what a loan guarantee is, why it is used, and the benefits of a loan guarantee. Benefits include, but are not limited to: no required down payment and a fixed interest rate.
Loan guarantee fee. Inform the applicant of the guarantee fee to be paid at loan closing.
Annual fee. Inform the applicant of the annual fee, if applicable.
Occupancy. Inform applicants that they must occupy the property as their principal residence.
SFHGLP requirements. Inform the applicant of program requirements such as income limits, property location eligibility, debt ratio thresholds, and other requirements such as the Debt Collection Improvement Act (DCIA) outlined on Form RD 3555-21.