8.2 APPLICANT ELIGIBILITY REQUIREMENTS (03/09/16)

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

The lender must confirm the applicant meets the criteria for obtaining a SFHGLP guarantee prior to full analysis of the applicant’s loan request.

 A. Owning a Dwelling [7 CFR 3555.151 (e)]

 An applicant who owns a dwelling to which they will retain ownership is eligible for a guaranteed loan to purchase another home if all of the criteria below are met:

 The homeowner’s current dwelling is not financed by a Rural Development guaranteed or direct Section 502 or 504 loan or active grant (the grant agreement has not expired);

 The homeowner is financially qualified to own more than one house (the loan applicant is limited to owning one single family housing unit other than the one associated with the loan request);

 The homeowner will occupy the home financed with the guaranteed loan as their primary residence throughout the term of the loan.

 The current home owned no longer adequately meets the applicants’ need. Manufactured housing units that are not fixed on a permanent foundation are considered functionally inadequate. The determination that the current home no longer adequately meets the applicant’s needs must include documentation of a significant status change in the circumstances of the borrower that require immediate remedy. Examples of changes in status could include, but are not limited to:

Severe overcrowding which is defined as more than 1.5 household residents per room. The room count generally includes a living room, dining room, kitchen, den, recreation room, and bedroom(s). Room counts do not include the bathroom or an entry hall/foyer. The lender must obtain verification that overcrowding has existed for more than 90 days and will persist for at least nine (9) months into the future.   

The disability or limited mobility of a permanent household resident that cannot be accommodated without substantial retrofitting of the current property, e.g., the installation of a ramp, an elevator or stair-lift, or extra-wide doors and hallways. Lender must obtain verification of the change in status, the existing property deficiencies, and the suitability of the new property.

The applicant is/has relocated with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance.

In all cases, the lender must provide an additional explanation of the burden upon the applicant imposed by the status change both in the near and longer term, and also the reasons beyond homeowner convenience why the purchase of the property must be completed prior to the sale of the existing property. All documentation will be retained in the lender’s permanent loan file and may be requested by the Agency upon review.

Repayment Income for rents received less than 24 months. Applicants retaining their existing dwelling must qualify for all mortgage liability payments. Newly signed leases have no historical basis to conclude that the income is likely to continue and cannot be used for repayment ratio calculation. Rents received less than 24 months do not represent a stable continued source of income for repayment income due to lack of history and cannot be used when qualifying the loan request. The exclusion of rental income will ensure the applicant has sufficient monthly income to meet all mortgage and liability payments. Lenders who utilize GUS will not populate data fields on the “REO Property Information” page with any information regarding rental income received for less than 24 months in the “Gross Rental Income,” “Mortgage Payments,” or “Insurance, Maintenance and Taxes” data fields. However, the corresponding mortgage liability associated with the retained dwelling must be included in the long-term debt liability.

 Repayment Income for rents received 24 months or greater. When applicants can demonstrate rental income is stable and dependable, as evidenced and documented with the most recent two years tax returns and a copy of the current written lease executed by the homeowner and the lessee, the net rental income can be considered for repayment ratios. IRS From 1040 Schedule E is required to verify all rental income. Depreciation or depletion shown on Schedule E may be added back to the net income or loss for repayment income. Positive rental income is considered gross income for repayment income while negative income must be treated as a recurring liability.

Repayment Ratios. If the net rental amount is negative, the amount of debt will be considered as a recurring liability for repayment ratios. This applies to manual and automated underwritten loan files.

 Annual Income Calculation. Any positive net rental income will be included in the calculation of annual income to determine eligibility of the household for the SFHGLP. Rental income must be considered in the annual income analysis regardless of its duration. Rental income, for annual income purposes, is considered the total rental real estate income amount reported on the most recent IRS Form 1040 Schedule E for the previous 12 months. In the absence of a Schedule E; canceled checks, money order receipts, bank statements or other documentation may be used to support the amount of rents received for annual income purposes. Any negative net rental income is treated as zero for the purposes of calculating annual income.

Documentation. Refer to Chapter 9 of this Handbook for additional information surrounding documentation requirements of rental income.

B. Obtaining 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 verifiable 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.

It remains the underwriter’s responsibility to support the criteria of this Section. Documentation to support ineligibility for conventional credit will be retained in the lender’s permanent case file.

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. Educational college savings plans, such as a 529 plan, which incur a penalty to withdraw, is not considered a cash equivalent. Owning land is not considered a liquid asset. Land cannot typically be converted to cash quickly without minimal impact to the price received and ease in transfer of ownership.

 C. Occupying the Property [7 CFR 3555.151(c)]

Applicants must agree to personally occupy the dwelling as a principal residence throughout the term of the loan. Bona fide occupancy in the home as the applicant’s principal residence within 60 days after signing the security instruments is required.

Active duty military applicants. Active duty military applicants may be eligible for the SFHGLP. They must occupy the property as their principal residence. The military applicant must express intent to meet occupancy requirements upon his/her discharge from the service. A military serviceperson who cannot physically reside in a property because they are on active duty will be considered to meet occupancy requirements defined in § 3555.10 of 7 CFR 3555 if:

The serviceperson’s family will continue to occupy the property as their principal residence. See Chapter 9 for additional information on calculating military income for repayment of the loan request.

Student applicants. Due to the probability of relocation after graduation, full-time students cannot obtain loans unless they intend to make the home a permanent residence and there are reasonable prospects of securing employment in the area after graduation.

Having Legal Capacity [7 CFR 3555.151(f)]

The applicant must be considered an adult under State law, and must have the legal capacity to incur the loan obligation. An applicant with a court-appointed guardian or conservator, who is empowered to obligate the applicant in real estate matters, is eligible for a loan.

E. Not Having a Suspension or Debarment [7 CFR 3555.151(g)]

Individuals who have been suspended or debarred from participation in Federal programs are not eligible for a guaranteed loan. The approved lender, or their agent, is responsible for screening the applicant and parties to the transaction on the U.S. General Services Administration’s (GSA) System for Award Management (SAM.gov) website as part of their eligibility determination of the applicant. Lenders who utilize an automated method that creates a report, similar to a watch list, which performs a check of the SAM website, will meet the criteria of this check. Additional information regarding parties ineligible to participate in the SFHGLP transaction can be found in Section 15.2 of Chapter 15 of this Handbook. The lender will document their permanent file with the date and screen print of the results of that check. Form RD 3555-21 will document the lender performed the check. The check should occur prior to the request for commitment and be no greater than 30 days prior to loan closing, otherwise the lender will update their documentation by performing another check of SAM. Rural Development staff is not required to rescreen an applicant upon request of a loan guarantee.

F. Having Acceptable Citizenship or Immigration Status [7 CFR 3555.151 (b)]

The applicant must be a U.S. citizen, a U.S. non-citizen national, or a qualified alien.

This program is available to individuals who receive a loan note guarantee under the

SFHGLP to those who:

reside as a citizen in any of the 50 States, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Marianas, Federated States of Micronesia, and the Republics of the Marshall Islands and Palau; or,

a non-citizen who resides in one of the foregoing areas after being legally admitted to the U.S. for permanent residence or on indefinite parole.

The term “indefinite parole” is no longer a term used by the Citizenship and Immigration Service (CIS), formerly known as the Immigration and Naturalization Service (INS). Instead, under Section 401 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) (8 U.S.C. Section 1611) lenders and the Agency must determine whether the applicant for a guaranteed loan is a U.S. citizen, a U.S. non- citizen national, or a “qualified alien.”

Generally, a U.S. non-citizen national is a person born in American Samoa or Swains Island or after the date the U.S. acquired American Samoa or Swains Island, or a person whose parents are U.S. non-citizen nationals. Typical evidence of the relatively uncommon status as a non-citizen national includes a birth certificate or passport, and persons who are non-citizen nationals are eligible for consideration.

Aliens must provide acceptable evidence that they are qualified aliens. A qualified alien is defined under PRWORA (8 U.S.C. Section 1641) as:

An alien who is lawfully admitted for permanent residence under the Immigration and Nationality Act (INA); or

An alien who is granted asylum under section 208 of such Act; or

A refugee who is admitted to the United States under section 207 of such Act; or

An alien who is paroled into the United States under section 212(d)(5) of such Act for a period of at least 1 year; or

An alien whose deportation is being withheld under section 243(h) of such Act; or

An alien who is granted conditional entry pursuant to section 203(a)(7) of such Act as in effect prior to April 1, 1980; or

In addition to the categories of qualified aliens described above, Native Americans born in Canada may also be eligible as lawfully admitted for permanent residence. They might not possess any of the documentation described above, and the Agency might not be able to verify their status through Systematic Alien Verification for Entitlements (SAVE) Program. SAVE is a program the Agency has access through a “Memorandumof Agreement” with the Department of Homeland Security (DHS). To establish the applicant(s) is a qualified alien, the Native American should provide all of the documentation listed below, as described in the Wabanaki Legal News at http://www.ptla.org/wabanaki/jaytreaty.htm.

A letter from their Native American tribe stating that the alien has at least 50 percent Native American or Aboriginal blood (also referred to as the blood quantum);

Their Canadian “Certificate of Indian Status Card” with a red stripe along the top; Their birth certificate;

If an Haudenosaunee, their Red I.D. Card;

If an Inuit, an Inuit enrollment card from one of the regional Inuit lands claim agreements;

Their Social Security Card issued by the U.S. Social Security Administration; Their Canadian or U.S. driver license.

Lenders must secure proof of identity and evidence that non-citizens who apply for a guaranteed loan are qualified aliens. The evidence confirming qualified alien status may be obtained after the lender has received an application for credit from the potential borrower. The lender should obtain the non-citizen’s alien identification number with copies of any supporting documents and communicate it to the Agency office servicing their area. Examples of supporting documents are provided in the screen print below. Agency staff will then submit the alien’s information to SAVE and, in most cases, will be able to promptly inform the lender of the applicant’s eligibility status based on the aliens Class of Admission (COA). Lenders who utilize GUS will automatically have access to SAVE to validate non-citizens as qualified aliens.

The system typically responds within seconds of the applicant’s eligibility and a COA code. In most cases SAVE will give a “System Response” indicating the alien’s status.

If the response states, “LAWFUL PERMANENT RESIDENT-EMPLOYMENT AUTHORIZED,” the borrower is eligible for our benefit. The Agency will print the case details for the lender and permanent Agency file.

If SAVE is unable to determine the alien’s status, the system responds with the message “Institute Additional Verification” 

SAVE is asking the Agency user to supply additional information for this second step process. Agency staff should click on the “Request Additional Verification” button and follow the instructions. The Agency will request additional information of the lender to proceed. With information received Agency personnel will reply via the SAVE site within three to five days. Agency staff must return to their case verification screen to view the system response. In the event that SAVE is unable to determine a COA code the system will respond “submit copies of documentation.”

If this is the case, the Agency staff must print the CIS Form 845 (prefilled by SAVE) from the verification screen and mail it with copies of all supporting documentation to their United States Citizenship and Immigration Service (USCIS) branch office. The USCIS personnel have seven to fourteen business days from receipt of the documents to reply. The reply will be via the case verification screen in the SAVE program so Agency staff must return and check for the reply.

 Mailing addresses to send the supportive documentation are available at:  www.uscis.gov.

In all cases, non-citizens legally admitted into the United States will have an Alien Identification Number. In the rare occasion where a number is not available or known, the applicant should contact the CIS. Some documented cases have been discovered where an alien has been legally in the US for a long period of time, and the Department of Homeland Security has supplied them with a number, but the alien did not ever receive or has misplaced the number.