USDA Rural Development has replaced RD 1980-D with 7 CFR Part 3555 and issued a new handbook (HB-1-3555). USDA has updated and clarified their guidelines with the release of the new handbook.
The new USDA guidelines apply to purchase transactions and Non-streamlined and Streamlined refinance transactions effective with loans submitted to USDA’s Guaranteed Underwriting System (GUS) on or after December 1, 2014.
The following are highlights of the updates; it is not an all-inclusive list:
- A signed 4506-T, for both personal and business tax returns (as applicable), is required for all adult (≥ 18 years) household members and must be processed for the previous 2 years
- The appraisal is valid for 120 days from the effective date (currently 6 months)
- The economic life of the property must meet or exceed the term of the proposed loan
- At least one borrower, whose income and assets were used for loan qualification, must have a minimum of 3 tradelines that have a 12 month history to validate the credit score. The tradelines can be open, closed, disputed or an authorized user account as long as there is a 12 month history.
- Loan related charges (application fee/appraisal, etc.) paid for by the borrower on a credit card must be included in the debt ratio calculations if not appearing on the credit report
- Credit inquires in the past 90 days must be addressed (previously HomeBridge required 120 days)
- Long term debt must be included in the debt ratios if more than 10 months remaining (previously 6 months)
- Collection account and judgment requirements were updated
- Full time students, who are temporarily away but do reside at the property for part of the year, only $480 of their income is considered in the annual income calculation ( however the $480 deduction for dependents still applies)
- Repayment income must generally have been received for two (2) years and be expected to continue for a minimum of three (3) years
- Student loan payment (fixed and non-fixed payments) guidance has been updated
- Less than 12 months housing history may be considered on a case-by case basis with ≤ 680 credit score
- Gift funds from a household member are now eligible (previously ineligible)
- Any excess gift funds may be returned to the borrower at closing
- Any rental income received must be included in the annual income calculation.
- Borrowers must occupy the property within 60 days of signing the security instrument; specific guidance for active duty military borrowers was provided
- Updated the guidance when a borrower is retaining their current residence.
- Shared driveways require a recorded easement and private road’s must have a recorded easement or be maintained by an HOA
- Properties with a cistern system are ineligible
- Clarified the guidance for eligible property which must be predominately residential in use, character, and appearance
- Provided guidance regarding foreclosures and short sales due to extenuating circumstances
- Interested party contributions maximum 6% (no change from HomeBridge current guidelines)
- Properties located in an Special Flood Hazard Area (SFHA) are ineligible unless flood insurance through FEMA’s National Flood Insurance Program (NFIP) is available.
- In-ground swimming pools no longer require the contributory value be deducted from the appraised value
- Expanded the basis points allowed when determining the interest rate from 60 to 100. The maximum interest rate may not exceed the Fannie Mae 90 day Actual/Actual Yield for a 30 year fixed rate loan, plus 100 basis points rounded up to the nearest quarter of one percent (e.g. Fannie Mae 90 day rate is 4.72 + 100 basis points = 5.72 rounded up to 5.75%)
HomeBridge has updated the USDA Purchase and Non-Streamlined and Streamlined matrices and posted them on the HomeBridge website at www.homebridgewholesale.com.
USDA’s new HB-1-3555 may be viewed at USDA Rural Development Regulations and Guidance. Select HB-1-3555 SFH Guaranteed Loan Program Technical Handbook.
The forms with updated numbers (replaced 1980 with 3555) are available at USDA LINC Training and Resource Library under Forms.
If you have any questions, please contact your Account Executive.