Partnering with USDA Rural DevelopmentAffordable Financing Opportunities

USDA and Habitat for Humanity Partnership and MOU

• USDA Rural Development and Habitat for Humanity established a Memorandum of Understanding (MOU) in January 2011 to: Improve access to Agency financing for eligible HFH program

participants Implement a loan application packaging arrangement for Section

502 and 504 applications

• Ideal partnership - similar mission principles relative to housing and community building

USDA’s Housing Role and Mission

• Increase economic opportunity & improve the quality of life for people of rural America.

• Rural Development has been helping rural Americans to purchase and repair homes since 1949

• Finance well built, affordable and energy efficient housing

• Home ownership still viewed as American dream & fosters lasting social and economic benefits within a community

Single Family Housing Programs

• Section 502 (Direct) Single Family Housing Loans• Section 502 Guaranteed Rural Housing Loans• Section 504 Home Repair Loans and Grants• Section 523 Self Help Housing Program

HOME OWNERSHIP LOANS

502 Direct Single Family Housing Program

• Direct financing to very low to low income households (<80% of median income for area) to purchase a home in a rural area.

• Funds to purchase or build a home, or renovate an existing home.• No down payment requirements - 100% loan to value financing.• No Principal Mortgage Insurance (PMI) required.• Interest Rate is fixed and payment assistance (subsidy) is available for

many program participants. Subsidized interest rate can be as low as 1%, for qualifying applicants.

• Standard loan term of 33 years (30 for manufactured home).• Dwelling must be modest (minimal acreage, must not be designed for

income producing purposes, cannot have in ground pool, farm out buildings, or a value that exceeds limit for area).

Section 502 Home Ownership Loans

Borrower Eligibility Guidelines• Must have stable and dependable income

• Have an adjusted income that is at or below the applicable low-income limit at loan approval

• Have acceptable credit

• Be unable to obtain credit elsewhere at favorable terms

• Have the legal capacity to incur debt

• Agree to occupy the dwelling on a permanent basis

• Meet citizenship or eligible non-citizen requirements

• Demonstrate both the willingness and ability to repay the loan

Section 502 Direct Loans

Eligibility – Credit HistoryCREDIT REQUIREMENTS• Evaluate credit history for each applicant who will be a party to the note.

• USDA does not render credit decisions based on credit scores.

• However, reliable credit score 640 or higher qualifies for streamlined credit approval. Reliable credit score=reporting from at least 2 credit repositories w/ at least 3 open & active trade lines within past 12 months

• <640 or thin credit (< 3 open and active trade lines) - “Indicators of Unacceptable Credit” primary guide for credit analysis. HB-1-3550, Exhibit 4-4.

• Lack of credit history can be mitigated with alternative credit – documented history showing applicant pays recurring bills in a timely manner

Section 502 – Direct Loans

Eligibility – Asset Limitations (HB-1-3550 §4.5)

Assets in excess of $15,000. ($20,000 for elderly* households) must be used toward purchase of dwelling

• Non-retirement assets include, but not limited to: savings, checking, stocks, bonds, cash value of life insurance, investment accounts, equity in real property, revocable trust funds available to the household

• Retirement assets are savings & investments that have been specifically designated as retirement funds. If only accessed by borrowing, terminating employment or retiring, need not be counted.

*includes disabled

Property Guidelines • Must be modest for area (market value cannot exceed

applicable area loan limits) and be in eligible lending area• In-ground swimming pools are not allowed • Cannot be designed for income producing purposes or have

farm outbuildings• Access from a street is required and lot cannot be sub-divided

(typically 1-2 acres)• Must be a single-family dwelling• Cannot finance existing manufactured homes• Home & site must meet agency requirements for decent, safe &

sanitary OR can be brought into good repair with loan funds, while still meeting eligibility criteria.

Assist very-low income households make needed repairs to their homes to include accessibility modification for individuals with disabilities

SECTION 504 LOANS & GRANTS

PROGRAM GUIDELINES SECTION 504 LOANS

• Maximum outstanding 504 loan amount is $20,000 at any given time

• Interest rate is fixed at 1%• Maximum term of 20 years (term and payment is based upon the

family budget)• Appraisal and escrow required for loans over $15,000• Mortgage is filed for loans of $7,500 and over• Closing agent is required for loans of $7500 and over

ELIGIBILITY GUIDELINES SECTION 504 LOANS

• Household income must not exceed very low income guidelines (<50% HUD median income)

• Must own the home and site and occupied the home prior to filing an application

• Must demonstrate repayment ability based upon the completion of a family budget

• Must have stable and dependable income

• Must have acceptable credit

• Asset Limitations ($15K non-elderly; $20K elderly)

PROGRAM GUIDELINES SECTION 504 GRANT

• Maximum cumulative lifetime grant assistance is $7,500

• Grantee must sign Grant Agreement requiring occupancy of home for 3 years

• Repairs to remove health and safety hazards or to make the home accessible and useable for household members with disabilities.

ELIGIBILITY GUIDELINES SECTION 504 GRANTS

• Household income must not exceed our very low income guidelines.

• Must own the home and the site and occupied the home prior to filing an application.

• At least one applicant must be 62 years of age or older.• Must demonstrate a lack of repayment ability based upon a

household budget.• Assets limitations ($20K)

SECTION 504 PROPERTY REQUIREMENTS

• Must be modest for the area; value limit• Must not have an in-ground swimming pool • If the property has income producing land or structures, we

may use loan/grant funds as long as repairs are used for the residential portion of the home.

• Mobile or manufactured homes must be on a permanent foundation or be placed on a permanent foundation with loan or grant funds.

Eligible areas: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

 

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No Cost Pre-Qualification• Use unverified and preliminary information available to

evaluate the likelihood that a potential applicant would be program eligible

• Explain USDA Rural Development’s program and application process

• Calculate an estimated maximum loan amount

• Encourage the early completion of homeownership education (required for Section 502 home purchase only)

• Provide and/or refer to formal credit and debt counseling

Benefits to Local HFH Affiliate• Determine which families may qualify for an affordable USDA

(often subsidized) extension of credit

• Enable HFH affiliate to expand funding partnerships with USDA and local housing organizations

• Identify families early that may benefit from credit counseling and encourage completion of homeownership education

• Establish a referral based relationship that will help affiliate identify qualified homebuyers

Changing Lives – One Home At a Time

Please visit our websites:

http://www.rurdev.usda.gov/ - RD Main site

http://eligibility.sc.egov.usda.gov/eligibility/

eligibilityAction.do - Property & Income

http://www.rurdev.usda.gov/regs/ - Forms & Handbooks

Questions?

Jennifer JacksonSingle Family Housing Program Director

(New York)315-477-6417

Jennifer.jackson@ny.usda.gov

USDA is an equal opportunity provider, employer, and lender. To file a complaint of discrimination write USDA, Director, Office of Civil Rights, 1400 Independence Avenue,

S.W., Washington, D.C., 20250-9410 or call (800) 795-3272 (voice) or (800) 877-8339 (TDD).