Letters of Explanation

Simpler (and $20,00 higher) household income limits for the GRH program

Currently, in most counties nationwide, the GRH one person household eligible income limit is $49,550.  Beginning in late January of 2009, the new household income limit could be as high as  $70,750.

Rural Housing is simplifyingthe GRH income limits.  Right now, there are 8 income limit tiers.  In late January, there will be two.  This means that the current income limits for a one, two or three person household will become the same as the income limit for a 4 person household.  Household's larger than 4 persons, will use the existing 8 person household income limits.

For the very detailed background on this click here.

If you want to get a jump start on qualifying higher income borrowers for a GRH loan, you can't.  This doesn't work like it used to with Fannie and Freddie increasing their loan limits.

Nothing is official until Rural Housing publishes the new income limits, which will be in late January.  Maybe you can get a one week head start then, but the new income limits have to be in effect on the day that your local Rural Development office reviews the file for Conditional Commitment. 

GUS System Update: September 5th

Update:  GUS Should be back up, now.

Why is it always on a Friday?  Anyway, RD sent out the following:

GUS IS PRESENTLY OFFLINE

GUS is presently unavailable for underwriting due to an issue experienced with the MindBox decision engine.  Our operations team is currently looking into this issue to resolve it as soon as possible.   We will resolve the issue as quickly as possible.  We apologize for the delay in access and thank you for your patience.

GUS System Update: August 20

Over the weekend, RD installed a GUS update.  The update enhances protection of the borrowers' privacy by scrubbing applicant SS#'s off of all RD forms and as a means to identify a file.

The update is working so well, it is completely scrubbing out RD Form 1980-21, the Request for Conditional Commitment.   GUS auto generates the form through the Request Forms function.  Of course, this wasn't intended and RD is working on a fix.

So, now it's back to filling out the 1980-21, by hand.  Or, as a friend in Nashville pointed out to me, if you click here you can fill it out on-line and then print it out.

We Can-do Condo's on GRH

Can we do a condo?

To finance a condo on GRH, the project needs to be on the FHA, Fannie Mae or Freddie Mac's approved condo list. If a condo project is not on the list, then the project must meet the Fannie/Freddie guidelines to be warrantable as an acceptable project. 

The hard and fast guidelines used to be all phases were complete, the HOA was in control, 60% of the units were owner occupied and one entitiy did not control more than 10% of the units.  Now, I think it's all done with an online system with Fannie, so who knows anymore. 

Unable to Determine What to Do Next?

What do I do when the address is unable to determine on Rural Development's eligibility site?

Try the following:

1. Check if the entire county eligible.  Pull up map of the county on the eligibility site.  If there are no orange blotches, the entire county is eligible.  You're done, as long as the appraisal comes back showing that the property is in the county you thought it was in.  GRH will help you learn your state geography.  Back in 8th grade if you wondered when in my life am I ever going to need to use Louisiana History, then you now have your answer.  (Fill in your own state and whatever grade you took state history in and thank you Mrs Olivier and yes I know they have parishes not counties in Louisiana).
2. If the county is not completely eligible, input a scrubbed address: house number and street name only.  Type N S E W instead of north, south, east and west.  If the property is in a condo, don't put the unit number.  Use ST, RD, DR or just leave it off altogether. Finally, don't type in the city name, it's not needed, but the state and zip code (see below) are.
3. Are you using the right zip code?  Real estate agents, and admit it, even you, are quick to use your home or office zip code when you don't have the property zip code.  That will work on the 1003/1008, but not on the eligibility site.  Use the USPS zipcdoe finder.
4. Is the street known by another name.  In rural remote areas the street sign may say "Ol' Man Magillicutty Way" but that's only because old man Magillicutty tacked up the street sign he bought at the flea market before Old Man Thompson did.  By the way, the real street name is usually something like County Road 2279.

Unfortunately, even after trying the above, about 30% of the time, you will still get "unable to determine". What you need to do next is either guess or you call the local RD office that handles the county in which the property is located. 

As time goes on, you will learn the eligible areas and be able to guess more and call RD less.  And by then, you're not really guessing anymore.

To help you initially guess better, cut down on your calls to RD and, when you do have to call RD, make sure you have the information they need, try the following:

1. Go to www.maps.google.com
2. Type in the correct property address and click "Search Maps."
3. If the property address shows up in Google Maps, compare the Google Map to the county map on the eligibility site.  This will require a lot of fiddling with.  You will have to decrease the magnification layer on the Google map and increase the magnification layer on the eligibility site map.  It's an art that takes a little bit of practice.

If you can't make the determination, it's time to call the local RD office for help.  In some cases, the home is too new and won't even show up on Google Maps.  In these cases, you will have to rely on an appraiser to supply a map of the subject property market area.

Seller Seasoning on Title

If an investor buys a home and cleans it up and resells it 90 days or less. Does GRH have any restrictions for this loan?

Unlike FHA, Rural Development does not have any controlling regulation regarding seller seasoning or property flipping. This isn't a green light to dump unseasoned properties into the GRH program and underwriters are going to be very cautious. At a minimum, the appraiser will have to address all of the repairs made and document the costs. Perhaps the file will be conditioned for a review appraisal.

Max Acreage

Is there a max acre? I have one on 38 acres.

There is no maximum acreage limitation on a GRH loan, but 38 acres will be a tough property to approve, for two reasons.

First, the usual reason, getting the comps won't be easy. GRH doesn't offer a silver bullet on appraisals as underwriters use the same collateral valuation techniques on a GRH loan as they do on a conventional loan: sales within 6 months, coming from the same market area, on similarly sized lots and similar properties in terms of square footage, room count and age.

The second reason, GRH has a regulation which states that if the land value exceeds 30% of the total appraised value, then the lot cannot be zoned as sub-dividable. In most rural markets, the land can be subdivided. Of course, the land value may not be greater than 30% of the total appraised value, but that brings us back to the first point.

One Credit Score and GUS

The borrower has a 700 credit score, but they have only one bureau reporting a score. Is this acceptable to run through GUS?

Most likely we will get a refer, but I have seen it happen once before that GUS issued an accept on a loan where the borrower had only one credit score. Even in cases of borrowers with no score and no traditional credit, the loan can be run through GUS. You're going to get a refer, but GUS will still determine property and income eligibility and calculate the correct Guarantee Fee.

Borrower's Who Already Own a Home, Unable to Determine Addresses and the Guarantee Fee

What parameters do you usually follow for being out of the local community? Or would that normally mean out of state properties?

Out of state or hundreds of miles away is best. You know it when you see it. I think the standard on conventional loans is 50 miles, so most often underwriters will apply that standard to GRH loans. However, it has to make sense. Too often you will hear the scenario that a borrower wants to move to a rural area, they are keeping their same job, don't mind the longer commute, will telecommute and on and on. It might be outside the local community, but it still has to be a primary residence. Unfortunately, there has been an increasing level of misrepresentation on this issue.

The preference is that the borrower has moved for a new job, already started that job and established residency in the new community. Also, relocations with the same employer are fine.

What are the procedures when we get "an unable to determine address eligibility"?

1. If the property is located in a county which is completely eligible, then we are fine. 2. "Scrub" the address: use N S E W, instead of spelling out the direction, ST instead of Street, or even leave it off altogether. 3. Make sure we have the correct address. Quite often the zip code is wrong. This can be checked at USPS.com. 4. Try to find the address on www.google.maps.com . If the address pulls up there, forward a copy of that map to the local RD office that handles that county. 5. If the address is even too new for Google Maps, we have to get an appraiser to provide a subject area map and description of the market area. Again, forward to the local RD office.

I assume that the 2% guarantee fee can be paid in cash by the borrower rather than financed. Can it be paid by the seller?

Yes, the Guarantee Fee can be paid in cash, split with a part of it being financed and the rest paid in cash. Also, the seller can pay, either all or a part of the Guarantee Fee.

How Low can LTV Go?

Is there a minimum LTV on GRH? Say for example a borrower wants to put down 10%?

Short answer, a 10% down payment would be okay.

Long answer: There is no minimum LTV guideline. However, there is an applicant eligibility requirement which states that GRH borrowers are not able to secure conventional financing with no private mortgage insurance. Conventional financing would mean conventional conforming rates, 30 year fixed rate term.

Water Drink and Water to Swim in

Will USDA allow homes which have to haul water to their homes? I heard that we can get a waiver if the property has an in-ground pool. What qualifies for a waiver?

For hauled water see this post.

Now for water you can swim in: any home with an in-ground pool can get a waiver... if the Rural Housing office obligating the loan asks for it. Also, the maximum loan amount will be limited to the appraised value minus the contributory value of the in-ground pool.

Here is what a lender, requesting a pool waiver, has to do:

1. The borrower is eligible. The property is eligible, except for the pool, and meets HUD adequacy guidelines.
2. The appraisal states in the comment section or an addendum the exact contributory value of the in-ground pool.
3. Subtract the contributory value of the pool from the appraised value.
4. Approve the loan and submit to Rural Housing. Put a cover letter in the file which requests a waiver for the in-ground pool.
5. Wait.
6. Wait
7. Maybe wait a little longer.

Yes, getting the waiver approved can take some time. The Rural Housing specialist who reviews the file has to prepare an internal waiver request which has to go up to the Rural Housing State Director. The state director approves the request. Then, the request is forwarded to the Rural Housing National Office in DC. The National Office approves the waiver request. Then, the approved waiver makes its way back to the state and the conditional commitment is issued.

The loan can now close.

Waiver requests are easy for a patient lender. I don't think it's so easy for Rural Housing. Consider that from the initial Rural Housing Specialist who types up the request, the waiver has to go up the chain passing across up to three more desks, before it is ever sent to DC. It's not so much the chance that someone along the way will say no, as much as it is the bother the request can cause, to anyone along the way.

Keeping your cool in new construction

Is a thermal inspection required on a newly constructed home?

An inspection, no, that would be too easy.  What a GRH lender has to do instead is certify and document that the newly constructed home meets applicable thermal performance standards. 

Here's the easy way: get a copy of the building permit or certificate of occupancy.  Better yet, get both, but for reasons not only related to certifying thermal adequacy. 

The permit or CO implies that a county or municipal building department reviewed the plans and specs of the new home.  In that review, the building department determined that the plans and specs met applicable building standards, which include thermal performance.  What are the applicable thermal performance standards?  They start with MEC 92 and go to IECC 2006.  If you want to get into that, email me.

The hard way must be used for homes constructed in areas without building codes, which unfortunately happens to be a lot of rural areas.

Here's what you do: Get a copy of the plans and specs of the subject property and send them to an architect, engineer or certified plan reviewer.  They are going to want to get paid, and the builder won't want to pay, so break the news to your borrower.

After taking about 5 minutes to review the plans and specs, the architect, engineer or plan reviewer then needs to spend another 5 minutes typing the following on their letterhead:

1.     Subject Property Address
2.     Date of the plans and specifications
3.     Name of party that prepared plans and specifications
4.     Statement that based upon their review, the plans and specifications comply with _______________ construction code.
5.     Statement that based upon their review, the plans and specifications comply with _______________ energy conservation code.
6.     Signature, title, professional certification or license information, stamp or seal.

The hard way isn't hard in what has to be done.  Instead it is hard because no one wants to cooperate.  Some more money has to change hands and it takes a little more time--mostly, due to complaining that what needs to be done can't be done or arguments over who's going to pay for all of this.

Avoid the recapture tax

Is there a recapture fee like on THDA and other state housing or bond agency programs?

No.  Be brave.  No matter what any Realtor tells you, there is no recapture fee owed on a GRH loan, ever.

Recapture tax is another issue, if, if and only if the GRH loan is going to be sold to and serviced by THDA, VHDA, Kentucky Housing or any other state housing agency.

Move that borrower into a new GRH financed house

If a borrower has recently sold a house, can they qualify for GRH? 

Yes. GRH is not limited to first-time homebuyers.  State housing agencies and bond programs (THDA, VHDA, Kentucky Housing) may have a first-time homebuyer requirement, but GRH does not.

As long as the prior property has been sold a week, a day or even an hour before the borrowers' close on their new GRH mortgage, everything should be fine.

Here's the should part: was the previous home financed by an exisitng GRH mortgage?  Then we have some hoops to jump through.  I've only jumped through them once before, but can't remember how I did it .  Then there are the additional shoulds involved anytime an approval is conditioned on a pending sale, which only get more fun and complicated when the conditional approval is for a 100% LTV loan with no minimum borrower contribution, etc.

And if you're ever in the mood, your borrower can actually own an existing home, have no intention to sell it, and still qualify for a GRH loan.  More on that if ever somebody asks.

Late Payment Fee on a GRH loan?

Is the GRH late payment fee the same as FHA?

It could be, but it doesn't have to be.  Most lenders are going to charge the same late fee on GRH loans as they do on FNMA/FHLMC loans: 5%.  Maybe state laws limit the late fee to 4% or 3%. 

Some lenders may charge 4% on GRH, because 4% is what FHA does, but the GRH guidelines allow lenders latitude to charge a maximum late fee that "does not exceed the percentage of the payment due as prescribed by HUD or Fannie Mae or Freddie Mac."

Hauled Water, Cisterns, Wells and Other Ways to Get a Drink

Is hauled water ok for GRH loans?

Short answer, no.  Long answer; it depends on the state. Even then, try to get a certification that a home with a cistern (where you store  the hauled water) meets property adequacy guidelines in HUD Handbook 4150.2.  It doesn't.

Continuing the long answer, try to get comps that also have cisterns, similar construction, square footage, acreage and sold within the last 6 months in the same marketing area.

Do I know of GRH loans that closed on homes with cisterns, and RD and the lender knew about it?  Yes, two loans.  On one, if not both, the cistern was in addition to a functioning well.  The cistern tapped when the water table dropped during the dry season.

Non-Traditional Credit

Can we do a no score on a GRH loan?

Yes.  Theoretically, you could send in a loan with a 0 score and nothing else.  You're not going to find an investor that will go along that easily, though.

Be prepared to build a non-traditional credit history: 3 to 4 sources, one of them being rent and a 12 month  history for each.  You should be okay with direct verifications from the providers.

The most creative I ever got was car insurance, rent-to-own and a bar tab.  The borrower got approved and when I checked mortgage payment history a year later, he was current, never late.

It's a nice story, but I wouldn't try it again, now.  Guidelines around 0 scores will likely tighten up sometime this year.

Properties with Excess Acerage

What about acreage? Is it "house and 10" or "house & 15"? Or does it just need to comp out?

First thing to keep in mind: GRH does not offer a silver mortgage bullet that makes it easier to finance a property with acreage.

In fact, GRH guidelines on excess acreage are more restrictive than FNMA/FHLMC. In practice, the way the excess acreage guidelines are administered by both lender underwriters and USDA-RD Loan Specialists (think of them as similar to a 2nd level MI Underwriter) are even more restrictive.

With that out of the way, what are the GRH guidelines on excess acreage: 1) There is no acreage limitation 2) Instead the ratio of land value to total appraised value is limited to 30%, although exceptions can be made in cases where excess land value is common to the area. 3) The land, and any outbuildings on the property, should not have any income producing potential.

Your appraiser still needs to find comps of similar acreage, with similar housing, within a reasonable time frame and distance. Good luck with that.

Off sheet rate quotes

Can we get lower pricing than what is posted on the daily rate sheet? Can we get higher pricing?

We can try to get lower rate quotes. On most days, we should be able to get rates lower by another .500% to .750%

Higher rates are not available. GRH loans cannot be closed at an interest rate above a specificed maximum rate. The max rate changes daily. It is calculated like this, using today as an example:

FNMA 30 Year Fixed Rate Required Net Yield A/A + 60bps rounded-up to the nearest .250%

5.45101%  + .6000% = 6.05101%  rounded up to the nearest .250% = 6.250%

The maximum rate is determined the day the broker locks-in a GRH loan. Differrent lenders may have a different policy as to on what day the maximum rate for a GRH loan is determined, but we all should be calculating the max rate the same way.

Better Maps than the Eligibility Website

Do we have a resource, other than the website, to get more detailed maps of eligible areas. I must be website cursed today because I can't get it to zoom in on the map either. I wanted to print off something that I could take to the brokers to show them areas they could target?

The RD-TN website has excellent maps.

The RD Eligibility website works great when we have an address of a subject property and when the Eligibility website is working (it wasn't last Thursday). But, other times, we may just want to get a general idea of what areas are and aren't eligible. The RD-TN maps are very detailed. The maps are in PDF, so you can print them or download them. Keeping the maps in their electronic format will allow you to magnify them large enough to read most street names.