USDA Rural Development:  Direct Mortgage

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USDA Direct Loan Process

The USDA Rural Development Direct loan process is totally different form private industry.  You need to understand this process before you make your decision on what loan is best for you.  If you are already in the process this should help to relieve some of the anxiety.

First you need to understand each area office may operate differently. Each state also operates differently.  We will lay out the "USDA" direct loan process on this site but you will need to contact your local office to find out how they may slightly differ.

Before you decide to apply you should review your credit report.  It doesn't matter what state or county you live in.  If your credit  has major issues you should not waste your time applying for this loan.  It is not a bad credit,  low income loan.  Many people don't know what is on their credit report.  You can get a free credit report at "annual credit report (dot) com".

Pre-Qualification Application

Some offices require a complete loan application to apply.   Other offices prefer a short simple pre-qualification  preliminary application.  I highly recommend the Pre-Qualification  route.  You provide the short and simple information.  Nothing on your application is verified but they do look at your in-file credit report.

At this point they can counsel you about what you need to do in the future to qualify.  This is a good thing.  You don't want to apply and be turned down.  They want to help.

If it looks like you will qualify they will send you a complete application to fill out and a request to send in supporting documents

Pre-qualification involves using unverified information to evaluate the likelihood that a
potential applicant would be program eligible. The results of pre-qualification are not binding.
A potential applicant with possible obstacles to program eligibility may submit an application
and a potential applicant who appears program eligible is not guaranteed that a loan will be
made.

Pre-qualification serves as an opportunity to:

  • Explain the program and the application process

  • Determine the likelihood of eligibility based on income and other factors; and

  • Calculate the likely maximum loan amount.

  • Encourage the early completion of homeownership education for maximum benefit.

Describe the Program

During the course of the pre-qualification review, the Agency should provide as much information as possible about how Section 502 program works. Although this information will be repeated during the course of the application and loan approval process, it is important for the potential applicant to begin to understand how the program works and the steps that will be required to obtain a loan.

Gathering Basic Eligibility and Financial Information

Pre-qualification provides an opportunity to consider whether the  applicant
appears to meet the basic eligibility requirements.   

The Loan Originator should counsel the potential applicant about the following requirements and restrictions.

  • Creditworthiness:  The Agency should advise potential applicants about the Agency's credit history standards including the ramifications of delinquency on a federal debt. To aid in this discussion, the Agency may order an in-file credit report if the potential applicant has signed Form RD 3550-1, 

  • Citizen or qualified alien: The Agency can ask potential applicants about their citizenship status and, for qualified aliens, inform them of the documentation that will be required when an application is submitted.

  • Over-income Applicants: Potential applicants with household incomes above the low-income limit should be informed about options available for those with moderate-income (assumed loan, purchase of a REO property, a Guaranteed Rural Housing loan, and other credit).

  • Low Estimated Maximum Loan Amounts:  If the loan amount for which the potential applicant appears to qualify is not sufficient to purchase a modest, decent, safe, and sanitary house in the area, the Loan Originator should counsel the potential applicant about the need for additional resources, such as other sources of subsidized funds, 
    increased household income, reduced household debt, and the possibility of adding additional parties or a co-signer to the note.

  • Unacceptable Credit and/or Lack Repayment Ability:  If a potential applicant's credit appears unacceptable based on an in-file credit report or from information supplied by the potential applicant or it appears the potential applicant lacks repayment ability for a loan, the Agency should counsel the potential applicant. If the pre-qualification was not conducted face-to-face or over the telephone, the Loan Originator should use Handbook Letter 19, Pre-qualification Review, as a way to prompt the opportunity to counsel the potential applicant in ways to correct these problems. The Agency may encourage the potential applicant to seek credit counseling or a homeownership education course.

Full Application Process

If the Agency office you may be working with does not do a Pre-Qualification Preliminary Application the process does change and becomes complicate.  However, even if you go through the Pre-Qual stage you will still have to forge through this process.  It is the next step but simpler if you Pre-Qual first.

An interested party can request that the Agency mail them an application or they can
obtain one in person at any Field Office or through the Agency's e-forms website. Whenever
someone requests an application, the Agency should determine whether they have gone
through the pre-qualification process, and if not, attempt to pre-qualify them, as described above.

The application package should include:

  • An information sheet explaining the application process, time frames, credit check
    procedure, fees, and other applicant responsibilities similar to Attachment 3-D

  • Form RD 410-4, Application for Rural Housing Assistance (Nonfarm Tract), Uniform
    Residential Loan Application (referred to throughout this document as Uniform
    Residential Loan Application);

  • Form RD 3550-1, Authorization to Release Information (copies for each adult
    household member);

  • Any other documents the Field Office uses to help gather and verify information.

Application Review:

Applications must be date stamped when they are received, and reviewed for required
documents as soon as practicable but no later than 3 business days. The date the application is
received should be recorded immediately on the last page of the application.

Required Documents:  An application may be accepted only if:

  • Form RD 410-4, Uniform Residential Loan Application is signed and dated on pages
    5 and 8;
  • All applicable information on Form RD 410-4 has been provided; and
  • A signed Form RD 3550-1, Authorization to Release Information is submitted for
    each adult member of the household.

Missing Required Documents:

Ideally, the Loan Originator will be available at the time the applicant brings the
application to the Field Office, and can review it with the applicant to identify and correct any
missing information. If the review cannot happen in person, the Loan Originator should contact
the applicant by telephone immediately after reviewing the application to obtain any missing
information or to make specific arrangements for the applicant to provide it through a return call,
fax, or mail. 

During the telephone call, the Loan Originator must inform the applicant that their
application cannot be considered for continued processing until all required documents have
been received.  If the missing information is not provided within 30 days, the application must be
withdrawn. If the applicant wishes to provide the missing information at a later time, a new
application must be submitted.

Withdrawing and Rejecting Applications:

An applicant can withdraw an application at any time by writing or calling the
Field Office. The Agency may withdraw the application if the applicant fails to respond
to the Agency's written request for information in a timely fashion. All letters to
applicants requesting information must clearly indicate that the application will be
withdrawn if the appropriate information is not provided within the specified time
frame.

When an applicant is rejected, they must be informed, in writing, of the adverse decision
and their review and appeal rights. The basis for the rejection must be clearly documented.
Applicants who are over-income and must seek credit from other sources should be provided
with information about the GRH program and other area lenders.

Once an application has been withdrawn or rejected, an applicant who wishes to reapply
must complete a new application form, and priority for processing will be based on the new
application date. 

 
 
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