Mountain West Financial USDA Rural Development’s Single Family Housing Guaranteed Loan Program

1. Mountain West Financial USDA Rural Development’s Single Family Housing Guaranteed Loan Program

2. Getting Connected If you’re having audio difficulties e-mail: webinars@mwfinc.com

3. USDA LOANS

4. USDA LOANS The mission of USDA Rural Development’s Single Family Housing Guaranteed Loan Program is to assist low to moderate income homebuyers in rural areas to achieve their dream of homeownership!

5. SERVING RURAL AREAS A rural community generally has a population of 10,000 or less; however, a community with a population of 35,000 or less can be considered “rural” if located outside a Metropolitan Statistical Area (MSA).

6. Homebuyer Benefits • 100% financing – no down payment • 30-Year Fixed Rate • Flexible credit guides • Thin credit • FICO as low as 620 (see restrictions) • Gift/Grant Funds/MCCs/Seller Concessions are allowed

7. Homebuyer Benefits • Borrowers do not have to be “First- Time Homebuyers” • Up to 6% Seller Concessions allowed • No reserves required • No loan limits or sale price limits

8. Homebuyer Benefits Loans may include funds for closing costs, the guarantee fee, legal fees, title services, cost of establishing an escrow account and other prepaid items, if the appraised value is higher than the sales price

9. Loan Purposes • Purchase (New and Existing) • Non-Streamlined Refinance (Rate and Term with an Appraisal) • Streamline Refinance Without an Appraisal (Mountain West Financial must be the original lender on the loan being refinanced)

10. Other Criteria • Primary residence only • Borrowers may own other property at the time of the subject closing with restrictions • Borrowers must lack sufficient assets for a 20% conventional down payment

11. Eligible Borrowers • U.S. Citizens • Permanent and Non-Permanent Resident Aliens • Must have valid Social Security numbers • Legal capacity • Borrowers who are of age to enter into a binding contract prior to the execution of the Note and Security Instrument • Vesting in the name of a trust, partnership, or corporation is not permitted

12. Ineligible Borrowers • Borrowers without a valid, legitimate Social Security number • Foreign Nationals • Borrowers with diplomatic immunity • Corporations, estates, life estates, limited or general partnerships, not-for-profit organizations, schools, churches, etc… • Non-occupant co-borrowers • Co-signers

13. Prohibited Purposes • Construction Draws • Furniture & Personal Property • Manufactured homes older than 12 months old, and previously occupied. • Income Producing Property • No Duplexes • No Second Homes • No Non-Essential Buildings & Landfor Income Producing Purposes

14. Standard Qualifying Score & Ratios • 639 and below require a “credit exception” w/ supporting documentation confirming circumstances leading to derogatory credit attributing to the low score. • Minimum of two scores required

15. Repayment Ability May exceed ratio limits with documentedcompensating factors such as: • Zero to little payment shock • Excellent Credit scores • 2+ years on the job • Cash reserves • And more…

16. Credit Verification • Verification • Residential Mortgage Credit Report (RMCR) • Tri-Merged Credit Report • Credit Alert Interactive Voice Response System (CAIVRS) • Rent History – 12 months rating required to shore-up “thin credit”

17. Credit History • The following are indications of unacceptable credit history and must be investigated: • More than one housing payment is more than 30 days late in last 12 months • Judgment in past 12 months • Outstanding tax liens, regardless their age, currently delinquent • Two or more rent payments paid 30 days or more past due • Previous RHS debt resulted in loss • Any outstanding judgment obtained by United States in federal court (other than tax lien) • Regardless of AUS decision, minimum underwriting score requirements for all Rural Housing loans is 620

18. Credit Guidelines • Age of credit report: 120 days or less • Two or more eligible trade lines are necessary to validate an applicant’s credit report score • Eligible trade lines consist of credit accounts (revolving, installment etc.) with at least 12 months of repayment history reported on the credit report • All installment debt with more than six months remaining shall be included in the qualifying ratios • Student loans shall be included in the qualifying ratios regardless of the remaining term (< of 1% or actual payment)

19. Credit Guidelines NON-PURCHASING SPOUSE: When the applicant resides in a community property state, a credit report must be obtained for the non-purchasing spouse and debts of the non-purchasing spouse must be included in the applicant’s qualifying ratios

20. Credit Guidelines Adverse Credit: • Foreclosure, Short Sale, and Deed in Lieu of Foreclosure - Not allowed within previous 36 months • Chapter 7 – Not allowed within previous 36 months • Chapter 13 – • Borrowers who have yet to complete repayment (repayment plan in progress) or have completed payment in the most recent 12 months will be considered as a manual underwrite. If currently in Chapter 13, approval from bankruptcy court is required. • Plans that are completed for 12 months or greater do not require a credit exception

21. Credit Guidelines Collection Accounts: Determine if the total outstanding balance of all collections accounts of all applicants is equal to or greater than $2,000 Collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance of all collections Remove all medical collections and all types of charge off accounts from the total balance. Medical collections and charge off accounts must be clearly identifiable on the credit report

22. Collection Accounts, cont. • If the remaining outstanding balance of collection accounts are equal to or greater than $2,000, any of the following actions will apply: a. Payment in full of all collection accounts at or prior to closing b. Payment arrangements are made with each creditor for each collection account remaining outstanding • A letter from the creditor or evidence on the credit report is required to validate the payment arrangements • The agreed upon monthly payment for each outstanding collection account will be included in the borrower’s debt-to-income ratio • In the absence of a payment arrangement, the lender will utilize 5% of the outstanding balance in the debt to income ratio

23. Thin Credit Mountain West Financial, Inc. will consider closing loans involving borrowers with thin credit provided acceptable supplemental credit references are provided similar to FHA guidelines. Consult our full Underwriting Manual for acceptable alternative credit tradelines and procedures.

24. Household and Qualifying Income Income

25. Household Income Household income includes all income from all household occupants whether borrowing,  signing or otherwise Household income includes: All adults (anyone 18 or older) • Non-purchasing spouse must disclose if they have income • Obtain letter from non-purchasing party indicating not gainfully employed and no additional income sources Exception: • Household member is a full time student • Use lesser of actual income or $480/month for calculating household income.

26. Qualifying Income Qualifying Income (1008/1003) includes only the income of the Note signers (borrowers) Important note: Qualifying income may be different than adjusted household income used by USDA

27. Adjusted Household Income Borrowers’ adjusted household income cannot exceed the maximum allowable income limit set forth in Rural Development Instruction 1980-D §1980.348, Exhibit C (use moderate-income limits) Moderate income is defined as the greatest of: • 115% of U.S. median family income • 115% of average of state-wide and state non-metro median family incomes • 143.75% of area low-income limit

28. Income • An income calculator is available on the Rural Development website at: http://eligibility.sc.egov.usda.gov • From the homepage, click “Single Family” under “Income Eligibility”

29. Income Limit Qualifying Deductions Adjustments to reduce annual income: • $480 per minor or full-time student • Actual cost of child care expense for children 12 years or under (obtain letter from child care provider along with documentation supporting child care expense) • $400 where borrower or co-borrower is elderly or disabled • Medical expenses for an elderly family member can be deducted if they exceed 3% of gross annual income

30. Non-Taxable Income • Non taxable income maybe grossed-up by 25% • The grossed-up income used for qualifying must be the same income used to determine that the borrowers’ income eligibility is within the established income limits

31. Miscellaneous Income Part-time or Second Job employment • Must have history of 24 months Seasonal Employment • Must have history of 24 months Alimony and Child Support • Must continue for 3 years and have no less than a 12-month history Overtime, Commission, Self-Employment, & Bonus Income • Must have a history of 24 months Salary Increases • Within 60 days of the first payment date are acceptable

32. Assets Verification of Funds: • Verification of Deposit (VOD) with average two months balance, OR • Two consecutive months bank statements dated within 45 days of initial loan application date

33. Assets Gift Funds: • Document through an executed Gift Donor Letter and establish the gift does not have to be repaid • PROOF of transfer from the donor to the applicant or escrow • All gift funds, including grants, must be from an eligible source (i.e., a relative, domestic partner, fiancé, church, municipality, or non-profit)

34. Assets Retirement Accounts: • Obtain the most recent statement(s) and conditions under which funds may be withdrawn or borrowed • Retirement funds may be utilized as cash reserves and/or a compensating factor if the account allows for withdrawals by the applicant • Retirement accounts that restrict withdrawals, only in connection with the applicant’s employment separation, retirement, or death, will not be considered as cash reserves or a compensating factor • Calculate 60% of vested balance to allow for penalties

35. Assets Down Payment Assistance Programs (DPA) • CALHFA and other locally sponsored “Silent Second” Programs • Sapphire Grant Program • MCC The more restrictive of each additional program will apply.

36. GUSGuaranteed Underwriting System • The purpose of GUS, like all automated underwriting systems, is to provide consistent and efficient loan file reviews and underwriting recommendations • GUS will consider waivers of the basic standards, based on the applicant's strengths, and provide approvals for applications that require certain waivers • The GUS underwriting recommendations allow the Loan Officer and the Underwriter to quickly review and verify loan data to arrive at responsible lending decisions

37. GUS UW Recommendations • Accept / Eligible • Loan is eligible for RD loan guarantee • Accept / Ineligible • Credit risk acceptable. Must be referred to an Underwriter to verify if eligible for RD loan guarantee • Refer or Refer with Caution • To be referred to Underwriting for potential manual underwrite

38. Guarantee Fee

39. Guarantee Fee Effective October 1, 2016 Rural Housing Guarantee Fee will decrease

40. How to Calculate the 2.75% Upfront Guarantee Fee and Loan Amount • Loan value = lesser of appraised value or sales price (if appraised value exceeds sales price , closing costs can be financed up to amount of appraised value) • Loan Value / 0.9725 = Total Loan Amount • Calyx Point and most Loan Origination Systems already have the formula defaulted

41. How to Calculate the 2.75% Upfront Guarantee Fee and Loan Amount Example: Sales Price and Appraised Value are $200,000 $200,000 divided by .9725 = $205,655.53 Less base loan - $200,000.00 = Guarantee Fee $ 5655.53 (entire Guarantee Fee including cents is remitted to USDA)  Base Loan Amount $200,000.00 Guarantee Fee + 5655.00(leave off cents) = Total Loan Amount $205,655.00

42. Guaranty Fee Calculator The annual fee calculator is now online, and located at Lender Interactive Network Connection at the following link: https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do

43. How to Calculate the 2.75% Upfront Guarantee Fee When Financing Closing Costs Example: Purchase Price $250,000 Appraised Value $258,000 Borrower wants to finance $8,000 of closing costs into the loan since the appraised value is higher than the purchase price. In addition, they will finance USDA’s Guarantee Fee Loan Amount $258,000/.9725 = Total Loan Amount $265,295.63 $265,295.63 minus $258,000 (sales price + c/c) = $7,295.63 Guarantee Fee

44. Swimming Pools Properties w/ in-ground swimming poolsarepermitted

45. Qualifying Form Use Conventional form 1008 “Uniform underwriting and Transmittal Summary” for USDA loans

47. Escrow Requirements Escrow Impound Waivers are not permitted

48. Property Eligibility • Must be in rural area • http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do • Input the subject address • Eligibility Finder will indicate if the home is eligible for USDA

50. Properties • Existing homes must be structurally sound, functionally adequate, and in good repair • There are no restrictions to the size or design of the home financed