Hello, and welcome to the United States Department
of Agriculture (USDA) Rural Development (RD) Applicant Orientation Guide video.
This video will inform you of Agency processes, procedures, requirements, and obligations,
before and after closing of a single family housing direct loan.
At the end of the video, you will be required to sign Form RD 3550-23 and return it to the
RD office processing your request, which will indicate you have viewed this video in its
entirety.
If you need assistance with viewing or completing any part of this guide or video, please contact
the RD office processing your request.
They will be able to help answer any questions should they arise.
Now, go ahead and grab a pen and paper to take notes and/or jot down any questions.
You may press “pause” then “play”, when you are ready to resume.
Now let’s get started with your rights as an applicant.
USDA is an equal opportunity employer, provider and lender.
USDA civil rights regulations and policies prohibit discrimination in Agency programs
for any reason.
The Department’s non-discrimination statement which includes contact information for individuals
requiring alternative communication means, and information on filing a program discrimination
complaint, can be found at the following website:
You also have the right to appeal program administrative actions if you are adversely
affected.
For example, having payment assistance reduced, canceled, or not renewed.
Now that we have reviewed your Equal Opportunity and Appeals rights, let’s discuss Inspections.
Applicants are responsible for property inspections needed to protect their own interests for
existing dwellings.
Third-party inspections help determine if the property meets standards set by RD.
To verify that all major systems are adequate, applicants purchasing an existing home must
engage the services of a State-licensed inspector.
The inspector will perform a whole house inspection and certify that the dwelling meets the Agency’s
standards with respect to: termites and other pests (this may be separate from the whole
house inspection); plumbing, water and sewage; heating and cooling; electrical systems; and
structural soundness.
The inspection report must be a comprehensive document that meets the minimum standards
of the professional home inspector associations.
When a State does not license inspectors, a qualified, independent, third-party inspector
may perform the inspection and provide the necessary certifications.
The Agency will provide you with a document called, Settlement Service Providers, which
can assist you in finding an inspector.
This will briefly be discussed as we continue.
RD does not guarantee the value or condition of a home it finances.
If problems arise with the condition of the home after loan closing, you may contact the
RD office processing your loan request about pursuing a subsequent loan for repairs.
Now we will move to the section entitled “Closing”
At this time, we will discuss down payments.
Applicants who have non-retirement assets above thresholds set by the Agency, are required
to use those assets toward the purchase of a property.
Let’s briefly review what ‘non-retirement assets are.
Non-retirement assets include, but are not limited to:
Cash on hand and funds in savings or checking accounts;
Stocks, bonds, and other forms of capital investments;
Equity in real property or other capital investments; Amounts in trust funds that are available
to the household; Lump-sum receipts, such as inheritances, capital
gains, and lottery winnings; and Personal property held as an investment.
Now we will talk about Settlement Service Providers as mentioned earlier.
A list of settlement service providers will be provided to you.
These “service providers” perform settlement services associated with your loan.
The services that you can shop for will be listed on the Loan Estimate.
You may select any settlement service provider but if you choose to go with a service provider
outside of the list, please notify the Agency to make sure the provider is aware of the
Agency’s loan requirements.
Now let’s move to the paragraph which discusses Title Insurance.
Title insurance is important because it provides protection to the lender and homeowner from
financial loss which may occur if there are defects in the title of your soon-to-be purchased
home.
The applicant generally must secure title insurance, although in rare cases, a title
opinion from an attorney may be used if acceptable to the Agency.
Again, RD provides applicants with a document called Settlement Service Providers, and you
are not required to choose a service provider from this list; you may find a qualified service
provider on your own.
Title insurance is only required when the total indebtedness exceeds an amount specified
by the Agency.
Check with your Loan Originator.
The next paragraph we’ll cover from the Applicant Orientation Guide discusses the
Closing Agent/Attorney.
An attorney or title company may act as a closing agent and close Agency real estate
loans, provide necessary title clearance services, and perform other closing-related duties.
The applicant must choose a closing agent who is acceptable to the Agency.
A closing agent/attorney is required for loans over an amount specified by the Agency, and
your Loan Originator will inform you if a closing agent/attorney is required.
Let’s move on to Closing Cost information.
The applicant, seller, or both are responsible for paying closing costs at loan closing.
Typical costs are outlined in the Orientation Guide you have in front of you, so please
review these carefully.
In addition to these costs, applicants must make an initial deposit to the escrow account.
This in anticipation of property taxes and insurance that will come due in the year after
closing.
Escrow is discussed in more detail a little later.
Borrowers may finance these costs, which can help to reduce the amount of out-of-pocket
money you may have to bring to closing.
The Agency will provide you with a Loan Estimate disclosure within three (3) business days
after receipt of a completed application, which is designed to provide information that
will help you understand the key features/costs of the loan.
Prior to closing, you will also receive a Closing Disclosure, which is designed to provide
firm and final information about the cost of the loan, including a detailed itemization
of the settlement charges.
The next paragraph we’ll be reviewing is titled Document Errors and Omissions.
This paragraph explains that should a situation arise where it is discovered that loan documents
contained errors, or omitted necessary information, the borrower must agree to execute, acknowledge,
initial, and deliver requested documents to the lender or closing agent within ten (10)
days of receipt; or, pay all costs which the lender sustains, including reasonable attorney
fees.
Regular payments must be made on or before the due date and will not be applied until
the full scheduled payment is made.
Failure to make timely payments can result in:
Late charges, Reporting to credit repositories, Offsets of income, Foreclosure.
If for any reason a payment cannot be made on time, you should immediately contact the
CSC.
Notification will not, however, prevent the assessment of a late fee.
This fee is typically four percent of your principal and interest payment, or other amount
authorized by state law.
You will have several options for making your mortgage payment.
You may authorize funds to be automatically withdrawn from your designated bank account,
or access the web portal to make payments online, or call CSC to pay by phone.
You may also mail a check or money order, and send a money gram or Western Union Quick
Collect payment.
Additional information on each payment option is included in a guide that you will receive
from CSC once your loan closes.
Borrowers generally are required to establish escrow accounts.
Section 504 Home Repair loans are typically exempt from this requirement if the total
indebtedness against the property will not exceed the threshold established by the Agency.
The escrow account is maintained by CSC on behalf of the borrower for the payment of
taxes and insurance.
Borrowers with escrow accounts can pay an amount each month, in addition to their principal
and interest payment, which is deposited into the escrow account for the payment of future
taxes and insurance bills.
The Agency will pay taxes and insurance premiums when they are due with funds from the borrower's
escrow account.
Borrowers are responsible for obtaining and continuously maintaining hazard insurance
throughout the term of the loan.
Section 504 Home Repair loans are generally exempt from this requirement if the property’s
total indebtedness is under the threshold established by the Agency.
If a borrower's insurance is canceled, the Agency may purchase insurance for the borrower
and charge the borrower's account for the cost of the insurance.
Flood insurance is also required if the property is determined to be located in a Special Flood
Hazard Area, or SFHA, at the time of loan closing or subsequently during the life of
the loan.
The Loan Originator will notify the borrower using Form RD 3550-6, Notice of Special Flood
Hazards, Flood Insurance Purchase Requirements, and Availability of Federal Disaster Relief
Assistance, if the property is in a SFHA.
If flood insurance cannot be secured, the property is not eligible for Federal financial
assistance.
Section 504 Home Repair loans are generally exempt from this requirement if the loan/grant
is under the threshold established by the Agency.
Borrowers are responsible for maintaining their properties throughout the life of the
loan.
The Agency may advance funds to pay for repairs that are needed to protect the Government's
interests.
Failure to protect the Agency's security is a non-monetary default and could result in
foreclosure.
Energy cost savings can make a big difference in a borrower's ability to make regular loan
payments.
Utility companies and county extension offices may be able to suggest ways to conserve energy.
Credit counseling is available for any borrower who experiences difficulty in meeting their
monthly mortgage payment obligation.
Borrowers may call 1-800-793-8861 to obtain counseling from a representative or, by using
a touch tone phone, to access account information.
If you are experiencing a financial hardship, please contact CSC to discuss servicing options
that may be available to you such as:
Breaking the delinquency into monthly payment amount, or spreading over two years or the
remaining term of the loan.
If an account becomes delinquent, a borrower may agree to pay an extra amount each month,
in addition to the scheduled payment, to bring the account current within two (2) years or
the remaining term of the loan, whichever is shorter.
Borrowers who continue to personally occupy the property may apply for a postponement
of payments for up to two (2) years if they are temporarily unable to continue making
scheduled payments on their loan without unduly impairing their standard of living, due to
a decrease in their income.
If approved, eligibility for a moratorium agreement is reviewed periodically and is
subject to cancellation.
When the borrower is able to resume scheduled payments or when the moratorium agreement
expires, the loan will be re-amortized to include the amount deferred during the moratorium.
All or a part of the interest that accrued during the moratorium may be forgiven if the
borrower does not have repayment ability.
If a loan is re-amortized, the missed payments and other charges are added to the amount
owed and monthly payments are revised and spread over the remaining term of the loan.
Your monthly payment will increase due to the re-amortization.
This is also known as a Loan Modification.
The Government may pay for major defects in construction that are not repaired by the
builder for construction loans initiated by the Agency.
If the contractor does not fulfill his or her obligation, the Agency may seek to debar
the contractor.
Borrowers must file a claim with the RD office processing their request within 18 months
of the date the borrower signs the final inspection.
In this portion of the guide review we will be discussing the topics of subsequent loans,
actions requiring Agency approval, and refinancing with private credit.
A subsequent loan can be made as part of the original purchase of the property or in combination
with a loan assumed from the seller, or it can be made during the term of the loan for
an existing borrower to help pay for repairs or improvements to the property.
A borrower must obtain approval from the Agency before taking actions that may affect the
security value of the property.
Key actions that require approval from the Agency include: subordination of the loan,
mineral leases, partial release of security, lease of security property, and assumptions
of indebtedness.
Agency credit is not intended to replace conventional credit.
When the Agency believes the borrower can obtain private credit at the prevailing rates
and terms in the area, the borrower will be required to apply for, and if approved by
the lender, accept a loan sufficient to pay the balance of the Agency debt in full, with
the exception of deferred recapture.
A periodic review of your ability to qualify for private financing will occur after your
loan has closed.
Unauthorized assistance includes any loan, payment subsidy, or grant for which there
was no authorization or for which the recipient was not eligible.
Account adjustments may be made to correct for the receipt of unauthorized assistance
and any subsidy granted improperly will be repaid by the borrower.
Borrowers who receive unauthorized assistance based on false information provided intentionally
to obtain benefits are at risk of losing their loan, debarment from participation in Federal
benefit programs, and civil and criminal prosecution.
We will be discussing payment subsidies further in the next section of your Applicant Orientation
guide.
Payment subsidy is only available for Section 502 program loans.
Qualifying for payment subsidy, which will largely depend on your income, will help reduce
your monthly loan payment and increase your repayment ability.
Your income will be reviewed annually to confirm continued eligibility and to adjust the subsidy
amount, if necessary.
As the borrower, you must occupy the property, and inform the Agency of any changes in employment
status by any adult members of your household, family status, or when your income increases
by more than ten percent.
Report any changes to your income to CSC.
Please know that payment subsidy is subject to the Agency’s recapture requirement.
Recapture of payment subsidy is calculated at the time of loan pay off.
Under certain conditions, recapture can be deferred when a borrower refinances the Agency
loan with private credit or otherwise pays the loan in full.
Subsidy recapture is due when you cease to live in the property or transfer the title.
If you pay off a loan, you have the option of deferring payment of recapture as long
as the title does not transfer and you continue to occupy the property.
As you just saw, we are now on the Certifications section of your Applicant Orientation Guide.
You need to thoroughly read each certification statement.
Finally, you need to provide the necessary acknowledgement by signing a hardcopy of Form
RD 3550-23, Applicant Orientation Guide, and retuning it to the RD office processing your
loan request.
Congratulations!
You have completed an important step in the home buying process.
Please return this fully executed form to the Loan Originator as soon as possible.