Wholesale ALERT – USDA Guideline Updates

Arc Home will align with the guidance provided by USDA in Updates to HB-1-3555, Chapter 9 (01/09/2023) and Updates to HB-1-3555 and Form RD 3555-21, Request for SFH Loan Guarantee (12/05/2022) as noted below. The full USDA Single Family Home Guaranteed Loan Program Handbook (HB-1-3555) is available HERE on the USDA website.

Annual Income (Chapter 9)

The Self-Employed Income Documentation topic was revised to indicate that the “Business Owner” and “Self-Employed” options should NOT be selected in GUS if the borrower’s ownership interest is less than 25%.

Assets and Reserves (Chapter 9, Attachment 9-A)

Guidelines were clarified to specify that individual (non-recurring) deposits greater than $1,000 that are not attributed to wages or earnings must be investigated to confirm the deposits are not from undisclosed income sources.

Income Analysis (Chapter 9, Attachment 9-A)

·         Updated the Automobile Allowance and Expense Allowance guidelines to allow the full expense allowance to be included as repayment income. Additionally, the guidelines were revised to require a minimum two-year history of automobile allowance receipt.

·         Clarified that Boarder Income is defined as rental income received from an individual renting space inside the dwelling, which makes the subject property income-producing and ineligible for financing.

·         Revised the Bonus and Overtime income topics to clarify that the one-year history must be in the same or similar line of work.

·         Updated the Mileage guidance to specify that mileage documented on earning statements as taxable income may be included in the repayment income and simplified the requirements for considering mileage deductions that are claimed on income tax returns.

·         Modified the Secondary Employment guidelines to clarify that the borrower must have a minimum one-year history of working both primary and secondary jobs concurrently to consider the secondary employment for repayment income.

·         Section 8 Housing Vouchers may be considered as a reduction of the PITI when the benefit is paid directly to the servicer, rather than solely as an addition to repayment income. A manual file submission is required in this instance.

·         The Unreimbursed Employee or Business Expenses guidelines were updated to indicate that the total amount of unreimbursed expenses may be deducted from annual and adjusted annual income when determining household income for eligibility, and a two-year history of receipt is required to consider unreimbursed employee or business expenses in the repayment income. Additionally, the guidelines were updated to outline the documentation source options for these expenses.

·         The Guardianship/Conservatorship Income and Individual Retirement Account (IRA) Distributions topics were revised to indicate that amounts received in the ensuing 12 months must be included in the annual income when determining household income for eligibility. A history of receipt is not required to consider these sources in the repayment income; however, loan documentation must support the amount of the monthly income and that the borrower is currently receiving the income. Additionally, the guidelines were updated to outline the documentation source options for these income sources.

·         The Variable Income guidelines were updated to indicate that amounts received in the ensuing 12 months must be included in the annual income when determining household income for eligibility. A minimum one-year history in the same or similar line of work is required to consider the income in the repayment income; significant variances (increase or decrease) of 20% or more from the prior 12 months must be analyzed and documented before considering the income stable and dependable for qualifying. Additionally, the guidelines were updated to outline the documentation source options for the variable income.

Credit Analysis (Chapter 10, Attachment 10-A)

Revised to clarify that when a lender is aware of any potential derogatory or contradictory information that is erroneous or not part of the data submitted to GUS, the loan must be manually downgraded.

Property and Appraisal Requirements (Chapter 12)

·         Clarified the Accessory Dwelling Units (ADUs) analysis guidance to specify that the appraiser evaluation of a property with an accessory dwelling unit must consider all property characteristics, status of utilities, and the property’s highest and best use. The appraiser’s evaluation of these features should be included in the site analysis and highest and best use sections of the appraisal report, as applicable. Additionally, the topic was updated to indicate that an ADU would not be separately metered for utilities or have a separate address.

·         Updated the acceptable timeframe for appraisals from 150 to 180 days. Appraisals may now be accepted when completed within 180 days of loan closing; an appraisal update that meets the requirements of the chapter may be eligible for appraisals > 180 days prior to loan closing.