Bay Equity USDA Program Training

Agenda 1. USDA Summary 2. Opportunity 3. Solution 4. Program Benefits 5. Eligible Borrowers 6. Guarantee Fee Calculation 7. FHA vs. GRH 8. 7 Rules of USDA Loans 9. Property Location 10. Income 11. Income 12. Assets 13. Credit 14. Loan Type 15. Property Type 16. Refinance 17. Required Forms 18. Underwriting Process 19. Resources 20. Conclusion

Summary The Rural Housing Service (RHS), an agency of the U.S. Department of Agriculture (USDA), offers loan programs that provide qualified borrowers, who wish to live in rural areas, the ability to finance up to 100% with little or no down payment and favorable rates and terms. – Rural Housing Loans can help: Expand market reach Meet the financing needs of underserved areas Help very-low, low- and moderate-income borrowers obtain affordable financing with little or no out-of-pocket costs

Opportunity There are borrowers who: Are interested in purchasing or refinancing a home in a rural area Have very low-, low- and moderate-incomes Are looking for affordable financing Need flexible credit guidelines Have lower credit scores or non-traditional credit Have limited or no cash for down payment or closing costs Are first-time homebuyers (not a requirement)

Solution Provide qualified borrowers an affordable, stable financing solution for the purchase or refinance of a home in a rural community Low or no down payment and closing cost requirements 30-year fixed-rate mortgages Owner-occupied non-farm single family residences, condominiums and PUDs No monthly mortgage insurance premium Opportunity to finance the Guarantee Fee into the mortgage — allowing up to 102% financing

Program Benefits Financing - 100% financing based on appraised value -Borrowers may be eligible to finance the purchase price plus some or all of the closing and prepaids Discount points cannot be financed -Many property improvements may be financed into the total loan amount and competed after the borrower closes the loan 2.00% up-front Guarantee Fee at closing and 0.40% Annual Renewal Fee -May be financed into loan amount (**Above the Appraised Value**) Low Payments -Competitive rates provide for lower monthly payments as compared to other conventional and government programs Refinance Option - Rate reduction only - no cash back. -Only existing GRH and Section 502 Direct loans are eligible for refinance Mortgage insurance - No monthly mortgage insurance. One-time guarantee fee of 2.00% Payment reserves - No payment reserve requirements Downpayment - No downpayment requirements First-time homebuyer - No First-time homebuyer requirement Unlimited seller contributions and unrestricted gift funds - If greater than 6%, comment from the appraiser required

Eligible Borrowers U.S. citizens and permanent Must have a valid Social Security number or Tax Identification number Very low-, low- and moderate-incomes Must lack sufficient funds for a down payment May not be delinquent on any federal loan May only retain one primary residence Provided it is sold prior to or concurrently with the purchase of the new home, Cannot be structurally sound or functionally adequate, OR Beyond the commute borrowers local commuting area

Guarantee Fee Calculation Transaction TypeGuarantee Fee Not FinancedGuarantee Fee Financed Purchase Transactions Multiply the loan amount by 2.00% and round to the nearest cent. Example: $100,000 x.02 = $2,000 The fee is calculated as follows: 1.Divide the base loan amount by.98 and round to the nearest cent. 2.Multiply that number by.02 (2.00%) and round to the nearest cent. Example: $100,000 ÷.98=$102, (rounded to $102,040.82) Example: $102,040.82x.02= $2, (rounded to $2,040.82) Rate/Term Refinances Multiply the loan amount by.40% Example: $100,000 x.004 = $400 Follow steps 1 and 2 above, substituting.9950 for.98 and.004 for.02 Example: $100,000 ÷.9950 = $100, $100, x.004 = $402.01

FHA vs. GRH Payment Comparison FHAGRH Purchase$200,000 Loan Amount$196,377$204,081 P & I$937.53$ MIP$204.55$67.48 Total$1,142.08$

7 Rules of USDA Housing Loans 1. Property Location 2. Income 3. Assets 4. Credit 5. Loan Type 6. Property Type Refinances

1. Property Location Determine Eligibility at

1. Property Location, cont. Search by city, state, zip or property address Use zoom tool as needed Shading indicates ineligible areas

2. Income Determine eligibility at Must be less than Rural Development County Income Limit for moderate- income families (based on number of members in household) 29/41 repayment ratios (exceptions permitted with compensating factors) – Installment debt with more than 6 months payments remaining must be included in the ratios Full Documentation 24 Month Employment/Income History 24 Month History on Supplemental Income – Part-time, Overtime and Bonus – Non-taxed income may be grossed up (social security, disability, child support) – Raises occurring within 30 days of first payment due date can be included – 3 years continuance on child support, alimony, disability, social security

2. Income, cont. Choose state to view Adjusted Income Limits by county and/or MSA

2. Income, cont. Income AdjustmentsAmount Occupants under 18 years of age or full-time students$480 Children under age 12 / child care$ child care expenses Occupants over age 62$400 Disabled persons$ disability expenses These are deducted from the ANNUAL household income and do not affect DTI

2. Income, cont.

3. Assets No reserves or minimum investment required Borrower’s closing costs (including prepaids) may be contributed by the seller Gifts and/or grants are permitted from eligible sources Cash-on-hand is acceptable All closing costs and prepaids may be borrowed on an unsecured basis when certain underwriting criteria are met

4. Credit Minor 1 x 30 over the previous 12 months No major derogatory over previous 36 months No credit history acceptable with verified 12 month housing payment and 3 documented alternative sources Borrowers with Scores >640 may allow: – No documentation for adverse credit except delinquent federal debt – No documentation for rental history – No action necessary for derogatory items except delinquent federal debt

4. Credit, cont. Indicators of an Unacceptable Credit History (d) More than 1 x 30 in last 12 months or 2 x 30 on Housing in the last 36 months Bankruptcies or foreclosures in the last 36 months Outstanding tax liens or government debts Outstanding judgments or collections opened in last 12 months Unpaid collections without repayment plan Debts written off in last 36 months Mitigating Circumstances Circumstances were temporary Beyond the applicants’ control Circumstances have been removed Examples: – Loss of job – Delay or reduction in government benefits – Increased expenses, illness, or death – Dispute over defective goods or services

5. Loan Type 30 year FIXED rate mortgage only No maximum loan limit Attractive government pricing Primary Residence Only No other real estate owned (Adequate Housing)

6. Property Types Property must be located in an eligible Guaranteed Rural Housing area Owner-occupied non-farm residences 1-unit SFRs GRH eligible condominiums GRH eligible PUDs Land must typically represent 30% or less of appraised value No design restrictions, with the exception of in-ground swimming pools New construction must meet local standards Must be contiguous to and have access to a paved or all-weather surface street, road or driveway Must have dependable water and waste disposal systems Existing properties must meet HUD Handbook requirements Appraisal must be performed by an FHA approved appraiser

6. Eligible Property Types, cont. In-ground Pools No contributory value will be given for the pool The value of the pool will be deducted from the appraised value Example: Appraised Value: $100,000 Pool Value: $5,000 Max Loan Amount: $95, % guarantee fee. Outbuilding No farm service buildings No barns Refer to AN 4590 for guidance

6. Eligible Property Types, cont. Dwelling Inspection Requirements House Complies with HUD Handbook and Pest Inspection Septic Inspection Well Inspection New Construction Certificate of Occupancy Termite Treatment Record 1 year Builder Warranty Thermal Certification New Construction (No C.O) Plan Cert (Form ) Termite Treatment Record 2/10 Builder Warranty Thermal Certification

7. Refinances 3 types of refinances are offered by the USDA – all are income qualifying Non-Streamline Streamline PILOT – Similar to the HARP program. Borrowers rate must be reduced by 1.00%. No appraisal is required. Refinance loans are permitted for: -Existing GRH properties in non-rural areas -Existing GRH properties with an in-ground pool -Property Inspections are not required Refi Existing Rural Development loans Rate reduction / 30 fixed No cash – out Household income must meet current USDA Guaranteed Rural Housing program limits 2.00% guarantee fee may exceed appraised value

Required Forms Standard Fannie Mae / Freddie Mac documents, plus Request for Single Family Housing Loan Guarantee (Form ) Conditional Commitment for Single Family Housing Loan Guarantee (Form ) with completed Lender Certification Guaranteed Loan Closing Report (Form ) Lender Record Change (Form ) Certificate of Completion, if applicable Original Loan Note Guarantee (Form )

Underwriting Process The loan file is run through the USDA AUS engine, GUS (Guaranteed Underwriting System) by the Bay Equity Underwriter. – If the loan receives a Refer or is a Streamline or PILOT refinance, the loan will be manually underwritten The underwriter will issue a conditional approval Conditions will be submitted and reviewed by the underwriter Once all PTD conditions have been approved, the underwriter will submit the loan to Rural Development for loan approval commitment – Rural Development issues conditional commitment in hours for GUS decisions and 4-5 business days for manually underwritten loans

Resources To determine if a property is located in a designated rural area, visit the RHS Web site at: For information on Rural Housing Services, visit the RHS Web site at: For additional training and information, visit the USDA LINC website at:

Conclusion While the USDA Programs are extremely beneficial to the Borrower, it is important to remember these programs have longer turn times and additional steps outside of Bay Equity’s normal procedures due to the submission to an outside agency. Please allow for the additional processing time. Thank you for attending today’s Training