Once a USDA loan closes, the lender must request the Loan Note Guarantee. This is the guarantee to the lender that the loan will get paid in the event that the borrower defaults on it. The request for this guarantee must occur within 30 days of the loan closing and must be accompanied with a marketable title and proper closing documents. The loan itself must be the same loan that the department approved for funding, including the loan amount and interest rate that was originally approved. All applicants must have signed the appropriate documents, including the security instruments.
Typically, under no uncertain circumstances should the loan amount of interest rate change for a loan that has already been approved by the RD. The only exception to the rule is if the loan amount decreased or the interest rate went down, in which case the loan file would be positively impacted. If the loan amount had to increase at the last minute or there was a change in the interest rate, the RD must be notified immediately. The same is true if anything changed regarding the applicant (job, income) or the property. The RD will then respond in writing whether or not the new conditions meet to their approval and whether or not the authority to close on the loan still exists.
Closing the Loan
Once the loan is closed, the lender has a few responsibilities to take care of in order to obtain the guarantee. First, the lender must show that the loan closed according to the USDA guidelines. Once the proof is obtained, the lender must provide the RD with the upfront guarantee fee. The proof the agency needs in order to issue the guarantee includes:
- The final HUD-1 Statement from the closing
- The final Note signed by all parties
- Forms RD 1980-19 and 3555-18
- Check for the guarantee funds made out to the RD
- Address where the guarantee is to be sent
The method that the RD prefers that lenders use is the electronic method of submitting for guarantee. If you request the guarantee via the internet, the lender does not have to use the fully documented process from above. The required forms can be submitted electronically and the guarantee funds can be submitted via pay.gov.
Before the guarantee will be provided, the RD will need to determine that all appropriate documents are submitted and that the loan closed according to the terms that they approved.
The ability of the lender to obtain a guarantee from the RD is what allows them to provide loans to borrowers with low or very low income and possible other risky factors, such as a lower than normal credit score or high debt ratio. The USDA loan has a variety of very flexible guidelines, making it easy for people in certain low-income or high minority areas to secure a loan to purchase a home. If you are a low-income family, do not assume you cannot purchase a home. The USDA makes it possible to be a homeowner with good financing terms as long as you purchase a home in a designated rural area. The USDA provides these loans in order to build up areas that might not be as economically stimulated if there was no financing available for families with low income. As long as you can prove that you make good on your debt obligations and that your income will cover the housing obligation, you might be eligible for this great form of financing for a home purchase or refinance.