source:
  type: guide
  id: usda-hb-3555-6.3
  authority: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.3 —
    Prohibited Loan Purposes
  description: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.3
    — Prohibited Loan Purposes.
  coverage_tier: operative
obligations:
- id: usda-hb-3555-6.3-full
  canonical_id: usda-hb-3555-6.3-full
  section: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.3 — Prohibited
    Loan Purposes
  type: do
  tags:
  - regulator-direct
  - usda
  - usda-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.3
      — Prohibited Loan Purposes
    source_class: usda-handbook
    source_url: https://www.rd.usda.gov/sites/default/files/hb-1-3555_consolidated.pdf
    snapshot_id: 0466acd1ea2d17a4
    fetched_at: '2026-05-25T14:10:13Z'
    content_hash: sha256:22ac6f998ff72578e318fca138ebe80fb18ae2fc701eb5936172f1842679a13a
    paragraph_quote: '6.3 PROHIBITED LOAN PURPOSES SFHGLP loan funds cannot be used
      for any of the following purposes: x Cash Back to Borrower. Borrowers may be
      reimbursed out of loan funds for eligible loan costs incurred prior to closing.
      Excess loan funds that cannot be applied towards eligible closings as outlined
      in paragraph 6.2, or that do not represent a reimbursement to the borrower for
      eligible pre-paid fees from their out-of-pocket expenses, must be applied as
      a principal reduction. x Select Loan Discount Points. Loan discount points such
      as to compensate for a low credit score or low loan amount are ineligible. x
      Income Producing Property. Purchase or improvement of income-producing land
      or buildings that will be used principally/specifically for income producing
      purposes is not allowed. Vacant land or properties used primarily for agricultural,
      farming, or commercial enterprise are ineligible. A minimal income-producing
      activity, such as maintaining a garden that generates a small amount of additional
      income, does not violate this requirement. A qualified property must be predominantly
      residential in use, character, and appearance. Refer to Chapter 12 of this Handbook
      for additional information on qualifying a property. x Lease Payments. Payment
      on any lease agreement associated with the proposed real estate transaction
      is prohibited. HB-1-3555 (03-09-16) SPECIAL PN 6-11 Revised (05-05-25) PN 640
      Guidance documents lack the force and effect of law, unless expressly authorized
      by statute or incorporated into a contract. USDA may not cite, use, or rely
      on any guidance that is not available through their guidance portal, except
      to establish historical facts. x Closing Costs in Excess of Three Percent. Closing
      costs, including lender fees, that exceed three percent of the total loan amount
      are prohibited, unless flexibility is provided through guidance published by
      the CFPB’s Ability to Repay and Qualified Mortgage (ATR/QM) standards.'
  judgment: false
