source:
  type: guide
  id: usda-hb-3555-6.4
  authority: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.4 —
    Agency Review Of Loan Purposes
  description: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.4
    — Agency Review Of Loan Purposes.
  coverage_tier: operative
obligations:
- id: usda-hb-3555-6.4-full
  canonical_id: usda-hb-3555-6.4-full
  section: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.4 — Agency
    Review Of 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 ¶6.4
      — Agency Review Of 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: '6.4 AGENCY REVIEW OF LOAN PURPOSES The Agency will determine
      if the purposes for the loan guarantee are acceptable before issuing a Conditional
      Commitment for loan guarantee. If the Agency determines loan funds will be used
      for an ineligible purpose, the Agency will contact the lender and attempt to
      resolve the situation prior to issuance of the Loan Note Guarantee. Loan purposes
      will also be reviewed during the Agency’s Quality Assurance (QA) internal monitoring
      process and Lender Oversight (LO) compliance reviews to ensure that the lender
      has an accurate understanding of eligible and prohibited loan purposes. Refer
      to chapter 19 of this Handbook for a detailed discussion of how the Agency handles
      loss claims for loan funds that were used for an ineligible purpose. HB-1-3555
      (03-09-16) SPECIAL PN 6-12 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.
      REFINANCE OPTIONS FOR SECTION 502 DIRECT AND GUARANTEED LOANS (Attachment 6-A)
      REQUIREMENT NON-STREAMLINED STREAMLINED STREAMLINED-ASSIST New Appraisal Yes
      Only for Direct 502 with recapture subsidy due Only for Direct 502 with recapture
      subsidy due Maximum Loan Amount Up to the new appraised value plus the amount
      of the financed up-front guarantee fee and include: x Principal & interest balance
      x Eligible closing costs x Subsidy recapture May include: x Principal & interest
      balance x Eligible closing costs x Up-front guarantee fee May include: x Principal
      & interest balance x Eligible closing costs x Up-front guarantee fee Net Tangible
      Benefit No No Yes $50 or greater reduction of the total principal, interest
      and monthly annual fee payment Include Subsidy Recapture Yes Up to the new appraised
      value No No Add/Remove Borrowers (one original borrower must remain) Yes Yes
      x Add borrowers x Remove only deceased borrowers Credit x No defaults in the
      previous 180 days prior to Agency request x Meet Chapter 10 requirements x No
      defaults in the previous 180 days prior to Agency request x Meet Chapter 10
      requirements x No defaults in the previous 180 days prior to Agency request
      Ratio waivers x GUS Refers only x Must meet Chapter 11 requirements x GUS Refers
      only x Must meet Chapter 11 requirements No ratio calculations required Final
      Submission in GUS Yes Yes No Soft seconds and/or subsidy recapture may be subordinated
      Yes Yes Yes REQUIREMENTS FOR ALL REFINANCE OPTIONS x Only loans financed or
      guaranteed by USDA are eligible. x Existing loan must have closed at least 180
      days prior to submission to the Agency. x Fixed interest rate at or below the
      current interest rate of the loan being refinanced. x Borrower must meet applicable
      adjusted annual household income. x No cash out from collateral equity. Only
      reimbursement of borrower prepaid eligible closing costs and/or refund from
      escrow overage. x Borrowers must occupy the property. x Properties located in
      areas now deemed ineligible remain eligible for refinance. x Existing leveraged
      loans or subordinate liens must be paid in full or be subordinated. HB-1-3555
      (03-09-16) SPECIAL PN 6-13 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.
      Attachment 6-A Guidance for Refinancing Section 502 Direct Loans The Section
      502 Direct Loan Program provides loans to low and very-low income borrowers
      that may include payment assistance, or payment subsidy that reduces the mortgage
      payments determined by the borrower’s adjusted household income. Subsidy Recapture
      Arrangements must be made to either pay off or defer repayment of any subsidy
      recapture due when a Section 502 loan is refinanced. Any recapture amount owed
      as part of the 502 direct loan pay off may be included into the amount being
      financed with the SFHGLP non-streamline refinance loan subject to the maximum
      loan amount. A discount on recapture may be offered if the customer does not
      defer recapture (pays amount due in full) or includes the recapture amount due
      into a non-streamlined refinance loan. Alternatively, any 502 direct recapture
      amount that is owed at the time of refinance may be deferred if the recapture
      amount takes a subordinate lien position to the new SFHGLP loan. Obtaining a
      “Statement of Loan Balance” Letter for Direct Loan Borrowers Lenders may determine
      an applicant has a direct loan when the credit report reflects “USDA” or “Farmers
      Home Administration” as the mortgage creditor or the applicant informs the lender
      they applied and received their mortgage loan through a USDA Service Center.
      Direct loans are serviced by the Servicing and Asset Management Office (Servicing
      Office). Obtaining a “Statement of Loan Balances” letter will assist lenders
      to determine if subsidy recapture is due. The “Statement of Loan Balances” will
      also include instructions for the lender to follow regardless of information
      submitted at the time of payoff request. To obtain a “Statement of Loan Balance”,
      submit a request on lender letterhead which includes the borrower’s name, account
      number and address along with a signed authorization from the customer to release
      the information. The “Statement of Loan Balance” will reflect the maximum amount
      of subsidy recapture that may be due. It is not a payoff statement. Requests
      can be faxed to (314) 457-4433. The Servicing Office will not provide payoff
      quotes verbally or over the phone. The Servicing Office also assists lenders
      with subordination agreements when direct loan borrowers elect to subordinate
      the subsidy recapture due. Lenders and direct loan borrowers that have questions
      regarding a direct loan account may contact the Servicing Office at (800) 414-1226.
      HB-1-3555 (03-09-16) SPECIAL PN 7-1 Revised (10-04-19) PN 529 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. CHAPTER 7: LOAN TERMS AND CONDITIONS 7 CFR 3555.104'
  judgment: false
