source:
  type: guide
  id: usda-hb-3555-6.2
  authority: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.2 —
    Eligible Loan Purposes
  description: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.2
    — Eligible Loan Purposes.
  coverage_tier: operative
obligations:
- id: usda-hb-3555-6.2-full
  canonical_id: usda-hb-3555-6.2-full
  section: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶6.2 — Eligible
    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 ¶6.2
      — Eligible 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: '6.2 ELIGIBLE LOAN PURPOSES Guaranteed loan funds must be used
      to acquire a new or existing dwelling to be used as a permanent residence and
      may be used to pay costs associated with such an acquisition. Properties must
      be residential in use, character, and appearance. Loan funds may be used for
      the following purposes: x Acquiring a site with a new or existing dwelling;
      x Repairs and rehabilitation when associated with the purchase of an existing
      dwelling; x Reasonable and customary expenses associated with purchasing a dwelling;
      and x Refinancing under specific situations. A. Acquiring a Site and Dwelling
      Loan funds may be used to acquire a site with a new or existing dwelling that
      meets the Agency’s site, dwelling, and environmental requirements, or will meet
      the Agency’s requirements once planned rehabilitation or repair work is completed.
      These requirements are addressed in Chapter 12 of this Handbook. B. Repairs
      and Rehabilitation The lender may request the loan note guarantee prior to work
      completion if all HB-1-3555 (03-09-16) SPECIAL PN 6-2 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. requirements as outlined in Chapter 12 of this
      Handbook are met. C. Reasonable and Customary Expenses Associated with the Purchase
      of an Existing Dwelling or New Construction Loan funds may be used for expenses
      associated with purchase of a dwelling if they are reasonable and customary
      for the area. These expenses may include the following items: x Loan Acquisition
      Expenses. These include legal, architectural, and engineering fees, title clearance
      costs, and insurance costs. The up-front guarantee fee and fees for appraisal,
      environmental inspections, surveying, tax monitoring, expenses for homeownership
      education counseling, and other technical services associated with obtaining
      the loan. x Reasonable Lender Fees. Reasonable lender fees, when financed, may
      include an origination fee and other fees and charges. Lender fees and charges
      must meet the points and fees limits published by the Consumer Financial Protection
      Bureau (CFPB) in the Federal Register at 12 CFR 1026.43(e)(3) and cannot exceed
      those charged other applicants by the lender for similar transactions such as
      FHA- insured or VA-guaranteed first mortgage loans. It is the lender’s responsibility
      to ensure CFPB requirements are met. Payment of finder’s fees or placement fees
      for the referral of an applicant to the lender may not be included in the loan
      amount. Discount points to “buydown” or permanently reduce the effective interest
      rate may be financed. Loan discount points and the loan origination fee must
      be itemized separately on the Closing Disclosure. The SFHGLP up-front guarantee
      and annual fee are not included in the lender fees and charges calculation.
      x Closing Costs. Closing costs that are reasonable and customary for the area
      can be financed with loan funds. Closing costs cannot exceed those charged to
      other applicants by the lender for similar transactions such as FHA-insured
      or VA- guaranteed first mortgage loans. If the lender does not participate in
      such programs, the loan closing costs may not exceed those charged other applicants
      by the lender for a similar program that requires conventional mortgage insurance
      or a guarantee. HB-1-3555 (03-09-16) SPECIAL PN 6-3 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 Interested Party Concessions. Seller contributions
      (or other interested parties) are limited to six percent of the sales price
      and must represent an eligible loan purpose in accordance with this paragraph.
      Closing costs and/or prepaid items paid by the lender through premium pricing
      and funds provided by the seller for repairs or to pay the buyer’s real estate
      commission fees are not included in the interested party contribution limitation.
      However, seller concessions for repairs must be held in an escrow account. Refer
      to Chapter 12 for repair escrow guidance. The approved lender is responsible
      to ensure applicable limitations and eligible loan purposes are met. Seller
      contributions cannot be used to pay an applicant’s personal debt or as an inducement
      to purchase by including movable articles of personal property such as furniture,
      cars, boats, electronic equipment, etc. This does not include household appliances
      that are typically part of the purchase transaction. x Single Close to Permanent
      Construction. Lenders have the option to escrow a borrower’s regularly scheduled
      principal, interest, taxes, and insurance (PITI) payment established at loan
      closing to make the loan payments during the construction period. The inclusion
      of all reserve accounts (e.g. contingency and payment) are considered an eligible
      loan purpose. Seller contribution limits do not apply to single close construction
      to permanent loans. x Contract for Deed. Loan funds can be used for the conversion
      of a seller- financed mortgage with an existing dwelling. These contracts are
      also known as a conversion of contract for deed or land contract. The Agency
      considers this a “purchase” transaction. The dwelling must meet the requirements
      for existing dwelling outlined in Chapter 12 of this Handbook. x Design Features
      or Equipment for Physical Disabilities. Special design features or permanently
      installed equipment to accommodate a household member who has a physical disability
      is an eligible loan purpose. The purchase of personal items for such individuals,
      such as wheelchairs, is not an eligible loan purpose. x Connection, Assessment,
      and Installment Fees. Reasonable and customary connection fees, assessments,
      or the pro rata installment costs for utilities such as water, sewer, electricity,
      and gas for which the buyer is liable are eligible costs. HB-1-3555 (03-09-16)
      SPECIAL PN 6-4 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 Taxes
      and Escrow Accounts. A pro rata share of real estate taxes that are due and
      payable on the property at the time of closing and funds for the establishment
      of escrow accounts for real estate taxes, hazard and flood insurance premiums,
      and related costs are eligible costs. x Essential Household Equipment. Loan
      funds can be used to pay for essential household equipment such as wall-to-wall
      carpeting, ovens, ranges, refrigerators, washers, dryers, and heating and cooling
      equipment if the equipment is conveyed with the dwelling and such items are
      normally sold with dwellings in the area. x Energy Efficiency Measures. Loan
      funds can be used for purchase and installation of measures to promote energy
      efficiency, such as insulation, double- paned glass, and solar panels. x Broadband.
      Loan funds may be used to install fixed broadband service to the household if
      the equipment is conveyed with the dwelling. x Site Preparation. Site preparation
      activities, including grading, foundation plantings, seeding or sod installation,
      trees, walks, fences, and driveways are eligible costs. D. Refinance [7 CFR
      3555.101(d)] SFHGLP provides opportunities to refinance an existing loan. Borrowers
      must meet all eligibility requirements outlined in this Handbook, except where
      noted. 1. Construction Financing and Sites without a Dwelling A refinance of
      a debt for a site without a dwelling, interim construction financing to build
      a new dwelling, or associated with the purchase and improvement of an existing
      dwelling prior to the issuance of a loan note guarantee is allowed. The Agency
      considers this a “purchase” transaction. x These types of transactions typically
      utilize two separate loan closings with two separate sets of legal documents.
      x A modification may not be used to update the original note. A new note will
      be signed by the borrowers. HB-1-3555 (03-09-16) SPECIAL PN 6-5 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 The first transaction/closing obtains
      the interim construction financing. The second closing obtains the permanent
      financing when construction or improvements are completed. x The lender is responsible
      to ensure all costs involved in both transactions represent an eligible loan
      purpose in accordance with Section 6.2 of this Chapter. x The construction period
      is limited to no greater than 12-months. The 12- month period must have occurred
      directly prior to permanent financing. x New construction documentation (certified
      plans and specifications, inspections, and warranty) must be obtained. Refer
      to Chapter 12 for documentation requirements. x In the case of a site without
      a dwelling, the debt to be refinanced was incurred for the sole purpose of purchasing
      the site with the intent to build. For combination construction to permanent
      financing, also known as single-close loan transactions, refer to Section 6
      of Chapter 12. 2. Existing Section 502 Direct and Guaranteed Loans Existing
      mortgage loans for existing guaranteed and direct borrowers may be refinanced.
      SFHGLP cannot refinance mortgage debt that is not financed or guaranteed by
      USDA. Three refinance options are available: a. Non-streamlined refinance. x
      A new appraisal is required. x The maximum loan may include the principal and
      interest balance of the existing loan and reasonable and customary closing costs
      up to the new appraised value. The appraised value may only be exceeded by the
      amount of the financed up-front guarantee fee. x Direct loan borrowers can refinance
      or defer the amount of subsidy recapture due. Borrowers choosing to refinance
      subsidy recapture may be eligible for a discount on the amount that is due.
      Borrowers that do not HB-1-3555 (03-09-16) SPECIAL PN 6-6 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 subsidy recapture will be required
      to enter into a second lien securing that amount and are not eligible for a
      discount. x Additional borrowers may be added to the new guaranteed loan. Existing
      borrowers on the current mortgage note may be removed when one of the original
      borrowers remains on the refinanced loan. x The existing loan must have closed
      at least 180 days prior to submission to the Agency and have a mortgage payment
      history which must not reflect a delinquency greater than 30 days within the
      previous 180-day period. x The borrower must meet credit requirements as outlined
      in Chapter 10 of this Handbook. x Lenders may request a debt ratio waiver when
      strong compensating factors in accordance with Chapter 11 are documented. x
      The Guaranteed Underwriting System (GUS) may be utilized to underwrite the non-streamlined
      refinance. b. Streamlined refinance. x A new appraisal is not required to refinance
      an existing guaranteed loan. A direct loan borrower will be required to obtain
      a new appraisal if they have received payment subsidy to determine the amount
      of subsidy recapture due. If subsidy recapture is due, the amount cannot be
      included in the new refinance loan. Subsidy recapture must be paid with other
      funds or subordinated to the new guaranteed loan. If an applicant elects to
      finance the subsidy recapture into the new refinance loan, refer to the non-
      streamlined refinance guidance. x The maximum loan amount may include the principal
      and interest balance of the existing loan and reasonable and customary closing
      costs, including any financed portion of the up-front guarantee fee. x Additional
      borrowers may be added to the new guaranteed loan. Existing borrowers on the
      current mortgage note may be removed, when one of the original borrowers remains
      on the refinance loan. HB-1-3555 (03-09-16) SPECIAL PN 6-7 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 The existing loan must have closed at
      least 180 days prior to submission to the Agency and have a mortgage payment
      history which must not reflect a delinquency greater than 30 days within the
      previous 180-day period. x Lenders may request a debt ratio waiver when strong
      compensating factors are documented in accordance with Chapter 11 of this Handbook.
      x GUS may be utilized to underwrite the streamlined refinance loan. c. Streamlined-assist
      refinance x A new appraisal is not required for existing guaranteed loan borrowers.
      A direct loan borrower will be required to obtain a new appraisal if they have
      received payment subsidy to determine the amount of subsidy recapture due. If
      subsidy recapture is due, the amount cannot be included in the newly refinanced
      loan. Subsidy recapture must be paid with other funds or subordinated to the
      new guaranteed loan. If an applicant elects to finance the subsidy recapture
      into the new refinance loan, refer to the non- streamlined refinance guidance.
      x The maximum loan amount may include the principal and interest balance of
      the existing loan and reasonable and customary closing costs, including any
      financed portion of the up-front guarantee fee. x The borrower must receive
      a tangible benefit to refinance under this option. A tangible benefit is defined
      as a $50 or greater reduction in their principal, interest, and annual fee monthly
      payment compared to the existing principal, interest, and annual fee monthly
      payment. x The borrower is not required to meet the repayment ratio provisions
      as outlined in Chapter 11 of this Handbook. x The existing loan must have closed
      at least 180 days prior to submission to the Agency. x The borrower is not required
      to meet all the credit requirements as outlined in Chapter 10 of this Handbook.
      Prior to submission to the Agency, the existing mortgage payment history must
      not reflect a HB-1-3555 (03-09-16) SPECIAL PN 6-8 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. delinquency greater than 30 days within the previous
      180 days. Lenders may verify mortgage payment history through a verification
      of mortgage obtained directly from the servicing lender or a credit report.
      When a credit report is ordered to determine timely mortgage payments, other
      credit accounts are not to be considered. x Additional borrowers may be added
      to the new guaranteed loan. Existing borrowers on the current mortgage note
      must remain on the refinanced loan; however, deceased borrowers may be removed
      from the loan. x Lenders are required to document their annual income calculations
      on the FNMA 1008/FHLMC 1077, Attachment 9-B, or similar form in order to support
      the household income does not exceed the allowable maximum income limits. x
      GUS is unavailable for this loan type, so it must be manually submitted and
      underwritten. Follow the instructions on the manual file submission process
      job aid for this type of submission, located at https://www.rd.usda.gov/resources/usda-linc-training-resource-library
      in the “Loan Origination” tab “Documents and Resources”, “Manual Submission
      Job Aid”. The following terms and conditions are applicable to non-streamlined,
      streamlined, and streamlined-assist refinance transactions: x Loan terms must
      be fixed for 30 years. x The interest rate of the new loan must be fixed and
      not exceed the interest rate of the loan being refinanced. x The loan security
      must include the same property as the original loan and owned and occupied by
      the applicants as their principal residence. x Properties located in areas since
      determined by the Agency to be non-rural (ineligible) remain eligible for a
      refinance. Lenders may continue to submit loan requests in the Guaranteed Underwriting
      System (GUS) with an ineligible property determination. USDA will correct the
      property determination during loan review and processing. x Property inspections,
      as outlined in Chapter 12 of this Handbook, are not HB-1-3555 (03-09-16) SPECIAL
      PN 6-9 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. required. If the
      lender requires repairs as a condition of loan approval, the expenses related
      to property inspections and repairs may not be financed into the new loan amount.
      x Secondary financing such as leveraged loans, down payment assistance loans,
      or home equity lines of credit cannot be included in a new guarantee refinance
      loan. These types of financing must be subordinated to the new guaranteed loan
      or be paid in full. x Cash out is not permitted. Borrowers may receive reimbursement
      from loan funds at settlement for eligible closing costs paid from the borrower’s
      personal funds for the refinance transaction. Borrowers may also receive a refund
      at settlement that represents prepaid interest or overage from the borrower’s
      escrow account. x Unpaid fees, past-due interest, and late fees/penalties due
      to the servicer cannot be included in the new loan amount. Borrowers who are
      facing repayment hardships should be considered for loss mitigation under Chapter
      18 of this Handbook. x The lender may establish charges and fees for the refinance
      loan, provided they are the same as those as charged to other applicants for
      similar transactions. Lenders and the Agency should make every effort to ensure
      that applicants are not charged excessive fees. x The entire up-front guarantee
      fee may be financed into the new refinance loan. The amount of the up-front
      fee will be published in Exhibit K of RD Instruction 440.1, available in any
      Rural Development office or by selecting “Part 1800: General” on the Rural Development
      Instructions website located at: https://www.rd.usda.gov/resources/directives/instructions.
      x An annual fee will be charged by the Agency for refinance transactions. The
      amount of annual fee will be published in Exhibit K of RD Instruction 440.1,
      available in any Rural Development Office or by selecting “Part 1800: General”
      on the Rural Development Instructions website located at: https://www.rd.usda.gov/resources/directives/instructions.
      HB-1-3555 (03-09-16) SPECIAL PN 6-10 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 Lenders should submit the complete application package in accordance
      with Chapter 15 and Attachment 15-A, Loan Origination Checklist, of this Handbook.
      The lender will follow the same procedures as provided in Chapter 16 of this
      Handbook for closing the loan. The Agency will review loan closings for SFHGLP
      refinance loans using the same procedures for SFHGLP purchase loans prior to
      issuance of the Loan Note Guarantee. E. Supplemental Loans When an existing
      SFHGLP loan is assumed, a supplemental loan can be provided if funds are needed
      for seller equity, closing costs, or essential repairs. Refer to Chapter 17
      of this Handbook for a detailed discussion of transfers and assumptions in the
      SFHGLP.'
  judgment: false
