USDA announced significant changes effective for Conditional Commitment requests beginning 12/15/2018. Therefore, loan packages submitted beginning 12/15/2018 must meet these new requirements. We have called out the most significant and major changes here; however, the attached documents will provide the full update of changes.
Income Adjustments & Calculations
- Job gap: Borrower must now be back to work 12 full months. The income ending is the determining factor in the job gap.
- 2. All income calculations are required to be documented on the Income Calculation Worksheet, which is part of a complete Form RD 3555‐
- Changes “paystubs that cover 30 days of earnings” to “4 weeks of earnings” for clarification.
The Requirement was suspended on December 22, 2017; however, will be reinstated effective December 15, 2018. Reinstates the requirement for 4506-Ts and tax transcripts as follows:
- Lenders must require each adult household member as applicable to complete and sign IRS Form 4506-T for the previous two years at the time of loan application.
- Full-time students age 18 and up that are not the applicant, co-applicant, or spouse of an applicant are not required to sign the 4506-T or have transcripts provided.
- The 4506-T must request full transcripts with all schedules.
- Lenders may request a Conditional Commitment without submitting the transcripts.
- The transcript must be in the Lender loan file prior to loan closing
Living Apart: 3 Month Separation Exclusion
- A significant other, fiancé, domestic partner, or adult parent must document the required 3-month separation in order to exclude their income from the annual income calculation. Evidence to support living apart for three months may include but is not limited to an apartment lease, bills, or bank statement, in their name alone delivered to a different address, etc.
- IRS Publication 501 Guidance will not be used in determining which parent may claim their child as a household member.
The limit for assets to be considered an income source will increase from $5,000 to $50,000.
- If the cumulative total of non‐retirement assets exceeds $50,000, lenders must perform the applicable annual income calculation
- USDA already accepted electronic verifications in the past, but it has now been included in the current handbook.
Balance Sheets Eliminated
- The need for balance sheets for self-employed borrowers has been retired.
- New revisions provide guidance for gift providers. The only people that cannot provide a gift are those that stand to benefit from the sale, such as the lender, builder, real estate agent, or seller.
- Gifts of equity or sweat equity cannot be returned to the applicant as cash at closing. The gift of equity must be expressed as a reduction to the sales price.
Attachments include PIN 518, Chapter 9, attachment 9-A and a USDA training module explaining the changes in greater detail.
If you have any questions I can be reached at 810-223-2122.