A USDA guaranteed purchase appraises at exactly the $250,000 contract price and the borrower has no cash for the upfront fee. May the upfront guarantee fee be financed above the appraised value on an otherwise eligible USDA guaranteed purchase?
Correct Answer
C) The upfront fee may be financed above the $250,000 appraised value
USDA allows the upfront guarantee fee to be added on top of the appraised value, so the loan can exceed 100% by the amount of that fee, which is what makes a true no-cash purchase possible. Other choices: treating 100% as an absolute ceiling would force the fee into cash and defeat the program design; a 97% cap is a conventional figure and is below what USDA already permits; and there is no hardship waiver of the fee tied to how little cash the borrower has. Source: 7 CFR 3555.107, financing the upfront guarantee fee
Why This Is the Correct Answer
USDA allows the upfront guarantee fee to be added on top of the appraised value, so the loan can exceed 100% by the amount of that fee, which is what makes a true no-cash purchase possible. Other choices: treating 100% as an absolute ceiling would force the fee into cash and defeat the program design; a 97% cap is a conventional figure and is below what USDA already permits; and there is no hardship waiver of the fee tied to how little cash the borrower has. Source: 7 CFR 3555.107, financing the upfront guarantee fee
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