Specific Requirements of FHA and USDA

For FHA loans, closing costs cannot be rolled into the mortgage balance; however, the 5% Chenoa Fund assistance option often provides enough funds to cover the 3.5% down payment plus some closing costs. For USDA loans, there is a unique flexibility: if the appraised value of the home exceeds the purchase price, borrowers may roll the closing costs and prepaid items into the loan amount, up to the appraised value. For example, if a home is purchased for $250,000 but appraises for $255,000, the borrower can finance the $5,000 difference to pay for closing costs, effectively reducing their out-of-pocket expense.

Both the FHA and USDA programs under the Chenoa Fund are strictly for owner-occupied primary residences. Investment properties, vacation homes, and second homes are not eligible. For FHA loans, at least one borrower must occupy the property within 60 days of closing and continue to occupy it for at least one year. For USDA loans, the applicant is similarly required to occupy the property as their primary residence. While non-occupant co-borrowers are permitted for FHA loans (typically restricted to family members), the primary borrower must still live in the home. Occupancy is verified through loan documents and intent-to-proceed declarations.

Manufactured homes are eligible for the Chenoa Fund FHA-paired program but are subject to strict overlays. The home must be a multi-wide unit (double-wide or larger); single-wide units are ineligible. It must be permanently affixed to the land, built on or after June 15, 1976, and bear the HUD Certification Label. A structural engineering report is mandatory. For the USDA program administered by CBC Mortgage Agency, manufactured housing is generally subject to the specific guidelines within the USDA Technical Handbook, but lenders must ensure the property meets all agency-specific foundation and titling requirements, including the surrender of the vehicle title to classify the home as real property.

The FHA first mortgage paired with Chenoa Fund assistance must adhere to specific loan terms to be eligible for purchase. The loan must be a fixed-rate mortgage with a term of either 30 years or 25 years. Adjustable-rate mortgages (ARMs) and interest-only loans are strictly prohibited. Additionally, the loan must be fully amortizing. These strict parameters ensure the stability of the primary financing. While the first mortgage follows standard FHA 203(b) guidelines, these overlay requirements regarding the loan term and type are mandatory for utilizing the down payment assistance program.

Yes, the USDA program includes a specific asset test to ensure the program serves those who truly need government-backed financing. To qualify, an applicant must not meet the definition of “Traditional Conventional Credit.” This means the applicant cannot have sufficient non-retirement liquid assets to make a 20% down payment on the home. If a borrower has enough personal liquid funds to put 20% down and pay for closing costs while still qualifying for a conventional mortgage, they are ineligible for the USDA guarantee. This requirement ensures the zero-down benefit is reserved for low-to-moderate-income borrowers with limited savings.

USDA loans have unique property eligibility requirements compared to FHA loans. First, the property must be located in a designated eligible rural area as defined by the USDA; there are no exceptions to this geographic rule. Second, the property cannot include buildings or land principally used for income-producing purposes. This means properties with commercial greenhouses, livestock facilities, or barns used for commercial farming are ineligible. While a minimal home-based business or a small garden is acceptable, the site generally cannot be used for agricultural or commercial enterprise, and the value of the site must not exceed 30% of the total property value.

As of October 16, 2023, manual underwriting for FHA loans has been suspended by CBC Mortgage Agency. To be eligible for purchase, all FHA loans must receive an “Approve/Eligible” or “Accept” recommendation from an Automated Underwriting System (AUS), such as Desktop Underwriter (DU) or Loan Prospector (LP). Previously, loans with “Refer” findings could be manually underwritten if they met strict compensating factor requirements, but this is no longer an option. Consequently, borrowers must have a credit profile strong enough to secure an automated approval to qualify for the Chenoa Fund FHA program.

The income requirements differ significantly between the two programs. For the standard Chenoa Fund FHA-paired down payment assistance products, there are currently no borrower income limits, nor are there requirements to calculate Area Median Income (AMI) for eligibility. This offers flexibility for higher-income borrowers lacking liquid savings. In contrast, the USDA program enforces strict income caps. To qualify for the USDA loan, the applicant’s adjusted annual household income generally cannot exceed 115% of the Area Median Income. Furthermore, USDA income calculations must include the income of all adult household members, not just the borrowers on the loan.

Yes, “High Balance” FHA loans—those that exceed standard conforming loan limits but remain within the ceiling for high-cost areas—are eligible, but specific restrictions apply based on the type of assistance chosen. You may utilize High Balance loans if you select the Repayable Second Mortgage at either the 3.5% or 5% assistance level. However, if you prefer the Forgivable Second Mortgage option, it is only permitted for High Balance loans receiving 3.5% assistance. The 5% Forgivable down payment assistance option is strictly prohibited for High Balance FHA loan transactions under current program guidelines.

No, you cannot combine Chenoa Fund down payment assistance (secondary financing) with a USDA loan. While CBC Mortgage Agency offers a USDA Rural Development 30-year loan program, it functions as a standalone first mortgage product. The USDA loan program is inherently designed as a zero-down payment option, allowing eligible borrowers to finance 100% of the home’s value without needing additional assistance for a down payment. Consequently, the 3.5% or 5% second mortgage assistance products provided by the Chenoa Fund are exclusively paired with FHA-insured mortgages and are not available for use with the USDA loan offering.