Is there a limit on the cash assets a nonelderly applicant can have and still get a 502 Direct loan? I am working with an applicant who is very low-income but they also have $42,000 in non-retirement cash assets. They understand and are willing to put whatever they need toward a down payment but I just don’t know if there’s a down payment limit and if I should refer them to a conventional lender?

Sincerely, Assets Abound

Dear Assets Abound,

Just because someone can make a down payment, doesn’t automatically mean they can get a conventional loan. And nothing like this exists in the HB or the CFR. In your applicant’s scenario, the handbook actually speaks directly to this in 4.16: “Due to limited repayment ability, all very low-income applicants and any applicants qualifying for payment assistance are presumed to be unable to obtain credit from other sources.”

As you suggest, they will have to use anything that is more than the $15,000 limitation on assets for a down payment (if they were an elderly household it would be a $20,000 limitation). Eligible uses for excess assets or assets the applicant has elected to contribute include making payments to:

• Reduce the principal balance
• Pay architectural, engineering, inspection, or testing fees related to new construction or repairs
• Establish the escrow account for taxes and insurance
• Pay closing costs and related fees

So, in a nutshell after my prolonged answer, the answer is yes, they can still get a loan and no, you don’t have to refer them to a conventional lender. In cases where applicants have assets to contribute, the risk to Rural Development (the government) is actually reduced by that amount so it’s a better deal all the way around!

Sincerely, Sher

Dear Sher is a regular Self Help Builder News feature. If you have a question you would like answered or researched by Sher, please send it to asisco@rcac.org and your question may be featured in a future publication.