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6.3 PROHIBITED LOAN PURPOSES
SFHGLP loan funds cannot be used for any of the following purposes:
x Cash Back to Borrower. Borrowers may be reimbursed out of loan funds for eligible loan costs incurred prior to closing. Excess loan funds that cannot be applied towards eligible closings as outlined in paragraph 6.2, or that do not represent a reimbursement to the borrower for eligible pre-paid fees from their out-of-pocket expenses, must be applied as a principal reduction.
x Select Loan Discount Points. Loan discount points such as to compensate for a low credit score or low loan amount are ineligible.
x Income Producing Property. Purchase or improvement of income-producing
land or buildings that will be used principally/specifically for income producing purposes is not allowed. Vacant land or properties used primarily for agricultural, farming, or commercial enterprise are ineligible. A minimal income-producing activity, such as maintaining a garden that generates a small amount of additional income, does not violate this requirement. A qualified property must be predominantly residential in use, character, and appearance. Refer to Chapter 12 of this Handbook for additional information on qualifying a property.
x Lease Payments. Payment on any lease agreement associated with the proposed real estate transaction is prohibited.
(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.
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x Closing Costs in Excess of Three Percent. Closing costs, including lender fees,
that exceed three percent of the total loan amount are prohibited, unless flexibility is provided through guidance published by the CFPB’s Ability to Repay and Qualified Mortgage (ATR/QM) standards.