USDA Direct Rural Loan (502 Direct) for very low or low income

[Anonymous]

---

@ji9 wrote:

Thank you for all the great information!  Does anyone know answers to the followings:

With USDA RD "Direct"

Do you have to have a subsity?

Do you have to get a credit towards the interest rate?

Is there a prepayment penalty?

Sounds like a great program but all of the recapture stuff would be a deal breaker for me.  Thanks. 

---

No you dont not have to have a subsidy.  Only very low income qualify for the subsidy & they will tell you when they pre-approve your loan if you qualify.  I did not qualify for the subsidy & wouldnt have wanted to use it either.  I do not believe there is a prepayment penalty.

[Anonymous]

---

---

VintageGal,  if you review chapter 6 and chapter  of the Rural Development hand book it does clearly state fees what fees can be rolled into the loan and speaks specifically  about closing costs.  As I said earlier if the seller does not pay for your closing costs at closing you will be responsible for paying for these costs yourself. Below you will find information directly quoted from the handbook.

6.7 LOAN-TO-VALUE (LTV) RATIO [7 CFR 3550.63(b)]
The LTV ratio is the relationship between the amount to be financed, including all
leveraged loans and grants, and the market value of the
security property. The value of the property is
determined using the appraisal procedures described in
Section 5 of Chapter 5. A loan may exceed the LTV
limitations discussed in Paragraphs 6.7 A. and B. to
allow the borrower to finance certain allowable excess
costs. For any Agency loan, the amount that can be
financed in excess of the allowable LTV includes the Agency-approved appraisal fee, the tax
service fee, and the initial contribution to the escrow account.

The below quote comes from chapter 8 (section 8.6)

3. Closing Costs
The applicant may be required to bring funds to closing for a variety of purposes,
including assets that must be contributed as a down payment, funds to pay for closing
costs, or resources to fund the initial deposit to the escrow account. Borrowers receiving
a subsequent loan may be required to prepay interest at closing. An estimate of the
required amount, determined by the Loan Originator, is provided on Form RD 3550-7.
The Closing Agent/Attorney makes the final determination of the actual amount required
from the applicant.

I had to appeal a decision the agency made concerning my loan so I know this handbook backwards and forwards.  Rural Development cannot deviate from their rules and regulations because they are a govenment loan. To win  my appeal I had bore the burden of proof so I had no choice to but to learn the handbook guidelines. In addition I will be closing on my  502 direct loan on 12/6 and I do have funds that I am responsible for bringing to closing for this loan.

[wednesdayaddamsd]

Angeldaria,

I cannot believe you are still waiting on your mortgage to close girl! I thought you were ready months ago? Why were you held up so long? you are very patient! lol.

Wednesday )

[Anonymous]

Angeldaria-

The below quote comes from chapter 8 (section 8.6)

3. Closing Costs
The applicant may be required to bring funds to closing for a variety of purposes,
including assets that must be contributed as a down payment, funds to pay for closing
costs, or resources to fund the initial deposit to the escrow account. Borrowers receiving
a subsequent loan may be required to prepay interest at closing. An estimate of the
required amount, determined by the Loan Originator, is provided on Form RD 3550-7.
The Closing Agent/Attorney makes the final determination of the actual amount required
from the applicant.

MAY BE REQUIRED TO BRING FUNDS TO CLOSING.  It does not say REQUIRED to bring funds to closing.

http://www.rurdev.usda.gov/SupportDocuments/3550-1chapter06.pdf

SECTION 2: LOAN TERMS AND REQUIREMENTS
6.4 ELIGIBLE LOAN PURPOSES AND USES [7 CFR 3550.52]
The Section 502 program is intended to help those who do not currently own adequate
housing buy, build, relocate, rehabilitate, or improve a property to use as a permanent residence.
All improvements must be on land that, after closing, is part of the security property. Eligible
costs are listed below.

C. Fees and Related Costs
Other eligible costs include:
• Legal fees; architectural and engineering services; costs of title clearance and loan
closing services; the Agency-approved appraisal fee; surveying, environmental and
tax service services; personal liability insurance fees under Mutual Self-Help
Housing; and other incidental expenses approved by the Loan Approval Official
(commissions, finders’ fees, homeowner association fees and placement fees are not
eligible costs);

This loan is for low income to be able to afford to buy a home.  That is why they offer 100% financing.  Low income often do not have large amounts of savings to put down on a house for a down payment or closing costs.  This loan makes that possible.  I went through USDA direct program from May- Sept. so I also know a lot about the process.  Sadly, the house we wanted didnt qualify because it has a barn which USDA no longer allows.

Need more proof?  Here is a random home buyer's experience I found googling.  In her 2nd to last paragraph she states:

" Yes, apparently my earnest deposit was rolled into my loan and therefore refundable by the USDA. And if the sellers weren't going to pay the closing costs (which they did) that would have been rolled into the loan as well, meaning I wouldn't have to go in my pocket to cover closing costs."

Found here: http://nestle02.hubpages.com/hub/USDA-Direct-502-Loan

[Anonymous]

Vintagegal ....you stated earlier that with a 502 direct loan that you do not have to pay for closing costs or make a down payment for this loan.  I am merely stating that in some instancess you do pay closing costs and I quoted the instances that bringing funds to the table at closing does occur based on 502 direct rules and regulations. I also stated what things can be rolled into the loan based on Rural development regulations.  I went on to say that I myself do have to pay closing costs out of pocket. I am merely trying to give accurate information concerning this loan. It is very hard to find accurate information concerning this loan and I only want for others attempting to get this type of loan to be armed with as much accurate info as possible.

[Anonymous]

---

@Anonymous wrote:

Vintagegal ....you stated earlier that with a 502 direct loan that you do not have to pay for closing costs or make a down payment for this loan.  I am merely stating that in some instancess you do pay closing costs and I quoted the instances that bringing funds to the table at closing does occur based on 502 direct rules and regulations. I also stated what things can be rolled into the loan based on Rural development regulations.  I went on to say that I myself do have to pay closing costs out of pocket. I am merely trying to give accurate information concerning this loan. It is very hard to find accurate information concerning this loan and I only want for others attempting to get this type of loan to be armed with as much accurate info as possible.

---

"Vintagegal ....you stated earlier that with a 502 direct loan that you do not have to pay for closing costs or make a down payment for this loan."  That is true.  They both can be financed into your loan.

My purpose of posting responses to your replies is to provide accurate information to others out there.  Yes, there isnt a lot of info. out there about direct loans which is how and why I found these boards.  I quoted directly out of the USDA handbook and provided the link as well to what can be rolled into your direct loan (closing costs). 

You specifically stated on the previous page, "If the seller does not  pay for your closing costs you will be responsible for paying for those fees yourself out of pocket."  I am simply stating that is not true.  Closing costs CAN be financed into your loan.

[lundungurl]

There is a ton of information in this post and I appreciate everyones contribution. I will be trying for this program soon and had a couple questions... Do I need 2 years of Federal tax returns or 2 years of W-2's during the application process. Can my tax returns be ones that I downloaded from the IRS website in a PDF format and printed out or does it have to be from a tax preparer? This sounds like a really good program and since I am wanting to live in a rural area anyway, this sounds like the best bet for me. Oh, one more question: Do they count people in your household not related to you when figuring if you are low income. What I mean is, if I am supporting other people (some related, some not) does that get factored in the income/ household size fiqure? Thanks for the info and congradulations everyone on home ownership!

[wednesdayaddamsd]

You will need your tax returns with all W2s, 1099 forms, and schedules. It can be a printed copy say if you e-filed, but you have to make sure you have signed the return.

Every adult over 18 in the house must be disclosed and yes, their income will be counted if they will be living in the home you plan on purchasing as well.

Good luck!

[lundungurl]

How many tax years do they go back? I only have the last 2. Another question... I am looking at a short sale property. Should I just wait until it goes into forclosure or try for it before? I don't know much about short sale properties. Thanks

[lundungurl]

Is this right, I disclose the income of everyone over 18 but I'll be the only one on the note. They use everyone's income for eligibility but only mine for figuring if I can repay the loan?