USDA loan questions

[hawkeye33]

I would take a deep breath. It is maddening, isn't it? Your scores are fine for USDA. Lenders can have their own guidelines, but for the most part, I was told USDA is quite similar to FHA in wanting minimum mid-score of 620. I was approved with a mid-score right around 650, and your worst-case scenario would be a mid-score of 700.

Your bigger question will be DTI ratio. Look at all your current debt obligations. You mention the credit card debt, but the bigger question is what is your monthly minimum payment(s) on those credit cards. Do you have auto loan payment(s)? Student loan payment(s)?

For USDA, your PITI (or front-end) ratio, I believe, should be under 29% and your total DTI (or back-end) ratio should be under 41%. The PITI is the monthly payment of principle + interest, taxes and insurance. In your case, it would also probably include monthly association fees since you're looking at a condo. If you use your low end $25,000 annual gross income, you're looking at a PITI of around $605 or less ($25000 annual / 12 months x 0.29).

For back end (PITI plus any other debt payments), you're looking at around $854 or less ($25000 annual / 12 months x 0.41).

That's if my math is correct. I have read there are circumstances that can allow your DTI ratios to exceed these guidelines, but that will require things like large reserves in the bank, etc. As I think rockymtngrl suggests, a good plan would be to talk to a LO. They can tell you good next steps.

Good luck!

[Anonymous]

USDA is great. We closed in June with 5%. The house we bought had been on the market for quite awhile so we had some leverage. (In some areas there are multiple bid situations and it's harder to negotiate.) Anyway, we explained to the agent that we were willing to pay $215k for the house, but we would need to have it written as $220k with the seller paying $5k in closing costs. We felt it was important for the agent to sell it that way, that the $215 was the actual bid and the net result was the same but that we needed it written that way to complete the deal.

Besides the fact that the interest rates are pretty much the same, USDA has an advantage over FHA because there is no monthly PMI. You do pay a fee up front for both, but with FHA you've got a monthly PMI payment until you've paid down a large percentage of the loan.

[weathergirl77]

Thank you all for your help!  I don't have any car or any other monthly payments besides the credit card debt which will be around $3,300 when I apply for the mortgage.  My monthy credit card payments will be $120/mo and the HOA fees are $130/mo for the condo in the area I want which USDA says the area qualifies. As I stated the condo's go for $65,000-$73,000  The only thing is I will only have about $2,000 in the bank so that kind of worries me about qualifying with USDA.  I really want to try to go through USDA with their no down payment or PMI and then I can see if the seller will pay closing cost or some of it.  How much is the upfront fee for USDA and do you get it back? 

Thank you again for all your help.  I have a painful condition that prevents me from walking a lot (I walk with a rolling cane) and it is amazing that I can't get any help or services from renting but if I buy this condo I will be able to get more help but of course owning is a huge advantage.  I just want to know I am getting the best and right mortgage for me.

[hawkeye33]

The only true 'up-front' fee you would need to apply for a USDA guaranteed program loan would be earnest money, for which you would write a check when you make an offer on the condo and the seller's agent would then cash once the offer is accepted. If the offer isn't accepted, or if you go through several rounds of negotiations, the check is not cashed until there is a signed accepted sales contract.

I strongly suggest you work with a realtor, or at least someone very familiar with the mortgage process in your area, in the negotiation and subsequent processes. They will help you put the right conditions in your sales contract (offer). One of those conditions would be financing contingency. You will specify a date by which you will have secured financing through a lender. If that date comes and you cannot secure a loan, the contract can be terminated, and you will get your earnest money back. If that date comes and you're getting close to securing the loan, you can request an extension (unless sellers are fending people off with sticks, they typically will want to give you the extra time as they don't want to start all over with a new buyer).

[weathergirl77]

Thank you again hawkeye33 for your response.  May I ask how much I would have to write a check for earnest money?  I am new to all this as you can tell.  I already have a realtor in mind, they sold my parent's house this summer and they will be back in town in a couple of weeks.  I just want to have all this info now.

Thank you again!

[rockymtngrl]

How much earnest money you will have to put down really just depends on what is traditional in your area and your realtor can help you with that- but just for a round about figure 1% of the offer price, although in some areas they don't like to go less then $1000. Its really a local thing.

[weathergirl77]

Is this also called the loan origination fee?

[rockymtngrl]

no, totally different. Loan origination fee would be paid at closing. Earnest money is to show the seller that you are serious about your offer. your check will be cashed when the offer is accepted. It will be held by escrow or the realtors office or some third party-not given to the seller. Then if for any reason you back out of the offer for a reason that is not listed as a contingency in your contract you loose that money and the seller will get it. If you do go ahead with the purchase the amount of the earnest money will be credited back to you at closing.

[weathergirl77]

Ok thank you!  There is so much to learn about all this but I am glad I am taking my time to learn and have all you wonderful people to answer all my questions!

Thank you again!

[Anonymous]

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@weathergirl77 wrote:

Ok thank you!  There is so much to learn about all this but I am glad I am taking my time to learn and have all you wonderful people to answer all my questions!

Thank you again!

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yes, there is so much, and I am like you--still learning!