can I finance a heating and cooling system with USDA 502 Direct?

[rideswithchrist1]

There are no available homes except one right now. It has no AC/ heater system though. Is that a property requirement and can . It be financed? 

[ShanetheMortgageMan]

Heating is required, A/C isn't required unless there is an A/C unit on the property and it's not working (then it needs to be fixed).

With the guaranteed program technically you can get repairs financed up to 100% of the home's "as improved" appraised value, and they can even be done after closing, if a repair escrow is set aside for 150% of the cost of those repairs.

Example:

Purchase Price: $112,000
As-Improved value: $125,000
New A/C: $7,000, so 150% = $10,500
Closing costs to roll in: $4,000
Total Loan = $126,500

= you have to bring in $1,500 at closing

Not sure, but the Direct program may have the ability to do that as well.

[DanTheMan77]

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@ShanetheMortgageMan wrote:

Heating is required, A/C isn't required unless there is an A/C unit on the property and it's not working (then it needs to be fixed).

With the guaranteed program technically you can get repairs financed up to 100% of the home's "as improved" appraised value, and they can even be done after closing, if a repair escrow is set aside for 150% of the cost of those repairs.

Example:

Purchase Price: $112,000
As-Improved value: $125,000
New A/C: $7,000, so 150% = $10,500
Closing costs to roll in: $4,000
Total Loan = $126,500

= you have to bring in $1,500 at closing

Not sure, but the Direct program may have the ability to do that as well.

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Yes, USDA Direct works the same way. The biggest thing to keep in mind is that you will need to escrow 150% of the repair costs. You will also be "banking" on the appraisal coming in high enough.

I think the best was to do the deal is to include a credit for the repairs and closing costs in the contract. Using Shane's example, write the contract for $126,500 and specify that $10,500 is for repairs (I wouldn't specify A/C) and $4,000 is for closing costs. The seller will net the same number, but the appraiser will know that the appraisal needs to come in at $126,500 in order to get the deal done. Obviously you'd need to get an idea of what the actual numbers are beforehand, but you'll stand a much better chance of closing the deal if it's written this way.

[rideswithchrist1]

Thanks.  We havent gone to look at the home yet. We are kinda hoping something newer and nicer pops up and we have a back up offer going...but houses are gone within days here. 

 I just hope that our funding does not run out before we can actually make a decision on a home. 

And that sounds like a whole bunch of work, only to end up back up to a price we would get with a newer energy efficient home. 

 I can't tell what the house is actually worth but I wouldnt put in a Heating and not A/C- the HVAC would be an all in one!- (plus here in TEXAS, AC is probably required because we get over 100 degrees).

The tax records seem like they are paying around $1200 per year at 3.05%, so it is currently worth around $70K  I guess and they are asking $124K

So, the appraisal would need to come in around what we are financing as the home would be worth AFTER repairs right?

[DanTheMan77]

When the appraisal is done, they will instruct the appraiser to value it "as completed" which will take into consideration any repairs or renovations you have planned.

I wouldn't go by the tax records. They are not a reliable indicator of market value.

[StartingOver10]

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@DanTheMan77 wrote:

When the appraisal is done, they will instruct the appraiser to value it "as completed" which will take into consideration any repairs or renovations you have planned.

I wouldn't go by the tax records. They are not a reliable indicator of market value.

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^^^Yes, this is it exactly. Get a CMA of actual comps that have closed within the last 90 days and you will have a much better idea of value.

[rideswithchrist1]

My husband wants to leave that as the dead last option we have. 

The homes down the road can be either a mobile home or a site built, so the comps are all over the place.  

He doesnt like the street the home is on either.

This USDA Direct is hard! There are very limited homes in the area we want. He found the perfect house- but it is 14 miles in the wrong direction LOL.

[rideswithchrist1]

ok, we are looking into that one again because the Realtor listing is old- but the Google images are pretty nice.

The only concern I have right now is that there are possible plans in the future to widen this part of the road to a 4 lane with sidewalks. Do you think this would raise or lower the value?

This is an entirely residential area kinda off the beaten path...there are some businesses out there, but there seem to all be home-based.

[ShanetheMortgageMan]

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@rideswithchrist1 wrote:

The only concern I have right now is that there are possible plans in the future to widen this part of the road to a 4 lane with sidewalks. Do you think this would raise or lower the value?

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Usually when you have a busy road (such 4-lane) abutting a home it's considered an external obsolescence and decreases value on a residential home. It may not increase traffic immediately, but over time more people may start to use it as a throughway.  If this was a commercial property then it'd probably increase value since more traffic (automobile & foot) would be able to pass by. 

[DanTheMan77]

Are they planning on taking a portion of this property in order to widen the road, or have they already done so? If they still need to take the property there's a good chance you'll need/want to hire some legal representation in order to make sure you are fairly compensated for the taking, otherwise there's a possibility you'll be underwater when it comes time to sell. Be sure to factor in that risk and the associated costs.