topic Re: USDA Direct after BK... here's my story in Mortgage Loans

USDA Direct after BK... CLOSED!!!

DanTheMan77 — Tue, 04 Nov 2014 16:33:13 GMT

I figured I might as well document my story here. It seems there's little "actual" information about the USDA Direct program available, so maybe this will help someone else out in the future.

Background: Bought our first house in 2004 with an FHA loan. Had to short sale in 2009 due to loss of job, ultimately had had to file for bankruptcy April 2011 and discharged in June 2011. My credit has been clean with no blemishes since. I have since opened three credit lines (two with Capital One, one with GE) and got an auto loan through Toyota Financial. Annual income is $70,000 with family size of 7, which qualifies me as low-income where I live. Total CC debt is $2,000, balance on auto loan is $4,500 and I have $25,000 in student loans. As of right now, my mid-FICO is over 640 (I don't remember exact scores, EQ is 645, will update with others when I have them). CC's are near maxed, but I plan to pay them off within the next month. We live in a house owned by family and don't pay any rent. We pay utilities and maintain the property in exchange for rent. Family will be selling the house in six months and we need to find a place to go. Rent in my area ranges from $1,400-$1,800/month for a house big enough for my family. It looks like buying may actually be cheaper than renting.

I called numerous mortgage brokers and they all told me that I could not qualify for a mortgage at this time for the following combined reasons: 1) Bankruptcy within 36 months; 2) lack of down payment; 3) lack of rental history. Through this forum I discovered I MAY be able to qualify for a USDA Direct loan. Apparently my credit scores of 640+ allow USDA direct to overlook bankruptcy and lack of rental history... and 100% financing resolves lack of down payment. We wound up finding a house before we really started looking and submitted an offer, but since we didn't have a prequalification or any proof of funding, our offer was not accepted.

So here goes...

12/30/2013 - I submitted a complete application and all required paperwork (30 days of pay stubs, 2 years signed tax returns with w-2's and all schedules, 2 months of bank statements, copies of drivers license and SS card, and $32 credit check fee). I applied to USDA directly. I had been in email contact with the state office around Christmas time and they told me to go ahead and submit a complete application to my local office. They told me that was the first step. Other's have said they were asked to fill out a preliminary application but that was not the case for me.

01/06/2014 - I got a call from the local USDA office telling me that since I was not 36 months out of BK, they could not process my application. They offered to return my application and my check for the credit report. I asked them about the waiver for having a 640+ credit score. They had no idea what I was talking about. I spent the better part of the day tracking down documentation to support my case. For future reference, this is contained in the "DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS FIELD OFFICE HANDBOOK" HB-1-3550, page 4-48. The handbook is available to download on the USDA website (http://www.rurdev.usda.gov/handbooks.html), and I had to print out this page and fax it to my local USDA office. They still didn't believe me and I had to wait to have this verified by a Director.

01/07/2014 - Director verified that I was eligible to continue to have my application processed. A credit check and employment verification were ordered.

01/10/2014 - Credit Alert from myFICO popped up showing USDA had run my credit report and my employer got an employment verification form in the mail the same day.

I will continue to update as the process moves along. Anyone who want's to chime in and let me know what to expect or any obvious problems that might need to be addressed, I would appreciate it!

Re: USDA Direct after BK... here's my story

DanTheMan77 — Fri, 10 Jan 2014 21:15:34 GMT

I will add this: the USDA eligible areas are set to change on January 16, 2014. I sent in my application ASAP since about half of the county I am looking to buy in will be removed from the USDA eligible areas. My local USDA office confirmed that as long as my completed application was recieved 01/15/2014 or earlier, I would still fall under the old eligible area guidelines, no matter when I close. Apparently it is the date that the application is received that they go off of, not any other date. Ideally I would have waited a month until I paid down my CC's to bump my FICO's up even more so I wouldn't be cutting it so close... but this will give me a much broader selection of properties to choose from once I am approved. If for some reason I am not approved, I won't be any worse off and will ask to have my credit run again in a month from now. These changes look like the may continue to be delayed... but I figured better safe than sorry. Right?

Re: USDA Direct after BK... here's my story

BrianB_The_Loan_Professor — Fri, 10 Jan 2014 22:04:34 GMT

USDA announced yesterday that there will be an undertermined window of time before the changes to areas takes place. Sounds like you are set regardless but for some this may mean a last minute chance to use USDA .........

Status Update on Proposed Changes to Eligibility Areas Based on 2010 Census Data

As January 15, 2014 approaches, many are wondering whether Rural Development will be implementing the Future Eligibility maps based on the 2010 Census data. At present, the eligible areas remain unchanged and we continue in a “holding pattern” until either an appropriations bill or a continuing resolution is passed. Notification will be sent pertaining to changes to this status.

Re: USDA Direct after BK... here's my story

DanTheMan77 — Thu, 23 Jan 2014 15:16:21 GMT

No real update... but I need to vent!!!

There has been no progress. I emailed the woman at my local office on Jan 16th to check on the status and make sure they had all of the paperwork that they needed. I had some questions about the application (I wasn't sure if I filled it out correctly) and was hoping to be able to get an estimated time frame out of them. The woman at the local office told me that my file had been forwarded to the regional office, and that I would have to direct all of my questions to that office. She also told me that the person I needed to speak to at the regional office wasn't in... it was her day off (this was a Thursday).

Friday morning (the next day) I called the contact at the regional office and got her voicemail. I followed up with an email. I promptly got an auto-response saying that the office was closed on Monday for MLK day. Keep in mind, this was Friday @ around10 am... MLK day is obviously Monday. Another phone call that afternoon also went straight to voicemail.

I got an email response the following Tuesday (Jan. 21) morning from the woman at the regional office. She told me that she would be reviewing my file in the next day or two. Our area was promptly hit by a snow storm and the office has been closed for the past two days. As luck would have it, tomorrow is Thursday... yup, her day off.

The few email responses I have gotten from this woman all say the same thing... they're backed up and will contact me once they review my file. NO WONDER THEY"RE BACKED UP!!! This woman never works!!! It has been three and a half weeks since I submitted my app and I have heard nothing. I still don't know if they have everything or if I even filled out the paper work correctly.

Hopefully I will hear something by the end of the week, but I'm not holding my breath.

Re: USDA Direct after BK... here's my story

DanTheMan77 — Thu, 23 Jan 2014 15:17:12 GMT

This is without a doubt the most infuriating and frustrating process I have ever been through. Others here have said the same thing, but I didn't think it would be this bad. I've already missed out on two houses waiting for my Certificate of Eligibility. At this point, I don't even know what this woman means by "review my file." Has she checked it over and everything is there, they just need to review it in order to generate the C of E? Or they haven't even cracked it open yet?

The Handbook says the following: Applications should also be reviewed for the required documents no later than 3 business days after receipt. The Loan Originator must review the documents in a timely manner but no later than 30 days to determine if the applicant and the property (if identified) appear to be program eligible based strictly on applicant provided information.

I really don't want to annoy them since I already had to quote sections of their own handbook just to get them to process my application, but this seems ridiculous. Does anyone know if there is any recourse to this other than just being quiet and waiting patiently?

Re: USDA Direct after BK... here's my story

DanTheMan77 — Fri, 24 Jan 2014 17:04:00 GMT

01/24/2014 - This morning I heard back from the USDA. They are requesting copies of my pay stubs and bank statements for the time period since I filed my application. I was told that I will most likely be approved for $235,000 at 4.00%. Based on my income, the subsidized rate will be 2.24%. They told me that once I provide the additional documents, I should expect to recieve my Certificate of Eligibility within 1-2 weeks. it needs to be reviewed and signed off on by a supervisor who is only in the office one day a week.

My question is concerning closing costs. She asked how I intended to cover them, and told me that they will likely be between $5k-$7k. I was under the impression that these could be rolled into the financing. She told me that they could, as long as they were a seller concession. Can anyone clarify for me? It will be tough to save up that amount in the 45 days my C of E is valid for.

Re: USDA Direct after BK... here's my story

BrianB_The_Loan_Professor — Fri, 24 Jan 2014 17:11:41 GMT

USDA Guaranteed allows you to finance up to the appraised value - so if the value is higher than the sales price you can roll it in that way - Not sure about the Direct Program

Isnt this something that they discussed with you up front? If you didnt ask the seller when you offered on the home kind of tough to go back now - especially if the contract has been submitted to USDA already.

Re: USDA Direct after BK... here's my story

DanTheMan77 — Fri, 24 Jan 2014 17:22:47 GMT

My offer was not accepted by the seller because I didn't have a pre-approval (certificate of eligibility). It is something that I will negotiate with seller in the future when I find another house if I have to... I just wasn't sure if I needed to work that into the offer/contract on the front end or if USDA would add that on afterwards.

Today is the first time I have actually spoken to someone from the USDA on the phone. All of my previous phone calls received an email response. I have asked them this question several times and haven't gotten a straight answer. They haven't exlained anything to me. It's very frustrating.

Re: USDA Direct after BK... here's my story

StartingOver10 — Fri, 24 Jan 2014 20:59:05 GMT

It has to be in the offer/contract in order for the seller to pay it. Remember to ask for it. Don't count on the appraisal coming in higher than the sales price.

Re: USDA Direct after BK... here's my story

DanTheMan77 — Wed, 29 Jan 2014 17:38:10 GMT

01/27/2014 - On Jan 27 I received a letter from the USDA stating that my application had been selected for processing, but that they needed additional information. As I mentioned above, they requested copies of my paystubs and bank statements for the time period between when I submitted the application and the current date. They also requested a copy of my 2013 W-2, a copy of my BK discharge papers, and the names and birthdays of all of my children. I sent the information that day via email with a hard copy in the mail.

01/29/2014 - I spoke to the lady at the USDA this morning and she said she received all of my paperwork. The only thing outstanding was that I needed to complete a Homebuyer Education Course. She sent me a list of approved courses, and I completed one of the online courses in less than an hour. I emailed her my certificate right away. Note: the Homebuyer Education course didn't need to be completed for the USDA to issue my certificate of eligibility, it just needed to be done prior to closing. However, I wanted to get it out of the way and show them that I was a serious buyer and that I was doing my part to keep to process moving. I got an email saying that my file is complete and will be submitted for review. The person who does the final review of the applications is in the office today, but they are not sure if she will have time to look at it today. She's only in the office one day a week, so if she doesn't get to it today I won't get my C of E until sometime next week. I'm praying that today is the day!

Re: USDA Direct after BK... Here's my story

DanTheMan77 — Fri, 28 Feb 2014 20:49:01 GMT

01/30/2014 - I got my Certificate of Eligibility this morning! It does mention that the maximum permitted house size is 2,000 sq. ft. The two houses we are looking at are both bigger than that. We have five kids and need a four bedroom house. It's almost impossible to find a four bedroom house that's under 2,000 sq. ft. I asked if they can grant a waiver and here's the response:

You would need a letter addressing the reason(s) you believe you should be granted a waiver for the sq. ft. limitation of 2000 sq. ft., such as your family size, a household member with a disability, etc. In addition to your request, you will have to obtain actual utility cost for the past 12 months (all utilities, electric, gas, water, sewer, etc.)

Seems like one more hassle to deal with, but I guess I don't have a choice. I can't imagine that they would haggle over 50 sq. ft. but then again it is the Federal government we're talking about here.

Re: USDA Direct after BK... Here's my story

DanTheMan77 — Wed, 12 Feb 2014 16:04:45 GMT

01/12/2014 - USDA hasn't processed my request for the sq. ft. waiver so I contacted them and asked if it would be OK to make an offer on the house without the waiver. They told me that the process usually works that way (i.e. offer before waiver). They said that they hadn't processed it because they weren't sure if they could without a signed contract, and were waiting for advice from the state director. Why they didn't tell me that in the first place, I don't know. Anyway, we submitted our offer this morning and are waiting to hear if it is accepted. It's a short sale, so it's likely that the seller will accept it. Once the offer is accepted, we will submit the contract to the USDA and try to get the waiver approved. Then we just wait for bank to process and approve the short sale. Praying it all goes smoothly, but certainly not holding my breath.

Re: USDA Direct after BK... Here's my story

Anonymous — Thu, 20 Feb 2014 06:09:23 GMT

How's the process going? Was your offer accepted and has USDA done anything about the waiver request yet?

Re: USDA Direct after BK... Here's my story

DanTheMan77 — Fri, 28 Feb 2014 20:49:32 GMT

02/12/2014 - I heard back from the USDA about the sq. ft. waiver. They said since it was only slightly over the limit they wouldn't need to go through the waiver process after all since it was "close enough" per the state office.

02/13/2014 - We made an offer on the house.

02/15/2014 - The seller countered our offer, we countered back and told them that was as high as we were willing to go and that it was our final offer. I think it may be a little tough to get the appraisal to come in where we need it.

02/19/2014 - Seller verbally accepted our offer. We signed revised contracts and are waiting for the seller to sign before we can send them off for attorney review.

Re: USDA Direct after BK... Here's my story

Anonymous — Tue, 25 Feb 2014 19:47:00 GMT

That is great to hear! The property we are looking at is also a Short Sale- CASH? Which I am not sure what that means so it is great to follow you.

Are you having to wait for the bank to approve the offer, or is it already bank approved? Can't wait for another update from you. This Direct is no joke!

Re: USDA Direct after BK... Here's my story

DanTheMan77 — Fri, 28 Feb 2014 20:47:16 GMT

02/25/2014 - The seller signed the contract today so our attorney should have it by the end of the day and will begin the review process. The seller is using a short sale negotiator so things are moving very slowly. In addition to the contract, they asked us to sign several additional documents from the negotiator. Among these was an agreement to use a "preferred" mortgage company and title company, as well as pay a "negotiation fee". We refused to sign all of these documents, which delayed the process, however the seller eventually accepted the offer anyway.

Since the short sale has not yet been approved by the bank, the contract gives the seller 5 days to collect the needed documentation and submit it to the bank for approval. We've been told to expect that it can take anywhere from 30-90 days for the bank to respond so we're in store for a lot of waiting. Hopefully this will work to our benefit and allow the USDA funding to come through while we wait.

For those interested in my costs along the way, I'll also try to keep a running total of them here as well. Today I placed $1,000 into escrow with my attorney to serve as my earnest money deposit. As you would expect, this is my first real expense related to the sale, except for the credit check fee.

$ 32 - USDA Credit Check Fee (12/30/2013

$1,000 - Earnest money Depost (2/25/2014)

$1,032 - Total "Out of Pocket"

Re: USDA Direct after BK... Here's my story

DanTheMan77 — Fri, 28 Feb 2014 20:48:02 GMT

02/26/2014 - I got thrown for a loop today. I got an email from the person at the USDA I had been working with telling me that my file is being handed off to someone in another office. She also asked that I send both of them a copy of the sales contract. I sent it over right away and got a response within a few minutes from the new person that the property exceeds the loan maximum because the taxes are too high. I think the new person is confused - at one point previously I had asked them to calculate an estimated payment for a house we looked at but ended up not making an offer on. I believe that somehow this information got entered into my file incorrectly and is now showing up as the max loan amount. Thankfully the original USDA rep thinks she can straigten this out. In the mean time I almost had a heart attack! I should now the outcome by tomorrow.

Re: USDA Direct after BK... Here's my story

DanTheMan77 — Thu, 27 Feb 2014 19:10:37 GMT

02/27/2014 - USDA has confirmed that there was an error on their part and that my approval covers the actual sale price and property taxes. Phew! We're still in attorney review and waiting on final contract. My agent said we might be out of attorney review by tomorrow, but I doubt it. I'm thinking it will be at least a week.

Re: USDA Direct after BK... Here's my story

Anonymous — Tue, 04 Mar 2014 17:09:04 GMT

That is good to know, I have $2500 set aside for "closing".

You are getting very close!

Re: USDA Direct after BK... Here's my story

DanTheMan77 — Tue, 04 Mar 2014 17:37:03 GMT

03/03/2014 - I recieved my Good Faith Estimate and Truth in Lending Statement from the USDA in the mail. Closing costs are estimated to be approx. $5,500. This includes the appraisal ($425), tax service fee ($102), home and pest inspection ($825), excrow deposit ($2,000), homeowner's insurance ($800), title insurnace ($1,000) and recording fees ($350). I'm hoping that the appraisal comes in high enough that all of these can be wrapped into the loan.

At the bottom of the first page of the GFE, it says "Total Estimated Settlement Charges = $0.00." I thought that the homeowner's insurance and home/pest inspections needed to paid prior to closing. Does anyone know if it's possible wrap these into the loan as well? From the GFE it seems like they are saying that they can be included, but I'm not sure if there's a mistake or I'm just reading the GFE wrong. Any help would be appreciated.