topic Re: USDA Direct Loan questions in Mortgage Loans

USDA Direct Loan questions

Anonymous — Tue, 24 Feb 2015 23:02:16 GMT

Hi, My husband and I are waiting on our Certificate of eligbility from the USDA.. The Realtor that we are working with is not familiar with the USDA direct loan housing requirements and wants a list of them.. Like , what they will approve or not approve, Sq footage, and etc... So he can help us find a home....Should I ask our loan specialist for something like that or do I need to look all this up for him?

Also, I do know they told us that the house needs to be modest in size with is no bigger than 1800 sq ft.. is there leniency on the sq footage? Like if we found a house that's 1958 sq ft .. Would they approve that or no?

Thanks ! :-)

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 14:37:34 GMT

Oh, boy! Are you in for a fun night!

What you need to do is put on a pot of coffee & become familiar with the USDA Direct loan handbooks. (HB-1-3550 & HB-2-3550) Not just your agent, you as well! Don't put your trust in someone else because you may miss a fantastic house if your agent forgets a detail. There are lots of restrictions, but there are also loopholes. For example, the 1800 sq. foot restriction can be avoided if the house is considered modest for the area. I've also heard of people getting 1-year written averages from the utility companies to make sure they could handle the cost of running the house year-round. Also, the square footage limitation is for livable space, so closets & porches can be subtracted. Good luck to you & I hope you find a great house!

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 00:46:09 GMT

I have read the handbook and know some of the restrictions but dangit I thought just maybe they could make it a lot easier and just give you a list.. Wishful thinking I guess lol.. I don't always comprehend this stuff...

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 01:02:07 GMT

Okay, well, off the top of my head:

30% land value can be skirted if the property cannot be subdivided legally & its size is considered common for the area.

Outbuildings are allowed, but income-producing buildings are not. So you can have a barn, but not a barn set up to house 500 chickens or ready to milk 8 cows. Silos aren't allowed for the same reason.

Above ground pools have never been a problem, but in-ground were. I read somewhere recently that in-ground pools are allowed now, but I can't recall where & since we don't want one, I didn't bookmark it. I think it was one of the clarifying letters the head of Rural Development sometimes puts out.

If there are outbuildings of value on the property, I believe their value is subtracted from the assessment so you can't borrow the cost of a $5,000 barn on the property.

The road your house is off of has to be paved & maintained by a public entity.

If you really wanna be thorough, just read through it again & make note of the stuff you think you'll need to know. The USDA RD is understaffed right now, so I doubt they'll spend the time to make us a nice checklist. Best of luck!

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 03:06:43 GMT

Thanks for the info! I know you have 45days from the time you receive your certificate and then two 30 day extentions after that.. What happens if you don't find a house even after two 30 day extentions?

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 03:07:51 GMT

So a house can't be on a dirt road?

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 03:47:11 GMT

@Anonymous wrote:
What happens if you don't find a house even after two 30 day extentions?

According to the top of p.49 at this pdf of the handbook, "NOTE! Application to be withdrawn at the end of all Certificate of Eligibility extensions"

This means a new application would have to be submitted with all the forms, tax stuff, etc. If you have someone with a heart processing your file, maybe they could bend the rules a bit. It's always a good idea to be extra-friendly to them!

Regarding dirt roads, yep-- can't have them. Isn't that disappointing?

Re: USDA Direct Loan questions

DaveInAZ — Wed, 25 Feb 2015 15:14:17 GMT

@Anonymous wrote:
Oh, boy! Are you in for a fun night!

What you need to do is put on a pot of coffee & become familiar with the USDA Direct loan handbooks. (HB-1-3550 & HB-2-3550) Not just your agent, you as well! Don't put your trust in someone else because you may miss a fantastic house if your agent forgets a detail. There are lots of restrictions, but there are also loopholes. For example, the 1800 sq. foot restriction can be avoided the the house is considered modest for the area. I've also heard of people getting 1-year written averages from the utility companies to make sure they could handle the cost of running the house year-round. Also, the square footage limitation is for livable space, so closets & porches can be subtracted. Good luck to you & I hope you find a great house!

Wow, thanks a bunch for the links to those handbooks. Looks like the USDA 502 isn't going to work for me, dang it - I wanted to buy a shack at the end of a dirt road. Just kidding, my current rural property is at the end of a 1 mile + dirt & gravel road, I've been here 9 years, and have had my fill of dirt & gravel roads. But there are a couple problems for me. I did speak to a rep at the local USDA yesterday and explained what I wanted to do - sell current house, put most of the equity/cash proceeds into my retirement account, and get a 502 direct loan w/no down payment to buy a new home.He mentioned I might have to use some funds for a down payment. According to the handbook if not retired, if the cash value of retirement accounts exceed the median income for the area, they must be used for a down payment; my expected equity/cash proceeds from sale of current home would be around $10k over the median income. But even worse, Section 4.15: An applicant who owns a dwelling generally is not eligible for a Section 502 loan.I interpret that as I couldn't get a pre-approved/qualified app until after my current property sells, and both the direct & guaranteed programs would take too long after the sale - I don't want to rent for several months, few rentals in the area and I have 2 dogs that further limit renting prospects. And then I'd still run into the problem of too much retirement funds. Looks like a low down payment FHA mortgage would work best for my situation.

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 16:37:43 GMT

@DaveInAZ wrote:

But even worse, Section 4.15: An applicant who owns a dwelling generally is not eligible for a Section 502 loan.I interpret that as I couldn't get a pre-approved/qualified app until after my current property sells, and both the direct & guaranteed programs would take too long after the sale - I don't want to rent for several months, few rentals in the area and I have 2 dogs that further limit renting prospects. And then I'd still run into the problem of too much retirement funds. Looks like a low down payment FHA mortgage would work best for my situation.

I just dug a bit in the handbook (p.412 at this link) & found this info for you, Dave:

11.4 ELIGIBILITY Nonprogram applicants are not subject to the income eligibility, asset, citizenship, or occupancy requirements described in Chapter 4 for program borrowers. They may own other properties and are not required to first seek private sources of financing. However, they must comply with other requirements found in Section 4 of Chapter 4 relating to legal capacity, truthful applications, and suspension or debarment, and must meet the credit requirements outlined in Section 3 of Chapter 4.

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 17:29:23 GMT

Got our certificate of elgibility today! Approved for $156,000 at $850 a month.. Denfinitly don't want to go that high as we don't want a $850 a month payment so we are looking at $130,000 max or lower.. They told us that if you get a house that is too cheap that you would loose your subsity.. There are hardly any houses for sale right now due to the winter.. UGH!

So it looks like you can roll in your closing costs in your loan or pay it or request the seller to pay it.... What else can you have rolled into your loan or have the seller pay? Appraisal fee? inspection?

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 17:42:22 GMT

@Anonymous wrote:
What else can you have rolled into your loan or have the seller pay? Appraisal fee? inspection?

Re: Appraisal fees (p.251 here) 5.22 PAYING FOR APPRAISALS The Agency will charge a $425.00 fee for each loan application that requires an appraisal. Within 3 business days of receiving a completed application, the Loan Originator will provide the applicant with HUD’s standard Good Faith Estimate, which includes the amount of the appraisal fee. At the applicant orientation described in Paragraph 8.6 A.1., the applicant must decide whether to finance the appraisal fee or pay it out of their own funds. If the fee is financed, the Loan Originator should include it in Form RD 1940-41, Truth in Lending Statement. In these cases, the total indebtedness may exceed the property value and Area Loan limit by the amount of the appraisal fee.

I'm not finding an exact mention of financing the inspections, but I think you can. Carefully reading over the handbook again may provide you the answer. Unfortunately, I have to do something else right now or I'd keep hunting for you. Btw, congrats on the letter! How exciting!

Re: USDA Direct Loan questions

DaveInAZ — Wed, 25 Feb 2015 17:45:23 GMT

@Anonymous wrote:
I just dug a bit in the handbook (p.412 at this link) & found this info for you, Dave:

11.4 ELIGIBILITY Nonprogram applicants are not subject to the income eligibility, asset, citizenship, or occupancy requirements described in Chapter 4 for program borrowers. They may own other properties and are not required to first seek private sources of financing. However, they must comply with other requirements found in Section 4 of Chapter 4 relating to legal capacity, truthful applications, and suspension or debarment, and must meet the credit requirements outlined in Section 3 of Chapter 4.

Wow, you're certainly becomming an expert at understanding those handbooks. I wasn't sure what a "nonprogram applicant was, so I tackled the HB-1-3550 handbook again. Page 30: Nonprogram Loans
The Agency may provide credit on nonprogram terms to expedite the assumption of an existing program loan or purchase of an REO property by a borrower who is not eligible for the Section 502 program. Nonprogram loans are originated only when it is in the best interest of the Government. Nonprogram loans are discussed in detail in Chapter 11.

Chapter 11 starts at pg.411:

The Agency will make nonprogram loans to:
• Allow the assumption of an existing program loan on new rates and terms; or
• Expedite the sale of a Real Estate Owned (REO) property

Those REO propoerties are limited to properties the USDA RD owns. But maybe it's worth trying for a pre-qual, maybe they'll do it on the condition it's only valid when my current home sells, worth a shot. I was reading up on FHA loan, those FHA insurance rates are a killer - 1.75% fee up front, and .85% included in monthly payment. Current 30 yr. fixed FHA loans are 3.5%, with that .85% monthly fee it puts them higher than 30 yr. conventional mortgages. 3.9%. USDA Direct loan at 3% sure looks like the best deal.

Re: USDA Direct Loan questions

DaveInAZ — Wed, 25 Feb 2015 18:09:06 GMT

@Anonymous wrote:
Got our certificate of elgibility today! Approved for $156,000 at $850 a month.. Denfinitly don't want to go that high as we don't want a $850 a month payment so we are looking at $130,000 max or lower.. They told us that if you get a house that is too cheap that you would loose your subsity.. There are hardly any houses for sale right now due to the winter.. UGH!
So it looks like you can roll in your closing costs in your loan or pay it or request the seller to pay it.... What else can you have rolled into your loan or have the seller pay? Appraisal fee? inspection?

Congratulations! How long did it take from submitting application to today's approval, if you don't mind my asking?

Appraisal and/or inspections fees are considered closing costs, and there is no limit on how much the seller can contribute to closing costs. Closing cost typically include loan origination fee, appraisal, title insurance, credit report, flood & tax certificates, county recording fees & transfer tax if applicable in your location. Those closing costs can also be included in you USDA direct loan, as long as it does not increase the amount of the loan to more than the appraised value of the home you buy.

EDIT: After seeing LeavingtheCity's reply, depending on market conditions in your area it may be easier to get the seller to give you a credit at closing for your estimated closing costs in escrow. For example, in the small town in southern AZ I want to buy there's a lot of foreclosures and motivated sellers. I may offer seller a price but stipulate he must give me a credit of $5k at closing to cover my closing costs.You can even do that in a seller's market - I sold my house in Las Vegas in the summer of 2005, pretty much at the height of the feeding frenzy. Realtor brought me an offer of full listing price + $10k, subject to buyer getting 100% financing and I credit buyer $10k at closing - that not only covered his closing costs but he actually pocked a couple grand. I just asked the realtor if he thought the deal would go through and he assured he was doing deals like this all the time. I accepted as I was getting what I wanted, and the deal went through. But appraisers aren't so loose with appraisals as they were back then when if you had a pulse you got a mortgage.

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 19:17:52 GMT

DaveInAZ wrote: Wow, you're certainly becomming an expert at understanding those handbooks.

That's certainly my goal! Hanging around this board is a big help because as I look up answers for others, it helps the info stick in my brain. =D

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 20:53:04 GMT

It took us a month to be approved and receive our certificate ..

Re: USDA Direct Loan questions

DaveInAZ — Wed, 25 Feb 2015 21:42:44 GMT

@Anonymous wrote:
It took us a month to be approved and receive our certificate ..

Thanks, doesn't sound too long, I was afraid it would take a couple months.

LeavingTheCity - Finally got through to the local USDA office, it can be hard to get a live person. Rep told me no problem, I can submit an app for pre-approval was still owning my current property. And on the assets, he said they typically don't touch retirement accounts under $20k, and if I put any excess over that into something like a CD that can't be immediately accessed for cash they would exempt that as well. So, working on the 410 app, boy it's a long one!

Re: USDA Direct Loan questions

Anonymous — Wed, 25 Feb 2015 22:00:42 GMT

Woohoo! Thanks for the update!

Re: USDA Direct Loan questions

Anonymous — Thu, 26 Feb 2015 02:57:07 GMT

@Anonymous wrote:
So a house can't be on a dirt road?

There's a loophole for the dirt roads! I found the USDA's Existing Home Component Inspection Guide for Single Family, 502, 504, and HPG Housing Inspections. On page 2, it says:

Access Road: The property is accessible from a publically maintained hard surfaced road typical for the area and in compliance with local requirements (gravel road is acceptable if well maintained and typical for the area).

Also, the guide could act as a checklist for your agent.

Re: USDA Direct Loan questions

Anonymous — Thu, 26 Feb 2015 12:08:36 GMT

Ahh Thanks for finding that about the dirt roads!! Now the one house we wanted to look at but couldn't because of the dirt road , we can now look at :-)

Re: USDA Direct Loan questions

Anonymous — Thu, 26 Feb 2015 22:04:47 GMT

If you buy a house and it doesn't have a dishwasher and you want to get one put in can you add that in your loan ? How do you go about doing that?