topic USDA loan-Too good to be true? in Mortgage Loans

USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 05:14:04 GMT

Just looking for some possible help here. We are unable to buy using FHA until either September of this year or later due to a previous foreclosure that was IIB and discharged in 2006. Someone on the forum suggested we try USDA. I have an appt with bank on Monday morning to see a LO to get the process started. Sounds like we will be right at the limit for income, but everything else looks okay. I am feeling like this is too good to be true. All the posts I read on here speak so highly of the USDA loan and how people who had credit issues in the past can qualify for this loan.

Is it true we do not need a down payment and there is no PMI? Do we just receive the going interest rate? How about new construction? Can we build with this loan?

Information is as follows: Hubby's scores are in the 620's, mine is currently 609, but that does not show my credit cards being paid off 100% so they should raise a bit once that is current. BK discharged in Sept 06 with foreclosure included. We have less than 10% for our DTI ratio. Each have a medical collection; one is for $500 other is for $1600. In checking and savings, we have $10K. We started the HIPAA process to get our medical collections paid and removed.

If you either have this loan or have experience and could shed some light that would be great. I just wanted to be prepared when I went to the bank on Monday. Thank you in advance!

Re: USDA loan-Too good to be true?

WannaHouse — Sun, 15 Mar 2009 08:35:09 GMT

@Anonymous wrote:
Just looking for some possible help here. We are unable to buy using FHA until either September of this year or later due to a previous foreclosure that was IIB and discharged in 2006. Someone on the forum suggested we try USDA. I have an appt with bank on Monday morning to see a LO to get the process started. Sounds like we will be right at the limit for income, but everything else looks okay. I am feeling like this is too good to be true. All the posts I read on here speak so highly of the USDA loan and how people who had credit issues in the past can qualify for this loan.

Is it true we do not need a down payment and there is no PMI? Yup...it's true Do we just receive the going interest rate? It is basically the same as the FHA rate. How about new construction? Yup Can we build with this loan? Yup

Information is as follows: Hubby's scores are in the 620's, mine is currently 609, but that does not show my credit cards being paid off 100% so they should raise a bit once that is current. BK discharged in Sept 06 with foreclosure included. We have less than 10% for our DTI ratio. Each have a medical collection; one is for $500 other is for $1600. In checking and savings, we have $10K. We started the HIPAA process to get our medical collections paid and removed.

If you either have this loan or have experience and could shed some light that would be great. I just wanted to be prepared when I went to the bank on Monday. Thank you in advance!

I don't know what info you are looking for. We are preapproved for a USDA loan, but are still looking for our house. Ours was even a tougher case since hubby is self employed. We both have scores over the 620 mark, and that is the magic number to get by with a few little dings.

Message Edited by WannaHouse on 03-15-2009 03:35 AM

Re: USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 08:42:10 GMT

It IS a great program. I assume if you found the income limits that you also found the qualifying areas.

Interest rate is required to be the same as the lender's VA rate. You do pay a 2% up-front "funding fee" for the loan guarantee. That can be included in the mortgage and is why they allow you to finance 102% of the value. (And no, you don't need a down payment!)

If you think you'll have the collections removed soon, I'd wait until they're gone to have credit reports pulled.

We're in a similar situation - can't go FHA because of a foreclosure. (Note that ours was also included in BK7, but they are still starting the 3 year wait period from when the house sold, not when we were discharged - which in our case was substantially later.)

We're waiting right now for underwriter preapproval.

Regarding new construction... you can't get an actual construction loan, but you can purchase a new house.

We are going to be building, but we lucked out and actually found a custom builder willing to stick his neck out and finance the construction. We won't be able to lock in the loan until we're within 60 days of closing. The pre-approval is based on 6% interest rate, though we're hoping it will still be in the 5-1/4 to 5-1/2% range. (We've got to be careful - if interest rates jumped up and we were maxing out our dti at say 5-1/2% we'd be unable to buy the house!)I don't know how you'd find someone to do that. I got this builder's name from the USDA regional office, mostly because they were confused and he's the only one in the county approved to build for direct mortgages. He's actually very good and builds a lot of more expensive homes too.

It's best if you can get to 660 middle score, especially with the BK and foreclosure in your history.

Re: USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 13:43:08 GMT

Thanks for the info. Yes, I was just looking for others who have worked with the USDA loans and what their experiences were. I wasn't sure with the new construction vs. building so thank you for clearing that up.

Will there be PMI on a loan?

Re: USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 16:02:25 GMT

No montly PMI. You pay the 2% up front for the USDA guarantee, then that's it. Just PITI.

Re: USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 16:39:23 GMT

Sorry for the mini hijack, but I figured I wouldn't make another thread.

Are the income limits solely for the purpose of aquiring the loan? If my salary jumps over the income maximum, or I get married, will there be trouble when we go over that limit?

Re: USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 17:26:29 GMT

My LO told me that with mid scores above 660, they can give you one exception ie: the recent bankruptcy if everything else is ok but with midscores below 660, everything must meet their standards. I am sorry to say I don't know what the time limit on the bankruptcy is.

Re: USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 17:38:22 GMT

http://www.rurdev.usda.gov/CA/pdf%20files%20and%20documents/GRH%20UNDERWRITING%20GUIDEL.pdf

Here is the information we found on credit information.

Re: USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 17:44:52 GMT

Yes, the limits are strictly for getting the loan. Once you have it, it's like any other mortgage. Also, the limits include everyone living in the home, whether or not they are on the loan, but their income doesn't affect the DTI ratio in borrowing unless they are a co-borrower.

The purpose of the program is to help people afford housing in rural areas. If your income is higher it's presumed that you have other opportunities. When you apply, you sign a statement that says you can't obtain housing any other way.

Re: USDA loan-Too good to be true?

WannaHouse — Sun, 15 Mar 2009 21:45:01 GMT

@Anonymous wrote:
My LO told me that with mid scores above 660, they can give you one exception ie: the recent bankruptcy if everything else is ok but with midscores below 660, everything must meet their standards. I am sorry to say I don't know what the time limit on the bankruptcy is.

Not 100% true. At 620 mid, there is some flexibility as well (probably not anything major though). At 660 mids, they will also allow higher DTI's.

Re: USDA loan-Too good to be true?

Anonymous — Sun, 15 Mar 2009 23:51:52 GMT

How do they verify who is living in the home, such as a fiance, not a spouse?

Re: USDA loan-Too good to be true?

BrianB_The_Loan_Professor — Mon, 16 Mar 2009 01:58:20 GMT

You will fill out a document stating who will be living there as well as their income if they are over 18.

Brian

Re: USDA loan-Too good to be true?

Anonymous — Mon, 16 Mar 2009 15:19:20 GMT

Is it true that the income limits of the USDA loans will be going up?

Re: USDA loan-Too good to be true?

BrianB_The_Loan_Professor — Mon, 16 Mar 2009 15:25:39 GMT

It is always 115% of the median income of the area. What is supposed to happen later this month is that they will look at you in one of two groups

all households of 1-4 will be looked at with the 4 person limit and all 5-8 member households will be looked at as though they had 8 people.

Hope this helps

Brian

Re: USDA loan-Too good to be true?

Anonymous — Mon, 16 Mar 2009 21:04:55 GMT

Over or under 50% the income limit change actually takes place?

Edit: I am going to take the under

Message Edited by joefarmington on 03-16-2009 02:04 PM

Re: USDA loan-Too good to be true?

Anonymous — Sat, 13 Sep 2014 05:40:31 GMT

Did you ever get the USDA loan? When did you get it? Did you have to wait after September of that year to get a USDA or did they let you get it earlier?

I had an FHA loan was told I can't appy for a USDA until 3 years after the FHA was paid in full. Wondering since I'm applying for a USDA that it can be submitted sooner than the 3 years after FHA was paid off?

Re: USDA loan-Too good to be true?

Anonymous — Sat, 13 Sep 2014 12:03:31 GMT

From 2ds2cs... Yes, we did get the loan. We closed mid November. It was an easy process, a little more paperwork, but the low interest rate and no PMI or down-payment made it worth it.