Guaranteed Rural Loans

[msensa]

Hi everyone!  Been awhile since I've checked in....

Got hubby cr from our broker.  Score is just under 600.  Paying off 1600 in baddies right now, and getting LOS from the creditors.  All was old stuff--he will owe no one anything.  Bad for bank loans and the credit scores, but the bad was hurting.

Now, my question--

through all this research to secure a home loan, we've found a program from the USDA.  Essentially, it's for rural home loans for low to moderate income folks. (us!)  It's 100% financing, and they offer direct or guaranteed loans, based upon your income compared to the income of the area you are moving to(we qualify for both).  The towns have to be small, like 10,000 or less.  How wonderful!  In our area, that means just a 25 minute drive away from the heart of our bustling downtown, we can have a home in the country with no money down!!

The areas we're looking at nestle right up to the very pricey areas of 2 very desirable counties in my state--where more affluent folks are moving to get away from the city--and well, before the mortgage crisis were growing by leaps and bounds.  This will still be the area growing the fastest due to the desirable school system.

My question is--are there any "catches" we need to know about before pursuing financing from USDA?  We'd been told we were good candidates for FHA-how different is this?  And would we want direct or guaranteed?

Thanks, and happy new credit year!

Message Edited by msensa on 01-11-2008 12:46 PM

[Ausfarm]

My sister went through USDA's Guarantee program.  She built a home in Bastrop, Texas.  She absolutely loves her home and the process was pretty simple.  I don't know how they compare to FHA, but there's an opinion.  Are you planning on building or just buying an already built home?  She got her home built. 

[ShanetheMortgageMan]

We can do USDA RD loans but to be honest I'm not sure what "direct or guaranteed" means, I assume that means you can go directly to the USDA to qualify for one (but that usually isn't the case with government programs) or go through a lender which would then get a guarantee from the USDA... but in my experience you can only get them directly through a lender who is participating in the USDA RD loan programs.  I don't believe you can build your home with a USDA RD loan, but you can have a home built and the purchase it with a USDA RD loan after it's completed.

USDA RD has some neat features, some of them are:

Downpayment is not required

100% financing

No reserves are required

Expanded qualifying ratios 29/41 (better credit can qualify for higher debt ratios)

Seller concessions allowed up to 6%

No minimum FICO (so people with no credit histories or non-traditional credit can qualify)

Streamlined processing with 620+ FICO (no credit explanations needed with a 620+ mid score)

One time 2% guarantee fee (can be rolled into the loan, and no monthly mortgage insurance), essentially making 102% financing available

No maximum purchase price limit

NOT just for first time buyers

No limit on CLTV with soft 2nd lien (allows closing cost assistance from government sponsored entities)

At an initial glance this is what underwriters look for/at:

• Is the credit history reasonable? There is no minimum credit score. Underwriter must determine that the customer has a reasonable history to predict reliability.

• Does the customer have reasonable repayment ability?

• Do they have less than 20% liquid assets, not including retirement accounts?

• Is the property located in Agency designated rural area? In most cases the property is obviously rural. In urban areas, check the property address at http://eligibility.sc.egov.usda.gov/eligibility Click on “single family housing” under “Property Eligibility”, type in an address for an instant determination or check the map.

• Is the family income within the Agency limits? This can be determined in less than five minutes at http://eligibility.sc.egov.usda.gov/eligibility Click on “single family housing” under “Income Eligibility” and fill in a few variables for an instant determination without having to know a lot of rules.

[Ausfarm]

Actually, I know for a fact that you CAN build your home directly through a USDA RD Direct Program if you meet the income qualifications.  Under the direct program, you can have the home built and USDA will make the payments during construction directly to the builder.   My sister did the guarantee program (which is when they guarantee a loan provided by a lender), but it was b/c her household income was too high to go through the direct program.  At the time I believe her household income was $75k/year or so.  But there is a direct program that will allow a person to build.  I know this b/c the builder is a close friend and he does a lot of work buildidng USDA houses. 

[ShanetheMortgageMan]

Thanks for clarifying that.  Interesting on the direct program with the construction/build option, guess that's a benefit of going direct.  The things you learn...

[msensa]

Thanks for the responses!  Shane, you really are a fountain of wisdom for us in this crazy mortgage world!

It looks like the direct loans may go directly through USDA, for you have to click a link that contacts them if you want to know how to apply for one.   It states on the website that they even subsidize your monthly payments on this one. The guaranteed you just go through someone that finances and handles USDA GR. 

If it isn't a huge hassle, I guess we'll give it a shot.  Our FICO is going to be low, just over 600, with no baddies on our credit.  A few medicals and an old phone bill that will be paid off Feb. 1.  Essentially, we've not established ANY reporting credit since our BK CH 7 Dishcarge in 3/03. 

One more question--is this something we'll be able to refinance in 5 or 6 years, or would we even want to?  I'm finishing up my degree and will be working full time by then, more than doubling our income.

[Ausfarm]

If I remember correctly, my sister had to agree to live in the home at least 3 years before she could sale.  I don't know about refinancing.  You can probably call their office and the person should be able to direct you.

[ShanetheMortgageMan]

I really don't think you'd want to refinance out of a USDA RD loan, there is no monthly mortgage insurance and the interest rates are comparable to conventional financing rates as well.  I would wait until you get your scores to a 620 level, as underwriting is much easier once you get there... don't need credit explanations, more lenient on bankruptcy, debt ratio waivers, etc.

[keny01998]

I had USDA Guaranteed Loan back in July 2007 and the loaning process was very simple. They have two programs options: Direct Loan and Guaranteed Loan with 100% financing if you have stable credit history, no BK, ability to repay, mininum FICO scores are 620s, and no reserve needed.

Direct Loan (Section 502) is for low in-come buyers based on the median incomes of the county where they live in and most people don't  qualify on Direct Loan because they may have higher income than the requirements. In my county, individual must make $18k and couples must make less than $38k/year to qualify for Direct Loan. The interest is 5.5% for 30 years fixed. One of the disadvantage is you cannot obtain higher loan amount based on your incomes.

Guaranteed Loan is for moderate income buyers based on the median incomes of the county also. Many people easily qualify for this program if they make $30k single or $52k couples. It's alll depending on the county median income. The maximum loan amount is around $200k. The interest rate is set by the participating lenders.

My loan process was straight forward, I had to pay 2% of the loan to get rid of the PMI and I could roll this amount into the loan. My interest was 6.5% for 30 years fixed based on July rates. I had to pay the closing cost around $5k. My lender said I can do loan modification if the interest goes down and I'm in the process of refinancing since the rate for USDA loan is 5.75% now.

Message Edited by keny01998 on 02-08-2008 09:25 PM

[seratonin]

Shane's answer was very helpful.  Does "Do they have less than 20% liquid assets, not including retirement accounts?" refer to 20% of the purchase price?  Thanks.