USDA 502 Direct Loan (Acreage limits and new construction)

[Anonymous]

Hi everyone,

I'd like to hear from anyone who has purchased land and built a new home on it using the USDA 502 Direct loan.

I have my eye on 3 acres, that cannot be subdivided, in a small gated community with a POA (property owners association) in east Texas. My loan is for $139,600 and the 3 acres is selling for $12,500. The POA stipulates a minimum dwelling of 900 sq. ft. I am planning on a 900-1000 sq.ft. cabin.

I've been told by the local USDA office in the county where I want to build that three acres is not acceptable but I am skeptical. All I find in the 502 regs is something termed "modest size" and cannot exceed "30% of the as-improved market value of the property." And cannot have farm service buildings on it. Small storage sheds are acceptable.

So if anyone here has gone thru this already and can give me some good advice as to how to proceed I will be very grateful.

Thanks,

happygal

[Anonymous]

There is also a bit of language about lots not being dividable.
http://www.rd.usda.gov/files/3550-1chapter05.pdf

Modest sites are defined by their size, value, and the presence of any outbuildings. Therefore, the Loan Originator must verify that the requirements listed below are met.
 Size. The site must not be large enough to be subdivided under local subdivision regulations.
 Value. The value of the site should not exceed 30 percent of the as-improved market value of the property. The 30 percent limitation may be exceeded if the site cannot be subdivided into two or more sites and the value of the site is typical for the area, as evidenced by the appraisal and the practices of other lenders.
 Farm Buildings. The property must not include farm service buildings; however smaller outbuildings such as storage sheds are allowed.

[Anonymous]

I am in the process of looking for land under this program, which i am approved for, and its hard to find specific rules regarding construction and land purchase requirements. Im in CA, and my problem is land here is expensive, and so I was told that the land purchase cannot exceed 30% of my total loan amount. Why that is, i have no idea but that really limits me. Anyone know if this is true or ways around it? Or maybe at least where to find the information. Hopefully your 3 acres plan works out, you are fortunate that land is so cheap there.

[Anonymous]

Hi, everyone. I am new to the usda direct loan program. I have put it off until now to clean up my credit. I am in Oregon, far from the nearest USDA office where the application will be submitted. I have a hard time getting any info on how to even proceed. The site basically asks for everything up front. I am confused because in one place it tells me not to get attached to one property without first getting approved and it seems I cannot get approved without submitting an application with the details of the property which the lender is to help me fill out. And by the site, It wasn't even clear that they were the lender until I found these forums. This is my understanding so far: You do SOMETHING? to get preapproved. You have a meeting with them and they get all your information, you wait for an eligibility certificate, then you quickly go shopping and secure a property before the funds run out.

Here's the rub for me- I live in Mid to Eastern Oregon away from everything, the city I want to move to and the usda office. If I waited until I got an eligibility certificate the funds could run out before I even get over the hill to where I want to move. Because of the snow conditions. Right? And am I going to be able to make the entire application my email or am I going to have to travel several times to Portland to submit to the office? I see on these forums there are classes you have to take, sounds like something you need to do in their office. And how do I even get my foot in the door?  

Then there is my plan. I want to first buy property which is over the hill, then make the house using prebuilt structures that get connected onsite. Can I both buy the land and materials to build with this loan? Is it a possibility that I get the first round of finance to buy the property then the funds run out and I can't build? I have a budget for everything. I am just wondering about what happens on the usda end. 

Is it better for me to move where I need to be and then start the process?

[Anonymous]

Rd.usda.gov is the site you will want to use for most references and you can access the lender handbook for both direct and guaranteed loAns. There is a link there so that you can see if both you and the area you are looking at meet eligibility requirements. direct loans are processed through your state office (you do not need to go there and first time homebuyer classss are available online). Guaranteed are for low to moderate income and are first processed through a eligible lender then finalized by the USDA office. In my area eligible and ineligible properties are literally across the street from each other so a particular address is helpful.

[Anonymous]

Right. I have been on the site. The site asks for everything (all documentation and application) up front, when it is not possible to submit the application without first meeting with them. How do I get started?

[Anonymous]

You can email or call them and they will send you a application packet.

[Anonymous]

There is a $25.00 application fee to be paid as well.

[Anonymous]

make sure to check the lenders guidelines so you will know what they look for in evaluating credit so you won't be caught off guard.

[Anonymous]

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@Anonymous wrote:

Hi, everyone. I am new to the usda direct loan program. I have put it off until now to clean up my credit. I am in Oregon, far from the nearest USDA office where the application will be submitted. I have a hard time getting any info on how to even proceed. The site basically asks for everything up front. I am confused because in one place it tells me not to get attached to one property without first getting approved and it seems I cannot get approved without submitting an application with the details of the property which the lender is to help me fill out. And by the site, It wasn't even clear that they were the lender until I found these forums. This is my understanding so far: You do SOMETHING? to get preapproved. You have a meeting with them and they get all your information, you wait for an eligibility certificate, then you quickly go shopping and secure a property before the funds run out.

Here's the rub for me- I live in Mid to Eastern Oregon away from everything, the city I want to move to and the usda office. If I waited until I got an eligibility certificate the funds could run out before I even get over the hill to where I want to move. Because of the snow conditions. Right? And am I going to be able to make the entire application my email or am I going to have to travel several times to Portland to submit to the office? I see on these forums there are classes you have to take, sounds like something you need to do in their office. And how do I even get my foot in the door?  

Then there is my plan. I want to first buy property which is over the hill, then make the house using prebuilt structures that get connected onsite. Can I both buy the land and materials to build with this loan? Is it a possibility that I get the first round of finance to buy the property then the funds run out and I can't build? I have a budget for everything. I am just wondering about what happens on the usda end. 

Is it better for me to move where I need to be and then start the process?

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To maggymae:

USDA gives you 30 days from the date on your eligibility certificate to buy something. If you do not find something within that 30 days, they'll grant another 30 days and then another 30 days for a total of 90 days for you to purchase. You do have to ask for the two extensions though...they are not automatic. After 90 days, if you've still not found anything to buy, that loan expires and you must reapply. That is what happened to me. My loan expired on 12/29/2016. I have not reapplied yet because I want to build. But I'll be danged if I can find a builder who wants to take on the USDA construction loan. Have talked to 8 builders in East Texas and none would touch it. So now I don't know what to do. Guess I will start another thread asking for help finding a builder in my area.

This is not easy, that's for darn sure.