USDA 502 Direct loan question

[Anonymous]

I'm disabled and low income. I thus qualify for a 1% interest rate (with the subsidy) on a 502 Direct loan offered by USDA Rural Development. But I don't quite understand something. Can someone please tell me why USDA RD would calculate what my debt-to-income ratio will be on the pre-subsidy interest rate (currently 3.25%) and not on the interest rate I would effectively be paying of 1%? The figure "29%" of my total income is what determines how much the loan amount can be at a particular interest rate. So obviously if they calculated from my subsidized payment amount -which I feel they should be doing since it's what the true load to my budget will be because that's what I will actually be paying- my loan amount could be significantly higher. Why would they calculate it from the no subsidy figures when that doesn't truly reflect my payment obligation? I don't get it

Thanks in advance! 

[Anonymous]

You can drive yourself crazy by questioning their methods or you can read the hell out of the handbook & find the loopholes to help your situation. Believe me, you'll need lots of patience to complete a Direct loan. Best of luck to you!

[Lemmus]

...patience and persistence ...if you're loking for logic or reason in any mortgage program, be prepared for a long, long, long search 

[Anonymous]

Thanks for the replies.

I have another question concerning a USDA Direct loan. Is the 29/41 DTI (housing/total) figure the maximum DTI one can have to qualify before the loan? Or is it what one's DTI cannot go beyond once the loan has been granted (so with the loan)? That's confusing to me. Also, it says that the waiver DTI cannot exceed 32/44 .... is that what the DTI needs to be in order to qualify for a waiver before the waiver is issued? Or is it the maximum DTI a waiver will allow, including the debt from the loan? Maybe the answers are obvious to some and perhaps these are stupid questions. But it's simply not clear to me from what I've read.

Thanks in advance. 

[Anonymous]

Waiver DTI is the max allowed with a waiver. The reason they dont use subsidy rate to figure your dti is that you may or may not qualify for full subsidy. Just to toss nice even numbers out there... you get prequal for 100k house with taxes and insurance puts you at 29 percent dti, you buy a house for 75 grand, you may not get the full subsidy. The subsidy lowers payment to dti of i believe 24 percent OR minimum interest rate of 1 percent. If the 75k house put you at 27 percent dti, you may only get subsidized to 2.0 percent. My subsidy only dropped rate to 2.5 or something like that as both my front and backend dti were not high enough for full subsidy.

[Anonymous]

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@Anonymous wrote:

Waiver DTI is the max allowed with a waiver. The reason they dont use subsidy rate to figure your dti is that you may or may not qualify for full subsidy. Just to toss nice even numbers out there... you get prequal for 100k house with taxes and insurance puts you at 29 percent dti, you buy a house for 75 grand, you may not get the full subsidy. The subsidy lowers payment to dti of i believe 24 percent OR minimum interest rate of 1 percent. If the 75k house put you at 27 percent dti, you may only get subsidized to 2.0 percent. My subsidy only dropped rate to 2.5 or something like that as both my front and backend dti were not high enough for full subsidy.

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Thanks for the explanation. My next related question: Can I qualify for a waiver if I currently have zero debt? I have two active credit cards, both with a zero balance, and totalling over $19,000 in available credit. My FICO 8 scores are EX: 798, TU: 813, and EQ: 798. I've had my credid card accounts for 10 and 12 years, respectively. My income happens to be extremely low, though. I was hoping for a way that I would be able to use as much of my income as possible to qualify for as high of a loan amount as possible. Unfortunately, speaking to the area technician from USDA RD didn't leave me very encouraged. I definitely qualify for the 1% subsidy... but using the non-supsidy DTI to calculate how much my loan can be has proven very discouraging. That's why I was hoping for a way to calculate it at the subsidy rate. 

[Anonymous]

A waiver requires some sort of reason for granting the waiver. Higher credit scores (i dont know where the threshold is but most likely 680 or 700) significant reserves, or some other combination of factors. Also, remember, the prequal they hand you is based on purchase price, taxes AND insurance. My prequal letter said like 72k with 3600 taxes and 1k insurance. I bought a house for 95 with 1.8 taxes and 600 insurance and was WELL within the limits. There was no way i was finding a house for 72k where I am, so I looked at where taxes were higher or lower, and what my insurance would be. When i found them, I emailed the link to my coordinator and she said, yes, that would work. My prequal looked awful, but I was able to find a nice house, get in under the mortgage number she and I had discussed comfortably. Toss the subsidy in and I couldnt rent at 150 percent of what I am paying. USDA is a bit of a juggling act, and having a good coordinator and a good RE agent is really key.  

Basically my prequal said I could go to around 685 payment, and once i figured out where places with lowish taxes were I used a mortgage calculator to work backward. When you had your orientation meeting the coordiantor should have told you roughly what your max payment could be. If you take a look at the prequal sheet it should tell you what they estimated for taxes and insurance. If you can get lower on taxes they estimated, you can go higher on the house. I didnt go lower on insurance, tho it ended up being cheaper as well. I dont know about where you are, but here in northern illinois there are some wildly different tax rates. A house with roughly similar stats to mine just a town over pays almost double my taxes. Use that!

[Anonymous]

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@Anonymous wrote:

A waiver requires some sort of reason for granting the waiver. Higher credit scores (i dont know where the threshold is but most likely 680 or 700) significant reserves, or some other combination of factors. Also, remember, the prequal they hand you is based on purchase price, taxes AND insurance. My prequal letter said like 72k with 3600 taxes and 1k insurance. I bought a house for 95 with 1.8 taxes and 600 insurance and was WELL within the limits. There was no way i was finding a house for 72k where I am, so I looked at where taxes were higher or lower, and what my insurance would be. When i found them, I emailed the link to my coordinator and she said, yes, that would work. My prequal looked awful, but I was able to find a nice house, get in under the mortgage number she and I had discussed comfortably. Toss the subsidy in and I couldnt rent at 150 percent of what I am paying. USDA is a bit of a juggling act, and having a good coordinator and a good RE agent is really key.  

Basically my prequal said I could go to around 685 payment, and once i figured out where places with lowish taxes were I used a mortgage calculator to work backward. When you had your orientation meeting the coordiantor should have told you roughly what your max payment could be. If you take a look at the prequal sheet it should tell you what they estimated for taxes and insurance. If you can get lower on taxes they estimated, you can go higher on the house. I didnt go lower on insurance, tho it ended up being cheaper as well. I dont know about where you are, but here in northern illinois there are some wildly different tax rates. A house with roughly similar stats to mine just a town over pays almost double my taxes. Use that!

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I'm at the prequal stage right now. The area technician I spoke of is the person who was assigned to report my prequaI results to me. She emailed me an app package because of my persistence, but I've received no "prequal sheet" or anything else. All of our conversations have been by phone or email. I kind of felt that she was trying to put me off from even pursuing the loan. She even told me that I might be better off renting. It's been a difficult thing to deal with. As such, I've not yet filed an app. This is in the sate of Oregon, btw.

Thanks for your explanation and advice.

[Anonymous]

Tell them you want to run the full app. It may be that they are right and you wont qualify for enough to buy, but there probably isnt a better time to take a stab. 

[Anonymous]

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@Anonymous wrote:

Tell them you want to run the full app. It may be that they are right and you wont qualify for enough to buy, but there probably isnt a better time to take a stab. 

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The thing is that with either a waiver for 32/32, and especially with the waiver in conjunction with a loan amount calculated from the 1% subsidy rate, I would qualify for enough funds and be able to afford the payments. But if neither of those can happen then I'm pretty much screwed. The Direct loan program is supposed to help folks on very low income and I've proven that I can manage money and thus life, even with very little to spend. But it appears that despite these facts there still may be no assistance for me.