USDA Direct Rural Loan (502 Direct) for very low or low income

[Anonymous]

Wow, I love your detailed responses.  We, too, started looking at houses online and driving through the area right after we sent in our application.  I get a little sad when houses we're interested in and have everything we want go under contract.  Ive stopped looking for this reason.  The foreclosures and short sales are being snatched up quick.  The town we're looking to move in rarely has open houses which sucks.

Good point on being ready to move fast on finding a home because of funding.  Thats my biggest fear.  It would be my luck that by the time we get our eligibilty paper that funding will run out. 

The home buyer's class we attended was free & HUD approved.  It was also 8 hours long!!  Want to talk about boring, they kept the a/c turned up to keep everyone awake.  It is a great class though and urge anyone to go.

Appreciate the tips.  Im trying so hard to hang in there through this long process.  Its really hard when you hate where you live.  I do call my LO every 2 weeks to check on the status of our application.  Hope your inspections go well!  Very exciting.

[sweetpea3829]

You know what...this is one of those things that's different depending on where you are located.  We went under contract for our home before our eligibility was in.  I was certain we were eligible and I knew USDA would have a litany of things they wanted done and I wanted to start those things as soon as possible.

If you do decide to go under contract before eligibility, make sure you know all of USDA's property requirements thoroughly.  And make sure the property you are interested in would meet those requirements.

Our home needed a lot, a lot of work.  USDA is ok with that...but make sure you have two estimates for every repair needed.  That was one of the things that took so much time.

[sweetpea3829]

Mac,

We fought tooth and nail to be able to stay in Direct as opposed to Guaranteed.  We can afford the higher payment without the subsidy, but it would be awesome if we can have the lower interest rate Direct provides through the subsidy and then pay more on the principle.  Get it paid off faster.

[Anonymous]

Thank you for your post! I have been on the computer for hours a day reading forums for any possible direct loan info I can find. This post has been most helpful. I am still waiting to know if I'm eligible or not. 

Here's where I am at... I e-mailed the local USDA RD office on March 31st, just asking questions to get more info. The secretary e-mailed me the application that day. I printed it out, and got all the information needed and mailed it back to the office on April 7th.

On April 25th, I got a letter from the USDA RD stating that they were out of funds, and that they weren't expected for 9 months (which would have been in Jan-Feb 2012). It said to mail back that paper if I would like my application to be put on the waiting list. I mailed it back, and forgot about it, since 9 months was a long ways off. 

I received a letter on July 22nd saying "The application you filed with Rural Development has been selected for processing. The following information must be submitted to this office in order to determine your final eligibility for loan services:" (It was my w2's... I just sent the tax returns the 1st time) I went into the office on July 25th to turn them in personally since I was in the area (an hour away from my current rental). I was lacking my last 4 pay stubs, because I was on Maternity leave from May 25th-July 16th, and I get direct deposit, so I don't go to my work to collect my check stubs. She had me write a statement stating that I was on Maternity leave. I managed to get the last 2 stubs before I went on leave, and my 2 that i've gotten so far now that I've returned to work, so I think I'm good. I've also read about them not doing the while "work number" thing... and my job is all about that. Grrr! So, here I am on August 4th... with no updates what so ever.... I'm trying to be patient...

I've been wondering if they've gotten funds or what??? Why would they tell me they would process my application in 9 months, but then do it in July? Doesn't make sense to me. Oh well. 

[Macbookguy]

Krumble, sorry it took me so long to respond! If you received a letter stating your application was selected for processing, that means funds are available or projected to be available. Based on the results of your prequalification, they believe you will quality. As funds for the program are extremely limited, they only process the applications they know are eligible based on the prequal! Best of luck to you!

[Macbookguy]

For a few of you who have been following my posts, I wish you the best and hope you will be able to realize the dream of owning your own home. I also want to apologize because this may turn into a rambling and long winded post. I want to share as much of my experience with this loan as possible so others will know what to expect.There's really no information online and the only way to really know how this program works and progresses is to get it firsthand from someone going through the program.

This has been an arduous process and I am almost at the end. I had a lot of sleepless nights and a lot of " Please God, let me get approved" prayers.... Then once I was approved it turned into "Please God, let my loan get funded."

I have come to realize only recently that the "Certificate of Eligibility" means nothing. It means you are eligible for the program but it does NOT guarantee you will be able to buy a house. The step that ensures you will purchase a home is the "Commitment of Funding." This only happens if the RHS has money to loan. Once you are funded, you are buying a house! Once your funds are there - no one can take them away.

My direct loan has progressed fairly quickly for a direct loan. As you will see, there are a lot of days and weeks between some of these dates. I'll share my timeline with you:

Timeline:

Prequalification stage: 5/10/11

Determined eligible for processing: 5/26/11

Returned complete application: 5/31/11

Eligibility interview: 7/20/11

Under contract on house: 7/22/11

Home Inspection: 7/25/11 (minor repairs like the ridge vent, securing screws on the dishwasher)

Appraisal: 08/01/2011 (my house appraised for $152,999 which is $1 less than the cutoff)

Loan funded/obligated by USDA state office: 08/09/11

Sent to attorney for title work and survey: 08/10/11

CLOSING: 08/24/11

Closing costs (estimates from the attorney):

Closing costs based on a purchase price of $135,000

and a loan amount of $135,000 are estimated as followis:

Attorney's fee: $275.000

Title search: $195.00

Title Binder: $125.00

Owner's Title Insurance: $180.70

Lender's Title Insurance: $403.50

Copies/Postage/Fax: $30.00

Courier/Wire/ACH Fee: $20.00

Email Pkg: $20.00

Survey (required by USDA) $400

Inspections:

Home Inspection: $320.00

Termite Clearance: $100.00

Radon Test: $100.00

USDA Required Closing Costs:

Appraisal: $425.00

Tax and insurance escrow set up fee: $125.00

Escrow deposit: $1,000.00

Recording Costs:

Deed: $10

Mortgage: $10 for the first four pages and $1 for each additional page

Survey: $10

Total Closing Costs: $3,749.20
Seller Paid Closing: $3,500

Credit on the HUD statement for property taxes I don't owe for the year: $626.66

Total net closing costs the buyer (me) is responsible for after seller contribution and credits : -$377.66

Since the HUD-1 form can not have negative balances, the seller paid closing will be reduced to $3,122.34 on the HUD-1 closing statement and the credit for the prorated taxes which comes from the seller wipes the slate clean for me.

My earnest money deposit: $500 = BACK TO ME!!!!

Pending no catastrophe or anything else unexpected like losing my job (God forbid), I will be sitting in my house in 10 days. I have begun to pack up my apartment and so far have packed my kitchen and everything on the mantle over my fireplace (I have a lot of stuff! Where did that turkey roaster come from? I don't even cook!). In the past when I moved I would have just thrown everything in boxes and lugged it into a moving truck. Now that I have accumulated things I care about, I've been packing with bubble wrap and foam cushioning. I spent about $100 on boxes at U-Haul and I've come to the conclusion that paying for the move will cost more than the initial costs of my house!

As I said before, if you are in this program DO NOT GIVE UP! People buy homes using direct loans everyday. This was my only chance of purchasing a home. My credit scores are low, I have a recent bankrupty (discharged in 2007), and my credit is a wasteland. While most things are discharged through the BK, I have established very little since. This program is helping me to get out of a 600 sq. ft. apartment which is inadequate and overpriced and into a home of my own. I am a 32-year old man and when I received the email from my person at the USDA saying my loan had been funded, I was on the verge of tears. 

I'll be home soon.

[sharpie]

Thank you for the wealth of information!

[Anonymous]

Congrats! Stories like yours give me hope! The only thing I'm having issues with now is what I've read about how if you want to sell the home (which I'd have no intention on doing) or leaving it as an inheritance when I die will cost thousands. I will ask for further details if I ever get an interview, did they clarify anything about this to you? If that's the case, I will try to go the unsubsidized route... if I can afford it. If not, then I will have to back out, which I am so not wanting to do... but I think it will be a waste to have this house, my and my boyfriend die, and our 3 kids are left with nothing. Ya know? 

[Anonymous]

I agree this is the best information I've seen on USDA Direct, wish we had this a few months ago:-) Anyway, we are currently going through the program and TRYING to be patient. I'm not sure if I overlooked it but we were just informed that we have to pay Homeowner's Insurance before we close. Were you able to receive a credit as part of your closing cost? Our agent nor attorney have never dealt with a direct loan before, so this is new for all and we are unable to get a solid answer. Also, why does USDA not release the appraisal amount till closing, they just say you can continue with inspection-it has appraised. If I'm not mistaken we are paying for the appraisal???

But, I must admit USDA Rural Direct is an amazing program, however for those starting out ask ALOT of questions to try to understand the process whether it's on this forum or your LO. I must say our office here has been very helpful but they are definitely overworked. Feel free to ask any questions. Thank you Macbookguy! The best explanation on the web...I was a little nervous about commenting but with USDA Direct you need all the support you can get! Our inspection is this week....all I can say is 4 letter word-PRAY! 

[Anonymous]

They cannot recapture no more than half the value of the home. Also, remember if you can get some type of mortgage insurance your home will be paid off once you or your mate dies. Actually, purchasing a home whether Direct or another program is helping secure your 3 children future. Hope this help and feel free to ask other questions-I have all the paperwork here (well up to the Inspection-that's this week..)