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

[Anonymous]

Great update, Macbook.  Glad your inspection went well and hope your closing goes smoothly as well.  We FINALLY got our Certificate of Eligibility and started looking at homes today.  Found a home that we are bidding on tomorrow, but its way overpriced so we're hoping they'll come way down.  We have our interview with USDA set up for next week .  For anyone wondering what the interview is, they go over the applicant orientation guide with you along with answer any questions you may have.

[Anonymous]

If it isn't too personal, what was your credit scores when you submitted your pre-qual?

[Anonymous]

Independentlady- My equifax was 643 and my transunion was 767.  Crazy difference right?  I have an old collection that shows up on my equifax report, but not on my transunion.  Which by the way, the USDA have so far not asked me to pay off that old collection.  My husband will also be on the deed and his equifax was around 707 (didnt check his TU).  We make about $40k combined, got approved for $133k @ 4.25% interest.  My scores have probably since dropped a little because we had to take out a small car loan, but the USDA knows about that.

[Macbookguy]

It's been an extremely busy two weeks. I closed on 8/26/11 as scheduled. There were no holdups and no last minute glitches. USDA wired the money to the attorney the Monday before closing and the seller who had to bring money to close showed up with a cashiers check.

Regarding the question about insurance, yes, you do have to prepay for one year's worth of homeowners insurance. You have to insure the house for at the minimum the mortgage amount and you can have no higher than a $1,000 deductible. Be aware that most insurance companies want to overinsure your house! My house was $135,900 and based on the calculator that the insurance company uses, the minimum replacement cost they would write was $176,000. One insurance company said the replacement cost of my house was $222,000. Do keep in mind that if had insured my house for $222,000 and it burned down and only cost $100,000 to rebuild, the insurance company is NOT going to give me the difference. It would have been useless coverage which resulted in more premiums for the insurance company. I finally found insurance for $549 a year through a company called ASI - American Strategic Insurance.

My credit scores range from 565 to 700 depending on which reporting agency and which score is used. USDA used the 565 score but I still walked away with 4.25% for 33 years. I qualified for a very low subsidy of about $90 a month.

Credits at closing... Anything you have prepaid will show up on your HUD statement as a credit. If your credits exceed your amount due, you are entitled to a refund of the difference. I walked away from my closing with a check for $587.60 which was ALL of my earnest money back as well as some from my insurance after the seller credited my closing costs, prepaid taxes, homeowners association, etc.

[Anonymous]

Hey Macbookguy, how is the home owning going?

We've had some bumps in our road, but are getting ready for the inspection on Tues.  How were you able to roll your home inspection, termite inspec., and radon testing in your loan?  I thought we had to pay for them out of pocket?

[Macbookguy]

It's been a while since I've been here... I hope everyone is well and looking forward to the upcoming holidays..

It's fairly simple to roll inspections into the closing. My real estate agent had a list of inspectors that she's worked with in the past and each one of them were more than willing to invoice the inspection and make it due upon closing. My original closing date was scheduled for 9/22 and with the rush to get closed before USDA lost funding for the fiscal year, I closed 8/26. Technically I had until 9/22 to pay for the inspections through my closing or out of pocket if the closing didn't happen.

The inspection invoices are then sent to your closing attorney for him or her to include them on the HUD-1 statement of closing costs. The closing attorney issues a check to the inspector. Since my seller was paying my closing costs, the money credited to me paid for the inspections.

Best of luck to anyone in the process right now!

[Anonymous]

Hi, I just read this forum..and im pretty confused lol my husband and i recently decided to apply for a direct loan (we havent yet), i was under the impression the buyer (us) pays no closing costs or a down payment? I noticed you said the seller paid your closing costs, if he/she had not, would you have had to pay them? I know NOTHING about buying a home, nothing at all. We have 5 or 6 things a piece on our credit (collections) but no bankruptcies or foreclosures (we do have a repo from almost 4 yrs ago), we owe things like cable company, cell phone companies, stuff like that, but nothing negative has been added in the past 12 months. Its all at least probably 2 yrs old most of it is older then that, our credit scores are in the neighborhood of 580ish, we are paying off things here and there starting this friday. I dont know what subsidy is lol do you have to hire an attorney? Or an agent? Cant you just look for a house on your own, and call the number on the for sale sign and say "i wanna make an offer on this house?" (after you get the certificate of eligibility of course. I know I sound like a total moron, but like i said, i know nothing about buying a home. We wont have any money to pay a lot of upfront costs, or an attorney, etc. we will in february when we get our taxes back. From what i read on the usda's website your mortgage is about 24% of your annual income, in our case that would be around 650-700 a month. Is that including taxes? Your post was very helpful, and also very confusing to me lol if you could explain it in in idiot terms, that would be great, i dont wanna bite off more then we can chew, so i'd like to know this stuff before we apply. Oh, and the amount you are approved for, is that including taxes? Like if you are approved for 140,000 can you buy a house that costs 139,000? because after taxes and what not, its gonna be more then 140,000....lol i bet everyone is laughing at me lol congrats on the home!! hope you had a great first thanksgiving in it!!

[Anonymous]

I will be closing on a 502 direct loan next week on 12/6.  You are not required to put down a down payment for this loan.  If the seller does not  pay for your closing costs you will be responsible for paying for those fees yourself out of pocket. You will also have to prepay 1 yr. homeowner's insurance as well.  They would not even attempt to schedule my closing with the title company until I faxed them proof of the prepaid homeowner's insurance. Property taxes can reduce the amount you are eligible for as this effects your debt ratios.  Your certificate of eligiblity will explain this to you.  Your appraisal can also effect the amount you can borrow.  Our appraisal came in 5,000 lower than the purchase price.  Rural development will only lend up to the appraised amount of the home.  The handbook clearly states that you can roll your  tax monitoring fee, appraisal fee, and your escrow fee into the loan but nothing else. I hope this helps and good luck getting through the process with your sanity intact. This loan definitely requires patience on your part as they take forever at times to close.

[ji9]

Thank you for all the great information!  Does anyone know answers to the followings:

With USDA RD "Direct"

Do you have to have a subsity?

Do you have to get a credit towards the interest rate?

Is there a prepayment penalty?

Sounds like a great program but all of the recapture stuff would be a deal breaker for me.  Thanks. 

[Anonymous]

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@Anonymous wrote:

I will be closing on a 502 direct loan next week on 12/6.  You are not required to put down a down payment for this loan.  If the seller does not  pay for your closing costs you will be responsible for paying for those fees yourself out of pocket. You will also have to prepay 1 yr. homeowner's insurance as well.  They would not even attempt to schedule my closing with the title company until I faxed them proof of the prepaid homeowner's insurance. Property taxes can reduce the amount you are eligible for as this effects your debt ratios.  Your certificate of eligiblity will explain this to you.  Your appraisal can also effect the amount you can borrow.  Our appraisal came in 5,000 lower than the purchase price.  Rural development will only lend up to the appraised amount of the home.  The handbook clearly states that you can roll your  tax monitoring fee, appraisal fee, and your escrow fee into the loan but nothing else. I hope this helps and good luck getting through the process with your sanity intact. This loan definitely requires patience on your part as they take forever at times to close.

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You do not have to pay the closing fees out of pocket.  With a USDA direct loan you can roll your closing costs into your loan.  You can ask the sellers to pay closing costs if you want.