Rural Housing News

Unique Feature of the USDA Rural Housing Guaranteed Program....the Repair Escrow.

Today's housing market is chock full of foreclosures...homes that range from almost new to...well....how can we say...slightly damaged.  Angry past owners or simply vacancy over the last couple of years have resulted in some homes that need some TLC. 

A little background first.  The RD Guaranteed Loan has property condition requirements, just like FHA.   The home must meet the 4155 HUD Property Requirements as far as condition. If it does not, the loan cannot close regardless of the quality of the borrower.  In previous years, the resident owners of the home would quickly make the repairs and off to the closing table we would go.  Now, with so many foreclosures, the owners...(banks) are selling the homes "as is".  Meaning they are not making any repairs required for financing. 

This is where a repair escrow comes in.  If the home appraises for higher than the purchase price, the cost of the repairs can be added to the loan...up to the appraised value.  There are limitations on the types of repairs as well as the amount allowed to be escrowed - minimum is $500 maximum is 10% of the loan amount or $15,000.  For minor repairs and things like appliances it is perfect! 

Requirements of Escrow:  The work cannot be done by the buyer.  It must be done by a legitimate business not related to any of the interested parties.  Bids are required and are reviewed by underwriting, and work must be completed within 30 days.  There are extra fees incurred for inspections and escrow management, but they are minimal.

Process:  The loan closes for the full amount (purchase price plus escrow) The funds for escrow are at the title company, or lender who oversees the disbursement.  The work is done, final invoices provided inspection of work done by the appraiser and the check(s) are cut! 

We've learned that every situation is different, but this is a fantastic and cost effective way to purchase a home with today's great rates and affordable prices.  This just might be the product for you, give us a call to learn more.

For projects that require repairs in excess of these guidelines, we have other options.

We are eagerly looking forward to the year ahead providing this wonderful home loan to a wealth of deserving home buyers.  Feel free to give one of our educated home loan experts a call to discuss your situation.

USDA Loans and the Meaning of

Conventional Credit. Who Qualifies?

I had a client call me stating that the lender they were using told them they would not qualify for an RD loan even though the property as in the eligible area, they had excellent income and great credit.  Why?

USDA RULE: If a borrower is able to secure “conventional credit” under reasonable terms and CAN meet the requirements of a “traditional conventional credit” loan, then they are NOT eligible for a USDA RD Guaranteed loan.

I have seen this many times.  Borrowers have been denied USDA loans over the years because the loan officer or underwriter “interpreted” that if the buyers could qualify for a conventional loan they could not get a USDA loan.

Let's dig in here and see what that means...

“Conventional Credit” is now defined as follows:

· Able to make a 20 percent down payment

· Able to pay all closing costs out of pocket*

· Total debt ratio was 36 percent or less

· Debt ratio for principal, interest, taxes and insurance (PITI) was 28 percent or less

· Good credit history consisting of at least two credit bureau trade lines open and paid as agreed for at least a 24-month period, to include that:

o The applicant was not currently 30 days or more past due on any trade line; and

o The applicant had not been 60 days or more past due on any trade line over the past 24 month period; and

o The applicant did not have a foreclosure or bankruptcy in their credit history over the past 36-month period; and

· The conventional mortgage loan term was for a 30-year fixed rate loan term without a condition to obtain private mortgage insurance (PMI).

Here’s how USDA defines “Liquid Assets” for conventional credit down payment purposes:

· *Cash or cash equivalents include:

o Checking or savings accounts

o Investments in stocks, bonds, mutual funds

o Certificates of deposit, and money market funds, (unless they were encumbered) [pledged as collateral] or otherwise inaccessible without substantial penalty.)

· Cash equivalents do not include:

o Individual Retirement Account, 401(k) account, Keogh account or other retirement account that is restricted and may not be accessed without incurring substantial monetary penalties.

I've seen this cut both ways.  I've been able to get USDA financing for clients like the one in the beginning of this story because they could not qualify for conventional financing per UUSDA guidelines.  Also, I've saved clients time by letting them know up front that they would not qualify because they had too many "assets" to go RD. 

If you are considering the RD loan to finance your new home or if you're a Real Estate Professional working with clients who you think MIGHT meet the above criteria, please call me BEFORE you talk about or write a purchase agreement with a USDA financing clause.

Margot - the Loan Ranger

Margot Has over 11 years experience closing USDA Guaranteed Loans in all of Michigan. 

$24 BILLION DOLLARS ALLOCATED FOR RURAL HOUSING GUARANTEED AND DIRECT LOANS!

HELP ME SPEND OUR FAIR SHARE!

In past years, funding shortages played havoc with this great home mortgage program. In fact, last year the funding on these loans had to shut down early and many home owners missed  obtaining the benefits of a Rural Housing mortgage. 

Well, NOT IN 2011!   $24 billion (with a "B") dollars is available in Fiscal Year 2011 (through September 30, 2011) in the Single Family Housing Guaranteed Loan Program.  This program encompasses the Guaranteed program as well as the direct program. 

Direct Loan - this is for low income borrowers and is handled directly by USDA themselves.  Lenders do not offer this program.  Instead it is handled by USDA themselves. 

Guaranteed Program - this is our specialty!  This program will loan up to  100% of the appraised value of the home and has no private mortgage insurance.  There are income restrictions as well as property location guidelines.  A quick 15 minute conversation can establish if a borrower is a fit for this program. 

Both the Direct and the Guaranteed program have alot of funds available and WE NEED YOUR HELP to spend this money!

Feel free to contact us with any questions!

 I get calls every day from people interested in the Rural Housing Guaranteed Program.  Many ask the same question...

"How does the RD loan compare to the FHA Loan?"  That is a very good question.  There are two main differences - FHA requires a minimum of 3.5% down payment while RD requires none.   There is an up-front  mortgage insurance fee of 1% on FHA....3.5% on RD  Both of those fees can be added into the loan amount.   The next obvious question is...

"How come I put money down, borrow LESS with an FHA loan but my payment is higher than RD?  That is because the FHA loan requires PMI insurance - a monthly fee.  FHA recently had a big increase in that charge. 

	Rural Housing Loan	FHA Loan
Purchase Price	$100,000	$100,000
Dowm Payment	0.00	$3,500
Base Loan Amount	$100,000	$96,500
UP Front Fee	3627.00	$960
Amount Financed	$103,627	$97,460
Monthly PMI	0.00	$92.48
Monthly Payment	$556.29	$615.69

Visualizing and comparing these loans with all the calculations, rates, etc is very difficult for borrowers. Here is a link to a nice report - complee with audio that runs you thru a straight FHA vs RD comparison. 

Click Here:   RD vs FHA-Comparison

My clients receive a "live" side-by-side analysis of any and all their loan options.  Updated with changing loan amounts, rates and closing costs.  Plus seeing how a particular loan will perform well into the future can save thousands. 

Rural Housing will be changing this great program come fall to have a PMI charge.  No details yet, but for NOW we are PMI free.   

My thought for this year....Having a Dream is Good...Owning One is Better!

The Rural Housing Guaranteed Program has one unique feature other loans do not.  They allow the loan amount to be based on the appraised value vs the purchase price!

For example:  Sales price of the home is $100,000.  Appraisal comes in at $105,000. 

Conventional/FHA loans - the loan is based on the lower of the two - in the above case, $100,000.

RD Guaranteed Loan - the loan amount can go up to $105,000 and the extra $5,000 can be used to cover closing costs, rate buy down, appliances or repairs.  How great is that!

You can't get any cash back, but in some cases the extra can be used to cover some repairs.  There are only certain types of repairs that are allowed, so give us a call to make sure. 

Pretty sweet deal!  We are extremely experenced with these loans. We've been closing them for over 10 yers now.  Give me a call if you have any questions on this!  There are some siginificant changes coming to the RD program the fall of this year.  Stay tuned for details.

The budget for 2011 Refinance money for the Rural Housing program has been approved.  Rural Housing will now issue comittments for refinances of existing Rural Housing Loans.   

To refinance your Rural Housing Loan can save you money per month by lowering your payment.  There are two (2) options to refinance.

Streamline - no appraisal Required.   YES, you read it right! We still have to show adequate income and assets to close the loan, along with credit, but we do not have to get a new appraisal.  This saves you money, plus if you home is upside down  you can still snag a lower interest rate.  You cannot, however roll in any of the extra closing costs.

Non-Streamline - requires an appraisal, but you can roll the closing costs into the loan amount. Of course, the home would have to appraise for enough to make this happen. 

These are only available for an existing Rural Housing Loan.  If you're not sure, give me a call and I can look it up for you.