# USDA Rural Development Loan (home loan)



## jill.costello

WOW! Didn't know about this loan product until about 2 weeks ago, but it is AWESOME so far..... it is a "loan guarantee" from the USDA meaning that I can finance a property at 100% through a lender of my choice, and USDA will "guarantee" it. I can also roll my closing costs into the loan, as well as repairs ( !!!!! ) as long as the property appraises for my requested total loan amount!

A credit score of 620 or higher is reccommended, but NOT REQUIRED (you can get a credit score waiver!)

the property must be "modest" and in a designated rural development area.

(there is a website where you can type in the address of the property you are interested in and it will tell you if it is in an eligible area or not)

Anybody else used this loan product? How did it go? What were your challenges? How did you document your income/debt/etc and get waivers if needed? 

Any other thoughts on it? I just put in an offer on a property and have applied for the USDA loan through Wells Fargo Home Mortgage; will know in 1-2 days how the offer went and how my loan app went.....nervous!!!


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## ArkansasLady

we bought our house 4 years ago with a rural house loan, after the loan goes through the mortgage was bought by Chase (at least ours was) Our interest rate is a bit higher than the going rate when we bought it, but our loan was not a large one and our payments are still very low 
I tell everyone I know about this program it is a good one


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## miboje

My home is financed through USDA Rural Housing. I have told many people about it. I did not think it was unreasonable at all, and am glad I did . There building requirements (we had a manufactured home built to their specs) will save money in the long run. I think it is a great program.


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## AngieM2

I'm really appreciating this thread. Maybe it's the 'miracle' I've been looking for. {translates to "how the heck can I do this"}

Angie


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## Reauxman

It's a good program as long as you're in an eligible area.

There are income caps. I know here it is 73K a year household income. Generally you are paying a little higher rate(1/4% higher than FHA, maybe a 1/2% higher than conventional is pretty typical).

There is a funding fee(around 2% of loan) involved. RD financing does allow buyers to roll in closing costs(including funding fee) up to the appraised value. 

My favorite is that there is no required PMI, and often that means $100+ a month until 20% equity is reached, which on an amortized mortgage can be a while.


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## robinthegeek

We have a rural development loan. 100% financing and our interest rate is 5.75%. We got our loan a couple years ago, I think the rates are lower now. Our realtor handled all the paperwork. I needed to give him a couple of pay stubs, and that was it I think. It was a really easy process for us.


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## FarmersDaughter

Here's a link to the government's site for this program.

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do


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## jill.costello

AngieM2, PM me if you want all the details; it is truely a great program. I did my due diligence, too- I spent literally HOURS on the USDA Rural Development website asking myself over and over "what's the catch?" and there really isn't one other that YOU qualifying (can't make too much money, but the caps are realistic for the household: my cap was $78,000 per year in my area and I don't make anywhere near that...) And the property you want to buy has to be in one of the eligible areas. Well, shoot! From what I discovered, nearly ANY out-of-town area is eligible! I was able to find an eligible area just 10 minutes from Ocala, FL. downtown! In fact, MOST of Central Florida is eligible unless you're right in town.

Correct, also, that along with NO DOWN PAYMENT, you can roll ALL of your closing costs AND the loan guarantee fee into the loan; so if the property appraises for $60,000., you can offer $50,000, roll the $6500. closing costs and the 2% guarantee fee right in, and still get the loan $0.0 out-of-pocket.

You can use a USDA guaranteed loan to BUY LAND AND BUILD.

They make direct loans to the very poor, and the guaranteed loans to those of us that are just barely less poor...

No more than 10 acres, and no "used" mobile homes (but you CAN purchase a brand-new one)


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## AngieM2

Thanks Jill - I'll PM you and appreciate your help.

Angie


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## MN Gardener

There are two rural developement programs, the one you go directly through USDA lets you do improvements and roll them into the loan amount. This program is very strict on property guidelines. The Rural developement program through lenders is a lot like FHA, but does 100% LTV.


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## Nette

Just a few comments. The income limits vary by county. If Wells Fargo originates the loan, they'll likely keep it. I'm curious about the ten acre thing, Jill. They typically will balk at anything over a few acres. Did Wells Fargo give you that ten acre figure? Also, they CAN do a new manufactured home, but it has to be purchased from an approved dealer.


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## ArkansasLady

I am not Jill but I believe I remember reading the 10 acre thing on the USDA site, which is how I learned of the loan when we were buying...

~C~


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## AngieM2

Jill - I think the genie is coming out of the bottle - maybe.

Three houses I've been watching for months - all qualify. 

Thank you for posting this information. Even if it does or does not work out - it gives me a something to try.

And my most favorite house just dropped another $15,000 - that's $35,000 down from what they started the listing at last year.

Angie


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## Reauxman

Loan programs change whenever the wind blows. 

For years nothing was RD eligible with a swimming pool. Now the pool must be given no value in the appraisal for eligibility. 

Also, there are 9 RD underwriters to process every RD loan. With the tax credit in the final 60 days, expect backlog. Last one I had processed went through in 4 days, but the one a few weeks before that took over 3 weeks. Keep that in mind if trying for the tax credit.


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## jill.costello

Nette said:


> Just a few comments. The income limits vary by county. If Wells Fargo originates the loan, they'll likely keep it. I'm curious about the ten acre thing, Jill. They typically will balk at anything over a few acres. Did Wells Fargo give you that ten acre figure? Also, they CAN do a new manufactured home, but it has to be purchased from an approved dealer.


Nette, I think it has to do with the "concept" of a "modest home". Just like as was mentioned about pools, anything that seems excessive or not necessary for basic life is a no-no; a pool is a luxury, and so anything over 10 acres might be considered an "excessive" sized yard.....Believe it or not, the name of the loan is a misnomer; it is NOT for farmers. They want farmers to use other programs.

Yes, they DID just modify the pool rule; if the property appraises at the value it needs to WITHOUT putting valuation on the pool, then you can have it....but they're not happy about it <wink>

The property I offered on is a bank foreclosure: a 1400 sq ft cinderblock/stucco home with a shingle roof and a fireplace. It is on 2.5 acres zoned A-1 agriculture. The asking price was $56,900. The 2009 tax appraisal has it appraised at $95,445.00


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## Nette

Here's what the national regs say about the site: "Generally, the value of the site must not exceed 30 percent of the total value of the property. When the value of the site is typical for the area, as evidenced by the appraisal, and the site cannot be subdivided into two or more sites, the 30 percent limitation may be exceeded." I was just wondering if that 10 acre figure was something that the Florida Rural Development State Office came up with. A flat acreage limitation would be better than the vague reference above. If you think about it, next time you talk to your lender, ask him/her where they got that ten acre number from. I'm very curious.


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## Reauxman

Jill,
Being bank owned, DO NOT depend on it appraising for over the asking price expecting to roll CC and funding fee into the loan. 

The process after the bank takes ownership of the property after the loan-holder defaults includes either an appraisal or what is known as a BPO. Both assess value. The bank knows that the property will be a liability, so they price it according to market conditions and not what is owed. Sometimes the bank owned properties are in rough shape, and sometimes appraise for less or very close to assessed value.


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## jill.costello

Reauxman, I understand what you are saying, but the "appraisal" that will be done will be done by an independent appraiser hired by my lender. There are SO MANY foreclosures out on the market today in this area that the brokers aren't even doing a walk through before they submit their BPO. I have personally spoken with the broker who has the foreclosure I'm offering on, and she has never even set foot in it; she did her BPO purely on the description of the property. Ethical? probably not. Good for buyers in my area? You bet!

I walked through 9 different foreclosures before I found this one, and it was OBVIOUS no one had actually LOOKED at the home before doing the BPO. One had DAYLIGHT showing through a sinking addition's walls AND the kitchen floor falling into the earth through a SINKHOLE.......the BPO had it "appraised" and priced at $62.00 per sq ft!

In my case, the broker probably read in the description "hole in roof" and deducted the repair cost of an entire roof system and water damage from leaking. Fortunately for me, the "hole in the roof" is actually about 1 inch by 1 inch in diameter and happened so recently from a falling branch that there is no water damage to the trusses or floor below at all.


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## happycat

It also states the family "must be without adequate housing". So if you are presently living in a decent home, you cannot qualify?


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## Reauxman

Jill,
Requirements for BPO's usually include pictures. There are a few that do not require pictures, but most do as proof that we actually saw the property. 

The best hope for a high appraisal is certainly not in a REO driven market!

I worked BPO's and dabbled in the REO market when I was in college. I know a lot about the process and am pretty good at it as unfortunate as it is.


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## Joshie

Please realize that this product is not available in many areas. I know that in our area it is available mostly in small towns and is not available for acreage in many areas. Makes no sense to me.

Also, the price of the property and one's income are very limited. Funny thing about the limits here is that the income limits are often less than one would need to afford the property cap.


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## jill.costello

happycat said:


> It also states the family "must be without adequate housing". So if you are presently living in a decent home, you cannot qualify?


That's a stumper for me; they never asked me (yet). But the fact that my new mortgage payment will be cheaper than my current rent may be a factor???


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## jill.costello

Joshie said:


> Please realize that this product is not available in many areas. I know that in our area it is available mostly in small towns and is not available for acreage in many areas. Makes no sense to me.
> 
> Also, the price of the property and one's income are very limited. Funny thing about the limits here is that the income limits are often less than one would need to afford the property cap.


Joshie, I encourage you to go to the USDA link provided http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
and actually type in some exact addresses to see if they are eligible; you may be surprised.

The price of the property is only limited by what YOU qualify for during your loan application. The debt-to-income ratios are universal no matter where you are: 29/41 29% being your PITI (principal,interest,tax,insurance) and 41% your TD (total debt).
Someone making $76,000. per year may NOT get a loan if their credit card debt, car loan payment, and other debts are too high to stay under the 41% total debt cap. And yet, someone like myself with a lower income but VERY LITTLE debt may get a loan, no problem. It is ALL ABOUT what percent of your income is AVAILABLE each month for housing.


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## jill.costello

Out of curiosity, I did a search on www.realtor.com for homes within a 10 mile radius of Peoria,IL. My search parameters were under $135,000.00, on 1+ acres less than 10 acres. I found a darling Cape Cod on 4.7 acres with a fireplace and hardwood floors for $120,000.00. The address is 325 S Bridge , Banner, IL 61520. MLS #1114387 I typed that address into the USDA eligibility lookup and it IS ELIGIBLE.

Then, I went to a mortgage affordability calculator to see WHAT INCOME one would need to qualify for that amount at 100% financing at 5.75%. Assuming Monthly Taxes and H/O Insurance: $225.00/month, the Monthly Principal and Interest: $700.29/month for *a total payment of $925.29*.

Now, here is a snapshot of what a $72,000./yr income looks like with $365.00 worth of other debt:

Your Total Monthly Income is: $6,000.00 
Your Total Monthly Debts are: $365.00 


Ratio 1 Maximum Monthly Payment:
This is the maximum monthly payment
a lender is likely to allow you to
carry based on your income alone.

$1,740.00 

Ratio 2 Maximum Monthly Payment:
This is the maximum monthly payment
a lender is likely to allow you to
carry based on income minus payments.
However, this amount is based on the more generous
second number in your ratio. $2,095.00 


Maximum monthly mortgage
qualification (lesser of above-two
numbers). *$1,740.00* 


My point is that the income "cap" of $70-78k per year will not limit "alot" of people from getting a decent home in a decent area through this program. When I re-ran the numbers with $900. worth of debt per month, I still was qualified for a maximum monthly mortgage payment of $1560.,well UNDER the $925.29 I would need to pay for the cute house on 4.7 acres within 10 miles of Peoria, IL.!




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## ErinP

Wow!  
This is something to look in to.


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## fantasymaker

If you want MORE than 10 acres you should look at the "Limited resourse farm ownership Loan"


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## Joshie

jill.costello said:


> Joshie, I encourage you to go to the USDA link provided http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
> and actually type in some exact addresses to see if they are eligible; you may be surprised.
> 
> The price of the property is only limited by what YOU qualify for during your loan application. The debt-to-income ratios are universal no matter where you are: 29/41 29% being your PITI (principal,interest,tax,insurance) and 41% your TD (total debt).
> Someone making $76,000. per year may NOT get a loan if their credit card debt, car loan payment, and other debts are too high to stay under the 41% total debt cap. And yet, someone like myself with a lower income but VERY LITTLE debt may get a loan, no problem. It is ALL ABOUT what percent of your income is AVAILABLE each month for housing.


We spoke to the bank about this. We also looked on the site. Each area has specific housing cost limits and income limits. In our area nobody making $76,000 would qualify for this loan. The upper limit was in the $60,000 range.


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## jill.costello

There are two lending programs: DIRECT lending, straight from USDA, and GUARANTEED lending, from a bank but guaranteed by USDA. The income caps are much lower for the Direct version. Here are some of the caps for both programs by area for ILLINOIS:

-------------------------------------------------DIRECT / GUARANTEED
Chicago-Naperville-Joliet, IL HUD Metro FMR Area: $60,400 / $86,850
Grundy County, IL HUD Metro FMR Area:----------$61,050 / $87,750
Cass County, IL:--------------------------------$44,900 / $73,600
Morgan County, IL-------------------------------$45,900 / $73,600

Also, in the guaranteed side of the full list, there are NO income caps under $73,600.00, so they must've increased since you spoke to your bank OR perhaps your bank/loan officer was not up-to-speed on this program, and only quoted you the caps for the Direct loan??


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## Joshie

jill.costello said:


> My point is that the income "cap" of $70-78k per year will not limit "alot" of people from getting a decent home in a decent area through this program. When I re-ran the numbers with $900. worth of debt per month, I still was qualified for a maximum monthly mortgage payment of $1560.,well UNDER the $925.29 I would need to pay for the cute house on 4.7 acres within 10 miles of Peoria, IL.!


The cap is less than $60,000 in my area. There are two different loan products with We recently sold our suburban house and purchased a home on 26+ acres. We didn't sell the suburban house until after we'd closed on the rural house. We had bridge loans on both places. We still have a bridge loan on the rural place even though we've sold the suburban house.

I'm out on medical leave from my job so we've not been able to get a permanent loan. Before going out on leave we were not eligible because of my income added to my husband's social security. Because our income is so low now, we would qualify... as long as my disability goes through. 

We spoke with both our banker and a local credit union and they stated that this loan can be difficult to get on properties over about 10 acres. They both stated that this loan was more often geared towards those living in small communities. We live outside a small town near Peoria. 

I just checked the site again and it appears that the income limits have increased this year. Our bankers also did not let us know that they do adjust income limits if you have medical expenses greater than 3%, have a household member over the age of 62, or have disabled household members. We have all three.

It would be wonderful if we could qualify for this product. If we cannot we'll be stuck with a loan whose payments are based on a 30 year loan. You have to refinance it every 5 to 7 years though. Nobody in our area is willing to finance acreage.


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## chewie

don't get too excited folks. i've btdt.

when doing our house, this is the route we first tried. and tried. and tried. we tried going thru rural housing to get what is called a 'govnor house'. a small ranch style stick built home for lower incomes. nice enough house, but tiny. we planned a basement foundation to add to the size. we qualified for everything they had. they told us its only a few months, we'd be IN our new home! we started doing paperwork...

They changed offices from one town to another, making us sit idol for 2 months. they would send papers, highlight things we had to do/get signed/etc. then tell me on the phone weeks later, when i called to check on status, that doing that wasn't necessary. they drug this situation on forEVER, well over a year. they'd let our paperwork sit on desks for weeks, only moving on them after we'd call AGAIN. they were horribly neglectful in their jobs. and even tho we have some skills, everyting would have to be done by a professional. we couldn't save anything by doing our own work--at all. which of course jacked up our costs by huge amts.

then, finally, said that our house plan was approved, but shoot! they have no more money this year! but wait, if we sign yet another form, they'll 'hold our place' for when new money comes in. we did sign that, and then, after well over a year and a half, got a letter that said, oh, but YOU took too long to go thru the process, you'll have to start over! ARGH!!!

this was rural housing in yankton sd. it was originally from pierre, and those who dealt with that office said things went smooth and quick. even our local bank who sometimes deals with rural housing had sent letters to the managers, complaining of incompetence.

so don't get too excited, we were just crazy-happy, our own place!!! only to be let down in a very big way. in the end, we got a much smaller loan from our bank, and built ourselves.

in theory, it sounds great. and i honestly hope others have better luck. but we put all our hopes in that program for over a year, then had to really scramble to do something else.


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## deb

We bought our house with a Rural Development Guaranteed loan 8 years ago with no money down. We could pay the closing costs so we didn't roll that into the loan. Payment is reasonable and we don't have to pay mortgage insurance. 

BTW We bought an 1865 farm house with 2.25 acres in a very rural township.

1) *Read everything you can about the loan*.
I was able to google the "training manual" for Rural Development staff so I actually knew more about program rules than my mortgage officer. 

2) *Find a mortgage provider and a mortgage officer that has done a lot of RD loans*. 
You will hear "no" a lot more often from mortgage officers who don't have experience with these loans. Our mortgage officer had done lots of RD mortgages. She never said "no" and she was more than willing to call Rural Development for information. 

3) *Get Pre-qualified by your mortgage officer before going house hunting.*

4)*Look at the RD rules and decide exactly what kind of house you are looking for abefore going house hunting*. 
Some houses will never qualify for RD loans and you should know that before you go shopping. I knew exactly what RD was looking in a house so I didn't waste my time making offers on houses that wouldn't qualify. 

5) *Look up the income qualifications for the counties in your area before going house hunting.*

When we bought our house "Rural" meant anything with population under 10,000.

I heartily encourage everyone to look into these loans

Deb
in wi


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