USDA Direct Loans

USDA Direct Loans
by Pam Simpson
The Kudzu Vine

Much has been written about the USDA Guaranteed Loan that is funded through cooperating lenders.  See USDA Basics, or cruise on over to Jeff Belonger's blog or to Doug Capps for some great information on the USDA Guaranteed Loan.

But, there is another USDA loan that is funded directly by the government for low-and very-low income households.  This is a 100% (no down payment) loan to purchase an existing dwelling or to purchase a site and build a new dwelling.

The monthly payments are based on the borrower's household adjusted income.  The income guidelines are based on a percentage of the areas median income.  Very low = 50% of the median and low = 50%-80%.  Here are the income limits for Tate County MS and Desoto County MS:

Tate County                                                                                   Desoto County

Household Size          Maximum Income                               Household Size               Maximum Income
2                              $33,150                                                2                                 $37,000
3                              $37,300                                                3                                 $41,650
4                              $41,450                                                4                                 $46,250

The home being financed must be modest for the area and can't have an inground swimming pool.  There can be no barns or outbuildings on the property designed for income producing activities.  The home must meet certain thermal (meaning R-value for insulation, windows, and doors) and site standards.

If the home has has a private well and/or septic system (treatment plant), they must be approved by the local health department and clearance letters must be obtained.  The home must be inspected for structural soundness, electrical, heating, plumbing, and roof.  A termite report and a survey are also required.  The buyer should be prepared to pay for the inspections, appraisal and survey unless this is negotiated in the purchase contract.

What's the Process for Getting the USDA Direct Loan?

Pre-Qualification:  If you wish to apply for this loan, the first step is pre-qualification at the Rural Development Office of the USDA.  They will have several questions to ask you that will help them determine if it appears your household meets the qualifications for this loan and if so, determine the probable loan amount.

If the USDA has enough funding, your application will be processed.  Since this loan is funded directly by the government, they cannot process the loans if the funds are not there.  (NOTE:  The funds are approved by Congress.)  All household income will be verified and credit scores will be pulled.  At this point, the amount of the payment subsidy and the maximum amount of the loan can be determined.  If approved, a Certificate of Eligibility is issued.  You should demonstrate a history of stable income and your credit report should show a willingness to repay.  Late payments, charge-offs, late rent, and delinquent student loans will affect your ability to qualify.  You don't need "perfect" credit, but your credit history will play a part in loan approval or decline.

Find A Home:  See the above information about the requirements of the home.  This is where it pays to use a real estate agent who is knowlegable about this type of transaction.  An agent who is experienced in these loans can help prepare both the buyer and the seller for potential issues and help keep the closing on track.  

First time homebuyers are required to complete a homeowner education training course prior to closing.

Re-selling:  Since this loan is subsidized by the federal government, it is subject to "recapture" upon transfer  That means that you may be required to repay all or a portion of the payment subsidy upon selling (or other transfer) or if you no longer occupy the property.  There is a formula used to determine if you are required to repay any part.  Recapture is determined by how long you have owned the property and profit realized from selling.

These loans take a little longer and require a large amount of paperwork (and aspirin), but they can be done.  The local USDA office in Northwest MS is located on Hwy 51 in Hernando.  Their phone number is 662-429-8687.
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About the author:
 Pam Simpson is an Assoc. Broker with Bob Leigh & Associates, LLC.  
Copywright©  2009 by Pam Simpson.  All rights reserved...***USDA Direct Loans***

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