USDA loans can be used to buy "fixer uppers"...Here are the best tips I know!

Mortgage and Lending with Funky Quail Vintage

Hello everyone!  Everyone on AR,and in the Realestate Market...I am sure KNOWS that USDA loans (where applicable) are arguably the BEST PRODUCT OUT THERE!!!  However, did you know that you can purchase a home that needs some LOVE and FINANCE the improvements?  All with NO MORTGAGE INSURANCE AND AT 100% of the purchase price or value?

Now, let's be realistic...your listing, or the house you want to buy...cannot look like this!

 HOWEVERA USDA "subject to" appraisal can be done on a home that needs a little less love!!!

Now, what is a "Subject to" appraisal you ask?

It is an appraisal done on a home, SUBJECT TO the work being done!  Sounds simple right?? Well, sort of....

In a nutshell, The USDAfocuses on Safety, Weatherization, and making the property look good from the street!  There are Lender Specifc requirements that come into play also, so please understand, this is a basic breakdown!  You need to call me, or a specific approved Lender in your area to get the details!

1.  Improvements have to be madeto the exterior only.  For example, Siding, Windows, Roof, gutters, soffits, etc..and are subject to the "as improved" value of the appraisal!

2.  Improvements are escrowed other words, the money for the completion of the project is held at the Title Company!

3.  You can obtain as many bids on the necessary work as you want, and you can even SELECT WHOEVER YOU WANT to do the work!

4.  Amount of improvements is limited to 10% of the sale price!  For example, is the sale price is $100,000...then the max amount financed is $10,000.00, or total of $110,000.

5.  Escrowed amount for the improvements is 1 1/2 times the bid amount!  For example, if the bid amount is $5.000.00, then $7,5000.00 will be the escrow amount.

6.  IMPORTANT - of the 1 1/2 times the bid, the 1/2 percent has to be YOUR OWN MONEY!  You can get this money from a gift, or even from the seller, but again, it will be held at the Title Company.  REO properties RARELY give you seller credits, but hey, talk with your Realtor about that!

7.  The work HAS TO BE DONE by a licensed contractor!  You cannot have your friends over for a cookout, and do the work yourself!

8.  The work MUST BE COMPLETED in 90 days, but does NOT have to be completed by closing!  Everything is only guaranteed by the USDA for that amount of time..but your FUNDER may have different rules!

9.  There are no disbursements to the contractor.  When the work is complete, inspected, and deemed satisfactory, then and ONLY THEN, is the contractor is paid in full.  

10.  Un-used portions of the escrow are refunded back to the customer after all work is complete.


Followup inspections by the Appraiser, and/or Title Company, will be required, so there are additional expenses for this service, and again, an experience Mortgage Lender will guide you through this process! 


Now, what is a Lender Specific Requirement you ask?

An example of one would be, that the USDA does not have a true limit to how much you can borrow, nor do they care if it is inside or outside work, as long as you are escrowing 1 1/2 times the amount, and the VALUE OF THE PROPERTY is there!  However, in our case, JP MORGAN CHASE, DOES HAVE LIMITATIONS!  That is how they choose to do business!  One HUGE advantage of doing business with JP MORGAN CHASE, is that they are one of only a "handul" of funding sources that guarantee the funds, EVEN IF THE USDA is out of money!  (which happened last fall, and continued into February of this year)

There are other restrictions as well, and they vary from lender to again, call me at 608-592-2227, or email me at for more details!

Lastly, much like any other USDA loan, the borrower must qualify, as well as the location of the home must also qualify!  Please click on the USDA symbol below for a direct link to their website here in Wisconsin!  In other states, just go to or click here.




This is a TRICKY but extremely useful program, but one word of caution to 1st time homebuyers...there is alot to do with gathering information, as well as meeting contractors, you must decide if you want to take all of this one AND buy your first home!

Realtors, this is an awesome program, and sure dresses up your listings or creates more potential customers!

Most importantly, and I cannot STRESS this enough...YOU MUST BE WORKING WITH SOMEONE WHO KNOWS WHAT THEY ARE DOING when it comes to these types of loans!


**Many restrictions apply, so email or call today for specifics! **

Thanks, and I look forward to all comments, questions, and concerns!

-  Darin  -



Proudly serving the entire State of Wisconsin since 2003!

Please check out these other useful blogs for more great information!


What do I need to provide for a loan?

Mortgage Terminology 101

What is a pre approval?






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Bill Dean 314 575 6924
Haggerty Team St. Louis, Mo. - Fenton, MO
William Dean - Broker, Salesperson


I'm confused I work in a market that is not rural, what are the guicelines for this?  Does it have to be used onloy outside metro areas?  Thanks, Bill

May 26, 2009 07:42 AM #20
Darin Osenberg
Funky Quail Vintage - Nashville, TN

HI Bill,

Thanks for stopping by!

A FEW VERY BASIC rules of thumb.

It does NOT have to be RURAL first of all!  

Also, here are two links, before I get started. 

Link#1 click here  * this is for Missouri!

Link#2 click HERE  *  this is even a BETTER ONE FOR YOU!

1.  They look for populations under 15k.  However go UP to 25k.  Hence, a smaller suburban town, attached to a major city, MIGHT WORK!   The Rural Development website actually, has a PROPERTY ELIGIBILITY area, that allows you to put in ANY address anywhere, and see if it qualifies!  MAJOR METRO AREAS will not qualify!

2.  The income qualifications vary from County to County and State to State.  Again, the website has eligibility for it as well!    If you have a LENDER PARTNER that you work with...I would have THEM pull this information up, and work WITH THEM some night to go thru this!~  If you dont have a Lender that you work with on a regular basis, let me know...and I wil help line one up for you in your area that KNOWS what they are doing!  (THAT IS THE KEY)

3.  Improving a house at the time of purchase and ESCROWING for those repairs, is a very touchy deal.  It varies from Lending Source to Lending Source.  In other words, Wells Fargo...doesnt escrow for repairs...EVEN THOUGH THE USDA says it's okay!  Wells, has merely taken a more...ummm..conservative approach!  HOWEVER< JP MORGAN CHASE will escrow up to 10% of the purchase price...So, to answer your question, the guidelines are DIFFERENT AT THE USDA (much more aggressive) than that of the LENDERS!  I KNOW>>>it doesnt make sense!!!! argghhh

This is an AWESOME PROGRAM!  Great to use on REO's or eyesores in the neighborhood...Mainly driven though towwards exterior items,and/or saftey or weatherization items like roofs, siding, windows and such! 

THIS IS A FANTASTIC PRODUCT especially for FHA appraisal fallout as well! 

0 down..financing the improvements??  SOunds good! 

Whatever direct questions you have...FEEL FREE any time, to email me at

 I tell everyone to GOOGLE IT...type in :  Rural Housing, (then your state name)

THE GUARANTEED PROGRAM is the one you want!

Thanks so much commenting!


May 26, 2009 07:52 AM #21

My question about rural housing is how long is the pre-approval good for and the credit that  the lender pulled, is it 90-days?? just a lil curious how that works.





Dec 15, 2009 05:43 AM #22
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Hello Amanda,


Sorry it took me so long to answer your question, but I have been out of town!  :)

Anyway, NORMALLY an approval issued by the USDA is good for 90 days!

Your question is very difficult to answer in a short HOPEFULLY this will help..and sorry so long!

1.  A PRE- Approval is NOT issued by the USDA, it is NORMALLY issued by your bank, lender, mortgage banker, broker, or correspondent lender....That said, here is how it works...


Let's say you go to your bank, or mortgage Banker...they will pull your credit, and issue you a PRE-APPROVAL either based on their "in house" underwriters opinion, but normally your credit must include a FULL application, and ALL income reltated documents...THEN, that lender, or SOME LENDERS can actually UNDERWRITE the credit and the application, which really only leaves underwriting the house later!   This is a good thing!   I ALWAYS recommend going to a lender who will do this!  Of the big BANKS that underwrite the USDA loans, CHASE while difficult to deal with, is only one of the few remaining companies that will issue a CREDIT & INCOME approval.  ALL OTHER PRE APPROVALS are just an opinion of the person or persons that are "looking" at your loan! 

AS WITH MOST LOANS THO....this will vary from lender to lender, as is technically referred to as a "lender overlay".

Length of time since the credit pull will also vary, but when it comes to the USDA, if I HAD pulled credit, and sent you in for an approval on INCOME & APPLICATION & CREDIT< the conditional approval I GET BACK from my funding source (Like Chase)...tells me HOW LONG my credit is good for!

The other issue is SOMETIMES, like with WELLS FARGO and others, they REQUIRE THEIR OWN credit to  be pulled ON TOP OF THE ONE YOU ALREADY HAD PULLED!  Each lender has different rules on this also!  That is ONE OF THE MANY problems in dealing with banks...lenders!  YOU MUST be working with someone who adequately explains this to you...


These are TERRIFIC brief questions, that require LONG answers!  LOL...sorry about that!

I HOPE I HELPED!  I can be reached at 919-306-5731, on my personal cell phone#


Telll me MORE about your situation at any time!

Take care,


Dec 16, 2009 01:59 PM #23



have discover a past appraisal of  my  properties--jp morgan  name  was attached.      can  I  find a recod  in  usda?

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