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!
HOWEVER, A 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 for..in 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 lender....so again, call me at 608-592-2227, or email me at Darin@osmwi.com 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 www.rurdev.usda.gov 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, etc..etc..etc...so 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!
EXPERIENCE COUNTS!
**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?
;)
;)
No, I didn't know that!!
Good to know.