USDA Loan Repairs Be advised !!

Real Estate Agent with

Many of us in Rural areas do USDA loans. USDA is 100 percent financing and often works out to be less costly than FHA with 3 % down!!! One of the benefits to this type of loan is you can finance up to 102 percent of the appraised value of the home. This extra money is typically used for closing costs. However if you have a buyer that is getting a great deal on a fixer upper beware !

You do have to escrow money etc like you do for FHA repair loan. But there is a BIG difference. If the USDA Appraiser feels that a repair is a hazard then the repair must be done BEFORE closing. This can create problems when dealing with sellers or foreclosures.

In the case of a foreclosure the bank is not going to spend anything. If a non foreclosure is involved the Seller may not have the money. This leads to a situation wher the buyer would come out of pocket to make a repair and be rereimbursed at the closing. Does any one see THE potential problem with this ?

USDA loans are great loans and a vital source of financing in Rural areas. So when doing USDA with repairs needed be mindful of a repair that may be considered a hazard and advise your buyer accordingly.

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Charlie Ragonesi All Mountain Realty Big Canoe and Mountain Blog

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Andrew Rosenblatt
Andrew Rosenblatt Realty - Tarzana, CA
Local Expert Real Estate Broker

interesting...tell me more

May 21, 2009 09:46 AM #1
Darin Osenberg
Funky Quail Vintage - Nashville, TN


Obviously, you got nicked by this...Our company is a HUGE USDA lender..hence, I even just did a blog on this...but I would never add a link to yours without consent from you!  Here is the link I didnt hear back from you!  lmk if you want me to delete it!

First of all, I have never heard of a USDA appraiser.  To the best of my knowledge, there are two options with appraisals on a USDA loan.  1.  The appraiser has to be FHA Certified, and you only have this issue if there is NOT a home inspection.  2.  If there IS a home inspection, then you can have any licensed and certified appraiser do the appraisal.

Secondly, I believe personally, that if there is THAT big of an issue with the property, the REALTOR should have told you about it...When I do these, I ALWAYS go and look at the house myself!

Third, another option, and of course it is ONLY an option IF the house appraises, is that IF you have not submitted the loan for approval yet...You can UP the sale price on the OTP, have the repair done, and then payout the contractor at close!  You still have issues though with contractors complaining and wanting money up front...Oh well, find another contactor! :)

Obviously when it comes to repairs, there are MANY lender specific items you need to watch out for!

You are VERY correct when you talk about foreclosures etc....the lenders rarely if ever, want to put any time or money into the property!  They would rather have LESS MONEY from a cash buyer for some reason!

Best always, Darin

May 21, 2009 09:55 AM #2
Laura Gray
RE/MAX Realty Group - Gaithersburg, MD

Charlie - Sounds as if you need to make really GOOD friends with a sub that will agree to get PAID at the settlement table and complete the repairs before settlement. Makes life alot easier for everyone

May 21, 2009 09:59 AM #3
Brad MacLay
MacLay Real Estate, LLC - Phoenix, AZ

That's good to know. I know that we have run into similar problems with FHA and VA.

May 21, 2009 10:20 AM #4
Valerie Spaulding
Windermere Peninsula Properties~Allyn~Belfair~WA - Belfair, WA
Allyn-Belfair-Hood Canal-Local Expertise!

problem with the buyer putting mney out before closing to do repairs... what happens if worst case scenario it doesn't close for whatever reason?  Risky - especially if it is a short sale.. Laura's idea is good but again there's always that what if scenario.... course the repair man could be a mechanics lien on it so that is better probably than the buyer paying for it outright... Everything is so up in the air nowadays - just when you think you know all the rules.... well the rules change or get re-nigged!

May 21, 2009 10:23 AM #5
An Idabel OK Broker ~ Judi K Barrett
Judi Barrett~Integrity Real Estate Services~Idabel, Oklahoma - Idabel, OK
BA, Integrity Real Estate Services -IDABEL OK

I've worked with several clients that obtained their funds through Rural Development loans.  They have always used just a certified appraiser in the area.  These loans are very important in my part of the country.  Interesting post.

May 21, 2009 01:15 PM #6
Barb Szabo, CRS
RE/MAX Trinity Brecksville Ohio - Cleveland, OH
E-pro Realtor, Cleveland Ohio Homes

I think all fha loans have the potential for problems when it comes to repairs and it is especially difficult when repairs cannot be done because of winter weather challenges.

May 22, 2009 01:08 AM #7
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Judi- Because the writer didnt respond, I felt compelled to!  These loan are HUGE in Wisconsin, so I can appreciate your perspective!  You are correct, if there is NO HOME INSPECTION DONE, then it has to be a CERTIFIED FHA appraiser!  IF, there IS a HOME INSPECTION DONE, then any old certified appraiser can do the appraisal!  Click into the link I put in above to find out more about FINANCING repairs thru the USDA!  Thanks!

Barb-  The USDA loan is NOT an FHA loan!  However, it is similar in that Weather Related Issues on the OTP or found in the HOI, can be escrowed for a 1 1/2 times the bid amount!  The work must be completed within 90 days!  In addition, you can finance repairs under this program too...regarding weatherization, exterior things like the roof, siding, porches etc...Follow the link I put in above to my blog about this very subject!  It will help you!

Charlie-  I APOLOGIZE for hi-jacking your blog, and if you are upset about it, email me, and I will gladly w/d my responses!  I just LOVE this program and am very passionate about it!  Again, I apologize in advance!


May 22, 2009 04:52 AM #8
Charlie Ragonesi - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros

Darin Had not seen your post on this. The Usda is a great loan and often works out less expensive than the 3.5 percent down FHA. The point of the post was that if you have repairs that are considered a Hazard then the work needs to be done up front. Which of course could mean the buyer is out of the money if the deal fails to close. We do a lot of these here. One of my agents just asked me why wouldn't the deal close ? Here you go

Pipe bursts flooding the house

Faulting wiring causes a fire

I have had both of these happen ! However we were not doing pre closure repairs

Buyer loses his Job

Buyers spouse also on the loan loses her job


Buyer is injured in an accident. You can add a ton of stuff to this list.If the home appraises you can get this money back at closing. Thank you all for these comments and this is a great loan. You do have to watch your lenders as many say they can do it and have no idea how.

May 22, 2009 08:44 AM #9
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