Cheryl,

Great post and information! It was needed. While I mentioned the 502 Direct Program in my post I did not elaborate on it.

Gerry & Cheryl,

I was just about ready to comment on Gerry's question on origination/fees on the 502 when I read Cheryl's follow on comment.

A few years ago when I was working as a Retail Loan Officer for a prominent local mortgage lender I originated a GRH loan for a young couple to purchase a new home from a builder that I worked with. I packaged the loan and sent to my underwriters.  They were very young and I had to help them build their credit with alternative references. Long story made short....my underwriters denied the loan!  This somewhat infuriated me as I don't like to roll over without a fight.  After appealing and trying to reason with our underwriting....still NO!

Without telling my mortgage  company/employer, I repackaged the loan file with my clients permission and hand carried it to the local USDA RH office and presented it to the Housing Specialist there. After a brief discussion, I received a preliminary indication that they felt that they could make this loan work and would get back to me within a few days.

Within a few days there was an approval.  USDA partnered with a prominent local bank to put the deal together.  The bank made a smaller 2nd mortgage to the borrower with USDA carrying the bulk of the first mortgage...Punchline.....USDA then subordinated their first to the bank!...Creative!...Make sense....absolutely!

I was able to charge/receive a 1pt broker fee, as I recall. My company VP & Underwiting was just a bit surprised that this deal happened and the methodolgy that was used.

I have never had the opportunity to try this approach again so it appears that this not a trump card that I can play in the future.

Cheryl:

Thanks for the feedback. Great forum for these type of exchanges. You know.......Information and knowledge is power....the power to inform, serve your clients needs and make a difference to people...one client at a time.

What I don't like about or am worried about with The USDA Direct Loan Home Program is that none of the CONS are clearly listed. For example, when you sell your home, you have to repay or RECAPTURE the entire portion of the subsidy that the government provided to you. Another CON, if you get married, then your payment changes because your income increases. Additionally, if you income improves on your own, whether married or not, you may be forced to refinance which means you could end up paying more for your home if interest rates are higher at that time.  USDA Direct Loan Home Program should only be used for those who do not intend nor hope to IMPROVE their lives financially on any level because there is a price to pay.  Please list the CONS along with the PROS because at the end of the day, this is your home and 30 years is a mightly long time.

Do borrowers usually get approved for the maximum amount available for the area they are looking to purchase in when applying for direct rural financing?

My issue is having a USDA loan myself. 11years now. The recapture of the subsidy of the interest I am not paying like 5% is mounting up minth after month.  I am on the low level income bracket

What really annoys me is this

my fixed rate when I got the loan was 7.2% now that mortagages are way down and have not even been as high as that for years I have had my loan, mines stays the same 7.2%

They tell me I can refinance with someone else...but if I could do that I would not have needed the USDA loan in the first place. That is not possible. When my property is sold they will get every penny back of the subsidy they gave me. So bottom line is this low income person will have paid MORE (by today's interest rate) than most others buying today.

The interest rate for USDA today is 5.2%...they will NOT adjust mine amd make equal, mines is 7.2% and stays fixed at that. 

since the stimulus bill has been passed , will funds for rural rd 502 direct loans be available soon? does any one have a date for funds available?

I have a 502 RHD Loan and looking at the interest rates myself.  Mine is at 8.25%.  I did find the recapture loan can be forgiven up to 25% if I were to refinance and keep the title.  It may not pay to refinance at this time since I am paying down my principle rather quickly.  It is difficult to know what to do.  Because of this loan made available to me, I was able to raise my daughter in my own home, have my own business to support us and be able to manage, as tough as it has been.  I don't know what I would have done if this had not been available.  I appreciate what you all have shared and yes, do encourage those that qualify, to go get one of these loans.  It really is a great way to go.  Through the years I have had financial advice telling me to quickly get out of this loan.  I came to find out that was very poor advice.

Hi Cheryl!  I am so thankful for this website.  My realtor and I have been trying desperately to find a house that will meet the requirements of my direct 502 loan.  I have a certificate of eligibility as of last Monday for over 96,000.  My closing costs need to be included.  Unfortunately, many of the realtors I am meeting are not very familiar with this program.  At this time, homes are selling so fast they are under contract 48 hours after I find them on the local city realtor's site.  By the time we have a showing set up, very soon after, they will be "under contract."  Some of these houses have been on the market for a very long time and are moving fast.  We are trying to keep up in our house hunt while keeping within the designated inspection requirements, as most of the foreclosed or bank owned homes need many repairs.  It is difficult for my realtor to get the answers she needs about what I can look at and how much money I really have.  Today I almost signed a purchase agreement on a house because I really liked it, it looked like it would pass inspection, and someone else was showing it as she and I were deciding if we should make an offer.  I didn't sign it because it was at the upper limit of my 96,000.  I have no idea what my monthly payments will be yet I am needing to sign a "purchase agreement" to get the whole process started?  How do I find out what the taxes will take my payment up to so I don't go over it?  Does the inspection come before or after the purchase agreement?  What about the appraisal?  And why can houses still be listed for a while on the site AFTER I have been told they are gone?  This is my first and only possible chance at buying a home but a week after receiving my cert of eligibility and seeing many houses I feel like I am lost and about to sign my life away.  Who should my realtor and I contact - the guy who helped me apply for the loan, the woman officer who signed the certificate, or the guy at the office who has answered a few questions vaguely? Because between the two of us, we can't seem to get all the answers we need. 

I'm a Loan Officer in New Jersey.  I was searching for more info on the Direct program and ran across your site.  Looking through the past to current comments I believe there is a real need for a Realtor/USDA go-between.  I know the USDA doesn't want to pay commissions, so maybe it comes from the Realtor if the deal goes through.  As you know we (the mortgage industry) can't originate Direct loans.  And unless you do them on a consistant basis I'm guessing most Loan Officers and Realtors do not have the knowledge to lead their people to the program.  There could be a lot more people in houses if we could close the information gap.

Hi, Cheryl, this is a great blog!

My question is this- if my Mom's income is so low to require the very low income loan, then by regular bank standards, she would only qualify for a $60,000 loan. The problem is, there are NO homes for under $130,000 and those at that price should probably be condemned! The average home price is about $200k. So how does the USDA figure out how much house she can buy? $60,000 is not realistic in our local market, even with foreclosures everywhere. So, after looking at her paperwork, will they determine an interest rate, THEN determine how much home she can afford?

WE applied for the direct loan program and met the income requirements but we were told as we do not have a 660 or better credit score the banks would not accept us,, boy am I confused, as I was told by the mortgage broker that we needed a 660 score to qualify for a conventional loan, but that the RD program looks mostly at income and does not require a 660 score. I am disabled, my wife would only be making $10 hour and with 2 children I have paid rent for over 25 years and now there is really no program for us to buy a first home.

I financed my house with a 502 direct loan. I was a young single mother. Now I am getting married. Will my payment simply increase or will I have to refinance my loan through conventional lending?

I am currently in the process of trying to purchase a home through the Direct loan 502 program. I qualify under the "very low" income bracket for my area and I am also disabled so I will qualify for the subsidy.

The biggest issue with these loans is the extremely strict inspections and requirements expected of the seller and propery. I am attempting to purchase a home from a close friend and that I have witnessed her working on long before I applied for the loan program. The sale price is actually below the appraised value (by the appraiser sent by RD) which is kind of rare. She is selling it to me for just what she has put into it since she bought it as a foreclosure and renovated it.

The seller has been greatly very annoyed by the expectations of RD for what they are requiring her to do in order to sell the house. A bank for a traditional loan would not even mention things that RD is requiring of her. I'm not sure that a seller that I didn't personally know would go through the hoops that RD expects from a seller and a home in order for it to qualify for financing. She has been going along with for the most part but with great verbal objections expressed to me. RD wants repairs to be done and an existing roof to last 5+ years when a normal home sale is "as-is" in a traditional loan.

Basically, all the red tape can wear down seller and cause them to want to back out of a sale or even not even accept an offer if they hear it's a government loan. It can make it hard to find an existing home that is perfect "as-is" and within a low price range affordable to a low to very low income buyer.

It has also been a headache to find anyone who would provide the seller and I written estimates for various inspections that RD rerquired. Almost everyone we called, as soon as they heard "USDA Rural Development loan", they refused to even give an estimate because they don't want to deal with the government at all.

Kenneth -- Credit score is a factor somewhat in RD loans. You must have a reasonable history of paying your debts in order to qualify for a RD loan. They aren't going to loan to someone who never pays their rent, bills, credit cards, etc. I have a credit score around 690 so I had no problems in that respect when I applied. I think you do have to have a minimum credit score to qualify simply because if someone has bad or no credit history, they would be a very high risk of defaulting on the loan which is what RD doesn't want to see.

I am selling my home to a person with a USDA direct loan.  I have not been notified yet of fixing anything.  But, I know I have a leak in my roof.  I don't have the money to fix it.  Will they allow payment of inspections and fixing the house to come out of my part of profit at closing?

The USDA cannot hold any money from the seller from the purchase price of the home. For example, if you are asking $100,000 as your selling price, that is what you will get. UNLESS you were to say the selling price is $104,000 which includes a new roof to be installed. I think in this sitation, you would have to go replace the roof now and pay the $4000 out of your pocket now, then wait to get paid back later at closing.

In your situation, since you don't have the money to fix it NOW, then no... they can't fix now it then withhold money from you later. You'd have to pay for the work NOW and then get paid back later.

What they would have to do is appraise the home in the condition it's in *now* and then possibley add to the buyer's loan to allocate repair or replacement of the roof. It sounds like they might require replacement if the roof is already leaking but I may be wrong on that.

That's my understanding of it anyway, I may be wrong. You would have to ask the USDA RD office you are dealing with. But it sounds like to me you will just need to let the USDA add the cost of the roof repair into the loan if the buyer agrees to this so you won't have to front any money to fix the roof yourself.

They will require written estimates for any repair work needing done.

What kind of inspections are the seller required to get and pay for to sell a home to a USDA loan applicant and how much will this all cost?

Inspections typically include structural soundness, plumbing, electrical, heating/air (if it has central), septic (if not on city sewer), roof.

The seller doesn't ncessarily have to pay for these inspections. In my case, I'm getting the cost of those inspections put into the loan and also the seller said she'd "pay" for some of it but really it's still just going into the loan. In my state (Arkansas), a termite inspection is also required with any home sale. The seller typically pays for this and this can run $500-800 depending on the size of the home and other factors. But your state may be different.

Costs vary by city & state and who you call. Some people charge more or less than others. You will just have to flip through your local yellow pages and make calls to find out what the costs would be.

Other costs will be the survey, closing costs, etc which can be put all on the seller, buyer or split 50/50 depending on the agreement the seller and buyer make. 50/50 is standard for normal loans but the USDA RD is for low income folks who may not be able to afford that, so they may put it 50/50 and put the buyer's half in the loan.

The responsibility of ordering the survey falls upon the buyer so if something goes wrong with the title work, the seller and USDA won't be responsible for the bill. It's a bit scarey of a thought as a buyer that you could possibley end up having to pay for a $500 survey and not get the house if something goes wrong with the title.

James,

Thank you so much for your help.  I know the buyers and do not want anything to stop them from getting their loan for my home, but I am really afraid being the seller.  I am disabled, on a fixed income and need to sell my home so that I can move closer to my doctors in a larger city. My asking price is only the amount that I owe on the home.  I have no savings account, no way of getting extra money.  I owe $106,000 but the county assessors office has my market value at only $93,000. It was appraised at $110,000 in 1998 and again in 2005.  That is how much I paid for my home on an FHA loan. I also live in Arkansas. I have made improvements, including all new plumbing and sewage lines to the city.  But, I am still afraid the appraisal may not be enough to cover the buyers closing cost.  And asking more for the house so that I can pay the closing costs won't do any good will it, since the loan is based on the appraisal, not the asking price? Any ideas?

The amount the tax assessor's office states and what an actual real estate assessor may say are two different things. Try looking up houses similar to yours on realtor.com for your area and compare the asking prices vs your home. That by no means those other houses will SELL for that much, but at least you have an idea of the price range for someone to buy a similar house to yours.

USDA Rural Development Section 502 loans are glorified section 8 housing.  After 30 years of paying what was asked of the client, they are told the subsidy repayment amount is based upon the "current market value" of the home.  You don't own your home, you lease for 30 years if you are unable to pay the "Market value".  You can stay in it, but you don't own it. 

That's only a half truth.

Yes, you will still techbnically owe money for the subsidy amount they covered over the years but it's only going to be *collected* if you sell or transfer ownership of the home. If you live it in it until you die which is most likely going to happen for someone getting a home through this program, then the house gets sold, and whatever money is left over from the sale goes to your family. Of course, you could probably make payments against subsidy beyond the 30 years to shrink it down if you wanted to, so that the subsidy recapture upon the sale/transfer of the house after your death would be smaller so your family or whoever you leave your estate to will get more cash money from the sale.

If someone in your family were to want the property, they'd have to get their own mortgage for the amount of the subsidy owed, so Uncle Sam can get paid back and walk away from it. That would still be considerably less than the house's value in 30+ years unless you let it run down while you're living in it.

With section 8, you'll be paying rent until the day you day and the landlord can kick you out if they so desire and you'll end up with nothing for your family once you die. Section 8 is also a pure hand-out by the Government that costs the tax payers. These loans are just that.. loans. The government eventually gets every penny back, plus interest.

>> "except for the part about interest being charged on the subsidy amount"

I was refering to the interest on the entire loan, actually. I didn't mean to sound like I was saying that the subsidy account incurrs interest.

Also I would like to add... the interest *alone* on pretty much *any* home loan is over double the price you're buying it for, especially with a 30 year mortgage. Uncle Sam is actually making money on these loans, slowly but surely over the course of the 30 years. But they don't get the rest of the pie that is rightfully theirs until you sell/transfer the property.

And yes, the money would be rightfully theirs. It would be like if a bank allowed you to only pay PART of your mortgage over 30 years... and let you owe the rest when you sell the house. If you asked a loan officer to do that, you'd get laughed right out of the bank.

Suppose for example of you buy a $50,000 house and the total loan amount you would owe including interest over 30 years is $110,000. But over the course of the 30 years, you only paid $90,000 of it (based on $250.00/mo for 30 years). You would still owe another $20,000, but it's not going to be owed until you sell the house.

Supposing a worst case scenerio that the house is still only worth $50,000 in 30 years (unlikely unless it or the neighborhood runs down), your family would still walk away with around $30,000 in cash for selling it (less the income tax). If they wanted to take over ownership of the property, they'd only have to get a new mortgage for $20,000 from a bank so the subsidy can be paid off and they'd have to make payments on the $20,000 to the bank. The only downside would be that they'd have to pay interest to the bank they get a new mortgage from but even so, it would still be good deal for them.

And if you don't want that to happen, make payments against the subsidy once you get past the 30 year loan term. Then it would be like you got yourself a 37 year loan. Yes, it would only take about 7 years (a bit less actually) of $250/mo to pay off the $20,000. Then you'd fully own the house free and clear. Then when you die, the house can be given to someone in your family or sold outright with nothing going to Uncle Sam.

If i get a loan like the rdl do i own the house 100%. Also when it comes to sell the home do they take half of the equity?

I just received an elgibility letter for the RD direct loan program for 155,000.  I'm thinking about a new construction. What kind of out of pocket expenses can I expect to incur?

I have a couple of questions in regards to this loan.

1. what if I can afford the mortgage payment with out being subsidized, but qualify in all the other ways. 

How does that work?  Would I even still fall into that type of loan?

IS $500 ERNEST MONEY REQUIRED FOR A USDA LOAN?? I NEED AN ASNWER AS SOON AS POSSIBLE.

Had a bank turn us down for guaranteed USDA because of CH 13 BK being discharged less then 3 years ago. Called local USDA office  to get info on 'direct' USDA loan & discussed many 'compensating factors'. She is sending apple. in mail tomorrow and we will go from there.

But read many interesting comments hereon this blog. We do qualify income wise, but barely, only by a few thousand dollars. Now I am wondering what happens if income goes up or if I decide to go back to work(currently a one income family).

Definitely don't want/need subsidy, but having hard time finding lender(for a guaranteed) who will finance us as well, based on that 13 being only 15 months out.

Thanks for some good info - will update if things turn out well.

You indicated that the loan may not always qualify for subsidizing, if there are changes to income, marriage, or number of people in the household.  How does USDA confirm if there are any changes?  Obviously, it would be easy to determine if a marriage occurred or an increase in reported income, but what if a working adult moved into the household, that would increase the total income in the home and this is not reported to the USDA?

Do I understand this correctly? If I pay off my loan (of 37 years) in full, it amounts to nearly 3x the value of my house, but I still owe for the subsidies?  I never get the title deed? If this is true it's more like a government rip-off.

Nobody told me about this when I purchased my house. What other "subsidy" does the government try to recover? Let's see them try this with farmers' corn when it goes to market, or with ethanol processors, or big business tax breaks. Anyone with income low enough to qualify no doubt is on food stamps and/or medicaid - which also "recover" their losses. Does the government report how much they recover when these homes get sold? So many people have nothing but scathing words for those on these programs, but it looks like everybody pays in the end - bigtime.

Sam: It stated that about the subsidy on the paperwork you signed during the application process. But I don't know where you're getting the 3x figure. Some of the money you are paying each month goes toward your escrow (taxes and insurance). Your monthly statement should tell you how much is going toward principle/interest, I don't have one in front of me to verify exactly what it says.

It's not a ripoff. If you were to rent that house for 37 years, you'd get ZILCH when yyou moved. Plus your rent would be subject to increasing. Your mortgage willl not increase, especially if you get a subsidy except when your income increases. Even if you owe a lot of subsidy, when ever the home is sold, you'll still receive some money from it, less the subsidy owed.

Also, you don't HAVE to accept the subsidy. Clearly you agreed and/or asked to receive it during your application process. I clearly remember a checkbox on an application I filled out asking if I wanted to be considered for the subsidy.

If you don't want the assistance, contact the CSC and tell them to quit helping you with your payments. Mind you, your payments could triple without assistance.

I just wanted to say that I am currently going through RD for a loan and they have been AWESOME! I dislike that people feel the need to bash what programs are out there to help us that have low-income. As a newly divorced Mother of 2, This was my only option. I thank you RD and all the people involved, for all you do for us!!! Now my children can have a place to call home!!

Yes, exactly. I am only paying about $15-20 more per month for my 3 bedroom, 2 bath, 2 car garage, 2 living room, large deck house (Mine you I live in Arkansas where houses are very inexpensive vs other states) than I was for a ONE BEDROOM, ONE BATH house (before I got on section 8 about 6 months before I closed on the house). Mind you, I am getting a pretty big subsidy due to being on disability, very low income. But the house was well below the maximum loan amount by nearly 10k so I owe less than would have actually let me borrow.

I got the house for less than it could have been sold for to begin with too. There has been some issues with the house I have found and corrected such as a few dripping pipes around the sink which somehow got past the plumbing inspection. They needed teflon tape was all. I am handy enough to be able to do that kind of thing myself. Also doing caulking around the shower stalls, etc. Unless you have someone handy around the house or learn to do it yourself, that's really the only major "problem" you may find yourself with when buying a house.

I just heard that the funding is up for the USDA Guaranteed Loans for this year. Does this include funding for Direct loans as well? My application is currently being processed for a Direct Loan. Am I going to end up on a waiting list until October?

Thanks for all the great info by the way!

Hi, I am a homeowner who bought my home with a Direct loan through USDA Rural Development. It's been a while and I have forgotten some of the "rules" of this loan and I was wondering if you could answer a few questions I have about it. My loan is currently being subsidized about $300 of the payment by USDA, I was wondering if my income goes up, how will they calculate how much my payment will increase? I was also wondering if someone were to move in my home with me, who is on permanent disability, would they take their income into account when calculating my monthly payment? I don't remember them ever going over these specifics with me when I closed my loan and now that I am graduating from college and hoping to be making more income, and possibly getting married soon as well, I am very concerned about how these changes may affect my monthly payment. I didn't know who to ask but it looks like you have a lot of experience dealing with these types of loans so I would appreciate any feedback you could give me. Thanks so much!

Hi Cheryl,

First I'd like to say that I've enjoyed reading the comments on your blog.

My granddaughter is in the middle of obtaining a Direct Loan.  I attended the required one-on-one counseling session with her.

In her case, she is only required to pay 1% interest on the loan.  The fixed rate that they offered her is 4.875.  USDA will subsidize the remaining 3.875.  The mortgage payment amount will never go above 4.875% to pay P&I.

How often is income reviewed - every two years.

When to report an increase in income between income reviews - when income increases by 10% above that which is on the mortgage application or since the last review - whichever has the most up-to-date information.

Are IRS refunds considered income - NO

Do the incomes of others living in the household count - YES - Includes disability, social security, unemployment etc.

Is she permitted to pay the full P&I - YES  (Which is what she will be trying to do).  As a safety cushion she can revert to the subsidized amount if hard times fall upon her.  Her only problem in obtaining an FHA loan were:  Low income, no monies for downpayment or closing costs.

USDA Guaranteed loan funds are exhausted.

USDA Subsidized loan funds in this area (SW Ohio) are plentiful - they have 9 million to use by September 30, 2010.

The only thing that is complicating this whole process is that she bid on a HUD foreclosure.  Bid has been accepted.  What's complicating matters are the timelines required by each agency.  The house was built in 1995, is in move-in condition SURPRISE!  And, she is looking forward to moving day.

These loans sound good my questions though are. What happens if I no longer qualify for the subsidized payment would my intrest rate change at all? If I were to sell my home would I have to pay the whole subsidy back? What if I did'nt make any money selling my house and had no way of paying that back! What kind of infromation are the looking for with the annual eligibility will they take all bills into consideration?

My offer to purchase a home was accepted and my realtor is organizing everything I need with my Direct 502 loan. She says I will not have to pay any closing costs whatsoever - the purchase price is exactly what I will pay - because the seller is paying $1500 of my closing costs which, in her opinion, should cover everything. Yesterday I received a Good Faith Estimate from USDA and it says the estimated settlement charges (closing costs) are $6037.00. Does that mean I will have to come up with $4500 at closing? Or that it will be tacked onto the purchase price, therefore increasing the amount to be financed? Or does USDA just write it off (which I doubt!)?

Thank you.

Buyer from Ohio

Hi Cheryl!

My husband and I are very young and expecting a baby. We are planning to move to orlando/kissimmee sometime between August and november and REALLY WANT TO BUY A HOUSE! We are so interested in the USDA loan and are expecting a packet from the office in that area to see if we quailify. My husband has worked at home depot for 8 months part time at 8.00 an hour and brings home 1200 before taxes a month and before that was at subway for 4 years at 7.25, i quit my job back in january due to chemicals and my pregancy but sell pampered chef on the side to make a little extra income. His credit score is 675 and mine is 575.

What do you think the odds are for us to be approved for this loan or which USDA loan sounds like the best bet for us?

Do you have any advice or info you could share???

Thanks

April

I would like to know how long you have to stay in a home baught this way andcan you rent it out?

The home must be your primary residence so no, you cannot rent it out. You can sell it whenever you want, no time limit to live there.

Does that mean I could sell after just a month or two?

This sight is great, but my head is spinning.  I just married a lady who has had a USDA RD loan (subsidized down to 1%) since 2003.  She is waiting for some "subsidy recapture"(?) estimates from the USDA office because we would like to refinance...I think.  It seems to me that we may not be able to continue with this loan since the household income has increased from $12K to $120K per year. 

I hope I'm asking enough questions:  Will the USDA force us "out" or force us to refinance somewhere else?  What if we just let them adjust the loan to the max (6% she has been told), and carried on with that payment for the life of the loan?  At some point in the future, would the subsidy recapture be satisfied?  The amount being recaptured could be quite significant so it may be better for us to stay with this loan at the adjusted rate, right?

Hi Cheryl,

My parents obtained a Rural Dev Loan in 1994 to purchase our family home. My mother passed away a few years ago and my father recently passed. What are options for the adult children? Can we assume the loan? Can we just keep paying? Can we sell and keep proceeds?

Thank you. I would really appreciated any comments or ideas you would have about this.

You or someone in your family would have to qualify for a mortgage in their own name and use that mortgage to pay off your mother's mortgage. If she received a subsidy, this would also have to be repaid to the USDA so the new loan would have to cover the remaining balance due plus any subsidy owed. If you wish you sell it, you would need to pay off the remaining balance and any subsidy due with the proceeds from the sale first, and what ever is left over after that is what you would get to keep. So if $50,000 is still owed in mortgage+subsidy balance and you sell the home for $100,000, you would end up with $50,000 being paid back to you, less any closing costs, laywers fees, realtor fees (if you go through one), etc. That's roughly how it would work.

Hi, I am in the process of refiancing my house . I am concerned about the recapture amount. Can you give any information ,so I can plan the amount. I presently own 87, 500 on the house but a figure of 113,000 was given as recaputre?  Thanks, Dennis,

My wife and I are in the application process and were told funding is available in our area (SW Washington state). Anyway, I am a bit concerned about the recapture costs for the subsidy if/when we sell the home. Contrary to some comments on here, this won't be a house we buy and hope to live in until we die (how depressing is that?). The whole point here is to help lower income people have a chance at a higher standard of living and continue to progress in life and achieve.

Anyway, any experiences with the recapture at close for those of you who know or personally did the direct home loan program and then sold the home? 4.65% on a 170k home subsidized by 3.75% wouldn't that be a lot of money after even 5 years? If your house doesn't grow equity at that same rate, don't you LOSE money when you sell? If that's the case I'm questioning this program big time...

Unless I am mistaken, you don't *have* to accept the subsidy. It seems like there was a checkbox on one of the early forms I filled out asking if I wanted to be considered for it or not (ie: to see if I qualified). I personally opted for yes. I'll worry about that when the time comes because it helps me afford my monthly bills for the time being. Plus you might be able to call and opt-out of it if you really didn't want it once you have it.

Also -- under your scenero, you would lose money with a traditional loan too since you'd have paid interest for 5 years and only sell the house for the same price you bought it for if the value doesn't go up any.

I am on thw direct loan and have been for 91/2 years.. I was working til about 5 yrs ago and I was determined to be legally blind so i had to quit my job. So i am now on SSDI,, When I got the loan USDA made me get a 80/20 loan.. I am planning on getting married soon, She earns around $32,000.00 a year and my SSDI I receive a little over $12800.00,, Will our total income be combined to determine the payment, or is it total adjusted income which will be much lower.. My payment now is $200.00 a mo to USDA which is subsidized by $200.00 I believe and $287.00 to credit union..I am trying to figure out how much more my payments will be..

We were told upon signing that any subsidy we acuired would be forgiven after seven years of occupying the home. Have you heard of this before? I know this was the case because it was the only reason we went through with the loan and we asked many questions to make sure we understood the agreement. Now eight years later, they are saying that the subsidy is never forgiven.

How long does it take for fiscal year funds to be dispersed after October 1 for the Section 502 Direct Loan?

I was told by the USDA that I would have to pay half the difference of my original mortgage and my current market value or all the subsidy, whichever is lesser of the two.

In an earlier post someone said this wasn't true about them taking half the equity.

So which is correct?

In response to Carrie Wilson's post.  I was also told at my signing that if I sold my house before 10 years I would have to repay money but if I stayed longer I would be fine.  I have been in my house for 13 years and am now learning I have to pay a recapture. 

In response to this post by Cheryl Powell: "On the positive side... you can live in your house for the rest of your life and NEVER repay the subsidy, plus you are living in a house that you otherwise couldn't afford".----A bank in Arkansas is working with a lady that has completely paid her house off and is being told she still owes the recapture. So why is she having to repay since she has paid her home off? 

This situation is apparently very stressful for all of us and it seems as though by reading these posts that we were all told what they wanted us to hear so we would get this loan.  If I had known I had to pay back money I would have NEVER gotten this loan. 

I would not recommend this loan to anyone.  If you are thinking of getting this loan DON'T!!!

"A bank in Arkansas is working with a lady that has completely paid her house off and is being told she still owes the recapture. So why is she having to repay since she has paid her home off?"

Because she DOES owe it. But they don't expect payment it until you sell or transfer the house of your name. You havent give any details about that supposed "problem". What is the reason they say she owes it? Did she transfer the ownership to one of her children? Did she get married and tried to add her husband to the deed? What is the reason they are demanding payment of the subsidy... which is a bad name for it, they need to call it a "deferred payment balance" rather than a subsidy since that's what it really is. They are deferring a portion of your monthly payments into an account that you DO still owe at the end of the day but they don't expect you to pay it until you sell the house or transfer it out of your name. So when you sell your house after "paying it off" (no more monthly payments expected from you) you owe for the subsidy balance. When you sell it, whatever is owed goes to the USDA and the rest goes in your pocket.

Here is a direct link to the USDA's subsidy repayment agreement which should explain it completey:

http://www.rurdev.usda.gov/regs/fmi/fm3550-12.PDF

Thwn Why should I tell USDA that I got married.or someone lives in my house. They will get there money one way or another.. Been here 10 yrs and will live here til I die now.. I wont update them if anything changes in my life.. I am sure I wont be the only one.. I wish I never got this loan!!

"Why should I tell USDA that I got married.or someone lives in my house."

You don't have to.. unless you go trying to modify the deed.. then they'll find out and they might consider someone other than the original buyer on the deed "transfering" ownership. But aside from that, you don't have to report anything other than *YOU* moving out of the house (beyond an allowed amount of time) because then it's no longer your primary residence as required by the mortgage program.

If you don't like the mortgage you have, sell your house and go find a bank you will lend to you. But if you have one of these loans then odds are, there was no way you raise 20% for a down payment and/or you had a less than perfect credit score.And get a very low an interest rate. I have an interest rate below 5%. My mom has an interest rate at 7.5% from a traditional lender from around 2005.

So be thankful for what you got and quit expecting the government to give you a free house you can own and sell outright. The USDA Rural Developement subsidy is not a handout like section 8 rent subsidy. It's just deferred payments as to make your payment more affordable. You can call up the USDA and have that subsidy stopped if you don't like them helping you on a monthly basis. If you want a handout, go get section 8. But at the end of the day you'll never own it. They can kick you out if they want and you'll have to move. Or they can quit accepting section 8. Or section 8 funding could get cut. Once you get locked into these mortgages, you're set for life. Rent goes up, mortgage payments do not very much. Usually insurance and taxes are the only thing that can cause a mortgage payment to increase. Or if you have a crappy adjustable rate mortgage but as far as I know, these are fixed rate mortgages.

On my mortgage, I figure I will end up with about $55,000 in subsidy owed when my house is "paid off" in ~32 years. I am less than a year into my mortgage and the loan term is 33 years. That money would have been owed *ANYWAY* if I had gotten a traditional mortgage, I'd have just been paying it off in addition to what I *am* paying now. 32 years is a long ways off, but I suspect I will simply ask them to defer the subsidy. And when I die, since I will never have any children, I will leave my assessts to my neice and nephew. They can sell the house, pay off the subsidy and whatever is left over can be split between them. Surely the house will have gained some value in 32 years. Never mind the fact that I got it for a good deal to begin with, at least $10k-15k less than similar houses around here. So assuming it gains let's say $40k in value, they'll end up selling the house for about $110k (Where I live, homes are very low cost), the subsidy will only be $55k so they'll end up with $55k to split between them.

Unless I feel I can get a large loan in ~32 years, then I would only owe 75% of the subsidy ($41,250 would be owed, $13,750 less).

Typically you do lose money in real estate when you are buying a home for yourself. The reason is the interest you pay over ~30 years is usually over twice the purchase price (ie: a $100k house, you end up paying about $220k for when it's paid in full including interest). This program isn't meant to line your pocket with gold. It's meant to give you a decent home at an affordable monthly payment.

If you don't like what you have, move out, go hand the keys and deed to the USDA and let them foreclose on it, sell it and regain the money they put out for your benefit and let them lend the money to someone who will appreciate it more.

 It’s really appreciable and general. I like this particular article It gives me an additional input on the information around the world Thanks a lot and keep going with posting such information.

======================

Mortgage Uk

I am closing tomorrow on my home with a 502 Direct USDA loan.  This loan is the only way I am able to afford a home on my own.  I think this loan is great.  It is like getting a NO INTEREST loan from the gov't.  I understand I will have to pay this back - but where else can you get a NO INTEREST loan???  My subsidy payment is around $300 and my total payment (including insurance and taxes) will be around $665.  Without the subsidy I would be paying $965.  I would recommend this loan to anyone willing to take the time to fill out the gov't paperwork (which can be a lot) and be patient.  It does take awhile to get all the paperwork in order. 

Anyone who claims they "did not know they had to pay the subsidy back" is just forgetful or didn't pay enough attention through the entire loan process.  It was explained to me very clearly what would need to be paid if the home is sold.  I was told the HIGHEST amount I would ever need to pay back and taught the formula used for the recapture of the subsidy if the home is sold.  The subsidy recapture formula takes your equity and years lived there into account. 

The requirements for the home are close to FHA standards and with most of these houses it doesn't take long to get some equity in it - even a day after you buy it. 

I would recommend this loan to single parents who need a nice place for there family and can't afford the payments on their own.

This is the best information I have ever found about the USDA direct loan. Thank you.
 Can anyone tell me from their experience, how long did it take from the initial paper filling to the news  about an approval? We have submitted all papers on September 1, 2010 we still did not know how much are we looking to get. The loan officer seems like he doesn't really know what he is doing. He contacts us after month and asks for some additional papers, then again after weeks for another... we are so frustrated with this. Is it like this everywhere?
When we will finally hear back from him for how much we are preapproved will the process will be faster then? Will it mean that we definitely got the money and we can start looking for a house?
Please, share your experience.

Hello does anyone know if these programs, direct and or Subsidized loans have any more funding available? Also approximately how long from start to finish does this process take?  What are the credit guidelines?

Yes i have a question about the monthly payment.  If i was to get married how much would my payment go up.  Will it be the maximum of the intrest rate that I was given.  Or does it depend on how much income we have together?  Is there any place where i could find out how much the payment would go up?

You will need to contact the USDA Service Center listed on your mortgage statement and provide them with your account number and any other information they request. The full payment amount should actually be listed on one or more of the the documents you received at closing. Keep in mind that the payment amount they may tell you may not include escrow. Escrow can go up or down depending on your tax and insurance costs.

In fact, it should be on one of the documents you were provided with to READ and sign at closing. Yes, I actually did sit there and read over all the documentation and asked questions on anything I didn't understand before I signed it. It should be on something like the mortgage agreement. That's where you are stating you argree to the contract of paying $____ for ____ months. The amount shown on it does not include escrow so what ever your escrow monthly payment is, add that on top of the amont shown on your mortgage agreement.

I put in my application through usda and the person has ran my credit check and asked me to take care  alot of things that appeared on my credit report.  So I did it and she called me back and said everything is probably gonna go through.  Now she is putting a certificate of elegibility together but she is still not for sure I will get the loan who does the signing for this certificate? Her boss okayed everything and she okayed everything so is it possible the person sighning the certificate will say no.

I suppose it's possible but unlikely. That would be a question you would need to ask your local RD office. It's just red tape. The only very minor thing I had to deal with (which just involved signing one extra paper at closing) was someone with a similar name to me (ther first and last name are my middle and last name) who lived around this area owes the the fed gov large amount of money (or something to that effect). They informed me about this long before closing and presented an afidafit to sign at closing.

Hello all, I have found a home that I am interested in purchasing and the mortgage company that I am working with suggested I attempt to secure a USDA loan. The home is approx. $170,000. I am trying to educated myself as best I can before moving on with this but have a few questions.  My fiancee and 2 children( which are not by my fiancee if that makes any difference) will be moving along with me to the new home, my fiancee does not currently work but probably will sometime  within the near future. My questions are 1. will she have to added to the home loan initially since she will be living there? and if so will they look at her past W2's to determine if we qualify because if so we will exceed the $78,500 maximum income for our county 2.  I have heard that I will not be able to get married from anywhere from 4 to 6 months and have even heard up to a year! is there any truth to that? 3. Is there any way to calculate what my monthly payment would be using a USDA loan or can it be calculated the same way one would calculate a conventional loan? If it make any difference I live in Texas.  I have attempted to try to find answers to these questions but have been unsuccessful any help that is given will be greatly appreciated.

i applied for a Rural Development Loan in 12/2011 and required a co-buyer. my son's girlfriend and their 3-year-old child were also involved in the purchase. the girlfriend signed a exclusive buyers contract for a home and 2 days before closing left her boyfriend (my son) and their 3-year-old. i was devastated and so were my son and the little one but for different reasons.

rural development gave me a little extra time to find another co-buyer but both had 0 credit scores so tried using alternative credit. just 2 days ago 6/14/2011) i was informed Rural  Development changed their alternative credit to non-traditional credit only. i just sat down and cried my heart out.

i requested exceptions to my co-owners credit...but things don't look good. i'm 58 now and it's my first time as a home owner but it looks bad.

why doesn't anyone talk about what can go wrong with a Rural Development Loan? Why do adult children (23 & 24) have to have traditional or non-traditional credit at this day and age? That's what got me into financial trouble years ago. now i just use cash to pay my way and i raised them that way too.

My co-owner is a good risk with a 0 credit score. How can I convence them of that?

Ok, I need some real help.  I am in Arkansas and got a USDA/FmHA loan back in 1994.  Got a house for $47,500.00.  I have lived here now for going on 17 years, went through a divorce and incurred some subsidey assistance.  My current husband and I would like to (1) either buy the house outright and put in on a 10 or 15 year note or (2) sell the house and move on to something else.  All informattion that we gewt is VERY conflicting to say the least.  I have talked to banks, real estate agents, attorneys and FmHa.  According to the paperwork I requested back in Feb 2011, they have paid $16,371.00 in subsidy and my principal balance is $40,401.  When I just did the automated call for estimated pay off, depending on what a current appraisal would say, it varies greatly.  If the house still only appraises for $47,500.00, my estimated payoff is $39,955, if it is $65,000 it is $46,249 and if it is $85,000 it is $56,249.00.  I know this is just estimated and the bank said until we paid for an appraisal we wouldn't get an accurate portraral of what we "might" owe.  Last time I talked to Fmha they said I owed aroun $57,000 and they make me keep it isured for $55,000.00. 

We would really like to sell it and move on.  Everytime we talk to anyone, they say if we sell it we get 0, and if we buy it from them we start again at 0.  I wish I knew somewhere to start and no one understand s the subsidy/recapture business.  It would be great if we could just sell and walk aay with $20,000 to put down on another house.

My sister has a USDA loan.  She is very confused on the subsidy repayment. She is selling her house she bought it for $85500 and the tax assessor office has a listed value now of $102500, she owes $83500 after 5 years and the max subsidy repayment is $12000.  When she does the estimated voice payoff it says she only will pay a portion of the subsidy back and not the whole amount. She has it listed for $96500.  So what i am wondering will she have to pay the full amount or only a portion because of the market value??????????????????????????????????????????????????

DONT DO IT!!!! I was living in a motel and friend got me on this program, I was being offered a chance to buy my own home. I had a bad feeling but here I was living in a motel barely making it and someone is offering me a house.

for one I was only offered one house so I had nothing to choose from it was run down very old etc.... It was so bad I could not get any home owner insurance so was stuck with USDA.My mortgage went from 840.00 a month to 1250.00 a month three years later. Now befofe you say cause of income no I had less income coming in..I became severly animec and was in the hospital and then had to have surgery I lost my job during this time. I asked for a moritorium which I knew of other done and had gotteen I was denied. so jobelss and was unable to work for a while I could not pay my payments, my house was about to go into fore3closure. I did a short sale and sold the house for quite a bit less than bought. I had no money to fix it up or fix anything...

so I sold the house had to leave within a month, I was told the whole time that my debt would be forgiven I believe I even signed a paper saying my debt was forgiven. Also this was the end of Sept 5007 two month before the bill passed for forgiven debts on short sales

 a few months later after i thought I was clear of this house I get a bill for over 75000 from usda now for the past years they have offset my taxes

Also the irs jsut sent me a wage garnishment for back taxes for the house, when I called them to find out what was going on and how I could owe they have on record that I was paying my mortgage in 2007 and sold the house so NOW I HAVE to send and prove I sold the house and had no income for that year. As I said to him if I was paying or able to pay my mortgage then why would I of had to do a short sale

I know it sounds like a wonderful program but trust me.... sounds to good to be true and there so right

YOU choose the house, THEY do not. You have to go out and find the house and tell them about the ones you are interested in. And in fact, they are pretty strict on the condition of the house. They went through the one I bought prior to approving it and made a list of repairs the seller had to make before they'd approve it (which wasn't very much) and I ended up with a 3 bedroom, 2 bath house with a 2 car garage, large deck on the back and carport for my travel trailer. Mind you, I live in Arkansas so such a house isn't as expensive as it might be elsewhere in the country, plus I got a good deal on it. If your mortgage payment went up, it was due to property taxes and/or insurance rates going up. Mine went DOWN about $15/mo in 2011 because my yearly insurance premium went down.

It's a flat out LIE that you got a loan from USDA RD without any insurance. They require you to pay a year of insurance before closing. That's ALL lenders. Same with financing a car, they expect full coverage on the car while you owe than anything on the car. That is to protect the lender in case of loss of the property. Sounds like you had no business owning a house if you didn't read and fully understand the paperwork you were signing.

And too -- if you are so petty that you would lie to folks reading this forum like you have.

The only slight downside I have found that while the subsidy helps you afford the payment, it can bite you in the butt if you try to sell the house too soon after you buy it. Unless somehow the propery goes up enough in value to cover your mortgage balance plus subsidy, you'll come up short. But 10-15 years down the line, you might be okay. You might not walk away with a profit, or much of one anyway, but it kept you in a nice home for the time you lived in it. Something you wouldn't otherwise have with something like Section 8. The Section 8 house I lived in prior to buying my home with USDA RD was a 1 bedroom, 1 bath house. Before I finally got Section 8 (a few months before I was to close on the house after 3 years on the waiting list) I was paying $300 a month rent. In 2011, I am paying the same amount to live in the 3 bed/2 bath home I desribed. Mind you, that's with the subsidy but they didn't force that on me. I could call them up and say "cancel the subsidy, I don't want it anymore" and they'd stop it. But my payment would go up about $140/mo and I'd find it harder to get by every month. Due to getting the homebuyer tax credit which got me a better used vehicle than I had (which was technically totalled, but still driveable) I wouldn't be able to sell too soon anyway, due to the time limit I must live in the home before selling it, or else I will owe back the IRS the tax credit. But I plan to be in this home a long time, if njot for the rest of my life. But who knows - 10-15 years down the road I may sell it. By then, I will have made enough payments into it that the balance owed will be down enough that when I sell it, I'll be able to pay off the mortgage, subsidy and perhaps have some cash left over. But really, I'd be happy if I came out even. It would be like I got to live in a very nice home for all those years for very cheap, and I got a good, reliable used vehicle out of the deal too.

I had insurance I had theres and it was very high cause no one else would insure me. I did not have a choice on houses this was the only one. When I had surgery and could not work and had no income or very little and could not pay my house I asked for a mortiorium but was denied where my daughter was given one to help them. I was lied to by them and if you think I am a liar that is on you. Just saying be very very careful. Also my daughter lives in same town as I and her morgtage never went up that much as mine did.so yea I guess I should of never owned a house cause that was 4 years ago and I am still paying and it has been really rough I wish I had never done this cause been nothing but a nightmare for me.

Whay happens when you eventually pay off the house after 33 years? Do you keep paying USDA for the subsidy after that point? I have 23 yrs left and probably NEVER move.. They made me get a 80/20 loan so I am paying on a 2nd morgage that has 16 years left..

I'd like to offer my experience with the USDA 502 Direct Loan program and recapture of the interest subsidy when I refinanced this year.

I bought this house in 2000.  It was appraised at $85,000.  The USDA inspection required certain repairs (siding) before approving the house but will finance up to 110% of the appraised value to cover those repairs, as well as closing costs.  My initial loan was for $92,000 for 33 years.  My income for this time went up and down, moving between the "very low" and "low" category.  The interest subsidy also was increased or decreased according to my income.   

At about 5 years in, I found grants from my county and state for home repair and increasing energy efficiency.  I received nearly $35,000 for a new roof, boiler, 35 energy efficient windows, added insulation and I bet I've forgotten some other work done.  These grants required a 2nd lien on the property for 5 years.  For each year I continued to live in the house, 20% of the grant was forgiven.  After 5 years (May, 2011), the entire amount was forgiven. 

In 2009, I changed careers and my income nearly doubled.  Of course, the subsidy went away but my initial loan was at 7.5%, so I could do it.  In October 2010, I tried to refinance when the interest rates were first at record lows.  The grants still had 6 months to go and the required communications and agreements between all parties having a claim to my property was nightmarish so I withdrew my application to refinance, forfeited the cost of the new appraisal, and waited until May.

The pay off statement from USDA in May stated I had received about $35,000 in interest subsidy for the 10+ years of the loan.  The new appraisal for my property was $120,000:  $35,000 more than the $85,000 I started with.  USDA states the recapture amount is the lesser of 50% of the adjusted value appreciation or the amount of the subsidy.  USDA will also reduce the recapture amount by 25% if you pay it in full at the time of sale/refinance.  My end recapture amount was about $10,000 and with the balance of $78,000 on the loan and closing costs, I had a new 30 year loan for $90,000 at 4.75%

At first, it was disheartening to see a loan of nearly the same balance as I began with over 10 years ago but this was purely an emotional response.  In fact, I now have $30,000 equity and no PMI payment, since the loan amount was less than 80% of the appraised value. 

My biggest complaint about the process was that beneficial information was often buried deep in the USDA information pages and also that no one - not USDA employees, their loan servicing agency employees, my bank, lawyer, appraiser . . .  could give me a step-by-step procedure to maximize my credit for improving my property's value by 30% over 10 years.  Average property values for this areas stayed fairly level over this same time period, so that 30% was due to my efforts.

This is where I dropped the ball.  If you are considering selling or refinancing, USDA's "Adjusted Value Appreciation" is key.  Ask for, or search for, USDA's list of acceptable capital improvements.  List yourself all of the things you have done to improve your property.  **Most Important**, have the appraiser itemize each improvement separately with the increase in value to the property each improvement made.  That means listing #1) . . ., #2) . . ., etc.    USDA will not give you credit for improvements if the appraiser says "$5000 in value is attributed to new energy efficient windows, new roof and landscaping".  A roof is not a capital improvement.  The window upgrade was, as is landscaping, but since they are bundled with a non-qualifying item, none of them count.  Have very clear communication with the appraiser about this.  Once he sends his final report to you, your new bank and USDA, there just isn't enough time with the mortgage deadlines to get it all straightened out.  Also, have him itemize even questionable improvements.  Vinyl siding isn't considered a capital improvement but it might be worth arguing if you bought your house, as I did, and it was covered top to bottom with peeling sheets of particle board.

I want to finish by acknowledging that any assistance program is a hassle:  consider it the price you have to pay to get something worthwhile.  And while it might be tempting to think these programs are designed to keep you in a certain income bracket or punish your efforts to better your lot with demands for repayment, get real.  I mean it.  Get real by sitting down and crunching the numbers.  Calculate your costs and gains as if you never signed on for this ride and put it side by side with your costs and gains from the USDA program.  If you still feel the program is unfair, then it's time to contact your congressman.

I hope this was helpful to somebody.