DIRECT versus GUARANTEED Income limits for USDA Rural Housing Loans

By
Mortgage and Lending with HomeStar Financial Corporation
https://activerain.com/droplet/4dQs


Ok, so I’m having a conversation with a Loan Officer for another mortgage company yesterday and I get this idea that maybe I should help our community by providing a better understanding regarding some of the “do’s and dont's" surrounding the USDA Rural Development Loan. 

During this phone conversation, I quickly realized that the scenario provided was based on a misunderstanding of the difference between DIRECT versus GUARANTEED Income limits. DIRECT USDA Loans are loans that are entirely underwritten directly at the local USDA office, similar to going to the DMV in terms of service. The DIRECT USDA Loans are generally reserved for very low income borrowers. GUARANTEED USDA loans are typically underwritten by direct lenders with a “second look”/underwriting review from the local USDA service center. That’s the abbreviated explanation between DIRECT versus GUARANTEED USDA Loans. There’s more to it, but an entirely different discussion…
The USDA Guaranteed Rural Housing (GRH) Program offers greater flexibility for your clients in terms of income limits. The new 2009 income limits for the USDA Guaranteed Rural Housing (GRH) Program offers an easy to understand 2 tier system. The 1st tier provides an income limit for household sizes of 1-4 persons and the 2nd tier provides an income limit for household sizes of 5-8 persons.
Here are the Base Income Limits for all non-high cost counties:
1-4 Person                           5-8 Person
 $73,600                                $97,150
So, regardless of whether we have a buyer purchasing a home in a high-cost (metro areas) or non-high cost county (“the sticks”), the benefit here is that all 1-4 person households would qualify based on the 4 person limit and all 5-8 person households would qualify based on the 8 person limit.
 
Wait a minute, it gets better…
For those serving markets located within high-cost counties of Georgia, such as Coweta, Spalding, Fulton, Carroll, Heard, Henry and even Pike County, to name a few, we have the Maximum Adjusted Income Limits.  Because those counties mentioned are considered part of the Atlanta-Sandy Springs-Marietta Metropolitan Statistical Area, the income limits are increased to allow for the higher cost of living. A Metropolitan Statistical Area (MSA) is generally a county or group of counties with a combined population of at least 50,000.  In addition, adjacent counties are included in a metro area according to commuting patterns.
The Maximum Adjusted Income Limits for counties included in the Atlanta-Sandy Springs-Marietta Metropolitan Statistical Area (high-cost counties) are…
1-4 Person                           5-8 Person
 $82,450                               $108,850
So, depending on the buyer’s debt ratios, with those income limits you can buy a lot of home in Metro Atlanta! 
Knowing that most of us are control freaks, I’m sure many may assume that everything is dead if your buyer’s annual income exceeds the maximum income limits. However, there are a few ways to help those whose annual income may exceed the maximum limits. For example, for each resident of the household that is under 18 Years Old, Disabled or a Full Time Student, there is a $480 deduction to the annual income. In addition, the program allows for adjustments regarding various child care expenses.  The most important factor regarding whether or not your buyer qualifies is that you should not assume anything and rely on the experts. By allowing the loan officer to “spend some quality time” with your buyer, you are increasing your odds of a much smoother transaction. 
Also, unlike other home loan programs, there are no loan limits with the USDA Guaranteed Rural Housing (GRH) Program. Please share this information with your fellow Realtors and Builders!
Hope this helps…
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Anonymous
K

So my question is if you what are the income limits to qalify for a Direct Loan VS the Guaranteed?  Also I understand with one or both of these loans if for some reason you have a hardship and your income decreases the government gives you a certain amount of subsidy with the loan (is it only for one or both of these types)?  I was also wondering about the interest rates< I was told they are very low as well at a fixed rate?  Can you please explain Jeff?

~K

Aug 26, 2009 07:22 AM #1
Rainmaker
286,038
Jeff Wilmoth
HomeStar Financial Corporation - Newnan, GA

Hi "K",

The income limits for both loan programs can be verified by visiting the following link: http://eligibility.sc.egov.usda.gov/eligibility/incomeEligibilityAction.do. The limits are contingent upon the area you are buying the home.  For accuracy, please give us a call.  If you do not know the maximum amount of home you qualify for, feel free to give us a call directly at (404) 597-5662.  Rates are low; again call us directly at (404) 597-5662 for current rates.  The program only offers a 30yr fixed rate with NO PMI!  As far as your question regarding hardship, I would advise purchasing within your limits. Beyond that any coaching regarding "hardship" is just plain irresponsible lending practices.  Listen to the professionals and only buy what you can comfortably afford and live within your means.  Lastly, save, save, save!  

Aug 27, 2009 12:44 AM #2
Anonymous
Michelle Pierce

Great Summary Jeff!  I've heard rumors that even for guaranteed USDA loans that the USDA review process is currently running at 30 days!  Can this possibly be true?  Does the USDA really take that long to review a file that was already reviewed by a lender?

Sep 04, 2009 06:00 AM #3
Rainmaker
286,038
Jeff Wilmoth
HomeStar Financial Corporation - Newnan, GA

Hi Michelle,

 

That is a frequently asked question.  I'm amazed at the number of mortgage folks that come up with some pretty unique responses regarding the turn times for the USDA Guaranteed Housing program and often wonder why.    

Underwriting turn times at the local USDA service centers are higher than normal due to the increased exposure of the program.  However, WORST CASE, the current USDA service center turn times are 7 days for Coweta County.  Generally in the past, they have been 2-3 days. 

We will be closing a USDA loan for a 1st time home buyer next Wednesday.  The buyer's agent is Stacy LeMay of The Bush Real Estate Group.   From start to finish we will be closing the loan in exactly 25 business days.  This includes our portion of the in-house processing and underwriting, plus the USDA portion of the underwriting/loan approval for the Guarantee Fee. 

Our experienced, team of mortgage professionals have been specializing in the USDA Guaranteed Rural Housing (GRH) Loan since 1999.  In fact, HomeStar Financial Corporation has consistently led the Southeast in the production of USDA Guaranteed Rural Housing Loans for years!

Sep 04, 2009 10:52 AM #4
Rainmaker
286,038
Jeff Wilmoth
HomeStar Financial Corporation - Newnan, GA

I just received word that the current USDA underwriting turn times for Coweta County is right at 4 business days.  Better hurry if you are trying to capitalize on the $8000 tax credit.  If so, you have just about a little over a month before you should be under contract...the loan MUST close by 11/30/2009 

Sep 17, 2009 09:35 AM #5
Rainmaker
467,436
David Jirasek
Jirasek Realty - Temple, TX
ALC, CCIM

I have a contract pending with the buyer getting a USDA loan, and it was contractually to have closed on or before December 18th. I got word from the buyer agent last week, USDA needed 7 to 10 more business days to get to the file for a turnaround. Everybody in this deal is hoping USDA can approve this to close by mid January! The government does not have any concern as to any timeline agreed to in a contract. 

Jan 04, 2010 12:25 PM #6
Rainmaker
286,038
Jeff Wilmoth
HomeStar Financial Corporation - Newnan, GA

Hi David,

Thanks for the reply!  Regardless of loan type, contract extensions are frustrating.  Any error can delay your closing.  Accuracy, full disclosure and attention to detail always pay-off!  Nonetheless, we all have to take full responsibility for making sure contracts are accurate and the borrower has been appropriately qualified.  Thank goodness for technology; it could be worse...

I grew up in Texas, but I'm unfamiliar with the USDA operations there.  In Georgia, underwriting is delegated throughout the state to several USDA Service Centers.  This helps expedite closings compared to states that centralize their underwriting operations.  Depending on the time of the year and the quality of the file, we have closed USDA files in 25 days or less (even with the new regulations).  At the present time (01/04/2010), we are currently experiencing 10 days for USDA underwriting, but our in-house underwriting is 2-4 days.  It's a great, "no-brainer" program that is gaining popularity. 

Jan 04, 2010 02:16 PM #7
Anonymous
Tracy Mathewst

i hope im right in assuming you work for a lender company im assuming. my husband and i are looking into buying our first home soon as we are almost through paying our last vehicle off. we try not to get into too much debt at one time. anyway  we are interested in the usda loans naturally but im not sure exactly where to get started or which loan would be better for us and why. right nown we live at a n uncles property for free but while it is nice to live rent free it is an older mobile home weve done alot of repairs to and with a 1yr old i just dont feel quite safe in it especially since it is under a huge oak tree and louisiana weather is known to be crazy. anywayn my husbamd grosses around 18000 a year so i beleive were safe on the income limits. with my husband working 8 to 5 its hard to find a bank open around here which is in the middle of nowhere northern louisiana during the week and we havent found a weekend off to visit the nearest metro area an hour away. ive tried calling some companies online but so far ive had two companies say they wouldnt be able to help me. why you might ask. because the asking price on the house we are looking at is under 60k. we have found a beautiful home that we have fallen in love with but the asking price is 49999 .is this a general rule with the usda loans. i didnt remember seeing any minimum loan limits. i know the credit score is supposed to be a 640 now but mine is a 635. i have no late payments nor collections. the only reason it is there is because when we were shopping for a vehicle i let everyone run my credit not knowing any better at the time and it resulted in too majny inquires and bc of two credit cards while not late have a high balance which i am going to pay off before even thinking about applying. will a 635 be okay though. will they shut me down because im 5 points below i wonder. thanks for any help. and sorry for no caps nor right punctuation. i am typing this on my phone and forsome reason this text box will not let me use my shift key.9. 

Aug 10, 2012 02:35 PM #8
Rainmaker
286,038
Jeff Wilmoth
HomeStar Financial Corporation - Newnan, GA

Tracy,

Thank you for the response.  I am a mortgage loan originator licensed in Georgia only.  Every lender will have their minimum loan amounts.  If you search hard enough you will find someone who can help you with that credit score.

Aug 11, 2012 02:19 AM #9
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