Arizona USDA Home Mortgage Declined For Too Much Money????

Mortgage and Lending with Reasy Financial LLC NMLS 2446155

Recently, a prospective buyer applied for an Arizona USDA Rural Housing Guaranteed loan.  This applicant met all the criteria to obtain an Arizona USDA Home Loan in terms of credit, income requirements, and property location.  The loan was sent to the underwriter and DECLINED.  The reason for decline – “We cannot certify the applicant’s inability to secure credit from another source”OUCH…… So the borrower actually has too much money in the bank and can afford to make a 20% down payment to obtain Conventional financing.Declined USDA Arizona Home Loan

Here is an excerpt for the rules as stated forth for Arizona USDA Rural Housing Guaranteed loans and applicants with too much loot:

Conventional credit has long referred to loans not guaranteed or insured by the Federal Housing Administration (FHA), the Veterans Administration (VA), or the Rural Housing Service (RHS).  When 7 CFR Part 1980, Subpart D (and the corresponding RD Instruction 1980-D) was promulgated in the early 1990′s, a conventional loan was universally recognized in the housing industry as one where:

• the applicant was able to make a 20 percent down payment; and 

• the applicant was able to pay all closing costs out of pocket; and 

• the applicant’s total debt ratio was 36 percent or less; and

• the applicant’s debt ratio for principal, interest, taxes and insurance (PITI) was 28 percent or less; and 

• the applicant had a good credit history consisting of at least two credit bureau trade lines open and paid as agreed for at least a 24- month period, to include that:

  1. the applicant was not currently 30 days or more past due on any trade line; and 
  2. the applicant had not been 60 days or more past due on any trade line over the past 24 month period; and
  3. the applicant did not have a foreclosure or bankruptcy in their credit history over the past 36-month period; and 

• the conventional mortgage loan term was for a 30-year fixed rate loan term without a condition to obtain private mortgage insurance (PMI). 

Liquid assets for conventional credit down payment purposes typically consisted of cash or cash equivalents. Cash or cash equivalents included funds in the applicant’s checking or savings accounts, or investments in stocks, bonds, mutual funds, certificates of deposit, and money market funds, unless they were encumbered (pledged as collateral) or otherwise inaccessible without substantial penalty. Cash equivalents typically did not include funds in Individual Retirement Accounts, 401 (k) accounts, Keogh accounts, or other retirement accounts that were restricted and may not be accessed without incurring substantial monetary penalties.

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Comments (3)

Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Yes, this is frustrating, as I share your paid. I do a lot of this product and the transaction has to fit the box almost perfectly or it doens't happen.

Oct 28, 2011 08:49 AM
Art Welch
Superstars Realty - Buckeye, AZ

But if a buyer has the down why would they waste the money on a more expensive USDA product, and incur the costs of Higher interest and M.I.  The smart thing for this buyer would be to put 10% down on an FHA 15 year.  No MI, best rate in town.  This all comes down to putting the client in the right home with the right loan product.  Good for USDA!

Oct 28, 2011 09:03 AM
David Krushinsky
Reasy Financial LLC - Peoria, AZ
AZ MB-1044208 MLO NMLS #202115

Ok Art... humor me here.  Do you think it is smart to advise a 65 year old, whose only income is derived from Social Security, to pull out 25% of all of the money they have to make a 10% down payment to avoid a $24 per month M/I payment?  Now I admit I am not trained or licensed as a financial planner, but that doesn't exactly ring of sound financial advice to me.  

Keep in mind, they would have to liquidate 50% of their entire asset base to make a 20% down payment. 

You are absolutely right about putting the client in the right loan product.  Unfortunately, for this buyer USDA wouldn't have a higher interest rate and the M/I is minimal.  If "one size fits all" advice is right, then good for USDA.  

Oct 28, 2011 09:21 AM