Sunday, August 15, 2010

Rural Development Direct Home Loan

USDA’s Direct Home Loan or Guaranteed home loan can help Real Estate Agents and Builders sell their homes.

USDA Rural Development has TWO “no money down” home loan programs that can help any real estate agent or builder in this miserable housing market we have today. It is not quite as simple as putting “no down payment” in your advertising, but if you understand the two programs you can successfully target people that will qualify.

First, the home you are trying to sell must be in a rural eligible area.  This does not mean the home must be in the middle of the woods. Roughly, their definition of “rural” is an area with a population less than 10,000. You can check your homes location to determine if it is eligible from USDA’s main website. Find the property eligibility page and type in the address of the home you are trying to sell.

Next, decide which of the two programs best fit your home. The Guaranteed Home Loan is for people with very good credit, scores above 620, and people with moderate to above moderate income (125%) based on the median income for that county. The maximum loan amount is determined by their debt to income ratio.

The Guaranteed Home Loan is a great mortgage that requires no money down. Sometimes Rural Development runs out of funds for this program so check funding availability before you recommend this to your perspective buyers. Rural Development gets new funding at the beginning of each fiscal year.

The Rural Development Direct Home Loan is like no other mortgage on the market and can really be an asset to selling your homes. This loan is funded directly by the government. It is a little complicated but even people on a fixed income can qualify for this mortgage.  I would say that it might be the only true sub-prime loan left on the market today.

The income requirement is based on the adjusted median income for each county so to qualify; the buyer’s adjusted income must be Low to Very Low. Low is defined as 80% of the median income and Very Low is less than 50% of the median income! Yes, people on fixed income, social security, SSI, and food stamps may qualify. Most of these loans are subsidized by the Government.

This subsidy is when the government makes part of the monthly payment on the mortgage so these people can qualify. The subsidy does have to be paid back when the home is sold but how much of it is determined by the equity in the home at the time of sale.  It is a very complicated formula.

The Direct home loan does not use a credit score to qualify but does have reasonable expectations about collections, judgments, and liens. This loan’s focus is on credit history, not score. It even has provisions for people that do not use typical credit. If the buyer has Alternate Credit such as a cell phone, utilities, cable, or insurance in their name that they “pay on time” it can be used as credit history.

If the buyer’s income is at the Very Low level the PITI cannot be more than 29%. If they are in the Low Income level it can go as high as 33%. Total debt for either income level is 41%. Because of the government subsidy people with incomes as low as $800 a month could qualify. Get this; … food Stamps are counted as part of repayment ability. How cool is that?

What about closing costs? It doesn’t get any better than this. If the appraisal is sufficient, closing costs and repairs may be added into the loan if the seller is not willing to help the buyer pay them.

These loans take a little longer to close so make sure your contracts reflect that.  If I were an Agent I would learn all I could about both loans and start tageting this market.  There are a lot of low income families wanting to get a home that could easily qualify. 

Hello, ... did I say no down payment and all closing costs can be paid by the seller.  Closing costs may be financed into the loan if the appraisal is high enough.  WOW, it just doesn't get any better than that.

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