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USDA Loans? Huh? United States Department of Agriculture.ONLY in our RURAL Areas–Like Windsor!?

Linda Watson is our guest today speaking on Niche loans including this-THE USDA loan. Please join us NOW for the Real Estate Hour–Sonoma County’s ONLY Real Estate Talk Show and the longest running talk show of its kind in the BAY AREA!

FAQ’s for USDA Home Loans

 1.     What is a USDA Home Loan?

 The USDA Rural Housing loan is a 30-year fixed mortgage , which is guaranteed by the USDA’s Rural Housing Service.  This 100% home loan program is designed for low to moderate income families in rural areas.  Their “guarantee” means that they will compensate participating lenders for any mortgage that goes to foreclosure. 

 This “guarantee” also means that lenders are more willing to lend their money to people with less than stellar credit and little to no money for a down payment.  USDA loans are designed for those who are unable to obtain conventional financing due to credit or lack of a 20% down payment and/or money for closing costs.  It is also designed for owner occupied properties, not investment properties.

 2.     If USDA is for rural areas, what is considered a rural area?

 A rural area is a city with a population of 25K or less that is not too close to a metropolitan area.  It does not have to be a farm or agricultural property.  Single Family Homes, Condos, PUD and Townhomes in regular subdivisions  are eligible under USDA financing.  So for Sonoma County, pretty much any city surrounding Santa Rosa, Rohnert Park, Petaluma and Cotati are considered rural areas.  Even Windsor is eligible at this time with USDA  at population of 26K.   You can check to see if a property is eligible by going to the USDA website and clicking on property eligibility.  Or call me and I will look it up for you.

3.     How about mortgage insurance with USDA?

There is no monthly mortgage insurance with USDA.  There is a 3.5% up front funding fee that can be wrapped into the loan allowing for a 103.5% financing.  A USDA home loan even at 103.5% financing will usually have a lower monthly payment than an FHA loan with monthly mortgage insurance and 3.5% down.  This is the best 100% financing deal available!

 4.     Are there income limits with this program?

 Yes, this program is designed for low to moderate income households. Low to moderate income is an adjusted gross household income that does not exceed 115% of the median household income for the county in which the home purchase is made.  For Sonoma County the income limit is up to $92,450 for up to a 1-4 person household and $122,050 for a 5-8 person household.  Household members include anyone who will be living in the house at the time of the loan closing.  Special adjustment to household income are made for children, disabled adults and childcare expenses for those who will be living in the home.  It is best to contact me to calculate your adjusted household income for qualification.

 5.     What credit score do you need in order to get a USDA Home Loan?

 Rural Housing allows for credit scores as low as 620.  You will not be disqualified  to participate in the Rural Housing program if you have a shaky credit history.  As long as good credit has been re-established over the last 12 months and a you have steady, consistent income and employment for the last two years, you have a good chance of getting approved.

 6.     What if a person has no credit score or established credit history?

 USDA and certain lenders will allow for alternative credit, we can create a supplemental credit report using rental, utility, cell phone, even gym membership payment histories.  As long as they have been paid on time for the last 12 months, the lender will count this as an acceptable credit history and trade lines.

 7.     Are there any loan or sales price limits with USDA?

 There are no loan or sales price limits.  The debt to income ratios and credit will determine the loan amount and purchase price.  Typically, with a $92,450 annual income and a 660+ credit score and minimal outside debt, you can purchase a home at 100% financing for around $400,000.

 8.     Do you have to be a first time homebuyer to get a USDA loan?

 No, you just cannot own another home at the time of closing.  So if a person is selling their home and they do not have enough money to put 20% down on a new home, they can get a 100% financing on a USDA home loan and close simultaneously or anytime after they sell their home. 

 9.     What about purchasing after a short sale or foreclosure?

 A person can buy again in 3-years after a short sale or foreclosure.  Although on a short sale, if the seller has not had a late payment in the last 12 months during the short sale process, they can buy again right away with USDA as long as they get an approval through the USDA automated system and have a 660 credit score.

 10.                          What about Chapter 7 or 13 Bankruptcy?

 OK after 3- years

 11.                          Seller Credits and Gift Money, are they allowed?

Up to 6% seller credit is allowed and unlimited  gift money is OK.   Many of my clients are asking the seller to credit enough money to cover all their closing costs.  In most cases, my buyers are getting back most if not all of their earnest money deposit and they only money they had to come up with was for the appraisal and home inspections.



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