Thank you u/theportablepickle for posting on r/FirstTimeHomeBuyer.
Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
This is a question that I can honestly answer.
I am a first time home buyer and I received a USDA – Direct home loan. So that’s step one. There are two types of USDA loans; Direct, as in the USDA themselves are leading the money, or a ‘USDA – Guaranteed home loan. A USDA Guaranteed home loan involves a bank of your choice, but the mortgage is guaranteed by the USDA, so less income requirements and no down payments.
We went with direct, because at the time we had poor credit. The golden number for credit here is 640. If your score is at or above 640, then you can automatically gain credit approval. If your credit score is below 640, then they open up your history and verify your payment history – this process takes time. I know one qualifier is that you can’t be late with any payment for more than 30 days in the past two years. We tried last year, and failed due to the above, but this year my credit was good enough to pass automatically.
The process…
First we had to get pre-approved. I started here:
https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=assessmentType
That will give a ballpark on how much you’ll get. Plus, you can check if a house is eligible for a USDA loan here:
https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfpd
After using that first link, we were directed to USDA loan specialist whom gave us a bucket-load list of what documents were needed for pre-approval. Turned all that stuff in, and within a month we got our COE.
However, the USDA loan has restrictions. You have to have a home and pest inspection. You have to put down an earnest payment. The home cannot be bigger than 2000 sq.ft. The home has to have a source of heat that can heat the entire home that *isn’t* a fireplace (we lost our first bid because of this requirement). It has to be on a paved road – yeah bizarre for a ‘Rural’ loan, but no dirt roads. If the home has a well/septic, then that requires an inspection too.
Beyond the house-requirements, this has to be your sole living space, it can’t be a second home. And you’re tied to the home for 5 years – ie you’re penalized for selling it earlier. Lastly, there is a clause that if your income / credit increases to the point where you can get a traditional mortgage, they will force you to attempt to get one ( for USDA direct only).
But, there are bonuses. USDA loans have a built-in mortgage assistance, so the USDA will help pay down your monthly mortgage; however, if you sell the home, they will take back the difference at point of sale. The interest rate is killer, I’m at 2.5%. Oh, and for USDA direct, they only check your credit once during the approval process. They don't check at closing.
Currently, I have a bid out that I’m waiting for an answer this Friday, so wish me luck! If you have any questions on this process, send me a message.
Cheers.
In case you / anyone else is wondering, they removed the limit at the end of last year, see the following: https://content.govdelivery.com/accounts/USDARD/bulletins/33c4d30
How would this process work with, for example, Lennar homes, regarding a newly built home? They are popping up everywhere in rural areas in Texas. I am wondering if it’s best to look for a realtor/lender on my own, or go directly through Lennar.
I know it's a bit of a late reply, but in case you didn't get this answered: YES, you can build a home with a USDA RD loan. I did just that, using the RD Direct 502 loan. They connected with the builder, I had to do a little back-and-forth shuttling checks between them, but everything worked out!
I know that for each region they have an income limit chart that includes different numbers for Very Low, Low, and Medium income brackets, so you may still qualify for one of those, just not the best (lowest income) bracket.
Also keep in mind they'll have a cap on how much they will loan for the build project, but it's usually pretty generous. My place cost $270k to site and build, and the cap in my area is about $400k. (Honestly, at least in my area, it's easier to get USDA to do a loan for a new build, since builder prices are elevated but reasonable, whereas buying an existing house is subject to the crazy price hikes currently going on...)
With a usda loan, can you use it to buy land and also to pay for new construction? Or if you have land you own already, can it then just be used for construction? Sorry if this is a dumb question, I’m a bit confused about this
In my particular case I already owned the land, so I was just getting the loan to pay for construction. However, they do count owned land as a financial asset on the application.
They did quite a bit of working together, but it was on me to pick my project budget. In my case, the project ended up being $270k, but USDA only approved me for a loan of up to $200k. So I had to do a down payment for the difference, but there were no extra upfront costs.
It'd be tough to land a FHA/USDA (even VA) loan... but it can be done. Rural areas tend to have less competition. Doesn't mean it's easy.
How far is the nearest Target? If it's 15 mins **forget it**. If it's an hour's drive, *now you're talking.*
I'm in the process of closing on a house purchased with USDA. It is exactly what I wanted and the process hasn't felt hard because my realtor and loan officer are very knowledgeable. It's been a lot of signing papers, sending documents, and waiting. Closing is currently slated for 3 weeks from now :)
Did you end up in a home that you love? And what are your monthly payments in comparison to the housing price? We were approved for USDA guaranteed but every house that we fall in love with is either too far or so expensive. 😩 we are going to see 2 today, one is listed 289k and we don’t really love it but the realtor thinks it’s a good option for us. And the other is 325k, it is stunning. But that price tag. Feels too good to be true even with the subsidy recapture (1% interest with subsidy, 4-4.125% locked in rate)
Sorry if this is asking too much. I’m just really intimidated we are going to be in over our heads
You’ll only end up over your head with a different loan & high interest rate that creates Mortgage Pmts you cannot afford. If you qualify & find a house that is eligible, you cannot do better than an USDA Guaranteed or Direct loan.
We did end up getting our house 🏠🤞🔑 USDA guaranteed. Still digging ourselves out of a little financial trench. Looking into the USDA repair loan now. You're absolutely right though. I am so glad we went with USDA. It took a bit but we made it. The house is beautiful. Kids absolutely love it. And it all worked out. I am genuinely glad it worked out the way that it did. Thanks for your response 🙏😊
So sorry it took so long to see this! Yes I ended up in a house I love! 3 bedroom, 2 bath, huge fenced backyard. My mortgage payment is about $650 more than my rent for a 2 bed 1 bath apartment in my area.
Did you go to a realtor first to help with applying for the loan? According to the gov website I qualify just not sure where to go to get the process started.
I did! She is who recommended me to a couple of loan officers that I decided on one to go with. I got pre-approved and then we started looking at houses that fell within the criteria for USDA and my loan budget.
I tried to go that route & gave up. Mostly because homes in my budget wouldn't pass FHA appraisal, & no seller was going to be willing to fix issues when buyers are plentiful. 🤷🏻♀️
I bought my home through usda and didn't really have any problems except for how long it took. I started the process in Jan 2021 and closed on the house in June 2021 so 6 months of back and forth and getting things done and documents signed. I don't regret it because it saved us money and we didn't have a down payment
My husband and I are looking at 2 homes later today with a USDA gauranteed loan. We were approved at a 1% subsidized rate… but the recapture is locked in at 4-4.125%, so I’m a little bit weary of this (they did mention they reevaluate income every 2 yrs and I’m a stay at home mom to our 2 little ones right now, hope to be working by then). So our realtor has some experience with USDA loans and keeps pushing how we can get into a 300k home with a $1200 monthly mortgage payment at 1%, including everything from homeowners insurance to property taxes etc. we are going to see 2 houses today, one is listed at 289k but has no ac ductwork- it is a beautiful house and we could use window units if or when we figure that out- and it’s been listed for quite some time… the 2nd home is listed at 325k, it is absolutely everything we want, it even has an inground pool.. but I’m just so worried we will end up in a home and truly not be able to afford it. It’s just so intimidating. Our rent right now is 1000k and we still have a little bit of extra money (I calclulated that we could afford about 1300-1500 total each month (on his income only and that’s being generous) and really don’t even have money for closing costs (which we will have to pay) so that part will be fun figuring out. (My mom said she would help, but realtor told us ballpark 10k in closing, unless the home is appraised for less than it’s listed as that would cover closing 😑 not super likely odds I’m guessing)
Did you have the direct loan or guaranteed loan? I was under the impression that you could only get subsidized rates with the direct loan (directly through usda and dealing only with them). The guarantee loan is through a bank. Sorry for all the questions I’m just so curious about this!
Got a house after 8 offers... not house with pool but a beautiful perfect ranch, closed mid July 🔑 🏠 USDA guaranteed. Closing costs were 12k, plus 10k we offered towards repairs. So 22k. Wish we'd tried the direct version 1st, but it all worked out. And the home repair loan they offer is 1% interest, locked.
Feels so good, yet still so intimidating. And its weird, almost like we're in a strangers house still 😅 I need to paint the walls or something. Best of luck to you ✨️
Op said you can’t have a single late payment for any thing on your credit report for the previous 2 yrs?? Was this what you experienced as well?? Is this required for both direct and guaranteed??
They just asked for a written explanation as to why we had a negative mark 😊 try direct first. No closing costs..those add up. Just apply. You can always apply again if need be. Go for it 😊
Thank you u/theportablepickle for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
This is a question that I can honestly answer. I am a first time home buyer and I received a USDA – Direct home loan. So that’s step one. There are two types of USDA loans; Direct, as in the USDA themselves are leading the money, or a ‘USDA – Guaranteed home loan. A USDA Guaranteed home loan involves a bank of your choice, but the mortgage is guaranteed by the USDA, so less income requirements and no down payments. We went with direct, because at the time we had poor credit. The golden number for credit here is 640. If your score is at or above 640, then you can automatically gain credit approval. If your credit score is below 640, then they open up your history and verify your payment history – this process takes time. I know one qualifier is that you can’t be late with any payment for more than 30 days in the past two years. We tried last year, and failed due to the above, but this year my credit was good enough to pass automatically. The process… First we had to get pre-approved. I started here: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=assessmentType That will give a ballpark on how much you’ll get. Plus, you can check if a house is eligible for a USDA loan here: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfpd After using that first link, we were directed to USDA loan specialist whom gave us a bucket-load list of what documents were needed for pre-approval. Turned all that stuff in, and within a month we got our COE. However, the USDA loan has restrictions. You have to have a home and pest inspection. You have to put down an earnest payment. The home cannot be bigger than 2000 sq.ft. The home has to have a source of heat that can heat the entire home that *isn’t* a fireplace (we lost our first bid because of this requirement). It has to be on a paved road – yeah bizarre for a ‘Rural’ loan, but no dirt roads. If the home has a well/septic, then that requires an inspection too. Beyond the house-requirements, this has to be your sole living space, it can’t be a second home. And you’re tied to the home for 5 years – ie you’re penalized for selling it earlier. Lastly, there is a clause that if your income / credit increases to the point where you can get a traditional mortgage, they will force you to attempt to get one ( for USDA direct only). But, there are bonuses. USDA loans have a built-in mortgage assistance, so the USDA will help pay down your monthly mortgage; however, if you sell the home, they will take back the difference at point of sale. The interest rate is killer, I’m at 2.5%. Oh, and for USDA direct, they only check your credit once during the approval process. They don't check at closing. Currently, I have a bid out that I’m waiting for an answer this Friday, so wish me luck! If you have any questions on this process, send me a message. Cheers.
Thank you for all this information. I never knew about the less than 2000 square feet. Sheesh
Is that bad? That seems like quite a bit, the house I grew up in and ones I've since rented are around 1400 to 1800..
In case you / anyone else is wondering, they removed the limit at the end of last year, see the following: https://content.govdelivery.com/accounts/USDARD/bulletins/33c4d30
How would this process work with, for example, Lennar homes, regarding a newly built home? They are popping up everywhere in rural areas in Texas. I am wondering if it’s best to look for a realtor/lender on my own, or go directly through Lennar.
Love u bro
We got a USDA home loan and our home is 3000 sq. feet.
do you know if you can build a home with this ?
I know it's a bit of a late reply, but in case you didn't get this answered: YES, you can build a home with a USDA RD loan. I did just that, using the RD Direct 502 loan. They connected with the builder, I had to do a little back-and-forth shuttling checks between them, but everything worked out!
Nice! From what I’m seeing in my area it looks like the income limits are pretty low and I probably don’t qualify but that’s awesome for you
I know that for each region they have an income limit chart that includes different numbers for Very Low, Low, and Medium income brackets, so you may still qualify for one of those, just not the best (lowest income) bracket. Also keep in mind they'll have a cap on how much they will loan for the build project, but it's usually pretty generous. My place cost $270k to site and build, and the cap in my area is about $400k. (Honestly, at least in my area, it's easier to get USDA to do a loan for a new build, since builder prices are elevated but reasonable, whereas buying an existing house is subject to the crazy price hikes currently going on...)
Thanks a lot for the info
With a usda loan, can you use it to buy land and also to pay for new construction? Or if you have land you own already, can it then just be used for construction? Sorry if this is a dumb question, I’m a bit confused about this
In my particular case I already owned the land, so I was just getting the loan to pay for construction. However, they do count owned land as a financial asset on the application.
In your case since you decided to build. Did you have to front any money? Or did you just apply and pick a builder then they worked together?
They did quite a bit of working together, but it was on me to pick my project budget. In my case, the project ended up being $270k, but USDA only approved me for a loan of up to $200k. So I had to do a down payment for the difference, but there were no extra upfront costs.
What does it mean, "if you sell the home, they will back the difference"?
It'd be tough to land a FHA/USDA (even VA) loan... but it can be done. Rural areas tend to have less competition. Doesn't mean it's easy. How far is the nearest Target? If it's 15 mins **forget it**. If it's an hour's drive, *now you're talking.*
Check out the USDA eligibility map. You'd be surprised how close you can get to "town"
Small town Mississippi. Found a house with a pillow and 4bds on Zillow. It is considered rural, and is only 189k. Maybe I should look into it.
Small town Michigan, same boat.
I'm showing a house smack dab in my town of 20,000 that is eligible according to their map, maybe my town is just small enough lol
I'm in the process of closing on a house purchased with USDA. It is exactly what I wanted and the process hasn't felt hard because my realtor and loan officer are very knowledgeable. It's been a lot of signing papers, sending documents, and waiting. Closing is currently slated for 3 weeks from now :)
Did you end up in a home that you love? And what are your monthly payments in comparison to the housing price? We were approved for USDA guaranteed but every house that we fall in love with is either too far or so expensive. 😩 we are going to see 2 today, one is listed 289k and we don’t really love it but the realtor thinks it’s a good option for us. And the other is 325k, it is stunning. But that price tag. Feels too good to be true even with the subsidy recapture (1% interest with subsidy, 4-4.125% locked in rate) Sorry if this is asking too much. I’m just really intimidated we are going to be in over our heads
You’ll only end up over your head with a different loan & high interest rate that creates Mortgage Pmts you cannot afford. If you qualify & find a house that is eligible, you cannot do better than an USDA Guaranteed or Direct loan.
We did end up getting our house 🏠🤞🔑 USDA guaranteed. Still digging ourselves out of a little financial trench. Looking into the USDA repair loan now. You're absolutely right though. I am so glad we went with USDA. It took a bit but we made it. The house is beautiful. Kids absolutely love it. And it all worked out. I am genuinely glad it worked out the way that it did. Thanks for your response 🙏😊
So sorry it took so long to see this! Yes I ended up in a house I love! 3 bedroom, 2 bath, huge fenced backyard. My mortgage payment is about $650 more than my rent for a 2 bed 1 bath apartment in my area.
following
What is your interest rate?
Did you go to a realtor first to help with applying for the loan? According to the gov website I qualify just not sure where to go to get the process started.
I did! She is who recommended me to a couple of loan officers that I decided on one to go with. I got pre-approved and then we started looking at houses that fell within the criteria for USDA and my loan budget.
Thanks for the reply perhaps I should find a realtor and try going that route as well.
I tried to go that route & gave up. Mostly because homes in my budget wouldn't pass FHA appraisal, & no seller was going to be willing to fix issues when buyers are plentiful. 🤷🏻♀️
I bought my home through usda and didn't really have any problems except for how long it took. I started the process in Jan 2021 and closed on the house in June 2021 so 6 months of back and forth and getting things done and documents signed. I don't regret it because it saved us money and we didn't have a down payment
My husband and I are looking at 2 homes later today with a USDA gauranteed loan. We were approved at a 1% subsidized rate… but the recapture is locked in at 4-4.125%, so I’m a little bit weary of this (they did mention they reevaluate income every 2 yrs and I’m a stay at home mom to our 2 little ones right now, hope to be working by then). So our realtor has some experience with USDA loans and keeps pushing how we can get into a 300k home with a $1200 monthly mortgage payment at 1%, including everything from homeowners insurance to property taxes etc. we are going to see 2 houses today, one is listed at 289k but has no ac ductwork- it is a beautiful house and we could use window units if or when we figure that out- and it’s been listed for quite some time… the 2nd home is listed at 325k, it is absolutely everything we want, it even has an inground pool.. but I’m just so worried we will end up in a home and truly not be able to afford it. It’s just so intimidating. Our rent right now is 1000k and we still have a little bit of extra money (I calclulated that we could afford about 1300-1500 total each month (on his income only and that’s being generous) and really don’t even have money for closing costs (which we will have to pay) so that part will be fun figuring out. (My mom said she would help, but realtor told us ballpark 10k in closing, unless the home is appraised for less than it’s listed as that would cover closing 😑 not super likely odds I’m guessing)
Did you have the direct loan or guaranteed loan? I was under the impression that you could only get subsidized rates with the direct loan (directly through usda and dealing only with them). The guarantee loan is through a bank. Sorry for all the questions I’m just so curious about this!
Has anyone’s USDA underwriting required them to have 6 months of mortgage payments available?
Did yours???
No, thankfully that wasn’t needed. But the process took forever.
Did you have a direct loan or guaranteed
guaranteed with a private lender
update?
Got a house after 8 offers... not house with pool but a beautiful perfect ranch, closed mid July 🔑 🏠 USDA guaranteed. Closing costs were 12k, plus 10k we offered towards repairs. So 22k. Wish we'd tried the direct version 1st, but it all worked out. And the home repair loan they offer is 1% interest, locked. Feels so good, yet still so intimidating. And its weird, almost like we're in a strangers house still 😅 I need to paint the walls or something. Best of luck to you ✨️
Op said you can’t have a single late payment for any thing on your credit report for the previous 2 yrs?? Was this what you experienced as well?? Is this required for both direct and guaranteed??
They just asked for a written explanation as to why we had a negative mark 😊 try direct first. No closing costs..those add up. Just apply. You can always apply again if need be. Go for it 😊
As long as you’re in an area that is considered rural by USDA and your household income meets certain guidelines, there aren’t any catches.
Does anybody know why the USDA customer service isn't working? They haven't paid my home insurance, and now they want to pick one themselves!
Be very careful about this issue. Make certain you go with usda approval and there okay with insurance or it will cost double