USDA Rural Development – Texas Guaranteed Housing Loan Program

In this chapter of the Affordable Housing series of articles, I am going to try to bring a clear and accurate depiction of the benefits, purposes, and qualification guidelines for the U.S. Department of Agriculture Home Loan programs. The USDA website is actually quite easy to gather information from, but I found in order to get to specific geographic areas a borrower would have to click sometimes 4 or 5 directories deep in order to get the information sought. My intentions for this post is to make the specific information more accessible and easier to read for home buyers in Denton, Collin, and Tarrant counties.

First, let’s define the USDA Rural Development, they are committed to helping improve the economy and quality of life in all of rural America through their programs. They have a $86 billion dollar portfolio of loans and will administer nearly $16 billion in program loans, loan guarantees, and grants through their programs.

These loan programs are not just for buying farms, vacant land, or ranches.

Most people know the U.S.D.A. as the government entity that checks our food, or grades our beef,  which is why I believe so many first-time home buyers may not look to them when searching for loans, or down payment assistance programs. The truth is the USDA program has been and continues to be one of the most respected and easiest to use guarantees for 100% financing available, and here is one of best things over programs from TDHCA, they actually have money to guarantee funding. But remember, “Guaranteed Loans” are the lender’s loan, the funds are not coming from the government.

There are really only 2 solid restrictions to qualifying for this program:

1. The applicant must have moderate income –  Moderate Income is defined as the greater of 115% of the average of the states non-metropolitan and state-wide median family income. 115/80ths of the area low-income limit or 115% of the US median family income.
2. The home or land purchase must be in targeted community — USDA Rural Development target communities are those with a population of 10,000 or less; and locations not closely associated with urban areas. But there are certain circumstances where loans can be made in towns or cities with populations between 10,000 – 25,000.

Sounds simple right? So let’s move on…

Just kidding! Let’s break down #1 — The USDA uses generous adjusted income limits in most areas of Texas. In other words, if  an applicant earns “too much” or “too little” they may not qualify to use the program.

So let’s bring some sense to all these dollars with a real life example:

5 Person Household (2 Adults and 3 children) Earning	$85,000
Wants to purchase a home in Highland Village or Corinth for	$160,000
Monthly debts include:
2 Car Payments	$950
Credit Card Payments	$200
Student loan payment	$100
Monthly Debt Total	$950
Sub-Totaled Gross Income	$73,600
This annual income would be too much to qualify if it were a family of 2
Now we bring those rug-rats into the picture
3 Children x $480 Deduction	$1,440
3 Children in daycare @ $150 a week x 50 Weeks	$7,500
Total adjusted income	$64,660

Now they are “Income Eligible!

So from this example you can see this program uses an adjusted income to make sure borrowers are eligible.  Debt to be included is installment debt greater than 6 months. Child support and SSI benefits are also included as part of an applicants income for a 12 month history. Primary income, and self employed incomes are calculated on a 2 year history, self-employed persons will also have to supply 2 years of 1040′s and possibly a YTD P&L and current balance sheet.

Now, for restriction #2 — you may have noticed I chose Highland Village, TX in my example for where our family wanted to live, and you may have said..

“What!?” You said this was for rural home loans, Highland Village is not in the sticks!

The populations used for what justifies a “targeted area” is based on census statistics, and at least until 2010 many cities that may not  be qualified later… are for now. At least this is a good thing for a government entity being slow to react. The best I can figure is they are still using 2001 census statistics, but with the housing market being what it is, no one wants to discourage anyone from home ownership.

Update: I knew it couldn’t last much longer: Highland Village is almost entirely ineligible now.

Here is a non-inclusive list of major towns by county that are eligible:

• Denton County

Aubrey, Corinth, Little Elm, Justin, Roanoke, Krum, Highland Village, Lake Dallas, Ponder, Sanger, Pilot Point

• Collin County

Princeton, Farmersville, Nevada, Lavon, Prosper, Celina, Anna, Melissa, Westminster

• Tarrant County

Avondale, Azle, Blue Mound, Briar, Center Point, Crowley, Haslet, Lakeview, Oak Grove, Pelican Bay, Saginaw, Wheatland

PROGRAM BENEFITS

• No Down Payment Required by USDA but the Lender can, example FHA would require 3.5%
• LTV¹  Ratio Maximum of 102% – If the entire guarantee fee is being financed
• Term- 30-year fixed
• No Monthly Mortgage Insurance – One time guarantee fee of (2%)
• No payment reserve requirements
• Typical Closing Costs – May be financed if supported by appraisal
• No first-time homebuyer requirements
• Seller Concessions Allowed – No limits set by USDA, but the Lender may impose one
• Gifts Permitted – 100% gifting permitted. Donor must be disinterested third party. Again, the Lender may impose restriction though.
• No Maximum Loan Limits

CREDIT

• Credit Score – No Minimum Credit Scores. Will consider extenuating circumstances for adverse credit history, with adequate supporting documentation.
• Late payments – 1 X 30 permitted in last 12 months
• Bankruptcy/Foreclosure – Chapter 7 and 13 must be discharged for 3 years
• Foreclosures must be completed 3 years ago
• Collections – Accounts cannot have been placed in collection status within the last 12 months
• Judgments – Must be paid off for at least 12 months
• Verification of Rent – 36 month history. No more than one 30 day late within past 2 years. Not required if middle credit score is greater than 620
• Streamlining – No documentation for late payments or collection accounts needed if applicant and co-applicant’s middle FICO credit score is NOT less than 620.
• Credit Report – RMCR, Tri-Bureau merged or Non Traditional Credit Reports accepted, but may be restricted by Lender
• Homebuyer Education – Home buyer, and home owner retention classes are not required but strongly recommended.

FUNDS FOR CLOSING

All closing costs may be financed except discount points — unless borrower is below the Rural Development low income limit, then discount points may be financed. Normally I would not suggest anyone consider this on a conventional or FHA loan with todays market, after all this one of many reasons so many home sellers are in the position they are in now when going to put their home on the market — No Equity. Even if home prices had not fallen as steep as they have. This is almost always an issue if home owners need to sell within the first year or two of buying. But, by saving so much in not paying Mortgage Insurance (MI) and the possibility of having seller concessions or gifting this could provide built-in equity  and for this reason could be considered.

PROPERTY REQUIREMENTS

• Property must be located in a Rural Development eligible area
• Primary Residence only and can not be used for Income Producing Property
• Property Types – Single family or Rural Development eligible condo/PUD
• Manufactured homes – Manufactured homes must be new & meet FMHCSS
• Swimming Pools – Waivers may be granted on a case-by-case basis
• Home Inspection – Must meet HUD Handbooks 4150.2 and 4905.1
• Well/Septic Inspections- Only if applicable

Wrapping up — Here are 10 things I hope you take away from this article:

1. USDA Guarantees More Loans in More Places
2. Perfect Credit is not Required
3. USDA Rural Development has Flexible Repayment Ratios
4. No Maximum Purchase Price or Loan Limits Imposed by USDA
5. Loans are for Low to Moderate / Media Income Households
6. FHA / VA / Fannie May / Freddie Mac / FHA Approved Appraisers and Inspectors can get the deal closed
7. Qualifying Income Limits, Ratio Based, Credit Test Qualifying
8. Guaranteed Housing Loans can SAVE you money
9. Processing, and Closing time-frames are typical to that of any financed home purchase
10. Call me with help for any of your home buying or selling needs

This is by no means everything involved with the USDA Guaranteed Financing Housing Program, but I hope I have given you a new avenue to explore if you are looking to purchase a home soon, or cleared up some misconceptions if  perhaps you had excused this as an option if you were looking to buy a property in one of the targeted areas. Whenever such a big  purchase or financing options are involved, such as in buying a home, it is always best to deal with a experienced and knowledgable professional. If you have questions, or concerns please feel free to contact me and I will do my best answer any questions. If you need help in contacting a mortgage broker, or lender that is willing to work with you on down-payment assistance programs, First-time homebuyer programs, or just to discuss ways to improve your FICO credit score for when you are ready to buy, let me know and I would be happy to share my list partner lenders information.

Also for those looking to purchase a home in Lewisville, Highland Village, Plano, Frisco or Allen, my next article will be on those specific cities First Time Buyers city ran or funded programs, if you need or would like information or my input before I get around to writing those please contact me. It does take me a bit of time to actually hammer these Affordable Housing article out unfortunately but would happy to share the information by phone if needed. Furthermore, I will formerly be announcing a Buyers Rebate Promotion on January 1st, 2009, so if you would like a sneak peek of that please let me know as well.

1. Loan-to-Value [↩]

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