The Home Buyer's Korner

Information presented should be used for educational purposes only.

September 26th, 2015

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The Home Buyer’s Korner

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USDA Zero Down Home Loans

USDA

Get Pre-Approved for a Home Loan

USDA/RHS Rural Development requires for a home to be guaranteed under its program, it  must be within a rural location and no more than 35,000 existing residences. To be eligible for a USDA/RHS Rural Development Home Loan, the home buyer must be ineligible for a conventional mortgage loan, and generally created to help out low-to-moderate income borrowers become home owners.

Property/Occupancy Requirements

The USDA/RHS only guarantees primary residences, but several types of properties such as:

  1. Approved Condominiums
  2. Townhomes
  3. New or Existing Single-Unit Dwellings
  4. Modular Homes
  5. New Manufactured Homes

USDA/RHS Rural Development has a specific checklist of items a home must have to be eligible for a mortgage. For instance, a USDA/RHS loan can only be used for a new manufactured home, and if a home has a pool it value must be excluded from the value (homes with pools are allowed) when completing an appraisal. The home must be of a certain size and reasonable cost, including acceptable living condition, but repair funds to cure some issues area available.

Credit Score/History Requirements

The USDA/RHS home loan program does not have a minimum credit score requirement set for borrowers to be considered eligible and allows for up to 100 percent financing, but most lenders have what are called lender overlays that set a minimum FICO credit score of 640.  That said, if a borrower has really limited credit history, this usually does not disqualify a home buyer from a USDA/RHS Rural Development Home Mortgage, however, an alternative credit history will have to be well documented. For home buyers who are just starting to build their credit, they may be able to use items like 12 months of utility statements, auto insurance payments, cell phone payments, rental history and buy here/pay here resources, as that alternative credit verification.

It’s imperative that a home buyer doesn’t have any 30-day late payments show up on their credit within the past year. If a home buyer has a late rent payment, (there may be no more than two within the past three years) they need to provide a reasonable explanation why it was late. Tax liens and delinquent student loan debts are almost always a path to loan denial. However, consideration for loan approval with these liens or delinquent debts are possible, if an existing repayment history has been well established, a repayment history shows a good faith of repayment, and the home buyer can reasonably show why the situation will not happen again.

Appraisal Requirements

A qualified appraiser must be used during the required appraisal process, meaning that the appraiser must be licensed and listed as an approved USDA/RHS appraiser within the region of the property.  In some areas, it can be difficult to find such an appraiser who can make the available time to inspect your home. If you’re in an extremely rural area, make sure your real estate agent and loan officer work together to ensure they can get your home inspected within the time frame of your sale contract.  Additionally, your seller will need to make sure the home is in good shape when it’s inspected, as home in the locations that need a follow-up inspection to ensure any repairs are made can create huge delays and make you go past your set closing date.

Your local USDA/RHS Rural Development office is aware of these extreme locations and can offer some assistance.

  1. Third Party Appraisals – Under unique circumstances and only when approved by the USDA/RHS, a participating lending institution may use and alternative appraisal service.
  2. Compliance – All appraisers are to abide by the Uniform Standard of Professionals Appraisal Practice.
  3. Timeline – The mortgage lender must be the one to set the appraisal within three business days for the property that is in the process of approval by the USDA/RHS.

Co-Applicants/Borrowers

Usually allowed when trying to qualify for a USDA/RHS Mortgage, home buyers may utilize a co-borrower/co-applicant to sign on the loan, in cases where the home buyer’s income is insufficient to make a payment on their own.

There are a few things that a co-borrower should take into consideration, given that they will become partially responsible for a loan, such as:

  1. Co-borrowers are legally responsible for any past due loan payments.
  2. The co-borrower must also live in the home as a resident
  3. Must have enough credit to add to the loan for approval

It is very important for co-borrowers to decide whether or not they would want to be held accountable for the loan, considering that a default or non-payment of the loan may reflect on their credit.

Closing Costs

At the time of closing on the loan, there may be closing costs, such as:

  1. Escrow
  2. Origination
  3. Notary
  4. Title Insurance
  5. Lender Fees
  6. Credit Repair Costs

Keep in mind that it may be possible to negotiate who pays these fees and some closing fees many, under certain circumstances, wrapped into the loan, if the property has sufficient value or through premium pricing. USDA/RHS has no limit to seller concessions in situations when the appraiser provides a comment that the additional seller concessions over 6 percent do not negatively impact the value.

Because of the zero down payment and 100 percent financing available, USDA/RHS Rural Development is definitely a great loan for first-time home buyers who are looking to purchase in a rural area.

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TENNESSEE HOME OWNERSHIP TOOLS

Your Home Purchasing or Refinancing & Renovation Tools,

Home Improvements, Home Renovations,

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase.

Here are just a few of the home improvements

you might consider with any Home Renovation loan

Repair or replace a roof

Install, replace or repair gutters and downspouts

Replace, repair or upgrade your HVAC system

Repair or replace plumbing

Install, repair or replace electrical systems

Kitchen remodeling (including the purchase and installation of appliances)

Bathroom remodeling, Full interior painting, Total exterior painting

Repair or replace a septic system and/or well

Disability access (wheelchair ramp, elevator, widen doorways)

Build, repair or replace deck, patio or porch

Basement waterproofing and finishing

Abatement/Stabilization of lead-based paint hazards

Replace old windows, Room additions, Finish an attic

Add a second story to your home

Replace a termite damaged sill plate (a water-damaged sill plate also)

Possible landscaping items such as correction of grading & drainage problems,

tree removal, repair a driveway and sidewalks

FHA 203K

Your Home Purchasing or Refinancing & Renovation Tool

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

FANNIE MAE HOMESTYLE

The Conventional Alternative to FHA 203K

Great for Real Estate Investors and Second Home Renovations

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

USDA RURAL DEVELOPMENT

Up to $10K for Home Improvements, Renovations or a Simple Remodel

Mortgage Loan Officers, Real Estate Agents & General Contractors are ready to assist you

A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

To print this document click on “Open in New Window” located at the lower right corner;

click on “File”; then click on “Print”. In the center of the screen you will

have the option to “Create A Printable PDF of the Presentation”.

START YOUR PATH TO HOME OWNERSHIP TODAY

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