For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.
by G. Steven Bray
The USDA RD loan is a great option for homebuyers in more rural locations. The loan requires no down payment and has much lower monthly mortgage insurance than an FHA loan.
USDA is implementing some changes this fall that may affect your homebuyers’ ability to use the program. The changes take effect Dec 1st.
– First, USDA will change some of its property guidelines.
— The 30% limit on the ratio of land to total property value will be removed as will the restriction against in-ground pools. I’ve seen no guidance yet on how USDA intends to handle rural properties with high land values.
— Guidelines concerning outbuildings have been clarified. Outbuildings that could be used to produce agricultural income, such as a barn, cannot be included in the property value used to determine the loan amount. This guideline will apply whether or not the property actually is producing income.
— Private wells and water systems generally will be considered acceptable, but they may require inspection or documentation that they meet health standards.
– Second, USDA will change some of its credit standards.
— At least one applicant must have a valid credit score, and the credit report must show at least 3 trade lines with at least 12 months of history. There is no indication at this time that USDA will allow alternative credit scoring, such as through the use of rent and utility account payments.
— Additionally, USDA has it indicated that for student loans, it will use 1% of the outstanding balance if the loan doesn’t have a fixed monthly payment. This could affect homebuyers that have used graduated or income-based payment plans to lower their student loan payments.
– Finally, USDA will limit seller contributions to 6% of the purchase price.
USDA is also changing its guarantee fee and property eligibility maps. We’ll cover those changes next time.