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USDA GUARANTEED Vs DIRECT


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10 replies to this topic

#1 Brian B The Loan Professor

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Posted 20 February 2012 - 08:40 PM

There has been a lot of discussion lately about the direct loan through USDA - I appreciate the info as I am learning a lot about the product - there are some big difference and a lot of similarities that I want to point out. I am hoping someone going through the Direct can contribute to this so we can get a solid post that shows the differences -
Since the direct loan is done directly with USDA I do not have any experience or first hand knowledge of the product, just what I have read on here.
The first and biggest difference is where you get the loan - Guaranteed is through a bank or broker Direct is from USDA - Another difference is the limitation on size of home - The Guarantee does not have a limit to the size of the home - the limitation with the guaranteed is the income limit - if you can find a home within the guidelines that is eligible you will not have an issue with the Sq Footage. With direct it seems USDA has a very strict guideline with the size - Neither will allow a pool (if considered in the value) or a multi family unit - You can have some land with the Guaranteed provided it is the norm for the area - it cannot have barns or outbuildings - my guess here is that these loans are more for the farm worker than the farmer - they do not want to fund a property that could become an income producing commercial business - this is to provide housing (just my best guess) -
The direct and the guaranteed have different income limits for regions with the direct being lower - the terms of the direct are very favorable if you qualify but the guaranteed is pretty awesome compared to FHA (next lowest down) with 100% financing great rates and no PMI - hopefully someone going through direct can post up the terms of their loan so we can see what the Direct offers - I also believe the direct will if needed subsidize the payment???
Homes in rural areas with lower populations are eligible - location is key - What is interesting is there are areas here in the Bay Area of CA that are eligible if you know where to look - so dont think it isnt out there - You may just have to look outside of the big city to find it -

B



#2 major pain

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Posted 20 February 2012 - 09:13 PM

How do they calculate income? Tax returns? Current pay?

#3 Brian B The Loan Professor

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Posted 20 February 2012 - 09:21 PM

How do they calculate income? Tax returns? Current pay?


Good question - if you are w2 it will be current income
if self employed it will be the last two years taxes - here is where it can be tricky
because there is income limits if your last years self employed income exceeds the limit they will use that and you will be ineligible - however if eligible they will still use the average from the last 2 years - so they could be looking at 2 different numbers - the higher for income limit and the lower for loan
B

#4 Brian B The Loan Professor

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Posted 20 February 2012 - 09:28 PM


How do they calculate income? Tax returns? Current pay?


Good question - if you are w2 it will be current income
if self employed it will be the last two years taxes - here is where it can be tricky
because there is income limits if your last years self employed income exceeds the limit they will use that and you will be ineligible - however if eligible they will still use the average from the last 2 years - so they could be looking at 2 different numbers - the higher for income limit and the lower for loan
B

I forgot to mention that the income limit is a HOUSEHOLD limit. Any income coming into the home from an occupant 18 or over must be included even if they are not on the loan.
B

#5 MelodyT

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Posted 20 February 2012 - 09:30 PM

Great post, Brian.

major pain, I am self-employed and they calculated last 3 tax returns and averaged.


To add to this post about the direct loan:

The interest rate is usually lower as well. My interest rate will be 3%. As well the loan is usually for 33 or 38 years, depending on where you qualify (low vs. very low income). Maximum for a manufactured is 30 years. They require the 45 days to close. They do offer subsidized for those who need it; however, for my loan we didn't qualify for it. So I'm not sure how that works out. Their verification process takes awhile and is pretty strict. They check into everything. The DTI is 41%. Buyer doesn't pay for appraisal; funds are requested through the state (which is where we are at now). Seller can pay for closing costs. Inspections are crazy and very thorough. Everything has to be move-in ready. All pest work has to be completed. And roof has to certify for 5 years and not just 2.

Also, if you're having any work done, it has to be completed by an approved contractor. You have to take an 8-hour course as well. They were telling me to go to the free one offered through Habitat for Humanity.

If I think of anything else I'll add it.

#6 MelodyT

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Posted 20 February 2012 - 09:31 PM


How do they calculate income? Tax returns? Current pay?


Good question - if you are w2 it will be current income
if self employed it will be the last two years taxes - here is where it can be tricky
because there is income limits if your last years self employed income exceeds the limit they will use that and you will be ineligible - however if eligible they will still use the average from the last 2 years - so they could be looking at 2 different numbers - the higher for income limit and the lower for loan
B


Brian:

There would have been no way we qualified with this year's taxes if they did it this way for us. He averaged our last 2 but said they normally do 3 but because the 3rd showed a loss, he didn't use it.

#7 mother.jeni

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Posted 20 February 2012 - 10:18 PM

www.rurdev.usda.gov is the official web site. It can be tricky to navigate, so I have included some quick links to some of the pertinent information. Remember, that you should contact your local USDA Rural Development Office if you have questions ( They take email too)

For the income limits you must look at the limits in your county. Here is the link (just choose your state) It will list the counties and limits: http://offices.sc.eg...te=us&agency=rd

Then you msut also see (the qualifying properties) here the qualifying (rural) areas are for Single Family housing. Here is that link: http://eligibility.s...Key=property@11 There is a disclaimer before you go to the next page. Please READ IT.

They go further into rquiremnts onthe papers they send along with the application they send you fi you tell them you are intersted.



Obviously it is not run by the USDA, but is correct in its information AS FAR AS I CAN TELL. Any questions you have, though your best bet is to contact your local Rural Development office. Here is the link for that (just choose your state) and find the closest office: http://eligibility.s...act@11</span>un

Here is some information from the second to last link for quick reference. Remember this is not run by the USDA. Contact them or go to their website at : www.rurdev.usda.gov



You can locate your nearest office from this URL: www.rurdev.usda.gov.

[b][size="4"]I got most of my info from these sights/links. Hopefully it can help others in their search for homeownership :)
[size="5"]MOTHER.JENI :wub:




Edited to remove external links and copyrighted material PM Sent

#8 Brian B The Loan Professor

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Posted 21 February 2012 - 12:04 AM



How do they calculate income? Tax returns? Current pay?


Good question - if you are w2 it will be current income
if self employed it will be the last two years taxes - here is where it can be tricky
because there is income limits if your last years self employed income exceeds the limit they will use that and you will be ineligible - however if eligible they will still use the average from the last 2 years - so they could be looking at 2 different numbers - the higher for income limit and the lower for loan
B


Brian:

There would have been no way we qualified with this year's taxes if they did it this way for us. He averaged our last 2 but said they normally do 3 but because the 3rd showed a loss, he didn't use it.

I guess this is another difference - Guaranteed only requires 2 years But they WILL look at worse case for both limit and loan

#9 Brian B The Loan Professor

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Posted 21 February 2012 - 12:11 AM

Mother Jeni
I had to edit your post - I sent you a private message to explain why -

#10 Tpelc23

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Posted 21 February 2012 - 09:18 AM

Brian thanks so MUCH doing this post!!! My husband and I are hoping to guaranteed loan so it was nice to see the difference from all the direct loans.

#11 tbear

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Posted 22 February 2012 - 07:54 PM

Brian thanks so MUCH doing this post!!! My husband and I are hoping to guaranteed loan so it was nice to see the difference from all the direct loans.



I agree. I really appreciate the info. Brian. One question I have is, what are the qualifying factors for the home for the Guaranteed loan? I see mention of manufactured housing. Can I have a home built by a local builder? If I buy land, can I buy a prefab home? Would I hire a contractor or be my own contractor? I searched many sites but come up empty with this answers. Thank you!




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