Financing in Norwalk>Question Details

Heather, Home Buyer in Berlin Heights, OH

How hard is it to get a house approved for the USDA loan?

Asked by Heather, Berlin Heights, OH Thu Nov 17, 2011

My fiance and I are buying our first home and after months of searching, have finally found one. He has been approved for a USDA loan, but my question is, how hard is it for a house to be approved for one? The place we found sits on alittle over 3.5 acres, built in 1992, has a garage under 1200 sq ft, it is bank owned and asking price is 85,000 and has been on the market for almost a year now. He works construction and will be looking at lay off here in a few short weeks. We really don't want to drain our accounts to get the closing cost paid so are there any other options we could look at? There is also a possibility of a new septic needed. With all facts on the table along with questions and concerns, what sort of advice could I be given or even possibly, what sort of offers could I put in?

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As mentioned below the standards for USDA loan are similar to that of an FHA, but the Underwriter has a little more discretion regarding repairs. I bought my home with a USDA loan and there were several items that were of small concern that weren't an issue but would have been with an FHA loan. The main concern regarding USDA loans is the implication of using some or part of the property for commercial purposes. For example, a barn could be construed as having income potential and that will never fly. Or a room conversion where a shower and a small kitchen has been added. But as far as other items, I have seen toilets, sinks, cabinets missing that have flown through as long as there were a functioning bathroom in on the property and it appeared that fixing the property would not place an undue burden on the borrower. In any event, your lender needs to aware of the condition of the property before you make an offer. We loan officers know our programs and our own UTR's pickiness as far as what will fly or what will cause your deal to hit the skids.

P.S. Remember, with a USDA loan, you can finance up to 100% of the appraised value (not including guarantee fee) so if your appraisal comes in higher, ask you lender to finance as much as your closing costs as possible into the loan.
0 votes Thank Flag Link Sun Nov 20, 2011
Heather, Trevor makes some very good information in his post and I will only add additional comments to his post.

In many cases bank owned property have problems passing USDA or FHA property standards. Because of this, I see many bank owned properties using FHA 203k Rehab loan. It allows you to get the money to purchase the home and also make the necessary repairs to the property. Those repairs can include repairs or improvements to the Septic. Check out for information on the FHA 203k loan.

Again, from experience the asset managers of Bank Owned properties will typically only pay up to 3% of the Purchase Price towards your closing costs. USDA and FHA permit them to pay a higher amount, however it is difficult to get them to pay more that 3%. Ask your Realtor for guidance.

Like, Trevor from what you have said, I would have some concern about your prediction of an upcoming layoff. If you want to discuss this further, you are welcome to contact me.
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0 votes Thank Flag Link Fri Nov 18, 2011
Good morning Heather,

With regards to a property inspection for the appraisal on a USDA loan, the appraisal conditions will be similar to FHA appraisals. That is:
-The appraiser is not an engineer/home inspector: you and your fiance should have a Certified Home Inspector inspect the property to determine if there are any issues with the home.
-The appraiser will follow certain "Health and Safety" guidelines when inspecting the property. If any issues arise on the appraisal inspection these will need to be repaired/resolved by the Seller prior to closing.
-The appraiser is there to determine market value and livability of the home.

I have some concerns about your statement, "He...will be looking at lay off here in a few short weeks." If this is a normal seasonal employment occurrence, then I am wrong about my concern. But if it is not, then you may want to reconsider purchasing a home at this time.

As for closing costs, the USDA program allows you to negotiate with the Seller a "concession" to include some or all of your closing costs in the purchase price.

But here's the best answer I can provide for your question: get a referral to a local Mortgage Banker. Mortgage Bankers in your community will provide you with a much higher quality of service and financing options than any "Big Bank." Local Mortgage Bankers have long been the source of excellent financing options for homebuyers. Further, Loan Originators who work at Mortgage Banks are LICENSED whereas Loan Originators who work for the "Big Banks" are only REGISTERED. There's a BIG difference.

Sit down face to face with your Mortgage Banker to be thoroughly prequalified. The Mortgage Banker will review all facets of your loan request to answer your questions with regards to the appraisal concerns you have for this property purchase.

Trevor Curran
NMLS #40140
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0 votes Thank Flag Link Fri Nov 18, 2011
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