Home Buying in 28590>Question Details

FSBOsuccess, Home Seller in 28590

USDA announced the rural development guaranteed mortgage program will be out of funds the end of April. Should buyers be worried?

Asked by FSBOsuccess, 28590 Fri Mar 19, 2010

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NCHome,

I would suggest closing as soon as possible on your home if the buyer is depending on USDA financing.

Historically, funding for USDA loans has run out before Congress refunds in the fall. With the current volume USDA is experiencing, underwriting/funding has been slower than usual in our area (Pitt County). Several of my team's USDA closings have been significantly delayed over the past few months because of that. Add to that the potential of funding running out earlier than usual makes it all the more important to get the house you're selling closed sooner rather than later...if the buyer has to get a USDA loan because his closing funds are limited.

Remember, your buyer's first payment will be delayed approximately a month, so theoretically he could close end of April and have a June 1st payment. Another possibility is close early and rent back a month or two, provided USDA doesn't have a problem with that.

Best of luck...hopefully, my perspective has been helpful.
0 votes Thank Flag Link Sun Mar 21, 2010
Glad I was helpful. Best of luck in getting it all worked out and into the home you're building.
0 votes Thank Flag Link Sun Mar 21, 2010
Pistol,

Thank you for finally answering my question. What you said is exactly the answer to what I was asking.
0 votes Thank Flag Link Sun Mar 21, 2010
Dan,
You're painting with a very broad brush. Your historical data may be applicable to your area and the national average as a whole, but it's not applicable to all areas. It's obvious some markets appreciated way too rapidly over the past few years. Others like my market, appreciated 2%-3% per year on average for the past several years. The "bubble" areas have suffered a much steeper decline in value relative to the more stable areas.

With that being said, in your area prices may continue to drop and waiting and hoping to hit the very bottom to buy may or may not work in your favor. In our area, prices seem to be stabilizing, days on the market are decllining and waiting will probably cost a buyer more. Add to that the currently extremely low interest rates, and the net cost differential could possibly be much more by waiting. In a nutshell, it all depends on if you like to gamble or not. Time will tell whether the decision to wait till later or buy now was a wise one.

Best of luck to you, whatever you decide to do.
0 votes Thank Flag Link Sun Mar 21, 2010
Scott, "It's not about paying more than you have to. It's about stabilizing property values. "

Lets see what prices did on a historic basis. Until 1998 (or so) prices had some times they went a bit high, then they dropped again. Overall they stayed the same accounting for inflation. If prices are above 1998 levels (plus 30% for inflation) they are to high. Price stabilization means that houses are back within the normal income to house price ratio once again. That should be 2.5 to 3 times average income for the average house. We are not there yet. As you said, why buy now knowing that prices will drop... I wait.
0 votes Thank Flag Link Sun Mar 21, 2010
It's not about paying more than you have to. It's about stabilizing property values. For the most part. home prices right now are a steal. What's the use in a buyer buying a home, home values continuing to deflate, and the same home they bought being worth $20K less than they paid for it in the next year? The markets are cyclical and will stabilize. And it has nothing to do with paying more for it than one has to. It has to do with buying a perfect home that fits their families needs, while they CAN get it for the prices that they're priced at right now. We've already seen increases in volume, activity and sales here in our market.

Once the government realizes that they can't continue to "fund" the American dream continuously, which they already have, it's just a matter of time for stabilization of the markets, and a continuation of getting back to seeing some appreciation in the real estate sector. When Fannie Mae and Freddie Mac stop buying 80% of all mortgages generated across the country, which they've already said they will do in the next 30 days, mortgage rates will start to bump up just a bit. Once people realize that the prices we have right now will not continue to be this low, you will see people getting off the fence and getting back into home ownership. It's not a matter of if it will happen, it's when. And all signs point to the very near future. It's just another cycle. This isn't the first time the markets have done this. It's just the first time that a lot of people have seen it.
Web Reference: http://www.sandhillsnc.com
0 votes Thank Flag Link Sun Mar 21, 2010
Scott, less demand for housing = lower prices. I challenge you to find me one buyer who wants to pay more than they have to. Low prices are exactly what the market needs to heal and clear out inventory.

NChome, it sounds like in June USDA would be out of money. Come September, they may not be. When congress comes back in the fall it is to be expected that they would put more funds into USDA so loans can be made. Maybe that will be november, it should see more money available. I think congress has just spent so much money they can not spend more on something that might make sense like house loans.
0 votes Thank Flag Link Sat Mar 20, 2010
I appreciate the responses, but only one agent has responded to my question. Maybe I need to be more specific.

I have a buyer for my home, but we were looking to not close until June when their lease is up and I will be building a home in a RD area and it won't be ready until September.
0 votes Thank Flag Link Sat Mar 20, 2010
And just so you'll know. Competition is exactly what's needed right now. Without competition and so much inventory sitting on the market right now, property values will not level off until we clear some of that out. And the only way that's going to happen is with buyers to buy some of these properties and get our inventory level back to a reasonable level. Most areas have anywhere from 18 months to 2 years worth of inventory just sitting right now. If your particular area is moving an average of say 30 properties a month, and there are say 600 properties on the market to choose from. It's gonna take awhile before you get back to a point where it doesn't take 6-8 months or longer to sell your property. Once the inventory starts to clear out some of these homes, demand will start to get back in line with supply, and property values will start to level of.

Keeping People Employed = More Disposable Income and Income for Housing = More Demand For Housing = More Home Sales = Lower Inventory = Property Values Stabilizing = Less Equity Lost in the Biggest Investment You'll Ever Make = True Long Term Wealth Return = Happier Families Everywhere
Web Reference: http://www.sandhillsnc.com
0 votes Thank Flag Link Sat Mar 20, 2010
Barrett is exactly right. I work with many buyers that have money to put down, but because of several factors, would rather keep their $15K to $30K in the bank, than use it to close their home. IE Falling property values, steady unemployment figures overall or maybe they've heard of friends that have been laid off and are a little uneasy, wanting to keep their money as cushion in the bank until things get back to some resemblance of "normal". USDA loans allowed them to get a great interest rate and keep their payment low, because of not having to pay PMI. And with the tax credits that are available, it actually was the best combination for new homeowners.

What you've got to understand is, as stringent as qualifications and guidelines to get a loan are now anyway, if the buyers aren't qualified, They're not going to get a loan. Period. Even with USDA. So it's not like we have borderline people using USDA and getting into situations they shouldn't be in. Credit score requirements are now higher, they need more money in the bank, limitations on gift funds. All of these things have already been changed for awhile.
Web Reference: http://www.sandhillsnc.com
0 votes Thank Flag Link Sat Mar 20, 2010
Dan,

Agreed. But USDA is primarily for low income buyers in rural areas. This economy has been very tough on everyone, especially those in low income brackets. The ones I see are paying $800 plus to rent and cannot save the down payment. Getting them into a home, even at 100% saves them money and puts them in potentially a much safer situation for their family. I'm ok with that.
0 votes Thank Flag Link Fri Mar 19, 2010
It could be a big plus instead. Think about it...

If those needing a zero down are removed from the marketplace those who have down payments will have less competition. That could give buyers a big help... qualified buyers that is.
0 votes Thank Flag Link Fri Mar 19, 2010
Yes, if buyers are expecting to use the USDA program and have not received their loan or loan approval already they are in jeopardy. Unless action is taken, funds may not be available again until next year.

Barrett Powell
0 votes Thank Flag Link Fri Mar 19, 2010
The one BIG exception to "only needing 3.5% down" is the fact that FHA mortgages require PMI.
0 votes Thank Flag Link Fri Mar 19, 2010
Buyers looking for 100% financing won't be able to get it, at least for the time being, unless they're active military with a VA loan. The USDA has been such a good loan program for so many good borrowers that just didn't want to come out of pocket with at least 3.5% down to buy a home. FHA will be the next best loan they can get, with only 3.5% down. The way things are going, and the way Uncle Sam is reeling their money back in, FHA may wind up changing criteria again, or asking for more money down before it is all said and done. Once the Fannie Mae and Freddie Mac stop buying all of our mortgages towards the end of this month or the beginning of April, you may see interest rates start to edge a little higher as well. We just have to continue to work harder, as our pool of potential buyers dwindles a little more and we try to get this unemployment rate back down. It's all going to take a lot of time.
0 votes Thank Flag Link Fri Mar 19, 2010
Yes...they should be concerned if they are looking for a 100% USDA loan. It will probably be refunded later this year, but many lenders are already saying they will not try to process a new USDA loan until the funds are replenished...because USDA will not guarantee funding any loan until it goes through underwriting.
0 votes Thank Flag Link Fri Mar 19, 2010
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