Looking for financing for my first home. Which would suite best, FHA 203K S or USDA Rural Development section 502 Direct

Asked by Brian Lohman, 21771 Thu Dec 31, 2009

I have a agreement to buy a house for 46,800 and a total of 30,000 in repairs. It needs a new well, plumbing, small section of roof repair and want to put in a geothermal unit. It has been appraised for 85,000. I am looking at what type of loan would be best to check on. My ideas so far are FHA 203K S and the USDA Rural Development. I like the USDA RD 502 direct because its zero down but wondering which would be easiest and best for my situation. I qualify for either loan based on credit score and income.

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Al Akerman’s answer
Al Akerman, Mortgage Broker Or Lender, Lakewood, NJ
Thu Dec 31, 2009
Brian, I am sorry to hear about all those appraisal costs. Hopefully, if you decide to go FHA you can use the old appraisal again with little modification. Many banks want to order their own appraisal (I can't say I blame them) because of the possibility of fraud.

I didn't realize that in your quetion that had already mentioned the streamline (I missed that s even though you capitalized it), but I think it is an excellent program for your needs. It shouldn't take as long as a USDA loan takes.

The only issue you might have with the streamline is that you have to be able to move in to the home within 30 days of closing.

If your current lender has experience with it you can ask hem how long it generally takes him. I can't imagine it would take more than 45 days. A USDA will likely end up taking 60 or more days.

Hope this helps but feel free to post more info or questions.
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Brian Lohman, Home Buyer, 21771
Thu Dec 31, 2009
I have applied for a 203K S and was denied by that lender, Plaza Home Mortgage, the reason being I had a mortgage broker and appraiser that had no idea how to do a 203K. I knew more about the 203K and Ks progam just by my reading online than either of the people supposedly helping me. I am now working with a new broker who has experience but then I found the USDA RD loan. I qualify for the direct loan based on my income and the house's rural location. The USDA website says they are able to have a decision within 30 days of recieving the full application. The website says the RD 502 can be used for home purchase and repairs as well as for finacing new construction. My question is, which loan would be best with the circumstances I have? I don't have a realtor but in talking to the sellers realtor, he told me I couldn't use the RD loan because it only allows 5000 in repairs but I called the USDA and they laughed and said that is not true. After being denied by the attempted 203K, the realtor has sent me to a friend of his that is a broker who says they can do the loan. I have wasted 1250 in appraisal fees and want to move forward with out getting ripped off again. I just need to figure out with all the variables I have which loan would be quickest and most convenient.
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Chris Highla…, Agent, Frederick, MD
Thu Dec 31, 2009

Another thing to consider when choosing a loan program is the time required for and availability of each loan program. The USDA program can take weeks to several months to get approved and you should acquire this approval before you write an offer on a home. The USDA loan also is subject to availability within your area. The funds allocated for your county may have been spoken for. This may require an indefinite wait for a new allocation to be released. There are also loan limits in each county for both the USDA and FHA programs.
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Keane Ng, Mortgage Broker Or Lender, Renton, WA
Thu Dec 31, 2009
The credit requirements for these two loans aren't that different. In fact, the USDA loan may be easier since it's direct from the USDA and you won't have lender overlaying guidelines like FHA loans do.

Remember that USDA loans, especially USDA direct loans, have an income limit and also require that the property be zoned rural. FHA loans do not have these limitations. That is why more people use FHA than USDA. The USDA direct loans are designed for people who have moderate to low income for their area AND they must buy a rural property.
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Al Akerman, Mortgage Broker Or Lender, Lakewood, NJ
Thu Dec 31, 2009
Brian, ask your lender about a "Streamlined 203K".

You can only do repairs (like those you mentioned) that don't need a consultant.

It is probably the most convenient construction program available.

Good luck.
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