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Types of USDA Loan Repayment Plans

OVERVIEW

The rules governing Section 502 loan origination differ slightly, depending upon the type of loan being made. The types of loans available under Section 502 include:

• Initial loans;
• Assumed loans;
• Subsequent loans; and
• Non-program loans.

This section describes the four types of loans and how they differ.

INITIAL LOANS

Initial loans are made when neither the applicant nor the seller has an existing Agency loan. Generally, they are made for the maximum loan term for which the applicant qualifies, and at the Rural Housing (RH) 502 low or moderate interest rate. If no prior Agency loans are involved in the transaction and the loan is to be made on program terms, this is the type of loan used.

ASSUMED LOANS

Section 502 loans may be assumed. The terms and conditions of the assumption depend upon the eligibility of the new purchaser.

A.  New Rates and Terms Assumption

Most assumptions of Section 502 loans are new rates and terms assumptions — that is, the purchaser assumes responsibility for all or a portion of the remaining debt, including principal and recapture receivable amounts. In order to conserve the Agency’s budgetary resources, the transaction does not involve paying off the old loan and issuing a new initial loan.  Instead, the purchaser assumes the outstanding debt, which is re-amortized at new rates and terms. If the new purchaser and the property are eligible for the Section 502 program, the loan can be assumed on program terms. In addition, eligible new purchasers may receive subsequent loans to make up the difference between the amount of debt assumed and the purchase price, or may be able to obtain a leveraged loan. If the property does not meet Agency standards or will not be brought to Agency standards with the use of loan funds, or the new purchaser is not eligible, the loan can be assumed on non-program terms. Purchasers who assume the loan under non-program terms are not eligible for a loan to cover amounts above the amount assumed.

B.  Same Rates and Terms Assumption

In certain limited cases — generally those involving transfers of title between family members — a same rates and terms assumption, is permitted. Under this type of assumption, the existing note terms, including the interest rate and the remaining repayment period, do not change.

The new owner need not be income-eligible for a Section 502 loan. However, payment subsidy can be continued for new owners only if they are eligible for subsidy, and only at the level for which the new household qualifies.

Same rates and terms assumptions are permitted for the following types of transfers:

• A transfer from the borrower to a spouse or children not resulting from the death of the borrower;
• A transfer to a relative, joint tenant, or tenant by the entirety resulting from the death of the borrower;
• A transfer to a spouse or ex-spouse resulting from a divorce decree, legal separation agreement, or property settlement agreement;
• A transfer to a person, other than a deceased borrower’s spouse, who wishes to assume the loan for the benefit of persons who were dependent on the borrower at the time of death, if the dwelling will be occupied by one or more persons who were dependent on the borrower at the time of death, and there is a reasonable prospect of repayment; or

• A transfer into an inter vivos trust in which the borrower does not transfer rights of occupancy in the property.

SUBSEQUENT LOANS

Subsequent loans can be issued as part of the original purchase of a property in combination with an assumption, or during the term of an Agency loan to help an existing borrower pay for repairs or improvements to the property.

NONPROGRAM LOANS

Non-program loans are loans made on non-program terms to borrowers who are non-  program-eligible, and/or for properties that do not meet Agency standards and will not be brought to Agency standards with the use of loan funds. The interest rate offered is somewhat higher than for program-eligible borrowers, but is competitive in the marketplace. Borrowers with non-program loans are not eligible for program benefits, such as payment subsidy, or for servicing actions, such as moratoriums. They also are exempt from occupancy restrictions and the requirement to refinance with private credit.

• A transfer into an inter vivos trust in which the borrower does not transfer rights of occupancy in the property.

SUBSEQUENT LOANS

Subsequent loans can be issued as part of the original purchase of a property in combination with an assumption, or during the term of an Agency loan to help an existing borrower pay for repairs or improvements to the property.

NONPROGRAM LOANS

Non-program loans are loans made on non-program terms to borrowers who are non-  program-eligible, and/or for properties that do not meet Agency standards and will not be brought to Agency standards with the use of loan funds. The interest rate offered is somewhat higher than for program-eligible borrowers, but is competitive in the marketplace. Borrowers with non-program loans are not eligible for program benefits, such as payment subsidy, or for servicing actions, such as moratoriums. They also are exempt from occupancy restrictions and the requirement to refinance with private credit.

USDA Loan Programs

Loan Guarantee Program (Section 502)

Under the Guaranteed Loan program, the Housing and Community Facilities Programs guarantees loans made by private sector lenders. (A loan guarantee through HCFP means that, should the individual borrower default on the loan, HCFP will pay the private financier for the loan).  The individual works with the private lender and makes his or her payments to that lender.

Under the terms of the program, an individual or family may borrow up to 100% of the appraised value of the home, which eliminates the need for a down payment.  Since a common barrier to owning a home for many low-income people is the lack of funds to make a down payment, the availability of the loan guarantees from HCFP makes the reality of owning a home available to a much larger percentage of Americans.

Credit Score Requirements for a USDA Loan

The credit guidelines for this home mortgage are simple, straight forward and very flexible.  Don’t get the idea that this is a bad credit mortgage because it is not.  It is flexible and you will see how everything about this mortgage plays together.

Credit Score:

If the credit score is 620 or above the credit is considered acceptable.  If the score is 620 or above the documentation is streamlined as follows:

• No rental history is required
• No credit waiver is required if there are derogatory trade lines like bankruptcy, foreclosures, or late payments for whatever. The only exception is Federal debts.
• If the score is below 620 a full manual credit assessment must be done  by the underwriter.

Indicators of unacceptable credit history for this mortgage loan are:

• More than one 30 day slow pay in the last 12 months
• Foreclosure less than 3 years old
• Tax lien or delinquent Government debt with no arrangement for re-payment.
• Judgment outstanding with in the last 12 months
• More than two slow rental payments in the last 12 months
• Account converted to a collection within the last 12 months
• Chapter 7 discharged for less than 3 years
• Chapter 13 discharged for less than 1 year

It is important to note that the underwriter can issue a credit waiver for any of these issues with proper documentation that proves that the bad credit was beyond the control of the applicant, were temporary, and causal factors have been removed.  Underwriters must also consider layered risks in addition to low credit scores.

Credit scores below 580 should not be considered if there is any derogatory credit and there must be extraordinary compensating factors.

In addition to all this the lender must obtain a clear CAIVRS number for each applicant.  They must get 12 months documented rental history, however this is only required if the credit score is less than 620.

Non-traditional credit is acceptable if traditional credit is not available.  There is a 3 reference minimum and no other risk layers are allowed.

FHA Mortgage Limits

A Video example of how to find out what FHA Mortgage Limits are in an given area.

https://entp.hud.gov/idapp/html/hicostlook.cfm

FHA Loan Types

FHA-insured loans are available in urban and rural areas for single family homes, Town Houses, 2-unit, 3-unit, 4-unit properties, and for condominiums.Interest rates on FHA loans are generally slightly higher than market rates, while down payment requirements are lower than conventional loans. Down payments can be as low as 3.5 percent. In many cases, closing costs can be wrapped into the mortgage.

With an FHA-insured mortgage, you can make extra payments toward the principal when you make your regularly monthly payment. By making extra payments, you can repay the loan faster and save on interest. You can also pay off the entire balance of your FHA-insured mortgage at any time, with no penalty to you.

FHA Loan Section 203(b) is the most popular FHA program. You may use this program to purchase new or existing 1-4 family homes, condos or townhomes, in both urban and rural areas. A section 203(b) fixed mortgage may be repaid in monthly payments over 15 or 30 years. Available in Fixed and Adjustable Rates.

Section 234(c) provides mortgage insurance for buyers who wish to purchase a unit in a condominium project. The condominium may consist of more than one building, such as a group of row apartments, high-rise buildings, townhouses, or any combination of these structures. Any condominium project must be approved by HUD. Available in Fixed and Adjustable Rates.

FHA also insures loans for home improvements — 203(k) loans. Section 203(k) mortgages allow you to purchase and rehabilitate a home at least 1 year old. A portion of the loan proceeds are used to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The improvements financed with Section 203(k) mortgage proceeds must comply with HUD’s Minimum Property Standards and all local codes and ordinances.  Available in Fixed and Adjustable Rates.

FHA Loan Section 251 Adjustable Rate Mortgage program which provides insurance for Adjustable Rate Mortgages. When interest rates are high, Adjustable Rate Mortgages keep the initial interest rate on a mortgage low which allows borrowers to qualify for the financing they need. While the Section 251 program helps to keep mortgage interest rates and payments low they may change over the life of the loan. The maximum amount of fluctuation in your interest rate in any given year cannot exceed 1 percentage point. And over the life of your loan, the interest rate cannot increase more than 5 percent from your initial rate.  The terms of the Adjustable Rate Mortgage will be disclosed when you apply for your mortgage loan. And should your interest rate increase, you will be informed at least 25 days before any changes are made to your total monthly payment.

FHA Loan Programs

FHA has multiple Loan Programs that can meet anyone’s expectations if they are looking to use an FHA Loan to purchase their home below are a list of the most common Loan Programs available to you:

• HUD Homes - Properties for Sale and Financed by FHA
• Officer Next Door – 50% Discounted properties and financing for police officers.
• Teacher Next Door – 50% discounted properties and financing for teachers.
• Neighborhood Gold – up to $15,000 gift funds with assistance of home seller
• CHFA Loans (CHAFA) - discounted financing option with income limitations
• 203K – FHA major home improvement, rehab loan.
• Single Family Home – standard FHA 203(b) loan.
• Units> Duplex  Triplex  Fourplex – unit financing
• Fixed Rate FHA Loans – standard FHA fixed rate loan
• FHA adjustable rate mortgages (ARM) – standard FHA ARM, Adjustable Rate Mortgage
• FHA Buydown Loans – FHA 1/1 or 2/1 buy down loan.

Required FHA Income & Assets

Income Guidelines

In order to qualify for an FHA loan, all income must be analyzed to ensure that it is sufficient to cover the mortgage and other obligations of the borrower. Also, the stability and likelihood of the income continuing must also be analyzed. Income from any source that cannot be verified, is not stable, or will not continue may not be used in calculating the borrower’s income ratios.

Debt Ratios

Debt Ratios are the relationship between ones income and ones expenses. Ratios are generally expressed as two numbers like 29 over 41 or 29/41. These are standard FHA ratios. The first number, the 29, represents the relationship between the borrower’s income and his new housing expense of principal, interest, taxes, insurance, and HOA’s. A borrower who makes $3,000 per month and has a housing expense of $870 would have 29% top end ratio.
The other number of 41% represents the total monthly debt, including the housing expense and all other debt such as credit cards, loans, child support, etc. Thus in our example of the borrower that makes $3,000 per month and had a total expense of $1,230, would have 41% bottom ratio.


With the use of automated approvals, a borrowers ratios can exceed the guidelines above. Also, with compensating factors a borrower may be able to exceed the ratio guidelines.

Stability of Income

FHA does impose an arbitrary minimum length of time a borrower must have held a position to be eligible. However, the lender must verify the borrower’s employment for the most recent two full years. If a borrower indicates he or she was in school or in the military during any of this time, the borrower must provide evidence supporting this such as college transcripts or discharge papers. The borrower must also explain any gaps in employment of a month or more.



Allowances for seasonal employment, such as is typical in the building trades, etc,. may be made.
The lender or underwriter is looking to show a steady source of constant earnings. Borrowers with frequent job changes generally show a lack of stability. Also, large swings or changes in income will also lead an underwriter to question the stability of the income. A borrower who changes jobs frequently within the same line of work, but continues to advance in income or benefits should be considered favorably.

Assets

Though FHA doesn’t require assets in the bank to close on a loan, each mortgage consultant might have you put a cushion in the bank of at least 2 months of all your expenses with a minimum of 2 months of mortgage payments.

How to find out if a Property is USDA loan eligible?

Go Through Online scenario at The link below:

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

USDA Required Income & Asset

Go Through Online scenario at their website using the link below:



http://eligibility.sc.egov.usda.gov/eligibility/incomeEligibilityAction.do?pageAction=state&NavKey=income@11

Plumbing Inspection

How can you tell whether your water service pipe is made of copper, steel, lead or plastic?

• Simply scrape the pipe material at the wall where the pipe enters the house. Copper is relatively soft and has a copper penny color. Galvanized steel is hard and has a silver-gray color. Lead is fairly soft. You will only see this type of service piping in homes that are about 100 years old. The joint where the lead has been sweated to the supply piping looks like a bulb or a short section of expanded pipe. It has a gray color.
• Plastic piping will have a metal clamp where it joins the supply piping. Plastic service pipe is generally tan and white in color.

How can you tell if poor water pressure is caused by problems with the supply piping or the service piping?

• Consistently poor water pressure indicates that there is a problem with the supply piping (or the main source of water).
• Water pressure that is acceptable for one or two seconds, then diminishes, indicates that there is a problem with the service piping that comes from the street to the house.
• The reason for this is different pipe sizes. The service pipe is typically larger than the supply piping. If the supply piping is corroded or restricted, water will exhibit a consistently weak pressure. On the contrary, if the supply piping is good and the service pipe is corroded or restricted, the supply piping will fill and provide good

• volume for only a second or two, because the corroded service pipe will not be able to keep the supply piping filled.

How can you determine the condition of failing steel supply piping  before the water pressure becomes poor?

• Look for small roundish rust warts or growths on the outside of the piping. Rust warts are failures that start from the inside of the pipe and come through the surface of the pipe. They typically do not leak immediately, but will usually start leaking within one year.

How can you tell when the well water is deteriorating the copper piping simply by looking at the house?

• Look around the drains of the sinks and the tubs. If you see green patina stains in these plumbing fixtures, then it is a good indication
  that the well water is acidic and that the copper is being deteriorated. In extreme situations, round green stains can be seen on the horizontal runs of the pipes. These are failures, and will start leaking with a small spray of water. The solution is to test the water and install a neutralizing system to raise the water’s pH level.

• Note: Brown-orange stains indicate excessive minerals in the water. Conditioning equipment is strongly recommended if this is the case.

How long does cast iron soil pipe last and where will the first failure typically occur?

• Cast iron soil or drain pipe will generally be dependable for 60+ years. The first failures usually occur in the horizontal section of pipe, at about 8′–20′ past or below the vertical vent pipe.  This failure develops on the top of the pipe. The reasons for the failure in the top of the pipe and at this specific location are:
• The acids produced by the human digestive system (aka methane gas) deteriorates the top interior portion of the pipe. The bottom has moisture and a small amount of solids, and the acid doesn’t have the same impact.
• The horizontal pipe is installed at a 1/8”–1/4” slope towards the sewer in the street. The slope is necessary to provide fall that will allow gravity to drain the waste and to allow the liquid waste to mix with the solid waste so that both will exit the pipe. If there is too much slope in the pipe, the liquids will not adequately mix with the solids. The reduced friction will cause the liquid to drain quickly and cause the solids to lay in the bottom of the pipe. The solids will not clog or stop the flow, however, they will allow the acids to accumulate in one area and deteriorate the top of the pipe.

• When waste drops in the vertical vent pipe from a bathroom, it will rush through the first 8′ or so of the horizontal pipe. At this point, the liquid waste still has momentum while the solids have started to slow. Turbulence in this 8′-20′ area is what is what accelerates the deterioration process inside the top portion of the pipe.
• Note: In some cases, the vertical section of pipe is the first to fail. This is due more to workmanship than acid deterioration. The vertical section of pipe can weigh 300–400 pounds, depending on the height. If it is not supported or hung properly, the stresses and natural deterioration may cause failure in 60 or so years.