Monday, August 9, 2010
USDA Rural Development has TWO “no money down” home loan programs that can help a For Sale By Owner accomplish selling their home in today’s market. It is not quite as simple as putting “no down payment” in your advertising, but if you understand the two programs you can successfully target people that will qualify.
First, your home must be in a rural eligible area. All USDA’s funding is focused toward improving the living standards of rural communities. This does not mean your home must be in the middle of the woods. Roughly, their definition of “rural” is an area with a population less than 10,000. You can check your homes location to determine if it is eligible from USDA’s main website. Find the property eligibility page and type in your address.
Next, decide which of the two programs best fit your home. The Guaranteed Home Loan is for people with very good credit, scores above 620, and people with moderate to above moderate income (125%) based on the median income for that county. The maximum loan amount is determined by their debt to income ratio.
The Guaranteed Home Loan is a great program that requires no money down. Sometimes Rural Development runs out of funds for this program so check funding availability before you recommend this to your perspective buyers. Rural Development gets new funding at the end of each fiscal year.
The Rural Housing Direct Home Loan is like no other mortgage on the market and can really be an asset to selling your home. This loan is funded directly by the government. It is a little complicated but even people on a fixed income can qualify for this mortgage. Few people even know it exists and I would say that it might be the only true sub-prime loan on the market today.
The income requirement is based on the adjusted median income for each county so to qualify; the buyer’s adjusted income must be Low to Very Low. Low is defined as 80% of the median income and Very Low is less than 50% of the median income! Yes, people on fixed income, social security, SSI, and food stamps may qualify. Many of these loans are even subsidized by the Government.
A subsidy is when the government makes part of the monthly payment on the mortgage so these people can qualify. Under certain conditions the subsidy does have to be paid back.
The Direct home loan does not use a credit score to qualify but does have reasonable expectations about collections, judgments, and liens. This loan’s focus is on credit history, not score. It even has provisions for people that do not use typical credit. If the buyer has Alternate Credit such as a cell phone, utilities, cable, or insurance in their name that they “pay on time” it can be used as credit history.
If the buyer’s income is at the Very Low level the PITI cannot be more than 29%. If they are in the Low Income level it can go as high as 33%. Total debt for either income level is 41%. Because of the government subsidy people with incomes as low as $800 a month could qualify. Get this; … food Stamps are counted as part of repayment ability. How cool is that?
What about closing costs? It doesn’t get any better than this. If the appraisal is sufficient, closing costs and repairs may be added into the loan if the seller is not willing to help the buyer pay them.
If I were a For Sale by Owner and my home qualified both in location and sales price I would use these qualification requirements in all my FSBO advertising and listings. (No Down Payment and Very Low income may qualify) I would also pick up some Pre-Qualification Preliminary Applications from the nearest USDA office and give them to prospective buyers that answer my Ad.
As the seller you should also know that this loan takes two to three months to close. In today’s market that is not a big deal. In any case do not get into a contract with someone applying for this loan until they are issued a Certificate of Eligibility stating they are eligible, and how much they are eligible for. You should also know that his program has more funding available than Rural Development will ever be able to use.