Changes to USDA Mortgages

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2014-09-03_usdaUSDA offers mortgages with no down payment for homes that are located in designated rural areas to borrowers who meet household income limits. The mortgage rates are very competitive and the mortgage insurance (technically called “guarantee fees”) are very affordable. It’s truly a great program for those who qualify and are buying a home in rural areas, like Duvall, Enumclaw or Anacortes.

Recently, USDA issued Handbook 3555 with updated regulations for USDA mortgages. Here are just a few of the changes:

  • Maximum Seller contribution is limited to 6%. Previously, USDA did not have a percentage cap on how much a seller can contribute towards closing cost and prepaids.
  • Tax transcripts will be required from all adult members of the borrowers household. Income limits are based on household income and not just to the borrowers on the loan application. Now, every adult member of the household will need to complete Form 4506 to obtain a 24 month history – this includes Grandma.
  • At least one borrower must have an established credit reputation. This is defined as having at least three trade lines that are at least 12 months old. Non-traditional credit may be used to help establish a credit reputation but is not allowed to support a poor credit history or low scores.
  • Foreclosures and (most) Short Sales have a 3 year wait period. This isn’t not new info but thought I’d take the opportunity to share it here. If the home owner was not delinquent on their mortgage at the time of the short sale and made on-time mortgage payments 12 months prior to the short sale may still be eligible for a USDA mortgage.
  • Unpaid collections tolerated. Medical collections and charge offs are not factored. Remaining unpaid collections (including those of the spouse) that exceed $2000 must be remedied. Please talk to your mortgage professional BEFORE taking action with collections if you are considering buying a home.
  • Debts with 10 months or less remaining due may not be factored into debt-to-income ratios. This includes installment debts, alimony, child support, student loans and even revolving debts.
  • Speaking of student loans…student loans without a set payment due will have 1% of the outstanding balance factored as a payment for qualifying purposes.
  • Swimming pools may be allowed… this used to be a deal killer for USDA mortgages.
  • Detached buildings may be allowed as long as they are not income producing.
  • Larger lots may be allowed as long as it is “typical for the area” and not income producing land.

But wait… there’s more!

USDA is increasing the annual Guarantee Fee to 0.5% from 0.4% effective on loans that do not have USDA conditional commitment by October 1, 2014. If you currently have a USDA mortgage in process – contact your mortgage professional ASAP to address this issue. Although the increase is only 0.1%, this can cause delays in your closing if the fee is not disclosed properly and USDA is currently taking weeks to underwrite mortgages.

And…last but not least…

USDA boundaries which define eligible rural areas may be adjusted effective October 1, 2014.  Whether or not a home is eligible for USDA financing is determined by population of the area and if the area is “rural in character”. The maps based on population will be adjusted on October 1, 2014 and are set to adjust based on “rural in character” on October 1, 2015. Bottom line, you need to check USDA’s site and run the property address to see if the home is eligible. It’s not unusual to have a property on one side of the street be allowed and across the street not… and having a USDA loan in process with changing boundaries just adds to the fun.

If I can help you with a USDA (or any) mortgage for your home located anywhere in the state of Washington, please contact me!

 

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