Category Archives: USDA Loans

USDA Purchase Loans for Condo Units

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imphot_3Probably the most under-utilized purchase loans for condominium units are those insured by the USDA.  Like the VA and FHA, the USDA Rural Development (RD) program is a home loan insurance that allows the financing of condominium units.

One of the most important criterion for use of this program is that the loans are only available in areas in which the USDA deems to be “rural”.  A rural area is one in which the population is 35,000 or less.  The USDA does not go by towns, it uses census tracts which can allow use of the RD program in part of a town but not the rest.  To know if the condo unit is in an eligible census tract, you can follow this link and click on the Single Family Housing link under Property Eligibility on the left of the page.

The RD program also has maximum income limits for its use and is a computation based on the number of dependents, disabled persons and persons aged 62+ that are living in the household.  The calculation also takes into account the county of the property, annual child care expenses and all income earned by adults in the home (not just the borrowers’ incomes).  You can use the link above and click Single Family Housing under Income Eligibility and use the worksheet to determine eligibility.

Unlike FHA and the VA, the USDA does not maintain its own approved condominiums list.  For a condominium unit to be eligible for RD financing, the project must be on the approved condominiums list of FHA, the VA, Fannie Mae or Freddie Mac.

Where this becomes interesting (at least to me) is when dealing with new construction projects.  FHA, the VA and Fannie/Freddie have different pre-sale requirements for new projects and their calculation.  FHA has the lowest pre-sale only requiring that 30% of the units be sold or pending sale.  Fannie/Freddie have a 50% pre-sale requirement and the VA says that 70% of the total number of units must be sold.

Therefore, for new construction in rural areas, it would make good sense to get approved with FHA to allow the use of the RD program as well.  The USDA does not have a maximum RD loan concentration limit; FHA caps its loan concentration in new projects to 50%.  Thus, after 30% of the units are sold, 50% can be financed with FHA and the rest with the RD program.  This is very important for developers to know when constructing in rural areas.

For more information about USDA’s requirements for condominium projects, you can access the Administrative Notice released by the USDA in 2007.  [The form does need some updating with regards to the pre-sale requirement.  The percentages that are listed above are accurate as of 4/17/15.]

Or you can contact Eric Boucher at AskEric@readysetloan.com

Top Photo Credit: (c) Can Stock Photo / imphot

USDA Rural Housing Program Maps

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USDA_logo

The USDA determines the eligibility of an area based upon census data and sets a maximum population limit.  Until the 2010 census data was released, it was using the 1990 and 2000 census data and had set the maximum population for the area at 25,000.

I say “area” and not “towns” because it doesn’t go by towns; it uses census tracts.  It is possible for a town or small city to have more than one census tract and that one census tract in a town may be eligible while another may not.  This is true of Waterford, CT.  Nearly the entire town is eligible except the eastern side near New London.

In 2013, the USDA announced the updated census tracts that would be eligible based upon the newest census data from the 2000 census.  In many states, including my state of Connecticut, this would have effectively reduced the eligible areas by nearly one half.  This created tremendous uproar from housing organizations and the USDA decided to postpone the implementation of the new maps.

The Agriculture Act of 2014, H.R. 2642 (The Farm Bill) modified section 520, which refers to the Rural Development loan program.  The modification included the use of the 2010 census data but increased the maximum population from 25,000 to 35,000.  This modification will ensure that the eligibility maps will stay generally the same as they have been for the past 10+ years.

condo1It was also announced that any area that was deemed a Rural area as of 9/30/2014 will remain eligible until 9/30/2014.  Currently, only the areas that transitioned from ineligible to eligible are available on the map.  The USDA noted that a preview of the complete map (including the areas that will become ineligible) will be available for preview during the summer, ahead of the 9/30/14 changes.

To view a map or to verify if a home is located in a Rural area, you can follow this link (http://eligibility.sc.egov.usda.gov).  On the left toolbar, click on “Single Family Housing” under the heading of “Property Eligibility”.  Click Accept on the page that follows and you will be taken to the map.  You can type in the exact address or the town or the state (although the system will “bark” at you for the last two.)

You may be wondering why someone like me who helps condominiums to obtain their FHA condo approvals is concerned with the USDA Rural Development maps.  And I would say that is a great question.

The USDA RD program does allow for loans for condo units.  In order for a condo unit to be eligible for USDA financing, it has to be in a Rural area and the condominium project has to be on the FHA Approved Condominium List.  Therefore, no FHA condo approval – no USDA financing.

While most of the condominium projects with whom I work are not in Rural areas, there is a large percentage that are and having the ability to attract USDA RD loan buyers is very important.

USDA logo courtesy of the USDA

A Look Behind The Curtain: How To Choose A Mortgage Lender – Forbes

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A Look Behind The Curtain: How To Choose A Mortgage Lender – Forbes.

Great article on how to choose your lender, here are a few things to take away from the article:

1. Always research your mortgage professional

2. Just because a realtor has an in house lender, it doesn’t mean that’s your best place to get a loan.In-house reps exist because there is a mutually beneficial financial relationship, the lender has unrestricted access to agents and buyers, and the real estate company is compensated by the lender.

3. Significant interest rate discounts offered by online financing sources are advertisements, like everything else, if it sounds too good to be true, it is.

4. If trust in your lender’s rep is the result of your vetting process, chances are you have chosen well.