The United States Department of Agricultural (USDA) offers loan guarantees for homes in eligible rural areas. This loan guarantee is made for up to 90% of the loan value of a single-family home that will be used as a primary residence for a low or a moderate income family. Eligible buyers are allowed to use loan funds to buy a residential property, build a home, or improve a home in a rural area.

Applicants need to have 10% available for the down payment. In some cases, there may be the possibility of getting down payment assistance from county and state agencies. Income limits are determined by the location of the property and how many members there are in the family. Check with the professionals at the O’Kavage Group to learn more about these specifics.

USDA guarantees for loans are only given to U.S. citizens and qualified aliens who have the legal ability to apply for a loan, agree to personally occupy the residence, and have a decent credit history. FICO scores cannot be below 640 for automatic approval.

Manual Loan Underwriting for USDA Loans

For those with a FICO score under 640, it may be possible to get a loan that is manually underwritten, depending on the specifics of an individual borrower. For manual underwriting, a person from the USDA is assigned to review the case to determine the ability of the borrower to repay the loan.

The reviewer will take a look at all supporting documents, such as monthly bills and bank statements. A calculation called the debt ratio will be made to determine the maximum monthly amount used for housing expenses including the principal and interest loan payment, home insurance expense, and property taxes. This total may not exceed 29% of monthly income. Other monthly payments may not exceed 41% of income.

The reviewer will want to see proof of dependable income for the prior 24 months with no accounts converting to collections in the past 12 months. Some exceptions may be made for circumstances that were not under an individual’s control such as having a major medical emergency.

Besides offering guarantees for loans, the USDA also makes direct loans for those unable to borrow from traditional sources. USDA direct loans are usually made for homes that have 2,000 square feet or less and have a value that is limited depending on the market area.

USDA loan funds can be used for the following:

  • For new home construction.
  • To buy an existing home.
  • Closing costs.
  • Repairs and renovations when buying a home.
  • Purchase of the land the home is on or the site where a home will be built.
  • Site preparation costs including grading, foundations, fences, driveways, and landscaping.
  • Eligible loan refinancing.
  • Equipment and accommodations for disabled persons to use a home.
  • Connections to utilities.
  • A pro rata share of any property taxes due when purchasing a home.
  • Household appliances.
  • Purchase of equipment and renovations for energy-efficiency upgrades.

The USDA loan approval process can be confusing. Work with the professionals at the O’Kavage Group to make this process less intimidating.

Non-Qualified Mortgages

As a result of the financial disaster caused by the real estate crisis in 2006 to 2008, a new federal governmental agency was created to protect American consumers. It is the Consumer Financial Protection Bureau (CFPB).

Rules for Qualifying Mortgages

The CFPB created rules for qualifying mortgages. Lenders are not forced to follow these rules and can make non-qualifying loans; however, if they want automatic protection from regulatory problems and consumer lawsuits, they make loans under these “safe harbor” ability-to-repay rules.

The qualifying rules are:

  • There is a 3% maximum total cap for the points and fees, unless the loan is less than $100,000.
  • Risky loan features are not allowed that include interest-only loans, negative amortization (principal amount gets bigger over time), and balloon payments.
  • The loan term is limited to a maximum of 30 years.

There are also three groups of loans that are qualified loans, which include:

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Any loan that meets the above qualifying requirements, where the borrower has a debt-to-income ratio of 43% or less.

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Any loan that meets the above qualifying requirements, where the borrower can get a loan that is approved by a government supported entity (GSE), even if the borrower has a debt-to-income ratio of more than 43%. GSEs include FHA, VA, and USDA loans.

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Loans made by small lenders that have less than $2 billion in assets and originate less than 500 loans, where the borrower’s debt-to-loan ratio has been verified (with no specific limit) and where the ability to repay the loan has been investigated and approved.

Availability of Non-Qualifying Loans

The rules for qualifying loans do not prevent lenders from offering and making non-qualified loans. Many lenders specialize in making non-qualified loans. Typically, the interest rates, points, and closing costs are higher for a non-qualified loan.

Here are the types of non-qualifying loans available that apply to certain circumstances:

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SIVA Loan:

SIVA Loan: SIVA loans are a stated income verified assets loan. Gross monthly income is simply stated on the loan application by the borrower and the lender only verifies the assets of the borrower.

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SISA Loan:

SISA Loan: SISA loans are a stated income stated assets loan. Gross monthly income and the assets are simply stated on the loan application made by the borrower. The lender does not verify them.

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No Doc Loan:

No Doc Loan: For a No Doc loan, there is no documentation given by the borrower for the lender to verify, except to verify citizenship.

Credit History and Down Payments for Non-Qualifying Loans

Having a good credit history, such as a FICO score of 620 or higher, and making a large down payment is usually required to get a non-qualifying loan.

If a non-qualifying loan seems attractive, work with the professionals at the O’Kavage Group to identify lenders that offer non-qualifying loans that meet the requirements for a particular home purchase.