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Does anyone have any experience/knowledge about the USDA loans?

 
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I need to get out of my apartment, and I am on limited income.  I should qualify for a USDA Direct home loan if I sell my car and buy a vehicle with the cash left over.  My car is my only debt.  I don’t think my qualifying is an issue, according to the local USDA office.

I talked with a local realtor and the regional USDA office, but neither were not very knowledgeable about the qualifications of a property.  The realtor said that the USDA wouldn’t approve a house if the inspector found one piece of peeling paint that the seller refused to fix (any age home, not just older homes with possible lead paint). The USDA loan specialist said the lot size limit was an acre, defined by the requirements of location of well to septic, etc.  I looked everywhere online and in the regulations, but I could not find anything about a one acre limit. The regulations say something about the value of the land can’t be more than 30% of the property’s value, cannot be subdivided, and cannot be a source of income, ie. commercial farming, horse boarding, etc.  Does this sound correct?  I’d really like to get at least two acres so I can have dairy goats, orchards, and gardens. I would also like more space to have an area for pit firing and a rocket kiln for ceramics. Also, I believe any off-grid property is a “no go” for the USDA.

I also have questions about the wisdom of getting a subsidized mortgage that is extended to 33 or 38 years.  I don’t want to be in debt forever or having anything held over my head.

Can anyone give me a bit of guidance?

PS.  My need to get out of my apartment is not only for my mental health, but because I can’t afford it!  A mortgage is cheaper than renting an apartment, and renting a house is astronomical around here.
 
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The issue is seldom the regulations… it is how the regulations are interpreted.  If it takes the approval of your local office, I would go by what the local office is telling me. I would also ask if there are other types of loans available through the usda.  As for the length of the loan, I would crunch the numbers to see what was optimal for me.  I once checked out the a long term mortgage through a special government program and found that after 10 years I would have around $10 paid off on the principle.  I have heard others say that was acceptable to them. It wasn’t for me.  I never accept interest rates at face value … i find out how those rates are calculated and how those rates impact my payments over the long term. What might seem like a lower interest rate could end up costing you more depending on the details. I have long gone with the standard figures of never buy for more than 2.5x your annual income ….. have a 20% down payment….and limit the mortgage to 10 years. I pay the first payment on the day the loan is closed. I then pay 50% of the monthly payment every 2 weeks ( that substantially reduces the interest actually paid). Other people use other guidelines. Of course, there are always reasons for exceptions, but those guidelines have never gotten me into trouble.  Best of luck.
 
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I have got USDA Loans and Grants before, but they seem a lot different than what you are describing. That might just be because of where I live though...

The loans I got through the USDA I had to prove I could NOT obtain credit through any private organization first. The USDA is not a bank, nor do they want to be, they just want to ensure that farms keep producing food for a hungry nation, and important consideration since only 1 out of 200 Americans are farmers producing food. Even then, you can only do this (7) times in your lifetime. They will check your credit, but its the opposite; its to see if its too bad for private bank loans not for credit worthiness.

They can be for different things of course, from buying a new farm to expanding an existing one, but don't get too excited; if you have no credit, don't have a down payment, want a low interest loan, and want a farm... and this sounds too good to be true, it sort of is. There is such a demand for this type of loan that here in Maine anyway there is a 3 year waiting list, and no guarantee you will get the loan even then. But the problem is not with YOU waiting, but with finding a seller willing to wait three years. Best wishes in finding a seller willing to wait that long.

Even though I have got USDA loans, as a seller I would never sell anything to someone using one. The length of time it takes to go through, and the rules themselves are just too restrictive. In fact, when I sell land, I tell the realtors upfront that I will not accept any offers with USDA or FHA loans attached. Every possible inspection is carried out, then the seller is required to fix the problem, and not the buyer. This means with every inspection the selling price is reduced, or the seller has to have the fix done by certified contractors, not merely doing the work themselves to fix the problem. And guess what... every inspector has to justify their cost so they find something. So as  you can imagine, every seller wants that! (insert sarcasm here).

No matter if it is a lawnmower or, 200 acres of land; I put a fair deal on anything I sell, and hope to find a buyer who appreciates that fairness right up front. With governmental loans, I get it, and know they have their place and have taken advantage of them a lot over the years, but when you take the Kings shilling, you do the King's bidding, and there is just too many rules to make selling something in that form of a loan. Selling has enough inherent stress, especially so with land withholdings, I want the easiest sell I can get and still have a fair deal for me and the buyer. USDA and FHA Loans just don't allow for that. I am not the only seller who feels this way; it is widely known to sellers, "Never accept a USDA or FHA loaned offer".
 
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Jodie said, "The USDA loan specialist said the lot size limit was an acre, defined by the requirements of location of well to septic, etc.



I could be wrong though I feel this is because you are applying for a "USDA Direct home loan".

My suggestion would be to ask your local USDA representative if that is the case.

It could be that if you find a property that is larger than 1 acre that you might qualify for one of their other type of loans.
 
Jodie Tinker
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Steve Zoma wrote:I have got USDA Loans and Grants before, but they seem a lot different than what you are describing. That might just be because of where I live though...

The loans I got through the USDA I had to prove I could NOT obtain credit through any private organization first. The USDA is not a bank, nor do they want to be, they just want to ensure that farms keep producing food for a hungry nation, and important consideration since only 1 out of 200 Americans are farmers producing food. Even then, you can only do this (7) times in your lifetime. They will check your credit, but its the opposite; its to see if its too bad for private bank loans not for credit worthiness.

They can be for different things of course, from buying a new farm to expanding an existing one, but don't get too excited; if you have no credit, don't have a down payment, want a low interest loan, and want a farm... and this sounds too good to be true, it sort of is. There is such a demand for this type of loan that here in Maine anyway there is a 3 year waiting list, and no guarantee you will get the loan even then. But the problem is not with YOU waiting, but with finding a seller willing to wait three years. Best wishes in finding a seller willing to wait that long.

Even though I have got USDA loans, as a seller I would never sell anything to someone using one. The length of time it takes to go through, and the rules themselves are just too restrictive. In fact, when I sell land, I tell the realtors upfront that I will not accept any offers with USDA or FHA loans attached. Every possible inspection is carried out, then the seller is required to fix the problem, and not the buyer. This means with every inspection the selling price is reduced, or the seller has to have the fix done by certified contractors, not merely doing the work themselves to fix the problem. And guess what... every inspector has to justify their cost so they find something. So as  you can imagine, every seller wants that! (insert sarcasm here).

No matter if it is a lawnmower or, 200 acres of land; I put a fair deal on anything I sell, and hope to find a buyer who appreciates that fairness right up front. With governmental loans, I get it, and know they have their place and have taken advantage of them a lot over the years, but when you take the Kings shilling, you do the King's bidding, and there is just too many rules to make selling something in that form of a loan. Selling has enough inherent stress, especially so with land withholdings, I want the easiest sell I can get and still have a fair deal for me and the buyer. USDA and FHA Loans just don't allow for that. I am not the only seller who feels this way; it is widely known to sellers, "Never accept a USDA or FHA loaned offer".



Thank you, Steve.  That explains a lot.  I guess it is too good to be true.  The realtor I talked to seemed put off when I mentioned USDA.  She was supposed to find out something for me and never called back.  I don’t qualify for a conventional loan due to being on disability.  My credit was ruined by co-signing for my sons Jeep and his constant delinquency in payments. (Never co-sign with anyone other than a spouse!). I’m at a dead end, it seems.  
 
Jodie Tinker
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Anne Miller wrote:

I could be wrong though I feel this is because you are applying for a "USDA Direct home loan".

My suggestion would be to ask your local USDA representative if that is the case.

It could be that if you find a property that is larger than 1 acre that you might qualify for one of their other type of loans.



My limited income doesn’t qualify me for anything other than something subsidized.

After doing more research, it looks like one acre is the acceptable limit.  Any greater than that, it doesn’t qualify as “modest”.
 
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Jodie... it is not just subsidized loans that are like that. Buying large acreages require commercial or farm loans, commercial loans because about ten years ago they finally caught on that farming is a business. Before that "business" and "farming" were separated.

But banks DO NOT LIKE to make money on extensive acreage. That is because they know the landowner can split the lot off at any point and sell acreage and pay down, or pay off the mortgage entirely. They cannot make money on the loan if the years of paid interest are greatly reduced. I am sure the acceptable acreage changes, but in Maine it is around 2-5 acres since most towns here have a 2 acre minimum lot size. Anything over five acres and you can see why they start to get leery... the landowner has a lot, or lots, they can subdivide and sell.

But acreage also means more expensive insurance. Homeowners insurance is cheap... farm insurance.... not so much, typically around three times more. While any loan needs insurance, as the acreage increases, the cost of insurance triples, and less and less people can afford the land and insurance. Banks know this and the easy thing to do is limit how many acres can be financed.

Then there is property taxes. I have a few houses granted which makes the value of property a lot higher than land used for forestry or farming, but I pay around $19,000 per year. That means every 5 years I pay almost $100,000 just to keep what I have. And it seems in some town, in some given month, takes are due somewhere, so its just relentless. And since municipalities ALWAYS get their money first, banks know this, and know if they loan to a landowner of limited means, they will have to pay the property taxes or risk losing the collateral that the land is as the town takes over the land for lack of paying property taxes.

I am not saying buying large tracts of land is impossible to finance, they can be, but it takes a commercial loan more and more now, with substantial credit and savings for them to approve the loan.

But if I can offer anything to you, it may be this. Consider the pleasures of owning less.

I have hundreds of acres of land and several houses; three homes I have not been in but 1 or 2 times in the past few years. The land I have not walked across in over 2 years. Some land I have not walked across in the past 10 years. The reasons for that are varied, but none of that land is 100% utilized.

Now my primary residence is on only an acre of land, located in the same county, but 16 miles away. The previous owners to me had a barn, garden, and sheep all along a major river. Not a lot of anything, but the land was 100% utilized. I am retiring from the homesteading life at my elevated age, and plan to go in a different direction of renewable energy and woodworking, but the real question is; how much more does a person need?

Only you can answer that question, but contentment is not found in acreage; its found in doing what you love, and you can do a lot with just a house an acre of land.
 
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I once tried this route when I tried to buy my first house in North Carolina. I ended up not buying it, because I never received any help filling out the paperwork. I filled out what I could by myself, but couldn't figure out the rest. I am sure if you ask someone from the USDA, they could more than likely help you. I never thought of this when I tried to fill out the paperwork, because the people around me promised they would help, but ended up never helping 😞.
 
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