What The USDA Rural Development Underwriter Looks For When You Apply… Part 2

This is part 2 of a 3 part series where we will look at the 3 most important factors that a USDA Rural Development underwriter will look at when reviewing your file for loan approval. If you have questions that are not addressed here specific to USDA Rural Development Property Qualifying, please ask them in the comment box below.  Also be sure to spread the word about USDA Loans by hitting the “RETWEET” button on the right.  Most people don’t know about the USDA Rural Development option and what benefits it can provide for a qualifying home buyer.

In the last post we looked at the first thing that a USDA Rural Development underwriter will look at when reviewing your loan application for loan approval, your credit.

Today we’ll look at the 2nd most important factor;

2.  The Collateral

While it may seem as simple as finding a house and buying a house, it isn’t.  The USDA Rural Development home loan has some specific collateral requirements that are unique when compared to FHA or Conventional loan financing.

Most importantly, the property must be located within a USDA eligible community.  The USDA relies on a combination of census data and/or the distance from urban areas when they determine if a community is eligible or not.  Under the USDA Rural Housing tab above, you can find a list of USDA Rural Development qualifying property maps for Arizona as well as a resource where you can check a specific property address (in any state, not just Arizona).

First let’s look at what collateral is generally acceptable for the USDA Rural Development home loan.

Eligible USDA properties include:

  • Existing or New Construction homes
  • Townhouses and Condominiums
  • Existing or New Modular Homes
  • Existing property in need of minor repairs (see notes below)
  • Properties with swimming pools (see notes below)
  • Properties with a shared well (An acceptable recorded HUD shared well water agreement will be required if the well is not on the subject property)

I know what you are thinking and I hear this question quite a bit;  “What about Manufactured Homes?”

While the USDA will issue a USDA Loan guarantee for a brand new manufactured home, there are very few lenders who will actually underwrite and fund a manufactured USDA Loan.  So if you have a manufactured home on your mind, check with your lender first to avoid a last minute disappointment.  Currently, we do NOT finance manufactured USDA Rural Development Loans.

An existing property that is in need of some minor repairs may still qualify for a USDA Rural Development home loan but there are some things you need to know, just in case you rush out and find a bank owned property in need of some fixing up.  They can be financed up to the “AS-IMPROVED” value of the home (as determined by a real estate appraisal) but the important factor is that the repairs and improvements must be completed before the final USDA Rural Development Guarantee can be issued.  This means that you would have to work with the seller to complete the repairs before funding.

Properties with swimming pools are allowed however the USDA Rural Development Loan amount will be based on the property value minus the value of the swimming pool.

Ineligible USDA Rural Development properties include:

  • Farms and hobby farms
  • Existing manufactured homes
  • Income property such as a duplex (no 2-4 unit properties)
  • Property located on a dirt road (all weather surface for the road is required)
  • Property with Hauled Water (allowed on Indian Reservations)
  • Property where the site value is more than 30% of the total appraised value

In summary, when considering a USDA Rural Development loan to finance your home purchase the first thing to do is to verify that the property is in a qualifying area (use the tab above).  The second thing to do is review the eligible property types and confirm it qualifies.

In the next post we will discuss the 3rd most important factor that the USDA Rural Development Underwriter will be looking at in your loan application file.

Please be sure to help get the word out about USDA Rural Development home loan financing options by hitting the “RETWEET” button above.  Thanks for reading and if you have any questions, please ask them in the comment box below.

To apply for a USDA Rural Development Loan click on the Get Started tab above or click here.

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