USDA Business & Industry Loan Guarantees 101

January 24, 2018 By Chris Hamler

What are USDA Business & Industry Loan Guarantees and how can it be used to further a business’s entrepreneurial cause?

Food and agriculture is a vital industry in the United States. Not known to many, the country is a major player in the industry that meets some of the largest agricultural demands in the international market. Yet aside from taking care of the world’s agricultural needs, the federal government also sees to it that our domestic demands are met. To make sure this is taken care of, the government established the United States Department of Agriculture. This executive department sees to it that the agricultural foundation in the country stays solid by providing technical assistance through loans and grants to the country’s farmers and ranchers.

Of course, these services are not only limited to individuals but also to community groups such as cooperatives. And if you are an entrepreneur by nature, you can also look into the department’s Business and Loan Guarantees.

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What are these Business & Industry Loan Guarantees?

The Rural Development Business and Industry (B&I) Guaranteed Loan Program guarantees loans made by eligible lenders to rural businesses. it bolsters the availability of private credit by insuring loans given to rural businesses.

Who can apply and qualify for this program?

The program is open to lenders who have the legal authority, substantial years of experience, and the financial capacity to operate a successful lending program. This includes federal or state-chartered banks, savings and loan lenders, farm and credit banks, and credit unions.

What kind of businesses can qualify for these loan guarantees?

For-profit entities, non-profit organizations, cooperatives, tribes recognized by the federal government, public institutions, as well as individuals can qualify for said loan guarantees.

Are there any restrictions on the borrower/s?

For individuals trying to qualify for the guarantee, you must be a US citizen or have resided in the country after being legally admitted for permanent residence.

For private entity borrowers, you must be able to demonstrate that the proceeds of the loan funds will be used within US soil and that the facility being financed will primarily create new or save existing jobs for rural residents of the country.

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What is considered an eligible area?

Any region outside a city or town with a population size of 50,000 or more as well as the urbanized areas of that city or town. The borrower may be headquartered in a larger city as long as the project service area is within an eligible territory.

The lender, however, can be based anywhere.

Projects located in rural and urban areas can be funded via the Local and Regional Food System Initiative.

How can funds be used?

The proceeds of the loan can only be used for the:

conversion, enlargement, repair, modernization, or development of a business
purchase and development of land, easements, rights-of-way, as well as the establishment of buildings and facilities
purchase of equipment, leasehold improvements, machinery, and inventory
refinancing of debt if the refi can ease cash flow or create and save jobs
acquisition of businesses and industry when the loan can create or save jobs

The proceeds of a Guaranteed Loan fund CANNOT be used for the:

acquisition of lines of credit
acquisition of owner-occupied housing
establishment of golf-courses
establishment of racetracks or gambling facilities
building of churches or church-controlled organizations or charitable organizations
establishment of fraternal organizations
establishment of lending, investment, and insurance companies
funding of projects that involves more than $1 million and the relocation of 50 or more jobs
production of agriculture with certain exceptions
distribution and payment to a beneficiary of the borrower or an individual or entity that will retain an ownership interest in the borrower

Is there a required collateral?

The collateral must have a demonstrated value that is enough to protect the interest of the lender and the Agency. The discounted collateral value must be at least equal to the loan amount. Lenders will discount collateral consistent with sound loan-to-value policy. The collateral must carry a hazard insurance with an amount equal to the loan amount or depreciated replacement value, whichever is less.

Maximum Advance Rates

Real Estate: 80 percent of fair market value
Equipment: 70 percent of fair market value
Inventory: 60 percent of book value (raw inventory and finished goods only)
Accounts Receivable: 60 percent of book value (less than 90 days)

What is the maximum amount of a loan guarantee?

80 percent for loans of $5 million or less
70 percent for loans between $5 and $10 million
60 percent for loans exceeding $10 million, up to $25 million maximum

What are the terms of the loan?

The maximum term for real estate is 30 years. For machinery and equipment, lifetime or 15 years, whichever is less. For working capital, it should not exceed 7 years. The loans must be fully amortized and balloon payments will not be allowed. Interest-only payments can be scheduled in the first three years.

What are the interest rates?

The interest rates can be negotiated by the lender and borrower, subject to Agency review. It can be fixed or variable. Variable interest rates will not be adjusted more often than quarterly.

What fees are applicable?

An initial guarantee fee that costs around 3 percent of the guaranteed loan amount will be required. There is also a fee for annual renewals currently at 0.5 percent of the outstanding loan principal. Other customary fees can be negotiated between borrower and lender.

What are the underwriting and security requirements?

The proposed operation must have a realistic repayment ability
New enterprises may be asked to obtain a feasibility study by a recognized independent consultant
The business and its owners must have a good credit history
At loan closing/project completion, the business must have a tangible balance sheet equity position of:
- 10 percent or more for existing businesses, or
- 20 percent or more for new businesses.
Key person life insurance may be required and the amount negotiated. A decreasing term life insurance is acceptable
Personal and corporate guarantees are normally required from all proprietors, partners (except limited partners) and major shareholders (i.e., all those with a 20 percent or greater interest)

How to get started

The USDA accepts applications year-round. Borrowers can ask their lenders about the program. Lenders should visit their local USDA offices or contact the USDA Rural Development Business Programs Director in the state where the project is located.

Source: USDA website

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USDA Business Loans? Consider the RMAP

January 12, 2018 By Chris Hamler

Are you based in rural America and plan on taking your entrepreneurial goals a step forward? Look into your USDA loan options – consider the Rural Microentrepreneur Assistance Program (RMAP.)

The United States Department of Agriculture is the institutional wing of the federal government that manages the development and execution of laws relating to agriculture, forestry, and food. As an executive department, it holds full power over the promotion of agricultural trade and production, as well as in meeting the needs of farmers and ranchers, while ensuring the protection of natural resources and the meeting of domestic and international food demands.

These general goals are cascaded into programs that help meet needs in the micro level. Among the most common ways that the USDA extends help to America’s farmers and ranchers is through grants and financing options.

The USDA has programs not only for individuals and cooperatives but for businesses as well. If you are in the agricultural business and looking for such programs to fund your entrepreneurial efforts, you might want to consider the USDA’s Rural Microentrepreneur Assistance Program.

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What is the Rural Microentrepreneur Assistance Program (RMAP) and what does it do?

The RMAP is a program that provides loans and grants to Microenterprise Development Organizations (MDOs). These are non-profit organizations, community-based financial institutions, and local economic development councils that provide technical and financing services to small businesses in the rural communities

The RMAP helps the MDOs to:

provide microloan programs that help microenterprises establish themselves as players in the industry via a Rural Microloan Revolving Fund;
offer training and technical assistance to microloan borrowers and micro-entrepreneurs

Who can apply and qualify for RMAP?

Nonprofits, tribes recognized by the federal government, and higher education institutions can all qualify as MDO and therefore be eligible for the program.

To get a loan from an MDO, the business must be located in an eligible area with ten or fewer full-time employees.

Find a USDA-approved lender here.

What is this eligible area?

Eligible areas in this sense refer to rural regions outside a town or city with a population size of less than 50,000. The borrower may be headquartered in a larger city as long as the project service area is within an eligible territory.

The lender, however, can be based anywhere.

You can check out the list of eligible addresses here.

What are supplemental requirements?

An MDO must be able to demonstrate that they can handle or manage a Revolving Loan Fund, OR

a) show proof of certification that they or their employees were recipients of education and training from a qualified microenterprise development training entity;

b) show that they are participating actively as an intermediary lender in good standing under the US Small Business Administration (SBA) Microloan Program or other loan programs determined by the Administrator

How much can an MDO procure from the program?

Grants for the provision of technical assistance to rural microentrepreneurs or enterprises can total up to $205,000 per year. You cannot guarantee funding as requested and a minimum of 15 percent matching fund will be required.

For the purpose of establishing a Rural Microloan Revolving Fund, loans can range from $50,000 to $500,000. Recipients of the loan cannot have a debt total of more than $2.5 million.

What are the loan terms for the MDOs?

Loan term maximum is capped at 20 years with a 2-year payment deferral. The MDOs must also be able to establish a loan loss reserve fund.

What terms are required on loans to ultimate recipients?

They can get a loan of up to $50,000 with fixed-rate interest and limited to 75 percent of the total project cost.

Are there limitations on how these funds can be used?

Microlenders are allowed to make microloans for qualified business activities and expenses such as for working capital, debt refinancing, purchase of equipment and supplies, and the improvement of real estate, among others. Lenders will not approve fund use for purposes determined to be not covered by the program.

Where should we start?

The USDA is now receiving applications for the program. You may contact your local state office for more information and to apply for RMAP.

Source: USDA site

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Meet Community Facilities Direct Loans and Grants for Rural America

December 22, 2017 By Justin

“I understand that building a prosperous rural America begins with healthy people,” Sonny Perdue, secretary of the U.S. Department of Agriculture, said regarding its $1-billion investment to improve health care facilities in rural communities via direct loans and grants.

In fiscal year 2017, the USDA Rural Development invested $1 billion in health care facilities in rural areas. It is in line with RD’s goal to provide affordable and safe housing, combined with essential facilities for community support.

USDA RD supports the building and repair of libraries, hospitals, and necessary community structures through Community Facilities Direct Loans and Grants.

Find a USDA-approved lender here.

Community Facilities Direct Loans and Grants 101

These Community Facilities Direct Loans and Grants are available to public bodies, non-profit organizations that are community-based, and tribes that are federally recognized.

To qualify, these entities must possess legal authority to borrow money and repay it and unable to finance the project out of their own funding or through commercial funding at reasonable terms.

Eligible borrowers can access funding for essential community facilities through direct loans at low interest rates, grants, or both. This public funding may be combined with loans from commercial private lenders if program conditions are met.

Funding under the program is based on priority, namely the population of the community (size = 5,500 or less), and median household income (low income = below 80% of the state’s rural counties median income).

Where do the funds go?

Qualified applicants can seek funding to develop facilities that will serve their rural communities, providing substantial support and development.

1. Health care – hospitals, medical and dental clinics, nursing homes, assisted living facilities.

Examples of projects funded in FY 2017: a $40-million loan for a 123-unit assisted-living facility in Quakertown, PA; a $2.8-million loan for a 14,000-square-foot clinic for Iola, Kansas; and a $6.7-million loan for an integrated care center in Cañon City, CO.

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2. Public facilities – town halls, airport hangars, street improvements, courthouses

3. Community support – community centers, fairgrounds, child care centers, transitional housing units

4. Public safety – police stations, prisons, fire departments, purchase of public works equipment or vehicles

5. Education – libraries, private schools, museums

6. Utility – distance learning equipment, telemedicine

7. Local food systems – community kitchens, community gardens, food pantries, food banks, greenhouses

How direct loans and grants work?

For Community Facilities Direct Loans, they come with fixed interest rates determined by Rural Development. These loans are given at the lower market rate.

As of the current quarter (1st quarter of the fiscal year 2018 from October 1 to December 31, 2017), current rates are 4.50% (poverty), 4.00% (intermediate), and 3.50% (market).

The repayment term of the direct loans depends on the useful life of the facility, state statutes, the applicant’s authority, or 40 years at most.

These loans have no prepayment penalties are allowed.

As to grants, they can be between 15% and 55% depending on the location of the project: the rural community’s population size and median household income.

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The Family Project: The Cost of Raising a Child

November 29, 2017 By CHamler

Many of us are excited to have a new member of the family. Most married couples dream of having children and raising them to become strong and responsible individuals.

Having a child marks a new chapter in someone’s life. A chapter that is exciting, challenging and rewarding all at the same time. Raising your youngster entails planning and preparation. In fact, it needs financial readiness.

We ask, “What is the Cost of Raising a Child?” The United States Department of Agriculture can answer this question.

The Cost of Raising a Child

In the USDA’s report, The Cost of Raising a Child, the department has tracked the expenditures associated with raising a child since the early 60’s. This analysis looked at the costs influenced by the child’s age, household income, budget and location.

Based on the most recent data, in 2015, a middle-income couple with two children spends approximately $12,980 per year on each child. This is according to the Consumer Expenditures Survey.

The same survey says that to raise a child born in 2015, married couples may spend $233,610 (inflation not factored in) until the young one reaches the age of 17.

If you break down the expenses, shelter/housing accounts for 29 percent of the costs; taking up the largest share. At second place is food which is 18 percent. For those parents who have childcare or education expenses, it comprises 16 percent of the total child-rearing costs. The remaining 37 percent comprises the other necessities needed in raising a child.

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The Importance of Home

A home is one of the most important aspects couples and single parents need to consider when raising their little ones. The house itself, as a physical structure, provides safety and security from potentially harmful physical elements. The house as a home provides a sense of belongingness and physiological and emotional security. All of these factors are important in child-rearing.

A clean, safe, modest and decent dwelling provides children and the whole family a familiar and personal space to grow, explore and mature as individuals. The neighborhood where the house is situated also greatly influences the child’s development. These things go beyond the matters of money. Choosing the right house is as important as allocating the right budget.

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Modest and Decent Homes Thru USDA Loan

For couples who have been struggling to finance a decent and safe home, they can find affordable financing through the USDA home loan.

The USDA offers low to zero down payment options. To qualify, borrowers must have sufficient, good credit and low debt to income ratio. The primary target of this home financing program are households belonging to the low- to middle-income brackets.

For USDA guaranteed loans, it is the USDA-approved lender who determines how high or low the interest rate is. This is done during the underwriting process. For individuals applying for the USDA Direct Housing Loan, the current interest rate is at 3.25 percent (As of November 2017).

Financial readiness is crucial when a couple or individual plans to raise a family. While money isn’t the only thing that matters, it can be an instrument to ensure that a child grows and develops to be their best and the way they should be. Moreover, the home is the first place where a child develops their cognitive and social skills. It is the parents’ responsibility to ensure that they are sheltered, safe and secure.

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USDA’s Guaranteed Loans for Rural Families, Businesses and Communities

November 7, 2017 By Justin

The USDA Rural Development offers guaranteed loans to support the growth and development of rural America. From housing families to providing financing to businesses to supporting investments in important community facilities and infrastructures, the USDA’s backing ensures that funding is extended to those who need it.

Let’s take a look at these USDA rural guaranteed loans for individuals, businesses and rural communities. This way to USDA-guaranteed housing loans.

USDA Rural Development Guaranteed Loans

In line with its mandate, the USDA RD is all for strengthening rural communities by making targeted investments totaling $216 billion as of 2016.

One way for the USDA RD to achieve this mission is by providing loan guarantees in these areas:

Rural Housing
Rural Business and Cooperative
Rural Utilities

Check out the agency’s progress so far with results that include both guaranteed and direct loans and grants for the fiscal year 2016 accessible here.

Rural Housing and Community Facilities

The USDA through its Rural Housing Service (RHS) offers single-family housing loans for families with modest income buying homes in eligible rural areas, providing a 90% loan guarantee to such mortgages.

Direct and guaranteed loans combined, $17.3 billion went to 132,000 families for the financing, repairing or refinancing their single-family homes, according to the USDA RD’s 2016 progress report.

This USDA guarantee extends to multi-family housing that finances affordable rental housing for families and individuals with low and moderate income in rural areas. The elderly, disabled individuals, and domestic farm laborers are also the target recipients of these low-rent housing units.

As of 2016, 13,590 families benefited from the construction or renovation of 500 multi-family housing properties made possible by $400 million in guaranteed and direct loans and grants. RHS also made $1.4 billion in rental assistance to 306,970 families with very low and low income.

USDA-approved lenders are accessible here.

Aside from housing families, the USDA guarantees financing to federally recognized tribes, community-based nonprofits and public bodies to construct or improve essential community facilities such as hospitals, town halls and community centers.

This program has served more than 26.4 mil. rural residents through projects worth $2.5 billion in community facilities direct and guaranteed loans and grants.

Rural Business and Cooperative Services

The USDA RD through its Rural Business-Cooperative Service (RBS) guarantees loans for rural businesses. Individuals, public bodies, nonprofits, cooperatives and tribes may apply for the development, conversion or expansion of business; the purchase of assets critical to business, and debt financing.

RBS helped more than 7,000 businesses create or save 37,190 jobs across rural America in 2016. Also from 2009 to 2016, $11.5 billion in direct and guaranteed loans was given to rural businesses.

Not only that, RBS helps rural business owners, farmers and ranchers save on their energy bills by investing in energy efficient technologies through the Rural Energy for America Program.

REAP, which offers direct and guaranteed loans, has supported over 1,900 energy projects worth $309 million.

Partnership with Rural Utility Providers

Through Rural Utilities Service (RUS), the USDA RD has teamed up with utility providers to build and invest in energy efficiency projects for local rural communities. This in turn will be passed to residential and commercial customers in the form of lower energy costs.

RUS makes available direct loans, guaranteed loans and grants for:

Water and waste disposal whereby RUS has funded $1.65 billion in safe water and sanitary waste systems for more than 2.24 billion rural residents.
Rural broadband and telecommunications where more than 79,000 subscribers benefiting from $234 million in telecommunications and broadband service projects.
Electric utilities served more than 5.47 million rural customers that benefited from $3.9 billion in utility system upgrades and improvements.

Stay tuned for more updates on the USDA Rural Development’s programs and services, especially on housing loans.

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What is USDA’s Targeted Loan Funding?

October 30, 2017 By Chris Hamler

In a recent announcement, Colorado’s USDA Farm Service Agency (acting) executive director Jenny Peterson reminds the state’s farmers and ranchers to take advantage of the FSA’s especially targeted farm ownership and farm operating loans. These loans especially cater to underserved applications who have a hard time getting a loan anywhere else.

These loans are not limited to Colorado citizens. The FSA’s programs cater to the needs of borrowers nationwide.

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The agency is committed to support the state’s producers by providing them capital opportunities that they need to sustain their operations.

According to the US Department of Agriculture’s Economic Research Service, agriculture, food, and related industries contributed $992 billion to U.S. gross domestic product (GDP) in 2015. Without a doubt, the industry is a major contributor of revenue to the country. Thus, providing support and financial backing to these entrepreneurs must be one of the state’s foremost concerns.

This is exactly the efforts that the Colorado FSA wing is putting forward. For this fiscal year, the state’s FSA allotted $48,554,504 million worth of loans to hundreds of underserved beginning farmers and ranchers.

The mobilization of services not only helps these underserved groups roll out their own farm and ranch operations, it is also keeping the state’s agricultural hub productive, and serving the needs of the country as well as those of international demands.

Who are considered underserved applicants?

The USDA defines “underserved applicants” as those members of a group who are subjected to racial, ethnic, and/or gender prejudice primarily because of identifying to certain groups without considering their individual qualities.

These include women, African Americans, American Indians and Alaskan Natives, Hispanics and Asians and Pacific Islanders.

What are the eligibility requirements for these programs?

The agency has outlined certain standards that an applicant must meet to be approved for the program. They must have operated a farm for less than 10 years. They must actively participate in the farm or ranch operations, and must not own a farm greater than 30 percent of the average size farm in the county at the time of application.

Additionally, they must have participated in the business operations of a farm for at least three years out of the last 10 years prior to the date the application is submitted. If you are applying as an entity, all members of your organization must all be related by blood or by marriage and each must be eligible as beginning farmers.

Loan types

There are two types of direct and guaranteed loans:

a) Farm ownership loan

This loan type can be used to:

buy a farm or ranch
enlarge a farm or ranch
buy easements or rights of way
build, repair, or improve existing farm or ranch buildings
promote soil and water conservation
develop and pay closing costs

b) Farm operating loan

You may use this loan to:

buy livestock, farm equipment, fertilizer, and other necessary materials for farm operations
fund family living expenses
refinance debts
pay salaries
install and improve water systems

How are the loans repaid?

For direct operating loans, repayment is dependent on the collateral used to secure the loan but typically the repayment period may run from one to seven years.

Direct farm ownership loans cannot be financed for more than 40 years.

When it comes to interest rates, it is the lenders who regulate how much rates goes to guaranteed loans while those of direct loans are set periodically depending on the government’s cost of borrowing.

If you are interested, simply contact your local lender if they offer these special loan programs or you may visit your state’s FSA page to be adequately guided on how to initiate the process.

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Get to Know USDA’s Multi-family Housing Direct Loan Program

October 26, 2017 By JustinM

Under the United States Department of Agriculture, there are various home loan and housing programs that give housing opportunities, whether homeownership or rental, to individuals in the rural areas.

Having a house you can call your home would always be a part of a lot of people’s goals in life. And among the different mortgage options for interested home buyers, the USDA is part of helping people make their dream a reality.

There are quite a few home loans under the USDA that has specific purposes and markets. But for getting an affordable multi-family housing that’s targeted towards low-income families, elders, and persons with disabilities, perhaps the Multi-family Housing Direct Loans is the way to do it.

What is the Multi-family Housing Direct Loan Program all about?

As mentioned, the multi-family housing direct loan program is all about providing opportunities for eligible borrowers to get affordable multi-family rental housing.

This program would finance properties to provide housing for low-income families, persons with disabilities, and the elderly.

Who are qualified to apply for this loan program?

The program assists eligible borrowers that couldn’t get commercial credit under terms that would allow them to charge affordable rent to low- to middle-income earner tenants.

Individuals, as well as associations, partnerships, non-profit organizations, for-profit corporations, and cooperatives, can try and qualify for this type of multi-family housing program. Federal recognized tribes and state and local government entities can also try to qualify.

Keep in mind that those who wish to apply should have legal authority for construction, operation, and maintenance of the property.

More about USDA loans here.

How do borrowers determine if the property is eligible?

Like other USDA programs, the locations should be considered eligible. For this program, there is a more specific way to see if the property qualifies for the loan.

In order to check if the desired property is within an eligible area, a list of places can be found in designated RD State Offices.

How should the loan be used for?

The loan should be used for purchasing, improving, and constructing multi-family rental housing in order to provide residential units that low-income renters can afford.

Other than that, the funds may be used for buying and improving land or for providing needed infrastructure.

Who can live in the property?

The units in the property should be rented by families who only have a meager income, disabled individuals, and elderlies aged 62 and above.

What are the loan terms that borrowers should know about?

The Multi-family housing direct loan should be paid back in 30 years. And as for the mortgage rate, the lowest rate that will be used would either be from the loan approval or when the loan closes.

In order to get information about the current interest rates that are applicable for the project, it’s best to contact your local Rural Development office.

Also, keep in mind that the applications for this loan program are done on a yearly basis. The Federal Register would just post a Notice of Funding Availability.

The program is a good way to help give every American a place to live in. And since this program is for low-income earners and the elderlies to have an affordable rental property, this program gives housing opportunities to those who really need it.

Talk to our lenders about USDA loans today.

Find Approved Lenders for Your USDA Loan

October 25, 2017 By Chris Hamler

Compared to other government-backed mortgages, it’s harder to find USDA lenders – much more the good ones. How do you find the right servicer?

After searching for viable mortgage products that suit your needs and your finances, you finally decide to get a USDA loan.

Considered one of the best mortgage programs available today, a USDA loan requires no down payment, fixed interest rates, has flexible credit guidelines making room for borrowers with low credit ratings, and has no minimum limit on purchase price.

Unfortunately, finding lenders who offer USDA loans may not be as easy as finding lenders for other government-backed mortgages such as VA and FHA loans.

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Important notes

Before you commit yourself to lender hunting endeavors, it’s important that you first realize that the USDA does not fund USDA loans (there are exceptions); they only insure them (or a portion of them). That means the department pays for all or part of the loan if you ever default on your USDA loan payments.

In exchange for the guarantee, the lenders make sure that only borrowers who meet the USDA’s guidelines are approved for the loan. Both the lenders and the USDA evaluates your application. However, lenders also have the right to turn down your application, even when you meet the USDA’s qualifications. This is an inherent right among lenders since it is their investment placed at stake, after all.

Knowing your loan type is also necessary before you initiate the process of finding a lender.

The USDA has two main loan products:

a) Direct loan – Available to borrowers who earn less than 50 percent of the area’s median income, the USDA’s Direct Loan program offers mortgage for the purchase, construction, and renovation of a property. The borrower must be someone who have exhausted all other loan options but weren’t able to get any, and must not hold any other housing loan for that matter. The loan funds directly come from the department, hence the name.

b) Guaranteed loan – The more common loan option which you can get from a private lender, a Guaranteed loan is available to borrowers who earn less than 115 percent of an area’s median income. You also cannot hold any other housing program, or able to obtain financing from other lending sources.

Other points of consideration

Aside from the important notes above, the following should also be taken into account before you apply:

The property must be located in a place designated by the USDA as rural. Take a look at the USDA’s map for rural-identified areas.

Because the USDA loan program is designed to cater to the needs of low-income buyers, a high income will not land you an approval on this opportunity. Your income is compared to the area’s average income to determine your eligibility. That said, you should also know that the department considers your household’s total income for the same purpose.

Where to find a USDA approved lender

You can start here. This contains a list of lenders approved by the department.

You can also ask your bank if they offer a USDA loan or if they can refer you to one.

You may contact the department as well for some recommendations of available lenders in your area.

Another alternative is to check your local pages, or ask recommendations from friends and family.

Before you settle in a choice, make sure you shop around first. Lenders may vary in their charges and interest rates. You can use these information to compare lenders and narrow down your choices the best option.

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What Costs are Sellers Allowed to Pay on a USDA Loan?

October 19, 2017 By Chris Hamler

In a seller-paid closing, sellers can pay up to six percent of the loan amount on a USDA loan. What are the costs included?

Getting a mortgage is intimidating.

Aside from saving for the required down payment, there is the long loan acquisition process, the appraisal, the pressure to lock at the right time, and of course, there’s the additional cost of closing.

For conventional mortgage programs, it is typical for borrowers to pay around 2 to 5 percent of the home’s purchase price at closing. For a $250,000, that’s around $5,000 to $12,500. Given the borrower pays the minimum 20 percent down payment requirement, that would be $50,000 plus whatever you have resolved to pay.

Unfortunately, most people just don’t have that money. In fact, only 35 percent of Americans have a couple hundreds of dollars in their savings accounts. Per a recent survey, it was found that 68 percent of Americans don’t even own a home they call their own.

Certainly, taking the step towards homeownership can be hard for many. This is where low down payment mortgage programs come in handy.

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One of these low down payment mortgages is the USDA mortgage program offered by the United States Department of Agriculture to eligible borrowers looking for properties in designated rural areas.

The USDA mortgage program offers zero down payment, with very low interest rates. Next to the VA home loan, it competes as one of the best mortgage programs available today.

But like any other mortgage program, the USDA still requires its borrowers to pay for closing costs. Typically, this can range from three to six percent of the purchase price of the home. It’s a good thing, however, that the program allows the borrowers to share the burden of the closing with the sellers.

Sellers can pay a determined percentage of the closing costs for the lender. But like any other seller contributions in a mortgage, there are limitations.

What fees are involved at closing?

In simple terms, closing costs are costs that are charged by the lender for originating the loan. This includes payment for the steps involved in processing the loan, from credit checks to appraisal, underwriting, and recording, among others.

Typically, you will see the following included in your closing costs:

Processing fee
Discount points
Origination points
Underwriting fee
Credit reporting fee
Escrow fee
Title search
Title insurance
Recording fee
Attorney fee
Appraisal
Transfer tax

Specific closing costs involved may vary widely from lender to lender.

What are seller contributions?

Basically, seller contributions refer to the amount of closing cost shouldered by the sellers through a seller-buyer negotiation. This cost is also known as seller concessions.

But how much can sellers really contribute?

In every mortgage program, there is always a set cap as to how much the seller can pay and the USDA is no different.

According to the rule, sellers can only pay up to six percent of the overall loan amount. That means that for a $250,000 home, the seller can pay up to $15,000.

However, the buyer cannot ask for more money than the cap amount. That is, it cannot exceed the actual cost of closing. So if the closing cost is only $7,500, the seller can only pay as much as that same amount.

Before any such decision is taken, you should know that the seller cannot provide concession if there is no determined home value.

The appraised value must come back at the adjusted sale price because if not, the buyer may need to pay for closing out-of-pocket.

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USDA Loans for Rural Homes: Direct vs. Guaranteed Home Loans

October 18, 2017 By Justin

USDA loans for rural homes. This is what the USDA is known for aside from its farm financing programs for a diverse range of farmers. And under its single-family housing program, there are two types of USDA loans, direct loans and guaranteed loans.

While borne out of the same purpose, it’s important to distinguish the two USDA loan types because each has its own set of qualifying guidelines that may or may not work for you given your current circumstances.

Learn more about USDA loans and how they can help you achieve the American Dream. Click here to get to know lenders.

USDA’s Single-Family Rural Housing Loans

Pursuant to the Department of Agriculture Reorganization Act of 1994, the USDA created Rural Development as its arm in improving the economy and qualify of life in rural America via rural housing and community development activities.

The USDA Rural Development currently has $216 billion loan portfolio and plans to use $38 billion toward direct loans, guaranteed loans, and grants.

This leads us to the much-awaited comparison of USDA’s Section 502 direct and guaranteed loans.

USDA Loans: Direct vs Guaranteed

This summarizes the differences and similarities of the two rural housing loans.

Eligibility

Primary Difference: The USDA is the lender of direct loans. This makes the loans subsidized, unlike guaranteed loans where the USDA backs a portion of each loan and have an approved lender make the loan.

Credit: Lenders will have varying credit score requirements when making guaranteed loans. The USDA as lender of direct loans also requires a good credit history. Nevertheless, both loan programs require the borrower to demonstrate an ability to repay his/her debt obligations in a timely manner.

USDA-approved lenders are accessible here.

Income: Individuals applying for direct loans must have low to very low income that makes it difficult for them to quality for a conventional mortgage financing. Guaranteed loans target borrowers with low and moderate income as per their guaranteed housing program income limits.

Loan Features

Interest rate: On direct loans, the interest rate is fixed at 3.25%, effective October 1, 2017. Expect rates on guaranteed loans to vary as lenders will make these loans.

Purpose: Both USDA loans enable borrowers to buy decent, sanitary and safe homes in eligible rural areas. Guaranteed loans take that further by allowing eligible homebuyers to rehabilitate or relocate their homes.

Property: USDA loans are used for the purchase of modest homes in rural areas. By modest, the home must (i) meet the USDA standard square footage of 2,000 square feet or less; (ii) not have in-ground swimming pools, income-producing structures, and other features prohibited by the US; and (iii) not have a market value that exceeds its applicable county loan limit.

Occupancy: The borrower must occupy the home as his/her primary residence as required by both loan programs.

Loan limit: How much an applicant can borrow for a direct loan would depend on his/her income, assets, debts, payment assistance grants, and the area loan limit.

Loan term: Borrowers with direct loans will repay them within 33 years or 38 years for very-low income borrowers who can’t afford a 33-year loan. Guaranteed loans must have a loan term of 30 years.

Are you ready to apply for a USDA loan? Get in touch with a lender today.

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