A rural REO home can be a great steal for you if you are in the market to purchase a home. Not only can you purchase the home for a price that is likely lesser than its value, but you can use USDA financing too. The USDA guidelines enable you to use their funding for the purchase of foreclosed homes under certain guidelines.
The Property Location
The most important factor you should bother yourself with is the location of the home. If you want to use USDA financing, the home must be rural. The rural guidelines that you think about might be different than the actual rural guidelines, however. Make sure to check the USDA’s website to determine if the property is rural if you are not getting the listing for the foreclosure from the USDA themselves. The USDA website for foreclosures is the most common way to find out about rural REO homes as the USDA keeps a listing of their inventory of homes as well as their potential sale dates.
Passing an Appraisal
Another thing you need to concern yourself with when purchasing a rural REO home is whether or not it will pass appraisal and inspection. USDA loans are not meant to be used to fix a home up, so you cannot use the financing to make required improvements. The USDA loan is meant to provide low-income families with safe and sanitary housing, which is why the appraisal and inspection are such an important component of the process.
Winning the Bid
Perhaps the most stressful component of the sale of USDA foreclosed homes is winning the bid. Generally, you are not bidding against just one or two other buyers – there are many people present t the auction that wants to win the bid. In most cases, however, the highest bidder wins the home. This person will be required to provide the auctioneer with a cashier’s check for a percentage of the sale price of the home. You can determine the amount necessary by contacting the regional USDA Field Office before the sale.
Securing Financing for a Rural REO Home
The last step in the process is securing the financing for the rural REO home. You can start this process before you ever bid on the home by getting preapproved. This helps you to know how much you qualify to receive and that you do, in fact, qualify for USDA financing. While the requirements for this financing program are very simple, there is a chance that families make too much money to use the program. The USDA program is for families that are low to middle-of-the-road income and the USDA uses the income from the entire household to qualify you. If you do make too much you will be ineligible.
You can start determining your eligibility by visiting the USDA income eligibility website. On this website, you will input the income from your entire household as well as other details about the people that live with you. Based on the information you provide, the program will let you know if you fall within the parameters of where the home is located for USDA financing.
Once you know that your household income falls within the range, you can start to gather the necessary documents for loan approval. The documents you will need include:
- Income documents such as paystubs, W-2s, and tax returns (if necessary)
- Asset documentation if you put any money down
- Proof of employment
The lender will run your credit to ensure that you have a credit score higher than 640. If you do have a score lower than that, the lender might still be able to get you approved, but you will have to undergo manual underwriting and further scrutiny on your file. If your credit score is below 640, be ready to have explanations for any negative credit history reporting.
Other than your credit score, the USDA underwriting process is fairly straightforward and simple. Typically, lenders will require that your debt ratios are no higher than 29 percent on the front end and 41 percent on the back end and will evaluate the stability of your income/employment.
Because this program was created for low-income families, it is easy to obtain and a great way to make buying a rural REO home simple. In general, the program does not require a down payment and you can roll the mortgage insurance charged on the loan into the loan itself. If you have to put money down on the home as a part of the foreclosure purchasing process, however, this part will differ for you. The entire process is simple, although lengthy; it is a great way to purchase a home.