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MOST FREQUENTLY ASKED QUESTIONS
Does it matter how many other bills I have to pay?
Rural Development will look at how much you currently owe to others. We'll want to know if paying back the proposed loan on top of your other payments will be difficult for you.
What if I think my income is too low?
Having enough income to repay your loan is an important part of getting a loan; however, the Rural Development loan may be subsidized. A subsidized loan is based on the applicant repaying a percentage of their income toward the housing payment, taxes, and insurance. The percentage is generally 22, 24, or 26 percent of the applicant's household income.
What can I do if my income is too low?
The easiest thing you can do is consider a co-applicant to apply with you. Rural Development will then look at the combined credit histories and income. That can do a lot to improve your chances for approval. If you want a co-borrower, be sure to have the person complete the Co-Applicant section of the application form and sign his or her name next to yours.
How can I determine if my income is adequate to repay a loan?
The amount of your proposed monthly house payment, real estate taxes, insurance, and other credit debts cannot exceed 41 percent of your gross monthly income. If you have questions regarding how this determination is made, you may contact your local Rural Development office.
Can I get a loan if I'm unemployed?
A steady source of income is very important to getting a loan. An applicant must show sufficient resources to repay the housing loan. Not having a job may have an impact on the Agency's decision. Experience has shown that applicants with stable jobs are more likely to repay the loan.
Will you find out about other credit I've had?
Yes. Your credit bureau report provides information on your payment history including any difficulty you have had repaying other loans or credit cards. That information will be used to see if you can easily repay the loan.
How can I find out if I'm eligible for a loan?
A Rural Development employee is available to discuss eligibility requirements with you on an individual basis by phone or in person during regular office hours. Any interested person may make written application at the local Rural Development office.
Will I know right away if I qualify for a loan?
A Rural Development employee is available to discuss eligibility requirements with you on an individual basis by phone or in person during regular office hours. Any interested person may make written application at the local Rural Development office.
Will I know right away if I qualify for a loan?
Rural Development staff can pre-qualify the applicant with unverified information provided by the applicant by phone or in person. However, a final eligibility determination will not be made until a written application is filed, household income is verified, and a mortgage credit report is obtained.
How long will it be before I can move into my new home?
Typically, applicant eligibility, loan approval and loan closing may be accomplished with approximately 90 days of filing the written application. However, depending on the availability of Government funding, this time frame may be extended. The applicant is periodically advised regarding the status of his or her application when there is lack of funding.
How much money will I need for a down payment?
A down payment is not required. Loans may be made for up to 100 percent of the market (appraised) value. Simply put, if the sales price of the property is equal to or less than the appraised value, no down payment is needed.
Does this mean I won't need any cash to get a loan?
Generally, the applicant will need some cash available. There are costs associated with the credit report, appraisal report, escrow and other related closing costs. The credit report fee is always paid for by the applicant. Costs pertaining t the appraisal, escrow, and loan closing may be included in the loan amount. You may also negotiate with the seller to contribute a percentage toward closing costs. Any agreement with the seller should be entered into prior to signing, and documented in the purchase agreement or sales contract.
Does the applicant have other responsibilities?
Yes. Rural Development staff are available to assist the applicant from the application to loan closing. The applicant is responsible for providing requested information times. The information may be requested by Rural Development staff, a real estate agent, or a closing agent. Failure to provide information timely results in delayed decisions and other actions.
Are there other eligibility requirements?
Yes. The applicant must:
1. Be without decent, safe and sanitary housing.
2. Be unable to obtain a loan from other resources on
terms and conditions that they can reasonably expect to meet.
3. Possess the legal capacity to incur the loan
obligation.
What are the terms of the loan?
The maximum repayment period is 33 years and, under certain conditions, 38 years. The maximum repayment period for manufactured homes is 30 years.
Does Rural Development have Fixed or Variable interest rates?
Rural Development closes all of its loans at a fixed interest rate. The interest rate on your promissory note is fixed for the term of your loan.
How does Rural Development determine what rate to charge at loan approval?
Just like a bank, the Government periodically adjusts the rate it charges. Rural Development uses Government funds for this loan program and charges a rate to the customer that covers the cost of borrowing the funds from the U.S. Treasury.
How is the fixed rate affordable to me?
Rural Development charges you a fixed rate but makes it affordable by giving you monthly assistance toward the interest cost. To make the payment affordable for low income homeowners, Rural Development credits (pays) a portion of your monthly payment. This is called Payment Assistance. This is not a grant; it is deferred interest that you must repay at a later time.
How is the amount of Payment Assistance determined?
The amount of payment assistance and the amount you pay are based on several factors. The amount of your household compares to the median family income of the area. The rate of interest that you will pay can vary from 1% to the full fixed note rate.
When will we know the amount of our payments?
At your initial interview, the loan officer will give you an estimated payment. The actual payment will be determined at loan closing.
Can our payment change?
Annually, the amount paid by you and Rural Development is reviewed. Your payments can change based on changes in your total household income. Usually, if your income increases, your mortgage payments will increase. Your Payment Assistance Agreement is reviewed annually and expires automatically if not renewed by you.
Can our payment change more than once per year?
Should your total household income significantly increase to the point where you no longer qualify for payment assistance, your mortgage payment would then increase to the full fixed payment amount. This will stop the accumulation of payment assistance and is actually to your advantage. Termination of payment assistance helps you move to quickly build equity in your property. Conversely, if you have a significant reduction in your household income, your payment could be reduced at any time prior to our annual review.
Can we terminate the Payment Assistance Agreement at any time?
Yes. You can cancel the Payment Assistance Agreement at any time and pay your fixed rate of interest payment. This is usually done only when you know you can afford the full payment.
When is the interest subsidy repaid?
Payment Assistance accumulated since the time your loan closed will be repaid when the principal and interest balances of your loan are paid, you sell or transfer title to the property or no longer live in the dwelling. The amount to be paid back is called subsidy recapture. It is based on the value of the property at the time your loan is paid off/title transferred/you no longer reside in the home, the average interest rate paid by you, length of time the loan has been outstanding and the equity in the property. The recapture amount always comes from the equity in the property. Rural Development and you share the equity amount. Should you sell your home, and after deducting the selling expenses there is no remaining equity, you will pay NO recapture. Conversely, should your home significantly increase in value, you will never pay back more than the amount of payment assistance Rural Development paid on our behalf.
What happens when I refinance my loan with another lender?
Borrowers are always encouraged and sometimes required to refinance. You may either pay off the unpaid principal, interest and recapture in one lump sum, or pay of the unpaid principal and interest only, and defer the recapture amount. With the second option you can only borrow principal, interest and closing costs from another lender. The amount of recapture would then be calculated, and the new lender would assume first lien position on your property. Rural Development would then secure the recapture amount by maintaining a second mortgage on your property. This deferral is available only if you continue to own and occupy the property.
What is a participation loan or a leveraged loan?
A leveraged loan is when Rural Development provides mortgage financing
simultaneously with another funding source, such as a Community Land Trust or
State
Purchasing a home through a leveraged loan will, in some cases, be the first opportunity for applicants to establish a relationship with a private lender. For others, combining the Agency loan with a grant or low interest loan from another subsidy program may be the only way to make home ownership possible.
Do I have to apply to both Rural Development and the participating lender for a leveraged loan?
No. Rural Development works very closely with the participating lenders and you only have to apply to one lender. In most cases, Rural Development will process your application and coordinate the process to avoid any burden on the applicant.
Where may houses be located?
Houses must be located on desirable sites with an adequate supply of safe drinking water and suitable arrangements for sewage disposal. Streets must have an all-weather surface and be maintained by a public body.
What about the size and design of the home?
Costs and design vary in different areas of the country.
Where may I apply?
Applications can be obtained from the local
Rural Development office serving the area in which the house will be located.
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