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Need house? No money Down? Bad credit? No problem!
Old 07-30-2012, 06:00 PM   #1
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Need house? No money Down? Bad credit? No problem!

The US Dept. of Agriculture is here to help you buy your dream home.

So here is the rest of the story.
My 86 year old mom and her partner moved into an excellent retirement home last fall. Their house in a small town in Oregon has been on and off the market since Oct. They switched agents and finally cut the price from $229K to $199K and not surprisingly got an offer. The entered escrow at $195,000.

But what makes this interesting is the buyers and their loan. Other than $1,000 in earnest money there is no money down. In fact my mom has to pay $6,000 toward closing cost. (Effectively dropping the price down to $189,000). So they are financing about 103% of the purchase price.

What is even more amazing, is that on Aug 6,2007 this couple declared
bankruptcy. So 5 years to the day after walking away from their mortgage and other debts, they have been pre-approved to borrow $195,000 at 3.5% for 30 years (I think they have to pay PMI also). The couple is in their mid to late 40s so presumably they will be retired before the debt is.

At this point you might wonder, what bank in their right mind would make this loan? That is where our friends at the US of Dept Agriculture are here to help. The USDA has a variety of loan programs, originally started as depression era program to keep farmers in their homes, it has now been expanded to include loans to small communities. But it actually covers pretty much anyplace outside of major metros. Generally the USDA doesn't lend money but just guarantees the loans similar to FHA or VA loans. So banks don't have to worry about being repaid.
The loans were suppose be for low to moderate income, but in fact you are eligible with an income less than $75-85K in most place in the country and even $115K in Hawaii.

I would have never heard of this program if it wasn't for this WSJ article a few months ago. Ironically while it is super easy to get a loan from the USDA, the agency is ruthless about collections. Taking taxing refunds and even garnishing up to 15% of the borrowers Social Security, or paycheck. Stuff that banks can't do.

I know this forum (including myself) is pretty quick to judge the foolish financial actions of others but I know a bit more about the buyers, because the real estate agent has been their property manager for the last 4 years. She says they have been good about paying rents in the $1150-$1300/month. (Total payments for my mom's house including insurance and taxes and PMI will be around $1200-$1300 also). However they have no savings. I don't know their income but I do know they have two daughters one away at college the other just entering community college.
I also knew that before making the offer on my mom's house they put in an offer on short-sale house for $100K. In this area we were asking for $1200 rent for mom's house and house similar to the $100K one (a modest 1200' 3/2 ) can be rented for $850-$900.

Conventional forum wisdom would say this couple after bankruptcy should have rented the $900 house saved the $300+ a month and after 5 years they would have saved enough to put a 10% down a more modest house or even my Mom's house. On the other they would have to lower their standard of living for 5 years. Since they can now buy my mom's house without any saving or sacrifice. Maybe us a savers are the foolish people?

So if any of you are looking to retire in a small town (or even suburbs) don't have money for a down payment and want to take advantage of low interest rates the USDA has program for you. Just be aware that strategic defaulting is not an option.
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Old 07-30-2012, 10:06 PM   #2
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Glad to hear your Mom is going to be able to sell her home.

No disrespect, but what in the world does this have to do with agriculture? Sounds crazy to me that the USDA is making or guaranteeing mortgages. Government run amok.
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Old 07-30-2012, 11:59 PM   #3
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Quote:
Originally Posted by pb4uski View Post
Glad to hear your Mom is going to be able to sell her home.

No disrespect, but what in the world does this have to do with agriculture? Sounds crazy to me that the USDA is making or guaranteeing mortgages. Government run amok.

Originally the program was designed to help farmer hang on to their houses, but now days you are exactly right. It is government run amok, and the USDA program combines the worse of bother world making credit much to easy to obtain at the same time, using almost draconian measures to collect when the unqualified buyers default.

To be honest everyone in the family, while we are happy to have a buyer, almost don't even want to sell it.
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