Ron Yarbrough

In today's financial climate first time homebuyer's are really stuck having to come up with a down payment to purchase a home or get a sizable gift from a relative that is loosing money in their own portfolio.

I have had many requests for more information from the Kansas City Area Realtors that need this type of program to get starving potential homeowners into a mortgage. This will help boost sales and provide a home loan that will benefit a person over the long term. No adjustable rate, No PMI.

This post is for consumers/homebuyers, Real Estate Professionals and Mortgage Professionals that may not have a good working knowledge of the features and benefits of the US Department of Agriculture's Guaranteed Rural Housing program. In the last 13 years I have one of a very few lenders closing these Guaranteed USDA home loans in Johnson County, Kansas. I have always known that it is one of the most under-utilized mortgage loan programs in the United States.

For purposes of this Posting Most the information below pertains to the Kansas City Market, and most importantly to the Gardner, KS area. There are links to help you find more information directly from the USDA.

Many Advantages of this home loan are:

•1. No down payment required.
•2. No Mortgage Insurance.
•3. No cash reserves required.
•4. No seller contribution limit.
•5. No Prepayment Penalty
•6. Loan up to 102%* of appraised value allowed...not the lesser of Sale Price or Appraisal
•7. Loan amount can include closing costs and prepaids up to appraised value.
•8. No stated maximum loan amount; maximum loan based on repayment ability
•9. No First Time Homebuyer Requirement
•10. New and existing homes OK
•11. Fully amortized 30-year fixed rate loan
•12. No minimum credit score required...common sense underwriting allowed.
•13. No minimum cash contribution required from borrower.
•14. No limit on CLTV when soft second financing.
•15. No limitation on source of funds for closing costs. No seasoning requirement.
•16. 100% gifted closing cost or down payment assistance is permitted.
•17. Non-traditional credit may substitute for lack of traditional credit history.
•18. No derogatory credit explanations required when credit score is 660 or above.
•19. Rent is not verified with FICO of 660 or more.
•20. Qualifying ratios of 29%/41%...29% PITI to Income and 41% Total Debt to Income, however standard ratios may be exceeded with documented compensating factors.
•21. Conventional type loan packaging with only 1 extra form required.
•22. Competitive rates (set by underwriting lenders) As of 12/12/2008 rates for loans above 85,000 are 5.50%

*Appraisal may be exceeded by amount of Guarantee Fee

Determining if property is in a Rural Development designated rural area:

http://eligibility.sc.egov.usda.gov/

Determining if applicant(s) have an acceptable credit history:

•1. Credit history must indicate a reasonable willingness to meet obligations when due.
•2. Streamlined credit approval when primary applicant has a middle credit score at 660 or above.
•3. No minimum credit scores.
•4. Lack of credit is not derogatory. Alternative credit verifications are allowed, typically 3 lines.
•5. Lenders make the credit decision.

Income eligibility:

Project the cumulative gross income of all adults in the household.

THE GROSS INCOME LIMITS CAN BE MUCH HIGHER THAN THE ADJUSTED INCOME LIMITS SHOWN IN THIS TABLE

If the projected dependable income exceeds the limits, certain adjustments can be made, such as childcare expenses for children age 12 or younger and paid to someone outside the family. You also can deduct one $480 annual deduction for anyone under 18 or a student who is not one of the applicants. Other deductions may be available (see FL/VI Handbook or RD Instruction 1980-D, www.rurdev.usda.gov/regs

Example: Johnson County 4-person family (2 adults, 2 children) has a gross income of $89610. Child care for the two children age 12 or less is $10,000 annually. Is the threshold income at or below the limit? YES. $89,610 less $10,000 child care less $480 for each child = $79,650.

County	1-person	2-person	3-person	4-person	5-person	6-person	7-person	8-person
All Counties within the Kansas City MSA	55050	62900	70800	78650	84950	91250	97550	103800

See the easy to use calculator at: http://eligibility.sc.egov.usda.gov/eligibility Click on "Single Family Housing" under "Income Eligibility"

Applicant(s) repayment ability:

Ratio limits are 29 front (housing, PITI), 41 back (total debt, MOTI). Rural Development generally allows expanded repayment ratios if recommended by the lender's underwriter. 31%/43% automatic for dwelling built after 1/1/2000.

Other eligibility criteria:

•1. Do not own a suitable dwelling.
•2. Insufficient resources to secure conventional 80% loan without the guarantee.
•3. U.S. citizen or permanent resident or qualified alien.
•4. Financed dwelling will be primary residence.

Loan-To-Value (LTV) and Loan Limit:

•1. 102% LTV for the guaranteed first mortgage loan when including the guarantee fee, 100% LTV without the fee included.
•2. Loan amount can exceed appraised value by the amount of the guarantee fee.
•3. There is no loan limit

http://www.RonYarbrough.com

Reverse mortages have been around for a long time. Many people think very negative about the use of a reverse mortgage and the negative effects on a senior's estate. I think the only negative is the huge costs some approved brokers charge but the concept is great. In today's market seniors are getting hurt the most. It is a great way to tap into the equity of their home or even save their home from a foreclosure. The mortgage is just a mortgage with deferred interest. The estate retains all the equity over and above the mortgage.

Take a simple scenario:

A senior would like to take a couple hundred thousand out of their house instead of their declining retirement fund. Give some money to thier kids now before they pass away and still retain thier current lifestyle. What a great way to enjoy their estate while they are able to.

Or maybe they want to purchase a home and not liquidate their funds from an annuity or retirement account. They can put 30-40% down instead of liquidating 100% for a down payment. Then never have a house payment as long as they live.

http://www.RonYarbrough.com

I cannot tell you how many Realtors I have spoken to in the Kansas City Area that just cannot seem to get a buyer or potential buyer interesting in purchasing a home. The main reason seems to be the money down and the uncertainty of money. I spoke to one Realtor today that said she was sure that you could not get a mortgage without at least 20% down.

Nothing could be further from the truth. I have 1 conventional loan program for 100% but 2 government programs for no money down and flexible credit guidelines. My favorite is the USDA Guaranteed program. This program has ZERO money out of pocket at a great rate ~6.5% with No PMI.

Sure you have to be in an eligible area but First Time Homeowners don't really care if you are less than 10 minutes out of town.

For more information reply to this blog.

http://www.RonYarbrough.com

With the credit crisis continuing and no real end in sight we are seeing those people who are still stuck with homes running out of reserves. As a mortgage banker we always have put a big emphasis on reserves, especially with Investment property purchases and purchasing another home without selling the previous home. Renting the properties is a decent way to make ends meet but putting the pressure on the homeowner to be the bank is turning out to curt the homeowner except their is no government bailout for the people who pay their bills.

Lease purchase is a great way to get a buyer in the home and have the buyer hedge their bet the market will stabilize soon and possibly increase within the next couple years.

Conforming and Government loans will allow a portion of the rent to go to down payment when the option is exercised. There are specific requirements to make this happen but are relatively minor when preparing the lease purchase option.

Many of my clients including myself have entered into lease purchase agreements on a 2 or 3 year term. I believe it setting up a win win situation and minimize risk. The formula I use is to take a 3% down payment 3 years from now so I know they can execute the option and remain in the home. On a 150,000 house that is 4500.00. The guidelines agree that you have to apply excess rent over the market rent to apply to down payment. So on a 150,000.00 the market rent could be 1100.00 in our market. I would collect 2500.00 down payment for the option and 2000.00 a month extra rent for 3 years. So the rent would be 1155.00 a month with 55 a month going toward purchase. On a 2 year option it would be 1184.00 a month.

Just an idea. If you were to get a Real Estate Professional involved you can work out a commission structure up front and on the back side. Many agents would like to get a small income now for bringing a Lessee and when the option is exercised you can pay then again.

Ron Yarbrough CMPS