USDA Loans - A Good Choice? Depends
USDA Home loans were designed to elimininate substandard housing from rural areas. And right now it is the only way to get 100% financing other than a VA loan. There are some downpayment assistance grant programs, but to my knowledge they will not finance 100% of the loan only subsidize your downpayment. While it was designed for rural areas, you may be surprised to find out that many parts of Frederick and Carroll county are considered rural areas (as are probably many more pockets throughout Maryland due to the fact that we are an agricultural state). The interest rates are competitive, credit requirements are more lenient and income must be low. All pluses if you are a buyer whose having trouble getting a loan and doesn't have any cash and needs 100% financing.
But what if you write an offer on a property and the seller doesn't want to accept your offer because they don't like the type of loan you're getting? Why would they care? In this current market place financing is the number 1 reason that a deal doesn't make it to settlement. Scrutinizing ALL of the pieces of a contract is very important. This means the offer price, the settlement date, inspections that are being asked for and definitely the financing. Anytime someone finances 100%, the loan is already tighter. The buyer has very little invested other than their own emmotions, appraisals must come in at the offer price completely and not a penny less. And then there's the timeline of settlement. As a general rule when a contract is written the settlement date is 30 - 45 days after the offer is accepted. If you pick that timeline with a USDA loan, you may be rudely surprised when that date comes and goes with no remorse from the USDA office. It is very much a typical government process with someone just pushing files with a checklist. I would like to think that on the other side in that office is a picture very different than the side I see, however after having dealt with these a number of times, I sincerely doubt it. USDA loans as well as some of the grant programs can take every bit of 60 days or more.
USDA have their own guidelines and in my personal experience do not make them clear from the start. As with FHA and VA government loans, USDA comes with a long list of inspections. These include all the same hot spots such as flaking paint, railings and everything FHA is famous for as well as some additional ones. The inspection process will almost always cost the seller money and aggravation (especially if the house is an older one) and if the USDA portion is an add on to another loan (same applies to a grant that's applied as a down payment assistance program), than the seller is now subject to 2 sets of inspections, 2 appraisals, 2 underwriting processes and 2 sets of loan guidelines. In this current climate it seems as if banks look for reasons NOT to lend money and in this process it is exemplified even more. I have 2 listings (both old homes circa 1900) and are both being sold to buyers with USDA loans. Each have come with different inspection flags...one is even being required to have smoke detectors hardwired. They are currently present but not hardwired. The other question remains, why wasn't this a requirement on the other if it's part of their standard requirements? It's very frustrating and our settlement for one of them has been delayed twice so far. The other has already been in process for over 60 days. It took USDA four weeks just to get us a pre-appoval letter.
As a listing agent I would not be doing my job if I didn't point out the risks to my sellers of accepting an offer with this type of financing. To my buyers I also have to point out the risks to them as well. If they need to rely on a certain settlement date, they need to be prepared for plan B. Will the USDA process stand in the way of being able to make the deal work between buyer and seller? All potential issues on the house will need to be clearly addressed before writing an offer with a different set of eyes. These types of loans and grants are wonderful in the right situations and have helped many deserving people. I'm just saying that they are not the greatest thing since sliced bread and need to be evaluated when to be used and when not to.