2023 Update | TMH 025
2023 is here, and there have been a few updates in my life and to the USDA Section 502 Direct Loan Program.
For myself, I did receive a Certificate of Eligibility (COE) from the USDA, and I looked at a number of houses, but wasn’t able to make any of them work out. What surprised me the most is that none of the homes I put offers on, did I lose out on because I was outbid or a better offer came along. The home market has changed a good deal from when I first started this process. Homes are sitting on the market for months, the prices are dropping by $100K before they sell. So at this moment, I am sending out my second application (the COE doesn’t last very long at all), and hopefully the process is much shorter this time. The first time around my application was lost - I submitted it online, and apparently I was told the wrong local office to direct the application to. So it took about 5 months to get my COE, this time I expect about half that time.
For the USDA Section 502 Direct Loan Program there have been a few updates. Here is an overview, with the updates underlined below.
Review the USDA Section 502 Direct Loan Program web page for a full overview including eligible areas, income limits, and loan limits.
Review the Direct Single Family Housing Loan and Grants - Field Office Handbook (HB-1-3550) here. Updates will be made to the individual handbook chapters at this location, but may not be made the Consolidated Version until much later.
USDA Section 502 Direct Loans are loans that come directly from the USDA.
USDA Section 502 Guaranteed Loans are loans that come from private lenders and are guaranteed by the USDA.
Applicants must be considered Low or Very-Low income to use a Direct Loan. See the link at item 1 above. Applicants who are of moderate income will need to apply for a Section 502 Guaranteed Loan.
All applicants must meet application requirements. All Household Members (over the age of 18) must show income does not exceed the household maximum allowed.
The applicant’s or applicants’ credit score must be 640 or higher. If it is lower refer to chapter 4 of the handbook.
Student loan monthly payments are calculated at 0.5% of the total owed, unless given requirements are met. In that case the student loans are calculated at the actual monthly payments. Please see Chapter 4 of the handbook.
The loan can be made to people that are not first time home buyers, but they must not currently own a home, or have owned a home within the last three years.
A homebuyer education certificate is required for first time homebuyers.
No down payment is required unless applicants have none-retirement assets above a certain amount.
Closing Costs can be rolled into the loan if the home appraises for more than the loan amount, and the closing costs do not exceed the total loan amount.
Certificates Of Eligibility (COE) are valid for 45 days, and can be renewed twice for 30 days each (105 days isn’t very long to find a home). A request for renewal should be sent to your loan specialist one week prior to the expiration, and a new COE will be sent to you.
Homes must be located in a Rural Area. See the link at item 1 above.
A portion of the loan can be used to make repairs to the home that is being purchased to. Repair must be necessary and not cosmetic.
There is no maximum square footage. This is an update. Previously the limit was 2,000 square feet, with exceptions made for larger families and if the home has some utility abatement (well, solar panels, etc.).
Existing homes can have in-ground swimming pools. New construction cannot have in-ground swimming pools. This is an update. Previously, no in-ground swimming pools were allowed.
Homes may not be income producing (multi-unit, a farm, etc).
Homes may have a guest quarters or an accessory dwelling unit if the unit is part of the home (not a separate guest house), will be used by a household member (not rented out), and does not have separate utilities. This is an update. Previously, homes could not have separate guest quarters with a separate entrance, a bathroom, or a kitchenette.
There is no acreage limit as long as the land the home sits on cannot be subdivided based on local ordinances.
This loan cannot be used for a single close construction loan (purchase land, build a home, convert the loan to a mortgage, and live in the home). Only guaranteed loans can be used in that way if the private loan company offers single close construction loans.
This loan can be used to purchase new construction (from a developer) which can include the purchase of the land and site development.
This loan can be used to purchase a manufactured home (MH). The MH must be new, from an approved vendor, and be on a fixed foundation.
This loan does allow condominiums.
Existing homes can be located in a flood zone if flood insurance can be obtained. New construction homes are allowed in flood zoned only if reasonable alternatives cannot be found. Additional information can be found in Chapter 5 of the handbook. Review FEMA Flood Maps to learn about risks.
With these updates to square footage limits (or lack thereof), and ADUs now being allowed, I shouldn’t have any issue finding a home for myself and mother. In fact, I most likely would have been able to purchase one with my last COE. So, 2023 could definitely be better than 2022.
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