I am about to make an offer on a 100yo house, 10 acres, and horse barns using a USDA loan. House is an update in progress with some issues. Barns are move in ready, fencing and gates are solid, there is water and electric that work everywhere you could ever want it and the arena could hold a bear. The hole property is fenced with telephone poles.
Any help with USDA loans? Property has been for sale off and on. Sellers moved, couldn’t sell, sold off 20 acres and rented out the remainder to a tenant on a lease to buy contract. Tenant got a divorce and is leaving.
It is priced to sell but they had a previous offer fall through.
Tack room is 12×36 with a kitchentte and bathroom so we could live there and renovate a kitchen and bath. Rest of house was remodeled already but theee is water in the basement.
First, be vary wary of USDA loans. I had a friend who had some sort of USDA financing and a USDA employee grossly erred and put them into bankruptcy and it cost my friend thousands of dollars in attorney fees to get the matter cleared up. I’m not absolutely sure what kind of a loan it was (I never saw the loan papers) but he was an absolutely “straight shooter” and called the USDA everything but a bunch of good Christians. So walk softly, here, and know what you are signing. It might be very good idea to pop for an attorney to interpret the governmentese you’ll be dealing with.
Second, consider Farm Credit as a financing source. They are experts in ag lending and are subject to the general rules of mortgages in the states where they operate. The USDA, being a Federal agency, may not have to comply with State rules.
Third, our local credit union makes loans on rural property and keeps them. They are “non-conforming” so can’t be easily sold on the secondary market. They service the, also, meaning that problems can be handled locally.
There is a checklist a property must pass for USDA. Your mortgage person should be able to provide you with this, and they are your best source of info on these types of loans. Wishing you all the best on buying your property.
Unless you can’t get the place to qualify for a conventional loan you likely will find better rates and fewer strings avoiding Ag loans, USDA and otherwise. That was my experience in PA over the last year. If it’s only 10 acres and the house is habitable it “should” conform.
As Guilherme mentioned local smaller banks and credit unions tend to be softer on their conforming criteria as they tend to keep their loans in house more often.
Good luck!
We are using the USDA loan due to the no down payment very low interest and no PMI attractions.
I’m not currently interested in a conventional loan.
My questions are still the same. My lendor said the buildings are not an issue as long as it isn’t being used for farming or a business. I dont plan on running a business but someone did previously. He said the buildings will hold no value but must be in good shape. Another thing said the buildings can’t be more than 10% the value. Acres dont matter but then I read the value can’t be more than 30% of the value AND it can’t be able to be subdivided. I guess it could, but there is no access unless a farmer bought it and you would basically sell your pasture.
Found a USDA person. Property can’t have the potential to generate income. If it’s partially in crops that’s a nope. Even if you plan on putting grass down. Even if the lease was with the seller and the property is fallow when you purchase.
Grass is a yep, even though you could sell hay.
Trees are a yep even if you could log it.
Old grain silos are a nope even if it’s there because nobody bothered to tear it down when they sold off all the acreage and tore down the barn.
More than three horse stalls is a nope since more than three could be used to make money HAHAHAHAH.
However, a 80 X 200 shell someone put up is fine.
Also fine, a 16 stall barn you’ve removed all but three stalls from before they look at it.
Do you have any idea how many “red flags” you’ve just been handed?
The last sentence is very telling. Build it, remove disqualifying items before inspection, then put them back afterwards? That’s cheating. Straight up, THAT’S CHEATING!!! What happens if you put the stalls back and have a mishap that brings attention to yourself and a USDA person shows up to check? Read your mortgage and other agreements and I’ll bet you find that USDA can declare a default and foreclose you. You willing to make that bet? If so you’ve a lot more intestinal fortitude than I have!!!
You’ve just been given a warning about the type of people and program you’re dealing with. Heed it or not, as you will.
I have no idea what kind of mishap you are talking about. Its a guaranteed loan by the government to my lender. It wouldn’t make sense for the usda to see I added a 4th stall and foreclose because they would lose the money.
It is a frustrating process because some of the rules seem arbitrary.
They DO care what you do after you get the loan. Government guarantees work on a strict set of rules and if the rules are violated then they take action. You see, correctly, the true arbitrariness of the government rules. They don’t give me “warm fuzzies” and shouldn’t give you such, either.
At the end of the day it’s your money and you can do what you wish. It’s my opinion that you’re Dancing with the Devil and when that happens he always gets to lead.
I specifically spoke with the office that would approve the loan based on the appraisal. All they care about after you get the loan is if you make your payments.
unless you can link me to the specific set of rules I have to follow after purchase. Do you have experience with USDA guaranteed loans?
Have you read the mortgage, the rules you must follow, and the guarantee agreement? Those are the documents that concern you and if you don’t read them and understand what you’re reading you are walking on the wild side. Again, you’ve noted what the rules say and noted that they seem arbitrary. People that write arbitrary rules very frequently then engage in arbitrary behavior. I have significant experience in this!!!
A very dear friend got hosed to the tune of several tens of thousands of dollars in attorney fees required to defend against a claim of default on a USDA loan as a result of a large hay baler getting damaged while being moved on a highway. This guy was the penultimate straight arrow and he gave me a “blow by blow” of what it took to deal with the problem. I’m not absolutely certain of just how the default occurred as I’ve never read the court papers. But the sequence with my friend appears to have been that the accident occurred and a USDA minion someplace far from here decided the accident was intentional damage to collect insurance money. The police report said the driver pulling baler was going too fast after coming down a hill and lost control and ended up in a ditch. As a result the USDA called a loan which put my friend in default on other financing which then caused USDA to file an involuntary bankruptcy proceeding naming him as the bankrupt. This then cascaded into other financial problems with other institutions including the IRS. It got straightened out but it put him through massive personal stress and was very costly.
You are in error if you think all the mortgage company is interested in is your monthly payment. I have experience in mortgage defaults. Read a mortgage document and you will find quite a string of “default events” that have nothing to do with monthly payments. A guarantor will also have a guarantee document that will list default events. I have extensive experience with government documents. If you violate the guarantee agreement, even if a USDA person told you how to do it, then the guarantee can be withdrawn and that would be a default under your mortgage and then you, too, could end up in involuntary bankruptcy.
Is it likely? Who knows? Who would have thought that careless moment by a tractor driver pulling a hay baler would have lead to an involuntary bankruptcy and a price tag of tens of thousands of dollars in attorney fees?
G.
P.S. The baler was insured and the one entity that really had an interest in determining illegal behavior was that insurance company. They investigated, determined the police report on excessive speed was right, and paid the loss without further question.
I am using a totally different type of loan than your friend. I am not using a loan to purchase farm equipment.
What is different than a conventional home loan is if you default (Stop making payments) The USDA protects its investment by requiring a personal guarantee from the borrower that the borrower will cover the USDA’s loss in the event the borrower defaults on the loan. Because an unpaid USDA guaranteed loan constitutes a federal debt, the Department of the Treasury can collect amounts owed using such methods as garnishing your wages and seizing income tax refunds.
there have to be critical details missing because if the loss wa sinsured, that would pay off the called loan and nobody would be “in default” elsewhere.
unless you’re saying they called other loans on the basis of performance on another loan, which is now (I believe) an illegal practice.
I have experience with a USDA loan as a seller. They are basically geared for low-income buyers, as such they have a huge list of things that the house needs to satisfy before they will put the money down. Basically the house needs to be in brand new condition, even if it’s not a brand new house. On our notes from the bank we were told we needed to do things like replace the well pump even though it was in excellent condition because it was old. When we had someone come out to look at it he said it was a shame they were requesting we replace it because the existing one was better quality then any new one would be and it would last longer then a new one because of that. The list was long and ridiculous.
Despite us jumping through hoops for the bank, the sale fell through. We simply could not afford to fix the number of things they wanted us to fix in our excellent condition but older home. The buyers were mortified by the experience and were constantly apologizing to us over the behavior of their bank. Our entire realtors office will now never advise their sellers to work with USDA loans. In the end both parties lost a lot of money and time. I can’t even imagine trying to use one to buy a 100 year old house that needs work. If the sellers will work with you, you might get lucky, or you could waste a lot of money in inspections and get no where. If you really want the place then find a way to get a conventional loan.
So I did some looking around and found a couple of sites dedicated to USDA loans. They seem to follow the pattern of VA and FHA financing (but do have their own special rules)
USDA does both direct and guaranteed lending. Which one are you applying for? In any event you will be required to follow the USDA rules. This was the most comprehensive article I found. It what what you’ve applied for?
Outbuilding discussion aside, do you know the specifics of what the issues with the house are, or if the sale is strictly as-is? Or is the seller willing to consider doing some repairs to bring the place up enough to pass an inspection, or are you willing to foot the bill to have them done? Those will be your biggest issues, IMO.
When I bought my place, we originally started with a USDA loan. Thankfully, I had extra money set aside (incidentally, to build an outdoor arena), because once it went to the underwriters the numbers didn’t jive and it had to be converted into an FHA loan - which meant a 3.5% down payment. 6 years later and I still don’t have that arena. :lol:
We’ve been looking at farms for awhile and most sellers have told our realtor up front that they won’t consider an offer using a USDA or FSA loan. Which is fine for us, we are above the income limits and I’m not sure that anyone around here could actually buy property with one - property prices are too high and income limits too low for the math to work. But they’ve been forthright about it, just like a lot of regular home sellers won’t accept an offer using an FHA loan for the same reason.
In regards to the USDA guarantee, I think you’re not quite understanding it (to the OP). Typically the bank purchases that guarantee from the USDA. They are passing that cost on to you but I have never heard of a federal debt being assigned due to default on a USDA guaranteed loan.
I was attempting to explain the difference between the type of loan I have and the loan his farmer friend took out. In his friend’s case the USDA most likely called the loan because they believed the insurance claim was fraudulent. It was an entirely different type of loan and doesn’t reflect on what I have.
I’m under the income ratio, I’m pre approved for WAY over what I want to spend, and there are plenty of properties with acreage in that price range. What is hard is finding a property I like that also qualifies for USDA. But the search just started a few weeks ago so we will see!
The farm we passed on had no issues with our loan but countered it above what we were willing to spend, it was about that time I did more research and discovered the 3 stall limit. Our difficulty is finding property with no more than 3 stalls that isn’t in crops. People without horses with acreage almost always lease out part of their land to a farmer. People with the land in grass have a horse barn already, who wants to mow a 5 acre lawn? Those barns might end up being too large.
