How do you qualify for a No Down Payment USDA Renovation Loan? – Part 3
How do you qualify for a No Down Payment USDA Renovation Loan? Can you include home repairs with a USDA loan in Florida, Texas, Tennessee, and Alabama?
How can a USDA No Down Payment renovation loan include home improvements to be completed after closing?
In Part 1 of our No Down Payment USDA Repair and Renovation series, we reviewed the USDA Repair Escrow Holdback feature which allows for certain eligible repairs to be included with a USDA loan for completion after closing. In Part 2, we then discussed the expanded ability available through rehabilitation and repairs with a USDA Renovation Loan for those repair amounts up to $35,000.
Today’s topic will be focused on how a USDA Renovation loan can be used to finance structural repairs or improvements that exceed $35,000 which can be used towards extensive rehabilitation.
Now, before we get started, don’t forget to take advantage and download our USDA Blueprint for Success with the link below. This free guide is designed to walk you through the process step-by-step and is a great tool for both homebuyers and Realtors alike.
How do you qualify for a No Down Payment USDA Renovation Loan for Structural Repairs that exceed $35,000?
Under the rehabilitation and repair feature of the Single-Family Housing Guaranteed Loan Program (“SFHGLP”), this allows borrowers to finance the cost of repairs to improve an existing dwelling at the time of purchase. The benefit is for one fixed rate loan to finance both the acquisition cost plus repairs into the loan up to the as-improved market value of the property.
USDA Renovation Loan for Structural Repairs Greater than $35,000
Under this renovation option, USDA guidelines state the following:
“This feature allows borrowers to finance structural repairs or improvements greater than $35,000 for extensive rehabilitation. If the dwelling is not habitable at the time of closing, reserves for principal, interest, taxes and insurance may be established to cover the mortgage payments for up to 6 months or until the home is determined to be habitable by a third-party inspector deemed qualified by the lender during the construction period.”
What this means is that in addition to financing repairs, you also have the ability to include monthly payments into your loan amount. This type of flexibility is dependent on the appraised value being higher than your contract price as discussed later.
As discussed in our prior post, new construction or incomplete construction types of properties are not eligible and USDA Renovation loans require that the home has been completed for at least 12 months. Acceptable evidence to prove such would include certificate of occupancy or documentation from the local taxing entity.
In situations where the dwelling must be demolished as part of the rehabilitation, USDA guidelines require that the complete existing foundation must still be in place and be utilized. Properties where the foundation has been demolished or where only the footings remain, are not eligible. Evidence by a licensed engineer that the existing foundation is structurally sound and supports the proposed construction will be required.
What type of repairs can be included with a USDA Renovation Loan?
Under this USDA renovation loan feature, it is further expanded to structural repairs. Examples of the type of repairs which can be eligible for a USDA renovation loan where the repairs exceed $35,000, include, but are not limited to, the following:
- Repair or installation of septic system and water wells
- Additions, structural alterations, or reconstructions
- Addition of a garage, attached or detached
- Installation of energy conservation or weatherization features.
- Repairs to existing swimming pools, hot tubs, or saunas
- NOTE: The installation of new inground swimming pools, hot tubs, or saunas is not permitted.
In order to finance any repairs into a USDA, the appraised value must be high enough to support the loan amount with the repairs included. Also, the appraiser will initially appraisal the home subject to the repairs being completed. What that means is the appraiser’s initial estimate of value would be “as if” the repairs were completed but this value is subject to the repair work being finalized.
Please note that any repair request is truly on a case-by-case basis depending on the facts of the situation and property. If you are looking to obtain a USDA loan with repairs, having upfront budgets and estimates for the work that will be done will help organize the start of the process.
As a USDA Approved Lender under the Single Family Housing Guaranteed Loan Program, we will walk you through the USDA loan qualifying process step-by-step. Just call or email to discuss your scenario and let us show you the “Metroplex” difference!
800-806-9836 Ext. 280
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As always, I want everyone to make it a great day, and look forward to seeing you right here for the next tip of the week!
P.S. – You can download our “USDA Blueprint for Success” by CLICKING HERE.