Zero Down Loans USDA Guaranteed with Ed Peace from the U.S. Department of Agriculture

One of the major obstacles facing every prospective home buyer is having a downpayment and qualifying for a loan. What many homebuyers may not know is that the US Department of Agriculture has a Single Close Construction to Permanent Loan program that is zero down payment and Guaranteed by the US Department of Agriculture.

Your Favorite Anchorman and Grey Haired Host, Sam Yates, sat down with Ed Peace of the USDA to explore this special program that benefits home buyers, lenders, realtors, and builders. 

Transcript

Sam Yates: 0:11

Hello, everyone, and welcome to another exciting edition of The Great American Senior Show with your gray haired host, Sam Yates. As we head into our third year of the great American Senior Show, we're asking our worldwide audience to drop us a note with your name, and location. And we'll give you a shout out. Now, let's find out today's latest news on The Great American Senior Show. But a little bit of something different today, we sometimes find a topic of interest that is multi podcast usable, I'll bet if you tried to decipher that down, all it means is that we have a topic that can be of interest to the Florida Business Forum, our various builders, associations, our senior community, and right here on the great American senior show. And generally, information that is across the board, super, super useful for people and today is such as that topic. So like for you to join me in welcoming Ed piece. He is the finance and loan analyst, lender and partner in the activities branch of the US Department of Agriculture. And specifically, this is a mouthful, the single family housing Guaranteed Loan Program under the rural development arena. So Edie that's a lot to say. And it means that you're very important. So I am happy to have you on the program today.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 1:38

Thank you so much, Sam. Glad to be here and glad to share our information as always.

Sam Yates: 1:42

Well, let's start with what your job is and the geographic area that that you cover.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 1:49

Yes. So my job specifically is to train lenders, builders and realtors on our programs. We serve some in the national office, we actually serve the whole country, every state and territory. And geographically speaking as well, the any area that's less than 35,000 in population is considered rural for our rural housing programs.

Sam Yates: 2:13

And, you know, I think that the, the program itself was was rather unique. I'd never heard of it before. So tell us about the program itself.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 2:24

Yeah, we don't have an advertising budget. So that's left up to people like me to get the word out. So yeah, we think it's an impressive program too. So, especially when you get all these features with a no downpayment requirement. That's, that's the key for the applicants. We can even have the you know, most of the loan closing costs are all the loan closing costs rolled into the loan up to the appraised value. So specifically with the single close construction loan, are one of our guaranteed loan, one of our USDA approved guaranteed lenders underwrites and closes the loan. But immediately after the loan closing, they can request our loan guarantee, which is the government backing for that loan, before construction even begins. So that's kind of unique to this program. There are other one time closed programs out there under other other entities, but nobody that I'm aware of issues there government backing up front. So just a little bit more in detail, the construction draws right as the house progresses. And this loan feature was designed to allow for reserves for the applicant to establish from loan funds, a payment reserves so that they're not having to make rent payment, and either the interest accrued interest payment or the full house payment during construction. So in neither do does the applicant have to, you know, secure a construction loan, and pay closing costs on that loan, and then turn around and secure permanent financing and close on that loan and pay all those loan closing costs as well. So this this all in one construction to permanent loan saves everybody time and money.

Sam Yates: 4:08

It has to be popular. I'm hearing this and I'm going wow. You know, I know people that would love to take part in that safe to say it's very popular.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 4:18

It is it's gaining popularity. Absolutely.

Sam Yates: 4:21

What about and I did not see this in the information that I reviewed, is there a max there obviously has to be a maximum or is there a maximum that could apply for the program, maximum loan amount

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 4:35

regarding loan amount, basically what the applicant qualifies for so we do have the income limits that we'll talk about a little bit later on. They're under those income limits and they qualify for the loan. There's no set dollar amount for the loan limit. We used to have those but we kind of took it off and said hey, if the applicant is under the income limits and they can afford the loan, they can buy the house. has this program been

Sam Yates: 4:58

around a while or is it Is it brand new.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 5:01

So it a little bit of background. The USDA has been doing housing loans since 1949, Congress established our ability to do so by the Housing Act of 1949. And then in so we were doing what we call direct loans where the agency does all the originating processing, underwriting, loan closing Loan Servicing for poor households that are 80% of median income or below. That's, that's our direct program. Those are those loans are subsidized payments are subsidized in that program. In 1991, Congress expanded that program or expanded our ability to go for higher income households. So now, our guaranteed loans serve 115% households of 115% of median income for the area. And then so just four or five years ago, we added this single close construction loan feature. So it's only been around for five years.

Sam Yates: 6:01

I think the first time I heard of it was well, as a matter of fact, when you reached out I had just heard about it. And I was like this has to be something that the building communities our builders are going to be very interested in lenders and realtors and realtor four have adjusted aside on that. Because I know realtors are a little bit stymied right now in affordable housing, this opens a new venue for them. And my understanding is if you are a realtor, and you're working with someone, you don't wait until everything is finished and done. Realtors get paid early.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 6:36

That's right, so at the initial loan closing, which would typically be you know, the construction loan, that's when Realtors get their commission. So they don't have to wait till the till the permanent loan is closed and or even you don't even have to wait till the house is finished. If they, you know, they can hold the hand of the African if they choose to, you know, through the construction process, but if they choose to cut ties and go, go gather some more, you know, fishing for more applicants, qualified applicants, then they can certainly do that as well. So

Sam Yates: 7:07

I want to go into the details and talk about how people qualify, and in particular in some of the highlights of it. But before I forget, I know that as we go through this, there are going to be builders, realtors lenders, and and the general public that goes wow, you know, how do I get more information? How do they do that?

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 7:27

Yes, so applicants really should contact the USDA approved lender of their choice. And I can give the website a little bit later on there. But lenders builders and realtors may certainly contact our my particular loan division, just as an email address that's s f h that stands for single family housing, G L D, that stands for guaranteed loan division. So it's s FHGL d dot lender partner@usda.gov. We can we can help them?

Sam Yates: 8:05

Absolutely, I would advise the folks who are monitoring that to stand by because I can tell you it will get busy. Let's let's walk through the the program from the the potential buyer from the person that is going to look at this and say, Can I qualify? How do I qualify? Walk us through some of those bullet points.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 8:27

Yep, so USDA, all of our housing programs are driven by maximum household incomes. So we have we have income limits. And it sounds like it might be very limiting. But I mentioned a while ago, we serve households of 115% of median income. But the least maximum income limit if that makes sense, the lowest maximum income limit anywhere in the nation is $110,000. For a family of one to four people in the household. If it's if it's a household of five and above that that lowest maximum is 146,000 for the household. So I've heard it said that four out of five household households in the us meet our income limits based on the most recent census data. So even though it sounds restrictive, it's not very restrictive at all from the applicant standpoint. So and they applicants would be unable have to be unable to qualify for conventional credit. Since we're not competing against conventional lenders. They have to have acceptable credit histories. We don't specify credit score a minimum credit score, that's up to our underwriting lenders to make prudent loan decisions. They have to have they have to show repayment ability for our for that proposed loan. We do that by looking at a percentage of their repayment income that would take to make the house payment typically 29% or less of the of that repayment income, then if you look at all their debts on a monthly basis that you know, typically can't go over 41% of their repayment. And we can go a little bit above that with compensating factors if there's, you know, stronger. If there are more strings in the file, than there are any weaknesses, we can, we can possibly go above those ratios there. And they have to be a US citizen or qualified alien, our handbook spells out the details on that. And lastly, the properties have to be residential in purpose in use and be in a rural area. And generally, that's towns and cities in the US that's less than 35,000 in population. And, again, another statistic is that more than 90%, I think it's around 92% of the US landmass is in a eligible area for USDA Rural Development. And just

Sam Yates: 10:55

for our audience, we are located on the east coast of Florida. And I just did a random zip code search throughout our region, heading over into Central Florida, over towards the west coast. And I found very few zip codes that did not have areas that qualified for this. So I think though the an area that did not qualify, it was a on one of the barrier islands and it was full of condos. I was like wow. Yeah, that's sort of figures. But it's pretty amazing. And I encourage everybody to look into this. From the vantage point available funds, is this a program that is going to be indefinite? Or is there some urgency to if you're interested? Check it out?

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 11:45

Well, in No, there's not really any urgency to it because it's available year round. So you know, we get our funds at the first of each fiscal year starting in October 1. And typically, we get enough funds that lasts through the through the whole fiscal year. So So funds are available year round, typically. Now,

Sam Yates: 12:07

what about it's not not necessarily for first time buyers, which I noted in there. So you're eligible, if you meet the eligibility requirements, you don't have to be a first time buyer.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 12:19

Correct? Correct. People can have owned a home in the past or very recently, you don't have to meet any first time homebuyer requirements. Typically, we say that, you know, it's only to provide our applicants, you know, a residence, one residence, there are some exceptions, if they get moved on their job and can share repayment for both houses, they might be able to retain another house, then yeah, this is for owner occupied principal residence is no no financing of second homes or anything like that.

Sam Yates: 12:50

No, how long do they have to live in the house? Because I could probably see that somebody would go, Wow, that's a great opportunity to get in on something at a great price market changes, and I can, you know, move on up.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 13:02

Right, USDA does not specify anytime of any any timeframe, minimum timeframe that they have to be in the house before they sell. So it's open ended there.

Sam Yates: 13:11

Wow. So I think that will the state of the market today. That's probably another big selling point. The the point of getting this all done in advance, how attractive should that be to a builder for example?

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 13:32

Yes, so builders, you know, the advantage for the single close construction loan for the builders is that you know, the the loan funds are going to be drawn down for construction draws. So it's actually on the applicants dime and not on the builders dime to build the house. So they don't have to use their lines of credit or any of their, you know, assets or finances. So it's going to be drawn down from loan funds. And when so they

Sam Yates: 13:57

don't have to put don't have to put their money up. Right.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 14:00

Exactly. And it'll be the typical inspections that they have from the county or city.

Sam Yates: 14:06

Yeah. From let's let's take a look at the the financial institutions who want to get in on this. So you're not competing with them, you're offering them something that they may not have in their portfolio. Absolutely. So that's a great way to expand their client base offering the no down payment program.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 14:26

You know, and they get that government backing on this construction loan up front before construction even begins, which mitigates a lot of the inherent risk in a construction project. So, Heaven Heaven, you know, heaven help us if the if long failed during construction, but if they did, if that did you know we would ask the lender to finish the house, try to market it and sell it and if they experienced a loss even after doing all that then then USDA standards ready, willing and able to make good on that government guarantee?

Sam Yates: 15:03

Just based on the screening criteria, though? I would I would imagine if that even happens, it's a very, very small percentage.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 15:11

I don't know that it has happened. Yeah.

Sam Yates: 15:13

Awesome. Awesome. What would you say is the the single most attractive? If we look at builder, lender, realtor, what is the most single thing that they're all going to have this aha moment about just attracting

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 15:30

more clients with a no downpayment program? You know, so, in my world, probably the two biggest hurdles that keep people from buying a house and were building a house would be the lack of funds for downpayment from conventional loan, this addresses that, and credit issues, you know, having credit problems. So with our flexible credit underwriting, we think we address a lot of those issues as well.

Sam Yates: 15:56

What does the lender that have to do to qualify there? I mean, we know what the buyer has to do, but what does the the lender have to do to qualify that?

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 16:05

Yeah, great question. So for for lenders to qualify to participate, they have to be USDA approved, which, you know, they go through the approval process, but once they once they are USDA approved, they only have to have two years experience in construction loans, managing and making construction loans. And the builders that they approved for this program also have to have two years experience in constructing Single Family Housing residences.

Sam Yates: 16:34

And that was my next question for the builders, the the number of people moving to Florida, I forget exactly how much it is, it's like in the 1000s per month, this would seem to be something that that should open up a lot of new areas of 35,000 people or less in the community. I would really think that this could be a huge opportunity for people moving to the Sunshine State.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 17:03

Absolutely. I agree. Yep.

Sam Yates: 17:07

When you get into this walk, how walk me through the process, how does it operate? If I let's say I find a a piece of property. And and I guess a good question to ask on on the property. Is there a limit to the size of the property? I know, in some of the rural areas I was looking at? It was rural areas, starting with an acre, some of them were five acres? What about the size of the property?

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 17:35

Great question. We don't USDA does not limit the size of the property just has some typical for the area for residential uses. So if it's so if an area if a county is typical, you know, to have three or four acres as a home site, or even five or six acres, you know, that's that's what we go with. The appraiser basically identifies what is typical for that area. And I think that's

Sam Yates: 17:59

a great way to look at it because I know and without naming the county in one of our adjoining counties, it is very rural, there's a lot of ranching going on. And those ranchers as they sell off property, they don't sell them off and little drips and at all, they sell maybe 10 or 20 acre plot and go from there. So it would technically qualify if the person qualifies.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 18:25

If the appraiser said that was typical for the area. That's right. Yeah. How long does the entire Oh, back to the back to the property itself?

Sam Yates: 18:34

The property itself it the loan covers the purchase of the property building of the house, even down to landscaping? Oh, absolutely.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 18:44

Absolutely. That's basically the only thing is everything, everything associated with building a house as far as you know, building the dwelling itself, the septic tank, if required, the well if required, driveways, landscaping, we don't we don't allow financing of you know, movable items such as furniture, that type of thing. Typical typical appliances such as Washington dryers, maybe refrigerators, you know, built in ovens built in microwaves, obviously those would be but but that's about where it's limited. Okay,

Sam Yates: 19:18

how long does the process take? A good question.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 19:22

So once a lender so from the applicant standpoint, when an applicant applies with a lender, then the lender does their typical originating process is underwriting processes. So once they get ready to request a government guarantee of USDA, they they send us the the loan package, then we take take typically two business days to up to two business days to do our review and give our blessing or require more information to the lender. So from the outcome standpoint, it takes about two more business days than what it would without USDA a while, but what are you getting for those two days, you're getting no downpayment and all the bells and whistles that we've mentioned.

Sam Yates: 20:05

But that's still incredibly streamlined. When you stop and think about what happens in a normal home buying situation. That's just, it's a little mind boggling to be quite honest that it could happen that quickly. We've We've

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 20:18

spent many years trying to fine tune the process.

Sam Yates: 20:23

How many people have taken advantage of this program? Just any general statistics? Oh, wow.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 20:31

So every year we we get funding of around $24 billion nationwide. So we came close a couple of years ago of spending the whole 24 billion. So number wise on applicants, you know, it's in the 10s of 1000s per per year, so. So it's gaining in popularity, a lot of people don't know about it, like you've said early, we're gonna do

Sam Yates: 20:57

our part to make sure that they do know about it. Question from a builder's vantage point, because this is something that I hear when I'm sitting in on board meetings, and that is the price of construction materials from the time of project starts until the time a project ends, construction materials, historically, they may be changing now, but historically, the last couple of years have gone through the roof. No pun intended, how is that addressed?

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 21:28

Yes, so there are contingency reserves, for it for increased costs or increased project scope. So we do have a contingency reserve of up to 10% that can even be rolled into the loan. So all of our loan closing costs can go up to 100% of the appraised value, whatever, whatever calls can be rolled into that loan up to that appraised value is eligible, or are eligible loan purposes, including that 10% contingency reserve. So if their call stack runs, they can pull out of that contingency reserve.

Sam Yates: 22:04

Yeah, I want my builder friends to to not go Oh, change order. So it's not that, you know, that's not something that we're talking about here. We're talking about actual cost costs. Exactly. Yep. Earlier, we mentioned how people could get more information. And before we wrap up the program today, again, how can they reach out both from the consumer standpoint, then the lender builder realtor

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 22:30

good questions. So our URL was kind of long, so I chose not to try to read it off. But if folks will go to www.rd.usda.gov in a slash programs, dash services, so that'll take you to our website, and then click on single family housing programs on the left menu. And there you you'll see all of our housing programs, our direct loans I mentioned earlier, which are subsidized loans, repair loans and grants for homeowners that are in need of repairs, we have grants available up to $10,000 for elderly households that to remove health and safety hazards, so but our program for the single family housing Guaranteed Loan Program is there as well. And there are tabs at the top for overview to apply. That's where the list of USDA approved lenders is under the Apply tab. And we also have a separate list of lenders that are participating in the single closed construction loan feature as well. And so, like I said, If interested, the applicants themselves should probably contact the USDA approved lender of their choice and, you know, get all their questions answered there. Be sure to ask for somebody for the person who is familiar with USDA, because some lenders even though they offer our program, not everybody within that lender might know the details of our program.

Sam Yates: 24:00

And I think that's important because I was chatting with someone who is in the mortgage industry just a few days ago and asked him Are there qualifying are qualified areas in in our particular county, and this person without identifying who it is, or male or female said, Oh, no. And I was like, really? Let me show you and pull it up. And they were quite amazed. And, you know, it was simply because they weren't not familiar with the program. And in some respect, I think they equated it to low income housing. And that's not the case at all. So it depends on being familiar with the program to as a lender.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 24:45

Absolutely. Absolutely. You know, the direct program has been around for 5060 years. So sometimes in some areas, that's the only program people are aware of. So yes, good job. They're saying

Sam Yates: 24:59

no, I I'm advocating for it because I believe in it. Along that same line, if there are qualifying qualified areas that zip codes, they do not have to necessarily be in an rural area only it can be within a village or within a city limit as long as it meets the requirements.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 25:22

That's right. Yes. So by rural it doesn't necessarily mean a scattered site with no development around. We do many, many houses are within a subdivision and the subdivision is located within a rural area. Yeah, that's a good question.

Sam Yates: 25:35

I wanted to make sure I underscore that because that seems to be a growing area for our residents here in particular. And is there anything that we did not touch upon, that our audience needs to know about?

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 25:48

She know, I could probably go on for days, but I think we covered most of the most of the highlights of the program. So you know, excited to get more people involved. I tell you one thing, Sam, I did do a podcast the other day where the host said she was going to go, she was located in a rural area, thought she may qualify, she was going to go get her loan, I said, well listen to this. Back in 1994, three years after the guarantee day program started, I was going around marketing the program and going home to my little rental unit thinking, you know, we've always wanted to buy a house, but I don't know, we just didn't have the downpayment. Now if I've got good credit, I've got you know, stable income, I wonder if I can qualify and long story short, we built our very first house under the USDA Rural Development Program, back then we didn't have the single clothes feature, I wish we had to save me some money. But so I'm a living breathing example of the success of that program, you know, we closed on it, you're a few years later, we're able to refinance into the conventional world. And you know, so that kind of was able to get us our start kind of our foothold, and kind of moved us along and gave somebody else the chance to get started. So, you know,

Sam Yates: 26:59

that's, that's a great way of describing it. And, you know, I have to be honest, I have thought of, of looking into it, we just recently purchased a house. So it's like, wow, I wish I'd have known about this, you know, two years ago, for example, but sometimes you learn from the things that you do so and I want to thank you again, for being here on the program. One question for you is that it's a very simple question. Would you be able to come back at some point in the future as there are new developments to the program or as we get into a new fiscal year to come back and and recap some of these things? Because I think they bear repeating.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 27:38

Absolutely, Sam would love to be able to do so. All right,

Sam Yates: 27:41

ladies and gentlemen, my guest today, Ed piece, and I'm going to read out his title because it is an impressive title, finance and loan analyst, lender and partner activities branch out of the DC area. But I have to tell you, he's not in DC, single family housing, guaranteed loan programs, rural development. But as we heard that this is not limited to just rural areas with the US Department of Agriculture. And that is a mouthful, but it is certainly something that I want you all to remember, so that you can reach out when you need help, because it's a great program.

Ed Peace, USDA, Single Family Housing Guaranteed Loans: 28:18

We think so. Thanks. Thanks for being here.

Sam Yates: 28:22

Have a great day, everybody. And we'll update you on this as there are new developments. Thanks for listening to the great American senior show, America's favorite podcast devoted to the health welfare, education and information for seniors of all ages. Our audience has grown into the 1000s Thanks to loyal listeners just like you. Remember the great American senior show for the news you need to know Have a great day everybody