Scott Storace - Branch Manager, 100 Pacifica Drive Ste. 140, Irvine CA 92618 NMLS #226339 949.973.0141

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USDA Renovation Loan

USDA renovation loan

A USDA renovation loan is a great option for home buyers who are looking to purchase property in a rural area. This kind of loan offers flexibility for borrowers who may not normally be able to purchase a home due to income or credit limitations. Below we discuss two types of USDA renovation loans- Buyer/Seller option and the Escrow Holdback option.

USDA Buyer/Seller

Oftentimes, as a closing condition of the loan, USDA eligible properties require repairs or upgrades. With the USDA Buyer/Seller option, the buyer or seller agree to pay for the repairs. The money for these repairs is held in an escrow account while repairs are completed after closing.

Repair limits are 10% of the after improved value, plus contingency reserve. The repairs do not have to have appraiser required. That being said, the appraisal is subject to those repairs being completed.

Things to keep in mind:

  • Must be able to complete repairs within 30 days
  • Projects that include Structural Repairs or Adding Square Footage MAY REQUIRE a Structural Engineers Report.
    • Structural Engineers Report will be REQUIRED when:
      • A contractor’s bid states that a structural report is needed
      • Removing a load bearing wall
      • Major foundation/Basement repairs
      • Underwriter/Appraiser requires it

USDA Escrow

A USDA Escrow Holdback loan is a USDA renovation loan product. This option helps a buyer make required repairs before purchasing or refinancing a USDA eligible property. It can help save money by rolling the cost of the purchase/refinance and the repairs into one loan. With this program, clients can finance or refinance and make repairs without paying fees twice for two separate loans. This helps clients avoid the higher interest rates associated with short-term lending.

The USDA Escrow loan also includes the following advantages:

  • 102% financing for first-time and repeat home buyers
  • 30-year fixed rate
  • Self-employed income accepted
  • No maximum loan amount
  • Mortgage insurance in not required
  • No reserve requirements

These programs have eligibility guidelines based on income, location, size and other factors. State and local requirements apply, contact us for details! Ask us how you might be able to utilize these types of renovation loans.

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