USDA Arizona Mortgage Eligibility Changes October 1, 2014

Prospective home buyers should get pre-approved for a USDA home loan soon. Buyers need to have a complete application approved by their lender and sent (and maybe approved) to their respective state’s USDA office by end of business on September 30, 2014.

Two major changes are on the horizon for USDA mortgage loans in Arizona (and the United States):

1.)   Property eligibility is changing effective October 1, 2014.  This will impact several areas which were previously eligible in the Arizona market - notably the city of Maricopa becomes ineligible.  You can learn more about areas impacted here:  Future USDA (Arizona) Ineligible Property Map - (click here) - effective October 1, 2014

from USDA:
Barring Congressional action, USDA will begin using 2010 Census data to determine eligible rural areas for Rural Development housing programs on October 1, 2014.  Changes to eligible areas can be viewed by selecting the applicable program listed under future Eligible Areas at http://eligibility.sc.egov.usda.gov.  NOTE:  Complete applications received prior to October 1, 2014, will continue to use the existing eligible rural area definitions based on 2000 Census data.

2.)  New fee structure will be effective October 1, 2014.  The annual fee structure for both purchase and refinance loans will increase to 0.5% of the unpaid principal balance, up from 0.4% currently in place.  

**Effective for all loans with Conditional Commitments issued on/after October 1, 2014**

A new fee structure will be effective October 1, 2014.  The annual guarantee fee structure for both purchase and refinance loans is increasing to 0.5 percent of the unpaid principal balance.  There will be no change (2%) to the upfront guarantee fee structure.  Because the new fee structure applies based on the issuance of the Conditional Commitment, underwriting turnaround times for the local USDA offices must be taken into consideration.  As an example, one of the local offices in AZ is currently underwriting loans received 10 days ago, which means that loans would need to be submitted to that local office for a Conditional Commitment by mid-September in order to be eligible under the current annual guarantee fee. Unfortunately, we cannot verify turn times for each of the local offices, and we expect that these turn times will increase as we get closer to the implementation date of the new fee structure, so please keep in mind that your loan may need to be re-qualified at the higher annual guarantee fee if a Conditional Commitment is not obtained prior to October 1^st.

Please feel free to contact Craig Turley at 480 385 1422 for further guidance in relation to the upcoming USDA changes.

Craig Turley is a mortgage and finance consultant.  He has 20 years professional business, finance, and management experience as an entrepreneur and corporate executive.  Craig is a 1993 graduate of the University of Arizona with a degree in Business Administration, emphasis finance. 

USDA Mortgages and Swimming Pools

Are you in the market for a rural property in Arizona or California? 

If so, you may be eligible for a mortgage through the USDA rural development program.  There are several restrictions and guidelines which need to be considered when shopping for a home in a rural area including income and address guidance.  You can find more about USDA mortgage loan eligibility here.  

Another tricky guideline, for residence of Arizona and California, is the swimming pool restrictions on USDA loans.

For years properties that included an in-ground swimming pool were deemed ineligible for a USDA Rural Development Loan. This guideline has recently changed over the last few years, however, there are specific guidelines and math which needs to be applied. 

For properties that include an in-ground pool the appraiser must determine the value of the property with and without a pool. The appraiser must justify their determinations of value. This may include the use of additional comparable homes of similar size but without a pool. Essentially the appraiser is providing the value of the home as-is with the pool and a value of the home based on the assumption that it didn't have a swimming pool.

(Image:  www.guy-sports.com)

If the purchase price of the house exceeds the value of the property without the swimming pool the difference must be paid for by the buyer. For example the following generic scenario:

Scenario example:

• Sales Price $100,000
• Property appraised value including pool:  $105,000
• Property appraised value excluding pool:  $95,000
• Value added with pool by appraiser:  $10,000
• Maximum base loan amount:  $95,000
• Down payment required by borrower at settlement:  $5,000
• The current up-front guarantee fee for purchase transactions is 2 percent, an amount which can be included in the loan. The maximum loan amount would be $95,000 plus the two percent guarantee fee.

So, for properties in sun states, such as Arizona and California where swimming pools are more common, the Buyers Agent should review comparable sales of similar houses without an in-ground swimming pool to ensure that purchase price of the house their Client is making an offer on can be supported by the appraisal report based on these guidelines.

(Source:  USDA RD AN 4701)

Until Next Time,

Craig Turley

Contact Craig today if you have a question about USDA mortgage eligibility or any other program questions which may benefit you as a Realtor or Borrower.  Allow Craig's 20 years of mortgage and finance experience benefit you!