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Moving to the Country? This Overlooked Loan Makes It So Easy

September 22, 2020

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With the COVID-19 pandemic still going strong, many city dwellers may be considering a move to the country—and there’s a specific type of mortgage that can help make this a reality, called a USDA loan.

Offered by the U.S. Department of Agriculture and backed by the agency’s Rural Development Guaranteed Housing Loan Program, these mortgages are designed to help buyers with moderate or low income purchase property outside cities.

They accomplish this by offering several key benefits—such as low or no down payments and looser qualifications for income and credit history.

“More people should absolutely consider using USDA loans to finance their homes,” says Jan Hadder, regional vice president of the builder division at Silverton Mortgage in Columbia, SC. “If you’re not living in the city, this can be a great option to finance your home.”

USDA loans could be a boon to the wave of buyers who are currently contemplating fleeing cities right now.

As it happens, searches for homes in rural ZIP codes jumped more than 15% this May, compared with a year ago, according to realtor.com® data.

Yet many Americans aren’t aware of USDA loans, or assume that they don’t qualify. They may also have other assumptions about these mortgages that aren’t true or in step with recent changes in the terms.

If you want to avoid overlooking this hidden financing gem, here are a few things to know about USDA loans today.

You don’t have to buy a house in the boonies

The biggest misconception about USDA loans is that you have to live in the middle of nowhere.

In reality, homes qualify as long as they’re located outside a metropolitan area. In fact, communities with populations of up to 35,000 may be fine. The USDA offers an online map where you can search for properties that are eligible for the loans.

Matt Ronne, a loan originator at Motto Mortgage Preferred Brokers in Athens, TN, says USDA loans are a “vital asset” to home buyers in his area of southeastern Tennessee.

“It has been a high-demand product,” he says. “My county, McMinn, and most of the surrounding counties are 100% eligible for this type of financing, as long as those clients meet the credit, income, and property requirements.”

You don’t have to be destitute—and income limits recently increased

“Many people think that the USDA loans are meant to be subsidized housing, or that they are only intended for use by those with very low income,” says Gwen Chambers, a mortgage loan originator at Motto Mortgage Superior in Germantown, TN.

But that’s not the case. There are actually two types of USDA loans. Direct housing loans are for low-income individuals; guaranteed loans are designed for moderate-income buyers.

The USDA recently increased its income limits for loans, allowing more home buyers to be eligible. In most locations, the income limit for households with one to four people is $90,300, and $119,200 for households of five to eight people.

USDA loans are easier to get than ever

The income limits have been raised, Hadder says, and some elements of the application process for certain USDA loans have been relaxed.

For example, in response to COVID-19, the period for which certificates of eligibility are valid has been extended for some borrowers, and some parts of the application process will be streamlined, including credit reviews and loan processing.

Although the specifications vary by lender, borrowers typically need a minimum credit score of 640, whereas conventional home loans often require a credit score of 700 or higher.

“These new loan changes are designed to make it easier for a borrower to qualify for a USDA loan,” Hadder says.

Because certain parts of the application process will be waived or relaxed, she says, “borrowers will hopefully have a better chance of getting approved.”

USDA loans aren’t just for first-time buyers

Another misconception about USDA loans, Ronne says, is that they’re just for first-time home buyers.

“USDA only allows a borrower to own one property at a time, so using the USDA loan program allows for additional purchases in the future, as long as the current home is sold, or will be sold prior to closing on the new one,” he says.

As long as buyers continue to qualify, they can use the USDA program as many times as they want, Chambers says.

USDA loans have great interest rates

Mortgage interest rates for traditional loans have dropped to record lows in recent months, and now hover around 3%. The rates for USDA loans, however, are even lower.

As of Sept. 1, interest rates for Single Family Housing Direct Home Loans are 2.5% for low- and very low-income borrowers.

“The rates on USDA loans are often very competitive, and the fees are relatively low,” Chambers says. “In my community, consumers often find USDA loans to be their go-to loan of choice.”

USDA loans carry few added costs

In addition to low interest rates, USDA loans offer families the opportunity to own a home with few out-of-pocket expenses, like closing costs.

In addition, certain USDA loans offer 100% financing with no down payment, welcome news in today’s uncertain economy.

“Now, more than ever, because of the potential instability in the workforce over COVID-19 and possible future furloughs, layoffs, and cutbacks, having money in the bank to fall back on in case of emergencies has never been more important,” Ronne says.

“Personally, as a mortgage broker, I never want to see a buyer exhaust their savings for a down payment when they may not have to, especially a first-time home buyer,” he says.

More investment in rural communities benefits homeowners

The USDA loan programs can also give rural homeowners a boost indirectly. The agency recently announced new initiatives to increase private investment in rural communities across the country, Hadder says.

This includes changes to four of its business loan programs to standardize the requirements for loan processing, credit review, loan service, and loss claims.

These measures could help rural homeowners. New investment could add new jobs to an area, create better schools, and boost local economies.

This could increase property values and attract new residents to the area—all good news for local homeowners.

The post Moving to the Country? This Overlooked Loan Makes It So Easy appeared first on Real Estate News & Insights | realtor.com®.

What Is a ‘Gentleman’s Farm’? A Gardener’s Paradise, With One Catch

August 3, 2018

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What is a “gentleman’s farm”? This term, which crops up in real estate listings, describes property where people farm just for fun rather than to make a living.

“The term ‘gentleman’s farm’ dates back to the 19th century, when retired sea captains and shipping agents returned to Nantucket and started their own farms and dairies,” explains Mark Quindoy, a real estate agent with eXp Realty, in San Diego. “It’s merely a gentleman who farms for pleasure, not for profit or survival.”

Pull up an episode of the 1960s TV show “Green Acres,” starring Eddie Albert and Eva Gabor, and you’ll get the picture of this agricultural pursuit portrayed as a merry pastime, rather than a make-or-break grind where you battle locust swarms, blight, and other problems. Farming can be a good time!

‘Gentleman’s farm’ and the tax implications

Gentleman’s farms are often lumped together with hobby farms—pleasure farms that aren’t necessarily on a big piece of property, but may literally be in your backyard. It’s often part of a larger estate, notes Christy Murdock Edgar, a real estate agent in Northern Virginia and Washington, DC.

“Farming in this context might include raising fruits or vegetables, maintaining an orchard, or raising poultry or livestock,” she says. What you do on your gentleman’s farm is up to you. Grow lavender! Snuggle pygmy goats! Tend to pumpkins!

Just keep in mind that even if you’re not pulling in cash, your taxes may be affected.

“Buying a hobby farm will have different implications depending on the state you live in and the size of your property,” explains Barry Richards, a broker with the EXIT Realty Garden Gate Team, in White House, TN.

For instance, in much of Kentucky, any property that’s 10 acres or more automatically qualifies for agriculture tax exemptions. Richards cautions that county tax assessors do take steps to verify that you’re actually farming.

In Tennessee, on the other hand, a seller is assessed a rollback tax if a property that’s previously been used for agricultural purposes is removed from the greenbelt. That means if you’re buying a working farm with a plan to maintain it only for your amusement and not for profit, the tax burden may be passed on to you in the purchase contract, notes Richards.

So before you commit to this pastime, educate yourself on the specific issues facing agricultural property in your state, and consult a tax professional.

Should you buy a gentleman’s farm?

Charmed by the idea of working the land on the weekends? That’s understandable, but just know it’s still a lot of work.

Case in point: Michael Dinich, a retirement and tax adviser at YourMoneyMatters, grew up watching reruns of “Green Acres.”

“I thought farming would be fun,” he says.

Since buying his own hobby farm, he’s learned a few things: Frost kills plants. Fences can take all day to repair. It’s tough to find homes for all the organic, free-range eggs your chickens lay. And if you think it’s tricky finding someone to take care of your dog when you go out of town on vacation, imagine finding someone to watch your farm.

“It’s easy to romanticize the farm life,” says Dinich. “There’s a whole cottage industry that makes their money on selling the hobby farm dream.”

Gentlemen and women, purchase your own green acres with caution.

The post What Is a ‘Gentleman’s Farm’? A Gardener’s Paradise, With One Catch appeared first on Real Estate News & Insights | realtor.com®.