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Old 08-17-2013, 03:04 PM
 
67 posts, read 127,274 times
Reputation: 38

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My house that I live in is paid for free and clear. It's a 100 year old house that I bought on a land contract and paid it in full. It's old, leaks and needs a LOT of work since it was hit by a tornado years ago.
Technically I have never had a mortgage or had a first time home buyers loan, again this was bought on contract.

I checked the USDA site and my income and the location qualifies and my credit score is decent.
Can you get a USDA loan to tear down the old house and build a new one? What if the old house was considered "not suitable"?

Or do I have to resort to the conventional home improvement loans?

I could use some advice from someone familiar with financing, etc.
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Old 08-17-2013, 05:40 PM
 
Location: MID ATLANTIC
7,598 posts, read 17,623,584 times
Reputation: 8083
From the RD website:

Rural Repair and Rehabilitation Loans and Grants
Purpose: The Very Low-Income Housing Repair program provides loans and grants to very low-income homeowners to repair, improve, or modernize their dwellings or to remove health and safety hazards.
Eligibility: To obtain a loan, homeowner-occupants must be unable to obtain affordable credit elsewhere and must have very low incomes, defined as below 50 percent of the area median income. They must need to make repairs and improvements to make the dwelling more safe and sanitary or to remove health and safety hazards. Grants are only available to homeowners who are 62 years old or older and cannot repay a Section 504 loan. For Income and Property Eligibility please see our Eligibility Site.
Terms: Loans of up to $20,000 and grants of up to $7,500 are available. Loans are for up to 20 years at 1 percent interest. A real estate mortgage and full title services are required for loans of $7,500 or more. Grants may be recaptured if the property is sold in less than 3 years. Grant funds may be used only to pay for repairs and improvements resulting in the removal of health and safety hazards. A grant/loan combination is made if the applicant can repay part of the cost. Loans and grants can be combined for up to $27,500 in assistance.
Standards: Repaired properties do not need to meet other HCFP code requirements, but the installation of water and waste systems and related fixtures must meet local health department requirements. Water supply and sewage disposal systems should normally meet HCFP requirements. Not all the health and safety hazards in a home must be removed with Section 504 funds, provided that major health and safety hazards are removed. All work must meet local codes and standards.
Basic Instruction: 7 CFR Part 3550 and HB-1-3550
For more information about this program, or to file an application, contact the local Rural Development office in your area.

DIRECT LINK: USDA Rural Development-HAD-RR Loans and Grants

The subject property MUST be in a USDA eligible area (ie, rural, not city). I recommend you contact your local USDA office and find out exactly what is available in your area. They have loans that are not available to the mortgage lenders, so you could miss out. I do USDA loans and never knew they had a rehab loan, but I did know they have loans not available to lenders. I'm sure for a rehab loan, there are strings attached on how much and who you can use and how much can be DIY.
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Old 08-17-2013, 06:24 PM
 
67 posts, read 127,274 times
Reputation: 38
I was looking at the USDA section 502 loans:

Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.
[SIZE=3]Terms:[/SIZE][SIZE=3] [/SIZE][SIZE=3]Loans are for 30 years. The promissory note interest rate is set by the lender.[/SIZE]

[SIZE=3]There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt. [/SIZE]

[SIZE=3]Standards:[/SIZE][SIZE=3] [/SIZE][SIZE=3]Under the Section 502 program, housing must be modest in size, design, and cost. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. New Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards. Existing manufactured housing will not be guaranteed unless it is already financed with an HCFP direct or guaranteed loan or it is Real Estate Owned (REO) formerly secured by an HCFP direct or guaranteed loan.[/SIZE]

[SIZE=3]Approval:[/SIZE][SIZE=3] [/SIZE][SIZE=3]Rural Development officials have the authority to approve most Section 502 loan guarantee requests.[/SIZE]
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Old 08-17-2013, 08:58 PM
 
311 posts, read 496,481 times
Reputation: 603
Since it was hit by a tornado could you file a claim with your insurance?
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Old 08-17-2013, 11:51 PM
 
67 posts, read 127,274 times
Reputation: 38
Quote:
Originally Posted by Northern Bound View Post
Since it was hit by a tornado could you file a claim with your insurance?
Nope, that was in 1998. I already got a small disaster loan back then(1998) and paid it off.

I was renting when the tornado hit and the owner didn't have insurance which is why he sold it. He couldn't afford to fix it.
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Old 08-18-2013, 04:54 AM
 
4,480 posts, read 7,940,131 times
Reputation: 6404
If you are already living there, it cant be too bad. Why not pretend you have a mortgage, make the monthly payment to a separate bank account and use that cash to pay for the repairs yourself. The payments will be the same, only no interest.
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Old 08-19-2013, 09:10 AM
 
4,543 posts, read 11,547,065 times
Reputation: 3063
Quote:
Originally Posted by evel_kneivel View Post
My house that I live in is paid for free and clear. It's a 100 year old house that I bought on a land contract and paid it in full. It's old, leaks and needs a LOT of work since it was hit by a tornado years ago.
Technically I have never had a mortgage or had a first time home buyers loan, again this was bought on contract.

I checked the USDA site and my income and the location qualifies and my credit score is decent.
Can you get a USDA loan to tear down the old house and build a new one? What if the old house was considered "not suitable"?

Or do I have to resort to the conventional home improvement loans?

I could use some advice from someone familiar with financing, etc.
What is the value of the bare land? What would the cost of the demolition and improvements be? If the land is worth enough you should be able to get a construction loan with your local bank for the demo and improvements. Once the home is finished you could turn it into permanent financing (i.e. 30 year fixed rate loan).
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Old 08-19-2013, 01:19 PM
 
3,317 posts, read 7,255,247 times
Reputation: 4095
As USDA does not provide staged-funding Construction Loans, you would need your builder to: 1) Work on his dime, 2) Include the bulldozing of the existing property in the price of the home, 3) Accept your deposit as security until construction is complete, and then 4) close at the end of the process when a Certificate of Occupancy is issued.
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Old 08-19-2013, 03:33 PM
 
4,543 posts, read 11,547,065 times
Reputation: 3063
Quote:
Originally Posted by TimtheGuy View Post
What is the value of the bare land? What would the cost of the demolition and improvements be? If the land is worth enough you should be able to get a construction loan with your local bank for the demo and improvements. Once the home is finished you could turn it into permanent financing (i.e. 30 year fixed rate loan).
a conventional loan with no mortgage insurance component!
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Old 08-21-2013, 05:10 PM
 
67 posts, read 127,274 times
Reputation: 38
Quote:
Originally Posted by Pfhtex View Post
As USDA does not provide staged-funding Construction Loans, you would need your builder to: 1) Work on his dime, 2) Include the bulldozing of the existing property in the price of the home, 3) Accept your deposit as security until construction is complete, and then 4) close at the end of the process when a Certificate of Occupancy is issued.
Thank you! Just talked to a USDA rep in my state. He reconfirmed this. Looks like a conventional loan would be the way to go, or fix what I have.
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