Mortgages huh?

[LancerTheGreat]

Anybody ever catch it before? Do you think peroxide would clear it up?

But really, I'm looking at getting a mortgage to build a home on my property. Credit's decent, good rental history, house payments would be cheaper than my current/past rent (significantly less than a lot of the dumps for rent right now around here), I'd like to be a homeowner... *cough* expecting a baby in October *cough, etc.
Anyway I was researching mortgage stuff and happened across the knowledge of "USDA Rural Development" loans. Looks solid, I fit into the requirements, seems more appealing than FHA options, and the property is confirmed rural through their site. I'm really walking around the woods blindfolded and in the dark here.

I wasn't even taught what a mortgage was at any point, just kinda picked up on it contextually and then looked it up one day several years back.
So I was hoping maybe some of you guys had some general (and boy do I mean general, I'll take advice on properly opening and closing a newspaper if anyone's offering right now) advice or even experience with the USDA loans. From what I can tell a "single close" construction loan would be the best so I don't pay closing costs twice, but other than that I can't make any distinctions or real considerations when I just genuinely am lost.

[Partscaster]

I used USDA Rural Development. They were great. Lowest interest rate I could find. There was no variable rate surprises. They have an agenda to help po-folk like me and you, settle into the rural areas. No penalty for early payoff...which I was able to do. Way cheaper than rent in my area, plus you start paying toward increased equity in your name....and if you run into trouble like job loss, they are flexible with clauses to help in such situations....probably to a point, then I bet you get the boot.I luckily never lost my job. But, I bet they are way more sincere than many private for profit lenders who might start repossessing legally asap.

USDA would not support buying of raw land, when I asked, they needed to see a way to recoup investment should someone bail on them. They were into home sales for folks who qualified, in the area I am at. So I dont know about building on ones own land. They might consider that too risky to end up with a field of aging lumber piles. Also they weren't interested in trailer houses. Too quick to loose value. They were going to offer me way more money for a bigger house, I stayed steered toward a smaller house I knew I could easily afford monthly, and it worked out great. Good luck. Dont get sucked into too much, they could perhaps be over generous, IMO. But they were great.

[mickey]

No prepayment penalty cannot be stressed enough. Something many people do not realize about mortgages is that in the early years of its life for every dollar you pay something like 99 cents goes towards interest and the other penny pays principal. So throwing in a few extra dollars per payment in the first few years can take years off the loan because all those extra dollars go 100% towards the principal.

Another point is who buys the homeowners insurance? All lenders require you have it. Some loans specify the lender will buy it (and of course you end up paying via escrow) but they will also screw you on the co$t of the insurance. Generally, they will not seek the best coverage for you either. Bottom line if you buy the homeowners insurance you will get better coverage at a lower cost to you.

Some food for thought.

[PoodlesAgain]

That sounds interesting, and a little-known (9?) way to get into home ownership.

Just curious, is USDA the primary lender, or does it get tossed on the marketplace once paperwork gets settled?

Also, any zoning restrictions in area?

[mozz]

Just paid off our house we bought in 2006. Another nod to who mentioned the home owners insurance. Ours was with Liberty Mutual? Every year it seemed to go up. They have what they were calling "inflation protection" which says your house value goes up in x amount of dollars per year. I got sick of it and had to make a appointment to go in person to talk to them. I said bring the value back down to what it is actually worth. Now it has been creeping up again and come September i will be shopping for a new company. Same ticket as car insurance companies who slowly raise your rates, best to shop around every few years.

[LancerTheGreat]

Solid food for thought guys, I'm going to try to get in touch with one of the lenders that operate in Kentucky and at least have some discussions with them. Glad to hear y'all had good experiences, and I'm really glad you mentioned homeowners insurance, I was wondering last night after I posted if I could shop around for my own policy or if they made you go with a specific company/policy, I read something about you HAVE to have flood insurance, but those statute and contract pages are a pain to read and navigate online lol.

I'm definitely trying to keep the monthly payments pretty low, so I won't let them talk me into too much more than I need, but I had no idea prepayment penalties were a thing and it's great to hear this avenue avoids that issue altogether.

That sounds interesting, and a little-known (9?) way to get into home ownership.

Just curious, is USDA the primary lender, or does it get tossed on the marketplace once paperwork gets settled?

Also, any zoning restrictions in area?

From what I understand on what I've read they have "qualified lenders" but something with the program incentivizes those lenders to loan to low-moderate income borrowers.

The area has to be verified as "rural", and can't be used for profit, other than that I don't think there are any other zoning restrictions.

There's a minimum size for the dwelling, and another thing I found out from reading through the paperwork is they'll also add the cost of major appliances, driveway, and landscaping on top of the construction.

[Rollin Hand]

One thing not enough people do it to shop around. If you work at it (or use a broker) you can get a lower rate.

Also, what they will lend you vs. what one can afford are two different things. It's a good idea to set things up so that you can afford payments even if one of you is out of work.

And whatever you believe the house will cost...it will cost more. Allow for that.

Lastly, congrats on the impending wee beastie!

[LancerTheGreat]

Well I talked to a loan officer. My credit score was just a few points shy of USDA choice standards, and my best FHA rate was not good at all lmao.(like $1100/mo for "only" $120k.)
Gonna try to pump those numbers up, maybe grab a small 2-5 year loan to have the camaro restored and pad my credit.

Working on a plan to reach a goal though, so at least that's going well.

[nomadh]

I think the key thing here is the " construction " loan. Mortgages are very common knowledge but I only know enough that yours is a very specific subset. I can tell you I rented to a very well off family for a 1 year rental while they make their dream home out of town during covid. Over 2 years later they still only have a foundation. Permits have been at a crawl. Supply chains were horrible and lumber spiked the price to over double the house price.

As far as construction my mom is considering adding an Adu to her property. First stick built, then prefab but we are now seeing some crazy low deals on camper trailers. Sometimes a smaller temp solution for 2 to 5 k and I've seen big big trailers with 2 or 3 bump outs where the pictures make it look huge. 15 to 25k. It seems the bigger ones are real out of favor in the market but look incredibly livable. Just throwng that out there if that helps somehow.

[nomadh]

Oh, needed to add the big scary is mort rates. We were getting g used to 3% rates. Well 6% is really what is considered normal and healthy monetary policy. Some of us remember 18% rates and it's what we had to do last time to kill inflation. It was miserable. Whatever you do you may want to learn soon and lock it down fast. Run through some numbers trying different interest rates with online mort calculators from 2 to 18%. It will make your blood run cold. Check the difference between 4 and 6 or 7%