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What counts as "housing costs" for USDA loan?

For the purposes of a USDA loan, does a mortgage on a rental property - NOT the mortgage on the principal residence that the USDA loan will be used to purchase - count towards the 29% DTI limit on "housing costs"? We are purchasing a second home and keeping our current residence to convert as a rental property. We are pre-approved for a conventional mortgage carrying both mortgages. However, we'd like to take advantage of a USDA RD loan, which includes downpayment assistance in our state. We qualify for USDA. But the only issue is the ratio for the housing costs. With both mortgages, the total DTI would still be less than 41%. But the lender is saying that because the total debt includes a mortgage on the rental property, he's concerned that we may be exceeding the 29% for housing costs ratio. This is the first USDA RD loan he's done where the borrowers are carrying mortgages on multiple properties. Any advice? Having taken a major loss in the downtown, despite having done everything responsibly (the value of our current residence is still down 30% from when we bought it) we are eager to take advantage of some of the home buyer assistance out there. by JMom258 from Grosse Pointe, Michigan. Dec 17th 2014 Reply


Phil Dumouchel (PhilDu)
#1 ranked lender in South Carolina - 2,228 contributions

Caution: generally you cannot own another home in the same area and still get a USDA loan. Your lender may not be very familiar with USDA rules. I've done one where the borrower was relocating to a new area, and I believe there is another exception if you can document the current home is too small to accomodate your family size (changed since you purchased a small home). Otherwise you'll need to use a different type of mortgage, either FHA with 3.5% downpayment or conventional. The 29% isn't firm and would NOT include the payment on the former house, nor would it count as part of your "front ratio" for other loans, but it would count as part of the total debt. IF it is in the same area you will not be able to count any rental income from your current residence toward qualfying to purchase a new loan. Be careful that you are working wtih a knowledgable and experience mortgage lender....

Dec 17th 2014
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FYI - only one of us will be applying for the mortgage, the other is a full-time student. Income for the borrower = $79k. Credit score is 788. Monthly obligations (besides mortgage, HOA dues, and insurances and taxes) is $153.

Dec 17th 2014
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William J Acres (William_Acres)
#1 ranked lender in Arizona - 8,041 contributions

I think you need a new loan officer.. one whose more familiar with how ratios are calculated. Your "Housing Costs" are the costs associated with your primary residence.. Principal, interest, property taxes, homeowners insurance, Mortgage insurance, association fees or dues, or any other type of assessment associated with your primary residence are combined to show your total housing costs. Typically, the lender wants to see 29% of your gross income or below, but this is not the cast in stone, and has some flexibility.. the main ratio is the overall debt to income ratio.. this is much more important.. Also, with USDA, there are " Maximum Household Income" restrictions.. The income from all household members are considered in calculating this number.. if the full time student is making more than $3000 annually, then you would exceed the maximum allowable household income for USDA.. Also, it's highly unlikely you will find any USDA eligible properties in Detroit.. In order to obtain USDA financing, you need to purchase a home in a USDA defined area.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com

Dec 17th 2014
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Thanks for the help! Well, when I called the office at the State of Michigan that administers the USDA program, i got the impression we HAD to go with the preapproved lender for our county. That is the place where this guy works. Is this not the case?(FYI - we are looking rural - not in detroit)Our income is under the limit, which is $93k for our area.

Dec 17th 2014
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Phil Dumouchel (PhilDu)
#1 ranked lender in South Carolina - 2,228 contributions

ANY USDA approved lender can help you and it would be unusual for USDA staff to recommend one vs. others. Most lenders DO offer USDA loans but the experience level of loan officers can vary from company to company (just like some are not as familiar with FHA or VA financing). You do need someone who is experienced with these loans and the process and guide you with accurate information. The first thing I'd be checking is the details on the other home you already own, normally that is not allowed with these loans if the home is in the same area you are looking

Dec 18th 2014
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