USDA construction refinance?

[scout80]

That thread on trying to get a mortgage on the empty land for shop purposes got me thinking about my situation again.

I bought my current house on a bit over an acre of land, 3 years ago, via a USDA Guaranteed loan. I now want to put up a shop building, and wondering if anyone else has done this via a USDA construction refinance? While I'm at a point right now where I've built up some good equity, and owe roughly 70% of the value of the home, refinancing would likely tip me over the 80% LTV mark, so I don't think refinancing into a conventional loan would be beneficial if I can avoid it.

I've been reading some of the guidelines on what can be done via the USDA construction loans, and I'm not sure if a large steel shop building would qualify. It was hard enough to get the original mortgage due to virtually no one I talked to even knowing the USDA loans even existed...hoping to find other people that have been down this road already that might be able to provide some insight to make it smoother.

 

[dw1]

You need to look at your interest rate now and what it would be if you refinance??
Have you looked at financing the pole barn only, google "Pole Barn Financing"
A guy I work with built a big barn and financed it, im not sure who he went with but I can ask him.
If you have a decent interest rate now, I'm not sure I would refinance it.

 

[Dustball]

Everything you need to know about the loan- https://www.rd.usda.gov/files/hb-1-3555.pdf

I'm going to say using the loan to build a shop/barn/outbuilding is not allowed since it is not a "dwelling" that will be used as a permanent residence.


6.2 ELIGIBLE LOAN PURPOSES
Guaranteed loan funds must be used to acquire a new or existing dwelling to be used as a permanent residence and may be used to pay costs associated with such an acquisition. Properties must be residential in use, character and appearance. Loan funds may be used for the following purposes:

• Acquiring a site with a new or existing dwelling;
• Repairs and rehabilitation when associated with the purchase of an existing dwelling;
• Reasonable and customary expenses associated with purchasing a dwelling; and
• Refinancing under specific situations.

 

[kd3pc]

you need to find someone with real USDA loan requirements. Some of them are quite specific. Many realtors, banks and brokers will not touch them, due to paperwork and legwork to get things underwritten. The after market for those loans is nowhere near as broad and deep as fannie and freddie, so they often stay where they were originated, not resold

Refi, will be a challenge, as that is not the purpose of the program. There are specific acreage to home value ratios and loan to value ratios, and most will want more ownership in the land, before real estate. Often owning the land free and clear, before it can be pledged, sub-ordinated or ....is required.

A good farm loan/USDA office should be able to tell you pretty quickly what can be done.

 

[stealth rt]

As a retired Farm Service Agency loan manager I would advise that you need to know if you have a Rural Development guaranteed loan or a FSA guaranteed loan. RD does not do any type of farm loan. To acquire a FSA farm loan you have to be involved in the production of food or fiber.
It sounds as though your original loan was guaranteed by RD. Better have a conversation with the lender. Good luck!

 

[SGKent]

Yes by all means talk to your loan servicer to see what they recommend. USDA loans often include payments that are calculated on income, and many are subsidized. There can be two balances on the loans - the one paid down and the one for the subsidized amount if any. I believe both have to be paid in a refinance. My experience was in conventional loans for some 25 years but encountered many USDA loans during my time. One key to them is always zoning and other things one runs across on rural properties one does not encounter in tracts etc.. That is that USDA was chosen because no conventional lender would consider the property due to zoning or use. Back in the 1980s the number of farm bankruptcies changed how farms could be foreclosed on, and conventional lenders get spooked when land can or is being used as a farm. The reason is that the foreclosure process is substantially more burdensome especially if a farmer goes bankrupt. The bank has to foreclose on a business and place of domicile, not just a home.

 

[scout80]

A good farm loan/USDA office should be able to tell you pretty quickly what can be done.

That "good" part was/is the difficult part, at least around here, since I'm not exactly in farming country. As I said earlier, few people even knew the USDA Guaranteed loans existed, including in those offices that were listed on the USDA website as "approved lenders". Even the lender I eventually went through thought my property wouldn't have qualified as they weren't familiar with the areas of the state that qualified.

As a retired Farm Service Agency loan manager I would advise that you need to know if you have a Rural Development guaranteed loan or a FSA guaranteed loan. RD does not do any type of farm loan. To acquire a FSA farm loan you have to be involved in the production of food or fiber.
It sounds as though your original loan was guaranteed by RD. Better have a conversation with the lender. Good luck!

It's an RD loan, that has since changed hands twice since originally getting the loan. No actual farming operations here. My concern has been largely based on the unexpected hoops I had to jump through when I first got the loan, as the broker/lender didn't know what was expected under the USDA program. Now I have a bit of a fear of getting part way through this project, then suddenly having someone say "oops...this doesn't qualify", and then being on the hook for immediate payment of thousands of dollars.

 

[stealth rt]

By all means contact your local RD office and ask to speak with a loan officer who should be able to give you all of the eligibility requirements as well as whether they will guarantee a loan to build a “really large garage”. Don’t call it a shopy