Recapture Subsidy

[TappedOutOn Love]

My mom paid off her home loan in South Carolina with the USDA. However after final payment She received a letter starting her home loan was subsidized and if she wanted a clear general warranty deed ( not sure if the name is correct but basically a deed with out a lien) she will need to pay the recaptured amount ( the amount subsidized during the life of the loan). Well mom is having some health concerns and one of my siblings will move in to care for her. We would like to add a room to the house and do other improvement in hopes that it will cancel out the recapture of the loan. Does anyone know the best approach to do this? Should we take out a home improvement loan or refinance? The principal balance is paid in full so I'm not sure if refinancing is an option. We would just like to rid ourself with this subsidy even if it means getting another loan. As I type this it doesn't make sense to go back into debt so help me understand this if you can. We don't want to lose mom's home if anything happens to her because it stated that as long as she lives there repayment is not required. Any guidance, clarity, and suggestions would be great.

 

[adjusterjack]

This is what I learned about the USDA subsidized loan:

USDA direct is a subsidized loan where the government pays (subsidizes) a portion of the payment. This loan is for low to very low income earners. For example, based on their income if they only qualify for a payment of $800.00, but their fully amortized payment would be 1,000.00, the government would then pay (subsidize) the needed $200.00. When they sell the home, they may have to pay back what was subsidized or at least a portion of it. These loans are originated directly with the USDA office. The USDA requires they apply for traditional financing to pay off their loan every one to two years. If they cannot get financing then they are allowed to continue with the loan; however, the USDA Subsidized loan is not designed to keep forever.

How much was the subsidy that has to be paid back? If it was even just a couple of hundred per month over the life of the loan it could add up to over $70,000. I find it hard to imagine that the government would subsidize a low income homeowner for 30 year and then expect the homeowner to come up with a big chunk of money. If that's true, she'll have no choice but to go into debt. Or sell it to pay off the subsidy.

I'm wondering if you folks are misunderstanding something. I suggest you find her loan papers/contract and see what she is contractually obligated to do.

 

[TappedOutOn Love]

This is what I learned about the USDA subsidized loan:

USDA direct is a subsidized loan where the government pays (subsidizes) a portion of the payment. This loan is for low to very low income earners. For example, based on their income if they only qualify for a payment of $800.00, but their fully amortized payment would be 1,000.00, the government would then pay (subsidize) the needed $200.00. When they sell the home, they may have to pay back what was subsidized or at least a portion of it. These loans are originated directly with the USDA office. The USDA requires they apply for traditional financing to pay off their loan every one to two years. If they cannot get financing then they are allowed to continue with the loan; however, the USDA Subsidized loan is not designed to keep forever.

How much was the subsidy that has to be paid back? If it was even just a couple of hundred per month over the life of the loan it could add up to over $70,000. I find it hard to imagine that the government would subsidize a low income homeowner for 30 year and then expect the homeowner to come up with a big chunk of money. If that's true, she'll have no choice but to go into debt. Or sell it to pay off the subsidy.

I'm wondering if you folks are misunderstanding something. I suggest you find her loan papers/contract and see what she is contractually obligated to do.

Yes it's exactly what they did. First shesigned the agreement for the subsidy 3 years after the original loan. I'm guessing She didn't understand it. But yes they have calculated the amount to be $42,000 that will need to be recaptured. This was a small 3br 3bth home built in 1987. It broke her heart because She thought She had finally obtained part of the American dream. We were thinking the only way was to do some home improvements which are needed. Not sure what the best options are(personal loan, home improvement loan, equity loan - not much in rural SC) if that is the best route.

 

[adjusterjack]

The best option is a loan with the lowest interest rate and lowest front end costs. Could be any one of the types you listed. Figure out how much you want to spend on the home improvements. Getting estimates from contractors would help. Add that amount to the $42000 and start with her bank to see what's available and what she can qualify for.

You might want to look deeper into the program to see if there are any exceptions or forgiveness of any of the debt. Also figure out if interest is still accruing. If the subsidy doesn't have to be repaid as long as she lives in the house, the interest might make that balance a lot bigger in later years.

 

[TappedOutOn Love]

The best option is a loan with the lowest interest rate and lowest front end costs. Could be any one of the types you listed. Figure out how much you want to spend on the home improvements. Getting estimates from contractors would help. Add that amount to the $42000 and start with her bank to see what's available and what she can qualify for.

You might want to look deeper into the program to see if there are any exceptions or forgiveness of any of the debt. Also figure out if interest is still accruing. If the subsidy doesn't have to be repaid as long as she lives in the house, the interest might make that balance a lot bigger in later years.

Wow! Great information. I really really appreciate your feedback. Thank you so very much. I am on it. I'll update you. Thanks again

 

[TappedOutOn Love]

The best option is a loan with the lowest interest rate and lowest front end costs. Could be any one of the types you listed. Figure out how much you want to spend on the home improvements. Getting estimates from contractors would help. Add that amount to the $42000 and start with her bank to see what's available and what she can qualify for.

You might want to look deeper into the program to see if there are any exceptions or forgiveness of any of the debt. Also figure out if interest is still accruing. If the subsidy doesn't have to be repaid as long as she lives in the house, the interest might make that balance a lot bigger in later years.

Also for clarity...not sure if I mentioned she was told by the rep that any CAPITAL improvements would be appraised and the value would be deducted from the 42000. Hence the reason we figured it would be best to do some improvements. Does that still mean the loan should be improvement amount plus 42000...or can we shoot for loan of approx 50000? Hoping it would be appraised at an increase close to the 42000. Does that make sense?

 

[LdiJ]

Also for clarity...not sure if I mentioned she was told by the rep that any CAPITAL improvements would be appraised and the value would be deducted from the 42000. Hence the reason we figured it would be best to do some improvements. Does that still mean the loan should be improvement amount plus 42000...or can we shoot for loan of approx 50000? Hoping it would be appraised at an increase close to the 42000. Does that make sense?

No, it really doesn't, so you are going to want to verify that information from another source. If you can find it in writing, all the better.

 

[TappedOutOn Love]

No, it really doesn't, so you are going to want to verify that information from another source. If you can find it in writing, all the better.

Ok. Thank you.

 

[adjusterjack]

Also for clarity...not sure if I mentioned she was told by the rep that any CAPITAL improvements would be appraised and the value would be deducted from the 42000. Hence the reason we figured it would be best to do some improvements. Does that still mean the loan should be improvement amount plus 42000...or can we shoot for loan of approx 50000? Hoping it would be appraised at an increase close to the 42000. Does that make sense?

It doesn't make sense to me either. Though it might be true if it's part of her contract. Again, I urge you to get her contract out and study it.

"I was told" is the most dangerous phrase in the English language.