USDA Loans & Inspections

Some may be aware that the USDA provides home loansand I have inspected a couple of homes that the Buyers were getting a USDA loan. I did one a couple of weeks ago and got a call today from the Buyer’s Realtor today saying that the USDA was requiring that all defects noted on the report be repaired prior to them underwriting the loan. Neither he nor I had heard of that so we got the USDA loan rep on the phone and he concurred that was their policy. In other words, the underwriter would not accept the scenario where the Buyer would either accept the defects or be compensated at closing for the defects. The USDA wanted a completely clean inspection report with no “In Need of Repair” items noted. May be a sign of things to come with other underwriters.

I had always found it to be true, Mike. The USDA report is almost totally devoted to energy issues and they will not finance property that does not meet the standards.

In this case, the USDA did not require any special report that was unique to them…this was my standard inspection and report that meets NACHI & TREC SOP’s.


Thanks for the good info and link. It would be nice if lenders/underwriters started requiring even an inspection for every loan. After all they require appraisals and we know appraisals do not equal an inspection.

I perform a lot of USDA loans in the last eight years. “The Existing Home Component” form was always required to be filled out in Missouri unless it is a new home of course. They use to require every single thing on the inspection report to be corrected. Like Bushart says they were big on energy efficiencies, except for the last few years when the market started to slow down. Now it is just mechanical issues, stuctural integrity and at least two years life on the roof. Each State, from what I understand, has their own forms and their own standards. I drop by my local Rural Development office about twice a year to checkion what is going to be changing. Just like FHA and VA, standards can change from day to day.

This is another one of the dumb *** “give me a house” programs that have the housing industry in its current state of collapse. Between Fannie, Freddie, Ginnie, Salle Mae, HUD, ACORN, USDA, etc… its just the beginning of massive socialistic policies taking over the country. As with entitlements and social security these programs will never survive the test of time as more people draw from the systems than pay into them.

Good luck with the USDA, that free lunch program has just about runs its course…

In my area, there is a lot less Guaranteed Rural Development foreclosures then there are FHA, VA or any other government program. If there is Guaranteed loan foreclosure, USDA is only liable for the amount the the lender loses on the resale of the property. Now, Direct loans USDA is liable for the whole amount but in return if the buyer sells the home a few years later, USDA gets the appreciation. There are not a whole lot of Direct loans given.
This might be the reason why Michael’s situation is different than what I have stated. A Direct loan inspection is more stringent because USDA is borrowing out the money at just a few percentage points from their coffers. I have only done about three Direct loan inspections in the last eight years.

excuse me for asking but I have not inspected for a usda loan before. I have a person that told me the realtor said that the usda chose the inspector for a usda loan. I was wondering if this was the case or is this a case of someone saying that to get some individual the business. Would appreciate any help on this.

It varies from state to state. The lender of a the Guarantee Loan has a lot to say on which inspector to use because if the inspector does not know the ins and outs of a Rural Development inspection, he can prematurely can an otherwise good loan. Now the Direct Loan, the local Rural Development has only the say on how certified the inspector needs to be, such as being accepted by the State, which only NACHI, A$HI and NAHI is accepted by Missouri.

Wow! That’s surprising and unfortunate to hear. Since I believe no home has ever been built which can get through an SOP compliant TREC inspection without one or more defects and I certainly have never inspected a house that came close to 0 defects, I’ll have to stay away from USDA loan transactions. I’m certainly not going to soften one up with TREC all gung-ho to apply their new penalty matrix.

I typically tell my clients not to share their inspection with the lender unless the lender requires it. On every occasion that I know of where the lender has gotten involved in the inspection report, they have screwed up the transaction because they think every defect is supposed to get fixed.

This is the absolute last thing I would like to see happen. I think it would doom the inspection industry in the state by robbing buyers of their right to choose, removing them from the decision process and making inspections little more than a minimum priced provider commodity.

I would resent this both as an inspector and as a consumer.