USDA 100% Rural Loans: Where's the Money?

USDA loans are back, after being unavailable since April. Congress passed HR 4899 and re-established the rural housing loan guaranty program. Now, the USDA will not need to rely on Congress to get its money for zero-down mortgages; instead, borrowers will pay a 3.5% funding fee, and the money will be used to insure the loans at no expense to taxpayers. This is similar to the way the FHA mortgage insurance program works.

So, where is the money?

An article in Mortgage News Daily claims that even though the program has funding, loan applications are still being accepted "subject to the availability of funds and Congressional authority to charge a 3.5 percent guarantee fee for purchase loans and a 2.25 percent guarantee fee for refinance loans." That little disclaimer is keeping lenders from jumping back into the program because buyback responsibility for early defaults on those mortgages would fall on them. And right now, that's a risk few mortgage will take.

So, just call another lender, right? Maybe not. Just anyone at any old mortgage lending company can't so a USDA loan. Originating these mortgages requires special knowledge and training, and only a small percentage of loan professionals have it. Also, many lenders opt out of dealing with rural housing loans because they don't market to rural areas or don't want to involve themselves in the risk of underwriting these mortgages. So, when comparing mortgage quotes, ask about USDA rural housing mortgages. Checking online is helpful, because you may need to check with a number of companies before you find one that offers the program.

Low-income direct program does not go through private lender

Another USDA rural housing mortgage program doesn't involve lenders at all, and still has money to lend. The mortgages made by the USDA directly to the borrowers at subsidized mortgage interest rates. While the guaranteed program was halted for a few months until its funding was re-established, the low-income Rural Development loan continued to be offered because it still had money to lend. This is a great program for those who meets its income eligibility requirements and buy homes in rural areas.