100-percent mortgage financing available again?

Posted by  on Dec 20, 2010

How they work: USDA rural mortgage loans

New legislation would make the USDA's Single-Family Housing Guaranteed Loan Program self-sufficient, the National Association of Realtors reports, enabling rural loans to be funded again at no cost to taxpayers. Borrowers will have to pay a higher funding fee - 3.5-percent - but this upfront mortgage insurance charge can be included in the mortgage amount, so there is still no down payment required from the borrower.

The program, which provides no-money-down loans in many parts of the country for low- to middle-income borrowers, exhausted its $13.1-billion funding earlier this year, leaving some would-be buyers without financing. USDA loans were especially in demand this year as first-time buyers went for the government's federal home buyer tax credit. Buyers who were under contract by April 30, 2010 have until September 30, 2010 to close on their homes.

New safety measures

While this is welcome news for USDA borrowers, industry watchdogs are still scrutinizing zero-down deals and the role they played in the recent housing market crash. The new USDA program is considered safer for lenders because up to 90 percent of the purchase amount is guaranteed, meaning the agency pays if the borrower defaults. This helps keep the best mortgage rates available to low-income people who buy in areas defined as rural by the USDA. The USDA has previously indicated that last fiscal year's (June 2009 through June 2010) foreclosure rate was 1.72 percent, well below the Federal Housing Administration's 3.32 percent.

How to qualify for a USDA loan and get the best mortgage rates

Borrowers also can't make more than 115 percent of a county's median income, so this isn't a jumbo loan program: the average USDA loan is $112,000. The property must be located in an area designated "rural" by the USDA. Don't think you have to live in the boonies to be eligible. According to the USDA, 97 percent of the country's land area is designated rural. Unless you live in a city of more than 50,000 people, your property may qualify under USDA standards. USDA interest may be subsidized if you qualify, providing the lowest mortgage rates possible to low income borrowers.

When comparing mortgage rates and shopping for a home loan, ask about USDA financing. Not all lenders offer USDA loans, and not all mortgage loan officers are qualified to originate a USDA loan.


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