By Steve Cook
The U.S. Department of Agriculture has only two months to spend $11.2 billion on its no-down payment rural development loan program, a record amount at this juncture in the federal fiscal year for the program that provides no-down payment mortgages to borrowers in rural and suburban markets.
Usually by August, the program—which has become extraordinarily popular since the demise of private no-down financing—runs out of money and applications are put on hold until more money becomes available with the beginning of a new federal fiscal year on October 1.
This year, however, the program is enjoying a windfall—the result of a continuing resolution signed by President Obama that doubled the size of the USDA’s Rural Development Service’s Section 502 single family guaranteed loan program, taking it from $12 to $24 billion. Some $12 billion has been allocated over the past three months.
Founded in 1949 to spur home sales and development in rural areas, the U.S. Department of Agriculture’s popular direct and guaranteed rural housing loans are one of the few places in America you can still get a mortgage with no money down at competitive rates.
Borrowers don’t have to be lower income—in fact they can make slightly more than the median. To qualify for the government guaranteed loans, borrowers can earn up to 115 percent of the median income for the area. Nor do they have to buy in rural area. They can live relatively close to a major urban area or in a popular resort community; however qualifying areas were recently redrawn to comply with the program’s rural mandate.
Effective October 1 the USDA will begin collecting a monthly mortgage insurance of .3 percent, but their up-front mortgage insurance will be reduced from 3.5 percent to 2 percent. On a $200,000 purchase with a USDA guaranteed mortgage at 5 percent, a buyer’s current mortgage payment will increase $34/month under this new split premium mortgage insurance structure, which could potentially make it more difficult for some buyers to get financing.
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