USDA Rural Housing Loans.....The Most Under-Utilized Mortgage Progam In America

[Ron Withers]

This post is for consumers/homebuyers, Real Estate Professionals and Mortgage Professionals that may not have a good working knowledge of the features and benefits of the US Department of Agriculture's Guaranteed Rural Housing program. Over the years I have done a number of these loans and have come to believe that it is one of the most under-utilized mortgage loan programs in the United States. It has many flexible features not found in Conventional and FHA loans.

For those real estate and mortgage professionals that have been around for a while, this program is not to be confused with their 502 program (direct or subsidized). See Postscript #3 below. When I speak with Real Estate professionals, quite often they have the impression that this program is a so-called "red tape" program. Not the case! Particularly with an experienced or seasoned loan officer. As you read the following information on the advantages of using the USDA Guaranteed Rural Housing program and some of its' salient features I am certain that you would see some great opportunity in directing some of your clients toward this mortgage program. Some of the information below does pertain to these loans in the State of Florida and is provided for information/illustration and information is available on the USDA website for your geographic location. Likewise these loans are subject to the property being located in an eligible area. A link is provided to determine if a specific property address may be eligible for USDA-GRH financing.

Advantages:

• No down payment required.

• No Mortgage Insurance.

• No cash reserves required.

• No seller contribution limit.

• No Prepayment Penalty

• Loan up to 102%* of appraised value allowed...not the lesser of Sale Price or Appraisal

• Loan amount can include closing costs and prepaids up to appraised value.

• No stated maximum loan amount; maximum loan based on repayment ability

•No First Time Homebuyer Requirement

• New and existing homes OK

• Fully amortized 30-year fixed rate loan

• No minimum credit score required...common sense underwriting allowed.

• No minimum cash contribution required from borrower.

• No limit on CLTV when soft second financing such as SHIP or HOME is used for closing costs and prepaids.

• No limitation on source of funds for closing costs. No seasoning requirement.

• 100% gifted closing cost or down payment assistance is permitted.

• Non-traditional credit may substitute for lack of traditional credit history.

• No derogatory credit explanations required when credit score is 620 or above.

•Rent is not verified with FICO of 620 or more.

• Qualifying ratios of 29%/41%...29% PITI to Income and 41% Total Debt to Income, however standard ratios may be exceeded with documented compensating factors.

• Automatic ratios waiver of 31%/43% for homes built after January 1, 2000.

• Conventional type loan packaging with only 1 extra form required.

• Competitive rates (set by underwriting lenders)

*Appraisal may be exceeded by amount of Guarantee Fee

Determining if property is in a Rural Development designated rural area:

http://eligibility.sc.egov.usda.gov/

Determining if applicant(s) have an acceptable credit history:

• Credit history must indicate a reasonable willingness to meet obligations when due.

• Streamlined credit approval when primary applicant has a middle credit score at 620 or above.

• No minimum credit scores.

• Lack of credit is not derogatory. Alternative credit verifications are allowed, typically 3 lines.

• Lenders make the credit decision.

Income eligibility:

Project the cumulative gross income of all adults in the household.

THE GROSS INCOME LIMITS CAN BE MUCH HIGHER THAN THE ADJUSTED INCOME LIMITS SHOWN IN THIS TABLE

If the projected dependable income exceeds the limits, certain adjustments can be made, such as childcare expenses for children age 12 or younger and paid to someone outside the family. You also can deduct one $480 annual deduction for anyone under 18 or a student who is not one of the applicants. Other deductions may be available (see FL/VI Handbook or RD Instruction 1980-D, www.rurdev.usda.gov/regs

Example: Clay County 4-person family (2 adults, 2 children) has a gross income of $80,310. Child care for the two children age 12 or less is $10,000 annually. Is the threshold income at or below the limit? YES. $80,310 less $10,000 child care less $480 for each child = $69,350.

Counties
1-person
2-person
3-person
4-person
5-person
6-person
7-person
8-person

All Florida & Virgin Island Counties EXCEPT those listed below.
48,000
54,850
61,700
68,550
74,050
79,000
85,000
90,500

Clay, Duval, Nassau, St. Johns
48,550
55,500
62,400
69,350
74,900
80,450
86,000
91,550

Collier
56,200
64,250
72,250
80,300
86,700
93,150
99,950
106,000

Palm Beach
51,850
59,250
66,650
74,050
79,950
85,900
91,800
97,750

Broward, Pinellas, Monroe are NOT eligible




See the easy to use calculator at: http://eligibility.sc.egov.usda.gov/eligibility Click on "Single Family Housing" under "Income Eligibility"

Applicant(s) repayment ability:

Ratio limits are 29 front (housing, PITI), 41 back (total debt, MOTI). Rural Development generally allows expanded repayment ratios if recommended by the lender's underwriter. 31%/43% automatic for dwelling built after 1/1/2000.

Other eligibility criteria:

• Do not own a suitable dwelling.

• Insufficient resources to secure conventional 80% loan without the guarantee.

• U.S. citizen or permanent resident or qualified alien.

• Financed dwelling will be primary residence.

Loan-To-Value (LTV) and Loan Limit:

• 102% LTV for the guaranteed first mortgage loan when including the guarantee fee, 100% LTV without the fee included.

• Loan amount can exceed appraised value by the amount of the guarantee fee.

• There is no loan limit

P.S. #1

This post script has been added to this blog as I received a very nice "thank you" email from an USDA Rural Housing official in Florida thanking me for posting this blog regarding their USDA GRH program. I thought it was very nice of them to take the time to express their appreciation. They did provide a comment about a correction in the program information which I have done. It's great that information posted here on ActiveRain does get noticed or picked up by consumers/officials and they provide feedback accordingly. The text of this email is as follows:

Hi Ron

THANKS so much for your blog on the web. One of employees in Ohio saw it and pointed it out to me. You may know, but I work out of our Gainesville headquarters. I write the materials about the guaranteed residential loan product.

I'm sorry I had a typo on the Quick Guide. I gave info on streamlined documentation with FICO of 620 or above. BUT then forgot to change the section "Determining if applicant(s) have an acceptable credit history" in reference to "660" that should have said "620".

We trying to make this product more lender friendly and family friendly. I've been a part of writing a number of significant changes over the past 16 years, since the program inception.

You've probably already done this but you may want to consider inviting our local staff to assist with any seminars you present to your realtors, builders, or applicants.

You are correct that this product is the best one for families meeting four simple guidelines: Do they have less than 20% down payment; is the property in an eligible area; is their adjusted household income within the limits; and do they have a reasonable credit history.

Again, thanks so much. We appreciate it.

P.S. #2 6/21/2008

I have been modestly surprised by the amount of interest that this post has generated. In addition to the comments posted here I have received calls and emails from consumers, realtors and loan officers from all over the United States.

Given the current climate of the real estate market as well as the mortgage marketplace this is the only competitive and true 100% financing program left in the mortgage industry....and guess what? It's still Under-utilized!

P.S. #3 -- 6/26/2008

Since my original posting date numerous people have inquired/commented about the 502 Direct Program that is briefly mentioned above. Below is more specific information for USDA's Direct program so a contrast may be drawn in respect to the Guaranteed Rural Housing Program.

Unlike, USDA Guraranteed Rural Housing loans originated by most of us, Rural Housing Direct Loans are loans that are directly funded by the Government. These loans are available for low- and very low-income households to obtain homeownership. Applicants may obtain 100% financing to purchase an existing dwelling, purchase a site and construct a dwelling, or purchase newly constructed dwellings located in rural areas. Mortgage payments are based on the household's adjusted income. These loans are commonly referred to as Section 502 Direct Loans.

Purpose: Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Eligibility: Applicants for direct loans from HCFP must have very low or low incomes. Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Click here to review area income limits for this program. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance, which are typically within 22 to 26 percent of an applicant's income. However, payment subsidy is available to applicants to enhance repayment ability. Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories. .

Terms: Loans are for up to 33 years (38 for those with incomes below 60 percent of AMI and who cannot afford 33-year terms). The term is 30 years for manufactured homes. The promissory note interest rate is set by HCFP based on the Government's cost of money. However, that interest rate is modified by payment assistance subsidy.

Standards: Under the Section 502 program, housing must be modest in size, design, and cost. Modest housing is property that is considered modest for the area, does not have market value in excess of the applicable area loan limit, and does not have certain prohibited features. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards.

Approval: Rural Development officials should make a decision within 30 days of the Rural Development office's receipt of the application.