100% USDA

The U.S. Department of Agriculture’s Guaranteed Rural Housing mortgage program, like the FHA guaranteed loan program before it, is getting increased attention from lenders and borrowers in rural areas.

“It’s going to be a very valuable program this year what with all the conventional mortgage program changes,” Jim Skvorak, president, Homestead Mortgage Loans, Windham, Maine, told MortgageDaily.com.

“It’s the best program available in the market,” said Laure Feld, president, American Mortgage Lending Inc., Peoria, Illinois, one of the program’s Million Dollar Lenders for 2007.

“Even if a family was denied using other government-guaranteed or government-backed loans, they still may qualify for this loan. Typically I see lower monthly payments on a USDA loan than any other loan program in the market,” Feld told MortgageDaily.com.

Illinois leads the nation in USDA Guaranteed lending, with 207 lenders originating in 2007 3,132 loans totaling nearly a quarter of a billion dollars.

Some $3.66 billion of the Section 502 guaranteed loans were originated last year, up from $3.07 billion in 2006, according to the USDA. But while this represents a 19 percent increase, in a dozen states volumes increased by 50 percent or more. While a 73 percent increase in Louisiana and a 230 percent in Mississippi can be seen as attributable to Hurricane Katrina, in Texas the total loan amount almost quadrupled, going from $37.1 million to $134.7 million. And Nevada saw a 174% increase.

New York and New Jersey saw origination dollar volumes increase at least 78 percent while in California, Kansas, Connecticut, Massachusetts and Rhode Island loan volumes were up around 50 percent compared with 2006.

“It’s the best loan out there. We’ve been doing it for about six years,” said Susan King, owner of the Sierra Pacific Mortgage net branch in Yucca Valley, California. “The program rolls into one the best aspects of both FHA and conventional loans. It’s one of the few programs where you can still get 100 percent financing and there’s no prepayment penalty. It’s a good solid traditional loan and has to be fully documented and for a primary residence.”

But the loan’s growing popularity has had some negative impact on King’s business.

“I’ve seen a decrease in my business because so many other people have gotten involved in the program. I was like the only one [in my area] doing it for a long time. But now everybody has jumped on the bandwagon.”

Although there are no maximum loan amounts, there are income restrictions.

Maximum adjusted gross household income, which is based on 115 percent of the median, varies from county to county and can be found on the USDA’s Web site under income eligibility. In Florida, for example, the maximum ranges from $70,750 to $80,300 for a family of four.

“It’s for modest housing,” noted Sierra Pacific’s King.

In her area of central southern California that has meant homes in the $200,000 to $250,000 range, she pointed out.

Maps displaying eligible counties, generally those with populations of no more than 10,000, also can be found on the USDA’s Web site.

Rural towns of 25,000 or less also are eligible for the program.

Loan-to-value can be up to 100 percent, compared with 97 percent for FHA, and closing costs can be financed into the loan amount.

Also unlike FHA, there is no PMI, only a one-time 2 percent guarantee fee.

There is no minimum credit score but, explained USDA, underwriters are responsible for determining credit worthiness in accordance with Fannie Mae and Freddie Mac guidelines. Also, explanations for adverse credit are required if the credit score is below 620.

The loans are all 30-year fixed rate and the rate cannot exceed a specified amount which is published annually.

“Right now we’re quoting rates like at 5.75 percent,” King said.

Permanent buydowns and 2/1 buydowns are permitted. Also, there is no limitation on source of funds for closing costs.

King said that she and other originators are compensated from a loan value premium or servicing-released fee paid by investors and a loan origination fee paid by borrowers.

“You could also charge a yield-spread premium but I choose not to,” she added.

“It’s just a fantastic loan without getting involved in those adjustables or anything like that,” concluded King. “And you have to provide proof of income. It’s not one of those weird loans.”

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at demuth933@earthlink.net