Word on the street is that 100 percent financing is a thing of the past. NOT TRUE!!!
There remains here in Polk County, Florida and in other parts of the nation a true 100 percent financed home loan purchasing program surprisingly few folks are talking about.
What’s the program? Hey… glad you asked. Why, it’s the USDA Rural Development Loan program!
But wait, isn’t there a USDA sticker on the pot roast I just picked up from Publix? Yes, yes there is. But the US Department of Agriculture (USDA) does much more than inspect the beef we eat. A quick surf over to Wikipedia tells us that:
On October 13, 1994 The Department of Agriculture was reorganized under the Federal Crop Insurance Reform and Department of Agriculture Reorganization Act. Under that Act, USDA Rural Development was created to administer the former Farmers Home Administration’s (FmHA) non-farm financial programs for rural housing, community facilities, water and waste disposal, and rural businesses. The former Rural Electrification Administration’s (REA) utility programs were also consolidated within Rural Development.
Rural Development’s mission statement is “To increase economic opportunity and improve the quality of life for all rural Americans.” Rural Development has an $86 billion dollar loan portfolio, and administers nearly $16 billion in program loans, loan guarantees, and grants through their programs. For various reasons, much of this funding currently goes to urban areas to help develop and redevelop suburbs and resort cities.
As a mortgage broker, it’s my job to make sure that my clients are aware of any program that my be of real benefit to them. As such, I wanted to provide some detailed information on the UDSA Rural Development Home Loan Program.
As you read through the following information, think about whether this program is right for you. If so, give me a call at 863-604-3019, and we’ll talk a bit about how we might set you and your family up with 100 percent financing today!
1. Why choose a Rural Development Guarantee loan?
Simple! USDA Rural Development Guarantee (RDG) loans are the only true 100 percent financing loan you will find. Period. They require zero downpayment and no private mortgage insurance (PMI) – two costs associated even with FHA loans.
No smoke and mirror here, folks. The USDA RDG loans are set for 30 years at a fixed rate, and there is no limit on the price you pay for the home. The only qualifying factor for the home itself is that it be situated within an approved USDA eligible area. Florida has very few areas that qualify for this program. However, if you live in Polk County – then you’re are in luck, as nearly 80 percent of of Polk County qualifies for the USDA RDG loan program!
2. Can I Save Money by Using the USDA Rural Development Grant Program?
Yes. Take, for example, a loan for $100,000.00. By taking out a USDA Rural Development loan, the borrower saves $4,290.00 in the first 10 years over what they’d pay out on an FHA loan. Why? For one reason – USDA RD loans don’t have any monthly Mortgage Insurance requirement!
Sure, you pay a USDA Guarantee fee of 2 percent up front when you take out the loan, but that sure beats paying MI each month until you get your Loan to Value ratio down to 80 percent!
Remember, it is difficult to drop MI insurance, and lenders will not drop it from your monthly payment unless you ask them to. (I know, big shock.) Plus, the MI premium has to be calculated into the ratios. This is NOT an issue with the RD loan since MI is not required.
3. Is the USDA Providing the Funds for These Loans?
No. Much like the FHA, the USDA Rural Development Single Family Housing Program functions as a backstop or safety net for mortgage lenders – in effect guaranteeing that they are protected in the event you default on your loan – up to 90 percent of the original loan amount.
For the finance geeks out there – things break out as follows:
- Losses up to but not exceeding 35 percent of the original loan amount are fully reimbursed.
- Any losses exceeding the 35 percent total are reimbursed at 85% of their total.
So, in effect – lenders are only left with the remaining 15 percent of “true exposure” on these loans, which is why you are able to benefit from such a great program!
This guarantee grants lenders a great protection against losses. The quality of this USDA guarantee is what allows lenders to easily sell the loans on the secondary market. As a result, they feel free to lend funds in cases where other non-participating lenders may not.
4. What Type of Credit Do I Need in Order to Qualify?
Typically, the good folks over at the USDA financing office like to see minimum credit scores at or very close to 620. Borrowers with credit scores as low as 580 may be approved; however, they may not have any of the following:
- Foreclosure in past 36 months.
- Bankruptcy discharged within 36 months.
- More than one 30 day late on consumer debts in past 12 months.
- Accounts converted to collections within past 12 months.
- Tax liens or delinquent government debts (including student loans).
- Judgments outstanding in past 12 months.
- Outstanding collection accounts.
- Two or more late rent payments in past 12 months.
Note: Lenders are permitted to use a non-traditional credit report or verify your creditworthiness with other sources, such as: utility payment records; rental payments; insurance payments; child care payments; payments to local stores, payments on medical bills, etc.
5. Are there Minimum and Maximum Loan Amounts Associated with USDA Rural Development Loans?
There is NO minimum loan amount for the USDA Rural Development loan program. However, maximums do apply. Typically, borrowers are limited to the appraised value of the home plus the 2 percent Guarantee Fee. The great news here is that you may finance 100 percent of the purchase price of your home (102 percent if you are financing in the 2 percent Guarantee Fee).
Note: The Guarantee Fee is a fee charged by Rural Development. This fee is equal to 2 percent of the final loan amount and may be financed into the loan itself. Whoo Hoo! Not a necessary out of pocket expense!
6. What Will Be Included in My Monthly Payment?
The monthly payment will include principal, interest and the monthly cost of real estate taxes and insurance. Your lender will provide an estimated payment for you.
7. How Are Closing Costs, Fees, etc. paid on the USDA Rural Development Loan?
These fees and other eligible costs – including some repair/rehab costs - may be rolled into the loan. Again, 100 percent means NO out of pocket expenses at closing!
8. What areas are considered eligible for the USDA Rural Development Loan Program?
Most Florida counties are either totally eligible or mostly eligible. If the property is in one of the following counties, you can check an address or see a map at: http://eligibility.sc.egov.usda.gov/ The site will give a “yes” or “no” upon entering an address.
Counties with some Non-eligible areas are:
Alachua; Bay; Brevard; Charlotte; Clay; Dade; Duval; Escambia; Hillsborough; Indian River; Lee; Leon; Manatee; Marion; Orange; Palm Beach; Pasco; Polk; Santa Rosa; Sarasota, St. Johns; St. Lucie; Seminole; and Volusia.
Note: Broward, Monroe and Pinellas Counties are NOT eligible.
9. What are Rural Development’s income limits?
Borrowers must have adjusted gross income (AGI) that sits under thresholds set by Rural Development. Limits for Florida Counties are provided as follows:
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For homes purchased here in Polk County, Florida, borrowers must have an AGI at or below $49,550. 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 may also deduct one $480 annual deduction for anyone under 18 who is not one of the applicants. Other deductions may be applicable such as the deduction for an elderly household and full time student over age 18.
Example: Polk County 4-person family (2 adults, 2 children) has a gross income of $81,710. Child care for the 2 children age 12 or less is $10,000 annually. Is the threshold income at or below the limit?
YES! $81,710 less $10,000 child care less $480 for each child = $70,750.
10. Can I get cash back from closing to pay off other loans or refinance my credit cards?
No, the goal here with the USDA Rural Development land is strictly to cover 100 percent of your home purchase expenses, not to provide a means of reducing your other debts.
I hope this provides you with a little more detail than you previously had regarding the USDA Rural Development Loan Program. If you live here in Polk County and are looking to buy a home, please give me a call at 863-604-3019 so we can get your loan application ready. Or, apply for your USDA Rural Development Loan online!
Oh, and just because the house you are looking at over in Davenport, Florida doesn’t sit on a cow pasture – don’t count it out! I just qualified a home for the USDA program over in Davenport two days ago! And here’s a little secret for you: Roughly 80 percent of Polk County, Florida qualifies for USDA Rural Development Loan Program Financing!
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I hope you found this post useful! As always, if you or anyone you know is in need of a local Florida mortgage broker, I’m your guy. Call me at 863-604-3019 or apply online for your Florida mortgage. We’ll keep you posted and let you know when it’s time to pull the trigger!
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How about explaining that the lender can charge an interest rate that is way above the going rate posted at USDA? They can charge up to .6% above the posted Fannie Mae rates! So the USDA posts interest rates at an attractive 4.675 % and then you apply and are told that you will get 6%. Hmmm, how about some disclosure here too.
And do not forget to really look out for your consumers and post some info on the REAL USDA loans; that would be the direct loan program, but they won’t need a broker for that, so you won’t make any money. That is where low income folks can get a real break and get fixed interest rates as low as 1% up to the full 4% + posted. They may need to be patient for 3-4 months to end up getting the funding, but it is the real deal.
Hi Bob, thanks for your comment. We do try to maintain a fair and balanced blog here – so your words as welcome as they are true.
Mortgage brokers are as human as any other group of professionals. And, as the English philosopher David Hume would argue – since we are human, we’re fallible.
Reputable business brings customers back and encourages referrals. It seems from your comment that you might have been the victim of some unscrupulous business practices. If this is so, please report the broker in question to the proper authorities/review boards.
The “Real USDA Loans” you speak of are limited ONLY to those mortgage applicants who have very low incomes. 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. – From the USDA site.
Readers of this blog may find more information about the USDA Direct Loan program here.
There are a few caveats to the USDA RD program however. For one you need to live in an area that is low population density. Secondly, there are some income restrictions as well based of a percentage of what HUD has determined the median income level for your area to be. Don’t let either of those requirements scare you though, they are more generous then you might think.
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One thing that I like about USDA Rural Development home loan is that down payment is not required. Qualified borrowers have the option of paying no down payment, which means borrowers can finance up to 100 percent of the appraised home value. With the current markets considered to be “declining markets,” the 100 percent financing is truly one of a kind.
I agree with Lex, USDA is one of the loan programs that does not require a down payment. This will really help middle class families get a house on their own.