Will zero down USDA loans be off-the-table soon? Maybe. Here is an article sharing the unfortunate possibility that home buyers may soon have even less options than they do now. And no doubt this is an option first time buyers are looking at utilizing, especially in the South Jersey counties of Gloucester and Salem where I write the majority of my loans.
If you are considering this loan option, it is best you move fast forward to get the funds set aside for you and hurry up and get to the closing table! Especially if this is your only mortgage option!!
Updated information- Check it out below
I normally hate titles that are meant to scare people into reading but unfortunately this time there is no exaggeration to the severity of the issue. USDA Guaranteed Rural Development loans, one of the best low/no down payment financing programs left, has recently announced they expect to be out of the funds they use to guarantee loans by late April. If no action is taken by Congress to re-appropriate more funds then it will be the next budget year, after October, before we have this financing option again.
But the Tax Credit deadline is looming
Exactly- This funding shortfall couldn't happen at a worse time. Now as contacts are being negotiated, applications are being taken and plans are being made to ensure buyers meet the dates of the tax credit deadline, we throw a wrench in the system. Should a buyer proceed with USDA financingif they have just received a fully executed contract? Should a buyer that has been prequalified for a Rural Development loan continue house shopping? What can this mean to a buyer that is already in the process too far to turn back?
These questions must all be dealt with on a case by case basis, depending on a variety of factors. One of the most important factors to consider is current and anticipated turn times for your local USDA underwriting. Here in Lake County, FL USDA is at 7-10 business days so unless you can have your loan ready to go to the USDA by April 9th, there is a good possibility you may not make the funding cutoff. This is further complicated by the fact that USDA is the only loan program that does not require HVCC type appraisal restrictions (VA is a different animal but with the same results). This means if you commit to USDA financing now and are forced to revert to FHA or another program, you may need a new appraisal.
Buyers should follow the advice of their trusted lenders and know that proceeding with a USDA loan without enough time to make this cutoff is a gamble. We truly need an act of Congress to approve additional funds for these loans. Although it seems logical that they should want to avoid such a deep blow to the housing industry at this time, we all know oftentimes there is precious little logic in D.C. If you think I'm exaggerating the seriousness of this, do know the USDA Guaranteed RD program resulted in over 3500 transactions since October 1, 2009 in Florida alone! That breaks out to over 350 deals a month. Sure, some may be able to qualify through another program like FHA or VA but many won't.
Is there anything we can do to help?
Yes- please accept this call to action to contact your trade associations and express the severity of this. NAR, NAMB and the NAHB have all been made aware of this and I trust are beginning lobbying efforts to rectify it. You could also contact your members of elected officials in the House and in the Senate and urge them to sponsor legislation and fast track it to minimize the damage a funding delay could cause. This is not a partisan issue, both sides of the aisle should be eager to approve this. This isn't about bailing out the housing industry, it's about maintaining funding for a loan program that has suddenly become much more popular than anyone expected due to the current environment of real estate.
Gerry Suarez, Jr.
Your FHA Loan Pro!
UPDATE 03/11 5p EST- I just received the first notice from an investor on this and interestingly enough they are not allowing locks on USDA loans until a conditional commitment setting aside available funds is received from the USDA. That basically means borrowers will be forced to float their rate until the loan is almost ready to close. Look for more developments on this as more investors chime in with changes.