While many mortgage loan products are being scaled back due to associated credit risk, the USDA Rural Housing loan is still allowing borrowers to finance 100% AND THEN SOME to buy their homes.
The USDA Rural Housing loan works a lot like a VA loan with a couple of differences that are beneficial to buyers with little or no cash on hand. A VA loan has a 2.15% funding fee for the first use; USDA loans have a 2% funding fee for all uses (in both the VA and USDA loan, the funding fee can be added to the loan amount and financed into the loan). A VA loan has a 3.3% funding fee for all subsequent uses of a veteran's eligibility; the USDA loan is always 2%. Because of the lower funding fee, a USDA loan will result in a lower mortgage amount and, thus, a lower monthly payment.
The biggest difference is that with a USDA Rural Housing loan, ANY AND ALL CLOSING COSTS AND PREPAIDS THAT AREN'T PAID BY THE SELLER CAN BE FINANCED INTO THE LOAN AMOUNT! The appraisal will need to support it but a USDA loan allows 102% financing. So let's say you or your client is purchasing a home that is $150,000 and it appraises for $155,000. If you add the 2% fee, the loan amount would be $153,000. Let's assume that closing costs and prepaids not being paid by the seller equal $2,500, which, on a VA loan, would have to be paid by the buyer at closing in these circumstances. On a USDA Rural Housing loan, the buyer in this case can finance up to $158,100 (102% of the appraised value of $155,000). Therefore, the buyer can finance $155,500 (100% of the sales price plus the 2% fee plus the $2,500 in closing costs and prepaids that aren't being paid by the seller) and come to closing with ABSOLUTELY NO MONEY! In fact, we always try to make the numbers work to the point that a buyer gets their EMD back at closing.
Some people will say that a 100% loan "is part of the reason we are in the credit mess we are in in this country"; however, a USDA Rural Housing loan is 100% 30 YEAR FIXED RATE mortgage that ALL BUYERS must qualify for. They don't allow stated income whatsoever and make sure that the buyer will qualify for the payment amount and they have a maximum debt to income ratio that is used to insure this.
One important factor to point out: Today's rate on a 30 year fixed USDA loan is at 5.5% with no points and no origination fees! Today's VA rate is at 6% with no points, no origination fees!
While there are restrictions on income and geographical locations of where the USDA Rural Housing loan will work, you will find them to be very lenient. A lot of areas in Florida are eligible for these loans and you may be pleasantly surprised to find that you have areas that you work with that are eligible.
If you have any listings in Alabama, Florida, Georgia, Tennessee, North Carolina or South Carolina and would like to see if you can use this loan progran for those listings and advertise that a buyer can get in the house with absolutely no money down, please feel free to email me. I can look up the property and the maximum income a buyer can make in that specific area or county.
If you would like to apply for a USDA Rural Housing loan, please click here and it will automatically bring your application to my computer to get started. Don't feel that you have to do an FHA loan with 3% down when you may can get a mortgage with absolutely no money down!
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