In today’s housing market, those wanting to buy a home with no down payment have limited options. The 2008 financial crisis led to the rapid demise of subprime lending and a harsh tightening of mortgage credit. Fortunately, USDA RD loans are still running strong offering 100% financing with low mortgage rates for home purchases.
The number of USDA loans originated has surged during the last 5 years because no money down mortgage options have become so scarce. The increase is so profound that the most popular USDA loan program, known as “Guaranteed Loans”, has seen total volume grow from $3 billion dollars in 2007 to over $20 billion in 2012. That represents a 600% increase during that time frame.
That’s what happens when there’s only two zero-down mortgage programs still around in America; VA home loans, provided by the Department of Veterans Affairs, and USDA loans provided by the United States Department of Agriculture Rural Development. It should come as no surprise USDA loans are so attractive considering they’re the only zero-down mortgage program left for home buyers that aren’t a military veteran or active duty of the U.S. Armed Forces.
Section 502 USDA Loan Programs
USDA loan qualifications are designed to give it’s borrowers peace of mind and stability with a fixed mortgage rate set for 30 years. Adjustable-rate mortgages or term lengths shorter than 30 years are not offered. The interest rates for USDA guaranteed loans are provided by the lender and are usually competitive with other programs. Highlights of USDA loan programs include:
USDA Guaranteed Loans
With a record 145,108 loans closed last year, mortgages backed by the USDA Single Family Housing Loan Guarantee are the most popular rural development mortgage option. USDA Section 502 Guaranteed Loans are available for purchase transactions only and are only available for low to moderate income families, as defined by the USDA.
Guaranteed Loans aren’t made directly from the USDA to the borrower. Instead, lenders provide the money for the mortgage and the USDA simply guarantees the loan in case of default. In that way, Guaranteed USDA Loans operate in a similar manner to other government-insured mortgage programs.
USDA Direct Loans
With only 7,940 originations last year, Section 502 Direct Loans are not as common as Guaranteed Loans. These loans are appropriately named “Direct” because funds travel directly from the USDA to the borrower. USDA Direct Loans are a good choice for families with low income. To be eligible for a Direct Loan, the applicant’s income must fall into the “low” or “very low” categories, as defined by USDA mortgage guidelines. Direct Loans are only available for purchase transactions.
USDA Refinance Loans
USDA refinances are only accessible by borrowers who already have a USDA home loan. This “Streamline Refinance” feature is major advantage of buying a home with a USDA mortgage because it gives homeowners the ability to refinance into a lower rate quickly and easily. USDA also offers a non-streamlined refinance program and the Rural Refinance Pilot Program for certain areas of the country.