The one source where home buyers can still find a zero-down home loan has twice as much to lend this year compared to last year. The catch is the cash runs out with the fiscal year on Sept. 30.
On April 15, the U.S. Department of Agriculture’s Rural Development Service’s Section 502 Single-Family Housing Guaranteed Loan program was funded with $24 billion, twice the $12 billion in the pot last year. Roughly $7 billion of that remains up for grabs.
The loans have become popular as other sources of home mortgages have dried up or become more difficult to secure. They offer 30-year fixed rates, income limits up to 115% of the median income for the area, and flexible credit guidelines. Down payments may come from gifts, grants, and seller concessions, and the program is not limited to first-time home buyers.
“That’s the best news of the day,” said Mike Snider, president of Houston-based LGI Homes, responding to the news of more funds in the pot. LGI focuses on selling homes to apartment-dwellers. Of LGI’s eight communities, five are in areas that qualify for the USDA loans, and in those five communities, 90% of buyers take advantage of the program.
“What the USDA product does for us is it allows the customer to not have to come up with a down payment,” said Snider. Without the program “most of our customers wouldn’t be able to buy a home and the ones who still wanted to would have to save up for probably six months.”
While the intent of the loans is to serve low- and moderate-income households in rural areas, many spots surrounding major metropolitan areas are considered rural under the program.
One reason the loan program might have escaped government cuts this year is that it has become self-supporting; it gets no tax-payer funding. The USDA guarantees the loans, which are funded by private lenders, said a USDA spokesman.
Compared with similar loan programs, the USDA’s guaranteed product has had the lowest delinquency rates, said the spokesman. The program has never varied from the gold standard 30-year fixed-rate mortgage. The agency also reviews every loan package before closing, requires appraisals which are reviewed in-house, and verifies borrower incomes.
To find a local service center for information and for a list of approved lenders go to http://offices.sc.egov.usda.gov/locator/app.
Teresa Burney is a senior editor for Builder magazine.
Learn more about markets featured in this article: Houston, TX.