The Real Story…
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth
The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.
No Money Down…
No … this is not the introduction to an infomercial or a get rich quick scheme. Make no doubt about it this is a great buyers’ market … But for many buyers, affordable housing seems out of reach since they have been unable to save the down payment!
Generally, the favored and least expensive way for a home owner to get into a new home is via a FHA Mortgage which requires a minimum down payment of 3.5% of the purchase price or $3500 on a $100,000 home. Add to that closing costs and you have an insurmountable obstacle for lots of folks. Now in today’s market, you can probably get the seller to pay most if not all of the closing costs and pre-paid items required to close the loan… but, you still have that down payment.
USDA Rural Development / Rural Housing Service
Enter the USDA Rural Housing Program… which provides up to 102% financing of the purchase price. More on the extra 2% in a moment.
Yes, the US Department of Agriculture … the same people who inspect the beef… provide funding options for qualified purchasers on rural properties (homes in rural areas, typically defined as open country or rural towns with no more 20,000 in population). This program allows a purchaser to purchase with no money down and thus take advantage of these historically favorable market conditions for home buyers.
These loan guarantees have become enormously popular during the financial crisis and consumer demand has tripled the annual number of loans that are typically issued each year.
Wow… so what’s the catch you ask…Well not every home qualifies and not every buyer qualifies; however, it’s still a great program… So good in fact that due to the high number of users of this program during the recent (now expired*) Home Buyer’s Tax Credit Incentive, the program had used up its funding allocation. However, Congress acted on July 29th to refund/extend the funding of this program which has been around since the late 1940’s.
The Rural Housing Service (RHS) administers direct loans, loan guarantees and grants. Direct loans are made and serviced by USDA staff; loan guarantees are made to banks or other private lenders, and grants are made directly to a person or organization.
It is worth noting that USDA Rural Housing program is a self-funding program with no cost to the tax payer. The expense of the program is covered by the funding fee, which has been 2% of the purchase price which may be financed with the loan thus allowing loans up to 102% of purchase price. Note that the funding fees may increase based on loss histories, just as the MIP fees are subject to increase on FHA loans.
Eligibility is two part: first, the property must qualify via its location/address and secondly, the prospective purchaser must qualify
In order to qualify for the program an applicant must have good credit and reliable and adequate income sufficient to sustain mortgage payments. The average guarantee in 2009 was for a $112,000 mortgage.
For more information as to qualifying properties and individuals use the following link: http://eligibility.sc.egov.usda.gov/ or talk with a qualified lender.
May the market be with you…
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* The Home Buyer’s Tax Credit required that purchaser’s home be under contract by 4/30/2010 and close by 6/30/2010. The closing date has been extended to 9/30/2010. Qualified Armed Services personnel have an extension that allows them to use this program if the home is under contract by 4/30/2011. Contact your tax professional to see if you qualify for this extension.
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