Government restores funding for zero-down home loan program
Zero-down financing for some home buyers will return after funding was restored to a federal loan guarantee that has been broke since April.
The U.S. Department of Agriculture’s Rural Development program provides guarantees to 30-year, fixed-rate mortgages at market rates offered to moderate income buyers.
The loans require no down payment and have no monthly mortgage insurance premiums — almost unheard of in today’s credit climate.
President Obama signed a bill at the end of July restoring funds to the program and increasing some fees as a means to make it more self-sufficient.
The current years allocation was exhausted in early May. Since early June, lenders could still submit loans, … but they weren’t going to get their loan note guarantee until additional funding was available to cover that. But, many lenders chose not to participate because of the inherent risk. With the word that funds are forthcoming many company’s have started offering the loans again.
While the guaranteed program was essentially put on hold until funding was restored, a separate Rural Development loan program that lends money directly to home buyers continued.
The Direct Loan program makes funds available to low- and very low-income buyers and also requires no down payment. The goal is to keep lower income families out of substandard housing, said Jessica Ross, a Rural Development area specialist.
“We do look at the houses and we want to make sure they meet a certain standard,” Ross said. “We are dealing with taxpayer dollars and very low-income families. We don’t want them in a situation they should not be in.”
Some say zero-down loans were part of what caused the foreclosure crisis, but the Rural Development programs have lower default rates than Federal Housing Administration loans. For fiscal year 2009, the USDA program’s delinquency and foreclosure rates were 12 percent for low income and 1.7 percent for moderate income. That compares with FHA’s 14.5 percent and 3 percent.
USDA Rural Development loan programs
The federal government restored funding to a popular home loan guarantee program for moderate-income families and continues to provide direct home loans to low- and very low-income families.
Guaranteed Loan program:
- Guarantees loans through a traditional lender for the purchase of modest housing in rural areas
- Families may have income up to 115 percent of area median income
- No down payment required
- Loans are for 30 years
- Funds can be used for repairs and fees
- No monthly mortgage insurance
Direct Loan program:
- Lends funds directly to low- and very low-income families to purchase modest homes in rural areas
- Very low income is below 50 percent of the area median income; low income is between 50 and 80 percent
- Loans can be up to 33 or 38 years
- Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare home sites.
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