When I think of the United States Department of Agriculture, I think of an agency of folks who make sure the meat and produce that makes it to the grocery store is safe for consumption.Â I spent a few moments on the USDA website, and they are involved in a lot more than just meat and produce.Â They work to make sure agricultural communities have access to broadband internet, and they are also involved in with conservation of resources.Â They are involved with imports and exports, and economic research.Â Part of their economic impact is through grants.Â And here is one more fact that a lot of folks are not aware of: The USDA is very much in The Mortgage Business.
Why is this important?Â This is important because Wake Forest is still considered an agricultural area by the USDA, and therefore homebuyers have access to a great financing tool to make home ownership easier to obtain. This tool is known as 100% financing.
You do not have to be a first time buyer (like the mortgage tax credit a few years ago), but there are some requirements for the program (will discuss later).
A couple of things have come to my attention recently.Â The first is that the buying public may not even know that such a mortgage program exists; secondly if they are made aware of it, they may have a person telling them to avoid it like the plague.
I was hosting an open house at 136 Forbes rd. in Wake Forest a few weeks ago. After lunch I had a couple stop in who were looking for their first home together, and they also brought along the mother in law. As we toured the home, I eventually shared with them that the neighborhood did allow for 100% financing through the USDA.Â The mother-in-law quipped â€œOh, They DO NOT Want To Do That!!!!!â€ in what I would describe as a negative connotation.
For some additional back story, I purchased my home in the spring of 2006.Â We 100% financed the home paying interest only with a combination of two mortgages.Â The first mortgage was for 80% of the value at 6.5% and the second loan for 20% of the value was at an interest rate of over 8%. The rate on the 2nd was also adjustable after 5 years. At the time I was 24, I was working in real estate, pricing was only going up, I could care less about paying principal.Â This is the exact type of mortgage program that put home-owners in foreclosure, banks needing bail outs, and the industry I work in on its knees.
Fast forward to now, my home was refinanced to a 15 year fixed several years ago but the 100% financing stigma from the past is still very much alive. I tell a buyer now that 100% financing is available, and they or their mother-in-law could think Iâ€™m trying to sell them a mortgage program thatâ€™s going to lead them to financial ruin.Â Reality is, nothing could be further from the truth.
The 100% financing available through the USDA is at a FIXED rate, for 30 years, and the rate is usually a quarter percent lower than rates for traditional mortgage programs. I get a rate sheet ever week from one of my mortgage contacts over at Wells Fargo.Â This past week, the rate for the USDA program was 3.25% while the rate for a traditional mortgage was 3.5%.
What is glaringly obvious here is the different between the 100% financing program I got myself into in the peak of the real estate market, and the 100% financing program that is available today in certain areas.Â There are not multiple mortgage notes on the property, the rate is not adjustable, and the payment includes Principal and Interest.Â The USDA program can even allow for closing costs to be financed. Â In the world of 3.25% mortgage rates it will much more affordable to include those closing costs in the mortgage note than writing the check from your bank account for them.
Now we can apply how this mortgage program works in the real world.Â My listing at 1433 Reynolds Mill Rd. is available at $304,500.Â With the USDA program, the principal and interest payment is right around $1,350 per month!!! That is comparable to renting a large apartment or town home.Â This does not include property taxes, HOA dues, or home owners insurance.Â When you add in the three just mentioned expenses, the total monthly cost of ownership goes up to around $1,750 per month.
1433 Reynolds Mill Rd offers 5 bedrooms, 4 full baths, backs to a natural pond (you can fish in it), and has a finished basement.Â That is a lot of house for $1750 per month!
As mentioned earlier, there are some requirements for the program.Â I will say that I am not a mortgage lender, Iâ€™m just providing some details as Iâ€™m aware of them.Â First, we have income limitations.Â A family of 4 or less is limited to $91,000 per year in income, and a family of 5 or more is allowed up to $121,000 a year in income. I do believe the program allows for certain expenses to be counted off of your income â€“ for example child care expenses.Â You have to have a reasonable credit score, and you cannot have short sold or foreclosed in the previous 3 or 4 years.
The next time you are in the grocery store, remember two things.Â The USDA makes sure the meat and produce you are taking home is safe to eat, and secondly they are in the mortgage business for certain areas.Â Reynolds Mill in Wake Forest is in a USDA area.