Stricter loan underwriting standards and cash-strapped borrowers have led to an increase in the number of borrowers applying for a home loan offered by the U.S. Dept. of Agriculture (USDA). The program, â€œRural Development Guaranteed Loanâ€ was designed to boost homeownership in rural areas, but some home buyers, even in non-rural areas, are qualifying.
MAKING SENSE OF THE STORY FOR CONSUMERS
Â· The USDA program insured $7 billion in loans during the 2008 fiscal year, an increase from $3.6 billion the previous year. In Scottsdale, Ariz., the program has accounted for 40 to 50 percent of home sales in October and November.
Â· Eligibility is based on a number of factors, including the borrowerâ€™s income and the population of the city where the home is located. Borrowersâ€™ income must not exceed 115 percent of the median county income, and the loans are restricted to areas with lower population densityâ€“generally towns with no more than 25,000 residents.
Â· Unlike most mortgage loans offered by private lenders, the Rural Development Guaranteed Loan program does not require borrowers to issue a down payment. Loans made through the USDA program are made by private lenders, then insured by the government and sold to Ginnie Mae. A 2 percent USDA insurance fee also is added to the loan--which can be as much as 100 percent of the homeâ€™s value--to cover loan losses. Monthly payments usually are lower on USDA loans, because they do not require borrowers to pay for monthly mortgage insurance.
Â· Despite some lawmakersâ€™ concerns that borrowers should not be allowed to receive loans for 100 percent or more of the homeâ€™s value (including the USDA insurance fee), an administrator with the USDA says the concerns are unwarranted. According to Philip Stetson, the USDA administrator, rural areas are less prone to big increases in home prices, so the program is less susceptible to large-scale losses. The default rate on USDA loans is 11.35 percent, compared with a 13.6 percent delinquency rate for FHA-backed loans.
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