With the credit crunch continuing the tightening of the noose on lending buyers need to be diligent and perhaps even creative at finding financing for home purchases. I suppose borrowing money from the U.S. Department of Agriculture (USDA) would fall into the creative category; don’t they regulate foodstuffs, crops,  porky pig or something of that nature??

The program, called the Rural Development Guaranteed Loan program, was created in 1991 as a way to boost homeownership in rural areas.  There are limitations, however– in order to be eligible for most USDA-backed loans, household income must meet certain guidelines. Also, the home to be purchased must be located in an eligible rural area as defined by USDA. The following excerpt is taken directly from the eligibility page of the USDA website:

Applicants for loans may have an income of up to 115% of the median income for the area. Area income limits for this program are here.   Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.  In addition, applicants must have reasonable credit histories. 

The surge in popularity of the program is in part due to the lack of a requirement for a down payment, i.e., the “no money down” terms.  In some cases, buyers can finance 102% of the home price, factoring in a 2% USDA required insurance fee designated to cover loan losses. Another benefit is the loans don’t require borrowers to pay for monthly mortgage insurance (MIP), which equates to a lower monthly payment in comparison to an FHA loan of similar amount. These loans are no more risky for lenders then other prime loans, as this government-insured program offers only fixed loans and requires income verification.

The success of the USDA program may also be attributed to the interpretation of the properties that “qualify” for the assistance. Many of the small suburbs and new housing developments that exploded in growth at the onset of the housing bubble in the mid-2000’s, and subsequently were among the first to experience the downturn, may now benefit from the USDA program.

But you might want to hurry– USDA programs are funded based on a fixed appropriation from Congress, which totaled $4.1 billion in the 2008 fiscal year– and when that is gone, no more loans will be available. The program is on track to exceed this, however, with nearly $7 billion in loans in 2008 due to additional funding it received from other department sources. There may be more coming though, due to the increased interest in the program– but for now,  officials say that the program will run out of money in January 2009, even though it has been funded through March.

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