Oregon Mortgage News

Oregon USDA Guaranteed Rural Home Loan

Designed as a resource for low to moderate income homeowners in rural communities, the USDA Guaranteed Rural Home Loan has helped many Oregon families obtain financing for homes not only in rural areas, but also in cities such as Sherwood, Newberg, Wilsonville, Forest Grove, Canby, Coos Bay and Klamath Falls,

While the USDA has guaranteed this loan, the money actually comes from traditional lenders like Golf Savings Bank. We underwrite the loan based on USDA guidelines and then sell it on the secondary market, just like a traditional loan.

One of the most attractive characteristics of the USDA Guaranteed Rural Home Loan is that it is one of the last home loans with 100% financing. I have helped many home owners get into a home with no money down. In fact, they usually are able to get their Earnest Money back as well.

The program also allows for 6% Seller Concessions to help cover the cost of the Buyers Closing Costs. Rates are very competitive with conforming and FHA loans, and there is no monthly mortgage insurance payment.

The two main qualifiers of the USDA Guaranteed Rural Home Loan program are:

1. The Property must be within a qualified area. This is easy to determine based on a USDA online map.
2. The Adjusted Household Income must not make exceed the published income levels for the area. This takes a little more work as it is unique to the USDA.

The loan is undergoing some changes right now. Traditionally, the USDA will provide financing up to 102% of the appraised value of the home. This covers the 2% Guarantee Fee that is mandated by Congress to help repay the cost of this program. Historically, this program runs out of money every year and then is funded again by Congress. Over the last 2 years, the program has exhausted it's funds in the Spring. Last year it was quickly funded, this year, not so. The program is currently out of funds and is awaiting Congressional funding.

There is a Bill before Congress to make the USDA Guaranteed Rural Home Loan self-funding. This will enable the program to continue to exist without the need for Congress to continually allocate for funds. The Rural Housing Preservation and Stabilization Act increases the maximum loan guarantee fee that USDA's Rural Housing Service has authority to charge for new housing purchases from 2.0 to 3.5 percent and allows an annual fee of not more than 0.5 percent per year on the balance of the loan. This will result in a nominal increased monthly payment of around $8 per $100,000 at 5% Interest Rate.

A modified version of the Rural Housing Preservation and Stabilization Act  has been added to  H.R. 4899, the Disaster Relief and Summer Jobs Act of 2010 and will hopefully be voted on soon.

We are still accepting applications based on the 3.5% Guarantee Fee, underwriting them and then putting them in suspense until the USDA gives us further direction.

If you need to close soon, I suggest using an FHA or conforming loan. If you have the luxury of waiting a few more weeks or months, than this is still the best loan on the market if you don't have 20% down payment and you and your property qualify.

I just received an email from the USDA regarding the status of Funding. Based on available, unobligated funds, they are looking at Funds exhausting around 5/7/2010. HOWEVER, since there are 2 Bills before Congress, and Congress is very aware of the situation, there is a chance that the USDA will once again issue Conditional Commitments. 

April 27, 2010

 Notice of Funding

 This message is to notify you of the unobligated balances of fiscal year 2010 program funding for the Single Family Housing Guaranteed Loan Program.

 As of April 27, 2010:

Purchase:       $1,046,482,690.77

Refinance:           $84,377,998.61

Total:                $1,130,860,689.38

 We anticipate funding will likely be exhausted by May 7, 2010.  The Administration is aware of our funding shortfall.  Currently two Bills have been introduced in an effort to secure additional funding, H.R. 5003 and H.R. 5017.  The status of this proposed legislation is available to the public online at:  http://thomas.loc.gov/home/bills_res.html.

 Depending upon Congressional activity with the proposed legislation it is possible that the Agency may consider issuing Conditional Commitments.

This is good news. It looks like we will see this resolved soon. Now the question is will there be major or minor changes to this program? Will they affect existing loans with GUS Approvals but no commitment letter?

Only time will tell.

Based on a couple of Bills that are before Congress, it looks like we can expect to see the USDA's popular Guaranteed Rural Home Loan program have increased UpFrontMortgage Insurance Fees in the very near future. According to an article in the National Council of State Housing Agencies, two seperate Bills have been introduced to extend funding, AND to make it more self-sufficient. The Bills are in committee.

Since this isn't a simple extension of funding, I would be surprised to see it passed soon. Hope I'm wrong. We also don't know the details. Will they continue to wrap the increased fees into the loan? Will it continue to be 100% financing? Will they continue to allow 6% Seller Concessions?

Here's the full reprint of the article.

"Kanjorski and Capito Introduce Bills to Extend USDA's Rural Home Loan Guarantee Program

On April 14, Congressman Paul Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, introduced the Rural Housing Preservation and Stabilization Act of 2010, H.R. 5017.  Housing and Community Opportunity Subcommittee Ranking Member Shelley Moore Capito (R-WV) introduced a similar bill, The Rural Housing Improvement Act,  H.R. 5003, on April 13.  Both bills would allow the Section 502 Single-Family Housing Guaranteed Loan Program to continue this year by increasing the annual commitment authority for the program, which USDA reported earlier this year would be exhausted by the end of April. 

Since this announcement, NCSHA and several other housing groups have been working with Congress and the Administration to extend the program. 

To make the program self-funding and avoid the need for Congress to appropriate more funds for the program this year, Kanjorski's bill would increase the current 2 percent upfront fee to 3.5 percent.  It would also authorize the Secretary of the Department of Agriculture to assess an annual fee of 0.5 percent on the outstanding balance of the loan.  Capito's bill would allow the Secretary to increase the upfront fee to between 3 and 4 percent, based on what fee level would cover the program's costs. 

Both bills have been referred to the House Financial Services Committee.  Committee Chairman Barney Frank (D-MA) stated that he hopes to bring up Kanjorksi's bill for consideration in the Committee as soon as possible.  Congressmen Ruben Hinojosa (D-TX), Paul Hodes (D-NH), Charles Wilson (D-OH), and Joe Courtney (D-CT) are co-sponsors of Kanjorski's bill."
 

It will be interesting to see how they "tweak" this program.

I just received notification from the USDA that their funds are set to exhaust by the end of April. Usually, they issue a "Conditional Commitment "subject to receipt of appropriate funds". They are indicating that this year they will not be doing so as they are not certain when additional funding will be available.

So, if you are looking for a home now and planning on using a USDA Guaranteed Rural Home Loan to purchase it, you better act quickly!!

Usually funds run out in September or November and new funding is allocated quickly. The fact that they are running out in April attests to the growing popularity of this program. Congress will allocate new funds, and it might be quickly, but, do you really want to wait?

Call me if you have any questions on this.

Can You Deduct Medical Insurance Premiums from

Income to Qualify for a USDA Guaranteed Rural Home Loan?

If you work with the USDA Guaranteed Rural Home Loan program you are aware that not only do you have to qualify the borrower based on normal Debt to Income Ratios, but there is also an income cap on how much a household can earn.

After taking all household income into account, you can then take qualified deductions away to lower the household income. Without going into all of these, I received an email today from the USDA clarifying how Pre-Tax Insurance Premiums are treated. Basically, you cannot deduct the premiums from Income. AND, you need to use the Gross Income before the premiums have been taken out.

Here is the memo.

"September 17, 2009


Medical Deductions and Annual Income Calculations

Due to questions surrounding the treatment of pre-tax medical plans, the following is provided to supplement and further clarify the interpretation of deducting medical expenses in the calculation of annual income.

Section 1980.347 of RD Instruction 1980-D provides instruction on the types of income to be considered in the annual income calculation.

Section 1980.347(e) describes the types of income that are not included in the annual income calculation, but may be considered in determining repayment ability.  Section 1980.347(e)(6) of the instruction indicates:

"Amounts which are granted specifically for, or in reimbursement of, the cost of medical expenses."

This section does not allow for lenders to deduct the pre-tax medical premiums that applicants pay with wages earned towards their medical/dental/vision health benefits offered by their employers.  These pre-tax employee premiums must be considered by lenders as gross income and utilized when calculating annual income.

Lenders seeking guidance on deducting eligible medical expenses for elderly applicants should refer to Section 1980.348(b) and 1980.348(d)(1) of RD Instruction 1980-D.

Questions regarding this notice may be directed to your state GRH coordinator or the division at 202.720.1452.

The Good news is that a low incoem borrower will qualify for more home since their Gross Income will be slightly higher. The bad news is that it may disqualify some borrowers who now make too much income.