No-Money-Down Mortgage Can Still Be Found in Small Towns


rural home loanBanners declaring "no money down" might not sit well with homeowners burned by sub-prime loans, but believe it or not, there are legitimate mortgages available for little to no down payment. Now that the exotic loans that led to the housing crash have been curbed, at least for the time being, lenders are dusting off an old favorite to shore up homebuyer interest -- the USDA Rural Housing Loan.

The little-known program offers qualifying homebuyers the housing equivalent of a golden ticket – a 30-year fixed-rate loan with no down payment required and an option to finance all closing costs. Better still, applicants need not have sterling credit to qualify.

Besides the VA loan, which is only available to military veterans, the Rural Home Loan program is the only other government-guaranteed loan in which a buyer can close on a home for virtually nothing down.

So why haven't you heard of it?

Beginning as a pilot program in 1991, the Rural Housing Loan program was designed to serve the dual purpose of getting lower and middle income families into permanent homes while developing small towns across America. But until recently, the program was lost in a sea of competing mortgage products, an agent from the Rural Housing Service D.C. office, who did not wish to be named, told AOL Real Estate.

"After the sub-prime market crashed, a lot of them [lenders] came looking for other programs," he said. "There's more criteria to meet and due diligence on these loans."

In 2006, near the height of the housing bubble, the Rural Housing Loan program recorded just over 31,000 loan originations. By 2010, with additional funding from the American Recovery and Reinvestment Act, the program had nearly quadrupled in size, with 133,053 loan originations, and has grown in popularity every year for the past five years. Just this week, Milford, Conn.-based Total Mortgage Services, which operates in 21 states, announced it will now include the Rural Housing Loan in its offerings.

To qualify, borrowers must make less than 115 percent of the median income for the area, and the home must be located within a town of no more than 25,000 people, with some exceptions. (To see if your town qualifies, click here.) There is a one-time "guarantee fee" that borrowers must pay, but that too can be financed through the loan, says John Kirchhoff, an outreach officer in the Temple, Texas Rural Development office. The fee is currently set to 3.5 percent of the loan amount, but after October, the guarantee fee will be changed to 2 percent with an additional 0.3 percent annual fee on unpaid principle.

According to Tammye Treviño, Administrator for Housing and Community Facilities Programs, the Rural Housing Service is on track to help 120,000 families become homeowners this year.

Though don't let the term "rural" fool you -- the loans are available in all 50 states and Puerto Rico, provided the home meets community eligibility requirements. To learn more about the program and to see if your family qualifies, visit the USDA Guaranteed Housing Loans site.

Also see:
Mortgage Interest Deduction: Housing Boon or Boondoggle?

Case-Shiller Index: 3 Reasons to Blow It Off
Bank of America Donating Foreclosed Homes

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