Popular ‘Zero Down’ Mortgage Program Makes Comeback

The Wall Street Journal
Erick Moore used a no-money-down USDA-backed loan to buy his four-bedroom house outside Raleigh, N.C.

One of the nation’s last sources of no money down financing for home loans appears to be making a comeback: Legislation that restores a Department of Agriculture home-buying program is headed to President Barack Obama’s desk for signature.

The legislation makes the USDA’s Single-Family Housing Guaranteed Loan Program self-sufficient, the National Association of Realtors reports. Borrowers will have to pay a higher “guarantee fee” of 3.5%–essentially upfront mortgage insurance–but the fee can be folded into the mortgage.

Buyers won’t mind paying a bit more in fees, says Sue Botelho, a senior mortgage advisor with Waterstone Mortgage Corp. in Ft. Walton Beach, Fla. “It’s great news,” she said. “It’s a huge part of my business. I am thrilled.”

Also happy is LGI Homes, a Texas builder that caters to USDA buyers. Chief Executive Eric Lipar estimates he’s lost 100 sales in the last few months.

“Once funding’s officially in place, we’ve got customers waiting,” he said.

The USDA wasn’t immediately available for comment.

As we’ve reported, the program offering no-money-down loans in certain parts of the country for low- and middle-income borrowers, exhausted its $13.1 billion funding earlier this year, leaving some would-be buyers fearful their financing would fall through. USDA loans were particularly popular this year as first-time buyers tapped the government’s federal home buyer tax credit. They have until Sept. 30 to close.

Despite the last-minute save for USDA borrowers, industry watchers haven’t stopped criticizing zero-down deals-given the role they played in the housing crash. The USDA program is considered safer because up to 90% of the purchase amount is guaranteed, meaning the agency will pay should the borrower default.

The USDA has previously said that last fiscal year’s foreclosure rate was 1.72%, well below the Federal Housing Administration’s 3.32%. Borrowers also can’t make more than 115% of a county’s median income, preventing McMansion-sized loans: The average USDA loan is $112,000.

The strong guidelines weed out potentially troublesome borrowers, Ms. Botelho said. “When they approve a loan, it’s a very, very good loan,” she said.

Author: pgsadmin

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