Yesterday, President Obama signed into law the Rural Housing Preservation and Stabilization Act which, among other things, extends the U.S. Department of Agriculture’s Rural Development loan guarantee program. This program provides loan guarantees to lenders in targeted rural areas on mortgage loans made to certain low to moderate income applicants. Earlier this year, the USDA’s Rural Housing Program’s funds were depleted, resulting in a lack of financing for home buyers in rural areas of Texas.
The legislation, sponsored by Sen. Michael Bennet (D-CO), extends the life of the program by changing the fee structure of the program to make it self-funding without any incremental costs to taxpayers. This allows the USDA Rural Housing Service to charge an up-front fee of 3.5% (up from 2%), and allows an annual fee of up to .5% on the balance of the loan. Some low income borrowers could see these fees waived. These changes mirror those implemented on FHA loans earlier this year. FHA was faced not with funding issues, but with a capital ration that was dangerously low due to mortgage defaults.
The USDA Rural Housing program, also known as the Section 502 loan program, is available to applicants in non-metro areas of Montgomery, Brazoria, Fort Bend, Liberty, San Jacinto, Chambers, and Waller counties in the Houston area. Borrowers must have an income at or below 115% of the median income for the area, which amounts to $74,900 for a 1-4 person family. Applicants must demonstrate solid credit histories, yet can purchase a home with no down payment.
