September 2010: New USDA loan is bright spot in dreary market | Eastern North Carolina Now

    When the United States Congress gets back to D.C. on Sept. 13, they will have to face the ugly fact that, despite all their wrangling, the national housing market is poised for another downturn. The home buyer tax credit may have temporarily boosted sales, but when it became unavailable in July, sales dropped a record 27.2 percent, nationally, the lowest level since May 1995. Historically low interest rates aren't doing much to convince people it's time to buy, either. Of all mortgage applications, only 18.6 percent are for new loans; the other 81.4 percent are seeking to refinance current mortgages.

    Primarily, a lack in homebuyer confidence will be to blame for letting the housing market fall back into a rut. Americans were counting on their federal government to take the billions in bailout funds and speed the nation past the recession and on to recovery. Instead, we're on the brink of what economists are calling 'a double-dip recession', where mass debt and seemingly incurable unemployment are preventing would-be homeowners from being able to qualify for a loan, and underwater-mortgage holders from finding success with mortgage modifications. Many prospective homebuyers aren&'t sure they even want a loan, because they don't feel secure that the price of the home won't drop after settlement.

    Given this fear, there is a standoff on prices, on what homes are actually worth. While sellers hang on to recent reports of decreasing foreclosures and refuse to lower their purchase prices, buyers point to reports of increasing newly delinquent loans and refuse to raise their bids. Will the supply of homes decrease and raise prices; or will it increase, with a new wave of foreclosures, and lower them? This all depends on whether or not people will be able to pay their mortgages. The national jobs market straddles a 9.5-percent national unemployment rate, and we wait.

    In Beaufort County, a full 10.6 percent of the labor force is unemployed. In August, the total sold dollar volume was $3,169,123, up from $1,597,900 in July. This jump in sales can likely be attributed to the 'back to school' rush; and in September, the local market will again be reliant on the minimal amount of homebuyer confidence, and will need something to look forward to. Thanks to the federal government (I've got to give credit where credit is due), there may be one saving grace. Funding for the USDA Rural Housing Program was passed by the Senate on July 29; and, in September, approved lenders will begin accepting applications for the USDA loans. Every property in Beaufort County is presently eligible for 100-percent financing through this program. Currently, the only other loan to offer true 100-percent financing is the VA loan, specific to veterans.

    A 100-percent financing option will make home ownership possible for those without adequate savings. To qualify, however, the borrower may not already own a home, and the prospective property must be the borrower's intended primary residence. There is no maximum purchase limit, and, sometimes, even an estimated amount for repairs can be factored into the loan. The USDA loan is perfectly suited to help people transition from paying rent every month to paying a mortgage, without worrying about a down payment.

    An applicant for the USDA loan must provide sufficient income verification, but there are flexible credit guidelines. Even those with spotty or bad credit could still qualify, according to the USDA. The income limits on a USDA loan are based on the number of working adults in the house, regardless of whether or not they are on the loan. Credits are afforded for childcare and dependents under the age of 18. The loan has no asset requirements, and it allows for gift funds. The USDA provides an Income Calculator on their Web site to determine a potential applicant’s qualifying income.

    While the USDA does not directly fund the USDA loan, its role is in providing the lender with a repayment guarantee, in case the borrower defaults. This repayment guarantee costs the borrower 3.5 percent of the purchase price, which is financed into the loan. The borrower does not have to come up with any extra cash at closing. However, if the purchase price of the house is $100,000, the loan will be for $103,500. USDA loans are available at competitive 30-year fixed interest rates. At the beginning of September, 30-year fixed mortgages are available for as low as 4.36 percent. This incredibly low rate should help offset any discomfort caused by the guarantee fee.

    Hopefully, this new loan option will find its way to those who need it, who will do well with it, and they will be able to find good enough deals to withstand a possible downturn and still have their owners on the upside when things do finally recover.