Guaranteed vs. Direct USDA Loans
Author: Rachel Miller | Published: Mar 9th, 2012 | Category: USDA Home Loans
Many people mistake the Rural Housing Guaranteed Loan for the Rural Housing Direct Loan. The two programs have a few key differences.
The government secures the Guaranteed loan, but borrowers must visit an approved lender to take out the loan. For example, USDALoans.com is a USDA approved lender of the Rural Housing Guaranteed Loan!
On the other hand, the government directly funds the Direct loan. A borrower would need to visit their local USDA office to find out about a Direct Loan.
- The Guaranteed Housing Loan caters to low and middle income borrowers. Applicants can have an income of up to 115% of the median income for the area.
- The Direct Housing Loan is for very low to low-income families. An income below 50 percent of the area median income is considered very low, and low sits between 50 and 80 percent.
- Guaranteed Housing Loans are subject to the credit requirements of both the lender and the USDA. Most lenders want their borrowers to have at least a 640 score with no foreclosures, bankruptcies or major delinquencies in the past several or more years. The USDA requires a debt to income ratio of 29/41 percent. All applicants must present a decent credit history, demonstrating the ability to pay mortgage, including taxes and insurance, on time each month.
- Families applying for the Direct USDA Loan must demonstrate a good credit history and the ability to pay the USDA set monthly mortgage payments; they must also NOT be able to credit with traditional mortgages. Because this loan is available to very low income persons, payment subsidy is available to them to help with repayment.
- Guaranteed Loans are fixed at 30-years. The USDA-approved lender sets the interest rate, not the USDA.
- Direct Loans have a repayment option 33 years and 38 years–33 years for borrowers with an income above 60 percent of AMI. Manufactured are subject to 30-year term loans. The government (HCFP) set’s the interest rate. The interest rate can be redetermined if the borrower uses the payment assistance subsidy.
- The Direct Loan is very beneficial for very low income individuals who can not obtain a home loan through conventional means. Ones who otherwise could never own a home save money living in a rural area and can buy a modest dwelling. Because of the income standards, there are more restrictions as to loan limits and dwelling structure. People who work up their income and credit to a higher level can experience the numerous benefits of the Guaranteed Loan as stated below.
- The Guaranteed Loan boasts some distinct benefits:
- 100% financing
- Guarantee Fee rolled into the loan amount (102 percent financing)
- No maximum purchase price. A person’s income and debt-to-income ratio will determine the logical home price.
- Many Property Types Allowed, including new and existing homes, modular homes, Planned Unit Developments (PUD), condominiums and brand-new manufactured homes
- Closing costs and lender fees can be rolled into the loan
- Gifted Funds, Grants, Mortgage Credit Certificates (MCC’s) and Seller Concessions accepted.
- Renovation and Repair Costs Can be Included in the Loan Amount
Those interested in the Direct Loan should visit the USDA website.
Photo thanks to Think Panama under a creative commons license from Flickr.