The Florida USDA Rural Development 502 Guarantee program is primarily used to help low-moderate income individuals or households purchase homes in rural defined locations around Florida. The wonderful part of this Government-backed mortgage program is there is no required down payment…$0. The lender must determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.
No Down payment, no “skin in the game” should result in a higher default rate right? Wrong! Many people are surprised to learn that the USDA home loan default rate is considerably less when compared to traditional Fannie Mae/Freddie Mac loans that require large down payments. Why is this? We have outlined a few reasons below.
1. Like all Government home loans, USDA rural housing loans are full documentation. All of the borrower’s income, assets, etc must be fully documented and proven. There is no “stated income” “no documentation” or non-verified anything when it comes to Government home loans. Everything must be fully checked and verified.
2. USDA loans require secondary approval – once the loan is fully underwritten by the approving USDA lender, the loan must go through a final check at the local USDA Rural Development office. With this “second look” USDA will provide an added safety net to ensure the homebuyer’s loan meets the USDA requirements.
3. Counseling – USDA has aggressive counseling programs for homeowners that have missed a mortgage payment. Many times they can assist homeowners before the instance becomes a real problem thus preventing foreclosure.
Something else to consider is loan amounts – USDA does not have official loan amounts like FHA or other mortgage programs. However, USDA does have income caps in place. As stated above this loan is geared towards low-moderate income households and expanding Florida’s rural communities. The income caps in place do limit the loan amounts to a degree. Like all loans, there is a maximum allowable qualifying debt to income ratio. For example, if the income limit for a family of 1-4 in Marion County FL is $103,500 dollars – the loan amount they would qualify for would likely be limited to around $400,000 – this is the best case assuming the family has $0 debt, which is rare.
In most cases, the average USDA loan amount in Florida is around $145,000. These lower loan amounts spread out the risk better for the Department of Rural Development.
So are high default rate related to down payment size, etc? To a degree maybe, but we personally feel the big factor is sound USDA underwriting, USDA credit standards and full documentation. It wasn’t long ago when a new home buyer only needed a pulse and ID to get some exotic home loans. Those days are long gone and as a result the default rate overall should drop even more.
Serving all of Florida 7 days a week (Stuart FL, Jensen Beach FL, Vero Beach FL, Port St. Lucie FL) USDA Mortgage Source is Florida’s leader in Rural Housing Loans. Call us at 800-743-7556 or visit our main website for more details.
Located outside of a USDA-approved area? Learn more about the Florida FHA home loans here