USDA Home Loans are offered in rural and semi-rural areas. There’s a misconception that USDA loans are only for farmers. In fact, they are used by many single-family home buyers who are not farmers but are simply buying homes in areas approved for USDA financing. This loan option is appealing primarily because it offers 100% financing for the purchase of real estate. Unfortunately, funding for USDA home loans is running out for this program.
How Funding for USDA Home Loans Works
USDA loans work a little differently than other government sponsored loans. With FHA and VA loans, approved lenders may underwrite and fund the loan. Only the mortgage insurance is guaranteed by VA or FHA. With USDA, loans must be underwritten directly by USDA. Funding for the loans come directly from an account controlled by the Federal Government. When this account runs dry, USDA loans cannot be issued.
Why Funds Are Running Out
USDA funds are not only used for home mortgages but also for other farm assistance programs. These programs have increased in popularity recently. Funds are therefore expected to run out before the fiscal year ends on September 30th. Funding for the 2017 fiscal year has not yet been approved.
What This Means for Home Buyers using USDA Home Loans
Home buyers intending to use USDA home loans should be concerned about whether their loans will be funded. If funding runs out this fiscal year before they can close on their new home, they may need to look for alternative home financing options. Furthermore, funding for the next fiscal year is uncertain, so waiting is not a good option. Buyers should aim to close quickly to secure USDA financing.
Similarly, sellers should be concerned as well. If a seller has accepted an offer from a buyer who is using USDA financing, that buyer’s ability to close will be contingent upon availability of USDA funds. Sellers may want to inquire about whether the buyer has a backup plan (another mortgage program for which they qualify).
Learn More About Funding for USDA Home Loans
If you are concerned about funding for USDA home loans running out, contact your loan officer. It’s never too early to develop a plan of action to either take advantage of current USDA funds available or explore other financing programs. Contact me to discuss your full range of options and receive a free pre-approval.