Government Backed Loans

USDA GUARANTEED RURAL HOUSING LOAN PROGRAM.

Through the Rural Housing Service (RHS), a part of the U.S. Department of Agriculture's Rural Development (USDA/RD) office, qualified low- and moderate-income families can receive loan guarantees for purchasing rural property. To qualify for the program,

You will be expected to meet secondary-

market standards covering creditworthiness, down-payment size and appraisals.

you must have adequate income, a stable employment profile and good credit history. You must also plan to live in the home you purchase.

Other RHS rules require that the property be located within an area that's designated as "rural" by the USDA, and that your adjusted family income not exceed 115% of the median income for the area. You can find out about area designations and income calculations from a local lender or a Rural Development office.

Loans guaranteed under this program are 30 year fixed-rate mortgages. Closing costs and required re-

FOR MORE INFORMATION

A First Stop

Check in at www.Kiplinger.com/ spending/home, where you'll find current average national mortgage rates, and links to a variety of online calculators (including how big a mortgage you can afford and how big your monthly payment will be) and to the Web sites of mortgage-shopping services and mortgage brokerages. After that, you may wish to try some of the following sources, depending on your individual situation:

Leads to Local Mortgage Brokers

State and local boards of Realtors may give you name of mortgage brokers active in your area. Or, contact the National Association of Mortgage Brokers for the location of your state's association, which will in turn refer you to some local brokers (NAMB, 8201 Greensboro Dr., Suite 300, McLean, VA 22102; 703-610-9009; www.namb.org).

Mortgage-Reporting Services

HSH Associates (1200 Route 23, Butler, NJ 07405; 800-873-2837 or 973-838-3330; www.hsh.com) surveys more than 2,500 lenders weekly in more than 30 states and over 3,000 lenders monthly in all 50 states. Its Homebuyer's Mortgage Kit ($20; also available as software, PC Mortgage Update) provides a list of lenders and information on at least three loans from each, including discount points, down payments, interest rates, annual percentage rate, terms and maximum mortgage amounts. The $20 kit contains a 56-page booklet, How to Shop for Your Mortgage.

Help for Low- and Moderate-Income First-time Buyers

If you aren't able to locate the correct agency providing help to low- and moderate-income first-time buyers in your state, contact the National Council of State Housing Agencies, 444 N. Capitol St., N.W., Suite 438, Washington, DC 20001 (202-624-7710; www.ncsha.org).

pairs may be included in the loan if the total amount doesn't exceed the market value of the property.

For further information on the program, see the contact information in the RHS listing in the box shown below.

FHA-INSURED HOME LOANS. The Federal Housing Administration (a part of the Department of Housing and Urban Development—HUD) insures a wide variety of mortgages, including fixed-rates and ARMs. Down payments are low—5% or less. You can be

Help for Rural Buyers

If you are unable to get credit from private providers of mortgage funds but you meet certain income and rural-residency requirements, you may be able to buy a home through the U.S. Department of Agriculture's Rural Housing Service (RHS). Contact the RHS office in the county where you would like to buy or build. Addresses of offices can be obtained by writing to Rural Housing Service National Office (U.S. Department of Agriculture, Room 5037, South Building, 14th St. and Independence Ave., S.W. Washington DC 20250) or by checking the agency's Web site (www.rurdev.usda.gov/rhs) and clicking on "contacts."

Help for Union Members

For information about the AFL-CIO's first-time home-loan program for affiliated unions, contact your union or write to Union Privilege (1125 15th St., N.W., Suite 300, Washington, DC 20005). You may also log onto www.unionprivilege.org.

Help From the VA

In addition to eligible veterans of military service, members of the National Guard and military reservists with six or more years of service are also eligible for VA-guaranteed loans, although they will pay a higher funding fee. In addition, a direct loan program for Native American veterans buying on trust lands (reservations) is currently available.

Regional VA offices can provide you with information on eligibility requirements and other details. Look in the blue pages of the phone book under "U.S. Government" for the VA office that's nearest you. You can also call 800-827-1000 for more information, or visit the VA Web site at www.homeloans.va.gov. From the home page you can click on "Information on the Home Loan Progam" and then on "Pamphlets on the VA Home Loan Program" to download VA pamphlet 26-4.

FHA lenders will qualify you using a set of debt-to-income ratios a bit more generous than those applied by mortgage lenders making conventional loans.

charged an origination fee for services of up to 1% of the loan amount, and you are not restricted from paying points. The FHA doesn't set the interest rate on loans it insures, so you'll need to shop around for the best rate.

The FHA limits the amount it will insure to whichever is less: 95% of the local median home price or 87% of the loan limit set by Freddie Mac. An FHA-approved lender can determine the cap in your area.

FHA-mortgage insurance premiums usually will be collected in one lump sum at settlement. For single-family homes (what the agency calls Section 203(b) property) the premium is 1.75% of the loan amount for first-time home buyers. You are allowed to increase the size of your mortgage to cover the cost. (Loans repaid at an early date may entitle you to a refund.)

FHA lenders will qualify you using a set of debt-to-income ratios that are a bit more generous than those applied by mortgage lenders making conventional loans. Family housing expenses should not exceed 29% of gross income, and total indebtedness should not go over 41% of income. Rules permit lenders to make exceptions where there are "significant compensating factors," such as a history of paying rent in excess of the mortgage amount and availability of cash reserves after closing. These factors are not set in black and white, so don't rule out a low-down-payment FHA loan without checking with more than one major lender in your area.

Other FHA-loan features:

■ You're allowed to include most closing costs in the mortgage amount. See Chapter 3 for information on how points and other loan-origination fees are handled for tax purposes.

■ FHA loans are assumable. In most cases the FHA will require a credit check on the assuming home buyer.

■ Loans carry no prepayment penalty. You can make additional payments or pay off the loan at any time.

■ FHA loans are available from FHA-approved lenders, including savings institutions, mortgage bankers and commercial banks. Mortgage bankers, however, do the bulk of the business.

So-called direct-endorsement lenders can process your loan, which should reduce the time to loan approval. (You'll have to ask whether a lender is direct-endorsement—lenders won't tell you.) And, because appraisals are the bottleneck in loan approvals, you'll want to find out whether a direct-endorsement lender has an appraiser on staff.

VA-GUARANTEED LOANS. The Department of Veterans Affairs (VA) protects lenders against losses on mortgage loans made to eligible veterans by guaranteeing a portion of the loan in the event of foreclosure. VA-guaranteed loans are either fixed-rate or adjustable-rate loans with repayment periods of as long as 30 years and one month.

In most cases, no down payment is required by the VA. You'll have to fork over cash if you can't qualify for the monthly payments or if the cost of the property is more than the VA establishes as its "reasonable value."

The VA sets no limit on the size of mortgage it will guarantee, but Freddie Mac, Fannie Mae and other investors in the secondary market do. As a rule, your entitlement (the guarantee amount) must be at least 25% of the loan amount. If you are also making a cash down payment, that amount plus the entitlement must equal 25%. The VA does have a maximum guarantee, however. It will guarantee no more than $50,750 on loans over $144,000. Using your full VA entitlement for a no-down-payment loan, the maximum you could borrow would be $203,000.

You'll be responsible for the following closing costs: discount points, appraisal, credit report, survey, title search, recording fees and VA funding fee. You should not be charged brokerage fees for your loan. On no-down-payment loans, the VA collects a funding fee equal to 2% of the loan at settlement. (This is reduced to 1.5% of the loan amount with a 5% down payment, to 1.25% when the down payment is 10%.)

If you are having trouble getting a loan, consider using a mortgage broker.

You will pay a higher funding fee if you are a reservist, if you borrow to refinance (interest-rate-reduction refinancing loans, or IRRRLs) or if you buy a manufactured home. A 3% fee is charged for subsequent use of the program. Certain disabled veterans may be exempt from paying.

You'll have to negotiate paying loan points with the seller (see Chapter 3 for a discussion of points).

VA loans can be paid off in full at any time without penalty. You can prepay principal when you make regular monthly payments as long as additional payments are $100 or more. (If you have an old mortgage and your monthly installment is less than $100, the prepayment must be at least as much as the payment.)

If you buy a new home that was appraised by the VA prior to construction and inspected along the way to ensure compliance, the property may be covered by the VA's structural-defect program. Builders of such homes must warrant that they were built according to the approved plans and specifications. A similar builder warranty may be provided on new manufactured (mobile or modular) homes (see Chapter 8 for information on builders' extended warranties and the VA/FHA structural-defect program).

See also the contact information in the VA listing in the box on page 175.

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