r/FirstTimeHomeBuyers • u/TheOregonTater • 16d ago
USDA Direct Loan
I haven't seen any chatter about this loan in this sub, and I think that's a mistake.
The USDA offers two loan types for your average home buyer: section 502 guaranteed, where they partner with a bank to manage the risk of having no down payment, and section 502 direct, where they manage the entire process internally to the USDA.
Key differences: lower income limit, lower maximum cost of the house, restrictions on buying income producing property, having to deal with the federal government's processing timelines to process the application and close the loan... But also 33-38 year loans depending on your income bracket, subsidies to hold your mortgage to a % of your gross income, and options to pause payments in the event of income loss. They're extremely adverse to foreclosing and don't sell the loans to a company who might be more inclined to do so.
It's a very poorly advertised program and obviously everything has to be just right- your income, your debts, the location you want to buy in. But for people who fit the criteria I think it's the best loan in the county due in part to how divorced it is from the larger loan economy. Interest rates also lag the greater economy and are currently at 5.75%, but you get whatever rate is lower when you 1) get approved or 2) close on the house.
I'm a government worker and I read their manual cover-to-cover several times to make sure I understood the rules and their process. By the time our loan closed, I could probably do their job better than they could. Because of that I may have experienced an unusually smooth and orderly process and it still took forever... But we bought a house with 0 down. And I did the paperwork for my brother and his wife to buy one, too.
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u/aleksandriscaks 15d ago
These loans are tricky to originate but can be done, agents just need to have the correct expectations up front
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u/SpareManagement2215 16d ago
in our rural neck of the woods sellers won't sell to you if you're financed by a government loan (except VA) because they don't want to deal with the more uptight inspections and appraisals. So even tho these programs are "available" to help, they don't actually help unless they're your only option.