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With no private mortgage insurance requirement and no downpayment requirement,
USDa Section 502 guaranteed rural Development loans can prove to be the perfect
program for rural communities — and an excellent source of new business for
originators, as well. Why, then, are these loans so frequently overlooked?
Simply because many mortgage professionals haven’t bothered to learn much
about them. for originators working in or around rural communities, it’s a must to
learn all there is to know about this USDa program and its eligible properties.
There are a number of misconceptions that many mortgage originators have about
the USDa’s 502 guaranteed loan program, all of which warrant addressing. for one
thing, this program is not for farm purchases. These USDa loans are strictly for housing purchases or refinances of current USDa loans in communities that generally have
fewer than 20,000 residents and are located within eligible geographic areas.
a second misconception is that it’s a program designed just for low-income borrowers. although this program was established to help low- and moderate-income
buyers obtain decent and safe housing in rural areas, the USDa’s 502 program is
much more than a low-income loan program. borrowers can qualify under the USDa’s
income requirements even if their household income exceeds the area’s median income, for instance.
More specifically, a borrower’s income can reach 115 percent of the designated area’s
median income and still qualify. That noted, there’s one additional detail that originators should be aware of: The number of people residing in a household will affect the
loan’s income limits. Mortgage professionals can be sure that their underwriters will
look at the income of any co-applicants and adults planning on staying in the home.
Mortgage professionals also may have heard that USDa programs are hard to qualify
for and carry too many restrictions and requirements on purchase properties. In truth,
the USDa’s 502 program is no harder to qualify for than many other loan programs and
often allows for more flexibility. When it comes to turn times, mortgage professionals
can close a file from start to finish generally within 30 days. To do this, however, they
need a stellar support system and a thorough knowledge of the program. The processing team must gather all the required information and work closely with under writers to
ensure that the loan process moves along smoothly.
Once a USDa loan file is cleared by an underwriter, it must be submitted to the
USDa for a conditional commitment. This approval process can take a couple of days.
The file then goes back to the underwriter to clear it, a process that can take five
days. Originators must factor in this added wait time when calculating timelines. Otherwise, a closing could be delayed and your borrowers may be unhappy. High-quality
USDa originators know this, however, and take all the necessary steps to keep their
customers in the loop. regardless, a strong support platform is essential for success
in the USDa loan arena.
Knowing the market
In addition to familiarizing themselves with USDa processes and turn times,
mortgage professionals who are interested in closing more USDa Section 502
guaranteed loans also should be familiar with the areas in which they’re permitted
to close them. This past January, the USDa updated its list of eligible areas.
although most rural business will not be affected, many originators closer to major
metropolitan areas likely will see eligible markets shrink.
This change has been coming for a long time, however, as the USDa postponed
the update several times, so it may be the case that your bank or brokerage is already up-to-speed with the changes. In any case, eligibility information is available
online at the USDa rural Development website. Visit sctsm.in/USDaeligibility for
as the 502 program is only open to properties in specific locations, USDa loan
originators must know their markets thoroughly. additionally, originators should
know that homes themselves also must meet certain eligibility requirements. for
example, per the USDa, the house must be “modest in size, design and cost,” and
the home must meet the voluntary national model building code adopted by the
given state. Staying on top of all these specifics is why it’s vital for mortgage professionals to perform their due research.
• • •
Like other loan types, USDa origination is a relationship-based business. USDa
mortgage originators must know the people and the communities that they
serve, and business is often based on word of mouth or referrals. from a loan’s
application phase to its final closing, an originator must strive for great service. you
also must maintain high standards for repeat customers and realtor partners. If a
borrower has been promised a closing within 30 days, you’ve got to do everything
in your power to make that happen.
The sky is the limit with USDa loans. There is ample opportunity this year to expand your volume in this market, as many USDa-focused banks and brokerages are
hiring additional loan officers and support staff. by educating more people in the
rural community about the benefits of the USDa program, more dreams of homeownership can come true. •
Laura Leonhard is a branch manager of Inlanta Mortgage’s Marshfield, Wis.,
branch office. Leonhard’s team of mortgage experts pride themselves on
providing home-financing solutions to rural communities in central Wisconsin.
In 2012, Leonhard ranked No. 1 on Scotsman Guide’s Top Originators USDa
Volume list. reach her at LauraLeonhard@Inlanta.com or find her online at