100% mortgages have not gone completely by the wayside. While layering risk by lending to borrowers with low credit scores + no down payment + no income documentation will no longer fly (good!), there are programs out there for those who don’t face all of those challenges. The USDA Rural Development home loan is one such option. What is rural? The USDA has defined rural as anything not ”places of 50,000 or more people and their adjacent and contiguous urbanized areas.”
USDA Rural Development administers a couple of programs: Guarantee and Direct. Their Direct program is funded directly (hence the name “direct,” duh) through the rural development office. To be eligible, your income can be only 80% of the median income for the area.
The Guarantee program is funded thorugh USDA-approved lenders and brokers. It is a guarantee program (duh, again!)with no subsidies, and the income guidelines allow up to 115% of the median income after certain adjustments. A good loan officer who specializes in these products should be able to help you determine how your income would be considered.
The 100% LTV mortgage amount is determined by the appraised value instead of the purchase price. Credit underwriting is flexible and the guidelines have no minimum buyer out-of-pocket expense and no maximum for seller concessions. Note: some lender policies may be more restrictive, so if it’s the lender guidelines shooting down your application and not the USDA’s, another lender may be able to approve you.
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Those who read the Wall Street Journal recently made acquaintence with a new real estate term - “Buy and Bail.” It involves taking advantage of an underwriting loophole long-used to help homeowners get a new home (for example if they were relocating) even if they hadn’t sold their previous residence yet. It works like this: You advertise your home for rent and get a tenant. You include that rental agreement in your mortgage loan application package when you apply to finance your new home. The underwriters add most of the rental income (75% using Fannie Mae guidelines) to your income and it helps you qualify to get a new house even if you haven’t sold the old one.
Well guess what? That option is going away, largely due to the efforts of some fraudulent-minded neighbors and their gutter-dwelling real estate agents and mortgage brokers. Just when you thought people couldn’t go any lower….See, most homeowners aren’t exactly aware of the ins-and-outs of lending, and they don’t know about this loophole–unless some greedy commission-at-all-costs dirtbag helps them out by telling them. So these creeps are getting someone to sign a rental agreement on a house they have no intention of keeping or making another payment on once they close on the new house. They have their next house (taking advantage of the drop in values) and their lender gets the old one and the mortgage. And their neighbors get another foreclosure property down the street and take another hit on their own values.
Aside from the fact that this is just plain wrong, it could (and hopefully will) bite these people where it hurts. The guy who signs the rental agreement, the real estate agent and loan broker who participates in this or actively encourages it–are all participating in a scheme that could be defined as fraud by many standards. Their intent is clear. So I hope they enjoy that new roof over their head, and that it comes with bars on the windows.
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