The same government agency known for certifying the quality of hamburger and steak is becoming a prime force in the Arizona housing market.
The U.S. Department of Agriculture has guaranteed mortgage loans for many years, much like the Federal Housing Administration and Department of Veterans Affairs, but this year the value of Arizona loans guaranteed by the USDA is on pace to quadruple compared with 2008.
While USDA home loans are not for everyone – there are both geographic and household-income restrictions – acting USDA Arizona Director Ernie Wetherbee said the federal agency’s loan-guarantee program is available to more people than ever, thanks to a recent boost in income limits.
As of April 20, the maximum allowable yearly income for USDA loan recipients in the Valley increased to $75,750, from $51,000.
The limit apples to families of up to four people, Wetherbee said, and larger families can have a combined income of up to $100,000.
Buckeye newcomer Geanna Gute was approved for a USDA loan recently and said she had never imagined owning a home would be so affordable.
Gute, a 58-year-old bill collector who had been a longtime renter in the Valley, learned about USDA loans from a local radio talk show on KFNN hosted by Sun State Home Loans broker Mike Metz.
She contacted Metz, and within weeks she had purchased a pristine 1,860-square-foot bank-owned home, built in 2005, for $75,000. It had been appraised at $200,000 in October, she added.
Gute said her monthly payment is $650, and the only thing she had to pay for up front was a re-shoot of some inspection-related photos.
“I had to pay $60 – that’s all I paid,” she said.
The USDA guarantee program is similar to the FHA’s in that private banks still provide the loans, and the government promises to pay off the loan if the borrower defaults.
The USDA also has a direct-lending program in which it acts as the lender, but the annual household-income requirements are lower: $52,700 to $69,550, depending on the number of household members.
Unlike FHA loans, which require a 3.5 percent down payment, USDA-guaranteed loans require no down payment, similar to VA loans.
Despite the lack of a required down payment, USDA loans historically have the lowest default rate among government-insured loans. The current first-year default rate for USDA loans is 2.5 percent, compared with 7.5 percent for VA and 10 percent for FHA.
“Our program has been around for years, and it has never changed,” Wetherbee said. “It’s a good product, and it’s being used as intended.”
Angelica Murrieta, a Realtor with Dan Schwartz Realty in Phoenix who specializes in USDA loan purchases, said the lesser-known federal-guarantee program has provided a shot in the arm to outlying areas of the Valley, where an oversupply of speculative homes and abundance of foreclosures have lowered home values significantly.
Many home buyers are still unfamiliar with USDA loans, Murrieta said, adding that she is quick to recommend them to buyers who qualify and don’t mind living in a more remote location.
Although the loans are restricted to “rural areas,” the definition includes Buckeye, Queen Creek and most of suburban Pinal County. This is probably the last year in which some of those communities will qualify for USDA loans, Wetherbee said, because their status as rural is based on 2000 U.S. Census data, and there will be another census next year.
Home buyers and lenders turned away from federally insured loans during the housing boom that peaked near the beginning of 2006, Wetherbee said.
“This was not the road of least resistance, because these are fully documented loans,” he said.
Now that many of those borrowers are losing their homes to foreclosure and banks are reluctant to risk money on new mortgages, nearly everyone has flocked back to the security of a government guarantee.
As a result, the loan volume and value of USDA-backed loans have increased exponentially in the past year.
In the federal agency’s entire fiscal 2007, which runs from Oct. 1 through Sept. 30, it guaranteed 123 mortgages in Arizona with a combined value of $19 million. The following year, it backed 629 home loans worth a total of $97 million.
Since Oct. 1, the USDA has guaranteed 1,366 mortgages totaling $176 million, and Wetherbee said he doesn’t anticipate any federal-budget restrictions that would prevent the agency from continuing to approve loans at its current pace.
“We basically just go back and ask for more as needed,” he said.