Difference between the two USDA programs

[MuddyGrimes]

What are the loan differences between the USDA Direct Loan program and the USDA guarantee program. 

Is one better than the other? 

[ShanetheMortgageMan]

The lender for guaranteed loans is a private savings and loan institution, bank, or mortgage company which also handles all the loan servicing. The lender and servicer forthe direct program is USDA RD.

Income levels for guaranteed borrowers are capped at 115 percent of the area median income. Income levels for the direct program must be no more than 80 percent of the AMI.

Payment assistance subsidy is not available through the guaranteed program. Payment assistance, which can reduce the interest paid on the mortgage to as low as 1 percent, is available for borrowers in the direct program and is based on the borrower’s income.

Borrower protections differ between the programs. Applicants for guaranteed loans do not have the rights of moratorium or of appeal that accompany the direct program. Also, in the case of default, guaranteed loans are liquidated by the commercial lender, while direct loans are liquidated by the government.

Guaranteed borrowers pay a 2% "guarantee fee" which can be financed into the loan amount, direct borrowers do not have such fee.  Interest rates for both programs are no higher than the current FNMA daily requied net yield + .6%

[BrianB_The_Loan_Professor]

To add there is to my understanding a repayment portion to the direct loan when you sell...

If I am wrong someone will chime in but that is my understanding

[WannaHouse]

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@BrianB_The_Loan_Professor wrote:

To add there is to my understanding a repayment portion to the direct loan when you sell...

If I am wrong someone will chime in but that is my understanding

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We are going the guaranteed route. Direct is much stricter (per USDA office) and if you sell, and they are subsidizing your interest rate, then you have to share any profits with them. It makes sense since they are "paying down" your interest rate to make it afforable. Also, the direct is either 33 or 38 yrs, depending on your needs.

This is on the USDA site as well in all their documents for the lenders. I read EVERYTHING!!  LOL

[BrianB_The_Loan_Professor]

Thanks for clarifying I knew that there was a payback to the direct.

With so much going on with lending changes just not enough time to truly study the programs which are unavailable to me as a broker. I understand it (direct) to be a great program if the extra help is needed.

B

[WannaHouse]

The biggest difference in the two is that the direct program is for low/very low income families.

I did find this to help explain the payback as well:

The amount that you are actually subsidized (for instance the monthly amount of $545.50 shown above) is attached to your loan as recapture.  So when (or if) you sell your home, the USDA will reclaim the funds you received for payment assistance.  Even though this effectively bites into your home's total equity, you will be left with more equity than if you were still a renter.

Source:   http://www.usdahome.zoomshare.com/

[MsKiwi]

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@MuddyGrimes wrote:

What are the loan differences between the USDA Direct Loan program and the USDA guarantee program. 

Is one better than the other? 

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I think it really depends on your individual situation. I'm looking into this program and because of my low income Direct would be probably the best. Based on my income I qualify for both programs. However if you don't intend on staying long term in the house you buy, the guarantee program *could be best for you.