When Andy Chudasama wanted to buy his family’s first home in Egg Harbor Township last year, he was told to put at least 5 percent down.
“We had the money, but then we wouldn’t have been able to buy furniture and other things for the house,” said 30-year-old Chudasama, a hotel front desk manager.
So his real estate agent suggested a less obvious source that would guarantee 100 percent financing for a loan: the U.S. Department of Agriculture.
“I was so happy,” Chudasama said last week. “Now we have everything: the house, the furniture.”
Hundreds of people in southern New Jersey were able to become homeowners last year through USDA loan programs, currently infused with stimulus dollars until Sept. 30.
But like any loan program, qualifying is the key — and no, a connection to agriculture or farming is not required.
The USDA is targeting moderate- and low-income families looking to purchase a house in a rural area, considered nonmetropolitan communities of 25,000 people or less. That means much of Atlantic, Cape May, Cumberland and southern Ocean counties is eligible, while most urban centers in northern New Jersey are not.
Figures provided last week by New Jersey’s USDA Rural Development office in Mount Laurel show that the number of guaranteed loans statewide jumped 193 percent since federal money was funneled into the program last year. There were 657 loans worth $118.5 million made in the year ending Sept. 30, 2009, compared with 224 loans worth almost $42 million in the same period in 2008.
Last year, New Jersey received more than $38.1 million in stimulus funding for its guaranteed loan program, said George Hyatt Jr., housing director for New Jersey’s USDA Rural Development. That is in addition to the millions of dollars appropriated annually by the federal government.
A second loan program administered by the USDA received about $6.57 million in stimulus aid, Hyatt added.
Between the two programs, Atlantic and Ocean counties had the most loan requests in the state, with 170 and 119, respectively.
The programs are tailored for people who have acceptable credit and can meet a bank’s underwriting guidelines, but just don’t have enough for the required down payment, Hyatt said.
While the programs themselves have been around for years, the stimulus funding is only good through the end of September. All that money should be expended by then, said Neal Hayes Jr., a housing specialist with the USDA in New Jersey.
He said the vast majority of participating homebuyers apply for a guaranteed loan as opposed to a direct loan. Here’s how they work:
A USDA guaranteed loan is similar to a Federal Housing Administration or Veterans Affairs loan in that borrowers must still go through a private lender to get the necessary financing. But the USDA will guarantee 100 percent of the funding, which means no down payment is necessary and no mortgage insurance is required.
The loans must be 30-year, fixed-rate mortgages at market rates.
While the FHA may be more lenient with a borrower’s credit history, closing costs are generally $2,000 to $3,000 more compared to the USDA program, said Jeffrey Gamble, a real estate agent with the Van Dyk Group in Stafford Township.
FHA-backed loans also require the borrower to put money down — 3.5 percent — and pay an insurance premium, which can add another $150 per month to the mortgage, he said.
Those costs may make a USDA loan more attractive financially, but there are income limitations: An applicant’s adjusted income can’t exceed 115 percent of the median income for the area.
For instance, that means a family of four in Atlantic, Cape May and Cumberland counties can’t have an adjusted income of more than $91,550 to qualify for the USDA-insured loan. In Ocean County, the limit is $92,000.
Homebuyers interested in a direct loan must fall within income guidelines as well, generally below 80 percent of an area’s median income level.
Unlike guaranteed loans that require the borrower to go through a private lender, the direct loan is money straight from the USDA. Borrowers have up to 33 years to pay it off at a current interest rate of 4.875 percent.
The loan limits are capped at $249,600 for an Atlantic County home; $262,500 for a Cape May County home; $224,600 for a Cumberland County home; and $244,600 for an Ocean County home.
Applicants also can obtain a loan to make home repairs or to buy property to build a new home.
Daryl Land, a Galloway Township real estate agent with Balsley Losco Real Estate, has overseen four USDA-guaranteed loans in the past year, she said, including the one for Chudasama. Going USDA, she said, allowed deals to go through that might not have otherwise.
“They (the loans) did save the day,” Land said.
Towns eligible for the USDA rural loan program
Atlantic County: Buena Borough, Buena Vista Township, Corbin City, Egg Harbor City, Egg Harbor Township, Estell Manor, Folsom, Galloway Township, Hamilton Township, Mullica Township, Port Republic, Weymouth Township
Cape May County: All municipalities except for Ocean City, North Wildwood, Wildwood and Wildwood Crest
Cumberland County: All municipalities except for Bridgeton, Millville and Vineland within the corporate city limits
Ocean County: Barnegat Township, Eagleswood Township, Lacey Township, Little Egg Harbor Township, Long Beach Island, Ocean Township, Stafford Township, Tuckerton
Learn more about the loans
To learn more about the USDA rural loan programs in New Jersey, go to: www.rurdev.usda.gov/nj/
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