News concerning USDA is fast circulating however this year’s exhaustion of mortgage funds may in fact be quite a bit different than the past. USDA mortgages allow qualifed home buyers to purchase homes with zero money down in certain parts of the county. USDA and VA are the only 100% financing programs still available for home purchases. USDA is important to the Raleigh Real Estate Market and if they run out of money in April as expected it will push many home buyers out of the market and may leave sellers in a contract that is delayed for months or may never close!
First Let Me Explain The TWO Types Of USDA Approvals:
Approval with “GUARANTEE OF FUNDS”
- This approval type states that funds are available and have been guaranteed for a specific loan.
- The loan can close.
Approval With “CONDITIONAL COMMITMENT – SUBJECT TO RECIEPT OF APPROPRIATED FUNDS”
- This OCCURS WHEN USDA RUNS OUT OF FUNDS
- It is an approved loan.
- It states that “WHEN FUNDS ARE AVAILABLE (appropriated from Congress) IT WILL AUTOMATICALLY RECEIVE A GUARANTEEE”
- The loan can close however it is up to the lender.
- Funds are NOT available to be guaranteed – Increased risk to the lender.
With regard to Approval #2 above: Some lenders WILL go ahead and close the loan with a conditional commitment from USDA while others choose NOT to. It is typical that USDA runs out of funds in September/October time frame as October is their fiscal year end. We have all experienced in the past!
What Is Different RIGHT NOW?
It is March and USDA is expected to run out of funds by the end of April….. Obviously USDA has become a very popular loan program due to market conditions but more importantly the lack of other 100% financing programs.
- MOST IMPORTANTLY: As of now USDA is stating the following: “ONCE FUNDING IS EXHAUSTED (estimated at the end of April), THE AGENCY WILL NOT ISSUE CONDITIONAL COMMITMENTS “SUBJECT TO RECIEPT OF APPROPRIATED FUNDS”. THIS IS BECAUSE IT IS NOT CERTAIN WHEN ADDITIONAL FUNDING WILL BE AVAILABLE”.
How Is This Different Than In The Past And What Does It Mean?
It is different because unlike Approval type #2 above they are NOT going to issue a “Conditional Commitment” and therefore when money is appropriated, if appropriated, there is NO Guarantee of Funds. Confusing no doubt, so what does it mean?
It means that even the lenders who would typically “Fund” with a “Conditional Commitment” may NOT be so inclined to do so and therefore may NOT close the loan. I would strongly recommend asking your lender how they will handle this and be cautious of USDA loans in months to come.
If you have any questions please feel free to contact me at or seek out a knowledgable mortgage lender here in the Greater Raleigh Area.
Happy Saint Patrick’s Day!