Mortgage Guarantee (USDA/RD)
A Mortgage Guarantee from the United States Department of Agriculture (USDA)/Rural Development (USDA) is a key feature of Federal Housing Administration (FHA), such as the Single Family Housing Guaranteed Loan Program (SFHGLP) (SFHGLP) and the USDA 502 Loan Program. This guarantee protects approved lenders against losses if a borrower defaults on their mortgage.
Function and Comparison
The USDA/RD mortgage guarantee serves a similar function to Homeowners Protection Act (HPA) and Mortgage Insurance (MI) or the VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC). By mitigating the risk for lenders, it enables them to offer more favorable loan terms, including:
- 100% Loan-to-Value (LTV): Allowing borrowers to purchase a home with no down payment.
- Competitive interest rates.
This guarantee is distinct from traditional private mortgage insurance (PMI) or FHA mortgage insurance premiums (MIP), as it is provided directly by a federal agency.
Regulatory Basis
The provisions for the USDA/RD mortgage guarantee are detailed in federal regulations, primarily 7 CFR Part 3555 for the Guaranteed Rural Housing Program.
Source material
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