100% Mortgage Financing From USDA

I didn't know about it either. Yes, the US Department of Agriculture has a program, instituted back in the 1940s, to assist in rural development, that has become extremely popular during these days of crunching credit. These are USDA-backed loans, so approved lenders can offer no-money down.

Check out its growth:

  • FY 2006 $3.07 billion 31,131 guarantees
  • FY 2007 $3.64 billion 35,322 guarantees
  • FY 2008 $6.98 billion 63,933 guarantees
  • FY 2009 $16.2 billion 133,043 guarantees

Yes, the housing development has to be in a city or municipality that has a population of 20 thousand or less. If that community is close enough to an urban area that it's part of a metropolitan statistical area, then it doesn't qualify. Still, this includes a lot of areas you might not expect.

Houston-based LGI homes never sold with a USDA loan two years ago, now they say they're doing 20-25 a month.

One LGI community that is eligible is less than an hour's drive from downtown Houston.

LGI CEO Eric Lipar might as well be a USDA spokesman: "The USDA allows the customer to qualify for homeownership where a lot of other programs they wouldn't qualify and wouldn't be able to own a home. When the customer is able to take advantage of homeownership, that's good for the builder and LGI."

Builders are going gangbusters pushing these loans, because they're great for first time home buyers, who are some of their best customers. KB Home had an ad on its Web site a while back touting the 0 percent down, but it's gone now with no explanation from KB. I asked. The community is in St. Augustine, FL and is advertised as a "quick commute to Jacksonville."

But of course the big question is risk. USDA loan delinquencies and foreclosures are lower than FHA, but they are rising like everything else.

Take a look: