The U.S. Department of Agriculture is more than just about farms and tractors and food.

Shamrock Financial Corp., in East Providence, tops the list of lenders in Rhode Island using the USDA loan program. Gary Richardson, senior loan officer, recently answered a few questions about the program.

PBN: What are the guidelines for a USDA direct loan and the loan guarantee? Dollar amounts? Who’s eligible? Where can you buy a home?

RICHARDSON: USDA mortgages are offered through their Rural Development Guaranteed Housing loan program, nationwide. They are limited to defined geographic areas, typically rural or, at best, suburban. Anything west of Route 295 in Rhode Island, for instance, is eligible, as well as Portsmouth, Tiverton and Little Compton on the east side of the state. The urban areas are not eligible. Income limits exist, as well. The guaranteed program has income limits based on family size. In Rhode Island, a family of one to four people will qualify with slightly more than $84,000 in total gross income, while families of five or more may earn a bit more than $96,000. Adjustments for children, students, elderly and disabled persons may increase the income, but just a bit. For the direct program, in which you deal directly with Rural Development, the income limits are much less, roughly half of the guaranteed program.

Rural Development does not limit the loan amounts, although the income limits of either program will effectively restrict the max loan size, due to ‘debt to income’ guidelines.

PBN: What are the similarities and the differences to the FHA mortgage program? What are the advantages and disadvantages of using USDA instead?

RICHARDSON: Both loan programs are insured by the government, through a mortgage insurance program (MIP) or what USDA calls a loan guarantee. They charge an upfront MIP/Guarantee (1.75 percent of loan amount FHA, 2 percent USDA) and FHA also adds 0.55 percent to the monthly payment, while Rural Development loans have no monthly MIP. FHA requires a minimum down payment of 3.5 percent (which can be a gift) while USDA can finance 100 percent. Both programs allow the financing of the upfront MIP. To compare, a $200,000 base loan amount would require $7,000 down for FHA, and nothing for USDA, but the monthly payments, assuming the same interest rate, would be $45 per month less with USDA, since there is no monthly mortgage insurance. And, you’d be able to use the $7,000 towards closing costs, or things for your new home.

USDA loans are limited geographically, but also to purchases of single-family homes (townhouse or condo, too) that will be owner occupied. FHA loans have no geographic restrictions, and may be used for up to four-family homes, as long as the owner lives in one of the units. FHA also has refinancing programs for either FHA or non-FHA existing mortgages. USDA refinances are limited to existing USDA loans.

Each allows for lower FICO scores (read: dings in the credit can be OK) than conventional loans.

To sum up, a USDA loan would be preferred in eligible geographic areas, where the objective is to purchase a single-family home, and the income requirements are met. FHA expands the areas, the types of homes and has no income limitations, so there are many scenarios where an FHA loan would be best.

PBN: The USDA program has been around for awhile. Why has it grown more popular now?

RICHARDSON: FHA went through a similar “rediscovery” period, when subprime or Alt-A loans were no longer prevalent. With things like no income verification, negative amortization, interest only or other hybrid loan programs available, it was much simpler to find approvals for borrowers in those arenas, and often, the monthly payments were substantially lower. FHA had been known for rigorous enforcement of things like property condition (a loose handrail would have to be repaired and re-inspected, for instance) and USDA loans were seen as being for farmers or people outside of the mainstream, and therefore, overlooked by many.

Shamrock Financial Corporation, with nine loans originated through the Warwick office year to date, is the leading local lender for guaranteed loans, and that’s a huge increase from this time last year. I’d say the Rural Development program is just now being discovered, perhaps for the first time, by most people.

In a nutshell, with the death of subprime mortgage programs, USDA is one of the only sources for 100 percent financing. That has much to do with its current popularity.

PBN: How long has Shamrock been making clients aware of it?

RICHARDSON: Shamrock has been actively recommending USDA loans for qualified clients since about October 2008. A development in Exeter is responsible for most of our nine loans, year to date, and we’ve been promoting the concept and guidelines to our Realtor partners throughout 2009. The emphasis on purchase loans in general has caused us to explore all available options, and Rural Development loans are very attractive, for those who meet the requirements.

PBN: Where in Rhode Island are homebuyers taking advantage of the USDA mortgage program? You mentioned a development in Exeter. Can you explain that?

RICHARDSON: Shamrock is engaged with the developers of the Shadow Woods at Deer Brook homes in Exeter, with a good number of “affordable homes” sold to qualified low to moderate income borrowers, using a Rhode Island Housing program that significantly reduces the acquisition cost of the homes. The USDA loan is a perfect fit, as the income qualifications are similar, and the monthly payments and down payment requirements are ideally suited to the first-time homebuyer. Many of our USDA loans have been originated with Deer Brook clients, with more to come. The $8,000 first-time homebuyers tax credit has made this all a win-win situation for all.

As I mentioned, most of the suburban to rural areas in Rhode Island and southeastern Massachusetts are eligible for the USDA program. Here’s a link to a Web site that will allow you to check individual addresses, as well as income qualifications: eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.

You may search by address, or state/county, nationwide. Keep in mind, certain towns (Coventry, for example) will have neighborhoods that do qualify, but also, those that do not.