The USDA loan program isn’t just for farmers anymore.
Many people are discovering that the USDA loan is one that can be used and has the advantage of 100% financing (no money down!) and no mortgage insurance. If you are shopping for a home outside of a major city, it is worth checking to see if the property is eligible for the USDA loan program. In addition to no-money-down and no-mortgage-insurance benefits of the program, it is also usually true that USDA loans carry a low fixed rate so that you can be assured that you have locked in your low rate for years to come. USDA loans are backed by the USDA and are most often used to buy a new home – although it is also possible to refinance an existing mortgage with the USDA loan program.
Who Can Qualify for a USDA Loan?
USDA guidelines state that loan eligibility is determined by property, so depending on what zip code and county the property is located it may be eligible for a USDA financing. When qualifying for a USDA loan, it is very similar to qualifying for a FHA loan ”“ it is important to have a current income that you can document, a decent credit history a demonstrated ability to repay the loan. Not all lenders have experience helping people with USDA loans, so it is important that you choose a lender with the experience and underwriting capability available in house for USDA loans.
Special Advantages Of USDA Rural Home Loans
- 100% financing / no down payment. Finance up to 100% of the appraised value of the home.
- No mortgage insurance. Unlike FHA loans, USDA loans do not have an upfront mortgage insurance payment or an ongoing monthly mortgage insurance payment.
- Low, fixed rates. The mortgage interest rates for USDA guaranteed housing loans are very competitive with other 30-year fixed rate loans for conventional or FHA loans.
- The USDA Rural Development Loans are insured by the government. Because the government is guaranteeing the loan, lenders are more willing to provide the best lending terms, including lower interest rates.
- Credit guidelines for USDA provide a lot of room to accommodate borrowers with less-than-perfect credit.
- There is no maximum loan amount. The maximum loan amount for a USDA mortgage is based entirely on your ability to repay the loan, not limited by the purchase price or appraisal value of the residential property.
- USDA Rural Home Loans can be used to finance existing homes as well as new homes. There are no restrictions on the size or design of the home being purchased.
- No prepayment penalty on USDA loans
- Borrowers are not required to be first time home buyers
- You can use gifted funds for down payment and also for paying the loan closing costs. There is no specific limit on the amount of gifted funds.
- Closing costs and repairs can be included in the loan amount up to the appraised value of the property.
- Repairs can be financed into a USDA mortgage. Another great benefit of this rural home loan is you can finance 100% of any repairs into the loan based on “after repair appraised value”. So, if the house you are intending to buy does need some repairs but you do not have the cash reserves for the repairs, you can just roll them into the mortgage loan amount. This means that USDA
Are there any disadvantages to USDA loans? Yes.
First, the property will need to be eligible for the USDA loan program. Not every property will qualify – the property must be located in a designated rural area.
Second, there are income restrictions – which are based on the HUD determined median income level of the county or area you reside in.
Third, there is a one-time payment guarantee fee of 3.5% of the amount of the loan which is payable at closing and the guarantee fee can be financed into the mortgage.
Even with these disadvantages – it seems pretty clear that the advantages outweigh the disadvantages for the USDA loan program if the property and borrower qualify for the USDA loan program.
Where Do You Get A USDA Loan?
The USDA loans program is administered through the USDA office through a network of USDA lenders who are authorized to lend money to homeowners that is guaranteed by the USDA in the event of a default. Not all lenders offer USDA loans and many loan officers know that having the option to get a USDA loan can make all the difference when it comes to helping a borrower get into a home under certain circumstances.
USDA lenders can be either big banks or small mortgage brokers ”“ it is important that you know what to expect when getting a USDA loan regardless what lender you choose to go with.
Getting The Best Deal
USDA loans interest rates will depend on which lender you go with.Getting the best interest rate on a USDA loan is one of the most important parts of getting a USDA loan and there is one simple thing that you can do to get the best possible interest rate on a USDA loan: shop around. Each USDA loan lender will have their own interest rate for USDA loans and the rate will change frequently (often more than once per day). Shopping around for USDA loans is easy ”“ you can get started right here.