USDA loans are mortgages backed the U.S. Department of Agriculture as part of its¬†USDA Rural Development¬†Guaranteed¬†Housing¬†Loan program. USDA loans are available to home buyers with below-average, offer 100% financing with¬†reduced¬†mortgage insurance premiums, and feature below-market mortgage rates.
This USDA loan information is accurate as of today, October 23, 2016.
What is a Rural Development loan?¬†For eligible¬†suburban and rural home buyers, it's a 100%, no-money down mortgage loan backed by the U.S. Department of Agriculture (USDA).
The Rural Development loan's¬†full name is the¬†USDA Rural Development¬†Guaranteed¬†Housing¬†Loan. However, the program¬†is more commonly known as a USDA loan.
The Rural Development loans is also sometimes called a "Section 502" loan, which is reference to section 502(h) of the Housing Act of 1949, which makes the program possible.
The good news is that the USDA loan is widely-available.¬†97 percent of the geographic United States is in USDA loan-eligible territory.
Yet, if you're like most U.S. consumers, it's a program you've only just learned about.¬†This is because the USDA loan program wasn't launched until the 1990s.
Only recently has been updated and adjusted to appeal to rural and suburban buyers nationwide.
Most¬†lenders¬†don't even list the USDA loan on their menu.
Using a USDA loan, buyers can finance 100% of a home's purchase price while getting access to better-than-average mortgage rates. This is because USDA mortgage rates are discounted as compared to rates with other¬†low-downpayment loans.
Beyond that, USDA loans aren't all that "strange".
The repayment schedule doesn't feature a "balloon" or anything non-standard; the closing costs are ordinary; and, prepayment penalties never apply.
The two areas where USDA loans¬†are¬†different is with respect to loan type and downpayment amount.
With a USDA loan, you don't have to make a downpayment; and you're required to take a fixed rate loan. ARMs aren't available via the USDA rural loan program.
Rural loans can be used by first-time buyers and repeat home buyers alike.¬†Homeowner counseling is¬†not¬†required to use the USDA program.Click to see today's rates (Oct 23rd, 2016)
The Rural Housing Loan program is a product of the U.S. Department of Agriculture.
The program partially self-funded. Similar to the Federal Housing Administration's FHA mortgage, the USDA uses homeowner-paid mortgage insurance premiums to keep the USDA home loan program going.
As of October 1, 2016, USDA has lowered its mortgage insurance costs for both the¬†upfront and monthly fees.
As a real-life example : A homebuyer with a $100,000 loan size in Blacksburg, Virginia, would be required to make a $1,000 upfront mortgage insurance premium payment at closing, plus a monthly $29.17 payment for mortgage insurance.
USDA upfront mortgage insurance is not paid as cash. It's added to your loan balance for you.
USDA mortgage insurance rates are lower than those for comparable FHA loans or conventional ones.
With USDA loans, then, mortgage insurance premiums are just a fraction of what you'd typically¬†pay. Even better, USDA mortgage rates are low.
USDA mortgage rates are often the lowest among FHA mortgage rates, VA mortgage rates, and conventional loan mortgage rates -- especially when buyers are making a small or minimum downpayment.
For a buyer with average credit scores, USDA mortgage rates can be 100 basis points (1.00%) or more below the rates of a comparable conventional loan.
Lower rates means lower payments, which is why USDA loans can be extremely affordable.Click to see today's rates (Oct 23rd, 2016)
As a home buyer, you can control a lot of things. You can control where you buy, what you buy, when you buy, and how much you spend a home.
However, you can't control your mortgage rates.
Mortgage rates are "born" on Wall Street; based on the price of a special type of bond called a mortgage-backed security (MBS). Then, after the price of a mortgage bond is set, your mortgage lender acts as middleman between you and the MBS market,¬†setting the final rate you get in your quote.
This is why it's always smart to comparison shop lenders -- each bank will play its middleman role differently.
Lenders with small markups will show lower rates. Lenders with big markups will show higher rates.
However, as compared to other loan programs, USDA mortgage rates are often the lowest available.
This is because, unlike FHA mortgages and conventional loans, USDA loans are guaranteed by a government agency -- in this instance, by the¬†U.S. Department of¬†Agriculture.
Because of the USDA guaranty, lenders making USDA loans today are protected against loss in a way that loans via the FHA or any other agency cannot provide. With lower risk comes lower rates.
Only VA loans, which are backed¬†by the Department of Veterans Affairs, offer a similar guaranty (and similarly low mortgage rates).
USDA loan¬†rates are often lower than comparable conventional 30-year fixed mortgage rates.¬†Plus, because mortgage insurance rates are lower, with your small down payment, USDA¬†loans can often be a better deal as compared to FHA loans or conventional loans.
Yes, USDA loans are eligible for refinance.
The USDA Streamline Refinance Program¬†waives income and credit verification so closings can happen quickly. Home appraisals aren't required, either.
The USDA loan guidelines are straight-forward. However, note that you must qualify for the program and your home¬†must be qualified, too.
Here are some common USDA mortgage questions.
The USDA Rural Development loan is meant to help households of modest means get access to housing and mortgage loans in some of the less-densely populated parts of the country. By enabling homeownership, the USDA helps to create stable communities for households of all sizes.
With the USDA Rural Housing Program, your home must be located in a rural area. However, the USDA's definition of "rural" is liberal. Many small towns meet the "rural" requirements of the agency, as do suburbs and exurbs of most major U.S. cities.
97% of the United States is USDA loan-eligible. Only 3% is ineligible.
The website of the U.S. Department of Agriculture lists eligible USDA communities by census tract. You are required to provide a home's exact address. The website will show whether that home meets program guidelines.
The USDA has no downpayment requirement. You can finance 100% with a USDA loan.
USDA loans require mortgage insurance (MI) to be paid. As of October 23, 2016,¬†USDA mortgage insurance premiums include a 1.00 percent upfront fee, which is added to your loan balance at closing; and, an annual fee of 0.35%, which is added to your payment monthly.
There is no maximum loan size for the USDA loan program. The amount you can borrow is limited by your household's debt-to-income.
The USDA typically limits debt-to-income ratios to 41%, except when the borrower has a credit score over 660, stable employment, or can show a demonstrated ability to save.
No, the USDA Rural Housing Program can be used by first-time buyers and repeat buyers.
Yes, the USDA will let you finance your Upfront Mortgage Insurance payment into your loan size.
For example, if you bought a home for $100,000 and borrowed the full $100,000 from your lender, your Upfront Mortgage Insurance would be $1,000. You could then raise your loan size to $101,000.
The U.S. Department of Agriculture¬†website maintains a list of lenders in the Rural Housing Program. Visit its website to search for a lender, or¬†just skip to the rate quote.
The Rural Housing loan is available as a 30-year fixed rate mortgage or a 15-year fixed-rate mortgage only. There is no adjustable-rate mortgage (ARM) program available via the USDA.
Closing costs vary by lender and location. For example, some lenders have high origination charges. Others do not. The same is true for state and local governments. Costs are high in some¬†states, and low in others.
Because¬†closing costs vary, be sure shop around to find the most suitable combination of low mortgage rates and low costs.
Yes, USDA loans allow gifts from family members and non-family members.
Yes, the USDA Rural Housing Program allows sellers to pay closing costs for buyers. This is known as "Seller Concessions".
Seller concessions may include all or part of a purchase's state and local government fees, lender costs, title charges, and any number of home and pest inspections.
The USDA loan cannot be used for a vacation home, it is for primary residences only.
The USDA loan cannot be used for a vacation home, it is for primary residences only.
On December 1, 2014, USDA implemented a minimum score of 640. Before that date, USDA set¬†no minimum score for the program. However, most lenders did. When USDA implemented an official credit score minimum, it did not¬†exclude very many additional buyers.
If you are without a credit score, your lender may accept "alternate" tradelines to establish credit history.
If you are a W-2 employee, you are eligible for USDA financing immediately; you don't need a job history. If you have less than 2 years in a job, however, you may not be able to use your bonus income for qualification purposes.
Yes, self-employed persons can use the USDA Rural Housing Program.
If you are self-employed and want to use USDA financing, as with FHA and conventional financing, you will be asked to provide 2 years of federal tax returns to verify your self-employment income.
No, the USDA Rural Housing Program is for purchases and rate-and-term refinances only.
No, the¬†Rural Housing Program is for residential property.
Yes, the USDA loan program can be used for newly-built homes and other new construction.
Yes, the USDA loan program can be used to make eligible repairs and improvements to a home. This may include replacing windows or appliances; preparing a site with trees, walks, and driveways; drawing fixed broadband service to the home; and, connecting water, sewer, electricity, and gas.
Yes, the USDA loan program can be used to permanently install equipment to assist household members with physical disabilities.
Yes, USDA mortgages require borrowers to escrow taxes and hazard insurance with a lender. You may not pay your real estate taxes or annual homeowners insurance separately.
Yes, the USDA loan program can be used to purchase and install materials meant to improve a home's energy-efficiency, including windows, roofing, and solar panels.
This list is not meant to be a comprehensive of what the U.S. Department of Agriculture¬†allows with a home loan, but it covers a lot of good ground.¬†For ¬†more information, talk to your lender, or start with a mortgage rate quote online.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Oct 23rd, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Barry L. Systems Analyst
The Mortgage Reports is an excellent resource. I depend on the Mortgage Reports for the most up-to-date information regarding shifts in government policy and mortgage rate information in general.
Felicia M. Law Enforcement
The Mortgage Reports has been a valuable asset to me. I love that each topic is fully explained in terms that can be easily understood. I've learned more from this web site than from any first-time buyer education class.
Marie M. Real Estate Agent
I have been a Realtor for more than 30 years and enjoy The Mortgage Reports. It's terrific to learn something new almost every day.
2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)