Posted September 24, 2014Tweet
This USDA loan information is accurate as of today, October 24, 2014.
If you get your USDA home loan information elsewhere, double-check the publish date of the article to make sure that it's current.
If you've never heard of the USDA loan program, you're not alone. It's a niche product serving a fraction of the U.S. housing market, and most banks don't offer them. However, eligible suburban and rural home buyers can use it for 100%, no-money down mortgage financing.
The program's full name is the USDA Rural Development Guaranteed Housing Loan program. Most people call them "USDA loans", "Rural Housing Loans" or "Section 502 loans".
USDA loans are insured by the U.S. Department of Agriculture and the program's biggest feature is its option for "no money down" financing. Via the USDA, you can finance 100% of a home's purchase price while getting access to better-than-average mortgage rates.
Beyond that, USDA loans are similar to other common loan types. The repayment schedule is "normal", closing costs are standard, and there are never prepayment penalties to pay. Where USDA loans are different, though, is with respect to its downpayment requirements and its simpler loan approval standards.
Rural loans can be used by first-time buyers and repeat home buyers alike. Homeowner counseling is not required to use the USDA program.
The Rural Housing Loan program is a product of the U.S. Department of Agriculture. It's partially funded by program borrowers. 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.
Since October 1, 2012, USDA mortgage insurance rates have been :
As a real-life example : A homebuyer with a $100,000 loan size in Blacksburg, Virginia, would be required to make a $2,000 upfront mortgage insurance premium payment at closing, plus a monthly $33.33 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 a comparable FHA loans or conventional mortgages. FHA mortgage insurance premiums assess a 1.75% upfront mortgage insurance premium and charge as much as 1.55% in MIP annually. Conventional MI can be similarly high.
Even better, USDA mortgage rates are often the lowest among FHA mortgage rates, VA mortgage rates, and conventional loan mortgage rates.
The USDA loan guidelines are straight-forward. You must qualify for the program and your home must, too. Here are some common USDA mortgage questions.
With the USDA Rural Housing Program, your home must be located in a rural area. However, the USDA's definition of "rural" is quite liberal. Many small towns meet the "rural" requirements of the agency, as do suburbs and exurbs of most major U.S. cities.
The USDA has no downpayment requirement. You can finance 100% with a USDA loan.
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 $2,000. You could then raise your loan size to $102,000.
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.
Currently, the Rural Housing loan is available as a 30-year fixed rate mortgage only. Beginning in September 2014, though, a 15-year fixed rate mortgage will be available. There are no adjustable-rate mortgages.
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. Some states have high costs, others have low costs.
Yes, USDA loans allow gifts from family members and non-family members. You will need a gift letter to accompany your loan application. Your loan officer can give you one. If you don't have a loan officer, get today's rates here.
Yes, the USDA Rural Housing Program allows sellers to pay closing costs for buyers. These costs can include state and local government fees, lender costs, title charges, and any number of home and pest inspections.
No, the USDA Rural Housing Program is for primary residences only.
No, the USDA Rural Housing Program is for primary residences only.
There is no minimum score, per se, but 640 is generally regarded as a cutoff point. If your FICO is below 640, you should be prepared to explain why your credit score is below 640, and provide documentation. 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, USDA Rural Housing Program mortgage rates are often lower than comparable conventional 30-year fixed mortgage rates. And because mortgage insurance rates are lower, with your small downpayment, U.S. Department of Agriculture 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.
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.
This USDA / Rural Housing loan information is accurate as of today, October 24, 2014. If you get your USDA home loan information elsewhere, double-check the publish date of the article to make sure that it's current.
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.
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2014 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
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