100% Financing : The Complete USDA / Rural Housing Mortgage Guidelines (Plus Mortgage Rates)
This USDA / Rural Housing loan information is accurate as of today, May 21, 2013.
If you get your USDA home loan information elsewhere, double-check the publish date of the article. Make sure it's current.
About The USDA / Rural Housing Mortgage
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.
The program's full name is the USDA Rural Development Guaranteed Housing Loan program. Most people call them "USDA loans" or "Section 502 loans". USDA loans are insured by the U.S. Department of Agriculture.
The USDA's loan's biggest feature is its 100% financing option.
USDA loans are the same as most other mortgages in that they don't have "crazy payback schedules" or come with prepayment penalties. Similar to FHA loans, USDA loans actually quite loose, as far as mortgage programs go.
USDA Loan Guidelines : Updated For Fall 2012
If you're using a USDA mortgage, get ready for some changes.
The biggest change in Rural Housing Program is that the USDA loan program will be entirely self-funded. Formerly, it was taxpayer-subsidized. The Rural Housing Program will no longer be dependent on the U.S. taxpayers to stay in business. To that end, the USDA is changing how it charges its borrowers mortgage insurance.
Effective October 1, 2012, USDA mortgage insurance rates are:
- For purchases, 2.00% upfront fee paid at closing, based on the loan size.
- For refinances, 2.00% upfront fee paid at closing, based on the loan size.
- For all loans, 0.40% annual fee, based on the remaining principal balance.
So, for example, a $100,000 loan size in Blacksburg, Virginia, would require a $2,000 mortgage insurance payment at closing, and $33.33 of mortgage insurance paid monthly.
Most lenders have already moved to the new mortgage insurance model so if you're in the process of buying a home via USDA, make sure to talk to your lender about the changes.
Summarizing The USDA / Rural Housing Mortgage Program
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.
How do I check if my home is USDA / Rural Housing-eligible?
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 USDA requirements, as do suburbs and exurbs of most major U.S. cities. Click here to check your home's USDA loan eligibility.
What is the USDA program's minimum downpayment?
The USDA has no downpayment requirement. You can finance 100% with a USDA loan.
Is the USDA loan program limited to first-time buyers?
No, the USDA Rural Housing Program can be used by first-time buyers and repeat buyers.
Can I finance the Upfront Mortgage Insurance into my mortgage?
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.
My lender doesn't offer USDA mortgages. What do I do?
The USDA website maintains a list of lenders in the Rural Housing Program. If you want a rate quote, you can visit their website or you can Click here to get today's mortgage rates.
What mortgage products are available with a USDA mortgage?
The USDA / Rural Housing Program offers 30-year fixed rate mortgages only. There is no 15-year fixed rate mortgage. There are no adjustable-rate mortgages. 30-year fixed only.
How much are the closing costs for a USDA mortgage?
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.
I can't afford closing costs. Can I get a gift for my closing 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, Click here to get today's mortgage rates.
I negotiated to have the seller pay my closing costs. Is that allowed?
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.
Can I use the USDA loan program for a vacation home?
No, the USDA Rural Housing Program is for primary residences only.
Can I use the USDA loan program for an investment property?
No, the USDA Rural Housing Program is for primary residences only.
Is there a minimum credit score for the USDA loan program?
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.
I recently went back to work. How long until I am USDA-eligible?
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.
I am self-employed. Can I use the USDA loan program?
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.
Can I do a "cash out" refinance with the USDA program?
No, the USDA Rural Housing Program is for purchases and rate-and-term refinances only.
Can I use the USDA loan program for my working farm?
No, the USDA Rural Housing Program is for residential property.
Are USDA mortgage rates good?
Yes, USDA Rural Housing Program mortgage rates are often as low as comparable conventional 30-year fixed mortgage rates. And because mortgage insurance rates are lower, with a small downpayment, USDA loans can often be a better deal.
Apply For USDA / Rural Housing Mortgage Here
This list is not meant to be a comprehensive of what the USDA allows, but it covers a lot of good ground.
If you want more information, talk to your lender, or reach out to me directly. USDA mortgage rates are low and my office underwrites and funds our USDA loans in-house.
This USDA / Rural Housing loan information is accurate as of today, May 21, 2013. If you get your USDA home loan information elsewhere, double-check the publish date of the article. Make sure it's current.