USDA Loan

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What is a USDA Loan?

A USDA loan is a loan program designed to help those wanting to finance a home in a rural or semi-rural area. The United States Department of Agriculture oversees this loan program that requires zero down from the buyers. A USDA loan is one of the three loan programs that carry a government-backed guarantee to the lender.

Who Qualifies for a USDA Loan?

There are restrictions regarding the USDA program as it relates to property location and household income. The United State Census Bureau has identified specific regions throughout the country deemed rural and semi-rural. The property must be located within an approved area.

USDA loans also restrict the program to households having no more than 115% of the median household income for the area in which the property is located. Both location and income limits must be met before a USDA loan can be placed.

Key Benefits of a USDA Loan

Zero money down from the buyers

Competitive financing for rural areas where financing can be difficult

Less cash to close compared to other loan programs

Competitive interest rates featuring a 30 year fixed rate loan

The USDA loan guarantee compensates the mortgage company for the loss should the loan ever go into default. No money down and competitive interest rates keeps cash to close at a minimum with lower monthly payments.

How Does a USDA Loan Work?

USDA loans are fully documented. The lender will verify a two year employment history, income and sufficient cash to close. The lender will also order a property appraisal to accompany the sales contract and support the value of the home. Once the loan file has been completely verified it is sent to the underwriting department who will determine the loan meets current USDA guidelines. Once approved, loan papers are delivered to the settlement agent for signature.

USDA Streamline Refinance

USDA loans carry a streamline feature. When refinancing an existing USDA loan with a new one, approval guidelines are relaxed. As long as the monthly payment is reduced by $50 per month, the streamline applies. Lenders will not pull credit scores but will make sure there have been 12 months of mortgage payments made no more than 30 days past the due date and the home must be a primary residence. Income and employment are not verified for qualifying purposes but income will be reviewed to make sure the USDA household income limits are followed. There is no need for an appraisal with a USDA streamline.

Frequently Asked Questions

  • How do I know if a property is located in an approved area?
  • Contact your loan officer and provide the property address who can then research the USDA database for approved regions.

  • Is there mortgage insurance with a USDA loan?
  • Yes, the loan guarantee is financed with an upfront mortgage insurance premium and an annual premium paid in monthly installment payments. The upfront premium is equal to 1.00% of the loan amount and the annual fee is 0.35% of the loan amount.

  • Is there a loan limit with the USDA program?
  • No, there are no loan limits with the USDA program. Loan amounts are established using household income and current credit obligations along with the new mortgage.

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