USDA Home Loans – USDA Loan Rates & Requirements
This USDA loan information is accurate as of today, January 19, 2016.
If you get your USDA home loan information elsewhere, double-check the publish date of the article to make sure that 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 in the U.S. housing market, and most mortgage lenders don't offer them.
For eligible suburban and rural home buyers, the USDA loan is a 100%, no-money down mortgage loan. The program is available in 97% of the geographic United States.
The USDA loan's full name is the USDA Rural Development Guaranteed Housing Loan program, but 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. USDA mortgage rates are often discounted as compared to 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 like that, 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.
USDA LOANS REQUIRE MORTGAGE INSURANCE
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 :
- 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
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 comparable FHA loans or conventional ones.
FHA mortgage insurance premiums assess a 1.75% upfront mortgage insurance premium; and add 0.85% in MIP annually. This can be costly.
Mortgage insurance for conventional loans can be similarly high -- even via the 3%-down HomeReady™ program for which mortgage insurance rates are reduced.
With USDA loans, 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. It's not uncommon for USDA rates to beat rates on a low-downpayment conventional loan by 75 basis points (0.75%) or more.
Lower rates means lower payments. USDA loans are extremely affordable.
SUMMARIZING THE USDA / RURAL HOUSING MORTGAGE PROGRAM
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.
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 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.
What is the USDA program's minimum downpayment?
The USDA has no downpayment requirement. You can finance 100% with a USDA loan.
What's the maximum USDA mortgage loan size?
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.
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 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.
What mortgage products are available with a USDA mortgage?
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.
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. 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.
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.
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. 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.
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 Rural Housing Program is for residential property.
Are USDA mortgage rates good?
Yes, USDA Rural Housing Program mortgage rates are often lower than comparable conventional 30-year fixed mortgage rates.
Plus, 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.
When mortgage rates fall, can I refinance my USDA mortgage?
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.
APPLY FOR USDA / RURAL HOUSING MORTGAGE HERE
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.
Take a look at today's USDA mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.
This USDA / Rural Housing loan information is accurate as of today, January 19, 2016. If you get your USDA home loan information elsewhere, double-check the publish date of the article to make sure that it's current.