Having a federally guaranteed and sponsored loan program enables lenders to offer USDA (United States Department of Agriculture) and other loan programs at cheaper rates and to qualify borrowers in your city and state who might not otherwise be approved. There are many reasons to consider a USDA Purchase Home Loan:
- Competitive 30-year fixed interest rates
- Financing for up to 90% of your home’s value
- Affordable terms with lower closing costs and fees
USDA offers competitive fixed rate mortgages on a 30-year term. The USDA program does not offer variable rate mortgages, which, given the current interest rate and market climate, is a good thing. With interest rates at historical lows, locking in a USDA loan right now will guarantee you an affordable loan at unprecedented rates, even if you don’t have stellar credit. Through the USDA Purchase Home Loan program, you can put more money into paying down the principal on your loan and less into interest and fees than with a traditional mortgage.
Qualifying for a USDA Purchase Home Loan
The USDA Purchase Home Loan program offers responsible homeowners the option to refinance with a federally insured loan. This loan program offers both streamlined and non-streamlined options for refinance. For a non-streamlined refinance, borrowers can roll their existing principal as well as closing costs and fees into the loan.
For all non-streamlined refinances, an appraisal will be necessary to assess the current market value of the home. Streamlined refinances through the USDA program do not require an appraisal but do require a home inspection to ensure that the property meets all HUD requirements. The home inspection will ensure the property is sanitary and safe as well as check all major systems in the house and give an itemized list of items that need to be repaired. If there are any repairs or additions that need to be made to the property to bring it up to HUD standards, the costs associated with those repairs can be included in the total loan amount, assuming it does not put the loan over the 90% threshold for a USDA loan.
In addition to needed repairs, additions such as broadband internet or energy solutions and water conservation methods can also be added into the loan. While those costs can be included in the loan, any accrued interest, lender fees, or closing costs cannot be included in the loan. Also, streamlined refinances must be manually underwritten, which involves a more in-depth look at every aspect of the loan process. This option is only available for Section 502 guaranteed loans, not direct loans. A 502 loan is one in which the loan is handled and fully serviced by a private lending institution whereas a direct loan is serviced directly through the Rural Development department.
First-Time Home Buyer Benefit
In addition to the already low rates and fees of a USDA loan, you may qualify for a First-Time Home Buyer Benefit if you haven’t owned a home in the last three years. This benefit grants you a tax credit of 10% of your home’s purchase price. This tax credit, unlike a deduction, actually gives you back, dollar for dollar, a return on your taxes.
USDA Home Loan Requirements
The USDA rural loan program is for those who live in rural areas (typically areas with populations of less than 20,000) who have low to moderate income. The government created this program to help individuals who might otherwise not be able to get a loan and to help in small communities.
Check location and income requirements here: https://www.rd.usda.gov/files/RD-GRHLimitMap.pdf
USDA Purchase Loan Quick Reference
Great Interest Rates: USDA loans offer lower-than-average, fixed interest rates, which are more affordable and will never change year to year or month to month.
Low Money Down: With a 90% loan amount availability, getting into a home is easier than it can be through many traditional lenders, which may need 20% down or more depending on your income and credit history.
Financed Closing Costs: USDA loans allow you to roll your closing costs into the total value of the loan, meaning less upfront money for you.
Affordable Loan Terms: USDA rural home loans offer affordable, 30-year term mortgages.