What is a USDA Home Loan?
USDA Home Loans provide up to 100% financing for a home purchase or refinance. These loans are guaranteed by the USDA and are serviced by direct lenders that meet federal guidelines. There are many qualifying factors for a USDA home loan, things such as income limits and loan amount may limit eligibility.
Loan Guarantee Program (Section 502)
The Guaranteed Loan Program, managed by the Housing and Community Facilities Programs (HCFP), provides a loan guarantee, to a mortgage lender, on loans that meet USDA loan guidelines. An individual looking to get approved for a USDA loan would work with a lender that is approved to offer these loans and would make his or her payments to that lender after closing.
Loan guarantees are offered on a variety of government sponsored mortgage programs and enable mortgage lenders to provide USDA Home loans to borrowers that would not traditionally be able to get approved.
One of the biggest hurdles to overcome for new homeowners is coming up with the initial down payment. With a USDA home loan a borrower can finance up to 102% of the homes value which includes the guarantee fee.
USDA Home Loan Refinancing
The USDA home Loan Program allows responsible homeowners who are also Section 502 borrowers to refinance into a guaranteed Section 502 loan. Both streamlined and non-streamlined refinance options are available. A non-streamlined refinance must include a property appraisal. The existing loan’s principal and interest, as well as closing costs and lender fees, may be included in the new loan. A streamlined USDA Home Loan does not require an appraisal, but does require a home inspection to ensure the property meets all HUD requirements. This type of refinance must also be manually underwritten. The existing loan’s principal balance is refinanced, and any accrued interest, closing costs and lender fees cannot be included. Further, this refinance option is only available for Section 502 Guaranteed loans, not direct loans.
2014 is bringing some much needed updates to the USDA home loan program.
Here are few highlights of the changes to take hold in September.
- Lenders will now be able to take in to consideration energy efficiency improvements of a home.
- USDA loans have always been a 30 year fixed rate mortgage, the need updates will allow for changes to the length of the mortgage to better suit the home buyers needs.
- Community banks and credit unions will also be allowed to participate in the program now increasing overall availability.