USDA Loan Information
There are two ways in which the USDA helps borrowers achieve the American dream of home ownership.
- USDA Guaranteed home loans – This is the most common loan offered, in this scenario a lending institution provides the homeowner with a loan. The USDA then insures the loan in case of default by the homeowner in turn reducing the risk of the lending institution.
- USDA Funded Home Loans – In this scenario the USDA lends the money directly to the homeowner.
Both of these options are there to help people that would not normally qualify for a mortgage become homeowners. The guarantee provided by the USDA helps low and moderate income families with little money for a down payment achieves home ownership.
To be eligible, applicants must:
Have dependable income that is adequate for the repayment of the loan. This income should be verifiable and continuing for at least 24 months. For example social security benefits that will be discontinued in six months may not be included for qualifying. Income that is tax exempt may have the tax savings added to income figures.
Be a U.S. citizen, currently reside in the United States or a qualifying territory, qualified alien, or be legally admitted to the United States for permanent residence;
Must meet Moderate income limits as determined by the USDA home loan program.
Credit history that shows responsible repayment of debt;
Must not have debt payments that exceed 41% of their gross income. The ratio is calculated by dividing the homeowner’s monthly debt payments by their gross income. These debts include, but are not limited to, new mortgage payment (principle, interest, taxes, and insurance), car payment, loan payment, credit card payments, child support, alimony and any other payment that will take longer than six months to fulfill.
Homes That Qualify:
- A newly built or existing home
- Modular new and existing homes
- Home must provide safe, decent, and sanitary housing and be modest in cost
- The home must meet the thermal standards of the Rural Housing and Community Development
- Existing homes must be in good repair and structurally sound
- There are no size or design restrictions on the home to be financed
- USDA home loans may not be used on property for income-producing purposes
- The home must not be located in flood or mudslide hazard areas
- Water and sewage system must meet the requirements of the State Department of Health
Highlights of the USDA Guaranteed Rural Housing Loan Program
- Loans may go up to 102% (With Guarantee fee included)
- No downpayment is required
- Mortgages are 30-year fixed rate at market interest rates
- Sellers may contribute to the buyer’s closing costs
- Home buyers make application with participating lenders
- Buyers must personally occupy the dwelling following the purchase
Section 502 Direct housing loans may be used to refinance existing USDA loans or for a home purchase. When purchasing a home with a USDA loan there is an upfront fee of 2% charged to the mortgage lender. A Refinance loan carries .5% upfront fee. This fee usually passed on to the homeowner and included in the closing costs. USDA Guaranteed Home Loans are subject to investor guidelines provided by the servicer.