Why Consider a USDA Mortgage?
As you’re researching different home loan options, you’ll likely come across the USDA Rural Housing Loan program, otherwise known simply as the USDA Loan. This home financing solution has a lot of attractive benefits, but it also comes with a few limitations and not everyone will qualify.
In today’s post, we’ll provide a basic overview of the USDA Loan program and offer a more in-depth look at the benefits and drawbacks.
What is a USDA Loan?
The USDA Loan program was created and insured by the United States Department of Agriculture (hence the name), and is offered by a wide variety of mortgage lenders, including us. The purpose of the program was twofold: to help low- and moderate-income buyers achieve homeownership through 100% financing, and to help boost homeownership rates in less-developed areas.
What do you mean by 100% financing?
USDA Loans offer 100% financing for qualified borrowers. This means the applicant can get approved for a USDA Loan, even if they do not make a down payment.
With conventional home loans, the borrower is usually required to make a down payment in some amount (usually between 10%-20%), leaving about 80%-90% of the home’s price to be financed. With the USDA Mortgage, the borrower can skip the down payment, and the entire price of the home (or 100%) is financed.
Even FHA Loans require at least 3.5% down, making the USDA Loan program a popular choice for borrowers who don’t have the means to make a down payment but still want to enjoy the benefits of a government-backed loan.
What are the other benefits?
In addition to 100% financing, USDA Mortgages offers the following attractive features:
- Low minimum FICO score (great for borrowers with less-than-perfect credit)
- Competitive interest rates
- Available for a variety of housing types, including some manufactured housing.
- Low monthly private mortgage insurance (PMI) payments.*
- Upfront PMI may be financed into the loan, saving the borrower even more in upfront costs.**
*There are two PMI premiums for USDA Loans: upfront and annual. The annual premium is paid monthly and is currently 0.35%, based on the remaining principal balance; however, this is subject to change. Contact one of our loan professionals for the most accurate pricing.
**The upfront PMI premium for USDA Loans is currently 1.00%, based on the loan size for both purchases and refinances; however, this is subject to change. Contact one of our loan professionals for the most accurate pricing.
What are the restrictions?
Not everyone can qualify for a USDA Loan. In order to take advantage of this affordable home financing program, borrowers must meet certain criteria (specifically income criteria) while the home itself must also meet certain eligibility requirements.
Because the USDA Loan program is designed specifically to help make homeownership more accessible to lower- and moderate-income families and individuals, it is possible to earn too much money to qualify. USDA Loan income limits vary from location to location, so it’s best to check with a USDA lender who is licensed in your state to find out if you’re eligible. You can also visit the USDA’s eligibility web page and enter your information to see if you fall within the income limits.
As for the home itself, the location is a key factor in determining USDA Loan eligibility. Homes must be located within a USDA-eligible zone (usually outside city limits) in order to qualify for USDA financing. The best way to find out if a particular home is in a USDA-eligible zone is to ask your real estate or mortgage professional, or look it up on the USDA’s property eligibility map.
In addition to the home being in an approved location, the home must also serve as the borrower’s primary residence. In some cases, USDA financing can be used for multi-family homes (duplexes, triplexes, etc.); however, the borrower must occupy at least one of the units full-time in order for the home to qualify for a USDA Loan. Speak with one of our loan professionals for details.
Ready to learn more?
You can get more details on the USDA Loan program and request a free, no-obligation rate quote by calling Empower Capital Group at (707) 522-1887. We serve home buyers in California, Washington and Oregon.