USDA Home Loans : 100% Financing And Very Low Mortgage Rates
For home buyers today, there are two mortgage programs which offer 100% financing. The first is the VA loan from the Department of Veterans Affairs. It's available to most active military personnel and veterans nationwide.
The other program is the U.S. Department of Agriculture's Rural Development Single Family Housing Loan Guarantee Program.
Sometimes called a "Rural Housing Loan" or a "Section 502" loan, today's USDA financing isn't just for farms. Because of the way the USDA defines "rural", there are plenty of exurban and suburban neighborhoods nationwide in which USDA loans can be used.
Home buyers who buy a home in a qualified USDA area, and who meet USDA income eligibility requirements, can take advantage of the USDA's low interest rate, no downpayment mortgage program.
WHAT ARE THE BENEFITS OF A USDA HOME LOAN?
USDA mortgages are structured just like conventional ones via Fannie Mae and Freddie Mac. Where they differ, though, is with respect to downpayment requirements and mortgage insurance.
Unlike conventional loans, USDA mortgages have no down payment requirement, which allows a home buyer to finance a home for 100 percent of its purchase price. The U.S. Department of Agriculture will assess a two percent mortgage insurance fee to all loans, and the cost may to be added to the loan size at the time of closing, as can the costs of eligible home repairs and improvements.
You can't do that with a Fannie Mae or Freddie Mac loan.
Another "RD Loan" advantage is that its annual mortgage insurance fee is just 0.40% annually, no matter how large or small of a downpayment.
This is less than half of the private mortgage insurance charged via a comparable conventional loan, and up to one-fourth of what the FHA will charge (except for participants in the FHA HAWK program for reduced MIP).
Furthermore, because USDA home loans do not have a specific loan size limitation, home buyers can theoretically borrow more money with a USDA mortgage than via conventional, VA or FHA routes.
Loans insured by the U.S. Department of Agriculture are available as 30-year fixed rate mortgages only, and come with their own USDA Streamline Refinance program
HOW DO I QUALIFY FOR A USDA HOME LOAN?
Similar to FHA home loans, rural housing loans aren't made by the USDA. Rather, the USDA insures mortgage lenders making USDA Section 502 loans against loss. The program is meant to spur homeownership in rural and underdeveloped areas.
In order to qualify for a USDA loan, home buyers must meet two requirements.
First, the buyer must buy a home in a USDA-eligible area. In general, USDA property eligibility is governed by census tract density. However, the term "rural" leaves room for interpretation, opening Section 502 mortgages to buyers in unexpected parts of the country.
For example, huge swaths of California are USDA Rural Loan-eligible, as is most of the Midwest. Even New Jersey is stuffed with USDA-eligible homes.
A buyer's second USDA eligibility requirement is that household income may not exceed 115% of the area's median income. A mortgage lender can tell you whether your income meets program requirements, if you're unsure how to check.
There are other USDA qualifying criteria, too, including :
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