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2014-12-08 16:42:01
What is a USDA loan?
Continuing our weekly series, we take an in-depth look at conventional loans.

After VA loans, USDA Rural Housing loans are the most popular zero-down-payment loans available. Let’s take an in-depth look at this program.

 Background

Formerly known as the Farmers Home Administration (FmHA), the U.S. Department of Agriculture (USDA) Rural Housing loan program offers housing guarantees to lenders who lend to qualified borrowers in designated rural areas. The Guaranteed Housing Program, administered by the USDA Rural Development, provides a partial guarantee to eligible borrowers, who in turn need make no down payment. The maximum borrower income is restricted to a set percentage of the median in each county.

 

 Loan-Type-USDA_1

Click to view entire List of Home Loans

 

Eligibility

Both the property and borrowers must meet eligibility requirements for the USDA Rural Housing loan program.  The property must be located in a designated rural area. The USDA offers an interactive map where properties may be looked up.  (Please note that the eligible properties will be changing on October 1, 2014 per the most recent census data and a future eligible areas map is also available.)  Borrowers’ income may be up to 115% of the median income for the area. Income limits for specific areas may also be found on the USDA website.

 

Pros

By far the biggest benefit of a USDA Rural Housing loan is lack of a down payment.  In addition, borrowers can finance the upfront guarantee fee into the mortgage for a maximum 102% loan-to-value. No mortgage insurance is required and there is no limit to the amount of seller contributions that may be made to closing costs.  All of these benefits mean that qualified borrowers can achieve homeownership with no out-of-pocket expense. For those borrowers who have experienced a bankruptcy or foreclosure, there is only a three-year waiting period until they can get a new loan.

 

Cons

Although there is no mortgage insurance, the borrower is required to pay an annual guarantee fee, which is included in the monthly mortgage payment. Borrowers are limited to a 30-year fixed rate mortgage for a one-unit owner-occupied property.  The property must be located in a designated rural area and the borrower must meet income restrictions.

 

Financing Options

There are a number of financing options available through the USDA Rural Housing program.

  • Transaction Types: purchase and refinance
  • Property Type: Single-family residences
  • Interest Rate Types: 30-year fixed-rate
  • Occupancy Type: Primary residences only
 
 
 
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