Seven Benefits of a USDA Loan
USDA Rural Development Housing Loans are one of the most powerful mortgage options available to rural area and suburban homebuyers. This USDA-backed mortgage option comes with benefits that are not found in any other mortgage option, opening the doors of homeownership to many that may not have qualified with other major mortgage options.
Are you ready to buy a home, but you haven’t saved up for a down payment or closing costs? The more you read, the more discouraged you become. Down payment and closing costs, they all add up and the dream of home ownership is now a distant thought. You decide to extend your lease and continue renting. Maybe next year, you tell yourself.
The USDA Guaranteed Loan is a great option for you. With No Down Payment and 100% financing you are able to get into a home without having to save up for years. USDA single family guaranteed home loans give Americans the opportunity to own a home, only requiring that you find a property in a USDA eligible area (rural areas or rural development) and are under the household income limit for that county.
Maybe you are over the congested city life, every day it’s a grind and all you can think about is having more room, outdoor living space and an overall lower cost of living. USDA Rural area home loans are a great option for you too. Using zero down home loans you can move to the countryside, enjoy nature, have privacy and own land.
Here is a List of Some of the Benefits of USDA Loans:
1. No Down Payment
The USDA loan is a zero down deposit program meaning that there is no deposit to pay, so don’t let high down payment requirements crush your dream. Most mortgage products require some type of down payment, sometimes reaching as high as 20 percent. In today’s economy, saving for even a 5% down payment can be a struggle, delaying your ability to purchase a home.
2. Flexible Credit Requirements
USDA eligibility and loan requirements are more flexible than conventional guidelines, allowing credit scores down to 620 with compensating factors. Additionally, those with no credit or non-traditional credit may qualify if they show willingness to repay their debts. Borrowers that have a bankruptcy discharged 2 to 3 years prior are also able to qualify for the program.
In addition, USDA has no loan limits, while VA, conventional and FHA loans do. USDA loans will loan up to 100% of the appraised value, similarly to VA. While FHA and conventional loans both require a down payment.
3. Competitive Interest Rate
Since USDA RD Loans are insured by the US Department of Agriculture, they are able to offer interest rates that are lower than conventional financing most of the time. Terms are 30 years for the Guaranteed Loan, and 15 year or 30 year for Direct USDA Loans. RD makes this loan available to all Americans by keeping fees and rates low.
4. No Max Loan Amount
Although borrowers must fall within the USDA income limits to qualify for a loan, there is no maximum purchase price. And, after a review of a borrower’s credit, income and existing debt, lenders determine the amounts based on the borrower’s ability to repay and their debt to income ratios.
5. Closing Costs Assistance
Costs generally range between 3% and 5% of the purchase price – another big expense when buying a house. With a USDA loan, the seller can pay your closing costs or they can be financed up to the appraised value of the home. Additionally, gift funds can be used to pay closing costs.
Even though USDA requires No Down Payment you will still have these costs to prepare for. Another great benefit of USDA is that you are allowed to negotiate for the sellers to pay your closing costs. USDA will allow sellers to assist with closing costs up to 6% of purchase price.
Actual closing costs are typically around 4% and can be a little higher or lower depending on State and county.
Example:
Sellers Assisting with Closing Costs
Purchase price of home 200k
Actual closing costs 200k x 4%= 8k
Negotiate for sellers to pay your closing costs 8k
Loan Transaction
Purchase price of home 200k
Down payment $0
Sellers assist with closing costs 8k
Cash to close $0
Maximum Seller Assist for other Loan Types
USDA seller assist up to 6%
FHA seller assist up to 6%
VA seller assist up to 4%
Conventional seller assist up to 3%
6. Rolling Closing Costs into your USDA Loan
Another option for closing costs, is to roll the costs into the loan. Yes, with USDA you can finance your closing costs. The trick to this option is that the house must appraise for more than the asking price and USDA will finance up to 100% of the appraised value.
Example:
Rolling Closing Costs into USDA Mortgage
Purchase price of home 200k
Appraised value 208k
Average 8k (can use towards closing costs)
Actual closing costs 200k x 4% = 8k
Increase USDA loan amount to 208k
Loan Transaction
Purchase price of home 200k
Down payment $0
Increase loan amount 208k (closing costs financed into loan)
Cash to close $0
Required Down Payment for other Loan Types
USDA down payment $0
FHA down payment 3.5%
VA down payment $0
Conventional 3%, 5%, 20%
7. Low Mortgage Insurance
Mortgage insurance required for a USDA mortgage is the lowest of all loan types, being .35%. In comparison, conventional/conforming mortgages have Private Mortgage Insurance (PMI) that uses loan amount and credit score to determine cost of insurance premium and can be double what you would pay for USDA mortgage insurance.
Mortgage Insurance for other Loan Types:
- USDA mortgage insurance .35% (for life of the loan)
- FHA mortgage insurance .85% (for life of the loan)
- VA mortgage insurance $0 (No MI)
- Conventional private mortgage insurance depends on amount, range .5%-1% (drops off when you owe less than 80% of home’s value)
