USDA home loans
USDA home loans
USDA mortgage loan options are often also referred to as USDA/Rural Development Loans, because that is their primary purpose — to generate greater interest in homeownership in rural areas, suburbs and exurbs. Providing affordable homeownership opportunities in these areas promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas.
These 30-year, fixed-rate mortgage loans are guaranteed by the U.S. Government’s Department of Agriculture, in the same way a VA home loan is guaranteed by the Department of Veterans’ Affairs (VA). There is a no down payment option available to those who qualify. The loan term for a USDA loan will always be 30 years, as all USDA loans are 30-year mortgages.
USDA Mortgage FAQs
What homes qualify for a USDA mortgage loan?
Eligibility for USDA mortgage loans is based on the property size, location and condition of the home. The property must fall in a USDA designated rural area, first of all. The home must also be the loan recipient’s primary residence. Loan amount limits will vary by state and county.
Who is eligible to receive a USDA mortgage loan?
Applicants must meet the USDA’s income-eligibility limit, meaning the applicant cannot exceed 115% of the area’s median household income. Since area median income varies by locale, USDA home loan income limits may vary by state and even county.
The applicant must also be a U.S. citizen, a non-citizen national or what the Department of Agriculture defines as a “qualified alien”. If you are a citizen, a permanent resident or a qualified foreign national who will live in the home as a primary residence, you will meet this requirement.
The Department of Agriculture, who guarantees USDA mortgages, dictates that the household must show that they are able to afford the mortgage payment, including property taxes, homeowners insurance and the annual USDA guarantee fee, which is payable in part at closing and the rest on a monthly basis, which is usually lumped in with the monthly mortgage payment.
What is the interest rate on a USDA mortgage loan in comparison to other loans? What are current USDA mortgage rates?
For information on current USDA mortgage rates, please contact your Homestead Mortgage loan advisor. Like interest rates for other loan types, these rates fluctuate due to many different factors in the market, as well as based on the applicant’s credit background.
But keep in mind, that outside of the attractiveness of a no-down payment option for qualified applicants, one of the biggest appeals of a USDA loan is that it is often offered at an interest rate lower than a Conventional loan. You can expect for that to be reflected in a slightly lower monthly payment amount. The government backing of a USDA mortgage typically means that lenders like Homestead Mortgage can offer them at competitive interest rates.
Is there mortgage insurance with a USDA mortgage loan?
Not exactly, but the USDA mortgage loan process does require payment of what is called a “guarantee fee”. This fee is paid both in part at closing and in part monthly. The upfront fee paid as part of the applicant’s closing costs and then a smaller amount is paid each month, usually lumped in with the applicant’s monthly mortgage payment.
Ask your Fairway mortgage advisor about specifics regarding the USDA guarantee fee. Whether the USDA guarantee fee is cheaper over the life of the loan than the private mortgage insurance associated with a Conventional loan depends on the applicant’s credit score. Typically, the lower one’s credit score, the more advantageous it would be to pay the USDA guarantee fee vs. a conventional loan’s PMI.
Can you refinance a USDA mortgage loan?
USDA home mortgage loans can be refinanced, just like any other type of home loan. As long as your credit remains the same or improves over time and your home loan payments are up to date, you should be able to refinance into a lower interest rate and/or monthly payment when rates go down in the market.
Qualifying homeowners may also be able to skip the credit and income approval step if they are refinancing from a USDA home loan into another USDA home loan, using the USDA Streamline program.