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Tuesday, October 15, 2013

USDA Home Loans: Common Questions and Answers.

USDA Home Loans: The No Money Down Mortgages

For American's that wish to qualify for 100% financing on their home loan and aren't currently or previously a veteran, the USDA home loan is a great option.  Now you may hear "rural housing loan" and think, "I don't want to live on a farm," but the section 502 guaranteed loan by USDA is not just for farmers.  Because of the way that USDA defines "rural," there are plenty of suburban neighborhoods nationwide that qualify for this program.  

The USDA home loan was originally designed to help rural Americans realize the dream of homeownership. It's now become one of the most popular loan programs in the nation.  Many wish to obtain a USDA loan to take advantage of the low fixed interest rate and no down payment option.  

So what does it take to qualify for a USDA home loan and how do you get started? Read more of our frequently asked questions below to find out what you can do to obtain a USDA mortgage:

What is a USDA home loan?

The USDA Rural Development Home Loan is a flexible zero down payment government guaranteed program that is growing in popularity.  It is designed to promote homeownership to residents in rural communities with low to moderate incomes and who have limited savings for a down payment.  A common misconception about the USDA loan program is that it is only for farmers, but you will find out that just outside most metropolitan areas there are many suburban areas that qualify for this program as well.  

What types of loans does USDA offer?

The Section 502 Guaranteed Loan is the most common type of USDA rural housing loan.  Amazingly, this loan will actually lend up to 103.5% of the home's appraised value and even allow the buyer to include closing costs in the actual loan (appraisal permitting). All USDA Guaranteed Loans carry a 30 year term with a low fixed interest rate.  

What are the advantages of USDA home loans versus FHA and Conventional loans?

As opposed to FHA and Conventional loans which require 3% to 5% in a down payment, USDA home loans require zero down payment.  

Are USDA home loans credit flexible?

USDA home loan requirements are not entirely credit score driven, although RANLife Home Loans requires a 640 mid-score or higher.  USDA home loan guidelines will disregard some derogatory credit with an acceptable explanation.  

Can I qualify for a USDA home loan if I have had a bankruptcy?

In order to qualify for a USDA home loan you must be discharged from a Chapter 7 bankruptcy for at least three years.  If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are eligible to make an USDA loan application.  

What types of homes are eligible for USDA financing?

The home must be owner occupied and all single-family, condos, and planned unit developments.  No manufactured homes, mobile homes, or investment properties qualify for the program.  

Does a USDA home loan have mortgage insurance?

One of the biggest advantages of a USDA Rural Development home loan is the very low mortgage insurance (MI) required.  This alone will potentially save you $50 to $250/month depending on your loan amount.  However, USDA frequently changes the MIP requirements so please call a RANLife USDA loan specialist today to see how the changes might affect you.  

Do USDA home loans require a down payment?

USDA home loans have no down payment requirement. The down payment is funded directly into the loan amount.  

What is the maximum amount I can borrower on a USDA home loan?

The maximum allowed loan amount on a USDA loan is $417,000.

What factors determine if I am eligible for a USDA home loan?

To qualify for this program, there are two notable requirements that differentiate this program from a FHA or VA loan program:

1. Location: The home must be located in a designated rural area.

2. Income Limits: must meet USDA adjusted annual household income limits.  A maximum 115% of the median income for your area.  Meaning your total combined household income cannot be more than this amount.  If your income is slightly over these amounts  there a little known deductions that can be used to reduce your qualifying gross household income and help you qualify, such as:
  • Disabled or handicapped individuals who are not the applicant or co-applicant.
  • Documentable childcare expenses for children 12 years of age or older.
  • Documentable medical expenses for family members 62 years of age or older. 
  • Attendant care expenses.
  • Deduction for each child under the age of 18 and/or full time student over 18. 
Qualifying Income: It is important to note that USDA uses two types of income for qualifying.  
  • Household income is the combined adjusted gross income of all people living in the home, regardless if they are applying for or will be on the mortgage.  This amount cannot be higher than the county limits. 
  • Repayment income is the income form the actual loan applicants and determines the debt-to-income (DTI) ratio.  Deduction for each child under the age of 18 and/or full time student over 18.  
What are the other benefits associated with a Rural Housing Purchase?
  • 100% Financing
  • Low monthly Mortgage Insurance (MI)
  • Using an USDA Approved Lender usually means lower closing costs
  • Low fixed monthly payments
  • Low mortgage interest rates
  • Never a pre-payment penalty
Contact a USDA Loan Specialist Online or toll free at (800) 461.4152 to learn more bout how the USDA Home Purchase Programs can help you.  You can also apply for a USDA mortgage by clicking here.  

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