USDA Home Loans: Rural Development Guaranteed Housing Loan Program
What Are USDA Home Loans:
Many home buyers have not heard of USDA Loans. The USDA Rural Development Guaranteed Housing Loan program that is not often not available by many banks. USDA Home Loans is a niche mortgage loan program that is popular in many rural areas in the United States.
USDA Home Loans
The full name of USDA Home Loans is the USDA Rural Development Guaranteed Housing Loan program but it is often referred to a USDA Loans or Section 502 mortgage loans. USDA Rural Development Guaranteed Housing Loan programs is insured by the United States Department of Agriculture.
100% Financing With USDA Home Loans
One of the prime features of USDA Home Loans is that it has the 100% finance feature like a VA mortgage loan. USDA Loans have similar loan features like conventional, FHA, and VA loans where there is no prepayment penalty and 30 year amortization schedules.
USDA Rural Development Guaranteed Housing Loan Program Guidelines
USDA Home Loans are completely self funded. It was formerly taxpayer subsidized but as of 2012, USDA Loans are entirely self funded without any taxpayer subsidy. Due to being self sufficient and self funded, USDA Loans have new guidelines effective 1 October 2012.
Mortgage insurance for USDA Loans are as follows after 1 October, 2012:
1. There will be a 2.0% upfront fee which needs to be paid at closing for purchase USDA Loans.
2. There will be a 2.0% upfront fee which needs to be paid at closing on refinance USDA Loans.
3. For both purchase and refinance USDA Loans, there will be a 0.40% annual fee on the principal balance of the loans.
As an example, on a $100,000 mortgage loan in rural Ocala, Florida, a mortgage loan borrower would be required to pay a $2,000 mortgage insurance premium at the closing of the loan and there will be a $33.33 monthly mortgage insurance premium.
So, for example, a $100,000 loan size in Blacksburg, Virginia, would require a $2,000 mortgage insurance payment at closing, and $33.33 of mortgage insurance paid monthly.
Both Borrower And Property Must Qualify For USDA Home Loans
To qualify for USDA Home Loans, the home must be in a rural area. What is the definition of rural per USDA Loans guidelines? It does not need to be in a farming community. Many areas of the United States qualify for USDA location requirements including small suburbs and unincorporated areas and towns bordering big cities.
You do not have to be a first time home buyer to qualify for USDA loans. As state earlier, there is no down payment required and the upfront mortgage insurance can be added to the mortgage loan amount. Gifts can be accepted by family members to cover closing costs. For those who need closing costs covered, they can get a seller’s concession towards closing costs.
Both W-2 employees and self employed folks can qualify for USDA Loans. With W-2 employees, there are no job requirement seasoning. If you have a job, you qualify for a USDA loan. For those who are self employed, you are required to provide proof of income and at least two years tax returns.
USDA Loans are for owner occupied primary resident housing only and you cannot be eligible for USDA Loans if you are seeking a second home, vacation home, or investment property.