USDA Home Loans Guidelines And Eligibility Requirements
This BLOG On USDA Home Loans Guidelines And Eligibility Requirements Was UPDATED On June 8th, 2019
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 Loans is a niche mortgage loan program that is popular in many rural areas in the United States.
About USDA Mortgages
The full name of USDA 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 are insured by the United States Department of Agriculture.
100% Financing With USDA Mortgages
- One of the prime features of USDA Loans is that it has the 100% finance feature like a VA mortgage loan.
- USDA has similar loan features like conventional, FHA, and VA loans where there are no prepayment penalty and 30-year amortization schedules.
USDA Rural Development Guaranteed Housing Loan Program Guidelines
USDA 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:
- There will be a 2.0% upfront fee which needs to be paid at closing for purchase USDA Loans.
- There will be a 2.0% upfront fee which needs to be paid at closing on refinancing USDA Loans.
- 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 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
- This is 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 is 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 of 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.