What Are USDA Mortgage Loans?
USDA mortgage loans, which is the USDA Rural Development Guaranteed Housing Loan program, is a special mortgage loan program that only a few USDA approved mortgage lenders offer.
The United States Department of Agriculture insures all USDA mortgage loans. The biggest benefit and selling point for USDA mortgage loans is that the program enables mortgage loan borrowers to purchase a home with no money down with competitive mortgage rates. If you play your cards right, you can purchase a home with no money down and no closing costs with a USDA mortgage loan. USDA mortgage loans has the same features as other traditional mortgage loan programs like FHA, VA, and Conventional that it offers 30 year fixed rate loans at low mortgage rates and no prepayment penalty. USDA mortgage loans are for both first time home buyers and veteran home buyers.
Mortgage Insurance And USDA Mortgage Loans
Like FHA loans, USDA mortgage loans require USDA mortgage loan borrowers to pay upfront and annual mortgage insurance premium to the U.S. Department of Agriculture. There is a 2% upfront mortgage insurance premium fee charged on any purchase and refinance on a USDA mortgage loan which can be rolled into the balance of the loan. Then there is a 0.40% annual mortgage insurance premium on the balance of the loan that is paid monthly along with the principal and interest.
USDA Mortgage Loan Eligibility Requirements
To be eligible for a USDA mortgage loan, the property needs to be located in a USDA approved area. There is no downpayment required as long as the property in a USDA approved area and the home buyer meets the USDA mortgage lending guideline requirements. The maximum debt to income ratio allowed for a USDA mortgage loan borrower is capped at 41% DTI. There are 15 year fixed rate mortgage loan programs and 30 year fixed rate mortgage loan programs available. No adjustable rate mortgage products on USDA mortgage loans. USDA mortgage loans are for owner occupant properties only. Second homes and investment homes do not qualify. USDA does not allow for cashout refinance mortgage loans. If you are intending on refinancing with a USDA mortgage loan, then the rate and term refinance is the only program.