USDA loans remain the ideal choice for many first time buyers purchasing a home in Mississippi. The USDA mortgage program offers 100% financing in eligible rural locations throughout Miss. In fact, nearly the entire state outside the immediate area of Jackson and Meridian remains eligible.
Homebuyers that want to to learn more can call us at the number above or just submit the short form on this page anytime.
Before anyone gets very far in the mortgage application process, a loan officer experienced with the USDA program should be consulted. The loan officer will ask for the property address. Areas that are eligible for the USDA loan are identified by the United States Census Bureau. The Census Bureau surveys the United States Population every 10 years.
This information is then entered into a database and used by multiple government organizations and businesses in a variety of ways. From farming subsidies to rural business loans to housing, this data mine is tapped. With the USDA home loan, while a specific property is not directly approved, the area where the property is located is. The only valid source for eligible areas is those identified as rural by the Census Bureau. Eligible areas make up nearly 97 percent of the entire geographic area of the United States.
With regard to cash needed to close, USDA loans also offer a benefit to borrowers by not requiring a down payment. 100 percent of the purchase price can be financed into the loan. For closing costs, USDA loans ask for a 1.00 percent upfront fee which helps finance the loan guarantee to the lender. There is also an annual fee of 0.35 percent of the loan balance which is paid in monthly installments. For a $100,000 rural housing loan, the upfront fee rolled into the loan amount is $101,000. The monthly installment fee (similar to PMI) works out to about $29 added to the mortgage payment.
This loan guarantee is a guarantee to the lender and not a guarantee the applicant will be approved. Should a USDA loan ever go into default the lender is compensated for the loss. The two fees are indeed mortgage insurance premiums. Other loan programs that require mortgage insurance carry higher rates compared to the USDA program. Interest rates for USDA loans are also extremely competitive.
As it relates to loan options, the only option will be which rate to choose as the USDA loan is only offered as a fixed rate loan. It’s relatively easy to qualify for a USDA loan as the minimum credit score most lenders require is 620. If there are two or more individuals on the same application the lender will select the lowest middle score from the group. Three scores are requested by the lender, one each from Equifax, Experian and TransUnion. Those who are just entering the credit markets or who do not use credit may not currently have credit scores. For this group, USDA loans accept what is referred to as “alternate” credit. Alternate credit looks at payment histories from at least three sources such as rent payments, insurance, daycare and the like.
There are also income limitations for USDA applicants and based upon the number of individuals 18 or older who will be living in the property. The current household income limits are $82,700 for 1-4 member households and $109,150 for 5-8 member households. For areas that are declared “high cost” the income limits are $209,150 and $276,100 respectively. Note, this includes all occupants 18 years or older, not just those on the loan application.
The approval process for a USDA loan is much like any other program. The applicants submit a loan application for a property located in an approved area. At the same time, they submit information documenting their income such as recent paycheck stubs covering a 30 day period as well as copies of the last two years of W2 forms. Self-employed borrowers who do not have W2 forms will submit the last two years of federal income tax returns, both personal and business, as well as a year-to-date profit and loss statement.
It’s a simple process, really. The only major differences between the USDA loan and others is the geographic requirements and household income limits. For those that are looking for a loan to finance a home in a rural area, the USDA loan should get the first look. Contact us today to learn more.