Please browse the USDA Refinance page above if you already have a 502 Guaranteed USDA loan and want to learn more about USDA refinance opportunities.
USDA Home Loan Benefits:
1. Real 100% No Down Payment Home Loan (1% USDA funding fee also included into loan)
The USDA program does not require a down payment and you may finance up to 101% of the appraised value – 100 percent loan + the 1% USDA guarantee fee. Since the end of many down payment assistance programs years ago, the USDA Rural Housing Loan Program has fast become the nation’s primary choice for 100% financing. In fact, the USDA mortgage and VA home loan are the last No Money Down mortgage programs available in the U.S.
Buyers can move into their new home with little or NO out of pocket expense. Please note, 100% financing is not mandatory with the USDA Rural Housing loan. Homebuyers can choose to put 3%, 5% or 10% down payment on their home if desired. Please also note the program is also NOT limited to strictly first-time homeowners. The best part, there is no special home buyer class or schooling requirements with the USDA 502 guaranteed program.
2. No USDA Loan Amount Limits Or Purchase Price Limits
The USDA home loan program will permit borrowers to finance what they can afford to pay based on their income and debts. Unlike conventional or FHA loans, the USDA loan program does not have any official set loan limits. The mortgage amount you qualify for will be directly related to your ability to repay the loan based on your debt to income ratios. USDA has certain debt-to-income ratio limits in place that determine the applicant’s mortgage qualifying limit.
The debt to income limits is generally 30% of the borrower’s gross monthly income for housing expenses (principal, interest, taxes and home insurance) 42-45% of the borrower’s gross monthly income for housing expenses, PLUS all other reoccurring debts that are reporting on the credit report. This includes items like auto loan payments, credit card payments, student loan payments, etc. Read more on the USDA loan limit subject here.
The USDA 502 Guaranteed program does have strict household income limits in place and applicants must ensure their current household income is below the set county limit. See the latest 2022 USDA household income limits here.
Most states across the U.S. are similar except for some higher-cost locations in California, Colorado, Alaska, Florida, etc. If you find your household income is over the set income limits, please contact us to discuss alternative financing options that require little to no money down. You can submit the quick info request form on the right side of this page. Mobile users can find the info request form at the bottom of this page.
3. Low USDA Mortgage Insurance (PMI)
The USDA home loan program does require monthly mortgage insurance payments (PMI) like Conventional and FHA mortgages with less than 20% down payment. However, the monthly mortgage insurance factor with USDA is less and this saves home buyers money by reducing their monthly payments. Like all Government mortgage loans, the USDA Rural Development program has an upfront (one-time) 1% guarantee fee that is rolled into the loan amount. The current annual fee (PMI paid monthly) is 0.35% of the loan amount.
The USDA monthly mortgage insurance cost is much less when compared to FHA loans. If you are already pre-approved for an FHA mortgage, be sure to take a close look at the USDA mortgage as well. The monthly savings could be very significant! The current USDA fee structure will stay in place throughout most of 2022.
Example of how to calculate the monthly USDA mortgage insurance and the guarantee fee:
- The home purchase price is $150,000 – the buyer finances 100%.
- The base loan amount is $150,000
- Final loan amount WITH 1% guarantee fee added = $151,500
- Monthly mortgage insurance costs added into monthly payment = $151,500 x .0035 = $530.25. $530.25 / 12 = $44.18 per month.
4. No Credit Score Required
Unlike many home loans, the USDA home loan does not require a credit score. Instead, borrowers can qualify using other items such as rental history, insurance payments, or utility bills to verify and build their creditworthiness. These are called “alternate” trade lines of credit and are generally items not reported on your credit report. Please note: this is only acceptable for borrowers that do not have any active credit trade lines reporting on their credit report.
Any borrower(s) that report a traditional credit score must be qualified based on their score, not based on alternate trade lines. In most cases, the current minimum acceptable credit score is 600-620 for 100% financing.
5. USDA Closing Costs Concessions Allowed From Home Seller
The USDA closing costs (with prepaid taxes and home insurance) for a new home will be around 2-5% depending on the purchase price, property state, etc. USDA Rural Housing will permit the home seller to pay this for the buyer. USDA does not have any rules regarding closing costs and who pays what portions. Some mortgage programs limit the amount of seller concessions (seller paid closing costs), not USDA.
In addition, buyers can “roll in” or add their closing costs to their loan amount in the case of a higher appraised home value. With the USDA home loan, buyers can often move into their new home with no down payment and no closing costs. Be sure to click the highlighted link for more info about USDA mortgage closing costs.
6. Many Rural Eligible & Approved Locations Are Not Really That “Rural”
The USDA 502 Guaranteed loan is backed by the United States Department of Agriculture. Most people assume that the USDA mortgage is only for farmers, ranchers or homes way out in the country. This is not the case as homes in outlying suburbs of metropolitan areas are also eligible, you may be surprised. Even many semi-rural suburbs in states like Florida, California, Georgia, Tennessee, etc are still USDA eligible!
100% USDA financing offers home buyers the most affordable payment, less out of pocket cost, and the most competitive 30 year fixed interest rates available. The chart below shows a $150,000 mortgage at 4% interest rate for a standard 30-year fix term. Real estate taxes and home owner’s insurance figures have NOT been included, as this additional cost would be the same for all loans listed. Only principal, interest, and applicable monthly PMI and one-time guarantee fee have been included.
The Conventional loan listed will NOT offer a comparable fixed rate (it will be approx 1% HIGHER at max 95% financing) This is the best “apples to apples” comparison.
- FHA 97.5% (1.75% Funding Fee / .85% monthly MI) 3.5% DOWN PAYMENT OF $5,250 = $806.89
- CONVENTIONAL 95% (NO funding fee / .89% monthly MI) 5% DOWN PAYMENT OF $7,500 = $869.95
- USDA RD 100% (With 1% Guarantee Fee / .35% monthly MI) $0 DOWN PAYMENT = $764.94
You can see above in this example the USDA financing option is cheaper when compared to the other loan options. This is mainly due to the cheaper monthly mortgage insurance (PMI) The savings amount would be even greater when compared to higher-priced homes over $150,000. In addition, there is NO down payment required with the USDA RD program saving home buyers thousands of out of pocket costs.
Please note all Government home loan programs (USDA, FHA, VA) serve a purpose. They are all safe and secure fix rate loans with no prepayment penalties. This means you can sell your home and pay off your loan anytime without penalty.
The FHA home loan is certainly a great choice for home buyers living in more populated locations inside major cities that are not USDA eligible, or households that make income over the USDA eligibility limits. Please visit FHA Mortgage Source here if you are home buyer interested in learning more about FHA home loans.
USDA Loan Recap:
- USDA Loans require NO money down – up to 101% financing.
- Reduced monthly mortgage insurance costs (PMI) when compared to other loan options like FHA.
- USDA closing costs can often be included or rolled into the loan with supporting appraised value. Closing costs can also be paid by the seller up to 6%.
- There is NO maximum loan amount with USDA Rural Housing.
- You do NOT need assets or savings to qualify for USDA loans.
- Qualifying for a USDA loan with lower credit scores is possible. Please note most lenders require a minimum credit score of 620.
- USDA mortgages are secure 30 year fixed rate terms at low market interest rates.
- Home buyers can choose to put down money if they like – 3%, 5%, 10%.
- USDA loans are for ANY new & existing single-family residence located in a Rural Development eligible area. The home being purchased can be a regular sale, short sale, foreclosure home, bank owned, etc. Note: Mobile/Manufactured homes, rehab project homes and “build on your own lot” are not permitted.
- The program is NOT reserved just for first-time homebuyers. No special first-time buyer class or schooling requirements are needed to apply or to get approved. You do not need down payment assistance, grants or bond money because the program is 100% financing. Get pre-qualified in 15 minutes with no hassle or waiting.
Please read the complete list of frequently asked USDA Rural Housing questions here
We are always happy to answer your questions about the application and lender pre-approval requirements. To expedite your request quickly, please fill out the short Info Request Form located on this page. Mobile phone users – please find the Info Request Form at the bottom of your screen. You can also call us 7 days a week (9am-8pm) at Ph: 800-743-7556
Please also take a moment to visit our USDA blog above for all the latest USDA Rural Development loan information. Contact us today and see why USDA Mortgage Source is a leading 100% financing information resource.