The USDA Rural Development’s Single Family Housing Guaranteed Loan Program is designed to help borrowers purchase homes in rural areas. USDA home purchase loans are an excellent benefit for first time home buyers as well as growing families looking to obtain the American dream of home ownership. Borrowers that qualify can purchase a home with no money down, which makes buying a home extremely affordable. In addition, USDA purchase loans also offer very flexible underwriting guidelines, the ability to finance in closing costs and a competitive a 30 year fixed rate option.
Why is a USDA Purchase So Great?
The USDA still offers 100% financing that makes it the one of the most attractive purchase loans still out in the market,. Also due to its overall low cost as well as flexible underwriting process that allows for compensating factors. All USDA loans are run through an automated underwriting system called GUS (Government Underwriting System) in order to get an approval. In the event your file does not get a full approval through the GUS system, it’s possible for your loan to be manually underwritten by a person who can take certain things into consideration. For example a high credit score, low debt to income ratio, or even assets can help offset negative factors on your application. A USDA lender may even consider other types of payment history like rent or utilities when making a decision on an approval. This common sense type of manual underwriting can make the difference when it comes time to get approved for your USDA loan. In addition to this by not having a down payment requirement and being able to finance in your closing costs will save you literally thousands at closing.
What Are the Advantages of A USDA Purchase?
- 100% financing
- Credit scores down to 640
- Up to 102% loan to value
- Manually underwritten loan OK
- Easy to use gifts for closing costs
- Allows for 6% seller paid closing costs
What Are the Requirements?
- Minimum credit score
- Geographic eligibility
- Primary residence only
- Income limit maximum
- Debt to income ratio cap
- Single Family Residence
What About The USDA Funding Fee?
The USDA funding fee is collected by lenders at closing and is financed into the loan which helps offset the cost to fund the USDA program. There is also monthly mortgage insurance on all USDA home purchases.
Your monthly mortgage insurance will be .40% and 2.0% for the funding fee
Frequently Asked USDA Purchase Questions:
What are the documents I will need?
- Copy of driver’s license
- Copy of social security card
- Two most recent paystubs
- Two years W2’s or Tax Returns
- Fully executed sales contract
- Contact information for insurance agent
What if I can’t afford the closing costs?
You can finance some of the closings costs into your new USDA loan. The program also allows for gift funds from family members or friends.
What kind of loan can I get?
Currently the USDA only offers a 30 year fixed mortgage.
How do I pay for the upfront funding fee?
The funding fee of 2% can be financed into the new loan if you choose.
Is it possible for the seller to pay my closing costs?
Yes, as long as you negotiate the sales contract to include a seller contribution the USDA program allows for certain costs to be paid by the seller at closing.
I’m not a first time buyer can I still get a USDA loan?
Yes, it’s not a requirement to be a first time buyer.
What if I’m not sure if I’m eligible for the USDA program?
Ask your lender to verify all the qualifying factors for you. By simply applying for a USDA home purchase the lender can determine if you qualify or not.
Can I purchase a working farm?
Currently the USDA program is only allowed for primary residential property.
Will I have to get an appraisal?
Yes, an appraisal will be required for your new USDA home purchase completed by an independent appraiser.