USDA Loans - Not Chicken Feed Mortgages

Posted by  on Mar 30, 2010

When searching for homes and financing, consider the savings from USDA loans. Your rewards are at closing and throughout the loan's life, and can easily amount to many thousands of dollars. There's also your possibly reduced loan qualification requirements.

Perception of this widely unknown loan program is its applicability only to farmers, or for homes in mid-America's breadbasket. Conceptually, it is actually available for homes located just beyond your city or town's suburbs. You can easily determine a specific property's eligibility by entering the address in the Rural Development database.

This loans uniqueness is also in qualifying both your finances and the selected home. Acceptable homes are existing or new construction (townhomes, condominiums and newly manufactured homes on permanent foundation) primary residences located in USDA-defined rural areas.

Here are some of the more attractive USDA loan features:

  • No maximum loan amount as long as you qualify to make the payments
  • Liberal $70,750 income limit (one to four person family); $93,400 (five to eight)
  • 100% financing, avoids using your assets for down payment
  • Financeable 2% purchase funding fee or .5% for refinancing, which is lower than mortgage insurance or VA funding fee
  • First time home buyer $8,000 tax rebate applies (program in effect until November 2009)
  • Use home equity when refinancing for repairs, including appraisal concerns on livability or home safety
  • Seller, builder or other third-party contributions are allowed for closing costs including interest rate buy-downs
  • Fully amortized, 30 year, fixed rate loan
  • No prepayment penalty

The USDA loan benefits outweigh some unusual restrictions, such as in-ground swimming pool prohibited, and some states require first time home buyer counseling. Major refinancing limitations are:

  • Cash out is not permitted
  • Available only for existing USDA loans (not FHA or VA)
  • Home equity seconds (Home Equity Line of Credit - HELOC) are not included

Each state's RDA (Rural Development office) answers USDA-only loan questions. Be aware different lenders may increase requirements (example: one lender requires 640 credit score). So with USDA loans, shopping for a loan may require more than finding the best interest rate quotes. Check with several lenders if qualifying might be a problem


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