What is a USDA Loan?
USDA loan is a home loan that is backed by the United States Department of Agriculture. It falls under their single-family housing program. The program is designed to serve individuals in Missouri and throughout the U.S. that are low to moderate-income in rural areas. The program is facilitated in two different ways. Borrowers can work directly with their local USDA office in what’s called a USDA direct loan. The other way is to work with a local lender who offers the USDA guaranteed loan. Both carry the same features for the most part.
What are the benefits of the USDA home loan?
There are several benefits to the USDA home loan. The most obvious and popular benefit is the 100% no money down feature that the product offers. Homebuyers can use this loan product without having to put any money down for a down payment. The veterans home loan is the only other loan product that offers this and that is designed for military veterans only. In addition to no money down, there are several other great things about the USDA loan. The seller in the transaction can pay up to 6% of the sales price towards the buyers closing costs. For example, in a transaction where the sales price is $107,000 the seller can pay up to $6,420 towards the buyer’s closing costs and escrow items. The loan product is also attractive due to the flexibility with the borrower’s credit profile.
What is the minimum credit score for the USDA rural development loan?
The quick answer to this is that the USDA rural development loan across the country does not technically have a minimum credit score. This is left up to the individual lender to decide what score they will allow. The largest range seen for individual lenders is 620-660. Some lenders like Primary Residential Mortgage are more flexible and allow a 620-credit score. Homebuyers are encouraged to have this discussion with their loan officers prior to making an offer on a home.
How do I check the USDA eligibility map for a home?
Checking to see if a property is eligible or in a qualifying area is very easy. The USDA website under their single-family housing program page has a link to the USDA eligibility map. Users can search by a specific address just by entering the address in the search bar and hitting enter. It will then show if that property qualifies or not. Another way to search without a specific address is to zoom in and out on the map to see the qualifying and qualifying areas. This is good for borrowers who are on the front end of their home search. It will let them see what areas to look for homes in. The map clearly shows the contrast between the qualifying and nonqualifying areas.
Do I have to be a first-time buyer to obtain a rural development loan?
No borrowers can be first time home buyers as well as move-up buyers. There is no restriction when it comes to previous homeownership. There is a related feature that move-up buyers need to be aware of. While the rural development home loan does allow move buyers it does not allow borrowers to have more than one home even if they can income qualify with two. Most people in this situation will have the closing set up a few days’ prior on their current home to sell then close on their new primary residence with the rural development home loan.
Can I buy a for sale by owner with the rural development loan?
Yes, home buyers can purchase from a private seller without a real estate agent. Additionally, homebuyers can purchase from any type of entity such as a bank, trust, or cooperation with or without a real estate agent involved.
Is there an acreage limit with the USDA Loan?
The USDA loan does not necessarily have a limit on the amount of acreage a property can have. Like anything though there is another side to this. When a property has so much acreage that the value lies mostly in the land versus the home that becomes an issue. It is then a land loan. This loan program is for single-family housing. The rule of thumb is when the acreage exceeds 30% of the total value. In addition to having a land versus housing ratio issue, it also becomes challenging to find comparable sales for the appraisal when there is excess land.
What is the meaning of household income when it comes to a USDA home loan?
The USDA home loan has a unique qualifying feature that most other loan types do not have. Since the USDA home loan is designed for households in low to moderate-income areas borrower’s household incomes are limited based on the median income for the given area. The program allows for 115% of the median household income of the area. For example, if the median household income is $62,000 then the maximum allowable income is $71,300. There are a few deductions from the income such as a child credit. The credit is $480 per child. If there are 2 children in the home then $960 is subtracted from the total calculation.
Does the USDA loan allow homes to have a septic tank?
Yes, homes with septic tanks are eligible. It’s not uncommon for homes in the more rural parts of parts of the county not to have city water and sewer so septic tanks are not uncommon. They must be fully functional and meet local and federal guidelines related to septic tanks.
Does the USDA mortgage have mortgage insurance?
USDA mortgage does not have mortgage insurance as we are used to but it does have a similar fee. The fee is identified as the guarantee fee. There is an upfront guarantee and a yearly guarantee that is paid out monthly. The upfront fee is 1% of the loan amount. An example of this would be on a $79,000 loan amount the fee would be $790 making the new loan amount $79,790. The yearly fee uses a factor of .35% making it $23.25 per month.
How long is the loan process for USDA loans?
The answer to this will vary from the time of year as well as the individual lender. Typically, the real estate market is slower in the fall and winter months and busier in the summer months. This directly impacts the workload of the lender and the time it takes them to manufacture a loan. On average most lenders take 30-45 days to complete an USDA loan.