What are USDA Loans?
USDA (United States Department of Agriculture) loans are not just for farm properties! To encourage home buyers to populate up-and-coming neighborhoods, many suburban and ex-urban neighborhoods are USDA-eligible, meaning you can potentially buy your dream home with no money down. USDA loans have no maximum loan size, and they are available with both 30-year and 15-year fixed-rate terms. Rates for these loans are often lower than those on conventional mortgages, and refinancing a USDA loan is easy to do if rates fall even lower in the future.
How Does a USDA Loan Work?
There are both geographic and income limitations with USDA loans, but there is not a limit on loan amount (unlike FHA). USDA specifies certain geographic regions that are USDA-eligible. In addition to the above limitations, USDA loans may only be used for primary residences, and the buyer must meet credit and debt-to-income standards.
Does USDA Have Limitations?
There are guidelines that we follow in regards to down payment, debt-to-income ratio, credit scores, and reserves/emergency funds, but each loan is truly evaluated on a case-by-case basis.
Are There Any Fees Associated With a USDA Loan?
Yes – there is an upfront mortgage insurance fee on both purchase and refinance transactions; the good news is that it can be rolled into your loan amount. This is a government loan, so the fees associated with the loan are put in place to keep the program alive and funded. Additionally, USDA loans require an annual mortgage insurance fee. This fee is paid monthly and is based on the remaining principal balance on the loan. If you’re interested in purchasing a home with money from an immediate family member, you’re in luck – the USDA allows the use of gift money.