First time home buyers across the nation can still obtain 100% home financing thanks to the USDA 502 Guarantee Loan Program. The USDA loan requirements 2016 are the same for all states and any USDA loan expert will know how to quickly identify approved USDA houses in your area. Below we will cover the important info regarding the first time buyer USDA loan and identify if the program is best for you.
- The USDA rural loan program is NOT exclusively a first time buyer program – First-time buyers are typically defined as a person who hasn’t owned a house in the last 3 years. You can use the USDA loan program if you’ve owned in the last 3 years, but you typically cannot own more than one home at a time. Some exceptions apply, such as a job relocation or owning a home in another area.
- The USDA loan program is a zero down, 100% loan program. You can buy using the USDA program with no money down. What’s best is the affordable rates and low costs are not impacted by the size of your down payment. Whether you put down no money, or large down payment, the loan rate and government fees stay the same.
- The USDA mortgage is not for farm land and ranches. Many people mistake the USDA program as a farmer only loan. Not only is not a farm loan, you cannot use this program on an income producing property. It is for regular homes outside the highly-populated cities, most these area’s are considered rural eligible. Many people don’t know that there are many more areas eligible for USDA around the U.S major cities. Contact us below to discuss your location in detail.
- There are two USDA programs, the Guaranteed program and the Direct program. The Direct program is designed for low income households. Most USDA home buyers fall under the moderate income – 502 Guaranteed SFHLP. Below we will cover specifics of the 502 Guaranteed program on this post.
USDA 502 Guaranteed Program
The Guaranteed program is offered by approved USDA lenders only, not directly by USDA. The program is a 30-year fixed loan that allows zero money down. The home buyer’s income must be equal or less than a pre-determined percentage of the median income in the area. If a home buyer’s income exceeds the limit, they can deduct certain expenses like child care expenses, disability, elderly care. These expenses to reduce the household income calculation in order to qualify. Also, the income limit is based on the area and also size of the household, so a family of 5+ can have much higher income than a family of 1-4. Here are some bullet points on this program:
- 30-year fixed loan with no money down
- No loan amount price limits – borrowers loan qualifying limit is based on the income/debt
- Low fixed interest rates (USDA interest rates are very similar to FHA or VA Mortgage rates)
- Flexible credit guidelines – 620 credit score needed
- Income limits are around the average income of the area, so many will qualify
- There is no recapture fee (no penalty for selling the house)
- Can often be combined with state assisted programs, such as down payment assistance to help pay closing costs or make a down payment to lower the loan amount.
- USDA closing costs can be paid by the home seller, and/or added to the borrowers loan amount with a satisfactory appraisal.
- The home being purchased can be any single family home, condo or town house located in a USDA approved location. No other special designations needed.
An eligible USDA home buyer is usually defined as a person who makes the average/median income for the area and is looking to buy in a rural area. Please don’t automatically assume your location is not eligible, you may be surprised. One of the most compelling features of the USDA loan is the low costs. The USDA charges an annual fee and upfront fee similar to FHA loans, but the mortgage insurance costs are substantially less. Comparably, a home purchased on a USDA loan with no money down has a substantially lower payment than a FHA loan with 3.5% down using the same interest rate. Here is an example:
3.75% rate (NOTE: This rate is not the rate of today, just used for example below)
Payment below include principal, interest, guarantee MIP fee, and monthly mortgage insurance costs
$3.75% or $6,125 down payment REQUIRED DOWN PAYMENT
$168,875 Base Loan Amount (Before the government adds their fees)
$171,830 Final Loan Amount with upfront Mortgage Insurance (1.75% FHA fee)
Principal/Interest Payment = $917.00
0% OR $0 DOWN PAYMENT
$175,000 Base Loan Amount
$179,812 Final Loan Amount with upfront Guarantee Fee (2.75% USDA Fee rolled into loan)
Principal/Interest Payment = $907.00
FHA is certainly a great option for home buyers that want to purchase in more populated locations. Or home buyers that have higher income. However, if you meet the eligibility requirement set by USDA, this should be your first option.
In summary, the first time buyer USDA loan requires NO down payment, and the monthly payment is still cheaper when compared to FHA loans. There’s no question that any home buyer who’s considering FHA financing should look into the USDA Guaranteed program before they purchase – even if they have the minimum required 3.5% FHA down payment. Remember, with the USDA program you are not required to go 100% financing, you can put down money if you choose to.
Home buyers that have questions about application or applying can reach USDA Mortgage Hub at – www.UsdaMortgageHub.com or call ph: 800-691-8826. USDA Mortgage Hub serves all 50 states nationally.
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