Let’s look at a hypothetical: You’re ready to buy a home. You really don’t have enough cash for a down payment. You’re looking around a homes for sale with your Realtor®. Your Realtor® suggests finding a home for sale in an area eligible for a USDA financing. Now, you have questions about USDA mortgages.
In this post, I’ll tell you 5 key benefits about this loan program that could help you get the home of your dreams with affordable perks.
What is a USDA Loan?
A USDA Mortgage is a residential home loan available to those borrowers buying homes in rural areas. The USDA guarantee mortgage is also known as The Rural Development Guaranteed Housing loan.
USDA describes this loan program as a program that “Assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas”.
Here are five benefits of a USDA loan program
#1 100% Financing
Eligible borrowers may be eligible for a loan with 100% financing. This means you may be able to buy a home requiring no down payment.
For example: a FHA mortgage may require a down payment between 3.5% and 7% of the purchase price.
If you buy a home for $150,000 and are required to put a 3.5% down payment to buy it, you’ll need to come up with $5,250 at settlement. You may even need to pay closing costs as well.
With a USDA mortgage, you may be able to save the $5,250 down payment and get a mortgage for the full $150,000 purchase price.
#2 Closing Cost Assistance
A unique benefit of this mortgage program is if the appraised property value exceeds the sales price, the borrower has the opportunity to increase the loan amount to cover all or a portion of the closing costs.
#3 Fixed Affordable Interest Rates
USDA is accompanied by a fixed affordable interest rates. There can be many advantages to getting a more affordable interest rate. Manly your FICO credit score will determine how low your interest rate may be.
The better your credit score, the better chance you’ll have a lower interest rate. Your debt to income ratio will be a factor as well.
#4 Mortgage Insurance Calculated on Affordable Scale
Although it is required, the Mortgage Insurance is calculated on an affordable Mortgage insurance scale.
USDA assesses a 2.00% upfront mortgage insurance premium – and a 0.40% in MIP annually, paid monthly.
Here’s a look at mortgage insurance premium fees with USDA mortgages:
- For purchases: 2.00% upfront fee paid at closing
- For refinances: 2.00% upfront fee paid at closing
- For all loans: 0.40% annual fee, based on the remaining principal balance
For example: if a homebuyer with a mortgage $100,000 loan would be required to pay a $2,000 upfront mortgage insurance premium payment at closing, plus a monthly $33.33 payment for mortgage insurance. This
#5 Flexible Credit Underwriting
USDA offers flexible credit underwriting requirements for low to moderate wage earners. Your credit score will determine if you’re eligible for any loan. USDA considers it’s financing based on financial situation for lower to moderate-income families. This can create beneficial opportunities for first time homebuyers.
Originally posted on Delmarva Home Relief