What is an USDA mortgage loan?
USDA Loans or US Department of Agriculture Loans are offered on the purchase of properties located in rural areas of the country. USDA Loans, which are also known as “USDA Home Loans”, “Rural Housing Loans”, or “Section 502 Loans”, are offered to eligible rural and suburban home buyers who are looking for a no-money down, 100 percent mortgage financing for their primary homes.
USDA loans are insured by the US Department of Agriculture and are best-known for their ‘no-money down’ financing feature. These are designed to help low to moderate income households purchase a home in a USDA-specified rural area. The USDA Home Loan Program offers 100 percent financing for all approved submittals, and besides VA Loans, it is the only loan program in the US that requires no down payment.
Here's a quick rundown of our list:
- How big of a house can I get under the USDA mortgage loan?
- What can I use the USDA mortgage loan for?
- Do I have to pay a down payment with a USDA loan?
- Do I have to pay insurance for this loan?
- What kind of forms do I need to have for the USDA mortgage loan?
- Where can I purchase a house with a USDA loan?
- What kind of terms are available with guaranteed USDA loans?
- What are the different kinds of USDA loans?
Q: How big of a house can I get under the USDA mortgage loan?
When it comes to purchasing a home with a USDA loan, you will be fairly limited in what you are allowed to purchase.
Unlike the FHA loan, you will only really be able to fund the purchase of a single unit home. If the home has the potential for earning rent, then the home will be ineligible.
The purpose of making some home ineligible is because homes that qualify the USDA loan should be modest.
This criterion is part of the qualifying process.
As for what kind of home you are allowed to purchase, factory built homes or mobile homes are the ones that you are not allowed to purchase.
Q: What can I use the USDA mortgage loan for?
There are three different mortgage loans.
Two of them are for the actual purchase of a home.
The final loan is for home improvement.
This loan is intended for those that have low or very-low income to help them purchase a home or to help remodel a home so that they will be able to live a little more comfortably in it.
Q: Do I have to pay a down payment with a USDA loan?
There is no down payment associated with a USDA loan.
However, you will have to pay a two percent guarantee fee for two of the loan types.
The one loan type that doesn’t require a payment at all is the direct USDA loan.
However, a 2 percent fee is still much lower than any down payment that you would have to pay on a conventional loan.
Q: Do I have to pay insurance for this loan?
Yes, you do have to pay insurance on this kind of loan.
Mortgage loan insurance may seem inconvenient for you, but it helps protect the loan as well as your lender.
The only loan type where insurance payments are not common is the VA loan.
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Q: What kind of forms do I need to have for the USDA mortgage loan?
You will need a number of forms in order to prove a number of different things when trying to apply for a USDA loan.
USDA loans require verification of credit as well as credit information.
The kinds of forms that you will need depend on the work situation that you find yourself in.
Regardless of the kind of work situation that you have, you should be able to provide at least two years of documentation about your situation.
Your credit history will be built off of your credit score as well as reports on all the accounts that you hold.
This is done to ensure that you will be able to pay back the loan amount without your account going delinquent.
While these strict requirements might be a little bit of a hassle to gather, it just helps make sure that you are financially able to deal with the situation that you are getting into.
Q: Where can I purchase a house with a USDA loan?
Whether you’re going through the direct USDA loan or the guaranteed USDA loan, your location for your future home will be a little bit limited.
These loans are meant to be used for the purchase of a home in a more rural area.
There are maps that will help you figure out where your home has to be in order to qualify for the USDA loan.
The term rural is used in a rather loose fashion, so you should really check out the property and see if it will qualify for the USDA loan.
Q: What kind of terms are available with guaranteed USDA loans?
While other loans have many options, the guaranteed USDA loans are really quite limited in what you are going to get.
In fact, there aren’t really options.
If you want a USDA loan, then you are going to have to deal with a 30-year term and a fixed interest rate mortgage.
While this limiting factor is terrifying for some people, there is a reason behind this madness.
Because this loan is specifically for lower income families and individuals, they want to ensure that you are going to have plenty of time to pay back your loan.
When it comes to paying back that loan, there is no fee for prepayment.
This makes it easier for a lot of families to continue to tackle the issues of buying a home.
Even if you want to pay off the loan before the 30-year term, you will be able to do so without any issues from the USDA.
Other loans might make you face penalties for such a payment, but that is not true with any of the USDA loan types.
Q: What are the different kinds of USDA loans?
There are two loans that are intended for the purchase of a home and one loan that is intended for fixing up a home that already exists.
The loans for the purchase of a home are the direct USDA loan and the guaranteed USDA loan.
The direct loan comes from USDA, while the guaranteed USDA loan comes from a third party lender.
There are benefits to both types, but you’ll have to feel out which one suits you the best.
The third kind of loan is a smaller loan that is meant only for trying to fix up an existing home.
This loan is rather nice for people that need just a little bit of extra capital to help fund those home improvement projects that their house has so desperately needed.
This loan is typically used to make a home more habitable and deal with really bad issues first, rather than just fix up an existing home a little bit.
What do you think?
Leave your comments below – or text/call me at (760) 297-4539.
Your USDA Mortgage Insider,