Did you know you can buy a house using a USDA Loan without putting any money down at the closing table? Although it may sound too good to be true, the United States Department of Agriculture Guaranteed Rural Development Loan, also known as a UDSA or rural development loan, helps potential homebuyers become homeowners with several advantages that other lenders and loan programs can’t touch.
Here are, in my opinion, the six best ways a USDA loan benefits homebuyers.
- No Down Payment
The USDA loan program allows homebuyers to obtain 100 percent financing. This is undoubtedly the greatest benefit of using a USDA loan. First-time and repeat homebuyers are eligible for this loan program. One of the biggest hurdle most first-time buyers face is the ability to gather enough funds for a down payment. The USDA Loan in AZ solves this problem!
In comparison, borrowers are required to supply a minimum 3.5 percent down payment for an FHA loan and 3 to 5 percent for a conventional loan. A VA loan is the other 100% financing option currently available to obtain 100% financing.
- Lower-Than-Market Interest Rate
Because a USDA loan is insured by the U.S. Department of Agriculture, borrowers are offered a low, across-the-board interest rate that does not vary based on their credit score or down payment, as it does with conventional financing. It averages lower than all other types of loans!
- Low Monthly Private Mortgage Insurance (PMI)
Private mortgage insurance is required for any loan with less than 80 percent loan-to-value, regardless of loan program. So, if a borrower is taking advantage of the USDA loan’s no required down payment, they will be required to pay monthly mortgage insurance.
The upside is that the USDA loan’s private mortgage insurance rate is the lowest of any loan program and doesn’t change based on your down payment, as it does with conventional financing. Currently, the USDA loan’s PMI annual fee is 0.35 percent, based on the loan’s remaining principal balance. It is amongst the lowest across all other types of loans. This helps in keeping the monthly payment even lower thanks to recent reductions.
- Flexible Credit Guidelines
This government-backed loan also allows some borrowers with blemished or limited credit histories to qualify for home financing. Lenders may accept “alternate” tradelines, such as rent, utilities, cell phone bills, etc. to represent a payment history if the borrower’s credit history is too short.
- Ability to Finance Upfront PMI
As with FHA loans, USDA loans also requires an upfront premium of 1 percent of the loan amount. The USDA allows borrowers to roll this fee into their financing and close on the loan without putting any money down.
- Use Appraised Value Instead of Purchase Price
USDA Loans are the only loan that I am aware of that allows the use of appraised value regardless of sales price. Normally the lower of the two must be used in conjunction with obtaining financing. This means if the appraised value comes in higher than the sales price, you can use that for closing costs. This truly is one of the best loans. Contact us today to learn more or begin the application process.
We have several agents who specialize in the USDA Eligible areas and would be happy to make a recommendation for you.
As with any home loan, borrowers wishing to finance with a USDA Guaranteed Rural Development Loan are subject to eligibility requirements, including income, property, credit, and area. Click here for more information on how you can get a USDA loan or Apply Online for a USDA Loan and our USDA Loan Specialist will be in touch to assist you with the process.