The program's full name is the USDA Rural Development Guaranteed Housing Loan program. Most people call them "USDA loans" or "Rural Housing Loans." USDA loans are insured by the U.S. Department of Agriculture and the program's most popular feature is its option for "no money down" financing. Via the USDA, you can finance 100% of a home's purchase price.
It is a common misconception that these loans are only for farm types of properties. In fact, income producing farms are not eligible for the program. 118 of Kentucky's 120 counties contain areas that are eligible for program (Jefferson & Fayette Counties currently ineligible). The property cannot be located within the city limits of a municipality with a population level determined by the U.S Census with a limit set by the USDA. As populations, limits, and guidelines change over time, a Trustpoint Mortgage Loan Officer can help you determine if your property location is eligible.
A USDA loans are similar to other loan types including loans via Fannie Mae and Freddie Mac. USDA loans differ in their down payment requirements (none required) and its simpler loan approval standards. Rural loans can be used by first-time buyers and repeat home buyers alike. Homeowner counseling is not required to use the USDA program. Mortgage insurance premiums are also often more attractive than many alternative financing types.
In 2012, the U.S. Department of Agriculture revamped its Rural Housing Loan program. Formerly, the loan program was taxpayer-subsidized; funded by the government. Today, similar to the Federal Housing Administration's FHA mortgage, the USDA uses homeowner-paid mortgage insurance premiums to keep the program going. Since October 1, 2012, USDA mortgage insurance rates have been :
- For purchases, 2.00% of loan amount upfront fee paid at closing
- For refinances, 2.00% of loan amount upfront fee paid at closing
- For all loans, 0.40% annual fee, based on the remaining principal balance
As a real-life example, then, a homebuyer with a $100,000 loan size in Mount Washington, Kentucky would be asked make a $2,000 upfront mortgage insurance premium payment at closing, plus $33.33 in mortgage insurance monthly.
The upfront mortgage insurance is not required to be paid as cash and the amount is often added to your loan balance even above the purchase price and appraised value of the home. USDA is one of the only loan types that allows you to also finance in other closing costs and prepaid items above the purchase price up the appraised value if it is greater than the purchase price of the home.
Also similar to the FHA, the USDA requires mortgage insurance premiums to be paid until the loan is paid-in-full, or until the home is sold. USDA mortgage insurance rates are lower than those for a comparable FHA mortgages.assess a 1.75% upfront mortgage insurance premium and charge as much as 1.55% in MIP annually.
While the USDA sets minimum qualification standards for Rural Housing loans, lenders can vary widely in their approval guidelines and pricing for USDA loan products. Lenders add their own additional guidelines (often called "overlays") that impose additional restrictions on borrowers. These additional restrictions can prevent borrowers from being approved with some lenders even though they would be considered well qualified by others. Trustpoint Mortgage Loan Officers work with multiple lenders and are experts on these additional guidelines. This allows us to not only shop the best price for our clients, but also to place them with the lender whose guidelines are not in conflict with any challenges they may have in qualifying.