Introduction to USDA Loans

USDA loan programs are a great way for some borrowers to qualify for a loan. The purpose of the loan is to help borrowers with lower incomes buy rural properties with little money down, low interest rates, and low mortgage insurance rates.  Qualifying for a USDA loan can be akin to threading a needle, but for borrowers who can take advantage of qualifying for this program it can be a great loan that really helps them get the best possible deal when purchasing or refinancing a house.

 

Benefits of a USDA Loan

1) A USDA loan often times does not require a down payment!  USDA loans are great for borrowers who do not have a significant amount of money to move into a home. With no money down required for a down payment, the borrower who chooses a USDA loan can often times move into a house with no money out of pocket, if they can negotiate with the sellers for closing cost contributions.  A borrower on a USDA loan can also receive a credit for closing costs from the lender, meaning many borrowers will either bring no money to the table at closing or even receive a check back when they get their keys.

2) Lower interest rates!  Because a USDA loan is backed by the government, interest rates on a USDA loan are typically much lower than a conventional rate for similarly situated buyers.  We have seen buyers save between 0.5-1.0% on their loan rates when moving from a conventional loan to a USDA loan. This could lead to a savings of $100 or more, on interest rates alone.

3) Lower funding fees and lower mortgage insurance!  FHA up front funding fees can be upwards of 1.75% and carry mortgage insurance premiums of 85 basis points.  USDA loans, at 1.0% up front funding fees and 35 basis points can see borrowers up front lending costs cut in half, and see borrowers monthly mortgage insurance premiums more than cut in half.

4) Lower credit score requirements!  USDA loans can have lower requirements on credit scores than conventional loans, which means that borrowers who might not qualify for conventional financing might have an option other than FHA loans if they can qualify

USDA Loan eligibility and requirements

The eligibility for USDA loans can be very tricky.  First and foremost, the property has to qualify as rural. Now, in the State of Texas we have a ton of properties that most people wouldn’t typically conceptualize as rural qualify under the rubric. If you have an exact address in mind you can click here to see if that property qualifies for the program by address.  Conceptually though, the buyer should know that houses as close as 30 miles to major city centers in Texas such as Houston, Dallas, Austin or San Antonio can often times qualify. This goes on an address specific property so look it up at the above link or contact us to see if the property you are looking at qualifies.

Not only does the property need to qualify but there are income limits on the household for the borrowers and family.  These can be found, for the state of Texas by clicking here  This stuff is really complicated to see if you qualify, and it varies by county and geographic area, as the standard upshot is that the borrower’s income must be within a narrow band of the average median household income for the area in question, which can be affected by family size.

Household debts are considered (regardless of who is actually signed up as a borrower on the loan) as is household income for qualifying purposes. I’m going to stress here, for the 3rd time that this is not an easy loan to see if you qualify for and should definitely be dealt with by a professional. It’s very technical and complicated how eligibility is considered, and the loan must be underwritten by both your lender and the USDA, making it a two step process that can take upwards of 30-45 days to see a loan get closed.

Mortgage Insurance Premium

As discussed above, USDA Mortgage premiums are less than those of FHA- at 1.0% for a funding fee in a typical scenario 35 basis points on a monthly basis.  The funding fee and monthly basis points change from time to time, but this is the most recent incarnation in 2018

USDA Loan Limits

There are no loan limits for a USDA loan.  Sounds simple, right?  Maybe not so much.  The fact of the matter is that USDA loans have an income cap based on geography, they have a DTI cap that’s lower than other government (and sometimes conventional loans) and take into account household size.  How much loan you qualify for isn’t based upon an arbitrary number out of Washington DC, but functionally it can be hard in some areas to qualify for even a median priced home, depending upon debt level and household size.

How We can Help

There are a maze of confusing eligibility requirements dealing with household income, household debt, property qualifications and the like.  In general terms, the people we see that qualify for a USDA loan typically have very low household debts (Cars, Credit Cards, Student Loans etc) and are typically people that make somewhere less than $75 or $80,000- $100,000 depending again upon household size and geographic area where they are working.
We’ve put people in USDA loans.  They are GREAT loans if you can qualify, better than FHA and conventional loans for most qualifying individuals.  There is a lot of technical know how required. We have that experience and knowledge. If you want to see if you qualify for a USDA loan please email me at gabekmg@gmail.com, call me at 832-557-1095 or apply here now!