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USDA Rural Mortgage Quick Facts
The USDA Rural Mortgage, formally known as the USDA Rural Development Guaranteed Housing Loan, is a 100% financing, zero-down mortgage backed by the U.S. Department of Agriculture. Absolutely no down payment is required from the buyer.
The USDA Rural Mortgage features loose approval standards that most applicants can meet. FICO credit scores as low as 620 are approved and many credit blemishes can be overlooked. Even past foreclosures, short sales, and bankruptcies aren’t generally disqualifying. Applicants with below-average income are also not out of luck. The USDA Rural Mortgage seeks to help lower and moderate income households achieve homeownership. There are actually income restrictions in place that ensure 100% financing is offered first to households that are struggling to come up with a down payment.
USDA Rural Mortgages can be virtually cost-free. All loans are subject to their own sets of closing costs, and the USDA Rural Mortgage is no different. Even though no down payments are required, closing costs are due before the home sale can be completed. Fortunately, with this mortgage, closing costs can be paid by the seller. These seller concessions can include all or part of the buyer’s closing costs as well as various state and local taxes, lender and title fees, and other costs. This is performed by increasing the purchase price to accommodate whatever fees are due so the buyer can pay out the costs with their monthly mortgage payments.
The USDA Rural Mortgage enforces geographical restrictions for homes it finances. These homes must reside in “rural” areas that have been defined by the USDA. The description “rural” shouldn’t be discouraging, though, as the majority of U.S. terrain is eligible. The homes may be new constructions, foreclosures, or existing properties as long as the financed home will be the buyer’s primary residence. USDA does not enforce a maximum purchase price for insured homes.
USDA mortgage rates and mortgage insurance are among the most affordable in the market. Since the Rural Mortgage is guaranteed by a government agency, USDA loans have more protection than comparable loans and are therefore less risky for investors. Less risk means lower rates. USDA’s mortgage insurance is provided in the form of a guarantee fee. This fee is made up a 1.00% upfront fee and a .35% annual fee. So, 1.00% of the purchase price is due as an upfront fee and .35% of the purchase price is lumped in to the total loan price. Instead of requiring buyers to pay the upfront guarantee fee out-of-pocket, the fee is rolled into the total loan amount as well. In comparison, FHA mortgage insurance consists of a 1.75% upfront fee that is not financed into the loan and a .85% annual fee. USDA Rural Mortgage payments are more affordable than almost all other mortgages on the market