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USDA Home Loan Frequently Asked Questions

What Does USDA stand for?

The acronym USDA means United States Department of Agriculture.

What is a USDA home loan?

A USDA home loan is a loan that is backed by the United States Department of Agriculture.

Who can benefit from a USDA loan?

Anyone that meets the requirements of the USDA single-family home loan program can participate. By definition, the loan program is designed for individuals of low to moderate-income in rural areas.

What does a USDA guarantee mean?

What this means is when you have a USDA loan it is guaranteed by the Department of Agriculture. If a borrower defaults on the loan the USDA is backing or guaranteeing the loan against default.

Can I get a USDA loan if I already have a home loan?

For the most part, the USDA loan program does not allow a person to obtain a USDA loan if they already have a home loan. There are a few exceptions related to relocation and an increase in family size.

What’s the difference between the USDA Guaranteed loan and the USDA Direct loan?

There are two different paths for a home homebuyer to obtain a USDA home loan. One is the USDA Direct. As the name suggests the borrower will work directly with their local USDA office to obtain a loan. The USDA Guaranteed home loan is obtained when a home buyer works with a private lender such as Primary Residential Mortgage to the loan. Private lenders make the loan following the guidelines set forth for the single-family housing program and the USDA guarantees the loan against default.

What’s the maximum loan amount for a USDA home loan?

The USDA home loan program does not have a maximum loan amount guideline. If a borrower can meet the household income requirements and the debt-to-income requirements any loan amount is acceptable.

What are the closing costs for the USDA home loan?

Closing costs can vary some from lender to lender. The variances from different lenders are typically a small margin. The bulk of the costs come from third party fees such as title fees and appraisal fees. It's highly encouraged that borrowers get a detailed list of these costs from their lender before making an offer on a home.

Do I need a down payment for a USDA loan?

No, a down payment is not required for the USDA loan. This is the most popular feature of this loan product. It is a true 100% home loan. It’s the only loan for non-veterans that does not require a down payment. Borrowers if they choose to do so can put money down but are not required to.

Does the USDA home loan require mortgage insurance?

While the loan product does not technically have mortgage insurance it does have a similar fee called a guarantee fee. There is an upfront guarantee fee and an annual fee that is paid out monthly. Currently, the upfront fee is 1% and the yearly fee is based on a factor of .035%

What is the minimum credit score for a USDA home loan?

The USDA does not have a minimum credit score requirement for the Single Family Home Loan Program however it is left up to the individual lender. The most common credit score range for lenders is usually 620-640. Lenders like PRMI will go down to 620.

What are USDA home loan interest rates?

Interest rates on the USDA Home Loan will vary from lender to lender. With that being said competition keeps individual lenders in a competitive range. A good rule of thumb for USDA rates is to look at the other government-backed loans such as FHA and VA. The USDA rates typically fall in line with those loan types.

What types of homes are eligible for the USDA loan?

Regardless of the type of home, it must be owner-occupied. The USDA Single Family Program does not allow investment properties. Single-family homes as well townhomes and planned unit developments are all eligible.

Can I buy a foreclosed home with the USDA loan?

Yes, foreclosures and REO’s are eligible. The key to buying a bank-owned or foreclosed property is the property’s condition. Often times these homes are left in a state of disrepair, so these things will typically have to be fixed prior to closing.

Does it cost anything to apply for a USDA loan?

No, there is no cost to apply for a USDA loan. It's very simple to apply. Just contact your USDA lender and ask for their application. Many lenders offer an online application that make sit much easier.

Do I have to be a first time homebuyer for a USDA mortgage?

No, the USDA home loan program is available to not only first-time homebuyers but move-up buyers as well. The only caution for move-up buyers is to remember they must sell their current home in most cases before closing on a new USDA mortgage.

Does the USDA loan have a pre-payment penalty?

There is not a pre-payment penalty with the USDA home loan. Homeowners that want to pay more on their payment can do so each month. Additionally, if the home is sold or paid completely off there is no penalty.

Can I do a USDA refinance?

Homeowners that want to refinance using the USDA loan program do so if their current loan is a USDA mortgage. The USDA program does not allow refinances of non-USDA mortgages.

Does the USDA eligibility map change?

Yes, the USDA eligibility map does change from time to time. The changes are based on moving and growing populations so as a new census comes in the map may change with population growth or decline.

Can I get a USDA loan in the event of relocation?

Homebuyers that are relocating from one state to another or from one area of their current state to another can still participate in the USDA loan program. All other requirements still apply.

How do I find USDA eligible homes?

Homebuyers will need to first find areas that qualify and then do a home search in those areas. A good practice would be to contact a realtor that is familiar with the market once you identify an area. The property does not have to be listed with a real estate firm. Homebuyers can buy bank-owned and for sale by owner homes as well.

Does the USDA mortgage allow me to include my closing costs?

Yes, there are two different routes to get some of or all of your closing costs covered with the USDA loan. The first and most common is to negotiate them the seller to pay. The USDA loan allows the seller to pay up to 6% of the sales price towards the buyers closing costs. In most cases, this is more than enough to cover all costs. For example, if the sales price is $100,000 the seller can up to $6,000 of the buyers closing costs and pre-paid's. The second method is to roll the costs into the loan above the sales price. In order to this, the property must appraise for enough to cover those costs.

Do I have to have an appraisal for the USDA loan?

If you are buying a home you must have an appraisal. Those typically range between $550 -$650. The costs can vary based on the property location and complexity of the market. If the property is more rural or remote it may cost more. Additionally, if the property has excess acreage the cost may go up. The buyer is usually responsible for this cost since it is a third party fee.

What does 101% financing mean with the USDA loan?

The USDA home loan has a 1% guarantee fee which is added to the initial loan amount. When this is added the loan to value or LTV then becomes 101%. Essentially the government is charging a 1% fee but rolling it into the life of the loan so the impact to the borrower is minimal. It’s a very trade-off to be able to participate in this program. As mentioned earlier there is a yearly fee that is paid out monthly.

I found a home that I love but it has foundation issues. Will this pass a USDA inspection?

The USDA home loan follows many of the same requirements set forth by HUD such as the VA and FHA loans. In most cases, major issues like foundation repairs will need to be fixed prior to closing. A lot of it comes to a judgment call of how bad the issue actually is. The underwriter will have to review and make the final decision if repairs are needed.

Does the USDA loan require me to live in the home for a certain amount of time?

No, you can purchase and close on a home with the USDA loan and then turn around and sell the home at any time with no penalty or restrictions. This is the same standard that home buyers see with the FHA and Veterans home loan. Any government-backed loan will allow this flexibility.

Does the USDA loan program have income limits?

Yes, the USDA home loan program does have income limits. Those limits will vary from county to county. The household income limits are 115% of the median household incomes for a given area. The simple way to calculate this is to take the median household income for an area and multiply it by 15%. For example, if the median household income is $62,000 then the maximum income would be $71,300. The math this is $62,000 x 15% = $9,300 + $62,000 = $71,300.

What is the dependent credit?

The dependent credit is taken from the household income. For each depend in the home there is a $480 credit. An example would be if there are three children in the home the credit would amount to $1,440. This would then be subtracted from the household income. In cases where the income is close to going over the maximum, this may help.

Can I put money down on a USDA mortgage?

Yes, homebuyers can put money down if they choose to do so. A critical thing to remember is that the USDA mortgage is designed for homebuyers that do not normally have the assets or funds for down payments so there is a rule that if a buyer has the finances for a 20% down payment, they may not be eligible to participate in the program.

Can the home have a swimming pool?

Yes, homes may have swimming pools and still be eligible for the USDA loan. The critical piece to remember about swimming pools and the USDA loan and any other government-backed loan is that they must be safe and in working order. If the pool is not working and functioning properly that may cause a problem. One of the main focuses of all the government-backed loans is safety for the individuals occupying the home and a non-functional swimming pool could cause a major safety issue.

Do I have to escrow with a USDA loan?

Yes, homebuyers that utilize the USDA home loan program are required to escrow their taxes and insurance. The benefit of escrowing is it keeps homeowners from having to come up with large amounts of money each year for their tax payments and insurance payments.

Can the property have a septic tank?

Yes, homes that have a septic tank versus city sewer are still eligible for the USDA home loan program. It is not uncommon for homes that are in more rural areas to have septic systems. The septic system must be in proper working order.

How do I determine if a property is eligible for the USDA loan?

The fastest and easiest way to determine a property’s eligibility is to use the USDA eligibility map. You can search by a specific address or you can use the map to look at eligible and ineligible areas. It is very straight forward and easy to use.

What are the employment requirements for the USDA home loan?

The USDA home loan requires a two-year employment history. This does not mean that the borrower has to be at the same job for the previous two years. What this means is that a borrower must have had employment for at least two years.

Can I obtain a USDA loan if I have had a bankruptcy in the past?

Yes, homebuyers can still participate in the USDA home loan program even if they have had a previous bankruptcy. The rule is that the borrower must be 3 removed from a chapter 7 discharge or 3 years removed from a chapter 13 filing along with good payment history.

What are the options for a USDA refinance home loan?

There are three types of USDA refinances. They are the USDA streamline assist, non-streamlined, and streamline. It’s important that you need to speak with their lender to discuss the differences and benefits of each. A key point to remember in regards to refinancing with the USDA loan is that your current loan must be a USDA loan. A non USDA loan cannot be refinanced into a USDA home loan.

Can I have a non-occupying co-borrower?

This question comes up often because the FHA home loan allows a non-occupying co-borrower. This is when someone is on a loan that does not reside in the property. Unfortunately, the USDA home loan does not allow this.

What If My Income Increases After Closing?

If your income is at or below the maximum household income limits before closing then over time you earn more and it increases above the limits at a later date this will not be a problem. The USDA is only concerned about your income at the time of closing.

Can I get a USDA loan with open judgments against me?

For the most part liens and judgments need to be paid prior to closing. There are some instances where a borrower has a payment plan in place where it may be allowable. In these cases, at least 3 payments must have been made. You will need to discuss this in detail with your loan officer to see if this is an option for you.

How long is my credit report good for?

Again, this is one of those questions that will vary from lender to lender. For most lenders, credit is good for up to 120 days from the day it originally pulled. You will need to discuss this with your individual loan officer.

Is my spouses credit considered even if they are not on the loan?

In most cases no. Credit is only considered for those individuals that are on the loan. In states that are considered community property, the nonborrowing spouse may have their debts considered as liabilities but not their actual credit scores.

Can I get a gift from a family member for closing costs?

Yes, you can get a gift from a family member to help cover some if not all of your closing costs. The gift will need to be properly documented.

Does the yearly guarantee fee go away?

No, the yearly guarantee fee for the USDA loan that is paid out monthly is for the life of the loan and does not go away.

Can I sell my current home that has a USDA loan and buy another one with a USDA loan?

Yes, you can sell your current home and purchase a new one with the USDA home loan.

What are the insurance deductible requirements for the USDA home loan?

The USDA home loan requires the homeowner’s insurance to have a maximum deductible of the greater of 1% of the loan amount or $1,000. For example, a $150,000 home can have a deductible of up to $150,000. A $75,000 home can have a deductible of up to $1,000.

How long does it take to obtain a USDA loan?

This the processing time of a USDA loan will vary from lender to lender. It depends a lot on the individual lender’s capacity at the time. Another factor to consider is USDA turn times. Once a lender has almost completed the loan, they must first send the loan package to the USDA for them to issue their commitment. This varies from season to season. In the summer months, it may take longer and in the winter months, it may be faster. Typically, a USDA loan takes 30-45 days to complete.

What is the current USDA turn times?

This varies from season to season. The winter months are typically faster than the summer months. Check with your lender and they can tell you what they are at the current moment.

Can a home be a for sale by owner and still get a USDA home loan?

Yes, for sale by owner transactions are completely acceptable. In addition, bank owned, REOS, and realtor listed transactions are acceptable.

Do I have to have flood insurance with a USDA loan?

The only time that a homebuyer is required to obtain flood insurance is if the property is located in a flood zone. Homebuyers can check the FEMA map or ask their lender to see if a property is located in a flood zone.

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Primary Residential Mortgage, Inc.
10121 N Rodney Parham, Suites C & D
Little Rock, AR 72227
NMLS # 3094
Branch NMLS # 252910
Licensed by Arkansas Securities Department 11558
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Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.

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