USDA loans are one of the most lucrative financing programs available on the market today. With 100 percent financing, attractive interest rates and simple guidelines, it has reached a higher level of popularity in recent years. The guidelines set forth for this type of loan is done by the USDA; this is the entity that has determined where the USDA eligible properties lie and how to find them. The original goal of this program was to help consumers purchase homes in areas that were less active than typical suburban areas. The USDA loan program began in 1949 and is still going strong today.
The Guidelines for the USDA Loan
The guidelines surrounding the USDA loan are similar to that of other government backed loans with a few exceptions. This loan is so popular, making people search for USDA eligible properties because it does not require a down payment. There are no other loans that offer this type of financing in combination with great, low rates. In addition, the USDA loans do not have high standards for credit ratings, assets, income or debt ratios. They are one of the most forgiving loans on the market today. In order to take advantage of the low rates, no down payment requirement and loose guidelines, however, you must find a home with in the USDA eligibility map as the location of the home is of utmost importance to the USDA.
The Rural Areas of the United States
At first glance, you might think that there are not a lot of rural areas in the United States, but according to the USDA eligibility map, more than 95 percent of the US is rural. The term rural is loosely used by the USDA and likely differs from the definition you had in mind. In general, rural to the USDA means that there are less than 20,000 people living in the town and the town is not within the city limits. Taking a quick look at the USDA eligible properties, you will likely see homes in areas that you would not consider rural, but are still considered as such by the USDA. These guidelines are set to change on October 1st of this year; however, which means that you need to act fast if there is a home that you want to purchase with the USDA loan.
How the USDA Guarantees the Loan
Many people wonder how the USDA guarantees the loan after the close on their home. What does it mean for them? Honestly, for you the only thing the guarantee means is that lenders will be more willing to lend to you despite having a slightly higher debt ratio or less than 2 years of consistent income. Other than that, the fact that the USDA guarantees loans is a benefit to the lender. If you were to default on your loan in the future, the USDA would pay the lender back for its losses. This is a way to build up more home ownership in certain rural areas of the United States that would otherwise not have as many homes being bought. When loans are guaranteed by the government, lenders are more willing to give them out which means more people get loans.
Paying the Guarantee Fee for USDA Eligible Properties
As with anything in life, nothing is free. As a tradeoff for not having to put any money down on the USDA approved homes, you will have to pay a guarantee fee. This USDA guarantee fee is charged up front and is added to your closing costs. The good news is that if you are unable to pay the fee out of pocket, you can add it to the loan amount, even if you are financing 100 percent of the purchase price of the home. This means that your loan will be higher than a 100 percent LTV, but you will get the loan you want. In addition to the upfront fee, which is 2.0 percent of the loan amount, you will be charged an annual insurance fee. This fee is 0.5 percent of the loan amount and is charged on a monthly basis. The figure is calculated based on a year, but then the payment is divided by 12 months to make the payment more affordable.
Financing USDA eligible properties is much easier to do with a USDA loan than any other type of loan. If you do not have a down payment, have a sketchy credit history or have little assets, the USDA loan is the perfect loan to obtain as long as you can afford the payments. The USDA loan is easy to qualify for and the homes that it allows are vast up until October 1, 2015. If you are interested in this type of loan, the time to act is now!