Can Closing Costs Be Financed In A Rural Development Loan What Are the Benefits of the USDA Home Loan?

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What Are the Benefits of the USDA Home Loan?

The United States Department of Agriculture (USDA) offers a residential mortgage loan to qualified individuals who purchase a residential home in designated rural areas. This type of loan is also known as a rural home loan and is available to qualified home buyers who meet income and housing guidelines. There are two main types of loans offered by the USDA under this program. These loan types include: direct and secured. Direct loans are only offered through USDA offices, while secured loans are available through eligible lenders. Both loan types require borrowers to meet specified income restrictions (see the USDA website for more information). This loan program was designed to help homebuyers purchase owner-occupied properties in eligible rule areas that have low to moderate incomes. Eligible applicants must be US citizens or qualified foreign residents and purchase a property that meets all program requirements.

The benefits of this type of mortgage include the following:

• Zero Down Payment: The USDA home loan allows for 100% financing, meaning no down payment is required. This is a significant benefit for first-time home buyers who have not had the opportunity to save for a down payment.

• Low interest rates: Although the USDA mortgage program does not require a down payment, the interest rates offered in this program are often the same or better than conventional, FHA or VA financing. Also, the USDA home loan does not have a prepayment penalty.

• Loan Terms: This mortgage program offers only fixed rate loans. Both 30 and 15 year terms are available.

• Low mortgage insurance rates: The initial mortgage insurance premium for a USDA purchase loan is 2 ½% of the sales price. Monthly mortgage insurance is calculated based on half of one percent of the annual principal amount.

• Credit scores: Homebuyers generally need to have at least an average credit score of 640 to qualify for a USDA loan. Applicants must also demonstrate that they have stable employment and income. Also, the maximum debt-to-income ratio allowed is typically 41%. Check with your lender to find out your actual debt ratio.

This program allows up to 3% of the sales price to be added to the mortgage to pay for closing costs and the usual reasonable expenses associated with the purchase of the property. Although, the mortgage with closing costs added cannot exceed the appraised amount. If the home does not appraise high enough to record closing costs, USDA guidelines allow the seller to pay buyers the usual closing costs if agreed to in the purchase contract. An acceptable property assessment must be completed that reveals whether the home meets energy efficiency guidelines required by the USDA. For more information about this type of loan, including eligible areas and income restrictions, contact your local approved lender or your local USDA office.

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