100% financing, no PMI with a USDA Rural Development Loan!
If you live in a town with less than 10,000 people, a USDA rural development loan may be available to you! I had an informative conversation with one of our local mortgage lenders today, Deb Schalla of Golf Savings Bank and she was able to share quite a bit of her knowledge with me on some of the basic requirements and loan terms this great program has to offer.
I am putting this in a question/answer format to make this easier for all of us.
What is a USDA loan?
It is a guaranteed rural housing loan that is originated by approved mortgage lenders to qualified moderate income individuals and families in eligible rural areas. The loan guarantee protects the lender from risk of loan loss and the lender passes this benefit on to the home buyer in the form of a loan that requires no down payment or mortgage insurance at a conventional loan interest rate.
What is the down payment requirement?
ZERO down payment, no PMI (private mortgage insurance) 100% financing! It is a fixed rate loan with payments amortized over 30 years. Interest rates are comparable to conventional loan interest rates!
What are the income limits?
Income limits vary by location or by county. In Coos County, the adjusted annual gross income limits for 1 person is $48,000, for 2 persons is $54,850 and for 3 persons is $61,700 and the list continues up to 8 persons.
What type of property qualifies?
Single family homes, stick built of any age, even post & pier foundations are acceptable. Also, brand new, never lived in manufactured homes qualify, however they must be direct from the dealer to the home site. The new manufactured home must have tie downs.
What areas are considered rural?
There are many eligible rural areas in our South Coast region of Oregon including Bandon, Port Orford, Coquille, Myrtle Point that all have less than 10,000 residents. It can be within city limits or outside city limits. As long as there are less than 10,000 residents this would qualify the area as "rural". However, if the city has a contiguous border with another city, the population is then combined, so Coos Bay and North Bend do not qualify as rural. However, if the property has a geographical boundary separating it from the city like a river or it is on the country side of a street, then it would qualify. So, I wouldn't rule out anything without calling your mortgage lender first!
What is the interest rate for a USDA loan with Golf Savings Bank today (Dec16, 2008)?
5% (of course, rates change every day and vary according to your individual credit scores and other qualifying requirements, please check with your mortgage lender). It was also 5% for a conventional loan today, thus proving this loan offers very competitive interest rates!
Are there any additional fees for this loan?
Yes, there is a 2% guarantee fee. This can be financed into your loan amount. The home only has to appraise for the purchase price. For example, if you are buying a home for $150,000 and you choose to finance the 2% guarantee fee ($3,000), your loan amount will be $153,000. The home only has to appraise for purchase price of $150,000.
Can I finance my closing costs?
The USDA loan does allow you to finance your closing costs up to the appraised value of the home. For example, if you are buying the same home for $150,000 and the appraised value comes in at $155,000, you can finance up to $5,000 of closing costs. It is possible you may be able to buy a home with zero down and zero up front closing costs if you are purchasing the home for less than the appraised value (not including your home inspection fees which are typically paid at the time of your inspection).
The kicker is you do not have to be a first time home buyer to qualify for this loan. Also, there are special adjustments made to the income limits for borrowers on disability and/or receive child care income, etc. So be sure to consult with your mortgage lender to find out if you qualify based on your individual or family circumstances.
Deb Schalla of Golf Savings Bank can be reached at (541) 269-4252 or on her cellular (541) 404-7391 for more information on the USDA loan program.
Aren't there terms at the end of the loan or at sale that require you to pay the diff between "current market rate" & the rate you got, or the value of the home at purchase and at sale?
I recall something of this sort from my resarch into the rural program.
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Thanks for the comment. I double checked with Deb Schalla, who I referenced in my blog, just to be sure. Deb says "No...there is nothing that has to be paid in that regard with Rural housing. RD is very black and white. Nothing hidden."
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