The USDA Rural Development Guaranteed Housing Loan Program is the most under utilized mortgage loan product out there in my opinion. While the name may indicate "farm or farmland" to a lot of people. It is primarily intended for single family one unit homes located in smaller communities. Generally ones with less than 10,000 population, but in some cases up to 25,000. All of my Kosciusko county in Indiana is eligible. There are also income limits, but are very generous. Kosciusko county for example has limits of $73,600 for a family of 1-4, and $97,150 for 5-8 persons.You can check your area & income limits here:
The Highlights of this program are:
- True 100% financing - no down payment required
- No minimum cash contribution from borrower
- No monthly mortgage Insurance (PMI or MI)
- No Cash reserves
- No maximum loan amount; Just income and repayment ability
- Eligible repairs/ Rehab (up to $5000) can be added to loan amount and completed after closing.
- No First time buyer requirement
- No Recapture costs
- Conventional type loan packaging with only a 2% (can be financed) Guarantee Fee.
- Credits score minimum of 620
- Can also be combined with a Mortgage Credit Certificate program
- Competitive Interest rates ( typically within 1/8% of FHA)
Below illustrates how a typical USDA loan would compare to a FHA loan:
Loan amt. $150,000 $150,000
Down pymt. $0 3 1/2% $5250
Required loan program fee 2% $3000 1.75% $2625
Amt. to Finance $153,000 $147,375
Term/ rate 30yr./ 4.875% 30yr./ 4.75%
P & I $806 $766
Mtg. Ins. $0 $67
Total pymt. $806 $833
If the USDA loan program is not available to you because of location or income limits, the FHA loan is still an excellent program. But if both are available to you, I would choose the USDA.
As you can see the monthly payment on the USDA loan is actually lower with no monies out of pocket. If you are in a geographical location that USDA is available and you qualify income wise, I highly recommend as a consumer to take advantage of this wonderful program. I also recommend that Realtors make your clients aware of this great product. They can keep their 3 1/2% to get started in their new home.