No First-Time Buyer Requirement
Considering the unique benefits of the USDA loan, you might think it is available only to first-time home buyers. But the fact is all families within the 115% of the median income for their area are eligible for the benefits--even if they have owned a home in the past and even if they currently own a home that is not in the local commuting area.USDA loans are intended for moderate-income families, those having annual household income at or below 115% of the median income for the area. USDA provides a website that shows the income limits by state, county, and family size. More >>>>>>>>
No Down Payment Requirement
The USDA loan allows loan amounts up to 102% of the appraised value of the property. As a result, there is no need for a down payment. In addition, the loan amount may exceed the sales price to finance settlement costs, related expenses, appliance, and repairs to the home.
Financed Costs
The USDA loan is based on the appraised value of the property rather than the sales price. When the appraised value supports a loan amount higher than the sales price, the loan may be used to pay for loan closing costs, pre-paid items, related expenses, appliances, and home repairs. Because there is no down payment and because the loan can be used to cover various costs, there is little or no money out of pocket to close. More >>>>>>>>
Low Mortgage Insurance Premiums
The USDA loan has relatively low mortgage insurance requirements, particularly when compared with the FHA loans. USDA charges 2% of the loan amount as an upfront premium at closing (that may be financed) and a .30% annual fee on the remaining balance. This often results in lower mortgage insurance compared to other loan programs. More >>>>>>>>
No Loan Limits
The USDA loan does not have loan limits as is the case with other loan programs. The loan amount is limited only by the applicant's income and other qualifications. Families at the top of the moderate-income bracket with strong qualifications often can obtain a USDA loan for a higher amount than they would with other government and conforming conventional loans. More >>>>>>>>
No Reserve Requirements
There is no requirement for cash reserves with the USDA loan, in contrast to other programs that require reserves equal to a several mortgage payments. This opens opportunities to families who have not yet accumulated cash savings. Of course the more cash reserves or liquid financial assets a family has, the stronger the application, but a lack of assets alone will not automatically disqualify them.
Flexible Credit Criteria
No credit, limited credit, and less-than-perfect credit are acceptable with the USDA loan. The manual underwriting process allowed by USDA benefits families that not yet established credit or who suffer from lagging credit scores despite a sustained recovery from past difficulties. Lenders may consider the personal circumstances of each applicant and make common-sense decisions on a case-by-case basis. This offers an advantage to families that would not qualify for loan programs utilizing only automated computer underwriting systems driven heavily by credit scores.
Accounts for Post-Closing Repairs
The USDA loan allows for post-closing repairs required to meet minimum property standards. This means borrowers can get a loan to purchase the property in its current condition plus additional funds to make repairs after closing. Repair escrow accounts are useful for elective repairs and absolutely essential when a home doesn't meet property standards, which is common in this market with REO properties and other cases where sellers in tough economic times are unwilling or incapable of making repairs prior to closing. More >>>>>>>>
No Limit on Seller Concessions
There is no limit to concessions or gifts, whereas FHA and other programs have a limit of 6% of the sales price. This is particularly beneficial in cases where a seller wants to pay closing costs and also fund a escrow account with net sales proceeds for post-closing repairs that the seller cannot make without first selling the house. More >>>>>>>>
Automated and Manual Underwriting
On one end of the spectrum, USDA allows manual underwriting for families with no credit, limited credit, and less-than-perfect credit. And on the other end of the spectrum, USDA has an the Guaranteed Underwriting System (GUS), a computerized system that gives underwriting "Accept" recommendations for families with excellent credit and other strong qualifications. GUS allows for streamline documenation that assists lenders and the USDA to process loans more efficiently and consistently.
High Income Limits
Each year, USDA increases the income limits to allow more families to participate in the program. At the mention of income limits, some think the loan amounts and sales prices are low, but amazingly families can purchase homes in the $300,000 to $500,000 range. An example here shows you how. More >>>>>>>>
No Thermal Requirements
Not so much a benefit as much a significant improvement to the program. It used to be the homes had to have a certain level of insulation in the attic and walls plus storm or double-pane windows and doors. Frankly, it was a huge drawback to the program that cause a lot of heartache when properties did not pass the appraisal. Thankfully, the thermal requirements were dropped in 2008 when USDA adopted the FHA property standards. For those of you who were frustrated and as a result have been away from the program, please know the thermal standards are a thing of the past. More >>>>>>>>
No Recapture on the Sale
Despite the unique benefits of the USDA guaranteed loan program, the loan does not have a recapture fee or tax when the family sells a property. To make a distinction, a recapture fee with the USDA direct loan program, a different USDA program offered to low-income families, but again there is no recapture fee requirement with the guaranteed loan program to which this site is dedicated. A comparison between the programs can be found here. More >>>>>>>>
No Seasoning Requirement
Some loan programs have a flipping rule that prevents a family from buying a home from a seller who has held title for less than a specific number of days. However, the USDA loan does not have a flipping rule. This gives families the full range homes on the market including fix-and-flip homes rehabilitated by real estate investors. No seasoning rule also benefits families with new construction homes. More >>>>>>>>
Ideal Land–Home Packages
The USDA loan serves very well as a permanent take-out loan to pay off an interim construction loan used to buy land and construct a new home.
That is primarily for two reasons: (1) The loan is fully underwritten and approved by the lender and given a commitment for loan guarantee by USDA prior to construction. As long the project is completed and the loan document are closed with 180 days, there is no need to re-underwrite the loans. (2) the loan amount is based on the market value of improved property even if the family has not held title to the land for 6 to 12 months.
That is noteworthy because FHA requires 6 months seasoning and Fannie/Freddie require 12 months seasoning on the land to base the loan on appraised value. Instead, if the seasoning requirement has not been met, they the maximum loan is based on the acquisition costs, which means the loan will fall short of covering the payoff on the construction loan and the settlement costs on the perm loan.
That is primarily for two reasons: (1) The loan is fully underwritten and approved by the lender and given a commitment for loan guarantee by USDA prior to construction. As long the project is completed and the loan document are closed with 180 days, there is no need to re-underwrite the loans. (2) the loan amount is based on the market value of improved property even if the family has not held title to the land for 6 to 12 months.
That is noteworthy because FHA requires 6 months seasoning and Fannie/Freddie require 12 months seasoning on the land to base the loan on appraised value. Instead, if the seasoning requirement has not been met, they the maximum loan is based on the acquisition costs, which means the loan will fall short of covering the payoff on the construction loan and the settlement costs on the perm loan.
All Property Types Allowed
USDA loans can be used in a large selection of suburbs, towns, and rural areas, and all property types are allowed: Single-family homes, townhomes, condos, new manufactured homes, modular homes, new builds, and leaseholds. The homes don't have to be located way out in the country but can be typical residential properties on the outskirts of urban areas with practical commutes to jobs and social occasions in the city. More >>>>>>>>
