Frequently Asked Questions About USDA Loans
Most Frequently Asked Questions About USDA Loans
Q. How much money do I need?
A. There is no down payment required however there are closing costs and you will need an earnest money deposit.
Closing Costs – Are negotiated in the contract. The seller can contribute up to 6% and the lender can provide a credit based on the interest rate.
Earnest Money Deposit - Typically $500 or $1000 used to secure the contract. It is given to the Realtor when you make an offer as a good faith deposit so the sellers lock into the terms and take the house off the market.
Q. How many years is the loan for?
A. 30 year fixed only. Your principle and interest payment can not rise and there is no early payment penalty.
Q. Is there mortgage insurance?
A. Yes both monthly and an up front fee that can be rolled into the loan.
Monthly MI is calculated as .3% of the loan amount paid annually. As an example on a 250k loan amount .3% is $750 split up over 12 months is $62.50 per month. Compared it FHA with 3.5% down its 4x less per month.
Up Front MI or “Guarantee Fee” is 2% of the sales price. As an example a 250k loan would be 5k so the actual loan amount will be $255,000.
Q. Do you need to be a first time home buyer?
A. No, there is no penalty or benefit to being a first time home buyer with a USDA loan however you can not own another home and obtain a USDA loan without special circumstances i.e. relocating for a job.
Q. Are USDA Loans available everywhere?
A. No, there are location restrictions. Check with the USDA website for maps of your area. Eligible areas are determined based on census data of population density.
Q. Are there income requirements?
A. There are two income calculations on a USDA loan.
- The Income Limit – Calculated using everyone living in the house and is capped based on the county the house is located in.
- Debt To Income Ratios – The USDA recommended debt to income ratios are 29/42 however there are several factors that allow a borrower to go higher – Credit/Money In Reserves/Length Of Job History/Rent or Mortgage payment history/current rent or mortgage (payment shock.) The highest I have seen are 39/48
Q. Where do I apply for a USDA Loan?
A. There are two types of USDA loans, direct and guaranteed.
USDA Direct Loan – Can only be obtained directly through your local USDA office.
USDA Guaranteed Loan – Can be obtained through most local mortgage companies in USDA eligible areas or by calling 443-624-9398
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