USDA Financing

Posted on Feb 25, 2014 in Loan Types, MARK WELLS' BLOG | Comments Off on USDA Financing

The USDA mortgage program continues to be available to many borrowers in the upstate, and can be an excellent choice of loan programs providing the borrowers and the property meet the requirements and guidelines for the loan.  Here, I’ll discusses the various aspects of the program.

 
I have heard of RDA loans, but not USDA loans.  What is the difference?   They are the same program by different names.  The loan program is insured through the U.S. Dept. of Agriculture (USDA), but it is administered through the Rural Development Administration (RDA) division of USDA.

 
What are the advantages of the USDA loan program?   It is the only program left for non-military veterans, that offers 100% financing  –  no down payment required.  It also has a much lower PMI premium than FHA, resulting in a lower overall payment structure.

 
What are the qualifying guidelines for USDA loans?  There are standard guidelines that are very similar to other loan programs – 620 minimum credit scores, debt to income ratios not to exceed 41% of monthly gross income, and the allowance of an appraiser to use comparable sales that are further away, due to the rural character of the property.   However, there are some guidelines that are quite different.

 
What are those?   Number one, the property must be in a geographical zone that is determined by USDA to be “Rural” in nature.   (Fortunately, there are still large areas deemed “rural” in upstate S.C.).   Secondly, the household income must be less than the limits set by USDA for each county.  (Most upstate counties fall under a maximum household income allowance of $74,000 per year).   Finally, USDA requires the appraiser to do a minimal inspection of the property to make sure that it conforms to USDA standards in regard to insulation, electrical, structural, and environmental condition.  USDA requires that the house have insulation to area standards, a circuit breaker box for electricity rather than a fuse box, 5 years’ remaining roof life,  no unfilled oil tanks on the property, and minimum bedroom window sizes allowing for fire egress.

 
All things being equal, a $140,000 house that is USDA eligible will cost the borrower about $100 less per month than if they used FHA financing, plus the USDA program does not require any down payment from the borrower.