Your Complete Guide to the USDA Home Loan
- SECTION 1What is a USDA Loan?
- SECTION 2Am I Eligible for a USDA Loan?
- SECTION 3USDA Loan Benefits
- SECTION 4USDA Loan Rates
- SECTION 5First-Time Homebuyers
- SECTION 6USDA USDA Loans
- SECTION 7Refinancing with a USDA Loan
- SECTION 8Contract Guidelines
- SECTION 9The USDA Loan Process
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What is a USDA Loan?
Held by HUD out in the country
Video: The USDA Loan Process
A USDA Home loan is one that is through the Department of Housing and Urban Development (HUD). Unlike conventional loans that are supported by Fannie Mae and Freddie Mac, USDA home loans are supported by HUD. HUD is a Federal Agency responsible for national policy and programs that address America's Housing needs, that improve and develop the Nation’s communities, and enforce fair housing laws. HUD has a record of accomplishments that spans more than 30 years. Thousands of communities and tens of millions of Americans have benefited from HUD's housing and community development programs.
USDA home loans have been streamlined through the years to provide access to the mortgage market for all types of buyers but especially those who want to purchase in rural areas. A USDA home loan is a large sum of money lent to a borrower by a mortgage lender. USDA home loans often have higher lending requirements but the benefits of meeting those requirements are returned with competitive rates, down payment requirements, and competitive offers on your future home. When a prospective homeowner is ready to shop around for a mortgage, they will work with their Orbit Home Loan mortgage broker. This is a financial professional who brings together borrowers and lenders. They are not lenders and, as such, do not use their own funds to advance mortgage loans. Instead, they act as intermediaries, helping consumers comparison shop, bringing them a variety of quotes from different lenders at one time.
If you're ready to start your USDA loan, check your eligibility or have specific questions on the USDA loan, talk with an Orbit Home Loans specialist today.
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Loan Chart
How Do USDA Loans Work?
USDA homework like this: Your Orbit Home Loan mortgage broker (Mortgage Banker) works on your behalf to qualify you with the most competitive lenders in the nation. USDA home mortgages are typically lent out with 15 or 30 year repayment periods; the one that’s right for you depends on your personal finances, your income, and the interest rate you can secure. Once you are qualified, completed the process and have purchased the property your lender will sell your loan to HUD but still function as the servicer of your loan and will be responsible for collecting your payments. There is a possibility that your servicer may change so do not worry if that happens, it is normal. It is important to remember that your payments include your promise to pay back the lender with interest so they can pay HUD.
Interest is the percentage rate you pay to the lender and then to HUD for the trouble of lending you money. This is how the HUD and makes money from having lent you such a large sum. Interest rates are either fixed or adjustable and interest rates normally adjust daily but can adjust multiple times a day. The interest rate you receive on a conventional loan will also vary based on your own personal financial profile.
Types of USDA Loans
1. Loan Guarantees
The USDA guarantees a mortgage issued by a participating local lender — similar to an FHA loan and VA-backed loans — allowing you to get low mortgage interest rates, even without a down payment. If you put little or no money down, you will have to pay a mortgage insurance premium, though.
2. Direct Loans
Issued by the USDA, these mortgages are for low- and very low-income applicants. Income thresholds vary by region. With subsidies, interest rates can be as low as 1%.
3. Home Improvement Loans and Grants
These loans or outright financial awards permit homeowners to repair or upgrade their homes. Packages can also combine a loan and a grant, providing up to $27,500 in assistance.
Exploring the USDA Loan:
USDA Purchase Loan
USDA loan is a home loan guaranteed by the United States Department of Agriculture. Being backed by the government allows USDA loans to have lower interest rates and lower down payment requirements than conventional loans. Other government-backed loans include VA loans and FHA loans, which are backed by Veterans Affairs and the Federal Housing Administration, respectively.
USDA loans are available to fewer people than other government-backed loans due to relatively stringent restrictions. Borrowers and the homes they are purchasing must qualify for the loan separately. Additionally, since USDA loans are intended to assist those in more rural areas, they are not eligible in most urban and suburban areas. You can view location eligibility on the USDA website.
USDA Cash-Out Refinance
USDA home loans don't allow cash–out refinancing. If you're looking for a cash–out refinance, you'll need to refinance your USDA mortgage into another type of home loan, such as a conventional loan.
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What are USDA loan limits?
To be eligible for a USDA home loan, your total household income cannot exceed the local USDA income limits. The current standard USDA loan income limit for 1-4 member households is $91,900, up from $90,300 in 2020. The 2022 limit for 5-8 member households is $121,300, up from $119,200. USDA loan limits by county may be higher to account for cost of living. (Go by the incom limits not really the loan limits)
What is the USDA funding fee?
A USDA loan guarantee fee refers to how the USDA mortgage is paid and functions similarly to mortgage insurance for a USDA loan. The upfront guaranteed fee is equal to 1% of the loan amount. The annual fee is equal to 0.35% of the loan amount for 2022.
To calculate your USDA Funding Fee, use Orbit Home Loans' Funding Fee Calculator here.
Is the USDA loan a good option?
USDA loans are arguably the most powerful loan option on the market. Some of the benefits of a USDA loan is 100% financing, No maximum loan limit, flexible credit, and they are not restricted only to first time home buyers.
How do I get a USDA loan?
Talk with a trusted lender that knows USDA loans and how to get the most from this hard-earned benefit. The process typically starts with getting preapproved, which can often be done in minutes using your phone, laptop or tablet.
Loan preapproval is a key first step before making an offer on your dream home. Having that preapproval l letter gives you a clear sense of your buying power and shows sellers and listing agents you have what it takes to get to closing.
Start my USDA loan with Orbit Home Loans -- the Nation's #1 USDA purchase lender
If I’ve previously used a USDA loan, can I use it again?
Yes, this is not a one-time option. Once you earn the USDA loan benefit, it's yours for life. You can reuse the USDA loan over and over again, and it's even possible to have more than one active USDA loan at the same time.
Continue to learn more about USDA loan eligibility in our next section.