Learn About USDA Guaranteed Mortgages

September 27, 2016

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Consider a USDA mortgageThere are many types of mortgages available. One of the less well-known mortgages is a USDA guaranteed mortgage.

If you are interested in buying a home, but may not have enough saved for a large down payment, a USDA guaranteed mortgage may be worth some consideration. Here we answer some of the most commonly asked questions about the program.

What is a USDA guaranteed mortgage?
The USDA guarantees a mortgage issued by a participating local lender — similar to FHA- and VA-backed loans. Unless you are a veteran, the USDA loan is the only option for 100 percent financing in the U.S. The USDA program still allows first time buyers to purchase a home with little to zero money out of pocket in 2016. These mortgages are 30-year loans, and are at a fixed-rate.

Can anyone get a USDA mortgage, or is it limited to farmers?
USDA mortgage products were created to encourage home ownership in rural areas. Farming and agriculture are not requirements. In fact, many property types are allowed: new and existing homes, modular, brand new manufactured homes.

How would someone know if they are eligible to use a USDA mortgage?
Eligibility depends on two things: property location, and income, which must be less than 110% of the area’s average  income. Both property location and income eligibility can be checked on the USDA’s website.

Can you tell us about the upcoming fee reductions associated with USDA guarantee?
Because many of the homes purchased with the USDA guaranteed mortgage are financed at 100%, the borrower is required to purchase mortgage insurance that is paid in ‘fees’. There is a one-time fee that is paid at closing that can also be incorporated into the mortgage, as well as an annual fee. Each is based on a percentage of the total loan amount. On October 1, 2016 the fees were reduced. The closing fee went from 2.75% to 1%, and the annual fee went from 0.50% to 0.35%. The lower fees mean people will ultimately have a lower monthly payment. This lowering of fees, combined with the continued low interest rates, make this kind of loan good for eligible buyers.

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