USDA stands for United States Department of Agriculture. In the past, many people think of USDA as “farmer loans” mostly used to purchase homes only in country agricultural areas. That is not so much the case today with the USDA home loan.
In fact, properties in almost every area outside Arizona’s major metropolitan areas like Phoenix, Glendale, Scottsdale, etc, the USDA program can be used to purchase a home. A USDA loan provides low-cost government-insured home mortgage loans that suit a variety of options. The program is especially great for AZ first-time homeowners that have little to no cash savings for a large down payment.
Currently, there are two kinds of USDA loan programs available for single-family households:
USDA 502 Guaranteed Rural Housing Loans:
USDA 502 Guaranteed Loans are the most common type of USDA loan and allow for higher income limits and 100% financing for home purchases. USDA Guaranteed Loan applicants may have an income of up to 115% of the median household income for the area. Income limits in AZ start at $103,500 + for a family of four. Most home buyers will fall under the 502 Guarantee loan and the guarantee program is offered only through USDA-approved lenders and banks.
All USDA Guaranteed Loans carry 30-year terms and are set at a fixed rate, with no adjustable rate terms.
USDA Direct Rural Housing Loans:
USDA Direct Housing Loans are only offered directly by the USDA. These loans are less common than USDA Loan Guarantee Program loans and are only available for low and very low-income households to obtain homeownership, as defined by the USDA income eligibility requirements. Very low income is defined as below 50 percent of the area median income; low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Click here to see area income limits for this program.
USDA Loan Requirments for 2023:
- Currently a min 620 credit score is required by most lenders and banks.
- The home being purchased must be located in a USDA approved area. See the map here.
- Household income must be below the income limit per county – learn more about USDA income limits.
- USDA permits the home seller to pay buyer closing costs – up to 6%
- USDA home loans do not have a set loan amount limit. The borrower qualifies based on their debt to income ratios. The current debt-to-income ratio limit is 29/42. This can be exceeded in some cases with strong compensating factors like good credit, solid job history, savings, etc.
Like most loans that require less than 20% down payment, the USDA mortgage program will require an upfront guarantee fee and mortgage insurance or PMI. USDA mortgage insurance rates (PMI) are:
- For purchases and refinance programs – a 1.00% upfront guarantee fee paid at closing, based on the loan size. The guarantee fee is allowed to roll into the borrower’s loan amount. So you can finance up to 101%
- For all loans, 0.35% annual fee (PMI) is based on the remaining principal balance. This the monthly premium added to the buyer’s payment each month – like taxes and home insurance. All USDA loans include taxes, home insurance and mortgage insurance.
Below we listed a few interesting facts about the USDA RD home:
- Arizona USDA Rural Housing loans are 30 year fixed rate mortgages
- USDA loans have very competitive interest rates and no pre-payment penalties
- USDA loans do not require a down payment
- USDA 100% Home Loan Financing DOES have monthly mortgage insurance, but the monthly amount is much less when compared to the FHA and conventional loans.
Please read more about USDA Loan Eligibility here. Please note that household income limits will vary based on location. However, the core requirements and benefits are the same regardless of location. Please call the number above, or just submit the Quick Contact Form to learn more.
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