USDA stands for United States Department of Agriculture. In the past, Many buyers think of USDA as “farmer loans” mostly used to purchase properties in strictly agricultural areas. That is not so much the case today with the USDA home loan. In fact, properties in most locations outside of Arizona’s major metropolitan areas (Phoenix, Scottsdale, Glendale, Flagstaff) can purchase with the 100% USDA loan today.
The Rural Housing program provides low-cost government-insured home mortgage loans that suit a variety of options. The program is especially great for Arizona first-time homeowners that have little to no cash savings for a large down payment.
Type of USDA Loans:
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 mortgage 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. Buyers can read more about the latest USDA income limits here. Most home buyers will fall under the 502 Guarantee loan and the guarantee program is offered by only 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” 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 home ownership, 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 Program Requirements for 2024:
- Currently, a min 620 credit score is required by most mortgage lenders.
- The home being purchased must be located in an approved/eligible USDA location. See the map here.
- Household income must be below the income limit per county – please see the link above.
- 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% 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, a 0.35% annual fee (monthly mortgage insurance charge) is based on the remaining principal balance. This is 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.
USDA Program Benefits:
- Rural Development loans are 30-year fixed rate mortgages with very competitive interest rates.
- PMI or “mortgage insurance costs” are a lot lower than FHA and comparable conventional loans.
- Rural Housing loans do not have pre-payment penalties – move or sell your home anytime!
- 100% financing with no down payment required.
Contact us anytime with questions by calling the number above, or just submit the Quick Contact form.