Lately I have had more clients using USDA rural loans and wanted to let others know about the program. This is a fantastic loan for those buying outside the Minneapolis St Paul metro area. The loan is backed by the US Dept of Agriculture. It is geared towards low to moderate income home buyers. The biggest benefit to this program? It’s a zero down fixed rate mortgage.
USDA loans are available in rural areas – so in the Minneapolis St Paul area, what qualifies? If you are looking in the south metro, you can use USDA financing in areas like Elko, New Prague, Northfield, Hampton and Jordan. If you are looking to the western metro, you look in Cologne, Watertown, Waconia, Buffalo and Monticello. In the northern metro, you can look in areas like Isanti, Zimmerman, Chisago City and Stacy. There is a map on the USDA website that gives you the property eligibility, here is the link USDA eligibility.
The income limits will vary by county and also by the number of people in your household. For example, in Scott county, if there are two people in your household, the income limit is $108,550. In Rice county, the same household would have an income limit of $98,750.
There is a guarantee fee added to your mortgage – similar to mortgage insurance. The upfront fee is 1%, compared to 1.75% on FHA loans. The monthly fee is .35%, compared to .85% on FHA loans. Interest rates are similar to FHA loans. The guarantee fee does not go away – also similar to FHA loans, but it is much lower than FHA loans. For example, if you have a $200,000 mortgage, with USDA your monthly fee is $58.33 and that same fee on FHA would be $141.67.
Another benefit is the ability to roll closing costs into your loan. You can ask the seller to pay closing costs, just like you can with FHA and conventional loans. However if your appraisal comes back with a value higher than your purchase price, you can increase your loan to the appraised value and cover any additional costs. You won’t know what the appraisal value is in the beginning of the transaction, but if it does come back higher, it’s something to consider. Just remember you are financing those costs over 30 years.
USDA loans can be a great way to finance your new home. You do not have to be a first time homebuyer, but you can’t own another home when you buy with USDA mortgages. If this is something you are interested in, ask your lender if it’s something they offer. If not, you may want to look for a lender that does offer USDA financing.
Leslie Vanderwerf, NMLS ID#335509, AMEC Home Loans, An Equal Housing Lender, NMLS#150953 – Email – Website
