Most loan officers are not familiar with the USDA Home Loan Program – which is a shame, because it’s one of the best No Money Down Home Loans available in NC!
We get “Rural” really fast in NC… one minute you’re in a neighborhood – the next you can wake up to the sound of Roosters!
If you’re interested in living in a home with a larger lot – and a little less “Urban” this might be the program for you!
The program’s full name is the USDA Rural Development Guaranteed Housing Loan program. Most people call them “USDA loans” or “USDA RD Loans”. USDA home loans NC are insured by the U.S. Department of Agriculture.
The USDA’s loan’s biggest feature is that it is a No Money Down Home Loan! That’s right, if you qualify – this is a 100% mortgage loan.
USDA home loans are the same as most other mortgages in that they don’t have “crazy payback schedules” or come with prepayment penalties. Because these loans are backed by the government of The United States, there are some “quirks” to it.
Is the USDA loan program limited to first-time buyers?
No, the USDA Rural Housing Program can be used by first-time buyers and repeat buyers. We’ve done several loans for folks who currently have a house (in Tennessee for instance) and get transferred to NC – meaning that when they buy in NC… they’ll have 2 houses. There are some ways for this to work.
What is the USDA Loan Eligibility Map?
To purchase a home with the USDA Home Loan program, the property must be located within the USDA Home Loan Eligibility Map “footprint.” Meaning it must be “officially” located within an area that USDA says is “rural.”
The USDA Home Loan Eligibility Maps are changing in North Carolina on December 1, 2014. Assuming Congress doesn’t stop this change – over 1/3 of North Carolina will no longer be eligible for USDA Home Loan financing. Your loan must be APPROVED by USDA Home Loan Underwriters prior to December 1, 2014 if you want to purchase a home in an area that is subject to this change.
What types of mortgage loans are available with a USDA mortgage?
The USDA / Rural Housing Program offers 30-year fixed rate mortgages only. These are NOT for Construction Loans – There is no 15-year fixed rate mortgage. There are no adjustable-rate mortgages. 30-year fixed only.
What is the USDA home loan program’s minimum down payment?
USDA Home Loans have no down payment requirement. You can finance over 100% of the property value with a USDA loan (They let you finance the USDA PMI premium).
How are Student Loans Treated when Qualifying for a USDA Loan?
Student loans come in two classes: deferred and not deferred. And one thing to keep in mind when looking at the USDA Home Loan Program is that it does treat student loans differently than the other home loan programs available. USDA Home Loan Underwriters count a payment – even if it’s deferred. If it’s deferred as an income base loan (meaning the payment on your student loan changes annually) they count $100.
Can I finance the Upfront USDA PMI into my mortgage?
Yep. The upfront PMI that USDA charges on loans (called Upfront Mortgage Insurance or Guarantee Fee) can be included in the loan. This means that if you are purchasing a $100,000 home in Raleigh, the loan will be $102,000; OR, you can pay the 2% out of your pocket… or see if you can get the Seller to pay it. We are NOT seeing many situations where the Seller is doing this, but if you have extra funds, you can go ahead and pay this off. Like FHA, the Guarantee Fee (or Mortgage Insurance Fee) is not refundable.
There’s also an annual USDA PMI fee charged at a rate of .4%. To calculate that – you take your total loan amount, so the amount you are paying for the home, let’s say it’s $200,000, plus the 2% for the Upfront USDA PMI which would be $4000. So, in this case, $204,000 times .4%. That equals $816, which is the annual USDA PMI fee. Divide that by 12, and the monthly USDA PMI charge is $86.
How much are the closing costs for a USDA mortgage?
Closing costs vary by Investor (or Bank we sell your loan to) and location. In general, we are seeing more NC Home Buyers who are asking the Seller to pay the Closing Costs (we can help you structure that).
Can the seller pay my closing costs on a USDA Loan?
Yes, the USDA Home Loan Program allows sellers to pay closing costs for buyers. The Seller can cover your Attorney fees, Appraisal, Title transfer fees, and other charges related to obtaining your mortgage. In most cases, the borrower is responsible for their portion of the taxes and their Home Owners Insurance. In the cases where someone is “tight” on their cash – we generally package in a credit (from us) that will cover most of those buyer related costs… meaning you can usually get into a home with a USDA Home Loan in NC with less than $750 out of pocket.
Can I get a gift for my closing costs?
Yes, USDA loans allow gifts from family members and non-family members. You will need a gift letter to accompany your loan application. We can help you coordinate this (it’s not too hard). You also may be able to get a 3% grant from NC Housing.
Can I use the USDA home loan program for my working farm?
No, the USDA home loan Program in North Carolina is for residential property. There are some situations, however when we can help you use the program to purchase a horse farm.
There was a recent change in the way USDA Home Loan Underwriters were instructed to look at Outbuildings. In a clarification, USDA stated that outbuildings that have some functionality, maybe you want a place for your riding lawn mower, do not have to be considered “farm service” IF the land the house is own is not income producing, and it’s typical for homes in that area to have structures like that.
Can I use the USDA home loan program for a vacation home or Investment Property?
No, the USDA Home Loan Program is for primary residences only.
Is there a minimum credit score for the USDA loan program?
Most Banks currently look for a 640 credit score. This is the number that GUS (the automated system) requires. The NCHFA program recently changed, and it now also requires a 640 credit score for USDA Home Loans in NC.
Having said that, our Bank WILL do a manual underwrite and get a loan approved with a score of 620.
I recently got out of college and don’t have 2 years of work history. How long until I am USDA-eligible?
As a recent college grad, we are going to count your college “time” as part of your two year work history – assuming you get a job that is somewhat related to the field you were studying. If you are a W-2 employee, you are eligible for USDA financing immediately; you don’t need a job history. If you have less than 2 years in a job, however, you may not be able to use your bonus, overtime or commission income to qualify. HEADS UP – we are going to need a first pay stub. So, if this is a new job, we can’t close until you receive your FIRST pay stub.
I am self-employed. Can I use the USDA home loan program?
Yes, self-employed folks can use the USDA Home Loan Program. If you are self-employed and want to use USDA financing, as with FHA and conventional financing, you will need to give us 2 years of federal tax returns to verify your self-employment income. We are also going to ask for P&L and Balance Sheets for those two years, and a current YTD P&L and Balance Sheet. Often times, the USDA Underwriters will ask that they at least be reviewed by a CPA or Accountant that is not affiliated with the Company – meaning a third-party that doesn’t work for you. Your Income Taxes must be Filed, and we must be able to get a transcript before you can close.
Can I do a “cash out” refinance with the USDA Loan program?
No, the USDA Home Loan Program is for purchases and rate-and-term refinances only.
Are USDA Home Loan mortgage interest rates good?
Yes, USDA Home Loan mortgage rates are backed by the US Government. Because of that, more banks are interested in having them, and the mortgage rates are usually lower than Conventional Loans. Additionally, because the USDA PMI rates are so much lower, USDA home loans are usually much cheaper than the FHA programs!
If you are considering a USDA no money down home loan, call Steve and Eleanor Thorne 919-649-5058. We can help you find out if your income qualifies for the program in your county – and if the property you have your heart set on is within the USDA Footprint!
USDA Home Loan Guidelines for NC changed October 1, 2014. These changes are particularly significant for folks with “lower” credit scores.