USDA Rural Housing Loan NC Requirements

USDA Rural Housing Mortgage Loan Requirements are pretty straight forward.

• The borrower needs to have decent credit,
• Be under the maximum income limits for the county,
• Buy a house that is within the USDA Home Loan Eligibility Map area, and
• Qualify with your other debts to make the house payment each month!

In North Carolina, we are fortunate, because every county in our State, even the really populated areas around Raleigh and Charlotte, have areas that qualify for the USDA Home Loan program.

There are also some pretty “unusual” rules when it comes to how the USDA Rural Housing Underwriters look at Deferred Student Loans.

In general, USDA takes a very conservative few of IBR and PAYE Student Loan programs, and require us to count a minimum balance, not the ZERO Payment you are currently making to qualify.

About The USDA Rural Housing Loan NC

Many people tell us they’ve never heard of the USDA loan program, and frankly, we did VERY few of them prior to 2007.

It’s a niche product serving the most rural parts of our country, and many banks don’t offer them.

The good news is that eligible suburban and rural home buyers can use USDA Rural Housing loans for 100%, no down payment required, mortgage financing.

The program’s full name is the USDA Rural Development Guaranteed Housing Loan program. Most people call them “USDA home loans,” “Rural Housing Loans” or “Section 502 loans”.

USDA loans are insured by the U.S. Department of Agriculture and the program’s biggest feature is its option for “no money down” financing.

With the USDA Home Loan Program, you can borrow 100% of a home’s purchase price (plus the cost of the upfront PMI) while getting access to very good mortgage rates.

USDA home loans do not have extra closing costs associated with them, there’s no pre-payment penalties, they are fixed rate, 30 year mortgages… however, they are only offered on owner occupied homes.

So you can’t use the USDA Rural Home Loan to purchase a Commercial Horse Farm, or a series of Investment properties.

Rural loans can be made to both first time home buyers and repeat home buyers.   In fact, in certain cases, you can get a USDA Loan when you currently own another home, and are renting it out.

Where USDA loans are different from other mortgage loan programs, though, is because of it’s no down payment requirements and it’s straight forward loan approval standards.

USDA Loans Require a Kind of PMI

The Rural Housing Loan program in NC is guaranteed by the U.S. Department of Agriculture. This program receives funding from Congress each year, however it is pretty well “self Funding.”

The USDA Loan “PMI” fees mean the program generates fees from borrowers to cover the cost of Underwriters, and Administrators… and to cover the program in the event someone goes into Foreclosure.

Unlike FHA PMI Rates, the USDA PMI Rates have been pretty stable, the program has not had to raise rates very much over the years to keep the program going.

Since October 1, 2014, USDA “PMI” Rates (Mortgage Insurance Fees) have been:

• For purchases, 2.00% upfront fee paid at closing, based on the loan size, which is financed into the mortgage
• For all loans, 0.50% annual fee, based on the remaining principal balance

Let’s look at it this way…  If you buy a $100,000 house, and borrow the maximum loan of $100,000 in Greensboro, NC, you would be required to make a $2,000 upfront USDA PMI fee at closing, plus a monthly $42.50 payment for USDA PMI.

Fortunately, you don’t actually have to pay the USDA upfront mortgage insurance fee in cash. That $2,000 gets added to your loan balance.

So, you start out with a USDA Rural Housing Loan owing, in this case $102,000.

USDA PMI rates are lower than those for a comparable FHA loans or conventional mortgages. FHA PMI Rates are 1.75% upfront mortgage insurance fees and FHA charges .85% in Monthly FHA PMI fees for a similar loan amount.

Even better, USDA mortgage rates are often the lowest among FHA mortgage rates, VA mortgage rates, and conventional loan mortgage rates.

Tips on The USDA Rural Housing Loan in NC

What are the minimum credit score requirements for a USDA Home Loan?

The minimum credit score requirements for a Rural Housing loan changed in December of 2014. If you read somewhere that you can get a USDA Loan with a credit score of 620 or below, it’s probably wrong.

The minimum “straight shot approval” minimum credit score is 680.  Folks with scores below that get approved all day long – but they have pretty strict debt to income ratios.  The lowest score we’ve seen approved this year was 630. 

We are allowed to apply for USDA Debt Ratio Waivers – and this is another thing most loan officers are not aware of with USDA Loans.

How much are the closing costs for a USDA mortgage?

Closing costs differ based upon,lender, location, and in some cases WHEN you close on your mortgage. For example, near the end of the year, NC Real Estate Taxes are due, and that can make your closing costs higher.  We do not charge an Origination fee for USDA Home Loans, other mortgage lenders do.

I can’t afford closing costs. 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, which we will be glad to give you.  You can also use the NC Mortgage Grant Program to pay up to 3% of your closing costs on a USDA Home Loan.

I negotiated to have the seller pay my closing costs. Is that allowed?

Yes, the USDA Rural Housing Program allows sellers to pay closing costs for buyers. These costs can include taxes, Lender fees, attorney and title charges, and any number of home and pest inspections.

Can I use the USDA Home loan program for a vacation home?

No, the USDA Rural Housing Loan is for primary residences only. Now, if you want to buy a house in Brunswick County, for instance, that you plan to live in… then yes. 

You can have what I would think of as a “vacation” home, being so close to the beach!

Same thing as you look for a home to live in up in the mountains.  MANY very scenic parts of NC qualify for USDA Loan no down payment mortgages, as long as you are going to live in the house!

Can I use the USDA loan program for a horse farm with outbuildings?

Yes???  Maybe???  USDA Home Loans are perfect for folks who have some farm animals of their own – but not if you plan to pull in $2000 a month from Boarding and Lessons.

Depending on the type of Outbuilding on the property – they can be hard to finance.

Are USDA mortgage rates good?

Yes, USDA Rural Housing Program mortgage rates are often lower than comparable conventional 30-year fixed mortgage rates.

And because USDA PMI rates are lower, and no down payment, USDA Loans in NC can often be a better deal than a FHA loan or Conventional loans.

If you are considering a USDA Rural Housing Loan in NC – please call Steve and Eleanor Thorne 919 649 5058.  We know what parts of North Carolina have seen USDA Map changes, like Greenville, Hickory and Raleigh – and which ones have not seen too many changes, like Rocky Mount!  Put the name of your NC Town in our Search Bar and you will likely see information on USDA Home Loans already done.  If not – leave me a comment, and I’ll pull the maps and income requirements for you!