The USDA home loans program, introduced after The Great Depression, aims to provide homeownership opportunities to people with low to moderate income. The program offers several benefits compared to conventional home loans. Each year, thousands of home loan borrowers apply for the USDA home loans, but before they do, they have a lot of questions. Here, we answer seven of the most commonly asked questions about USDA loans.

1. Do I need to pay a Private Mortgage Insurance (PMI)?

Yes, sort of. USDA home loan borrowers do not have to pay a traditional Private Mortgage Insurance (PMI) that usually applies in other home loans. Instead, they pay an annual fee of 0.50% of the remaining loan amount, divided by 12 months. It resets every year so that when your loan amount decreases, so does your annual fee (paid monthly). In addition to this fee, borrowers are also required to pay a one-time upfront fee to help the lender cover the losses, in case the borrower defaults. The upfront fee and annual fee the borrowers pay is much less compared to traditional PMI, and it reduces the burden of the borrowers to a great extent.

2. Is the program only for first time home buyers?

No. The USDA home loan program is not restricted to first time home buyers. However, in most cases, a qualified borrower cannot own another home when closing on a USDA mortgage loan.

3. What is the down payment amount?

Unlike FHA loan borrowers who need to pay 3.5 percent, and conventional loans borrowers who need to pay 5 percent as down payment, the USDA loan borrowers need zero down payment for the USDA loan.

4. What is the income criterion?

USDA home loans are for the individuals and families that fall in the low and moderate income group. To qualify, a borrower’s income cannot be above 115 percent (%) of the median income in a particular area.

5. Is there any credit score requirement?

Generally speaking, applicants need to have a score of approximately 640 or above to qualify for a USDA loan.

6. What are the Closing Costs?

Closing costs vary from one location to another. Similarly, different lenders may ask for different closing costs. These costs can be rolled into the loan amount for almost $0 move-in cost, allowing borrowers to save thousands of dollars. You may even use the gift funds from family and non-family members to pay these costs.

7. What is the maximum amount that can be borrowed?

USDA loans do not have maximum loan limit. As long as the borrower meets credit score and debt-to-income (DTI) ratios required by the program and lender, and has an income less than 115% of the median area income, the borrower can receive the financing to purchase their home. Naturally, as the loan amount increases the monthly payment increases, and the borrower’s income will need to be higher to meet the DTI requirement, or even just afford the home. At some point, that income will become too high to qualify for the USDA loan program.

The USDA’s Rural Development and Single Family Housing Guaranteed Loan Program is an ideal mortgage option for eligible borrowers. If you are seeking a USDA loan in Texas, simply contact us today or apply online and we will be happy to assist you.