USDA loans are popular among today’s home buyers because the USDA program offers no money-down financing. Home buyers can finance 100% of a home’s purchase price; and, can even use the loan to help purchase a manufactured home or a modular home.
Furthermore, because USDA loans are guaranteed against loss by the U.S. Department of Agriculture, they are of very little risk to banks which make them. Low risk brings low rates and this is why USDA mortgage rates today are often the lowest of all of the government-backed mortgages.
USDA mortgage rates are typically lower than the rates for FHA loans, VA loans, and conventional mortgages via Fannie Mae and Freddie Mac.
Lastly, the USDA loan program offers reduced mortgage insurance premiums (MIP) to its borrowers. The annual USDA mortgage insurance premium — at just 0.35% of the loan amount — is 40% lowerthan the MIP charged for a comparable FHA-backed loan.
USDA loans can be big money-savers, and they’re available to first-time home buyers as well as repeat home buyers. Homeownership counseling is not required to use the USDA home loan program.
Most closings can happen in 45 days or fewer.
USDA mortgage requirements
The USDA mortgage is backed by the U.S. Department of Agriculture, and partially funded by the borrowers which use the program. Via mortgage insurance premiums charged to program homeowners, the government is able to keep the Rural Housing Loan program affordable.
The USDA last changed its mortgage insurance rates in October 2016. Those rates remain in effect today, September 28, 2018.
Today’s USDA mortgage insurance rates are:
- 1.00% upfront fee paid at closing, based on the loan size
- 0.35% annual fee, based on the remaining principal balance
As a real-life example of how USDA mortgage insurance works, let’s say that a home buyer in Cary, North Carolina is borrowing $200,000 to buy a home with no money down.
The buyer’s mortgage insurance costs include a $2,000 upfront mortgage insurance premium, plus a monthly $58.33 payment for mortgage insurance. You can choose the add the upfront mortgage insurance to your loan amount so you needn’t pay it out-of-pocket.
Note that the USDA upfront mortgage insurance is not required to be paid as cash. It can be added to your loan balance for you to reduce your funds required at closing.
USDA loan income requirements