What Are The Benefits Of A USDA Home Loan?
South Carolina USDA loans are structured just like conventional ones via Fannie Mae and Freddie Mac. Where they differ, though, is with respect to down payment requirements and mortgage insurance.
Unlike conventional loans or FHA Loans, USDA South Carolina loans have no down payment requirement, which allows a home buyer to finance a home for 100 percent of its purchase price. The U.S. Department of Agriculture will assess a two percent mortgage insurance fee to all loans, and the cost may to be added to the loan size at the time of closing, as can the costs of eligible home repairs and improvements.
You can’t do that with a Fannie Mae or Freddie Mac loan.
Another “RD Loan” advantage is that its annual mortgage insurance fee is just 0.40% annually, no matter how large or small of a down payment.
This is less than half of the private mortgage insurance charged via a comparable conventional loan, and up to one-fourth of what the FHA will charge (except for participants in the FHA HAWK program for reduced MIP).
Furthermore, because USDA home loans do not have a specific loan size limitation, home buyers can theoretically borrow more money with a USDA mortgage than via conventional, VA or FHA routes.
Loans insured by the U.S. Department of Agriculture are available as 30-year fixed rate mortgages only, and come with their own USDA Streamline Refinance program.
How Do I Qualify For A USDA Home Loan in South Carolina?
Similar to FHA home loans, rural housing loans aren’t made by the USDA. Rather, the USDA insures mortgage lenders making USDA Section 502 loans against loss. The program is meant to spur home ownership in rural and underdeveloped areas.
In order to qualify for a USDA loan, home buyers must meet two requirements.
First, the buyer must buy a home in a USDA-eligible area. In general, USDA property eligibility is governed by census tract density. However, the term “rural” leaves room for interpretation, opening Section 502 mortgages to buyers in unexpected parts of the country.
For example, huge swaths of California are USDA Rural Loan-eligible, as is most of the Midwest. Even New Jersey is stuffed with USDA-eligible homes.
A buyer’s second USDA eligibility requirement is that household income may not exceed 115% of the area’s median income. A mortgage lender can tell you whether your income meets program requirements, if you’re unsure how to check.
There are other USDA qualifying criteria, too, including :
- The subject property must be a primary residence
- The buyer must be at least two years seasoned from a bankruptcy discharge
- The buyer must have decent credit
- The buyer must meet a qualifying ratio of 29 percent for housing costs; and 41 percent for total debt
- The buyer may not own another home within commuting distance of the subject property
However, it’s important to note that these guidelines are not steadfast — specifically, with respect to credit scoring and debt-to-income ratios. There is no minimum credit score requirement with the USDA mortgage program, nor is there a minimum tradeline requirement. Buyers are evaluating on the overall strength of their loan application.
This is also why the 29/41 debt ratios can be waived. A buyer which can show a strong credit score, for example, or deep reserves can generally get approved with debt ratios in excess of the recommended limits.
For How Much Can I Get Approved With USDA Loan?
For today’s home buyers, current mortgage rates are low and they’re especially low with the USDA program. The USDA loan is designed for low rates and leniency so long as the buyers meets the USDA’s property and income eligibility requirements.
Note, however, that the USDA changes its “rural areas” fairly regularly and an expanding town is apt to lose its rural loan eligibility with the next census tract update. Homes which are USDA-eligible today may not be USDA-eligible next year.
Get help with your rural home loan and determine your personal eligibility. See for how much of a mortgage you can be USDA-approved.