Looking for a home with acreage to have your own version of “Green Acres,” but not sure of how to go about getting financing? We have relationships with the mortgage brokers who can provide special financing for farms and farmland. Most of them are in the USDA Special Loan Eligibility Area and may qualify for a NO MONEY DOWN Loan.
Here is some information about USDA Loans. At Nancy Kowalik Real Estate Group we will help you with every step of the process for you to own the home of your DREAMS!
What is a USDA Loan?
USDA loans are special mortgages meant for low to moderate income home buyers. But don’t let that deter you. You’d would be surprised to know that in South Jersey the adjusted income limit is $111,100.
These loans are guaranteed by the US Department of Agriculture. That guarantee acts as a form of insurance protecting USDA mortgage lenders, so they’re able to offer below-market interest rates and zero-down home loans. USDA runs this program to encourage homeownership and economic development in rural areas.
USDA eligibility is based on the buyer and the property. First, the home must be in a qualified “rural” area, which USDA typically defines as a population of less than 20,000. Second, the buyer must meet USDA income caps. To be eligible, you can’t make more than 15% above the local median salary. You also have to use the home as your primary residence (no vacation homes or investment properties allowed).
Borrowers also have to meet USDA’s “ability to repay” standards, including:
- Steady job and income, proven by tax returns
- FICO credit score of at least 640 (though this can vary by lender)
- Debt-to-income ratio of 41% or less in most cases
Here are the adjusted income limits for Southern New Jersey:
How USDA loans work
Using a USDA loan, buyers can finance 100% of a home’s purchase price while getting access to better-than-average mortgage rates. This is because USDA mortgage rates are discounted as compared to rates with other low-downpayment loans.
Beyond that, USDA loans aren’t all that “strange.”
The repayment schedule doesn’t feature a “balloon” or anything non-standard; the closing costs are ordinary; and, prepayment penalties never apply.
The two areas where USDA loans are different is with respect to loan type and down payment amount.
With a USDA loan, you don’t have to make a down payment; and you’re required to take a fixed rate loan. ARMs are not available via the USDA rural loan program.
Rural loans can be used by first-time buyers and repeat home buyers alike. Homeowner counseling is not required to use the USDA program.
The current USDA mortgage insurance rates are:
- For purchases, 1.00% upfront fee paid at closing, based on the loan size
- For refinances, 1.00% upfront fee paid at closing, based on the loan size
- For all loans, 0.35% annual fee, based on the remaining principal balance
As a real-life example: A homebuyer with a $100,000 loan size in Mantua,NJ would be required to make a $1,000 upfront mortgage insurance premium payment at closing, plus a monthly $29.17 payment for mortgage insurance.
USDA upfront mortgage insurance is not paid as cash. It’s added to your loan balance for you.
USDA mortgage insurance rates are lower than those for comparable FHA loans or conventional ones.
- FHA mortgage insurance premiums include a 1.75% upfront mortgage insurance premium, and 0.85% in MIP annually
- Conventional loan private mortgage insurance (PMI) premiums — even via the 3%-down HomeReady™ program — can range above one percent annually
With USDA loans, then, mortgage insurance premiums are just a fraction of what you’d typically pay. Even better, USDA mortgage rates are low.
USDA mortgage rates are often the lowest among FHA mortgage rates, VA mortgage rates, and conventional loan mortgage rates — especially when buyers are making a small or minimum downpayment.
For a buyer with average credit scores, USDA mortgage rates can be 100 basis points (1.00%) or more below the rates of a comparable conventional loan.
Lower rates mean lower payments, which is why USDA loans can be extremely affordable.
USDA mortgage rates: How do they compare to FHA & conventional?
Compared to other loan programs, USDA mortgage rates are usually the lowest available.
USDA rates are typically only matched by the VA loan, which is exclusively for veterans. These two programs — USDA and VA — can offer below-market interest rates because their government guarantee protects lenders against loss.
Other mortgage programs, like the FHA loan and conventional loan, can have rates around 0.5%-0.75% higher than USDA rates on average.
That said, mortgage rates are personal. Just because you’re getting a USDA loan, doesn’t necessarily mean your rate will be “below-market” or match USDA loan rates advertised.
To get the lowest possible rate, you need an excellent credit score and low debts. Making a bigger down payment helps, too.
USDA home loan FAQ
What is a USDA loan and who qualifies?
A USDA loan is a zero-down home loan meant for low- to moderate-income home buyers. You might qualify if you have an average salary for your area, and want to buy a home in a rural or suburban neighborhood. Typically, only areas with a population under 20,000 qualify. Eligible buyers can finance 100% of the home’s purchase price with a USDA loan.
What is the income limit for USDA home loans?
The income limit for USDA home loans is based on your area’s median salary. To be eligible for a USDA loan, you can’t exceed the median by more than 15%. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less. (15% of $65,000 = $9,750 → $65,000 + $9,750 = $74,750)
Is a USDA loan good?
A USDA loan is a great option for buyers with moderate income. It lets you buy a house with nothing down and low mortgage rates — two huge benefits that only one other loan program (the VA loan) offers.
If your home is in an eligible area, it’s worth exploring a USDA loan. The main drawback is that USDA loans require mortgage insurance. So if you can make a 20% down payment, you might prefer a conventional loan with no mortgage insurance payment.
Is USDA better than FHA?
Is USDA better than FHA? Both programs let you buy with a low down payment and require mortgage insurance. USDA can be used with zero down, but the home has to be in a qualified rural area, and the buyer has to meet income caps. FHA requires 3.5% down, but there are no location or income restrictions. FHA is also more lenient about credit scores (580 for FHA vs. 640 for USDA). The right one for you depends on where you’re buying and your financial situation.
How does the USDA loan work?
USDA loans are backed by the U.S. Department of Agriculture, so they can offer zero down and low rates. Aside from that, they work a lot like other mortgages. They’re offered by mainstream lenders so you can apply online, in person, or over the phone. And you still have to get pre-approved and qualify for a USDA loan based on your income, credit, debt, and other factors. One other difference is that the lender has to send the loan file to USDA to be approved. This can add around 2-3 weeks to your loan processing time.
Are USDA mortgage rates good?
USDA loan rates are often lower than comparable conventional 30-year fixed mortgage rates. Plus, because mortgage insurance rates are lower, with your small down payment, USDA loans can often be a better deal as compared to FHA loans or conventional loans.
When mortgage rates fall, can I refinance my USDA mortgage?
Yes, USDA loans are eligible for refinance. The USDA Streamline Refinance Program waives income and credit verification so closings can happen quickly. Home appraisals aren’t required, either.
Why does the USDA offer the Rural Development loan?
The USDA Rural Development loan is meant to help households of modest means get access to housing and mortgage loans in some of the less densely populated parts of the country. By enabling homeownership, the USDA helps to create stable communities for households of all sizes.
How do I check if my home eligible for a USDA loan?
With the USDA Rural Housing Program, your home must be located in a rural area. However, the USDA’s definition of “rural” is liberal. Many small towns meet the “rural” requirements of the agency, as do suburbs and exurbs of most major U.S. cities.
97% of the United States is USDA loan-eligible. Only 3% is ineligible.
How can I find if my area is USDA-eligible?
The website of the U.S. Department of Agriculture lists eligible USDA communities by census tract. You are required to provide a home’s exact address. The website will show whether that home meets program guidelines.
What is the USDA program’s minimum downpayment?
The USDA has no down payment requirement. You can finance 100% with a USDA loan.
Is there mortgage insurance (MI) on a USDA loan?
USDA loans require mortgage insurance (MI) to be paid. As of December 4, 2019, USDA mortgage insurance premiums include a 1.00 percent upfront fee, which is added to your loan balance at closing; and, an annual fee of 0.35%, which is added to your payment monthly.
What’s the maximum USDA mortgage loan size?
There is no maximum loan size for the USDA loan program. The amount you can borrow is limited by your household’s debt-to-income.
The USDA typically limits debt-to-income ratios to 41%, except when the borrower has a credit score over 660, stable employment, or can show a demonstrated ability to save.
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.
Can I finance the Upfront Mortgage Insurance into my mortgage?
Yes, the USDA will let you finance your Upfront Mortgage Insurance payment into your loan size.
For example, if you bought a home for $100,000 and borrowed the full $100,000 from your lender, your Upfront Mortgage Insurance would be $1,000. You could then raise your loan size to $101,000.
Where can I find a USDA loan lender?
The U.S. Department of Agriculture website maintains a list of lenders in the Rural Housing Program. Visit its website to search for a lender, or just skip to the rate quote.
USDA Loan Options: 15 Year Fixed & 30 Year Fixed
The Rural Housing loan is available as a 30-year fixed rate mortgage or a 15-year fixed-rate mortgage only. There is no adjustable-rate mortgage (ARM) program available via the USDA.
How much are the closing costs for a USDA mortgage?
Closing costs vary by lender and location. For example, some lenders have high origination charges. Others do not. The same is true for state and local governments. Costs are high in some states and low in others.
Because closing costs vary, be sure shop around to find the most suitable combination of low mortgage rates and low costs.
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.
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. This is known as “Seller Concessions“.
Seller concessions may include all or part of a purchase’s state and local government fees, lender costs, title charges, and any number of home and pest inspections.
Can I use the USDA loan for a vacation home?
The USDA loan cannot be used for a vacation home, it is for primary residences only.
Can I use the USDA loan for an investment property?
The USDA loan cannot be used for a vacation home, it is for primary residences only.
Is there a minimum credit score for the USDA loan program?
On December 1, 2014, USDA implemented a minimum score of 640. Before that date, USDA set no minimum score for the program. However, most lenders did. When USDA implemented an official credit score minimum, it did not exclude very many additional buyers.
If you are without a credit score, your lender may accept “alternate” tradelines to establish a credit history.
I recently went back to work. How long until I am USDA-eligible?
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 income for qualification purposes.
I am self-employed. Can I use the USDA loan program?
Yes, self-employed persons can use the USDA Rural Housing Program.
If you are self-employed and want to use USDA financing, as with FHA and conventional financing, you will be asked to provide 2 years of federal tax returns to verify your self-employment income.
Can I use the USDA loan program for a new construction home?
Yes, the USDA loan program can be used for newly-built homes and other new construction.
Can I use the USDA loan program to make repairs and improvements to an existing home?
Yes, the USDA loan program can be used to make eligible repairs and improvements to a home. This may include replacing windows or appliances; preparing a site with trees, walks, and driveways; drawing fixed broadband service to the home; and, connecting water, sewer, electricity, and gas.
Can I use the USDA loan program to make a home accessible to persons with physical handicaps?
Yes, the USDA loan program can be used to permanently install equipment to assist household members with physical disabilities.
Do I have to escrow my taxes and insurance with a USDA mortgage?
Yes, USDA mortgages require borrowers to escrow taxes and hazard insurance with a lender. You may not pay your real estate taxes or annual homeowners insurance separately.
Here’s a map of the Special USDA Loan Eligibile Areas In South Jersey
Here’s a List of Areas By County:
As you can see much of Gloucester, Salem, Cumberland and Cape May Counties have qualifying areas. At Nancy Kowalik Real Estate Group, we can help you find a home that qualifies.