How Do USDA Home Loan Rates Compare To Other Loan Options?
All other factors being equal, USDA home loans offer rates that are typically far more favorable for borrowers than comparable federal or private loan programs.
USDA home loans are provided to borrowers on a fixed rate basis. The rate is competitive when compared to loans that are provided to borrowers on the basis of the prevailing market rate.
USDA home loans are also unique in that you can get financing for 100% of the property's value. You do not need to put forward any kind of down payment. Even the most favorable federal loan programs typically require a down payment of about 3.5%.
With a USDA home loan, you might even qualify for financing up to 102% of the home value. Why is this important? It means that you will not even have to pay closing costs out of pocket.
A USDA home loan can vary from either 30-year and 15-year fixed rate options.
One of the most important things to know about a USDA home loan is that the term is always the same: 30 years. This is different from other programs that may offer a 15-year or 20-year term.
Because the term of the loan is fixed at 30 years, you have plenty of time to pay off your home loan while making reasonable payments that will be a relatively small percentage of income.
As a loan holder with a USDA backed loan, you will pay both principal and interest through the full 30-year term of the loan, which works out to 360 months.
Believe it or not, the lender is also responsible for certain fees:
- The lender typically pays a non-refundable fee of 2% of the home value
- If the home is being refinanced, the fee is equal to .5% of the home value
What is this fee all about? The 2% is used as guarantee money for the federal government. Once the fee is paid, the loan is guaranteed by the federal government, who will service it in the event that both the borrower and the co-signer, if any, become completely unable to repay it.
Other important things to realize about your mortgage loan rate include the following:
- Even though the lender must pay the 2% fee, they can also pass the fee on to you
- Lenders have the power to charge certain fees but must always meet federal norms
- USDA mortgage rates are currently the lowest they have been in two decades now
USDA mortgage rates can be understood just like the rates of other types of mortgage loans: The lower your rate is, the less money you will end up paying throughout the course of a loan's life.
In a general sense, mortgage loans change their rates very frequently. Although USDA mortgage loan rates have been on a downward trend, it is important to act now to lock in the best rates.
Our team of experts on USDA federal loan standards can help you get those amazing rates.
USDA mortgage loans have lower interest rates than many other types of loans, and they are much less expensive than most other loans because you can get them without paying anything out of pocket.
However, just because this loan is overseen by the federal government, it does not mean that they are all the same. Each private lender who deals in USDA loans is able to set their own fees and rates for the loans.
Because of that, it's a good idea to work with a fair and impartial team of skilled experts who will be able to help you get the best rates possible for your situation and in your real estate market. Our network provides you with the best information to get excellent rates.
What are the basic mortgage rates and terms for a USDA loan? There are many different factors that help protect you as the borrower. For example, a lender may not choose to charge you fees that are significantly different from the fees charged for similar private loans.
At the outset of any USDA loan, the lender will pay 2% for a new loan or .5% for a refinance to the federal government. In exchange, the government will guarantee 90% of the total loan value.
Because of this agreement, lenders are empowered to provide loans to a much broader spectrum of consumers, and home buyers who are purchasing properties in smaller rural communities have the support they need.
Exactly what is the Loan Guarantee provided by USDA?
The USDA offers lenders a guarantee of up to 90% of the full value of the loan in the event that the borrower defaults. 100% of losses, up to an amount that must not exceed 35% of the initial loan amount. Losses exceeding that amount are reimbursed to 85%. That means the lender has an extraordinarily small exposure to risk.
How does PMI relate to USDA loans?
PMI is loan insurance that helps to offset loan losses to lenders if the borrower should default. USDA refers to this as the 'Guarantee Fee.' The borrower will usually pay this monthly. It can be deferred if you choose to put down a 20% down payment.
Can you finance closing costs within the loan?
Yes, you can finance closing costs in the event that there is a difference between the home's appraised value and sale price that works in your favor.
Will I need to put down a down payment on my home?
No! With a USDA home loan, you can finance up to 102% of the home value. This gives you additional money to fund things like closing costs and the Guarantee Fee.
How much can I borrow?
You can borrow as much as necessary to finance a qualifying property as long as the loan does not cause you to exceed a 29/41 debt to income ratio. Likewise, you must not be in excess of the USDA income limit for the state or county.
How much are closing costs?
Closing costs are typically 2% to 4% of the sale price.
We Are The USDA Loan Experts
Find out what USDA loan program your scenario or property is eligible for.