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Benefits of USDA Rural Development Loans

USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. USDA loans are available to home buyers with low-to-average income. They offer financing with no down payment, reduced mortgage insurance, and below-market mortgage rates. You can use a USDA mortgage to buy a home or refinance one you already own at a low rate. In short, USDA home loans are putting people in homes who never thought they could do anything but rent./p>

USDA loan rates: How do they compare to FHA & conventional?

Compared to other home loan programs, USDA mortgage interest rates are some of 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. 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 and monthly payments, you need an excellent credit score and a low debt-to-income ratio. Making a bigger down payment helps, too. You also need to shop around with a few different USDA mortgage lenders. Each USDA lender sets rates differently — so comparing personalized rates from more than one company is the only way to find your lowest option.

How USDA loans work

Using a USDA loan, buyers can finance 100% of a home purchase price while getting access to better-than-average mortgage rates. This is because USDA mortgage rates are discounted as compared to other low-down payment loans. Beyond that, USDA loans aren’t all that different from other home loan programs. The repayment schedule doesn’t feature a “balloon” or anything non-standard; the closing costs are ordinary; and, prepayment penalties never apply.

So if you think you’re eligible for a zero-down USDA loan, it’s worth asking your shortlist of lenders whether they offer this program.