What are USDA Loans?
USDA loans have the best pricing, rates, and mortgage insurance in the industry. The homes have to be in a designated rural area to qualify. Call us to confirm the home is in the designated area.
USDA loans are also one of the true 100% financing loans on the market. There is no down payment assistance and no silent second mortgages.
Mortgage Insurance for USDA Loans
Mortgage insurance, as with all USDA loans, is of two types. There is an upfront premium financed in to the loan amount of 1% of the amount financed. So, for example, if the loan amount is $385,000, then the funding MI funding fee is $3850, so the loan amount would be $388,850. The monthly mortgage insurance premium is .35% of the loan amount divided by 12. So using the $385,000 loan amount. .35% x $385,000 = $1347.50 divided by 12 = $112.29. Regular FHA loans have a 1.75% ($6737) MI funding fee and monthly mortgage insurance factor of .85% (.85% X $385,000 = $3272.50 divided by 12 =$272.70 as compared to $112.29 for USDA.
The suggested ratio for USDA is 29/41. The front-end ratio of 29% is unforgiving if your new payment has over 50% payment shock. In other words, if your new payment exceeds your old rent by 100%, it is unlikely that the US will be flexible with the front-end ratios. On the other hand, if your “payment shock” is 50% or less than your new payment, we have seen front-end ratios go as high as 35%.
What Credit Score Do I Need for a USDA Loan?
The minimum credit score for these loans is 580, but expect ratios to remain strictly adhered to in this situation.
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