Don’t Overlook the Rural Market
When it comes to buying a house, location is key. If you’re looking to purchase a home in a rural location, now may be the time to do so in order to take advantage of the robust market. Buyers looking to purchase in a rural environment can even get some assistance with their mortgage, thanks to the USDA Rural Development Guaranteed Housing Loan program, insured by the U.S. Department of Agriculture.
While USDA loans aren’t being advertised all over the place and only a small percentage of lenders even offer them, these loans (also called Section 502 loans) allow for 100 percent financing as well as some very friendly terms, making it a wise idea to try and secure one.
The requirements for obtaining a USDA Rural Housing Loan are simple: Obviously, your home must be located in a rural area, however, the USDA’s definition of “rural” is really quite liberal. Many small towns meet the USDA requirements, as do suburbs of most major U.S. cities.
While the USDA offers only 30-year fixed rate mortgages, there is no down payment requirement. In addition, USDA loans can be used by first-time buyers or repeat buyers. The rates associated with USDA loans are often as low as comparable conventional 30-year fixed mortgage rates and because mortgage insurance rates are lower, with a small down payment, USDA loans can often be a better deal.
This fall, the Rural Housing Program is undergoing a drastic change in that the loans will be entirely self-funded instead of taxpayer-subsidized. Because of that, the USDA is changing how it charges mortgage insurance.
The USDA Rural Housing Program also allows sellers to pay closing costs for buyers. These costs can include state and local government fees, lender costs, title charges and any number of home and pest inspections.
As of October 1, USDA mortgage insurance rates for purchases include a two percent upfront fee paid at closing, based on the loan size. For refinances, it will also be a two percent upfront fee paid at closing, based on the loan size. For all loans, a 0.40 percentage annual fee will be assessed based on the remaining principal balance.
Let’s say someone is taking out a $200,000 USDA loan. It would require $4,000 in mortgage insurance at the closing and $66.66 of mortgage insurance paid monthly.
Most lenders have already moved to the new mortgage insurance model, so if you’re in the process of buying a home via USDA, make sure to talk to your lender about the changes.
For more information, the USDA website maintains a list of lenders in the Rural Housing Program at http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.
By Keith Loria
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