Benefits of the USDA Guaranteed Loan Program

No First-Time Buyer Requirement

The loan is available to home buyers in need of housing, even when they have owned a home in the past. The loan is also available to those who currently have a home that is not in the local commuting area or is not structurally sound or functionally adequate.

Increased Income Limits - New!

In April 2009, USDA increased the income limits to allow more individuals and families participation in the program. >Click here for the income limits by state and county.

No Thermal Requirements – New!

In January 2008, the Rural Development Loan eliminated thermal standards. Prior to 2008, a house was required to have a certain level of insulation plus double pane or storm windows and doors. Thankfully, USDA has adopted the HUD minimum property standards. Now, we simply need a standard appraisal on FNMA Form 1004 or FHLMC Form 70.

Guaranteed Underwriting System (GUS) – New!

GUS was introduced to give participating lenders an automated underwriting system similar to Desktop Underwriter (DU) and Loan Prospector (LP), systems used by government and conventional agencies to provide loan approval with streamline documentation for borrowers with good credit scores and other compensating factors. As a result, we are now able to approve home buyers with higher income-to-debt ratios.

No Down Payment

The program offers financing up to 102% of the appraised value (not sales price) of the property. Therefore, a down payment is usually not required.

Financed Settlement Costs

The loan (based on value) can be set above the purchase price to finance loan closing costs, pre-paid expenses, and incidental expenses. With no down payment and financed settlement costs, borrowers can acquire homes with little or no money out of pocket.

No Monthly Mortgage Insurance Premiums

Unlike other government and conventional loan programs, there are no monthly mortgage insurance premiums. This lowers the monthly housing payment significantly.

No Reserve Requirements

There is no need for payment reserves after closing. This opens opportunities to borrowers who have not yet accumulated savings.

No Loan Limits

The Rural Development Loan does not have loan limits. The amount borrowed depends on the borrower's repayment ability.

Ideal Land–Home Packages

The loan may be used as take-out financing for an interim construction loan to buy land and build a new home. The value of a finished home is usually higher than the cost to build, so the loan amount (based on value, not acquisition costs) usually covers the entire cost of the project.

No Recapture on the Sale of the Property

Despite the 102% financing, no monthly mortgage insurance, and other unique features, the loan does not have a recapture fee or tax when the borrower sells the property. The recapture fee is a requirement of the USDA Direct Loan Program, a different program offered to low-income home buyers. However, it is not a requirement of the Guaranteed Loan Program..

No Seasoning Requirement

FHA and other programs have a flipping rule that prevents a buyer from purchasing a property from a seller who has held title for less than 90 days. However, the USDA loan does not impose this rule so long as prudent underwriting procedures are followed.

Repair Escrow Accounts for Post-Closing Repairs

Home buyers may borrow funds to purchase the property in its current condition plus additional funds to make essential repairs required by the appraiser.

No Limit to Seller Concessions

There is no limit to concessions or gifts, whereas FHA and other programs have a limit of 6% of the sales price.

Flexible Credit Criteria

No credit, limited credit, and less-than-perfect credit are acceptable. Manual underwriting process benefits home buyers who have not yet established credit or who suffer from lagging credit scores despite a sustained recovery from past difficulties. Participating lenders may consider the personal circumstances of each applicant and allows for common-sense decisions on a case-by-case basis. This gives an advantage to applicants who do not qualify for loan programs involving only modern automated computer underwriting systems driven heavily by credit scores.