Most home buyers are familiar with the government-backed FHA loan. A lesser known government program is the Single Family Housing Guaranteed Loan Program offered by the U.S. Department of Agriculture. It’s one that deserves your attention if you have a low- to -moderate-income household.
A USDA loan allows for 100% home financing, and funds can be used to build or improve a home in an eligible rural area. You can also finance closing costs entirely or negotiate for the closing costs to be paid for by the seller.
Despite having the term “rural” in the program requirements, some locations in the outskirts of the D.C. metro area may still qualify for the mortgage.
Let’s go over the program in detail:
The USDA loan program is generous when it comes to how you can use the funds. The loan may be used to upgrade features of a home to make it physically accessible to family members with disabilities. And to add energy efficient features like insulation and solar panels. Repairs and the cost of rehabbing a home are also fair game.
Besides the brick-and-mortar aspects of the house, you can put loan proceeds into escrow for taxes and insurance premiums. Homeowners are also able to use the USDA loan to refinance another eligible loan.
Homes nearest to the city will not qualify for the program for obvious reasons. However, some locations bordering urban and suburban areas are eligible. The Department of Agriculture has a map on its website where you can search by property address to see if a home is in a location that qualifies.
We pulled a map of the D.C. area to show you an example. In the map, the parts shaded white are the designated rural places that qualify for the loan.
Some notable eligible locations above include areas just outside of Leesburg, Manassas, and Ashburn in Virginia. In Maryland, the area north of Olney along with Mechanicsville and Chesapeake Beach.
The program is income-based to assist moderate-income families in purchasing suitable homes in rural areas. The income limit for a 1 to 4 person household in the D.C. metro area is $101,000. For families over five people, the income limit is $133,300.
Keep in mind; income requirements vary by county, so double check the income limit page on the USDA website for other areas within Maryland and Virginia.
Typically mortgages that don’t require a 20 percent down payment have a guarantee fee or insurance premium in case you default on the loan. The USDA loan is no different.
The upfront guarantee fee is currently 2.75 percent. There’s also an annual fee of 0.50 percent that you can pay a portion of monthly. At the end of 2016, the upfront guarantee fee will decrease to 1 percent and the annual fee to 0.35 percent.
Aside from the income restrictions, you must be a U.S. citizen or qualified alien to get approved for this program. If you’ve obtained benefits from other government programs in the past, your record with those programs must be in good standing.
Interested in learning more about your mortgage options or prequalifying for a home loan?