Learn the Pros and Cons of USDA Home Loans

Competitive interest rates

When financing a property, evaluating your interest rate is crucial. Your interest rate decides how much you will pay the bank to borrow their money. The lower your rate, the better things will be for you.

USDA loans provide remarkably low-interest rates for a loan that doesn’t need you to have any “skin in the game.” USDA loan market rates are comparable to FHA and other government loan programs. This is possible because the United States Department of Agriculture insures the loans, giving banks an incentive to lend money. If a homeowner defaults, the USDA will reimburse the bank for a portion of the loss.

Closing Costs Can Be Paid in Several Ways

Another advantage of USDA Rural Development loans is that closing fees can be paid in various ways. While these loans do not require a down payment, there are still closing costs to consider, and they can rapidly add up.

The average mortgage closing cost ranges from 2% to 5%. If you can’t afford your fees, you have several options with Rural Development loans.

Gift Funds

The first method is to use gift funds. If a family member or an employer is prepared to lend you money to help you buy a home, the USDA will accept it. Gift monies must be genuine gifts, and there are some paperwork requirements.

Seller Paid Closing Costs

The term “electronic commerce” refers to the sale of electronic goods. The USDA will enable the seller to pay you up to 6% of the purchase price in closing fees.

This equates to $12,000 in closing fees for a $200,000 buying price. This will need negotiation between you and your realtor, but it is likely the best alternative if you are low on finances.

Include Them in the Loan

Another advantage of the USDA program, which is unique, is that you can roll your closing costs into the loan. This is only possible if your home appraises for more than you are paying for it.

If you buy a house for $200,000 and it appraises for $205,000, the USDA will let you roll the extra $5,000 into the loan to cover closing costs.