What are the pros and cons of a USDA loan?
USDA mortgages are a great alternative for individuals who have low to moderate income and don’t have an issue with living in a rural area. Once qualified, the homeowner can build, rehab or relocate the dwelling you deem as your primary residence without having to come up with a down payment.
This sounds like a good alternative for individuals who fall under this umbrella, but there are pros and cons to consider. Here are a few:
- 100% financing
- Flexible qualifying guidelines
- Seller can pay closing costs
- Low fixed interest rate
- No pre-payment penalties
- The loan allows you to build
- Restrictions on certain geographic areas
- Income limits
- Mortgage insurance may have to be built into the loan
- Only applies to single family, owner occupied homes
While rural areas may sound like you’re living in the forest, there are several areas that are very suburban and considered rural. Additionally, your loan comes from an approved lender, not the USDA. They are the backers of the loan.
Most USDA loans are 30-year fixed-rate mortgages. In most cases, although you do not have to put any money down, this will help with your mortgage insurance premium. At closing, the buyer pays 2 percent of the purchase price, including a mortgage insurance premium of 0.40 percent of the loan’s balance. The good news is, the monthly payment for this will drop each year as the loan balance decreases.
For more information on the pros and cons of a USDA loan, contact the team at Mortgage Investors Group today.