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USDA Home loan Frequently Asked Questions
Below is a list of the USDA Home loan frequently Asked Questions (FAQ) explained below:
Q. What are closing costs with the USDA?
A. Closing costs are the necessary and customary fees involved with your loan transaction. All fees roll into your loan so that you won’t have to bring any money to closing. Here is a break down of the closing costs.
- Loan discount fee
- Loan origination fee
- Processing fee
- Underwriting fee
- Title fees
- USDA Guarantee fee
USDA loan Guarantee Fee. When you buy a home the USDA charges a 3.5% guarantee fee that gets financed into your loan. you can pay for this but most people have it rolled into the loan so you don’t have to bring any money to closing.
Loan discount fee is an option. Here is where you control your interest rate. You can either buy down or buy up with your interest rate. For ever 1% of loan buy down, you can lower your interest rate .35% as a general rule of thumb. This means if you qualify for a 6% rate, with 2 discount points, you can have a rate of 4.3%
and therefore lower your payment. One of the benefits to loan discount is that it is prepaid interest which is a write-off on your taxes.
Title fees are a separate charge and have nothing to do with our company. They are a 3rd party fee. The state mandates that all USDA mortgage loans be bound by a title. The fees range from 1%-1.5% of your loan amount. Again, these are not our fees and we have no control on these fees. They are mandated and controlled by the state and the title company.
Loan origination fee is the fee the bank charges to do your loan. Usually this fee is 1% of your loan amount. This can also be adjusted with your interest rate. The lower your rate you decide to take, the more loan origination you are likely to incur. The higher the rate you take, the lower your loan origination will be.
Processing fee=$400--600. This is a flat fee that the loan processor charges to process and close your loan with the bank
Underwriting fee=$700--899. This fee is for the underwriters who underwrite your loan.
Q. Why get a USDA home loan?
A. USDA loans are an excellent loan program to help people own a home. The reason it is so beneficial is because it offers 100% financing. This means there is no down payment required! Almost every loan requires some sort of down payment but not a USDA home loan.
Also there is no PMI with USDA loans. PMI is monthly mortgage insurance you have to pay if you do not have 20% down on your home. With a USDA loan this will save you hundreds of dollars per month.
Other great features about USDA loans are that they work with fair, good, excellent credit scores. Even if you have no credit you may qualify for a USDA loan. Further, with a USDA home loan you can buy a home with acreage or in a developed subdivision.
Here are the general terms that come with the USDA home loan
- NO PAYMENTS FOR UP TO 1--2 MONTHS
- NO ARM LOANS
- Fixed Rate Mortgage Only
- NO PMI
- NO BALLOONS
- NO MONEY DOWN ON THE LOAN or CLOSING COSTS OUR OF POCKET
- NO PREPAYMENT PENALTY
- RAPID PAY PROGRAM AVAILABLE, shaves 7 years off the mortgage payment
Q. Is my information safe?
A. We have secure shredder bins in place. Absolutely!!! We are also a valued member of Honest E Online. We take our business very serious. All of our files are locked up. We take extra steps and precautionary measures to make sure all your information is secure.
All online information is secure and we are protected with top of the line anti-virus software.
Q. Do I have to pay any money out of pocket to you to get a USDA home loan?
A. with a USDA loan the closing costs can be paid by the seller, rolled into the loan or paid out of pocket by you. you can buy a home with the USDA and set it up to where you have no money to closing.
Q. Do I have to put any money down to get a USDA home loan ?
A. No! With a USDA home loan there is no down payment required, it’s a 100% mortgage. If you choose or prefer to put money down you can. By doing this you will get a lower payment only but the interest rate will be remain the same.
Q. Why is my credit so important?
A. To get a USDA home loan credit is something the underwriters will review. The reason its important is because it demonstrates a person’s ability to repay a debt. Credit scores range from 350-900. If a person had suffered a severe hardship in their life though that affected their credit the USDA can and will look over this in most cases.
Q. What is PMI?
A. PMI is private mortgage insurance. A bank may require you to have PMI when you do a loan that is greater than 80% loan to value on your home. The purpose of PMI is to insure the bank will be reimbursed for their money in the event that a person defaults on payment. Most of our loans do not come with PMI and we are not an advocate of its use.
Q. What is a prepayment penalty?
A. A prepayment penalty is a fee a lender will charge you for paying off the home early or for trying to refinance before a specified time period. This fee is usually 2% of your loan amount. We are happy to say that 99% of our loans do not come with a prepayment penalty and that it is optional with us. YOU don’t have to have one. We don’t prefer them in most cases.
If you need further questions answered, please do not hesitate to call or email to the information below:
Q. What are the steps involved with getting a loan done?
A. Below is some advice that can help during the mortgage loan process from your loan officer.
This is the basic USDA loan process usually a 4-6 week process.
- We go over some information with you concerning your loan
- We send the loan package to you.
- You send the loan package back to us along with your documents that are required on the "Documentation Checklist."
- Appraisal is ordered with a local qualified appraiser and scheduled with the borrower (usually 2-5 business day process).
- Title commitment is ordered from a Title Company (usually 1 week process).
- Once we receive the appraisal and title commitment back in our office we send all information up to underwriter for manual review (underwriting process is usually 24-72 hours and sometimes longer towards end of the month).
- Lender releases the approval with conditions and our office works with their management team clearing the conditions to get your loan into closing status (usually 3-5 business days).
- Clear to close: once all conditions have been reviewed by underwriter and finalized the lender will send out final docs for your closing.
- Closing will take place at a title company near your home. Please bring two forms of ID and a check with "VOID" written on it if you will be receiving cash back.
Q. Why do I have to pay for an appraisal fee?
A. with a USDA loan they generally require a certified licensed FHA appraiser to appraise the property. The home generally y has to meet FHA appraisal requirements. this means the home has to be move in ready, it cannot be a fixer upper.
An appraiser local to you will generally charge $450 to appraise your home. It takes them about one hour; they take pictures of the home, measure the home and make sure it’s in good condition.
Q. What are the differences between pre-approved and a commitment letter?
A. A commitment letter is the final approval from the banks underwriters. It tells us what the final terms will be on your loan at closing. We call you up on the phone and let you know when this occurs. We pre-approve you when you fill out a short application. This tells us that based on the brief information you have submitted we most likely can do a loan for you and issue you a good faith estimate of what your loan will look like approximately.
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