A USDA Home Loan is insured by the Government, and available to first time home buyers who buy homes in designated rural areas. Being Government insured means that lenders can offer this loan program to those who may not qualify for other types of mortgages, including FHA loans.

In addition to offering 100% financing, there are several other key advantages to the USDA Home Loan mortgage product. USDA Home loans do not have a limit on the amount of closing costs that the seller can pay, referred to as a seller’s concession. Most loan programs have either a 3% or 6% limit, based on the purchase price. There are often times, in expensive closing states, that even a 6% seller’s concession will not cover all of the costs. This allows a buyer to conceivably purchase their new home with no down payment, and no closing costs out of pocket, allowing first timers to keep all of their money in savings for future expenses.

Another benefit of the USDA Home Loan program is the ability to finance the closing costs without the use of a seller’s concession. This is extremely beneficial when a seller’s concession is not an option. That is most commonly the case when the transaction is a short sale (where the seller owes more than the house is worth) or a foreclosure. When a bank is involved in the transaction, a seller’s concession is usually not an option. Being able to finance the closing costs without a concession, as long as the property appraises for enough to cover the purchase price and the closing costs, is a huge benefit in a time when nearly 50% of all new home purchases involve a bank.

The last significant advantage to USDA Home Loans is that regardless of down payment, there is no monthly mortgage insurance. This can save the home buyer hundreds of dollars per month. This can either mean that the home buyer can afford a more expensive house, or they can put the savings away for other expenses. This changes in October, 2011, however, as the USDA has announced that a small monthly mortgage insurance premium will be added to the mortgage payment for all new USDA Home Loans. If you are looking to utilize this program to buy a home, I would suggest doing so prior to the change in October.

There are limitations to the program, including the aforementioned geographic restrictions and income restrictions. To learn more about the USDA Home Loan program, or to see if you and the property are eligible, contact one of our loan experts.