1. USDA Has Relatively Loose Credit Requirements
Underwriting requirements requirements for USDA loan programs are not so strict compared to that of conventional mortgages. Loan seekers with FICO score 720 or above surely get the best possible rate, loan terms and mortgage insurance premiums but you can surely qualify with a FICO score of 640+. Anything below 640 means it may take 5-6 weeks to hear that good news but it is highly unlikely that buyers will get clear-to-close signal unless you have a good payment history and steady income flow. That sort of flexibility is not available in conventional loan.
2. USDA Property Eligibility Criteria
USDA Is Only Available in Rural and Sub-Urban Areas. As the word “USDA” says it all, USDA loans are available in rural and sub-urban areas and the community population has to be below 20,000 for most parts and in some cases population of up to 35,000 is also OK. More than 97% of the United States’s land area is eligible for USDA loan program. On the other hand Conventional loans aren’t restricted by geographical location of the property.
3. USDA Is A No Down Payment Loan
USDA eligible borrowers have this great option to avail USDA loan without making any down payment – in other words USDA is a no-money-down home loan program, which allows for 100% financing of the home price. For higher priced properties, you might be asked to put a little down, but nowhere near the huge 20% down payment requirement for conventional mortgages. This one major advantage makes it easier for first time home buyers to own a home who cannot afford to arrange a down payment.
4. USDA – One Downside – Mortgage Insurance
USDA requires the home buyers to pay mortgage insurance to cover the risk for lenders who extend 100% loan to purchasers. Now there are two components for mortgage insurance. The upfront 1% [of loan amount] which can be rolled into the mortgage. The second component is 0.35% annual premium [of balance principal amount], which is paid along with your monthly mortgage payments. In case of Conventional mortgages PMI is waived if you make a down payment exceeding 20% of the purchase price.
5. USDA Interest Rates Are Fantastic!
Interest rates for USDA loans are always less when compared to that for conventional mortgages. The deciding facror for the actual rate would be the FICO score of the buyer, more the score better the rates that you would qualify for. This difference can be more than 1% point when compared to conventional loans.
6. Closing Costs Can Be Rolled Into Your USDA Loan
This is another huge advantage of USDA loans that you can roll in a-z closing costs into the loan – thus making it possible for you buy move in your new home without paying a dime out of your pocket. For US residents who do not have any enough balance in their banks, but can manage to make monthly payments – USDA loans if for you guys. No down payment, no closing costs, no hidden expenses just find a USDA eligible property, get yourself pre-qualified and ENJOY YOUR DREAM HOME! This is not a viable option for conventional loan.
7. USDA Loans Are Assumable
Both the USDA direct and USDA guaranteed home loans are assumable. When you sell your USDA mortgaged property to anyone who is eligible for a USDA loan, it is absolutely possible for the new buyer to take over with minimal changes in terms and rates. On the other hand conventional loans are not assumable.
8. Downside Of USDA – It Is Not Good For Cash-out Refinancing
Here conventional loans take an edge as cash-out refinancing is allowed in this case where as with USDA loans this is not an option. So plan ahead for future, if you think you might need to cash out for an important event in future – do not opt for USDA loans. But hey that’s not the end of the road, if you have built enough equity and can opt for conventional loan at a later stage then – yes you can avail that option, but it is complex as hell as it sounds.
9. USDA Eligible Property Cannot Be Income Producing
The program USDA is designed for Single Housing and you have to move in the property once the mortgage paperwork is completed. You cannot rent it out and stay elsewhere. Moreover you cannot buy a multi-family house with USDA program. There is no such restriction of such sort with conventional loans.