USDA offers zero down financing in designated rural areas to households under certain incomes. In rural King County neighborhoods, like Carnation or Duvall, the income limit for a 1-4 family household is $92,600.

Similar to an FHA or VA insured mortgage, USDA has an upfront "funding fee" which is technically called a "guarantee fee".  Typically this cost is added to the loan amount and financed.  For 2012, the upfront USDA guarantee fee for purchases is 2% and effective December 7, 2011 and through 2012, refinances are 1.5% of the loan amount. 

USDA has supplemented this with an annual fee which is paid monthly (like FHA). The annual fee is charged with both purchase and refinance transactions at a rate of 0.3%. For example, if you have a loan amount of $300,000, the monthly cost would be $75 (300,000 x 0.3% divided by 12 months). 

If you're interested in a zero down USDA loan for a home located anywhere in rural Washington, I'm happy to help!

Beginning October 1, 2011, USDA Rural Loans may an have annual mortgage insurance (like FHA, paid monthly) and will reduce the upfront guarantee fee on purchases from 3.5% to 2%.  RD AN No. 4551 states:

Beginning October 1, 2011, it is anticipated that all purchase loans transactions will be charged (1) an up-front guarantee fee equal to 2% of the loan amount and (2) an annual fee of 0.3% of the unpaid principal balance.

Unlike FHA insured loans where the annual mortgage insurance premium ceases after 60 payments and the principal balance reaches 78% loan-to-value based on the original sales price or appraised value, USDA's annual fee NEVER terminates. It will remain a part of the monthly payment until the USDA mortgage is paid off.  The annual fee will be reduced each year as it is calculated annually from the principal balance. 

Here's a comparison: 

Currently, if someone was using a USDA zero down loan to purchase a home in Duvall for $300,000, their loan amount would be $310,500 (sales price plus 3.5% for the upfront guarantee fee).  Based on current rates of 4.375% (apr 4.786), their payment (excluding taxes and home owners insurance) would be $1550.28.

Effective October 1, 2011 and assuming mortgage rates just happen to be the same, the loan amount would be $306,000 (sales price plus 2% for the upfront guarantee fee) creating a principal and interest payment of $1,527.81 PLUS an estimated monthly premium of $75.82 = $1,603.63.  An increase of $53.35 per month!

Why would someone even consider having a USDA mortgage after October 1, 2011? Well for one, it's one of the few "zero down" mortgage programs available for homes that are located in a designated rural area (like Duvall, Gig Harbor or Maltby).  If the appraisal comes in higher than the sales price, borrowers may be able to finance closing cost… there are some perks to this unique program and it may be worth your consideration if you're income meets the guidelines and you're buying a home in a rural community.

Questions about USDA or other types of mortgage programs for homes located in Washington State? Contact me, I'm happy to help!

12/10/11 EDITORS NOTE: Like many mortgage programs, some of the guidelines and features to USDA loans have changed since the original publishing of this post.  This is a good thing to keep in mind whenever researching mortgages on-line.

USDA Guaranteed Rural Housing loans are administered through the USDA to provide financing in areas that are designated as “rural” for families under certain income limits.  Qualified borrowers can purchase a home in a USDA approved area with 100% financing and if the appraised value is higher than the sales price, the home buyer can actually finance their closing costs too (USDA will consider the higher of the two).  It’s a pretty sweet deal for the right home buyer.

Program highlights:

• 103.5% financing based on the appraised value
• 30 year fixed rates with government pricing
• No monthly mortgage insurance.  There is a one-time guarantee fee (similar to a VA funding fee or FHA upfront MIP) of 3.5% which is financed into the new loan.
• No down payment or first time home buyer requirements
• 29/41 debt-to-income ratios (exceptions available with compensating factors)
• Closing costs may be financed into the new USDA mortgage (based on appraised value).
• Seller contributions allowed for all closing costs and prepaids
• Gifts from disinterested third parties allowed
• Primary residence (owner occupied) only
• Home buyer may not own other adequate housing
• Single family dwellings or HUD approved condos
• Subject to household income limits.  Currently (5/6/11) in King County and Snohomish County, the income limits for a 1-4 person household is $92,600 and 5-8 person household is $122,250.
• No loan limits (income limits factored with debt-to-income ratios will create a loan limit for each specific scenario).
• Escrow hold backs for repairs allowed up to the lower of 10% of the loan amount or $10,000.

As I write this post, a majority of Washington State qualifies for this government backed program, including Bonney Lake/Lake Tapps, Enumclaw, parts of Maple Valley, North Bend, Duvall, Bainbridge Island, Vashon Island and Gig Harbor.   Click here to see if a specific property is eligible.

EDITORS NOTE: Rates posted below have been EXPIRED for YEARS!!!  Please click here for a current mortgage interest rate quote.

Let’s compare FHA and USDA financing to would look like for a qualified home in Fall City with a sales price of $350,000 utilizing a 30 year fixed rate with 720 mid-credit scores and with the seller paying closing costs and prepaids:

USDA

• Current rate: 4.375% (APR 4.820)
• Mortgage payment (excluding property taxes & home owners insurance): $1,808.66
• Down payment required: $0

FHA

• Current rate: 4.250% (APR 5.189)
• Mortgage payment (excluding property taxes & home owners insurance):  $1,999.34
• Down payment required: 3.5% = $12,250 (may be gifted by family member)

The USDA mortgage payment payment is $190.68 less per month and cash needed for down payment is $12,250 less than the FHA scenario.

If you are considering buying a home located in a rural community that qualifies, USDA financing could be a prime choice!

If you would like more information about buying or refinancing your home located anywhere in Washington, please contact me.  I’m happy to help!

NOTE:  areas below that are not orange are currently eligible for USDA financing!

EDITORS NOTE:  Please check out this updated post (May 2011) on USDA financing for homes located in Washington State.  Income limits and the guarantee fee have since changed since publishing this post.

USDA Rural Development loans offer financing of single family dwellings in rural areas to people who meet certain income limits.  In King County, the current four-person household adjusted limit is $88,400 maximum income.  

This program provides up to 100% financing with flexible underwriting guidelines. There is no mortgage insurance however, similar to a VA loan, there is an upfront fee of 2% of the loan amount (guarantee fee) that can be financed into the new mortgage.   Mortgage rates are attractive considering the higher loan to value, no credit score price hits and no monthly mortgage insurance–I've added rates for USDA loans to my rate post that I do on Friday's here at Mortgage Porter.

To see if you and a potential property are eligible, click here.

If you're interested in a USDA loan on property located in Washington State, please contact me.  Mortgage Master is an approved lender.