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Why Don’t More Buyers Use USDA Financing?

December 6, 2015





USDA Single family Housing Guaranteed Loan Program helps low-to-medium income borrowers qualify for home loan financing to improve the quality of their lives.  The reason why many buyers do not take advantage of USDA financing is plain and simple; many loan officers an real estate agents aren’t familiar with the USDA program.  Therefore, they do not offer the option to their clients.  USDA follows the same guidelines as FHA.  A newer real estate agent may not have been informed that their market area qualifies for USDA financing, but surprisingly many suburbs do qualify.  First time homebuyers are also extremely overwhelmed and may not know that this program is available, but there are many lenders  that offer this program.

Here are some of the differences in loan programs:

  • USDA allows up to 100% financing for purchases and rate and term refinances. FHA is up to 96.5% financing for purchases and 97.75% for refinances. Conventional loans finance up to 95% loan to value and MyCommunity financing will go up to 97%.
  • USDA does not allow cash out refinancing.  FHA and Conventional loans do.
  • USDA financing is capped at 31/43% debt ratio.  With a 660+ FICO lenders may make exceptions to go to 45% back end ratio.  FHA allows debt ratios up to 56.99% backend and Conventional loans are max at 50% purchases/rate and term or cash out at 45%.
  • USDA monthly private mortgage insurance is extremely low at .50 annually (annual premium is divided by 12 to arrive at the premium charge per month). FHA is at .85 annually for 90% loan to value an .80 annually for 89.99% loan to value or lower. Lenders that offer 95-97% loan to value financing offer lower private mortgage insurance for higher credit score borrowers (typically 720+).
  • FHA interest rates tend to be a bit lower than USDA, which helps to offset this.  Both USDA and FHA have lower interest rates than Conventional loans due to their annual private mortgage insurance, which now are required to be paid over the life of the loan.
  • On Conventional loans, private mortgage insurance will automatically discontinue being charged at 78% of the original value (which is computer generated and automatically set at the closing of the loan). On Conventional loans, if values increase sooner and you are 80% loan to value or lower, you can request an appraisal to be completed by your mortgage lender to remove the private mortgage insurance earlier.
  • USDA Upfront Guarantee Fee is 2.75%.  FHA is at 1.75%. Conventional offers lender paid private mortgage insurance with an upfront fee to omit or reduce the annual fee.
  • USDA and FHA purchase loans are only available for owner occupied purchases.  FHA will refinance an owner occupied home that has become a rental after one year of being owner occupied.
  • USDA allows down payment assistance programs to help cover the closing costs and is very beneficial if the seller isn’t offering any seller credit to cover closing costs and pre-paid fees.  USDA comes in handy for those that qualify for a down payment assistant program, which normally require a 620 Mid FICO to qualify.
  • USDA and FHA allow 550+ Mid FICO borrowers and Conventional requires a 620+ Mid FICO.
  • USDA, FHA and Conventional loans have rehab financing for homes that need renovation.  Make sure to ask your loan officer about these programs.

Current Turn Times:

Lenders that offer USDA financing have to approve the loan and send the package, typically by email, to USDA for a final approval.  Current turn times is 3-4 business days for GUS loan submissions and 7-10 business days for manual submissions. Business days exclude weekends (Saturday and Sunday) and all federal holidays.  Rush requests are not be honored. Loans are reviewed in the order they are received.

Check to see if you qualify:

Income Requirements

Property Eligibility


Read more about USDA financing:

Single Family Housing Guaranteed Loan Program

The Best Loan You’ve Never Heard Of—And How You Can Get One

Get Help From the Experts.  Platinum Mortgage Company also offers Stated, Low Doc, Alt-A, Sub-Prime, Non-Prime and Bank Statement Home Loans.

Credit issues? PMC Can Help….ask your loan officer about credit enhancement to get the best rate possible and save thousands of dollars in interest.

Make sure to visit our website:

FOR A FAST PRE-APPROVAL: Complete a loan application on our website APPLY ONLINE

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