What is a USDA Loan?

   First off USDA  stands for United States department of agriculture is a program for loans through the rural development single-family housing program.  There are a few different type of USDA loans but really the only two that you would deal with is a guaranteed loan where you work with a mortgage broker And they assist you with 100% financing in the purchase as long as your household income is on the lower to moderate side.

There's also another type of USDA loan that is not as common and is not used nearly as much but can be effective. And that is what's called a direct loan. They are not brokered by an actual lender they are funded by the USDA directly through your local rule development office. However direct loans are meant to help lower income borrowers only so they can have an affordable mortgage. 

Some great benefits that come along with using a USDA loan is obviously the 100% financing of the properties value. One thing a lot of people don't realize that with the USDA loan, if it appraises higher than the purchase price then that extra amount can be used for closing cost and tied into the loan!  Let's just say you bought a home for $250,000 and it actually appraised for $260,000. The extra $10,000 can be used for your closing cost, prepaid property taxes and even home owners insurance. But that's also something that would be an extra, it would not be something that I would expect. Of course you get your zero down payment but closing cost on a $300,000 home You should expect to be around 3% and 5% of the loan. You can't always negotiate to have the seller cover up to 4% of your closing cost with a USDA loan as well. If it's a hot property seller would probably never go for this but if it's been staying on the market for a while that would be a possibility.

However there are some negatives when it comes to the USDA loan and I want to cover that as well.  The biggest thing is that USDA loan eligibility will always depend on the location of where the home is. It always will have to be a rural area where It is a lower population. Now if you're looking to use a USDA loan in the heart of Nashville then this loan is definitely not for you!