USDA loan rates are typically lower than other types of mortgages. Call now to learn more
Unfortunately mortgage rates are a reality when it comes to buying a home and USDA loan rates are no exception. Banks and other lending institutions would have no incentive to lend money if they didn’t make a little extra on the back end! That being said National USDA loans works to get the best possible rate for our clients.
Interest rates can have a significant impact on your monthly payment. Mortgages are large loans, paid off over a very long time. Small
changes in your rate can equal thousands of dollars saved (or paid!)
over the lifetime of a typical mortgage. This fact holds for your USDA
home loan as well. Let’s take an in-depth look at USDA loan interest
rates. By the end of this article, you will understand everything that
surrounds a lender’s decision on how much interest to charge you for
An Overview of Interest
Interest is the profit a bank makes for fronting you cash for a purchase. A lender earns interest, while a borrower pays interest. Say you decide to buy a car. Not many people have $20,000 laying around to pay for that car in cash, so you contact a lender to obtain financing. The lender pays for the vehicle, and you pay the lender back over a period of time. They charge you a little extra for the convenience. But there are also times when you, as a consumer, earn interest. When you keep money in a savings or money market account, the bank pays you interest because you’re making those dollars available for the bank to invest. That is basically how interest works.
Usually, the interest rate you get when applying for a mortgage depends on many factors. It’s a mix of your financial history, creditworthiness, income, and for some loans, the amount of your down payment. When you qualify for a USDA loan, things are a little different.
How USDA Loan Rates are Determined
A USDA loan works much the same way as a VA loan. The government guarantees the loan on your behalf, reducing the chance a lender will lose money if your home enters into foreclosure. While this guarantee does not help you keep your home if you run into financial trouble, it does lower the risk of lending money in the first place. USDA interest rates are often lower than any other type of mortgage available. However, it’s important to point out that the USDA is not a bank. In most cases, they only guarantee the loan; they don’t hand out money directly. You still need to use an approved lender to obtain USDA financing, and lenders set interest rates. The interest rate you qualify for is decided upon during the underwriting process of your loan application. During this process, your lender examines two key benchmarks to determine your creditworthiness:
One’s credit score is probably the most universally used key performance indicators of your financial history. Your score is calculated by the Fair Isaac Corporation and is also known as your FICO score. FICO looks at your payment history, total debt loan, credit mix and the overall age of your credit to come up with a three-digit number. The higher your credit
score is, the lower your credit risk. An exceptional credit score is anything over 800. Scores between 670 and 799 are considered good/very good. Fair credit begins at 669. One great thing about the USDA loan program is that as long as your credit score is 680 or above, you qualify for a streamlined underwriting process. Many companies have ways to check your credit score at no charge to you, so it’s best to find out where you stand before applying for any loan.
Income and Expenses
Even though the USDA loan program is made for families of moderate means, a lender still wants to make sure you bring in a steady income. A borrower must be able to afford the mortgage plus any additional expenses required to take care of the home. The measurement used to gauge this requirement is called your debt-to-income ratio, also known as DTI. Your DTI is the ratio of your monthly debt payments compared to your gross monthly income. Debt payments are different than expenses. Your car loan, credit cards, student loans, and mortgage are all considered debts. Expenses are basics that you need to survive, such as food, gas, and utilities. To qualify for a USDA home loan, the total amount of your monthly debt payments must not exceed 41% of your gross monthly income (i.e., your income before taxes). For example, say your gross monthly income is $4,000. You have a credit card payment of $50/month, a car payment of $199/month, and your mortgage will be $1,000/month. If you divide your total debt payments ($1,249) by your gross monthly income
($4,000), you get 31%, well within the guideline.
How to Get the Best Rate?
Many things influence interest rates; some are within your control, and some aren’t. The first thing you can do is order copies of your credit report for all three reporting agencies. Do this before you even start talking to a lender. There’s always the possibility you will find errors on your credit report. You may notice a loan listed as having a balance even though it was paid in full or payments that were incorrectly reported as being late. Any errors such as these can adversely affect your credit score. Best to make sure things are correct before you start shopping for a loan.
Second, once you’re sure the property you want to buy is within an approved geographical location and you meet the income limits, compare rates across different types of mortgages. USDA, FHA and conventional financing all have other
qualifying parameters and therefore, different interest rates. If you happen to be a United States Veteran, include a VA loan quote in there as well. Looking at all your loan options ensures that you are getting the best rate available.
Last, even with a USDA mortgage, interest rates can vary from lender to lender. Try and contact at least three different banks and compare those with interest rates you find online. This comparison can be tricky because fees and credit
guidelines vary widely. But you’ll still have a pretty good idea of what you’re looking at when comparing them side by side.
Interest Rate vs. Annual Percentage Rate (APR)
As you start your research, you may notice that when you’re given the interest rate on a loan, you also receive a separate annual percentage rate. This is one of the most confusing things for consumers to comprehend. It helps to think of it like this:
Your monthly mortgage payment is determined by the interest rate and the balance of the loan. The APR includes fees charged by a lender, which makes the APR a much better tool when shopping around for loan rates. If while
comparing lenders you notice the interest rate is the same, but the APR is higher at one, that means the one with the higher APR is charging more for the loan. The federal government enacted the Truth in Lending Act as a way to protect consumers from unlawful credit practices, so be sure to ask lenders what they include in their published annual percentage rates
Interest Rates are Interesting!
Mortgage rates are actually very personal. While it is influenced by many outside factors such as economic conditions, market competitiveness, and world politics, it has just as much to do with your credit profile. Community First National Bank always works to get you’re the lowest interest rate possible, and a USDA loan is a great place to start! We’re here to work with you throughout the entire process. Give us a call. Give us a call at (855) 923-5041, or visit our website and start your application online today!
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National USDA Loans is powered by Community First National Bank, Community First National Bank is Member FDIC. Equal Housing Lender. NMLS ID 449196.
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