Information on the Kentucky USDA Rural Development Loan, I am providing you with a series of informational on the Kentucky Money Down USDA Rural Loan Program.
Yesterday I provided a quick overview of Kentucky USDA Loans minimum credit score requirements.
Today I will like to discuss how a perspective home buyer can purchase housing using the USDA Loan program with no-to-minimal cash required at settlement.
Since the USDA Rural Development Loan will finance 100% of the purchase price there is no down payment required on the loan. The only remaining items with out-of-pocket cash requirements by the buyer are the settlement related closing costs and escrows.
USDA allows these items to be paid for by the seller or financed into the new mortgage loan using flexible guidelines that can virtually eliminate the buyer's out-of-pocket cash requirements.
Like every type of purchase transaction USDA Loans have closing costs.
However, the USDA Loan Program allows for the closing costs to be either (1) paid for by the seller, (2) paid for by the lender via a lender credit, (3) under certain circumstances financed into the mortgage loan, or (4) a combination of the above. To understand how this works reference the following three scenarios based on a purchase price of $200,000 and $10,000 in theoretical closing costs (such as lenders fees, settlement/title fees, taxes, escrows, homeowner's insurance, warranties, etc.).
Scenario 1 - Seller Agrees To Pay All Closing Costs:
The USDA Loan Program allows up to 6% of the purchase price to cover your closing costs. By working with a knowledgeable Lender and Realtor you should know upfront how much the settlement costs will be to purchase a house. When making the offer to purchase a home the sales contract will be written to include the requirement that the seller agrees to pay up to a specific dollar amount or a percent of the purchase price to cover these costs.
Scenario 2 - Lender Agrees To Pay A Portion Or All Of The Closing Costs:
Every state has different closing costs requirements. Based on the total amount of closing costs required, the lender may be able to pay a portion or all of the closing costs by charging the borrower a higher interest rate than their normal rate, and applying the "excess compensation" received from the investor for the higher interest rate toward the borrowers closing costs. Typically for every quarter point increase in rates, the lender will have between half to one percent of the loan amount that can be applied toward the buyers overall closing costs.
Scenario 3 - House Appraises For More Than The Purchase Price:
The USDA Loan Program is the only major loan program that allows for the difference between the appraised property value and the contract sales price to be applied toward settlement closing costs. The maximum loan amount, excluding the USDA Guarantee Fee, can be the combination of the sales contract price plus the settlement closing costs; provided this amount doesn't exceed the appraised property value.
Scenario 4 - Combination Of Multiple Scenarios:
If the seller paid closing costs are not enough to pay all closing costs and the property appraised for more than the sales price, the home buyer can use a combination of seller paid closing cost assistance/lender paying a portion of the closing cost/and (or) finance the remaining closing cost up to the appraised property value.
Mortgage Loan Officer
email: kentuckyloan@gmail.com
