When you want a USDA loan, you need a specific lender. Specifically, you need USDA approved lenders. You won’t know just from their name or the look of their building, though. You’ll have many choices. Some banks are large, yet others are independent banks that are much smaller in nature.
What you should care about above anything else, though, is the lender’s record with USDA loans. The USDA has some very particular guidelines you must follow. In fact, the entire loan package goes to the USDA office before you can close on the loan. Finding a lender with the most experience will help you have the most successful outcome.
Should You Try Big Banks?
Certain big banks definitely offer USDA loans, but are they necessarily better? Are they your only option?
First, they are not your only option and they certainly aren’t the best just because they are big. Before you choose a bank, you’ll want to know a bank’s track record. Ask them how many USDA loans they have underwritten and how long the process takes.
You should also ask USDA approved lenders what overlays they have on the standard USDA guidelines. This means additional requirements on top of what the USDA requires. Some lenders have very strict requirements, while others are a bit more relaxed. If you have a special circumstance that you know certain lenders won’t allow, you want a lender without many overlays.
Don’t Forget the Small Banks
Small banks often have a bit more flexibility. The independently owned branches don’t necessarily have to have a one-size-fits-all loan. Instead, they can cater to the specific needs of the community. If you have a unique circumstance, such as a new job or a slightly elevated debt ratio, you may want a lender that offers less stringent requirements.
Shop Rates and Fees
It’s not enough to find USDA approved lenders; you need a lender who will give you a loan you can afford. It’s not just the amount of money you borrow, but what the lender charges for you to borrow the money; in other words, the interest rate and the closing fees.
The interest rate controls the total interest you pay over the life of the loan. Obviously, the higher the rate, the more the loan costs you monthly. It also costs you more over the entire life of the loan. The longer you borrow the money and the higher the rate, the most it costs in the long run.
The closing fees also control how much the loan costs you. Whether you wrap the closing fees into your loan or pay them upfront, it increases the cost of the loan. Paying the fees upfront lessens the total interest you pay, though.
Finding a lender that charges the lowest interest rate and the least amount of fees are ideal. Ask lenders specifically how much they charge for origination or discount points. You may even want to ask if they offer a ‘no closing cost loan.’ In this case, you take a slightly higher interest rate, but don’t pay any closing fees.
The Right Lender is the Perfect Combination
As you shop around, you want a lender that quotes you an interest rate you can afford and closing fees that are manageable. However, you also want a lender that is experienced with USDA loans. It’s the perfect combination that will give you the best results.
Finding the best USDA approved lenders will require you to do some research. Talk to different lenders and ask specific questions about their USDA loans. Don’t assume every USDA lender is the same. They can each have their own requirements, making the experience completely different from one lender to the next.