Are you dreaming of owning your own home but don’t think you can qualify for a traditional mortgage? You may be surprised to learn that several loan programs are available to help people with limited incomes become homeowners.
USDA Home Loans are one of these programs available in rural areas across the country. In this post, we’ll discuss USDA Home Loans, who is qualified to apply, and how to get started.
USDA Home Loan
USDA home loans are a government program that provides loans and grants to low-income rural families. The program offers mortgage financing and down payment assistance for qualified buyers. The U.S. Department of Agriculture (USDA) guarantees the loan to qualified buyers who meet specific requirements.
This mortgage program was designed to help people in rural areas buy new homes and keep them there. It provides lower interest rates than conventional loans and allows borrowers to receive an upfront payment at closing instead of making monthly payments on a down payment. USDA mortgages are available in different loan programs:
USDA Direct Loans
This USDA loan program was made straight from the USDA. They have fixed interest rates and require no down payment. They are available for homes in rural areas and must be used to purchase an owner-occupied home or build a new home on rural land.
USDA Guaranteed Loans
This USDA mortgage provides loans for the purchase or construction of new homes and for refinancing existing mortgages. USDA Guaranteed Loan is available to homebuyers who live in rural areas. Group Residential Housing (GRH) enables low-income borrowers with a good credit history but no savings to purchase homes.
They are designed for low-to-moderate income families and may be used to buy a home or build a new one on rural land. The USDA guarantees the loan, which reduces the risk for lenders. There are no down payments required for these loans.
Single Family Housing Guaranteed Loan Program
The Single Family Housing Guaranteed Loan Program (Section 504) provides financing for the purchase, construction, or major rehabilitation of single-family homes in eligible rural areas. You may be able to build with no money down. 30-year fixed rates and a variety of other loan product options are available.
Am I Eligible?
The USDA has specific guidelines regarding eligibility, but some of the most common include:
- You must live in an eligible rural area or have plans to relocate to one soon after purchasing your home.
- Your household income cannot exceed 115 percent of your area’s median income (AMI) if buying in an urban area or 100 percent if living outside city limits.
- You can apply for a USDA home loan if your family income is less than $125,000.
- If you have bad credit or no credit, you may still be eligible to apply for a USDA home loan.
- The USDA home loan program allows people living in rural areas of the United States to use the benefits of this type of mortgage.
- You can use this loan to purchase new or existing homes (either pre-existing or foreclosed).
- You must have a primary residence to apply for a USDA loan.
How does USDA Home Loan Work?
USDA Home Loan is different from other home loans. With USDA, there is no down payment required to purchase a home. However, some factors will affect your loan amount. These includes:
- Income: You must have a stable income to qualify for a USDA home loan. The USDA will use your current income and employment status to determine what you can pay monthly.
- Credit Score: You must have at least a 640 credit score to apply for a USDA home loan. This will help ensure you can repay the mortgage on time every month.
- Assets: You must have certain assets to qualify for a USDA home loan. This includes your savings, investments, and retirement accounts.
How to apply for a USDA loan?
Applying for a USDA loan is similar to any other type of mortgage. Here is the 5-step process to apply for a USDA loan:
- Begin by gathering your financial information and determining how much you can afford to spend on a home.
- Find a lender to work with you and submit an application.
- Get prequalified or preapproved so you know how much money you can borrow before making an offer on the house.
- Find a USDA-eligible home.
- Apply for a USDA loan and sign all required paperwork.
- Get Underwriting approval
- Get final USDA loan approval (known as “the clear-to-close”)
- Finalize your mortgage documents and take possession of your new home!
Benefits of USDA Home Loans
Although the conventional home has been very popular with home buyers for many years, there is another option for those who qualify. The USDA loan program offers many benefits that you should consider when deciding whether to buy a home with a USDA loan or a conventional mortgage.
- Low-cost mortgages: Interest rates on USDA loans are typically lower than those on conventional loans, making them an affordable option for most buyers. That means you can afford more homes for less money! Because the USDA program is designed to help low-income families, you would likely qualify for an interest rate of about 4 percent on a 30-year fixed-rate loan.
- No down payment is required: You can purchase a home with as little as 0% down!
- No mortgage insurance requirement. Conventional mortgages require you to pay for private mortgage insurance (PMI), which adds hundreds of dollars each month to your home loan payments. With USDA mortgages, there is no mortgage insurance required at all!
- Competitive interest rates based on credit scores: The USDA loan program is one of the few government-backed mortgage programs available to borrowers with low credit scores. This is an excellent option for borrowers who have credit scores below 640.
- Flexible borrower qualifications: USDA loans are available to first-time homebuyers and repeat buyers.
Only a few lenders offer USDA mortgages, so you may be unable to choose the company you work with. This could be an issue if you’re looking for a mortgage broker who can help you shop around for the best interest rate on your loan.
The USDA Home Loan program is a great way to get a mortgage with lower rates and competitive fees. It’s perfect for people who qualify because they get access to competitive rates with no prepayment penalties.
The only downside is that there aren’t as many lenders offering these loans as other options like FHA or conventional mortgages. But if you’re looking for something different than what’s available on the market today—a fixed rate loan at an affordable price—then this could be a good choice for you!