How You Can Benefit From a USDA Home Loan

What is a USDA home loan

A USDA loan is a mortgage that can be issued by a private lender and be backed by the U.S Department of Agriculture or directly lent out by the USDA. USDA home loans are intended for those with low to average income individuals looking to purchase their home in rural or suburban areas. As a result, the USDA home loan program offers below-average mortgage rates, overall costs, and requires no downpayment. 

There are two types of USDA home loans, one is the USDA Guaranteed Loan and the other being the USDA Direct Loan. In the USDA Guaranteed loan, a private lender issues the loan to you. Whereas in the direct loan, the USDA itself provides you with the loan. The USDA Direct loan provides you a longer loan repayment schedule so that you can pay smaller amounts each month and have a flexible budget. Further, the USDA Direct Loan does not require mortgage insurance whereas the USDA Guaranteed Loan requires mortgage insurance in the form of an upfront funding fee and an annual premium that is paid monthly. The USDA Direct Loan requires more of a dire situation to qualify for, such as being unable to obtain financing from elsewhere or not having access to hygienic and safe housing. 

What a USDA home loan offers

A USA home loan allows you to put down $0 in down payment, a generous offering considering how traditional loans require anywhere from 5%-20% down payment. Furthermore, you can obtain lower than average interest rates and for the Guaranteed Loan option, you can qualify for low monthly mortgage insurance payments.

Requirements for getting a USDA home loan

There are several requirements that must be met to qualify for a USDA home loan, which are:

• U.S. citizenship or permanent residency
• A credit score of at least 640
• Stable and dependable income
• A willingness to repay the mortgage - generally 12 months of no late payments or collections
• Adjusted household income is equal to or less than 115% of the area median income for USDA Guaranteed Loan and 80-50% for Direct Loan. 
• The property must be less than 2,000 square feet for the Direct Loan and there is no limit for the Guaranteed Loan
• The property is going to be used as your main residence and not to serve any other purpose such as a vacation or investment property
• The property is in a qualified rural/suburban area

On top of these requirements set by the U.S Department of Agriculture, the lenders will have their own set of guidelines as well. 

Areas that are qualified for the USDA home loan program

According to the U.S Department of Agriculture, 97% of areas in the United States are eligible le for this type of loan. You can see whether or not the area you are looking into qualifies for the USDA home loan by clicking here.

How you can apply for a USDA Guaranteed or Direct Loan

To apply for a USDA Guaranteed Loan, you must apply with a USDA approved lender. There are many lenders out there that offer this service but you should aim to seek those that complete this application more often as their expertise can prove vital. To apply for a USDA Direct Loan, you need to submit an application directly to your local Rural Development Office. 

Bottom Line

The USDA home loan program is a great initiative that seeks to help low-income families purchase their homes while enhancing the development of rural and suburban areas. If you are someone who is considering purchasing a home in a rural or suburban area, you should apply for either a direct or guaranteed loan to help better your financial situation. Even if you feel that you may not qualify, you should speak with your lender on whether or not you can take advantage of this great opportunity.