The USDA loan is a special home financing program provided by the United States Department of Agriculture (USDA). This homeownership assistance was established to improve the housing industry in rural areas, and provide financing opportunities to low and moderate income homebuyers. So if you are looking for a more affordable way to buy a home, consider this mortgage option.
Zero Down Payment
Yes, you read that right. Where else could you find a mortgage loan with no down payment? Unless you’re qualified for a VA loan, the USDA loan is the only other home financing program that offers 100% financing. Down payment – the most common roadblock that most home buyers face, is solved by USDA loans.
Lower Insurance Fees
USDA loans require only 0.35% of mortgage insurance fee annually, compared to the yearly PMI fees of FHA loans (0.85%) and conventional loans (1%). Though there is a 1% upfront guarantee fee, this can be added to the total loan amount. The reduced mortgage insurance is estimated to save USDA borrowers an average of $1000 per year.
Absolutely Low Interest Rates
With a USDA loan, you can expect to pay lower mortgage fees compared to conventional loans. Since it is guaranteed by the U.S. Department of Agriculture, lenders are secured against the risk of loss; hence enabling them to provide the loan at lower rates (compared to FHA and conventional loans).
Extensive Property Eligibility
If you are buying a home in a small town or outside the city center, it is most likely that the property is located in a USDA eligible site. The city of Durant in Oklahoma, for example, is a USDA eligible site, as well as most cities and towns in Bryan County OK. In fact, about 97% of US land map qualify for USDA loan program, because the department considers areas with a population that is lower than 35,000 people.
Minimum Credit Score
Prior to 2014, the USDA did not have minimum credit score requirements. However, since most lenders require a minimum FICO score of 640, it is now the base line for the USDA’s guaranteed underwriting system (GUS).
It is logical for USDA loan applicants to demonstrate their ability to pay the monthly mortgage, considering that the loan itself is already zero down payment. However, some lenders still accept lower credit scores as long as it does not fall below 580 (depending on other factors such as non-traditional credit and bank savings), and manual underwriting is done to process the loan.
Perfect for Low and Moderate Income Households
USDA loans come in two options. One of these is the USDA Direct Loan, where the loan is directly issued by the USDA. Qualified homebuyers under this loan are also provided with subsidized payment assistance. This loan is intended for very low income homebuyers who currently do not have access to safe housing, and cannot obtain other forms of home financing.
The other one is the USDA Guaranteed Home Loan, which has already helped thousands of rural and suburban families own a home. Qualified homebuyers under this loan generally have a fair debt-to-income ratio (41%), and a stable source of income that does not exceed 115% of the median income in their area.
Both of these loans are available through a 15-year or a 30-year fixed rate mortgage term.
Available for Both First Time and Repeat Homebuyers
The USDA loan is a rural housing program that is applicable for both first time homebuyers and repeat homebuyers. As long as you meet the eligibility requirements, and will be using the purchased home as your primary residence, you can avail the USDA loan.
Compared to other loan programs, the USDA loans offer more benefits to people who are still struggling for homeownership. This zero down payment loan may even be more affordable than your monthly rent. Think you qualify? Let me help you find your dream home. Call or email me today.
Brian A. Allen is a Realtor and is full of energy, excitement and zeal for every sale. He spent most of his career in marketing and now applies that skill set to the homes his clients want to sell. Click here to learn more about Brian A. Allen