USDA Loans
Are you uncomfortable in an urban environment? Tired of constantly jostling for position on crowded city streets? Would you prefer to hear the songs of crickets at night rather than the horns of taxis?
Perhaps you fantasize about looking at spacious fields out of your kitchen window or watching your children ride bikes in a quiet cul-de-sac. Maybe you dream of a small home, to fit your family, and get you out of the unsafe environment you are currently in, but just don’t know how you can do it.
If any of these scenarios feel familiar to you, buying a
rural property or suburban home may be well within your reach.
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Government Programs
The government has a myriad of lending programs and benefit programs to help citizens of the United States. They are inclusive of student loans, VA benefits, healthcare benefits, and food and house assistance, but these vary greatly depending on a person’s background and income.
There are probably certain programs that may come to mind immediately when you think of the government and mortgage lending, but did you know the United States Department of Agriculture (USDA) has a mortgage program? It is one of the least-known mortgage assistance programs, but could help you get into the property of your dreams.
One of the greatest benefits of USDA loans for homes is that they require no down payment. This means you don’t have to spend years saving up to twenty percent of the cost of your potential home before you can purchase. For many who live within their means, but don’t have much left over each month, this is a huge burden to lift.
Rural Development Guaranteed Housing Loan Program
The USDA Rural Development Guaranteed Housing Loan Program, also known as the USDA Loan Program, is run by the USDA and they are the ones who issue the loans. As a part of this program, the rural development program, the USDA has made a significant investment to help nearly 140,000 families purchase and improve their homes. This investment was nearly $20 billion in 2014.
The program goal is outlined as a way to “improve the economy and quality of life in rural America.” To help accomplish this these loans offer zero down payments and low interest rates, with accessible terms.
How do you know if you qualify for USDA loans?
Firstly, you must be a U.S. citizen and you must have a consistent and dependable income. They are typically looking for proof of a minimum of 24 months of pay. You will also need to have a credit history that is deemed acceptable.
This means you won’t be able to have any accounts sent to collections within the last 12 months, but if you do, and are able to prove that your credit was affected by temporary issues or things out of your control, like a medical emergency, you may still qualify. Each loan application is looked at on a case by case basis.
Typically for USDA loans, applicants with a credit score below 580 will need to meet more stringent underwriting standards, while applicants with a 620-credit score or about will receive streamlined processing.
For payments – this is inclusive of your properties’ principal, interest, insurance, and taxes – it must be 29% or less of your monthly income. Also, your other monthly debt cannot exceed 41% of your income, though for USDA loans they will consider higher debt ratios if you have a credit score above 660.
Also know that to qualify for a home loan guarantee income limits can vary by location and they can be dependent on a household size.
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USDA Loan Types
There are currently three types of USDA loans and home loan programs. The first is a Direct Loan. These USDA loans are issued by the USDA and they are reserved for low-income and very low-income applicants. Though income variances and thresholds change by region, with subsidies, the interest rates on these loans can be as low as 1%.
The next type of USDA loans is a loan guarantee. The USDA, in a similar fashion to an VA-backed loan or FHA loan, will guarantee a mortgage that is issued by a participating local lender.
This allows you to receive a low mortgage interest rate, even without a down payment. The drawback will be, you may have to pay a mortgage insurance premium if you do not have a down payment.
Home Improvement Grants & Loans
Lastly the USDA also offers home improvement grants and loans. These grants (outright financial awards) and loans allow homeowners to repair and/or upgrade their
homes.
Sometimes a homeowner can combine a loan and a grant, with these types of packages supplying up to $27,500 in assistance to the homeowner.
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Where can you use USDA loans?
Now that you know what kinds of loans the USDA has to offer, you may be curious as to where you can use USDA loans. Currently, metropolitan or urban areas are excluded from these programs.
However, even though these general areas don’t qualify there are some pockets in suburban areas where you can take advantage of these opportunities. Rural areas, however, are always eligible for USDA loans.
There are some more criteria that factor into how the USDA issues loans as a potential homeowner. This is done in order to help prospective homebuyers. The USDA prefers to issue mortgages to applicants who are deemed to have the greatest need.
This means that they focus on individuals and families who are without “decent, safe, and sanitary housing.” They also look at prospective homeowners who may be unable to secure and utilize a home loan from a traditional source such as a bank or broker.
These individuals may benefit from looking at USDA loans to purchase their homes as well as individuals and families who live below or the low-income limit for the area in which they live. The USDA looks at adjusted income to determine that.
Usually with a direct loan, the USDA loans are issued to homes of 1,800 square feet or less. These homes also usually have a market value below the area loan limit. This is again dependent on the area in which the prospective homebuyer lives. Loans can be high in markets like California and Hawaii, and much lower in the rural parts of the Midwest. On average though, a loan limit of approximately $216,000 is typical from the USDA.
It may seem to prospective homebuyers that USDA loans would be directly targeted to farmers and croppers who live in rural areas and want to purchase, expand, or upgrade farms.
Though these loans are certainly available to this type of buyer, they just aren’t limited to that group. As already outlined, it is your consistent income that matters, not your occupation or job title that factor into the loan decision. In truth, eligibility is simply a matter of location and income. Beyond that, credit history, and current situation factor in, as discussed above.
Each state has a USDA office to help handle
USDA loans. These offices can help walk prospective homebuyers through the process and their eligibility. You can also talk to an eligible lender for more information about USDA loans.
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