Do you prefer the quiet of the countryside over the hustle and bustle of the city? If you’d rather live amid green pastures than in a busy metropolis, a U.S. Department of Agriculture (USDA) mortgage may be the right fit for you.
What Is a USDA Loan?
The USDA home loan program provides mortgages to low-income people in rural communities who would otherwise be unable to acquire a traditional loan.
The primary goal of the home loan program is to assist rural residents who are leaving unhealthy or hazardous living conditions to purchase a home with modern conveniences and ample space. Nowadays, it’s no longer just a loan for farmers and landowners in rural areas–as the population grows and the suburbs spread out, it has become a practical mortgage choice for those who prefer country life.
Benefits of a USDA Loan
Compared to conventional loans or other government assistance programs like FHA or VA loans, USDA mortgages may be the better option for many homebuyers. Here are some of its advantages:
- No down payment: In contrast to other types of mortgages, USDA loans don’t need a down payment from the borrower. Many people who want to buy a house find it challenging to come up with a sizable down payment.
- Even if your credit history isn’t perfect, you may still be able to get a loan: Because of bad credit history, many mortgage lenders are reluctant to issue typical mortgages to those with low credit scores. On the other hand, the USDA employs its unique Guaranteed Underwriting System to determine if a borrower is eligible for a mortgage. For the benefit of borrowers, requirements are being reviewed with a lot more flexibility.
- Origination fees are lower: The guarantee fee for USDA loans is 1% of the entire loan amount. However, borrowers don’t have to pay this cost upfront; rather, it can be added to the total of their mortgage loan.
- Rates: USDA loan rates are usually lower than conventional loan rates.This is advantageous for people with poor credit scores, as they can still qualify for the same low USDA mortgage rates as those with excellent credit scores.
● Simple USDA refinance process: People who want to refinance their mortgage can get help from the USDA’s Streamlined Assist Refinance Loan program, which expedites the process to about three weeks. Credit reports, home appraisals, and property inspections are not required.
Different USDA Loan Programs
The following are the three types of USDA home loans:
- USDA guaranteed: The USDA guarantees a loan from a qualified local lender that allows you to secure low interest rates, even if you don’t have a down payment, in select USDA-eligible areas.
- Direct loans: These USDA-backed mortgages are only available to low- and very-low-income borrowers. Loan applicants must meet specific requirements to be eligible for the program.
- Home repair and improvement loans: Homeowners can use these loans or grants to make repairs or improvements to their properties. Depending on the package, as much as $27,500 in financial aid can be provided.
USDA Loan Eligibility Requirements
An applicant must satisfy the USDA’s basic qualifying criteria, including credit, income, property use, and location of the residence.
Here are the minimum qualifications of USDA loans:
- Citizenship in the United States or status as a legal permanent resident
- Ability to show that you can pay back the money, usually by having a minimum credit score of 640
- Having a steady and reliable source of income
- Readiness to repay the loan, usually demonstrated by 12 months of on-time payments
- The household’s adjusted income is 115% or less than the median income for the area.
- The property is the principal dwelling, and it’s situated in a rural location that meets specific criteria.
In addition to the rules and conditions established by the USDA’s Rural Development program, financial institutions may have their own guidelines.
USDA Loan Limits
Many people assume that because the program is geared toward people with lower to moderate incomes, there is a limitation on what property they may purchase. This is not true. The USDA does not impose loan limits; instead, the maximum amount for the loan is determined by the borrower’s ability to repay.
The USDA Guaranteed Loan has no maximum loan amount. This implies that the amount of your pre-approved mortgage will be based on many factors, such as:
- Income and debts
- Credit score
- Savings and assets
- Payment history for previous rentals or mortgages
The USDA mortgage is designed to assist first-time homeowners with a limited budget. To achieve this, the USDA mandates that lenders attest that the household income of the applicant doesn’t go above their area’s income threshold during the guarantee period.
An easier way to explain it is that USDA loans are available to those whose incomes are equal to or less than the local income limits and who are able to pay it back as agreed upon in the application process.
Looking for a USDA Loan?
Unlike other lending programs, a USDA loan can only be obtained via an authorized mortgage company. You can rely on RoBUS Mortgage’s professionals in USDA loans to make the process stress-free and straightforward. Get started by filling out our form or contacting a loan officer today.
Let's Chat And Get You A Quote Today
Working with us is like talking to 20+ lenders at once. Not to mention, we are a direct lender as well. We can get you the loan you need and get it done fast.