A USDA loan is a type of mortgage designed for low- to moderate-income borrowers in rural areas. It offers low interest rates and affordable mortgage insurance, with no down payment.
Officially referred to as the “USDA 502 Guaranteed Rural Housing Loan Program,” the USDA Home Loan Program is guaranteed by the U.S. Department of Agriculture and was developed with low-income families and individuals in mind. It’s often considered an ideal mortgage for first-time home buyers who are having trouble getting approved for a conventional loan, but it can also be utilized by borrowers who have owned a home before, but again, are facing difficulties with obtaining other mortgages.
Also referred to as USDA Rural Development Loans, USDA loans offer many advantages that others don’t.
The requirements for borrower eligibility tend to be more lenient than those associated with other mortgage loans. Consequently, borrowers will have a much easier time obtaining such financial assistance.
Mortgage insurance is tied to the principal balance. Premiums decrease as the loan balance decreases. However, USDA loans don’t have private mortgage insurance (PMI) requirements, and thus, the costs associated with them are lower than other mortgage loans.
Closing costs can be paid through gifting, covered by the seller as part of a negotiated deal, or may even be able to be financed as part of the loan amount.
For instance, because the USDA Home Loan Program was designed to help moderate- to low-income families and individuals secure a mortgage, there are designed income limits that vary for each USDA qualified area. These income limits are generally 115 percent of the average median income for that area. Borrowers must also be U.S. citizens, or legally permitted to be in the United States.
The home needs to be located in a rural area, as well. Fortunately, around 97 percent of the United States is designated rural for purposes of the loan, so many properties do qualify. Borrowers are often surprised when they discover that in many cases USDA rural areas can be suburbs on the outskirts of larger cities, or small towns with less than 25,000 residents.
As aforementioned, credit history doesn’t play as much of a role in the approval process as it does for other mortgage financing options, but the stronger the credit score, the better. Having a healthy credit score is always a plus, whether applying for a USDA loan or any other type of loan, mortgage, or otherwise.
Lastly, USDA loans can only be used to help borrowers purchase a property that will be used as their primary residence. Applicants interested in buying an investment property or vacation home, for instance, would not qualify.
Many of our knowledgeable mortgage loan originators specialize in helping borrowers qualify for USDA loans, and can answer any questions applicants may have about the requirements and approval process.
Home equity and mortgage loans can both be used toward home purchases repairs, improvements and other upgrades, but each financing type differs in requirements, benefits, tax deductions, and repayment terms.Read More
When considering a home purchase on Long Island, it’s best to have your information and requirements updated and ready, such as financial statements and tax returns, mortgage pre-approval and commitment letters, neighborhood and realtor preferences, and more.Read More
First-time home buyers may qualify for various conventional and government-backed loans, such as those offered through Fannie Mae, Freddie Mac, the Federal Housing Administration, U.S. Department of Agriculture, and Veterans Affairs.Read More
Renovation costs can be added to specific rehab loans offered through the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac for borrowers meeting specified criteria, such as down payment amounts, project scopes, credit scores, and other requirements.Read More