What is a USDA Loan?
USDA loans are offered by the United States Department of Agriculture to promote rural property purchases and development. This loan program is known as the USDA Rural Development Guaranteed Housing Loan Program. These loans are available to rural property owners and do not require a down payment. USDA loans are typically geared towards home owners who do not have sufficient housing, but are able to afford a monthly mortgage payment including insurance and taxes. The USDA is looking to have homeowners buy properties within the USDA RD Home Loan “footprint,” which is scheduled to be updated on October 1, 2014.
To further help borrowers afford a home in rural areas, USDA loans are available with 100% financing. The purpose of offering loans with 100% financing is not only to make obtaining a mortgage on rural homes more achievable, but to allow homeowners to use the money they do have to develop and maintain the properties.
Benefits of a USDA Loan
There are many demographic and economic benefits to the USDA loan program. By promoting development for rural properties there is a direct benefit to the American agriculture sector and preserves rural land for its’ intended purposes. Most importantly there are many direct benefits to the borrowers of such loans.
Benefits for borrowers who are approved for a USDA loans:
There is no down payment requirement. This means that borrowers can finance up to 100% of the home value.
Lenient credit requirements that allow borrowers with less than perfect credit to obtain a home. While lenders will still have look at a borrower’s credit, stellar credit is not required.
A fixed 30-year rate that is guaranteed by the US government. This allows lenders to offer the most competitive rates to the borrowers benefit.
There is no loan limit for the program. As long a borrower’s income and ability allows, there is no maximum loan amount.
Types of USDA Loans
These loans are for borrowers who have a reliable ] moderate income that is greater than the limit set forth by the USDA in the area that they are purchasing. Income levels are usually set by median incomes on a county by county basis. Guaranteed loans offer competitive interest rates for loans on properties that are located within the USDA RD Home Loan “footprint,” which as mentioned previously is to be updated on January 15, 2014. These loans are available through HUD/FHA lenders.
These Section 502 loans are directed to borrowers with lower income who are looking to purchase property with the intent to relocate, build, or renovate a home. Direct loans have lower income and credit requirements.
Rural Repair and Rehabilitation Loan
Rural repair and rehabilitation loans are reserved for homeowners with the lowest income who cannot afford to get credit elsewhere. This program offers loans and grants to homeowners who are looking to repair or modernize their home or worse yet, remove any health hazards from their dwellings. These loans are only available directly through the USDA.
How to Qualify for Guaranteed Loans
Since the purpose of USDA loans is to promote growth in rural areas, the requirements and restrictions for where the properties are located and how they are used are rather stringent. On the other hand because the goal of these loans is to attract buyers to purchase certain properties the income and credit requirements are more lax.
- The property must be a USDA eligible property.
- Loans can be financed for up to 100% of the home value including the guarantee fee.
- Terms of the loans are only for a 30-year fixed rate.
- The land must be 0.5 acres or less, unless it cannot be subdivided. The value of the land cannot exceed more than 30% of the loan.
- Borrower debt-to-income ratio cannot be more than 41% and income must be within the guidelines for the property location.
- The borrower’s credit score cannot be lower than 640.
Other eligibility requirements can differ on a lender by lender basis. To see if you qualify for a Guaranteed loan you should contact a USDA loan specialist.
How to Get Started with Your USDA Loan
If you are looking to see if you are eligible for a Guaranteed loan, it is best to contact a USDA loan specialist at Oceanside Mortgage Company to see if you qualify. You will also need to determine if the property you have intentions of buying is within the USDA property map. Once you are sure the property is eligible for a Guaranteed loan you can determine if your income and credit history are within the requirements for the loan program.
Call Oceanside Mortgage Company today at (800) 955-8965 for assistant with your USDA loan!