USDA Home Loan – Brief Overview
In 1991 the United States Department of Agriculture (USDA) started offering loans for the development of rural and suburban areas. From first time home buyers prospective USDA loans are no-money-down loan to help borrowers with low/medium income to buy a home.
For the borrowers that meet USDA loans requirement, USDA offer many benefits paired with relatively lenient approval requirements. Government backed and insured they offer:
- NO money down
- Low interest rates
- 30 year fixed rates
- Government guaranteed
- You have the ability to roll in your closing costs into the loan
- Flexible credit guidelines
So if you want to live in a suburban or rural area – generally with a population of 20,000 or less then a USDA loan may be your answer to owning your new home secondly each county has specific income limits that determine USDA Eligibility, and your current income must not exceed the limit set for that county. Our USDA loan experts can help you find out if you are eligible Call now on 1-866-854-4242.
Complete Guide To USDA Home Loan Program : Last Updated Mar, 2019
Introduction to the USDA Loan Program:
The United States Department of Agriculture Loan Program, also known as the USDA Loan Program was created by the United States Department of Agriculture’s Rural Development Housing and Community Facilities as a primary way to influence the development of rural areas by offering an easy way for borrowers to procure housing. The development of rural areas begins with introducing an incentive to force increased population for these areas, and the USDA loan program does exactly that. With increased population comes a stimulation of growth for the area in question. The USDA loan program has incentives for borrowers willing to purchase a home in rural areas that other loan programs do not have. These incentives include and are not limited to: lower credit requirements than other programs, little to no required down payments, and other loan program specific benefits. While the USDA Loan Program’s main goal is the development of rural areas, this directly also helps extend ownership to those who may not have qualified for other loan programs without considerable credit, assets, or income. The financial assistance provided by the USDA Loan Program grants the ability for very low income families to obtain safe and sanitary housing at a very affordable cost.
Why was USDA Loan Program created?
The USDA Loan Program was created to aid in the development of rural communities in the United States. This is a government program specifically tailored towards families with lower income to achieve home ownership in specified rural locations. By focusing on these rural areas, the government was actually helping develop these locations by increasing the population. Increased population means increased demand for businesses, increased opportunity for employment due to those businesses, which directly influences the overall development of this rural area. However, keep in mind that because of this, areas that are considered rural by Rural Development can change based on population. Ultimately, the USDA’s influences on the development of rural communities helps very low income families get into homes they would otherwise not be able to afford, while also creating booms for the economy indirectly by providing this housing assistance program at affordable rates.
How Does the USDA Loan Program Work?
The USDA Loan Program works by having the Rural Development Housing and Community Facilities funding and providing affordable, safe and sanitary housing for very low income families in rural areas [ check income eligibility here ]. Due to this being a government program, there is funding that is available for financial assistance either to help with the loan directly, or by providing grants for home improvement. The USDA program also provides no money down loans as well, making this a very attractive offer for low income families. Remember that these homes must reside in USDA’s rural maps. These maps can be found at the USDA’s official website [ https://eligibility.sc.egov.usda.gov ]. As mentioned before, these rural areas do change based on population, leading to the expansion of some rural areas and the reduction of others.
What Are The Benefits of USDA Home Loan?
There are many benefits for the USDA Home Loan Program. It is one of the few loan types that qualifies for no money down and 100% financing. Additionally, closing costs can even be covered by the seller or the borrower, depending on the purchase contract. Homes that are to be purchased with the USDA Loan Program must be considered safe and sanitary by a qualified home appraiser before the loan can be approved by Rural Development and the home purchased by the new homeowner. So, while the qualified borrower may be finally able to find a home that is affordable using the USDA Loan Program, that borrower can also rest assured that the home being purchased is safe for the entire family. Some additional benefits for USDA loans are as follows:
- USDA Mortgage Rates : Low Mortgage Rates that have a maximum cap determined by Rural Development. This cap cannot be exceeded for any reason, and can be anywhere between 4.5 and 5.75%. This is much lower than other loan programs.
- Approval For Low Credit Scores : Easily approved with a 640 credit score, which also allows for the borrower to be able to obtain the home with no money down.
- USDA Area Eligibility : Currently, more than 97% of the US is eligible based on the current eligibility map.
- Lenient Qualification Criteria : Easier to qualify for than other loan programs due to more lenient guidelines.
- Longer Mortgage Terms : 30 Year Fixed Mortgage terms insures stability with mortgage payments and prevents any surprises. 15 year fixed rate mortgage terms are also available!
- Shorter Wait Time For Negative Credit : Shorter waiting periods for Bankruptcies, Foreclosures and other major negative credit events than most of the other loan programs. Other programs need to wait around 2 to 7 years to clear any serious credit inquiries, depending on what it is. The USDA Loan Program only needs 12 months after bankruptcies, and 3 years after foreclosures and short sales.
Eligibility For The USDA Loan Program
- Propery Location: The eligibility requirements for the USDA Loan are more lenient than other loan programs, however there are more requirements in total. For the USDA Loan Program, the home being purchased must reside in a rural area dictated by the Rural Development Rural Map. You can check property eligibility HERE. Keep in mind that these rural areas do change based on population increases and decreases, so certain rural areas may experience expansion or shrinkage.
- Income Eligibility : For USDA Loan Program the borrower’s household income must be considered very low income to low median income based on the area. Every county has its own area median income, or AMI, calculated, along with the income caps for each category. To find out the area median income of the home being purchased and whether your household income is within eligibility limits, please click HERE.
- Credit eligibility : USDA Loan program is a bit more lenient than other programs, however, most lenders have set a requirement for credit scores to be around 640. While borrowers with lower credit scores can apply, this will usually mean that other benefits of the program, like no-money-down, will no longer be available to that borrower. Because of this, we highly recommend a credit score of at least 640 to insure that the process for the USDA Loan program continues without any denials or additional conditions based on credit.
- USDA Loan Limits : In regards to total loan limits, the USDA Loan Program does not set any limits on what the borrower can receive. However, the USDA Loan program will calculate a maximum amount based on the current borrower’s income and asset situation. So, while this means that a borrower can essentially purchase any home despite the cost, provided it’s in a rural area and the borrower is eligible income-wise, the USDA will also safeguard the borrower by not allowing them to buy a home they cannot actually afford the mortgage payments for.
- Property Eligibility : The USDA does set restrictions on the type of home available for purchase. These homes cannot be seen as income-producing, and they must be considered safe and sanitary. An example of an income-producing home would be a home that has a full bathroom bedroom and kitchen area in the basement with a separate entrance. This would indicate that this part of the home could be used to rent out, producing income and making the property ineligible. Additionally, any major repairs reported by the home appraiser will need to be taken care of. The party responsible for those repairs is usually the seller, but it may be the buyer if the purchase contract specifically states all repairs will be addressed by the buyer.
Recent Updates For USDA Home Loan Program
- USDA Refinancing: For those who have a home that was previously purchased in a rural area approved by the USDA, if the property no longer resides in a rural area based on the Rural Development’s Rural Map, that homeowner can still be approved for a USDA Refinance on the home. Keep in mind, that the home must have been purchased using the USDA Loan program originally for this to be approved.
- Income Limits : As a reminder, income limits are established by county of the area that the home currently resides in. The USDA Home Loan Program uses the household income of all family members over the age of 18 that will be residing in the new property in the income calculation. If the household income exceeds 115% of the area median income, that borrower will no longer be eligible for the USDA Loan in that specific country. We’d recommend checking your income eligibility for your county.
- Loan Processing Fees : USDA Home Loans also do have loan fees, but these fees are usually rolled into the cost of the loan. The borrower will not need to pay out of pocket for the USDA Loan unless indicated on the purchase contract that the buyer has additional responsibilities. For example, if the purchase contract indicates that the buyer will be responsible for any repairs requested by the appraiser or that the buyer is responsible for closing costs, these are fees the buyer will need to be ready to pay in order to close the loan. Other fees can be rolled directly into the loan, however, keeping the out of pocket costs for the actual loan process lower than other programs by a large margin.