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USDA Loans

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.

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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.

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

Property 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.

Property 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.

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.

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.

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.

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