Understanding USDA Loans

Jan 9, 2019 | Mortgage


USDA loans are loans offered by the United States Department of Agriculture to those looking to buy homes in rural areas. There are a few requirements and restrictions associated with this type of loan however, if you are a first-time homebuyer with a limited income, down payment, and are looking to live in a rural part of the country, this may be a good option for you.

Who Is Eligible?

Income restrictions

The USDA website provides an income eligibility calculator depending on where you are looking for housing. Because it is a nationally-funded loan, the income restrictions will vary state by state and county by county but the loan recipient cannot make more than 115% of the median income for the area in which they are applying. There is also a chart you can consult that provides income limits depending on the number of people in your home.

Credit Requirements

Borrowers are required to have a FICO score of 640 or more. If the potential borrower has declared bankruptcy or foreclosure within the last 36 months, they would be ineligible for this type of loan.

Other Requirements

Recipients must be U.S. Citizens, U.S. non-citizen nationals, or Qualified Aliens to apply for this program. They must also agree to use the home as their primary residence and not as a rental property.

The property must be for a family including townhomes, single-family homes, condominiums, new construction, or mobile homes. The size of the home cannot exceed 2000 square feet and homes with swimming pools are not eligible. However, you can buy a home with property. Be aware that the total value of the land cannot exceed 30% of the appraised value of the home.

What Areas Are Considered Rural?

The USDA provides a map of the country where you can apply for a USDA loan. While most of us think of rural as far from any major city and closer to the cows, this map shows just the opposite. If you have a property in mind, you can head over to the eligibility map to see if the home you are considering qualifies. Just by glancing at the map, you will see that much of the country outside the major cities is considered rural under the guidelines established by this program.

What Are the Advantages of a USDA Loan?

For many people in a low to middle-income bracket, saving for a down payment can be difficult. A USDA loan does not require the purchaser to put any money down toward the purchase price of a home. The government insures the loan in this case, should the borrower default, therefore the borrower is required to carry mortgage insurance during the life of the loan. The mortgage insurance for the USDA loan is provided at a more discounted rate than that required by traditional loans.

There is no limit on the amount one can borrow on this program however, the amount provided will be based on the borrowers’ ability to repay. Therefore you should consult a lender before starting your home search to determine the number of funds you are eligible for receiving. Also, be aware that the total amount of the loan can include closing costs. Additionally, borrowers can assume 15 or 30-year fixed mortgages.

The process of getting approved for a USDA loan takes about the same amount of time as a traditional loan. If you are considering applying for this type of loan, you should work closely with a qualified professional to determine your eligibility regarding your income and the location of the home you wish to purchase.

Please contact us today for more information about USDA loans or any other loan programs! Call us toll-free at (877) 255-3554 or visit us online here to find an MLO in your area!