June 5, 2017 | Joshua Kruger
Not nearly as well-known as the FHA or VA loan programs, the USDA loan is yet another program meant to encourage the purchasing capabilities of homebuyers, particularly those in rural or suburban areas. Backed by the Department of Agriculture, this loan program offers several benefits that make it an attractive option for anyone seeking a property in less-populated areas.
Despite the name, the USDA loan isn’t just for farmers! Though it is meant to “improve the economy and quality of life in rural America,” you may be surprised at the number of suburban homes in relatively well-sized cities that qualify. To see if the home of your dreams makes the cut, check out the USDA loan eligibility page!
How Can I Use It?
Beyond assisting you in the financing of your new home, the USDA loan can also be used to make improvements, install upgrades, and build new properties. Additional options include purchase of condos, modular homes and planned unit developments.
What Are the Benefits?
Those with poor or NO credit may apply! Since the loan is backed by the Department of Agriculture, lenders are more likely to accept risks on those with shallow or non-existent credit histories. While your process will be easier with better credit (those with scores of 620 or higher receive streamlined financing), underwriters will consider scores of 580 or lower! In an effort to expand the home-buying opportunity even further, the USDA loan even permits the use of non-traditional credit lines (phone or utility bills, for example) to establish creditworthiness for those with no credit history.
No down payment is required with USDA loans. Since this is often a huge obstacle, especially for low-income and first-time borrowers, this makes the USDA loan one of the most accessible and helpful programs available.
Better interest rates and lower PMIs make it ideal for those who are looking to score the lowest monthly payments available outside of a VA loan. Since the USDA loan does not require a down payment, you will have to provide private mortgage insurance—the difference with USDA loans, however, is that their interest and insurance rates are fixed and always set at lower-than-market rates! Even lower credit scores will have no effect on the standardized rates, which is just another way that the Department of Agriculture is helping to ensure that rural areas receive the same attention that urban areas normally command.
PMI financing options are an additional benefit that helps ensure that the borrower owes absolutely nothing upfront. While conventional loans require that you put a certain amount down in addition to the monthly insurance payments you’ll have to shell out, the USDA loan allows you to roll this set amount (2%) into your monthly payments, freeing you of the burden of exorbitant closing costs.
What Else Do I Need to Know?
Income Limits – While the national USDA loan income limit is typically $74,750 for a family of four or less and $98,650 for a family of five to eight, income limits do change based on your state and, in some cases, your area. Check the USDA Income Limits in your area to see if you qualify!
Loan Limits – The national average USDA loan limit is $216,840, but this limit can vary greatly depending on state and the cost of living in your area. Take a look at the USDA Loan Limits in your area to determine how much your USDA loan will cover.
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