USDA Home Loans - What Home Buyers Should Know

USDA home loans are a home mortgage product making homeownership more accessible for many in rural America. It is not meant for those that can give lenders a substantial down payment. Rather this loan is intended for those who may not be able to come up with a significant down payment and allows for some individuals to put zero down when it comes time to purchase a home.

What Are USDA Loans?

These loan products are provided through a special program, the USDA Rural Development Guaranteed Housing Loan Program. The loan can be used toward the purchasing of residential properties in rural and some suburban locations. Potential homeowners may find the product attractive as it does allow homeowners to finance a home with a zero down payment. It is possible to finance a home’s entire purchase price using this mortgage product. The U.S. Department of Agriculture backs this mortgage product and applicants receive low rates on USDA loans. Some buyers may qualify for a reduced rate when it comes to the related mortgage insurance premiums (MIP). Those who are first-time home buyers and other who have already purchased a home may qualify for a USDA loan.

What Types of Homes May Qualify?

Potential homeowners may want to purchase a home that is not a single-family traditional residence. Individuals may use USDA loans to purchase a modular or manufactured home, in addition to traditionally made homes.

How Can You Choose the Right USDA Loan Product?

There are three USDA loans offered through the program. Some homeowners want to purchase a home and there is a USDA loan for that purpose. Other products are useful for those who want to upgrade or repair a home. In such a situation, USDA home improvement loans and related grants can be a way for eligible homeowners to get as much as $27,500. A loan guarantee is a home loan allowing individuals to put as little as zero down toward a home purchase, pay a low mortgage rate while paying MIP. Direct loans are directed at those who would be designated as low-income applicants. Speak with a loan officer to learn more about the USDA loans available and which may best suit specific needs.

How Is Eligibility Determined?

Applicants should be aware that multiple factors are taken into account when deciding whether or not to approve an applicant for a USDA home loan. A home’s location, an applicant’s credit score and household size are a few of the considerations. Those looking to take out a USDA loan:

• Need to earn below-stated maximum incomes. For example, applicants with a household of 5 to 8 individuals should not exceed a household income of $99,850 in many areas.
• Must reside in the home and use it as their primary residence.
• Must be a U.S. citizen or permanent resident.
• Show a consistent source of income for at least the last two years.

Some requirements are flexible as even those without a credit score may apply and use more “nontraditional credit references,” such as utility and rental payment histories. Borrowers may still qualify for a USDA loan even though they may not meet all requirements. Maximum household income limits vary by area but are set as USDA loans are created to help those of “modest means.” Check out an area’s income limits as it pertains to this mortgage loan product here.

Think About It

These loans are not meant for those looking to live in more urban areas and some individuals may exceed the household income requirements. In addition, those who can put 20 percent down may not want to pay the MIP associated with this type of mortgage product. However, this is a valuable option making it easier for some individuals to purchase their first home in many parts of the U.S.