It’s easy to see why people get the wrong idea about USDA loans. After all, it’s only natural to associate the U.S. Department of Agriculture (USDA) with farms, farmland, and rural living. When you hear that the organization offers home loans to support rural development, it makes sense to assume that those loans are only available to people who want to live in the country. However, the accessibility of USDA loans is a welcome reminder that assumptions are often wrong. While USDA loans can’t be used for home purchases in urban centers, these low-cost loans can be used in both rural and suburban areas. If you’re hoping to purchase a home outside the major cities, you may want to take a look at how to get a USDA loan.
How to Get a USDA Loan
According to NerdWallet, the USDA loan program helped some 127,000 families across the United States purchase and improve their homes in 2017. Although they may not have the same level of name recognition as more popular government-backed loans, they do offer 100-percent financing and low interest rates. What do you need to know about USDA loans?
Fast Facts About USDA Loans
Why should you add USDA loans to your list of financing possibilities? The Mortgage Reports offers a few facts that help to explain the appeal of these home loans:
- Some 97 percent of the geographic U.S. falls within the USDA loan program’s eligible territory.
- Thanks to the loan’s government guarantee, borrowers enjoy better interest rates without having to make any down payment.
- USDA loans are available to both first-time and repeat homebuyers.
- All USDA loans are fixed-rate loans and come without prepayment penalties.
- Closing costs and the repayment schedule are standard; there’s no balloon payment to worry about.
- Mortgage insurance is required, but it’s less expensive than the insurance required by other loan programs. It’s also rolled into the loan so that borrowers don’t have to come up with the cash.
Types of USDA Loans
As Experian reports, there are different types of USDA loans:
- USDA Direct Loans. Available only to low- and very low-income borrowers who cannot get funding for a home purchase elsewhere, these loans can be used to buy, repair, or renovate an eligible property that will serve as a primary residence. As the name implies, these loans are issued by the USDA, so aspiring borrowers will need to contact the agency.
- USDA Guaranteed Loans. The type of USDA loan that most people mean when talking about USDA loans, these loans are offered to low- and moderate-income borrowers who are purchasing a primary residence. While borrowers must meet income limits and buy an eligible property, the guidelines are relative. They’re based on the area that you live in, so even buyers in higher-priced markets can utilize this program. Since these loans are offered by USDA-approved lenders, borrowers interested in this form of financing will need to find a suitable lender.
Borrower Eligibility Requirements
Could you qualify for a USDA Guaranteed Loan? SmartAsset reports that you will need to meet the following requirements:
- Purchase an eligible property as your primary residence.
- Have an adjustable household income that is at or below 115 percent of the median family income for your area.
- Have acceptable income and credit that demonstrates your willingness to meet your financial obligations.
- Be a U.S. citizen, non-citizen national, or a qualified alien with the legal capacity to take on a loan obligation.
- Be eligible for participation in federal programs.
Property Eligibility Requirements
How do you know if a property is eligible? The quickest way to find out is to visit the USDA Income and Property Eligibility Website. Here, you can search for a specific address or manipulate a map to identify eligible properties that are located in your target area.
Do you have more questions about how to get a USDA loan? Are you interested in learning about other home loan programs? Contact PrimeLending Twin Cities today to get started.