For many aspiring homebuyers, the prospect of putting together a sizable down payment is a real struggle. What if there was a home loan program that offered 100-percent financing so that you wouldn’t need a down payment? Believe it or not, there is. The U.S. Department of Agriculture (USDA) mortgage program is more versatile than many people expect, so it’s certainly worth taking the time to explore the USDA loan requirements.
USDA Loan Requirements
Since 1949, the USDA has helped more than one million people find homes with little or no money down, according to MyMortgageInsider. While its mission is to assist in the development of rural areas, the definition it uses of rural is decidedly generous. Roughly 97 percent of the U.S. qualifies, including many suburban areas. Only metro areas tend to be excluded by the geographic component of this USDA’s loans. What types of loans does the USDA offer? Could you qualify for one of its programs?
As MoneyGeek reports, there are two USDA loan programs aimed at individuals who are working to buy a home:
- Single-Family Housing Direct Home Loans. These loans are handled by the USDA and help low- and very-low-income people become homebuyers. Income requirements are determined by the location. Repayment can take up to 33 years.
- Section 502 Guaranteed Rural Housing Loans. These loans are issued by private lenders and guaranteed by the USDA. It’s a chance for low- and moderate-income homebuyers to purchase a home with no down payment. All loans are 30-year fixed-rate loans, and both the borrowers and the properties must meet the USDA loan requirements.
Requirements for a USDA-Guaranteed Loan
If the thought of using a USDA-guaranteed loan is appealing, you’ll need to know whether the program is an option for you. Remember, both the borrower and the property must meet certain requirements to be eligible. NextAdvisor offers a quick overview of these requirements:
- The borrower must be either a U.S. citizen or a permanent resident.
- The borrower’s income must be within 115 percent of the median household income limits for the area.
- The borrower’s debt-to-income ratio should be no more than 41 percent.
- The borrower should have a dependable income and an acceptable credit history.
- The borrower should ideally have a credit score of at least 640. While not formally required by the USDA, most lenders prefer it.
- The home must be in an eligible location and considered modest for the area.
- The home must be a primary residence. USDA loans cannot be used to purchase investment properties or vacation homes.
Checking Property Eligibility
The USDA makes it easy to determine if a property is eligible for participation in its loan program. All you need to do is visit the USDA’s Income and Property Eligibility Site. Then, you can either type in a specific address or manipulate the map to explore a general area.
The Pros and Cons of the USDA-Guaranteed Loan Program
Is a USDA-guaranteed loan a good idea? As The Mortgage Reports explains, these home loans have both advantages and drawbacks. It’s hard to discount the benefit of 100-percent financing. Plus, the government backing means they tend to come with lower interest rates. Borrowers also benefit from flexible credit guidelines, no prepayment penalty, and the ability to finance their closing costs into their loan if they choose to do so. However, these USDA loans do have some disadvantages. After all, they do come with geographic restrictions, income limits, and restrictions on the type of property that can be purchased. Mortgage insurance is also built into the home loan, and borrowers have no choice about the type of loan because only 30-year, fixed-rate loans are available.
When you’re ready to learn more about USDA-guaranteed loans or USDA loan requirements, reach out to PrimeLending Twin Cities. We’re loan experts, and we’re ready to put our knowledge and experience to work for you. Whether you’re buying, building, renovating, or refinancing, we’ll listen carefully as you map out your housing goals. Then, we’ll help you explore your options so that you can discover the right loan product for your unique needs. Get started today.