Mortgage Series, Part 4: USDA Loan

USDA Loan | Mortgage Loan TypesThis next round of mortgage information focuses on the USDA Loan, a type of home financing that is becoming increasingly popular in our rural areas around the country. The U.S. Department of Agriculture is responsible for the guidelines and guarantees of this loan through their Rural Development Mission. Since 2009, this program has helped more than 625,000 families purchase homes in areas outside urban epicenters, and that number increases tremendously each year.

The USDA Home Loan, like the FHA and VA loan, is not funded by the Department of Agriculture. Borrowers still receive their financing through approved local lenders, but their loans are partially backed by the government. The USDA guarantees the loans to promote economic development in rural areas, and while there are some specific guidelines to qualify for this type of financing, the benefits are well-worth any adjustments required.

Take a look at a few of the most attractive benefits of the USDA Loan:

  • Loan terms are available at 15 or 30 year fixed rates.
  • Credit requirements are not as stringent as conventional loans. Those with spotty credit history can still obtain financing.
  • No maximum home price restriction. Your debt-to-income ratio determines a suitable price range for your new home.
  • 100% financing available – No down payment required!
  • Below-market interest rates and mortgage insurance premiums.
  • Repair costs, closing costs, and lender fees can all be rolled into the loan.

Another major plus associated with the USDA Loan is that is allows financing for many types of properties. Borrowers can receive financing to purchase a new or existing site-built home, a modular home, a planned unit development, a condominium, and a brand new manufactured home. These options give home buyers many options, which is helpful in some rural areas with limited housing selections.

These look like outstanding financing benefits, don’t they? One caveat of the USDA loan is that the property being financed must be located in an area that is USDA-eligible. Generally a listing agent will note whether a property is USDA eligible when it goes on the market, but as a buyer, do your due diligence and check this site to find out if the property is in a USDA region.

While this information covers the USDA Home Loan (the Guaranteed Loan), there is another USDA financing option that might be of interest as well, called the USDA Direct Loan. The USDA Direct Loan is actually financed by the U.S. Government through the Department of Agriculture. It has essentially the same benefits as the USDA Home Loan, but the Direct Loan is intended for low-income borrowers and has some additional qualifying guidelines. One major difference? The Direct Loan has term options from 33-38 years, allowing borrowers to pay down the loan over a longer period of time with lower payments. Should the homeowner increase income over time, he or she can pay that mortgage down more quickly. To secure a USDA Direct Loan, borrowers must provide proof of income and validate that they were not able to receive financing through a traditional mortgage loan. There are income standards with the USDA Direct Loan, and because of this stipulation, there may be added limits on the loan amount and type of property purchased. These specifics should be discussed with a representative from the USDA.

The USDA Loan options are tremendous ways for those living in rural areas to obtain suitable housing. More and more communities across the country are “building out” creating new neighborhoods and towns outside large cities that are attractive, safe communities for homeowners. Your local loan officer can help you get started if you are interested in looking into the USDA Loan.

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