What is an USDA mortgage loan?
USDA Loans or US Department of Agriculture Loans are offered on the purchase of properties located in rural areas of the country. USDA Loans, which are also known as “USDA Home Loans”, “Rural Housing Loans”, or “Section 502 Loans”, are offered to eligible rural and suburban home buyers who are looking for a no-money down, 100 percent mortgage financing for their primary homes.
USDA loans are insured by the US Department of Agriculture and are best-known for their ‘no-money down’ financing feature. These are designed to help low to moderate income households purchase a home in a USDA-specified rural area. The USDA Home Loan Program offers 100 percent financing for all approved submittals, and besides VA Loans, it is the only loan program in the US that requires no down payment.
Here's a quick rundown of our list:
- No Down Payment
- Credit Score
- Debt-to-Income Ratio
- Low Insurance Payments
- Income Limitations
- Available for only Rural Areas
- Many Documents Required
- Limited Options For Eligible Homes
No Down Payment
The loans provided through the USDA mortgage program typically come with no down payment.
There might be a small 2 percent fee that you have to pay in order to get some of the forms of the USDA loan, but this fee is so much lower than a typical down payment that you would find with a conventional loan.
This lack of a down payment is to help make the loan more accessible to those that need the loan in order to secure housing for themselves and for their family.
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Because this loan type is aimed at people that have lower income and more debt, the credit score requirements are a little more flexible than conventional loans.
This is aimed to help ensure that the loan is more easily accessible.
The requirements are a little flexible depending on the other factors in play as well.
This is another factor when they consider you for any kind of loan.
With the USDA loan types, they will consider you at ratios that are higher than what conventional lenders will consider.
Even though they have a rough limit on what your ratio should be, they will also consider you at higher ratios if your credit history is a little bit better.
This kind of requirement is much more flexible than conventional loans.
Most lenders will want a low ratio before they will lend you any money at all.
Low Insurance Payments
Although there are still insurance payments with this loan type, you will find that the insurance payments are lower than you would find with loans from the FHA or conventional loans.
The FHA loans have higher insurance payments because of the number of home types that the loan can apply to, but because the USDA loan type has a more limited scope of the kind of home that you can purchase the insurance payments can be a little bit lower.
The insurance is to make sure that a lender gets paid even if you skip a payment.
While this loan type is intended for those with low or very-low income, this can mean that there are some people that are not going to be able to receive this loan.
The limit on income is 115 percent of the median income for the area.
This limit may mean that in one area you will qualify, but in another area, you will make a little bit too much money for this loan.
This kind of limit can be more difficult in some areas.
However, this is also to make sure that those are struggling will be better able to get a home.
Available for only Rural Areas
While the USDA definition of rural area is a little bit loose, it still limits the places that you can live if you want to participate in the loan program.
This may mean moving further away from a job in order to get a home at a reasonable price.
This distance also means longer commutes and homes that are further away from the things you would like to be near.
Not only that, but you will have to do some checking to see whether or not the homes you are looking at are actually going to qualify for the USDA loan.
Many Documents Required
Because they need to look at your credit as well as your income, there are a large number of documents required for this.
You’ll find that these documents are very specific to your situation, but it’s still a lot of information for you to hunt down and turn over to the USDA for consideration.
It may be annoying to go through this in general, but it can be more annoying to have found all that information been denied.
There is one piece of good news for taking on the job of finding all of this information; you will likely need this information everywhere that you go.
Getting this information will help you in the long run, but it’s still rather annoying to go through all of this work when you aren’t sure if you will qualify.
Limited Options For Eligible Homes
Not only are you limited in the areas that you are allowed to live, but there are limits on the kinds of homes that you are allowed to get.
The kinds of homes that you are going to look at are single unit homes or homes that will not produce rental income.
The fact that you won’t be able to earn rental income with the home that you are looking at may be discouraging for some people that are looking for a long-term investment that will help them out in the future.
The USDA wants homes that are modest for their loan types.
What do you think?
Leave your comments below – or text/call me at (760) 297-4539.
Your USDA Mortgage Insider,