A Guide to Zero-Down Homeownership
The USDA Home Loan program is a government-sponsored mortgage program that provides low- and moderate-income families with the opportunity to own a home in rural and suburban areas. The program is run by the United States Department of Agriculture (USDA) and is designed to help families who might not otherwise be able to afford a home purchase.
What are USDA Home Loans?
USDA Home Loans are mortgage loans backed by the United States Department of Agriculture (USDA) that provide low-cost financing to eligible homebuyers in rural and suburban areas. The program was created to help low- to moderate-income families purchase homes in areas where conventional lending is not available. USDA Home Loans are also known as Rural Development Loans or RD Loans.
By helping people settle down in rural areas, USDA loans help ease the congestion found in large cities and foster economic growth in outlying communities. There are firm guidelines that need to be met in support of these values before you can obtain a USDA home loan.
Who is Eligible for USDA Home Loans?
To be eligible for a USDA Home Loan, you must meet certain income and credit requirements, as well as reside in an eligible area. Your income cannot exceed 115% of the median income in your area, and you must have a credit score of at least 640. Additionally, the home you purchase must be in a designated USDA rural area, and you must use the home as your primary residence.
Benefits of USDA Home Loans
USDA Home loans offer some advantages over traditional loans, Let’s take a closer look at some of the most important ways the USDA home loan program makes it easy for those of modest income to purchase a home of their own.
No Down Payment Required
The no down payment requirement is the number one reason most people gravitate toward a USDA loan. Saving money for a down payment is not an easy feat. The average price of homes sold in the United States in 2019 was
$234,000. How long do you think it would take to save up $46,000 (20% down payment) or even $23,000 (10% down payment)? With a USDA mortgage, you can finance 100% of the cost of your potential new home, which means you can start paying money toward owning your own piece of property much sooner, building equity in your own home.
Low Fixed Interest Rates
With conventional financing, you need to come up with that 20% down payment to qualify for the best interest rates. USDA mortgages offer borrowers the opportunity to be eligible for a low-interest rate even when financing 100% of your home’s cost. Just a one-half percent difference could add or save thousands of dollars over a 30-year loan term. Also, a fixed interest rate offers security in knowing exactly how much your payment will be every month through the life of the loan.
Relaxed Credit and Income Requirements
As long as you have a credit score of at least 640 and a debt-to-income ratio under 41%, you can qualify for a USDA home loan and a low-interest rate. Even if you could get approved for conventional financing with those parameters, the interest rate would be much higher, increasing the cost you’d pay for the loan. As long as you meet those two
requirements, the approval process should go relatively quickly as the guidelines are very streamlined.
USDA Home Property Requirements
To be eligible for a USDA loan, the home in question must be your primary residence. You are not allowed to finance a second home, or vacation home, using this program. Also, since the government is essentially backing your loan on behalf of the lending institution, it has a vested interest in the property’s condition. Therefore, the USDA requires the house to meet HUD minimum safety standards for financing to be approved. These standards include but are not limited to windows, doors, gutters and downspouts, paint, wallpaper, kitchen cabinets, flooring, and more. If you are building a new house, everything must meet or exceed current acceptable building codes. The house’s foundation needs to be structurally sound and accessible from a paved road.
USDA Loan Income Limits
You will need to meet specific income limits if you are interested in obtaining a USDA home loan. The government determines your income eligibility based on the size of your household and where you live. For a family of between one and four people, your income is not allowed to exceed the median household income of any geographic location by more than 15%. However, more income is allowable for families of five or more. If you live in Dayton, Ohio, the income limit for a 1-4 person household is $90,300 per year. If your home consists of 6 members, you can earn up to $119,200. Limits in other areas where the median income is higher results in a higher limit. In San Francisco, California, a 1-4 person household can earn upwards of $223,800 and still qualify. The USDA website has a comprehensive calculator available to see if you meet income requirements for the area you’re looking to purchase.
VA Loan faq’s
A USDA loan is a type of government-backed mortgage that is provided by the United States Department of Agriculture (USDA) to low- and moderate-income borrowers who are looking to buy a home in a rural or suburban area.
Who is eligible for a USDA loan?
To be eligible for a USDA loan, you must meet certain income and credit requirements and be looking to buy a home in an eligible rural or suburban area. The USDA has specific guidelines for what constitutes an eligible area.
What are the benefits of a USDA loan?
Some of the benefits of a USDA loan include low or no down payment requirements, low interest rates, and no private mortgage insurance (PMI) requirement.
What is the maximum loan amount for a USDA loan?
The maximum loan amount for a USDA loan is determined by the USDA and is based on factors such as the local housing market and the borrower’s income.
Can I use a USDA loan to refinance my home?
No, USDA loans are only available for the purchase of a primary residence.
What is the interest rate for a USDA loan?
The interest rate for a USDA loan is determined by the lender and can vary based on a number of factors, including the borrower’s credit score and income, the length of the loan, and current market conditions.
How do I apply for a USDA loan?
To apply for a USDA loan, you can start by contacting a USDA-approved lender, who will be able to guide you through the application process and help you determine if you are eligible for a loan.
What documents do I need to apply for a USDA loan?
The documents required for a USDA loan application can vary depending on the lender, but typically include proof of income, employment history, and identity, as well as information about your debts and assets.
What is the timeline for a USDA loan application?
The timeline for a USDA loan application can vary, but typically it takes several weeks to complete the process, from pre-approval to closing. The length of time can be influenced by a variety of factors, including the lender’s workload, the borrower’s financial situation, and the speed at which required documents are provided.
A USDA loan may be a fantastic choice if you bring in a modest but steady income and are interested in living outside a major city. We like to believe there is a mortgage out there for almost anyone. Reading articles such as this one is a great way to learn about the different types of loans, but your mortgage broker or lender should also a valuable resource. They’ll review your financial situation and go over the options that suit you best. Our specialists at Community First National Bank are highly knowledgeable. They are always ready to see if a USDA loan is right for you. Give us a call today at (855) 923-5041, or visit our website and start your application online.