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A Home Guide to USDA Loans

What is an USDA loan?

The USDA loan is a mortgage offered by the United States Department of Agriculture to people who live in rural areas.

USDA loans are often [but not always] available in rural area/rural communities that other lenders consider too isolated or too high risk for their own programs.

They can be used to purchase homes, build new ones, or refinance an existing USDA loan. They can be used for both primary homes only, but they cannot be used to buy land or for any commercial purpose.

USDA loans help create affordable housing and community development in rural communities and small towns that the private sector has overlooked because of their remote location.

Eligibility is based on whether the area is considered rural or not, not on whether you qualify. Borrowers may borrow up to 100% of the purchase price of a home.

USDA loan eligibility

Loans through the USDA Rural Development program come with a lot of benefits, eligibility is only available to specific borrowers and in specific regions. These are some of the main requirements that you should know:

  • Loan must be used for a primary residence only
  • Property must be in a rural area, defined as having fewer than 35,000 residents
  • Borrowers must meet down payment requirements (down payments may be zero for some programs)
  • Borrowers don’t have to have a minimum credit score to qualify, you must be able to demonstrate you can manage debt
  • Borrowers must not have incomes that exceed pre-set limits
  • Borrowers must have a debt-to-income ratio of 41% or lower
  • 640 minimum credit score based on the borrower’s median credit score

Types of USDA loans

USDA Guaranteed loans

These loans are provided under Section 502 of the Housing Act of 1949 and are issued by USDA-approved lenders and guaranteed by the agency in case borrowers default. This is perhaps the most common USDA loan you’ll find most lenders offer. In order to qualify, a borrower’s income can’t exceed 115% of the median income for their area.

Direct issue loans

 These loans also are provided under Section 502 of the Housing Act of 1949. They are issued directly by the USDA, rather than through intermediary lenders. To qualify for a USDA loan, a borrower’s income can’t exceed 50% to 80% of the median income in their area.

Home improvement loans

Home improvement loans are issued under Section 504 of the Housing Act. These are a combination of loans and grants that can provide borrowers with up to $27,500 ($20,000 as a loan; $7,500 in grants). The loan portion is repaid over 20 years at 1% interest. To qualify, applicants must have a household income below 50% of the median income for their area.

The USDA loan mortgage insurance

USDA requires a one-time mortgage insurance premium of 1% of the base loan at closing (this can be rolled into the mortgage) and a yearly mortgage insurance of 0.35% paid monthly through your monthly payments. This mortgage insurance is required for the life of the loan, regardless if the borrower puts a down payment or not.

Applying for an USDA loan

The process for securing a USDA loan is very similar to any other mortgage option. However, there are a few extra steps required for getting a USDA loan to confirm eligibility. If you are looking to apply for a USDA loan, these are some steps you can take to get ahead of the curve:

Check if the property is in a qualifiable area

The process for securing a USDA loan is very similar to any other mortgage option. However, there are a few extra steps required for getting a USDA loan to confirm eligibility. If you are looking to apply for a USDA loan, these are some steps you can take to get ahead of the curve.

Check your income eligibility

Your income will play a role in determining whether or not you qualify for a loan. Keep in mind that the USDA counts the total household income, regardless if other people in your household will be on the loan or not. You can get an idea about income eligibility based on your area by clicking here

Pick a mortgage broker or lender that works with USDA loans

The USDA does not originate loans directly therefore, borrowers have to go to a lender or a broker that does. As mortgage brokers experienced in USDA home loans, Andes Mortgage, LLC., works with different lenders that may be able to suit your needs. We invite you to chat with us to obtain all the information you need and ensure that you can qualify for this financing option. Click here to check your USDA eligibility and talk to us.

USDA loan vs a conventional loan

One of the biggest benefits of the USDA home loans is the 0% down payment feature, whereas Conventional mortgages require at least a 3% down. Also, USDA in some cases, offer below-market rates compared to conventional loans. However, conventional loans do not have a maximum income limit, area requirements as they can be used anywhere, and are able to finance vacation and investment homes. USDA loans are specifically for primary homes only.

Is an USDA loan right for you?

USDA loans are a great tool for home buyers who are looking to buy in rural areas. With the ability of acquiring a property with no money down, the USDA is a great tool for those who want to keep as much money saved for the future while getting one of the best mortgages out there.

Andes Mortgage LLC., is a mortgage broker that specializes in originating USDA loans. One of the most important steps you can take is to get the right information and get pre-approved before you start home shopping. We can give you the guidance you need quickly, efficiently and thoroughly. If you want to check how much home you can qualify with the USDA loan, click here to schedule a personalized consultation with us.

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