The United States Department of Agriculture (USDA) offers a residential mortgage loan for qualified individuals purchasing a residential home in designated rural areas. This loan type is also known as the rural housing loan and is available to qualified homebuyers who meet the income and housing guidelines. There are 2 main types of loans offered by the USDA under this program. These loan types include: direct and guaranteed. Direct loans are only offered through USDA offices, whereas guaranteed loans are available through eligible lenders. Both loan types require borrowers to meet specified income restrictions (please refer to the USDA website for details). This loan program was designed to assist homebuyers purchasing owner-occupied properties in eligible rule areas that have low to average income. Eligible applicants must be US citizens or qualified alien residents and purchase a property that meets all the program requirements.
The benefits of this mortgage type include the following:
• Zero Down Payment – The USDA home loan allows 100% financing, which means there is no down payment required. This is a significant benefit to first-time homebuyers who have not had a chance to save for a down payment.
• Low Interest Rates – Even though the USDA home mortgage program does not require a down payment, the interest rates offered under this program are typically the same or better than conventional, FHA, or VA financing. In addition, the USDA home loan does not have a prepayment penalty.
• Loan Terms – This mortgage program offers only fixed-rate loans. Both 30 and 15 year terms are available.
• Low Mortgage Insurance Rates – The upfront mortgage insurance premium for a USDA purchase loan is 2 ½% of the sales price. The monthly mortgage insurance is calculated based on one half of one percent of the principal amount annually.
• Credit Qualifications – Homebuyers generally need to have at least a 640 middle credit score to qualify for a USDA loan. Applicants also need to demonstrate that they have stable employment and income. In addition, the maximum debt to income ratio typically allowed is 41%. Please consult your lender for your actual debt ratio.
This program allows up to 3% of the sales price to be added to the mortgage to pay for closing costs and reasonable customary expenses associated with the purchase of the property. Although, the mortgage with closing costs added cannot exceed the appraised amount. If the house does not appraise high enough to roll in the closing costs, the USDA guidelines allow the seller to pay the buyers customary closing costs if agreed upon in the purchase agreement. An acceptable appraisal must be completed for the property disclosing if the house meets the energy-efficient guidelines as required by the USDA. For more information on this loan type, including eligible areas and income restrictions, please contact your local approved lender or your local USDA office.