Very few Americans know that the United States Department of Agriculture (USDA) is involved in the mortgage business. That’s too bad because USDA loans are the best bargain out there if you are strapped for cash and want to buy a home with little or no money down. You do not have to be a first-time home buyer to qualify, you don’t have to have fantastic credit and USDA loans cater to both low income and moderate income borrowers.
While the USDA does not directly make loans to home buyers, it does issue special financial guarantees to insure loans that those mortgage lenders make. That means that the lender assumes less risk because if you default on the loan the USDA will help to compensate the lender for losses. In exchange, the lender agrees to offer you, the consumer, more lenient terms including such things as highly competitive interest rates and no down payment. USDA loans are fixed-rate mortgages. While most are for 30 years, the USDA is expected to start also offering 15-year loans in 2014.Top of Form There is no down payment requirement for USDA loans, but the more you choose to put down the lower your payments will be – which can qualify you for a more expensive home.
- Applicants for loans may have annual income of up to 115% of the median income for the geographical area in which they are buying. You do not necessarily have to buy a lower-priced home, however, because many USDA loans are used to purchase relatively expensive properties.
- Another attractive feature of the USDA loan program is that the mortgage insurance premiums are much cheaper than those charged for FHA mortgages. The mortgage rates themselves are also often lower than what you’d have to pay with an FHA, VA, or conventional mortgage.
- Rather than impose loan limits the USDA is more concerned that you have enough income to make your mortgage payments. If you are self-employed, you’ll need to provide tax returns for the most recent two years and your eligibility will be based on your income.
- Generally speaking your credit score has to be around 620 or above, which also favors borrowers who may not qualify for other types of mortgages.
- Even buyers who have been through bankruptcy can qualify. Those who filed a Chapter 7 bankruptcy at least three years ago are usually eligible, for instance, as are those who filed Chapter 13 and have been making their court-ordered payments in a timely fashion for at least a year.
Property Location Criteria
The home being purchased must technically be in an area defined by the USDA as “rural,” but many homes that meet that criteria are quite close to vibrant metropolitan centers and are definitely not out in the middle of nowhere. There are properties located in counties that include, for example, Los Angeles, San Diego, Denver, Honolulu, and King County (the county Seattle is located in). Generally speaking, the home needs to be located in a town of about 20,000 residents, but that definition often includes many suburbs and other enclaves that consumers do not typically think of as rural because they are within a short drive of a major urban center.
To learn more or to apply for a USDA loan, contact an authorized USDA lender or mortgage broker in your area. You can also learn all about the program by visiting the USDA website where you will find helpful tools such as a map of eligible rural areas.