Have you heard of a USDA loan? If not, don’t worry as not many people have. However, that is one of the reasons why a USDA loan is an excellent option when looking at mortgages.
The USDA loan is a Single Family Housing Guaranteed Loan Program for homebuyers in the United States looking at suburban or rural properties. They are a private loan through private lenders that are guaranteed by the U.S. Department of Agriculture (USDA). It makes owning a house more affordable for low-to-moderate income families, along with stimulating the housing market for rural and suburban communities.
There are many benefits to a USDA loan if you qualify for it. Since it tends to be a well-kept secret, here are five things you should know about a USDA loan if it’s an option you’re considering.
It’s More Than a Farm
Since the Department of Agriculture backs the USDA loan, it’s easy to think that it’s a loan for farmers and those living on an acreage. However, you can use a USDA loan for almost any type of housing options available. From new single-family homes to townhouses and of course, farmyards, a USDA loan is an option for many mortgages.
The USDA loan guidelines consider an area with less than a 35,000 population to be rural or suburban. That opens the majority of the United States to be eligible for the USDA loan.
It’s Only for Your Primary Residence
If you’re hoping to purchase a second home or get your foot in the real estate market with rentals, think again. A USDA loan is for primary residential properties only. If you’re living in the potential property full-time, then the USDA loan would be an option. However, if it is your second, third, or even fourth property, you won’t be accepted for this loan.
The Requirements are Flexible
Getting a traditional loan can be difficult for some families due to the strict requirements you must meet. With a USDA loan though, there are still requirements, but they tend to be more flexible with them. For example, the average credit score for a standard loan is around 720. With a USDA loan, you can have a credit score of 640 and still get approved.
There’s no Mortgage Insurance
For a USDA loan, there is no USDA mortgage insurance you purchase. Instead, you have an annual guarantee fee that you pay each month. The fee comes from an annual calculation that is then broken down and added to your monthly mortgage payments. It is quite affordable and cheaper than other mortgage insurance options with other loans.
There Are Income Limits
It is possible to have too high of an income to be eligible for a USDA loan. Since these loans were designed for low-to-middle income families, so they have more affordable options to purchase a property, someone with an above average income may not qualify.
The lender looks at the total household income, even those who aren’t on the new mortgage. Typically, if the total income is more than 115 percent than the median income of the area, there’s a good chance you will not be accepted.