How to Get a USDA Loan

Posted by Laine Smith on 5/30/14 2:56 PM

Topics: Purchasing A Home USDA Loans Loan Types

A USDA loan, formally known as the USDA Rural Development Guaranteed Housing Loan program, is insured by the U.S. Department of Agriculture. The USDA loan program is used primarily to help individuals and families purchase a home in rural areas across the United States.

House_As_Gift

The USDA Rural Development Loan is an attractive program for homebuyers struggling to overcome one of the largest obstacles to gaining homeownership: down payment. Undoubtedly, the greatest feature of this program is its option for “no money down” financing, meaning homebuyers can finance 100 percent of their home purchase at an interest rate typically lower than average market rates.

Benefits

  • No down payment
  • Lower than market interest rate
  • Ability to finance upfront private mortgage insurance (PMI) into the loan
  • Low monthly PMI rate
  • Flexible credit guidelines allow some borrowers with blemished credit histories to still qualify for a home loan

Eligibility

To be eligible for this loan, you typically must live in a small town – often rural or suburban with a population of less than 20,000 – and be able to show that your income is sufficient enough to make your monthly mortgage payments.

  • Income: Income eligibility varies by state, county and family size. Your household income must be less than 115% of the area’s median income.
  • Debt-to-Income: As with any loan, your lender will review your debt-to-income ratio to determine your likelihood of repaying your loan. The PITI (principal, interest, taxes and insurance) of your mortgage must be less that 29% of your monthly income. Additional minimum monthly payments on debt, including your PITI, can be no more than 41% of your monthly income.
  • Credit score: A credit score of 640 or higher is desired.
  • Purchase: USDA will fund a maximum loan amount of $417,000, depending on income of the borrower(s). Rural Development loans can not be used to finance the purchase of a farm property, second home or investment property.

Speak with one of our loan officers about your eligibility for a USDA Rural Development Guaranteed Housing Loan. As previously stated, income and property eligibility will vary by county and state. For more information on eligibility in your area, visit http://www.rurdev.usda.gov/Home.html.

Interested in learning about all of your loan options as a homebuyer? Check out our Mortgage 101 Handbook for a go-to guide of the home buying and home financing process.

 

  Download: Mortgage 101 Handbook

 

 

Image courtesy of scottchan / FreeDigitalPhotos.net

Subscribe to Email Updates

Posts by Topic

see all