Mortgage 101: USDA Loans

Posted by Laine Smith on 9/5/14 2:22 PM

Topics: Home Buying

If someone told you there was a home loan that required no down payment and boasted a lower-than-market interest rate and low monthly private mortgage insurance rate, would you believe them?

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The United States Department of Agriculture partners with approved local lenders, like Compass Mortgage, to extend 100% financing to eligible borrowers. The USDA Rural Development Guaranteed Housing Loan, also known as a USDA or rural development loan, was designed to help individuals and families achieve homeownership in rural areas across the United States. 

Benefits

  • No down payment required
  • 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
  • Non-traditional credit histories may be accepted for borrowers with limited credit history

Eligibility

Borrowers wishing to use a USDA loan 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 their income is sufficient enough to repay the loan. Borrowers also must meet the following eligibility requirements:

  • Credit score: A credit score of 640 or higher is desired.
  • Home purchase: Depending on a borrower’s income, the USDA will fund a maximum loan amount of $417,000. USDA loans are to be used for primary homes only. Farm property, secondary homes, and investment property are ineligible.
  • Debt-to-income: All loans require debt-to-income ratios to be below a certain point. A USDA loan requires that the PITI (principal, interest, taxes and insurance) of your mortgage must be less than 29% of your gross monthly income. Your monthly mortgage payment combined with other minimum monthly payments for items such as credit cards, student loans, car payments, etc. can not amount to more than 41% of your monthly gross income.
  • Income: The USDA loan was designed for lower-to-moderate income families. Income eligibility varies by state, county and family size. Your household income must be less than 115% of the area’s median income. For more information on eligibility in your area, visit http://www.rurdev.usda.gov/Home.html.

For more information on USDA loans, contact one of our mortgage bankers.

If you are a First Time Homebuyer check out our Mortgage 101 handbook for other loan types that may be of interest to you. 

Download: Mortgage 101 Handbook

 

Image courtesy of rosezombie at FreeDigitalPhotos.net

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