Those who want to buy a home in rural America may not be aware of USDA home loans. These home mortgage products may make it easier to purchase a home with a small down payment or make repairs. It is possible to be approved for a USDA loan with zero down. What should potential applicants know about this type of home mortgage loan?
USDA Loans: An Overview
The USDA Rural Development Guaranteed Housing Loan Program offers USDA loans. The majority of homes that may qualify are located in rural areas, although some residential properties in select suburban locations may also be purchased with the loan. This loan is attractive for potential homeowners who do not have a large down payment but who would like to purchase a home. Individuals may purchase a home with zero down.
This mortgage loan can be used to cover the entire purchase price of an applicable home. Low rates on this loan are possible through backing by the U.S. Department of Agriculture. Approved applicants may also qualify for a rate reduction on mortgage insurance premiums (MIP). Previous home buyers and first-time home buyers may apply. This loan may be used to buy a traditional home, such as a single-family residence. Other types of homes which may be bought with a USDA loan include a manufactured or modular home.
Three USDA Loan Products
Individuals who want to buy a home can use a USDA home mortgage loan product. However, other USDA loan products are available for those who may want make upgrades on a home. Applicants may be eligible for as much as $27,500 when using a USDA home improvement loan and associated grants, which functions much like the standard 203k Home Loan. Another option for those looking to put down a small down payment or zero down is the loan guarantee. Approved applicants may enjoy low mortgage rates while being responsible to pay MIP. These types of loans are aimed at low income applicants.
Eligibility Requirements for USDA Loans
In order to be approved, multiple factors are considered. A few important factors include one’s credit score, household size and the location of a home. More specific requirements include:
- Being a permanent resident or U.S. citizen;
- Using the owner-occupied home as a primary residence;
- Demonstrating consistent income for the last two years or more; and
- Earning less than the stated maximum income.
The program is meant to make homeownership more accessible for low income applicants. Many requirements are flexible and one may be approved for a USDA loan without meeting all of them. Individuals who are approved may use “nontraditional credit references” and may be approved without a credit score and established credit history. Rental payments and utility payments may be used as some of these nontraditional references. Individuals reviewing the information may see the ability of a person to make consistent payments on regularly occurring bills.
Maximum household income limits are not the same in every area. Even with the variation in income limits, households of “modest means” may be able to use the loan to afford a home. Applicants may want to get more information on income limits in a specific location.
Explore Your Mortgage Loan Options
Individuals and households making more than the maximum income in an area may not be eligible. In addition, USDA loans are not intended to be used toward home purchasing in urban areas such as The Woodlands. However, many homeowners find the program a useful alternative to conventional home mortgage loan products.