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USDA Loans

USDA Loans

USDA loans are federally-backed mortgages and are an affordable, flexible option for home-buyers that find conventional loans unaffordable or out of reach. The USDA loan program, also known as the Rural Development Guaranteed Housing Loan Program, are mortgages backed by the U.S. Department of Agriculture and offer qualifying low-to-moderate income borrowers the option of no down payment when they buy in a designated rural area. USDA loans also offer flexible guidelines to eligible applicants.  The USDA loan option is unique in that it is specifically designed for buying in rural areas. Rural areas include small towns and suburbs, and almost 97% of the U.S. is eligible. Intended to encourage home buying in less-populated areas, USDA loans aim to help create thriving communities and improve the quality of life in rural areas.

USDA home loans offer benefits including:

  • No down payment: Down payments are often a big obstacle, especially for first-time homebuyers. USDA loans come with 100% financing, which means you won’t need the liquidity to make a down payment.
  • Roll closing costs into the loan: Closing costs are often an additional expense that can be difficult for home-buyers to afford. With USDA loans, the home buyer has the ability to roll the closing cost into the mortgage, meaning the buyer can finance more than 100% of the sales price.
  • Affordable mortgage insurance: With USDA loans, home-buyers benefit from low monthly private mortgage insurance. As of 2019, the upfront mortgage insurance rate on a USDA loan is just 1%, with an annual fee of only 0.35%. The upfront fee can also be rolled into the loan, eliminating an out-of-pocket expense at closing.
  • Low mortgage rates: USDA loans allow home-buyers to gain access to better-than-average mortgage rates, because USDA mortgage rates are discounted as compared to rates with other low-down payment loans.

In order to qualify for a USDA loan there are income, location, and property requirements that must be met. At a minimum, USDA guidelines require proof of U.S. citizenship or permanent residency, the ability to prove creditworthiness, typically with a credit score of at least 600, and a willingness to repay the mortgage – generally 12 months of no late payments or collections. In order to qualify, applicants must prove stable and dependable income that is verifiable and likely to continue, and annual household income (the total projected income of every adult member in the household) cannot exceed 115% of area’s median household income. The USDA also sets basic property requirements, including that the home must be used as the homebuyer’s primary residence, the site must have direct access to a street, road or driveway and have adequate utilities and water and wastewater disposal, and the property cannot be income-producing property.