USDA Loan Programs for Homebuyers
USDA offers two great loan programs with excellent low fixed rates for helping home buyers in rural territories. The requirements and rules for both the programs are very adaptable and accommodating. The following are overviews to help you chose the best program that suits you and your family.
USDA Guaranteed Loans
A USDA guaranteed loan makes it significantly affordable for buyers of single-family homes in eligible rural locations around the country. The flexible and very generous USDA guidelines are geared to helping lower to middle income rural families achieve the American Dream of owning their own home. If you qualify, you can take advantage of the numerous benefits connected with USDA home loans.
Under this USDA loan program, approved lenders can allow financing up to 100% of the purchase price to eligible home buyers on properties located the specified rural areas. The property eligibility depends on the type of property and its condition. They are looking to make sure the dwelling is safe and sanitary, if it is then the property should be able to easily meet the required criteria for properties.
USDA Loan Property Eligibility
The single-family home must be in an area classified by the USDA as “rural”. Once the dwelling eligibility is met, the prospective home buyer must meet the income conditions. To get a USDA guaranteed loan, the ENTIRE household income must not exceed the limits set for the rural area where the property is located. In addition to the mandatory property and income criteria, a number of other steps must be taken to qualify.
No Down Payment Required
Most rural home buyers decide on USDA home loans because they enable them to purchase a home without a down payment The entire 100% of purchase price can be financed along with the guarantee fee. The required guarantee fee can be rolled into the mortgage loan amount as long as the appraisal value of the property supports the purchase price in addition to the guaranteed fee amount. It is said that USDA loans remain the true no-down-payment loan program for single-family homeowners.
Unlike, conventional home loans under Fannie Mae and Freddie Mac, a loan guaranteed by USDA allows for extremely easy credit qualifying requirements. A buyer without sufficient credit history may also use non-traditional sources of credit history to establish their creditworthiness.
The rate and terms on a USDA guaranteed loan are simple. Unlike the variety of other confusing and complex loan programs from traditional residential mortgage lenders, a USDA loan is always a 30-year fixed rate loan. The interest rates are generally comparable to other market rates for 30-year loans.
USDA requires a total debt-to-income (DTI) payment ratio to not exceed 41% of the borrower’s income. The portion of income going toward housing expenses must not exceed 29% of the household’s gross income. USDA does allow lenders to extend loans to rural home buyers with higher DTI ratios, provided there are some compensating factors to rationalize the exception to the guidelines.
The max loan amount that can be guaranteed depends on the debt ratios as well as the eligible income. A USDA lender may approve a loan as long as these numbers stay within the limits after factoring for the purchase price. If your income rationalizes a higher purchase price, definitely go for it.
Other need to knows on USDA Home Loans
In addition to existing residential dwellings, newly constructed homes, planned unit developments (PUDs), condos modular and manufactured homes are also eligible for a USDA loan. Discuss these options with your Real Estate Agent and Loan Officer.
Seller concessions along with a variety of grants and gifts are allowed in most of the cases. In addition to first-time homebuyers, repeat homeowners are also eligible for a USDA guaranteed rural home loan.
To get started, make sure your income falls within the limits for the area in which the property you intend to purchase is located. After that, get in contact with your Mortgage Broker to get pre-approved for a loan.