What Is a USDA Loan?
One government-backed loan that doesn’t get a lot of attention, but features a number of great benefits, is the United States Department of Agriculture (USDA) Rural Development Guaranteed Home Loan.
According to their website, the USDA provides approved lenders a 90% loan guarantee so that they in turn can offer rural homebuyers of, “low and moderate-income…the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence.”
USDA Loan Costs
The biggest selling point for USDA loans is that they require no money down. And, unlike FHA loans, no private mortgage insurance is required. Instead, borrowers pay an upfront fee, which is generally 1% of the total loan amount. Closing fees will vary by lender, but gifted funds may be used to pay any additional fees. Fees may also be rolled into the loan.
USDA Loan Eligibility
The great news is that USDA loans are not limited to first-time homebuyers and are available for both purchase and refinance. And, while properties are limited to particular locations, there is no maximum amount limit for a USDA loan. This means that a borrower’s loan is approved based on their ability to meet USDA eligibility requirements. As part of the loan approval process, lenders will review your credit history and income to confirm your ability to repay your loan. Borrowers should have a credit score of 620 or above and have a minimum of two years of steady employment. No cash reserve is required.
USDA loans are available as either 15 or 30-year fixed mortgages which may be used to purchase an existing home or to finance new construction of a single family home, manufactured home, or eligible condominium. A USDA refinance loan may be used to make home improvements and repairs. The USDA also offers the USDA Rural Plus to be used to bring an existing electrical system up-to-code and improve energy efficiency.
Property Eligibility for USDA Loans
USDA eligible properties are available across the country. These properties are characterized as “rural” — meaning not located near urban areas and having a population of 20,000 or less low and/or middle income residents. To learn more and find out if a property is designated as USDA eligible, visit the USDA Income and Property Eligibility site.
In addition to these specific location requirements, the USDA expects that other minimal requirements are met to protect the interests and welfare of the borrower. To ensure these requirements, which are detailed in HUD’s Single Family Housing Policy Handbook, an appraisal of the home is required.
For those folks who meet the USDA eligibility requirements a USDA loan might be just what you’re looking for.