If you prefer quiet nights in rural areas to the hustle and bustle of city life, you may be looking at homes further out in the country. If nights under the stars are more your speed, you may be eligible for a USDA home loan. This loan isn’t necessarily for deep country life, however, and a large portion of the US is covered under these programs. What is a USDA loan, and how do you qualify for this amazing mortgage option?
What is a USDA Loan?
USDA home loans are mortgages designed to help lower-income borrowers purchase homes in selected rural areas. Backed by the US Department of Agriculture, and depending on your financial institution, some of these mortgages are available for $0 down at closing.
These mortgages are available for both first time and repeat home buyers, whether you’re purchasing an existing home or building a new one.
Can I Qualify?
As with any loan, a USDA mortgage approval will depend on many things, including an average credit score and a lower income. Some of the requirements are:
- Income Limits: On average, there is an income limit of just under $92k for smaller families, while larger families of five or more can qualify with incomes of just over $121,000. These limits will vary depending on where you are looking to purchase your home.
- The Property Itself: The home you’re financing will usually be approved for homes less than 2000 square feet, and must be located in an approved area.
- Residency: The home must be a single-family home, and your primary residence.
- Credit Requirements: Usually 640 and above, with no late payments, foreclosures, or recent bankruptcies.
- Loan Terms: A USDA loan is only available in a fixed-rate, 30 year fixed-rate mortgage.
- Employment: Borrowers must have a solid employment history and a steady income. Self-employed borrowers are eligible for this mortgage.
The requirements to qualify for a USDA loan are far less stringent than other conventional or government-funded programs, which makes this mortgage a great option for low income borrowers and those who have less than perfect credit.
Additional Fees and Payments
The USDA keeps its programs affordable by requiring most borrowers to have mortgage insurance. This is generally an additional cost of a one time 1.00% fee, based on your loan size and rolled into the mortgage, and an additional .35% annual fee added to your monthly loan payments.
Closing costs are an additional expense to consider and will vary widely depending on the lender. These can be rolled into your loan, but they will increase your mortgage and your monthly payment.
The Three USDA Loan Options
There are several loan options available through this program. These are:
- Direct loans: These are low-interest loans funded directly by the USDA and offered to low-income borrowers.
- Home Improvement Grants: A home improvement loan is used to update and upgrade a home. The requirements are very strict including age, your ability to receive loans from other lenders, and other factors, but at 1% interest, they are worth checking out.
- Loan Guarantees: These are handled through a traditional lender, like a VA loan, conventional mortgage, or other government-funded program. These loans may allow you to qualify with $0 down, but they will require mortgage insurance if you’re not paying anything upfront.
Where Do I Check My Eligibility?
At this point, you’re probably asking, “Where do I sign up?” Visit the official USDA home loan pages and choose your option. This site provides a free pre-qualification form to see if you are eligible for a USDA home loan. Give it a try; you may be surprised at what you qualify for!
