USDA LOANS
An FHA (Federal Housing Administration) loan is a loan insured against default by the FHA. In other words, the FHA guarantees that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay. FHA loans are not for everybody. Nevertheless, they are a great help to some borrowers. FHA loans allow people to buy a home with a down payment as small as 3.5%. Other loans might not allow such a low down payment.
Why get a USDA loan?
USDA loans are low-interest mortgages with zero down payments designed for low-income Americans who don’t have good enough credit to qualify for traditional mortgages. You must use a USDA loan to buy a home in a designated area that covers several rural and suburban locations. We’ll explain everything you need to know about USDA loans and how to qualify for one. If you want hands-on assistance as you navigate USDA loans, get in touch with us today and we will be happy to assist you
Benefits of USDA loans:
- 100% financing available
- Easier to use gifts for down payment and closing costs
- Lower interest rates
- Lower credit requirements
How does a USDA loan work?
Each year, the United States Department of Agriculture (USDA) supports home loans for thousands of Americans. Interest rates on these loans can dip to as low as 1% and you can generally secure one with a credit score as low as 640.
Monthly payments on USDA loans are typically restricted to 29% or less of your monthly income, and other monthly payments can’t exceed 41% of your monthly income. However, your adjusted household income must be at or below the applicable low-income limit set by the government for the area you want to buy a home in.
In addition, you must use the USDA loan to purchase a home in a designated rural area. For many, that means giving up noisy city life to bask in open fields and surround yourself with the scenic beauty of rural America. But if you’re not into that, several suburban areas in or near major cities fall under the USDA’s broad definition of “rural.” And contrary to popular belief, you don’t have to work in the agricultural industry to secure a USDA loan. Eligibility primarily depends on your income, location and household size.
But because down payments on USDA loans tend to dip far below those for traditional mortgages, borrowers usually must pay a pay a mortgage insurance premium that generally spans 1% to 2% of the loan amount.
Moreover, most USDA loans aren’t directly offered by the USDA. Instead, they exist as mortgages provided by traditional lenders such as banks. However, the USDA backs these loans. That means the federal government would cover a certain part of the mortgage in case the borrower defaults. That’s why lenders are comfortable to ease the requirements for securing a USDA loan as opposed to a traditional mortgage.
USDA loans have been around since 2007 and are officially part of the USDA Rural Development Guaranteed Housing Loan Program. But there are different types of USDA loans.
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