A USDA (US Department of Agriculture) home loan is an often overlooked but very viable loan option for eligible borrowers.
Created by the Rural Development agency of the USDA, this loan program was designed with the express purpose of encouraging more people to live in rural areas. The agency believes that rural areas will experience growth and development as a result of more people moving into the area.
While a USDA mortgage has many features, the two overarching concepts of a USDA home loan are affordability and leniency in lending requirements.
If you’re buying a house, the following features of USDA mortgage loans may encourage you to look into this loan program for yourself.:
No down payment needed
Down payments can be difficult to save for, and prevent many otherwise eligible individuals from becoming homeowners.
While most conventional loans require borrowers to come up with 20% of the home’s purchase price, USDA loans offer 100% financing options.
If you qualify, you can get into a home with little to no down payment – saving you thousands of dollars. USDA loan rates are also very competitive.
Note: While a USDA home loan requires individuals to pay a monthly funding fee with their mortgage, this loan type is still very affordable.
Can get another one
You can obtain more than one USDA home loan in your lifetime, however you ordinarily cannot have more than one open USDA loan at a time.
While you can obtain USDA financing on a new home, it won’t be finalized – and you won’t be able to close on your new home – until your old home sells.
- You’re required to travel in excess of 50 miles from your USDA financed home for work. You can apply for USDA financing to buy another home without selling the first. (assuming your income (and/or rental income) can support both)
- Your family has grown out of the house and you need to buy a bigger one. You may apply for a USDA home loan on a new home and possibly rent out the old one.
- You currently own a mobile home. (The USDA doesn’t consider a mobile home to be “adequate” so will allow you to get a USDA loan as long as your income can support both of them)
Note that your particular situation will impact any eligibility for a USDA loan. That’s why it’s vital you speak with a knowledgeable lending professional who is experienced in USDA home loans.
Loan limits are flexible
Unlike other loan types, the USDA home loan program doesn’t set a strict number limit in its guidelines. The calculations that the lender will use when determining your eligibility are based on both the income limits and DTI (debt to income) ratios set out by the program.
You don’t have to be a farmer
Many people assume that since the home you purchase with a USDA home loan needs to be in a “rural” area, that only farmers would be eligible to apply.
In fact, the USDA loan was designed for residential properties, not farms that are generating income for their owners.
It’s important to note that if you want to buy a home and it’s in a mid-sized city it may still qualify as being in a “rural” area, so ask your lender if the property you’re considering might qualify.
Affordable mortgage insurance
Even though a USDA loan will lend up to 100% of the purchase price of a home, that doesn’t absolve you of the need to pay mortgage insurance.
Your lender will include the mortgage insurance premium in your approval, then add it to your monthly mortgage payment. The mortgage insurance that’s collected from every borrower is what funds the program, keeping costs down for participating individuals.
Have income limits
Income limits are typically within the following parameters:
- One to four family members $74,750
- Five to eight family members $98,650
In locations where the cost of living exceeds the national average, income limits can be higher.
Allows for a variety of home types
Types of homes that are eligible for a USDA mortgage can include the following:
- Planned Unit Developments (PUDs)
- New construction
- Manufactured homes
- Modular homes
- Existing homes
If you think a USDA home loan might be right for you, speak with a USDA qualified lender to find out more.