The United States Department of Agriculture (USDA) home loan program was created in 1949 to assist low to moderate-income homebuyers in rural America in purchasing homes. The program, also known as the USDA Rural Development Guaranteed Housing Loan Program, aims to stimulate economic development and improve the quality of life in rural communities.
The USDA home loan program is a government-backed mortgage offered by private home loan lenders and guaranteed by the USDA. It allows borrowers to purchase a home with no down payment and offers low-interest rates. The home loan program is available to low to moderate-income individuals and families who meet certain eligibility requirements, including income limits and location restrictions.
USDA Home Loan Qualifications
Here are some of the basic qualifications for a USDA home loan;
- Income eligibility requirements (W2 and Self-Employed) are based on the household size and location of the property. The income limits vary by county and are adjusted for inflation each year.
- A homebuyer must have a credit score of at least 640.
- You must have a stable and dependable source of income.
- Demonstrate the ability to repay the loan.
- Your debt-to-income ratio must be below the USDA home loan limits
- Be a U.S. citizen or have a valid Permanent Resident Alien card.
- Purchase a property in a designated rural area. The property must also meet certain requirements, such as being in good condition and meeting certain size and type restrictions.
Five Steps To The USDA Home Loan Application Process
- Locate and contact a USDA-approved home loan lender. The home loan lender will review your financial situation and help determine if you are eligible for a USDA home loan.
- The next step is to complete a loan application with your Loan Officer. The Loan Officer will provide a loan application that must be completed and returned with all required documents, including income documentation, employment information, and credit history (the lender will obtain a credit report).
- The property you are buying or refinancing must be appraised. The home loan lender will arrange for an appraiser to evaluate the property to determine its current market value.
- USDA home loans require mortgage insurance (like an FHA home loan), which protects the lender if the borrower defaults on the loan.
- Once the home loan lender has approved your loan application and you have met all the underwriting requirements, you can close your loan!
The Benefits Of A USDA Home Loan
- No down payment is required. This is one of the biggest advantages of the USDA home loan program is that it allows borrowers to purchase a home with no down payment.
- Low home loan interest rates. USDA home loans have low-interest rates, saving you thousands of dollars over the loan’s entire life.
- Flexible credit requirements. The USDA home loan program has more flexible credit requirements than other mortgage programs, making it easier for borrowers with less-than-perfect credit to qualify.
- There is no maximum home loan limit for USDA home loans, which means borrowers can finance the entire purchase price of the home.
- Like FHA and VA home loans, the USDA home loan program does not have a prepayment penalty, which means you can pay off the loan early without incurring a pre-payment penalty fee.
If you are looking to secure a USDA home loan it’s important you decide to work with a Loan Officer with 5-10 years of experience and a top-rated mortgage company.
A Great Program For Rural Communities
The USDA home loan program is a great option for people looking to buy a home in a rural community. Many home loan lenders offer the program and homebuyers can secure a great interest rate with no downpayment and no pre-payment penalty.