Hello World! Welcome Friends! If you are in the process of buying a home or are considering buying one, the mortgage is the biggest expense and the first thing on your mind. Most people when they think about a mortgage think about a conventional mortgage offered by private lenders and insured by non-government agencies.
However, there are a host of mortgage programs that are insured by government agencies, have relaxed requirements, and can be cheaper than a conventional loan. USDA loans are one of the options!
USDA Loan is a mortgage that is insured by the Department of Agriculture and is targeted towards individuals purchasing homes in rural areas. USDA Loans have several requirements that you must meet in order to qualify for the loans:
- Status: The individual taking out the mortgage must be a US citizen or permanent resident.
- Location: This is the most important point; the house must be purchased in an area considered rural. This means that the town or city must have a population of less than 20,000 people.
- Primary Residence: The home must be the primary residence of the person purchasing the home. USDA loans cannot be used for investment properties.
- Household Income: The household income cannot exceed 115% of the median income in the area. For example, if the median income in the area is $80,000, then in order to qualify for a USDA loan, your household’s income cannot exceed $92,000 ($80,000 * 115%). There also has to be a dependable source of income such that monthly mortgage payments can be made.
- Debt-to-Income (DTI) Ratio: The DTI ratio looks at the percentage of monthly income going toward debt and interest repayments. For USDA loans the DTI ratio must be below 43%. This means that if you are earning $2,500 per month, less than $1,075 ($2,500 * 43%) must be going towards debt payments.
In order to check if you are eligible for a USDA loan, use Casaplorer’s USDA Eligibility Calculator.
Advantages of USDA Loans
- No Minimum Down Payment: USDA loans do not have a minimum down payment requirement as compared to conventional loans or other mortgage programs. Most conventional loans require a 20% down payment or private mortgage insurance. This means on a $400,000 home, the down payment can be $80,000 ($400,000 * 20%). Therefore, if you do not have enough funds saved up and can qualify for a USDA loan, you are not required to make a down payment.
- No Minimum Credit Score: USDA loans also do not require you to have a minimum credit score. Most programs require at least 620, and FHA loans require 500, however, USDA loans do not require any minimum credit score.
- Lower Interest Rates: As these mortgages are insured by a government agency, the mortgage rates offered by lenders are lower than conventional mortgages. If the individual defaults the loan is paid back to the lender by the government.
- Several Refinance Options: USDA loans have 3 different refinancing options making it very easy to refinance your mortgage if you need to. They have the USDA Streamline Refinance, Assist-refinance and Non-streamline refinance. Each has its own pros and cons, so you should pick the one that best suits your needs.
In conclusion, USDA loans are a great option for individuals looking to buy a home in a rural area. It can help get you a mortgage with lower rates and easier requirements. Therefore, if you are in your home buying process definitely consider this great option to get the best deal for your home!
Click the links below for any posts you have missed:
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