USDA or “Rural Development” home loans are given to qualified borrowers looking to buy or refinance a home in a rural location. These loans are government insured by the USDA, and are usually for low to middle income households buying a home for primary residence. USDA loans have special features that differ from conventional loans which attract buyers who have typically been denied for other loans, yet still are looking for a way to afford a home.
The most desirable aspect of a USDA loan is that down payments are not required. This allows buyers to finance a home for up to 100% of the price. There is no limit on the price of a home to apply for a USDA loan either. Along with these benefits, 30-year fixed interest rates are offered, allowing lenders to provide competitive interest rates based on the buyer’s qualifications. Also, beginning September 2014, 15-year fixed rate mortgages will also be available.
To obtain a USDA loan, the buyer must be a legal US citizen and 18 years or older. The home must be for primary residence and not in commutable distance of another home owned by the buyer. Most other requirements for a USDA loan are very flexible. Although the home must be located in a rural area, the definition varies so that most small towns, suburbs and exurbs are acceptable. Typically a town with 20,000 people or less is an eligible location. Credit history, employment history, and income eligibility are all very negotiable requirements; however there are recommendations that will increase your eligibility.
A minimum credit score of 640 is commonly preferred; however, there have been many exceptions made to that specific score. There are limitations for income as well that your lender can evaluate based on the location of the home and the income of neighboring occupants. Proof of employment or some sort of consistent income is important to show that making payments is possible. Generally, a 2 year history of employment is desired, however this isn’t a definite requirement. Mortgage principal, interest, taxes and insurance (PITI) is also recommended to be less that 29% of monthly income, but again, this exact percentage is usually negotiable.
Getting the Loan
If you have any questions regarding USDA loans, or would like to qualify for one, please contact one of our Licensed Mortgage Loan Originators by clicking here.