What is an USDA Rural Loan?

The U.S. Dept. of Agriculture (USDA) has developed a home loan guarantee program that can help you find a lender and obtain a home loan mortgage. The USDA Rural Development program offers partnered lenders a guarantee on loans provided to qualified borrowers for housing in rural communities. With the help of this program, you can be living in a home with little or no money down!

A USDA Rural Development home loan offers qualified borrowers a chance to obtain a home loan with easier qualifications and financing options than other conventional loans. Some benefits are no down payment required, financing up to 100% of the appraised home value, flexible credit guidelines and no maximum purchase limit.

*The following is only general information and will not apply to every person’s situation. To learn how a USDA Loan could work specifically for you, call Equity Source Mortgage at 763-657-2000.

Advantages of a USDA Rural Loan

USDA loans are similar to most conventional loans. Borrowers repay the loan on the same schedule as a conventional loan, there are no repayment penalties, and closing costs are normal. Still there are quite a few benefits to purchasing a USDA loan.

No down payment is required.

• 100% financing is an option, however the loan amount can’t exceed the value of the home.
• Flexible credit guidelines. Non-traditional forms of credit can be accepted such as proof of payment towards school tuition, child care payments to businesses, payments to utility companies, rental history, personal loans, etc.
• No max loan amount. Unlike most conventional loans and FHA loans, USDA loans have not maximum purchase price. Instead lenders consider the borrower’s income and qualifying ratios to determine loan amounts.
• Diverse coverage. USDA loans can be used to purchase more than single family houses. Many borrowers use this loan to purchase modular homes, condominiums, new construction homes, new manufactured homes, and Planned Unit Developments (PUDs).
• No minimum credit score required. With USDA loans there is no set minimum credit score required like with FHA loans, however most lenders won’t lend to borrowers with credit scores below 620.
• Lender fees and closing costs can be absorbed by the loan.
• Applicants can apply for the loan with an approved lender of their choice.
• Eligible improvements and repairs can be absorbed into the loan.
• USDA loans not limited to first time home buyers.
• Homeowner counseling not required.

USDA Loan Requirements

The Rural Housing Loan program was created to assist low to moderate income families in securing low interest loans to purchase homes. Income requirements vary from state to state, and even from county to county. Check with your local realtor or check online here, to see if your family qualifies for a USDA loan.

In addition to meeting income requirements, applicants must also purchase a home within a rural community. However, U. S. Department of Agriculture defines the term “rural” loosely. Many small towns, suburbs and exurbs meet the rural requirement. A USDA loan does not cover any income producing properties, so farms are not eligible for the loan.

Considerations

The Rural Housing Loan program is partially funded by borrowers. Homeowner mortgage insurance premiums are used to keep the program running. USDA mortgage insurance is included in the loan balance and are generally lower than FHA loans. VA loans, and conventional loan mortgages.

USDA loans have a reservation fee, which adds 3.5% of the purchase price onto your loan. This can be a pitfall to some borrowers who opt for the 100% financing option, because they are actually receiving 10.3.5% financing. This means that borrowers will end up paying an additional 3.5% more than the cost of the home in the end. In generally it is a good rule to have some funds saved to make even a small down payment on a home before purchase.

Equity Source Mortgage

Navigating mortgage and loan rates is complicated! Why not let our team do the hard work for you? Equity Source Mortgage is a trusted mortgage broker in Minnesota. We believe that people deserve a home to call their own. At Equity Source Mortgage, our number one goal is to match you with the best loan for you. Contact us or call us at 763-657-2000 to begin exploring your home ownership journey – YOUR Dream Is Calling!