Since 1991, USDA loans have been helping low-to-average income Americans buy homes in rural areas. These loans are provided by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. There are three types of USDA loans that offer financing with no down payment, reduced mortgage insurance, and lower mortgage rates.
The three types of USDA loans:
USDA-guaranteed loans: The USDA guarantees a mortgage issued by a lender, similar to a VA-backed loan. To be eligible for a guaranteed USDA loan, a borrower’s adjusted household income can’t exceed more than 115% of the median family income in the rural area they wish to live in.
Direct-issue loans: These loans are issued directly by the USDA and a borrower’s income can’t exceed 80% of the median income in their area.
Home improvement loans and grants: These loans permit homeowners to repair or upgrade their homes. Packages can also combine a loan and a grant, providing up to $27,500 in assistance.
A few of the requirements for USDA Loans:
- U.S. citizenship (or permanent residency)
- The ability to make monthly payments that are 29% or less of your monthly income. Other monthly debt payments that you make cannot exceed 41% of your income. However, the USDA will consider higher debt ratios if you have a credit score above 680.
- Dependable income
- An acceptable credit history. If you can prove that your credit was affected by circumstances that were temporary or outside of your control, including a medical emergency, you may still qualify.
- A credit score of 620 or above
The FHA requires at least a 3.5% down payment adding to up-front costs, which has made USDA loans a better option for some homebuyers. If you’re looking to purchase a home in a smaller community or rural area, reach out to one of our lenders today! We can help you find a home loan that best fits your needs.