USDA Loan: Why You Might Want It
Looking to buy a house in a small town? Have you ever wondered what it takes to finance a farm? Do you have a bad credit history, but are planning to buy a property soon? USDA loans can help you achieve your goals when it comes to buying a home in a rural area of the United States. USDA loans offer the possibility of obtaining a mortgage loan for a house located in a rural area on very attractive terms. In addition to that, even though it has certain eligibility requirements, they are quite easy for many people to meet, especially low to moderate income households. This article provides an overview of what a USDA loan is, how to get it, and why you might want to qualify.
The USDA loan is a mortgage loan guaranteed by the United States Department of Agriculture and provides opportunities for people who want to buy a home in a rural area of the United States. Because they are backed by the United States Department of Agriculture, USDA loans tend to have a favorable interest rate compared to conventional loans. On top of that, USDA loans require virtually no down payment and have no credit score requirements. This is a great option for people who have a low credit score or don’t have money available for a down payment.
Some people may think that rural areas are far from big cities or don’t have much infrastructure. The United States is a big country and 97% of its area is rural. This means that people considering getting a USDA loan have some choice when it comes to buying property. Every state and nearly every county in the United States has areas eligible for USDA loan funding. It’s even possible to find an eligible rural area just outside of major cities like New York or San Francisco. Even though there are an abundance of areas where a home can be financed with a USDA loan, there are certain eligibility requirements that must be met by a borrower to qualify for this loan.
A USDA loan can be a very attractive mortgage option for many people due to competitive interest rates, no down payment requirements, and very low mortgage insurance premiums. Unfortunately, not everyone can benefit from this type of loan. The USDA eligibility criteria attempt to target low-to-moderate income households who may have difficulty buying a home on their own. A borrower must meet several conditions to benefit from this loan:
If you are applying for a USDA loan, you must be either a US citizen or a lawful permanent resident of the United States. It is impossible to qualify for this loan if you have temporary resident status in the United States. A non-US citizen may still be able to receive other types of mortgages such as conventional or FHA loans. On the other hand, the process of obtaining a government guaranteed loan as a non-US citizen is much stricter than for US citizens and lawful permanent residents.
One of the biggest restrictions of a USDA loan is the location restriction. You may not be able to finance a home with this loan just anywhere. A USDA Loan Eligibility Card can help you understand where you can buy property and what the income limits are for each specific region.
Another important eligibility requirement for obtaining a USDA loan is the household income limit. A household can only purchase property with a USDA loan if their income is less than 115% median household income in the region. This means that if the median household income in an area of interest is $70,000you may be able to get a USDA loan for a home in this area only if your household income is below $80,500.
Only a primary residence can be financed with a USDA loan. A principal residence is a property where the owner lives most of the time. It cannot be rented out as it would not be considered a primary residence. It also cannot be used as a second home such as a summer house. If a property purchased with a USDA loan is used in any way other than a principal residence, you may be charged with mortgage fraud which can have significant consequences.
- Debt-to-income ratio (DTI) limit
As with any type of loan, a lender must ensure that you are able to repay your debt and that you have enough money to live on. Different types of loans may have different DTI ratio limits. In the case of USDA loans, the DTI ratio must not exceed 41%. This means that your monthly debt payments for your credit cards, car loans, and student loans should not exceed 41% of your monthly income.
USDA loans are truly unique in their terms and conditions. It’s up to you to choose the best mortgage available for your case, but it may be impossible to find a conventional mortgage or other government-backed loan that allows you to deposit as little as 0% with such competitive prices. While this loan may not appeal to people looking to live in big cities, there are plenty of ways to take advantage of this loan for people who are struggling to save enough money for a down payment. Even households, who own property elsewhere, can choose to relocate and turn their current primary residence into an investment property while securing another home with a USDA loan. Whatever your reasons for wanting to buy a home, if you qualify for a USDA loan, you should consider it because it will help you get your home faster and cheaper than a conventional mortgage.