A USDA Rural Development Loan is a mortgage offered to people who want to buy in rural areas. These loans can be used for farms or rural businesses, but more commonly, they’re used for homes in rural areas. If you live in or are willing to move to areas defined as rural by the USDA, you may want to check out one of these loans. Here’s what you need to know.
Why does the USDA guarantee these loans?
These loans are guaranteed by the US Department of Agriculture, but you can apply for them at a range of different lenders. Basically, the guarantee means that if you default on the loan, the USDA will repay the bank. That gives the lenders extra security, and in turn, that means that the lenders can offer better terms and more generous approvals.
The USDA offers these loans primarily to support people in rural areas but also to stimulate the economies in these areas.
What does the USDA consider to be rural?
To be considered a rural area, the population must be below 20,000. To find out if a home is in a USDA Rural Development Loan eligible location, you can check here. This site divides USDA loans into several different categories including loans for single family housing, multi-family housing, and rural business as well as loans designed to help municipalities fund wastewater treatment and environmental programs. You simply click on the program that interests you to see more details and a map of eligible areas.
Who should get USDA loans?
USDA Rural Development loans are for borrowers who intend to use the home as their primary residence, but just as you can with FHA loans, you can also get USDA loans for multi-family properties as long as the property meets the lending criteria and you plan to live there. In both cases, there may be stipulations about how long you have to live in the property before you sell it.
What are the qualifications for a USDA loan?
To qualify for USDA loans a borrower’s’ income shouldn’t be higher than 115 percent of the median income for the region and borrowers must also be able to afford to make the payments. With a USDA loan, the total cost of housing can’t be more than 29 percent of your income. Borrowers can check here to see if they meet the income eligibility requirements for a USDA Rural Development Loan.
Why choose USDA loans?
A USDA Rural Development Loan allows borrowers to finance the entire cost of the house. There is no down payment required, and closing costs and fees can be rolled into the loan for true 100% financing.
A USDA Rural Development Loan can also be a good option for borrowers with average credit. However, the program focuses on people who might have a short credit history, which affects their overall score, rather than those trying to rebuild their credit. The mortgage is for 30 years with a fixed interest rate that is similar to the rates offered on traditional loans.
If you would like to explore USDA loans or other mortgage products available from Capital Mortgage Advisors, please call us at 800-859-5648, or complete our simple form below. One of our experienced mortgage specialists will contact you.