A USDA loan can help you afford your own home. Here’s what prospective home buyers need to know.
Buying a home is a huge financial investment – that’s why most home buyers get a mortgage. A USDA loan is one non-traditional mortgage option that’s great for low- to moderate-income families who want a little more space to roam. Here’s what you need to know about a USDA loan.
What Is a USDA Loan?
There are several types of loan products provided by the USDA:
· home improvement loans
· direct loans
· guaranteed loans.
A home improvement loan is exactly what you’d expect; it provides low-income families with a relatively modest amount of cash for making improvements to their existing dwelling. A direct loan (also called a 502-purchase program) provides low-income families with subsidized payments when they cannot afford other home-buying alternatives. (In this case, ‘low income’ is defined as ‘below 80% of the median household income (MHI) for the area’.)
In this article, we’ll be focusing on USDA-guaranteed loans for single family residences. The USDA defines this as a “no-down payment, 100% financing program [that] assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas … USDA provides a loan note guarantee to approved lenders, encouraging participation by minimizing their risk.”
Key benefits of a USDA loan are the lack of down payment and a more flexible approach to credit scores or credit history. (Although lenders will likely have their own credit requirements, these are often less rigorous than for other loan types.) So, when you can’t land a conventional loan because there are a few dings in your financial record, a USDA loan can help you get closer to homeownership.
Who Is Eligible for a USDA Loan?
If a USDA loan sounds like it might meet your needs, make sure you meet its requirements:
Loan applicants must show a willingness and ability to pay their monthly mortgage payments; for this, you’ll need at least a year of documented employment history (two years if you’re self-employed). Your household income must not exceed 115% of the MHI for your area, and you must not be suspended or disqualified from federal programs. In addition, you’ll need to:
· Be a U.S. citizen, national, or qualified alien resident.
· Use the house as your primary residence.
· Be unable to obtain a conventional loan without private mortgage insurance.
· Use no more than 41% of your monthly income on debt repayment. (Some exceptions apply.)
· Use no more than 29% of your income on your total housing payment. (Some exceptions apply.
One of the major tenets behind USDA loans is the improvement of rural areas. The following restrictions apply to properties purchased with this loan:
· Must be located in an eligible area.
· Acreage must be “common for the area.”
· Must meet HUD standards for safety, security, and soundness, e.g. can’t have damaged electrical wiring or a leaking roof.
On the other hand, it’s good to note that you can purchase an existing home or build a new home with USDA loan funds. Plus, you may be able to finance closing costs and repair expenses with the loan; the loan amount is based on the property’s appraised value, not the purchase price.
How to Get a USDA Loan
The easiest way to get a USDA loan is to talk with a trusted loan provider. At Mortgage 1-Jackson, we’ve been helping families secure non-traditional loans for years – we’re one of the top USDA loan providers in Michigan. If you want to own your own piece of Michigan’s great outdoors, call us today at 517-315-4626 and we’ll make sure you get the best deal.