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USDA Loan

When looking for help financing your new home purchase, one option you may not be aware of is a USDA loan. This type of loan was created by the U.S. Department of Agriculture in 1991 to help boost homeownership in rural areas. It comes with a number of great benefits, but not everyone is qualified.

What is a USDA loan?

A USDA loan is a home loan that is offered by the U.S. Department of Agriculture. It helps qualified people purchase, refinance, renovate or relocate a house. There are two types of USDA loans: direct and guaranteed. The former is provided by the USDA, while the latter comes from a third party, such as a bank.

  • Direct: These loans are generally meant to help low-income individuals buy homes in rural areas. The maximum loan term is 33 years, or 38 years for applicants whose incomes fall below 60 percent of the area median income (AMI).
  • Guaranteed: A guaranteed USDA loan is also for low-income individuals who need help buying homes in rural areas, but the loan term is only 30 years.

Why consider a USDA Loan?

A USDA loan can be a big help with financing a home if you qualify. Here are some of the major benefits this type of mortgage can bring::

  1. No down payment: The main draw for a USDA loan is that it does not require a down payment. This is great news if you are unable to afford the traditional 20 percent down payment that most other loans require. A USDA loan is actually the only type of mortgage that provides this benefit without restricting qualification to people who served in the military.
  2. Easier to qualify financially: The financial requirements for this type of loan are more relaxed than others. For instance, you can still be approved even if a lack of recent credit history has caused you to have a low FICO score.

Who qualifies for this type of loan?

Although financial requirements are more flexible, there are still other factors involved in qualifying for a USDA loan.

  • Low income: In order to be eligible for a USDA loan, there are actually income caps rather than minimums. For a direct loan, you must have a "very low or low" income under the USDA's standards. It defines very low income as below 50 percent of the AMI, while low income falls between 50 and 80 percent of the AMI. With a guaranteed loan, however, applicants can have an income of up to 115 percent of the AMI.
  • Housing standards: Your house must be modest in size according to the requirements for a USDA loan. The department classifies a home as modest if it is considered as such for the area, doesn't have market value above the applicable area loan limit and doesn't have certain prohibited features. Additionally, as mentioned, the property must be in a rural area, although the definition for rural is more inclusive than you might think.
  • Payments: You still have to be able to afford the mortgage payments in order to be approved for the loan, including taxes and insurance. However, subsidies are available if you need help.

If you would like help financing your home with a USDA loan, apply online at Thompson Kane today!