With the alarming rate at which it is becoming increasingly expensive to secure homeownership in the United States, many residents and citizens are usually skeptical about owning a home! Many say, “I wish to own a beautiful home, but it is freakishly expensive!” Well, worry no more because this is the problem USDA loans are here to solve.
USDA loans have been in place for quite some time now, but not many know how to harness this program to their advantage. USDA loans are in place to make rural homeownership very affordable to everyone. These loans are government-insured, and you can get them with an amazing 100% financing even though closing costs and fees may still apply. USDA stands for United States Department of Agriculture; this department of the US government insures the loan. Homebuyers can go directly to the USDA and do a USDA Direct Loan, or they can work with a private lender and do the USDA Guaranteed loan. If you want to buy a home with little to no money down, the USDA loan is a great option.
The benefits of USDA loans cannot be overemphasized for the particular purpose of its establishment. One, No Down Payment. Amazingly, you do not need to make a down payment to get this loan. This makes it easier to own a home within a short period of the application process: two, No Strict Credit Qualification(s). There is no minimum credit score requirement for USDA loans, unlike other mortgage loans, but requirements vary according to each lender. One can qualify for a USDA loan with a credit score as low as 620! But in this case, the loan would have to go through manual underwriting. Three, Low Mortgage Insurance Score. As typical in many mortgage loans, you will most likely have to pay mortgage insurance for USDA loans. But good news! The cost is relatively minimal compared to other mortgage loans.
By now, you must be thinking of how to get eligible for this fantastic opportunity to own a home! To qualify for a USDA loan, you have to make sure that the property you have in mind is in an eligible area. The restrictions vary according to the geographical location, but generally, it needs to be in a rural area. The intended property must be owner-occupied, and only one-point homes are eligible. To make the process faster and your work easier, you can ask for the help of your loan officer in finding out your eligibility for the particular property. First-time home buyers are usually poised for USDA loans, but you DO NOT have to be one to qualify for a USDA loan!
Let us compare USDA loans with the other loan types available to see the advantages you stand to gain by going for USDA loans.
When it comes to the loan limit, USDA loans do not have a fixed loan limit because it depends on the county in which the intended property is located; it is county-dependent. The US Department of Veterans Affairs (VA) loans are limited when it comes to loan limits; it has a fixed limit of $1,500,000. Conventional loans are also fixed when it comes to loan limits; they limit $548,250 and $822,375 for high-cost areas. And as for Federal Housing Administration loans, the loan limit is $356,362 and $822,375 for high-cost areas.
When it comes to Loan Type, USDA loans have a flat fixed rate. VA loans have both fixed-rate and 5/1 Adjustable Rate Mortgage (ARM). Conventional loans have fixed-rate loans, Adjustable-rate mortgage loans, Lender-paid Mortgage Insurance loans, and HomeReady and HomePossible loans. Federal Housing Administration loans have loan types that are the same as those of VA loans.
When it comes to Down Payment, USDA loans have a “low to none" system; this means that you do not necessarily have to make a down payment here. The same applies to VA loans, but it is still subjected to closing costs and fees here. Conventional and FHA loans both have minimal down payment systems.
As for Seller Contribution, a seller in a USDA loan contributes up to 6%, the same as FHA loans. In VA loans, seller contribution is up to 4%, while in Conventional loans, it is based on the Loan-to-value ratio.
The credit score for USDA loans is 620 and above, the same as conventional loans. In VA loans, the credit score is 580 and above, while FHA loans are 500 and above.
For occupancy requirements, USDA, FHA, and VA loans require owner-occupied properties, while conventional loans can take owner-occupied, second homes, and investment properties. The Debt-to-income ratio of all four loan types is 50%. For Mortgage Insurance, USDA loans require a guarantee fee and monthly MIP (Monthly Insurance Payments). VA loans have no MIP requirement. In Conventional loans, there is a possibility of Private Mortgage Insurance (PMI) depending on the peculiarity of your down payment. FHA loans require both an Upfront funding fee and a monthly MIP.
It is quite evident that the fact that the loan limit of USDA loans is county-dependent and the down payment is low to none makes it very flexible and advantageous, especially if you are looking to acquire an affordable home in no time at all. USDA loans are not only good for buying a new home; one can use them for a cash-out refinance. This way, you can use the cash you get to cater for your major expenses or reinvest it in your home, and also have the opportunity to shorten your loan term and/or get a lower rate. For extra flexibility, there is also a version of USDA loans that can secure manufactured homes that can benefit your business.
USDA loans are very good and affordable house financing options, especially with flexibility. You get to examine and choose the option that suits your unique need(s). Contact us at Primary Residential Mortgage, Inc. (PRMI) to check if a USDA loan is right for you! As an extra perk, we also offer home refinancing consultations that are unparalleled!
Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.
