USDA Home Loans
The USDA loan is also known as the USDA Rural Development Guaranteed Housing Loan Program. Like FHA and VA loans, USDA loans are backed by the government: specifically, the U.S. Department of Agriculture. Originally designed to help provide a mortgage alternative to rural property buyers with limited financing options, USDA loans are used today as a viable mortgage option for people who want to live away from urban areas.
What is a USDA Home Loan?
A USDA home loan is a government-backed mortgage designed for low- to-moderate-income borrowers in rural and suburban areas. It offers benefits like no down payment, competitive interest rates, and lower mortgage insurance costs, making homeownership more accessible for eligible applicants.
Advantages of a USDA Loan
May Not Need a Down Payment
The USDA loan comes with 100% financing. You don’t need to make a down payment, which can often be a big obstacle for first-time homebuyers.
Very Low Interest Rates
Because the loan is guaranteed, Midwest BankCentre offers a lower standard interest rate.
Low Monthly Private Mortgage Insurance
As of October 1, 2016, the upfront mortgage insurance rate on a USDA loan is just 1%, with an annual fee of only 0.35%, the lowest number of virtually any mortgage financing program. The upfront fee can also be rolled into the loan, eliminating an out-of-pocket expense at closing.
Flexible Credit Guidelines
Borrowers with lower credit scores or less than perfect credit history can often meet the program’s qualifying guidelines.
USDA Loan Restrictions and Eligibility Requirements
1.
Eligible Geographic Areas
To obtain a USDA loan, the property you buy must be in a USDA-designated rural area. Almost 97% of the U.S. is eligible, which includes small towns and suburbs. The USDA mortgage-eligible area requirement map will show you where you can use this loan.
2.
Income Limits
The USDA loan was originally designed for low- to-moderate-income borrowers. The program’s guidelines define income level as being up to 115% of the area’s median income. For lower-income buyers, all of a household’s income is considered during the application process, which helps increase eligibility.
3.
Length of the Loan
The Midwest BankCentre USDA loan is a 30-year fixed rate loan, with low and affordable monthly payments.
USDA’s Rural Housing Service (RHS)
The USDA’s Rural Housing Service, a Department of Agriculture division, administers several housing programs. These programs are designed to improve rural communities by offering affordable, decent housing. Specifically, they offer loans for low- to moderate-income individuals who are buying a single-family home or renovating an existing property.
The USDA offers two types of Section 502 loans: the Single-Family Direct Loan and USDA’s Rural Housing Service Single-Family Housing Guaranteed Loan. They are similar programs but serve different purposes. Single-family housing guarantees are designed for low-to-moderate-income households in rural areas. However, this USDA loan program is not appropriate for all applicants.
Both loans require that the purchasers meet income requirements, and the property must be in an eligible area. While USDA does not set a maximum loan size, there are restrictions to income, property location, and debt-to-income ratios. USDA prefers to see a debt-to-income ratio at 29/41%, but if the applicant has a high credit score, or other strengthening factors, the program may be more lenient. If you are a repeat buyer, you can take advantage of this USDA loan program, and USDA offers a list of approved lenders.
USDA’s Single Family Housing Guaranteed Loan Program
To qualify for a USDA-guaranteed loan, borrowers must have a household income of 115% or less of the area median income and show the ability to repay the loan, with alternative credit history proof acceptable. Applicants must use the property as their primary residence.
They need to work with an accredited lender who will determine eligibility and guide them through the application process. A good credit history, steady employment, and no recent history of bankruptcy or repossession are required. Self-employed applicants must provide two years of income records, while year-round employees need one year’s worth.
USDA’s Direct Loan Program
The USDA Direct Loan Program for single-family housing offers low-interest, low-fee mortgages with no down payment required, making it a great option for individuals, nonprofit organizations, or federally recognized tribes. These loans, backed by the federal government, have strict income eligibility requirements and accept applicants with low credit scores.
The loan amount you qualify for depends on your income, and an eligibility tool considers factors like monthly income, debts, household composition, property taxes, and insurance. Despite the strict guidelines, this program can help you purchase a home with minimal upfront costs.
FAQs
Our FAQs cover key topics, including eligibility criteria, property requirements, and loan limits. Whether you’re buying your first home or relocating to a rural area, we’re here to help you understand how USDA loans can make homeownership more accessible. If you have additional questions or need personalized assistance, our mortgage specialists are ready to help.
Who is eligible for a USDA home loan?
To be eligible for a USDA loan, you must have low-to-moderate- income, meet creditworthiness standards, and purchase a home in a USDA-designated rural or suburban area. Additionally, the home must be used as your primary residence, and income limits vary by region.
What are the property requirements for USDA loans?
For a USDA loan, the property must be located in a USDA-designated rural or suburban area and serve as the borrower’s primary residence. Additionally, the home must meet certain safety and habitability standards, and it cannot be used for income-producing purposes.
What credit score is needed for a USDA loan?
While there is no official minimum credit score for a USDA loan, a score of 640 or higher is generally recommended. This score helps streamline the approval process, though individual lender requirements and additional factors also play a role in eligibility.
Are there loan limits for USDA loans?
USDA loans do not have strict loan limits like some other government-backed loans, but they do have guidelines based on income and the property’s appraised value. The loan amount must be within what the borrower can afford, considering their income and debt-to-income ratio.
Apply for a USDA Home Loan Today.
Ready to buy your dream property in the country? Apply for a USDA home loan online, or call one of our mortgage specialists for assistance. We’re can help you decide if a USDA loan is right for you and guide you through the entire process.