The USDA loan program is a government insured mortgage backed by the USDA / Department of Rural Housing. The United States Department of Agriculture (USDA) sets the lending standards for the program, which is followed by all USDA approved lenders, brokers, and banks across the country.
Also known as the “Rural Development” or “502 Guarantee” this program reduces costs for home buyers in rural and eligible suburban areas. USDA is one of the most cost-effective home buying programs in the U.S. today. Since its start in the 1940’s, the USDA Rural Development loan has helped well over 1 million home buyers obtain housing with little or no money down.
This program offers 100% home financing opportunities for those home buyers in rural classified locations. Furthermore, USDA is one of the only loan programs left today that allow home buyers to purchase a home with no money down in 2021. So, if you are looking to purchase on the outskirts of town, this may be a great option for you. Below we will discuss the advantages of the USDA loan, USDA qualifying standards, and how to apply for a USDA loan.
First The Advantages of USDA Financing:
- Finance up to 101% of the appraised value (not the sales price). Primary residence homes only.
- Very low monthly mortgage insurance – especially when compared to FHA or Conventional loans.
- Middle credit scores at or above 620 required.
- Interest rates are fixed 30-year terms, currently in the mid 3% range.
- No loan amount or purchase price limits.
- Home seller can pay buyer closing costs up to 6% seller concession.
- Buyers can also receive gifts and put money down if they choose.
- The buyer is not required to be a first time home buyer.
Important USDA Requirements Home Buyers Should Know:
- The applicant must be a U.S. citizen or permanent resident.
- The applicant’s total debts must be lower than 42 % of their total monthly gross income.
- The applicant’s mortgage payment along with his insurance and tax should not exceed 29% of their total monthly income
- The applicant’s adjusted yearly income should not exceed the moderate-income limit that exists per your county. Buyers can see read more about 502 Guaranteed USDA income limits here. Additionally, the income of all the other adults in the applicant’s home should be included in the total income of the household. Any additional adjustments to the applicant’s gross income such as the costs of childcare must be incorporated so that they meet the eligibility requirements.
- The applicant must either have adequate income or should have a dependable. Generally, two-year employment history is needed.
- It is important that the applicant has a good credit history with a min 620 credit score.
- The home being purchased must be in good working order and be located in a USDA qualified location. Learn more about how to find USDA approved homes here. Single-family homes, townhomes, condos only, no manufactured homes. Don’t be concerned about who is selling the home, more about where the home is located. The good news is many locations you wouldn’t think are “rural” still qualify.
How To Apply For USDA Loan:
The USDA application process is very simple. Applicants are often surprised they can get pre approved and start searching for a home all on the same day. Some things you will need before you start your USDA loan application:
- First, you want to make sure you have your most recent pay stubs and bank statements.
- Know your living history and employment history for the last 2 years. This includes past addresses and phone numbers.
- Contact USDA Mortgage Source or call ph: 800-743-7556
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