The United States Department of Agriculture has its own home loan program. It allows people in rural areas to get on the property ladder. If you think you may qualify, this article will provide everything you need to know.
What is a USDA Loan?
USDA home loans are for people in rural, low-income areas. They could provide you with a means of home finance if you have not been able to qualify for a conventional one. It is primarily for people who are living in unsafe spaces, providing access to adequate accommodation. There are two main options, known as a guaranteed loan or a direct loan. Both require no down payment.
Guaranteed USDA Loan
A guaranteed USDA loan is a federal guarantee of a mortgage through a commercial bank. The USDA will guarantee 90% of any mortgage taken through this method. Only a loan guarantee fee must be paid which is equivalent to 1% of the amount being borrowed, which can be fulfilled by the lender. Borrowers must pay a nominal sum of 0.35% per annum as a fee.
Direct USDA Loan
These loans are not from commercial lenders, but direct from the USDA themselves. They are for extremely low-income borrowers. An average loan term is 33 years but they can be as long as 38. Interest rates vary, but they can be as little as 1% in exceptional cases.
Who is eligible for a USDA Loan?
There are some eligibility requirements for a USDA home loan. For example, there are USDA income limits in place. This is because they are for people who have the lowest income. If you have a substantial or even moderate income, then you may not be accepted. Income limits can differ depending on the area you are located in.
However, the definition of rural is much broader than you may think, so it is worth checking both your income limits and location. A rural area is classed as somewhere with a population of 35,000 or below.
You must also not be qualified as a delinquent and be on any federal debt. The other criteria for acceptance depend on if you are applying for a guaranteed or direct loan.
Applying for a USDA Loan
When you apply for a guaranteed loan, you need to get your debt-to-income ratio down. However, if you can prove that you are meeting financial obligations you may still qualify. This is also a factor when it comes to credit scores. You may be more likely to get a loan if your credit score is good, but even those with low credit scores can qualify if they can show how they will repay loans.
Generally, your income must not be more than 115% of the median income for the area you are in. You must be able to show income from an occupation over the past year. This can be seasonal, self-employed, or a traditional income. The home and property being financed must be in a rural location, not have a swimming pool, and be of a modest size. You must also not qualify for conventional finance options.
When it comes to a direct loan, the criteria for passing are very similar. However, there are some other factors included. For example, if you have a high debt-to-income ratio but a lot of that is down to housing costs, special considerations are made. There are also bigger restrictions on the type of house that can be bought, including its size and if it can be subdivided.
If you think you qualify, then get in touch with the United States Department of Agriculture and do some research. These loans have been around for some time and will not go away. If you have to spend six months improving your finances to get one, then start now. It could be a great way to get finance for your next home.
