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USDA Loans

Background

In 1991, the United States Department of Agriculture (USDA), established the USDA Home Loan Program to provide affordable housing opportunities, promote prosperity, and improve the quality of life in rural America. Fortunately for homebuyers, “rural America,” for purposes of the USDA Home Loan Program, is 97% of the geographic landmass of the United States.

About USDA Home Loans

The USDA Home Loan Program, also referred to as the USDA 502 Guaranteed Rural Housing Loan Program, is designed for individuals and families with moderate or low incomes. “Moderate or low” are broad terms and people are often surprised how high the “moderate” income range extends. By offering a zero down payment home loan program with great terms to these individuals and families, the USDA makes the dream of homeownership accessible and affordable for tens of thousands of Americans annually. The USDA Home Loan Program is also designed to benefit rural America and is only available for homes purchased in designated areas of the country. Fortunately for the masses, 97% of the geographic United States of America is designated as “rural” for purposes of the USDA 502 Guaranteed Rural Housing Loan.

Benefits of USDA Home Loans

NO DOWN PAYMENT
The government has a vested interest in the affordability and stability of housing opportunities in America.  The USDA Home Loan Program accomplishes this object by offering a large percentage of Americans the opportunity to own a home with ZERO down payment.  With the USDA Home Loan Program, Americans no longer have to waste years of rent payments as they attempt to save tens of thousands of dollars for a home down payment, you can purchase a home now with great terms.  Note, the only other “no down payment” program is reserved for military veterans – another group of Americans the government has a vested interest in.
LOW INTEREST RATES
Surprising to most people, USDA home loan interest rates are often lower than even 20% down conventional loans.  A large reason for this is that the government guarantees/insures 90% of the value of USDA mortgages in the event of a default, mitigating significant risk for the lender.  Due to this fact, lenders can provide the loan with no down payment, and attractive interest rates and terms for borrowers.
CLOSING COST OPTIONS
There are closing cost with all mortgage loans, the difference from program to program is the options for addressing them and how much they can be.  As you can guess, high cost and unreasonable terms would be counter the government’s objective of providing affordable/reasonable housing opportunities through the USDA Home Loan Program.  Accordingly, the government has set cost thresholds for USDA home loans and provided several ways for homebuyers to address closing cost.  Homebuyers can receive seller contributions toward closing cost, receive gifts from families, finance cost in (when home value supports), and/or simply pay out of pocket.  It is common for homebuyers using the USDA home loan to pay nothing out of pocket at closing.
REASONABLE CREDIT CRITERIA
Like any mortgage program there are credit qualifications, but the government created the USDA Home Loan Program to provide accessible homeownership opportunities – not make housing unobtainable.  The credit standard for USDA home loans is no more restrictive than FHA mortgages, and less rigorous than conventional mortgages.  Every credit history is different, but simply put, you don’t need perfect credit to purchase a home with a USDA home loan.
GENEROUS INCOME LIMITS
The most common misunderstanding about USDA Home Loan Program concerns income qualifications.  To qualify for a USDA home loan, a homebuyer’s household income must be under an applicable “income cap” at the time of purchase.  People are frequently surprised to learn how generous these income caps are.   While these income caps are based number of household members, and vary from county to county, the lowest county household gross income cap in the country is $75,650 (1 - 4 person households) and $99,850 (5+ person households).  Some county caps are as high as $110,750 (1 - 4 person households) and $146,200.00 (5+ person households).  There are also a number of compensating factors that may increase/benefit your applicable “cap” (i.e., number of children, child care expenses, etc.), which our team of specialist will evaluate with you.
GEOGRAPHIC ELIGIBILITY
Because the United States Department of Agriculture (USDA) is associated with farming, people often believe that the USDA Home Loan Program is only available in “rural” America.  This is true and false.  It is true because the mortgage program was established for the stability and prosperity of “rural” America.  It is false because “rural” America for purposes of the USDA Home Loan Program is 97% of the geographic United States.  Our team of specialist will be happy to evaluate whether the area you are seeking a home in falls within the 97% of areas that qualify for a USDA home loan.
NOT JUST FOR FIRST TIME HOMEBUYERS
Likely due to the incredible benefits (i.e., no down payment, great interest rates, fixed terms, etc.), many people mistakenly believe you must be a first time homebuyer to take advantage of the USDA Home Loan Program.  Of course this is incorrect and many homebuyers that could have obtained the USDA home loan when purchasing their next home settled for a less favorable loan.   The USDA home loan may seem like the kind of mortgage you can only get once, but as long as you are purchasing your primary residence and you meet the other program qualifications/criteria, you can use the USDA mortgage to purchase your first home or your 10th.

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