A USDA mortgage loan is a mortgage program administered by the United States Department of Agriculture to families earning low incomes in order to enable them to acquire homes in the rural areas. It is easy to obtain this loan than several conventional mortgages loan. The USDA mortgage loan can be used to acquire, rehabilitate or construct a house. This program was initiated to spur rural development and growth and also to assist middle and low income families to own homes. Since time immemorial, the US government has incorporated agricultural stimulus packages in its economic policies.
USDA partners with qualified local lenders to extend the mortgage product to eligible rural households. These loans have enabled thousands of middle and low income families to acquire homes at low interest rates and favorable loan terms.
The features of the USDA mortgage include, but are not limited to, 100% financing, flexible credit guidelines, low interest rates, no mortgage payment reserve requirements, loan amount allowed up to the maximum conforming loan limit in your area and no insurance on the mortgage loan. Additionally, seller concessions, grant funds or gifts are not restricted.
Benefits of a USDA Mortgage
The interest rates for these loans are very competitive making it easy for one to purchase a home. Moreover, eligible candidates are not required to make any down payments. Traditional mortgage lenders require people to make down payments of about 5-20%. The USDA mortgages are meant for middle and low income households who cannot raise the down payment required by traditional mortgage lenders. The terms of the USDA mortgage loan allow people to move into their homes with little or no money upfront.
The mortgage loans provided by USDA do not carry extra expenses such as mortgage insurance. In addition, the loan product offers 100% financing. USDA does not require amazing credit ratings like those required by traditional mortgage lenders. It is also important to note that a person may use alternative credit references such as utility, insurance and cell phone bills to build his/her credit profile if they do not have any through the three credit bureuas. The product also allows the rolling of closing costs into the loan in order to get rid of upfront costs. People who are eligible for the loan can use gifts or other acceptable means to offset the closing costs. The approval process for a USDA loan is not as complex and strict as the one for normal mortgage loans.
Eligibility for USDA
For one to be eligible for a USDA mortgage loan, he/she must meet the qualifications listed below.
Mortgage Property Guidelines
The loans are only available to people living in USDA approved rural regions. USDA approved rural regions include any property in a small rural society with a population of less than 10,000 residents, a property that is in the open country or rural in nature. Nonetheless, some parts of the country with a population of less than 25,000 residents may qualify for the mortgage loans.
For a long time, people have considered a USDA as a loan for farmers. This is not entirely the case. In fact, there are many USDA approved regions in US that are not situated in rural areas. These areas include regions hosting small suburban communities with a population of 10,000 to 25,000 residents.
USDA Income Eligibility
Given that a USDA mortgage loan is meant to help middle and lower income families acquire housing, there are some income restrictions set to ensure the loans are used properly. For any household to be eligible for the loan,the total annual household income must be less or equal to 115% of that area’s average median income. Households with income that is higher than this average are not eligible. Remarkably, households with annual income of between 50-80% may be eligible for a USDA Direct Rural loan. This loan product has longer mortgage terms, no third party lenders (USDA lends directly to the household) and better mortgage rates.
USDA Loan Credit Eligibility
Despite the fact that USDA mortgage loan has more lenient credit eligibility, one is required to have a credit rating that is above average (at least 620). People who are servicing debts or have experienced bankruptcies or foreclosures in the last 3 years are ineligible. Depending on the lender, people with credit ratings below 640 or with no credit may be eligible for a USDA mortgage loan. Some lenders may be lenient on people with stable incomes, consistent work history and unpaid debts resulting from circumstances beyond one’s control. Notably, some lenders allow credit ratings as low as 580.
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