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When considering buying a home in the U.S, there are several ways for prospective homebuyers to finance their new purchase.
One common option is a USDA mortgage loan. In this article, we'll cover the basics of a USDA home loan, who qualifies, and the pros and cons of choosing one.
USDA home loans are mortgage loans geared towards low-to-moderate income individuals offered by the U.S. Department of Agriculture. These loans make homeownership more accessible to Americans who may not qualify for a traditional mortgage due to income or credit history.
One of the biggest differences between a USDA loan compared to a traditional mortgage is that it can only be used to purchase rural property and doesn't require a downpayment.
USDA loans can also be used to finance building a home or making repairs.
There are three different types of USDA loans available and each one works a little bit differently.
Section 502 direct loans are lent directly to homeowners by the USDA. They do not require a downpayment and have rates that are as low as 1%. Depending on your financial situation, the loan term can range from 33 to 38 years.
Guaranteed loans are similar to direct loans, but they are provided by private lenders. They also have a guarantee fee that is paid as part of the monthly mortgage payment - similar to mortgage insurance.
Like direct loans, no downpayment is required and can cover up to 100% of the appraised value of the home. The interest rates are determined by the lender but are always 30-year mortgages with fixed rates.
Section 504 home repair loans can be used to help update a home, fix structural issues, or fix any safety issues. Some common uses for these loans are to help connect a home to a sewage system, insulation, or heating/cooling. These are typically only available for necessary home repairs, so you can't use this loan to install a pool, for example.
As of the date of the publishing of this article, Section 504 home repair loans are limited to $20,000 and can be paid back over 20 years. The interest rate is 1%.
USDA home loans have several property requirements and eligibility criteria.
Each type of loan has slightly different qualification requirements, but they typically include:
The property typically must be:
USDA loans are a good option for homebuyers who have relatively lower incomes. They have little to no down payment requirement, making it possible for those with few savings to purchase a home. There are also other grant and payment assistance programs available to eligible homebuyers taking out a USDA loan.
However, USDA loans have very specific location and income requirements. They are typically only available in rural areas with smaller populations. If you're not able to live in an eligible area or don't fit the income qualifications, USDA loans may not be the right fit for you.
We hope this article was of value to you. For more great tips, bookmark our site and for all your mortgage needs, visit the A Team at TMFFMS.
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