If you’re in the market for a home, you may be interested in a USDA loan. They’re a great option for first-time buyers and people on a budget. But there are some limitations to their use, so you should understand what you can and cannot qualify for before you apply.
For starters, you must be a legal resident of the United States. You must have a credit score of 640 or higher. And you must have a property in a rural or suburban area that meets eligibility requirements. Then, you must have a household income of less than 115% of the average median income of your area.
Applicants must have proof of income, and if there are any dependents, they must also be listed on the application. In addition, the applicant must not be able to obtain a conventional loan from another source.
A USDA loan can be used to purchase a home, or it can be used to refinance an existing home. However, the program is designed to help low-income people buy homes in rural areas, so it has restrictions. It doesn’t allow cash out, and it has a maximum loan amount of $20,000.
Despite these limits, it can be a good option for first-time buyers or people on a budget. Many applicants don’t have the credit history necessary to qualify for a conventional loan, but they can still qualify with “nontraditional” credit references such as rental payments and utility bills.
The USDA loan’s minimum credit score requirement is a bit lower than that of an FHA loan. However, you may still have to undergo a more stringent manual underwriting process if you have a score that’s below 640. Some lenders will even require you to provide alternative credit verification, such as a rental payment history or insurance payments.
Unlike other types of loans, the USDA loan requires no down payment. It’s backed by the USDA, so you don’t have to worry about losing your home if you don’t make the mortgage payments. Plus, the USDA’s mortgage insurance is cheaper than other types of loans, so you’ll pay a lot less in the long run.
While you’re not obligated to get a USDA loan, you’ll be glad to know that the interest rate is fixed at 1% for the life of the loan. That’s much better than the rates you’d pay on a conventional loan. Having that lower interest rate can save you tens of thousands of dollars over the life of your mortgage.
Another advantage of getting a USDA loan is that you won’t have to pay an upfront guarantee fee. This is the government’s way of ensuring that you’ll be able to pay back your loan. Your monthly guarantee fee will be bundled into your mortgage payment, so you won’t have to worry about making extra payments.
When you’re considering a USDA loan, be sure to shop around. There are hundreds of different lenders across the country, so you can find one that will help you reach your goals.