If you’re unaware of the USDA (United States Department of Agriculture) loan program then you aren’t the only one. This is due to the fact that it is a very specific niche product that only serves a small fraction of the housing market in the US. In fact, the majority of banks don’t even offer them. However, if you are an eligible rural or suburban home-buyer than you can utilize the USDA loan program for a no-money down financing on your mortgage.
What is a USDA Loan?
The full name of this program is the USDA Rural Development Guaranteed Housing Loan program, however it is better known as a Rural Housing Loan or a USDA loan. This type of loans is insured through the U.S. Department of Agriculture, and its biggest feature is the ability to obtain no-money-down financing. It allows you to finance the entire price of a home, while also gaining access to great mortgage rates. Besides that, Rural Housing Loans are very similar to a typical loan. Repayment schedules are normal, and closing costs are typically standard. There are also never any prepayment penalties. The main difference in these types of loans is in respect to the down-payment requirements, where there are typically simpler standards when it comes to loan approval.
Mortgage Insurance Requirement
In a similar fashion to the Federal Housing Administration’s FHA loan, the USDA utilizes mortgage insurance premiums that are paid by homeowners in order to ensure that the USDA program can continue. USDA mortgage insurance rates are some of the lowest on the market; in fact they are lower than both conventional mortgages and FHA loans.
How to Check If You Home is Eligible?
The USDA Rural Housing Program requires that your house be located in a rural region. However, the definition of rural can be pretty liberal. This means that many smaller towns qualify under the rural label marked by the USDA along with exurbs and suburbs of many major US cities.
Maximum USDA Loan Size
The amount that you are able to borrow from the USDA loan program is limited by the debt-to-income ratio of your household. Typically, the USDA limits your ratio to 41% unless your credit score is still over 660, you have a stable form of employment and you can demonstrate that you have the ability to save money in order to repay the loan.
Mortgage Products Available Under this Program
The Rural Housing mortgage loan is currently available in the form of a 30-year fixed-rate mortgage loan, as well as a 15-year fixed rate. Adjustable-rate mortgages are not available under this program.
Minimum Credit Score For USDA Loans
There is no minimum credit score necessarily needed in order to obtain a USDA loan. Generally a score of 640 is the cutoff point in which the USDA will approve your mortgage loan. If you have a credit score that is less than 640 than you should prepare to be able to explain the reason why your score is so low, and why you’ll still be able to repay the loan in a timely manner. If you don’t have a credit score than your USDA lender may accept another form of trade-line in order to establish a credit history.
Job Requirements of a USDA Loan
If you’re a W-2 employee then you will be eligible for a USDA loan right away, and won’t be required to provide your job history. However, if you’ve been working for less than two years at your job then you may not be able to utilize your bonus income in order to qualify. If you are self-employed then you’ll still be able to qualify for the USDA Rural Housing Program. You will be asked to give two years of your federal tax returns in order to very that you have steady income through self-employment.
USDA Mortgage Rates
USDA Mortgage rates are typically lower than any conventional fixed mortgage rate. Due to the fact that mortgage insurance rates will be lower because of the small down payment that is required, you can typically receive a better deal than any FHA or conventional loan. Also keep in mind that if mortgage rates drop then you’ll be eligible to refinance.