A Guide to USDA Home Financing

Posted by Unity Home Group® on Thursday, April 6th, 2017 at 6:30am.

Rural Home Financing Imagine wanting to buy a home, but having little in savings and no real way to come up with a down payment. Many buyers might think they have to come to terms with the idea that home ownership may never happen. What if there was a loan program that didn’t ask for any cash down and made buying a home far easier than you ever thought?

The United States Department of Agriculture has created a home financing program that provides potential buyers with the ability to purchase a home as long as they meet some specific criteria. The goal of the program is to promote individuals living in rural areas, so if the home a buyer is looking at is considered to be in an eligible area, they can begin the application process and move forward with buying their ideal home. Let’s explore how this loan process works and some of its key components.

USDA Eligibility Requirements

There are several components that are reviewed when it comes to USDA loan eligibility. Previously mentioned is the location of the property, which must be considered to be a rural area. The USDA website offers an address checker that will determine if the property in question is qualified.

More important than the property itself is the income information for the applicant. Each state is different and has a separate set of calculations, but in general the loan is designed to serve those with low or moderate incomes. Income will be used to determine how large of a loan the buyer will be approved for and can also dictate other terms like interest rates.

Just like with other home loans, credit score will play a factor as well as the debt to income ratio. Along with the household income, these items will be assessed by an approved USDA lender to calculate eligibility.

Other Considerations To Think About

The USDA rural home loan offers more than just the dream of homeownership to those with lower incomes. In most cases, individuals have little to no closing costs to worry about upon the completion of their purchase. Many times the interest rates available for this type of loan are extremely competitive as well.

Any home loan you apply for with less than a 20% down payment requires you to pay mortgage insurance, and the USDA home loan is no different. However, when buyers combine a lower interest rate along with nothing down and a reasonable home price, the payments for this type of mortgage may be surprisingly low.

There are a few guidelines, however. One of the last factors that makes the USDA loan a bit different is that there is a limit to the home price, which varies county by county and state by state. Essentially, a buyer cannot buy a mega mansion in a rural field and expect to pay nothing down. In states where home prices are higher, the USDA will take that information into consideration, yet on average they will approve loans up to around $250,000.

Giving People Hope For Homeownership

A low income or a small savings account shouldn’t hinder one’s ability to become a homeowner. As long as a buyer is comfortable living in a smaller town that’s considerably more rural, they have just as much of a chance of purchasing a home as anyone in a big city.

Remember that credit is still heavily considered with a USDA home loan, so those with poor credit scores or a very high debt to income ratio might experience a few more challenges during the process. However, once the application has been completed and the buyer closed on the sale, they may be pleasantly surprised to see how much money they’ve saved and how much house they can get for their dollar.

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