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Most home buyers will explore all of their lending options before making a decision. Did you know that there may be special programs available to you that can save you a lot of money if you qualify? One such mortgage option to look into is a USDA Home Loan.
What is a USDA Home Loan?
The United States Department of Agriculture (USDA) offers government-backed real estate financing programs that offer a number of great benefits to qualified borrowers (much in the same way that VA Loans and FHA Loans do). Here’s what you need to know about USDA Home Loans.
The USDA Rural Development’s Single-Family Housing Guaranteed Loan Program (we’ll just called it a “USDA Home Loan” for short) is designed to help borrowers who have low-to-moderate incomes and live in more rural parts of the country. They can be beneficial for first-time home buyers, as well as for those families looking to move up into a larger home. Qualified USDA loan borrowers can actually receive up to 100% financing, often with lower-than-average interest rates.
Which Properties Are Eligible for a USDA Loan?
The USDA started this program to encourage more home buyers in rural areas and upcoming communities. We say “upcoming communities” because the homes purchased don’t always have to be in rural locations. You don’t have to live in the sticks to qualify for a USDA Home Loan. In fact, there are some properties around cities like Atlanta that are eligible!
You can click on the link below to perform quick eligibility check and see what homes meet current USDA guidelines.
Benefits of a USDA Home Loan
If you and the single-family home you want to purchase qualify, you can experience a number of key benefits:
- Potential to own more land
- No money down (100% Financing Options)
- No private mortgage insurance (PMI)
- Seller can pay up to 6% of closing costs
- Common sense underwriting
- Lower credit eligibility requirements (640+)
- Generous debt-to-income (DTI) requirements (as high as 45%)
Like with any mortgage loan, you’ll want to understand the benefits of a USDA Home Loan and the other factors that are important. Though 100% financing is available to qualified borrowers, putting some money down can improve your mortgage rates and other terms even more. The same goes for having a higher credit rating, low debt-to-income (DTI) ratio and solid proof of employment/income. The stronger your financial situation is, the better loan terms you will get. A USDA loan may allow you to afford a bigger piece of land for the same price you may be paying for an urban or suburban home. It is a great option for certain buyers who seek a more rural lifestyle.
What Documents Do I Need for a USDA Mortgage?
Before you apply for a USDA Home Loan, you will want to have all your documentation in order. You will also want to check the property eligibility requirements using the USDA Eligibility Map linked earlier. Here are some pieces of paperwork you will want to gather:
- At least 30 days’ worth of pay stubs
- At least 2 years of W2s
- Last 2 years of tax returns (if self-employed)
- Most recent bank statement (all pages)
- Purchase contract (if executed)
- Proof of timely payments for any child support or alimony
- Any other specific documents required by your USDA mortgage adviser
If you have experienced a major negative credit event such as a bankruptcy, foreclosure or short sale, you may be subject to a specific waiting period before you can apply for a USDA Home Loan. It’s also important to know that these loans are intended for primary residences, so they cannot be utilized for second homes or investment properties.
If you have questions about USDA Home Loans or want to get started on your loan application and pre-approval for this excellent mortgage program, contact us today!