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USDA Mortgages – Raising funds to buy a house can be hectic, especially when the down payment required is high. It doesn’t matter whether you’re a first-time homebuyer or a seasoned one; Acquiring a new house can be a source of stress. However, this doesn’t always have to be the case.
Currently, homebuyers today have a wide range of low- and no-down-payment loan options to choose from. For example, the USDA loan, which allows for 100% financing with no money down, is one of the most neglected little down payment mortgages.
The USDA loan, also known as a Section 502 loan, is a government-insured mortgage designed to fuel home ownership in less populated areas of the country. The term “less populated”, or “less dense” refers to rural areas across the country, as well as a vast collection of suburban areas.
What’s more, USDA loans are available throughout 97 percent of the United States. As such, there’s a good chance the home you’re looking to buy will be eligible. However, this does not mean that you have to reside in a rural region to qualify for a USDA loan.
USDA Mortgages – The Advantages of Taking a USDA Mortgage Loan
USDA mortgages are popular among first-time home purchasers across the country. Well, this applies to those who are aware of the program. USDA loans are popular because they provide 100 percent financing and lower mortgage rates. Besides this, they come with a lesser mortgage insurance premium when compared to many reduced-down payment loans.
That said, let’s take a look at each benefit individually.
1. No Down Payment is Required
First, the USDA home loan program allows you to purchase a home without paying a deposit. The USDA loan is one of two mortgage programs that do not need a down payment. The other option is a VA loan, which is only available to military personnel.
Remember, you don’t have to borrow 100% of the purchase price with USDA mortgages, but you can. In addition, you have the option of making a large or modest down payment.
2. Cheaper Mortgage Rates
Apart from requiring no down payment, USDA loan program participants get access to cheaper mortgage rates than the general public. USDA mortgages actually outdo some of the most impressive mortgage rates in today’s real estate market.
They come with rates as low as 40 basis points which are 40% lower than comparable standard mortgage rates. Furthermore, USDA mortgages have lower mortgage rates than other loans since they are insured by the US Department of Agriculture.
3. Less Costly Insurance Fees
The mortgage insurance rates on a 30-year fixed-rate USDA loan are less than half of what you’ll find with FHA mortgage insurance. In addition, it is up to two-thirds of what you’ll find with private mortgage insurance on a personal loan. As a result, USDA mortgages are less expensive than their competitors and need less money up front.
How to Know if You Qualify For the 100% USDA Loan
A house buyer must go through the same approval process as any other residential mortgage loan type to qualify for a USDA loan. In addition, USDA mortgages are only available in locations with a low population density. This means you won’t be able to get a USDA loan to buy a condo in a city. However, the program can be used in rural locations as well as in U.S. suburban subdivisions.
The population density standard makes 97 percent of the United States citizens eligible for this mortgage loan. Moreover, the household income is the subject of the second supplementary verification. This is because the USDA mortgage program is only for low-income families. Keep in mind that the USDA’s definition of “low-income” differs by U.S. county and household size.
Here’s an example of how the USDA income restrictions differ depending on where you live and how big your family is:
- In Cincinnati, OH, a modest salary for a two-person household is $82,000.
- In Los Angeles, CA, a 5-person household has a modest income of $129,600.
Check your average household eligibility with a USDA Income Limit Lookup.
As the last step, the USDA will confirm that the home you’re planning to buy will be your principal residence and that it’s a single-family home. This means that you cannot use this loan to buy a multi-unit home or a condominium. In addition, second homes, vacation residences, and rental properties are not eligible for USDA mortgages. As such, you must reside in the house that you are buying and financing.
What Do You Do If Your lender Does Not Offer USDA Loans?
USDA loans are government-backed and readily available for both first-time and experienced house buyers. Unfortunately, these loans are not available from every bank. This is because, in comparison to similar loans, the USDA loan is a relative newcomer.
For example, banks have been offering FHA loans since 1934. Secondly, VA loans have been on offer since 1944 while most other loan options have been available since 1970. USDA loans, on the other hand, were only made accessible in 1994, and their use was restricted to rural regions for the first few years.
In addition, when the USDA loan scope was expanded to encompass suburban regions across the country, receiving a 100 percent mortgage wasn’t so uncommon. This is because mortgages that required no down payment were already available.
Therefore, the development of the USDA home loan scheme and the shift in mortgage lending in the United States is very recent. As a result, banks have only recently begun to include the USDA loan in their offerings. If your present bank does not offer the USDA 100 percent loan, you might want to try another bank. There are a lot of USDA-approved institutions all around the country. It should be straightforward to obtain one.
Are you looking for an affordable mortgage to buy a house in a suburban area? Consider applying for a USDA loan and enjoy the 100% financing rate!