What are USDA home loans, and do I qualify?
From interest rates and closing costs to credit history and insurance premiums, homeownership can appear daunting - especially if you operate on a fixed income. There are mortgage opportunities available, however, that can make the process of getting a loan and buying real estate easier and less intimidating.
It's called the Rural Development Guaranteed Loan Program. Backed by the U.S. Department of Agriculture, USDA home loans are geared toward borrowers with limited means and - as its title suggests - live in or hope to dwell in a rural location.
There are various definitions as to what "rural" actually means, but generally speaking, it refers to areas where the population is 35,000 people or fewer. So long as the property is within a USDA-RD designated rural area, you may be eligible for a USDA home loan.
There's an excellent chance the house you're considering falls within the USDA home loan footprint because rural climes cover approximately 97 percent of the nation's land area, according to the most recent estimates available from the U.S. Census Bureau.
Who qualifies for the USDA loan program?
It's difficult to say whether or not you'll qualify for this type of loan, mainly because lenders look at the whole package when determining approval. For example, they traditionally examine your income, debts, employment history and request a bank statement of available funds. Your debt-to-income ratio should be no higher than around 40 percent.
What credit score do you need for a USDA home loan?
Another core aspect of eligibility requirements is your credit history or credit score. Credit bureaus - Experian, TransUnion and Equifax - use credit scores to better analyze people's financial capabilities. Higher scores are the ideal and generally indicative of having paid bills off promptly and carrying manageable debt loads.
Much like qualifications, your credit score is evaluated in concert with other financial particulars, but most lenders require a FICO score of at least 640. The higher your score, the less you'll spend in interest should you be approved.
How does a USDA loan differ from a traditional mortgage?
For many years, a 20 percent down payment was standard operating procedure. That's no longer the case, as the National Association of Realtors says the average is around 5 percent for first-time home buyers. The down payment is perhaps the biggest distinction USDA home loans have compared to conventional - you don't need one at all.
There are a few other contrasts as well. One of which is the property must be owner-occupied so investment properties don't qualify. Also, your income can't be above a certain threshold, usually no more than 115 percent of the median income in your geographic area.
If you're looking to escape the city and enjoy the creature comforts from home on a budget, a USDA loan may be just the thing. Talk to your lender to find out more.