USDA Loan Programs for Homebuyers
USDA offers two excellent USDA loan programs with great low fixed rates for helping home buyers in rural areas. The requirements and guidelines for both the programs are quite flexible and accommodating. Read through the overviews presented below and choose the best program that best suits you and your family.
USDA Loan Program Information
A USDA Guaranteed loan from USDA can it make extremely affordable for buyers of single-family residential homes in eligible rural areas around the country. The flexible and extremely generous USDA guidelines are aimed at helping lower to middle income rural families achieve their american dream of owning a house of their own. If you qualify, you can take advantage of the numerous benefits associated with USDA home loans.
Under the USDA Rural Development loan programs, local lenders provide financing up to 100% of the purchase price to qualifying home buyers on properties located in rural areas. The property eligibility depends on the type of dwelling and its condition. Safe and sanitary single homes should be able to easily meet the required criteria for properties. Over the years, USDA through its guaranteed loan programs has been able to assist thousands of homeowners reach their home ownership dreams by providing highly flexible and affordable interest rates and mortgage terms.
USDA Loan Property Eligibility
The residential single-unit property to be purchased must be located in an eligible rural area as designated by USDA. Once the property eligibility is met, a prospective home buyer must meet the income conditions. To get a USDA guaranteed loan, the entire household income must not exceed the limits established for the rural area in which the property is located. In addition to the mandatory property and income criteria, a number of other steps must be taken to qualify.
Most rural home buyers opt for USDA home loans as they allow to buy a home without any need for down payment The entire 100% of purchase price can be financed along with the guarantee fee. The mandatory USDA loan guarantee fee can be rolled into the mortgage loan amount as long as the appraisal value of the property supports the purchase price plus the fee amount. It can be said that USDA loans are the only true no down payment loan programs for single-family residential home owners right now.
Unlike the conventional home loans underwritten by lenders working with Fannie Mae and Freddie Mac, a loan guaranteed by USDA allows for extremely credit qualifying requirements. A buyer without sufficient credit history may also use non-traditional sources of credit history to establish their credit worthiness.
The rate and terms on a USDA guaranteed loan are quite simple. Unlike the wide range of confusing and complex loan programs from traditional residential mortgage lenders, a USDA loan is always a 30-year fixed rate loan. The interest rates are generally comparable to the prevailing market rates for 30 year loans.
Debt to Income Ratios
The total Debt-to-Income (DTI) payment ratio should not exceed 41% of the borrower’s income. The portion of income going towards housing expenses must also not exceed 29% of the household’s gross income. USDA does allow lenders to extend loans to rural home buyers provided there are compensating factors that can justify such an exception to the debt guidelines.
The maximum loan amount that can be guaranteed depends on the debt ratios and eligible income. A USDA lender may approve a loan as long as these numbers stay within the limits after factoring for the purchase price. If your income justifies a higher purchase price, definitely go for it.
In addition to existing residential dwellings, new constructions, Planned Unit Developments, Condos, modular and manufactured homes are eligible properties for a USDA loan. The amount need to do eligible repairs and improvements may also be included into the loan amount. Closing costs including the guarantee fee can be added to the final loan amount as long as the appraisal value comes in at a sufficient level to account for the additions.
Seller concessions along with grants and gifts are allowed in most of the cases. In addition to first time home buyers, prior homeowners are also eligible for a USDA guaranteed rural home loan.
In order to get started, make sure your income falls within the designated limits for the area in which the property you intend to purchase is located. After that contact a local USDA approved lender to get started with pre-approval.
USDA Direct Loans
In addition to guaranteeing rural home loans originated by approved lenders, USDA also provides housing loans directly to very low or low income individuals and households buying properties in rural areas. These USDA direct home loans can be used for a number of purposes such as for building, repairing, renovating or relocating an existing home, or for purchasing and getting sites prepared with all basic necessities.
Who is Eligible for USDA Direct Loans
In order to qualify for a direct loan through USDA’s Housing and Community Facilities Loans (HCFP), the applicant must fall either in the very low or low incomes. A borrower is considered to be in the very low income group if his or her income is less than 50% of the prevailing median income for that area and to be considered as belonging to the low income group, the income should fall in the 50 to 80 percent range of the AMI. The income limits set by USDA for the direct loan program can be found on the Rural Development website.
Families must be able to afford the new mortgage payments, including taxes and insurance. An evaluation of income and credit is necessary for approval, though payment subsidies and extended terms are offered for applicants with inadequate finances. A low income borrower having difficulty obtain credit financing or access to adequate housing facility while having reasonable credit history can apply for a USDA direct loan to purchase a new home in an eligible rural area.
Standard 502 Loan Terms
The USDA standard 502 loans allow 33-year and 38-year extended loan terms depending on the income and affordability of the borrower. Those borrowers whose income is less than 60% of the Average Median Income and unable to afford 33-year payments, can opt for 38-year loan terms. Unlike guaranteed loans, direct loans carry interest rates that are based on the government’s cost of funds. The payment subsidies offered by USDA can help lower the amount of money that a borrower pays monthly. For manufactured homes, the maximum allowable loan term is 30 years.
USDA Direct Loan Property Eligibility Standards
The residential property must be modest in all aspects. Its design, size and cost must be considered modest for the local area, and the value must be less than area’s loan limit. The house must also not have any features disallowed according to USDA property guidelines. All homes to be financed must meet the state’s building code and also HFCP’s site and thermal standards. Manufactured homes must also meet HUD’s standards.