A number of properties located in rural and sub-urban areas may also be eligible for a USDA rural loan, but many potential home buyers and existing homeowners are completely unaware of this. A USDA home loanrequires no down payment and in most cases, the monthly mortgage payment is lower than what they would pay if they were to have opted for a FHA insured mortgage or a conventional home loan from a residential lender. Learn more about this amazing program before you consider other home financing programs you may qualify for.
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USDA loans allow for the financing of single-family residential properties in designated rural areas around the country. The guaranteed and direct USDA rural home loans cannot be used for financing farms or buildings meant for commercial or business-related purposes.
The property eligibility is one of the most important aspects considered by an underwriter working for a USDA approved lender. While USDA offers a clear framework for evaluating a property’s eligibility for a USDA mortgage, the lender may not be willing to underwrite a loan unless the property meets their own conservative criteria, set internally.
If the USDA were to reject the loan for not meeting their property eligibility guidelines, the lender will get stuck with the loan . While the chance of getting a lender approved loan rejected by USDA is rare, it does happen occasionally and this scares the underwriters and the lenders from taking a chance on properties that may not fit their conservative loan underwriting criteria. A lender can mitigate this risk by sending the loan proposal for a USDA review prior to funding it. These necessary steps can sometimes take a while, especially when there is a backlog for the review process. These potential delays may also drive the home buyers to seek other sources of financing for their rural home purchase than waiting around for a USDA review prior to their lender approving their mortgage.
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While the above mentioned property eligibility review procedures may make a USDA home loan take longer for approval than other financing options, there are numerous benefits and features that are not available from the other sources for residential financing. The first and foremost feature that should make you seek USDA guaranteed rural home financing is their requirement for no specific down payment amount. You can make a zero down payment and still be eligible for a guaranteed loan from a USDA approved lender.
FHA Vs. USDA
FHA insured loans require a minimum down payment of 3.5% of the purchase price and most conventional lenders expect a down payment of 20%. Even if you were to opt for a FHA mortgage, you would have to come up with $3,500 for every $100,000 you need for your new home purchase and with a USDA loan program, this amount can be as little as zero.
Lately, FHA has been increasing the amount of premium they collect for insuring home loans. The USDA mortgage insurance premiums are much lesser than the amount currently charged by FHA. This lowers the amount you pay out every month towards your home loan repayment. Once the residential single-family property you wish to purchase falls within the USDA designated rural area and fits their eligibility guidelines, you should become aware of their requirements regarding income and credit eligibility. Depending on your family-size and the median income for the area, the qualifying income limit can be determined easily. If you fall within the eligibility limits, you are good to go. Find an approved USDA lender and get started with financing process for your rural home purchase.