Did you know there are USDA mortgage programs available for people home buying in rural areas in the United States? Maybe you feel more comfortable surrounded by open country more than pavement and neighbors. If that is the cases, then you may want to buy a home in the country and it may be time to apply for a USDA loan.
Potential home buyers interested in buying a home in rural areas may be interested in a mortgage from the US Department of Agriculture or USDA. The USDA offers very attractive home loans for people who want to buy a home in rural areas. In fact, some say that the USDA mortgage program may be one of the least-well-known mortgage loan programs in the US.
As part of the Rural Development program, the US government invests billions of dollars into the USDA each year to help hundreds of thousands of families every decade to buy and improve their homes. This program has been set up to improve the US economy generally and to boost the quality of life in the rural US.
If you think you may want to buy a home in a rural area, here are some very good reasons to consider applying for a USDA mortgage:
#1 USDA Mortgage Offers 100% Financing
One of the biggest benefits of the USDA mortgage is that it can often come with 100% financing, also known as a no-money down mortgage. There are few 100% USDA mortgage financing left in America today. After the mortgage melt down, federal lending standards tightened, and most 100% USDA financing programs ceased to exist.
However, the US government wants to provide incentives for people to buy homes in rural areas, so it continues to offer 100% financing for some homes purchased under the USDA mortgage program.
#2 Loan Is Guaranteed by the USDA
Why does it matter to you if the loan is backed by the USDA? Easy. The guarantee by USDA means that more lenders are willing to offer loans with reasonable terms. You can get a USDA backed mortgage with a very low interest rate that may be at the same rate or even lower than market rates.
The guarantee by the USDA is also the reason that you can get a 100% USDA mortgage in many cases.
#3 Direct Loans Are Available
Most USDA mortgages are actually offered by approved USDA mortgage lenders. However, there are a limited number of these loans that are issued by the USDA itself. These loans are typically for people with very low incomes. So, even if you have a very low income, you still may be able to get a USDA rural loan.
Direct loans from USDA are usually for people who currently do not have decent, safe and sanitary housing. You also may qualify if you cannot get a loan from traditional sources, and have an adjusted income that is at or below the low-income limit for the area in which you live.
Guaranteed USDA loans usually are given on homes that are 1800 square feet or less with a value that is below market for the area. A typical USDA loan limit for average cost areas in the US is $216,000.
#4 Very Low Credit Scores Are Ok
You do need to have an acceptable credit history, with no accounts sent to collections in the last year, and you should not have had any late housing payments in the last year. That said, you can still qualify for a USDA mortgage with a low credit score of 620. Below 580 it will be more difficult to be approved, but you still may be able to get approved with a very low credit score if you can show that you have paid rent and utilities on time. Getting approved for a no credit home loan is possible with the USDA program, so check with approved USDA lenders for eligibility.
#5 You Can Get a USDA Loan for Repairs
In addition to getting a loan from USDA mortgage lenders for the home, you also may be able to get financing for home repairs. There are packages available with as much as $27,500 in repair help for your home.
#6 Flexible Debt to Income Ratios
USDA generally wants to see that your entire monthly housing payment is less than 29% of your gross monthly income. It also wants to see that all of your monthly debt payments are not more than 41% of your gross monthly income. However, USDA does have some flexibility with these numbers. They may allow you to have higher debt ratios if your credit score is over 660. It is important for you to verify your DTI and credit score to maximize the ability to lock into the best priced USDA mortgage.
#7 More Homes in Suburban Areas May Qualify
The major catch with USDA mortgage loans is that you have to buy a home that the USDA designates as ‘rural.’ This program after all wants to promote home ownership in rural areas.
However, the USDA map that is used to determine what ‘rural’ is has not been updated since 2000. It is expected that the agency will soon update its map with more recent Census numbers. But for now, you may be able to qualify for a ‘rural’ USDA mortgage in a suburb surrounding a major US city.
You should check with your lender to see if the homes you are considering may qualify for a USDA mortgage.
The Bottom Line on Applying for a USDA Loan
The USDA mortgage program is one of the best options out there for people with a lower income who may not qualify for other home loans. If you are interested in a rural property, you may be able to be approved for a USDA mortgage with a very low rate and 100% mortgage financing. You cannot beat that in today’s home financing market!
References: Overview of USDA Loans. (n.d.). Retrieved from https://www.nerdwallet.com/blog/mortgages/usda-loan/