Would you be interested in a home loan that comes with a competitive interest rate, requires no down payment, and provides 100 percent of the funding needed to purchase a home? If the answer is yes, then you’ll want to explore the home loans offered by the United States Department of Agriculture (USDA). Understanding how a USDA loan works can help you determine if this type of home loan, which is often touted as one of the mortgage market’s best-kept secrets, is the right choice for your home purchase.
How a USDA Loan Works
The most widely available zero-down mortgages, USDA loans are designed to support the overall economy by making homeownership more attainable in rural areas. With the guaranteed loan program, these home loans are originated by lenders and backed by the federal government. Since this guarantee reduces their risk, lenders are able to offer terms that make these loans appealing. With a USDA loan, you will enjoy a 30-year fixed-rate mortgage with a competitive interest rate and no need to make a down payment. Plus, there is no reserve requirement, no maximum loan amount, and a surprising degree of flexibility.
Utilizing a USDA Loan
What can you do with a USDA loan? While these loans are sometimes referred to as rural development loans, borrowers who utilize them are not limited to purchasing housing in the country. Although urban settings are unlikely to qualify, some suburban properties will. In addition, closing costs and other reasonable or customary expenses associated with the home purchase can be rolled into the home loan.
Property Requirements for a USDA Loan
USDA loans are meant to fund the purchase of modest homes that are safe and sanitary, so luxurious dwellings may not make the cut. However, the primary property requirement for this type of financing is the location. As The Motley Fool reports, the property must be in a location that the USDA deems eligible. Fortunately for buyers, that covers a lot of territory. Properties in small towns and farming communities are likely to qualify. However, some properties located in thriving suburbs that are a reasonable commute from major metropolitan areas will also be considered eligible. Wondering if a property that you are interested in qualifies? The USDA offers an online tool that makes determining a property’s eligibility a breeze.
Buyer Requirements for a USDA Loan
When it comes to securing a USDA loan, selecting an eligible property isn’t enough. There are also certain qualifications for buyers. As NerdWallet indicates, aspiring borrowers must meet the following requirements:
- Borrowers must plan to use the property as their primary residence.
- Borrowers need an acceptable credit history and a satisfactory debt-to-income ratio.
- Borrowers must be a U.S. citizen or qualified alien and be able to legally incur a loan obligation.
- Borrowers have to be able to demonstrate a dependable income.
- Borrowers must meet income requirements for their area; this generally means their income must be less than 115 percent of the area’s median income.
Securing a USDA Loan
What steps do you need to take to actually secure a USDA loan? As The Mortgage Reports explains, the process is fairly simple:
- Choose a lender. Most lenders can offer USDA loans. For the best results, select one that you’re comfortable working with who has experience with the USDA loan program. If you have any questions about how a USDA loan works, we encourage you to ask your lender those questions during this stage.
- Get preapproved. Next, your lender evaluates your income, credit, and employment information to determine whether you meet the USDA’s requirements for borrowers. If you do, your lender will provide you with a preapproval letter.
- Select a suitable home. Find a property that suits your needs and budget in a USDA-eligible area. When making an offer, use your preapproval letter to demonstrate that you are a serious buyer.
- Get approved by your lender. After adding the property information to your file, your lender completes the loan approval process.
- Secure the USDA’s approval. Once the lender has approved the loan, they submit it to the USDA to have the organization confirm that the loan is acceptable.
- Attend closing. Attend closing to sign the final paperwork and complete your purchase of the property.
Do you still have questions about how a USDA loan works? Are you wondering if this program is the right choice for you? Turn to the professionals at PrimeLending of Kansas City for the answers and expert assistance that you need to move forward confidently. You are not just a number to us; you’re a neighbor, so we will work diligently to provide personalized solutions and guidance. To discuss your loan needs or learn more about our services, contact us today.