When many people first hear that the United States Department of Agriculture (USDA) offers home loans with attractive terms through its Rural Development program, they assume that these loans are only available to people who want to live on a farm. That is not true. While those looking to live in the heart of a major city may be out of luck, properties in many small towns and suburban neighborhoods could potentially meet the program’s geographic requirements. Why should you investigate how to apply for a USDA loan? If the property that you hope to call home meets this program’s terms, you could have a chance to secure a home loan with a low interest rate and no down payment.
How to Apply for a USDA Loan
In 2017, the USDA’s Rural Development program helped more than 127,000 families improve or buy a home (source). How do USDA loans work? What does it take to be eligible for one of these loans? And what do you have to do to apply?
Exploring USDA Loans
The USDA offers different types of loans for people interested in purchasing a house. For example, its Single Family Housing Direct Home Loan, which is also known as a Section 502 Direct Loan, is a loan approved and originated by the USDA. Homebuyers who apply to the organization and are approved receive payment assistance in the form of a subsidy that temporarily reduces the mortgage payment for a period of time. This type of loan is only available for low- and very low-income borrowers who are purchasing a home in an eligible location and are otherwise unable to secure a loan.
What does the USDA consider low- and very low-income? Benefits.gov reports that a family must have an income that is between 50 percent and 80 percent of the area median income to qualify as low-income; an income below 50 percent of the area median income falls into the very-low income category.
The USDA’s Single Family Housing Guaranteed Loan is open to a wider range of aspiring homebuyers. Designed to serve low- and moderate-income borrowers interested in purchasing a home in an eligible rural area, these loans are not originated by the USDA. Instead, the organization offers a 90 percent loan guarantee to approved lenders to reduce their risk so that they can offer more enticing terms to borrowers. Buyers interested in these loans must have an income below 115 percent of the area median income to qualify (source).
Qualifying for a USDA Loan
Could you qualify for a USDA loan? Before either type of USDA loan is approved, there are requirements that both the property and the borrower must meet. With regards to the property, the house must be relatively modest and be located in an area deemed eligible by the USDA. How can you find out if a home you are interested in purchasing is in an eligible location? Use the USDA Income and Property Eligibility Site to identify basic areas or check specific addresses.
What requirements must the borrower meet? In addition to the income limits set by each loan program, borrowers must meet the following standards:
- Be able to legally obtain a loan
- Be either a U.S. citizen, a non-citizen national, or a qualified alien
- Be allowed to participate in federal programs
- Have appropriate income and credit
- Choose an eligible property
- Agree to make the home their primary residence.
Applying for a USDA Loan
The USDA’s guaranteed loans give buyers purchasing an eligible property the chance to secure a 30-year loan at a low interest rate without putting anything down. How do you apply for one? As The Mortgage Reports explains, it’s a fairly simple process when you’re working with a knowledgeable lender:
- Locate a USDA-approved lender.
- Get preapproved by submitting an application and the necessary employment, income, and credit information. If your application is successful, you will receive a Letter of Preapproval.
- Find the house that you want, verify that it is in a USDA-approved area, and use the Letter of Preapproval to make an offer.
- Share the property information with the lender after your offer is accepted. Provide any other requested information promptly so that the lender can process your loan application.
- Wait while the lender agrees to the loan and submits it to the USDA for approval.
- Attend closing and take possession of your new home.
Would you like to learn more about how to apply for a USDA loan? Reach out to PrimeLending today if you live in the Kansas City area. Our team is committed to helping you navigate the home financing process so that you can purchase the home of your dreams. At our branches located throughout Kansas City, we can help you explore our wide variety of loan products and programs, including USDA loans. Plus, PrimeLending utilizes delegated underwriting, local appraisers, and cutting-edge technology to accelerate the underwriting and closing processes. If you’re ready to learn more about how to apply for a home loan, please give us a call at 844-701-5626.