What is a USDA/Rural Housing Mortgage Loan?
The USDA Rural Development Guaranteed Housing Loan or simply USDA Loan is a mortgage loan program supported by the United States Department of Agriculture (USDA). In the last 2 years, the USDA helped almost 200,000 families to purchase their desired home or modify their home. The USDA invested almost $35 billion in last two years to develop the lifestyle and economy in rural areas.
The USDA is one of the best mortgage loan options in America. It has a very flexible requirement procedure that a borrower doesn’t have to pay a single dollar at the closure of the loan. The USDA doesn’t provide any fund directly for a borrower. Instead, it provides repayment guarantee to a lender in case of any loan defaults. Because of this strong repayment guarantee, the lenders feel free to offer highly attractive loan options to the borrowers. As a result, the borrowers get the chance to make the best use of their loans. Some other advantages are stated below:
- No down payment: The borrowers are required to make a down payment of 3.5% in the FHA Loan program, 5% in the other conventional loan program. But in the USDA Loan program, the borrowers don’t have to make any down payment because of the ultimate repayment guarantee the USDA provides to the lenders. Instead, the USDA grants the borrowers to go towards their mortgages.
- Low interest rate: Because of the ultimate freedom the lenders get from the USDA insurance, the lenders offers the borrowers with exciting and lower interest rates than the other conventional lenders.
- Flexibility: The USDA offers a very flexible credit guideline for the borrowers. It also offers the borrowers no purchase limit. Although, it is still up to a lender to decide how much money he is going to lend a borrower according to his eligibility. A wide range of property type is allowed in this loan program. Low Monthly Private Insurance (PMI) is also another perk of getting a USDA loan.
Eligibility and Requirements
Any person or family who wants to get a home located in any eligible rural area as their main home qualifies for eligibility for a USDA home loan. An eligible applicant then has to submit related paperwork to prove his financial condition, credit score and right cause behind applying for the loan. An applicant can easily find out if he is in the eligible area by checking through the official website of USDA. Some requirement terms are explained below:
- Income: The USDA offers two kinds of home loan offer according to the applicant’s income: Guaranteed Housing Loan and The Direct Housing Loan. The Guaranteed Housing loans are for applicants with income of up to 115% of the median income for the area. On the other hand, the Direct Housing Loans are for low and very low income families with income less than 50% of the median income (very low) and 50%-80% of the median income (low) for the area.
- Credit score: Generally, a credit score of 620 is required from the applicants by the lenders for Guaranteed Housing Loans. Credit scores lower than 620 are considered for the Direct Housing loans.
- Paperwork: Applicants of all kinds of USDA loan must submit necessary documents to prove their financial abilities, credit scores and causes to convince the lender.
The approval process is a long and tricky process and an applicant must show patience in order get his desired loan. The procedures are explained briefly in three steps below:
- Pre-approval process: This is a simple but vital process for an applicant where his eligibility, financial condition and affordability get tested. If this step is performed well, then it can ease the rest of the process for an applicant.
- Pre-approval letter and selection of property: In this process an applicant has to submit a lot of documents and details to the lender. Then he has to use the help of a realtor to find a perfect property for him. But the applicant has to keep in mind that pre-approval and selection of property don’t mean that he is guaranteed a loan. After finding the desired property, the applicant shall make an offer to the owner. His agent can play a vital role in this step and the agent should be informed that his client is an applicant of the USDA loan program.
- Closing: In this process an underwriter will review all the submitted documents and analyze the applicant’s financial ability to get a loan. If minor issues are found, the applicant has to take necessary steps to fix them. Finally, a closing date will be issued and the applicant will have to sign necessary paperwork to take the ownership of his desired property.
The USDA designed this Rural Housing Development Loan program in order to develop the economy and the lifestyle of the rural population in America. It has been working miraculously and helped numerous families to get their desired properties.