USDA Loans - USDA Homes
What is a USDA Loan?
A USDA loan is a type of mortgage that’s sponsored by the USDA or United States Department of Agriculture. This loan is specifically designed for the purchase of rural residences and is available only to budding homeowners; investors can not make use of USDA loans.
The Pros of USDA Home Loans
USDA loans are particularly geared toward low and moderate-income buyers. They enable those with few savings to purchase a home and they do so in the following ways.
1. Require No Downpayment
One of the biggest benefits of USDA loans is that they don’t require any downpayment. You can have 100% of the home financed, allowing you to make a purchase without any savings.
The only other type of mortgage that allows this the VA loan. However, in order to obtain a VA loan, you must have been a member of the military.
2. Allow for Low Credit Scores
Another benefit of USDA loans is that they allow for low credit scores. Generally speaking, you can get a USDA loan with a credit score as low as 640. Note, however, that in some cases, you might even be able to get one with a credit score as low as 580.
The only type of mortgage that allows for a lower credit is the FHA loan. You can get an FHA loan with a credit score as low as 500, provided that you have a 10% downpayment available.
3. Provide a Low Interest Rate
The higher the interest rate on your mortgage, the more money you’ll pay over the duration of the loan. As such, you should try to find as low an interest rate as possible.
USDA loans provide interest rates as low as 2.50%. In most cases, this is substantially lower than those provided by conventional loans, which tend to hang around 4% currently.
The USDA loan is a fixed-rate loan, which means that, if you lock it in at 3.25% interest, you’ll be paying 3.25% interest until the loan is paid off. Your interest rate will never increase (nor increase).
4. Allow Closing Costs to Be Rolled Into the Loan
With any home purchased comes thousands of dollars worth of miscellaneous closing costs. In normal circumstances, these closing costs need to be paid in full before the transaction is finished. When you have a USDA loan, however, you can roll these closing costs into your loan.
Again, this enables you to buy a house without having any savings on hand. You can just add the extra $3,000 to $6,000 in closing costs onto your loan and pay it off over time or ask the seller to contribute up to 6% seller concessions.
5. Can Be Used to Make Repairs
Not all homes are sold in full working order. Oftentimes, they require repairs, extensive and otherwise. Unfortunately, not all mortgages are designed to pay for these repairs.
USDA loans, on the other hand, are. So, if you want to buy a fixer-upper, you can bring it back to life with the help of a USDA loan with up to 10k in repairs.
6. Can Be Used to Build a Home
Looking to build a home from scratch? You can do so with the help of a USDA loan. The USDA provides construction-to-permanent loans, allowing you to pay for the construction of your home and then finance your home over a span of 30 years.
The Cons of USDA Loans
The benefits provided by USDA loans are many. However, there are some restrictions to look out for. They include the following.
1. Have Geographical Restrictions
Looking to buy a house in an urban area or the city? A USDA loan will not help you in most cases. These loans are specifically geared to rural areas or the suburbs and can’t be used in city limits usually.
Note, though, that these restrictions might not be as tight as you think. A USDA loan doesn’t require you to live out in the middle of nowhere. In fact, most areas of the country meet the criteria for a USDA loan.
For reference on what areas are eligible for a USDA loan, consult this tool.
2. Force You to Pay Mortgage Insurance
Mortgage insurance is a fee that’s typically paid until 20% of a home loan is paid off. Unfortunately, when you get a USDA loan, you must pay mortgage insurance for the entirety of the loan.
Mortgage insurance is usually between 0.5% and 1.5% of the original loan amount, paid each and every year. On a monthly basis, you can expect it to bump your cost up around $100 to $200. However, for a USDA loan it’s only .35% of your loan amount.
3. Has Income Limits
The last con of USDA loans is that they come with income limits. These limits vary based on the county but are generally around $90,000 for 1 to 4-member households and around $119,000 for 5 to 8-member households. If your income exceeds these limits, you cannot get a USDA loan. However, some counties have much higher income limits.
Give us a call to get the exact income limit for you county.
How to Get a USDA Home Loans
If you’re interested in getting a USDA loan, all you need to do is talk to a participating lender.
We’re a participating USDA lender as well. So, if you’re interested in learning more about USDA loans, you can contact us, after all we are USDA experts.
Secure a USDA Home Loan With the Help of Trinity Mortgage
What do you think? Is a USDA home loan right for you? If so, we here at Trinity Mortgage can help you obtain one.
Interested in a different type of mortgage? We offer FHA, VA, conventional, jumbo loans as well.
Contact us now to discuss your options regarding USDA loans !