USDA Loans: 100% Financing for Your Home Purchase

The best no money down loan. Learn all about it.

House with a sold signThe United States Department of Agriculture (USDA) provides a number of loans to qualified borrowers in order to help them purchase and refinance a home.

These loans are available through the USDA Home Loan program and can be used for a wide variety of purposes, including purchasing a primary residence, repairing or remodeling an existing home, or purchasing land and constructing a new home. The interest rate on these loans is typically lower than the rates available through other loan programs.
The USDA offers a 100% financing option for home purchases through their Rural Development program. This means no down payment is required, and the entire purchase price can be financed.

The program is available to borrowers who meet certain eligibility requirements, including income limits and property location. This program has flexible terms and customary closing costs. You can qualify for the loan if you have a minimum credit score of 640 and meet the income requirements.

What is a USDA Rural Development Home Loan?

USDA loans are designed to help low- to moderate-income borrowers purchase homes in eligible rural areas. To be qualified for a USDA loan, you must fulfill several basic requirements:

To be eligible for a USDA home loan, your house must be in a USDA-designated rural area. Around 97 percent of the United States landmass qualifies as “rural” under the USDA loan criteria. At the time of writing this article, just 3% were disqualified.

The most common types of properties that qualify for a USDA home loan are single-family homes, townhouses, and condos.

1) Your household income cannot exceed 115% of the median income for the area where you live.

2) You must have a minimum credit score of 640.

 3) You must meet the customary guidelines to purchase a home.


What Loan Programs are Available?

The USDA offers one purchase program, three refinance programs, and a specialty home improvement loan.

USDA Guarantee Loan Program

The USDA offers a purchase loan program named the Guarantee Loan Program. This mortgage is available through approved lenders.

To be eligible for the USDA Guarantee Loan Program, borrowers must meet certain requirements. First, the property must be located in a rural or suburban area. Second, the borrower must have a low-to-moderate income. Third, the borrower must have a good credit history. Fourth, the property must meet certain requirements regarding its condition and size.

The USDA Guarantee Loan Program offers several benefits to borrowers. First, there is no down payment required. Second, the interest rates are typically lower than those offered by conventional lenders.
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The Direct Loan Program

Young couple with their babyThe USDA Direct Loan Program is available to rural homebuyers who meet certain eligibility requirements, including income and property location. USDA loans offer competitive interest rates and flexible lending terms, making them an attractive option for homebuyers looking for affordable financing.

To be eligible for a USDA Direct Loan, borrowers must meet certain income requirements. The maximum household income is 50% of the area median income. Borrowers must also purchase a home in a rural area, which is defined by the USDA as an area with fewer than 10,000 residents.

USDA Direct Loans offer many benefits over other mortgage programs. These loans have competitive interest rates, and there are no down payment or private mortgage insurance requirements.

USDA Loan Repair Program

The USDA Loan Repair Requirements also called the 504 programs, helps eligible homeowners improve their home. The program is a partnership between the USDA and approved lenders. The USDA provides a guarantee to approved lenders for 50% of the loan amount up to $25,000. This guarantee encourages lenders to provide affordable financing to rural homeowners.

Eligible repairs include roofing, windows, doors, painting, plumbing, heating, and electrical work. Homeowners can also use the funds to make necessary improvements for disabled persons. To be eligible for the program, applicants must meet certain income requirements and live in a rural area.

The repair program can help homeowners save money on energy costs by making their homes more energy-efficient. In addition, the repairs can increase the home's value and help reduce the risk of foreclosure.
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Who is Eligible for a USDA Home Loan?

The USDA home loan is a popular mortgage program for rural and suburban homeowners. It offers zero down payment and 100% financing options. Borrowers do not have to have a high credit score or income to qualify. The program is available to everyone, regardless of their credit score or income level.

To be eligible for a USDA home loan, borrowers must meet the following requirements:

  • The property must be located in a rural area or suburb. The map on the USDA website can help borrowers determine if their property is eligible.
  • The borrower must have a moderate to low income. The maximum household income varies by location.
  • The borrower's credit score must be at least 640 in order to qualify.
  • The borrower must meet certain debt-to-income ratios.

USDA Streamline Refinance Programs

The USDA offers three refinance loan programs. The USDA Standard Streamline, the Streamline-Assist Refinance, and the Non-Streamline USDA Refinance.
A guarantee fee of 1% is required for all refinance programs. There is also a monthly fee for all refinance plans.
USDA Standard Streamline Refinance
30 year fixed rate only the debt-to-income ratio is required. May include: Principal balance and upfront guarantee format the current USDA household income limits. Minimum 620 credit score. You cannot obtain a new loan that's larger than your existing mortgage, plus the upfront charge for the USDA. Unless you are a Direct Loan client who has received a payment subsidy, you will not be required to submit an appraisal (a subsidy is a form of payment assistance available to eligible low-income homeowners who get a USDA Direct Loan)

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Streamline Assist Refinance

USDA direct and guaranteed home loan borrowers who have low, or no equity can use the streamlined refinance option. This gives them the chance to refinance for more affordable payment terms. The features of the program are:

  • 30 year fixed rate only
  • Debt-to-income ratio is not required.
  • Principal balance, closing expenses, and an upfront guarantee fee may be included in the new loan.
  • Meet the current USDA household income limits
  • Minimum 620 credit score.
  • Monthly payment reduction of at least $50 is not required.
  • The new loan cannot exceed the appraised value
  • Must have an existing USDA loan.
  • Unless you are a Direct Loan borrower who received a payment subsidy, no appraisal is required (a subsidy is a form of payment assistance available to eligible low-income homeowners who get a USDA Direct Loan)
  • No credit verification
  • No employment verification
  • No income verification (current household income eligibility requirements must be met)

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USDA non-streamlined refinance

The Streamlined Refinance loan is similar to the Streamlined-Assistance Refinance loan in that it does not require an appraisal (unless you are a USDA Direct Loan customer who is eligible for a subsidy). This option is similar to the purchase requirements.

  • 30 year fixed rate only
  • Debt-to-income ratio is required.
  • May include: Principal balance, closing costs, and upfront guarantee fee
  • Meet the current USDA income limits
  • Minimum 620 credit score.
  • Monthly payment reduction of at least $50 is not required.
  • Must have an existing USDA loan.
  • Appraisal required
  • Credit verification required
  • Employment verification required
  • Income verification required
  • Primary residence only.

Disadvantages of a USDA Home Loans

The USDA home loan is a great option for many people looking to buy a home. It offers low-interest rates and no down payment is required in many cases. However, there are some downsides to this type of loan.

One downside is that the USDA home loan is only available in rural areas. This can be a problem if you live in a city or suburb. Another downside is that the USDA home loan has stricter eligibility requirements than other types of loans. You must meet certain income requirements and have a good credit score in order to be able to get the loan.

How do you apply for a USDA Home Loan?

To apply for a USDA home loan, you will need to contact a mortgage lender that offers these loans. The lender will help you through the application process and will let you know what documentation you will need to provide.

Income must fall within certain limits and the property must be in an area that is eligible for a USDA home loan.

Is a USDA Home Loan right for you?

In conclusion, a USDA home loan may be the right choice for you if you are looking to purchase a home in a rural area. The program offers low-interest rates and relaxed credit requirements, making it an attractive option for those with limited finances. However, be sure to do your research before applying, as not everyone will be eligible for a USDA loan.

SOURCE: USDA underwriting guidelines

Conclusion

In conclusion, USDA loans are a great way to finance your home purchase. There are many benefits to using a USDA loan, such as no down payment and low interest rates. If you are thinking of buying a home, be sure to check out the USDA loan program.