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Understanding USDA Loans and How They Work
USDA Loans are issued by the USDA Rural Development Guaranteed Housing Loan program and are meant to provide affordable accommodation for low to middle-level income people. They differ from other options in the market because not only the rates are below the market average but the insurance premium also happens to be much less than other financial tools.
The US Department of Agriculture started issuing the loan for people who were unable to secure a home for themselves and could only afford to pay rent. The Department of Agriculture guarantees these loans will provide a form of protection to lenders and spurs growth in remote and less developed areas of the country.
How does one qualify for a USDA Loan?
Since the USDA Loan is issued by the USDA Rural Development Guaranteed Housing Loan program and is aimed at the economic development of rural areas, the first and the most important criteria to buy a house is that it must be located in a rural area. Rural areas are designated by the USDA and for a borrower to be eligible for the loan, they have to have an income that falls in the low-income category set for the area you decide to move into by the USDA.
Only US Citizens, US non-citizen nationals and qualified aliens are eligible to apply for a USDA Loan. Apart from that, the intention of the loan must be to secure a house for primary residence. Even though the credit score limit set for this program is low, you must meet the obligations within time. The property you decide to purchase should also meet the requirements of the loan.
For buyers who have no credit history, securing a USDA Loan is possible but the interest rates they get may not be the best. The down payment involved is low or equal to zero, which makes the loan an extremely viable way to purchase a house.
The loan requires a monthly payment that is usually 29% or less of your monthly income. This payment usually includes the principal amount, interest, taxes, and insurance money. You will also have to prove that you have a permanent source of income for as long as the last 2 years. You will have to submit your tax returns to prove the income source and make sure that your debt to income ratio is no more than 41%.
The USDA Loan for rural development is a recent program and many Americans may not have heard of it. It is primarily aimed at farmers and people involved in agricultural business, however, the eligibility does not depend on the nature of your job.
How to apply for a USDA Loan?
If you’re interested in an upgrade or purchasing a home, you can reach out to a participating lender. The state’s USDA office is your best bet for finding out the details of the loan and helping you make a decision. There are also home improvement options available for those who come from very low-income families and are senior citizens. The demand and fund availability in your area will determine how soon you can avail a USDA-backed loan.
USDA Loans are a good initiative for first time home buyers who may not have been able to afford a home before. With competitive interest rates and low credit requirements, it is a good option to explore for low-income families living in rural areas.
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