USDA loans were created through the United States Department of Agriculture to expand rural development. They are available for borrowers who are considered low to median income. To get a USDA loan, borrowers must live in rural and some suburban areas. The USDA guarantees these loans should the borrower default on the loan, much like the Veterans Administration guarantees VA loans.
Things to know about USDA Loans:
- To qualify, a borrower must make less the 115% of the area median income
- A borrower must have a minimum FICO score of 640
- Debt to Income Ratio of 43% or less
- They offer a zero down payment
- They are more affordable than an FHA loan
Borrowers applying for a USDA loan need to show stable income and the ability to pay their mortgage payment for at least 12 months based on assets and savings.
The most appealing feature of a USDA loan is the zero down financing option. However, USDA loans do have a guarantee fee associated with them which can be added to the monthly payment.
USDA loans require an appraisal that checks to confirm that the property’s price is accurate, and it meets the USDA standards for being in a livable condition.
USDA loans offer an affordable option for homebuyers in rural and some suburban locations. While borrowers will still need to pay closing costs, they will not have to come up with a down payment. In addition, since the government is taking responsibility for the loan should the borrower default, they typically get a lower interest rate.
There are some additional restrictions, but an experienced loan officer can help guide you through the process. Contact us today to get started.