The United States Department of Agriculture is one of the most important organizations for national homeownership. While the office may be associated with raising livestock, growing crops, and monitoring food safety, they also stimulate the real estate market in rural and suburban areas (which are vital to the agriculture industry) by guaranteeing loans in certain locations.
Before you choose a home mortgage, make sure you fully understand the potential benefits, and drawbacks, of USDA loans.
Update: As of 2019, loans supported by the USDA (“USDA loans”) require a 600 credit score. Information on this article may be outdated. Please call our staff for further details.
Understanding the USDA Single-Family Housing Guaranteed Loan Program
The USDA-loan program helps secure loans to low- and moderate-income households, providing the opportunity for affordable homeownership with comfortable and safe housing. People who are eligible for USDA loans can use the provided money for a wide range of purposes, including purchasing a home. Applicants can also build, rehabilitate, or improve a home with a USDA loan. To make home loans more accessible, the USDA provides 90% loan-note guarantees to lenders, reducing their risk, which makes them more likely to offer loans to applicants.
The money provided by a USDA loan can be used to purchase a new or used house that will become a permanent residence. Closing costs and other expenses related to real estate purchases can also be included in the loan. The money can be used to repair an existing home, and it can also be used to refinance certain home loans. If you or a family member has a disability, USDA loans can also be used to design and install special accommodations.
With money from the loan, you can also pay for utility connection fees, which are often related to water, electricity, and gas connections. You can even use the money for a share of real estate taxes.
If you need to improve the home, USDA loans can be used to install essential equipment, including ovens, refrigerators, and heating systems. You can even use the money for wall-to-wall carpeting. If you want to increase your new home’s energy efficiency, the loan can be used for insulation, solar panels, and double-paned windows, among other home-improvement expenses. Even site preparation costs for projects like sidewalks, foundations, and planting trees are covered by USDA loans.
There is a lot you can do with this program, but not everyone, nor every property, will be eligible.
Eligibility Requirements for USDA Loans
To be eligible for a USDA loan, both you and the property will need to meet specific requirements. First of all, you will need to meet income-eligibility requirements set by the USDA. The income requirements vary by region; for example, the single-person requirement for “very low income” eligibility in Billings, Montana is $23,700, while the same category in Sand Diego is $45,700.
If you meet the income eligibility, you’ll then have to meet other requirements. You’ll be required to agree to live in the property as your primary residence, and you must be eligible for participation in federal programs. Obviously you will also need to prove that you are a legal U.S. citizen or qualifying alien, but you’ll also have to show the legal capacity to incur the loan and the willingness to meet all credit obligations. If you are personally eligible, you can start looking for property that meets the program’s criteria.
USDA loans depend on the specific location of the home, and you must purchase a house that is in a rural area, which is defined by the USDA. However, not all “rural” locations will be in the countryside. Many suburban areas are actually eligible for USDA lending products, so you can find a high-quality home that is still inside a city’s jurisdiction.
How to Look Up Your Property
The USDA provides a map that allows you to check eligibility of certain locations. You can search eligibility by address or by geographical location. In fact, you’ll see that some states are almost entirely eligible for USDA loans, and even highly-populated states like California have a large portion that is eligible for the program.
To search for housing, use the USDA’s map system. The link will take you to a disclaimer page; once you agree to the terms, you’ll be taken to an interactive map of the USA. You can then type in a specific address in the field at the top left, or you can zoom into a specific region or city. The map will show ineligible areas in light brown; all locations not highlighted are eligible for USDA lending.
USDA Home Loans: The Process
The process for finding a USDA loan is actually quite simple. First you will need to apply with a lender that can facilitate USDA loans, then get pre-approved for a loan by submitting your income, credit, and employment information. After you are pre-approved, you can find a home that meets the eligibility requirements and then get full lender approval. There will be a final sign-off by the USDA and then the loan will close. Once that step is completed, you can move into your new home!
USDA vs. FHA: Which is Right for You?
The USDA is obviously not the only government organization that provides lending support. The Federal Housing Administration (FHA) also provides loan guarantees, but these two organizations are not always providing the same options. While FHA is more commonly used by borrowers, a USDA might be right for you if you need a loan with no down payment requirements. While the FHA down payment requirements are minimal (usually 3.5%), it can be a barrier for some borrowers. The USDA also offers loans with lower mortgage insurance costs, which will lower the total cost fo homeownership.
However, the FHA has no income requirements and relatively few requirements related to the property’s location, so it is often a better choice for many borrowers.
Find Out If You Are Eligible for USDA Loans
If you have questions about USDA loans, contact the team at San Diego Purchase Loans today. We’ll help you understand the best options for your specific needs, and we’ll take a common-sense approach to lending, giving you the best possible chance at approval!
