What Is a USDA Home Loan?
As Credit Karma explains, you have to take care when talking about the home loans offered by the U.S. Department of Agriculture (USDA). When asked what is a USDA home loan, be sure to clarify which one. There are three different programs. USDA direct loans come directly from the USDA and have strict limits. USDA housing repair loans are only meant to help homeowners fund needed repairs. A USDA guaranteed housing loan is made by private lenders and backed by the USDA. This winning combination of flexibility and favorable terms can help homeowners secure a fantastic deal on a home loan. What do you need to know about a USDA guaranteed housing loan?
How It Works
As the USDA explains, a USDA guaranteed home loan is meant to help low- and moderate-income households in primarily rural areas by providing a chance to buy a home. While borrowers must meet both income and geographic requirements, the government backing ensures that these loans come with favorable terms, including no down payment requirement and competitive interest rates.
Qualifying for a USDA Guaranteed Home Loan
Does the thought of a USDA guaranteed home loan sound appealing? As NerdWallet explains, there are certain things that you’ll need to do to qualify:
- Citizenship. You must be a U.S. citizen or permanent resident who is legally able to enter into a contract.
- Geography. You must select a house in an appropriate area and plan to use it as your primary residence. Rural areas are generally welcome, and certain suburban homes will also work. You can check a property’s eligibility at the USDA’s Property Eligibility website.
- Income. You must demonstrate that you have a dependable income going back at least 24 months to win approval for the loan. However, USDA loans come with income limits. For a guaranteed loan, your adjusted household income cannot exceed more than 115 percent of the median family income for your area.
- Payment. The monthly payment for your home loan should be no more than 29 percent of your income. This includes principal, interest, insurance, and taxes. In addition, other monthly debt payments shouldn’t exceed 41 percent of your income. In some cases, exceptions may be made for borrowers.
The Process for Using a USDA Guaranteed Home Loan
USDA guaranteed home loans are fixed-rate home loans with competitive interest rates. They can be found in both 15- and 30-year terms, and you may be able to secure 100-percent financing for your home purchase. Clearly, that’s an attractive deal if you meet the eligibility requirements. What is it like to use a USDA guaranteed home loan? SmartAsset provides an overview of the process:
- Get preapproved. Find a lender who offers USDA guaranteed home loans in the area that you want to live in. Gather the necessary documentation, and get preapproved. The preapproval will tell you how much the lender is likely to offer you, but it’s not a guarantee of a loan.
- Go shopping for an appropriate home. Search for a home that meets your needs, your budget, and is eligible for purchase with a USDA loan.
- Sign the mortgage. After choosing a home, sign your mortgage documents. Next, the lender will conduct a review and associate the mortgage documents with the property. Then, an appraiser will inspect the home to verify that it meets USDA guidelines and that it appraises properly.
- Receive USDA approval. Your lender will submit everything to the USDA. Then, wait to receive final approval.
- Go to closing. At closing, the final paperwork is signed and any monies owed are paid. When everything is finished, you’re a homeowner.
Is a USDA guaranteed home loan a good choice for you? Are there other options that might fit your needs better? The loan professionals at PrimeLending West Texas are ready to help you explore your options. Contact us today to get started.
*All loans subject to credit approval and identification of acceptable property. Conditions and restrictions may apply.