Most Americans may know that United States Department of Agriculture (USDA) is the U.S. federal executive department with the responsibility to develop and implement U.S. federal government policy on farming, agriculture and food. The purpose of the department is to meet the needs of farmers and ranchers, promote agricultural trade and production and more. But, how many people know the department also offers various loans or hear about USDA loans? Maybe, very few!
USDA Office of Rural Development (RD), an agency with USDA, offers a variety of programs dedicated to improving the economy and quality of life in rural areas of the country. The agency has a loan portfolio of $86 billion and administers approximately $16 billion in program loans, loan guarantees and grants through their programs. One of the most popular types of USDA loan programs is USDA Mortgage Program.
Note: USDA loans can be used for various reasons. Some of these loans currently go to urban areas to help develop and redevelop suburbs and resort cities of America.
What is a USDA Mortgage Program?
A USDA Mortgage Program is intended to offer low-cost, low rate, insured home loans for people who want to purchase homes in rural areas. With no prepayment penalties, these home loans require no down payment and are offered on a standard 30-year fixed-rate term. Currently, USDA home loans provide single family households with two options.
1) USDA Guaranteed Rural Housing Loans
As the most common type of USDA mortgage, USDA Guaranteed loans allow borrowers with moderate or higher income to gain up to a 100% LTV mortgage for their home purchase. The applicants for these loans may need to have taxable income of up to 115% of the median household income for the area.
2) USDA Direct Loans
Offered on a more limited basis, these loans are only available for people with low and very low income to purchase a new home. According to USDA, very low income is defined as below 50% of the area median income (AMI), low income level is at a range of 50% to 80% of AMI and moderate income level ranges between 80% and 100% of AMI.
How much can you borrow with a USDA home loan?
Actually, USDA has not set a maximum loan amount on its home loans. However, your total household monthly income cannot exceed the USDA allowed maximum income limits for the area. In addition, your debt-to-income ratios will also apply to determine how much home you can afford. Be aware that the maximum amount that can be financed with a home loan amount is 102% of the total appraised value of the property, which is equal to 100% of the sales price plus the 2% USDA loan guarantee fee.
How to qualify for a USDA home loan?
Want to apply for a USDA home loan? Frankly speaking, not everyone can qualify for a USDA home loan. The eligibility for these loans will be determined by three main factors:
• The Area You Live – The house you plan to purchase must be located in a designated USDA rural approved area, if you want to be eligible for a USDA loan. For more info about such areas, check the USDA eligibility.
• Credit – Your credit history will be taken into consideration. So, a history of paying your debt timely is very important. If you have had spot in the past, the USDA may be overlooked so long as you have reestablished your credit over the past 12 months. To gain a loan approval, you are also required to have at least a 620 FICO credit score.
• Income – To qualify for a loan of this type, your monthly housing costs must meet a certain percentage of your gross monthly income (usually 29% ratio). The housing costs contain mortgage principal and interest, property taxes and insurance. In addition, you also need to have enough income to pay for all additional monthly debt obligations.
USDA Official Website: http://www.usda.gov
Startups and businesses in rural areas have fewer resources to help them carry on and expand, in comparison with those in urban areas. The U.S. Department of Agriculture (USDA) awards a variety of program loans, loan guarantees and grants through its Rural Development to help to improve, develop or finance business, industry and employment in rural areas. Business and Industry (B&I) Guarantee Loan Program is just one of them.
This web site is not affiliated with USDA. We recommend USDA official site for more accurate information of its financial services.