Understanding USDA Loans for First-Time Buyers Welcome to the zero-down mortgage solution for first-time rural home buyers. The U.S. Department of Agriculture developed a housing loan program for residents seeking homeownership of rural properties. USDA loans are guaranteed by the USDA Rural Development Guaranteed Housing Loan Program and are primarily issued by partner lenders. The goal of the program is to give residents who wouldn't otherwise be able to own a home a chance at homeownership at a reasonable rate and price. This promoted prosperity and quality of life in rural communities and prevents further urban sprawl as low-income homeowners no longer have to go to inner-city neighborhoods for reasonable housing. What is a USDA Loan? USDA loans have no down payment requirements with lowe rates than traditional mortgages. This is because they are a sort of government assistance program, allowing the government to take a risk on the home buyers for the sake of the betterment of the community. Mortgages issued directly by the USDA have an approximate interest rate of 4.6-4.8%. Types of USDA Loans There are three types of USDA loans: Loan Guarantees Loan guarantees are issued by private lenders but backed by the USDA. For these loans, borrowers do not have to pay private mortgage insurance, but they do have to pay an upfront fee of 1% with an annual fee of 0.35% of the loan principle. All in all, this totals to be less than private mortgage insurance. Direct Loans Direct loans are granted directly from the USDA and are reserved for low and very low income applicatints. Interest rated for direct loans can be as low as 1% for these applicants. The USDA grants loans for homes that are below the market value below the area loan limit. In more expensive places like California and Hawaii, the loan limit can be as much as $700,000. Home Improvement Loans/Grants Home improvement loans award permits to homeowners looking to repair or upgrade their homes. Loans are capped at $40k with higher loans available in states like California and Hawaii. Options to bundle loans and grants are available at about $50,000 in total assistance. The loan term is generally 20 years with a 1% interest rate. However, if the homeowner sells the home within three years of renovation, they must repay the grant in full Eligibility for a USDA Loan USDA loans are made specifically to give a chance of homeownership to those who wouldn't otherwise have the opportunity. Because of this, the requirements are low in terms of income and credit score. However, the income cap is kept low to give low-income borrowers a chance to utilize this program. Applicants Although borrower requirements vary by private lender, here are the general guidelines to be able to qualify for a USDA loan: Must be a U.S. or permanent resident Must have a proven income history Must have a credit score of at least 640 to be qualified for the streamlined process The monthly payment must be 29% or less of the borrower's monthly income Other monthly debts must not exceed 41% of the borrower's income Borrower's household income must be below 115% of the medium income of the county in which the borrower plans to live Areas The USDA eligibility map shows which areas are eligible for USDA loans. Most non-urban areas in California are considered eligible loan locations. Interest Rates with USDA Loans The current interest rate for a single-family housing loan as of September 2024 for low-and very-low-income households is 4.75%. However, interest rates can be as low as 1% when modified by payment assistance. The standard payback period is 33 years but can be extended to 38 years for very low-income borrowers. Benefits of USDA Loans for First-Time Buyers No down payment needed: removing the requirement for a large lump sum payment makes the option of homeownership achievable for low income individuals. Competitive interest rates: Because USDA loans are backed by the government, there is less lender risk, making it easier for them to offer very low interest rates. No PMI required: Many conventional loans require private mortgage insurance. Without this, borrows are able to pay even less monthly. Low credit requirements: flexible credit requirements let lenders set their own parameters, which helps borrowers with mediocre credit histories. No prepayment penalty: While conventional loan will penalize borrowers for paying back early with fines, USDA loans allow prepayment allowing borrowers to get out of loans prematurely if they are financially able to. Assisted refinancing: if you purchased your home with a USDA loans, you can refinance your home to a lower interest rate and payment. How to Apply with Modern Lending Here's how our home loan process works: Complete our USDA loan qualifier Receive options based on your unique information Compare mortgage interest rates and terms Choose the offer that is best for you Ready to start becoming a homeowner? It is within reach! Contact us today to start the process. Brian Decker Senior Loan Officer Click to Call or Text: 844-4-Modern This entry has 0 replies Comments are closed.
