Are you a first-time home buyer? You may already know the challenges of having to come up with a sizeable down payment to purchase your first home.
Conventional loans require a certain percentage of the property in a down payment. Say you have a $200,000 house you’re buying and need a five percent down payment. You’re looking at fronting $10,000 before you can get the mortgage. That adds up really quickly.
That is why the United States government implemented different mortgage options to help boost the housing market for first-time buyers. One of those programs is the USDA Loan.
If you’re a first-time home buyer, we have a guide for a USDA mortgage that will help you out.
What is a USDA Loan?
First off, you need to understand the basics of a USDA loan. Backed by the United States Department of Agriculture (USDA), the loan intends to help make housing more affordable in rural and suburban areas of the country.
The requirements for a USDA loan a more lenient than a conventional loan, making this option appealing to first-time home buyers. You do not need a down payment for this loan, you can get approved with a low credit score, and the interest rates tend to be quite low.
Rural and Suburban Locations
One of the main restrictions of a USDA loan is the location of the potential property. Many think that since the Department of Agriculture backs this mortgage, you must live on farmland to access this mortgage.
That is not entirely true.
Many suburban areas of the country are eligible for the USDA loan. If you live within a large city though, then you would not be able to access this loan. Your lender would be able to help determine if your location falls within the USDA requirements.
As with any mortgage, there are additional fees added to the total. Typically, the fees consist of closing fee, upfront fee, insurance, and interest rates. Don’t let fees scare you away from looking at a USDA loan. All mortgages have some kind of fee to them. Luckily for this option, the USDA loan has some of the lowest fees.
Borrowers will have a one percent fee of their total amount added to their monthly payments. Instead of paying the fee upfront in cash (which is an option), it’s added on to the total loan and split into your monthly payments.
As noted, the requirements for a USDA loan are not as strict as other conventional loans. Eligibility depends on a variety of factors including:
- Monthly debt payments cannot exceed 41 percent of your income.
- Must have a dependable income for 24 months.
- Acceptable credit score. You can qualify with under 640 or no score at all; the process becomes more difficult.
When you start looking at properties and mortgages, try to apply for a USDA loan online to see if your potential home is eligible for the government-backed mortgage. You will find that if you can access this loan, it tends to be less expensive than other options.