All You Need To Know About Texas USDA Loans
If you have not yet heard of the USDA loan, you are not the only one. In many ways, this most advantageous form of financial aid has not been greatly publicized, until today.
In the following article, we will provide you with all you need to know about how USDA loans work.
The USDA Loan is available to most regions of the United States and offers zero-down mortgage opportunities. These loans come from private lenders with guarantees from the USDA. And are primarily used to provide homebuyers in rural areas a chance to purchase homes in less industrialized areas.
These USDA loans function in the same way as a government-backed mortgage. To gain the loan a homebuyer will work with a USDA lender to become preapproved before putting down an offer, going through the loan appraisal, getting the lender underwriting and closing the deal.
While the 0-down offer is probably the most enticing thing about this deal, there are some other benefits here too. Following are 10 other facts and benefits that you may not have known about.
1) Most of The U.S. Is Eligible
A USDA loan can be purchased for financing housing in just about any “rural area” and many people will be surprised what constitutes such a zone. You might think this means living miles from civilization, but actually any region with a population of under 35,000 could fall into this category. As a matter of fact, most of the US (97%) is eligible for this loan.
2) USDA Loans Are Only For Primary Residences
But, you are looking for that sweet little home away from home in the countryside? Sorry, the USDA loan is offered only to those homebuyers looking to finance their primary residence. This means that the home you would like to mortgage with a USDA loan will have to be the place where you reside all the time.
3) Many Property Types Are Eligible
When you were here rural, you may get the idea of a ranch or sprawling Southern Estate or anything with endless acreage. That’s not usually the case, USDA loans are in place for just about any size of the dwelling and include new constructions and single-family homes as well, the opportunities are truly extensive.
4) You Can Make Too Much Money To Qualify For A USDA Loan
The USDA loans will not be catering to all budgets either. Your household income levels will play an important role in deciding your eligibility for this. As a rule of thumb, a USDA loan will only be for those making within 115% of the areas average income.
Lenders will be looking at the household income although there will be some deductions that qualify for subtraction.
5) The Loan Program Encompasses Two Separate Types
The term “USDA Loan actually encompasses a couple of different loan types. Here is what you need to know about these very different programs.
- USDA Direct Loan. This type of loan provides you with funds coming from the USDA directly. To qualify for this type of support, you must have an income equal to 50 to 80% of the local average. The terms can also be much longer than the average 30 years, up to 38 years in some cases. Plus, it comes with special interests rates that make the monthly payment plan far more attainable. Those looking for a USDA Direct Loan will need to contact their Rural Development office.
- USDA Guaranteed Loan. The USDA Guaranteed Loan functions very much like any other loan backed by the government, like FHA and VA Loans. This type of loan must be processed through valid USDA lenders and uses the household income numbers to decide who is eligible. Because these loans are guaranteed by the USDA, they are a little more stringent in their policies. For example, the borrower must have a credit score of 640.
6) Even If You Have Had A Foreclosure Or Bankruptcy, You Can Still Qualify For A USDA Loan
If you have hit a rough road financially, you can expect the USDA to be very understanding. There is a chance for those recovering from foreclosure and bankruptcy. After a Chapter 7 Bankruptcy or a foreclosure, the USDA will ask for a three-year waiting period before eligibility is restored.
7) They Have Some Of The Lowest Mortgage Insurance Fees
When you request a loan through the regular mortgage process, you will need to pay up roughly 20% down as well as an additional monthly fee for “Private Mortgage Insurance”. This PMI protects the interests of the investment and can be anywhere from 0.5% to 1% of the entire loan value. In the traditional framework, this can be a very expensive payment and a $200,000 loan will cost as much as $200 a month in just PMI.
The USDA offers a much more rewarding scenario. The upfront fee is a mere 1% of the total loan amount and the annual insurance will come out to 0.35% of the loan. This means that on the same loan described above, the insurance payments would be $58.
8) Flexible Credit Guidelines
The USDA has not made any specific credit score too low, but you can expect that your USDA-approved lender will require a score of 640 or more. This is the number held by the USDA’s Guaranteed Underwriting System (GUS) and is used to determine credit risk. If your score is below 640, your loan would have to be underwritten manually, if your lender decides to grant you the loan.
9) They Allow You To Use A Co-borrower
The USDA also allows a co-borrower to sign on with you and promise to continue paying the loan if you will not be able to. There is no requirement to use such a co-borrower, but if in the event that you have one it can improve certain requirements and make you seem more creditworthy. You should note that the borrower should be someone who lives with you and the same income, credit and debt guidelines that apply to you will apply to them as well.
10) They Have No Pre-payment Penalty
Another important benefit is the lack of any penalty for prepayment. While it does seem unlikely that anyone would make larger payments on their loan than necessary, there are some situations in which the lender may require the borrower to pay a penalty if they have managed to pay their loan off before a specific timeframe. The good news, this is not a stipulation you will have to face when taking out a USDA loan.