July 8th, 2017
During your house search, you've probably heard more mortgage names than you can remember. But there's one with which you might be unfamiliar - a USDA loan. "Wait," you say. "USDA? You mean, like, farms?" Yes, that USDA - the United States Department of Agriculture - but they offer a mortgage option that, if you and the house you're looking at qualify, might surprise you with its benefits. One thing to know, though: the USDA does not issue loans - a portion of the loan is backed by the USDA, but issued and serviced by an approved lender.
Humble roots - critical needs
The department's history in helping homeowners goes back to 1935, when Franklin D. Roosevelt signed legislation that formed the Resettlement Administration to help relocate families impacted by the Depression and support farmers left devastated by the Dust Bowl. Among the administration's roles was to provide loans to farmers for land and equipment; and this was later expanded in 1946 by the establishment of the Farmers Home Administration (FmHA), which provided financing in rural areas for housing, community facilities and business ventures.1
USDA loans (or section 502 Home Loans) still maintain their focus on rural home buying. On its website, the department offers this map - http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do - that allows you to type in an address to see if a house is in a qualified rural area. And don't count out a house because it's in an established community, someplace urban, etc.: qualifying homes can be found in the midst of what you may consider to be developed areas, so it's always a good idea to do some homework and double check!
How can you harvest the benefits?
As with any loan, you'll need to pre-qualify with an approved lender and meet certain requirements for a minimum credit score, debt-to-income ratios, etc. - all things you can discuss with your lender. When it comes to your income, you'll need to show that you have up to 115% of the median income for the area in which the house is located.
Because the USDA backs a portion of the loan - currently, only a 30-year fixed loan is available - your lender can feel more secure in offering financing and better rates. Aside from the better rates, another benefit is that you can fully finance your house - no money down. The USDA also allows gifts to be used toward your mortgage.
Don't go down the garden path alone
Like all mortgage products, USDA loans have features, benefits and requirements that are best explained by a mortgage professional. If you've found a house that qualifies, it's time for you to see if you do - talk to a trusted lender today to learn if a USDA loan is the right choice for your needs.