What Is a USDA Loan?
A USDA loan is one that follows the guidelines set forth by the United States Department of Agriculture. The program is designed to help those who wish to buy and finance an owner-occupied home in rural or semi-rural areas, where conventional financing would be difficult to obtain for the very same property.
Borrowers apply directly with a USDA approved mortgage lender. USDA loans require no down payment and are offered as a 30-year fixed-rate mortgage, the most popular mortgage term in today’s marketplace.
USDA Loan Benefits
USDA loan benefits are many. There is no down payment required – it is one of the few loan programs in the industry that does not require a down payment. USDA loans carry with them some very competitive interest rates compared to other low/no down payment programs.
USDA loans come with a government guarantee that compensates the lender should the loan ever go into default. This guarantee is financed by two separate forms of mortgage insurance, an upfront premium rolled into the loan amount and an annual one paid in monthly installments.
USDA Income Limits
To be eligible for a USDA home loan, there are specific household income limitations that must be followed. The USDA loan is designed to assist those considered to have low to moderate-income. These limits can change based upon the location of the property and the number of occupants 18 years of age and older.
Income is verified with most recent tax returns, most recent paycheck stubs, and a year-to-date profit and loss statement for self-employed borrowers. Speak to your Ideal Lending Loan Officer to find out the income limitations in your area.
USDA Property Eligibility
The property must be owner-occupied and not used for a rental or investment property. The property must be located in an area currently approved by the United States Census Bureau. These areas are identified after the Census Bureau completes its census every 10 years. Due to the extended periods when the census is taken, homes may be in an eligible area even though the location looks nothing like rural.
Potential buyers should contact an Ideal Lending loan officer with USDA experience to help research if the property meets USDA guidelines.
It may be surprising to many, but even though the USDA is limited to certain parts of the country, there are more areas where the USDA loan can be used than not.
USDA Loan Process
The USDA loan process is much like any other mortgage process, with a few exceptions. The first is to speak with a loan officer about the program. If the USDA loan is an option, borrowers submit a loan application.
The lender will need documentation of income and asset information. Even though there is no down payment requirement for a USDA loan, there will be third-party fees charged for various services. After a review of income, assets, and credit, you will be issued a preapproval letter.
When a potential property is located, the loan officer needs the property address to research the USDA database to make sure the property is in an eligible zone. If so, the lender proceeds to order a property appraisal and title report.
Once the file is documented with the necessary paperwork, it is delivered to the underwriter who makes sure the loan file follows the required USDA guidelines. Once the file is approved, closing papers are ordered and delivered to the settlement agent.
The signed paperwork is then sent back to the lender for one final review. If the file meets all the lender’s instructions, funds are released and the USDA mortgage is funded.
Interested in getting pre-approved for USDA zero-down financing? Speak to a mortgage loan officer today and find out how much home you qualify for.
