Moving to the Country: Saving Money on Rural Properties
As far as government loan programs are concerned, it seems like FHA loans and HARP refinances get all the attention. While both can offer tremendous advantages to home buyers and homeowners, another option exists that can greatly serve a specific part of the population: USDA home loans.
USDA home loans are mortgages specially designed for home buyers in rural communities. The program, which was developed by the U.S. Department of Agriculture, helps buyers obtain home loans with a guarantee from the USDA that results in numerous benefits.
Benefits of USDA home loans
It can be much more difficult for home buyers in rural areas to obtain financing. A lack of options pervades many regions of the U.S., but the USDA’s partnership with lenders across the country has created a pool of options where previously there was none. However, that’s just the beginning.
Borrowers who qualify for a USDA Rural Development home loan are not required to make a down payment. This means that 100 percent of their home purchase can be financed with a loan. When compared to the typical 20 percent down payment requirement on traditional home loans, it’s easy to see how the savings can add up fast.
Some borrowers may be worried that the lack of a down payment requirement may result in less competitive interest rates, but that couldn’t be further from the truth. USDA home loans feature competitive 30-year fixed interest rates. Since the loans are backed by the federal government, lenders are able to make low rate mortgages available to qualified borrowers.
Much like FHA loans, borrowers with less than perfect credit are not automatically turned away for a USDA loan. Borrowers must still provide a credit history report, but the qualifying standards are more flexible than other loan products, meaning borrowers with poor credit may still obtain financing.
Additionally, USDA home loans do not feature a maximum purchase limit, meaning borrowers aren’t stuck with only buying cheaper homes. Of course, the ultimate limit for the loan is up to the lender, but the lack of an official limit is good news for buyers who don’t want to be restricted in their property choices.
Eligibility requirements
While the benefits of USDA home loans are plentiful, not all home buyers qualify for these types of mortgages. While individuals and families who plan to live in a home located in an eligible rural area as their primary residence may qualify, certain restrictions apply.
Income eligibility is capped at 115 percent of the median income in an area. As this number can change based on the region, it’s important for borrowers to find out what the median area income is for their area.
Additionally, USDA loans only come in the form of 30-year fixed-rate mortgages, meaning borrowers seeking a shorter loan, or an adjustable-rate mortgage, would be better off looking elsewhere.
Borrowers must meet other financial requirements, including debt-to-income ratios, creditworthiness and a proven ability to repay. Also, borrowers must be at least two years out of a bankruptcy discharge.
Finally, the property must be located in an area approved by the USDA. Also, the home cannot be located within commuting distance to another home a borrower owns. These loans are intended for borrowers who will use the property as their primary residence, not as a vacation home or investment property.
