Unpacking USDA Loans
This post is brought to you by guest blog writer Tony Markland with Alcova Mortgage.
What? USDA has a program for purchasing a home? I thought they inspected meat?? Yep, that is exactly what I thought about 10 years ago as I looked to expand and understand more loan products that could serve my clients. Boy, did I learn a lot!
What is a USDA loan? USDA has many different “layers” shall we say. One of them is in fact, ensuring quality of meat, and one of them is also, a Single Family Residence Division that is dedicated to promote housing in rural areas. It’s called Rural Development, and we simply refer to it as “RD”. USDA loans are designed to help families, or any borrower for that matter, obtain financing with no down payment required. It came about in 1992 and was designed for underserved areas. USDA doesn’t actually lend funds, they simply set up the program, and lenders, like me, adhere to the guidelines that they have set forth and execute the loans. USDA does however help insure them with Government backing.
Typically these loans require a credit score of at least 620 (not everyone has this as a requirement) debt to income ratios must be in line, and of course, other underwriting guidelines in relation to income, assets, and employment must be met. But enough of the rules.
Navona Hart and I have helped literally hundreds of families realize the dream of owning a home utilizing this fantastic program. Over the years we have seen families grow, and enjoyed seeing and keeping in touch with so many of our clients. We have seen them start families, heard about the first time a birthday was celebrated, Thanksgivings, Christmases, first days of school, and so many more of life’s precious milestones. How unbelievably gratifying it was to be part of their lives and know that if this option was not explored, they would have never been able to purchase a home.
With maybe one exception, in my professional opinion, the USDA RD loan is the best option IF you qualify for it. So how do you if you qualify? You simply contact someone like me, answer a few questions, and see if the criteria is there. What I am about to lay out is by no means the underwriting guidelines for the program, however, it’s a great template to place on your particular situation to get the ball rolling.
- The home must be an area that is USDA Eligible
- There are Credit Score requirements in place for most lenders, ours happens to be 620
- There are household income LIMITS for each county. The limit will vary depending on how many people will be in the household. If you exceed those HOUSEHOLD income limits, you will not be eligible for the program
- Credit guidelines are more relaxed, so that “uh oh, I missed that payment by mistake” a few months ago, or that “ooops, I didn’t realize that payment was due” last year, may not carry as much weight in the USDA guidelines as most others, and potentially, have no effect on being approved.
- Because the program is backed by the Government, this program enjoys the low rates that go along with other Government Programs
- The Mortgage Insurance on a USDA loan (upfront and monthly) is far lower than that of an FHA loan. FHA loans also require a 3.5% Down Payment.
- It is IDEAL for First Time Home Buyers, however, you don’t have to be a First Time Home Buyer to take advantage of the program.
These are just a few of the highlights of the program, but to see if this loan is a fit for you, going through the full loan application process is optimal, and something I would welcome. While USDA is a great loan product, it does have it’s nuances, and unless you truly understand the program and how to navigate through it, you could run into issues later in the process.
I have the distinct honor or being one of the top USDA loan originators in the state of Virginia, and the Nation. I always take the time to ensure that any and all issues are brought to the forefront, and taken care of before the loan process ever begins. This makes for a smooth, and stress free loan experience and 5 star service throughout. Pre-approvals and consultations are always no cost. Please feel free to reach out today to see if you qualify for USDA! Navona and I look forward to serving you!
Click here for a quick educational video about UDSA!