Exploring USDA Loans: Features & Benefits
What Is a USDA Loan?
A USDA loan is a type of mortgage that is insured by the U.S. Department of Agriculture (USDA). These are specifically designed to help promote home ownership in rural and suburban areas. Some of the key features of a USDA loan include:
No down payment
USDA loans don't require a down payment upfront, which makes it easier for limited-income borrowers to get into a home without a traditional down payment.
No maximum purchase price
With this program, there’s no cap on the purchase price of the home as long as both the borrower and the property meet USDA eligibility requirements.
Reduced mortgage insurance
USDA loans usually have reduced mortgage insurance costs compared to conventional loans, which require PMI with a 20% down payment or until the amount of equity in the home reaches 20%.
What Can a USDA Loan Be Used For?
What Can a USDA Loan Be Used For?
Primary Residences
A USDA loan can be used by limited-income buyers to purchase a primary residence in eligible rural or suburban areas. By offering 100% financing, this program provides an affordable pathway to homeownership for individuals who may not have enough savings for a traditional down payment.
Manufactured Homes
USDA loans can also be used to purchase manufactured homes if they are permanently affixed to a foundation. This lets borrowers take advantage of both the attractive cost of manufactured housing and the benefits of USDA financing.
Home Renovations
For properties in need of repair or renovation, programs like the USDA Rural Development Loan and USDA 502 Direct Loan allow borrowers to add the cost of renovations to the purchase price of a rural home.
Pros
- 100% financing with $0 down payment needed
- Shop for homes in less competitive markets
- Enjoy decreased private mortgage insurance (PMI) costs
- Includes options for closing cost assistance
- Ideal for low-income families
Cons
- Homes in urban areas may not be allowed
- Borrowers must meet income eligibility guidelines
- An upfront guarantee fee and an annual fee are required
- May have a longer approval process
Talk to our mortgage experts today about finding the right loan for you.
Alternatives to a USDA Loan
- FHA loans are backed by the Federal Housing Authority
- Offers flexible borrower eligibility requirements
- Minimum down payment is of 3.5% of the home’s purchase price
- Requires mortgage insurance premiums (MIP)
- VA loans are available to eligible Veterans, active-duty service members, and certain military spouses
- No down payment or private mortgage insurance required
- Flexible borrower credit and income requirements
- Can only be used to buy, build, or refinance a primary residence
- Conventional mortgages are not backed by the government
- Minimum down payment required is 3%
- Private mortgage insurance (PMI) is required with less than 20% down
- Can be used for multiple property types
- No restrictions on property location
How Do I Know If a USDA Loan Is Right For Me?
You don’t have money saved for a down payment
A USDA loan can be the ideal solution if saving for a down payment has been a barrier to purchasing a home. Since these mortgages offer 100% financing with $0 down and no private mortgage insurance (PMI) requirement, they can provide an affordable path to ownership.
You love living in the country
With this program limiting borrowers to properties in specific rural and suburban areas, it's a great option for individuals and families who prefer the quiet country life. These areas often have larger lots, more open space, and a more relaxed lifestyle than city environments.
You qualify as a limited-income household
USDA loans are designed to support homeownership among individuals and families with limited or fixed incomes, and have caps on how much you can earn per year to qualify. If you fall within the program's guidelines, you can access affordable financing with no down payment and competitive interest rates.
When Is the Best Time to Use a USDA Loan?
The best time to use a USDA loan is when you’re ready to buy a home but don’t have enough funds for a traditional down payment. Since this loan offers 100% financing with no down payment required, it makes homeownership attainable for people who are in a season of life when saving for a large down payment isn’t feasible but owning a home is a priority.
However, this may not be the best choice if you rely heavily on public transportation or want quick access to urban comforts, since eligible rural areas often lack adequate amenities. You may also want to wait to take out a USDA loan if you expect your income or household size to change soon, because this could affect your eligibility.
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FAQ
Can I use a USDA loan to purchase a property with acreage?
Do properties have to meet specific requirements for water and sewage systems?
What is the USDA loan guarantee fee?
Are there any restrictions on who can apply for a USDA loan?
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