What is a USDA Loan?
A USDA loan is aimed at the homeowner looking to buy a property in one of the least densely populated regions of the country. This type of loan is offered by the United States Department of Agriculture and is appealing for the fact there is a zero down payment, which means 100% financing for the mortgage is offered. The ability to apply for this loan is subject to certain requirements, including income level and home location.
USDA Loan Program
The USDA loan (also known as Rural Housing Loan or USDA Rural Development Loan) is one of the lesser known home mortgage options available to buyers. The appealing 100% financing, zero down payments is offered by the US Department of Agriculture to encourage more people to set up home in communities with low populations. The USDA offers a variety of programs with this loan forming part of its Rural Housing Service.
However, this type of loan shouldn’t simply be seen as an option for those looking to buy a home far-removed from civilization. In truth, an estimated 97 percent of US land is deemed to fall within the guidelines of USDA financing, which amounts to nearly 1/3 of the country’s population.
How does the USDA loan work?
The process of applying for a USDA loan is quite straightforward and not much different to other mortgages like a conventional loan or FHA loan. It is similar to the FHA loan in that it is sponsored by a government agency. However, the chosen loan lender is required to handle 100 percent of the transaction. This means the local lender will take an active role in all aspects of the loan agreement from the initial application to giving a formal stamp of approval.
What are the down payment rules?
The most pleasing aspect of the USDA loan is the fact it is not subject to a down payment of any size. It is a 100 percent home financing option and one of the few left in today’s market. One of the other zero down payment mortgage options is the VA loan, which is exclusively available to past and present military personnel and their families.
For the regular civilians, the ability to apply for a USDA loan is certain to be the only option to get a zero down payment mortgage. Other loan types have minimum down payments in the region of 3 percent for conventional loans and 3.5 percent for FHA loans.
Decide if the USDA loan is right
While the USDA loan is an appealing option, it isn’t the only option or even the right option for every buyer. However, if you are a repeat buyer or first-time buyer looking to set up home in a rural area, you should check your eligibility to apply.
Let’s take a look at several of the benefits:
- Down payment is less than alternatives like FHA or conventional financing
- Mortgage insurance is typically low
- Credit score requirement isn’t too harsh
However, if you are looking to buy a home in a lively and vibrant major city, the USDA loan is not a viable option for you.