What You Need to Know About USDA Loans

by Paul Valeri 11/26/2018

The US government has been helping Americans achieve their goal of homeownership for decades. Through programs offered by the Federal Housing Authority, the USDA, and the Department of Veterans Affairs, millions of Americans have been able to afford a home who would have otherwise struggled.

The focus of today’s post is one such service: loans offered through the USDA Rural Development program.

If you’re hoping to buy a home in the near future but are worried about being able to save up enough for a down payment or build your credit score in time, USDA loans could be a viable option.

Let’s take a look at some of the common questions people have about USDA loans:

Do I have to live in the middle of nowhere to get a USDA loan?

The short answer is “no.” rural development loan eligibility for your area is laid out on a map provided by the USDA. Most of the suburbs outside of major cities, as well as nearly all rural areas, are covered by the rural development program.

Can I qualify for a USDA loan if I’ve previously owned a home?

Yes. You may be eligible for a loan as long as you’re not the current owner of a home that was purchased through the rural development program. So, for example, if you own a home financed through the USDA and wanted to buy a second home and rent out the first one, you wouldn’t be able to finance your second home through the USDA.

How does the USDA loan guarantee work?

When you buy a home, a lender asks you to make a down payment. If you don’t have a down payment, the government (USDA, VA, or FHA) insures the down payment on your home rather than you paying it up front.

Will I have to pay mortgage insurance?

Unlike other subsidized loans, rural development loans require a “guarantee fee” rather than PMI (private mortgage insurance). The guarantee fee is 1% the total mortgage amount and this can typically be financed into the loan (so you don’t have to pay up front). In addition to the guarantee fee, USDA loans also charge an annual premium for the lifetime of a loan.

What are the qualifications for a USDA loan?

To find full eligibility information, complete the survey on the USDA’s eligibility website to find out if you qualify. However, the general qualifications are:

  • U.S. citizenship

  • Buying a home in a qualifying area

  • 24 months of income history

  • A credit score of 640 or higher for streamlined processing

  • Income high enough so that your monthly payments do not exceed 29% of your monthly earnings

What is the direct loan program?

The USDA really offers multiple urban development loans. The guarantee program, for which most single families utilize, and the direct loan program. Direct loans are designed for families who have the greatest need. You can also find out if you’re eligible for a direct loan by filling out the questionnaire on their website.



About the Author
Author

Paul Valeri

Put my record as the longest standing Certified Residential Specialist in all of Western Connecticut to work for you today. Licensed broker in CT since 1973, REALTOR Emeritus, I remain at your service, full-time and vital as ever, specializing in Fairfield and Litchfield county residential & serious commercial activity. My picture on the porch of my current home speaks to the fact that I, also, specialize in the design, sale, and construction of classic full log homes, carefully crafted out of specimen full logs originating from First Nation forests off the west coast of British Columbia. Scandinavian scribed, these full log homes are rarely, if ever, available in the eastern United States.

Paul Valeri: born In 1948, married, resides in Bridgewater, CT in their lodge of full log western red cedar. A graduate of the University of Notre Dame. Bronze Star decorated Vietnam Veteran. Owner-Broker of Paul Valeri, REALTORS since 1975. President of the Non-Profit Development Corp of Danbury since 1981. Founder of Danbury’s Vet House, home for ten previously homeless veterans. Canadian Board of Directors for the Miramichi Salmon Association, and founder of its First Cast MSA, a mentorship program that introduces new blood to Atlantic salmon fly fishing. Trustee with the Danbury Museum & Historical Society and its Moderator for The Hat City Ball.

Hobbies include mountain hiking, fly fishing, and playing golf (badly), walking preferred!