If you're¬†among the 36 percent of the population buying houses in rural areas, a USDA Rural Housing mortgage might be your best option -- by far.
Many rural and suburban neighborhoods are eligible across the U.S. If you are ready to buy a home, consider this little-known mortgage product.Click to see today's rates (Aug 19th, 2017)
The USDA Rural Housing program was¬†created as part of the¬†Housing Act of 1949¬†to encourage development in areas that are often less-appealing to mainstream home buyers,¬†says Gene F. Thompson, III, President of InterLinc Mortgage Services in Houston.
The agency's definition of "rural" may surprise you. According to the 2010 Census, about 97 percent of the US land mass is considered¬†"rural" under one program or another, and this applies to about 36 percent of the US population.
If your property is in a rural area,¬†you should check¬†your eligibility and see if a USDA mortgage could save you some money.Click to see today's rates (Aug 19th, 2017)
USDA home loans offer several pluses. The only other mainstream product available that requires zero down is the VA home loan. However, only home buyers with eligible military service can qualify.
Other benefits to USDA home loans include:
Home buyers who think they can't qualify to buy a home should look into the USDA loan. They could find that they can buy a home, even if they have been turned down for other loan programs.
To be financed¬†with a Rural Housing loan, the property must be located in a "rural" area, as the USDA defines it.
Keep in mind that "rural" includes many suburban neighborhoods just outside of major cities.
It's easy to determine property eligibility. Plug the address into the field labeled "Find Your Address" on the USDA Property Eligibility Map, and it will tell you.
In addition, the¬†home you selected must be in good condition, a "decent, safe, and sanitary house" without too many repairs needed to make it habitable, says Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan. "For example, it wouldn't be sanitary or safe if the roof leaked," he says.
You¬†must intend to occupy the home as your primary residence -- no vacation homes or rentals are allowed.
Eligible property types include:
You can buy a duplex if you only purchase one half of it. No income-producing components are¬†allowed, including¬†mother-in-law apartments, rental units, or any farming / ranching.
Additionally, USDA requirements state that the home should be ‚Äúmodest‚ÄĚ in size, cost, and design.Click to see today's rates (Aug 19th, 2017)
USDA home loans come in two varieties -- the Guarantee program, in which private lenders fund the mortgages at market interest rates, and the Direct program, in which the government itself lends the money at below-market rates.
To be eligible for the Guarantee, program, applicants' household income cannot exceed¬†115 percent of the Area Median Income (AMI). This amount is actually rather generous for an income-based program -- you can check your eligibility using this income eligibility tool.¬†
For the Direct program, your income can't exceed 50-to-80 percent of the AMI and you must be unable to obtain an affordable loan from other sources.
The Direct program is available from the USDA itself, not from mortgage companies and banks as is the Guaranteed program.
The USDA says you're¬†able to repay the mortgage if your¬†proposed monthly housing expense does not exceed 29 percent of your gross (before-tax)¬†income.
Proposed housing expense includes principal, interest, property taxes, homeowners insurance, and HOA dues, if applicable. Together, these expenses are known as "PITI."
In addition, your¬†total credit obligations -- housing debt plus other account payments -- should not exceed 41 percent of your¬†gross income.
However, lenders can approve ratios as high as 32 and 44 percent in certain cases. A credit score of at least 680, plus any one of the factors listed below may¬†get you approved with higher ratios:
A credit score of at least 640 is deemed credit-worthy, as long as you don't have:
The USDA home loan credit score minimum is 640. Those who have scores below this level should look into obtaining a rapid rescore to remove erroneous or outdated information.
Doing this can raise a credit score fifty or even one hundred points in just a few days.
Each lender will determine its own closing costs, so shop around for the best rate/fee combination.
USDA mortgages do have mortgage insurance, however, and that cost is standard across all lenders:
In comparison, FHA mortgages have upfront fees of 1.75 percent, and most borrowers pay annual premiums of .85 percent.
In many cases, rates for USDA home loans are even lower than those for conventional (non-government) mortgages.
Although Rural Housing loans are backed by the government, their rates are not set by the USDA. It's up to borrowers to shop with competing lenders and choose the best offer.
Start shopping now by checking today's USDA rates.Click to see today's rates (Aug 19th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)