The Essentials of USDA Loans
One of the most exciting parts of working in the mortgage industry everyday is explaining the different mortgage products available to homeowners. Many people do not realize how many affordable ways there are to buy a home. At Local Mortgage, we try to explain as many mortgage products as we can and help homebuyers choose the right type of mortgage for them.
Today, we will discuss the basics of loans backed by the United States Department of Agriculture (USDA). These USDA loans are an affordable mortgage option and they can be extremely beneficial to the people that meet the requirements. Read on to learn more about USDA loans and discover how Local Mortgage can help you find the right mortgage product for your home loan in Tennessee.
What is a USDA Loan?
When people talk about USDA loans, they are typically referring to home loans backed or guaranteed by the U.S. Department of Agriculture. While the USDA does issue some loans directly, the number of direct loans from the USDA pales in comparison to the number of loans issued by private lenders and backed by the USDA. By fully backing loans, the USDA makes it less risky for lenders to loan money to potential buyers, meaning those that qualify for USDA loans receive a better chance at qualifying for a mortgage than they would get otherwise.
Mortgage lenders take financial factors such as credit history, debt-to-income ratios, income, size of down payment, and employment history into account when they consider loaning money to potential buyers. People with poor numbers in these areas often struggle to qualify for a mortgage, and when they do qualify, their mortgages often feature higher interest rates than the mortgages received by people with better financial indicators. USDA loans give people who meet the USDA requirements a chance to avoid paying higher interest due to a below-average financial standing.
Therefore, USDA loans are loans backed by the USDA in order to give people a better chance at receiving a competitive mortgage. The financial backing from the USDA allows people to avoid paying a higher interest rate and get into a new home at a more affordable cost. In turn, this makes monthly mortgage payments lower for those that receive USDA loans.
The Goal of USDA Loans
The primary function of USDA loans is to help develop rural areas of the country by making housing more affordable to the people living in those areas. USDA loans have since expanded to some suburban communities, but the eligibility varies widely between regions.
As with the VA loan program and FHA loans, the goal of USDA loans is to make owning a home more affordable for the people that qualify. By doing this, the USDA gives people a better chance at establishing a foothold in society and putting a roof over their heads without fears that the cost of renting will increase. USDA loans give people more stability, a chance to own more assets, and they give people the opportunity to get ahead financially. Ultimately, this comes together to help improve the quality of life for people living in rural areas as well as to grow the economy.
USDA Loan Requirements
In order to qualify for any mortgage, you must meet some specific requirements; USDA loans are no different. In order to receive a USDA loan, you must be a citizen of the United States, live in an eligible area, and meet the financial requirements established by the USDA for that area. In most cases, the mortgage’s monthly payment must be less than 29% of the borrower’s monthly income, the borrower must have a dependable source of income, and the borrower’s credit history has to be acceptable to the USDA. The USDA often considers borrowers with higher credit scores first and streamlines their applications.
USDA loans are designed to help people in need of affordable housing. For that reason, they do not have the same down payment requirements that conventional loans have. The down payment is often one of the most difficult parts of buying a home since it is a large sum of money paid upfront.
It is possible to secure USDA loans with little to no down payment. That said, if a borrower can make a sizeable down payment, they should. Those that do not put a large amount down often have to purchase mortgage insurance, even with a USDA loan.
The eligibility requirements for USDA vary greatly depending on where you purchase a home, the average income level in that area, and your financial standing. Our Mortgage I.D. tool can help you determine if you could qualify for a USDA loan. If you have questions about USDA loans, then give our mortgage experts a call.
Major Advantages of USDA Loans
The financial backing from the Department of Agriculture results in the biggest advantages of a USDA loan. USDA loans allow people to secure mortgages at competitive interest rates and terms, even if they lack the typical financial qualities to get that low interest rate. Since interest rates are currently at historical lows, this gives people a chance to not only become homeowners, but to also save money in the process.
Receiving the chance to own a home is simply another advantage of USDA loans. By becoming homeowners, people increase the amount of stable assets they own and give themselves more financial stability. In turn, this gives them a better chance to participate in the economy and develop their communities.
Get a USDA Loan Through Local Mortgage
If you think you could qualify for a USDA loan, then give Local Mortgage a call. Our experts have more than 50 years of combined experience in the mortgage industry and they can help you determine if a USDA loan is the best type of mortgage for you. We take pride in helping find the best mortgage product for their situation.
The Mortgage I.D. tool from Local Mortgage is also a valuable asset you can use to get a better idea of what mortgage products might be great for you. Even if you have no idea whether you could qualify for a mortgage, Mortgage I.D. can be helpful for you. It is a great place to start for those that do not know what mortgages are available or where to begin looking for a mortgage.