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March 2019

USDA Loans: Benefits & Eligibility

If you think you can’t qualify for a mortgage or can’t afford a down payment, you may have to think again. The U.S. Department of Agriculture backs no money down payment mortgages to allow low-income borrowers to purchase homes in suburban and rural areas. Many of these areas are even prime commuting locations for major cities with strong job markets.

What are the Benefits of a USDA Loan?

The main benefit to a USDA loan is that it allows you to buy a home now rather than trying to save up for a down payment while you’re throwing away money on rent. In some cases, you may be able to qualify with zero money down.

In addition, the monthly payments are designed to be affordable. If your income is too low to qualify for standard 15 and 30-year repayment terms, USDA loans allow you to stretch out the repayment period for up to 38 years. While this would normally mean increasing your interest costs, you may also qualify for payment assistance that reduces your interest rate to as low as 1%.

Finally, USDA loans are federally-backed. Even though you work with and pay a private lender, the federal government would step in to reimburse the lender if you defaulted on the loan. That decreases the lender’s risk, makes it easier to be approved, and lowers the interest rates offered.

Who is Eligible for a USDA Loan?

USDA loan eligibility depends on whether you meet requirements in these areas:

  • Income Limits
  • Credit Minimums
  • Homeownership Status
  • Approved Property Locations

There is an income limit of up to 115% of the median income of the area where you’re looking to buy. You must also have a clean, although not necessarily perfect, credit report. This means no recent late payments or accounts taken into collections.

The USDA loan program is open to both first-time buyers and current homeowners. However, if you are a current homeowner, your current home must be too far from your job or not in adequate, liveable condition for you to qualify.

If you qualify, you will need to purchase a home in an eligible rural area which you can check via USDA’s Income and Property Eligibility Site. If you don’t want to do all the work yourself or need help, you can go to Get a Rate for a free online quote.

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