A USDA home loan is a zero down payment mortgage that can be used to buy, build or repair a home that’s located in rural America. The goal of these programs is to keep well built, affordable housing accessible to low income rural American communities. Along with a zero down payment, USDA loans offer lower interest rates and longer repayment periods on select programs. Also, they do not require borrowers to pay private mortgage insurance as you would with a conventional mortgage. USDA loans are typically issued by their lending partners. Talk to your local bank or mortgage broker and see if they offer one of these programs. Eligibility is based on the location of the property and the income of the borrower.
USDA Single Family Housing Direct Home Loan
This program is used to help low and very low income applicants safe, sanitary housing that they can afford. This is possible by providing payment assistance to the borrower. The amount of assistance provided is based on the adjusted family income.
The current interest rate as of February 1, 2024, is 4.625%. Which, compared to the national 30 year fixed rate average of 7.14%, is very low. It can be taken down to as low as 1% after being modified by payment assistance. This program also offers a 33 year payback period, with the option of extending it to 38 years for very low income borrowers.
To apply for this program, you must currently be without decent, safe and sanitary housing. You must be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet. And, you must use the home as your primary residence. Read the full list of qualifications.
Single Family Housing Guaranteed Loan Program
Now, lets talk about the more common USDA loan program. This program assists approved lenders to provide zero down loans to low and moderate income households. A 90% loan note guarantee is provided by the USDA to lenders, which reduces the risk to them. Therefore, they are more likely to issue more of these loans.
Applicants must meet income requirements set forth by the USDA as well as use the dwelling as their primary residence. Although there is no credit score requirement, the applicant must demonstrate an ability to manage debt.
Unlike the first program we discussed, this will be on a 30-year fixed rate term. It is the same in the regard to zero down payment.
Conclusion
In conclusion, this can be a great option for low to moderate income borrowers who are looking for an affordable home loan product in a rural area. Check the map to see if your city qualifies.