You are probably aware of the various low down payment mortgage loan options for people who don’t make a ton of money. But you may not know about a great option, sponsored by the U.S. Department of Agriculture, for home buyers who don’t want to live in an urban area. And, no, it’s not just for farmers and ranchers. A USDA loan, which is issued by the USDA Rural Development Guaranteed Housing Loan Program, is a zero down payment mortgage loan available to eligible suburban and rural home buyers. If this sounds like something that would benefit you, you’re probably wondering whether a USDA loan is right for your Floresville house. Well, let’s see.
Overview of USDA Loans
Statistics show that in 2017 “the USDA helped some 127,000 families buy and upgrade their homes. The program is designed to ‘improve the economy and quality of life in rural America.’ It offers low-interest rates and no down payments, and you may be surprised to find just how accessible it is.” It is similar to a VA loan and while it is not a FHA loan it does follow some of the same guidelines.
The basic elements of a USDA loan are:
- Backed by the U.S. Department of Agriculture
- Is available to homebuyers of low to average income for the area
- Offers 100% financing
- Offers reduced mortgage insurance premiums
- Features below-market mortgage rates
And, as we mentioned, you don’t have to be trying to purchase a farm to qualify for a USDA loan. In fact, according to one mortgage expert, these loans have wide availability: “97 percent of the geographic United States is in USDA loan-eligibility territory.” Launched in the 1990s, this loan program was fairly recently updated to include suburban home buyers across the nation. Typically, USDA loans feature 100% financing along with better rates than other low down payment loans. They are also fixed rates loans, can be used by both first-time buyers and repeat buyers (though homeowner counseling is required), and are offered as either 30-year or 15-year loans.
Benefits of USDA Loans
If you’re still wondering whether a USDA loan is right for your house, just consider the many benefits, as listed by another home loan expert:
- Backed by the USDA so lenders are willing to take on more risk
- Zero down payment, as opposed to 3.5% to up to 20% for other loans
- Low-interest rates
- Flexible credit requirements
Another attractive benefit of a USDA loan for your house is that while private mortgage insurance (PMI) is required, this cost is fairly low in terms of both up-front payment and monthly payments (having been lowered in October of 2016). One mortgage market watcher reports the following for USDA loan PMI:
- “For purchases, 1.00% upfront fee paid at closing, based on the loan size”
- “For refinances, 1.00% upfront fee paid at closing, based on loan size”
- “For all loans, 0.35% annual fee, based on the remaining principal balance”
USDA Loan Eligibility
And, of course, in determining whether a USDA loan is right for your house, you will need to know about your eligibility. Let’s consider location first. In this area of south Texas there are a lot of areas that are eligible. Even areas that one would not think is eligible will qualify.
If you plan to buy in a rural area, you’ll certainly be eligible. But keep in mind that rural eligibility also includes towns with populations less than 20,000. You may also be eligible, according to those in the know, if you are seeking to buy in a city with a population of 35,000 or less when that city doesn’t “have mortgage programs available for low and moderate-income families” or that is “more rural than urban in character.” All of Wilson County and Atascosa county qualify due to population counts. So any home in Floresville or La Vernia or Poth or Stockdale that meets the loan value guidelines is eligible. Some homes in Bexar and Guadalupe county are eligible.
Further eligibility requirements include:
- Income – Your income must fall below 115% of the median income in your area. Be aware that this income requirement considers your entire household income, not just the buyer’s income. So if the median income in your area is, say. $40,000, you can qualify even if your household income is $46,000.
- Occupancy – You must intend to live in the home, and it must be your main residence. This means that if you are purchasing the home for an investment property, you won’t be eligible for a USDA loan.
- Debt-to-Income Ratio – The debt-to-income ratio is total debt divided by pre-tax income. Typically, USDA loan eligibility requires a debt-to-income ratio of 29%/41%.
- Citizenship – You also have to be a US citizen, have permanent resident status, or be a non-citizen national or qualified alien (with the ability to show proof of residency).
Sorting It Out With Your Agent
So, is a USDA loan is right for your house? If you are interested in purchasing a home in a suburban or rural area with 100% financing, no down payment, low interest rates, low mortgage insurance fees, and relatively low monthly payments, it very well maybe. But how do you get started, especially when most lenders don’t even advertise the fact that they offer USDA loans? That’s where your qualified local real estate agent can be a huge help. Your agent can point you in the right direction and help you determine your eligibility. The USDA website allows an agent to check the address of a home for sale to verify if it qualifies under the program.
We can certainly help you navigate all the complexities of a USDA loan by connecting you with a lender who understands the program. Just contact us today at (210) 216-7722!
Faye Y Taylor, Floresville TX Realtor®
Serving all of Wilson County and the South Texas area