Little Money Needed
The down payment requirement is often what holds people back from purchasing a home. The all-too-common need to put down 20 percent on a home is what people focus on, thinking that they will never be able to afford a home with that kind of money required up front. On the contrary, the USDA loan does not require any money down – you can finance 100 percent of the purchase price of the home. Right off the bat, this takes a huge amount of pressure off of the buyer as there are not thousands of dollars needed up front to purchase the home. In addition to not needing a down payment, you may be able to finance the closing costs into the loan, including the funding fee of 2.75 percent of the loan amount. You are able to finance up to 102 percent of the value of the property, according to the USDA, which can include the funding fee and closing costs. If you offered a lower amount for the home than it is worth, you have even more room to roll closing costs and the funding fee into the loan amount.
Low Monthly Payments
Sometimes it is not just the down payment that scares people away from applying for a mortgage, but the monthly payments as well. If you have a high interest rate, your payment is going to be high, even if the home you purchase is relatively cheaper than other homes in the area. With the USDA loan, however, the interest rates charged are much lower than any other loan program. Typically, they do not alter with debt ratios or credit scores, giving everyone that qualifies for this program a low interest rate and affordable monthly payments. Since the USDA program is for low-income families and homes that are located within rural areas, the purchase price of the home is not going to be very high as it is, further contributing to the affordability of the mortgage payment. In addition, the mortgage insurance that the USDA charges for any mortgage that has a loan-to-value ratio higher than 80 percent is well below the costs of any other program, giving you even more reasons to be able to afford the loan.
Flexible Guidelines
Credit scores, debt ratios, and income requirements often render many potential borrowers ineligible for a loan program, but that is not often the case with the USDA loan. In fact, the less money you make, the more eligible you become for the loan. This is not to say that they do not have credit or debt ratio guidelines in place – they do, but they are much more flexible than other programs, including FHA and VA loans. The guidelines include:
Minimum credit score of 580, but if your score is less than 620 but higher than 580, you will have to go through some additional evaluation to ensure that you can afford the loan. If your score is higher than 620, the guidelines are very simple to meet. If you do not have a credit score due to insufficient credit reporting, you are eligible to use alternative trade lines, such as insurance, utility, or rent payments.
Your income cannot be higher than 115 percent of the average income for the area. Every area differs, but you can find the maximum amount for your area on the USDA website. They do offer allowances on your income if you have children, elderly, or disabled family members living with you, enabling you to increase your chances of having income low enough to qualify for this affordable program.
Your credit history should show on time payments with no more than 2 late housing payments within the last couple of years. Your other payments should also be timely for the most part; however, a few late payments will not disqualify you for the program, especially if your credit score is above that 620 range.
The USDA loan makes it possible for people with low income to qualify for a loan. Granted, you have to purchase a home in a rural area, but a large majority of the United States falls into this category. A search on the USDA website will show you where these affordable homes are located, enabling you to purchase a home despite your low income and put the days of renting behind you.
source: blownmortgage.com
