Dispelling Misconceptions about the USDA Home Loan Program.
No down payment…what’s the catch?
No catch. The government has a vested interest in the stability/prosperity of rural America economically. “Rural America” just happens to be 97% of the country geographically. Providing an affordable home financing option accomplishes this objective. Note, the only other “no down payment” program is reserved for military veterans – another group the government has a vested interest in.
With no down payment, are the interest rates high?
Nope. USDA interest rates are actually most often lower than 20% down conventional loans and in line with FHA interest rates. The government guarantees 90% of the value of USDA mortgages, mitigating significant lender risk. Accordingly, lenders can provide the loan at no down payment and attractive interest rates. If that weren’t enough, loan terms are fixed and the government sets the maximum interest rate.
Are the closing costs higher than other mortgage programs?
No. You’re probably noting a theme at this point, the government sets the rules and the goal is to provide an affordable home financing program. High costs would be counter to that, so the government has set cost thresholds. Of course, there are still costs. Fortunately, there are many ways to address them. Consumers can get seller contributions, gifts from families, finance cost in (when home value supports), and/or pay out of pocket.
Perfect credit must be need to qualify for a USDA Home Loan, right?
False. Like any mortgage program there are credit qualifications, but the USDA Home Loan Program was created provide reasonable homeownership opportunities – not make housing unobtainable. The credit standard for USDA home loans is no more restrictive than FHA mortgages, and less rigorous than conventional mortgages. Simply put, you don’t need perfect credit.
Do only people with low income qualify for the USDA mortgage?
That’s a common misunderstanding about USDA Home Loans. There is an income eligibility “cap” that household gross income cannot exceed, but people are usually surprised to hear how generous it is. This “cap” varies by county and number of household members. The lowest county household gross income cap in the country is $75,650 (1 – 4 person households) and $99,850 (5+ person households). Some county caps are as high as $110,750 (1 – 4 person households) and $146,200.00 (5+ person households). There are also factors that can increase/benefit your applicable “cap”, which we’ll evaluate with you.
Is the area I’m shopping for homes in eligible for a USDA mortgage?
There is 97% chance the answer is yes. Because the United States Department of Agriculture (USDA) is associated with farming, people often believe that the USDA Home Loan Program is only available in rural America. This is true and false. It is true because the mortgage program was established for the stability and prosperity of “rural” America. It is false because “rural” America for purposes of the USDA Home Loan Program is 97% of the geographic United States. We’ll be happy to let you know if the area you are seeking a home is in the 97% or 3%.
Do I have to be a first time homebuyer to qualify for a USDA mortgage?
You do not. Another misconception, likely due to incredible accessibility (no down payment, great interest rates, fixed terms, etc.), you do not have to be a first time homebuyer for the mortgage program. It may seem like the kind of mortgage you can only get once, but as long as you are purchasing your primary residence and you meet the other program qualifications/criteria, it can be your first home or your 10th.
