USDA Home Loans and First Time Homebuyers
First, it is important to note that you DO NOT have to be a first time homebuyer to obtain of USDA Mortgage. With that said, USDA Loans are great for first time homebuyers for many reasons. To start, the USDA Home Loan Program does not require a down payment. Many first time homebuyers are relatively young and have not yet been able to save the substantial down payment and closing costs associated with other mortgage programs. Particularly in a post-recession economy, tens of thousands of the dollars can be difficult to accumulate for anyone, let alone first time homebuyers. This is one of several reasons the USDA Home Loan Program is a perfect fit of first time home buyers.
USDA Home Loan Benefits for First Time Homebuyers
The benefit of a USDA Home Loan for first time homebuyers are numerous, so we’ll highlight just few key features here.
No Down Payment – Other mortgage programs can require a down payment of tens of thousands of dollars or 20% of the home purchase price. Do that math on the price range of home you are interested in…no doubt it is a significant amount of money. Unlike the USDA Home Loans, conventional mortgages offer lenders no loan backing by the federal government. Accordingly, lenders are taking on more risk by making the mortgage and in turn require large down payments to hedge that risk.
Closing Cost Options – Closing Costs are another expense associate with purchasing a home. Unfortunately, no mortgage program is without closing cost. Beyond the lender’s cost, expenses include property title work, homeowner’s insurance cost, an appraisal, property tax costs, etc. There is just no way around some cost with a mortgage. THE GOOD NEWS – the USDA Home Loan Program offers several ways to address closing cost:
- Seller Contributions
- Gift(s) from Family
- Finance cost into the loan (if supported by home value)
- Pay out of pocket
Fixed Interest Rates and Fixed Terms – Predictability is a cornerstone of any good mortgage program. Particularly with first time homebuyers, the ability to budget a housing payment is critical to financial well-being. The USDA Home Loan Program offers fixed interest rates only, and a maximum rate is established daily by the government for loans being locked that day. Another great thing, USDA Home Loan interest rates are competitive with FHA mortgages, and most often lower than conventional mortgages. Again, with lenders having loan backing by the government, USDA Home Loans offer less Lender risk, and in turn competitive interest rates can be offered.
Reasonable Credit Qualifications – As is sometimes the case with first time homebuyers, you may not have a lengthy or perfect credit history. You may simply have not had the time yet in life to establish a deep credit history or perhaps your credit has taken some dings in the past. It happens. Make no mistake, every mortgage program there are credit qualifications, but the USDA Home Loan Program was created to provide reasonable homeownership opportunities – not make homes 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 to get a home with a USDA Home Loan.
