USDA Rural Home Loans

With the original intent of helping very low- and low-income families buy homes in rural areas, USDA loans can now be used by more homebuyers. USDA loans, also known as Rural Home Loans, are not exclusive to towns with a few hundred people. Homebuyers have used USDA loans in cities with populations as high as 25,000. Similar to other government home financing options, USDA loans' features help families purchase a home without breaking the bank.

Similar to the VA loan program, Rural Home Loans are one of the last standing home financing options to come with no money down to qualified borrowers. Compared to conventional loans, USDA loans' tiny down payments allow homebuyers to save thousands of dollars instead of spending them on 20-percent down payments. USDA loan borrowers can finance 100 percent of a home, repair a home, or property to build a home in a rural area. Other government loan options feature maximum prices on homes, but not USDA loans.

A way USDA loans help homebuyers save money every month is by doing away with private mortgage insurance (PMI). The absence of that monthly cost combined with low, fixed interest rates makes USDA loan payments more affordable in the long run.

Despite these money-saving features, qualifying for a USDA loan is not impossible. Applicants need not have perfect credit. Lenders do not require explanations from applicants with credit scores higher than 620. Also, there are no requirements for financial reserves to get a USDA loan. Better credit scores and debt-to-income (DTI) ratios equate to better interest rates.

When the USDA loan program took shape in 1987, it targeted low-income families living in rural areas that lacked banks and lenders. Now, it has expanded to include middle-income families in slightly more populated areas. For a direct single-family USDA loan, applicants' income can be as high as 80 percent of the area median income.
The program is available to first-time and repeat homebuyers, but it is a requirement that families currently occupy housing that is inadequate for the family's size. Furthermore, the USDA determines if the house being purchased is oversized, in which case the homebuyer must find a reasonably-sized home. More importantly, the family must be able to make mortgage, tax, and insurance payments

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