We all know that
buying a house isn’t cheap. It requires hundreds of thousands of dollars with a
down payment of a ton of money. For some families, it’s not the house that they
can’t afford; it’s the down payment.
thousands up to tens of thousands of dollars is not always easy. Not many
people have that much money kicking around that they’re ready to part with. How can you purchase a home if you can’t
give the required down payment for a mortgage?
There are other
options besides a conventional bank mortgage that is more affordable, especially for first-time homebuyers. One of
those is a USDA loan.
What is a USDA Loan?
A USDA loan is a
mortgage backed by the United States Department of Agriculture, in part with
the Rural Development Guaranteed Housing Loan program. Don’t let who it’s by
trick you though. You don’t need to live on a
farm to qualify for this mortgage.
The loan started
as a way to promote the appeal of rural and suburban living, and to make it
more affordable. It’s a 100 percent financing loan that requires no down
payment from you.
What Are the Benefits?
There are many
benefits to the USDA loan besides the no down payment. However, not having to
front any money is what draws people towards this loan.
rates for a USDA loan are fairly
competitive compared to other mortgages. You’ll find that these loans offer
some of, if not the lowest interest rates on the market. This is another benefit that makes getting a
mortgage more affordable.
The credit guidelines are quite flexible compared to a conventional bank loan. You do not need to meet a minimum credit score (although the higher your score, the better). Because the credit score for a USDA loan can be low, it opens up more opportunities to those who have had financial issues in the past.
There is a
location requirement for this loan. However, you’ll find that what the country
defines as rural and suburban actually
covers quite a bit of land. You could be only a few miles outside of a major
city and qualify as a suburban location for the loan.
What Are the Drawbacks?
As with any loan, there are drawbacks. Although there is a lot of appeal to the USDA loan, there are points that some may consider as a downside. The first is that the loan is location specific. For some, that’s a benefit because they want to be in a rural or suburban location. For others that prefer to live in the city though, you would not be eligible for this loan.
is the type of home you live in. The USDA
loan is for single-family homes. Multifamily properties that are common for
rentals would not be eligible for the USDA loan.
You can only use
the loan for purchasing a home. You cannot do a
cash-out refinance with the USDA program. That means you wouldn’t be able to take out a second loan to help pay
for school or repairs to the property.
The USDA loan
could be what you need to make a mortgage affordable for you. Consider your
options and speak to your trusted lender about the USDA loan.