USDA Loan Benefits & Eligibility
The U.S. Department of Agriculture (USDA) backs mortgages as part of its Rural Development Guaranteed Housing Loan program. These USDA loans are available to rural home buyers with low-to-average income for their area. They offer financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.
Typically, a good Loan-to-Value (LTV) ratio for a home loan is 80% or lower, meaning that the loan is worth 80% or less of the value of the home. But the USDA offers 100% LTV loans that allows purchasers to borrow a total of 100 percent of the property value. (In an example of a home equity loan, if your home is worth $200,000, and your mortgage balance is $150,000, a 100% LTV home equity loan would give you $50,000 in cash, as your loan balances would equal your property value.)
USDA loans stack up with other loan programs as having some of the lowest rates available, typically matched only by the VA (available only to veterans). USDA loans offer below-market interest rates (often 0.5% to 0.75% lower than FHA or conventional loans) because their government guarantee protects lenders against loss. The rate is dependent on size number of monthly payments, credit score, existing debt, and size of a down payment.
USDA eligibility is based on the buyer and the property, and typically has the following requirements:
- The home must be in a qualified “rural” area, which the USDA typically defines as a population under 20,000 people.
- The buyer cannot make more than 15% above the local median income.
- Home must also be used as the buyer’s primary residence (not a vacation home or investment property).
Borrowers also must meet USDA’s “ability to repay” standards, which includes:
- Steady job and monthly income
- FICO credit score of at least 640
- Debt-to-income ratio of 41% or less in most cases
If you are interested in buying a rural home, a USDA 100% LTV loan could be a great option. The loan experts at Greendale Ag can walk you through the requirements and options and help determine if it is an ideal product for you. Contact us today to learn more.