By Rob Greenbaum, Vice President of Sales with AAFMAA Mortgage Services LLC (AMS)
The United States Department of Agriculture (USDA) is probably best known for ensuring the quality and distribution of our food supply. But, did you know that the USDA also guarantees home loans for purchasers in rural locations? If you’re looking at buying a home in a rural community, it’s worth seeing if a USDA Loan would be a good fit for your needs.
USDA provides loans and backs mortgages issued through the USDA Rural Development Single Family Housing Programs, which set the eligibility criteria for low-income borrowers in rural areas. As it turns out, the definition of rural geography is not very limiting. USDA defines rural areas as areas with fewer than 35,000 people living there — 97% of the country qualifies under this definition.
Types of USDA Loans
- USDA Direct Loan: As the name indicates, this is a loan you get directly from the USDA. To qualify, your income must be between 50 and 80 percent of the Area Median Income (AMI). Direct Loans offer loan terms up to 38 years, as opposed to the typical 30-year term. To apply, contact your local USDA Rural Development office directly.
- USDA Guaranteed Loan: USDA-approved lenders, like AAFMAA Mortgage Services LLC (AMS), originate Guaranteed Loans to borrowers with household incomes up to 115 percent of AMI and with credit scores above 620.
USDA Home Improvement Loan: Low-income families may be eligible for additional USDA loans or grants to make repairs to their home as long as those repairs improve the health of the residents or safety of the home, such as new flooring, a new HVAC unit, or repair/replacement of shingles. To qualify for a loan up to $20,000, applicants’ income must be less than 50 percent of AMI or cannot be eligible for any other type of financing. If you are 62 years or older and unable to repay an additional loan to make the home improvements, you may be eligible for a USDA grant of up to $7,500. In some cases, you may qualify for both an additional loan of $20,000 and a grant, giving you access to $27,500 for repairs.
Features of a USDA Loan
USDA loans can be a great option for buyers who can’t afford a down payment or who don’t qualify for a traditional mortgage because of credit troubles. These loans have several unique requirements, including:
Flexible Credit Requirements
The GUS Underwriting Findings Report will determine if a borrower can receive a “streamlined processing” for their USDA loan. Those who do not meet the “streamlined processing” requirements receive more stringent underwriting standards. Applicants without a credit score, or a limited credit history, can qualify with “non-traditional” credit references, such as rental and utility payment histories.
Your Income
To reflect the cost of living and can vary depending on where you’re buying, the size of your family, and other factors. USDA income limits To qualify for a USDA loan, your income must be less than 115 percent of AMI.
Co-Borrowers
If you need to boost your income to qualify, USDA mortgages allow you to add a co-borrower. However, your co-borrower must live with you in the residence and meet USDA’s credit, income, and debt guidelines. It’s also important that you and the co-borrower both understand that, by entering into the contract, the co-borrower will become responsible for loan payments if you stop paying.
Mortgage Insurance
If you put less than 20 percent down with a conventional mortgage, you usually have to pay for private mortgage insurance (PMI) — insurance that protects the lender against the risk that you might default.
There is no penalty for prepayment; you can pay your loan off whenever you’d like.
We’re Here to Help
When you’re buying a home, there are several types of loans to consider and AMS is ready to assist you. You’ll get an honest and fair assessment of your mortgage options from industry professionals who understand military life and have years of experience handling many different mortgage products.
Our mission is to ensure you obtain a low-cost and low-rate mortgage to build, buy or refinance your home even if it means doing business elsewhere. We want to make sure you get the right mortgage to meet your needs. Get a free mortgage assessment today. There’s no cost or obligation.