What is a USDA Loan?
USDA loans are a type of mortgage backed by the U.S. Department of Agriculture (USDA) that are designed to help lower-income people with limited savings become homeowners in rural communities and smaller towns. USDA loans typically require no down payment, and interest rates and closing costs are typically lower than they are for conventional loans and other government-backed loans.
USDA loans can be a good option for people with limited savings and lower credit scores who want to buy a house in a community with a lower population. Here are answers to some frequently asked questions so you can determine whether this loan might be a good option for you.
What sort of community do I need to buy a home in to qualify for a USDA loan?
USDA loans are often called "Rural Development Mortgages." As a result, people often think they need to buy in a rural community in order to qualify. However, the USDA's definition of "rural" in this case is far broader than you may think. Many small towns and smaller suburban communities also qualify.
To see if a house or area you're interested in would qualify for a USDA loan, check out this USDA property eligibility map.1
Do I need to be lower-income to qualify?
To qualify for a USDA loan, you need to make no more than 115% of the median income for your area. This is calculated on a county-by-county basis and adjusted based on family size, so check out this USDA map and county-by-county list for income eligibility.2
It's worth noting that these income limits can sometimes be surprisingly high (over $90,000 for a family of four), since they are based on the median income of your county and your family size. Some additional assistance may be available to those who are considered low or very low income (80% of the median income for your area or less).
Do I need to be a first-time home buyer?
No, you do not need to be a first-time home buyer. You simply need to be purchasing a home you will live in as a primary residence. And you typically need to be unable to qualify for another type of mortgage.
If you buy a house with a USDA mortgage, you don't need to put any money down.
What sort of down payment is required for a USDA loan?
Unlike almost all other types of loans, a USDA loan does not require a down payment. You can also use money from gifts and assistance programs to cover the closing costs. This makes them a good option for those with extremely limited savings.
Do I have to pay mortgage insurance on a USDA loan?
Private mortgage insurance (PMI) is a type of insurance borrowers typically pay on a loan when they have less than a 20% down payment. You are no longer responsible for paying for PMI once you have 20% equity in the home.
While you won't owe PMI on a USDA mortgage, you will need to pay for government-issued mortgage insurance. However, the monthly payment for this insurance is typically lower than it would be with a conventional or FHA loan.
I've heard it takes a long time to get a USDA loan. How much longer does it take than a regular loan?
It used to take a long time to get a USDA loan. But that has changed since the process has been streamlined. The time from application to closing is now similar to that of other types of mortgages.
Can I use it for multi-family properties?
Yes, you can use a USDA loan to buy a multi-family property, provided that the property has no more than four units and you will live in one of them as your primary residence.
Why haven't I heard of USDA loans before?
In order for a bank or other lender to offer USDA loans, they must be approved to do so by the federal government. If you've approached a lender in the past and they did not mention this loan to you, do not assume it's because you wouldn't qualify. It may simply be that particular bank wasn't approved to make this type of loan. Instead, reach out to a bank that's approved to issue USDA loans.
If you're ready to start shopping for your new home with the help of a USDA loan, get in touch with a Synovus mortgage specialist today. We're here to help you get the financing you need to purchase your next home.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
People are also reading
Do you have questions or ideas?
Share your thoughts about this article or suggest a topic for a new one