A USDA loan is a mortgage product backed by the U.S. Department of Agriculture (USDA) and is commonly referred to as a “rural housing” loan. USDA mortgages are designed to encourage homeownership in rural areas of the country by offering certain financial incentives (including the potential of no down payment) to prospective low- and moderate-income purchasers.
Qualifying for a USDA Mortgage Loan
The main requirement for a USDA loan is that the home be located in a designated rural area established by the Department of Agriculture. You can determine if a specific property is located in a designated area under the USDA’s eligibility tool. Also, the home must be the owner’s primary residence.
Lastly, a borrower must meet specific debt-to-income and income restrictions.
Advantages of USDA Loans
- 100 percent financing available
- No penalties for pre-payment
- Gift funds are permitted
- Sellers are allowed to pay up to 6 percent of closing costs
Disadvantages of USDA Loan
- Geographic limitations and income limitations
- Private mortgage insurance is required
- Not eligible for investment properties
- Only primary residence is allowed
Is a USDA Loan Right for You?
USDA mortgage loans are available for low- and moderate-income homebuyers in specified areas with minimum reserve assets.
They could be a good fit if you:
- Are looking or are willing to buy in a rural area
- Need low up-front costs
- Have little saved for a down payment
- Don’t qualify for other types of financing
Not sure if a USDA loan is the right loan option for you, then contact Park Cities Mortgage and visit with one of our experienced loan officers. These options require the expertise of loan officers who are familiar with the USDA program.