A number of guaranteed mortgage programs are available for people who don’t qualify for a traditional mortgage or who meet certain eligibility requirements. If you’re thinking of buying a home in a small town or rural area, a United States Department of Agriculture (USDA) Rural Development loan is worth looking into. A USDA loan offers some advantages over a traditional loan or even a Federal Housing Administration loan. If you were unable to get preapproved for a traditional mortgage, you might want to consider applying for a USDA loan.
Why the program exists
The USDA Rural Development loan program hasn’t been around for very long. According to the Wall Street Journal, the program was created in 1991. The goal of the program was to encourage people to move to rural areas, which the USDA defines pretty loosely. You don’t have to be surrounded by cows and endless expanses of cornfields. You do need to find a town with a population under 20,000, though. That means the area around Atlanta, Georgia, is out, but other parts of Cobb county are in.
The loans are designed for people who plan on living in the home, not investors or people looking for a vacation home in the country or in a small town. You can apply for a USDA loan even if you’ve owned a house in the past. Because the mortgage is guaranteed by the USDA, you’ll need to pay private mortgage insurance on it.
Why you might consider it
One of the big draws of a USDA Rural Development Loan is that it gives you the chance to finance the entire cost of the house. You don’t have to make any down payment, and you can also roll closing costs and fees into the mortgage.
The loan can also be a good option if you have not-quite-excellent but not terrible credit. The program focuses on people who might have a short credit history, which affects their overall score, rather than a history of missed payments or excessive debt. The mortgage is for 30 years with a fixed interest rate that is similar to the rates offered on traditional loans.
There’s no upper limit on the cost of the home you buy with a USDA loan. The house should be “modest in size, design and cost,” per the USDA. That means you shouldn’t look for a mansion or a house with a lot of amenities, such as a swimming pool, if you plan on taking out a USDA loan.
To qualify for the loan, your income shouldn’t be higher than 115 percent of the median income for your region. You must also be able to afford to make the payments. With a USDA loan, the total cost of housing can’t be more than 29 percent of your income.
If living in a small town or the country appeals to you and you meet the requirements, a USDA loan is an option worth exploring.
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