What is a USDA Loan?
A USDA loan is a loan that is backed by the U.S. Department of Agriculture. USDA loans are only available in rural areas. Good news, 97% of the US is in a rural area! A rural area is an area that is outside of a major city. If your home is in a rural area, then you are eligible for this loan. This program is available for no down payment and 100% financing. This loan is for moderate-to-low income homebuyers. The purpose of the USDA Rural Program is to improve the economy and quality of the rural life in America. In 2017, around 127,000 families were helped to buy and improve homes.
Now, there are three different types of programs of these loans. There is a 502 Guaranteed Rural Housing Loan Program, 502 Direct Rural Housing Loan Program and home improvement loans and grants. Guaranteed loans are for low-to-moderate income homebuyers. The USDA backs your loan and insures it, kind of like an FHA loan with mortgage insurance. It will help get you a lower rate for your mortgage loan. Direct loans are for low- and very low-income homebuyers. Your rate can be as low as 1% with this type of loan. Home improvement loans and grants are types of loans that give you grants to improve your home.
If you have any questions about what this type of mortgage is, contact your Las Vegas Mortgage Broker today!
What are the requirements for a USDA loans?
One of the most important requirements you must have for a USDA loan is the location of the home you are buying. If you are in a rural area, then you will be eligible. Another requirement is your income. Also, your income will be based on your household. If you are a one person household, then your maximum income allowed will be $36,950 for Clark County in Las Vegas. These requirements will change for different counties, cities and states. If you are qualifying for the Direct Rural Housing Loan Program, then your maximum income will be $36,950. Although, if you are qualifying for the Guaranteed Rural Housing Loan Program, then your maximum income will be $78,200.
There are many requirements when considering this loan, some homebuyer requirements and property requirements. You do not need to be a first time homebuyer in order to qualify. Another great thing about this loan, your FICO score does not have to be high as other loan programs may require. Although, the typical credit score to be over is 640. A few other basic requirements that must be met, you must be a U.S. citizen, you must have a 24-month history of income and your home must be owner occupied. Your property will have some requirements as well. It will need to be a single-family home and it can be a new construction, HUD approved condo, townhome, FHA approved home and a Planned Unit Development (PUD) home. Your home can not exceed 2,000 square feet, have an in-ground pool or be used as an investment home.
If you have any questions about the requirements, please contact your Las Vegas Mortgage Broker today.
Understanding how your USDA loan program works
If you qualify for a Guaranteed Rural Housing Loan Program, you will be eligible for a no payment down mortgage loan. Although if you do not put any money down then you will be required to pay for mortgage insurance. You will be able to get a low interest rate, just like an FHA or VA loan. If you decide to put money down, you will be able to avoid paying the mortgage insurance premium. The annual percentage for a this loan is 0.30%, which is lower than any other type of loan. Although, VA loans do not require any mortgage insurance. Mortgage insurance for an FHA loan is 0.85%.
If your loan amount is $200,000 with a USDA loan, your mortgage insurance premium would be $600 annually. Your monthly payment would be $50 per month. If your loan amount is $200,000 with an FHA loan, your mortgage insurance premium would be $1,700 annually. Your monthly payment would be around $141.67 per month. As you can see, there is quite a different in payments between the two! Just like an FHA loan, there is a 1% onetime fee that gets added to your loan amount. So, if your loan amount is $200,000 then your fee would be $2,000.
Also, as stated before, you do not have to come in with any down payment and you can even include your closing costs into your loan amount. This means, you do not have to come in with any closing costs or down payment! This is the most appealing part to this loan. This will help you, as a low-income homebuyer.
Your Las Vegas Mortgage Broker can help you if you have any questions about your loan!
FHA loans vs. USDA loans and understanding the costs
You have two different loan options if you are looking for a low down payment to turn your dream of owning your Las Vegas home a reality. FHA loans are sponsored by the Federal Housing Authority and USDA loans are sponsored by the United States Department of Agriculture. The purpose of both these loans is to ensure you, as a homeowner, become eligible to do so. Either program you choose will guarantee your loan will be repaid. Your low income and limited savings will make it easier for banks to approve your loan.
If you decide to pursue an FHA loan, you will have to come up with a 3.5% down payment and have a minimum credit score of 580. There is no income limit and you may use gift funds from a direct family member. If you decide to pursue this loan, you will have no down payment. Although, your address has to be in an approved area in order to be eligible. Also, there are income guidelines in order to qualify for the loan.
A few similarities between these loans, both require owner occupancy. This means that you must occupy your residence as primary. You may not have an investment property with either of these loans. Also, they both require mortgage insurance. USDA will be roughly 0.30% of your loan amount and FHA will be 0.85%.
If you need some more information on both of these loans, call your Las Vegas Mortgage Broker today and we can answer any questions you may have!
Benefits of a USDA Loans: