Is it difficult to come up with the 10 to 20 percent needed as a down payment for a conventional loan? Know that there are mortgage loan products available that allow buyers to purchase homes for little to no money down. USDA loan programs are one of such programs making it possible to own a home in rural and some suburban areas.
Find out more about USDA home loans and eligibility requirements today.
What are USDA Loans?
These type of loans are offered through the USDA Rural Development Guaranteed Housing Loan Program and can be used to purchase a home in rural and many suburban areas. This type of loan is popular because it offers a zero money down option toward financing a home. The loan can be used to finance 100 percent of the purchase price of a home. Manufactured homes and modular homes can also be purchased with a USDA loan. As this loan is backed by the U.S. Department of Agriculture, approved applicants benefit from low rates. Borrowers may get mortgage insurance premiums (MIP) at a reduced percentage—only 0.35 percent of the amount of a loan. Both first-time home buyers and repeat buyers can qualify for USDA loans, though buyers will have to research if Chicago locations like The Loop or elsewhere qualify.
Which USDA Loan Product is Right for You?
Applicants may choose among three USDA loans offered. There are loan products to purchase a home and others to make home improvements. A loan guarantee is similar to an FHA loan. Approved applicants can put zero money down and enjoy low mortgage rates but will need to pay a mortgage insurance premium. Direct loans offer interest rates that may be as low as 1 percent for those with low income. Home improvement loans and grants can be used to make repairs or upgrades to a home, providing eligible individuals with as much as $27,500 when combined.
What Are the Eligibility Requirements of USDA Home Loans?
There are a number of factors involved in determining eligibility. Household size, location and credit score verification are important considerations. Potential borrowers interested in USDA loans:
- Must have an annual household income that does not exceed $75,650 for up to a 4 member household in most parts of the country
- Must not exceed a $99,850 annual household income for households of 5–8 members in the majority of areas
- May not use the loan toward properties other than owner-occupied primary residences
- Should be permanent residents or U.S. citizens
- Need to show a steady source of income over a minimum of two years
Those who do not have a credit score may use “nontraditional” credit references to apply. References can include rental and utility payment histories. Applicants should know that underwriting approvals are considered to be “relaxed,” meaning that borrowers need not meet all requirements to get approved. However, maximum income limits for household in a specific area remain fixed as these loans are intended to help households of “modest means.” USDA income limits do vary by location. Areas with higher costs of living, like that of San Francisco, California, has a maximum limit of $153,400 for a household of 1–4 members. It is possible to look up an area's USDA income limits before applying.
Carefully Consider Your Options
Not everyone wants to live in a rural or suburban area. Individuals looking to reside near a major city may want to seek other loan options. Some individuals who can put down 20 percent or are above the maximum household income for an area may need another alternative. Such people would not be able to benefit from a USDA loan. Research available options and check with lenders before agreeing to take out any home mortgage loan.
Ted Guarnero, REALTOR® is a full-time real estate agent with over 1000 homes sold and $400 million in sales. Working with Compass real estate offering professional and effective real estate services to help you succeed in the local real estate market. Visit www.seeChicagorealestate.com for information on downtown Chicago real estate and to get in touch with an expert in the Chicago real estate market. Before you hire your next Realtor call Ted Guarnero 855-See-Chicago, it's on the House !