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What is a USDA Loan?
Dated: September 29 2020
If you’re like many people, you’re thinking about buying your own country home – and if you are, the USDA loan might be the right choice for you. But what is a USDA loan, and how does it work? Here’s what you need to know.
What is a USDA Loan?
USDA loans are offered by the U.S. Department of Agriculture and backed by the Rural Development Guaranteed Housing Loan Program. They’re designed for buyers who want to live outside the city, in a rural area, and they offer several benefits over conventional mortgages.
What Are the Benefits of USDA Loans?
USDA loans come with several benefits for people who qualify, including:
· No down payment
· Competitive interest rates
· No private mortgage insurance, or PMI
· More flexible credit guidelines
Here’s a closer look at each benefit.
USDA Loan Benefit #1: No Down Payment
USDA loans don’t require a down payment – that means you can get 100 percent financing. In that way, these loans are similar to VA loans. If you compare that to other types of loans (aside from VA loans, which are only available to veterans of the U.S. Armed Forces and some qualifying dependents), you’ll see that a USDA loan can save you a lot of cash up-front.
USDA Loan Benefit #2: Competitive Interest Rates
The government backs USDA loans, which means it guarantees that the lender will get some of its money back if you default. That guarantee enables lenders to offer you competitive interest rates, even without a down payment. Your credit history and score will still impact your interest rate, however, so it’s still important to make sure your credit is as good as possible before you apply for a USDA loan.
USDA Loan Benefit #3: No PMI
When you use a conventional loan but put down less than 20 percent as a down payment, you’ll have to pay for private mortgage insurance, or PMI. That insurance provides your lender with a promise that it will get its money back if you default on the loan. However, there’s no PMI required with a USDA loan. Instead, you must pay 1 percent of the total financed amount up-front, as well as 0.35 percent of the loan’s current balance each year.
USDA Loan Benefit #4: More Flexible Credit Guidelines
With a conventional loan, you’ll probably need a credit score of at least 660 (and it must be higher in order to qualify for the lowest interest rates). However, because USDA loans are backed by the federal government, you can qualify for one with a lower credit score.
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Chip is the IT Manager for Alex MacWilliam Real Estate. He handles the technology needs of the company as well as helping agents in their day to day problem solving.....
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