On the hunt for a new home in a rural or suburban neighborhood? You may be eligible to receive a USDA loan which makes homeownership more attainable. This type of loan aims to promote rural development and provide affordable financing options for qualified individuals. We sat down with Michael Nassafer, Market Leader of our preferred lender, Movement Mortgage, for his perspective on all things USDA loans. As a USDA loan expert himself, he explains the benefits, eligibility requirements, and unique advantages of this loan option.
What is a USDA loan?
A USDA loan is a government-issued loan program designed to support rural development and provide accessible financing options.
What properties and households qualify for USDA loans?
To qualify for a USDA loan, your property and household must meet the following criteria:
- Location: The property must be in a USDA-approved rural area, as determined by the USDA map based on census data.
- Property type: USDA loans are available for single-family homes, townhomes, and eligible condominiums that are approved by Fannie Mae or Freddie Mac.
- Income limits: Borrowers must fall below the max income limits. USDA loans have income restrictions based on the area’s median income. These limits vary depending on household size and the specific location.
- Debt-to-income ratios: Borrowers must meet certain debt-to-income ratio guidelines to ensure they can manage their monthly mortgage payments.
- Minimum credit score: While there is no strict minimum credit score requirement for USDA loans, a score of at least 640 is generally preferred.
What are the benefits of obtaining a USDA loan compared to other loan options?
Obtaining a USDA loan offers several benefits, including:
- Zero down payment: Unlike conventional or FHA loans that require a down payment, USDA loans offer 100% financing, making homeownership more attainable.
- Competitive interest rates: Lenders can offer favorable interest rates due to the USDA guarantee.
- Low monthly mortgage insurance: USDA loans have low monthly mortgage insurance fees compared to conventional loans, which require private mortgage insurance for low down-payment options.
- Flexible credit guidelines: While a credit score of 640 or higher is preferred, USDA loans have more flexible credit requirements compared to conventional loans.
- Potential to combine: USDA loans can be combined with other financing or assistance programs, such as the Mortgage Credit Certificate (MCC). The MCC can help reduce monthly property tax payments, providing additional financial benefits to borrowers.
Are there any upfront or ongoing fees associated with USDA loans that borrowers should be aware of?
A few considerations:
- Upfront guarantee fee: The USDA charges an upfront guarantee fee, which can be rolled into the loan amount.
- Annual fee: USDA loans also include an annual fee, which is calculated based on the loan’s current balance and is paid as part of the monthly mortgage payment.
What is the process of applying for a USDA loan, and how long does it typically take to get approved?
To apply for a USDA loan, borrowers should follow these steps:
- Find a USDA-approved lender: Work with a lender experienced in USDA loans, such as Movement Mortgage, to guide you through the process.
- Gather necessary documents: Prepare documents such as income verification, bank statements, credit history, and identification.
- Complete the application: Submit the application to the lender, providing accurate and thorough information.
- Wait for approval: The approval process takes approximately 30 days from application to closing, depending on various factors.
About Michael Nasserfar
Michael Nasserfar is an experienced Market Leader with Movement Mortgage, Empire’s preferred lender in the Austin and San Antonio area. With his help, you can better understand what you qualify for.
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