Although the initial intent of USDA loans was to help rural families find more adequate housing, homebuyers can use them to leave crowded cities. USDA loans, also referred to as Rural Home loans, puts together a bundle of financial benefits that make it easier for families to finance a home in a rural area. Around since 1987, the Rural Home loan program remains a premier home financing option in small cities.
Since the program’s launch almost 25 years ago, it has taken on major eligibility amendments. Most notably, homebuyers do not have live in the smallest of cities or towns to capitalize on a USDA loan. In fact, a USDA loan may be used to finance a home in a city with a population of up to 25,000 people.
Furthermore, income requirements changed to include more middle-income families. USDA loans first aided very low and low-income families in rural areas where finding banks and lenders was difficult. Applicants for USDA loans may be approved even with income that is as high as 80 percent of the area median income.
The program’s perks attract plenty of city dwellers looking for a quieter place to live. USDA loans charge zero percent down to qualified borrowers, saving them tens of thousands of dollars from the start. Even without spending a penny down, homebuyers can fully finance a home purchase, repair or purchase of property on which to build a home. Better yet, USDA loans have no maximum price on the home to be purchased.
Qualifying for USDA loans is made easier by lenient credit and financial standards. It’s actually possible to qualify without perfect credit. Lenders generally accept scores higher than 620. Debt-to-income (DTI) ratios, which measures an applicant’s monthly debt compared to money earned, can be as high as 41 percent before an applicant is not considered. Lower DTI ratios and higher credit scores mean better interest rates.
Interest rates for USDA loans remain low and fixed, ultimately lowering monthly payments. The program also does away with private mortgage insurance (PMI), a substantial monthly cost in conventional loans. These two features work together to significantly lower monthly payments compared to conventional home financing options.
First-time and repeat homebuyers may use the Rural Home loan program. However, families must be living in housing that is inadequate for the family’s size, as determined by the USDA. The home to be bought cannot be oversized, and the USDA again concludes what a reasonably-sized home is per the family’s size.