Owning a car does not make the owner a mechanic. Using a computer does not make a person an electrical engineer or a software engineer. And buying a home does not make someone a lending expert. That is why it is so important for people to get solid information about the different types of loans available before they make their final decision on a home purchase. The USDA mortgage is simple to understand once the facts are laid out.
Understanding the Term “Rural”
Rural has lots of different meanings to lots of people. In the context of the USDA home loan program it simply means an area has been designated as an eligible lending area. Any single family home that is within a rural boundary, as determined by USDA, can be eligible for a home loan. Some of these areas are on the outskirts of major towns like Madison, WI or Chicago, IL. Other times a whole county may be labeled as rural.
Limits on Income
The other main point to understand is the income limitations. In a nutshell, people with low to moderate incomes will be eligible for the USDA loan. This loan is not for the top earners in a given area. The number of people living within the residence also plays a role in determining the overall income. A mortgage lender with experience handling USDA loans can provide more insight into the exact rules and guidelines for this type of mortgage.
Potential for No Down Payment
One of the biggest selling points of the USDA loan is the possibility of no down payment. USDA will allow borrowers to receive a loan up to 100% of the appraised value. If the seller is willing to negotiate it is possible to have most, if not all, of the closing costs included in this amount as well.
The credit guidelines, as well as interest rates, compare favorably to the rules and rates used for an FHA loan. People who don’t mind living just outside the city, and have a modest income, would be wise to consider a USDA mortgage as their means to purchase their next home.