Know More About The USDA Loan Guarantee Programs
Posted by Frank Stain on May 17th, 2017
The U.S. Department of Agriculture (USDA), in partnership with approved local lenders, offers 100% financing to eligible borrowers who are residents of rural areas. It is a type of mortgage loan that has a very lenient approach in the whole process. Some of the benefits offered include no down payment, lenient credit criteria, and reduced mortgage insurance compared to other loans.
The USDA loan guarantee programs are specifically meant to provide financial assistance to rural home buyers with lower interest rates and easy loan terms. Here we will answer some pertinent questions related to the programs.
1) Does previous home ownership render one ineligible for USDA loans?
There are no borrower restrictions regarding previous home ownership meaning you can get USDA loans more than once.
2) How does USDA account for the guaranteed loan?
The federal government insures a portion of each loan in cases where a borrower defaults on his/her home loan. This guarantee allows lenders to be more actively involved in the lending process and the ability to extend favorable rates and terms.
3) How much financing is covered by a USDA loan for a home purchase?
USDA loans can entirely finance a home purchase due to which the home buyers are not obligated to pay a down payment. The government charges a 2.0% guarantee fee for Rural Development loans and the USDA finances up to 102% of the mortgage which can cover the closing fee and a portion of the guarantee fee within the loan balance.
4) Can higher income buyers apply for the loans too?
Although these loans are mostly designed to benefit the low income borrowers, higher income buyers can apply too. But here there are certain income limits and the U.S. Department of Agriculture Loans are approved if your income doesn’t exceed 115% of the median income in the area, based on your family size.
5) What are USDA eligibility requirements?
Any borrower demonstrating a reasonable ability and willingness to repay the mortgage loan would suffice to become eligible for a loan. The approved lenders will view your credit history and income to verify your ability to repay the mortgage.
6) What is the USDA's minimum credit requirement?
There is no official minimum credit score required by the USDA but most USDA lenders ask for a minimum credit score of 620 to offer financing.
The success of all USDA loan guarantee programs lies in the fact that the lenders are protected from substantial losses. The USDA will repay up to 90% of a borrower’s outstanding debt in the event the borrower defaults on his/her home loan.
Author’s Bio: The author is an avid writer. This article sheds light on the details of USDA loan guarantee programs.