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USDA Home Loans – Are They Better Than FHA Ones?

usda home loans

Home loans are available from two sources. One is the Federal Housing Administration and the other one is the United States Department of Agriculture, also known as USDA. If you are in the situation of having to choose between the two institution, where would you go to get your home loan? This article is taking a closer look at USDA loans, in order to see what are their advantages and whether they are better than FHA ones.

Who Are USDA Loans For?

First of all, you should know that a USDA home loan makes it possible for Americans with very low income, living in the rural area, to qualify for a long-term home loan. These terms run from 30 to 38 years, thus resulting in relatively small monthly payments. Moreover, it is possible that these loans are guaranteed or they might benefit from 100% financing in some situations. This makes them available to a broader segment of the population.

Even though they target low income individuals, there are a few qualifying criteria one needs to meet in order to get a loan. Decent credit is one of these criteria, and that’s not surprising, thinking that the USDA want to see their money back from their borrowers. The buyer must also be free from any bankruptcy discharge for at least two years back and meet a qualifying ratio of 41 percent in total debt. If you already own a primary residence, you can’t qualify. However, it is possible that people who own another property still qualify, provided that it is not within commuting distance from the new one.

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The debt to income ratio is perhaps the most important condition you need to meet. The other rules are not steadfast, so there’s still hope even if you don’t meet all of them.

What Houses Are Eligible?

Being geared towards low-income individuals, these loans can only be used for purchasing modest and fairly cheap houses. However, even if you won’t be allowed to buy a huge farm, you can still be able to have your own house and pay your loan rather than a monthly rent.

The eligibility of a home also depends of its location. Being a rural program, it is targeted at the development of rural housing. Each state can designate its own eligible areas, so you need to investigate your local agency in order to find out whether you can get an USDA loan to purchase the house you want.

What Are The Advantages Of Such Loans?

One of the biggest advantages of USDA is that their loans don’t require any down payment. This makes them available even to those who weren’t able to save any money in their life. Nonetheless, there is a legal requirement of paying a 2% mortgage insurance fee, but it is possible to have it included in the main loan. This is one of the major differences between the USDA and other lending agencies, as none of the others allows this.

Conclusion

In some respects, USDA home loans are better than FHA, but only for the rural, low-income population. This is perhaps the only chance for these individuals to become homeowners and get rid of paying rent. The fact that there are no down payment requirements is a dream come true for many of them, as they might never be able to save that much money in a lifetime.

Can I Qualify for a USDA Home Loan?

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