The USDA loan is a valuable option for homebuyers that is often overlooked due to myths surrounding it. Administered by the US Department of Agriculture, it offers several benefits. Firstly, no down payment is required, and it typically has better interest rates compared to other government or conventional loans. Additionally, the USDA Guarantee Fee reduces mortgage insurance, and applicants with credit scores as low as 640 may be eligible. In the current market, it is worthwhile to explore this loan for purchasing a home.
What is stopping people from utilizing or even considering this loan option?
In 2020, only 137,000 individuals took advantage of the USDA loan benefit, and we will now discuss some of the misconceptions and factors that have contributed to its underutilization.
USDA loans are not limited to rural properties or farms, contrary to popular belief. While originally intended for rural development, almost all land in the US is eligible for financing with a USDA loan. This option is utilized by millions of suburban homeowners, and tens of millions of people are eligible for this financing.
Qualifying for a USDA loan does not require being a first-time buyer, despite the myth surrounding it. Income and property limits apply, but prior home ownership is not a requirement. The only condition is that the loan can only be used for a primary residence and not for investment properties.
USDA loans serve not only to purchase a home but also to refinance and renovate your existing residence. The USDA Renovation Loan even offers the option of 100% financing for renovations.
A common misconception about USDA home financing is that the mortgage insurance cost will be higher due to the absence of a mandatory down payment. However, USDA loans offer the option of putting as low as 0% down, and their insurance costs are relatively lower than those of FHA loans.
A prevailing myth surrounding USDA financing is that the borrower cannot negotiate their loan terms. However, this is untrue since there are two types of USDA loans available. The USDA direct loan, which is exclusively for low-income borrowers, is funded directly by the USDA, and its terms are non-negotiable.
Approved lenders provide USDA-guaranteed loans with negotiable terms. The borrower and lender determine the interest rate based on the borrower’s financial situation, credit score, and employment status, similar to conventional loans.