USDA has risen to the top of the current available mortgage options because it makes homeownership affordable. Unlike prior generations of home loans where years of saving for a down payment still left a homebuyer saddled with huge monthly mortgage payments, USDA gives homebuyers the freedom of saving their money for other important expenses that come with purchasing a home. If you’re deciding between loan programs, consider why USDA may be the right choice for you.
- USDA requires no down payment. This is especially appealing to first-time homebuyers who may not have the savings to put down for a new home but who are financially capable of paying a mortgage. Recent college graduates who have just begun their careers likely haven’t been building a substantial savings while in school. With USDA, these new professionals can purchase an eligible home for their future families with no money down instead of throwing away hard-earned cash on rental properties.
- USDA rates are the lowest of the mortgage programs. Buyers can feel confident with choosing USDA because it is government-guaranteed and mortgage rates are fixed at the lowest available at the time of home purchase. The USDA mortgage rates were lowered in October 2016 and they are evaluated every year to ensure they remain low and affordable for buyers. Because the mortgage and MI rates are lower, USDA mortgage payments are often low, especially since buyers put no money down and loans with low or no down payments are considered risky for lenders.
- Only 3% of the nation falls in a USDA-ineligible area. This means it is possible for almost any qualified potential buyer to secure a 100% financed home. The USDA wants to strengthen our economy and grow rural communities, so offering a 0% down rural home loans help them to achieve this goal. You can visit USDA’s website and enter a desired home’s address to check its USDA eligibility.
- USDA homes can be refinanced. Although this may not seem important to first-time homebuyers, having the ability to refinance your home is a great option. Since the USDA mortgage rates are reevaluated each year, there is always a possibility that the rate you secure at closing may eventually decrease or change. A buyer is able to refinance their home into a lower rate and different terms after owning for 12 months. USDA also allows cash-out refinances, which means a homeowner can take the equity they’ve put into their home and use it for other expenses such as home improvements.
- USDA approves borrowers with credit scores as low as 620. Other loan programs require credit scores of at least 640. Low credit scores aren’t always the result of poor financial management. Sometimes job loss, unexpected medical expenses, and other life changes can impact your credit score. As long as you have two active tradelines, an acceptable debt-to-income ratio, and a 2-year job history, you may still qualify for a USDA loan. Borrowers who have limited credit histories may also qualify with alternative tradelines and a steady work history.