If you’re a potential first-time homebuyer, you probably have a lot of questions about which loan program is best for you. There are many on the market, all with different advantages, depending on what’s important to you and your family. If you’re a first-time homebuyer it’s likely you don’t have a large savings built up. Maybe you just graduated from college or got married and are ready to start a family. Maybe you’ve been renting and are ready to invest your money in something concrete. There is a great loan option popular among first-time homebuyers from any scenario: the RD Home Loan. This loan is guaranteed by the USDA and it assists middle-class or rural citizens with purchasing a home and maintaining successful homeownership for the duration of the loan. Unlike competing programs like Conventional and FHA loans, the RD Home Loan doesn’t require a down payment. The USDA began investing in this program in the early 1990s so Americans could afford homes with little initial cost.
The RD Home Loan isn’t just down payment-free, but it can be completely cost-free, meaning you can close on a new home having paid no money out of pocket. The RD Home Loan has a guarantee fee that protects the investor who provides the loan. The upfront portion of the guarantee fee is rolled into your mortgage and paid out through the amortization of the loan. The guarantee fee is required since there is no down payment—normally any loan program with less than 20% down requires some sort of mortgage insurance—and the RD guarantee fees are some of the lowest available. There are always closing costs that accompany a mortgage loan, for both the seller and the buyer. For RD Home Loans, the seller can cover up to 6% of the purchase price in closing costs. Closing costs are normally 3% or less of the total purchase price. This means instead of coming up with closing costs out of your pocket, they can be financed into the purchase price of your home.
First-time homebuyers don’t often have extensive credit histories. The RD Home Loan is perfect for these candidates because the credit requirements are much more lenient than those of other loan programs. For example, FHA requires borrowers to have a credit score of 640 and above, but the RD Home Loan only requires above a 620. As long as you have two lines of credit active on your report, you may qualify. You should also have no judgements or delinquent federal debt like student loans or child support. For borrowers who have an even more limited history, alternative lines of credit may be considered.
The RD Home Loan is a great option for first-time homebuyers who may have just entered the workforce or who earn low to moderate wages. There are income restrictions for this loan because the USDA intended to assist lower income buyers. Since the income calculations factor in household members, many Americans qualify, depending on where they live.