USDA Loans for First Time Home Buyers
USDA loans are fast becoming one of the most popular home loan programs in America. Something to love about USDA loans are the excellent options for first time home buyers. This includes 100% financing, which means no down payment of any kind is required! This removes the need for down payment assistance, as there is no down payment. The low interest rates and closing costs save you even more money.
USDA loans intended for lower and middle income households in rural areas, small towns, and designated areas just outside of many larger cities. A lot of banks do not offer the program. The USDA direct loans are funded through the USDA directly and are exclusively available for applicants with the lowest income. Most will want to apply for the USDA guaranteed loan, which is available to lower and middle income families (and individuals). We can help you determine which programs you may qualify for, and what will provide you with the best financing terms.
Major Advantages of USDA Loans for First Time Home Buyers:
- No Down Payment – The most well known benefit of USDA loans is that they do not require a down payment. Conventional mortgages and FHA loans both require a minimum of 3-5%, but USDA loans offer to finance the property with no money down. Think about the thousands of dollars you will save without making a down payment!
- Low Closing Costs – A refreshing advantage of USDA loans are the low fee. Not only are the costs reasonable, but you can also roll the associated closing costs into the principal amount of the loan. Many times, the seller is willing to contribute towards the closing costs.
- No Assets Required – The program does not require that you provide proof of your cash reserves. Conventional mortgages usually require potential borrowers to provide five months of cash reserves for principal and interest payments. Again, lower income borrowers and first time home buyers may not have those types of reserves. Another reason why you should apply today for a USDA backed home loan.
- Quick Processing – Qualifying for a USDA loan is quicker and easier than conventional loans. The USDA streamlined the amount of documentation you must provide. Therefore, you do not have to wait for an extended period of time to find out if you qualify. Do keep in mind that you must provide all your income documentation, including W-2’s and recent paystubs.
It’s easy to get a quote and see if you qualify!
USDA Home Loan Eligibility Requirements
- Property Requirements – Since the program helps borrowers who live in rural communities, the home you intend to buy must meet the USDA’s rural designation requirements. Typically, any city with a population less than 20,000 qualifies as a rural property. However, the designation varies from state to state. By applying today, a mortgage representative will help you determine whether or not your property meets the eligibility requirements.
- Income Requirements – The USDA loan program does have specific income requirements that you must meet. However, since the USDA developed the program for low income borrowers, the income requirements are not that difficult to meet. To qualify, your income must fall within the median household income of the county where you plan on buying your home. Do keep in mind that the income requirement varies from county to county.
- Credit Requirements – The minimum credit score that we require for the USDA guaranteed loan is a 620. If your credit is below a 620, you may find another USDA lender that will approve you for a lower score. All of our USDA mortgage programs for first time home buyers require fair credit or higher (620+).
Also, USDA loans act similarly to other loans by requiring a “guarantee fee”, which is more commonly referred to as “mortgage insurance”. The “guarantee fee” is used to insure your loan in the event of a default and foreclosure. How this works, is an upfront fee of 2.75% is charged and added to the loan balance. This is similar to how FHA loans have upfront mortgage insurance premiums. This can be wrapped into the loan amount, and does not have to be paid upfront.
The second part of the guarantee fee is the monthly premium which is 0.50% of your loan amount (calculated annually, but paid monthly). This amount adjusts each year as your loan balance goes down (as the loan amount decreases the 0.50% x your loan balance will be cheaper). You can use our USDA guarantee fee and annual fee calculator to see what you can expect to pay.
USDA Loan Process
The USDA loan program works much in the same way as conventional loans. You apply for the loan, then receive an approval (if you qualify), which provides the details of what documentation and conditions are required for your loan to close. We will help you understand what is needed and assist you as much as we can. Once you provide all of the necessary documentation, we can proceed to the closing. Once close, you (or technically the home seller) will receive the financing, and you then get the keys to your new home!
Frequently Asked Questions
How long does it take to get approved for a USDA loan?
We provide same day approvals. In most cases, you should have an answer back within hours. The process of an initial approval is based on specific requirements related to credit, debt, income, and employment. Once approved, you receive a list of conditions that are required in order for the loan to close. The final “approval” if you will, is the “clear to close”, which comes after all the conditions of the initial approval have been met. This usually consists of submitting income documentation to be verified, as well as an appraisal, amongst other conditions.
Are USDA loans only for first time home buyers?
No, USDA loans are also available for second time buyers, and repeat buyers. You may only finance a primary residence which you will occupy. Second homes, vacations homes, and investment properties are not eligible for a USDA loan.
Can I have a cosigner for my USDA home loan?
Yes, cosigners are allowed for USDA loans. They do not have to be a spouse, but they do have to live in the home.
Are USDA loans better than FHA loans?
What would determine if a USDA loan is better than a FHA loan would be specific to a borrowers needs. USDA loans offer lower rates and no down payment, but are limited to certain zones in rural areas. They also have strict income limits. FHA loans require a 3.5% down payment, but do not have any geographic limitations on where you can purchase a property. For the prospective homebuyer who qualifies for a USDA loan and an FHA loan, in which case the desired property was eligible for either, a USDA loan likely be your best option.