Getting a home mortgage is a great investment initiative, considering the ever-increasing value of real estate nowadays. Aside from the safety and security that it provides, a home loan saves you from paying thousands of dollars in rent for a property that will not eventually become yours in the future. However, although homeownership is a worthy goal that most people set upon themselves, the reality is that qualifying for a mortgage credit can be difficult especially if your credit and income situation is in a far-from-perfect-shape. It is for circumstances like this that government-insured housing programs, like the USDA guaranteed mortgage, are created.
The USDA Guaranteed Home Loan: What is it?
If you are unable to obtain a mortgage through conventional loans because your credit, income, and assets are unable to meet the required standards, the USDA home loan could be the answer to your homeownership dreams.
The Section 502 Guaranteed Housing Loan is a program under the supervision of the United States Department of Agriculture. It aims to open better housing opportunities to households who are deemed unfit for a conventional loan. Qualified borrowers may use the funds to purchase new or existing single-family homes located in eligible rural areas across the United States.
How does it work?
The USDA does not act as the lender, as far as guaranteed loans are concerned. The USDA only insures the mortgage that lenders issue under the program. This makes it less risky for these companies in case a borrower defaults on the payment.
When you get approved for a USDA home loan, you will enjoy the benefits of a zero-down payment mortgage and plenty of other economic features. But in order to qualify, you must first meet several homebuyer standards.
As with most loans, the lenders will evaluate your ability to repay before granting you a mortgage. However, unlike conventional loans, the qualifications are flexible and more accessible to attain.
The terms regarding credit ratings and histories are flexible. Even so, vou will need a FICO score of at least 620 to obtain streamlined loan processing. Lenders may also allow the use of non-traditional credit references to help establish your credit-worthiness.
There is no minimum income limit, as long as you’re not earning beyond 115% of your area’s median income. You must also have dependable employment, ideally not less than two years with the same company.
- Debt-to-income ratio
Your mortgage loan must not take up more than 29% of your gross income. Your accumulated DTI must be within 41% of your total earnings.
Is it the loan for you?
If you think you fall within the categories mentioned, feel free to contact your nearest USDA office or a USDA-authorized company to prequalify for the loan.
The fact that the USDA only finances homes located in areas within the USDA eligibility sitemap may seem like a downside, but unless you are bent on living within major cities and metropolitan centers, you have a vast array of properties and locations to choose from which encompasses almost 97% of the country.