USDA home loans are often dismissed by many borrowers, since they mistakenly assume that the house they need won’t fit into the USDA property standards.
However, this loan program can apply for many more properties and locations than people tend to think. Besides, it has many other hidden advantages. If you still haven’t considered USDA loans for your next home purchase, make sure you learn about its advantages and limitations before you make the final decision.
Advantages of USDA loans
- No down payment required. As opposed to conventional and FHA loans, the USDA gives you the opportunity of 100% financing. This means that you will borrow the whole amount you need to pay for your house, without having to save for a down payment.
- Flexible qualification requirements. USDA loans generally require a credit score of 640. However, this does not mean that borrowers with lower scores are ineligible. You will just need to go through manual underwriting. This process takes more time and paperwork, but you still get the chance to qualify for a USDA loan.
- Low interest rates. As a government-backed program, the USDA requires lower interest rates than other types of mortgages. Although adjustable interest rates are unavailable with this program, it’s worth applying for fixed rates.
- Closing costs can be paid by the seller. If you find a seller who is interested in closing the deal with you and wants to close the deal as soon as possible, they will often be happy to help you with the closing costs. You also can receive cash gifts from family or friends to cover your down payment or closing costs.
Limitations of USDA loans
- Compulsory mortgage insurance. Mortgage insurance is an extra cost that is either added to your monthly payments or paid at closing. Unlike conventional loan programs, USDA mortgages do not allow you to get rid of this payment until you finish paying off your mortgage.
- Income limitations. You can be ineligible for USDA home loans if you make too much money. The income limits for USDA loans are defined as 115% of the median income of the area. In Tampa, this amount equals to $82,700 per year for 1-4 person households and up to $109,150 for households with five or more people.
- Property eligibility requirements. USDA loans are not restricted to first-time home buyers. However, these loans are only for borrowers purchasing primary residences, which means that you have to live in the property you are buying. Vacation or investment properties are not allowed.
- Eligibility by geographic area. USDA loans are only for properties located in an area that the USDA considers rural. Contrary to the popular belief, this does not mean that these loans are just for farms. 97% of the US territory is eligible according to the USDA guidelines. This includes not only rural, but many suburban areas as well.
For many borrowers, especially first-time home buyers, it is difficult to determine whether USDA loans are the right choice, because these mortgages have great advantages but also significant restrictions.
For more information about these loans, call us at 813-284-4027. Our mortgage brokers will answer your questions and help you make a decision based on their experience and your particular situation.
