A USDA guaranteed loan is one with reasonable qualifying guidelines, even if you have bad credit. The federal government guarantees 90% of the mortgage amount for qualified applicants. To qualify for the loan, you will need to meet certain requirements and you will need to prove that you can repay it. This can be difficult for low income homebuyers.
Unlike other mortgages, the USDA guaranteed loan does not require a down payment. However, you do have to pay an upfront insurance premium. Typically, this fee will be 1% to 2% of the loan amount. It is intended to protect the seller in case you default on the loan.
Like a FHA loan, the USDA guarantee may also be a good option for those who do not have a lot of money to put down. USDA loans are a zero down mortgage. And if the borrower makes timely payments on their current credit accounts, their interest rate may be much lower. But be sure to read up on the requirements and get pre-approved.
For example, the minimum credit score required for a USDA guaranteed loan is 640. Those with higher credit scores may be eligible to receive a larger loan. You will also be able to choose a 30-year or 15-year fixed-rate loan. Because there are no down payments, the interest rate will be much lower than a conventional loan.
Another reason to consider a USDA guaranteed loan is the streamlined credit analysis that you can receive. Your lender will submit your application to the Guaranteed Underwriting System, which will assess your credit and determine whether you will qualify for the loan. Many USDA lenders prefer to work with borrowers who do not have any collections issues or other blemishes on their credit.
The maximum you can borrow is determined by your income and the area in which you live. In general, you can only borrow up to 115% of the median household income in your area. Depending on where you live, your income may be lower or higher than this. Therefore, you may want to consult a mortgage broker to help you decide.
The USDA loan has some other benefits, such as being able to roll closing costs into the mortgage. During the closing process, you will be able to have your title and appraisal fees included in your loan. That is a big deal for any buyer, but it’s especially important for first-time buyers. Also, a USDA guaranteed loan can be used to buy a new or existing home and renovate it.
If you are in the market for a home, the USDA guaranteed loan is a great choice. However, it is important to remember that the USDA has very specific guidelines and qualifications, so you will need to check them out and make sure that you are in fact eligible. Luckily, there are several lenders who will be able to help you.
