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What is a USDA Home Loan?

The United States Department of Agriculture was signed into legislation by Abraham Lincoln on May 15, 1862. Back then, over half of the people living in the United States lived or worked on a farm. The USDA was known then as the "People's Department," and President Lincoln envisioned the agency as one that touched American lives on a daily basis. Today it is made up of 29 agencies and employs almost 100,000 people. The USDA states that its mission is to "provide economic opportunity through innovation, helping rural America to thrive…" They cover many areas of interest, including Farm Production, Food and Nutrition, Food Safety, Marketing Regulatory Programs, and more. Rural Development is the USDA agency that works to offer loans and loan guarantees to eligible applicants. Their loan portfolio stands at over $216 billion.

No Down Payment Required

Low Fixed Interest Rates

Relaxed Credit and Income Requirements

As long as you have a credit score of at least 640 and a debt-to-income ratio under 41%, you can qualify for a USDA home loan. 

USDA Loan Guidelines

The USDA loans help ease the congestion found in large cities and help economic growth in rural communities. There are some guidelines that need to be met before you can obtain a USDA home loan.

What is the Definition of Rural?

You may be thinking that the benefits sound great, but do you want to live out in the middle of nowhere? You'll be happy to know that the word rural is a loose term when it comes to property eligibility for USDA-backed home loans. In fact, 97% of the United States is considered eligible for USDA-approved financing. For example, while you couldn't use this program to purchase a home in downtown Chicago, there are several suburbs outside the city that would be eligible. You can look on this map created by the USDA to see if the address you are considering is eligible for USDA financing.

Property Requirements

To be eligible for a USDA loan, the home in question must be your primary residence. You are not allowed to finance a second home, or vacation home, using this program. Also, since the government is essentially backing your loan on behalf of the lending institution, it has a vested interest in the property's condition. Therefore, the USDA requires the house to meet HUD minimum safety standards for financing to be approved. These standards include but are not limited to windows, doors, gutters and downspouts, paint, wallpaper, kitchen cabinets, flooring, and more. If you are building a new house, everything must meet or exceed current acceptable building codes. The house's foundation needs to be structurally sound and accessible from a paved road.

Income Limits

You will need to meet specific income limits if you are interested in obtaining a USDA home loan. The government determines your income eligibility based on the size of your household and where you live. For a family of between one and four people, your income is not allowed to exceed the median household income of any geographic location by more than 15%. However, more income is allowable for families of five or more. If you live in Dayton, Ohio, the income limit for a 1-4 person household is $90,300 per year. If your home consists of 6 members, you can earn up to $119,200. Limits in other areas where the median income is higher result in a higher limit. In San Francisco, California, a 1-4 person household can earn upwards of $223,800 and still qualify. The USDA website has a comprehensive calculator available to see if you meet income requirements for the area you're looking to purchase.

How Do I Know If It's Right for Me?

A USDA loan may be a fantastic choice if you bring in a modest but steady income and are interested in living outside of a major city. We like to believe there is a mortgage out there for almost anyone. Reading articles such as this one is a great way to learn about the different types of loans, but your mortgage broker or lender should also be a valuable resource. They'll review your financial situation and go over the options that suit you best. Our specialists at Community First National Bank are highly knowledgeable. They are always ready to see if a USDA loan is right for you. Give us a call today at (954-687-2018), or visit our website and start your application online.

 

 

The Veteran Administration's Loan originated in 1944 through the Servicemen's Readjustment Act; also known as the GI Bill. It was signed into law by President Franklin D. Roosevelt and was designed to provide Veterans with a federally-guaranteed home loan with no down payment. VA loans are made by private lenders like banks, savings & loans, and mortgage companies to eligible Veterans for homes to live in. The lender is protected against loss if the loan defaults. Depending on the program option, the loan may or may not default.

Wartime/Conflict Veterans

  • Veterans who were NOT Dishonorably Discharged, and served at least 90 days
  • World War II – September 16, 1940 to July 25, 1947
  • Korean Conflict – June 27, 1950 to January 31, 1955
  • Vietnam Era – August 5, 1964 to May 7, 1975
  • Persian Gulf War - Check with the Veterans Administration Office
  • Afghanistan & Iraq – Check with the Veterans Administration Office
  • Veterans Administration website www.va.gov

Peacetime Service

At least 181 days of continuous active duty with no dishonorable discharge. If you were discharged earlier due to a service-related disability you should contact your Regional VA Office for eligibility verification.

  • July 26, 1947 to June 26, 1950
  • February 1, 1955 to August 4, 1964, or May 8, 1975 to September 7, 1980 (Enlisted), or to October 16, 1981 (Officer)
  • Enlisted Veterans whose service began after September 7, 1980, or officers who service began after October 16, 1981, must have completed 24-months of continuous active duty and been honorably discharged

Reserves and National Guard

  • Certain U.S. Citizens who served in the Armed Forces of a government allied with the United States during World War II.
  • Surviving spouse of an eligible Veteran who died resulting from service, and has not remarried.
  • The spouse of an Armed Forces member who served Active Duty, and was listed as a POW or MIA for more than 90-days.

A VA home loan must be used to finance your personal residence within the United States and its territories. You have choices for the type of home you purchase:

  • Existing Single-Family Home
  • Townhouse or Condominium in a VA-Approved Project
  • New Construction Residence
  • Manufactured Home or Lot
  • Home Refinances and Certain Types of Home Improvements

  • 100% Financing & No Down Payment Loans
  • No Private Mortgage (PMI)
  • No Penalties for Prepaying the Loan
  • Competitive Interest Rates
  • Qualification is Easier than a Conventional Loan
  • Sellers Pay Some of the Closing Costs
  • Can be combined with additional down payment assistance to reduce closing costs

You can apply for a VA Loan with any mortgage lender that participates in the program. In addition to the application requirements from your lender, you will need the following at application time:

Yes, your eligibility is reusable depending on the circumstance. If you have paid-off your prior VA Loan, and disposed the property, you can have your eligibility restored again. Also, on a 1-time basis, you may have your eligibility restored if your prior VA Loan has been paid-off, but you still own the property. Either way, the Veteran must send the Veterans Administration a completed VA Form 16-1880 to the VA Eligibility Center. To prevent delays in processing, it's advisable to include evidence that the prior loan has been fully paid, and if applicable, the property was disposed. A paid-in-full statement from the former lender or a copy of the HUD-1 settlement statement must be submitted.

  • VA Loans made prior to March 1, 1988 can be assumed with no qualifying of the new buyer. If the buyer defaults the property the Veteran homeowner may be liable for the funds.
  • Some sellers are hesitant to work with someone obtaining a VA Loan because it takes longer than a conventional loan to process.
  • Sellers are often asked to pay a portion of closing costs and therefore less likely to negotiate the sales price of the home.