Many people with the dream of homeownership have all but given up on that dream because they can’t come up with a down payment or get a home loan from conventional lenders. But they really shouldn’t give up. They still have options to help them realize their dream. One of the best of these is a USDA loan – a low-interest mortgage requiring a small or zero down payment designed for people who don’t have good enough credit to qualify for a traditional mortgage. Sound good? If so, here’s what you need to know about USDA loans when buying a house in Wellington.
Types of USDA Loans
What many people don’t realize is that there are actually three types of USDA loans . . .
- Guaranteed USDA loan – With this type of loan, the “USDA partners with local lenders to offer guaranteed loans,” which “means the USDA insures a portion of the mortgage in the event you default on your loan.” This arrangement makes lenders more willing to offer good loan terms to low- to moderate-income buyers who have not-so-great credit scores.
- Direct USDA loan – In this case, the “USDA funds the borrowers of these loans directly,” which makes the USDA the lender instead of a bank.“ These loans usually favor low-income and very-low-income Americans who can’t access any other type of financing for an adequate residence.”
- USDA home improvement loan – This type of loan is designed to “help low-income Americans repair or enhance their homes.”
Qualifying Criteria
Now let’s see how you can qualify for USDA loans when buying a house in Wellington.
Most commonly, a “USDA home loan is a zero down payment mortgage for eligible rural homebuyers. USDA loans are issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture.”
The qualifying criteria are as follows:
- Must be for an owner-occupied primary residence
- citizenship or permanent residency
- The monthly payment must be 29% or less of monthly income and other debt can’t exceed 41% of income (unless your credit score is above 680)
- Must have a dependable income, usually for a minimum of 24 months
- Acceptable credit history, especially “no accounts converted to collections within last 12 months
Further, if you have a credit score of 640 or higher, you’ll get streamlined processing. But if your credit score is below that, you’ll have to “meet more stringent underwriting standards.”
How USDA Home Loans Work
With USDA loans for homes, mortgages are issued to applicants with the greatest need and who can prove that need. The criteria to demonstrate this need include:
- Being without “decent, safe and sanitary housing”
- Inability to get a mortgage from traditional sources
- An “adjusted income at or below the low-income limit for the area”
Typically, USDA direct loans are issued “for homes of 2,000 square feet or less, with a market value below the area loan limit.” That market value loan limit, however, varies widely from market to market. To discover more about the Wellington market and loan limit, contact a local agent at 561-315-1834.
Further Considerations
And there are a few other things to keep in mind when it comes to USDA loans . . .
- “Fixed-interest rates for USDA-guaranteed loans typically measure below the rates for conventional mortgages, which usually range from 3% to 5% of the home’s value. Your interest rate ultimately depends on the lender’s review of your financial, credit, and employment history.”
- Qualified borrowers are eligible for either 15-year or 30-year loans.
- Because these loans are low or zero down payment, “you’d need to shell out an up-front insurance premium to protect the seller in the event you default. This payment usually measures about 1% to 2% of the loan amount. You’d also need to pay a fee of about 0.35% to 0.40% of the loan throughout the year.”
- You’ll still have to pay closing costs, which typically include lender fees and administrative fees. “Closing costs for USDA-guaranteed loans vary by location. Still, they tend to equal about 1% to 3% of the loan amount. But unlike some mortgages, USDA-backed loans can be covered with gift money. You’d just need to provide a gift letter or proper documentation.”
The Next Step When Buying a House in Wellington
USDA home loan can definitely make buying a home possible and more affordable for qualifying buyers in rural and some suburban areas – with better interest rates and possibly no down payment. But the home’s location is a primary factor here. Houses in urban areas won’t qualify, so you have to make sure you buy a house in the right area – typically rural or near rural – to get one of these loans. And that’s where your {market_city] real estate agent can assist you. So if USDA loans and buying a house in Wellington are on the horizon for you, contact us today at 561-315-1834.