Are you considering purchasing a home? If so, you may be considering which type of home loan that is right for you.
What Is a USDA Home Loan?
One option worth considering is a USDA mortgage loan. These are considered the subprime mortgage options. The USDA Rural Development Department offers borrowers a direct mortgage loan, as well as a guaranteed loan, which is backed by the United States government, similar to the VA or the FHA loans. Choosing the right mortgage broker Toronto will allow you to get the right mortgage with ease.
Who Are USDA Home Loans For?
These loans were initially designed for helping rural individuals become homeowners. The mortgages are able to be used for financing a number of different types of properties, from the traditional single family home, to multifamily properties and some businesses.
If you’re interested, check out this guide to flipping houses.
Additionally, the USDA provides grants for a number of different development projects.
You could use the USDA address lookup to see if your desired address or area is qualified for the home loan.
What Can USDA Home Loans Be Used For?
The USDA loan is available for purchasing, renovating, refinancing, repairing or even the relocation of a home. What many people do not realize is that these types of guaranteed loans provide 100 percent financing to those who are income qualified, which makes them as close as you can possibly get to having a subprime loan. The only difference is that you will have a low and fixed interest rate as well as payments.
Advantages of a USDA Home Loan
The USDA-backed mortgage offers a number of advantages.
1. Financing. It offers one hundred percent financing, which makes it one of the most desired loan programs that is still available today. The only other program that offers this type of financing is the VA loan program, as well as the transactional funding for individuals who are flipping houses.
2. Down Payment. Another appealing factor of the USDA loan is the fact that it comes with no down payment. Opting for this type of loan will mean the possibility of including your closing costs, or using gift funds and grants, which is something that the majority of other loan programs will not allow.
3. Poor Credit. You might even qualify if you are using non-traditional credit and you do not have to have pristine credit to be approved. While you do need a minimum of a 620 to a 640 score, you can use credit references such as utility bills, insurance and cell phone payments to build your credit further if you do not currently have very many other sources.
4. Interest Rate. Additionally, the USDA direct home loan interest rates are some of the very best that you will find and are often better than the conventional rates offered with other types of mortgages.
5. Low Monthly Private Mortgage Insurance (PMI). “Private mortgage insurance is required for any loan with less than 80 percent loan-to-value, regardless of loan program. So if a borrower is taking advantage of the USDA loan’s no required down payment, they will be required to pay monthly mortgage insurance.
The upside is that the USDA loan’s private mortgage insurance rate is the lowest of any loan program and doesn’t change based on your down payment, as it does with conventional financing. Currently, the USDA loan’s PMI annual fee is 0.50 percent, based on the loan’s remaining principal balance.” (Source: Compass Mortgage)
Buying a home is usually a one-time investment and you want to make sure you get it right. So, don’t be hasty. Understand what you’re getting into, assess your finances, and only then approach a lender.
Further Reading About Buying a Home
- Five Things You Should Research Before Applying for a Mortgage
- How to Be Prepared as a First-time Homebuyer
- Should I Consider Home Equity Loans?