USDA Benefits (Pros)

Many applicants are not able to buy a house due to a lack of sufficient down payment savings. With this, the dream of buying a house becomes impossible for most people. Fortunately, USDA home loans fulfil the dream of homeless people to buy a home.

USDA is the most powerful and convenient mortgage for rural and suburban people. But what makes USDA so admirable and popular? As USDA is government-backed, it offers multiple benefits at once.

  1. No Down Payments

The biggest advantage of the USDA loan program is that the borrower gets the opportunity to buy a house with a 0% down payment. The USDA Home Loan allows the borrower 100% financing. Although it is more convenient for first time home buyers, repeat home buyers will also be able to apply for this loan. Because it is difficult for first time homeowners to save on a down payment and time consuming, no down payment is required for the loan.

For an FHA loan, you have to pay a 3.5% down payment, again for a conventional loan you have to pay a 5% down payment. So USDA home loan is more convenient than other loans.

  1. Low-interest rates

Since the program is supported by the US Department of Agriculture USDA, lenders offer lower interest rates. Loan interest rates do not vary based on downpayment and credit score.

Conventional loan interest rates vary based on the market and the borrower’s credit score. So if you are looking for a lower interest rate, USDA will give you the best deal.

  1. Low Monthly Private Mortgage Insurance

If you do not make any down payment or your down payment is less than 20%, you will need to pay private mortgage insurance on this loan just like any other loan. 

However, USDA differs from other conventional loans in that it has very low private mortgage insurance and insurance is not based on downpayment.

The PMI for USDA loans is 0.35% based on the principal balance of the loan. Another advantage is that you can roll upfront PMI into your loan.

  1. Flexible Credit Guidelines

USDA loans do not require a minimum credit score. If you have a limited credit score, you can qualify for home financing. Also if you do not have a credit score you will qualify for the loan, but you will have to meet some additional requirements. The history of your utility costs, insurance costs, cell costs, etc. must be shown to the lender. Moreover, most lenders prefer a credit card minimum score of 640 or higher.

  1. Low closing costs

Each loan has closing costs, the same as for USDA. Closing costs are 2% to 5% of the purchase price of your home or loan amount. In the case of a USDA loan, ask the seller to repay up to 6% of the closing cost of your loan or roll your closing costs into the loan. You can also finance the closing cost with the appraised value of the home. Also, if you receive a gift fund, you can pay the closing costs.

Who is Eligible for a USDA Loan?

The USDA home loan is usually great for first-time homeowners and low-income people, but a recurring homeowner will qualify for this loan.

Some Disadvantages of USDA Home Loans:

  • This loan has geographical limitations. Only rural and suburban residents are eligible for this loan.
  • This loan includes monthly mortgage insurance.
  • There are income limitations.
  • Eligible for single-family, no duplex home.

You will qualify for a USDA loan if your purchased home is not part of the city. Also, contact the nearest USDA Rural Home Loan to find out if your purchased home is eligible.

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