USDA construction loan
Every homeowner in the United States has a dream to become a homeowner, but this is impossible due to the complex requirements of most loans. USDA construction loan financially helps people build their dream home. This loan comes with multiple benefits, but you must know the requirements before applying for a loan.
What Is A USDA Construction Loan?
The purpose of the USDA construction loan is to provide safe housing for rural homeless people. This loan is supported by the US Department of Agriculture (USDA) but is provided by a private lender.
The difference between a USDA loan and a USDA construction loan is that the USDA loan allows the borrower to purchase an existing home, but the USDA construction loan is financed to build the house.
These loans offer multiple benefits at the same time, but the borrowers have to work hard to find the right lender.
USDA Construction Loan Requirements
USDA loans are government-backed, so the eligibility requirements for these loans are higher than conventional loans. There is a long qualification requirement to qualify for a USDA loan. However, the qualification requirements are not as complicated as conventional loans. The USDA construction loan requirements are as follows:
- The property purchased must be in a USDA approved area.
- Your property must be your primary residence.
- Assess the property with the help of a USDA-approved contractor.
- Get a new construction warranty from the builder.
- You must have a minimum credit score of 640 or higher.
- The debt to income (DTI) ratio should be 41% or less.
- Your total income must be within the USDA income limit of the state.
- You have more than 3 years of bankruptcy experience.
How Do USDA Construction Loans Work?
If you qualify for a construction loan, you may need to take out two types of loans. The first is a construction loan to finance your home construction. And another loan is to close the mortgage after construction.
However, USDA construction loans make this process easier. The simple process is that it combines traditional USDA mortgage and construction loan into a single loan. This reduces the closing cost. However, once your building is completed, you will need to pay a USDA fixed-rate mortgage.
What costs does the USDA construction loan cover?
The USDA construction loan will give you 100% financing, which will cover the cost of building your home. Also, buyers do not have to pay any down payment. In most cases, they cover single-family homes. However, in some cases, they also cover the cost of manufactured houses and condos.
The costs that USDA construction loans cover are:
- You can buy land for building.
- Covers inspection fees.
- Manufacturer Insurance
- Construction administrative fees
- Covers design plans
- It also covers landscaping costs
- Building costs
- And also covers utility and septic costs
The Pros And Cons Of USDA Construction Loans
USDA loans help rural people build affordable housing. Before you apply for a USDA construction loan, you must consider its advantages and disadvantages.
The Pros Of A USDA Construction Loan
USDA construction loan offers multiple benefits simultaneously. The USDA construction covers all costs to the borrower, from the plot of land to the construction of the house.
Another benefit of the USDA construction loan is that it covers land, construction and finishing a home with a loan. The advantage of this is that the borrower has to pay the closing cost only once and can save money. Also, the borrower does not have to pay any amount during the construction of the house. The borrower has to make monthly payment after the completion of the construction of the house.
This loan is also known as a single close loan, the advantage of which is that you only need to qualify for a loan. Also, unexpected changes in finances will not harm your second or third loan.
The Cons Of A USDA Construction Loan
The long term interest rate of this loan may be higher than other loans. The downside is that you have to pay out personal mortgage insurance even if there is no down payment.