Why USDA Loans are More Attractive Than Ever

With the tight economy in most areas of the United States, now is a great time to purchase a home. While it seems counterintuitive at first, times of economic hardship generally favors buyers who are in a financial position to purchase a home since housing prices are low and sellers are eager to close the deal. But of course, as with anything else, saving money during these tight times is compelling, and many buyers are turning to USDA loans for this very reason.

USDA (United States Department of Agriculture) loans are administered by the Federal Government and are essentially a guaranty program. The government doesn’t actually loan buyers money directly, but it does enable banks to make these loans with little risk by providing the bank with a guaranty.

The USDA provides the full faith and assurance of the U.S. government that if the bank should have a financial loss resulting from a USDA loan, the agency will reimburse the bank in full up to an amount not exceeding 90% of the loan value. The guaranty basically allows the bank to reduce its usual criteria for a loan, including credit standards and down payment requirements.

USDA loans are extremely compelling, partly because they are the only loan program that offers a zero down payment option if you are not a veteran or active armed forces service member. And thankfully, qualifying for a USDA loan is very straightforward. Potential borrowers must:

• Have a credit (FICO) score of above 620
• Acquire housing costs that will not exceed 29% of the borrowers’ gross monthly income
• Have a total debt to income ratio of no more than 41%
• Have an income of no more than 115% of the local median income for their area

Unlike most other government home loan programs, the USDA does not have a set maximum loan limit. As with conventional mortgage programs, the maximum loan value is set based on your income and your debt to income ratio, enabling you more freedom to pick exactly the property you would like to own. Single family homes as well as condos, manufactured homes, and planned unit developments are all now eligible to be financed through the USDA, and the USDA program is active in every county and city in the country.

If you would like more information about the USDA loan program, speak with your local lender or visit the USDA’s website