Low (or no) down payment, great interest rates, and flexible options for closing costs**. Most homebuyers would jump at a loan offering all of these benefits, and with a U.S. Department of Agriculture (USDA) rural housing loan, it’s all possible.
A USDA loan is one of the best mortgage loan programs available. The number one reason is that it’s a no money down option. A lot of people out there don’t think this is possible, but it absolutely is with USDA (and a couple of other) loans.
Of course, there are a few restrictions and things to know about USDA loans:
- All about location – As the name implies, these loans are aimed for “rural” parts of the country that are considered USDA territory. The USDA offers these attractive options as an enticement for people to settle down in and develop rural areas. In Baldwin County, the area of Alabama where I work, about 80% to 90% of the land is considered rural. That may be surprising for those who think of crowded summer weekends at the beach, but the data is based on population density and how many people actually live in those areas. USDA loans are not an option for people who live in much more metropolitan areas.
It’s actually pretty easy to find out if the area where you live or the area where you are interested in living may apply. We recommend working with a loan officer who is familiar with USDA loans, like those of us at Bryant Bank, and we will be able to tell you quickly if your area applies. You can also find out by plugging in the address at this link on the USDA website.
- Income limits – Another important thing to know is that there are some income limits when it comes to USDA loans. It can vary by state and even by county, but in Alabama, all counties have similar household income limits. For a family of one to four people, the limit is $78,200, and for a family of five or more, the limit is $103,200.
- Closing costs** – Flexibility with closing costs is a benefit many people take advantage of with these loans as well. For example, let’s say you are buying a house for $150,000 with $5,000 in buyer paid closing costs. If you are not able or do not want to pay such a large amount in closing costs, it’s possible to bump up the purchase price to $155,000 (as long as the house appraises for that much), finance that entire amount and only bring a couple of hundred dollars to closing. The seller is basically getting the same amount, and the buyer is paying much less out of pocket, so everybody is happy.
I really can’t say there are any drawbacks to a USDA loan. It is a government-guaranteed loan, just like VA and FHA loans. This means there may be a few more inspections that are a little tighter. Inspectors look harder at the house to make sure it’s in good condition so that the buyer won’t have any obvious problems right away that could cause financial distress. That’s ultimately a good thing though.
Overall, USDA loans are a great option for first-time homebuyers or more seasoned buyers who meet the requirements involving location and income.
**Private mortgage insurance (PMI) may be required for some loans.
By Vince Hughes, SVP Mortgage Loan Officer, CMP (NMLS 594518)
Bryant Bank operates only in Alabama and was founded on the belief that the state needs a bank that is focused on the needs of Alabamians. Its goal is to help families get ahead, help businesses grow and make the community a better place to live. Click here to get more information about a mortgage loan, or click here to sign up for an account with us today.