USDA and First Time Home Buyers

USDA guaranteed loanThe mere process of deliberating whether you should buy a home or continue renting one can be long and mentally exhausting. Evidently, paying for a house that will eventually belong to you will prove to be very beneficial in the long run. However, short-term factors also come into play. Will you be able to sustain the purchase? Are you ready for the responsibility? Can you afford the upfront payments? For most aspiring homeowners, especially first-time homebuyers, the last question takes a lot of pondering. Monthly mortgage obligations are generally bearable. It is the down payment and initial expenses that accompany most mortgage loan options that is a major deterrent.

Are you a first time home buyer?

If you are a first time home buyer, still struggling to grasp how the mortgage industry works, you might want to consider government-insured programs as a means to finance your first home. Currently, the prevalent choice among newbies is the FHA loan. However, the fact that it is the widespread preference does not mean it is the most advantageous option over-all. There is another government-sponsored loan program that, whilst lesser known, will give you an economically better deal: The USDA Rural Home Loan.

What is the USDA Loan, exactly?

The word “rural” has dissuaded many people who once considered the USDA loan as an option. But if you look into the particulars of the program thoroughly, you will learn that USDA home loans are not entirely restricted to countryside and agricultural communities. As a matter of fact, the program encompasses 97% of the United States. Many established suburban areas not too far from cities qualify.

If you thought the 3.5% down payment on the FHA loan is already a bargain, what more is the zero-down-payment on the USDA loan? Yes, the USDA offers a no-money-down mortgage either directly or through its affiliate lenders. If you’re earning less than 115% of your area’s median income, it is almost a no-brainer that this is the loan for you! Other fundamental requirements to avail of the loan include an acceptable FICO score and credit history. You must also maintain a mid-range debt-to-income ratio, and of course, stable employment and source of income.

To give you a better picture of just how economical the USDA home loan is: you can also opt to roll the closing costs of your credit into your mortgage payments. Moreover, the program allows the use of grants and “gift” money to shoulder part of the initial fees. You may also make a deal with the seller and find out whether they are willing to pool in on a portion of the closing expenses.

One of the biggest drawbacks that borrowers find in the FHA loan is the steep insurance fee that it incurs. The FHA loan demands two mortgage insurance premiums. One to be paid on the onset, while the other is charged on top of your monthly mortgage responsibilities.  The USDA loan only requires one mortgage insurance at a relatively lower rate.

Should you go for it?

The obvious economic and financial advantages that complement the USDA’s rural housing loans suggest that it is one of the best mortgage options for people who wish to purchase their first home. But whether or not it is the right loan for you? That is another discussion entirely, as many aspects need to be taken into account. Only you, and maybe the aid of a home loan professional, can determine that.

by jkyle