USDA Home Loans-A Comprehensive Overview

You recently got a job in rural areas of Texas and are planning to get a home for yourself. You need a mortgage with reasonable rate of interest as your credit score is around 600. In that case USDA loans is the go to solution for you as you will be offered loan in the rural area of Texas, with your credit score and does not need a down payment. USDA aims at increasing home ownership across US, with the upper limit of $417,000 and no down payment, USDA loans are the go to means of getting loans for many. The eligibility rules are also relaxed as compared to other loans. Here are some basic factors about USDA home loans.

Basics of the Loan
USDA loans started in 1991 with an aim of boosting rural population and home ownership among rural residents. It is given for primary residence and the applicant should have the capability of being able to repay the loan, however, should not be able to take a second loan. Credit score of 640 is the minimum requirement for the application, however, frequent exceptions are made for the applicants based on their income.

Though USDA loans are given for rural area, they are not given to buy a second home, buy agricultural land and for speculation purposes, they are strictly for financing primary residence.

Eligibility for the loan
A USDA loan is for the applicants from rural area and small towns. The definition of small town in given in USDA that is modified as per Census report every few years. Hence, you might have to check whether USDA rules cover your town. Once you have checked about the availability of the rules, here are certain financial checks that you need to go through to get a loan.

Debt to Income Ratio
The combined percentage of PITI (mortgage Principal, Interest, Taxes and Insurance) should not exceed 29 percent of your total monthly income and total mortgage should be less than 41 percent of the monthly income.

Credit Score
You need a minimum score of 640. In case your score is less than 640 because you do not have a FICO recent history; exception can be made. Exceptions are based on your salary, present mortgage and your capability to pay the loan in the future.

Overall Income
While total income is calculated factors such as size of the family, future earnings prospect, disabilities and dependents are taken into consideration along with other factors.

Age and Other Qualification
You need to be minimum 18 years of age and a US citizen or a US national or a qualified alien.

Types of Loans
There are two kinds of loans given by USDA. First is direct loan, that is given directly by USDA and second is the guaranteed loan that is issued by the bank and guaranteed by USDA home loans. The requirement for both varies. Here is a quick reference for both.

Direct loan
Given directly by USDA to low income applicants, whose income is less than 80% of the area median income.

Guaranteed Loan
Given by the banks to applicants with broader income and the income has to be less than 115% of the area median income.

Conclusion
When you are moving to rural Texas and looking for a house USDA home loans can help you in getting the house that you need and help you with the down payment and even with the closure.

Buying your First Home? Check out the types of Loans you can get

Do you think that it’s time to realize your dream of buying your first home?

It’s the dream that every American has, but low cash reserves and a strict lending market make things difficult. Especially, when the economy has been low and is hardly showing signs of recovery.

There are recent updates on stricter loan requirements for 2014. These new rules will be more tied to the borrowers’ debt-to-income ratio.

Types of Loans to explore
Despite all the odds stacked against borrowers, you needn’t put off your plans just yet. There are various loan options available that will fit your requirements. But prior to that, let’s know about the major loan types and their eligibilities.

Usually, there are two major types of home loans, conventional and government.

1. Conventional Home Loans

Conventional loans are given by banks, private lenders or mortgage companies. The interest rates of these loans are based on the current market trend. The following types of loans are available:

Fixed-rate Mortgage: In this type of loan, the rate of interest remains fixed. Borrowers pay a fixed mortgage amount as repayment on a monthly basis, and the interest rates don’t vary with the changing market rates. However, the interest rates of this loan are comparatively higher than FHA, VA or USDA. Also, the guidelines are more stringent in terms of debt-to-income ratio and credit score.

Adjustable-rate Mortgage (ARM): An adjustable-rate mortgage initially offers a fixed interest rate, and later the rates become adjustable based on the current interest rates in the market. However, the rate during the adjustable period is uncertain, and borrowers may end up paying steep interest on their loans due to market adjustments.

Other or Jumbo Mortgages: Borrowers who don’t have good credit scores can get these types of loans. Such loans have a higher credit limit than the more typical ones. At the same time, jumbo loans have more risks involved because if borrowers default in payment, they will have a significantly higher amount payable than on other loans. Hence, these loans require a higher down payment.

2. Government Home Loans

These loans are guaranteed by the government for people who find it difficult to obtain conventional loans due to strict eligibility issues. Various types of these loans are mentioned below:

Federal Housing Administration (FHA) Loan: This is a program initiated by the U.S Federal Housing Administration (FHA). The objective of this program is to help more families and individuals with low income to afford home loans. Interest rates of these loans are lower than the conventional loans. However, total interest rates and fees are higher in FHA loans.

Veteran Affairs (VA) Loan: VA loans are offered by the US Department of Veteran Affairs to veterans of armed services, or to their families, for obtaining long-term financing. It’s a good option for borrowers who are not eligible to receive private financing, as they can buy a home without making a down payment.

USDA Loan:

This loan program is offered by the US Department of Agriculture (USDA). These loans are guaranteed by the Government and no down payment needs to be made. USDA loans are structured to be repaid over a period of 30 years.

Getting a home loan is an important step towards fulfilling a lifelong dream. Hence, you need to do your own research to find a lender that has extensive knowledge and expertise to guide you in every step. Despite borrowers not meeting eligibility criteria for conventional lending, a reputed lender can educate and assist them in getting home loans through a structured process.