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USDA Loans: What they are and how they can benefit you

Is it your dream to buy a home in the country?

Perhaps you like the idea of living on a large plot of land. Maybe you’re interested in getting away from the hustle and bustle of urban life. Whatever your reason for buying a rural home, we’ve got the loan for you. The USDA Home Loan is a mortgage offered to those who would like to buy a house in an area that is considered rural. As the name suggests, USDA loans are guaranteed by the US Department of Agriculture.

Similar to a VA loan, a USDA loan does not require a down payment for borrowers who qualify. Unlike FHA or Conventional loans, USDA financing allows a borrower to buy a home without putting a limit on acreage. There is also the potential for borrowers to finance 100% of their loan, even closing costs, if they qualify for a USDA loan. Below, we’ll outline more of the advantages and important information you need to know before you decide whether a USDA loan is the right mortgage for you.

USDA loans are:

  • Guaranteed by the US Department of Agriculture:
    While the mortgages are issued by private lenders, USDA loans are guaranteed by the US Department of Agriculture (to guarantee a loan means that a third party assumes liability for a loan in the case of a borrower defaulting; in the case of USDA loans, the USDA is the third party.)
  • Loans for rural pieces of land:
    Although USDA loans are restricted to properties that are designated rural, the definition of rural according to the USDA is any area with a population of less than 35,000. It’s estimated that as much as 97% of the United States qualifies as rural and is eligible for USDA funding. There’s a good chance you will be able to buy a home that qualifies as rural without uprooting entirely.
  • USDA loans are not:

    • Restricted to farmers or other agriculture workers, or to properties that will be used for farming:
      Due to their name, USDA loans are sometimes mistaken as loans reserved for the agricultural industry, but this is not the case. USDA loans are available to anyone hoping to buy a home in a rural part of the country, and there are no stipulations whatsoever demanding that the land purchased must be used as farmland.
    • Available for the purpose of purchasing a second home or investment property:
      There are loans available for purchasing a second home or an investment property, but a USDA loan prohibits this. If you buy a home using a USDA loan, that home must be used as your primary property.

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    USDA Loans:

    • Do not require a down-payment: USDA loans allow homebuyers to finance 100% of their mortgage, meaning you do not have to assemble the funds for a down payment before purchasing. USDA loans are one of the only mortgage types that allow for 100% financing; for comparison, conventional loans require at least 3% down.
    • Require upfront PMI financing, but this can be rolled into the mortgage: Since the USDA is assuming responsibility for the loan in case of default, private mortgage insurance is required. Unlike other loan programs, if you get a USDA loan, you are able to roll your PMI upfront fee into your financing.
    • Are available to first-time homebuyers or returning buyers, and to people who have filed bankruptcy or have previous foreclosures: While USDA loans do have credit requirements and a maximum household income, there are no restrictions limiting USDA loans to first-time buyers. No matter how many homes you’ve owned in the past, you can purchase a home using a USDA loan. Even if you’ve previously foreclosed on a home or filed bankruptcy, you may still be eligible for a USDA mortgage following the waiting period (one year for Chapter 13 bankruptcy, three years for Chapter 7 bankruptcy or for foreclosure. Please note that some additional restrictions may apply).

    • As you can see, there are several benefits to USDA loans that make the program very appealing. If you would like to learn more about USDA loans, or to see if you qualify for USDA financing, contact a Southern Trust Mortgage expert today.

      If you’re ready to explore your homeownership options, Contact a Southern Trust Loan Officer. We’ll put you on the right path to meet your home ownership goals.

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