A USDA loan is a type of mortgage that is insured by the United States Department of Agriculture. The purpose of the USDA loan program is to help rural homeowners buy homes with no money down. However, these loans can be a little confusing – particularly if you’ve never purchased a home in Macomb County before – so this guide gives you the skinny on what they are, who qualifies, and how to use them.
What is a USDA Loan?
A USDA loan is a mortgage available to rural homeowners buy homes with no money down. The biggest benefit of a USDA loan is that it doesn’t require a down payment – making it an attractive option for first-time homebuyers. In addition, USDA loans are available to qualified borrowers with low-to-moderate incomes.
How Does a USDA Loan Work?
A USDA loan works by insuring a loan made by a private lender – such as a bank or credit union – thereby protecting the lender in the event that the borrower defaults on the loan. The USDA manages this program through the Rural Housing Service (RHS), which is a part of the Department of Agriculture.
Who Qualifies for a USDA Loan?
To qualify for a USDA loan, you must:
- Be a U.S. Citizen or have legal permanent residency
- Have an income that doesn’t exceed 115% of the median income for your area
- Purchase a home in a USDA-eligible rural area
How Do You Get a USDA Loan?
If you think you might qualify for a USDA loan, the first step is to contact a participating lender. The RHS has a list of approved lenders on its website, so that’s a good place to start. You can also ask your real estate agent if they work with any lenders who offer these loans.
After you find a lender, you’ll need to complete an application and provide documentation of your income, assets, and debts. The lender will then send your application to the RHS for approval.
If you’re approved for a USDA loan, the next step is to find a home in a USDA-eligible rural area. After you find a home, you’ll need to make an offer and have the seller accept it. Then, you’ll work with your lender to complete the loan process.
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What Are Alternatives to USDA Loans?
If you don’t think a USDA loan is right for you, there are other options available. Some other programs that might be a good fit include FHA loans, VA loans, and conventional mortgages. Talk to your lender about which option is best for you.
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). These loans are available to qualified borrowers with low-to-moderate incomes. One of the biggest benefits of an FHA loan is that it only requires a 3.5% down payment.
Related: All about FHA loans
A VA loan is a mortgage that’s available to eligible veterans and active-duty military members, as well as qualifying dependents of servicemembers and some others. These loans are backed by the Department of Veterans Affairs and don’t require a down payment.
A conventional mortgage is a loan that’s not insured or guaranteed by the government. These loans typically have stricter eligibility requirements than other types of loans, but they may offer lower interest rates and down payment requirements.
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