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Government backed mortgage
Government backed mortgage are the type of mortgage which is secured by the federal agency. There are 3 types of loan namely FHA, VA, USDA. Depending on the borrower's situation, they may qualify for one or more. It is easier to qualify for these types of loans when compared to the conventional loan. Even though these loans are secured by federal agency, the same mortgage agent can facilitate the loan.
USDA Loans
A USDA loan, also known as a rural development loan, provides an affordable way for people living in rural and suburban areas whose household incomes fall within the USDA limits to purchase a home. These loans are backed by the U.S Department of Agriculture. USDA loans have 0% down payment for eligible rural home buyers and is designed for the people who are not wealthy and can get a traditional mortgage. You can use this program to either get a new home or to refinance current home for better interest rate.
USDA direct loans are the loans issued by USDA for the qualifying borrowers with interest rate as low as 1%.
USDA loan guarantees are the mortgage issued by participating local lenders for a low interest rate.
USDA home improvement loans are the loans issued for the home improvement or home repairs on their homes.
Mortgage insurance
Though the loan is available with 0% down payment, monthly mortgage insurance is charged for the borrowers. This is an insurance premium charged by the lenders for the borrowers who take out loans backed by US Department of Agriculture. This is charged by the lenders to offset a 0% down payment made by the borrower. USDA loan can be obtained by making a 0% down payment and a minimum credit score of 640. Guarantee fee function as a mortgage insurance in FHA, but are much lower than FHA mortgage insurance premium which goes towards the funding of the USDA program.
Eligibility for the loan
A minimum FICO score of 640 is needed. Borrowers with at least a score of 640 will be eligible for the streamline processing and borrowers with score lower than that will have a much stricter underwriting but may be eligible for the loan depending on the lenders.
Loans from the USDA are available to families who demonstrate economic need, so your adjusted gross income can't exceed 115% of the median income in the area.
In addition to your debt-to-income ratio, your USDA lender will also consider your income when considering your loan. DTIs of 43% or lower are generally recommended for best qualification chances
Property Requirements
The home must be the primary residence for the borrower. It must not be an investment property or vacation home.
It may be a single family, Condo, approved PUD, manufactured homes that meet the loan eligibility and the standards. Duplexes are usually not allowed.
Property must be located within the USDA rural area.
The home appraisal must show the condition of the home - water, HVAC systems must be up to date, foundation must be in a good condition, the property must be accessible.
Benefits
Ability to qualify for the loan with a credit score as low as 680.
Ability to get a loan with 0% down payment and roll over the closing costs into the loan.
Ability to roll over the monthly mortgage fee into the loan.