Ask any first-time home buyer about the most challenging part of getting a home loan in Colorado Springs, and they’d tell you that raising the down payment needed may just be it. For many Americans, 20% of the total price of the home they want is how much they need for the down payment. Given the hefty costs of houses these days, that can undoubtedly take a while to save up for.
But what many home buyers tend to overlook is an option that can help them: a USDA home loan.
USDA Rural Development Guaranteed Housing Loans, or simply USDA loans, come with many benefits, one of which is 100% financing. This means that there would be no need to save funds for a down payment. USDA loans are also more lenient when it comes to credit scores.
Now the question is, do you qualify? Read on and find out what you need to know about USDA loans:
Who Qualifies for a USDA Loan?
USDA loans are popular among home buyers in rural areas, where home prices are often lower than what you’d see in urban locales. And since this loan is USDA-guaranteed, your local USDA office can help you submit an application that could qualify you for a loan.
But if you’re planning to buy a home in a big city, don’t worry. You can still get a USDA home loan as long as you meet the following requirements:
– Your income is sufficient to handle the monthly mortgage payments
– You’re a first-time home buyer, either a single-family home or a duplex.
– The home you want to buy is located in a rural area, or you’re planning to live in the home yourself if you’re buying a duplex or a single-family home.
– Your home will be your primary residence.
– You’re unable to get a conventional home loan from a bank.
– The price of the home does not exceed the price limit set by your local USDA office.
– Your credit score is higher than or equal to 640, although other factors are also considered, such as your income and the area of your home loan.
What Are the USDA Loan Terms?
The USDA home loan has a 30-year term and a maximum interest rate of 3.5%, including the 1.75% fixed rate.
What Are Its Benefits?
The USDA home loan is a streamlined home loan process. It involves the direct approval of the borrower by the USDA. The borrower fills out an application, and the USDA assesses the homebuyer’s ability to repay the home loan. The USDA will forward the loan to a participating lender.
In addition to the 100% financing feature, the USDA loan also comes with a 0% down payment feature. Another plus is that the USDA has mortgage insurance, which protects the lender if the borrower defaults on the home loan. The lender pays an insurance premium and receives the insurance proceeds in case of default.
What Are Its Limitations?
The maximum amount you can borrow is $453,100 or up to 95 percent of the county median home value (CMA), whichever is lower.
The interest rate on a USDA loan is usually lower than a loan from any other lender. The interest rate on this loan is generally 0.5% below the current market rate, which scales from 3.75% to 4.5%, depending on the size of the loan.
There is no prepayment penalty for paying off the loan early. On any other mortgage, you would pay a fine for paying it off early.
You can expect to get a USDA loan with a fixed rate. Therefore, they are not based on any index and not on the interest rate.
As you can see, a USDA home loan is beneficial to first-time homebuyers who are looking to get a home loan in Colorado Springs, as well as people who have an adverse credit history. Because the government guarantees these loans, they are safe to get, and the mortgage rates are usually lower than any other loan. To apply for a USDA loan, you have to find a lender willing to accept it. Talk to a couple of financial institutions first and then finalize your decision.
If you have more questions on USDA loans, Total Lending Concepts, the trusted company of many when it comes to mortgages in Colorado Springs, can help you. Contact us today and speak with one of our home loan experts!