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The Basics of USDA’s Rural Housing Service Program

usda loan requirementsA significant number of millennials struggle with the decision of whether to purchase or rent a home. Initially, most people find rentals more compatible with their budget but looking at it long term; there is no doubt that buying a house is the way to go. On top of the privacy, safety, and security that homeownership affords, it is a sensible and worthwhile investment as homes increase in value and build equity over time. Instead of spending a big chunk of your monthly income on a rented house, why not use it to pay for something that will eventually become your own?

The USDA RHS Loan

The hefty price of conventional home mortgages has intimidated many aspiring homeowners. However, conventional loans are not the only way to go. The federal government, in keeping with its pledge to deliver modest housing to the majority of Americans, has initiated various government-guaranteed mortgage loans to accommodate citizens and residents from different walks of life. One of these is the Rural Housing Service (RHS) Loan, which operates under the umbrella of the United States Department of Agriculture.

There are plenty of home loans offered by mortgage companies; the USDA is special because it is one of the rarified few that provides 100% financing. However, the credit is only available to households whose meager means render them ill-equipped to handle the lofty financial demands of traditional mortgages. That said, the USDA-RHS and its authorized lenders across the country encourage individuals and households with incomes less than 115% of their region’s AMI to qualify for the loan.

Aside from the income threshold, the USDA Rural Development Home Loan also has area limitations. To benefit from the loan, your property of choice has to be situated within USDA-eligible sites. Many people regard this as an instant turnoff, but those who do their homework know that despite the exclusion of major cities and metropolitan centers, almost 97% of the country is up for USDA financing.

USDA RHS Loan vs FHA Loan

To give you a better grasp of how ideal the program is for moderate and low-income households, let us set it against another significantly more popular government-guaranteed loan program, the FHA Loan. While both loans have less stringent qualification standards particularly in aspects involving income and credit ratings, the USDA loan’s zero-down payment feature is definite plus especially for those who cannot shell out the 3.5% down payment needed for an FHA-backed mortgage. Moreover, USDA loans only mandate one insurance premium. The FHA loan, on the other hand, requires two: an upfront and an annual mortgage insurance premium.

If you meet the income requirements and don’t mind putting down roots a little farther away from the big city, this program is definitely worth some serious contemplation. But whatever option you choose, be sure to go about it with careful evaluation of its upsides and downsides. If you must, seek for the help of experts. Purchasing a home is one of the biggest financial judgments you’ll make in this lifetime. The decision you make today can greatly affect your future.

by jkyle