Branch Customization USDA Loans and You Contents How USDA loans work 3 Qualifying and Next Steps with USDA Loans 4 First Time Homebuyers and USDA Loans 6 USDA Loans vs. FHA Loans 7 Refinancing and USDA Loans 8 Conclusion 9 How USDA loans work With all of the lending options available today, it is understandable that every borrower may not understand each and every Branch Customization type of loan. However, if you are located in a rural area, one loan you should learn more about is the USDA loan. It could be a great way for you to borrow for the home of your dreams. What is a USDA Loan? A USDA home loan is a mortgage option that allows you to purchase with zero down payment. The loan is issued through the USDA (United States Department of Agriculture) and the program is properly known as the USDA Rural Development Guaranteed Housing Loan Program. Though these loans are more commonly known for being available in rural areas. How Does the USDA Loan Work? Surprisingly, a USDA loan is not much different than a conventional loan. Yes, the property will have to qualify for coverage, but when you find one that does, the borrowing process is much the same as it would be for any other type of loan. The USDA backs the loan, so there may be certain lender requirements (regarding the property and income/housing size considerations). However, there is no money down required—which can make it a very attractive option for some borrowers. Who Qualifies for a USDA Loan? The USDA is focused on helping those who have the greatest need. This means that it can be easier to qualify for this loan than many other standard loans, especially if the Branch Customization household income is on the low end. The exact borrowing requirements can vary from area to area and even property to property and we’ll go over some in the next chapter. However, talking to an expert at Liberty Financial will make sure your full situation is properly assessed. 3 Qualifying and Next Steps with USDA Loans In the last chapter we mentioned that there is no down payment required, so buyers can Branch Customization purchase a home even if they don’t have savings. However, for first-time homebuyers the qualification process can be a bit overwhelming. We’ve detailed some of the common steps you will go through if you are interested in buying a home with the USDA program. Determine if You Qualify The USDA lending program is only open to certain income levels. This varies depending on your location and family makeup. Talk to a lender like Liberty Financial about USDA loans to find out if you would qualify. We’ll consider your income, credit history and discuss the types of homes that are eligible. Get Preapproved Pre-approval will make buying your dream home easier and the process smoother. In this step we will figure out the amount Liberty Financial will lend you. When making an offer on a home this will make the process faster and give you some negotiation power. Find a Home that Qualifies Not every home qualifies for USDA lending. You can often find homes that would qualify for a USDA loan on websites like Zillow or Trulia, or if you’re working with an agent, he or she will be able to give you insight. 4 Go through the Inspection/Appraisal Process The home will need to appraise for the sales price and the inspector may find issues that must be corrected before approval. Put in an Offer and Get Approval Once you’ve found a home and have a contract on it, your lender will put together your information and send it for approval to an underwriter. Closing Once you’ve been approved and the home appraises, closing will be scheduled. At this point, the process should be just like any other home purchase. Remember, you won’t need a down payment, but there may be closing costs for which you are responsible, depending on the deal you’ve negotiated. Finally, realize that purchasing a home using ANY loan can be a complicated process. The Branch Customization best way to make sure you are on the right path is to work with an experienced lending company. Liberty Financial is highly experienced with USDA loans as well as other popular borrowing programs. 5 First Time Homebuyers and USDA Loans The goal of the USDA program is to “improve the economy and quality of life in rural America.” The most exciting thing about a USDA loan is that it requires no money down—making first time homeownership accessible for those who may not have thousands sitting around for a down payment. Not Just for Farms Even if the idea of a no down payment loan sounds tempting, you may be thinking that the USDA loan wouldn’t work for you because you’re not interested Branch Customization in living on a farm or in an rural area. You may be surprised to find out how many regions qualify. In fact, many semi-rural areas even qualify for lending through the program. You can use a home search website like Zillow to find properties that qualify, or if you are working with an agent, you may get an even better insight. Perfect for First Time Homebuyers First-time homebuyers are often at a loss for what type of loan to use. The USDA loan is a great choice because not only does it require no down payment, you may not even need to use PMI with your purchase. There are income requirements, but for Branch Customization many people who are looking for their first home, the USDA loan is an excellent choice. 6 USDA Loans vs. FHA Loans One of the most difficult parts of buying a home is deciding on the right kind of loan for your particular situation. With all of the options, it can become very frustrating to sort through the details. A loan that is often mentioned is FHA loans. While these are clearly not the same thing as USDA loans, there are some similarities, but there are key differences too. Here are some basic questions we hear about the loans so you can compare and contrast. What Do the Loans Have in Common? Both the FHA loan and the USDA loan are excellent options for those looking to borrow who may have trouble saving a large down payment. Both have small or nonexistent down payment requirements. Also, qualifications may be a bit easier for lower income borrowers than a traditional loan. What Makes an FHA Loan Unique? The FHA loan, which is a part of the Federal Housing Administration program, doesn’t usually have area restrictions, although certain properties may not qualify for other reasons. In addition, qualifications as far as credit level and debt-to-income ratio may be a bit stricter for FHA loans than USDA loans. What Makes a USDA Loan Unique? The USDA loan program, offered by the United States Department of Agriculture, is designed to boost interest in rural areas. As such, the loan is only available for certain properties. This requirement doesn’t mean that you are limited only to farmland, many suburban and semi-rural communities qualify. USDA loans do have an income cap, and the organization targets it towards those with lower incomes. It is always recommended to discuss this big decision with an expert. Reach out to us at Liberty Financial, and we would be happy to help. We have extensive experience with both FHA and USDA loans and can assist you every step of the way. 7 Refinancing and USDA Loans There is a lot of talk these days about refinancing home loans. If you’ve watched TV or listened to the radio at all lately, you’ve probably heard commercials regarding mortgage refinancing. However, if you have a USDA loan, you may think that this option doesn’t apply to you. In reality, that is not the case. Like most other mortgages, it is possible to refinance a USDA loan. However, because of the unique nature of the USDA loan, refinancing isn’t the same as it would be with any other loan. In recent years, the USDA has made refinancing USDA loans easier, with a USDA Streamline Refinance program. The process is considered streamlined because much of the information you used when applying for your loan can be utilized during the refinance process--saving time and effort. Requirements to be eligible for a USDA Refinance While you should talk to your lender about the specifics, some of the basic requirements include: ✓ The mortgage must already be a USDA loan ✓ The mortgage must not be delinquent ✓ The refinance will need to lower the monthly payment ✓ No cash may be taken out during the refinance process ✓ The past 12 payments should have been made on time The most important thing to remember is that refinancing a USDA loan does have certain special requirements and it may take a little more work. That’s why it is vital that you work with a mortgage company that understands USDA loans AND one that is comfortable Branch Customization handling the refinance process. Here at Liberty Financial, we have the knowledge and expertise necessary to help you with anything related to your mortgage--be it applying so you can buy your first home or refinancing a loan you had for years. 8 Conclusion A USDA loan is a something worth considering for many homebuyers. The dream of a country life, or almost country life, is something many people desire.