If you have bad credit or a lower than average income, you can still find a way to get a loan for a home purchase. Even if you have been turned down by other private lenders for a conventional loan or government programs like FHA loans, there is one program, the USDA loan, you can try that is almost guaranteed to work on your behalf.
The requirements that must be met to qualify for this program are very easy to negotiate and the terms of repaying the loan are also quite liberal compared to other arrangements. What follows is an explanation of a USDA loan and how it works.
What is a USDA Home Loan?
The United States Department of Agriculture (USDA) has been specially authorized to provide a series of low cost loans to new home buyers under certain circumstances. What a USDA home loan consists of is essentially a mortgage arrangement for rural and suburban home buyers who can meet the guidelines for applying. The main benefit of such a loan is that there is no down payment involved.
This special type of loan is issued through a Federal government supervised USDA loan program. The program is also known in some areas of the country as the USDA Rural Development Guaranteed Housing Loan Program. All such loans are fully sponsored, supervised, and guaranteed by the United States Department of Agriculture, hence their special designation as an official USDA home loan.
How USDA Loan Programs Work
There are three different types of programs that are covered under the general heading of a USDA loan program. What follows is a brief description of these different types which the reader can make use of in order to decide what type of USDA may best fit their personal needs.
Loan Guarantee Program
Under certain circumstances, the USDA may issue you a mortgage that is fully guaranteed with the assistance of a local lender who is willing to participate in this arrangement. In this case, the guarantee you get is similar to the backing you would receive from a standard FHA or VA loan.
The purpose of a loan guarantee is to enable you to get a very low rate of interest on the mortgage you sign for. This will be true even if you only put a small amount of money – or no money – down. However, you should be advised that if you put no money, or only a small amount, down on the arrangement, you will end up on the hook for a monthly mortgage insurance premium.
Direct Loan Program
Direct loans are issued by the USDA with the purpose of serving the home buying needs of applicants who have incomes that are below, or seriously below, the national average. The amount of income that will qualify you for a direct loan will vary according to the region you currently reside in. Once you have received the proper subsidies, the rate of interest that you pay on a direct loan can be as low as 1 percent.
Home Improvement Loan
You may also be able to qualify for a special series of home improvement loans and grants. Depending on your personal needs, you can receive either a loan or an outright grant of money that will allow you to make much needed repairs or upgrades to your existing property. You can also qualify for a special package that combines a grant with an additional loan. Such an arrangement can get you up to $27,500 from the USDA.
How Can You Qualify for a USDA Home Loan?
In order to qualify for a USDA home loan, you need to be an American citizen or permanent resident. You need to show proof of a reliable income, usually for the past 2 years. You will need a good credit history, with no collections on your record for the past year.
If your credit rating is above 620, you can expect faster processing. If your score is below 580, you may be subject to a higher level of scrutiny along with stricter requirements concerning your schedule of payments. Check the official
USDA website for a complete list of requirements that are associated with this type of loan. Save