For most first-time homeowners-to-be, the most difficult and painstaking process is applying for a housing loan. While most homes look flexible on paper, what throws people off are high rates for the down payment. For most people, they can afford to pay the monthly mortgage but are driven away by the upfront costs for the home.
While services such as VA loans cover down payment dues, for the most part, they are only available to those in service or veterans. However, an alternative exists for those who are looking for a nice place to live without requiring to be a combat veteran to avoid the upfront down payment costs. With USDA loans, you can secure a dream home with minimal requirements. Here’s what you need to know about it and why you should opt for a loan like this:
What Is A USDA Loan?
These loans are guaranteed by the United States Department of Agriculture, with the goal of providing affordable financing for homes in rural areas or suburbs. Let’s face it, living in the bustling cities with all the high rises screams extremely high real estate prices.
This is usually an unrealistic option for most first-time home buyers, as the prices for even just an apartment or a studio can be through the roof. With the big cities like San Francisco and New York City having prices that are insane depending on the districts you find yourself in, perhaps you will want to consider other options.
Why You Will Want to Secure A USDA Loan?
With a 0% down payment, you can use the excess money for other things such as home improvements, furniture, or even to start a business or invest. Although there are housing loans out there with low down payment rates, no is better than low. Additionally, you can get a house you dream of rather than being confined to a small space in an urban environment, which is a plus.
Another thing that makes these loans so attractive is that they often have lower loan costs. For example, let’s compare an FHA loan with a USDA one. For a $200,000 loan amount, FHA requires an upfront insurance premium that is 1.75% the amount, which is roughly $3,500 at closing or included in the loan balance. Additionally, there is an annual premium based on the equity amount, so if the down payment came out to 3.5%, the annual premium is 0.85%. That premium is an extra $140 dollars per month.
A USDA loan has an upfront guarantee of 1% of the loan amount, which is $2,000 at closing, or rolled into the loan. The annual guarantee comes out to 0.35% of the average unpaid principal balance each year. The initial premium would amount to around $60 per month, with a steady decrease each month as you work to pay the loan off.
With all this math, the basic thing you can take away from it is that USDA loans mean lower monthly payments for your house.
What Are Some of The Qualifications for A USDA Loan?
Like any loan, maintaining a good debt-to-income ratio is important, with a higher score making it easier to obtain loans. USDA loans are given to those who have a score of 640 or higher on the FICO scale. Having reserve income set aside to cover your payment in case of emergencies like job losses will help you obtain a loan as well.
USDA loans are designed to aid with home development for affordable housing in rural areas, and with most states having suburban areas readily available to live in, you are fortunate. When it comes to these loans, the adults in a household cannot be making more than 115% of the median income in the area.
Shannon Christenot for USDA Loans in Los Angeles
When it comes to owning your own home, a nice way to start is to apply for a USDA loan and live in the suburbs or in a rural area. These loans are a good way to save a lot of money and continue to have a spacious dream property in a peaceful and tranquil area.
I am Shannon Christenot and I am one of the top mortgage brokers in Los Angeles. I can assist you in finding the right home loans for you. Contact me at (818) 601-2231 to get pre-approved for a loan today!