USDA Loans for Homebuyers in Rural CA, TX, CO, and AZ from Landrum Loans
While many metro areas are growing rapidly, many rural and suburban towns away from the city are appealing for new homeowners. These areas may also have the advantage of being eligible for a USDA loan. These loans, offered as part of a rural housing program, are no down payment and low interest rate loans for home purchases in rural communities. Primarily for lower and middle-income families, a USDA loan can make it possible to finance your home purchase when other loans are out of reach.
Michael Landrum at Landrum Loans is a mortgage loan officer helping those in California, Texas, Colorado, and Arizona with a wide range of mortgage loans. We have experience with low down payment and low-interest rate loans, including USDA home loans. Our professional and personalized mortgage solutions are here to help you choose the right loan for your finances. Call us at (916) 813-9306 or email us to set up a time to discuss your options.
What is a USDA Loan?
The US Department of Agriculture, or USDA for short, oversees many programs related to farming and rural America. Through their Rural Development Guaranteed Housing Loan Program, they offer low interest rate loans that require no down payment. These zero down payment mortgages make it possible for families with low or moderate incomes to afford to purchase homes.
Like many other low down payment loans, the majority of USDA loans are insured by the government rather than paid out by them. This enables lenders to be more flexible with their qualification requirements since the government will cover any money lost if a borrower defaults.
The defining feature of these loans is that they only apply to home purchases in certain “rural” areas, which is why you may hear them called rural housing loans. The USDA determines which towns are eligible, and many smaller towns and communities are included – including some that do not seem rural at first glance.
Despite this being one of the few zero down payment loans, few homebuyers are aware of the requirements or that the area they are looking in is eligible. As a result, these loans account for less than 1% of the loans issued. For homebuyers interested in purchasing a primary residence in one a rural county, a USDA loan can provide extensive savings and make it possible to purchase your dream home.
Types of USDA Loans
There are three different types of loans offered as part of the USDA loan program to help you get the right loan for specific needs. The three types are:
- Guaranteed Loans – The USDA backs these loans, but the loan itself is issued by local lenders who participate in the program. Because these loans are insured by the USDA, the lenders are able to offer competitive interest rates without the large down payment.
- Direct Loans – These loans are funded by the USDA, and are only available to low income borrowers in certain areas. They are highly subsidized in order to provide extremely low interest rates.
- Home Improvement Loans – Applicable to the same rural areas, a USDA home improvement loan provides funds for repairs or upgrades on home. These funds may also be available as grants in certain cases.
Guaranteed loans are the type most often issued to homebuyers. They can assist you in purchasing your first home in a rural area, even if you have little down payment.
Will I Qualify for a USDA Loan?
In an effort to help lower and middle income families purchase homes, USDA loans have more accessible qualification requirements than conventional loans. There is no down payment needed, which makes it possible for families to receive a USDA loan without needing savings.
There are still income and credit requirements to qualify for a USDA loan, however, and these include:
- U.S. citizenship or permanent residency.
- Unable to qualify for another type of loan.
- FICO credit score between 620 and 640, or greater.
- Steady employment history, usually with payment history going back 2 years.
- Debt to Income Ratio (DTI) lower than 41%.
- Total monthly home payment less than 30% of your monthly income.
- Household income less than 115% of the median income in the area where you are buying.
As listed here, these requirements are general guidelines. Each loan is considered on a case by case basis, so it is possible to have a higher debt ratio alongside a higher credit score, for example. If you are interested in buying in a rural area and do not have the savings for a down payment, it is worth looking into a USDA loan.
Home Locations Covered by USDA Loans
The USDA also imposes restrictions on the homes a USDA loan can be used for. These loans are designed to stimulate growth in rural areas of the country. In general, this includes communities with fewer than 35,000 residents.
Fortunately, there are many wonderful communities throughout California, Colorado, Texas, and Arizona with many possible opportunities for housing. A Rural Housing Loan can help those looking for more permanent housing in these areas, or those who are considering moving to a rural area.
Suburban areas will also sometimes qualify for a USDA loan, making it possible to live closer to the Denver metro area if that is your goal. Around Denver, towns approximately 40 miles away from the city such as Bennett, Lyons, and Fort Lupton are eligible, and suburban developments in these areas may qualify as well. There is no need to own a farm or even significant acreage.
To get a better idea of what areas are eligible for USDA loans, you can use the map on the US Department of Agriculture site as a guideline.
The value of the loan is dependent on the area where you are buying. It will typically be enough to cover a home of about 2,000 square feet in your chosen neighborhood.
USDA Loan Benefits
When you are searching for a home in a smaller community or rural area, a USDA loan offers many advantages, including:
- No Down Payment – USDA loans are one of the remaining few that are available to borrowers with a zero down payment. You will still need funds for closing costs, but there is no requirement of extensive savings that other loans need.
- Low Interest Rates – USDA backing of these loans lets lenders offer them with approximately 2.3% to 2.75% interest rates. These numbers are always changing, but the averages are below other loan types.
- More Lenient Qualifying Requirements – It is generally easier to qualify for a USDA loan than a conventional one with lower FICO credit score requirements, lower savings rates, and a higher debt to income ratio.
The main drawback of a USDA loan is that there are requirements both the home and the lender must meet to qualify. Rural living is not for everyone, and those wanting to live in more urban areas will need to consider other options for low or no down payment loans.
For all loans with low and no down payments, you will also have to pay mortgage insurance. The USDA calls this a guarantee fee, and it is currently at 1% of the total loan amount. Although this is an additional cost due at closing, it is still less than the mortgage insurance rate on loans like FHA loans.
Take the Next Step – Contact Landrum Loans
A USDA home loan can help you achieve homeownership even when you do not qualify for conventional loans. But navigating the qualification process, understanding your loan options, and getting started requires a partnership with a mortgage broker you can trust. Michael Landrum has extensive experience working with families both locally in the Sacramento area and throughout CA, TZ, CO, and AZ, helping them make strong financial decisions in the home buying process. See if you qualify for a zero down payment USDA loan today by calling us at (916) 813-9306 or starting the application process on our site.