USDA Loans

What is the USDA loan program? 

The USDA loan program serves responsible low to moderate income homebuyers by making it possible for them to finance homes and afford house payments.

USDA loans offer financial advantages to eligible applicants, including 100 percent financing.  A couple of its favorable aspects include no down payment and insurance included in loan.

Both the buyer and the property must show USDA eligibility.  Buyers have income restrictions.  These vary depending on the median area income.  See the 2022 income categories on this USDA income chart.

Overall, USDA lenders want homebuyers to prove USDA eligibility.  To qualify for the USDA home loan, buyers may only get financing for homes in rural areas or suburbs with populations under 35,000.  Additionally, these homes need to be modest sized–approximately 2,000 square feet or less.

How Does a USDA Loan Work?

The USDA agency guarantees 90% of any USDA loan if a borrower defaults.  That is somewhat of a risk.  So, mortgage officers dealing with USDA mortgages employ unique criteria.  They have more flexibility than conventional loan lenders.  For example, they may measure a buyer’s ability to make payments instead of simply tossing out an application based on a lower credit score. 

USDA lenders also scrutinize the homes and properties they underwrite.  Is a home worth the sale price?  Will it keep its value?    

After the approval of a USDA loan application, USDA lenders design the loan details based on the ability of the applicant to sustain mortgage payments over time.  All USDA loans feature fixed interest rates based on current market rates.  Interest rates may be lower than a homebuyers may find on other types of loans.

A list of details comes up during the loan process.  For example, the USDA charges an origination fee.  Borrowers may pay upfront or have the cost rolled into the mortgage.  Sellers may pay closing costs, a nice possibility to negotiate.

Another detail.  USDA home loans do not require mortgage insurance, but the USDA does charge lenders guarantee fees to offset risk factors.  They pass on the fees through monthly mortgage loan payments. 

Again, guaranteed Rural Housing Loans help low- and moderate-income applicants receive 100 percent financing with no down payment.  These loan programs come with fixed terms of 30-years.

USDA Home Loan

Benefits of USDA Loans

The USDA loan program benefits qualified homebuyers because it:

  • Allows for 100 percent financing
  • Drops the down payment requirement
  • Offers competitive interest rates, often lower than comparable FHA or conventional loans
  • Features low origination fees that lenders include in loan payments
  • Designed a flexible Guaranteed Underwriting System which may help overcome low credit scores
  • Features quick refinancing processes with no credit report, home appraisal, or property inspection requirements

Eligibility for USDA Home Loan Program

Both the USDA loan applicant and the desired home for sale must qualify for the USDA home loan program.

To qualify, applicants must adhere to the strict income requirements.  The USDA chart displays variables for categories of income.  Low and moderate income depend on the geographical region and number of family members. 

USDA eligibility is also based on need.  Applicants must need decent, safe, and sanitary housing and be unable to receive other mortgage financing with doable terms.

And there are legalities.  Applicants need to be able to legally take on a loan.  This includes meeting citizenship or eligible noncitizen requirements.  Anyone suspended or barred from taking part in federal programs may not apply.

Now for property eligibility. 

  • In Colorado, homes in USDA eligible areas lie in rural areas with populations under 35,000.   
  • Homes must be a maximum of 2,000 square feet or so.
  • The home’s market value must be under the applicable loan limit in the area.
  • The home must be the buyer’s primary residence.
  • The home’s layout may not purposefully accommodate income-producing activities.
  • The USDA program excludes properties with in-ground swimming pools.

Summary – USDA Home Loans

These special USDA mortgages are issued to applicants with the greatest need. The agency looks at the conditions of the applicant’s current housing, his/her ability to secure a traditional home loan, and then prioritizes those with adjusted income at or below the low-income limits.

For information about FHA home loans in Colorado, contact Springs Home Mortgage today at (719) 470-0898.

We would be happy to walk you through every step of the process, (719)470-0898

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