Chicago.com
People with a love of country living buy homes with the USDA loan. You may also be surprised to find that some Chicago-area homes also qualify for the USDA’s unique program.
Generally, USDA loans alleviate financial stress with its various perks and focus on rural homeownership for low-to-middle income families because they offer a no money down home financing option. Let’s look closer.
USDA Loan Benefits
Advancing the development of rural communities, the USDA’s Housing and Community Facilities Programs guarantees two types of home loans for families and farmers: the Guaranteed and Direct Housing Loan.
Private section lenders assume no risk in approving these loans insured through HCFP. Why? If a borrower defaults, HCFP pays the lender the remaining balance. Therefore, more families attain their dreams of living in rural areas because lenders willingly help them to reap the benefits of the mortgage program.
One gigantic advantage of USDA loans is a person can borrow up to 100% of the appraised value of the single-family home or farmland. The 100% financing gets rid of the down payment requirement. Closing costs and the guarantee fee roll over into the monthly payments, so there are virtually no upfront costs.
Guaranteed and Direct Housing, or Section 502, loans are typically used to help low-income persons obtain homes in rural areas. The funds can be puts towards the construction, repair or renovation of a new home. Homebuyers can also use some of the loan money to help with moving costs.
Guaranteed loans are on a 30-year payment plan. Lenders set the interest rates. However, because of government backing of the loan and the general state of the economy, lenders offer home buyers lower rates; not to mention, house prices are at a record low. Lenders also use a buyer’s debt-to-income ratio to determine rates and repayment ability.
Direct Housing loans last 33 years for buyers who meet income standards and 38 years for buyers with income below the required limits. The loan repayment plan is 30 years for manufactured homes. Unlike the Guaranteed loan, the HCFP establishes interest rates for Direct Housing loans. They base rates on the government’s budget but also provide a subsidy to home buyers as incentive.
How to Apply and USDA Loan Eligibility
Buyers need to work their credit up to acceptable standards and demonstrate the ability to make payments for the long haul. Families applying for the Direct Housing loan must have an extremely low income. Income limits are not as strict on the Guaranteed loan.
The USDA has about 800 offices nationwide with staff ready and willing to help interested home buyers. Potential buyers can fill out application or receive advice and feedback from their local USDA offices.