Are USDA loans worth the hype?

The US Department of Agriculture guarantees loans for certain families in certain geographic locations. These loans can be potentially an affordable loan program to help a family who doesn’t have a down payment buy a home in an area considered to be less industrialized a.k.a. agricultural.
If you’re looking to get a USDA loan, here are some things to be aware of…

It is true the US Department of Agriculture allows you to buy a home without having a down payment. However, the guaranteed automated underwriting system known as Gus can be a little bit tricky for getting your loan approved. The lender only has so many options to run your scenario through the system. If they run your loan scenario through the system too many times, it could produce ineligible findings thus making your homebuying process more problematic.

If you truly have no money at all to buy a house and no savings in the bank, that doesn’t necessarily mean you shouldn’t buy a home, it just might mean making some concessions as it relates to your finances. So, for example, here are the types of properties that USDA loans will do.

USDA loans will do manufactured homes, single-family homes, and properties on land you own. They will not do loans on properties which contain space rent where you don’t on the land, but only the structure, that’s an entirely different type of financing and unfortunately USDA does not guarantee such homes. While it is true USDA does offer some construction loans out there. The reality of it is, there’s probably not very many lenders in this environment doing USDA loans without a down payment with a seller paid credit for closing costs and doing a construction loan at the same time. If you add those elements in and depending on where you’re looking to use this USDA loan, if you’re looking in an area where the average price home is $600,000 +, you’re talking about needing income for in exceeding  the annual limit most likely. You’re hearing that right USDA loans have certain income limits which may make the prospect of using a USDA loan ineligible depending on the geographical area in which are looking to buy a home.

If you’re looking for example in Sonoma county, California, a USDA loan is only eligible in certain areas. In Sonoma County California that means point Reyes, Napa, Kenwood, Sonoma, all West County, including the coast and other nearby areas include Mendocino County, and all of Lake County. In other words, if you’re looking for a home in Santa Rosa, Rohnert Park, Cotati, or Petaluma, this type of financing is not going to play host to those areas because those areas are not deemed agricultural by the US Department of agriculture. This means you might need to consider changing loan programs and shifting gears into an alternative first-time homebuyer program or a down payment assistance program via the Federal Housing Administration instead which does not have any limitations on the geographical area in which are desiring to purchase a home. The point might be to get in without a down payment, and there are other options out there besides USDA that depending on your credit score, income to debt ratio and price point might mean taking another more proactive pragmatic approach which may be suitable for you and your family going forward. USDA loans are good loans for the right family in the right area and in the right location. Generally speaking a mortgage loan guaranteed by the US Department of Agriculture are very specific product, for a specific family in a specific area and is not and should not be considered as a one size fits all solution just because the program offers no money down to buy a home.

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