Did you know you can buy a property with no money down? Though it may appear to be too good to be true, the United States Department of Agriculture Guaranteed Rural Development Loan, commonly known as a UDSA or rural development lending, assists potential homebuyers in becoming homeowners by providing various benefits not available via other loan programs.
4 Major Benefits of Getting a USDA Loan
Here are five ways a USDA loan might help you buy a house.
- No Down Payment Required. The fact that the USDA loan program allows homebuyers to achieve 100 percent financing is undoubtedly the greatest benefit of using a USDA loan. This alleviates the biggest hurdle most first-time buyers face which is gathering enough funds for a down payment. In comparison, borrowers are required to supply a minimum 3.5 percent down payment for an FHA loan and 3 or 5 percent for a conventional loan.
- Borrower Qualifications. Most traditional lenders want at least a 640 credit score, but you’ll need something closer to 720 to qualify for the lowest interest rates. There is no minimum credit score for USDA loans, however, you must have a score of 640 or above to use the USDA’s automated underwriting system.
- Private Mortgage Insurance (PMI) with a Low Monthly Payment. Private mortgage insurance is needed for any loan with a loan-to-value of less than 80%, regardless of the lending program. So, if a borrower takes advantage of the USDA loan’s no-down-payment option, they must pay monthly mortgage insurance. The USDA loan has the lowest private mortgage insurance rate of any lending program, and it does not change depending on your down payment, as it does with conventional financing. The USDA loan’s yearly PMI cost is now 0.35 percent of the loan’s remaining principal amount.
- No Prepayment Penalties. In addition to the low-down-payment and low-interest rate perks of USDA home loans, the loan also has no prepayment penalties, allowing borrowers to take advantage of interest rate changes, home price fluctuations, and other changes without facing fees.
The Bottom Line
Homeowners who might be looking to sell their home in the near future can take advantage of the USDA loan program’s no prepayment penalties. This is a program many consumers should consider, especially first-time homebuyers who lack the funds necessary to make a down payment.
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