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The USDA Home Loan Helps Those Denied For A Loan In The Past

Over the last several years, one program has helped make it possible for those who haven't been able to qualify for a home loan secure the money they need to become a homeowner or to renovate a home - the USDA home loan. While it's often associated with agriculture, the fact is that the USDA loan offers low-income home buyers in rural areas the chance to get the home they want.

USDA loans come with numerous benefits including:

  • Lower credit score requirements
  • Reduced mortgage insurance premiums
  • Zero down payment requirements
  • Low interest rates

In short, they're a perfect match for some people. It's important to note that they're only for those in rural areas and who have lower income levels - but if it's a loan that matches your needs, it could be a great way to buy a home. 

Examples of people who used the USDA loan

A couple in Boulder City began the search for their dream home while expecting their second child. They were renting a tiny 900 square foot home at the time and renting anything larger would end up bringing major costs of over $1,300 - compared to the $800 to $900 that a mortgage payment would be on a three bedroom home.

The couple had a decent income and solid employment histories, but they faced one of the biggest challenges people face when buying a home - raising the down payment needed to secure a traditional loan. Their loan officer suggested a USDA loan and it turned out that they qualified for the loan. They closed on the home shortly thereafter, without ever having to provide a large down payment.

Over time, the home actually increased in value and they ended up using the equity to renovate and add to the home.

Another buyer in California was in a similar situation - plenty of income and a solid employment history that meant he could pay his mortgage on time, but no down payment. This buyer actually had a credit score so high that he was able to receive cash back at closing and get the home that he had hoped for.

The borrower was able to get 3.875 percent interest rate, fixed for the 30-year duration of the home. Overall, the cost was far lower than using the more traditional FHA loan that so many people consider using. The lack of a down payment was a clear benefit, but his low-interest rate helped him even more over time.

An Option That's Right For Many

Not everyone will be able to qualify for the USDA loan. The USDA website has a map that allows you to determine if your location qualifies, but each type of loan also has its own income limits that you must fall within.

Additionally, these loans are usually better for long-term buyers instead of those who plan on selling within a few years simply because the loans are for 100 percent loan to value, which means that there may be some risk that you end up underwater if market values falter.

However, for those who do qualify, USDA loans offer a chance to purchase a home with a minimum of income and credit requirements and without the high down payments that other loans provide - and with interest rates that are often lower than options like FHA loans. Talk to your loan officer about these loans to see if you qualify and if they're a good fit for your situation. They could provide the path to homeownership that you're looking for.

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