When potential home buyers decide they want to live in a more rural area or out in the country and finance a home, there is an option available to them they may not yet be aware of – the USDA loan. USDA Rural Housing has very competitive interest rates and is specifically designed to finance rural and semi-rural areas. As a bonus, there is no down payment required – 100% financing. That’s right, zero down and the borrower’s don’t have to be a veteran or member of the Armed Forces. The United States Department of Agriculture addressed the needs of those seeking financing in rural areas. Over the years the loan has been known by other names but in the 1990s the program was refined and is known today as the USDA home loan. You won’t be able to use this zero money down loan in a suburban area densely populated area like Chicago, but you might be surprised at where the USDA loan can be used.
In Illinois the borrower’s monthly income can be no greater than 115% of the median income for the area. The income used for this calculation includes not only those on the application but the income from all who will occupy the household. Also note, this 115% calculation is used after adjust gross monthly income for certain withholdings such as estimates for taxes and social security. As long as the income meets this requirement, the borrowers can be eligible for a USDA mortgage. Income limits can vary by county and household size.
How does a USDA lender know if a property is located within an acceptable area? It’s not because the property appears to be located in a rural or semi-rural area. Instead, the property address must be located within an area previously approved by the USDA. These areas are taken identified every 10 years as the Census Bureau compiles new demographic data. The USDA lender or the potential buyer can visit the USDA site, enter the address and the site will say whether or not the location qualifies. And because the information is updated once every decade, suburban sprawl can in fact include acceptable areas up until the next census is taken.
Both the property as well as the borrower must qualify. If the median income for the household meets the 115% requirement yet the selected property is not located with an approved zone, the USDA loan is not an option. Conversely, if the property is located with an approved area but the income exceeds the maximum, another loan option must be used.
Another feature about the USDA program refers to the loan guarantee lenders receive. As long as the lender uses proper USDA guidelines and the loan ultimately goes into default the lender is compensated for the loss. This guarantee to the lender is financed with a guarantee fee at the initiation of the mortgage and an annual mortgage premium. The upfront premium is 1% of the sales price and the annual premium is at 0.35% of the outstanding loan balance paid in monthly installments. The upfront fee is rolled into the initial loan amount and is not paid for out of pocket.
For buyers who want to finance a purchase in a rural or semi-rural area approved by the USDA and want to come to the settlement table with as little cash as possible, the USDA loan really has no peer. Interest rates are extremely competitive for the USDA home loan and can compare with most any other mortgage program. Homebuyers that have questions can call us at ph: 800-691-8826 or just submit the Quick Contact Form.
We are happy to serve home buyers across the country including Illinois: Aurora, Rockford, Joliet, Naperville, Springfield, Peoria, Elgin, Waukegan, Cicero, Champaign, Highland, Madison County, Bloomington, Arlington Heights, Evanston, Decatur, Schaumburg