USDA Home Loans
What Are USDA Home Loans?
USDA mortgages are a great way for rural homeowners to get up to 100% financing — and several other benefits — on a new home! Whether you’re looking to buy, build, repair, renovate, or even relocate a home, a USDA rural home loan from Justin Bush Mortgage Team can help you make your homeownership dreams come true.
Buying a home is now well within reach for rural residents thanks to USDA rural home loans. The mission statement of the USDA home loan program is “to improve the economy and quality of life in rural America.” It was created by the U.S. Department of Agriculture to assist low and very low income applicants in obtaining decent, safe, and sanitary housing in eligible rural areas. The housing provisions set in motion by the USDA mortgage program encouraged rural homeownership by providing payment assistance to increase an applicant’s repayment ability. The payment assistance provided by USDA rural home loans is a type of subsidy that reduces the mortgage payment for a short time, and the amount of assistance is determined by the adjusted family income.
How the USDA Home Loan Program Works
To ensure the USDA loan process works as intended, the USDA will determine income restrictions depending on the area in which an applicant wishes to purchase a home.
Loan underwriters are responsible for looking at the applicant’s gross income, income from any co-applicants, and any other adults who plan to live in the household.
A loan underwriter will analyze the specifics of the applicant’s income and financial background.
The applicant will need to submit copies of at least two years of IRS tax filings.
The main requirement in securing a USDA mortgage is to show a clearly visible history of steady income.
Self-employed applicants may need to provide three years of tax returns to establish a clear track record of average income.
Background and History of USDA Home Loans
People often wonder why the U.S. Department of Agriculture is involved with rural housing programs. The answer to this question goes back to the New Deal, as well as efforts in the 1930s and 1940s. The goal of the USDA mortgage program is to provide a better standard of living and a path to homeownership for rural residents. During the early 20th century, very few rural homes in the United States had indoor plumbing or electricity, and poverty was at an all-time high. Before the creation of the FHA and the Housing & Urban Development (HUD) programs, the U.S. Housing Act of 1949 created what would eventually be the first consumer USDA rural home loan program. This new program then placed direct responsibility at the USDA for appropriate funding. USDA financing was initially used for on-farm housing, however non-rural farm financing was eventually added in order to round out the program’s coverage.
The Housing Act of 1949 declares that every American deserves a “decent home and a suitable living environment.” Housing in a post-World War II era was in short supply, and many cities had houses that were in rapidly-deteriorating condition. To meet the goal of better and more-abundant housing, the following provisions of the Housing Act set the framework for the creation of the USDA home loan program.
Title 1
Title I of the Housing Act financed the clearance of slums under urban redevelopment and renewal programs.
Title II
Title II of the act increased authorization for Federal Housing Administration mortgage insurance.
Title III
Title III committed the U.S. government into building 810,000 new public housing units by 1955.
Title V
Title V of the act gave authorization to the Farmers Home Administration to grant mortgages for the purchase or repair of rural single-family houses. Title V also authorized financial assistance in rural areas to farmers, owners, developers, and elderly persons for the purchase of rural property and the construction of adequate housing, insurance on various loans, and financial assistance for rental housing for farm workers.
The provisions of these titles were strongly influenced by the individual cities and their respective suburban areas. The Housing Act also recognized the shortages of readily-livable housing that characterized much of rural America. Through the Rural Housing Insurance Fund Program, established by the Housing and Urban Development Act of 1965, USDA mortgages can provide a path for rural home purchases, repair, and more. For the first time in U.S. history, the federal government was in charge of constructively shaping U.S. urban and suburban areas. As a result, state and local policies changed considerably. These changes affected social welfare programs, race relations and economic development decisions in addition to housing. The Housing Act of 1949 was significant and broad in its creation of a new federal role, but it was also instrumental in in establishing housing as a central policy focus. The act was instrumental in creating the modern USDA financing programs that make the American Dream of home ownership possible for millions of rural Americans across the country.
USDA Loans Information and Statistics
USDA mortgages are designed to help spur homeownership in rural areas.
The program provides “supervised credit,” including pre-loan and post-loan credit counseling to its borrowers to help them maintain their homes during financial hardship.
The U.S. government guarantees 90% of the USDA mortgage principal as an encouragement to private lenders to make loans available to rural residents whose incomes range from 80% to 115% of the median county income.
A USDA home loan may be up to 100% of market value or acquisition costs, whichever is less.
USDA financing primarily benefits rural areas nationwide. The highest U.S. areas that receive benefits (in per-capita dollars) are in low-income areas.
USDA rural home loan programs have built or assisted more than 4 million units since their creation.
In 2014, the USDA invested almost $20 billion to help nearly 140,000 families buy and improve their homes.
The largest and oldest low-income USDA mortgage program is the Section 502 loan for homeownership.
The Section 502 USDA home loan has helped more than 2.1 million low-income families become homeowners.
The Section 502 guaranteed loan program has financed more than 120,000 mortgages a year since its creation.
The most important feature of USDA rural home loans is that they allow for 100% financing of an eligible home’s purchase price. Federal Housing Administration (FHA) loans, by comparison, require a minimum of 3.5% down payment, adding thousands of dollars in upfront expenses that rural Americans simply can’t afford. The no money down feature of a USDA mortgage has provided many rural residents with the ability to buy a home who would otherwise be locked out of homeownership. USDA rural home loans only have one financing choice: a 30-year fixed rate mortgage. This program is the safest and most-proven mortgage term for USDA home loans. Limiting the program to this loan term improves the success of the program and ensures its availability to rural Americans in the future. Buying a home is one of the largest investments in a person’s life. A home is more than a financial investment¬¬ — it’s an investment in your share of the American Dream. The USDA home loan program works hard to provide a path to homeownership for eligible rural borrowers.