Way back In 1991 the US Department of Agriculture (USDA) began offering government insured loans called Guaranteed Rural Housing. These loans were designed to encourage potential home buyers to live in “rural” and “suburban” areas. They did this to promote growth and bolster local economies in these less populated areas by making land and homes more affordable. Generally these areas had populations of 15,000 or less.
USDA doesn’t actually lend the money on these loans. However, they do insure these loans against loss from foreclosure. They establish what minimal guidelines must be met by a Buyer to be eligible. The Lenders who offer the USDA loans must follow these guidelines in order to have USDA issue the guarantee.
The USDA loan is available in the following Counties here in DE:
- New Castle (limited eligible areas)
- Kent (only a few non-eligible areas)
- Sussex (the entire County is eligible)
Why a USDA Loan?
There are some incredible benefits of getting a USDA Loan. Check out these highlights:
$0 DOWN PAYMENT : For starters, most home loan programs require at least some money down from the Buyer. But not USDA. It allows you to finance 100% of the Home’s purchase price!
FLEXIBLE CREDIT GUIDELINES: Unlike Conventional loan programs which require excellent credit, the USDA program is more lenient. You just don’t need perfect credit! You can have a middle credit score as low as 620. (If you not quite at the 620 mark…we can offer guidance to help you get there.) The program is going to require you have no 30 day late payments on your credit in the last 12 months. You must be 36 months from the discharge of a Bankruptcy, Short Sale or Foreclosure (if applicable). Collections typically need to be paid off…however, Medical collections offer some exceptions.
GREAT INTEREST RATES: USDA loans offer low, fixed interest rates competitive will all of the other loan programs out there. Having a “fixed” interest rate will insure that your principle and interest payment will NEVER go up.
ROLL IN YOUR CLOSING COSTS: When you purchase a home, you will incur “closing costs” associated with that purchase. Attorney’s Fees, transfer taxes, recording fees and escrows are just some of these fees. Usually totaling 4.5 to 5% of the sale price of the home. And USDA will allow the Seller of the Home to pay all of these costs for you at Settlement!
Am I eligible for a USDA Loan?
The USDA loan has some basic qualifying guidelines and 2 eligibility restrictions:
Basic Qualifying Guidelines:
- 24 month consistent work history.
- Doesn’t have to be with the same Employer
- Minimum middle credit score of 620 for any Borrower on the loan
- No 30 day delinquencies on credit in the last 12 months
- Verifiable rental history is very helpful, particularly for those with lower credit scores
- Savings is “not required” in most instances. However showing the ability to save money in the bank, IRA, 401k, pension or other investment accounts is a plus!
- If you have had a Bankruptcy, you must be 36 months from the date of discharge. And it is very important that you have re-established credit.
- If you have had a Foreclosure or Short Sale, you must be 36 months from the date the title of the home was taken out of your name.
- Collections will typically need to be paid off. However medical collections may be an exception.
There are 2 areas of Eligibility Restriction. One is income and the other is the geographic location of the home you want to buy. The income restriction will limit the amount of household income based on the # of people living in the home (parents, children, grandparents, etc) and the County in which the home is located. The geographic restriction limits the eligible areas for the home to the less developed areas. Highly populated areas like Wilmington and Newark are not eligible. Refer to the chart below.