A Rural Development Loan, or also called USDA 100% loan, is offered and insured by the Department of Agriculture. It allows prospective buyers to finance their home without having to save up for a down payment or other costs associated with closing the sale. Moreover, there is no limit for the loan, nor do you have to buy mortgage insurance (PMI).
The USDA is not really funding these loans; instead, it guarantees them so that the interest rates can be fixed low. What many are not aware of is that this loan is not just available to those living in rural areas. Those living in small cities with a population of up to 25,000 may also avail of the loan. Other than the location, the credit rating is also another factor to be considered when applying for this loan.
Benefits Of A USDA Loan
Those applying for this loan might not have a lot of savings or free cash monthly, so the first benefit of this loan is that people save money on closing costs and PMI. Closing costs, specifically, can be very high. The closing costs or down payment can be included in the loan balance and paid over time. Thus, they can use their extra money for their needs and other maintenance-related expenses.
Another benefit is that buyers can purchase a fixer-upper and include the money needed for repair in the loan. Afterward, the resale value goes up and the homeowner can build equity in a faster way.
Compared to conventional loans and even the FHA loan, the interest rates can be much lower, thanks to the fact that it is guaranteed by the government. Over the course of the 30 years you will need to repay the loan, you will not have to pay a lot for interest.
The USDA loan does not require a down payment at the beginning, unlike other loans out there. This makes purchasing a home much more accessible for those who have not been able to save money for the down payment. Beyond that, buyers can also opt for an upgrade, and purchase a house that is more expensive. These 30-year fixed rate loans do not have a pre-payment penalty, allowing the homeowner to be flexible in planning for the future.
The last benefit of this loan is the fact that the majority of people, so long as they do not live in the city, are qualified. Once they find out that they are eligible for this loan, they will end up with one of the best ways to finance their home.