Want A Lower Mortgage Rate? Apply For A USDA Home Loan
Purchasing a new home represents a big financial commitment. To ensure that you are keeping the amount of money you repay on a mortgage loan to a minimum, it's in your best interest to seek out the lowest available home loan rates in your area. For many potential buyers, applying for a loan through the USDA's Rural Housing Program is the easiest way to achieve the best mortgage rate possible.
Here are three things you need to know in order to ensure your loan application is a success.
1. The home you are purchasing must be in an area the USDA has classified as rural.
When asked to picture a rural area, many people think of isolated farms. Fortunately, the USDA has a broader definition of the word "rural," since financing is only available through the USDA's Rural Housing Program for properties that fall within rural areas.
Eligible homes cannot be located within an urbanized area (population of 50,000 or more) or in an urban cluster area (population of 2,500 to 50,000). Many suburbs and small towns fall into the rural category, and purchasing a home in these areas means you are eligible to enjoy the low interest rate associated with a USDA home loan.
2. You must meet strict financial requirements before being eligible to receive a USDA home loan.
Because the money issued through USDA home loan programs comes from the government, applicants must meet strict financial requirements in order to be eligible to receive funds. Before you apply for a USDA home loan, add up your current debts.
The debt payments you make each month cannot exceed 41% of your total monthly income. If your debt-to-income ratio is higher than 41%, you should work to pay off some of your debts before trying to take advantage of the low interest rates associated with USDA home loans.
3. If you don't have enough money to cover closing costs, you can accept monetary gifts from friends or family members.
Whenever you take out a mortgage loan, you will be expected to pay closing costs before taking possession of your new home. Closing costs include fees for things like credit reports, appraisals, and title searches, and typically run between 2% and 5% of the total purchase price of the home.
If you cannot afford to pay for the closing costs yourself, obtaining a USDA home loan will allow you to accept financial help from friends and family members in the form of a gift. Many lenders don't allow gifted funds to be put toward the purchase of a home, so having this option makes a USDA home loan desirable.
When you want the lowest mortgage rate possible, it's beneficial to apply for a USDA home loan. Before sending in your application, be sure that you meet the geographic and financial standards associated with USDA home loans, and be sure to let your loan officer know if you will be using gifted funds to cover your closing costs.
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