Misconceptions About USDA Loans

Misconceptions About USDA Loans

November 19, 2013

There are many misconceptions about USDA loans and few lenders who understand them. This causes many borrowers to think they don’t qualify for a mortgage, when actually they do. The mission of USDA Rural Development Loan Program is to assist rural home buyers to achieve their dream of homeownership with affordable interest rates and achievable loan terms.
Misconception: USDA Loans are just for low-income borrowers.
One of the most common misconceptions about USDA loans is the income limit put on the borrower. Many think it is just for low-income borrowers, when in reality, that is not the case. The USDA requires that borrowers cannot exceed 115 percent of the area median income, but also must meet the ability-to-repay requirements typical of any mortgage loan.
There are two types of USDA single-family housing programs: Guaranteed Housing Loans and Direct Housing Loans. The USDA Guaranteed Housing Loan Program has loans that are issued by approved lenders throughout the country, and then guaranteed by the USDA. The average USDA Guaranteed borrower has an income of about $46,000 annually. The Direct Housing Loan Program is a subsidized program administered by the USDA itself and is aimed at low-income to very-low-income borrowers. The average income of a USDA Direct borrower is around $27,000 a year.
Misconception: No downpayment? There must be a catch.
Due to the program offering 100 percent financing, many borrowers think there are underlying factors involved. In reality, the USDA program is the only non-veteran loan that offers 100 percent financing. Borrowers do not need to have perfect credit to qualify and USDA takes payment history into account during the underwriting process.
Misconception: I don’t want to live on a farm.
When many borrowers hear the word “rural,” they think of farm areas. USDA loans cannot be used on working farms—only for housing. USDA housing loans are restricted to designated eligible rural areas, which generally mean communities with populations of 20,000 or less. USDA is creating loans all across the country, including suburban towns that are anything but rural. In fact, in some states, the vast majority of the state is eligible for USDA loans.
Many find this program to be “too good to be true” but it is just a good, wholesome, old-fashioned program designed to help rural homebuyers. To learn more or to see if you are eligible, please visit: http://eligibility.sc.egov.usda.gov/

With more than 25 years in the mortgage industry, Rich Obermeier, branch manager for GSF Mortgage Corporation, has worked with some of the largest mortgage companies in the county developing retail and wholesale channels. Rich has assisted in developing and implementing operational protocols for sales managers, originators and loan processors. In recent years, Rich has developed the USDA Rural Development Product in multiple states and locations. Rich may be reached by phone at (262) 957-8901 or e-mail robermeier@gogsf.com.