USDA loan for single moms is a mortgage option available to eligible rural homebuyers. This zero-down payment mortgage is designed exclusively for low-income borrowers, including single moms. It provides them many perks, such as competitively low rates and reduced mortgage insurance. The United States Department of Agriculture issues USDA home loans through the Rural Development Guaranteed Housing Loan Program. This home loan assistance program is a practical pathway for single moms and potential homebuyers with low income or credit scores. This mortgage assistance enables single mothers to purchase homes in rural regions. Using a USDA loan, low or moderate-income individuals can purchase or refinance an existing house at lower rates.
What Is The USDA Loan For Single Moms?
The United States Department Of Agriculture 1991 implemented the Single-Family Housing Guaranteed Loan Program to encourage homeownership among rural Americans. This loan program offers financing to low-income households, including single moms, with strict income requirements. Applicants who want to be eligible for this program need to make sure that they are purchasing a property in a specified rural area having a population of less than 35,000. Single moms with low credit scores can be eligible for USDA loans, and the best thing about this mortgage assistance is that there is no need to make a down payment.
Low or moderate-income buyers, especially single moms not qualifying for conventional mortgages, can easily apply for a USDA government-backed loan with less stringent requirements that enable them to purchase, renovate, or construct homes in specified rural areas. During the fiscal year of 2019, USDA lenders issued $100,000 in loans under this home loan program. USDA mortgages are a convenient option for many low-income home buyers because they do not require a downpayment and come with low-interest rates. The payback periods for USDA loans can also be stretched to 33 or 38 years for low-income applicants. The USDA guarantees nearly 90% of the home loan if the borrower defaults.
What Are The Different Types Of Mortgage Programs Under USDA?
USDA home loan is available to first-time and repeat home buyers who can use 100% of the loan to finance their home purchase dream. Unlike other mortgages, USDA home loans do not require a down payment, and borrowers can take out a fixed-rate home loan as this mortgage assistance program enables adjustable-rate mortgages. Following are the main mortgage programs that are covered under USDA.
1. Single Family Housing Direct Home Loans
This loan program is designed to help low and highly low-income borrowers quickly obtain mortgages. The house they’re planning to purchase would be located in an approved rural area. They also have to meet the income requirements as stated by USDA. The income and other eligibility criteria of these loans may vary depending on the location. The Single Family Housing Direct Home Loan Program is a 33 years repayment loan program that can extend to 38 years for qualified low-income borrowers.
2. Section 502 Guaranteed Rural Housing Loan
These loans are for low and moderate-income applicants who can receive 100% financing on their properties and make no down payment. The repayment term for these loans is a generally 30-year fixed-rate term only. Similar to Direct Home loans, applicants for Section 502 Guaranteed Rural Housing Loan also have to meet the property and income requirements as stated by the USDA. They should be purchasing a home in an eligible rural region.
How Can Single Moms Qualify For USDA Loans?
There are a lot of eligibility requirements that single moms have to fulfill to be eligible for USDA home loans. Applicant requirements for USD loans are as follows:
- Should be without a safe, decent, and sanitary housing
- Be legally able to obtain a loan
- Must not be in a position to obtain loans from other lenders because of stringent requirements
- Must occupy the property that will serve as their primary residence
- Must meet the citizenship or qualified noncitizen requirements
- Must meet all the income eligibility criteria based on the location
- Must not be barred or suspended from participating in federal loan programs
Besides the applicant requirements, single mothers and other homebuyers also have to meet the property requirements stated by the USDA, which include the following:
- Must buy a property less than 2000 square feet
- Must be looking to purchase a property in a rural area having a population of less than 35,000
- The market value of the property must be less than the loan limit of the applicable area
- Property must not be designed for income-producing activities
- The property should not include an inground swimming pool
An ideal USDA home loan candidate is someone willing to live in a qualified rural area in their county or city and wants to move or maintain their home in the rural region. This is a suitable choice for a lot of low-income home buyers who are unable to qualify for home loans from other sources with strict eligibility requirements. Generally, the borrower should meet the following qualities to be eligible for a USDA home loan:
- Must have a minimum credit score of 640 to get a streamlined loan processing experience
- Willingness to go through strict requirements and stringent underwriting standards
- Have an employment record for a minimum of two years
- Have a debt-to-income ratio of less than 41%
Interest Rates On USDA Home Loans
Qualified borrowers seeking USDA home loans to fulfill their dream of becoming a homeowner should take a fixed-rate loan for 15 years or a 30-year repayment period. USDA home lenders will determine the rate of interest based on many factors like employment history, credit score as well as the financial situation of the applicant. Single mothers who want to take out a USDA loan should remember that they will have specific closing costs even if they are not required to make a down payment. The closing costs include the charges of finalizing a mortgage deal. The amount which you need to pay will depend on your location. However, it is generally 1% to 3% of the loan amount. To get the lowest possible interest rate on your USDA loan, you need to maintain a low DTI ratio and have a high credit score. Single moms can enjoy an interest rate as low as 1% if the home loan is modified with the help of payment assistance. To learn more information about the current interest rate for USDA home loans and the application process, you can visit the official website of the United States Department Of Agriculture.
What Are The Advantages Of Obtaining USDA Home Loans?
For single moms and many low-income home buyers, USDA loans are among the best alternatives for traditional mortgages or government-backed programs like VA or FHA loans. The advantages of obtaining USDA home loans are as follows:
1. Low Credit Scores
There are no minimum credit score criteria for borrowers to qualify for USDA loan programs. Single moms who have low credit scores and are unable to borrow funds from other sources can apply for USDA loan programs. However, as a borrower, you must demonstrate the willingness and ability to repay the loan within the stipulated time frame.
2. Can Obtain a Loan Even With Damaged Credit History
Single mothers often cannot qualify for additional mortgages because of a low credit score that reflects a poor or damaged credit history. USDA uses a guaranteed underwriting system to learn if a borrower can qualify for a home loan. This system helps to review applications and help needy borrowers.
3. Zero Down Payment
Unlike other home loan programs, borrowers need not pay down payments for USDA home loans. A hefty down payment which is around 20% of the home purchase process, is a barrier for a lot of low-income people, including single moms who are looking to purchase a home.
4. Low Rates Of Interest
USDA loans have lower rates, unlike FHA or other conventional loans. This is good news for single moms and borrowers with low credit scores since they can receive the same funding that other borrowers with excellent credit scores will receive.
5. Low Origination Fee
By reading USDA loans, borrowers have to pay a guarantee fee of around 2% of the loan amount. This fee is not required to be paid upfront and will be rolled into the mortgage loan amount.
6. Streamline Refinancing Procedure
The streamlined refinancing program of USDA helps speed up the loan application, and homeowners will need only three weeks to refinance their mortgage. As a borrower, you also need not have any credit reports, property inspections, or home appraisals, which will help to save a lot of time and money.
What Are The Downsides Of Obtaining USDA Home Loans?
As you know the positive sides of USDA loans, it is also essential to weigh certain drawbacks that come with USDA loans. Following are some downsides of USDA loans which borrowers will not encounter with other government-backed programs like VA and FHA or conventional mortgages.
1. Vacation Homes Or Second Property Not Allowed
USDA home loans should be used for purchasing a property that will be the borrower’s primary residence.
2. Geographical Requirements
Single moms who are considering USDA home loans have to make sure that they are purchasing a property in an eligible rural area having a population of 35,000 or even lesser. In addition, the property cannot be used for any income-producing activities.
3. Income Limitations
Borrowers, including single moms, have to meet specific income criteria based on their location. Single mothers who exceed the loan limits will be disqualified for USDA home loans.
4. Upfront Fees Included In USDA Home Loan
An upfront fee for Guaranteed USDA loans has to be paid by borrowers or have the fee enrolled into the mortgage loan amount. This upfront female costs you thousands of dollars depending on your loan amount.
5. Streamlined Refinancing Limitations
To qualify for refinancing, borrowers have to showcase a record of 12 consecutive on-time mortgage payments, and the home should be their primary residence. This home loan program applies to mortgages having 30-year terms and is also not available to all states in the USA.
How To Choose USDA Mortgage Lender?
Just like any other mortgage, single moms and other low-income home buyers need to take time and locate the right USDA-approved lender. This way, they can compare the options for low-income who offer USDA home loans. If you are acquainted with someone who has already worked with the USDA lender previously, then they can recommend you a suitable lender. As you shop around, you must compare the repayment term standard interest rates and fees charged by the USDA lender and other eligibility requirements to get the best deal. Identifying a USDA lender which suits your needs will help you a long way.
USDA is one of the largest government-sponsored entities that encourage homeownership in rural areas and helps potential home buyers seeking financial support to fulfill their home ownership goals. Single moms who are facing financial challenges and are unable to obtain home loans from other sources can benefit the best through USDA. Compared to other real estate ownership programs, USDA home loans come with less stringent requirements in terms of credit scores and zero down payment assistance.