Contrary to popular belief, Indiana isn’t just cornfields and long winters. Hoosiers enjoy a low unemployment rate, low taxes, and a low cost of living.
While Indiana has pockets of growing metro areas, there’s still tons of rural land. This unlocks the option of a special type of home loan that can save you tons of time and money upfront.
If you prefer a slower way of life and are looking to buy a home in this cozy Midwest state, a USDA home loan could be a great option for you.
Keep reading to find out more about this program, perks of a USDA loan, and how to determine if it’s right for you.
What is a USDA Loan?
Short for U.S. Dept for Agriculture Loan, the USDA Loan is a government-backed loan program for anyone looking to live in a rural area and/or is struggling to build a down payment.
USDA loans can come in two different forms, and it’s important to understand which one is best for your situation.
Guaranteed VS Direct USDA Loans
Guaranteed
- 100% Financed through an approved bank, mortgage company, or credit union
- Approves households with low to moderate income
- Funds are available upon loan approval
Direct
- 100% Financed directly through the USDA
- Caters to low to very low income households
- May take longer to receive funding for USDA loan
To learn more about the right choice for you, feel free to reach out to a First Option Mortgage lender today.
Why You Should Consider a USDA Loan
No Money Down
As we stated before, USDA loans are 100% financed. That means NO down payment needed. This is perfect for someone with a great income, good DTI and credit but may have trouble accumulating a down payment.
Best Mortgage Insurance and Interest Rates
Not having a sufficient down payment means you have to pay PMI on top of your mortgage payment. This is also true in the case of a USDA loan, but you can expect lower rates and in some cases have it rolled into the loan.
USDA loans also usually have lower rates than even the lowest conventional loan. With the state of the housing market these days, just a one-digit difference in your rate could save you hundreds a month.
Can You Roll in Closing Costs on a USDA Loan?
Rarely, but it can be done if the home appraises for more than the market value. This is the opportune time to adjust the loan amount and roll in the closing costs. Otherwise, the buyer must pay out of pocket, receive gift funds, or negotiate with the seller.
Homebuyers should expect to pay some out-of-pocket expenses, especially in a competitive market. Closing costs usually are 2% – 6% of the home’s value.
The Downsides of a USDA Loan
USDA loans feature many benefits, but there are some trade offs to consider. Since the down payment would be covered by a third party, the buyer starts with little to no equity in the home.
Aside from that, there are a few other factors to be aware of.
Income Caps
Not to be confused with the fact that there is NO loan limit, there is a limit on how much you can afford, and how much you make can impact your eligibility. USDA loans are for low to moderate income buyers, which would be 115% of their area’s median household income.
Location Based
You don’t have to live in the middle of nowhere for your home to be considered “rural”. It’s all based on the population in the area of the property. In the case of Indiana, a population under 5,000 people is considered rural.
Additional Fees
While USDA financing foots a huge portion of the bill, buyers should expect to bring some money to the transaction and budget for extra costs per month.
- Closing Costs: This would come up to 2% – 6% of the home value. These costs can be negotiated with the seller.
- Guarantee Fee: Typically 1% of the loan amount as a one-time fee paid upfront to the USDA loan upon the home purchase.
- Annual Fee: The USDA loan will come with an annual mortgage insurance fee which will add up to about .35% of the loan. This annual fee will be divided into 12 monthly payments per year.
Must Find a Lender that Approves USDA Loans
Not all financial services will accept USDA loans, so it’s imperative to do your research before applying for this loan.
First Option Mortgage is a lender that is more than happy to help you apply for a USDA loan today.
USDA Loan Requirements
While you don’t have to be a first time homebuyer to qualify, duplexes and investor properties are not eligible for this loan type.
If you’re on the market for a single family home in the country, here are a few other guidelines to know beforehand.
What is the Income Limit for a USDA Loan in Indiana?
For households with 1-4 people, the combined annual income limit for Indiana is $103,500 a year (before taxes). For 5-8 person households, the income limit is $136,600.
Any minors or live-in aides/nurses do not count towards this number. For more information, speak to a home loan specialist to see if you qualify.
Credit Score
You can have a minimum 500 credit score and still qualify for zero money down. However, if you have a lower credit score than that, you may still qualify for the loan but will be required to provide a 10% down payment.
Is a USDA Loan Right for Me?
This loan type has tons of benefits and you can save quite a bit of money upfront and get into a house sooner. However, you’ll be limited to a specific geographic location.
If you like the city, living within a short distance from everything you want or need, or don’t want to restrict your options, then consider an FHA loan or conventional loan instead.
If an FHA or conventional loan makes more sense for you, yet you lack the funds for a down payment, there are assistance programs available to help make homeownership within reach. However, never expect to get a house for no money at all.
For more information on home loans and payment assistance programs, First Option Mortgage is here to answer any questions you may have.
